Good morning. Welcome, and thank you for joining BBVA's First Quarter Earnings Conference Call. I'm joined today by Onur Genç, our CEO; and Luisa Gómez Bravo, the Group’s CFO. As in previous quarters, Onur and Luisa will firstly discuss quarterly figures and then we will open the line to receive your questions. Thank you very much for your participation. Now, I’ll turn the call over to Onur. Onur Genç : Thank you, Patricia. Good morning to everyone. Welcome and thank you for joining BBVA's first quarter 2024 earnings webcast. Let's jump into it, starting with slide number three. On the left-hand side, you can see our net attributable profit reaching EUR 2.200 billion, showing another quarter of record results, obviously continuing the positive trend that we have been having for the past years. This figure is 19% above the results of the same quarter of last year and almost 7% above last quarter. I should remind you that this quarter's number already includes the EUR 285 million of extraordinary tax in Spain. If the extraordinary tax was not there, the net attributable profit would have been obviously close to EUR 2.5 billion. Our results represent EUR 0.36 earnings per share, 23% year-over-year growth, a higher growth rate than the one of the net attributable profit due to the share buyback programs we have been executing. The graph on the right-hand side of the slide shows our CET1 ratio, CET1 ratio at 12.82%, reflecting a 15 basis points increase in the quarter and stands clearly above our target range and also the regulatory requirements. Moving to page number four, behind the excellent results we have been announcing lies, in our view, the strength of our franchises and our performance at the core operating income level, core operating income level. In that…

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

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

Hi, good morning. Thank you very much for the presentation and taking our questions. I have three. The first one is on the outlook for loan book growth in Spain. You have been gaining market share in the last quarters, and I was wondering if you could tell us what's the reason your gain in the market share and what outlook do you see for the coming quarters. The second question is on the number of employees in Spain. You keep on increasing the headcount, and it would be very helpful if you could explain us why and what should we expect for the future. And then the final question is on capital. You keep on accumulating capital. When can we get an update on how you plan to deploy this? This would be very helpful. Thanks. Onur Genç: Very good. Thank you, Maks. On all the three questions that stood quick. On outlook for loan growth for Spain, in the guidance that we have given to you at the beginning of the year, if you remember, we were saying that loan growth would be flattish. We do have a positive bias on this now, given also what we have seen in the first quarter numbers. Quarter-over-quarter also we have increased our loan book, and we have been gaining market share. We do expect that, that market share gain will be there for the rest of the year, and you are asking why is that happening. I don't know, Luisa, why is that happening? We are working hard, I believe. But in the segments that we are growing, when you look into the segments that we are growing, it's on the presentation for Spain page, you do see that we are growing very nicely in mid-size company segment. That's a…

Thank you, Maks. Next question, please.

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

Yes. Hello. Thank you. My first question is about Mexico. The stock of deposits fell by over 5% quarter-on-quarter, which is a bigger decline than last year with a similar seasonality. The cost of deposits in Mexico is also trending up, whereas it is starting to fall for some local peers in these first quarters now that interest rates have started to fall. I also see the migration of the balance sheet has accelerated. So, I wonder if this is all the way you are reacting to the aggressive deposit offering launched by Nubank. So if you can give guidance on the cost of deposits, EBITDA, what, which are expected in Mexico for the coming quarters would be appreciated. Then my second question is a follow-up on capital allocation. Is your appetite for continuing buying back your own shares versus the appetite for M&A, for example, in the context in which Scotiabank might be looking to sell some assets in South America? Thank you. Onur Genç: Do you want to take the first one, Luisa, on Mexico? Luisa Gómez Bravo: Yes, sure. Okay. So in Mexico, indeed, we saw the demand deposits specifically coming down quarter-on-quarter. But, I would highlight that this is also as a result of the seasonality of deposits. As typically in Mexico at the end of the year, we have a very strong growth in demand deposits coming from the double pay that the employees get and the accumulation of balances in deposits. So, we typically do understand that this quarterly trend is more based on the seasonality than otherwise. Year-on-year, we see a growth of 4.9% on demand deposits. I think that we are putting -- focusing the delivery of the cost management in deposits very significantly. As you know, we maintain, we continue to…

Thank you, Paco. Next question, please.

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

Morning, both. Thank you for taking my question. I'll keep it to one in line with your guidance at the top of the call. It's a high-level conceptual one, please. You printed an ROTE this quarter of 17.7%. Global rates will likely come down from here. I'm just interested in your degree of confidence that 2024 isn't as good as it gets and you expect in the next couple of years that profits and returns will keep growing from 2024 levels. Thank you. Onur Genç: Benjamin, very straight answer to a straight question. We don't think we have reached the peak. As I mentioned, 17.7% includes the Spanish extraordinary tax. It's the one of impact that will not be in the coming quarters. But, more importantly, and that's why we have had that little page and little bullet at the end of the document, basically saying that outlook for 2024 net attributable profit further improves to double-digit growth. That double-digit growth implies that we will continue to have even better return on tangible equities in the coming quarters. Why is that? Because we do see very positive dynamics in Mexico, very positive dynamics in Mexico. The 8.8% loan growth that you see year-over-year for the Mexican page, if you isolate for the appreciation of peso, for the appreciation of peso if you isolate for that, the number is 10% growth, even in this quarter. The first quarter of 2024 is, first quarter is in general, but especially this quarter, seasonally speaking, is very seasonal. First quarter, after the fourth quarter, and in this year, we also had Easter holidays falling into March rather than April, which had some impact. But we see very positive pipelines in Mexico, and we are confident that double-digit growth, double-digit loan growth in Mexico, as…

Thank you, Benjamin. Next question, please.

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

Thank you very much. My first question is on South America. Its contribution to the group remains subpar. Just 5% of earnings this quarter, but it consumes 14% of capital. What are you doing to close that gap, which keeps widening, by the way? And related to this, what is the rationale of sticking around in Argentina? Then my second question is on Mexico. Net NPL entries, they keep going up. When do you see a change in trend? And just a third quickly, what is your expectation for the Mexican peso and how much of your P&L have you covered? Thank you. Onur Genç: Do you want to take the first one, Luisa, on South America? Luisa Gómez Bravo: Yes. Well, in South America, I think that we are, showing a slower contribution that perhaps is the one that we would like. But primarily, this is because of the cycle that we're in. I think the challenging macro context in the region is still affecting the capacity to grow the results. However, I would say that the strength and resilience of our franchise is still there. When we look at Argentina, Argentina is, first, I think we need to talk about the macro perspectives in Argentina. The measurements and the measures announced by the new government are going in the right direction. The main problems that Argentine economy faces are still very relevant. The focus there is in the short term on lowering inflation, solving monetary fiscal imbalances. I think the first steps have been taken. There's been a strong devaluation of Argentine peso back in December. Gradual depreciation since, fiscal measures have been put in place. There's a monetary policy rate cut as well to improve BCRA's balance sheet. All these measures are, in the right direction, and…

Thank you, Marta. Next question, please.

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

Good morning. It's Antonio from Bank of America. I have two questions, please. The first one is a follow-up on your outlook for NII growth in Spain. You guided to double-digit growth in NII this year, which is remarkable. You've talked about better 2025 trends for the group. Can you maybe just directionally tell us how you would expect NII in Spain to perform in 2025? That's my first question. My second question is about efficiency, and of course, partly related to the first. Efficiency ratio remains within your guided range for the year, below 42%. You've a strong track record in maintaining positive jaws, while you continue to invest in your IT digital infrastructure. Now, the market, at least when I look at consensus numbers, doesn't believe you can sustain this also in 2025. Can you talk about your expectations for operating jaws next year, and maybe remind us of the mitigates you have. Should growth be slower than you expect? Thank you. Onur Genç: Thank you, Antonio, for the question. I said something about 2025, and now you are trying to get the jaws, guidance, and this and that for all the. Let me start for the first one, 2025, really in our planning, when we look into it, and we are not providing guidance today, obviously it's too early. But when we look into our planning, given the huge gap, relatively large gap, let’s not say huge, but relatively large gap, as I am telling you, we are expecting double-digit growth for the group in 2024 for net attributable profit. That's our guidance, that's our outlook, because we never provide guidance in that detail, but that's our outlook for 2024. We are also telling you that in 2025, our planning tells us that we will have even…

Thank you, Antonio. Next question, please.

Thank you. The next question goes to Sofie Peterzens of J.P. Morgan. Sofie, please go ahead. Your line is open.

Yes, hi. Here is Sofie from J.P. Morgan. Thanks for taking my question. So you are guiding for double-digit net interest income growth in Spain. Could you just elaborate what your underlying assumptions are, kind of in terms of what rates that you have assumed, what deposit beta you're expecting, where the deposit beta currently is, and I guess the volume of the remains unchanged flat, but if you could elaborate on this. Then a very short second question, kind of the countercyclical buffer in Spain, what are your thoughts here? Thank you. Onur Genç: Double-digit NII growth for Spain. Luisa, do you want to take it? Luisa Gómez Bravo: Yes. Well, as we mentioned during the presentation, the activity dynamics are quite positive. We have a guidance, maintained the guidance of flattish growth for the year, but as Onur mentioned before, we do have a positive bias. We're seeing, as we mentioned, mortgages pretty stable already in the third quarter in a row. Pre-payments are coming down around 23% year-on-year, 11% quarter-on-quarter, and we're making a lot of effort in the new loan origination, which is growing year-on-year, 4%, very solid dynamics, I would say across all the different segments, especially in those that interest us more from a profitability outlook. But, I would say that the main driver of the increase in the guidance has been really the price management, especially on the deposit side. We are expecting now a lower migration of sight deposits to term deposits. Term deposits increased their weight from 13% to 15% in the quarter. This is a slower trend than the one that we had forecasted, and the cost of deposits have also been quite contained at 91 basis points in the quarter. We think probably going forward, cost of deposits are…

Thank you, Sofie. Next question, please.

Thank you. The next question goes to Alvaro Serrano of Morgan Stanley. Alvaro, please go ahead. Your line is open.

Good morning. I've got a couple of follow-up questions on NII. In Mexico, first, your guidance, if I remember correctly, was high single digit NII growth, which given the growth in Mexican pesos that I can see, implies a significant acceleration in the next few quarters. Is that correct? Could you maybe elaborate on what you expect on the next few quarters that's different from Q1? In Spain, just to follow up, Luisa, from the detail you've given, on the loan yields, they're up 7 basis points in the quarter. How much more sort of repricing from the mortgage book is left, or is that increase more driven by business mix? Just maybe a bit of color on that. Thank you. Onur Genç: Let me take Mexico and then you follow up on Spain, Luisa. On Mexico, our guidance at the loan growth was double digit. We still maintain that. NII, to grow at high single digit, slightly below activity growth. That was the guidance that we have given to you at the end of the year, at the end of 2023, and we still maintain that. But what is the catch, or what do we see? Once again, we do think that the loan growth will be happening at double digit in Mexico. In the first quarter, quarter-over-quarter numbers are not leading into that. Year-over-year number is again 8.8, and the year-over-year number, when you adjust for Mexican peso appreciation, when you adjust for the divisa, the currency, it's again 8.8 becomes 10. So year-over-year we are there, but quarterly, quarter-over-quarter figure is not that strong to take us to that double digit. Once again, I highlight a few things. First quarter is traditionally seasonal. In this first quarter, the Easter was in March, unlike before, which it was…

Thank you, Alvaro. Next question, please.

Thank you. The next question goes to Ignacio Ulargui of BNP Paribas Exane. Ignacio, please go ahead. Your line is open.

Thanks very much. Thanks for taking my questions. I just have one question. Looking to Turkey, if you could provide a bit of color on the evolution of the Turkey’s NII, and how do we expect the customer spread evolving from here? And also if you could also help us to understand a bit better on the evolution of fees going forward, given the strong performance we have seen in the past quarters. Thank you. Onur Genç: Thank you, Ignacio. We still expect spreads to be negative in the second quarter, but we do clearly expect that in the second half of the year, third and fourth quarter, that spread will be coming back to positive, as long as, again, the country continues on its path. We are actually quite positive on what we are seeing in Turkey for the coming quarters, and especially for the second half. You have highlighted it, fee income is coming very strong, and the trading income. The trading income here is not, it's really the customer franchise business. The trading income that you see for Turkey is basically buy and sell of dollar and euro, which is a main activity of the, especially the retail franchise, retail banking franchise, which is very consistent and very stable. Those two line items will be very strong, and NII will come back up, in our view, in the second half. As a result, again, we do have a positive bias also on what we have guided you for Turkish bottom line, which is going to be repeating 2023. But after hyperinflationary account, after accounting for everything, we do have a positive bias on that number as well.

Thank you, Ignacio. Next question, please.

Thank you. The next question goes to Britta Schmidt of Autonomous Research. Britta, please go ahead. Your line is open.

Yeah, thanks for taking my question. Two fairly quick ones. Could you perhaps comment on the Mexican rate outlook? What have you included for 2024 in your guidance? And what do you expect for 2025, given forwards have moved? And then secondly, just briefly on the profit guidance, double digit growth year-on-year after what would have been EUR 2.5 billion Q1 and the banking tax with the run rate then falling to, let's say, EUR 2.2 billion, while you're guiding to a better second half in many geographies. What are the main drivers that you see for that quarterly run rate to change in the second half? Thank you. Onur Genç: On the 2024, the underlying assumption for the NII in Mexico is the TA, which is the core rate, as you know, in Mexico. We are assuming an average 10% rate for that one. But in terms of the Central Bank rate, the BBVA Research at the moment is assuming 9.25% at the end of the year and 7.25% at the end of 2025. They do have this, again, higher bias on these numbers. Probably it will be higher than these. But at the moment, BBVA Research estimates these figures. Beyond that, though, in our own NII calculation for this year, we are assuming, again, 10% average, 10% average TA. Regarding your second question, are we assuming a decline in the quarterly run rate of the profits, as I understand is the question, the answer is no, we are not assuming that. We are guiding double-digit growth in total net attributable profit for the year. If you remember, last year was 8 billion. At least 10% means 8.8 billion. We are saying double-digit. We are not precising what that perspective, what that number is. But we are quite positive on the coming quarters. So double-digit is double-digit, Britta. We are not precising what exactly is double-digit.

Thank you, Britta. Next question, please.

The next question goes to Andrea Filtri of Mediobanca. Andrea, please go ahead, your line is open.

Thank you. First question on trading results in Q1. If you could specify how much is from the FX hedges contribution. Second question is on your expectations on risk-weighted asset growth going forward, given the high print this quarter and your increased loan growth guidance. Finally, if you could just elaborate on your expectations and on your assumptions on the NII trajectory in Spain in 2025, given that you have given so much indications on the net profit. Thank you. Onur Genç: Again, we don’t provide detailed guidance for 2025, but maybe you take, Luisa, the NII trajectory in Spain for 2025. On the first two, the trading results, we actually have in the holding, in the holding, minus EUR 265 million of negative results in NTI. Why is that? Because it's Mexican peso appreciation. Given the fact that Mexican peso is appreciated, the hedges deliver negative results. Also, we do have other currencies there as well, but it's mainly Mexican peso. The total is minus EUR 265 million recorded under holding in NTI. Risk-weighted assets, the question on this one, I couldn't get the full question, but are we expecting risk-weighted assets to grow or? Luisa Gómez Bravo: Or is it aligned with loan growth? Onur Genç: In terms of the capital consumption. The 43 basis points that you see in terms of the capital consumption for RWA growth, it's relatively on the high side, but it's good that we have that. Because if we have that, as long as it's profitable, and we clearly make sure that it is profitable, we do deliver better returns in the coming quarters. That 43 basis points was relatively high. If you look into the previous quarters, it's around 35, 30, 35, 35 to 40, but not passing 40. So maybe there's…

Thank you, Andrea. Next question, please.

Thank you. The next question goes to Carlos Peixoto of CaixaBank. Carlos, please go ahead. Your line is open.

Hi, good morning. Thank you for taking my call, my question, sorry. So actually, most of them have already been answered, but I wanted to discuss a bit on the fee income outlook, particularly in Spain, but also in Mexico. In Spain, you had guidance towards slight growth in 2024, looking at the first Q, you actually are up 6% year-on-year, and so basically, I wanted to understand here whether do you see this level as being a sort of a one-off and expect it to come down throughout the year, or should this actually be recurrent going forward? And therefore, you expect to beat the fee income guidance that you're providing. And also in Mexico, if you could give us some color as well on how do you see fees evolving throughout the year? That would be great. Thank you. Onur Genç: Carlos, thank you for the question. I don't know what I was going to ask it, and I thought it would have been a waste, but fee income is really one of the, in our view, strong points of this quarter. We do think that the best thing about the fee income, in our view, it's more stable and consistent and so on. I'm looking into the key line items of the fee income. In Spain, asset management, year-over-year, is up 10%, 10%. Insurance, which we are pushing really hard, is up 18%, actually, no, 17.4% to be specific. So, we are seeing some clear push in Spain on the fee income. Mexico, asset management, and we have been discussing about the movement of deposits and so on. But we like this, we want this, we want to make sure that especially high income, private banking, affluent customers have some of their money in mutual funds that we manage for them, which is better for them, which is better for us. Asset management in Mexico, and now its quarterly number is EUR 105 million. It's up 30% year-over-year, 30%. Payment services, which is very important for us in Mexico, as you know. The cards and POS is up 22% year-over-year. You know the situation in Turkey. We are over proportionally better represented in the payments businesses in general, but also in Turkey, and also in Turkey, it's up significantly, which drives the results of Turkey. To cut the long story short, in our view, these trends, and given the numbers that I quoted to you, they are very positive, and it will be making sure that the consistency of the results will be there for the coming year as well.

Thank you, Carlos. Next question, please.

Thank you. The next question goes to Chris Hallam of Goldman Sachs. Chris, please go ahead, your line is open.

Thank you for taking my question. It's just two on Mexico, two quick ones. So lots of color earlier on deposits. Thank you for that. But just thinking, is there a sort of a flaw in the loan to deposit ratio in terms of how far below 100% you'd be comfortable operating out in Mexico? I.e., is there any sort of risk that we're approaching a point at which some of the opportunities you see on the asset side aren't fully realizable due to funding constraints? And then second, on the peso, we saw a big move overnight a couple of weeks ago. I guess, first of all, does that have any distinct impact on the hedges you have in place there, when I think about net trading income for the second quarter. And then more medium term, does that general volatility change at all how you think about hedging out the FX risk? I think you're currently around 60% hedged on Euro-Mex. So just any update there would be helpful. Onur Genç: So, on the first one, the loan-to-deposit ratio in Mexico is at the moment 99%, and as I mentioned at the beginning of the call, it's purely in the quarter we have chosen to fund ourselves on the wholesale side from the market rather than from the clients. If you want, we can, as we have done in the fourth quarter, when you look into the fourth quarter numbers, you would have seen that. We can do that from wholesale customers as well in terms of wholesale deposits. So we are far away from where you would feel uncomfortable with loan-to-deposit ratio. Given the strength of the franchise that we have in Mexico, we can manage this ratio basically, basically, Chris. In the second topic on the hedges, I think it was the hedges question. The line is not so good today, but if it's the hedges question, 60% is what we have currently at the moment. Do we have a clear strategy around this? Obviously, we do change this percentage from year-to-year a bit depending on the cost of carry. And the cost of carry would be coming down, for example, in Mexico. We do still have 60%, although it's relatively high carry. We keep the 60% on the P&L. And by the way, we also hedge 64% of capital in Mexico because we did think that there might be some devaluation of the currency this year. That's why we are relatively over-hedged. But independent of the levels, we do adjust some of the cost of carry. But we will maintain more or less these levels because we do think it's not only, it's a risk management tool for us. We keep these hedging, we will keep these hedging levels going forward, although there might be some fine tunings around it, let me say it that way.

Thank you, Chris. Next question, please.

Thank you. The next question goes to Ignacio Cerezo of UBS. Ignacio, please go ahead, your line is open.

Hi, good morning. I've got two quick follow-ups. One is on the deposit competition in Mexico. If you can you give us a little bit of color on the overlap in terms of the pipeline, the Fintech’s are capturing versus your natural client base, if there is a significant degree of overlap there or not? And then on the profit outlook, as you said on 2025, I mean is it logical to expect for you basically to expect that a hyperinflation and FX headwinds in Turkey are coming down quite quickly for next year? Is that embedded basically in the guidance? Thank you. Onur Genç: Thank you, Nacho, for the questions. We mentioned it before, but once again, we did gain market share in retail demand deposits in Mexico in the year, year-over-year, February-versus-February. The latest announced market number is February. We gained 17 basis points market share in retail demand deposits. This is the area where Fintech’s compete. Are they creating a dent? Obviously, they are. I mean, at the end of the year, they have not announced their, we don't know their latest results, but at the end of the year, some dent has happened. But that dent is not happening on us, given the market share number. And why is that? Because we are really a great bank in Mexico. We keep saying this every quarter, and obviously, we are a bit subjective on this, but it's a wonderful bank that we have. We have 44% market share in payrolls. Once again, 44% of the amount of nominees, of the salaries that are paid by employers in Mexico goes through BBVA. That flow is there, and that flow protects us. We are gaining one, in the quarters, in the first quarter of 2024, we gained 1.2 million…

Thank you, Ignacio. Next question, please.

Thank you. The next question goes to Fernando Gil of Bestinver. Fernando, please go ahead, your line is open.

Hi, thank you very much for taking my question. Just two quick ones, please. One, on tax rates. I see Latin America tax rate being very low this quarter. Can you please comment on tax rate at the group divisions and units during 2024? Second is on NPL coverage. I see figures keep coming down quarter-on-quarter. Can you please comment on overlays and outlook going forward, please? Thank you very much. Onur Genç: Let me take the NPL coverage and then you comment on the tax, Luisa, if that's okay. On the NPL coverage, basically two impacts. Number one, we did sell, especially in Spain, a few portfolios. If you are talking about year-over-year, throughout last year and also in the first quarter, that's number one. Number two, the main increase in NPLs in Spain has been the mortgage portfolio because unlike many of our peers, we do apply this new definition of default, which is if you restructure a client and if the NPV of that loan goes down by more than 1% and 1% is a very low figure, but that's the rule, then we put that loan into NPLs. Given that, given the fact that the NPL growth is mainly driven by mortgages and mortgages, given also the collateral value and so on, typically comes with lower provisioning, lower coverage, there is that mixed effect arriving mainly from Spain into the figure. If you take those two impacts aside, so the sale of the portfolios and also the mortgage impact in Spain, the number would not have been changing as you see in the figure. On the tax numbers? Luisa Gómez Bravo: Yes, well the group effective tax rate in the quarter stands at 33%, 33.3% which is I think what we expect for the whole year, very much in line with last year. It's true that there are certain dynamics that compare, especially with the end of last year, with our, maybe a little bit complicated to understand, primarily with state in Peru. Remember at the end of last year, we had a significant, release of a provision that we had related to tax contingency in Peru. This was a significant amount and that's why you see a change in the quarter-on-quarter number in the tax amount in Peru. And in Colombia, the effective tax rates in the quarter is benefiting from the deductibility of the subordinated issuances that we've done and higher impact of tax exemptions coming from insurance business. So, I would say those are the main reasons in Latin America for the changes quarter-on-quarter or year-on-year in terms of tax rates.

So thank you, Fernando. Thank you. This was the last question. Thank you for all your questions and for joining this first quarter results earnings call. As always, let me remind you that the entire IR team will be available to answer any questions you may have. Thank you very much.