Rating action

Scope Ratings GmbH (Scope) has today affirmed the A+ issuer rating and A+ preferred senior unsecured debt rating of Banco Bilbao Vizcaya Argentaria SA (BBVA), both with a Stable Outlook. The ratings were previously only available to investors on a subscription basis.

The full list of rating actions and rated entities is detailed at the end of this rating action release.

Key rating drivers

Business model assessment: Very resilient (Low). The issuer rating is anchored by the Very resilient (Low) business model assessment. The group's business model is characterized by leading retail and commercial banking positions in its key markets and relevant geographic diversification in countries with uncorrelated economic cycles and distinct banking sector dynamics. Although exposure to emerging markets accounts for almost half of total credit exposure, Scope considers the group’s retail and commercial banking franchise to be very resilient. The group has steadily strengthened its competitive footprint, with market shares ranging from 10% to 25% in both retail and commercial banking across its core markets. The resilience of BBVA's performance over the cycle is also supported by business diversification, where fees and commissions and wealth management products have grown in importance and account for more than 20% of operating income.

The potential acquisition of Banco de Sabadell would strengthen BBVA's presence in Spain, increasing its market share in both loans and deposits, and boosting the relevance of the Spanish portfolio to the group, both in terms of assets and revenues. If the acquisition were to be completed, Scope does not foresee changes in BBVA's strategy or business model but would recognise the increased importance of the Spanish portfolio to the group.

Operating environment assessment: Moderately supportive (High). The assessment reflects Scope’s blended view of the different markets where BBVA operates. Spain represents around 55% of BBVA’s total assets, followed by Mexico with 20% and Türkiye with 10%, respectively. Although BBVA operates in countries with higher risks compared to its peers, its record of positive performance in these markets is evidence of the group's ability to generate sustainable earnings in challenging conditions.

Spain (Supportive low) represents 27% of the group’s gross income as of 9M 2024. The county’s GDP per capita has grown steadily reaching EUR 33k in 2023. Despite global economic challenges, Spain's economy has demonstrated resilience, achieving a robust 2.5% GDP growth in 2023, significantly outperforming the euro area's growth of 0.5%. Medium-term growth prospects are supported by structural improvements in the country’s economic structure and strong labour market dynamics, including significant contributions from positive net migration flows and labour market reforms. Furthermore, output and employment gains have been increasingly driven by emerging, higher value-added sectors, including telecommunications and advanced manufacturing.

The Spanish banking sector is highly concentrated, with the top four banks accounting for around 80% of the sector’s domestic assets as of YE 2023. The sector is characterised by strong cost efficiency, which has improved significantly in recent years following the last consolidation cycle. Profitability metrics have improved, in line with what has been observed in other European economies, allowing banks to strengthen their financial profile after years of weaker performance.

Mexico (Moderately supportive low) accounts for 44% of the group’s gross income as of 9M 2024. The country is regaining stability in term of investments, reforms and economic growth with GDP forecast at 1.0%-1.2% for 2024 (IMF) and 1.0% for 2025. The banking system is relatively fragmented. However, the presence of large international players provides stability through solid asset quality, strong capitalization and supportive profitability. The challenging economic outlook, due to policy risks and potential US tariffs could impact the performance of the banking sector, with lower loan volumes, pressure on margins and potential asset quality deterioration. However, domestic economic momentum supports the performance of the sector over the medium term.

Türkiye’s (Constraining low) represents 11% of the group’s gross revenues as of 9M 2024. Economic performance has been constrained by persistently high inflation, materially above sovereign peers, increasing vulnerability to external shocks. Limited policy flexibility, exchange rate depreciation and moderate net international reserves constrain the central bank’s ability to stabilise markets. Pension and wage revalorisation, high dollarization, and a record of unconventional economic policies could also delay the disinflation process. Additional credit challenges include lingering external and financial risks, institutional and geopolitical risks, and regional instability. The banking sector has proven to be resilient, able to provide significant liquidity, maintaining asset quality relatively contained, but the weaker currency and volatility erodes capitalisation levels.

BBVA follows a multiple point of entry resolution strategy. However, the main operating group is subject to the Spanish regulatory framework. Spain, which is part of the European Banking Union, has brought about a significant strengthening and harmonisation in bank regulation and supervision under the ECB’s Single Supervisory Mechanism, which Scope considers to be supportive of financial stability. The European Central Bank also shares with national central banks the role of lender of last resort, which limits liquidity risks for banks.

Scope arrives at an initial mapping of a- based on a combined assessment of the issuer’s operating environment and business model.

Long-term sustainability assessment (ESG factor): Best in class (+1 notch). The assessment reflects Scope’s view that the issuer stands out as an early adopter of the most advanced industry sustainability-related standards or practices. The issuer’s approach to long-term sustainability, including target setting and commitment to delivery, clearly enhances its credit standing.

BBVA has been able to develop digital capabilities that are a competitive differentiator and that have become the main tool for sales in all core markets. Customer acquisition is mostly driven by digital platforms, representing 78% of total sales (number of transactions). With 77m customers, of which 57m are mobile only as of September 2024, the ability of the group to leverage its digital capabilities to enter and continue growing in new markets is demonstrated by the recent expansion to Italy and Germany, following a well-structured and purely digital strategy.

In addition, the clear focus on sustainable finance from a strategic perspective, with meaningful targets and resources allocation (EUR 300bn for 2025 to promote climate change and inclusive growth), places BBVA as a key player considering the group’s geographical footprint in developing markets.

The long-term sustainability assessment leads to an adjusted rating anchor of a.

Earnings capacity and risk exposures assessment: Supportive (+1 notch). The assessment reflects Scope’s view that earnings capacity is stable through economic cycles and provides a strong buffer against losses. Risks are well managed and are highly unlikely to lead to losses capable of undermining the issuer’s viability.

Earnings capacity and risk exposures are supportive of BBVA’s risk profile. As a result of its retail and developing markets exposure, BBVA’s return on RWAs has been steadily growing and reached levels above 2.0% over the past three years. This growth is supported by solid and consistent revenue generation with a significant contribution from net interest income, as well fees and commissions. The group’s ability to leverage digital capabilities has resulted in one of the highest efficiency metrics among national and international peers. With a cost/income ratio of 38.9% as of September 2024, BBVA has successfully implemented a less branch-intensive distribution model.

Risk exposures are adequately managed, with a stable and declining non-performing loan ratio for the EU business. However, the group's overall loan book has a higher risk profile due to the larger portfolio of consumer loans and the exposure to emerging markets. Consumer loans and credit cards account for approximately 17% of the loan book but provide a higher risk-adjusted margin compared to mortgages and have been a supportive factor for the group’s earnings capacity and profitability.

Sector concentrations in the corporate portfolio are well balanced, with the largest being manufacturing and trade, followed by wholesale and retail, reflecting BBVA’s exposure to SMEs. The concentration in the ALCO portfolio is manageable, with the largest sovereign exposure being to Spain, which represents around 70% of CET1 capital. The improving risk profile of the Spanish sovereign and the group's strategy to further diversify its EU footprint with operations in Italy and Germany should allow for a rebalancing of the sovereign concentration in the medium-term. In line with Scope's Financial Institutions Rating Methodology, the issuer rating is not mechanically capped at the level of the sovereign.

Financial viability management assessment: Adequate. The assessment reflects Scope’s view that financial viability management provides some buffer and, under a base case scenario, should not imminently push any metric close to minimum requirements or jeopardise the issuer’s financial viability.

Financial viability management is adequate given management’s approach to use capital efficiently to support growth and deploy RWAs in profitable markets and segments. The minimum buffer to SREP requirements is around 300 bps, with the group’s CET1 ratio steadily converging towards management's target of 11.5% to 12.0%.

The relevant retail deposit base across markets and a lower reliance on wholesale funding compared to peers provides stability to the group’s funding profile. The group's retail focus drives the funding strategy and supports the granularity of the deposit base. In line with the group’s multiple point of entry resolution strategy, subsidiaries are allowed to raise funding independently, provided that deposits remain the primary source of funding. Liquidity is adequate across jurisdictions, with an LCR of 184% and a NSFR at 130% at group level, as of September 2024.

One or more key drivers of the credit rating action are considered an ESG factor.

Outlook and rating sensitivities

The Stable Outlook reflects Scope’s view that the risks to the current rating are balanced.

The upside scenarios for the ratings and Outlooks are (individually or collectively):

1. An improvement in operating conditions, in the EU and emerging markets, which strengthens the operating environment assessment.
    
2. A more conservative strategy for managing capital and targets, with a larger buffer to requirements, leading to a higher financial viability management assessment.

The downside scenarios for the ratings and Outlooks are (individually or collectively):

1. A change in the risk profile of the business model due to an aggressive growth strategy or significant challenges from existing operations in emerging markets that weaken the group’s business model assessment.
    
2. A material deterioration in the stability of earnings or asset quality due to a weakening of performance in emerging markets, leading to a lower earnings capacity and risk exposures assessment.

Debt ratings

Preferred senior unsecured debt: A+/Stable. The rating is aligned with the issuer rating and applies to senior unsecured debt ranking above other classes of senior unsecured debt.

Non-preferred senior unsecured debt: A/Stable. The rating is one notch lower than the issuer rating, reflecting statutory subordination.

Short-term debt: S-1+/Stable. The short-term credit rating is derived from the long-term issuer credit rating. The rating is consistent with Scope’s long-term/short-term rating correspondence table. The choice of the highest possible short-term rating (S-1+ given the A+ issuer rating) reflects the strength of the group’s liquidity profile and access to central bank funding.

Environmental, social and governance (ESG) factors

Please refer to the ‘long-term sustainability assessment’ under the ‘key rating drivers’ section above for the ESG analysis.

All rating actions and rated entities

Banco Bilbao Vizcaya Argentaria SA

Issuer rating: A+/Stable, affirmed

Preferred senior unsecured debt rating: A+/Stable, affirmed

Non-preferred senior unsecured debt rating: A/Stable, affirmed

Short-term debt rating: S-1+/Stable, affirmed

Stress testing & cash flow analysis
No stress testing was performed. No cash flow analysis was performed.

Methodology
The methodology used for these Credit Ratings and/or Outlooks, (Financial Institutions Rating Methodology, 6 February 2024), is available on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
Information on the meaning of each Credit Rating category, including definitions of default, recoveries, Outlooks and Under Review, can be viewed in ‘Rating Definitions – Credit Ratings, Ancillary and Other Services’, published on https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Historical default rates of the entities rated by Scope Ratings can be viewed in the Credit Rating performance report at https://scoperatings.com/governance-and-policies/regulatory/eu-regulation. Also refer to the central platform (CEREP) of the European Securities and Markets Authority (ESMA): http://cerep.esma.europa.eu/cerep-web/statistics/defaults.xhtml. A comprehensive clarification of Scope Ratings’ definitions of default and Credit Rating notations can be found at https://www.scoperatings.com/governance-and-policies/rating-governance/definitions-and-scales. Guidance and information on how environmental, social or governance factors (ESG factors) are incorporated into the Credit Rating can be found in the respective sections of the methodologies or guidance documents provided on https://scoperatings.com/governance-and-policies/rating-governance/methodologies.
The Outlook indicates the most likely direction of the Credit Ratings if the Credit Ratings were to change within the next 12 to 18 months.

Solicitation, key sources and quality of information
The Credit Ratings were not requested by the Rated Entity or its Related Third Parties. The Credit Rating process was conducted:
With Rated Entity or Related Third Party participation   YES
With access to internal documents                                NO
With access to management                                         NO
The following substantially material sources of information were used to prepare the Credit Ratings: public domain, the Rated Entity, and Scope Ratings’ internal sources.
Scope Ratings considers the quality of information available to Scope Ratings on the Rated Entity or instrument to be satisfactory. The information and data supporting these Credit Ratings originate from sources Scope Ratings considers to be reliable and accurate. Scope Ratings does not, however, independently verify the reliability and accuracy of the information and data.
Prior to the issuance of the Credit Rating action, the Rated Entity was given the opportunity to review the Credit Ratings and/or Outlooks and the principal grounds on which the Credit Ratings and/or Outlooks are based. Following that review, the Credit Ratings and/or Outlooks were not amended before being issued.

Regulatory disclosures
These Credit Ratings and Outlooks are issued by Scope Ratings GmbH, Lennéstraße 5, D-10785 Berlin, Tel +49 30 27891-0. The Credit Ratings and Outlooks are UK-endorsed.
Lead analyst: Carola Saldias, Senior Director
Person responsible for approval of the Credit Ratings: Pauline Lambert, Executive Director
The issuer Credit Rating/Outlook was first released by Scope Ratings on 2 April 2014. The Credit Rating/Outlook was last updated on 28 October 2024.
The short-term Credit Rating/Outlook was first released by Scope Ratings on 22 May 2014. The Credit Rating/Outlook was last updated on 28 October 2024.
The preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 2 April 2014. The Credit Rating/Outlook was last updated on 28 October 2024.
The non-preferred senior unsecured debt Credit Rating/Outlook was first released by Scope Ratings on 25 July 2017.The Credit Rating/Outlook was last updated 28 October 2024.

Potential conflicts
See www.scoperatings.com under Governance & Policies/Regulatory for a list of potential conflicts of interest disclosures related to the issuance of Credit Ratings, as well as a list of Ancillary Services and certain non-Credit Rating Agency services provided to Rated Entities and/or Related Third Parties.

Conditions of use / exclusion of liability
© 2024 Scope SE & Co. KGaA and all its subsidiaries including Scope Ratings GmbH, Scope Ratings UK Limited, Scope Fund Analysis GmbH, Scope Innovation Lab GmbH and Scope ESG Analysis GmbH (collectively, Scope). All rights reserved. The information and data supporting Scope’s ratings, rating reports, rating opinions and related research and credit opinions originate from sources Scope considers to be reliable and accurate. Scope does not, however, independently verify the reliability and accuracy of the information and data. Scope’s ratings, rating reports, rating opinions, or related research and credit opinions are provided ‘as is’ without any representation or warranty of any kind. In no circumstance shall Scope or its directors, officers, employees and other representatives be liable to any party for any direct, indirect, incidental or other damages, expenses of any kind, or losses arising from any use of Scope’s ratings, rating reports, rating opinions, related research or credit opinions. Ratings and other related credit opinions issued by Scope are, and have to be viewed by any party as, opinions on relative credit risk and not a statement of fact or recommendation to purchase, hold or sell securities. Past performance does not necessarily predict future results. Any report issued by Scope is not a prospectus or similar document related to a debt security or issuing entity. Scope issues credit ratings and related research and opinions with the understanding and expectation that parties using them will assess independently the suitability of each security for investment or transaction purposes. Scope’s credit ratings address relative credit risk, they do not address other risks such as market, liquidity, legal, or volatility. The information and data included herein is protected by copyright and other laws. To reproduce, transmit, transfer, disseminate, translate, resell, or store for subsequent use for any such purpose the information and data contained herein, contact Scope Ratings GmbH at Lennéstraße 5, D-10785 Berlin.