BBVA's Robust Q1 2025 Performance: A Solid Foundation for Growth?

Banco Bilbao Vizcaya Argentaria (BBVA) has delivered a strong start to 2025, with its first-quarter results underscoring resilience and strategic execution. The Spanish banking giant reported a 22.7% year-on-year rise in net attributable profit to €2.7 billion, driven by robust revenue growth, improved cost efficiency, and a strengthened capital position. These results have bolstered investor confidence, with RBC Capital Markets reaffirming a Buy rating and maintaining a EUR 12.25 price target, suggesting the stock remains undervalued relative to its growth prospects.

Financial Highlights: A Well-Oiled Machine

BBVA’s Q1 performance reflects a disciplined focus on core strengths:
- Revenue Growth: Net interest income (NII) rose 8% year-on-year to €6.4 billion, fueled by strong loan growth in Mexico (+17% in constant euros) and Spain (+7.5%). Fee income surged 19% to €2.1 billion, benefiting from digital payments and asset management in Turkey and Spain. Combined, core revenues (NII + fees) increased 11% to €8.5 billion.
- Cost Efficiency: The efficiency ratio improved to 38.2% (down 469 basis points year-on-year), as operating expenses grew just 14% against a 28% jump in gross income. This highlights operational leverage and cost discipline.
- Capital Strength: The CET1 ratio rose to 13.09%, comfortably exceeding its target range (11.5–12.0%) and regulatory requirements (9.13%). This robust capital position allows BBVA to pursue growth or return more value to shareholders.

Strategic Priorities: Digitalization and Sustainability

Beyond financial metrics, BBVA is doubling down on digital transformation and sustainability, which are critical to long-term value creation:
- Digital Growth: The bank added 2.9 million new customers in Q1, with 66% acquired via digital channels, signaling scalability and reduced customer acquisition costs.
- Sustainability Ambitions: BBVA aims to channel €700 billion into sustainable business by 2029, doubling its previous target. This aligns with ESG trends and regulatory demands, potentially opening new revenue streams while mitigating climate risks.

RBC’s Bullish Case: Valuation and Risks

RBC’s Buy rating and EUR 12.25 target hinge on BBVA’s ability to sustain its current trajectory. Key drivers include:
- ROTE/ROE Leadership: BBVA’s 20.2% ROTE and 19.3% ROE place it among Europe’s top performers, reflecting efficient capital allocation.
- Geographic Diversification: Strength in Mexico (8% profit growth), Spain (44% profit surge), and South America (83% profit growth in current euros) reduces reliance on any single market.
- Shareholder Returns: With a tangible book value per share plus dividends of €9.84 (up 14% year-on-year), BBVA has the flexibility to boost dividends or repurchase shares, boosting investor appeal.

However, risks linger:
- Macro Uncertainty: BBVA’s Mexican operations face headwinds from US tariff policies, which could dampen cross-border trade and corporate lending demand.
- Inflationary Pressures: While BBVA’s loan book in Turkey and Mexico benefits from rate hikes, prolonged inflation could strain borrowers’ repayment capacity.

Conclusion: A Buy with Caution

BBVA’s Q1 results demonstrate a well-managed bank capitalizing on growth in key markets, with a strong balance sheet and strategic focus on digital and sustainable finance. RBC’s Buy rating is justified given its superior profitability metrics and shareholder-friendly policies.

Yet investors must weigh these positives against external risks. If BBVA can navigate tariff uncertainty and maintain its cost discipline, it could outperform peers. The EUR 12.25 target implies ~15% upside from current levels (assuming a recent price of ~€10.65), a compelling reward for those willing to bet on its execution.

In a sector where capital ratios and ROE are king, BBVA’s Q1 performance suggests it remains a leader. But as RBC notes, “the devil is in the details”—sustained growth in Mexico, Spain, and South America will be critical to meeting both financial and ESG goals.

For now, BBVA’s Q1 results mark a solid foundation—but the construction of long-term value will require steady hands on the wheel.