Table of Contents

 

UNITED STATES SECURITIES AND EXCHANGE

COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October, 2023

Commission file number: 1-10110

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

 

 

Calle Azul 4,

28050 Madrid

Spain

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F    X       Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes          No    X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes          No    X

 

 

 


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Main data

 

 BBVA GROUP MAIN DATA (CONSOLIDATED FIGURES)  
      30-09-23          Δ  %          30-09-22          31-12-22  

Balance sheet (millions of euros)

                                                           

Total assets

     757,736          2.7          737,890          712,092  

Loans and advances to customers (gross)

     387,565          3.8          373,210          368,588  

Deposits from customers

     403,861          3.5          390,277          394,404  

Total customer funds

     564,346          4.4          540,781          544,576  

Total equity

     53,453          7.3          49,833          50,517  

Income statement (millions of euros)

                                                           

Net interest income

     17,843          29.4          13,790          19,124  

Gross income

     22,104          21.1          18,255          24,743  

Operating income

     12,863          23.3          10,428          14,042  

Net attributable profit (loss)

     5,961          24.3          4,795          6,358  

Net attributable profit (loss) excluding non-recurring impacts (1)

     5,961          19.3          4,997          6,559  

The BBVA share and share performance ratios

                                                           

Number of shares issued (million)

     5,965          (1.1)          6,030          6,030  

Share price (euros)

     7.71          66.9          4.62          5.63  

Adjusted earning (loss) per share (euros) (1)

     0.96          21.4          0.79          1.04  

Earning (loss) per share (euros) (1)

     0.96          31.0          0.73          0.98  

Book value per share (euros) (1)

     8.53          11.1          7.67          7.78  

Tangible book value per share (euros) (1)

     8.13          11.3          7.30          7.43  

Market capitalization (millions of euros)

     45,994          65.1          27,862          33,974  

Dividend yield (dividend/price; %) (1) (2)

     5.6               6.7          6.2  

Significant ratios (%)

                                                           

Adjusted ROE (net attributable profit (loss)/average shareholders’ funds +/- average accumulated other comprehensive income) (1)

     16.3               14.8          14.4  

Adjusted ROTE (net attributable profit (loss)/average shareholders’ funds excluding average intangible assets +/- average accumulated other comprehensive income) (1)

     17.0               15.6          15.1  

Adjusted ROA (profit (loss) for the period / average total assets - ATA) (1)

     1.13               1.02          0.99  

Adjusted RORWA (profit (loss) for the period / average risk-weighted assets - RWA) (1)

     2.40               2.16          2.12  

Efficiency ratio (1)

     41.8               42.9          43.2  

Cost of risk (1)

     1.11               0.86          0.91  

NPL ratio (1)

     3.3               3.5          3.4  

NPL coverage ratio (1)

     79               83          81  

Capital adequacy ratios (%)

                                                           

CET1 fully-loaded

     12.73               12.45          12.61  

CET1 phased-in (3)

     12.73               12.55          12.68  

Total ratio phased-in (3)

     16.51               16.07          15.98  

Other information

                                                           

Number of active customers (million)

     70.8          7.3          65.9          67.3  

Number of shareholders

     764,567          (6.0)          813,683          801,216  

Number of employees

     120,457          5.4          114,311          115,675  

Number of branches

     6,017          (0.5)          6,050          6,040  

Number of ATMs

     30,058          1.5          29,621          29,807  

(1) For more information, see Alternative Performance Measures at the end of this report.

(2) Calculated by dividing the dividends paid in the last twelve months by the closing price of the period.

(3) Phased-in ratios include the temporary treatment on the impact of IFRS 9, calculated in accordance with Article 473 bis amendments of the Capital Requirements Regulation (CRR), introduced by the Regulation (EU) 2020/873. As of September 30, 2023, there are no differences between phased-in and fully-loaded ratios due to the aforementioned temporary treatment.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Contents

 

Highlights

     4  

Macroeconomic environment

     7  

Group

     8  

Results

     8  

Balance sheet and business activity

     14  

Solvency

     16  

Risk management

     19  

Business areas

     24  

Spain

     27  

Mexico

     30  

Turkey

     34  

South America

     38  

Rest of Business

     43  

Corporate Center

     46  

Other information: Corporate & Investment Banking

     47  

Alternative Performance Measures (APMs)

     50  

Disclaimer

     60  

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Highlights

Results and business activity

The BBVA Group generated a net attributable profit of 5,961m between January and September of 2023, which represents an increase of 24.3% compared to the same period of the previous year, driven by the performance of recurring income from the banking business, mainly the net interest income, which grew at a rate of 29.4%.

These results include the recording for the total annual amount paid for the temporary tax on credit institutions and financial credit institutions for 215m, included in the other operating income and expenses line of the income statement.

Operating expenses increased by 18.1% at Group level, largely impacted by the inflation rates observed in the countries in which the Group operates. Notwithstanding the above, thanks to the remarkable growth in gross income, higher than the growth in expenses, the efficiency ratio stood at 41.8% as of September 30, 2023, with an improvement of 328 basis points, in constant terms, compared to the ratio recorded 12 months earlier.

The provisions for impairment on financial assets increased (+35.5% in year-on-year terms and at constant exchange rates), with lower requirements in Turkey, which were offset by higher provisioning needs, mainly in South America and Mexico, in a context of rising interest rates and growth in the most profitable segments, in line with the Group’s strategy.

Loans and advances to customers recorded an increase of 5.3% compared to the end of December 2022, strongly favored by the evolution of retail loans (+6.9% at Group level).

Customer funds increased by 3.6% compared to the end of December 2022 thanks both to the growth in deposits from customers which increased by 2.4% and to the increase in off-balance sheet funds, which grew by +6.9%.

 

 

LOANS AND ADVANCES TO CUSTOMERS AND TOTAL CUSTOMER FUNDS (VARIATION COMPARED TO

31-12-2022)

 

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Business areas

As for the business areas evolution, excluding the effect of currency fluctuation in those areas where it has an impact, in each of them it is worth mentioning:

 

   

Spain generated a net attributable profit of 2,110m in the first nine months of 2023, 61.9% higher than in the same period of the previous year, thanks again to the strength of the net interest income, which boosted gross income growth.

 

   

In Mexico, BBVA achieved a cumulative net attributable profit of 3,987m by the end of September 2023, representing an increase of 22.3% compared to the same period in 2022, mainly as a result of the significant growth in net interest income, thanks to the strong boost of the activity and the improvement in the customer spread.

 

   

Turkey generated a net attributable profit of 367m during the first nine months of 2023, which compares positively with the accumulated result reached at the end of September 2022, both periods reflecting the impact of the application of hyperinflation accounting.

 

   

South America generated a cumulative net attributable profit of 496m at the end of the first nine months of the year 2023, which represents a year-on-year increase of +20.5%, driven again by the good performance of recurring income (+59.1%) and the area’s NTI, which offset the increase in expenses and higher provisioning needs for impairment on financial assets.

 

   

Rest of Business achieved an accumulated net attributable profit of 322m at the end of the first nine months of 2023, 80.8% higher than in the same period of the previous year, thanks to a favorable performance of recurring income, especially the net interest income, and the NTI.

The Corporate Center recorded, between January and September of 2023 a net attributable profit of -1,321m, compared with -566m recorded in the same period of the previous year, mainly due to a negative contribution in the NTI line from exchange rate hedges as a result of a better than expected currency performance, in particular the Mexican peso.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Lastly, and for a broader understanding of the Group’s activity and results, supplementary information is provided below for the wholesale business carried out by BBVA, Corporate & Investment Banking (CIB), in the countries where it operates. CIB generated a net attributable profit of 1,763m between January and September of 2023. These results, which do not include the application of hyperinflation accounting, represent an increase of 43.8% on a year-on-year basis and reflect the contribution of the diversification of products and geographical areas, as well as the progress of the Group’s wholesale businesses in its strategy, leveraged on globality and sustainability, with the purpose of being relevant to its clients.

 

 

NET ATTRIBUTABLE PROFIT (LOSS) (MILLIONS OF EUROS)

       

 

NET ATTRIBUTABLE PROFIT BREAKDOWN (1)

(PERCENTAGE. JAN.-SEP. 2023)

 

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(1) Excludes the Corporate Center.

Solvency

The Group’s CET1 fully-loaded ratio stood at 12.73% as of September 30, 2023, including the effect of the share buyback program launched on October 2, 2023 for a total amount of 1,000m (-32 basis points), which allows to keep maintaining a large management buffer over the Group’s CET1 requirement (8.77%)1 and above the Group’s established target management range of 11.5-12.0% of CET1.

Dividend

The Board of Directors of BBVA resolved on its meeting hold on September 27, 2023, the payment of a cash interim dividend of 0.16 gross per share on account of the 2023 dividend, which was paid on October 11, 2023. This dividend is already considered in the Group’s capital adequacy ratios and represents an increase of 33.3% compared to the gross amount paid in October 2022 (0.12 per share).

Share buyback program

On October 2, and having received the required authorization from the European Central Bank, the Group started the execution of a new share buyback program for a total amount of 1,000m. This share buyback program is considered to be an extraordinary shareholder distribution and is therefore not included in the scope of the shareholder ordinary distribution policy. For more information on this, see “Solvency” chapter within this report.

 

 

1 This includes the update of the countercyclical capital buffer calculated on the basis of exposure at end June 2023.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Sustainability

Channeling sustainable business2

 

 

SUSTAINABLE BUSINESS BREAKDOWN (PERCENTAGE. TOTAL AMOUNT CHANNELED 2018-SEPTEMBER 2023)

 

 

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(1) In those cases where it is not feasible or there is not enough information available to allow an exact distribution between the categories of climate change and inclusive growth, internal estimates are made based on the information available.

(2) Non-Project Finance and transactional banking activity.

(3) Bonds in which BBVA acts as bookrunner.

(4) Investment products art. 8 or 9 under Sustainable Finance Disclosure Regulation (SFDR) or similar criteria outside the European Union, managed, intermediated or marketed by BBVA. Others includes, in Retail: structured deposits, insurance policies for electric vehicles and self-renting of electric vehicles, mainly; and in CIB and Enterprise: structured deposits, mainly.

(5) Includes the activity of the BBVA Microfinance Foundation (FMBBVA), which is not part of the consolidated Group and has channeled during the third quarter around 400m to support vulnerable entrepreneurs through microloans. This represents a 7% decrease compared to the same quarter of the previous year, while it remains stable for the first nine months of 2023 compared to the previous year.

Regarding the objective of channeling 300 billion between 2018 and 2025 as part of the sustainability strategy, the BBVA Group has mobilized an approximate total of 185 billion in sustainable business between 2018 and September 2023, of which approximately 77% is allocated toward the fight against climate change, while the remaining 23% is dedicated to promoting inclusive growth. The channeled amount includes financing, intermediation, investment, off-balance sheet, or insurance operations. These operations have contractual maturity or amortization dates, so the above mentioned accumulated figure does not represent the amount reflected on the balance sheet.

During the first nine months of 2023, around 49 billion was mobilized (+25% compared to the same period of the previous year), of which around 16 billion corresponds to the third quarter of 2023. This channeling during the third quarter of 2023, represents an increase of about 13% compared to the same quarter of 2022 and is the second best quarter in sustainable business channeling for the Group, following the quarterly record achieved in the second quarter of this year.

In this third quarter, the retail business has mobilized around 1.700m, to reach a cumulative amount of around 7,300m since January 2023 (+69% compared to the same period last year). The good behavior of the channeling related to the acquisition of hybrid or electric vehicles stands out with 87m, representing a growth of 78% compared to the same period of the previous year (+35% compared to the accumulated amount of the first 9 months of 2023 on a year-on-year basis). The contribution from Spain, which has channeled over half of this amount, is the most relevant.

Between July and September 2023, the commercial business (enterprises) has mobilized around 5.400m. In cumulative terms, mobilization in the first 9 months of the 2023 financial year has reached nearly 15,600m (+95% year-on-year). As in the previous quarter, the funding allocated to promote or improve the energy efficiency of buildings stands out with 1.088m, representing a 21% year-on-year increase (+55% when comparing the accumulated amount for the first 9 months of 2023 with the same period last year). In this area, Mexico’s contribution is fundamental, with a 37% increase.

CIB has channeled approximately 8,100m during this quarter, and during the first 9 months of this year, around 26,200m (-3% year-on-year). During this quarter, the positive development of short-term financing or sustainable transactional banking activity stands out, which contributed approximately 4,400m, more than half the amount channeled by the corporate segment, representing a 34% year-on-year growth (and 10% if considering the accumulated amount from January 2023 compared to the same period last year). Since the beginning of 2023, signs of slowdown have been noted in the field of sustainable corporate financing, especially in long-term financing, as well as a revitalization of the sustainable bond market in which BBVA acts as bookrunner.

 

 

2 Channeling sustainable business is considered to be any mobilization of financial flows, cumulatively, towards activities or clients considered sustainable in accordance with existing regulations, both internal and market standards and best practices. The foregoing is understood without prejudice to the fact that such mobilization, both initially and at a later time, may not be recorded on the balance sheet. To determine the amounts of channeled sustainable business, internal criteria based on both internal and external information are used.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Macroeconomic environment

The economic slowdown has continued in recent months, with differences emerging among the main geographic areas. Growth was stronger than expected in the United States, relatively weak in the Eurozone and surprisingly weak in China. High inflation, tightening monetary conditions and the gradual fading of the positive effects of the reopening after the COVID-19 pandemic all contributed to the slowing of global growth. However, economic activity continues to benefit from the dynamism of the labor markets and the relative easing of the supply shocks triggered by the pandemic and the war in Ukraine.

Falling commodity prices compared to the levels seen in 2022—despite the recent upward trend in oil prices—and improvements in production process bottlenecks supported a softening of headline inflation, which, in annual terms, reached 3.7% in the United States and 4.3% in the Eurozone in September. Core inflation measures, however, still show no significant improvement.

In this context, although the possibility of further adjustments in the coming months cannot be ruled out, the trend of interest rate hikes seems to have come to an end. BBVA Research believes that an eventual reduction in inflation in the coming months will most likely prevent further interest rate hikes. Rates are expected to remain at restrictive levels for a longer period than expected, at around 5.50% until mid-2024 in the United States and 4.50% until the end of 2024 in the Eurozone. Moreover, measures to reduce liquidity by the U.S. Federal Reserve (“Fed”) and the European Central Bank (“ECB”) are expected to continue to contribute to the monetary tightening.

BBVA Research forecasts that global growth will gradually taper off, reaching 2.9% in 2023 (unchanged from the forecast of three months ago) and 3.0% in 2024 (10 basis points higher than the previous forecast). In the United States, strong domestic demand supports an upward revision of growth forecasts to 2.3% in 2023 and 1.5% in 2024 (respectively, 120 and 90 basis points higher than the previous forecast) and makes a recession unlikely. In China, recent stimulus measures are expected to help avoid a sharp slowdown in activity. However, growth forecasts have been revised downward to 4.8% in 2023 and 4.4% in 2024 (respectively, 90 and 40 points lower than the previous forecast). In the Eurozone, economic expansion is likely to be more modest than expected, at around 0.4% in 2023 and 1.0% in 2024 (respectively, 40 and 30 basis points less than the previous forecast). In addition, the slowing of global growth is expected to encourage a gradual reduction in inflation, which, however, will remain above inflation targets in the United States and the Eurozone until at least the end of 2024.

Uncertainty remains high, and a number of factors could lead to more adverse scenarios unfolding. Persistently high inflation and interest rates could trigger a deep and widespread recession, as well as new bouts of financial volatility. Moreover, the slowdown in China could proceed more sharply and more severely than anticipated. Finally, another key risk is that the current geopolitical turbulence will eventually feed through to higher energy prices.

 

 

GDP GROWTH ESTIMATES IN 2023 (PERCENTAGE. YEAR-ON-YEAR VARIATION)

 

 

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Source: BBVA Research estimates.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Group

Quarterly evolution of results

The result achieved by the BBVA Group in the third quarter of 2023 stood at 2,083m, 2.5% above the previous quarter with the following trends standing out:

 

   

The good performance of recurring income continues, that is, the sum of net interest income and net fees and commissions, which accelerate its quarterly growth to 13.4 % (at constant exchange rates).

 

   

Favorable evolution of NTI (+79.9% at constant exchange rates) supported by the good performance of Global Markets in Turkey in the quarter and the better performance of the Corporate Center.

 

   

Higher negative adjustment for hyperinflation in Turkey during the quarter, recorded in the “Other operating income and expenses” line.

 

   

Operating expenses increase, mainly in the emerging geographical areas.

 

 CONSOLIDATED INCOME STATEMENT: QUARTERLY EVOLUTION (MILLIONS OF EUROS)  
    2023           2022  
        3Q        2Q        1Q              4Q        3Q        2Q        1Q  

 Net interest income

    6,434       5,768       5,642               5,334       5,252       4,595       3,943  

 Net fees and commissions

    1,685       1,470       1,439         1,328       1,385       1,413       1,247  

 Net trading income

    658       334       438         269       573       516       580  

 Other operating income and expenses

    (820)       (383)       (561)         (443)       (372)       (501)       (374)  

 Gross income

    7,956       7,189       6,958               6,489       6,838       6,022       5,395  

 Operating expenses

    (3,303)       (2,922)       (3,016)         (2,875)       (2,803)       (2,618)       (2,406)  

Personnel expenses

    (1,756)       (1,530)       (1,551)         (1,547)       (1,471)       (1,344)       (1,238)  

Other administrative expenses

    (1,169)       (1,054)       (1,127)         (990)       (993)       (935)       (855)  

Depreciation

    (378)       (337)       (339)         (338)       (338)       (340)       (313)  

 Operating income

    4,654       4,267       3,942               3,614       4,035       3,404       2,989  
 Impairment on financial assets not measured at fair value through profit or loss     (1,210)       (1,025)       (968)         (998)       (940)       (704)       (737)  

 Provisions or reversal of provisions

    (81)       (115)       (14)         (50)       (129)       (64)       (48)  

 Other gains (losses)

    2       50       (16)         (6)       19       (3)       20  

 Profit (loss) before tax

    3,365       3,178       2,944               2,559       2,985       2,634       2,225  

 Income tax

    (1,226)       (1,028)       (950)         (850)       (1,005)       (680)       (903)  

 Profit (loss) for the period

    2,139       2,150       1,994               1,709       1,980       1,954       1,321  

 Non-controlling interests

    (56)       (118)       (148)         (146)       (143)       (120)       3  

 Net attributable profit (loss) excluding non-recurring impacts

    2,083       2,032       1,846         1,563       1,838       1,834       1,325  

 Discontinued operations and Other (1)

                                    (201)        

 Net attributable profit (loss)

    2,083       2,032       1,846         1,563       1,838       1,633       1,325  

 Adjusted earning (loss) per share (euros) (2)

    0.33       0.33       0.30         0.25       0.29       0.29       0.21  

 Earning (loss) per share (euros) (2)

    0.33       0.33       0.29         0.24       0.28       0.24       0.19  

 General note: 2022 figures have been restated according to IFRS 17 - Insurance contracts.

(1) Includes the net impact arisen from the purchase of offices in Spain in the second quarter of 2022 for -201m.

(2) Adjusted by additional Tier 1 instrument remuneration. For more information, see Alternative Performance Measures at the end of this report.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Year-on-year performance of results

The BBVA Group generated a net attributable profit of 5,961m between January and September of 2023, which represents an increase of 24.3% compared to the same period of the previous year, driven by the performance of recurring income from the banking business, mainly the net interest income, which grew at a rate of 29.4%.

These results include the recording for the total annual amount paid for the temporary tax on credit institutions and financial credit institutions3 for 215m, included in the other operating income and expenses line of the income statement.

 

 

 CONSOLIDATED INCOME STATEMENT (MILLIONS OF EUROS)

 

 
           Δ % at constant        
      Jan.-Sep.23        Δ %     exchange rates     Jan.-Sep.22  

 Net interest income

     17,843        29.4       36.5       13,790  

 Net fees and commissions

     4,594        13.6       17.5       4,044  

 Net trading income

     1,430        (14.3)       (0.8)       1,669  

 Other operating income and expenses

     (1,763)        41.3       6.4       (1,248)  

 Gross income

     22,104        21.1       31.8       18,255  

 Operating expenses

     (9,241)        18.1       22.3       (7,826)  

Personnel expenses

     (4,837)        19.3       24.8       (4,053)  

Other administrative expenses

     (3,350)        20.4       24.8       (2,783)  

Depreciation

     (1,054)        6.4       5.6       (990)  

 Operating income

     12,863        23.3       39.7       10,428  

 Impairment on financial assets not measured at fair value through profit or loss

     (3,203)        34.6       35.5       (2,380)  

 Provisions or reversal of provisions

     (210)        (12.8)       0.5       (241)  

 Other gains (losses)

     37              29.7       37  

 Profit (loss) before tax

     9,487        20.9       42.4       7,844  

 Income tax

     (3,204)        23.8       41.7       (2,588)  

 Profit (loss) for the period

     6,283        19.5       42.7       5,256  

 Non-controlling interests

     (322)        24.1       n.s.       (259)  

 Net attributable profit (loss) excluding non-recurring impacts

     5,961        19.3       31.8       4,997  

 Discontinued operations and Other (1)

                        (201)  

 Net attributable profit (loss)

     5,961        24.3       37.9       4,795  

 Adjusted earning (loss) per share (euros) (2)

     0.96            0.79  

 Earning (loss) per share (euros) (2)

     0.96            0.73  

General note: 2022 figures have been restated according to IFRS 17 - Insurance contracts.

(1) Includes the net impact arisen from the purchase of offices in Spain in the second quarter of 2022 for -201m.

(2) Adjusted by additional Tier 1 instrument remuneration. For more information, see Alternative Performance Measures at the end of this report.

Unless expressly indicated otherwise, to better understand the changes under the main headings of the Group’s income statement, the year-on-year rates of change provided below refer to constant exchange rates. When comparing two dates or periods in this report, the impact of changes in the exchange rates against the euro of the currencies of the countries in which BBVA operates is sometimes excluded, assuming that exchange rates remain constant. For this purpose, the average exchange rate of the currency of each geographical area of the most recent period is used for both periods, except for those countries whose economies have been considered hyperinflationary, for which the closing exchange rate of the most recent period is used.

The accumulated net interest income as of September 30, 2023 was higher than the same period of the previous year (+36.5%), with increases in all business areas due to the customer spread improvement in the main geographical areas and higher performing loan volumes. The good evolution in Mexico, South America and Spain is noteworthy.

Positive evolution in the net fees and commissions line, which increased by 17.5% year-on-year due to favorable performance in payment systems and demand deposits. By business areas, All geographical areas, except Spain, showed a favorable evolution.

 

 

3 In compliance with Law 38/2022, of December 27, which establishes the obligation to pay a patrimonial benefit of a public and non-taxable nature during the years 2023 and 2024 for credit institutions that operate in Spanish territory whose sum of total interest income and fee and commission income corresponding to the year 2019 is equal to or greater than 800m.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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NET INTEREST INCOME / AVERAGE TOTAL ASSETS

(PERCENTAGE)

     

 

NET INTEREST INCOME PLUS NET FEES AND COMMISSIONS (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

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(1) At current exchange rates: +25.8%.

NTI recorded a flat evolution (-0.8%) at the end of September 2023, due to the negative results recorded in the Corporate Center, partially offset by the favorable evolution of this line in all business areas except Spain.

The other operating income and expenses line accumulated a result of -1,763m as of September 30, 2023, compared to -1,248m in the same period of the previous year, mainly due to the higher negative adjustment for hyperinflation in Argentina. This line also includes the contribution to the Single Resolution Fund (SRF) in Spain, which in 2023 was lower than the previous year’s contribution, and the recognition, in the first nine months of 2023, of 215m, corresponding to the total annual amount paid for the temporary tax on credit institutions and financial credit establishments, also in Spain.

 

 

GROSS INCOME (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

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(1) At current exchange rates: +21.1%.

Year-on-year basis, operating expenses increased by 22.3% at the Group level. This increase is largely impacted by the inflation rates observed in the countries in which the Group operates, which, on the one hand, have been affected by the measures implemented by the Group in 2023 to compensate the loss of purchasing power of the workforce and, on the other hand, have had an effect in general expenses.

Notwithstanding the above, thanks to the remarkable growth in gross income (+31.8%), the efficiency ratio stood at 41.8% as of September 30, 2023, with an improvement of 328 basis points compared to the ratio recorded 12 months earlier. All business areas had a favorable performance in terms of efficiency.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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OPERATING EXPENSES (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

 

 

  

   EFFICIENCY RATIO (PERCENTAGE)
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(1) At current exchange rates: +18.1%.

    

Impairment on financial assets not measured at fair value through profit or loss (impairment on financial assets) at the end of September 2023 was 35.5% higher than in the same period of the previous year, with lower requirements in Turkey, which were offset by higher provisioning needs, mainly in South America and Mexico, in a context of rising interest rates and growth in the most profitable segments, in line with the Group’s strategy.

 

 

OPERATING INCOME (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

 

  

  

 

IMPAIRMENT ON FINANCIAL ASSETS (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

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(1) At current exchange rates: +23.3%.

    

 

(1) At current exchange rates: +34.6%.

The provisions or reversal of provisions line (hereinafter, provisions) remained stable compared to the same period of the previous year, with lower provisions in Mexico and South America, offset by higher provisions in the rest of areas and the Corporate center.

For its part, the other gains (losses) line closed September 2023 with a balance of 37m, which compares favorably with the also positive result of the same period of the previous year.

As a result of the above, the BBVA Group generated a net attributable profit of 5,961m between January and September of the year 2023, which compares very positively with the result for the same period of the previous year (+37.9%). These solid results are supported by the favorable evolution of net interest income and, to a lesser extent, net fees and commissions, which offset higher operating expenses and the increase in provisions for impairment losses on financial assets.

The cumulative net attributable profits, in millions of euros, at the end of September 2023 for the business areas that compose the Group were as follows: 2,110m in Spain, 3,987m in Mexico, 367m in Turkey, 496m in South America and 322m in Rest of Business.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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NET ATTRIBUTABLE PROFIT (LOSS) (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

       

 

NET ATTRIBUTABLE PROFIT (LOSS) EXCLUDING NON-RECURRING IMPACTS (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

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(1) At current exchange rates: +24.3%

    

 

General note: non-recurring impacts include the net impact arisen from the purchase of offices in Spain in 2Q22.

 

(1) At current exchange rates: +19.3%.

The Group’s excellent performance has also allowed to accelerate value creation, as reflected in the growth of the tangible book value per share and dividends, which at the end of September 2023 was 17.7% higher than in the same period of the previous year.

 

TANGIBLE BOOK VALUE PER SHARE AND DIVIDENDS (EUROS)

       

EARNING (LOSS) PER SHARE (1) (EUROS)

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General note: replenishing dividends paid in the period. For more information, see Alternative Performance Measures at the end of this report.     

General note: adjusted by additional Tier 1 instrument remuneration. Adjusted EPS excludes, in addition, the net impact arisen from the purchase of offices in Spain in 2Q22. For more information, see Alternative Performance Measures at the end of this report

 

(1) The accumulated EPS stands at 0.73 and 0.96 in 9M22 and 9M23, respectively.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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The Group’s profitability indicators improved not only in year-on-year terms but also compared to the end of December, supported by the favorable performance of results.

 

 

 ROE AND ROTE (1) (PERCENTAGE)

 

       

 

ROA AND RORWA (1) (PERCENTAGE)

 

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(1) The ratio of January-September 2022 and 2022 excludes the net impact arisen from the purchase of offices in Spain.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Balance sheet and business activity

The most relevant aspects related to the evolution of the Group’s balance sheet and business activity as of September 30, 2023 are summarized below:

 

   

Loans and advances to customers recorded an increase of 5.3% compared to the end of December 2022, strongly favored by the evolution of retail loans (+6.9% at Group level), supported by both the good performance of credit cards and consumer loans (+12.5% overall at Group level) in Mexico, Turkey and South America, and mortgage loans, mainly in Mexico. On the other hand, loans to the public sector and business loans (+11.0% and +3.0%, respectively) showed a positive dynamic, originating mainly in Mexico.

 

   

Customer funds increased by 3.6% compared to the end of December 2022, thanks both to the growth in deposits from customers which increased by 2.4% due to the positive evolution of time deposits in all business areas and to the increase in off-balance sheet funds, which grew by +6.9% thanks to the evolution of mutual funds and customer portfolios, highlighting the good performance in Mexico and Spain.

 

 

 CONSOLIDATED BALANCE SHEET (MILLIONS OF EUROS)

 

        
      30-09-23        Δ  %      31-12-22      30-09-22  

Cash, cash balances at central banks and other demand deposits

     66,859        (16.2)        79,756        88,076  

Financial assets held for trading

     134,804        21.8        110,671        119,966  

Non-trading financial assets mandatorily at fair value through profit or loss

     8,490        23.2        6,888        7,290  

Financial assets designated at fair value through profit or loss

     939        2.9        913        978  

Financial assets at fair value through accumulated other comprehensive income

     63,792        (2.4)        65,374        69,374  

Financial assets at amortized cost

     446,046        7.6        414,421        418,032  

Loans and advances to central banks and credit institutions

     21,674        6.1        20,431        22,797  

Loans and advances to customers

     376,336        5.3        357,351        361,176  

Debt securities

     48,036        31.1        36,639        34,059  

Investments in joint ventures and associates

     926        1.1        916        903  

Tangible assets

     9,385        7.4        8,737        8,567  

Intangible assets

     2,310        7.1        2,156        2,211  

Other assets

     24,184        8.6        22,259        22,494  

Total assets

     757,736        6.4        712,092        737,890  

Financial liabilities held for trading

     118,276        23.7        95,611        104,534  

Other financial liabilities designated at fair value through profit or loss

     12,862        21.6        10,580        10,678  

Financial liabilities at amortized cost

     544,853        3.0        529,172        545,288  

Deposits from central banks and credit institutions

     60,140        (7.8)        65,258        84,196  

Deposits from customers

     403,861        2.4        394,404        390,277  

Debt certificates

     65,241        17.7        55,429        54,811  

 Other financial liabilities

     15,612        10.9        14,081        16,003  

Liabilities under insurance and reinsurance contracts

     11,260        11.1        10,131        10,787  

Other liabilities

     17,032        5.9        16,081        16,771  

Total liabilities

     704,283        6.5        661,575        688,057  

Non-controlling interests

     3,703        2.2        3,623        3,652  

Accumulated other comprehensive income

     (16,213)        (8.1)        (17,642)        (16,838)  

Shareholders’ funds

     65,963        2.2        64,535        63,019  

Total equity

     53,453        5.8        50,517        49,833  

Total liabilities and equity

     757,736        6.4        712,092        737,890  

Memorandum item:

           

Guarantees given

     57,520        4.2        55,182        54,954  

 General note: 2022 figures have been restated according to IFRS 17 - Insurance contracts.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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 LOANS AND ADVANCES TO CUSTOMERS (MILLIONS OF EUROS)

 

 

     
      30-09-23           Δ  %           31-12-22           30-09-22  

Public sector

     23,178                 11.0                 20,884                 20,488  

Individuals

     167,675                 6.9                 156,838                 157,928  

Mortgages

     93,306           1.9           91,569           93,244  

Consumer

     38,672           7.5           35,965           36,327  

Credit cards

     21,350           22.8           17,382           16,453  

Other loans

     14,347           20.4           11,921           11,904  

Business

     182,766                 3.0                 177,374                 180,539  

Non-performing loans

     13,947                 3.4                 13,493                 14,256  

 Loans and advances to customers (gross)

     387,565           5.1           368,588           373,210  

 Allowances (1)

     (11,229)           (0.1)           (11,237)           (12,035)  

 Loans and advances to customers

     376,336           5.3           357,351           361,176  

(1) Allowances include valuation adjustments for credit risk throughout the expected residual life in those financial instruments that have been acquired (mainly originating from the acquisition of Catalunya Banc, S.A.). As of September 30, 2023, December 31, 2022 and September 30, 2022, the remaining amount was 153m, 190m and 202m, respectively.

 

 

 

LOANS AND ADVANCES TO CUSTOMERS (BILLIONS OF EUROS)

 

         

 

CUSTOMER FUNDS (BILLIONS OF EUROS)

 

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(1) At constant exchange rates: +5.8%

    

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(1) At constant exchange rates: +4.2%.

 

 

 CUSTOMER FUNDS (MILLIONS OF EUROS)

 

 

           
      30-09-23           Δ  %           31-12-22           30-09-22  

Deposits from customers

     403,861                 2.4                 394,404                 390,277  

Current accounts

     309,847           (2.0)           316,082           314,631  

Time deposits

     90,102           19.1           75,646           73,564  

Other deposits

     3,911           46.2           2,676           2,082  

Other customer funds

     160,485                 6.9                 150,172                 150,504  

Mutual funds and investment companies and customer portfolios (1)

     128,985           18.4           108,936           108,315  

Pension funds

     27,304           (29.4)           38,653           39,178  

Other off-balance sheet funds

     4,196           62.5           2,582           3,011  

Total customer funds

     564,346           3.6           544,576           540,781  

(1) Includes the customer portfolios in Spain, Mexico, Colombia and Peru.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Solvency

Capital base

The BBVA Group’s strong results during the quarter, which exceeded those of the second quarter, contributed to the consolidated CET1 fully-loaded ratio to reach 12.73% as of September 30, 2023, including the effect of the share buyback program launched on October 2, 2023 for a total amount of 1,000m (-32 basis points), which allows to keep maintaining a large management buffer over the Group’s CET1 requirement (8.77%)4 and above the Group’s established target management range of 11.5-12.0% of CET1.

During the third quarter of the year, the CET1 ratio increased by 6 basis points (excluding the share buyback program by -32 basis points). The strong generation of profit, net of dividends and remuneration of capital instruments, generated a contribution of 27 basis points in the CET1 ratio, which allowed it to partially absorb the growth of risk-weighted assets (RWA) derived from the increase in activity in the quarter (consumption of 39 basis points), in line with the Group’s strategy of promoting profitable growth. For its part, among the other impacts, it is worth highlighting those associated with market variables, which have had a negative evolution in the quarter, especially in FX and portfolio valuation, although it is more than offset by the credit in equity due to the hyperinflation accounting.

Fully-loaded RWA increased by approximately 10,530m in the quarter, mainly as a result of activity growth. Excluding the currency effect, RWA associated with activity grew by around 10,211 billion.

The consolidated fully-loaded additional Tier 1 capital (AT1) stood at 1.72% as of September 30, 2023, resulting in a 6 basis points decrease from the previous quarter, mainly due to RWA increase. In the quarter, it should be noted that there was an issuance of a contingent convertible bond with a nominal value of USD1 billion and the amortization of an issuance with a nominal value of 1 billion. There was no impact in the quarter in the additional Tier 1 capital due to this movement.

On the other hand, the consolidated fully-loaded Tier 2 ratio at the end of September 2023 stood at 2.05%, with an increase of 4 basis points in the quarter, mainly due to the issuance of a subordinated bond in Spain for GBP300m. The total fully-loaded capital ratio stands at 16.51%.

It is worth mentioning that, with effect from January 1, 2023, the application of part of the transitional effects applied by the Group in the determination of the phased-in ratio has ended, so that as of September 30, 2023, this ratio coincides with the fully-loaded ratio.

 

 FULLY-LOADED CAPITAL RATIOS (PERCENTAGE)

 

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 CAPITAL BASE (MILLIONS OF EUROS)

 

 

    CRD IV phased-in      CRD IV fully-loaded  
     30-09-23 (1) (2)     31-12-22      30-09-22      30-09-23 (1) (2)      31-12-22      30-09-22  

Common Equity Tier 1 (CET1)

    45,567       42,738        42,876        45,567        42,484        42,494  

Tier 1

    51,735       47,931        48,281        51,735        47,677        47,899  

Tier 2

    7,350       5,930        6,614        7,350        6,023        6,613  

Total capital (Tier 1 + Tier 2)

    59,085       53,861        54,895        59,085        53,699        54,512  

Risk-weighted assets

    357,972       337,066        341,678        357,972        336,884        341,448  

CET1 (%)

    12.73       12.68        12.55        12.73        12.61        12.45  

Tier 1 (%)

    14.45       14.22        14.13        14.45        14.15        14.03  

Tier 2 (%)

    2.05       1.76        1.94        2.05        1.79        1.94  

Total capital ratio (%)

    16.51       15.98        16.07        16.51        15.94        15.96  

(1) The difference between the phased-in and fully-loaded ratios arises from the temporary treatment of certain capital items, mainly of the impact of IFRS 9, to which the BBVA Group has adhered voluntarily (in accordance with article 473bis of the CRR and the subsequent amendments introduced by the Regulation (EU) 2020/873). As of September 30, 2023, there are no differences between phased-in and fully-loaded ratios due to the aforementioned temporary treatment.

(2) Preliminary data.

 

 

4 This includes the update of the countercyclical capital buffer calculated on the basis of exposure at end June 2023.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Regarding shareholder remuneration, as approved by the General Shareholders’ Meeting on March 17, 2023, at the top of the agenda, on April 5, 2023, a cash payment of 0.31 gross per each outstanding BBVA share entitled to receive such amount was made and charged to the 2022 results, as final dividend for the financial year 2022. Thus, the total amount of cash distributions for 2022, taking into account the 0.12 gross per share that was distributed in October 2022, amounted to 0.43 gross per share. The Board of Directors of BBVA resolved on its meeting hold on September 27, 2023, the payment of a cash interim dividend of 0.16 gross per share on account of the 2023 dividend, which was paid on October 11, 2023. This dividend is already considered in the Group’s capital adequacy ratios.

Total shareholder remuneration includes, in addition to the cash payments mentioned above, the remuneration resulting from the execution of the share buyback programs that the Group may execute. Regarding BBVA’s buyback program announced past February 1, 2023 for an amount of 422m, on April 21, 2023, BBVA announced the completion of this share buyback program, having acquired 64,643,559 own shares between March 20 and April 20, 2023, representing approximately 1.07% of BBVA’s share capital as of said date.

Likewise, on October 2, 2023, after receiving the required authorization from the ECB, BBVA announced that it would implement a buyback program for the repurchase of own shares in accordance with the Regulations, aimed at reducing BBVA’s share capital by a maximum monetary amount of 1,000 million, having acquired 60,000,000 shares between October 2 and October 27, 2023. The execution is being carried out internally by the Company, executing the trades through BBVA. This share buyback program would be considered to be an extraordinary shareholder distribution and is therefore not included in the scope of the ordinary distribution policy.

As of September 30, 2023, BBVA’s share capital stood at 2,923,081,772.45 divided into 5,965,473,005 shares, at 0.49 par value each, once the Group has carried out the partial execution, announced on June 2, 2023, of the share capital reduction resolution adopted by the Ordinary General Shareholders’ Meeting of BBVA held on March 17, 2023, under item 3 of the agenda through the reduction of BBVA’s share capital in a nominal amount of 31,675,343.91 and the consequent redemption, charged to unrestricted reserves, of 64,643,559 own shares of 0.49 par value each acquired derivatively by BBVA in execution of the share buyback program scheme and which were held in treasury shares.

 

 

 SHAREHOLDER STRUCTURE (30-09-23)

 

 
               Shareholders                        Shares issued                  
 Number of shares      Number                 %          Number                 %  

Up to 500

     320,518           41.9          59,850,509           1.0  

501 to 5,000

     347,619           45.5          617,318,453           10.3  

5,001 to 10,000

     51,682           6.8          362,663,173           6.1  

10,001 to 50,000

     40,326           5.3          770,406,978           12.9  

50,001 to 100,000

     2,857           0.4          195,173,818           3.3  

100,001 to 500,000

     1,290           0.2          231,643,198           3.9  

More than 500,001

     275           0.04          3,728,416,876           62.5  

Total

     764,567           100          5,965,473,005           100  

With regard to MREL (Minimum Requirement for own funds and Eligible Liabilities) requirements, BBVA must maintain, from January 1, 2022, an amount of own funds and eligible liabilities equal to 21.46% of the total RWA of its resolution group, on sub-consolidated5 level (hereinafter, the “MREL in RWA”). This MREL in RWA does not include the combined capital buffer requirement which, according to applicable regulations and supervisory criteria, would be at 3.32%, considering the exposures subject to the calculation of the countercyclical buffer as of June 2023. Given the own funds and eligible liabilities structure of the resolution group, as of September 30, 2023, the MREL in RWA ratio stands at 27.23%6,7 complying with the aforementioned requirement.

In addition, BBVA must reach, since January 1, 2022, an amount of own funds and eligible liabilities in terms of the total exposure considered for calculating the leverage ratio of 7.27% (the “MREL in LR”), of which 5.61% in terms of the total exposure considered for calculating the leverage ratio shall be met with subordinated instruments (the “subordination requirement in LR”).

With the aim of reinforcing compliance with these requirements, BBVA has made several debt issues during the first nine months of 2023. For more information on made issues, see “Structural risks” section within the “Risk management” chapter.

It should be noted that on June 14, 2023 the Group disclosed the receipt of a new communication from the Bank of Spain regarding its MREL requirement, established by the Single Resolution Board (hereinafter “SRB”). In accordance with this communication, BBVA has to reach, starting January 1, 2024, an MREL in RWA equal to 22.11%. This MREL in RWA does not include the applicable combined capital buffer requirement which, according to current regulations and supervisory criteria, would be at 3.32%, considering the exposures subject to the calculation of the countercyclical buffer8 as of June 2023. Given the own funds and eligible liabilities structure of the resolution group, as of September 30, 2023 the MREL in RWA would already comply with the aforementioned requirement.

Lastly, as of September 30, 2023, the Group’s fully-loaded leverage ratio stood at 6.59%9.

 

 

5 In accordance with the resolution strategy MPE (“Multiple Point of Entry”) of the BBVA Group, established by the SRB, the resolution group is made up of Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries that belong to the same European resolution group. As of September 30, 2023, the total RWA of the resolution group amounted to 207,953m and the total exposure considered for the purpose of calculating the leverage ratio amounted to 500,586m.

6 Own resources and eligible liabilities to meet, both, MREL and the combined capital buffer requirement applicable.

7 As of September 30, 2023, the MREL ratio in terms of Leverage Ratio Exposure stands at 11.31% and the subordination ratios in terms of RWA and in terms of Leverage Ratio Exposure, stand at 22.50% and 9.35%, respectively, being preliminary data.

8 The Bank of Spain communicated to BBVA a resolution on the identification of BBVA as Other Systemically Important Institution (hereinafter referred to as O-SII) and the corresponding capital buffer established. According to this resolution the O-SII capital buffer would increase by 25 basis points compared to the previous year applicable buffer, which stands at 100 basis points (1%) by January 1, 2024. This increase is due to the adaptation of the Bank of Spain’s methodology for the determination of the OSII capital buffers in line with the revision of the methodological framework established by the European Central Bank.

9 The Group’s leverage ratio is provisional at the date of release of this report.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Ratings

During the first nine months of 2023, BBVA’s rating has continued to show its strength and all agencies have maintained their rating in the A category. DBRS in March, Fitch in September and Moody’s in October communicated the result of its annual review of BBVA, affirming the rating at A (high), A- and A3, respectively, all three with a stable outlook. On the other hand, S&P has maintained BBVA’s ratings unchanged since the beginning of the year at A, with a stable outlook. The following table shows the credit ratings and outlook assigned by the agencies:

 

RATINGS

 Rating agency      Long term (1)    Short term      Outlook      

 DBRS

     A(high)    R-1 (middle)      Stable   

 Fitch

     A-    F-2      Stable   

 Moody’s

     A3    P-2      Stable   

 Standard & Poor’s

     A    A-1      Stable   

(1) Ratings assigned to long term senior preferred debt. Additionally, Moody’s and Fitch assign A2 and A- rating, respectively, to BBVA’s long term deposits.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Risk management

Credit risk

Since the beginning of the year, persistent inflation, Central Banks rate increases and the uncertainty surrounding economic growth have been the main factors that have impacted the markets, affecting to a greater or lesser extent depending on the region, reducing credit demand and causing a strain on the payment capacity of families and companies.

Uncertainty continues to be high, and the geopolitical turbulence at the time of drafting of this report could contribute to a rebound in oil prices, and therefore, increase the biases towards more negative scenarios, with downward growth and upward inflation.

By region, the evolution during the year is uneven. In Spain, although an environment of high inflation and higher interest rates continues, the level of household debt is far from its historical highs, and the labor market is expected to remain strong. In Mexico, the improvements in the growth outlook due to the dynamism of private consumption, and the effect of the relocation of industrial production (nearshoring), is positively impacting the labor market. The uncertainty in Turkey continues, although growth remains solid. Despite changes in economic policy, system quality indicators remain at low levels. Finally, in general, growth has been less dynamic in South America, in a context of high inflation and interest rates, negative effects related to the slowdown in China, as well as adverse climatic factors and social conflicts, affecting the economic situation of families and companies.

Calculation of expected losses due to credit risk

For the estimation of expected losses, the models include individual and collective estimates, taking into account the macroeconomic forecasts in accordance with IFRS 9. Thus, the estimate at the end of the quarter includes the effect on expected losses of updating macroeconomic forecasts, which take into account the current global environment.

Additionally, the Group may supplement the expected losses either by the consideration of additional risk drivers, the incorporation of sectorial particularities or that may affect a set of operations or borrowers, following a formal internal process established for the purpose.

Thus, in Spain, during 2021 and 2022, the Loss Given Default (LGD) of certain specific operations considered unlikely to pay was reviewed upwards, with a remaining adjustment as of September 30, 2023 of 407 million without significant variation since the end of the year 2022. In addition, due to the earthquakes that affected an area in the south of Turkey, during the month of February 2023 the classification of the credit exposure recorded in the five most affected cities was reviewed, which led to its reclassification to Stage 2. As of September 30, 2023 the amounts recorded in Stage 2 were 337 million on the balance sheet and 441 million off-balance sheet, with allowances for losses of approximately 38 million at contract level.

On the other hand, the complementary adjustments pending allocation to specific operations or customers as of September 30, 2023 totaled 71m of which 33m correspond to Spain, 30m to Mexico, 2m to Colombia, and 6m to Rest of Business of the Group. As of December 31, 2022, the complementary adjustments pending allocation to specific operations or customers totaled 302m, of which 163m corresponded to Spain, 92m to Mexico, 25m to Peru, 11m to Colombia, 5m to Chile and 6m to Rest of Business of the Group. The change during the nine months ended September 30, 2023 is mainly due to use of provisions and partial releases.

BBVA Group’s credit risk indicators

The evolution of the Group’s main credit risk indicators is summarized below:

 

 

Credit risk increased in the third quarter of the year by 2.0% (in current and constant terms), with generalized growth at constant exchange rates in all geographic areas except in Peru, where cancellations in both wholesale and “Plan Reactiva” portfolios continue, both with a practically stable evolution.

 

 

Non-performing loans presented a slight increase at the Group level between June and September 2023 (+1.2% in current and constant terms), with decline in Spain and Turkey, which offset the increases in the rest of the geographical areas. Compared to the end of the previous year, the balance of non-performing loans increased by 2.8% (+3,2% at constant exchange rates), focused on retail portfolio in South America and Mexico, and to a lesser extent, in Rest of Business, affected by three singular customers inflows.

 

 

 

NON-PERFORMING LOANS AND PROVISIONS (MILLIONS OF EUROS)

 

        

 

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The NPL ratio declined slightly to 3.3% as of September 30, 2023, which represents an improvement of 3 basis points compared to the previous quarter (7 basis points below that of the end of 2022).

 

 

Loan-loss provisions remained practically stable compared to the figure at the end of the previous quarter (+0.5% and -0.1% with respect to December 2022), affected by the sale of a default loan portfolio without collateral in Spain.

 

 

The NPL coverage ratio ended the quarter at 79% (57 basis points below the previous quarter and 228 basis points lower than the end of 2022).

 

 

The cumulative cost of risk as of September 30, 2023 stood at 1.11%, which is above the previous quarter due to the higher requirements in the retail portfolio in the main geographical areas, offset by the positive dynamics of the wholesale portfolio.

 

 

NPL AND NPL COVERAGE RATIOS AND COST OF RISK (PERCENTAGE)

 

 

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CREDIT RISK (1) (MILLIONS OF EUROS)

 

              
        30-09-23        30-06-23        31-03-23        31-12-22        30-09-22  

 Credit risk

     444,984        436,174        428,423        423,669        428,064  

Stage 1

     394,329        386,711        377,908        371,930        374,509  

Stage 2

     35,791        34,772        36,373        37,277        38,394  

Stage 3 (non-performing loans)

     14,864        14,691        14,141        14,463        15,162  

 Provisions

     11,751        11,697        11,661        11,764        12,570  

Stage 1

     2,143        2,107        2,062        2,067        2,203  

Stage 2

     2,198        2,181        2,243        2,111        2,247  

Stage 3 (non-performing loans)

     7,410        7,409        7,357        7,586        8,120  

 NPL ratio (%)

     3.3        3.4        3.3        3.4        3.5  

 NPL coverage ratio (%) (2)

     79        80        82        81        83  

  (1) Includes gross loans and advances to customers plus guarantees given.

  (2) The NPL coverage ratio includes the valuation adjustments for credit risk throughout the expected residual life in those financial instruments that have been acquired (mainly originating from the acquisition of Catalunya Banc, S.A.). If these valuation corrections had not been taken into account, the NPL coverage ratio would have stood at 78% as of September 30, 2023, 80% as of December 31, 2022 and 82% as of September 30, 2022.

 

 

NON-PERFORMING LOANS EVOLUTION (MILLIONS OF EUROS)

 

              
      3Q23 (1)        2Q23        1Q23        4Q22        3Q22  

 Beginning balance

     14,691            14,141            14,463            15,162            15,501  

 Entries

     2,896          2,875          2,256          2,332          1,871  

 Recoveries

     (1,537)          (1,394)          (1,489)          (1,180)          (1,595)  

 Net variation

     1,360            1,481            767            1,152            276  

 Write-offs

     (830)          (877)          (1,081)          (928)          (683)  

 Exchange rate differences and other

     (357)          (54)          (8)          (923)          67  

Period-end balance

     14,864          14,691          14,141          14,463          15,162  

 Memorandum item:

                      

 Non-performing loans

     13,947          13,787          13,215          13,493          14,256  

 Non performing guarantees given

     918          905          926          970          906  

  (1) Preliminary data.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Structural risks

Liquidity and funding

Liquidity and funding management at BBVA aims to finance the recurring growth of the banking business at suitable maturities and costs using a wide range of instruments that provide access to a large number of alternative sources of financing. BBVA’s business model, risk appetite framework and funding strategy are designed to reach a solid funding structure based on stable customer deposits, mainly retail (granular). As a result of this model, deposits have a high degree of assurance in each geographical area, close to 60% in Spain and Mexico. In this regard, it is important to note that, given the nature of BBVA’s business, lending is mainly financed through stable customer funds.

One of the key elements in the BBVA Group’s liquidity and funding management is the maintenance of large high-quality liquidity buffers in all geographical areas. In this respect, the Group has maintained during the last 12 months an average volume of high quality liquid assets (HQLA) of 134.29 billion, of which 97% corresponds to maximum quality assets (level 1 in the liquidity coverage ratio, LCR).

Due to its subsidiary-based management model, BBVA is one of the few major European banks that follows the Multiple Point of Entry (MPE) resolution strategy: the parent company sets the liquidity policies, but the subsidiaries are self-sufficient and responsible for managing their own liquidity and funding (taking deposits or accessing the market with their own rating). This strategy limits the spread of a liquidity crisis among the Group’s different areas and ensures that the cost of liquidity and financing is correctly reflected in the price formation process.

The BBVA Group maintains a solid liquidity position in every geographical area in which it operates, with ratios well above the minimum required:

 

 

LCR requires banks to maintain a volume of high-quality liquid assets sufficient to withstand liquidity stress for 30 days. BBVA Group’s consolidated LCR remained comfortably above 100% during 2022 and stood at 143% as of September 30, 2023. It should be noted that, given the MPE nature of BBVA, this ratio limits the numerator of the LCR for subsidiaries other than BBVA S.A. to 100% of its net outflows. Therefore, the resulting ratio is below that of the individual units (the LCR of the main components reaches 166% in BBVA, S.A., 163% in Mexico and 230% in Turkey). If this restriction was eliminated, the Group’s LCR ratio would reach 181%.

 

 

The net stable funding ratio (NSFR) requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. The BBVA Group’s NSFR ratio stood at 130% as of September 30, 2023.

The breakdown of these ratios in the main geographical areas in which the Group operates is shown below:

 

 

 LCR AND NSFR RATIOS (PERCENTAGE. 30-09-23)

 

     
      BBVA, S.A.    Mexico    Turkey    South America

 LCR

   166%    163%    230%    All countries >100

 NSFR

   120%    133%    182%    All countries >100

In addition to the above, the most relevant aspects related to the main geographical areas are the following:

 

 

BBVA, S.A. has maintained a strong position with a large high-quality liquidity buffer, having repaid almost the entire TLTRO III program. During the first nine months of 2023, commercial activity has not had a significant impact on the Bank’s liquidity with a relatively flat evolution in lending, in line with customer deposits. The latter fell in the first quarter, influenced by the seasonal component and by the transfer to off-balance sheet funds, it recovered during the second quarter and it remained stable in the third quarter. On the other hand, in December 2022 the Bank started the repayment of the TLTRO III program for an amount of 12 billion, plus an additional repayment of 12 billion between February and March 2023 and another one of 11 billion in June 2023, which together represent more than the 90% of the original amount, maintaining at all times the regulatory liquidity metrics well above the established minimums.

 

 

BBVA Mexico continues to present a solid liquidity situation, which has contributed to an efficient management of the cost of funds in an environment of rising interest rates. During the first nine months of the year, however, commercial activity has drained liquidity due to a sustained loan growth, together with outflows of funds in the first months of the year (seasonal effect after relevant inflows at the end of the year), which are not able to recover because of transfers to off-balance sheet funds with higher remuneration.

 

 

In Turkey, during the first nine months of 2023, the lending gap in local currency has been reduced, due to a greater growth in deposits than in loans. The lending gap in foreign currency has increased due to higher reductions in deposits. Garanti BBVA continues to maintain a stable liquidity position with comfortable ratios. On the other hand, the Central Bank of Turkey has begun to promote a gradual change of FX protected scheme to standard deposits in Turkish lira as an additional step on the economy dedollarization process.

 

 

In South America, the liquidity situation remains adequate throughout the region. In Argentina, liquidity in the system continues to increase, and so does in BBVA due to a higher growth in deposits than in loans in local currency, without significant variations in foreign currency. In BBVA Colombia, the credit gap declined due to a higher volume of deposits and a slowdown in lending growth. BBVA Peru maintains solid liquidity levels, showing a reduction in the credit gap since the beginning of the year thanks to the positive performance of deposits in contrast to a lower dynamism in lending activity, affected by the expiration of loans covered by COVID-19 programs.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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The main wholesale financing transactions carried out by the BBVA Group during the first nine months of 2023 are listed below:

 

 

Type of issue

  

Date of

  issue  

  

Nominal

  (millions)  

   Currency     Coupon    

Early

 redemption 

   Maturity date 
 

Senior non-preferred

   Jan-23    1,000    EUR    4.625%    Jan-30    Jan-31
 

Covered bonds

   Jan-23    1,500    EUR    3.125%       Jul-27
 

Senior preferred

   May-23    1,000    EUR    4.125%    May-25    May-26
 

Tier 2

   Jun-23    750    EUR    Midswap + 280 basis points    Jun-Sep 28    Sep-33
 

AT1

   Jun-23    1,000    EUR    8.375%    Dec-28    Perpetual
 

Tier 2

   Aug-23    300    GBP    8.250%    Aug-Nov 28    Nov-33
 

AT1

   Sep-23    1,000    USD    9.375%    Sep-29    Perpetual

Additionally, in June 2023 BBVA, S.A. completed a securitization of a portfolio of car loans for an amount of 800m.

BBVA Mexico, for its part, carried out two senior issues in the first quarter of the year and a subordinated issue in the second quarter. The first of the senior issues consists of a green bond for 8,689 million Mexican pesos (approximately 470m) with a maturity of 4 years, using the TIIE (Balanced Interbank Interest Rate used in Mexico) rate as a benchmark, at one day +32 basis points; and the second one involves the issuance of a senior bond for 6,131 million Mexican pesos (approximately 331m) at a fixed rate of 9.54% and a term of 7 years. Regarding the subordinated issue carried out in June, it was a USD 1 billion Tier 2 issue for a term of 15 years with an early redemption option after 10 years and at a fixed rate of 8.45%. The main objective of this issue is to achieve a comfortable loss-absorbing capital buffer to comply with TLAC (Total Loss-Absorbing Capacity) requirements, with full implementation in Mexico in 2025.

In Turkey, Garanti BBVA renewed in June a syndicated loan associated with environmental, social and corporate governance (ESG) criteria, consisting of two separate tranches of USD199m and 218.5m, both maturing in one year.

BBVA Colombia announced the launch of the first blue bond in Colombia, together with the International Finance Corporation (IFC), for an amount of USD50m.

Foreign exchange

Foreign exchange risk management aims to reduce both the sensitivity of the capital ratios and the net attributable profit variability to currency fluctuations.

The performance of the Group’s main currencies during the first nine months of 2023 has been very uneven. Due to its relevance for the Group, it should be noted the strength of the Mexican peso, which has appreciated 12.7% against the euro. The other currency which stands out was the Colombian peso (+18.5%). On the negative side, the depreciation of both the Turkish lira (-31.3%), mainly focused on June after the elections, and the Argentine peso (-49.2%), stands out. In both cases, the currencies have been pressured by the negative dynamism of inflation. The rest of currencies evolved moderately during the first nine months of the year: the Peruvian sol (+1.5%), the U.S. dollar (+0.7%) and the Chilean peso (-4.6%).

 

 

EXCHANGE RATES (EXPRESSED IN CURRENCY/EURO)

 

        

 

     Year-end exchange rates      Average exchange rates  
            Δ % on      Δ % on             Δ % on  
      30-09-23        30-09-22        31-12-22        Jan.-Sep.23        Jan.-Sep.22  

 U.S. dollar

     1.0594        (8.0)        0.7        1.0834        (1.8)  

 Mexican peso

     18.5030        6.1        12.7        19.2867        11.8  

 Turkish lira (1)

     29.0514        (37.8)        (31.3)                

 Peruvian sol

     3.9965        (3.2)        1.5        4.0332        0.5  

 Argentine peso (1)

     370.82        (61.3)        (49.2)                

 Chilean peso

     960.71        (2.0)        (4.6)        890.01        2.5  

 Colombian peso

     4,328.25        2.1        18.5        4,777.63        (9.5)  

 

(1) According to IAS 21 “The effects of changes in foreign exchange rates”, the year-end exchange rate is used for the conversion of the Turkey and Argentina income statement.

In relation to the hedging of the capital ratios, BBVA covers, in aggregate, 70% of its subsidiaries’ capital excess. The sensitivity of the Group’s CET1 fully-loaded ratio to 10% depreciations in major currencies is estimated at: +18 basis points for the U.S. dollar, -9 basis points for the Mexican peso and -5 basis points for the Turkish lira10. With regard to the hedging of results, BBVA hedges between 40% and 50% of the aggregate net attributable profit it expects to generate in the next 12 months. For each currency, the final amount hedged depends on its expected future evolution, the costs and the relevance of the incomes related to the Group’s results as a whole.

 

 

10 This sensitivity does not include the cost of capital hedges, which are currently estimated at 3 basis points per quarter for Mexican peso and 4 basis points per quarter for Turkish lira.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Interest rate

Interest rate risk management seeks to limit the impact that BBVA may suffer, both in terms of net interest income (short-term) and economic value (long-term), from adverse movements in the interest rate curves in the various currencies in which the Group operates. BBVA carries out this work through an internal procedure, pursuant to the guidelines established by the European Banking Authority (EBA), with the aim of analyzing the potential impact that could derive from a range of scenarios on the Group’s different balance sheets.

The model is based on assumptions intended to realistically mimic the behavior of the balance sheet. Of particular relevance are assumptions regarding the behavior of accounts with no explicit maturity and prepayment estimates. These assumptions are reviewed and adapted at least once a year, to take into account any changes in observed behavior.

At the aggregate level, BBVA continues to have a positive sensitivity toward interest rate increases in the net interest income.

The first nine months of 2023 were characterized by persistent inflation in most of the countries where the Group operates. Although headline inflation continued to show signs of slowing down, core inflation remains at high levels, which together with the growth indicators strength, served as reason for both the ECB and the Fed to consolidate their hawkish messages of high interest rates for a longer time. This positioning from monetary authorities has contributed the sovereign curves to certain rises, particularly in both intermediate and long tranches, and has delayed the expectation of starting a rates cut cycle in the main occidental economies. On the other hand, the peripheral curves spreads started to rise after having been well supported during the year, particularly in Italy. In the case of Mexico, the cycle of rate increases is considered to have ended, but the rates cut expectation is delayed until the first semester of 2024. The central bank of Turkey delves into the tighten of its monetary policy, with significant rate hikes in the third quarter of the year. In South America, after Uruguay, Brazil and Chile, Peru started its rate cut cycle with 25 basis points on September (25 additional basis points on October), and Colombia to follow it is expected before the end of the year. Argentina remains within an uncertainty environment because of the general elections on November.

By area, the main features are:

 

 

Spain has a balance sheet characterized by a high proportion of variable-rate loans (mortgages and corporate lending) and liabilities composed mainly by customer demand deposits. The ALCO portfolio acts as a management lever and hedging for the balance sheet, mitigating its sensitivity to interest rate fluctuations. In an environment of higher rates, currently close to their market-predicted terminal values, the interest rate risk profile of the balance sheet has been reduced during the year.

 

 

On the other hand, the ECB raised interest rates by 25 basis points at each of its meetings in July and September, bringing the benchmark interest rate to 4.5%, the marginal deposit facility rate at 4.0% and the marginal loan facility rate at 4.75% at the end of the quarter. In this environment, Euribor reference rates continued to rise in the third quarter of 2023, although at a slower pace than in the first six months of the year. Thus, the customer spread is benefiting from the interest rate hikes and the containment in the cost of deposits.

 

 

Mexico continues to show a balance between fixed and variable interest rates balances, which results in a limited sensitivity to interest rates fluctuations. In terms of assets that are most sensitive to interest rate movements, the commercial portfolio stands out, while consumer loans and mortgages are mostly at a fixed rate. With regard to the customer funds, the high proportion of non-interest bearing deposits, which are insensitive to interest rate movements, should be highlighted. The ALCO portfolio is invested primarily in fixed-rate sovereign bonds with limited maturities. The monetary policy rate stands at 11.25%, 75 basis points above the end-of-year level of 2022, but stable in the quarter. Regarding customer spread, there has been improvement so far between January and September of 2023, favored by both the containment of the cost of deposits and the positive evolution of the loan yield.

 

 

In Turkey, the sensitivity of loans, which are mostly fixed-rate but with relatively short maturities, and the ALCO portfolio balance the sensitivity of deposits on the liability side. Thus, the sensitivity of net interest income remains limited, both in Turkish lira and in foreign currencies. The CBRT increased the monetary policy rates, with two hikes each of 500 basis points on September and October from the 25% rate established on its August meeting. The customer spread improved in the third quarter due to the loan yield increases as a result of a positioning strategy against interest rates rises.

 

 

In South America, the interest rate risk profile remains low as most countries in the area have a fixed/variable composition and maturities that are very similar for assets and liabilities, with limited net interest income sensitivity. In addition, the balance sheets with several currencies, interest rate risk is managed for each of the currencies, showing a very low level of risk. Regarding benchmark rates, in Peru it stood at 7.25% at the end of October after the two cut rates of 25 basis points made by the Peru’s central bank in September and October. In Colombia, with no changes from April, interest rates stand at 13.25%. In Argentina, after the presidential elections in August, interest rates increased significantly by 2,100 basis points to 118%, and has continued to increase to 133%% after the last decision of the central bank on October. The customer spread in Colombia continues to recover as seen in the previous quarter, as well as in Peru, which maintains a constant improvement in the year.

 

 INTEREST RATES (PERCENTAGE)

 

      30-09-23      30-06-23      31-03-23      31-12-22      30-09-22      30-06-22      31-03-22  
 Official ECB rate      4.50        4.00        3.50        2.50        1.25        0.00        0.00  
 Euribor 3 months (1)      3.88        3.54        2.91        2.06        1.01        (0.24)        (0.50)  
 Euribor 1 year (1)      4.15        4.01        3.65        3.02        2.23        0.85        (0.24)  
 USA Federal rates      5.50        5.25        5.00        4.50        3.25        1.75        0.50  
 TIIE (Mexico)      11.25        11.25        11.25        10.50        9.25        7.75        6.50  
 CBRT (Turkey)      30.00        15.00        8.50        9.00        12.00        14.00        14.00  

(1) Calculated as the month average.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Business areas

This section presents the most relevant aspects of the Group’s different business areas. Specifically, for each one of them, it shows a summary of the income statements and balance sheets, the business activity figures and the most significant ratios.

The structure of the business areas reported by the BBVA Group as of September 30, 2023, is the same as the one presented at the end of 2022.

The composition of BBVA Group’s business areas is summarized below:

 

 

Spain mainly includes the banking, insurance and asset management activities that the Group carries out in this country.

 

 

Mexico includes banking, insurance and asset management activities in this country, as well as the activity that BBVA Mexico carries out through its agency in Houston.

 

 

Turkey reports the activity of the group Garanti BBVA that is mainly carried out in this country and, to a lesser extent, in Romania and the Netherlands.

 

 

South America includes banking, financial, insurance and asset management activities conducted, mainly, in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.

 

 

Rest of Business mainly incorporates the wholesale activity carried out in Europe (excluding Spain), the United States, and BBVA’s branches in Asia.

The Corporate Center contains the centralized functions of the Group, including: the costs of the head offices with a corporate function; structural exchange rate positions management; portfolios whose management is not linked to customer relations, such as financial and industrial holdings; stakes in Funds & Investment Vehicles in tech companies; certain tax assets and liabilities; funds due to commitments to employees; goodwill and other intangible assets as well as such portfolios and assets’ funding. Finally, in the description of this aggregate, it is worth mentioning that the Corporate Center tax expense includes the difference between the effective tax rate in the period of each business area and the expected tax rate of the Group for the year as a whole.

In addition to these geographical breakdowns, supplementary information is provided for the wholesale business carried out by BBVA, Corporate & Investment Banking (CIB), in the countries where it operates. This business is relevant to have a broader understanding of the Group’s activity and results due to the important features of the type of customers served, products offered and risks assumed.

The information by business areas is based on units at the lowest level and/or companies that make up the Group, which are assigned to the different areas according to the main region or company group in which they carry out their activity.

Regarding the shareholders’ funds allocation, in the business areas, a capital allocation system based on the consumed regulatory capital is used.

Finally, it should be noted that, as usual, in the case of the different business areas, that is, Mexico, Turkey, South America and Rest of Business, and, additionally, CIB, in addition to the year-on-year variations applying current exchange rates, the variations at constant exchange rates are also disclosed.

 

GROSS INCOME (1), OPERATING INCOME (1) AND NET ATTRIBUTABLE PROFIT (1) BREAKDOWN (PERCENTAGE. JAN.-SEP. 2023)

 

LOGO

(1) Excludes the Corporate Center.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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 MAIN INCOME STATEMENT LINE ITEMS BY BUSINESS AREA (MILLIONS OF EUROS)

 

            Business areas                
      BBVA
Group
     Spain      Mexico      Turkey      South
America
     Rest of
Business
     Σ Business
areas
     Corporate
Center
 

 Jan.-Sep.23

                       
 Net interest income      17,843        4,053        8,164        1,581        3,892        405        18,096        (253)  

 Gross income

     22,104        5,833        10,475        2,310        3,577        852        23,047        (943)  

 Operating income

     12,863        3,532        7,300        1,264        1,900        424        14,420        (1,557)  
 Profit (loss) before tax      9,487        3,053        5,472        1,089        1,021        410        11,044        (1,558)  

 Net attributable profit (loss) excluding non-recurring impacts

     5,961        2,110        3,987        367        496        322        7,282        (1,321)  

 Net attributable profit (loss)

     5,961        2,110        3,987        367        496        322        7,282        (1,321)  

 Jan.-Sep.22 (1)

                       

 Net interest income

     13,790        2,687        5,922        1,961        3,074        243        13,887        (97)  

 Gross income

     18,255        4,620        7,661        2,347        3,186        584        18,399        (144)  
 Operating income      10,428        2,477        5,218        1,561        1,693        217        11,166        (737)  

 Profit (loss) before tax

     7,844        2,107        3,896        1,205        1,148        229        8,585        (741)  

 Net attributable profit (loss) excluding non-recurring impacts (2)

     4,997        1,505        2,918        333        625        182        5,563        (566)  

 Net attributable profit (loss)

     4,795        1,304        2,918        333        625        182        5,361        (566)  

(1) Balances restated according to IFRS 17 - Insurance contracts.

(2) Non-recurring impacts includes the net impact arisen from the purchase of offices in Spain in the second quarter of 2022.

 

 MAIN BALANCE-SHEET ITEMS AND RISK-WEIGHTED ASSETS BY BUSINESS AREA (MILLIONS OF EUROS)

 

            Business areas                       
      BBVA
Group
     Spain      Mexico      Turkey      South
America
     Rest of
Business
     Σ Business
areas
     Corporate
Center
     Deletions  

 30-09-23

                          
 Loans and advances to customers      376,336        173,619        86,727        37,466        42,119        37,862        377,794        129        (1,587)  

 Deposits from customers

     403,861        212,725        86,373        51,104        44,535        10,204        404,942        191        (1,272)  

 Off-balance sheet funds

     160,485        93,024        52,741        7,894        6,345        480        160,484        1         
 Total assets/liabilities and equity      757,736        437,757        173,017        69,272        67,136        55,740        802,923        22,671        (67,858)  

 RWAs

     357,972        117,112        88,290        53,056        50,255        35,087        343,799        14,173         

 31-12-22 (1)

                          
 Loans and advances to customers      357,351        173,971        71,231        37,443        38,437        37,375        358,456        278        (1,383)  

 Deposits from customers

     394,404        221,019        77,750        46,339        40,042        9,827        394,978        187        (760)  

 Off-balance sheet funds

     150,172        86,759        38,196        6,936        17,760        520        150,170        2         
 Total assets/liabilities and equity      712,092        427,116        142,557        66,036        61,951        49,952        747,613        22,719        (58,239)  

 RWAs

     337,066        114,474        71,738        56,275        46,834        35,064        324,385        12,682         

(1) Balances restated according to IFRS 17 - Insurance contracts.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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NUMBER OF EMPLOYEES

 

       

 

NUMBER OF BRANCHES

 

LOGO     LOGO

   

 

NUMBER OF ATMS

 

   
LOGO    

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Spain

Highlights

 

   

Growth in consumer loans, SMEs and public sector during the year

 

   

Net interest income dynamism continues

 

   

Very significant improvement of the efficiency ratio

 

   

Cost of risk remains at low levels

 

 

BUSINESS ACTIVITY (1) (VARIATION COMPARED TO 31-12-22)

 

        

 

NET INTEREST INCOME / AVERAGE TOTAL ASSETS (PERCENTAGE)

 

LOGO      LOGO

(1) Excluding repos.

 

 

 OPERATING INCOME (MILLIONS OF EUROS)

 

        

 

NET ATTRIBUTABLE PROFIT (LOSS) (MILLIONS OF EUROS)

 

LOGO      LOGO

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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 FINANCIAL STATEMENTS AND RELEVANT BUSINESS INDICATORS (MILLIONS OF EUROS AND PERCENTAGE)

 

 Income statement    Jan.-Sep.23        Δ %        Jan.-Sep. 22 (1)  

 Net interest income

     4,053          50.8          2,687  

 Net fees and commissions

     1,603          (2.0)          1,635  

 Net trading income

     309          (6.2)          329  

 Other operating income and expenses

     (132)          n.s.          (31)  

 Of which: Insurance activities

     278          2.9          270  

 Gross income

     5,833          26.3          4,620  

 Operating expenses

     (2,301)          7.3          (2,144)  

 Personnel expenses

     (1,292)          10.5          (1,169)  

 Other administrative expenses

     (723)          8.3          (668)  

 Depreciation

     (286)          (6.8)          (307)  

 Operating income

     3,532          42.6          2,477  

 Impairment on financial assets not measured at fair value through profit or loss

     (405)          21.9          (332)  

 Provisions or reversal of provisions and other results

     (74)          100.4          (37)  

 Profit (loss) before tax

     3,053          44.9          2,107  

 Income tax

     (941)          56.9          (600)  

 Profit (loss) for the period

     2,112          40.1          1,507  

 Non-controlling interests

     (2)          (31.6)          (3)  

 Net attributable profit (loss) excluding non-recurring impacts

     2,110          40.2          1,505  
 Net impact arisen from the purchase of offices in Spain                        (201)  

 Net attributable profit (loss)

     2,110          61.9          1,304  
 Balance sheets    30-09-23        Δ %        31-12-22 (1)  

 Cash, cash balances at central banks and other demand deposits

     34,461          (29.9)          49,185  

 Financial assets designated at fair value

     138,913          9.9          126,413  

 Of which: Loans and advances

     58,053          38.5          41,926  

 Financial assets at amortized cost

     214,593          4.9          204,528  

 Of which: Loans and advances to customers

     173,619          (0.2)          173,971  

 Inter-area positions

     41,660          7.0          38,924  

 Tangible assets

     2,882          (3.6)          2,990  

 Other assets

     5,248          3.4          5,076  

 Total assets/liabilities and equity

     437,757          2.5          427,116  
 Financial liabilities held for trading and designated at fair value through profit or loss      104,052          23.0          84,619  
 Deposits from central banks and credit institutions      41,839          (19.1)          51,702  
 Deposits from customers      212,725          (3.8)          221,019  
 Debt certificates      48,733          19.5          40,782  
 Inter-area positions                         

 Other liabilities

     15,979          0.7          15,870  

 Regulatory capital allocated

     14,429          9.9          13,124  
 Relevant business indicators    30-09-23        Δ %        31-12-22  

 Performing loans and advances to customers under management (2)

     170,282          (0.5)          171,209  

 Non-performing loans

     7,931          0.5          7,891  

 Customer deposits under management (2)

     211,611          (3.9)          220,140  

 Off-balance sheet funds (3)

     93,024          7.2          86,759  

 Risk-weighted assets

     117,112          2.3          114,474  

 Efficiency ratio (%)

     39.4                     47.5  

 NPL ratio (%)

     4.0                     3.9  

 NPL coverage ratio (%)

     55                     61  

 Cost of risk (%)

     0.31                     0.28  

(1) Balances restated according to IFRS 17 - Insurance contracts.

 

(2) Excluding repos.

 

(3) Includes mutual funds, customer portfolios and pension funds.

 

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Macro and industry trends

According to the latest estimate from BBVA Research, GDP growth will converge to around 2.4% in 2023 (unchanged from the previous forecast) and 1.8% in 2024 (30 basis points lower than previously expected). Despite the relative resilience of activity in recent quarters, largely related to the dynamism of the services sector, exports, and the labor market, as well as the effect of the European recovery funds, growth is expected to continue to moderate going forward, in line with the slowdown in growth in the Eurozone and the prospects of tighter monetary conditions and higher oil prices. Annual inflation, which reached 3.5% in September, will remain slightly above this level—and higher than previously expected—in the last quarter of 2023 and during most of 2024, pressured by recent increases in oil prices and the strength of the services sector.

As for the banking system, data at the end of July 2023 showed that the volume of credit to the private sector declined by 3.1% year-on-year. At the June close, household and corporate loan portfolios fell by 1.7% and 3.7% year-on-year, respectively. Customer deposits fell by 3.9% year-on-year as of the end of July 2023, due to an 8.1% reduction in demand deposits. This was not offset by the growth in time deposits (+49.6% year-on-year). The NPL ratio continued to decline, falling to 3.56% in August 2023, 30 basis points below the figure of the same period of the previous year. Furthermore, the system maintains comfortable solvency and liquidity levels.

Activity

The most relevant aspects related to the area’s activity during the first nine months of 2023 were:

 

 

Lending balances were in line with the end of December (-0.5%). By portfolios, loans to the public sector (+6.5%), consumer loans (+4.2%, including credit cards) and loans to SMEs (+2.3%) were offset by mortgage cancellations made by some customers and deleveraging by large corporations (-2.4%).

 

 

Total customer funds remained relatively stable (-0.7%). Lower demand deposit balances (-5.5%) were partially offset mainly by off-balance sheet funds growth (mutual and pension funds, 7.2% overall), which increased mainly as a result of net contributions during the first nine months of the year.

The most relevant aspects related to the area’s activity during the third quarter of 2023 were:

 

 

Lending activity remained flat compared to the previous quarter (-0.3%) mainly due to the seasonal reduction in loans to the public sector (-13.3%), offset by the consumer loans (+3.4%, including credit cards), loans to large corporations (+2.6%) and SMEs (+0.6%). On the other hand, mortgage loans remained stable during the quarter (+0.1%).

 

 

Regarding credit quality, the NPL ratio decreased 7 basis points compared to the previous quarter and stands at 4.0%, favored by both the positive dynamics of the wholesale portfolio and the impact of the sale of a default loan portfolio without collateral (non-performing loans and write-offs). As a result of this sale and given the high coverage level of the portfolio sold, the NPL coverage ratio decreased during the quarter to 55%.

 

 

Total customer funds remained stable in the quarter (-0.4%). Customer deposits declined (-0.7%) influenced by seasonality, while off-balance sheet funds (mutual and pension funds) increased slightly (+0.2%), mainly due to the volume of net contributions, which offset the slight negative impact of the market evolution.

Results

Spain generated a net attributable profit of 2,110m in the first nine months of 2023, 61.9% higher than in the same period of the previous year, thanks again to the strength of the net interest income, which boosted gross income growth and comfortably offset the increase in expenses.

The most notable aspects of the year-on-year changes in the area’s income statement at the end of September 2023 were:

 

 

Net interest income grew by 50.8% and continues to benefit from the improvement in customer spreads derived from the interest rate hikes.

 

 

Net fees and commissions were lower than the same period of the previous year (-2.0%), as a result of a lower contribution from banking services fees.

 

 

Decrease in the year-on-year NTI contribution (-6.2%), despite the favorable evolution of Global Markets.

 

 

Other operating income and expenses compare negatively with the same period of the previous year, due to the 215m recorded in this line, corresponding to the total annual amount paid for the temporary tax on credit institutions and financial credit establishments. On the other hand, the contribution to SRF was lower than in the same period of the previous year, and the performance of the insurance business improved compared to the same period of 2022.

 

 

Operating expenses continued to increase (+7.3%), although well below the growth of gross income (+26.3%), which allowed a very significant improvement of the efficiency ratio by 695 basis points in the last twelve months. The increase in operating expenses is due to both higher fixed remuneration to personnel, with additional measures that improve those of the sectoral wage increase agreement, and higher general expenses, especially higher IT expenses.

 

 

Impairment on financial assets increased 21.9% due to higher loan-loss provisions, mainly in the retail portfolio, which were affected by a higher rate environment, and together with some positive non-recurring items recorded in the first nine months of 2022. As a result of the above, the cumulative cost of risk at the end of September 2023 increased to 0.31%, which is 4 basis points above the cumulative figure at the end of the first half of the year.

In the third quarter of 2023, Spain generated a net attributable profit of 879m, which represents a growth of +27.4% compared to the previous quarter. The evolution between July and September was marked again by both the favorable performance of the net interest income (+11.0%), as well as by the improvement in the other operating income and expenses line compared to the second quarter, which included the contribution to the SRF.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Mexico

Highlights

 

   

Lending activity acceleration in the quarter, with greater dynamism of the retail segment

 

   

Net interest income continues to grow at double digit rates

 

   

Favorable evolution of the efficiency ratio

 

   

Quarterly net attributable profit continues at high levels

 

 

BUSINESS ACTIVITY (1) (VARIATION AT CONSTANT EXCHANGE RATE COMPARED TO 31-12-22)

 

  

  

  

 

NET INTEREST INCOME / AVERAGE TOTAL ASSETS (PERCENTAGE AT CONSTANT EXCHANGE RATE)

 

     
LOGO       LOGO

(1) Excluding repos.

 

 

OPERATING INCOME (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATE)

 

  

  

  

 

NET ATTRIBUTABLE PROFIT (LOSS) (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATE)

 

     
LOGO       LOGO
(1) At current exchange rate: +39.9%.       (1) At current exchange rate: +36.7%.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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 FINANCIAL STATEMENTS AND RELEVANT BUSINESS INDICATORS (MILLIONS OF EUROS AND PERCENTAGE)

 

 Income statement     Jan.-Sep.23      Δ  %      Δ  % (1)       Jan.-Sep. 22  (2)  

 Net interest income

     8,164        37.9        23.3        5,922  

 Net fees and commissions

     1,626        38.2        23.6        1,176  

 Net trading income

     384        18.8        6.3        324  

 Other operating income and expenses

     300        25.7        12.5        239  

 Gross income

     10,475        36.7        22.3        7,661  

 Operating expenses

     (3,175)        30.0        16.3        (2,443)  

 Personnel expenses

     (1,492)        34.6        20.4        (1,109)  

 Other administrative expenses

     (1,337)        28.1        14.6        (1,043)  

 Depreciation

     (346)        18.9        6.4        (291)  

 Operating income

     7,300        39.9        25.2        5,218  

 Impairment on financial assets not measured at fair value through profit or loss

     (1,827)        43.1        28.0        (1,277)  

 Provisions or reversal of provisions and other results

     (1)        (97.4)        (97.7)        (45)  

 Profit (loss) before tax

     5,472        40.4        25.7        3,896  

 Income tax

     (1,484)        51.8        35.8        (978)  

 Profit (loss) for the period

     3,988        36.7        22.3        2,918  

 Non-controlling interests

     (1)        37.0        22.6        (1)  

 Net attributable profit (loss)

     3,987        36.7        22.3        2,918  
 Balance sheets    30-09-23      Δ %      Δ % (1)      31-12-22 (2)  

 Cash, cash balances at central banks and other demand deposits

     9,781        (26.1)        (34.4)        13,228  

 Financial assets designated at fair value

     60,945        30.9        16.1        46,575  

 Of which: Loans and advances

     4,162        176.2        145.1        1,507  

 Financial assets at amortized cost

     94,960        23.0        9.1        77,191  

 Of which: Loans and advances to customers

     86,727        21.8        8.0        71,231  

 Tangible assets

     2,329        18.2        4.9        1,969  

 Other assets

     5,002        39.2        23.5        3,593  

 Total assets/liabilities and equity

     173,017        21.4        7.7        142,557  

 Financial liabilities held for trading and designated at fair value through profit or loss

     33,063        28.0        13.5        25,840  

 Deposits from central banks and credit institutions

     11,677        165.3        135.3        4,402  

 Deposits from customers

     86,373        11.1        (1.4)        77,750  

 Debt certificates

     9,189        18.5        5.1        7,758  

 Other liabilities

     21,868        28.8        14.3        16,976  

 Regulatory capital allocated

     10,845        10.3        (2.1)        9,831  
 Relevant business indicators    30-09-23      Δ %      Δ % (1)      31-12-22  

 Performing loans and advances to customers under management (2)

     87,362        21.7        8.0        71,788  

 Non-performing loans

     2,385        23.0        9.1        1,939  

 Customer deposits under management (3)

     85,157        10.4        (2.0)        77,117  

 Off-balance sheet funds (4)

     52,741        38.1        22.5        38,196  

 Risk-weighted assets

     88,290        23.1        9.2        71,738  

 Efficiency ratio (%)

     30.3                          31.7  

 NPL ratio (%)

     2.6                          2.5  

 NPL coverage ratio (%)

     127                          129  

 Cost of risk (%)

     2.94                          2.49  

(1) At constant exchange rate.

(2) Balances restated according to IFRS 17 - Insurance contracts.

(3) Excluding repos.

(4) Includes mutual funds, customer portfolios and other off-balance sheet funds.

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Macro and industry trends

The economy continues to expand at a relatively high rate, faster than anticipated, due to the dynamism of private consumption, the resilience of the manufacturing sector, the effects on private investment of the prospects for nearshoring of industrial production outside of China and the impact of higher public spending on the construction sector, amid improved growth prospects in the United States. According to BBVA Research, GDP could grow around 3.2% in 2023 and 2.6% in 2024 (in both cases, 80 basis points higher than the previous forecast). Annual inflation eased to 4.5% in September and will probably continue to gradually moderate in the coming quarters, remaining around 3.8% on average in 2024. Policy rates, which stood at 11.25% at the end of September, are expected to begin to be cut somewhat later than expected, starting at the beginning of 2024.

With respect to the banking system, at the end of August 2023 the volume of outstanding credit to the non-financial private sector increased by 10.5% in year-on-year terms, with a greater boost from the consumer portfolio (+18.2%), followed by mortgages (+10.3%) and businesses (+7.5%). Growth in total deposits remained at 8.7% in August 2023, in line with recent months. Time deposits slowed slightly in August (+15.3% year-on-year). The industry’s non-performing loans remained stable at around 2.36% and capital ratios are at comfortable levels.

Unless expressly stated otherwise, all the comments below on rates of change, for both activity and results, will be given at constant exchange rate. These rates, together with changes at current exchange rates, can be found in the attached tables of financial statements and relevant business indicators.

Activity

The most relevant aspects related to the area’s activity during the first nine months of 2023 were:

 

 

Lending activity (performing loans under management) grew by 8.0% between January and September 2023 due to the positive evolution of the retail portfolio and the wholesale portfolio, the latter with better dynamics compared to the first half of 2023. The wholesale portfolio, which includes large companies and public sector, grew by 4.5%, highlighting the dynamism of the business segment (+4.0%). On the other hand, the retail portfolio grew at a rate of 10.8%, which supports the trend observed since the beginning of the year. Within this segment, consumer loans grew by 13.5%, credit cards by 12.8%, mortgage loans by 6.0%, and loans to SMEs by 17.1%. The loans portfolio continued to show a high diversification, of which 47.9% of the total correspond to the wholesale portfolio and the remaining 52.1% to the retail portfolio.

 

 

Customer deposits under management declined between January and September of 2023 (-2.0%) due to the high rates environment and the containment of the cost of liabilities policy implemented by BBVA Mexico. The above was mainly offset by the growth of off-balance sheet funds, which was very relevant, particularly in mutual funds, which increased at a rate of 20.9% between January and September 2023.

The most relevant aspects related to the area’s activity in the third quarter of 2023 were:

 

 

Lending activity (performing loans under management) recorded a quarterly increase of 3.3%, with growth in both the wholesale and retail portfolios (+2.8% and +3.4%, respectively). During the quarter, the dynamism of the retail segment stands out as a result of the strong private consumption, which is supported by the favorable evolution of employment and the increase in real wages. In the wholesale portfolio, the public sector segment stood out, which increased by 8.9% in the third quarter.

 

 

With regard to the asset quality indicators, the NPL ratio continues to be at comfortable levels and stood at 2.6% at the end of September 2023, which represents a growth of 9 basis points compared to the previous quarter and practical stability compared to the end of the year 2022 (+4 basis points). On the other hand, the NPL coverage ratio decreased to 127% at the end of September 2023, affected by the partial release of previous provisions, because of additional adjustments not assigned to particular clients or operations due to the performance observed in the portfolios associated with them.

 

 

Customer deposits under management increased compared to the previous quarter (+1.9%), due to both higher demand deposits (+0.9%) and time deposits (+7.2%). On the other hand, off-balance sheet funds continued to grow at a rate of 5.9%.

Results

In Mexico, BBVA achieved a cumulative net attributable profit of 3,987m by the end of September 2023, representing an increase of 22.3% compared to the same period in 2022, mainly as a result of the significant growth in net interest income, thanks to the strong boost of the activity and the improvement in the customer spread.

The most relevant aspects of the year-on-year changes in the income statement at the end of September 2023 are summarized below:

 

 

Net interest income recorded a significant growth (+23.3%), as a result of strong dynamism of lending activity and a price management efficiency (keeping the cost of deposits contained), with an improvement in customer spreads associated with a higher bias towards retail portfolio.

 

 

Net fees and commissions, boosted by greater transactional banking, continued to increase at double digit (+23.6%), with growth in almost all commissions types, highlighting both credit cards and those derived from mutual funds management.

 

 

The contribution from NTI increased (+6.3%) mainly as a result of the good performance of Global Markets, with a significant contribution from the foreign currency operations. The NTI showed a decline as a result of a bond swap operation associated with balance-sheet management.

 

 

The other operating income and expenses line grew 12.5%, driven by the evolution of the insurance business.

 

 

Operating expenses increased (+16.3%), with higher personnel expenses due to salary adjustments and an increase in the workforce in a context of strong growth in activity, and the increase of general expenses linked to inflation, particularly

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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marketing and technology. Despite the above, the efficiency ratio continued to evolve favorably, with a significant improvement of 158 basis points compared to twelve months earlier.

 

 

Loan-loss provisions increased (+28.0%), mainly due to the higher provisioning needs of the retail portfolio, mainly in consumer and credit cards, partially affected by the strong increase of these segments. For its part, the cumulative cost of risk at the end of September 2023 stood at 2.94%, which is above the one registered at the end of June 2023 (+8 basis points).

In the quarter, and excluding the exchange rate effects, BBVA Mexico generated net attributable profit of 1,324m. The good performance of the recurring income during the quarter was partially offset by a lower contribution of the NTI (mainly by the bond swap mentioned above), which, together with a somewhat higher impairment on financial assets, keeps the net attributable profit in line with the previous quarter(-0.4%).

 

Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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Turkey

Highlights

 

   

The dedollarization of the balance sheet continues in the quarter

 

   

Improvement of the NPL ratio and NPL coverage ratio

 

   

The cost of risk remains at low levels

 

   

Net attributable profit of the third quarter negatively impacted by the hyperinflation adjustment and the increase in the tax rate

 

 

BUSINESS ACTIVITY (1) (VARIATION AT CONSTANT EXCHANGE RATE COMPARED TO 31-12-22)

 

       

 

NET INTEREST INCOME / AVERAGE TOTAL ASSETS

(PERCENTAGE AT CURRENT EXCHANGE RATE)

 

 

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(1) Excluding repos.

    

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OPERATING INCOME (MILLIONS OF EUROS AT CURRENT EXCHANGE RATE)

 

       

 

NET ATTRIBUTABLE PROFIT (LOSS) (MILLIONS OF EUROS AT CURRENT EXCHANGE RATE)

 

 

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Translation of this report originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.


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 FINANCIAL STATEMENTS AND RELEVANT BUSINESS INDICATORS (MILLIONS OF EUROS AND PERCENTAGE)

 

 Income statement      Jan.-Sep.23       Δ %        Δ %  (1)       Jan.-Sep. 22  (2)  

 Net interest income

     1,581       (19.3)        21.3       1,961  

 Net fees and commissions

     630       35.9        103.6       463  

 Net trading income

     798       35.0        102.4       591  

 Other operating income and expenses

     (699)       4.6        (41.5)       (668)  

 Gross income

     2,310       (1.6)        184.0       2,347  

 Operating expenses

     (1,046)       33.1        93.6       (786)  

Personnel expenses

     (589)       29.7        94.1       (454)  

Other administrative expenses

     (346)       46.4        116.9       (236)  

Depreciation

     (112)       16.4        44.0       (96)  

 Operating income

     1,264       (19.0)        n.s.       1,561  

 Impairment on financial assets not measured at fair value through profit or loss

     (84)       (70.4)        (55.5)       (285)  

 Provisions or reversal of provisions and other results

     (91)       28.3        75.0       (71)  

 Profit (loss) before tax

     1,089       (9.7)        n.s.       1,205  

 Income tax

     (658)       (26.1)        8.6       (890)  

 Profit (loss) for the period

     431       36.7        n.s.       315  

 Non-controlling interests

     (64)       n.s.        n.s.       18  

 Net attributable profit (loss)

     367       10.2        n.s.       333  
 Balance sheets    30-09-23     Δ  %      Δ % (1)     31-12-22 (2)  

 Cash, cash balances at central banks and other demand deposits

     11,493       89.6        175.9       6,061  

 Financial assets designated at fair value

     4,134       (20.5)        15.6       5,203  

Of which: Loans and advances

     1       (75.4)        (64.1)       3  

 Financial assets at amortized cost

     50,311       (2.5)        41.8       51,621  

Of which: Loans and advances to customers

     37,466       0.1        45.6       37,443  

 Tangible assets

     1,471       21.3        66.4       1,213  

 Other assets

     1,863       (3.9)        37.5       1,938  

 Total assets/liabilities and equity

     69,272       4.9        52.4       66,036  

 Financial liabilities held for trading and designated at fair value through profit or loss

     2,089       (2.3)        42.2       2,138  

 Deposits from central banks and credit institutions

     2,447       (14.8)        24.0       2,872  

 Deposits from customers

     51,104       10.3        60.5       46,339  

 Debt certificates

     2,777       (14.2)        24.9       3,236  

 Other liabilities

     4,333       (8.6)        30.5       4,741  

 Regulatory capital allocated

     6,521       (2.8)        41.1       6,711  
 Relevant business indicators    30-09-23     Δ  %      Δ % (1)     31-12-22  

 Performing loans and advances to customers under management (3)

     37,493       0.8        46.7       37,191  

 Non-performing loans

     1,991       (23.3)        11.5       2,597  

 Customer deposits under management (3)

     49,775       9.2        58.9       45,592  

 Off-balance sheet funds (4)

     7,894       13.8        65.6       6,936  

 Risk-weighted assets

     53,056       (5.7)        36.9       56,275  

 Efficiency ratio (%)

     45.3                        33.5  

 NPL ratio (%)

     3.8                        5.1