31 Oct, 2023
BBVA forecasts revenue growth into 2024 as higher rates boost guidance
Banco Bilbao Vizcaya Argentaria SA increased its guidance for lending income growth in 2023 while forecasting higher revenues for the coming quarters driven by its Spanish and Mexican businesses.
The Spanish bank, which also operates across Latin America and Turkey, expects net interest income (NII) to increase 50% in Spain and close to 20% in Mexico in 2023 as both markets benefit from higher interest rates. NII, which comprises more than three-quarters of BBVA's income, is the difference between interest revenues and interest income.
BBVA generated €6.43 billion in NII in the third quarter on a current euro basis, 22.5% higher than the previous three months. The result beat the average of analysts' estimates by 6.5%, according to S&P Global Market Intelligence data.
"Due to the continued spread improvement in Spain, and the strong lending momentum and volume growth in Mexico, we believe we will continue to post healthy core revenue growth in the coming quarters," CEO Onur Genç said during a third-quarter earnings call. "Today, we are further upgrading our NII growth expectations for 2023, both for Spain and Mexico."
Rising profit
The strong NII performance in the third quarter helped BBVA reach a €2.08 billion profit, a new quarterly record on a current euro basis and the second successive three-month period of profit above €2 billion. On a constant euro basis, net attributable profit was up almost 30% year over year but was down 1.4% quarter over quarter.
The bank's profit performance beat the average of analysts' estimates by 7.5%, according to Market Intelligence data. Analysts expect BBVA to make €7.44 billion in profit in 2023, the data shows.
BBVA's return on tangible equity — a key measure of profitability — surpassed 17% in the quarter, the highest level in the last 10 years, said Genç.
NII in Spain grew to €1.51 billion in the third quarter, up 11% from the previous three months, helping the ongoing repricing of loans to higher rates and limited increases in deposit costs. Mexican NII grew to €2.8 billion in the third quarter, a quarterly increase of 4.9%.
'So much liquidity'
BBVA is sticking to its previous guidance for 2023 deposit costs in Spain, where almost 60% of the bank's assets are based. The bank still expects the deposit beta — the portion of short-term central bank rates passed on to depositors — for 2023 to reach 20%.
NII at Spanish banks is benefitting from a slower-than-expected increase in deposit betas along with higher interest income for rising rates. Spanish banks have yet to be forced to increase rates on deposits significantly due to a high level of liquidity remaining in the country's banking system.
"There's so much liquidity in the system," said Genç. "The scarce resource is not deposits."
Limited loan growth and the repayment of the debt in Spain are resulting in even greater liquidity and less pressure to raise rates on deposits for banks.
"The banking system is deleveraging," Genç said, highlighting that the Spanish banking system's stock of loans contracted 3.5% year over year in August. "The stock is coming down, which means the liquidity that we already have is going to be even more if it continues like this."
Turkey troubles
BBVA's business in Turkey, its third-largest market, continues to struggle with the country's high inflation rate and unpredictable monetary policy environment. Turkiye Garanti Bankasi AS had a loss of €158 million in the third quarter.
Inflation in Turkey hit more than 60% in September as it continues to feel the impact of the unorthodox monetary policy pursued by President Recep Tayyip Erdogan months before he was reelected in May.
The country's central bank has since hiked interest rates aggressively, increasing its benchmark one-week repo rate by 500 basis points to 35%, its fifth hike in a row.