Banco Bilbao Viscaya Argentaria Q2 2025 Earnings Report

Banco Bilbao Viscaya Argentaria EPS Results

• Actual EPS: $0.52
• Consensus EPS: $0.47
• Beat/Miss: Beat by +$0.05
• One Year Ago EPS: N/A

Banco Bilbao Viscaya Argentaria Revenue Results

• Actual Revenue: $10.30 billion
• Expected Revenue: $10.24 billion
• Beat/Miss: Beat by +$65.03 million
• YoY Revenue Growth: N/A

Banco Bilbao Viscaya Argentaria Announcement Details

• Quarter: Q2 2025
• Date: 7/31/2025
• Time: After Market Closes
• Conference Call Date: Thursday, July 31, 2025
• Conference Call Time: 3:30AM ET

Banco Bilbao Vizcaya Argentaria, S.A. 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 Viscaya Argentaria Q2 2025 Earnings Call Transcript

Key Takeaways

• Positive Sentiment: BBVA reported a record net profit of €2.75 billion in Q2 and €5.45 billion for the first half, driving a 20.4% return on tangible equity.
• Positive Sentiment: The Common Equity Tier 1 ratio rose by 25 basis points to 13.34%, and regulatory model simplification is set to release an additional 40–50 bps of CET 1 capital.
• Positive Sentiment: Loans grew by 16% year-over-year (Spain +6.3%, Mexico +11.7%) while core revenues rose 11.7%, prompting management to upgrade full-year guidance on lending and net interest income.
• Positive Sentiment: Operational discipline lifted the efficiency ratio to a record 37.6%, with costs growing 10%—below average inflation—producing positive jaws on revenue versus expense growth.
• Positive Sentiment: Medium-term targets include ~22% average RoTE, mid-teens compounded tangible book value growth, a 35% efficiency ratio by 2028, and €48 billion cumulative net profit through 2028.

Presentation

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Good morning, and welcome, everyone, to BBVA's quarterly audio webcast. As in previous quarters, I'm joined today by our CEO, Anor Gent and the group CFO, Rizago McDabon. Today, along with the second quarter results, we are also announcing the group's midterm goals. Accordingly, we will dedicate the first part of the call to reviewing the quarterly figures and then move on to our strategic objectives. Finally, we will open the line for your questions. So without further delay, I turn over to Anno.

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

Thank you. Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining BBVA's second quarter twenty twenty five earnings webcast. As Patricia mentioned, we have two things today: the second quarter results, as always, and we also have medium term objectives at the end of the presentation.

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

So let me start with the second quarter results and starting with Slide number three. You can see in the quarters the strong evolution of tangible book value per share plus dividends on the left hand side of the page, which increased 14.6% year over year and 2.9% in the quarter, very good figures despite the relatively high currency depreciations in the quarter. On the right hand side, you see our profitability. Our profitability continues to improve and rises to an outstanding return on tangible equity of 20.4% and the return on equity of 19.5% in the first six months of 2025. On Page number four, on the left hand side, another very strong quarter for net attributable profit, reaching EUR 2,749,000,000.000.

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

And despite the falling rates in our core markets, which obviously negatively impacts our results, and despite the currency headwinds, we have managed to sustain our record profit levels. In this profit figure, there are two extraordinary items that I want to make you aware of, which affect the Spanish business unit and the holding, the corporate center only, in different accounting lines. But to be specific, first, in the second quarter, we have closed a tax audit process in Spain covering fiscal years 2017 to 2020. This tax audit, it resulted in some positive impacts, leading to the release of some fiscal provisions affecting the tax rate. So the tax line item is affected from this.

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

And also a review of VAT, the value added tax payment calculations. This letter, the VAT topic, it has a positive impact on the operating expenses lines in Spain and then the corporate centers. And then the second extraordinary item to note is the negative NTI impact of U. S. Dollar hedges that are in place to manage the volatility of our CET1 ratio, as you all know.

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

The impact was obviously relatively high this quarter due to U. S. Dollar depreciation against euro. And starting from this quarter, third quarter twenty twenty five, the hedges will be accounted for under capital rather than P and L. So the total net attributable profit impact of these two items were approximately positive EUR 150,000,000 in the bottom line at the net attributable profit level, EUR 150,000,000 extraordinary impacts.

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

Also on this page, on the right hand side of the page, you see our CET1 capital ratio, which improved with an exceptional 25 basis points during the quarter, reaching 13.34%. We have very positive news on capital, which I will explain in detail later on. To elaborate further on profitability on Page five. Our first half profits continued their upward trend on the left hand side, reaching €5,447,000,000 in 2025. This represents a 9.1% increase year over year, leading to a new record in our semestral profits.

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

As compared to our peers, on the right, our 20.4% ROACE return on tangible equity And this trend, more important to me is the trend, it remains unmatched. With these figures, we are clearly one of the most profitable banks in the industry. Moving to Page six. This page is a summary of the pages to follow, where I will talk to you about activity, revenue growth, costs, asset quality, capital and the execution of our strategy. So please allow me to directly move to the next slide, Slide seven.

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

As always, the summarized P and L of the quarter. I would highlight in this page the robust evolution of the core revenues in constant euros with net interest income and fees growing 1118% year over year, respectively, and 4% each quarter over quarter as well. Slide eight, the summarized P and L of the first half. I would once again highlight the positive core revenues and the gross income evolution, which increases in gross income 20% in constant euros year over year. The strong gross income growth, coupled with the positive jaws and the limited growth in the impairments, it led, obviously, to an outstanding net attributable profit.

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

Some more light into the revenue breakdown on Slide nine. I'm trying to pick up my speed because we have a second chapter to talk to you. So very quickly on this one. What is important to highlight in this page is not the numbers per se, but it is the consistent quarterly improvement in net interest income and net fees and commissions. And despite the macro context and falling interest rates, as we mentioned before, we have managed to grow our core revenues, which is very important to us.

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

The only trend breaking number in the quarter is the net trading income. As mentioned before, this quarter, we have recorded a negative impact from the mark to market of FX hedges, in particular related to the U. S. Dollar hedges that are in place to manage the CET1 ratio, as I mentioned, and that comes in the holding in the NTI line. And despite all of this, the gross income, it grows 11.7% year over year and 10.7% quarter over quarter.

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

Moving to Slide 10. A bit more focused on activity and loan growth, which has increased at group level to an impressive 16% year over year. This is in our standard, it's an exceptional growth figure. It's very good news for the coming quarters in my view since we delivered this growth in a profitable manner, measured by return on capital metric on a loan by loan basis in every single country in every single segment. In Spain, loan growth remained very strong, 6.3% year over year, while Mexico maintained an excellent double digit loan growth at 11.7% year over year.

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

These numbers will lead us to improve our guidance on activity today for both geographies. Lucia is going to talk to you about it in a second for both countries. As you know, although we have been proactively managing it, we are still rate sensitive in both Spain and Mexico. And despite the fact that we have seen significant reduction in market rates lately, our robust activity growth more than compensated for spread compression. As a result, we continued expanding our core revenues with 2.2% year over year increase in Spain and 9.6% increase in Mexico.

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

Similarly, we have beaten expectations and managed to grow our core revenues in both countries in the quarter as well. Slide 11. On the left hand side of the slide, we continue showing positive jaws at the group level, thanks to the good performance of gross income, as I mentioned before, growing almost 20% year over year, while costs are growing at 10% below the group's footprint average inflation, as you see on the page. And on the right side of the slide, you can see our efficiency ratio, which shows an outstanding improvement to 37.6%. If you exclude the VAT related impact, the extraordinary impact that I talked to you on the results page, if you exclude that VAT impact on costs, the efficiency ratio would have been 38.6%, still at record.

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

Slide 12. This page shows the positive evolution of our asset quality metrics, which are performing better than expectations in a context of strong activity growth, in a context of growth in the most profitable segment. On the left hand side of the page at the bottom, our cost of risk stands at 132 basis points, quite aligned to last quarter and better than, again, our end of year estimate. Meanwhile, on the right bottom, both our NPL and coverage ratios, they remain close to last quarter levels, so stability. Slide 13, important page in my view.

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

On capital, as I mentioned before, we have some amazing news for this quarter and beyond. First, we had a very strong quarter, as we mentioned, increasing our CET1 ratio by 25 basis points to 13.34%. The ratio was helped by some one offs, which I will explain in a second. But even at the business as usual level, even in the context of record activity growth, we continue to accumulate capital organically. So following the waterfall on the page, main impacts of the quarter are: results, 69 basis points dividend accrual and AT1 coupons, 37 basis points deduction Then 41 basis points due to the RWAs growth.

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

This figure reflects our ability, once again, to reinvest part of our capital generation into profitable growth. And also, this number includes the result of several risk transfer transactions, SRT's as we called, as you know, which positively contributed in this figure 10 basis points to the ratio in the quarter. Then we have a bucket of others, 17 basis points. As always, two things here, the market related impact and the credit in Aussie for hyperinflationary countries. And lastly, in the waterfall, you have a one off bucket of 70 basis points, which includes two components.

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

First, we recognize the positive impact related to Basel IV implementation basically after some pending clarifications in certain regulatory technical standards that were clarified this quarter, okay? Second, in the number, in the one off, you also have the negative impact of the tax credits, which helps us on P and L, obviously, as we discussed, but which creates a negative impact on capital. On capital, on this page, I also would like to point your attention to the bubble at the top right hand corner. And as part of our efforts to simplify our IRB regulatory model landscape and in alignment with ECB's simplification drive, we have submitted an exhaustive plan to the supervisor at the beginning of this year around the simplification of our models. We just received in July the authorization for that work, which will come into effect in the 2025.

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

Also incorporating some pending model review of impacts, we now expect, all combined, to release an additional 40 to 50 basis points of CET1 in the remainder of 2025. I mean on this one, from time to time, I talked to you about densities and mentioned that our RWA density is 50%, and the average RWA density of our peers is 29%. And there are multiple reasons to explain this difference. But after the implementation of Basel IV, through the use of SRT, which would benefit BBVA much more than our peers, and through the simplification of our IRB model landscape that we just talked about, we expect this RWA density gap with our competitors to reduce going forward. And it's also worth to highlight that this IRB model simplification and so on, the reduced risk weights would not only create, obviously, a positive one off impact, as you saw on the page, but also, also, it's very important.

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

It will help us on a continuous basis for the new loan origination. Moving to Page four and our strategic progress. New customer acquisition on the pay on this page, let me pick up speeds of 5,700,000 new customers, record digital competitive advantage for BBVA. Slide 15, another pillar of our growth strategy, sustainability, another record €63,000,000,000 of sustainable finance channeling in the first six months of the year. We are clearly on our path to channel €700,000,000,000 in sustainable finance until 2029. So all good. For the business areas, Luisa?

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

LUISSA Thank you very much, Andrew, and good morning, everyone. Starting with Spain on Slide 17. It has continued its impressive momentum in the second quarter, delivering outstanding results in the first half of the year. Net profit reached €1,100,000,000 in the quarter, supported by ongoing positive dynamics in NII even in a lower rate environment, sound fees and lower operating expenses. NII continued to grow by 1% quarter on quarter even in the context of declining rates.

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

This was mainly supported by strong loan growth up to 2% quarter on quarter, particularly in consumer lending and SMEs, the areas that we've been focusing on in the past as well. We also benefited from an improved deposit mix and a higher contribution from the ALCO portfolio. On expenses, as Onur mentioned, we had a positive one off impact coming from the revision of our VAT payment calculation. Excluding this effect, expenses remained well contained, growing by just 1.3% year on year in the first half of the year. Efficiency continued to improve, supported by sound gross income growth and lower costs.

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

Our cost to income ratio stands at 31.3% in the first half of the year or 33% if we exclude the above mentioned one offs. Risk metrics also remained solid. Cost of risk came in at 32 basis points for the first expected. Finally, given the very strong results and positive future projections of the Spanish business unit, we have activated some DTAs, some deferred tax assets this quarter. It is worth highlighting that if the Spanish business unit delivers in line with our expectations in the coming years, more DTA activations can be executed beyond this year.

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

Based on this solid performance, we are pleased to announce that we are improving our full year guidance across all key lines. We now expect loan growth to accelerate to mid single digit NII to show slight growth fees to increase by low to mid single digit and expenses to decline by low single digit. Digit. As a result, we are targeting a 33% cost to income ratio for the full year. On the asset quality side, we expect cumulative cost of risk to remain below 35 basis points for the year.

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

In conclusion, an exceptional performance of BBVA Spain in the first half of this year. Moving on now to Mexico on Slide 18. Once again, BBVA Mexico delivered also a strong set of results in a still uncertain macro environment. Net profit reached nearly 1,300,000,000 supported by a solid operating income growth of over 2% quarter on quarter, driven by NII growing by more than 2% quarter over quarter, primarily supported by strong lending activity across both Retail and Commercial segments. In addition to the solid lending momentum, we also observed more favorable deposit trends with an improved deposit mix and lower deposit costs, which further contributed to the positive NII performance this quarter.

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

The customer spread remains stable, which is particularly noteworthy in a declining interest rate environment. Recall that Banco de Rico cut rates by 200 basis points since the beginning of the year. On the cost front, we recorded a slight quarterly decrease, reflecting the early impact of efficiency initiatives launched earlier this year. All in, our efficiency ratio remains at an exceptional 30.6%. On the asset quality side, we saw an increase in impairments this quarter, mainly driven by the IFRS nine macro adjustment following the updated macroeconomic scenario.

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

That said, underlying trends remained solid with cost of risk standing at three twenty four basis points for the first half of the year. All in all, the solid dynamics observed so far in BBVA Mexico have led us to revise the full year guidance upwards for both activity growth and cost of risk. We now expect loan growth to be close to 10% by year end and cost of risk to come below three fifty basis points. Moving now to Turkey on Slide 19. Guaranty BUBA reported a net profit of €412,000,000 increasing by more than 17% year over year.

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

This solid performance was driven by higher core revenues and lower impact from the hyperinflationary adjustment, which more than offset the expected increase in impairments. NII growth was strongly driven by a significant improvement in the Turkish lira customer spread, up by more than 150 basis points in the first half of the year as compared to the same period in 2024. This was driven by both higher yield on loans and lower deposit costs. At the same time, loan growth continued across both Turkish lira and foreign currency portfolios. Fees remain a strong contributor to revenue growth, driven by higher commissions from payment systems as well as positive performance in both asset management and the insurance businesses.

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

Impact of hyperinflation continued to decline in line with the continued disinflationary trend in the country. Impairments increased year on year, reflecting a normalization in the cost of risk amid the ongoing macro rebalancing. For the first half of the year, the cumulative cost of risk stands at 164 basis points ahead of expectations. Going forward, we expect it to close at around 180 basis points as provisioning needs in the retail portfolios remain high. All in all, positive underlying trends combined with the resumption of the monitoring easing cycle by the CBRT reinforce our confidence in the full year net profit guidance, which we expect to close somewhat below €1,000,000,000 in 2025.

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

Let me remind you that Guaranty BBVA's balance sheet shows negative sensitivity to lower rates. And finally, let's turn to South America. The region continued to deliver a strong earnings contribution to the group, achieving a net profit of €421,000,000 in the first half of the year, representing a 33% year on year increase. This quarter's solid performance across geographies was further supported by sound lending trends and improved deposit mix and disciplined price management. Despite a lower interest environment, it is noteworthy that the customer spread improved in the quarter in Colombia while it remained stable in Peru.

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

On the asset quality side, the cost of risk remains well under control in both Peru and Colombia, reflecting improving asset quality trends within what we had anticipated, supported by a more favorable economic environment and the adjustment to our risk appetite in the most vulnerable retail portfolios. These positive dynamics in the risk metrics have led us to review downwards for full year cost of risk guidance for the region, which we now expect to stand below two fifty basis points. Finally, in Argentina, we continue to observe a reduced impact on the hyperinflation adjustment driven by easing inflationary pressures. And now back to Anu for the final remarks on the quarter.

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

Thank you. Thank you, Luisa. So regarding 2025 and the guidance on this Page number 21, you have the full list of metrics we have provided you guidance for at the beginning of the year. And as Luisa has just explained, today, we are upgrading our guidance for the full year in the majority of the metrics, as you can again see on the page, including the group metrics. And you also see at the bottom of the page, it's worth highlighting here that including the nearly EUR 1,000,000,000 share buyback pending to be executed, potentially more than €5,000,000,000 as regular payout from 2025 results.

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

And given the expected end of 2025 excess capital to be accumulated, in total, around €13,000,000,000 are expected to be available for distribution in the short term. And lastly, for the main takeaways of the quarterly results, we are all excited to go to the second chapter. So let me not take time repeating the key messages here. But in short, we are very happy, very happy with the performance in the quarter. Now the second chapter in the document is about medium term strategic objectives.

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

As you know, at last, we are at the final meters of the voluntary tender offer process with Banco Sabadell. Such for investors to better understand BBVA's intrinsic stand alone value, we wanted to disclose our objectives for 2025, 2028 associated with the strategic plan that we have launched at the beginning of this year. We'll try to be brief on the next pages, but as I'm sure you have already reviewed the messages and the figures, and we're eager to move to the Q and A. So on Page 24. Let me open the page also.

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

As you know, again, we communicated our new strategic priorities that will help us strengthen our leadership position in the coming years. But a quick recap on this page of the strategic levers. First strategic priority is to embed radical client perspective in all we do. We want to set an industry leading customer service and satisfaction standard and deliver every day in and out against this golden standard. Our second and third priorities, they refer to our growth levers with sustainability and enterprises, having a prominent position in this growth drive.

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

We will invest more and increase the value contribution coming from these areas of sustainability and enterprises. Fourth, our value and capital creation mindset. This priority reflects very clearly that capital is our scarce resource, and we are here to deliver above the cost of that capital at macro and at the micro level as well for every single loan that we give. Lastly, our fifth and sixth priority is our enablers. We will unlock the strong potential of AI and innovation, and we will continue to invest in our teams who are the real actors to achieve anything in our business.

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

Moving to Page 25. Before explaining the main figures of our strategic plan, in this page, we include the main macro assumptions underlying the figures. So from a global perspective, in short, we expect relative stability around economic growth and inflation. Nominal credit growth is expected to stay slightly above GDP growth. In lower inflation geographies, like in Spain, Mexico, Peru, we expect interest rates to reach bottom in 2025 or 2026.

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

We also expect depreciation on currencies to moderate a bit in alignment with inflation, directly correlated with inflation. On top of this, in Spain, economic growth, it comes down slightly in the period but remains sound, leading to solid activity growth as well. In Mexico, annual GDP growth, our expectation at the June was a reduction, was a decline in GDP in Mexico in 2025. With yesterday's numbers, now this can change, but it was a negative figure in our forecast. In this plan, we are expecting it to recover, but still staying below 2% growth every year in 2026 to 2028.

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

And finally, in Turkey and Argentina, we estimate a gradual decline of inflation and interest rates throughout the period, and both are expected to exit hyperinflationary accounting in 2028. The highlights are in this page, but I do think they're very important pages. In the appendix of this document, you have the full details of these macro assumptions per country. So you can find them in the appendix of the document. On Page 26, what should be highlighted in this new strategic cycle?

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

Or maybe said in a different manner, what are the implications or the qualitative goals of the plan? First, we plan to grow slightly above market, gaining market share by continuing to increase our customer base with a particular focus on the enterprise segments, as we discussed before. I believe in terms of market share gain and so on, we have proven our worth here over and over again every quarter. And the record customer acquisition we have seen in the past few years and also in this presentation today, those customers that we acquired recently, it will ensure the continuity of the market share gain going forward. Second, we expect our core countries to improve their already high profitability levels, slightly but still improving, helped by strong activity growth and slightly lower cost of risk.

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

It is very important to underscore here the dynamic. The expected dynamic is very important. That's one of the crucial points of this plan. In the past few quarters, all the activity growth we have realized was basically absorbing the spread compression happening due to decline in rates. As we mentioned in the previous page, we expect some rate stability in the coming years.

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

With that rate stability, our expectation is that margin compression will stop. And as a result, activity growth will flow naturally to the bottom line profits. Third on this page, regarding the countries under hyperinflation in our footprint, namely Turkey and Argentina, we expect them to improve, especially in the second part of the cycle. Fourth, the contribution from enterprise and CIB segments. It will be significantly larger during this period as we will focus on leveraging cross borders, leveraging sustainability, where we clearly do have a competitive advantage.

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

For example, in this plan, we are expecting to double our gross income coming from CIB until 2028. And fifth, we will focus even more on fee generating businesses with low capital consumption, especially insurance, asset management and transactional products. Lastly, as described on the bottom of the page, we will be actively rotating our balance sheet to boost value creation, and we will be seizing opportunities presented by new technologies, AI, to gain a competitive edge and also to improve productivity. And our focus on costs and efficiency will be maintained in full force in this new strategic cycle. With all of this, Page 27, my favorite page, our goals for the twenty twenty five-twenty twenty eight period at the group level.

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

We expect return on tangible equity to be around 22% on average in the twenty twenty five-twenty twenty eight period average RoTE tangible book value growth, including dividends, to be at mid teens compounded annual growth rate efficiency ratio to further improve and be around 35% in 2028 and the cumulative net attributable profit of €48,000,000,000 in this four year period. On the details around the countries, Luisa, can you help us on the page on the countries?

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

UNIDENTIFIED Yes. Thank you, Onur. On Page 28, and bear with me, I know there's a lot of information on this slide, but I'll try and go through it as fast as possible. Starting with Spain, we see sustained momentum in client activity. Loans are expected to grow at mid single digit annual growth rate through 2028.

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

Growth will be selectively focused on the highest risk adjusted return segments, commercial and consumer, as you've heard me mention before, where we also anticipate measurable market share gains. This surge in lending activity will support our net interest income expansion with spreads expected to remain almost flat during the period. Beyond this and consistent with our strategic plan, we aim to increase the contribution of fee generating businesses such as asset management and insurance. Therefore, we expect total revenues in Spain to increase by low to mid single digit on CAGR. On cost, strict discipline and productivity gains from AI crystallizing at the latter part of the period will lead our cost to income ratio to remain at low 30s by 2028.

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

Coupled with an average cost of risk of around 30 basis points, this translates into an expected return on risk weighted assets approaching 4% by 2028 versus 3.56% in the '5. In Mexico, in the context of low GDP growth, we forecast high single digit annual growth in lending volumes, levered on increasing banking penetration, again led by the consumer and commercial books. As in Spain, this activity growth will be a key lever behind our NII growth. This, together with the improved performance of our capital light businesses and particularly insurance in the case of Mexico, will drive an annual revenue growth of high single digit over the period. Operational excellence remains a priority.

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

We expect our efficiency ratio to remain around 30% in 'twenty eight, reflecting good cost control while continuing investing in the country. Meanwhile, an average cost of risk of three thirty basis points will also support a robust ROA of roughly 6.5% in 2028 versus 5.87% in the '5. The Turkish franchise is expected to continue with its recovery path. Net interest income is expected to strengthen, driven by an above inflation activity growth and spread expansion due to a lower cost of deposits as interest rates decrease. In 2028, as Onur has mentioned, Turkey is expected to exit hyperinflationary accounting, boosting revenues, which are expected to grow at high teens through 28 in current euros.

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

This revenue expansion, together with the declining inflation, will drive our efficiency ratio down to the low 30s in 2028. All this, together with an average cost of risk of around 200 basis points, will significantly improve Turkey's profitability from a return on risk weighted assets of 1.6% now to a return on risk weighted assets of above 3.5% by 2028. Across South America, we expect a favorable operating environment with revenues growing at high single digit in current euros, boosted by sound activity growth, including market share gains and Argentina exiting hyperinflation also in 2028. In a lower inflation environment, the efficiency ratio will improve to below 40% in 2028. We expect an average cost of risk of around two thirty basis points, resulting in a return on risk weighted assets of around 3% in 2028.

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

In summary, profitability is expected to increase in LatAm and particularly in Argentina as macro conditions normalize. As for rest of business, let me remind you that this area includes the CIB business in The U. S, Europe and Asia as well as the digital banks in Europe, Italy and Germany. For this area, prospects are also very positive, driven by our CIB operations, which is one of our key priorities in the new strategic plan. We project a compound annual growth rate in the high teens and a revenue growth close to 20% through 2028, driven by fees and NTI, making it a significant growth engine for the group.

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

Efficiency will improve with a cost to income ratio under 50% by 2028, but still impacted by the OpEx related to the strategic growth plans. Cost of risk is expected to remain at low levels around 20 basis points. All this supports an expected profitability improvement with a return on risk weighted assets of above 2% versus 1.62% now. Overall, all the units are positioned to deliver sustainable capital generated growth while maintaining best in class cost and risk discipline through the plan, leading to an improved profitability of all the units.

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

Thank you, Luisa, on the country. So on Page 29, the final page, the most important page of my view, so I changed my favorite to this one. I want to shed light on the generation and uses of our CET1 capital. So during this twenty twenty five, twenty twenty eight period and including our excess capital at the beginning of the period, we believe we would be able to make available €49,000,000,000 of core capital. Of those, we expect to reinvest €13,000,000,000 in the business, growing our business in a profitable way, leaving €36,000,000,000 available for distributions.

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

This amount, the €36,000,000,000 is, in our view, the key anchor of our strategic plan. The €36,000,000,000 of capital available for distribution will follow, obviously, our payout policy. And as a result, maximum €24,000,000,000 will be distributed to shareholders through our maximum 50% regular payout, basically 50% of the €48,000,000,000 that we are putting as a net attributable profit goal. Then this leaves the remainder amount, 12,000,000,000, as excess capital that can complement the distributions. So in short, actually, we are two minutes late than our regular commitment that we will finish by the hour, but I think it was justified.

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

But in short, we are very positive for our present and for our future. We believe we are uniquely positioned as a bank who delivers exceptional growth and exceptional profitability at the same time. As such, we are relatively unique in the European banking landscape combining these two things. And as a result, we have been delivering consistently above our goals of the previous strategic plan, and we are determined and confident that we will do that again in this new strategic cycle. And now back to Patricia for the Q and A. Patricia?

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Yes. Thank you. Thank you very much, Anor. We are ready now for the Q and A. So operator, please, first question.

[Operator]

Our first question today comes from Benjamin Toms from RBC. Ben, your line is open. Please go ahead.

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

Good morning, both, and thank you for taking my questions. You set out your strategic objectives on Slide twenty seven and twenty nine. And clearly, the message here is about growth, best in class sustainable returns, and that leads to outsized shareholder distributions. But what would your RoTE and CET1 available for distribution look like using current forward FX rates rather than using a constant currency basis? Because I think that will be an important driver of the delta between your objectives and what sits in most analyst models.

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

And secondly, in relation to the 40 to 50 basis points benefit from capital from the simplification of models, any color additional color would be useful. And can you clarify, has the regulator already signed off on this number? Or could they revise it down? It just has a feeling that they're bit too good to be true at the moment.

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

Very good. Thank you, Benjamin. On the first question, we are actually using forward rates in every single country except Turkey. Because in the case of Turkey, the forward rates for the next five years, they are not really readily available. Turkey is a relatively complicated country.

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

As such, that's why I pointed you to the appendix of this presentation, you will see every single country, the depreciation of the currencies. You will see that in every single country, we are following the forward. In the case of Turkey, given the uncertainty, we actually put a range, a range of different depreciations, one quite aggressive. And what we are seeing is even in that aggressive depreciation scenario, these are the numbers that we commit. But I encourage you to look into the appendix basically.

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

I would add, Onur, that Argentina as well doesn't have forwards because of hyper countries. Current And there, you know that we've always been using our research estimates, which include a quite strong depreciation as is it's pointed in the annex as well as the presentation.

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

Very good. Forty, fifty basis points more color on this one. And can it be reversed? You're saying if it could have been reversed, we wouldn't have put it in the presentation, Benjamin. It's a a clear clear written formal approval coming from ECB.

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

But more color on this. Again, I mentioned it before. Our RWA density at the end of the second quarter was 50% when the average of the European peers is 29%. There is a reason for this. We have different portfolios in different geographies and so on, and some of them were in advanced model, and they were actually producing they were producing higher risk WA's than otherwise.

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

So in specifically, let me be more specific on this. In two, it was an exhaustive work of going through every single model that we have and the dialogue with the supervisor on this. And in two areas, we have received approval basically to simplify. One of them is Mexico credit cards. So we are going to go back to standard rather than having an advanced model on Mexico credit cards.

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

And the second one is the basically the wholesale portfolios in Spain and Mexico. Wholesale portfolios in Spain and Mexico. On that one, we will continue to have advanced models, but we will only we will go to foundation. Basically, we will use the models for PD but not for LGD and CCF. In that context, the positive impact that you have in that 40 to 50 basis points, the gross positive impact is basically evenly split, more or less half half between those two portfolios: Mexico credit cards, wholesale portfolios in Spain and Mexico.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Thank you, Benjamin. Next question please.

[Operator]

The next question comes from Carlos Peixoto from CaixaBank. Carlos, your line is open. Please go ahead.

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Hi, good morning. A couple of questions from my side as well. The first one would actually be focused on second Q, so particularly on the one offs. If you could help us quantify a bit on how much were the VAT gross impacts, both in Spain and at the corporate center? And then also on the one offs, you mentioned some DTAs recognition, if you could also quantify how much that meant in the P and L and whether and if there is a split between the corporate center and Spain in the Spanish unit?

[Carlos Peixoto, Equity Research Analyst at CaixaBank]

Then the second question would be on the capital distribution, the €36,000,000,000 figure that you mentioned. So the first part of the question is basically, is the intention to distribute all of this or could part of those EUR 12,000,000,000 of excess capital be withheld? So just to make it clear. Then the second part of the question is basically, this distribution does not account for the capital impacts from Sabalell integration. How do you expect that figure to move once we factor in both the impact on CET1 from Sabalell integration and also the additional earnings generation that you will be having out of the deal as well? You very much.

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

Very good. Thank you, Carlos, for the questions. On the first one and maybe you take the DTAs one, Luisa. On the first one, the one off that you mentioned, I think it was Page four, on the profits for the quarter. Basically, two things.

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

Again, VAT and tax rate adjustments based on the results of the tax audit. Why not provide some transparency on the whole thing? These two impacts was basically around $250,000,000 both of them. And I can give you the rule of basically half. Half of this is VAT, the other half is tax rate impact, And half of each one of them is basically, roughly speaking, I am in, and half of each is basically Spain and corporate centers.

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

So you can divide the number of $250,000,000 along these line items and along these business units. The $250,000,000 I mentioned to you, 150,000,000. The negative impact coming from U. S. Dollar hedges was at the profit level, at the bottom line profit level was 100,000,000 minus 100 That is why in the presentation, I mentioned to you that the extraordinary impact was $150,000,000.02 50,000,000 from the tax and minus 100,000,000 from The U.

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

S. Dollar hedges. I mentioned it in the presentation, but I'm not sure that it was registered. The reason that we also categorized dollar hedges as extraordinary in this quarter is starting from this quarter, starting from third quarter twenty twenty five, we will be accounting that item because it was for CET1 hedges to manage the volatility

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

CET1. We will be accounting for this under capital rather than P and L as of this quarter. On the BTAs, Luisa?

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

Yes. Well, we did re estimate the tax rate for the end of the year, including the activation of €150,000,000 of DTAs. We do expect that with the improved visibility that we have on the Spanish profitability, we will be, as I mentioned before, going forward, continue to include activation of DTAs. In this case, in our case, we have close to €1,000,000,000 of DTAs that are readily available, I would say, to be able to activate depending on the visibility that we have going forward of, as I mentioned, the profits of Spain. So that's what I would add.

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

Carlos, this goes back to the twenty fourteen, twenty fifteen acquisition of Catalonia Caixa and Unim and so on. There were some tax assets that we have gained, but we put them in the off balance sheet because we didn't think that Spanish business unit would be doing as good as it is doing at the moment. So that, as Luisa mentioned, 900,000,000 to 1,000,000,000 DTA assets, in the next five years, they will be coming, in our view, into the P and L, following through the P and L. The last one about the capital distribution. You asked about $36,000,000,000 Would you distribute all of this?

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

Carlos, there's a big footnote at the bottom of that presentation, but that's the capital available. That's our intention. Actually, our capital stack or our capital deployment priorities are very clear. As you see on Page 29, we are going to be creating, generating or liberating in total, 49,000,000,000 CET1 capital. And we are saying GBP 13,000,000,000, one-three billion, of this is for growth and GBP 36,000,000,000 is for distribution.

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

I would actually love that GBP 13,000,000,000 is a higher figure because it's profitable growth. We are creating further capital with that growth, okay? But as we have mentioned to you for the plan, we are gaining slight market share already in the plan, in the plan already. So the maximum that we thought we can deploy for growth is €13,000,000,000 As such, the remainder, 36,000,000,000, is available for distribution. 24,000,000,000 is regular payout.

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

It's basically 40% to 50%. In the 24,000,000,000 we assume the maximum 50% times the €48,000,000,000 of profits that we will be generating. Euros 24,000,000,000 is the regular payout and the 12,000,000,000 is the excess capital. If we can grow profitably a bit more, we can channel a bit of this into the growth. But don't think that's going to be the case, and this 36,000,000 will be available for distribution.

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

And then the last one, capital impacts from the Sabadell integration. Do these include Sabadell? This is a stand alone plan that we are presenting today. Nothing of Sabadel is in this number. We wanted to make sure that our stand alone intrinsic value is totally captured in these figures.

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

If the Sabadel transaction doesn't happen, these are the numbers that we will be delivering. And you asked about the impact from the Sabadell integration. On the Sabadell topic, as you know, we it's very likely we expect the expectation period and also the publishing of the prospectus will be done at the September. Once that happens, we will have a full session on the numbers around Sabadell and so on at that time. Today, it's the stand alone intrinsic valuation of BBVA.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

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

[Operator]

The next question comes from Cecilia Romero from Barclays. Congratulations

[Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank]

on the results. I wanted to ask the first one on the transaction. Following the government's announcement of the remedies, what visibility do you have on the phasing of synergies? Even if it's a qualitative assessment, it will be good to have your thoughts. We heard from Sabadell on these during results.

[Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank]

And also my other question is Turkey appears to be progressing well, perhaps a bit slower than you initially expected. Given its importance to allocating more value for BVA, how do you see net profit developing over the course of the plan? Thank

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

you, Cecilia, as always, for the questions. On the first one, phasing of the synergies. As I mentioned, in September, once we have the prospectus available, you will have all the numbers there, and we will have a dedicated call to discuss about those numbers. On but on transaction, the only thing I can tell you is that it is a delayed merger scenario, delayed merger scenario. So we will be delaying the deal, but the synergies, again, in detail, we will discuss in September.

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

Regarding Turkey, it is moving a bit slower than expected. You have, again, the full assumptions on the macro, which is very important for the piece of Turkey within the plan. Macro affects too much or as obviously, it is driven by inflation and interest rates. You will see all the details in the appendix for Turkey on different macro parameters, growth, interest rates, inflation and so on. The only thing that I can tell you is that in the plan, the €48,000,000,000 which is another anchor for us for the strategic plan, 48,000,000,000 accumulated profits in four years.

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

Turkey in that number represents around 10%, 10% to 12% basically.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Thank you so much, Cecilia. Next question please.

[Operator]

The next question comes from Ignacio Ilagui from BNP Paribas. Ignacio, your line is open. Please go ahead.

[Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas]

Thanks very much for the presentation and for taking my questions. I have two questions. The first one is on capital distribution and the 13,000,000,000 that you have readily available for distribution. Is there a chance that you can start the buyback before launching the offer for Sabavel or that will have to come after everything has been cleared out? First question.

[Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas]

And the second one is on Mexico. I mean, you flagged that during your presentation, Anup, Mexican economy has been very strong in 2Q, and that was largely driven by investments. Could you just elaborate a bit on what will be prospects of lending growth? If I just look local currency loan growth was a bit soft in the quarter. Obviously, it was a very uncertain quarter.

[Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas]

But I mean, how should we think about this high single digit growth in revenues and in activity? Is it going to be largely driven by corporate investments? Or it's more back on consumer lending and retail lending?

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

Very good. Maybe on Mexico, Luisa, you can help. On the share buyback that you asked, Nacho, we will start the share buyback after the completion of the expectation period. On Mexico?

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

Yes. So on Mexico, the evolution of the portfolio of the grown notes in Mexico actually, I think, has remained quite solid because it's grown 0.7 quarter on quarter. But if you exclude the FX impacts, it really has grown 2% quarter on quarter. We still have seen solid performance in retail growing 2.9%. And this is underpinned by the growth that we've been focusing on, which has been consumer, but especially SMEs, credit cards.

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

And I would highlight SMEs and credit cards because in these two areas, we continue to gain market share, especially I think in SMEs, it's quite sound where we already have achieved a 33% market share. So this momentum is quite resilient despite, as we were mentioning, a softer macro scenario. In the corporate lending side, we decreased 1.7% quarter on quarter. But again, excluding FX, it really was an increase of 1%, and that was supported by growth in enterprise loans across the board, the high corporate and the lower enterprises. So I think, in general, the outlook continues to be supportive.

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

We did raise our guidance for activity growth this year. In terms of the way it trickles into the P and L, I would say that, as we've mentioned, we do still see spreads being compressed. We do expect Banquico to continue to decrease rates. We are expecting a 7% rate from Banquico at the end of the year, and that will continue to pressure the evolution of the NII. But still, I think, in a better way than what we've seen at the beginning of the year.

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

So all in all, I think that we are quite comfortable with the guidance that we've given in the high single digit growth in revenues. Going forward, I would just say that the plan basically for the 2024, 2028 numbers assumes that the profile of growth in Mexico is going to be quite consistent, I. E, we're going to still be seeing growth in retail and in corporate lending more or less in the same dynamics that we've seen so far.

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

UNIDENTIFIED I will highlight one thing that Luisa said, Nacho, which is, again, if you look into like two, two point five years ago, the maximum rate that we have seen in Mexico, let me say it the other way around, 11.25% in this last cycle, 11.25%. Today, we are at 8%, okay? So we have seen a reduction of three twenty five basis points in Mexico. And in Mexico, the rate variability affects mainly the wholesale loans, and it's a very quick repricing. The reset of the interest rate happens very quickly, okay?

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

So we have already incorporated three twenty five basis points into our core revenues, into our NII. What we are assuming in the plan, and again, you can see that in the macro assumptions in the appendix, that interest rates would continue to come down a bit more, but they will stabilize at 6.5%. Given the inflation in the country, again, inflation expectations and so on, that 6.5% meeting is a very fair assumption. This is also where the market is, by the way. What happens then?

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

If the interest rates stop declining I mentioned this also briefly in the call. If interest rates stop declining and again, we are today at 8%, expectation is that it will stabilize at 6.5%, the margin compression, because of this, there are many other things that we are doing to help on the margin, but because of this, the margin compression will be moderating and will be stopping. What does that mean? The activity growth that you can achieve, unless, again, there is more decline in the interest rates, will flow to the bottom line. Activity growth will become part of very important part of core revenue increase and will then increase the bottom line.

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

That is the assumption here. Regarding the growth and the breakdown of the growth, we can tell you that the growth is relatively balanced. But as you know, we have 30% market share in retail in Mexico but only 23% market share in enterprises. And that 23% market share, we want to increase. So the market share gains will come more from the enterprise side, but the growth, and I have it in front of me, portfolio by portfolio, it will be balanced.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

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

[Operator]

The next question comes from Max Mission from JB Capital. Max, your line is open. Please go ahead.

[Maksym Mishyn, Managing Director & Co-head of Equity Research at JB Capital Markets]

I have two. The first one is on the efficiency targets for 2028. I was wondering if it includes any restructuring and potential additional investments in between. And the second question is on the Sabadell deal. Apologies for this, but with such ambitious targets, just want to understand why you still want to pursue the Sabadel deal, especially considering the moratoria on the merger.

[Maksym Mishyn, Managing Director & Co-head of Equity Research at JB Capital Markets]

They've just presented a plan with ROTE of 16%, and you are aiming at much higher stand alone. Your thoughts on this would be super helpful.

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

Do you want to take the efficiency goal, Ernest?

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

Yes, for sure. I mean we do have embedded in the plan, especially in the last part of the cycle, in the last three years, productivity plan is included, relating primarily to our efforts in productivity stemming from engineering and ops affected also by what's going on in terms of AI, data availability and technology. And we do think that the plan will start to be in effect primarily more in 'twenty eight than in 'twenty seven and going actually ongoing forward. Is the time line that we are expecting right now, and it will affect primarily the engineering and ops, where we do see that there's a lot of potential. We're already looking even today at some very interesting dynamics going on with the way we're using agents and bots and what we're developing.

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

We're seeing, in certain cases, even when we're developing very simple programs from software development, efficiencies in terms of time development of around even 70% and very simple things, highlighting also and even in the way we're using the agent in our apps in Blue in Mexico, it's already handling 37,000,000 calls that we used to have in IVR, which improves the performance and the experience with customers significantly by 65% in terms of time and attendance. So all these little things that we're seeing give us hope with a very structured priority. As you've seen, it is a strategic priority for us, as we highlighted at the beginning of the slides. We do feel that by 'twenty seven, 'twenty eight and onwards, we will see productivity gains, and I was mentioning before, primarily driven in engineering and ops, but also in business networks and other areas. So we do expect those numbers to come in through 2018, and that's why you see improved cost to incomes in that year.

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

Okay. And then the second question, Max, which is so you have a very strong plan. Why do you want to still pursue the Sabadell deal? Max, the deal is a great deal for everyone. We said it multiple times before.

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

I don't want to repeat myself, but financial sector, banking sector globally, especially in Europe, we need scale. We need scale. And then I don't need to, again, repeat the numbers of the previous calls, but only in Spain, in Spain, BBVA spends €1,100,000,000 in technology every year. This was the number of 2024. It keeps increasing.

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

Globally, we are spending nearly €4,000,000,000 in technology. And big banks, small banks, in our view, it doesn't matter, especially banks which operate in mass banking, which have branches, which have all the channels and so on. They cannot compete unless they find a way to consolidate because even the small banks, they have to spend these hundreds of millions of euros or billions of euros in technology. You have to invest in AI. You have to invest in cybersecurity.

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

You have to invest in DORA, which is the the new regulation about the resilience of IT systems and this and that. Most of these costs are fixed costs. So it makes sense for two banks to come together. It's I called it once textbook transaction. Why?

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

Because you have to optimize the cost. It just doesn't make sense that two banks in Spain depay hundreds of millions of euros to external IT providers to develop our IT systems. Doesn't make sense. So it's a great deal for both. But as you just said, we have a great plan ahead of us.

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

And if the deal doesn't happen, it doesn't happen. It's completely fine. We move on. We said it multiple times. I'm repeating it with full force today.

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

It doesn't happen. If it doesn't happen, we move on. We move on. I mean I understand the curiosity or the inquiry around this. But as you just saw, we presented a plan of EUR 48,000,000,000 accumulated profit in four years.

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

Average, 12,000,000,000 in profits. You can only hear positive things from us about Sabadell. They're an amazing bank. They're a great bank, but they presented their plan last week. The expectation annual profit that they are projecting is $1,600,000,000 okay?

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

$12,000,000,000 $1,600,000,000 We understand the curiosity around this, But if the deal doesn't happen, we move on. We have EUR 12,000,000,000 to deliver. EUR 1,600,000,000.0 can help because of the synergies that I mentioned and so on. But if it doesn't happen, we move on and we execute our amazing plan. And that's why we presented our plan today.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Max. Next question please.

[Operator]

The next question comes from Francisco Riquel from Alartra. Francisco, your line is open. Please go ahead.

[Francisco Riquel, Partner & Head - Equity Research at Alantra]

Yes. Thank you. So my first question, if I understand well, the Slide 29, the presentation, you plan to generate €12,000,000,000 of excess capital in the plan, but you already have over €5,000,000,000 today, 5,000,000,000 more will come from SRTs and €2,000,000,000 will come from the regulatory impacts that you expect in the second half. So I understand this plan is about loan growth, very capital intensive, but there is no excess capital generation organically from here, just to see whether I have the math well or not. And second, in this context, it is key to assess the profitability of the capital that you will generate.

[Francisco Riquel, Partner & Head - Equity Research at Alantra]

So first of all, organically, you plan to invest €13,000,000,000 in growth, so that's equivalent to €108,000,000,000 in RWAs. That's a 27% growth in your RWA base. So will you increase profits by 27% as well over the same period? And how much will it come from Turkey and Argentina? And then inorganically, with 22% RoTE, such a great prospect stand alone, what is the return that you would require from any M and A investment?

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

Very good. So Paco, on the first question, obviously, you don't have all the details, but some of the assumptions that you were making is not what we have in the plan. For example, regulatory impacts. We have talked to you about the regulatory impacts for this year. But for the four year period that we are projecting here, we are expecting some negative regulatory impacts to come along as well.

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

For example, in 2028, we'll try to manage it and so on, but there is this operational risk, ASA topic, that will be coming along next year, most likely now in 2027, we incorporated here FRTB, negative impact coming from those. So the regulatory impact number that we were putting is not true. The number that we were looking for, though, it's a good way to look into this. I fully agree. The organic or the organic capital accumulation, capital generation number that we have is, on average, around 40 basis points.

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

So on top of everything that you see, we will do the SRT, we will grow, we will absorb the regulatory impacts and this and that. Every year, we are expecting on top of what we have to create 40 basis points of excess capital. That's the number that you should be looking into. Then the second question, I didn't fully get it. Maybe, Luisa, you jump in.

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

The only thing I would say is that we already answered the Turkey one, but the Turkish number here is 10% to 12% because we are expecting them to improve only in 2027 EBIT and 2028, but not earlier. So 10% to 12% of the total accumulative profit that you see here will be coming from Turkey. And for Argentina, much, much less, around 2%, basically. Else you want to add on that?

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

No. I would just add that the evolution that we have, the CAGR of the bottom line of net attributable profit per year in the period is around 9%. And that is affected by, obviously, a slower CAGR at the beginning of the or slower numbers of growth at the beginning of the year. Also, again increasing towards the end of the period, primarily also again with the hyperinflationary economies coming out of hyperinflation in 2028. But on average, it's a 9% CAGR growth of the bottom line.

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

Then you asked about our threshold for M and A investments. Paco, on this one, as you know and as I just mentioned, our capital deployment priorities are clear. If we can grow at a profitable level, first, we will grow organically. Then we will look into the excess capital, and the threshold there is the threshold of alternatives. You have to look into what different alternatives exist to deploy that capital.

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

And we always will look into what is the return of buyback and how that return of share buyback compares with any other potential M and A opportunity. But as you can imagine, we have said many times before, we see, as we have done in Sabadell, we see M and A only makes sense if you can create a lot of synergies. That's why we always said we are only interested in domestic consolidation, and we don't see too many opportunities in that sense going forward. So you will compare with the share buyback if there is an opportunity. And if the share buyback beats, you don't do the deal.

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

If the share buyback is lower, you do the deal. That's how we look into it.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

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

[Operator]

The next question is from Britta Schmidt from Autonomous Research. Britta, your line is open. Please go ahead.

[Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research]

Yes, good morning. Thank you for taking my questions. My first one will be on the capital and the excess capital calculation, which is based on the upper end of your 11% to 12% hurdle. A 12% ratio would still seem relatively low versus where we expect peers to be. How confident do you think that this is a realistic number that doesn't impact the implied cost of equity of the bank?

[Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research]

The second one will be on the cost growth in the plan. Maybe you can give us a little bit of an idea how the cost CAGR would compare to the inflation assumptions that you've used on a group level. And then especially, just a clarification, would I be right in assuming that you're aiming for around CHF 10,500,000,000.0 profits this year and then you're guiding towards a slower increase in the near term and a little bit of a hockey stick towards 2028 given hyperinflation changes and also the impact of rate declines that could still impact 26%, 27%?

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

Thank you, Brita, as always. So on 11 the percent, 12% and the target and so on. Britta, I think you mentioned it also before in the previous calls, but I have a table in front of me that I look into quite frequently, which is the requirement from the supervisor and the target. Let's take the upper end of our target 12 as the target for this analysis versus our CET1 requirement. Our gap, our buffer is two eighty eight basis points, okay, two eighty eight.

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

You have our peer group in all of our presentations. In the footnotes, we indicate the largest banks as our peer group. The 10 largest banks in Europe within that peer group that you see in the presentations, what is the buffer that they have? They have two thirty one. So we have 57 basis points more buffer than they do.

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

So we always compare or look into the when we discuss the management target, we look into the absolute number. But shouldn't we also look into the requirement? Because that requirement is driven by the capability of you delivering organic capital accumulation, the stability of that, your position in the stress test, all of that is factored in into a number, which is the requirement. So as compared to our requirement, actually, among including the 10, including us, 11 banks, we are number two in that list. And maybe you have seen it, but there will be some adjustments to requirements as well going forward for us, positively speaking.

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

Yes, Yesterday, Banco Spain has published the new OSI buffers and so on. So we don't expect independent of that change, though, which is going to be helping on the requirement. We are not planning to change our management target, and we have numbers clearly in front of us, which talks about the sufficiency of that number. On the cost, Luisa, you want to take?

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

Well, I would just say that since you have the cost to income ratio there, I would highlight that the CAGR of the cost to income ratio is pretty similar to the actual target of the cost to income ratio. And you have the revenue growth. You can see that the cost growth is quite subdued, I would say, in the period and well below the inflation targets. We expect positive jaws in all the geographies as well. So again, as Juan mentioned before, quite a strong cost discipline throughout the program, coupled with those productivity plans coming in at the latter part of the period.

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

Very good. I mean the team here is warning me on the Paco's question, by the way. On the share buyback threshold or share buyback return as a threshold for M and A decisions, obviously, I was assuming that we are not going to be I mean, if we have excess capital, we can do share buyback or we can give it back to the shareholders in terms of cash depending on the share buyback returns and so on. Obviously, there's a threshold, but we are not going to disclose that threshold, Baku. Regarding the last question, Britta, on GBP 10,000,000,000 and the hockey stick.

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

Actually, there is not a huge hockey stick here at all. Again, it goes back to what I said also during the presentation. If you go back to that pages in the appendix and if you assume that interest rates in Europe, as you see in Europe, it's 1.75%. We are expecting at the end of this year, but then it doesn't go down any further. Or in the case of Mexico, if you assume 6,500,000 is the stability level of the interest rate.

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

If you assume those, that is what affects the numbers much more in a pronounced way than I gave you the Turkish number as well. The hockey stick can only come from hyperinflation, but the total number of Turkey is 10% to 12% of the total accumulated profits. So it's a broader thing. Obviously, there is some improvement over the years, but I wouldn't categorize it as a hockey stick.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Britta. Next question please.

[Operator]

And the next question comes from Hugo Cruz from KBW. Hugo, please go ahead. Your line is open.

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

Hi. Thank you for the time. I have a few questions. So first of all, you have a EUR 48,000,000,000 cumulative profit target and a EUR 39,000,000,000 of CET1 generation. Can you explain what's the delta between the two?

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

I can see the EUR 1,000,000,000 of DTIs, there'll be some AT1 coupons, I imagine 4,500,000,000.0. But what's the rest? Is it FX headwinds? So that's my first question. Second, you have you've talked about $13,000,000,000 of capital distribution available in the near term.

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

If you could kind of give us a timing for that? And I guess related to that, some of that might be from the SRT, you have $5,000,000,000 of SRT contribution in the plan, but perhaps that's front loaded. So again, if you could give us the timing of those SRTs. That's it.

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

Thank you, Hugo. On the SRTs, maybe what we expect in the plan maybe also and also this year, maybe talk about it, Luisa. But on the thirty nine billion dollars it's a very good point, Hugo. The €39,000,000,000 that we put in the Page, Page 29, of CET1 generation, why is it different from 48,000,000,000 Because of FX. If you look into the, again, the depreciation impact in the appendix of the currencies that we are putting in there, net of hyper impact, it's going to be debt deduction, basically.

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

48,000,000,000 to €39,000,000,000 is that FX impact. Capital distribution, the €13,000,000,000 what is the plan around that? As we said, we are waiting for the Sabadell transaction to conclude before we start the pending €1,000,000,000 to be specific, $993,000,000 of share buyback already approved, already deducted from capital. We're going to start that immediately after the period. And the rest, given the fact that we are accumulating capital, as you see in the documents, there will be a continuous flow of distributions back to the shareholders in both forms depending on where we are. On the SRT's?

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

Well, on the SRT's, we expect for the period to be delivering between 30 to 40 basis points of SRT CET1 capital to be generated. So it will depend, obviously, on the different timings of the deals, but I think that's more or less the run rate that we have expected, pretty much similar to what we've done this year as well.

[Operator]

The next question comes from Ignacio Cerezo from UBS. Ignacio, your line is open. Please go ahead.

[Ignacio Cerezo, Equity Research Analyst at UBS Group]

Yes. Good morning and thank you for taking my questions. One is on the plan. If you can let us know basically whether the ROTE you're calculating implies a distribution of the €36,000,000,000 or you're just distributing the ordinary part of it? And the second one is unrelated basically to the plan and targets.

[Ignacio Cerezo, Equity Research Analyst at UBS Group]

If you can give us your view about the impact that receiving the banking license by Nubank actually can have on your Mexican business, specifically on the cost of deposits?

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

Very good. On the first one, yes. And we do it at the end of every year, starting from 2026, to be precise, Nacho. At the end of every year, starting 2026, we take back the capital level to 12 through distributions of that amount that you mentioned. Impact of receiving banking license in Nubank.

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

Nubank is already very active on all dimensions in Mexico. We respect them fully, an amazing competitor, a very good competitor. But we have our plans to compete. And so far, in my view, we have been doing really well. I mean at the moment, they are 1.5% of deposits.

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

They can accumulate deposits even today. They have very aggressive offers in the market. The thing that I would highlight to you is that, that competitive advantage of pure price in the deposit game, in our view, will diminish when rates come down. I mean they used to pay a year ago 14% to deposits, except this Cajita, which is a specific product which has a lot of conditions. But in general, they used to pay 14%.

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

And today, except that specific product, up to 25,000 pesos. If you take that one out, they are now paying 8 And I do think that even in the context of we were facing 14% deposits, we have done really well. I keep mentioning this over and over again every call, but onethree of our deposits is less than €30,000 with an average for that bucket with an average deposit size of €780 less than €1,000 That's the average. We have 44% market share in payrolls in Mexico. As long as we have that advantage, I do think we will be able to compete.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

Thank you very much, Matto. Next question please.

[Operator]

The next question is from Fernando Gil de Santovanis from Intevesa Sanpaolo. Fernando, your line is open. Please go ahead.

[Fernando Gil Santivanes, Equity Research Analyst at Intesa Sanpaolo]

Hi, good morning.

[Fernando Gil Santivanes, Equity Research Analyst at Intesa Sanpaolo]

Thank you very much for taking my question. So the first one is on the assumptions in Spain and rates. I see in 2028, a 2.5 rate assumption as a base case.

[Fernando Gil Santivanes, Equity Research Analyst at Intesa Sanpaolo]

Can you please provide what is the per case scenario for that rates? And what would be the delta for the ROWA in the unit? And the second one is again on Spain. What market share is BBVA targeting in terms of products, mortgage, business lending and consumer? And what is the mix in the new production for mortgages between fixed and variable production?

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

Fernando, you're asking for the plan of this breakdown or for the second half or the second this year? Yes, the plan, sorry, the plan. Very good. Should we start with interest rate, Luisa?

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

UNIDENTIFIED Yes. Well, this is exactly the base case, as you mentioned, with an expectation of rates, as you see in the annex. We do think that this is going to be the more probable case, maybe the average arrival instead of the 2.5, maybe a 2.3. In any case, what I think is more relevant for the question is that we expect the NII sensitivity for the period to be roughly at where we have it now, circa April. So we haven't changed the assumption.

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

And as you know, depending on where actually we see the rates coming with the ALCO, we'll also position the book for the different scenarios. But the assumption underlying the revenues is Chirica 4% sensitivity to NII still through the period.

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

So if you have a different curve in your mind, once again, Fernando, 100 basis points of a decline in rate for the next twelve months, step function change in the interest rates would lead to 4% decline in the NII, and that's the sensitivity that we keep for the period as well. Regarding the products and the growth, the key area of the key area that we have highlighted for growth for us is, once again, enterprises. Similar to Mexico that I mentioned before, we have an underrepresentation in terms of market share in the enterprises segment, especially these midsized companies and SMEs. We have room to go on that one. So we are expecting a higher growth in the plan, especially in that area and consumer always, which is important to us.

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

We have 17% market share, for example, in acquiring, 16.1% market share in cards. All of that has to flow a bit more to our consumer lending book. The only thing that I would say is as we are seeing this year, if you look into this year, the only product that we are losing market share is mortgages. And in the plan, we assume that softness to continue because it's a very competitive product in terms of price. And at these price levels, as you have seen again this year so far, we don't see the reason to grow too much in that area.

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

So we are only losing market share. In mortgages, everywhere else, we are gaining market share, and we expect that trend to continue also throughout the time period.

[Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria]

So thank you very much, Fernando. There are no further questions in the line. So thank you, everyone, for joining this audio webcast. Just a reminder that the IR team is at your disposal for any further questions. I hope you have a great summer, and enjoy your holidays. Thank you.

Participants

Analysts

• Patricia Bueno Olalla, Global Head - Shareholder & Investor Relations at Banco Bilbao Vizcaya Argentaria
• Onur Genç, CEO & Executive Director at Banco Bilbao Vizcaya Argentaria
• Luisa Gómez Bravo, Global Head of Finance at Banco Bilbao Vizcaya Argentaria
• Benjamin Toms, Director - Equities at RBC Capital Markets
• Carlos Peixoto, Equity Research Analyst at CaixaBank
• Cecilia Romero, Director & European Banks Research Analyst at Barclays Corporate & Investment Bank
• Ignacio Ulargui, Analyst - Iberian Banks at BNP Paribas
• Maksym Mishyn, Managing Director & Co-head of Equity Research at JB Capital Markets
• Francisco Riquel, Partner & Head - Equity Research at Alantra
• Britta Schmidt, Senior Analyst - Spanish & Italian Banks at Autonomous Research
• Hugo Cruz, Director at Keefe, Bruyette & Woods (KBW)
• Ignacio Cerezo, Equity Research Analyst at UBS Group
• Fernando Gil Santivanes, Equity Research Analyst at Intesa Sanpaolo