5 key concepts to help understand BBVA’s results

Here are five key concepts to help understand BBVA’s Q1-16 results:

1. The strength of the banking business in an atypical quarter. Gross income rose to €5.79 billion (up 14.9% year-on-year in constant exchange rates) thanks to strong performance from banking revenue (net interest income plus fees and commissions) which gained 17.7% over the same quarter last year. However, the BBVA Group’s net attributable profit dropped by 53.8% (compared to the same quarter last year) to €709 million. If banking revenues have improved, why has year-on-year profit decreased?

Carlos Torres Vila: The seasonal effect of the banking business in some places (where activity is lower in the first part of the year) indicates that the results will increase gradually throughout 2016

There are three main reasons. First, the lack of corporate operations. In the first quarter of 2015, BBVA sold its 5.6% stake in the Chinese bank CNCB and those capital gains boosted profit. In the first quarter of 2016, on the other hand, there were no operations of this kind. Second, there were lower gains from NTI mainly due to the markets' complex situation. And third, the impact of exchange rates.

2. Improvement in risk indicators. In line with the trend set in past quarters, BBVA improved its risk indicators between January and March 2016. What does this mean in numerical terms? The NPL ratio dropped to 5.3% from 5.4% in December 2015; coverage ratio remained stable at 74% and the Group's cost of risk fell to 0.92%.

3. A strong capital position. BBVA’s solvency is solid. Improvement in its fully-loaded CET1 ratio (the ratio used to measure a bank’s financial health) demonstrates this. March 2016 ended with a fully-loaded CET1 ratio of 10.54%, generating 21 basis points of capital. BBVA is therefore well positioned to reach its 11% fully-loaded target in 2017.

4. The digital transformation. Data indicate that BBVA is moving in the right direction. On the one hand, the customer base that engages with the bank through digital channels is increasing: 15.5 million at the end of the first quarter of 2016. This represents a 20% increase y-o-y. Of these customers, 9.4 million engaged with BBVA using their mobile phones, 45% y-on-y.

On the other hand, digital sales have continued to increase across all franchises. For example, in the U.S. the percentage of transactions closed through digital channels stood at 18.7%, compared to 9.3% in 2015. Digital sales are also starting to increase in South America (16.5% in Q1-16, compared to 8.7% in 2015), Spain (12.1% in the first quarter of 2016 vs. 8.8% in 2015), Turkey (14.6% in Q1-16 compared to 13.9% in 2015) and Mexico (3.9% in QA1-16 vs. 2.1% in 2015).

The customer base that engages with the bank through digital channels is increasing: 15.5 million at the end of the first quarter of 2016 (this represents a 20% increase y-o-y)

5. Growth in emerging markets and more pressure on developed countries. BBVA delivered a solid performance in the emerging markets where it operates, with Mexico leading the way. The area ended March with quarterly results of €489 million, up 10.1% year-on-year thanks largely to a major boost in credit activity, with double digit growth rates (up 12.4% year-on-year).

In Turkey*, the most noteworthy aspect from the first quarter was the boost in activity propelling an increase in recurrent revenues (up 7.7% year-on-year). Furthermore, gains from NTI improved the gross income by 14.3%. 2016 first quarter results reached €133 million, 13.2% more than in the first quarter of 2015.

South America continued to show very high activity growth rates (up 14.7% in credit and up 19.6% in deposits), also raising recurrent revenue (up 14.9%) and gross income (up 14.1%). At the end of March 2016, the area’s results increased to €182 million, up 8.7% year-on-year.

BBVA delivered a solid performance in the emerging markets where it operates, with Mexico leading the way.

In developed countries, BBVA once again showed its resistance to a particularly complicated environment. Banking activity in Spain generated a slight increase from typical banking revenue of 0.3% compared to the first quarter of 2015. The continued improvement in asset quality is reflected in lower impairment losses on financial assets compared to the first quarter of 2015 (down 38.6%). The quarterly results for the area were €234 million. The combination of banking and real estate operations once again generated a profit (€121 million).

In the U.S., higher growth rates in banking activity increased net interest income. However, less momentum in commissions together with volatility in the financial markets on NTI resulted in a nearly flat gross income (up 0.9% year-on-year). The area’s net attributable result for the quarter was €49 million.

*Figures in 2015 are proforma, which considers the additional stake in Garanti accounted for using the full consolidation method from 01/01/15.