Executive Summary / Key Takeaways

• BBVA demonstrates a unique blend of profitable growth and digital leadership, achieving an outstanding 20.4% Return on Tangible Equity (ROTE) in the first half of 2025 and targeting an average of 22% ROTE for the 2025-2028 period.
• The bank's strategic focus on digital transformation and AI integration provides a significant competitive moat, driving efficiency improvements, enhanced customer satisfaction, and a robust pipeline for new customer acquisition, particularly in high-growth emerging markets.
• BBVA's disciplined capital management and strong organic capital generation underpin its commitment to shareholder returns, with €36 billion expected to be available for distribution over the 2025-2028 period, including €12 billion in excess capital.
• The ongoing voluntary tender offer for Banco de Sabadell represents a strategic move to gain scale and optimize costs in the Spanish market, further enhancing BBVA's competitive positioning in Europe.
• Despite macroeconomic uncertainties, BBVA's diversified model, proactive hedging strategies, and underleveraged core markets like Mexico position it for sustained profitable growth and resilient financial performance.

A Legacy of Adaptation and Digital Transformation

Banco Bilbao Vizcaya Argentaria, S.A. (BBVA), founded in 1857, has evolved from a traditional Spanish bank into a global financial powerhouse, distinguished by its aggressive pursuit of digital transformation and strategic presence in high-growth emerging markets. This journey has shaped its current competitive advantages and strategic responses to a dynamic global financial landscape. The company's history is marked by significant milestones, including the successful integration of acquisitions like CatalunyaCaixa and Unnim in 2014-2015, which provided a foundation for future growth and capital optimization.

A pivotal shift occurred around 2018 with a strong emphasis on sustainability, leading to the early achievement of its €300 billion sustainable business target by 2024, a year ahead of schedule. This commitment to sustainability is now a core business opportunity, with a new ambitious goal to channel €700 billion in sustainable finance by 2029. Concurrently, BBVA embarked on a radical digital strategy that has fundamentally reshaped its operations and customer engagement.

Technological Edge: The Digital Moat

BBVA's core differentiated technology lies in its advanced digital platforms and pioneering integration of Artificial Intelligence (AI). This technological prowess is not merely an operational enhancement but a fundamental competitive advantage, driving superior efficiency, customer experience, and market penetration. The tangible benefits are evident in several key metrics.

The bank's digital strategy has propelled new customer acquisition, with 66% of new customers joining through digital channels in 2024, a significant increase from 21% in 2019. Mobile penetration rates have surged to a record 75% from 51% in 2019, demonstrating widespread digital adoption. Furthermore, mobile app logins and transactions have more than doubled since 2020, underscoring the effectiveness and popularity of BBVA's digital offerings.

AI and next-generation technologies are the cornerstone of BBVA's innovation roadmap. The bank is already incorporating AI agents to provide personalized customer support and empower employees, leading to substantial productivity gains. For instance, simple software development programs have seen efficiency improvements of approximately 70% in terms of time. In customer service, AI-powered agents and bots handle 37 million calls, improving time attendance by 65%. These advancements are expected to crystallize into further productivity gains, particularly in engineering and operations, by 2027-2028.

For investors, this technological differentiation translates into a robust competitive moat. It enables BBVA to achieve an industry-leading efficiency ratio, which stood at an outstanding 37.6% in Q2 2025 and is targeted to improve to around 35% by 2028. This efficiency, coupled with enhanced customer satisfaction (BBVA Mexico boasts an NPS of 70, significantly higher than traditional peers), supports higher margins and a stronger market position, particularly against traditional banking rivals.

Strategic Pillars and Competitive Positioning

BBVA's overarching strategy for 2025-2029 is built on six key priorities: embedding a radical client perspective, driving growth through sustainability, increasing value contribution from enterprise segments, optimizing capital use with a value and capital creation mindset, unlocking the potential of AI and innovation, and investing in its teams. These pillars are designed to capitalize on macroeconomic stabilization and geopolitical shifts, positioning BBVA for sustained leadership.

In the competitive landscape, BBVA stands out. Its 20.4% ROTE in the first half of 2025 is described as "unmatched" among its peers, making it "one of the most profitable banks in the industry." This superior profitability is a direct result of its focused strategy and operational excellence. While BBVA's RWA density of 50% is higher than the European peer average of 29%, this gap is expected to narrow significantly due to Basel IV implementation, strategic risk transfer (SRT) transactions, and IRB model simplification, which is anticipated to release an additional 40-50 basis points of CET1 in Q4 2025.

BBVA competes intensely with global banking giants like Banco Santander (SAN), HSBC Holdings (HSBC), JPMorgan Chase (JPM), and Bank of America (BAC). Against Banco Santander, BBVA's digital agility and sustainability focus offer a qualitative edge in customer engagement and efficiency. Compared to HSBC, BBVA's streamlined digital platforms and focus on emerging markets provide a more agile approach, while HSBC leverages its global scale. Against U.S. powerhouses like JPMorgan and Bank of America, BBVA's strength lies in its international diversification and innovation in emerging markets, though it may trail in overall scale and capital markets dominance.

In its core markets, BBVA demonstrates strong competitive dynamics. In Spain, it is gaining market share in profitable segments like consumer and SME lending, though it is selectively ceding market share in mortgages due to intense price competition. In Mexico, BBVA maintains a dominant position, with a 44% market share in payrolls and over 25% in total loans. This strong transactional deposit base, where one-third of deposits are less than €30,000, provides a significant competitive advantage in deposit costs, allowing BBVA to compete effectively even against aggressive fintech players like Nubank (NU), whose price advantage is expected to diminish as interest rates decline.

The ongoing voluntary tender offer for Banco de Sabadell underscores BBVA's strategic pursuit of scale in the European banking sector. Management views this as a "textbook transaction" to optimize costs, particularly in technology, where both banks incur substantial fixed expenses. The amended offer, authorized on September 25, 2025, proposes an all-share transaction, with BBVA emphasizing the value creation for both sets of shareholders.

Robust Financial Performance and Outlook

BBVA's financial performance in the first half of 2025 reflects the successful execution of its strategy. The bank reported a net attributable profit of €2.749 billion in Q2 2025, contributing to a record €5.447 billion for the first six months of the year. This achievement comes despite falling interest rates in core markets and currency headwinds, which were largely offset by robust activity growth and effective balance sheet management. Core revenues, comprising net interest income and fees, grew an impressive 11% and 18% year-over-year in constant euros, respectively, in Q2 2025.

Loan growth has been exceptional, reaching 16% year-over-year at the group level in Q2 2025, with management emphasizing that this growth is delivered profitably across all segments. The CET1 capital ratio improved by an "exceptional 25 basis points" in Q2 2025, reaching 13.34%, well above the target range and regulatory requirements. This capital generation is supported by strong results and strategic actions, including risk transfer transactions.

Looking ahead, BBVA has set ambitious midterm goals for 2025-2028:

• Return on Tangible Equity (ROTE): Around 22% on average.
• Tangible Book Value Growth (including dividends): Mid-teens compounded annual growth rate.
• Efficiency Ratio: Further improvement to around 35% by 2028.
• Cumulative Net Attributable Profit: €48 billion over the four-year period.

These targets are underpinned by assumptions of global economic stability, interest rates bottoming in core markets by 2025-2026, and moderating currency depreciation. Specific guidance for key segments includes mid-single-digit loan growth and slight NII growth in Spain, and close to 10% loan growth in Mexico by year-end 2025. Turkey's net profit is expected to be somewhat below €1 billion in 2025, with a gradual recovery anticipated as macro conditions normalize and hyperinflationary accounting is expected to cease by 2028.

BBVA's commitment to shareholder distribution is a cornerstone of its value proposition. The bank expects to generate approximately €49 billion of CET1 capital over the 2025-2028 period. After reinvesting €13 billion in profitable growth, €36 billion is projected to be available for distribution, comprising €24 billion from the regular payout policy (50% of cumulative profits) and €12 billion in excess capital. This substantial distribution capacity, coupled with the lifting of share buyback restrictions, highlights BBVA's focus on maximizing shareholder value.

Risks and Challenges

Despite the optimistic outlook, BBVA faces several pertinent risks. The ongoing macroeconomic uncertainty, particularly the impact of global trade wars and potential U.S. slowdowns on Mexico, could affect loan growth and asset quality. Management acknowledges this by maintaining a cautious stance on guidance, despite strong underlying performance. The normalization of the cost of risk in Turkey, driven by retail portfolios and macro rebalancing, requires careful monitoring, though it remains within expectations.

The Sabadell integration, while strategically compelling, introduces complexities. The transaction is subject to regulatory approvals and conditions, including maintaining separate legal entities for three years, which could delay operational synergies. The capital impact of the acquisition is estimated at 51 basis points for a 100% takeover, potentially rising to 60 basis points for a 50% takeover. Furthermore, the potential for a sovereign rating downgrade in Mexico, though not anticipated until 2027-2028 under current fiscal discipline, remains a long-term consideration.

Conclusion

BBVA stands as a compelling investment opportunity, uniquely positioned by its blend of profitable growth, digital leadership, and robust capital generation across diversified markets. The bank's unwavering commitment to its strategic priorities, particularly in leveraging technology and sustainability, underpins its ability to deliver unmatched returns. The ambitious 2025-2028 midterm goals, including an average ROTE of 22% and significant capital distributions, underscore management's confidence in its intrinsic value and future trajectory.

While macroeconomic uncertainties and competitive pressures persist, BBVA's proactive risk management, strong competitive advantages in digital banking, and strategic pursuit of scale through initiatives like the Sabadell offer, reinforce its long-term investment thesis. The bank's ability to consistently outperform its peers in profitability and efficiency, coupled with its disciplined approach to capital allocation, positions it to continue creating substantial value for shareholders in the years to come.