Earnings Call Transcript
BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (BBVA)
Earnings Call Transcript - BBVA Q4 2025
Operator, Operator
Good morning, and thank you for joining us for BBVA's fourth quarter results presentation. As every quarter, I'm pleased to be joined by our CEO, Onur Genç; and the Group CFO, Luisa Gomez Bravo. We will begin with Onur reviewing the group's performance and key strategic developments during the year, followed by Luisa, who will walk you through business unit results. After their remarks, we will open the call to take your questions. With that, I now turn the call over to Onur.
Onur Genç, CEO
Thank you. Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining BBVA's 2025 Full Year Results Audio Webcast. I will start with Page 3 right away. So I'm happy to say that in 2025, we achieved outstanding results across critical dimensions, value creation, as you see on the page, growth, profitability, strategic execution and shareholder remuneration. First, I would like to highlight the excellent value creation achieved during the year, which is rooted in our outstanding profit evolution. Despite falling interest rates in our core markets, we still managed to increase our net attributable profit, which reached a record EUR 10.5 billion, 4.5% higher than last year in current euros. Secondly, as we have emphasized in previous results presentations, BBVA offers a unique combination of profitability and growth, which was further reinforced in 2025. Our loan portfolio increased by an exceptional 16.2% at constant euros and 11.7% in current euros, an exceptional figure, while our return on tangible equity remained at industry-leading 19.3%. Third, in the page, we are advancing consistently in the execution of our strategy. First of all, we are transforming the bank with a radical customer perspective, leveraging the power of AI and innovation and also growing the bank, especially in areas where we believe we have an opportunity of superior return. And finally, all of this is enabling us to significantly increase distributions to our shareholders with a regular payout of EUR 5.2 billion from 2025 results, while at the same time, our CET1 ratio remains comfortably above our target. As you can see on the page, the regular payout against 2025 results will be paid entirely in cash through a total cash dividend of EUR 0.92 per share, being the highest cash dividend ever by BBVA. And additionally, we continue with the execution of the first EUR 1.5 billion tranche of the extraordinary share buyback program amounting to EUR 4 billion. These are the key highlights that I will expand in the following pages. But as you see, in my humble view, 2025 has been a remarkable year for BBVA, and we are on track to achieve our ambitious 2025-2028 long-term goals. Moving to Slide #4. On the left-hand side, our tangible book value per share plus dividends continued to show an excellent performance with a growth rate of 12.8% at face value. But it is worth highlighting, however, here the number, excluding the impact of share buybacks, that is 15.2%. As you all know, through the share buyback programs launched in 2025, the EUR 993 million already executed and the existing tranche of EUR 1.5 billion currently in execution, we have been buying our shares at higher value than the book value, which then leads to some negative impact on tangible book value per share creation. On the right-hand side of the page, you can see the very positive evolution of our net attributable profit, which continues its upward trend, reaching a new record, as we discussed, exceeding EUR 10.5 billion, again, despite the negative impact of falling interest rates in our core markets, especially in Spain and Mexico. At the same time, our earnings per share reached EUR 1.78, representing a 5.8% year-over-year increase. And if you look into a larger time frame, a compounded annual growth rate of 26% in the last 5 years. Slide #5, I want to underscore the truly unique positioning of BBVA within the European banking sectors, combining growth and profitability at the same time. You have seen this page before in other presentations of ours, but the situation has improved even further in our view in 2025. But the page -- just to explain the page, on the x-axis, we show the return on tangible equity as a profitability metric. While on the y-axis, we present loan growth in current euros for equal footing of all large European players. And as an indicator of future value creation, in our view, because growth and profitability, those are the 2 core dimensions of future value, BBVA clearly stands out, positioned in the top right quadrant, by far the highest loan growth in current euros and best profitability metrics among our peers. On return on tangible equity, as the measure of profitability, we should also underscore the fact that this number is partially negatively influenced by the excess capital that we have held throughout the year because at the denominator of this ratio, as you all know, it's the average equity throughout the year. Moving to Page #6, new customer acquisition. As we have reiterated consistently, again, we put this page also in every single analyst presentation, expanding our customer base is a key driver of healthy and profitable growth. In 2025, we reached a new record in customer acquisitions with 11.5 million gross new customers. Maintaining this space year after year is particularly remarkable in our view because we are already one of the largest banks in the markets in which we operate, and it's always a smaller pool to look for new clients. But despite that, a record number in 2025. And the value of this growth -- on the right-hand side of the page, there are 2 factoids there, but they're very important in our view. The value of this growth becomes clear when we look at the monetization of new clients over time. For example, in Spain, revenue per customer increases by 3.7x between the first and the fifth year of that relationship. And in Mexico, it's very important this number, 75% of the new credit cards sold in 2025 are to the customers acquired in the last 5 years. With such focus on cross-sell in place, we believe our future business in the coming years is already hatched with the customer acquisition activity over the past few years. Moving to Page #7. All the great results of the past few pages are due to our relentless focus on executing our strategy. You all know our new strategic plan. Our new strategic plan announced in 2025 has outlined a few critical priorities to sustain and improve our delivery. The plan foresees the continued need for the transformation of our business. That transformation, in our view, has to start with the customer, which we call radical customer perspective. Putting ourselves in the shoes of our customers, we are adopting a radical approach to understand and analyze every single customer interaction with the bank so that we act on these insights to improve customer service and eliminate frictions, eliminate frictions with agility and empathy. And this is reinforcing our NPS leading positions in most of our geographies and is leading to a significant reduction of negative experiences with our customers related to events like fraud, claims or service waiting times, improving, obviously, quality of service across geographies, as you see on the left-hand side of the page. As part of this new wave of transformation, we also have started to maximize the potential of AI and innovation within BBVA. We will pursue this across 8 initiatives listed there in the page, including our digital adviser, the Blue, the AI assistant for bankers and injecting efficiency and effectiveness in different processes across the bank in different areas like the software development. In addition, AI is increasingly being embedded across our organization. Our 127,000 employees all around the world have now access to OpenAI and Gemini. We are still at the early innings on this, but we are already starting to see the positive impact from all of our AI work, and we will update you on this further in the coming quarters. On Page 8, as part of our strategic plan also, you see certain businesses that we have prioritized to grow faster than average. We have achieved that superior growth in 2025 in all selected areas, enterprises, sustainability and capital-light businesses. On the left-hand side of the page, you see the levers through which we grow our enterprise business, cross-border, a natural lever for a global bank like us to serve our multinational enterprise clients beyond their home geography and sustainability also mainly on the enterprise side, a strategic priority for us to accompany our clients in their transition, all yielding excellent results in 2025, again, as you see in the growth rates. And if you can compare those growth rates with the rest of the bank, which is on the right-hand side. But in the middle and the right-hand side of the page also, you see the prioritized capital-light fee-generating businesses again, displaying excellent growth performance in insurance, in payments, in wealth management, where again, we grew much better than the average of the bank in all of those areas. Slide #9. From this slide on, I'm going to walk you through the financials, but let me not -- and also to save time, let me not spend too much time on this page as it is a summary of the following pages. So let's jump into Page #10. In the annual P&L, a similar story as in the recent years, but I would like to highlight the very strong performance of core revenues, which drove gross income growth to 16.3% year-over-year in constant euros with 13.9% in NII growth and 14.6% in fee income. I mean this solid growth in gross income, together with positive jaws, as you see on the page, contained impairment charges, it resulted again in the record net attributable profit of EUR 10.5 billion. Slide 11, the P&L for the fourth quarter. Again, I will not stop long here, but just to remark on the strong quarterly performance with a net attributable profit above EUR 2.5 billion once again, despite some negative one-offs like a tax code change in Turkey at the final days of the year. You might have seen it on Christmas Day actually. The continued and accelerating delivery at the core revenue lines, net interest income and fee income is worth highlighting again on this page. Core revenue, especially in Spain, in Mexico, is behaving exceptionally well. Then talking about that maybe on Page #12, talking about Spain and Mexico, our 2 core geographies. First of all, before the countries at the group level, on the left-hand side of the page, one of the clear highlights of the quarter was the growth in activity. Loan growth maintained an excellent pace, increasing 16.2% year-over-year, which is translating into that strong net interest income performance. And then talking about the countries within that, in Spain, loan growth further accelerated to 8% year-over-year, while Mexico maintained a solid 7.5% year-over-year growth. In the case of Mexico, excluding the impact of the U.S. dollar affecting the value of our U.S. dollar-denominated loan book in Mexico, if you isolate for that impact, loan growth would have reached 9.9%, fully in line with our 2025 guidance. And on the right-hand side of the page also, you see how all of this is supported by strong loan growth and proactive price management in a declining rate environment, how we translated this into growth in core revenues in both Spain and Mexico year-over-year, but also look into the quarterly evolution with an acceleration in the last quarter if you annualize those quarterly figures. Moving now to Slide #13, again, talking about growth. Our strong activity growth is not only due to the overall industry growth, but also due to our clear outperformance versus competitors. As shown on the page, we have been gaining loan market share in all of our markets in the past few years. And in 2025, specifically, we continued that trend in practically all of our markets, again, with meaningful gains across the board. We have to be careful here. Market share by itself is not an isolated goal for the bank as the underlying growth has to be profitable. We are not here for the sake of growth. But as we monitor and manage the profitability of any granted loan in any country of the bank, we take pride in the consistent track record of market share gains across the board. Moving to Slide #14 on costs. I would first highlight that once again and in line with our DNA, we closed the year with positive jaws with gross income growing by 16%, clearly outpacing the growth in costs. And as a result, on the right-hand side of the page, our efficiency ratio continues to be one of the best among the European peers, and it improved to 38.8%. Again, picking up some speed. Slide #15, the evolution of our asset quality remains in line with our expectations, even in a context of strong activity growth in our most profitable segments. And starting on the left-hand side, at the bottom of the page, our cost of risk stands at 139 basis points year-to-date, improving versus 2024 and delivering a better performance versus guidance in most of the countries. At the same time, on the bottom right-hand side, both our nonperforming loan ratio and coverage ratio continue to improve year-over-year and quarter-over-quarter. Slide #16 on capital. Quarter-over-quarter evolution clearly illustrates both the underlying growth dynamics of the business that I just talked to you about and the one-off timing effects at year-end. First, results remain at the core driver of capital generation. Strong earnings contributed 64 basis points to CET1, then with the accrual of the dividends and AT1 coupons deducting 34 basis points. Then RWAs, turning to RWAs, activity-driven growth implied an impact of around 57 basis points. Overall, we saw a higher pace of RWA consumption compared with previous quarters. Again, this reflects very strong and exceptional business dynamics across all geographies with an acceleration in the loan portfolio growth, explaining the majority of the increase in RWAs. In addition, the thing that I mentioned about the fourth quarter exceptional number, the quarter includes also the year-end operational risk calculation which in the context of higher revenues and higher activity also came slightly higher than usual. Importantly, this capital consumption is for the right reason, as it is driven by profitable growth, we would like to underscore this. I mean it's 57 basis points, much higher than usual because we have grown much higher than usual, and that's good as long as the growth is profitable. And on that one, again, we remain highly disciplined in the use of capital as it is a scarce resource. I shared with you before, we have developed this concept of micro capital management framework, which ensures that at the most granular level, at the level of every single loan, again, I'm repeating, but it's important, granted at any part of the world, capital is deployed profitably above the respective cost of equity in that respective market. In the page, other impacts, marginally positive, adding around 4 basis points as negative market-related impacts were more than offset by the positive credit in OCI from hyperinflationary countries and higher minority interests. Regulatory impacts, we have basically advanced this a few -- I think, 2 quarters ago, but we added 56 basis points, somewhat above the original expectations that we shared with you during the -- again, July presentation, I think it was. These effects are technical in nature and mainly reflect the reversion of some portfolios to standard and to foundation in Spain and in Mexico. As a result, CET1 reached 13.75% in December 2025 before capital distributions. Then you deduct the EUR 4 billion of extraordinary share buyback program, a clear demonstration of our commitment to shareholder returns and to get back to our capital target, but this reduced the CET1 by 105 basis points, taking us to 12.70%. Slide 17 on shareholder distributions. In line with our payout policy, I'm very pleased to announce that the proposal to be submitted to the governing bodies contemplates a total regular distribution of EUR 5.2 billion for 2025, equivalent to a 50% payout, the upper end of our distribution policy. The distribution will be fully paid in cash, amounting to EUR 0.92 per share, which represents a 31% increase versus the 2024 cash dividend, and this implies a final dividend of EUR 0.60 per share to be paid in April 2026, complementing the EUR 0.32 per share that we have distributed back in November. In short, I mean, by far, the highest dividend of our history. And in addition, we continue to execute the extraordinary share buyback program, EUR 4 billion announced last December, of which the first tranche of EUR 1.5 billion is already being executed, again, as a share buyback program. Then Page #19. As you know, in the second quarter of 2025 in July, we set our ambitious financial goals for the 2025-2028 period. We are completely in track of those numbers. We are still in the first year of the program, but as compared to the numbers we had in the plan for 2025, we are performing in line with our original expectations and some better, but overall in line with our original expectations in all of the metrics that you see on the page. And with this, I pass over to Luisa for the business areas.
Luisa Gomez Bravo, CFO
Thank you very much, Onur, and good morning, everyone. Let's start with Spain, which has delivered outstanding results in 2025. Net profit grew at a double-digit number, reaching EUR 4.1 billion for the year, driven by strong business dynamics with loans up 8% year-on-year, more than offsetting some margin pressure in a declining rate environment. This was further supported by robust fees, contained costs and improving asset quality trends. The fourth quarter was particularly solid with net profit exceeding the EUR 1 billion mark. Looking to quarterly dynamics, net interest income remained highly resilient, supported by continued commercial momentum. Loan growth remained very solid, supported by strong new production, up 9% quarter-on-quarter. Loan balances evolved positively across the board, with particularly strength in consumer and across the enterprise segments. This translated into further market share gains in the most profitable segments. To highlight the evolution in the enterprise segment, where we have successfully closed the gap with the overall loan market share, gaining 60 basis points of market share in the year. Robust fee income driven by sustained growth in asset management and insurance fees, along with the recognition in the quarter of asset management success fees. On costs, expenses remained well contained, growing by 1.9% if we exclude the positive one-off related to VAT calculations recorded in the second quarter. The quarterly increase mainly reflects year-end adjustments of variable compensation accrual according to the strong performance in the year. Overall, efficiency remained best-in-class with cost-to-income ratio at 33.1%. Finally, we continue to see positive trends in asset quality. The NPL ratio declined, coverage increased and the cost of risk improved to 34 basis points, in line with guidance. Turning to Mexico. 2025 was a remarkable year for Mexico with a very strong performance despite a challenging macro environment. On a full year basis, earnings were supported by robust core revenue growth, up by 8% year-over-year, driven by strong activity momentum outpacing peers, leading to continued market share gains. Total market share reached 25.6%, increasing by close to 30 basis points over the year, while total deposit market share also increased by close to 70 basis points. Looking into the fourth quarter, net profit reached EUR 1.4 billion, up close to 5% quarter-on-quarter, supported by very solid activity dynamics. Loan book growth accelerated in the final quarter, increasing by 4%, excluding the FX impact, with sound performance both in the Retail and Enterprise segments. Total deposits grew by 5.4% quarter-on-quarter, outpacing loan growth, driven by strong inflows in retail deposits, particularly the band deposits. Cost of deposits declined further in the quarter, supported by lower interest rates and an improved deposit mix. All in, this translated into strong gross income growth of close to 6% quarter-on-quarter. Turning to costs. The increase in expenses during the quarter as in Spain and by the way, in the other geographies as well, mainly reflects year-end adjustments in the variable compensation accrual. Efficiency levels remain outstanding with a cost-to-income ratio stable at 30% in the year and in line with guidance. Finally, asset quality remains solid with a flattish NPL ratio in the year, higher coverage levels and broadly stable cost of risk. Moving now to Turkey. The franchise delivered a net profit of EUR 805 million in the year, representing a significant improvement compared to 2024. The improvement in earnings is mainly supported by a strong increase in net interest income underpinned by higher activity levels and a significant recovery in the TL customer spread in Turkish lira in the context of declining interest rates. Fee income remained robust, supported by growing activity. In addition, the negative impact from hyperinflation adjustment continued to decline, reflecting the ongoing disinflation process in the country. Cost of risk stood at 194 basis points in 2025, reflecting still elevated provisioning needs in the retail portfolios following a long period of negative real interest rates. Finally, the effective tax rate increased significantly in the fourth quarter by the full year impact of the recently announced tax code change, which Onur already mentioned and weighed on guaranteed BBVA earnings at the end of the year. Let's turn now to South America. The region delivered a strong performance in 2025. Net profit reached EUR 726 million, growing by 14.3% year-on-year, mainly supported by earnings improvement in both Peru and Colombia as well as lower negative impact of hyperinflation adjustment in Argentina as this inflation process continues. Core revenues dynamics were very positive in Peru and Colombia, growing at mid-single digit year-on-year in current euros, supported by solid loan growth and wider spreads. Net interest income in the year is affected by Argentina, reflecting a lower contribution from the securities portfolio and some compression in customer spread over the year despite the recovery observed in the fourth quarter. Robust fee income across the region, supported by the rollout of new initiatives aimed at reinforcing fee generation and improving efficiency, the cost-to-income ratio improved to 43.9% in 2025. Turning to asset quality. Trends continue to improve in Peru and Colombia, while in Argentina, provisioning requirements in the retail portfolio remained high, leading to adjustments in the risk appetite for this segment. Overall, risk indicators improved across the region with the NPL ratio declining to 4%, coverage increasing to above 90% and the cost of risk improving to 250 basis points. All in all, South America continues to show increasingly positive dynamics, reinforcing our confidence in the region's outlook going forward. Going now to rest of business. In 2025, rest of business delivered strong net profit of EUR 627 million compared to EUR 485 million in 2024. The strong performance was driven by solid activity across geographies. Loan growth remained healthy with important contributions in corporate lending, transactional banking, project finance. Funding dynamics were also positive across the board. The strong momentum translated into robust revenue growth. Net interest income increased by 15.9% year-over-year, supported by higher volumes and disciplined price management. Fee income also showed remarkable growth with positive trends across countries, driven by both investment banking and global transactional banking. On cost, expense evolution reflects the rollout of our strategic growth plans, including continued investments to reinforce our capabilities and growth plans going forward. Risk metrics remain very solid. Cost of risk stood at 16 basis points in 2025, broadly stable year-on-year. Overall, rest of the business continues to show very positive momentum. Back to you, Onur.
Onur Genç, CEO
Thank you, Luisa. I'll wrap up with the key takeaways, outlook, and guidance, and we are committed to finishing on time. In summary, I believe we had one of our best years ever in 2025. Regarding guidance, it aligns with the midterm goals of our strategic plan. We expect strong business momentum to persist, with solid loan growth supporting net interest income and overall revenue growth. We remain dedicated to cost discipline. The expected changes in Spain and Corporate Center are influenced by certain VAT-related issues from the second quarter and some base effects, but excluding those effects keeps us in line with our original plan. The cost of risk is anticipated to stay broadly consistent with the levels of 2025. Consequently, our expectations across different business units suggest a group return on tangible equity goal of around 20%, exceeding our 2025 target, and a cost-to-income ratio below 40%. Furthermore, to achieve our ambitious long-term objectives and the guidance for 2026 that I mentioned, we will continue to focus on our strategic priorities. We announced these at the beginning of 2025 and will dedicate time in 2026 to discuss them further through a series of what we call BBVA strategic talks, involving our senior management. These sessions will cover country analyses and certain business deep dives, starting on March 10 with Mexico and the Enterprises segment. This concludes my presentation. Now, I will hand it over to Patricia for the Q&A. We are on schedule at 9:58 in Spain, just two minutes left. Perfect, we are right on time.
Operator, Operator
Thank you. Thank you very much, Onur and Luisa. We are ready to start the Q&A session. So operator, please, the first question.
Operator, Operator
And the first question is from Maks Mishyn with JB Capital.
Maksym Mishyn, Analyst
I have two questions. The first is about Spain. You are targeting mid- to high single-digit growth, and you achieved 8% growth in 2025, but your net interest income guidance is in the low to mid-single-digit range. Could you explain the key assumptions behind that in terms of rates? The second question is about Mexico. Based on sector data, it appears that the gap in historical deposit costs is narrowing, and you seem to be experiencing faster growth in term deposits. Can you talk about the competition in deposits and how you anticipate your customer spread will change in the upcoming quarters?
Onur Genç, CEO
Thank you, Maks. Regarding Spain, our expectation for the 12-month Euribor is that it will remain flat, although we anticipate a slight decline in average spreads for 2025 and 2026. This results in different guidance for activity growth compared to overall net interest income and revenue growth. Currently, the 12-month Euribor stands at 2.22%, and we expect the average for the year to be around 2.25%. In Mexico, we regularly discuss deposit pricing. As of the end of November, our Mexican peso funding is at 2.5%, while the industry average is at 4.11%. We maintain a significant positive gap in terms of cost of funding and deposits. We are focused on transactional deposits, with one-third of our deposits in the EUR 0 to EUR 30,000 range, which has an average of EUR 790. This large customer base represents a strong relationship with BBVA that helps mitigate funding or deposit challenges. Our loan-to-deposit ratio has remained stable throughout the year in Mexico. As I mentioned in the last call, we are now more aggressive in deposits since interest rates are lower. Previously, we opted for wholesale funding during high-interest periods to avoid triggering the market too much. With lower interest rates now, we are gaining market share, particularly in the Enterprise segment. Overall, we feel confident about our deposit positioning and funding costs in Mexico.
Luisa Gomez Bravo, CFO
Just to add on to Onur's comment also on the rate side in Mexico. We do expect Banxico to continue to lower rates this year. So we're expecting Banxico rates to be around 6.5% around mid-year. So that is also implying somewhat compression of spreads in 2026 in Mexico on average versus also 2025, just as in Spain.
Onur Genç, CEO
And when we announced our long-term strategic plan, we said that the core driver of the strategic plan numbers that we announced again in July was the fact that the rates would stabilize. And once rates stabilize, the activity growth will translate into bottom line, right away into profits. And that stabilization has already happened in Spain and is very close to be happening, finalizing in Mexico.
Operator, Operator
Next question please.
Francisco Riquel, Analyst
I have two questions. First, in Spain, the customer spread decreased by 50 basis points in '25. In contrast, local competitors are reporting declines of only 20 to 30 basis points. Although your loan growth is at 8%, how can you assure us that these market share gains are not negatively impacting profitability? Additionally, could you comment on the expected dynamics of customer spreads in '26 and '27? My second question is regarding capital generation. The net profit results and guidance for '25 and '26 align with expectations, but the path there appears to be more capital intensive than I anticipated, especially considering the negative organic generation in Q4. Can you provide an update on the strategic goals for the '28 plans regarding the EUR 45 billion of CET1 generation? Is that still achievable, and how much will come from SRTs? Also, what will be the allocation between growth and distributions as previously guided?
Luisa Gomez Bravo, CFO
Yes, I believe the customer spread dynamics have been quite favorable this quarter. First, it's important to note that we are repricing our mortgage loan portfolio more quickly than our competitors. We adjust two-thirds of our mortgage book every six months and one-third annually. This pricing dynamic is reflected in the loan yields from quarter to quarter. Additionally, this quarter, we experienced a slight increase of two basis points in the cost of funds, mainly due to a mix effect, as we gained market share in transactional banking deposits on the corporate side, which slightly impacted the cost of deposits. Looking ahead, we anticipate stable customer spreads on a quarter-over-quarter basis in the first half of the year, with a potential slight increase toward the end of the year depending on the performance of the Euribor rate mentioned by Onur. Overall, we feel comfortable with the future evolution of the spreads. Regarding profitability, our core revenues in BBVA this year in Spain have shown a positive trend with over 3% year-on-year growth in net interest income and over 3% year-on-year growth in fees compared to our peers, indicating a positive profitability outlook for our growth.
Onur Genç, CEO
Just to add on this one, Paco. On Page 38, you will observe the average customer spreads by geography in the appendix. The average spread has decreased by 41 basis points, to be very precise. This decline is slightly greater than that of our competitors. This is understandable since, when you examine the growth of our lending portfolio, you will see that we are growing very profitably, albeit at a different margin or spread level compared to retail in the Enterprise segment. We are performing well in the Enterprise segment, which has implications due to the mix effect. However, that 41 basis points is excellent in our view. Additionally, the final spread in Spain at the close of the fourth quarter stands at 280, and we anticipate that this number has bottomed out. We expect it not to decrease further, with only minor changes expected. Going forward, if our anticipated rate policy unfolds as we expect, it should start to rise. Regarding the broader question about growth being capital-intensive and its implications for our goals, we have our midterm strategic plan with important figures. There are two key numbers that we find easy to remember: EUR 48 billion in profits and EUR 36 billion in capital distribution to our shareholders. These two figures are significant to us, and I make it a point to keep them in mind daily. We have a solid team in place, and while some factors may be beyond our control, we are currently on track to achieve these figures. As for growth in capital-intensive areas, as long as this growth exceeds our cost of equity, we are enthusiastic about it because it generates more capital than our cost of equity. The dynamics you mentioned might introduce some differences in the capital flow, but for now, everything aligns with our plans. If we continue growing in capital-heavy sectors, we could have more opportunities for SRTs, for example. To provide context on our growth dynamics, in Spain during the last quarter, we experienced a 2.5% increase in loans, compared to an average annual growth of 8%. Annualizing this quarterly growth shows a significant increase in the fourth quarter compared to the rest of the year. In Mexico, we had a 3.7% growth in the fourth quarter, while the overall annual growth was 7.5%. Again, annualizing the quarterly growth indicates much stronger performance for the fourth quarter than in prior quarters. Moreover, as Luisa explained, the rest of our business, specifically in CIB, has also shown remarkable growth. All this growth is occurring above our cost of equity. If this trend continues, it will provide us with a larger pool for more SRTs. There will be various factors to consider. However, to directly answer your question, we are fully committed and completely on track to meet our midterm goals.
Operator, Operator
Next question, please.
Benjamin Toms, Analyst
The first one is on costs. At a group level, costs grew 10.5% in 2025, above weighted average inflation of 9.6%. I roughly calculate the weighted average inflation is expected to be 7% in 2026. Is that 7% roughly in line with your expectations? And is 7% the right way to think about group cost growth for this year? I appreciate you have a cost-to-income ratio. And secondly, one of the reasons that Mexico is a great geography to operate in is because the population is young and underbanked. From a strategic point of view, I'm interested that when we're talking about new entrants coming to the market, and coming to a market like Mexico and disturbing the status quo, does that young and underbanked population actually represent a disadvantage? I imagine younger customers are less sticky. And if your parents never had a bank account, you'll have no brand aspiration or allegiance. Basically, conceptually, do you think that it's easier for a new entrant to come to a market like Mexico relative to a market like Spain?
Luisa Gomez Bravo, CFO
This year, our cost performance has been influenced by one-off VAT impacts in Spain and the Corporate Center, as well as inflation in Mexico and Turkey, but overall it aligns with our expectations based on our investment strategy. Looking ahead, our guidance indicates that we will continue to invest in our operations. The situation in Spain and the Corporate Center is impacted by these one-off occurrences. If we exclude these one-offs, we anticipate growth in Spain of about 3% to 4% on average over the two years, which matches the growth we foresee for that market. In Mexico, we also expect consistent growth as we believe that continued investment will yield significant returns. Consequently, overall group costs this year will likely exceed inflation due to these one-off events and ongoing investments in our growth areas. Profitability is a priority for us. As long as we maintain cost-to-income ratios below 40% for the group by 2026 and continue our goal of aiming for 35% in the medium term, we feel confident in our investment strategy at these return levels.
Onur Genç, CEO
Regarding your second question, Benjamin, it's an excellent one. Our experience in banking shows that different societal segments—whether young, middle-aged, or old—do not focus on whether a bank is a neobank or an incumbent bank. What matters to them is the quality of service they receive. It's a straightforward yet crucial concept. Various segments have different priorities when it comes to service. For instance, the younger demographic places significant importance on a superior digital experience. However, if this experience is offered by an established bank or a neobank, that distinction is irrelevant to them; they prioritize the service. In this context, we have compelling data that highlights our exceptional digital experience in Mexico, which we continually assess by comparing our offerings to those of neobanks. We're committed to identifying any gaps and addressing them promptly. Given this approach, there’s no reason for the younger segment to favor one bank over another. The data reflects that, despite the presence of longstanding neobanks in Mexico, we achieved 4.7 million new customer acquisitions in 2025, with a substantial portion of these customers being very young. An impressive 81% of these acquisitions occurred entirely through digital channels, showcasing one of our key competitive advantages. We also offer unique features that neobanks find challenging to replicate. Our extensive infrastructure is critical, particularly since Mexico remains predominantly cash-driven, with over 90% of the population using cash daily. We possess the largest ATM network and a branch network that is beneficial for customers, especially younger ones, who might only utilize branches for specific issues. Additionally, if young individuals are employed, we facilitate payroll relationships with companies that direct their payments to BBVA, which is a service not easily matched by neobanks. In summary, the evidence clearly illustrates that we recognize the competition and are actively rising to the challenge, ready to compete vigorously.
Operator, Operator
Next question please.
Cecilia Romero, Analyst
The first one is on Spain. Spain volumes are strong and you're gaining market share in SME and corporates while deliberately giving up share in mortgages. Is this pushing the cost of deposits up as you compete for clients, clients that you're not gaining through mortgages? You mentioned before on risk-weighted asset growth was larger than expected in this quarter. Can you clarify whether any large SRT transactions have slipped into Q1 and how we should think about risk-weighted asset growth and further SRT benefits for next year? My final question, the final dividend was entirely in cash. Is this structural going forward? Or are you planning to keep flexibility to do a final dividend in 2026 with a share buyback component?
Onur Genç, CEO
Perfect. SRTs, the architect and the leader of SRTs is Luisa, so I'll leave it to you on the second one. On the first one, the cost of deposits may be going up, if I understood you correctly, Cecilia, because we are less aggressive on mortgages, does it have an implication on deposits? Was that the question? But the deposit, you would see it in the numbers as well. Again, in the appendix, you will see it. Our loan-to-deposit ratio in Spain is now 87%, 87%. So we do have so much liquidity and so much deposits that the tension that you might be implying that would be coming from not having that mortgage relationship with customer and hence, lower deposits is not there at all because we do have, again, abundant deposit space. SRTs, Luisa?
Luisa Gomez Bravo, CFO
Yes. So on the SRTs, we generated 35 basis points of capital this year. In 2025, it was around EUR 11 billion of RWA release. We did front-load the deals in the year where they were more biased. We did like 23 basis points in the first half. We do see that the trend in the market is for deals to concentrate at the end of the year. And so we planned our SRTs in a different way. We expect this year to be able to deliver more or less in line with the guidance that we gave last year of around 30 to 40 basis points and pretty much in a similar fashion. We are also expecting to start doing some deals in some of our other core geographies such as Mexico and also potentially Turkey. We're working on those type of deals as well in order to try and mobilize the balance sheet further. So in that context, we do expect RWA growth to be below the loan growth as we complete our SRT planning going ahead.
Onur Genç, CEO
Okay. In response to the question about deposits in Spain, I must clarify that my previous answer may not have been complete. However, I believe the key point is that the 87% figure is significant. Additionally, a major factor contributing to our deposit growth in Spain is the retail franchise we are establishing. Last year, we successfully acquired 1 million new customers in Spain, excluding the neobanks, making us the top bank among incumbents in customer acquisition. This achievement also leads to increased deposits. Regarding the dividend, I believe you inquired about the possibility of share buybacks instead of cash in 2026. Yes, that is certainly an option. This year, we have a 50% cash distribution because we are already engaged in a share buyback program. There is currently an extraordinary share buyback program in progress alongside this. In previous years, such as 2024 and 2023, we conducted a portion of the payout through share buybacks, specifically EUR 40 million in cash last year and EUR 10 million in buybacks. We have flexibility in our payout policy, as we've previously communicated to the market. We generally prefer to provide a significant portion of the regular payout in cash, as we believe it's important to deliver cash dividends to our shareholders. However, we do have the option and flexibility to include share buybacks in the regular payout for 2026 as well.
Operator, Operator
Next question please.
Alvaro Serrano, Analyst
Can I ask a couple of questions about the guidance, starting with Mexico, and then I have one regarding costs in Spain? In Mexico, you showed impressive momentum in 2025 with mid- to high single-digit NII growth. In the second half of the year, you achieved 3% sequential growth in NII in pesos. The mid- to high single-digit NII growth you mentioned suggests only modest sequential growth over the fourth quarter base. Luisa, you mentioned a 50 basis points rate cut that you are implementing. Are you being conservative with your guidance? Is there anything we might be overlooking? If you could clarify that guidance, it would be very helpful. Now, regarding Spain, the cost-income ratio is at 33%, which is excellent. However, looking ahead to 2026, you mentioned low to mid-single-digit NII with fees and expenses underlying around 4%. That seems to suggest potentially negative jaws or stable jaws. How do you plan to manage costs moving forward, considering this strong starting point in cost-income? Should we anticipate increased investment or possibly some negative jaws down the line? Is this the optimal performance you can deliver, which is quite impressive, given that 33% is best-in-class?
Onur Genç, CEO
Okay. So maybe I'll address the second question, Luisa. First, Alvaro, congratulations on the outlook and guidance chart, which has many bullet points. We discussed whether we were being too conservative with the number you highlighted. You know our approach; that page is very significant to us. When we commit to a number, we ensure we deliver on it. While we might be somewhat conservative, we remain very optimistic about Mexico. If we managed what we did in 2025, despite the year's challenges in Mexico, we feel quite positive about 2026 as well, considering what we observe at the beginning of the year. We provide a number and we always deliver, which could explain the guidance you've referenced. Luisa, what about costs?
Maria Gomez Bravo, CFO
Yes. Well, on the cost side, I think that with the current guidance and in this year, we do expect some slight negative jaws in Spain if factoring for that circa 4% on average for the last 2 years. But that would still leave us with a very positive cost-to-income ratio for the year in Spain as we guided for. And again, we continue to, by the way, invest a lot in efficiency and productivity by no means are we standing still, where actually part of the investments and the growth in investments and expenses are to achieve further productivity gains throughout the year in '27 and '28 primarily. So we are very committed to ensuring that we have a very good solid cost discipline in Spain and the rest of the geographies, but Spain is, I think, a poster child of cost discipline in the past, and we will continue to do so throughout the year and going forward. So yes, slightly negative jaws this year, but again, very positive growth for Spain going forward in results, I mean...
Onur Genç, CEO
And Luisa, maybe we also quantify EBIT. I mean in terms of the number that you see on the page for 2025, Alvaro, you see that the costs in Spain have decreased by 0.7%, decreased. It was because of that one-off that Luisa also mentioned in previous calls and also today, this VAT one-off. If you exclude that one-off, the growth in 2025 would have been around 3% and the guidance for next year would have been around that as well. So it's not any different. It's the base effect mainly affecting that figure. And we are going to be in the first quarter running an efficiency initiative, a voluntary efficiency initiative in Spain, and that might have a little impact on that number also, especially in the first quarter. But the guidance is there in that sense, mainly because of the base effect.
Operator, Operator
Next question, please.
Marta Sanchez Romero, Analyst
My first question is a follow-up on cost. We've seen some slippage in the Corporate Center. Is there space to do something more ambitious in terms of restructurings? It's been a number of years since you did anything meaningful in terms of early retirements. Could we see some capital allocated there? My second question is also on capital allocation. Some may say that your buyback, your current extraordinary buyback was somewhat stingy. And at the current execution pace, you will be done and dusted by July. Is there a chance that you reload that buyback? Or we are not going to see anything in terms of capital returns beyond the interim dividend this year in 2026? And just a quick question on the rest of business. So your loan book there is growing like a weed, EUR 16 billion this year, almost EUR 30 billion over the past 2 years. We're seeing market investors a bit jittery about underwriting generally, private markets, etc. Can you give us some sense of the quality of your underwriting, what you're doing?
Onur Genç, CEO
Thank you for the questions, Marta. Regarding the Corporate Center, as I mentioned previously, this is not a restructuring program. It's an ongoing effort. In the first quarter of this year, we will implement a voluntary efficiency initiative for some of our colleagues who wish to participate. This initiative is specifically targeted. However, it's important to note that over the past five years, Corporate Center expenses have consistently increased at a rate lower than inflation, aside from one-offs which we can discuss further. We have committed to controlling these expenses, and we remain on track with those commitments. As for the buyback strategy, we've been quite clear about our approach and have established credibility in this area. We have set a capital target of 11.5% to 12%, and we will return any excess capital above 12% to shareholders. Looking at our capital situation, you will notice we do have excess capital. So, you can expect additional distributions back to shareholders when the time is right. Now, let's discuss the rest of the business, Luisa.
Luisa Gomez Bravo, CFO
Yes, I believe the growth we are experiencing is strong, but it results from plans developed over several years that have now gained momentum. These are well-thought-out plans designed to leverage our global presence. We connect our clients to emerging markets and work with large corporations that are enhancing our strategy in traditional corporate banking, evident by the 21% growth we observed in our year-end cross-border business. Regarding underwriting criteria, we remain quite conservative, similar to the rest of the group. Currently, 40% of our business is booked in the U.S., and we are primarily focused on corporate growth, as that is where we see the most significant increase. While we are seeing growth in other areas, it is not as substantial compared to our corporate segment. Our focus is on developing corporate, transactional, and regional banking models across our footprint.
Onur Genç, CEO
I would double down on this comment, and I'm glad that Luisa has picked up on that dimension. It's on Page 8 of the presentation on the left-hand side at the top, it says enterprise cross-border. Our growth in rest of the business in general, but our growth in CIB is based on a model that we want to accompany our clients wherever they are. We have this global footprint. Many of our clients do exist in our footprint with different subsidiaries and so on. It's more trade finance, multinational client, corporate banking-focused growth that we are after. And in that one, you see the evolution in that page on Page 8 that the growth is coming from there, from those clients. It's basically a cross-sell to our clients that we have in Spain. For example, we have a business in Mexico, we go after that. Our big clients in Spain who have a business in the U.S., we go after that. That's the focus of our growth in CIB.
Operator, Operator
Next question, please.
Carlos Peixoto, Analyst
The first question pertains to medium-term targets, specifically the return on tangible equity average of 22% that was guided for 2025 to 2028, considering that 2025 is projected to be slightly below 20% and this year is aiming for 20%. This suggests that in the upcoming years, the average return on tangible equity would need to be around 22% or higher. Is this target firm, or do you anticipate any potential setbacks? The same reasoning applies to net profit; based on your guidance for this year, it appears that net profits above EUR 13 million will need to be achieved in both 2027 and 2028 to meet those targets. What factors will contribute to the increase in net profit? The second question concerns Mexico. The cost of risk guidance of 340 basis points indicates a slight decrease compared to 2025. Are you being cautious, or is there a specific concern behind this? Is it related to the loan mix? I'm trying to gain a better understanding of the rationale.
Onur Genç, CEO
Very good. Thank you, Carlos. Luisa, could you help me out with the cost of risk? First, regarding the long-term and midterm goals, I want to clearly confirm that we are fully committed and still on track, as highlighted on Page 18 of the presentation. You asked a valid question about achieving 22% after accomplishing 19.3% in 2025. It's important to look at our plan. I can guarantee that for 2025, we delivered results above our expectations. For 2026, if we meet our guidance, we will exceed what we have in our plan. The latter years are expected to outperform the first two. You're also asking about the drivers behind this. As we've mentioned before, this dynamic is relatively straightforward but crucial. We are seeing strong growth in our core regions, particularly in Spain and Mexico. However, this growth in activity for 2025 and early 2026 is offset by a decline in customer spreads because these regions are highly sensitive to rate changes. When rates decrease, our customer spreads decline. Although we achieved solid growth in 2025, it balanced out the negative impact of declining spreads. For 2026, based on our macro assumptions, we expect rates in Europe, Spain, and Mexico not to decline further, settling at 6.5%. Currently, we are at 7%, so we anticipate maintaining that 6.5%. If these assumptions hold true, the improved profits in the coming years will result from activity growth no longer being impacted by declining spreads, allowing it to flow directly to the bottom line. With these factors in mind, we remain confident in our midterm goals and the numbers we’ve previously provided. Now, regarding the Mexico cost of risk, Luisa?
Luisa Gomez Bravo, CFO
Yes. Well, I think as you mentioned, it's more driven by a mix effect. As you know, we have been growing in the past years, our retail portfolios faster than our wholesale portfolios. This year, our retail portfolio has grown close to 12%. Our wholesale portfolio is growing at 3% at the end of the year, factored by the U.S. dollar also depreciation. But in general, that mix effect is driving that guidance in terms of cost of risk. Remember that we're growing 14% credit cards, 14% consumer loans, 14% SMEs. So it's a mix effect. The underlying quality trends are supportive, and we don't see any issues other than the mix effect feeding into that cost of risk guidance for Mexico this year.
Operator, Operator
Next question please.
Sofie Peterzens, Analyst
My first question would be on AI and tech. You guided for below 40% cost-to-income ratio in '26 and around 35% in 2028. But how do you think about kind of AI and the kind of cost-to-income ratio in the longer term? How much cost reduction do you expect AI potentially could help BBVA? And then my second question would be on Turkey. Revenues are strong, but net income was a little bit lower than expected. Also, guidance for 2026 is slightly lower than expected by consensus. How should we think about the kind of upside risk to Turkey, but also Argentina from potentially exiting hyperinflation in 2028 and what that could mean for BBVA?
Onur Genç, CEO
In the realm of AI, we are still in the early stages, so we do not have a precise understanding of the efficiency savings we are observing, although they are encouraging. We are optimistic about the results we are seeing in the areas we are currently implementing. However, we require time to measure and assess the direct impact. In our plan, we predicted a 35% improvement by 2028, with the expectation that efficiency savings from AI will begin to manifest in 2027 and 2028. We have not specified exact contributions from AI or other areas, as it is too early to quantify. Nonetheless, we intend to realize efficiency savings in those two years from our ongoing programs. Regarding Turkey, your question about the risk upside is important. You mentioned the 2025 figures being somewhat lower than expected; this was due to two reasons. Firstly, there was a last-minute change in the tax code at the end of December, resulting in an impact of around EUR 50 million, specifically EUR 42 million, which affected the tax figures. Secondly, impairments in Turkey have been slightly higher. This is because the minimum wage increase occurs only once a year at the beginning, and without adjustments towards the end of the year, inflation still affects the situation. In retail, credit cards, and consumer lending, we see higher inflows, but the vintages remain consistent with our expectations. The performance in 2025 aligns closely with our guidance. As the vintages stabilize and improve, we might see some provisioning similar to the previous quarter, but we are not concerned about the provisioning levels. In terms of the upside in Argentina and Turkey, our guidance includes a footnote addressing the factors of inflation, interest rates, and currency depreciation that drive these projections. We believe our assumptions are fair, leading to our guidance. To your question about the potential upside in these two countries, we do see possibilities, contingent upon improvements in inflation and reductions in interest rates. Specifically, if inflation in Turkey improves and interest rates decrease, there is significant upside potential. We have previously indicated that the fair value in Turkey could exceed EUR 2 billion in profits, whereas currently, we are below EUR 1 billion. This upside exists, but it is contingent on the country's macroeconomic developments. Lastly, regarding hyperinflation, the guideline is straightforward. If the cumulative inflation over the last three years is below 100, the country exits hyperinflation. That is why our strategic plan aims for 2028 for both countries to emerge from hyperinflation, although this is also dependent on macroeconomic trends.
Operator, Operator
Next question please.
Fernando Gil de Santivanes, Analyst
Very quick one. What has changed over the FX hedges in the Mexican peso? Because I'm seeing higher volatility expected in this presentation versus the previous one?
Onur Genç, CEO
The RWA has decreased rapidly, Fernando. This reduction is due to our regulatory actions, which you can observe in the capital chart. We transitioned to standard in some portfolios and to foundation in others, which has affected us, along with the equity sensitivity.
Operator, Operator
Thank you very much for all your questions. We will wrap up now.