Great. I think we can get started. Let's close the doors to reduce the noise. Perfect. Great. Thanks, everyone, for coming to this session of BBVA. I'm delighted to welcome CEO Onur Genç. Thanks very much for coming. It's very busy times for you, which I'm sure we'll touch on. Maybe to an open-ended question for you, you've had obviously a very strong run in terms of earnings the last few years, and your guidance points to more to go. Maybe we can start discussing some of those prospects and what makes you confident in your delivery, and where do you see the risks?
What makes us confident regarding our delivery and the risks? I'll do only a little advertisement now, and then I will stop for the rest. We compare ourselves to competitors in every single market that we operate, but also in the European landscape. Among the 15 largest European banks out there, 15 largest European banks, we are number one in profitability, return on tangible equity. Even more importantly, in our view, we are number one in growth. Our lending book has grown 9% last year, which is by far the best and higher than the 1.3% average of Europe. That is the profile that we are looking into. I stop with the advertisement there, the fact that we are number one. We do think that profile of great growth and great profitability is here to stay.
Actually, I would say more to come for three very simple reasons. Number one, we are a diversified bank operating mainly in low-leverage countries. Low leverage, household debt over GDP, corporate debt over GDP. When you look into where we operate in the countries that we are in, these are very good numbers, low-leverage countries, under-leverage countries in general. We are diversified because we operate in many countries. Number one. Number two, in the countries that we are in, in our view, we are either the best bank or one of the best banks. This is measured by, again, return on tangible equity of our bank in that country respective to average of the ROE of the banking system of that country. We have maintained a very meaningful positive differential versus the rest of the industry. That is the second thing. We have wonderful banks.
The third thing is we have bet on and we have invested on our strategy on sustainability and digitalization, digitalization and innovation, as we call it. That is helping us big time in improving to be a differential. Last year, we acquired 11.4 million new customers to the bank, 11.4. This number used to be 5 million new customers five years ago. It has been progressively increasing every year. In the last three years, every year, we delivered 11 million new customers. When you look into that, two-thirds of these customers are acquired end-to-end digital, as we call it. They do not call a call center. They do not go to a branch. They pick up their phone and become a customer. This is the power of digitalization.
BBVA has been a pioneer, in our view, in putting more money into this, in doing this earlier than others. We created, in our view, this edge in digitalization. To cut the long story short, given the fact that we are diversified in multiple geographies with low leverage, given the fact that we are either number one, number two, or number three in the countries that we are in, and given the fact that, in our view, we are really differential in digital, especially, the expectation is that this trend is there to continue. One final thing I would say on this digital and client acquisition topic, what we see is that when we acquire a client in the first year, if the revenue that we make is 100, five years from now, that same vintage of customers in five years generates 200. 100 becomes 200.
We double the revenue that we generate from that vintage with the passage of time because we cross-sell, again, using digital. We cross-sell new products to that customer base, which means the 11 million customers that we have been acquiring in the last three years, they are now coming into the maturity, which means they're going to be creating more revenues for the bank, which again implies that in the coming years, we will continue to deliver very high profitability.
Obviously, you've got a leadership position in Mexico, and that gives you a very privileged perspective. We had elections last year. We had the judicial reform, more recently, re-emergence, obviously, at the moment of tariff discussions. How is the business on the ground reacting to all of this? What do you see from your clients?
The business, I was there three weeks ago, was it? Three weeks ago, I was in Mexico meeting with everyone, basically. There was much more tranquility as compared to what I was expecting before I went there. Why is that the case? I mean, the numbers are also showing this. I mean, the January numbers, the supervisor and regulator in Mexico publishes everything, basically. At the end of January, they published the numbers of BBVA and the industry. Our lending book, year over year, at the end of January, based on public figures already, is growing 17% now, our lending book. It used to be 15.8% year over year growth at the end of the year. In one month, we improved that number to 17%.
In the first quarter of this year, it's one of the strongest starts that we have had for a long time in Mexico. How does this talk to all the uncertainties and the tariff discussions that are happening? There will be short-term volatility, especially in the macro parameters. There will be short-term volatility, for example, in the currency. There will be short-term volatility in the investment mood. We are seeing a lot of lending growth in the first three months of this year, but it's mainly short-term, not long-term. Long-term investments, they are a bit on the pause. Again, currency, it has seen some impact, not much, actually, but some originally when the tariff discussions were happening. There will be some short-term volatility, but people are not worried for a very important structural reason.
The cost of labor in the manufacturing industries in Mexico versus the cost of labor in the manufacturing industries in the U.S., it changes from one industry to another, but on average, is one to seven, seven times in the U.S. versus Mexico. What does this mean? Structurally speaking, the cost advantage of Mexico is so large that when you put the 25% on top of one, it's still very competitive. Okay? If you put too much of that 25%, the price goes up. They still recover that through. What matters is the structural cost. On the structural cost, this difference of one to seven is so big that our clients are telling us that we will adjust. There might be some short-term adjustments, but we will adjust and we will maintain our positioning versus the other competitors to serve the U.S. market.
In the long term, we are less worried. In the short term, we are seeing a big boost to our business because people are piling up working capital loans, which is helping the bank.
On that working capital loans, your loan guidance for the full year is high single digits. What gives you the confidence that you'll have sort of a pretty decent sort of loan growth given the uncertainties?
Once again, the key word is leverage and the fact that Mexico is so under-leveraged that there is room to grow without creating a dent in cost of risk, cost of credit. I mean, you might know this already because we discuss it from time to time in the analyst calls. Banking debt over GDP in Mexico is 33%. This is one of the lowest, even in the emerging markets landscape, 33%. It's 72% in Brazil, the key competitor of Mexico and Latin America, 72% in Brazil. It's 46% in Peru. It is one of the lowest leveraged countries, low debt in households, in companies, very low debt. What does this imply? Even in periods of uncertainty, even in periods of low GDP growth, we have seen the banking system grow its lending book in a quite nice way, quite healthy way.
In 2019, it was my first year in this job. Actually, Mexico had a negative growth. Actually, despite that, a negative growth environment, in that year, BBVA Mexico grew 7%. Again, because of the leverage. The leverage is so low, so low that there is room to grow the credit without creating too much cost of credit. That is the key differentiation. We are clearly behind that guidance of high single-digit growth. Actually, if you look into the January figures that were published or what we see in the first quarter, we actually have an upside on that number.
Maybe turning to Spain, you had 4% loan growth in 2024, considering the market. That's reasonably healthy. You're guiding to similar growth this year. Which areas are driving that growth? One thing I asked in the previous session also is, in terms of pricing, is the market more disciplined now? Traditionally, Spain, and to be honest, Europe more broadly, have proved quite competitive on the loan side. What are you seeing in terms of volumes and pricing in Spain?
Very good. Again, two questions that's divided into two. The growth, where are we seeing it? It's across the board, actually, and for multiple very important structural reasons. First of all, Spain is growing as an economy much better than the rest. I mean, you might have seen the latest number, 3.2% growth in 2024. It is a unique growth number within Europe. At least in the European standards, Spain is by far the star, in my view. When you go into that, again, structural factors, immigration is helping big time. It's a service-based economy. Tourism, IT services, and so on, it's like skyrocketing. It's true for all the service-based economies. As compared to manufacturing-based economies, especially after COVID, given the appetite of consumers to spend as well on services, service-based economies have benefited from this.
The fact that Spain is a service-based economy, the fact that immigration is there to help the economy, and the fact that there is an investment appetite now in Spain, also helped by this Next Generation EU funds that we are receiving from Europe, and the fact that in renewables, in energy, Spain has a very advantageous position. When you combine them all, Spain has grown 3.2% in 2024. We just announced our forecast. BBVA Research has just announced its forecast for 2025. 2.8% is the expectation. Good environment to be in. Given that, it's across the board. Across the board, but I would again go back to the same logic. I'm repeating it, but I do think it's important. I've been in this business for some time now. This leverage topic is important.
If you want to grow healthily without creating too much cost of credit, the leverage of the situation of the market should be taken into account. In the case of Spain, since 2010, in the last 14 years until 2024, the leverage has come down in a big way, big way. Corporate debt over GDP was 120% in 2010. Now, in last year, it was 65%. It is basically half. It has been deleveraging Spain. Same in household debt over GDP, half versus 2010. Given that, we are also now much lower than Europe, Europe leverage levels. In the context of a growing economy, the lending growth is across the board. Especially we see that in companies. Especially we see that in consumer lending. In mortgages, it is a big book. For the Spanish banks, mortgage is important.
You see lower growth, but still growth, again, after many years of negative growth. Across the board. The second part of your question, discipline, it's one of the most competitive markets in Europe. The ECB data shows this in all the lending categories. The loan prices in Spain are lower than the average of Europe. We see that, especially in mortgages lately, in the last two months, big time, very low rates in lending. Discipline, in general, it's a very competitive market. In certain products where it's beyond reasonable, we stay out a bit. You would see us, for example, in mortgages, not gaining too much market share. In some other areas, we will continue to gain market share as well.
Obviously, that has a reflection on NII, which during all of last year, I think it's fair to say for the whole sector has surprised around the resilience. As you think about going forward as rates come down in an easing monetary cycle, how do you see the overall returns of this business in Spain?
We see it. Last year, it was a good year of good returns. We see that staying relatively more or less in those ranges at least in the next three years because we have been hedging this. We have been taking positions to make sure that our sensitivity to interest rate declines is now lower. We have increased our what we call the ALCO Book, the securities book, in a relatively large way. We have implemented also through mortgage hedges. We have managed the sensitivity of our NII line to interest rate declines. Given that, for the next two, three years, the customer spread will come down with lower rates, but also coupled with the growth in lending volumes. When you put them together, it is going to be more or less in these ranges.
Cost of credit, again, because of leverage, low leverage, is behaving also very nicely. Combine them all, next three years should be around these levels. Beyond that, it depends on the interest rates in Europe. If interest rates go back to 10 years of negative rates, 10 years of very low, and then negative rates or very low rates, we would be affected. That is not our base case. We are quite confident that the returns in Spain, they will not be growing, but they will be maintained.
Maybe we can touch now on Sabadell, obviously, in Spain is important. Where are we on the process? What kind of conditions do you expect will come out of the phase two review? The government has been very public in their views. What do you think they can say and what do you think they can't say? Maybe help us think about the whole process where we are.
Yeah. Okay. In terms of the process, let's do that very quickly first. We are in the final stages. I mean, we have received 30 approvals from different authorities from different parts of the world already. In terms of formal approvals, we need one more approval, which is the competition authority of Spain. Again, we are in the last stages of that process in our view. Obviously, we are dependent on an authority, so you never know. Our base case scenario is that in the next few weeks, we will have the conclusion, the final decision of the CNMC, the competition authority of Spain. We have submitted, in our view, and very objectively speaking, to be fair, an unprecedented list of remedies to get the deal done, an unprecedented list of remedies covering things like volume guarantees.
Clients, especially SMEs, which is the key concern area here for the authorities, we have submitted volume guarantees, maintaining unless there is a deterioration in the financial conditions of the client, if they are in the same risk band and everything, we will maintain the volume of credit that we give to them. Volume guarantees, price guarantees in certain regions, in certain segments, again, mainly around the SMEs. We are basically giving something that was never given before, as far as we know, which is guaranteeing the price for those segments in those regions not to be above the average of the country. Price guarantees, financial inclusion remedies. There are many line items there, but we are not going to close branches in rural areas, in poor areas. We are not going to close branches unless there is another one within 300 meters.
They should be next to each other and so on. Financial inclusion measures. With those remedies, our conviction is that the authority will give the green light to the process, the competition authority will give the green light in the next few weeks. We are very close to the end of that process. Once that is done, the government can choose to review the case. That might take some time as well. The acceptation period will start where the shareholders of Sabadell will decide whether they would like to tender their shares or not. We have no doubt that Sabadell shareholders will find a better home in BBVA in financials in terms of numbers and value, better value in BBVA than Sabadell standalone.
We will see what happens in that period, in the acceptation period, but we are very confident that they will see the benefits and the financials will say it very clearly. In the acceptation period, at the end of that process, we will be basically having the majority of the shares of Sabadell. There is a final piece, which is the government kicks in again after the deal is completed in terms of shares to decide on what we call the merger, so legal merger of the two entities. At that point, we would be controlling the board, managing Sabadell as a separate entity. The government will also then decide whether there will be a merger or not. That is the final phase. The whole process will be complete.
What we see at the moment is that, given again the powerful remedies that we put on the table, the probability of the transaction is very, very high in our view. The probability of the transaction happening in the right way, creating value for us and for the shareholders of Sabadell, for the society in general, for clients, for employees, we are confident that it will happen.
Okay. Maybe.
Maybe finally on this one, you also asked about the government. I do not want to miss, I do not want to skip pieces of what you asked. Regarding the government, again, we understand and fully appreciate all the concerns that they have raised. Government and public authorities in general, no? We do think that with the remedies that we put on the table, I gave you some examples. It is a longer list, much more, but I gave you some hints. With the remedies that we put on the table, we have responded in full to the concerns that they have raised. They are really powerful, powerful remedies. Their key concerns were around competition, were around SME segment, were around financial inclusion, social cohesion, and all the remedies would be addressing them. Maybe it is a tagline.
I would leverage the opportunity to also say that we have to allow, in our view, the shareholders of Sabadell to decide. They are the rightful owners of the decision. We should let the Sabadell shareholders decide on what they want to do with their shares. We are discussing these days about, and even the title of your conference is Europe, no? The moment of Europe.
Europe's moment.
Europe's moment. Is it Europe's moment or not? I think it is important. What does Europe need? Europe needs self-sufficiency in defense, in energy, which means Europe needs investments to achieve that. Europe needs growth, which means Europe needs investments, once again, to grow. Who's going to finance those investments? Investments can be financed by the banking system because 75% of corporate borrowing in Europe is done by banks. That 75% is 25% in the U.S. We are much more dependent on the banking system. You need larger, more efficient, more profitable banks to be able to support that investment capacity. We actually sized it. If we do this Sabadell deal, it's EUR 5 billion more of investment capacity, of lending capacity to the combined bank. It's a lot of money. You need more profitable, more efficient banks. Like the U.S., you need better capital markets.
You need more efficient, more working capital markets. Not only in Spain, but in general, we have to let the shareholders decide. If you do not let the shareholders decide in Spain, in Italy, in Germany, let the shareholders decide. If they cannot decide, what kind of a capital market are we talking about? If it is Europe's moment, as your title of the conference says, we have to let the shareholders decide so that capital markets can develop, and we need to let this type of transaction happen in Europe.
Maybe I want to touch on two regions that have had ups and downs, which is Turkey and Argentina. First of all, in Turkey, when do you expect a normalization of Turkey's contribution?
It depends on what you call normalization, but it has been normalizing day by day in the last two years, two and a half years. With the elections in Turkey in 2023, there is a new team in place now, a new economic team. That economic team has been doing exactly the things that they needed to do, which is being reflected now into the figures that we see. The key thing to watch is inflation, what's happening to inflation. In 2023, it was 65%. In 2024, it came down to 44%. Now it is lower than 40%. The expectation for 2025, this year is 29%. As inflation comes down, it allows you to also reduce interest rates. We are inversely correlated to interest rate declines, meaning if interest rates come down, we benefit from this in Turkey because we have a duration gap.
If that happens, if inflation comes down, if interest rates entail that decline in inflation, then we will be making much more. Last year, our profits, if you're talking about profit, because for tangible book value, it's the same. For profits, 2024, we did EUR 600 million of profits. This year, our guidance to the market is that if inflation continues to come down, which is the base case scenario, we will make EUR 1 billion. EUR 600 million, 0.6 will become 1. In two, three years, if again that path continues, that EUR 1 billion, in our view, will be EUR 2.5-3 billion. It all depends on whether the country continues to do the things that they have been doing. They are on the right path, but they have to continue on this path.
If inflation comes down, if interest rates come down, it will be normalizing to the levels that a geography of that size will deliver. Turkey is a $1 trillion economy. It is a large economy. And we own the best bank in the country. Based on return on tangible equity, based on market cap, we are number one in the country. So we have the best bank in a large country, and we should be able to deliver that $2.5 billion-$3 billion.
Argentina was the other one which has come a long way.
Argentina, yes. It's come a long way. Maybe you can touch on your views there. It's a smaller option value. It's coming a bit earlier in the cycle, in that process. Turkey is much ahead in terms of normalization, but Argentina is also coming from that path. It's again a smaller option value. Again, we do own a very nice bank in Argentina. The country has been doing the right things in the last year in this case. The government has been taking exactly the points that they need to do. They deliver the fiscal surplus, which is unthinkable. It was unthinkable a year ago. Argentina is also on the right path, but a smaller option value.
Maybe last one before I open up. What are your priorities in respect to capital allocation? Obviously, we know Sabadell is there, but I guess where I'm coming from is, can you reassure us that your capital target remains 12%?
Capital target remains 12%, for sure, because you have to look into this not at the absolute, but at the relative level. What is your requirement and what is the gap between the requirement and your target? Our latest capital requirement is 9.13%. With 12%, the gap is 287 basis points. Our target versus our requirement imposed, decided by the supervisor, no? 287 basis points of a gap. The average of the EU banks that we have in our peer group, as I said, 15 European largest European banks, but not all of them are from EU. There are 10 of them from EU. The average of our competitors, our peer group, is 230 basis points. The 12 is giving us a buffer, which is much larger than our competitors. Twelve, in our view, is a very fair target.
We hope, we intend to keep and maintain that 12% target. Your broader question of what do we do with capital allocation? We allocate capital. Capital is our scarce resource, and we have been very diligent on this with no emotions around it. We put it to the area which gives the best return. If it is the scarce resource, you have to optimize the use of capital. If you look into the last four years, 2021-2024, including 2021, so four years, we have generated EUR 36 billion of capital. What did we do with that capital? We put 13% into organic and inorganic growth. Inorganic is very small. It is basically the Turkish case. It is EUR 700 million, actually, in capital, very little. We put it into the organic growth. We increased our capital positioning, our target, actually, originally, and we put on top.
Excess capital, basically EUR 4 billion in excess capital. We gave more than EUR 18 billion back to our shareholders, EUR 12 billion in dividends and EUR 6 billion in share buybacks. Depending on which of these gives the best return to our shareholders, organic growth, we prioritize that one because we do that definitely above the cost of equity, cost of capital. We prioritize and we grow as much as we can. The remaining, we look into different opportunities. As long as our share price is where it is, we will continue to do the share buybacks as well because we will generate that excess capital.
Great. Very clear. With that, I think we can open up to questions from the audience in a mixed in terms of questions. Omar. Behind you.
Hi. Thank you very much for the presentation. Can I ask a question about regulation? Sorry. There's been quite a lot of, I guess, debate around what elements of European bank regulation can change. I would say about six months ago, probably most people's expectations was that fundamental review of the trading book will go. It seems like there's going to be a bit more of a holistic review of how everything fits in together, pillar 2, FRTB, endgame. Just wanted your thoughts on what you think is likeliest to change in this review that's taking place. Is it just the Basel Endgame or is there other things like the pillar 2 guidance framework? Thank you.
Very good. It's just in the talks. At least I haven't seen anything on the regulatory agenda. There are really good intentions. Actually, we have a commissioner in Europe now who is in charge of competitiveness, which is related to this because if you want to get the competitiveness, the pieces that block that competitiveness around regulation have to be tackled as well. We do have the good intentions, but in the banking system, we haven't seen anything tangible yet. If you're asking me about the regulatory environment and so on, beyond the specific rules and on capital, I don't expect Europe to change anything regarding the Basel Endgam. I really think they should not. I really think others actually should not be also changing the rules of the game.
We at Basel, for the first time globally, that we got to something, an agreement, and why not we execute this? Europe wants to execute this. I hope U.K., U.S., others, they stick with the rules as well on that one. I do not expect from a European perspective that they tackle or they change the Basel Endgame. From a regulatory or deregulatory perspective or from a broader rulemaking perspective, what I hope comes out is that we do better in CCapital Markets Union. I repeat the numbers once again. It is important. Corporate borrowing, companies in Europe get 75% of their borrowing, of their needs from banks. 25% comes from capital markets. This is completely the other way around in the U.S. 75% comes from in the U.S. from capital markets and 25% comes from the banking system, which implies that we have to grow the capital markets.
I'm in the job for, it's my seventh year now. I'm getting old. It's my seventh year in the job. This topic of Capital Markets Union , capital markets, we have to make sure that it works better. It was there the first day that I took the job over. I mean, we have been talking about it for so long. I hope we can deliver on that one. The banking markets union. I mean, we are Europe. We are claiming that it's a single market, but it's not because we don't have a banking union. The banks, we deal with different bankruptcy schemes in wherever we are. We deal with different deposit insurance schemes wherever we are. If we are really serious about competitiveness of the banking system, I also hope that we see more drive and more action on that banking union as well.
If you do that, then you will have a better and more competitive banking system, which will then be very beneficial for driving the competitiveness of Europe. If you are not even moving on the M&As and so on, which is very straightforward in my view, which is at the core of, again, if you do not have even the domestic mergers executed in Italy, in Spain, and this and that, talking about Capital Markets Union , talking about banking markets union is kind of a fantasy in my view. We have much more to go.
We actually wrote about last week. You are absolutely right. It has been going on for ages, which is frustrating at times. We actually expect announcements as early as this week around proposals, concrete proposals. If anyone wants to look out for that report from Julia from last week, I found it very insightful. I do not know if there is any more next question here from the audience. Maybe one broader one on digital that I know is close to BBVA's heart. When we think about in a world of AI, digital, the efficiency sort of levels of the bank are good.
How much, as you look at it from a zero budget perspective, let's say, how much of the cost rate do you think can benefit from in an AI, much more digitalized world, as you think about sort of a 5, 10 years from now? When you think about it, can you help us think through the efficiency gains?
Big time. I mean, big time. I am really serious on this. I was not a believer until I saw it. I do not know the timing around this. You said 5-10 years, which is a long enough time frame to be able to incorporate all those efficiencies from AI. In that relatively long time frame, I think it will be a completely different game that the banking system will have. What does it mean? For example, if AI really delivers what it is supposed to deliver, all the call center work, all the central operations work, even software development will be, to a large extent, helped. It is not going to be completely eradicating or taking over the people jobs, but it will be helping to improve efficiency in all those lines. I mean, again, if you call a call center today, you want to resolve a problem.
If AI is really functioning, it will immediately solve your problem. Also in terms of agents for customer interface, you open the BBVA app today. We do have an agent, an assistant called Blue. You basically say there, "Blue, what is the month by month, for example, what is the amount of invoice, factura now, the invoice that I paid to my electricity provider?" Today, the Blue cannot answer this. It is a very simple question. How much did I pay? You have to go search, click one place, click one another, click one another. It just does not work. If the customer can see that, it is going to be solving all the things that are going to the call center. It is going to be solving many of the things that might be done in the branches and so on.
On multiple dimensions of our customer service model, it's going to serve so much and will bring so much efficiency. It's going to be also bringing a lot of what we call effectiveness, a better service. Why do you, a question to you, why do we, and I know that you still have your Spanish connections, I hope you are still banking with BBVA, but why do you have the same, why do you have the same app with me? We are two different persons. We use the app very differently. We prioritize certain things versus others. Everyone, when they open the BBVA app today, everyone sees the same screen. Why? Every one of us are very different. The system knows this. The data is there to differentiate between you and me.
Why can't we have an app for every single individual tailored in this hyper-personalized way? Effectiveness, hyper-personalization, efficiency, everything around software development, customer service, centralized ops can be helped big time by AI. Again, it requires a lot of investments and money. I go back to that scale topic. Unless you are scaled, unless you are large, you would not be able to spend enough money to be able to benefit from these trends. We need larger banks. I come to the same point. I end up at the same point.
No comment from my side. Any last remaining question from the audience? One minute.
A question on the deal with Sabadell. Given all the remedies you have proposed, what do you think the impact will be on the synergy you have announced on this deal?
We do think that the synergy potential is still mainly intact, mainly for a reason that most of the synergies that we put on the table, we quantified it as EUR 850 million annual synergy potential, EUR 850 million. EUR 100 million of that was from funding synergies because BBVA has a much better rating. The wholesale funding will be much cheaper for Sabadell. That is EUR 100 million value annual. EUR 750 million was on costs. Most of the cost synergies were related to technology. Technology. Rather than using two different systems to serve the same market, we would be using the same system to serve the same market. The cost of technology within the cost base of BBVA is going up to any bank. It is going up every single day. That piece is intact.
Independent of the remedies, the core part of the synergies will be kept as it is. We maintain a similar number for independent of the remedies that we will be maintaining. As a result, the value creation potential is relatively intact.
Any last questions from the audience? If not, we will leave it here. Thanks very much, Onur.
Thank you for the questions.