Executive Summary / Key Takeaways

• BBVA demonstrates exceptional profitability and value creation, achieving a 20.4% Return on Tangible Equity (ROTE) in 1H 2025 and projecting an average ROTE of 22% for 2025-2028, positioning it as a top-tier European bank.
• A robust digital strategy and significant investment in AI and innovation are core differentiators, driving record customer acquisition (5.7 million new customers in Q2 2025) and operational efficiency, with the efficiency ratio improving to 37.6% in Q2 2025.
• Strategic focus on high-growth markets like Mexico and enterprise segments, coupled with proactive balance sheet management and risk transfer transactions, underpins strong loan growth (16% YoY in Q2 2025) and capital generation.
• BBVA's capital position is robust, with a CET1 ratio of 13.34% in Q2 2025, and significant capital available for distribution (EUR 36 billion projected for 2025-2028), alongside a pending EUR 1 billion share buyback.
• The proposed acquisition of Banco de Sabadell aims to enhance scale and cost optimization in Spain, further solidifying BBVA's domestic market position, though the strategic plan for 2025-2028 is presented on a stand-alone basis.

A Global Banking Powerhouse Forges Ahead

Banco Bilbao Vizcaya Argentaria, S.A. (BBVA) stands as a diversified financial services leader, with a rich history dating back to 1857 in Bilbao, Spain. The company's expansive operations span retail and wholesale banking, alongside asset management, across key regions including Spain, Mexico, Turkey, South America, Europe, the United States, and Asia. This broad geographical footprint and comprehensive service offering, delivered through both traditional and advanced digital channels, form the bedrock of BBVA's strategic positioning.

BBVA's overarching strategy is deeply rooted in profitable growth and value creation, a commitment consistently demonstrated through its financial performance and strategic initiatives. The bank has cultivated a strong competitive stance, particularly in its core markets, by emphasizing customer-centricity, digital transformation, and a disciplined approach to capital allocation. This strategic clarity has enabled BBVA to not only expand its market share but also to achieve superior profitability metrics compared to many of its European peers.

The banking industry is undergoing profound shifts, driven by technological advancements, evolving customer expectations, and dynamic macroeconomic conditions. BBVA has proactively responded to these trends, recognizing the imperative for scale and innovation. The company's strategic focus on leveraging sustainability as a business opportunity, expanding into enterprise segments, and fostering a "value and capital creation mindset" across all operations underscores its adaptability and forward-looking approach.

Technological Edge and Digital Dominance

At the heart of BBVA's competitive advantage lies its profound commitment to technological differentiation and innovation. The bank has made substantial investments in its digital infrastructure, culminating in a "global mobile app" that is shared across most of its countries, enabling significant efficiency gains through design and software component reutilization. This unified platform is a cornerstone of its strategy to deliver industry-leading customer service and satisfaction.

The tangible benefits of this digital prowess are quantifiable and impactful. Digital customer acquisition surged from 21% in 2019 to 66% in 2024, demonstrating the effectiveness of its online and mobile channels in expanding its client base. The active customer base has grown impressively from 55 million at the end of 2019 to over 78 million by March 2025, with mobile penetration reaching a record 75% by 2024. Moreover, monthly logins have doubled and transactions have multiplied by 2.5 times in its global mobile app since 2020, showcasing enhanced customer engagement and operational scale.

BBVA's R&D initiatives are heavily focused on unlocking the potential of Artificial Intelligence (AI) and innovation. The stated goal is to improve data availability and leverage next-generation technologies to gain a competitive edge and enhance productivity. For instance, the company has observed "software development efficiencies in terms of time development of around even 70% of very simple things" through AI. In customer service, the use of AI agents in its apps (Blue and Mexico) is "already handling 37 million calls that we used to have in IVR," improving performance and customer experience significantly by 65% in terms of time attendance. These advancements contribute directly to BBVA's competitive moat by lowering operational costs, improving efficiency, and enhancing customer satisfaction, thereby strengthening its financial performance and market positioning.

Unmatched Profitability and Robust Financials

BBVA's financial performance in the first half of 2025 underscores its strategic effectiveness and operational discipline. The company achieved an "outstanding return on tangible equity of 20.4% and the return on equity of 19.5%," positioning it as "one of the most profitable banks in the industry." This profitability trend is particularly noteworthy given the "falling rates in our core markets" and "currency headwinds" experienced during the period. Net attributable profit reached EUR 2.749 billion in Q2 2025, contributing to a record EUR 5.447 billion for the first half, a 9.1% increase year-over-year.

Core revenues, comprising net interest income (NII) and fees, demonstrated "consistent quarterly improvement," growing 11% and 18% year-over-year respectively, and 4% quarter-over-quarter in constant euros. This growth was fueled by an "exceptional" 16% year-over-year loan growth at the group level in Q2 2025, with Spain contributing 6.3% and Mexico 11.7%. This robust activity "more than compensated for spread compression" from declining market rates, leading to core revenue increases of 2.2% in Spain and 9.6% in Mexico.

Operational efficiency remains a hallmark of BBVA, with the company maintaining "positive jaws" as gross income grew almost 20% year-over-year while costs increased by 10%, "below the group's footprint average inflation." This resulted in an improved efficiency ratio of 37.6% in Q2 2025. Asset quality metrics remained solid, with the cost of risk at 132 basis points in Q2 2025, "better than... our end of year estimate."

BBVA's capital position is a significant strength, with the CET1 ratio improving by an "exceptional" 25 basis points in Q2 2025 to 13.34%. This was supported by strong results, efficient RWA management (including 10 basis points from risk transfer transactions), and a one-off positive impact from Basel IV implementation clarifications. The company also received authorization to simplify its IRB regulatory models, expected to release an additional 40 to 50 basis points of CET1 in the remainder of 2025. This is particularly advantageous given BBVA's RWA density of 50%, significantly higher than the peer average of 29%.

Strategic Expansion and Competitive Dynamics

BBVA's strategic initiatives are designed to capitalize on its strengths and market opportunities. The company's focus on "radical client perspective" aims to elevate customer service standards, while leveraging sustainability and enterprise segments drives profitable growth. BBVA is on track to channel EUR 700 billion in sustainable finance by 2029, demonstrating its commitment to this high-growth area. The "Rest of Business" segment, encompassing CIB operations in the U.S., Europe, and Asia, along with digital banks in Europe, is projected to be a significant growth engine, with revenue growth close to 20% through 2028 and a CIB return on capital of around 20%.

In Spain, BBVA delivered "exceptional performance" in 1H 2025, with net profit reaching EUR 1.1 billion in Q2 2025. Loan growth accelerated to 6.3% year-over-year, driven by consumer lending and SMEs. The company is gaining market share in these profitable segments, though it remains cautious on mortgages due to competitive pricing. The activation of EUR 150 million in deferred tax assets (DTAs) in Q2 2025, with potential for more, further bolsters profitability. BBVA is upgrading its full-year guidance for Spain, expecting mid-single-digit loan growth, slight NII growth, low to mid-single-digit fee increases, and expenses to decline by low single digits, targeting a 33% cost-to-income ratio.

Mexico continues to be a powerhouse, delivering nearly EUR 1.3 billion in net profit in Q2 2025. Loan growth was 11.7% year-over-year, driven by strong retail and commercial activity. Mexico's efficiency ratio remains "exceptional at 30.6%." BBVA benefits from Mexico's low financial leverage (33% banking debt over GDP) and increasing banking penetration, allowing for consistent loan growth that outpaces nominal GDP. The bank's strong market share in payrolls (44%) provides a competitive edge in deposit costs, which remain more than 2 percentage points below peers. BBVA upgraded its full-year guidance for Mexico, expecting loan growth close to 10% and cost of risk below 350 basis points.

Turkey's Garanti BBVA reported a net profit of EUR 412 million in Q2 2025, a 17% year-over-year increase, driven by strong core revenues and a declining impact from hyperinflationary adjustments. The Turkish lira customer spread significantly improved, and the bank benefits from a positive NII sensitivity to lower rates. While impairments increased due to normalization, the cost of risk is expected to close around 180 basis points for 2025. BBVA anticipates Turkey to exit hyperinflationary accounting by 2028, boosting future profitability.

In South America, BBVA delivered EUR 421 million in net profit in 1H 2025, a 33% year-on-year increase, supported by sound lending and improved deposit mix. The cost of risk is expected to be below 250 basis points for the full year 2025. Argentina is also projected to exit hyperinflationary accounting by 2028.
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The proposed voluntary tender offer for Banco de Sabadell is a strategic move to gain scale in Spain. BBVA views this as a "textbook transaction" for cost optimization, given the fixed costs associated with technology and regulatory compliance in the banking sector. While the strategic plan is presented on a stand-alone basis, the potential synergies from such a merger could further enhance BBVA's competitive position and financial performance in its domestic market.

Competitive Landscape and Positioning

BBVA operates in a highly competitive global banking landscape, facing rivals such as Banco Santander (SAN), HSBC Holdings (HSBC), JPMorgan Chase (JPM), and BNP Paribas (BNPQF). BBVA's 20.4% ROTE and its upward trend "remains unmatched" compared to peers, underscoring its superior profitability.

Compared to Banco Santander, BBVA's focus on fintech innovation and sustainable finance offers a qualitative edge, while Santander's broader geographic footprint provides diversification. BBVA's established brand in Spain and Mexico fosters customer loyalty, potentially giving it an advantage in shared markets. Against HSBC, BBVA's technological integration for retail clients, such as faster digital onboarding, provides a competitive edge, while HSBC's strength in global trade finance offers superior cash flow generation. JPMorgan Chase, with its advanced technological capabilities and scale, often leads in efficiency and product innovation speed, areas where BBVA is actively investing to close the gap through AI and data initiatives. BNP Paribas, a strong European peer, aligns with BBVA in digital channels and sustainable finance, but BBVA's operational execution and bilingual services in Latin America help it capture market share.

BBVA's competitive advantages, or moats, are primarily its strong brand and customer loyalty in Spain and Latin America, translating into enhanced pricing power and recurring revenue. Its extensive distribution channels, both physical and digital, provide cost leadership in customer access. However, vulnerabilities include potential market concentration risks in Europe and challenges in maintaining rapid technological adoption against global tech leaders. The ongoing simplification of IRB regulatory models and the use of risk transfer transactions are strategic responses to optimize capital and enhance its competitive standing, particularly in reducing its RWA density gap with peers.

Outlook, Guidance, and Risks

BBVA's outlook for 2025-2028 is highly positive, with management projecting an average ROTE of around 22% and tangible book value growth (including dividends) at a mid-teens compounded annual growth rate. The efficiency ratio is expected to further improve to around 35% by 2028, with cumulative net attributable profit targeted at EUR 48 billion over the four-year period. This optimism is grounded in expectations of relative stability in global economic growth, interest rates bottoming out in core markets by 2025 or 2026, and a moderation in currency depreciation.

Specific guidance for 2025 includes upgraded metrics across the board. Spain is expected to see mid-single-digit loan growth and slight NII growth, with a cost-to-income ratio targeting 33%. Mexico is projected to achieve close to 10% loan growth and a cost of risk below 350 basis points. Turkey's net profit is anticipated to be somewhat below EUR 1 billion in 2025, with a cost of risk around 180 basis points, as macro conditions normalize. South America's cost of risk is expected to be below 250 basis points.

Key risks include currency volatility, particularly in emerging markets, which can impact tangible book value and net attributable profit. Changes in macroeconomic scenarios, such as those affecting IFRS 9 macro adjustments, can lead to increased impairments. The ongoing integration of the Sabadell transaction, while strategically sound, presents execution risks. However, BBVA's proactive hedging strategies for both capital and P&L, along with its disciplined approach to loan origination (each loan must pass a return on capital threshold), mitigate these risks. The company's commitment to returning excess capital to shareholders, with EUR 36 billion available for distribution over 2025-2028, underscores its confidence in future performance and shareholder value creation.

Conclusion

BBVA stands at a pivotal juncture, poised for sustained growth and exceptional value creation. Its strategic narrative is compelling: a digitally advanced, highly profitable bank with leading franchises in high-growth markets. The company's consistent delivery on financial targets, coupled with its proactive management of capital and risks, reinforces a strong investment thesis. The ongoing commitment to technological innovation, particularly in AI, is not merely a strategic pillar but a tangible driver of efficiency and customer engagement, providing a distinct competitive edge.

With ambitious yet achievable guidance for the coming years, BBVA is set to continue its trajectory of outperforming peers in profitability and shareholder returns. The potential integration of Banco de Sabadell further strengthens its domestic market position, while its robust capital framework ensures flexibility for both organic growth and substantial shareholder distributions. For discerning investors, BBVA represents a compelling opportunity, blending a proven track record with a clear, forward-looking strategy designed to thrive in a dynamic global banking environment.