BBVA Q3 2026 Earnings Call Transcript

BBVA (NYSE:BBVA) reported third-quarter financial results on Thursday. The transcript from the company’s third-quarter earnings call has been provided below.

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Summary

BBVA reported strong loan growth exceeding 20% year-over-year, driven by its diversified presence in low-leveraged countries and growth in the enterprise segment. The company achieved a 22% return on tangible equity, significantly surpassing its cost of equity and outperforming European peers.

Net interest income (NII) grew by 16.5% year-over-year, serving as the main driver behind net attributable profit growth. In Spain and Mexico, loan growth was strong, with Spain at 7.3% and Mexico at 12%, particularly in profitable segments like consumer cards and enterprises.

The efficiency ratio improved slightly to 37.9%, with gross income up by 16.3% and expenses rising by 16%, resulting in positive jaws. Asset quality remained stable, with a cost of risk at 144 basis points and a non-performing loan (NPL) ratio at 2.6%.

The capital CET1 ratio was at 12.21%, with a 20 basis point reduction due to a 2 billion euro share buyback. BBVA is progressing in its AI transformation strategy, showing tangible positive impacts in customer experience and productivity.

The company maintains a positive outlook, expecting to beat its financial goals for the 2025-2028 period. BBVA’s strategic focus includes strong performance in Spain, Mexico, and South America, with notable growth in lending and efficiency improvements.

Full Transcript

Luisa Gomez Bravo (Group Chief Financial Officer)

Our loan growth since December 2023 reaching more than 20% year on year in current euros at the end of last quarter, and while our European peers are also growing faster, BBVA continues to outperform, supported by our diversified presence in relatively low-leveraged countries, the strength of our leading franchises, our growth in the enterprise segment per our strategic plan, and our consistent ability to gain new customers. And what is particularly remarkable is that we are delivering this growth while maintaining outstanding profitability.

On the right side of the page, our 22% return on tangible equity stands well above our cost of equity and compares very well with the 15.6% for our European peers, an important gap that we have consistently maintained over time. On page number seven, this slide summarizes the key financial messages of the quarter, which I will cover in more detail in the following slides, so let me move directly to the next page. Page number eight, the summarized P&L for the quarter. As usual, I would highlight the excellent performance of the core revenues with NII, especially with NII growing 16.5% year over year and 5.7% quarter over quarter in constant, serving as the main driver behind our net attributable profit growth. Slide number nine, the summarized P&L for the first nine months of 2026. Similar message, similar to quarterly evolution, our excellent core revenue growth is the fundamental reason behind the record 9,066,000,000 euros of net attributable profit.

Moving to slide number 10, you see the quarterly evolution of each revenue component starting with net interest income. It is worth highlighting the acceleration of NII growth in the last quarter supported by the strong activity growth. Turning to net fees and commissions, we recorded a 12.4% increase year over year, with payments and asset management business continuing to be the main growth drivers. Here, net trading income increased by 5.7% year over year with a slightly positive quarterly evolution as the positive contribution coming from the FX hedges are practically offset by the muted global markets activity.

All in, gross income increased by 15.7% year over year and 4.2% versus the previous quarter. Moving to slide number 11 for Spain and Mexico, our two largest markets, let me focus on activity and loan growth, which again remain the key drivers of our net interest income growth. In Spain, loan growth remains very strong at 7.3% year over year, while in Mexico it further accelerated to 12% growth. In both markets, growth continues to be driven by the most profitable segments. You also see that in the middle of the page, consumer and credit cards on the retail side and enterprises on the wholesale side — the most profitable segments — are growing even faster.

Coupled with the stabilization of interest rates, the very strong activity growth translates into a very strong quarterly growth of NII in both markets. In fact, if you annualize the last quarter growth of NII in both markets, you arrive at a higher run rate of annual growth, which again makes us positive for the quarters to come. Moving to page 12 on efficiency, on the left-hand side, gross income grew by 16.3% as we discussed in the first nine months year over year, while expenses increased by 16%, leading to positive jaws, even including the non-recurring items recorded during the year. On the right side of the slide, our efficiency ratio slightly improved by 9 basis points to 37.9% in annual comparison. Excluding the non-recurring effects described in the footnote, the true improvement in the efficiency ratio would have been 81 basis points, which we also value a lot.

In short, we continue to deliver an outstanding efficiency ratio while investing in growth and transformation. Turning to slide number 13, asset quality metrics remain stable throughout the quarter in a context of again very good growth in lending. Starting with the cost of risk on the bottom left, it remained broadly stable at 144 basis points for the first nine months of the year, in line with our expectations. The quarterly evolution of absolute impairments shows an increase due to the impact of a large portfolio sale that we have done, if you remember, in the second quarter.

On the bottom right, our NPL ratio also remained stable at 2.6% while the coverage ratio stood at 84%. Basically, overall broad stability. Slide number 14, on capital, our CET1 ratio stood at 12.21% compared to 12.41% in June. Pro forma after deducting the 2 billion extraordinary share buyback currently underway, this represents a 20 basis point, as we discussed in the first pages, 20 basis point reduction during the quarter. So focusing on that difference in the waterfall, main impacts of the quarter: number one, the strong results that contribute 71 basis points; dividend accrual and AT1 coupons deducting 38 basis points; then, as you see on the page, minus 44 basis points from RWA growth, again reflecting our exceptional lending activity in the quarter, deploying capital to profitable growth, enabling our future earnings and future capital generation. As we discuss all the time, this figure, the 44, is net of SRTs; it includes the result of SRTs, which contributed plus three basis points, which is, as you know, a somewhat smaller figure than other quarters due to summer seasonality.

And finally, minus nine basis points in the other category, which is also a bit different from other quarters. It includes a relatively large minus 22 basis points impact from the market movements, especially the sharp movement of the interest rate curves and the currencies, on shareholder remuneration. On the right-hand side, we paid a record interim dividend of 37 euro cents per share on October 15th, and we are now executing the second 1 billion euro tranche of the extraordinary 2 billion euro share buyback program that we announced last quarter.

Moving to page number 15, let me briefly also update you on our AI transformation strategy. As I mentioned last quarter and also even the quarter before, at BBVA we are determined to lead the AI transformation in banking as we did in digital transformation. We held our BBVA strategic talk on AI — on other things, but including AI — on October 6 where we shared our strategy and the progress we are making. So I will not go into too much detail today, but two messages to highlight from that session, which is also summarized in this page.

First, we are already starting to see very tangible positive impact using AI. We are improving customer experience, achieving high productivity by redesigning our processes, and utilizing AI tools broadly across the bank. Just to give you a couple of examples that are listed here, our AI-powered voice assistant is achieving close to a 90% successful resolution rate in pilot interactions, while some of our first AI agents are reducing the time for the preparation of a financial program on the risk side for the enterprises by as much as 30%.

And the second message in this page is that we believe the real opportunity is to scale these use cases and the results across the entire bank in a controlled but facilitated manner. And this is precisely what the Frame, as we call it, will allow us to do. We are already making headway in industrializing AI, and this will enable us to build, deploy, and manage the AI agents at scale, again faster but with full control — and more to come on this one in the following quarters.

And finally, moving to page number 16 regarding the evolution of our financial goals for the 2025–2028 period, this page is very important to us. That’s why we bring it to you every quarter as usual. I will not go through each one of them, but we do have the full confidence to beat our goals at the end of the planning period, I guess is the main message. And now, for the business areas update, I turn it to Gonzalo. Gonzalo, well, thank you. Thank you very much. And good morning, everyone.

Let me start with Spain, where net profit reached 934 million in the quarter, with nine-month earnings reaching 3.1 billion. That is up 2.3% year on year excluding two non-recurring items: first of all, VIT adjustments in the second quarter of both this year and last year, and second, the embassy cost in the first quarter. Overall in Spain, solid earnings performance. This performance is supported by strong core revenue growth and commercial momentum on lending.

Lending grew by 7.3% year on year, driven by sustained growth across the most profitable segments, with consumer and enterprise lending both growing at around 10%. On the liability side, deposits grew 5.8% year on year, driven by sustained growth in retail deposits through customer acquisition, through our focus on customers’ transactionality, and additionally wholesale and time deposits. Now turning to the P&L in Spain, NII increased by 3.4% year on year and 1.2% quarter on quarter, supported by robust lending activity. Customer spread improved slightly in the quarter, benefiting from higher lending yields due to the repricing of our new loan production. Deposit costs also increased, mainly reflecting the immediate repricing of wholesale deposits, while retail deposit costs remain broadly stable in the quarter. Looking ahead, we expect further support for customer spread from the gradual repricing of our mortgage portfolio, which is still at an early stage.

As for fees, net commissions grew 2.3% year on year. The quarterly decline mainly reflects lower CIB fees, partly offset by growth in asset management. Costs remain well controlled in Spain, increasing by 4.5% year on year excluding the non-recurring items. And finally, asset quality: asset quality metrics remain very solid in Spain. Higher impairments in the quarter are explained by the positive one-off of a portfolio sale in the second quarter, and cost of risk stood at 33 basis points, within our full-year guidance.

So overall, Spain continues to deliver a very solid performance, fully in line with our guidance. Turning now to Mexico, on slide 19, the business in Mexico delivered again another strong quarter driven by lending growth and solid core revenues. Net profit in Mexico totaled 4.5 billion in the first nine months, up by 8.4% year on year in constant euros. Loan growth accelerated to 12% year on year, supported by stronger demand from mid-sized companies and retail lending, which also maintained very solid momentum, with consumer and SME segments growing at around 2% in the quarter.

This strong activity translated into solid revenue performance. Let me elaborate a bit further. NII increased by 2.6% quarter on quarter and 8.5% year on year, with the strong lending growth more than offsetting the remaining pressure on customer spread from the easing rate cycle. As Onur mentioned before, we expect lending growth to provide further support to NII as the easing cycle has come to an end. Fees remained broadly stable in the quarter due to lower CIB fees following a strong second quarter, while maintaining a solid year-on-year growth of 7%.

At the operating level, gross income grew by 8.5% year on year, with a cost-to-income ratio of 30.7%, supporting outstanding efficiency in Mexico, while we continue to invest for future growth in this country. Now moving to asset quality, the key message is that underlying trends remain very sound. Cost of risk declined to 319 basis points year to date, mostly benefiting from provision releases following the annual model parameter update. Underlying cost of risk stood around 330 basis points, in line with our expectations.

So overall, Mexico continues to deliver strong and profitable growth, and we remain on track to meet our full-year guidance in Mexico. Moving now to Turkey, on slide 20, net profit in Turkey reached close to 260 million in the third quarter, with cumulative earnings of 799 million. That is close to up 22% year on year in current euros. Looking first at revenues, we delivered strong NII growth, up 16.8% quarter on quarter. NII benefited from a significant improvement in Turkey’s lira customer spread, reflecting the normalization of funding conditions and also our active funding cost optimization strategy.

Higher lending volumes also contributed positively, and fees in Turkey remained broadly stable in the quarter. On asset quality, retail credit risk remains under pressure in a higher-for-longer interest rate environment, and cost of risk increased to 255 basis points year to date, explained by elevated provisioning needs in retail portfolios and lower recoveries in wholesale. As a result, cost of risk in Turkey could come slightly above our guidance of 220 basis points for the year, reflecting a more prolonged period of elevated rates than we initially anticipated.

Nevertheless, we remain confident in delivering our net profit guidance in Turkey of around 1 billion, with a downward bias. Given our positive sensitivity to lower rates in Turkey, the recent easing cycle should support customer spread and NII growth going forward. Now moving to South America, on slide 21, the region continued to deliver strong year-on-year earnings growth. Net profit reached 265 million in the third quarter, taking the nine-month total to 821 million, up 42% year on year in current euros. This performance in South America was supported by solid core revenue generation across our main franchises. NII benefited from sustained lending growth, with the loan book increasing by close to 15% year on year in constant euros, together with improved customer spread, particularly in Colombia and in Peru.

Fee income also contributed positively, driven by growth in payments and transactional service fees. So overall, solid income growth in South America that, combined with disciplined cost management, brought the region’s cost-to-income ratio to 41.5% in the first nine months of the year. Turning to asset quality in the region, underlying trends remained solid in Peru and Colombia. In the case of Argentina, impairments remained broadly stable quarter on quarter, though still elevated.

Following our proactive adjustment of risk appetite, we are beginning to see signs of stabilization in asset quality metrics in Argentina and a gradual improvement expected throughout 2027. For the full year in South America, cost of risk could come slightly above our guidance of below 250 basis points, mainly depending on asset quality developments in Argentina. However, a stronger gross income performance should offset this impact in the region.

So overall, in short, we remain confident in the region’s earnings contribution to the group’s growth. And finally, let me turn to Rest of Business. On slide 22, the unit delivered another strong quarter, with net profit reaching 291 million, up 7% quarter on quarter, and 800 million for the first nine months. Lending continues to grow strongly across geographies, reflecting the strength of our global CIB franchise and our ability to support corporate clients as they grow internationally. As we have been emphasizing, our CIB strategy is about corporate banking.

Our aim is to be a key partner for wholesale clients, and in fact close to 90% of our CIB business revenues are client-driven, with close to 40% involving cross-border activity. This strong commercial momentum continues to translate into solid revenue growth. Gross income increased close to 12% quarter on quarter, supported by strong NII and higher NTI. Expenses continue to reflect investments in strategic initiatives and key capabilities, while maintaining positive jaws year on year.

Finally, on asset quality, asset quality remains very strong, with cost of risk declining to 11 basis points year to date. So overall, in short, Rest of Business continues to deliver strong and profitable growth supported by the strength of our CIB franchise. And now, back to Onur for the final remarks.

Onur Genç (Chief Executive Officer)

Thank you. Thank you, Gonzalo. So, for the main takeaways on page 20. Again, let me not take time by repeating all the key messages. But in short, in our view another set of excellent results in the quarter, driven by the strength in activity and, as a result, in core revenues, further improving our industry-leading growth, profitability and efficiency ratios and profile. And regarding guidance, we maintain the positive outlook shared last quarter. At the group level, we see upside potential for the return on tangible equity guidance at the group level, which we now improve to be above 20%. Above 20%.

And now back to Patricia—about 21. About 21. What did I say? About 21. Obviously we are already at 20. And now back to Patricia for the Q&A. Patricia.

Patricia (Investor Relations)

Yes, thank you, Onur and Gonzalo. We are ready now to start the Q&A session. Operator, could we have the first question, please?

OPERATOR

Thank you. If you would like to ask a question, please press star followed by one on your telephone keypad. If you would like to withdraw your question, please press star followed by two. When preparing to ask your question, please ensure your device is unmuted locally. First question comes from Maxim Mission with JB Capital. Your line is open. Please go ahead.

Maxim Mission (Analyst at JB Capital)

Hello, good morning. Thank you very much for the presentation and for taking our questions. Two from me, please. The first one is on Spain. You mentioned that cost of deposits went up due to wholesale. I was wondering how much of the growth in deposits was driven by wholesale? And given that you are at almost 100% loan-to-deposit ratio, do you think loan growth may force you to attract more wholesale deposits, pressuring the overall deposit costs going forward?

And the second question is on trading income. I understand it’s hard to give guidance, but it moderated significantly, and I was wondering what run rate should we think of for Spain? Thank you.

Onur Genç (Chief Executive Officer)

Thank you, Max, for both questions on Spain. As you mentioned, most of this came from wholesale deposits, which is the relatively automatically repriced part of the deposit base. The 13 basis points that you see as the cost of deposit increase in Spain—13—basically 10 of that increase has come from non-retail, which is mainly corporate. If you isolate for that impact and if you only look into the, we call Banco de Comercial, which is 150 billion of the roughly 200 billion of the deposits—demand deposits in Spain—as we call retail, retail and SME—that group, 150 billion—the cost of deposit increase for that group is around 4 basis points.

And there is a small segment there which is again automatically repriced. If you isolate for that, the increase is actually two basis points for the group. So we are not seeing that much pressure, to be fair, on the retail side. And as such, most of the increase that you have seen came from the wholesale deposits. As we mentioned on the trading income, actually the highlight of Spain, if you look into the quarter, in my humble view, the only core negative of the Spain P&L this quarter was trading income. And why is that? Because of the interest rate curves. We are primary dealers, we are market makers, we are the emitters of securities in Spain, in other European countries like Italy and so on. And as part of that primary dealer role, obviously we have to hold some of those securities.

So with the interest rate curves going up, it had hurt the NTI also—not only in capital, but also in NTI—there was this negative impact. So if the interest rate curves remain as is, if they don’t go up as much, the NTI would improve in Spain and broadly for the group. So it was mainly for that. But you’re asking what would be the run rate? NTI is the only one that I cannot say what the run rate would be because it’s a very volatile item, as you know, Max. But there was that impact which was coming from the interest rate curve, which seems like will not be the case in the fourth quarter or for the quarters to come. Anything you want to add?

Gonzalo

Thank you. On the cost of deposits, just to reiterate that we’re having very strong momentum on new customer acquisition. At September, we are above last year figures and we expect to reach close to 1 million new customers at the end of the year. And again, as we have said, more than 70% become primary customers and more than 30% become payroll customers within the first six months. And we see some momentum. We see some momentum also on small business acquisition; we expect to reach more than 70,000 customers this year. Also in payroll market share, we are above 17% and we grew 30 basis points year on year. So, in short, we’ll continue to grow inside deposits, mainly coming from retail.

But maybe this tangibly is this one also. I mean, in the chart of Spain on page—you see the growth year over year of the deposits as well. When you look into the growth in deposits, you see that in the last year, September versus September, our demand deposit balances have gone up by roughly 4 billion euros. When you deep dive into the growth of that 4 billion, basically the majority, close to 80%, comes from retail. So despite very heavy competition—because we have a lot of fintechs and neobanks operating in Spain—we are increasing our demand deposits on the retail side, in our view, in a very healthy way.

If you look into the growth of the time deposits—and time deposits are again more price sensitive, obviously, and so on—basically the majority of the growth of that amount was driven purely by corporate. So we are doing corporate time deposits, but we are increasing our demand deposit base in retail, which in our view is good news. Good news for the coming quarters as well.

Patricia (Investor Relations)

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

OPERATOR

We now turn to Marina Chira with Jefferies. Your line is open. Please go ahead.

Miruna Chira (Analyst at Jefferies)

Good morning. Thank you very much for taking my questions. The first one is on Mexico. I guess it’s very encouraging to see growth very strong at 12% year on year and especially this being driven by the acceleration in corporate loans. So I was wondering what is your updated view for lending growth in Mexico this year and how would you see growth in 2027? And then on the customer spread in Mexico—was 3Q the bottom and how should we expect the margins to progress from here? And on what base rate assumption is that based on?

And then maybe just a quick follow-up on the wholesale deposits in Spain. I wanted to ask what is the duration of these deposits that reprice very quickly with rates? I guess my question is, out of the two ECB hikes that we’ve seen so far, is the whole repricing on the wholesale deposits already seen in Q3 or should we expect some more to come in Q4? Thank you very much.

Onur Genç (Chief Executive Officer)

Very good. Thank you, Miruna, for all the questions. I’ll take the Mexico questions. Maybe you jump in also, Gonzalo, on Spain on the deposits—corporate deposit pricing frequency. On Mexico, some of you, when we meet face to face, you tell me that I’m too positive on Mexico. At least so far I have been proven right, and I continue to be very positive on Mexico—very positive. So on lending growth, you see 12% growth. Because of the base effect, this 12 might modulate a little bit, but as you know our guidance was around 10%, so most likely we will beat our guidance. But very positive lending growth—very positive. And you see it across all the product categories: consumer is going up 9, credit cards going up 11, SMEs going up 10%.

We now have 34% market share in SMEs. Other commercial is going up 17%. So very positive, very healthy lending growth. We stick to our guidance. We didn’t want to change our guidance, but obviously we have a positive bias on the number that we guided. UN activity—it’s going very strong. Regarding margins, we do think we have reached the bottom on the margins. It’s very much related to the interest rate, obviously, of the central bank. The central bank has reached 6.5% interest rate, and they are indicating that it will be at these levels for some quarters to come. They don’t have a tendency to increase, but they don’t have a tendency to decrease either, which was originally the base case when we started the year. So the 6.5%—the bottom reached at interest rates—is implying that we have also basically touched the bottom in customer spread.

So looking forward—you asked about 2027, Miruna—we don’t obviously give guidance yet on 2027, but you will again criticize me, I guess, but I’m very positive on Mexico for the coming quarter and for 2027. On the pricing of deposits—corporate deposits…

Gonzalo

Yes, on the pricing of deposits and duration of deposits in Spain. So wholesale, which was the main increase this quarter—the duration is very short term. Very short term. We may see, in cost of deposits, some increase in the fourth quarter depending on Euribor and also on the mix. But to your question, the duration is very short term. So, Miruna, it’s already repriced—everything. It’s tied to the Euribor or sometimes to even the central bank rate. If central bank rates go up again, then in December you will see some impact from that, and that’s it today. But we are not expecting an increase today in the central bank rate—ECB rates. So the ECB rate increase is the only driver here. The pricing frequency is very quick.

Patricia (Investor Relations)

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

OPERATOR

We now turn to Benjamin Toms with RBC. Your line is open. Please go ahead.

Benjamin Toms (Analyst at RBC)

Morning both. Thanks for taking my questions. The bank SREP requirement will go up 40 basis points from January. Given this movement, are management still comfortable with running the business at 11.5% to 12% CET1 ratio range? Could we see the range move up to a circa 12% target ratio? And then secondly, the RoTE for the nine months so far is 22%. Do you still expect RoTE to go up from these levels in ’27 and ’28? Thank you.

Onur Genç (Chief Executive Officer)

Very good. Thank you, Benjamin. So on the target—we discussed this from time to time. This question comes in the quarterlies. In general, we have no intention to increase our management target for a specific reason. Again, we are one of the most profitable banks in Europe. We are the most profitable large bank in Europe. And more importantly, when you look into the volatility of this profitability and volatility of capital generation—organic capital generation—you do see that we are not only very highly profitable, but the volatility of that is also very low.

As a result of all of this, the supervisors set a requirement on different banks. When you look into our requirements—and we published it two days ago—our 2027 requirement would be 9.36. 9.36. That requirement again is relatively low as compared to some of our peers. The difference between the requirement and the upper end of our target range, which is 12, is 264 basis points. 264 basis points. How does that compare—the 264 basis points—with our competitors? When you look into that large bank group that we also list in our presentations in the footnotes—who they are, the large European banks—the average is 258 basis points. So even with the increased requirement on BBVA, our buffer, if you will, on CET1 between our management target and the requirement is larger than the average of our peers.

In that context, relatively speaking as well, we are very well positioned—very well situated—in terms of that buffer. So we have no intention to increase our management target. Then, return on tangible equity of 22. Should you expect more on this in the coming years? We don’t give guidance for the coming years specifically for 2027 yet, but we do have, as you know, our midterm plan. In the midterm plan, our average commitment to the market is 22 on average. Last year, if you remember, it was 19 plus. So the average of the two years—or the average a year and nine months, as you see in the document that we are sharing—is 20.6.

To be able to get to 22 on average, we have to do better in 2027 and 2028. In short, we expect the return on tangible equity to further improve in 2027 and in 2028.

Patricia (Investor Relations)

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

OPERATOR

We now turn to Antonio Riley with Bank of America. Your line is open. Please go ahead.

Antonio Riley (Analyst at Bank of America)

Morning everyone. It’s Antonio from Bank of America. A couple of questions from my side, please. The first one is on Spain. I guess it’s a follow-up. I mean, looking outside in, the growth in the quarter looked like it came with some margin pressure. I know customer spreads have moved up slightly, but I wonder if maybe hedging strategies were put in place earlier in the year when expectations were for rates to drop, or if there is anything else that we need to be aware of aside from commercial drivers.

So if you could just talk us through your moving parts in NII and what we should expect going forward for NII in—that’s my first question. The second one is on Turkey. The question is: do you see further NII recovery picking up from here, conscious that you also have much more conservative macro assumptions for 2027 on both rates and CPI than what your peers seem to have in Turkey? And related to that, a follow-up if I may. While you’ve taken the better part of NII growth this quarter, you also seem to have taken the worst part when it comes to asset quality. So I wonder if, embedded in your guidance for cost of risk to be around 220 bps, you’re also really telling us that the worst with Q3 is now behind us in terms of NPL inflows and cost of risk in the region.

Thank you.

Onur Genç (Chief Executive Officer)

Thank you, Antonio, for both questions on Spain. Let’s start with the NII perspectives going forward. So you see the two sides of NII: the volume and then the margin on the volume. It’s very clear. You see it in the figures: 7.3% growth year over year in the overall book, as you see in the document as well. I mean, we are relatively very cautious actually on mortgage, so we are losing market share in mortgage, but in consumer we are gaining share, and especially in enterprises we gained 50 basis points market share in enterprises in the last year.

So we are growing very nicely. The market is doing well and we are doing even better than the market. So you should expect very robust loan growth in Spain going forward. So volume very good. On the margins, we do expect a slight improvement going forward. Actually the fourth quarter numbers are going to be even better than the third quarter in terms of spread. It depends on the rates a bit, but we have been guiding you to a sensitivity of 4% NII improvement with a 100 basis points step-up in the interest rate curve. Interest rate curves, it seems like they’re going to be going up further, so there will be even more improvement in the coming year in our view with that change.

But even without that change, when rate changes happen, like in the case very recently OVCB, you get immediately a hit on cost of deposits, but then you get some time in repricing your loans. If you remember, we guided this to the market as well in our mortgage bank book. Two thirds of our mortgage book is repriced every six months and one third every year, and you get the Euribor—typically 12 months—two months before. So actually it’s 6 plus 2 and 12 plus 2 repricing.

So the loan repricings have not come into effect yet from the latest increases that the ECB had done. As a result, even if there is no increase in the ECB rates, we are expecting some improvement in the spreads. And if the interest rates continue to go up, as is the best case scenario for us, you will see even more. In short, we are very positive for Spain and NII is very strong. And I’ve been here for some time now. I have seen many years of negative growth in loans. Spain continues to do well as a country. Investments are 5% up year over year—the investment part of the economy—and consumer spending is also very, very robust. The services economy is doing really well. That’s why our expectation for GDP growth for this year is 2.6%. For next year it’s 2.1%. Very robust economic growth. And in this context we are gaining market share.

In short, volumes very strong; margins will continue to improve. On Turkey, as you said, the macro assumptions turned out to be worse than what we had originally planned for at the beginning of the year. If you remember, we guided you to a net profit figure, but with that net profit figure we had a clear footnote. I mentioned it multiple times that we had certain macro assumptions baked into it. At the beginning of the year we were expecting 25% inflation for the year and 32% end-of-year interest rate. We are very sensitive to those two parameters.

And 25% inflation turned out to be it’s going to be around 30%. And the 32% end-of-year interest rate, it’s going to be 36%, maybe 35%. But our base case scenario is 35–36 in that range, so much higher than what we thought. And those have a direct impact on the profitability. And as you say, this has an implication on asset quality. But despite the fact that we missed on those macro assumptions—we even provided a sensitivity on those figures—we managed to basically deliver what we would have been delivering in that scenario of positive environment.

So we are more or less there. Asset quality will come out a bit higher than the 2.20%, as Gonzalo mentioned in the presentation. So it will come a bit higher. But that higher asset quality figures—higher cost of risk—will be compensated by other factors, especially NII. So we are quite confident with the guidance that we have for the year.

Patricia (Investor Relations)

Okay, thank you. Thank you very much, Antonio. So next question, please.

OPERATOR

We now turn to Francisco Raquel with Alantra. Your line is open. Please go ahead.

Francisco Raquel (Analyst at Alantra)

Yes, thank you for the presentation and taking my questions. I want to ask about loan growth in CIB outside your home markets in what you call the rest of business area, which is very strong, up 15% q/q, 69% year on year. You give the split by region, but I wonder if you can comment on the exposure by sector. BBVA has appeared as a lender to one of the AI build-outs where the market believes there could be some trouble. So how can you reassure about risk-taking in this fast-growing loan book?

And also connected to this, your loan-to-deposit ratio for BBVA S.A. has reached 100%. So do you see that as a constraint that could limit loan growth in the international CIB loan book or even in Spain? Thank you.

Onur Genç (Chief Executive Officer)

Let me start with the second one very quickly on the 100%. We don’t see that as a restriction, as you can imagine. We prefer deposits all the time, obviously, but we have multiple funding sources available to us. And 100% is obviously something that we can live very nicely, very comfortably. So we don’t see that as a restriction at the moment at all. On the CIB book, you mentioned diversification and you mentioned overall growth. Maybe I talk a little bit about overall CIB growth. We did a strategic talk on this in spring, but let me be a bit more clear on this one. So CIB, we put it into our strategic plan. We made it very clear to all of you, to the market participants as well, that we want to grow in this area for a very simple reason: we wanted to accompany our clients on their journey of internationalization, which is a very high-level framing or statement to say.

But there are very few banks now who do have local presence in the countries that we are in like we do. You can be with a CIB franchise everywhere, but being with the full-fledged retail, SME, corporate, commercial, enterprise presence in multiple geographies that we are in is relatively rare these days. And in these geographies we are in the core of those economies. Our clients in those geographies do business beyond their geographies, like a Mexican client does business in the US.

A Spanish client does a lot of business in Latin America. So our CIB strategy is based on something which we call right to compete. Do we have something different? Do we have something better than our competitors? We believe—not in the investment banking side of this purely, but especially on the corporate banking side of CIB—we do have a clear right to compete and right to win. That’s where we are growing. And I think Gonzalo gave the numbers in the presentation: 90% of our CIB income is client revenues. So the trading, the prop trading business—we are not in that business. That 90% of client revenues, when you deep dive into it, 40% of that is what we call cross-border, which is the revenues that you generate from a client of yours in a geography beyond the home country of that client. So we are basically tagging along with our clients to serve them, to help them in the international footprint that they have, given that we believe we have something different and we have something resilient to bank on as part of that process.

As we grow in some of those rest of business geographies you asked about, Paco, there are opportunities there. As we are in the market, again, we will be very selective. Again, like in project finance, which we think we have something better than others because we have been in that business for so long, we will be there and we will do some business. We will not be doing M&A in the US. We will not, because we don’t think we can compete. But in debt financing, in debt advisory, debt structuring, project finance, we have the expertise and we believe we can generate enough returns to be able to compete there.

I’m giving you all this background because this is receiving attention, but I want to make sure that you all understand that we are doing this in a purposeful, deliberate, strategic manner—not in the way that we want to grow. With that strategy we are growing, and we are growing profitably. That’s the most important thing that I would highlight. Our return on capital for the CIB business is now 23% if we exclude Argentina and Turkey, which is a very high return.

So you have to exclude them to have a more conservative figure. And that’s 23%. In the rest of business, depending on where you count the revenues, it’s between 20% to 24% return on capital. It’s profitable; it’s clearly above cost of equity. That’s why we are in that business. And we believe it’s going to create further returns and further capital for our shareholders going forward. Coming back to your one question in the press—you say something came out in a project finance. First of all, I don’t know which one you refer to, but I have a guess. Obviously we don’t talk about specific clients, but the referral regarding that specific, publicly available—or there were some public comments on a certain client—I can tell you that in general the exposure that we have, it was a syndicate information, and the net exposure that we have obviously needs to be considering the post-origination sales, all the hedges that you do on that, and so on.

So again, we don’t talk about a specific client, but we feel very comfortable with the exposure that we have. It’s mainly project finance that we do. On the AI topic—mainly project finance data centers—when you look into those transactions, 95% of those project financings are backed by an investment-grade hyperscaler, and the construction risk that you are looking into, a majority of them are in the middle of their construction period and so on. We see very little risk in that. Obviously we have to be vigilant. It’s an environment that we have to be very vigilant. But we think our risks are well controlled.

Patricia (Investor Relations)

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

OPERATOR

We now turn to Alvaro Serrano with Morgan Stanley. Your line is open. Please go ahead.

Alvaro Serrano (Analyst at Morgan Stanley)

Good morning. I guess these are another two follow-up questions just to make sure I understand the moving parts in the Spanish deposits. I think, Gonzalo, I think you called out the balances were also—the increase in terms was wholesale-driven, and I see there’s a significant quarter-on-quarter sort of increase, that’s 5.5%, €9 billion in balances in terms. Is that sort of a lumpy sort of wholesale deposits? Because we can see the demand has dipped.

I guess the question: is it wholesale? Is it going to sort of come down again, or how should we think about the mix of the deposits in the next few quarters as we model the rate sensitivity and the pass-throughs? And second, on Mexico, volumes obviously doing very well. On the customer spread, I think the guidance was that it would bottom out in the second half of the year. Is this now the bottom of the customer spread? Could it dip a bit more? A bit of color on the progress there? Thank you.

Onur Genç (Chief Executive Officer)

Let me start with the second one, and maybe, Gonzalo, we take the first one on deposits. On Mexico, I mentioned it very briefly before. We do think we reached the bottom. It obviously depends on the mix a bit. If you grow much more on the enterprise side it has a negative impact on the average spread. But beyond the mix effect, we have seen all the repricings of the loans and the deposits done already. So we do think we have reached the bottom, and it should be going up from here—again, excluding the mix effect on deposits.

Luisa Gomez Bravo (Group Chief Financial Officer)

Just to reiterate what Onur said before, we keep our rate sensitivity, NII sensitivity in Spain to plus/minus 4% to 100 basis points moving in the curve. And also we expect customer spread to improve slightly going forward. So to your question on exact mix of wholesale deposits going forward, it’s difficult to predict. But we keep, as I said, the sensitivity of plus/minus 4% and the improvement in customer spread. Also, overall, you referred to a quarter-over-quarter evolution of deposits. It’s pure seasonality because at the end of June in Spain there are still some companies who have 14 salaries and so on. At the end-of-June point balances you see a hike and then you see a decline. These are point balances that you see in the presentation. But average balances are actually up quarter over quarter because of retail. So we feel quite comfortable now on this topic.

Patricia (Investor Relations)

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

OPERATOR

We now turn to Sophie Petersen with Goldman Sachs. Your line is open. Please go ahead.

Sophie Petersen (Analyst at Goldman Sachs)

Yeah, thank you for taking my question. Here is Sophie from Goldman Sachs. So my first question would be on your guidance of 36 billion in payout between 2025 and 2028. Consensus has somewhere around 5 billion, slightly more than 5 billion in share buybacks over the next two years in 2027 and 2028. How should we think about your core equity tier 1 ratio? What can you do to improve it? Is the 12.2% that you reported today a little bit transitionary?

And you can do more SRTs going forward, so if you could comment on this a little bit more. And then my second question would be on market share gains. You mentioned a few times that you’re gaining market share both in Mexico and Spain. Could you maybe just discuss a little bit more in which products and from what type of entities you’re gaining the market share? Thank you.

Luisa Gomez Bravo (Group Chief Financial Officer)

So you refer, Sophie, to market share gains in Mexico in which products?

Sophie Petersen (Analyst at Goldman Sachs)

Sorry, in Spain and Mexico. So in lending, okay.

Luisa Gomez Bravo (Group Chief Financial Officer)

Overall lending, okay. Because we are not gaining market share in mortgages. I thought you said mortgages. Okay, so on the market share, maybe Gonzalo can continue on that one. On the capital topic, Sophie, I mentioned it briefly also in the presentation. SRT is a very important lever for the bank to be able to utilize to optimize the use of capital. Obviously in the third quarter, it’s basically summer seasonality because August is a very slow month. If you imagine in Spain in the third quarter, the impact of SRTs in the capital ratio was 3 basis points. That 3 basis points is a relatively small number as compared to the other quarters.

In the first quarter, for example, we did 12 basis points. In the second quarter, if I’m not mistaken, we did 6. So 12, 6 and then 3 in summer. We had the guidance that this year we should be doing between 30 to 40, which implies that in the fourth quarter we will have a very good delivery on the SRTs, which will then liberate more capital. Actually, we are expecting around 12 to 14 basis points SRT impact in the fourth quarter because the deals are already in process.

So the SRT would be a clear lever, and in the fourth quarter you will see a much higher figure coming as a positive contribution from SRT than what we had in the third quarter. Looking forward, we still see a very robust demand there, especially for players like us. There is a lot of demand, so we might be increasing our pace on SRTs in the coming years. But coming back to your first comment on the 36 billion, it’s a very important number for us. We have multiple figures in this medium to long term plan and the guidance that we have for 2025–2028. If you remember, in that plan we said we will be generating 49 billion of capital in the four-year period. Forty-nine; 13 will be dedicated to growth and then 36 will be distributions to shareholders or excess capital above our upper end of our management range of 12.

We still stick to that 36. We just looked into the numbers very recently on where we are. There might be more than 13 billion dedicated to growth, which is very good. Once again, as long as it’s profitable, as long as it’s above cost of equity with a nice margin. We do think growing should be the priority because it will create a better franchise going forward. It will create even more capital for our shareholders going forward. So there might be more than 13 billion dedicated to growth.

But again, looking into our planning at the moment, we still will be delivering that 36 billion that we referred to as distributions to shareholders or excess capital above 12. That number is still standing very robustly, very nicely out there. Regarding the market shares, yes, on—

Gonzalo

Market shares in Spain, we are growing in the most profitable segment. So we are growing in consumer and commercial. In consumer we are growing 6 basis points year on year, and in commercial we are growing 51 basis points year on year. On mortgages, market share is declining 31 basis points year on year, and this is due to the new mortgage origination market share, which is around or even below 10% over the last three, four months. So again in Spain we are growing market share overall, but focusing on the most profitable segments, consumer and commercial.

In the case of Mexico, despite competition from fintechs and neobanks, we keep growing market share. We are growing 34 basis points in total year on year, and the breakdown is the following: we are growing mainly in wholesale 40 basis points, but we are also growing in consumer 7 basis points. So overall, I think again focusing on growing both Spain and Mexico in the most profitable segments.

Patricia (Investor Relations)

Very good. Thank you. Thank you, Sophie. Next question, please.

OPERATOR

We now turn to Ignacio Lagri with BNP Paribas. Your line is open. Please go ahead.

Ignacio Lagri (Analyst at BNP Paribas)

Thanks very much for the presentation and for taking my questions. I have two questions. One is on capital, a follow-up on capital. If you could update us on what kind of regulatory headwinds, operational risk-weighted asset inflation, could we expect into the fourth quarter? And the second one is on the Danish compromise. If you could update us on when you plan to get approval for that treatment and whether that could have an implication for yourselves looking farther into insurance revenues, particularly in Mexico.

Thank you.

Luisa Gomez Bravo (Group Chief Financial Officer)

Very good. On the regulatory headwinds for the fourth quarter, we don’t expect anything, Nacho. On the Danish compromise, we already applied for it. We are in the process of receiving that approval, or we are in the process of that thing to be sorted out. We have in general positive news, but it’s taking some time. In terms of the impact of the Danish compromise, the impact on the CET1 overall at the moment would be marginal. It will not be affecting too much the number that we have today.

But we do have a clear intention to grow that business. So for that growth to happen, and for that growth to come along with not consuming too much capital, that is important to us. So it’s more of a future thing than a present thing. In short.

Patricia (Investor Relations)

Thank you, Nacho. Next question, please.

OPERATOR

We now turn to Andrea Filtry with Mediobanca. Your line is open. Please go ahead.

Andrea Filtry (Analyst at Mediobanca)

I wanted to know your expectation on the impact of the reform of securitization that was approved by the European Commission last week. Thank you.

Luisa Gomez Bravo (Group Chief Financial Officer)

I didn’t get the full question, but the securitization framework approach is going to help us even more, Andrea. Again, we are one of those banks who will benefit more from, in general, securitizations, SRTs, for one very simple reason. Our RWA density, even after the full program, the model review and everything else that we did—which helped us a bit—is now 44%. So RWA density, we have 44%, and the average of our peers is around 27. So any SRT would be helping us more because it’s basically the risk weights of how much capital an outside investor would be dedicating to this versus us.

So we have a better arbitrage, let me say it that way, to be able to benefit from the SRTs. In that context, the framework, the new thing that was approved in the past few weeks, is going to help us even more. It’s going to facilitate the process. It’s going to help us to do even more SRTs. That is why I said.

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