Prepared remarks
Good morning, and thank you all for joining BBVA's first quarter earnings call. As in previous quarters, I'm joined today by our CEO, Onur Genç; and the Group CFO, Luisa Gomez Bravo. First, they will walk you through quarterly figures, after which we will open the line for the live Q&A session. With that, I hand it over to Onur.
Thank you, Patricia. Good morning to everyone. Welcome, and thank you for joining BBVA's First Quarter 2026 Earnings Webcast. Starting with Slide #3, and as always, beginning with value creation. On the left-hand side of the page, you can see the strong evolution of tangible book value per share plus dividends growing 5% in the quarter and 14.7% year-on-year, driven by our excellent results, as we will see in the following slides. It's also worth highlighting here that excluding the impact of the share buyback programs, the year-on-year growth would have been 18.1%. And on this one, as you know, in the fourth quarter of 2025, we executed a EUR 993 million share buyback program. And at the moment, we are currently executing the nearly EUR 4 billion program announced in December 2025, of which EUR 2.5 billion has already been completed across two tranches. As you all know and as these buybacks have been carried out at a premium to book value, they clearly create value for our shareholders, but they have a negative impact on tangible book value per share. On the right-hand side of the slide, our profitability ratios have further improved, reaching an industry-leading return on tangible equity of 21.7% and return on equity of 20.7%. On Page 4, on the left-hand side, we delivered another very strong quarter in terms of net attributable profit, reaching almost EUR 3 billion, as you can see. This represents a 10.8% increase year-on-year and 18% growth versus the previous quarter. These results at the bottom of the left-hand side bring our earnings per share up to EUR 0.51, an increase of 12.5% year-over-year, higher than the growth of the net attributable profit, thanks to the share buyback programs. On the right-hand side of the page, our CET1 capital ratio improved by 13 basis points during the quarter, reaching 12.83%. A strong quarter in capital generation, placing our capital ratio well above our target range and regulatory requirements. Moving to Page #5, and as an introduction to the following pages, the key drivers of our performance this quarter. First, at the top, net interest income grew by 20.2% year-on-year, driven by very strong business activity, loan growth at 17%. Second, net fees and commissions also showed an excellent evolution, increasing by 15.5%. Third, our industry-leading efficiency ratio continued to improve, reaching 38%. Fourth, sound asset quality metrics with the cost of risk at 154 basis points, showing relative stability in the current geopolitical context. And finally, as mentioned, we maintain a solid capital position showing further improvement in the quarter. Slide #6, as always, the summarized P&L of the quarter. You can see the year-over-year quarterly evolution in the second column from the left in constant euros and next to it in the third column in current terms. If I highlight something, I would highlight the strong performance of core revenues with excellent growth in net interest income, excellent growth in fees, leading to a gross income growth of 18.3% in constant euros and 14.2% in current euros. Moving to Slide #7 and talking more about the gross income growth with more details on the quarterly progress in the last five quarters. As you can see, net interest income growth remains very strong, increasing 20.2% year-on-year and 2.9% quarter-over-quarter, supported by, again, robust activity growth and increase in lending. Worth mentioning, there is always a seasonality to take into account here in the first quarter, also due to the day count. Net fees and commissions continued their excellent trajectory, as I mentioned, up 15.5% versus the same quarter last year, driven by payments, asset management, and we increasingly see a higher contribution from insurance and especially from CIB. And despite seasonality here, they have grown 0.9% compared to the previous quarter. Finally, net trading income delivered a very good performance, supported by positive momentum in our Global Markets business. All of the above leads to excellent gross income growth, 18.3% year-on-year and 4.3% quarter-on-quarter. Moving to Slide #8. We want to share some perspectives on the evolution of our net interest income, the critical part of our revenues in our core geographies you would see on the page, Spain and Mexico. On the left side of the page, loan growth remains very strong in both Spain and Mexico with growth rates of 6.3% and 8.4%, respectively. In the center of the page, customer spreads. As we mentioned in the past, our results are positively correlated to interest rates in both countries. As a result, customer spreads have declined in the last years in both countries, but as you can see on the page, at a much slower pace than the reduction observed in the interest rates due to effective price management. And on the right side of the page, as a result of both activity and spreads, NII has grown by 3.6% in Spain and 8.3% in Mexico year-on-year. On a quarter-over-quarter basis, although not shown on the page, NII shows a slight decline, mainly due to aforementioned seasonality effects. Looking forward, it's important to mention that we are already seeing the bottom of the rate cycle in both countries. We have discussed it multiple times in the previous calls. If rates have reached their bottom more or less in both countries, this implies continued NII growth, obviously, with sustained activity levels. In conclusion, despite rate compression, our strong loan growth and proactive price management continued to support net interest income growth and with stabilizing rates, we are very positive for the future. Moving to Slide #9. On the left-hand side of the slide, we continue to deliver positive jaws at the group level, supported by the strong performance of gross income, which grew, as I mentioned, 18.3% year-on-year, while operating expenses increased by 17.5%, reflecting continued investment in organic growth according to our strategic plan. It is important to note that the expenses growth rate is impacted by the voluntary redundancies implemented in the first quarter with a one-off restructuring charge of approximately EUR 125 million, mainly impacting Spain and Corporate Center. Excluding this effect, cost growth would have been 13.9%. On the right-hand side, our efficiency ratio stands at 38%, improving 24 basis points versus last year. Excluding the voluntary redundancy program, the ratio would have been 36.8%, clearly better than our guidance for the year. Turning to Slide #10. This page shows the evolution of our sound asset quality metrics in a context of strong activity growth, again, especially in the most profitable segments. On the left-hand side, at the bottom of the page, we see the evolution of cost of risk shown on a quarterly basis to allow for direct comparison between quarters. As you can see, cost of risk stands at 154 basis points in the first quarter, broadly in line with the previous quarter. It's worth highlighting here that due to the current macroeconomic uncertainty and aligned with our prudent risk management approach, we have included a post-model adjustment of around EUR 100 million in our results this first quarter, of which the majority affects our impairment figures primarily in Spain and in Turkey. Excluding this impact, cost of risk would have been 147 basis points. On the bottom right-hand side, both our nonperforming loan ratio and coverage ratio continue to improve year-over-year and also quarter-over-quarter. Slide 11 on capital and shareholder remuneration. Starting on the left-hand side of the slide, you can see the quarter-on-quarter evolution of our CET1 ratio, which increased by 13 basis points to 12.83%. This is comfortably above our target range of 11.5% to 12%. If you focus on the waterfall, our strong results contribute 75 basis points to the ratio. Second, the accrual of the dividend and AT1 coupon payments deduct 40 basis points. Third, 34 basis points due to RWAs growth. This figure once again reflects our ability to reinvest part of our capital generation into profitable growth, while we also benefited this quarter and in previous quarters from several risk transfer transactions (SRTs), which contributed 12 basis points to the ratio in the quarter. Lastly, a bucket of others of 12 basis points, which comprises, as in other quarters, the market-related impacts and the credit in OCI that accounting-wise neutralizes the deduction in the P&L due to hyperinflationary accounting. Moving to the right side of the page on the nearly EUR 4 billion share buyback program that started in late December. As mentioned, we have completed the first and the second tranches, and we still have nearly EUR 1.5 billion to spend, on which we plan to start the execution early next week, the date being the 6th of May. Needless to say, we remain beyond the share buyback programs. We still have excess capital, and we remain fully committed to distributing our excess capital above the upper end of our CET1 target range. Moving to Page 12. We continue to make strong progress in the execution of our transformation strategy. Today, we wanted to particularly update you on AI, one of our priorities in the strategic plan. BBVA has always harnessed innovation as a critical lever to differentiate itself from competitors. We have proven it through digitalization in the last decade, and we are committed to doing it again through AI. AI is a disruptive technology with the potential to transform banking even faster and deeper than previous technological disruptions. As you can see on the left-hand side, we are pursuing this across eight very tangible initiatives, from the personal adviser for every client, which we call Blue in the bank, and AI for the banker to other areas, to risk, to operations, software development, embedding intelligence across the entire organization. Beyond these eight initiatives, we are evolving towards a truly AI-driven bank, revamping our operating system by industrializing the creation, the governance and the operation of AI agents at scale across the bank. This transformation is already reshaping how we serve clients and run our processes and it also empowers our people. We are seeing some very early but promising results, and we will keep updating you as outcomes grow and consolidate. What will truly differentiate BBVA is our ability to scale AI across the group, similar to what we did in digital transformation. Moving to Page 13, before handing it over to Luisa regarding our ambitious financial goals for the 2025-2028 period that we announced last year in June, I will not read each of them, but we are performing. I can very clearly confirm to you that we are performing in line or better than our original expectations in all of the metrics that you see on the page. And now for the business areas, I'll turn it to Luisa.
Thank you very much, Onur, and good morning, everyone. On Slide 15, let me start with Spain, which has delivered an excellent first quarter with net profit once again exceeding the EUR 1 billion mark. This strong performance was supported by solid revenue dynamics with gross income growing by 5.4% year-on-year and 4.3% quarter-on-quarter. Strong loan growth continues to support NII, up 3.6% year-on-year with customer spread broadly stable in the quarter. On a quarterly basis, NII is affected by a day count effect. Adjusting for this, it would have remained largely stable. On fees, as is typical in the first quarter, they are impacted by the seasonality of asset management success fees booked in the fourth quarter. Excluding this, fees grew 5.5% quarter-on-quarter, showing healthy underlying momentum, supported by strong CIB performance and an increasing contribution from insurance. As Onur mentioned, costs are impacted by the voluntary redundancies implemented early in the year. Excluding the one-off restructuring charge, cost growth remains well under control at 4.8% year-on-year. The expected savings will be largely realized in 2026 and are already reflected in our guidance. On asset quality, trends remain very sound. As previously mentioned and following a prudent approach in a highly uncertain macroeconomic context, we applied a post-model adjustment in the quarter, which led to a higher reported cost of risk. On an underlying basis, however, the cost of risk stands in line with our low 30s basis points guidance, which we reiterate. Overall, Spain has delivered a very strong start to the year, giving us confidence in our ability to deliver on our full year guidance. Turning to Mexico on Slide 16. BBVA Mexico once again has delivered outstanding results, with net profit reaching EUR 1.45 billion in the quarter, up 4.5% year-on-year in constant euros. This performance is driven by strong top line dynamics with gross income increasing by 10.3% year-on-year, supported by strength across all revenue lines. Net interest income increased by 8.3% year-on-year, supported by strong loan growth, over 10% excluding FX, and resilient margins despite a declining rate environment. As shown on this slide, customer spreads show strong resilience even as the reference rate has declined by 225 basis points since March of last year. We expect rates to bottom out this year at 6.5% from 6.75% currently. As in Spain, NII is also impacted by a typical first quarter seasonality, in this case also affecting credit card activity, which is very strong and typically is in the fourth quarter, and also the calendar day effect. Excluding the latter, NII would have grown above 1% quarter-on-quarter. Fees remained solid despite seasonality on credit card and payment fees following commercial campaigns in the fourth quarter. Revenues are also underpinned by strong net trading income and good performance from the insurance business reported in the other income line. Overall, strong gross revenues performance continued to drive positive jaws, while we continue to invest in future growth and maintain best-in-class efficiency with a cost-to-income ratio of 30.8%. Asset quality remains solid with stable underlying trends across portfolios. Cost of risk stood at 345 basis points, flat quarter-on-quarter and in line with guidance. Looking ahead, we maintain our guidance for the year now with an upward bias to loan growth, supported by the strong momentum in activity across both retail and wholesale segments. Now moving to Turkey. BBVA Turkey delivered a strong net profit of EUR 263 million, mainly driven by net interest income growth and overall robust revenue dynamics. Net interest income remained strong, supported by selective loan growth and wider TL customer spread, as lower TL deposit costs more than offset declining loan yields in a falling rate environment. Fees also showed good momentum, supported by payments, asset management and CIB fees, while net trading income also contributed positively. Hyperinflation adjustment, however, was somewhat higher this quarter due to higher inflation metrics. On asset quality, cost of risk stood at 253 basis points, broadly stable quarter-on-quarter, reflecting elevated but manageable provisioning needs in retail portfolios. The quarter includes a post-model adjustment for macro uncertainty. Excluding this, cost of risk would have been 238 basis points, above full year guidance as anticipated in the first half, but expected to converge over the year. Overall, Turkey delivered a strong quarter. However, given the uncertain environment, we now see a downward bias to our guidance. The Central Bank is expected to remain tight until conditions allow for a gradual resumption of the easing cycle, presumably in the second half of the year. As a result, NIM improvement could be more gradual than previously anticipated. Recall that Garanti BBVA has positive sensitivity to lower rates. Let's turn now to South America. On Slide 18, the region delivered a very strong quarter with net profit close to EUR 250 million, up 16% year-on-year in current euros. These strong results were driven by solid core revenue growth across all geographies. Net interest income grew by close to 14% quarter-on-quarter, supported by healthy loan growth and customer spread expansion, particularly in Argentina and Peru. Fees also performed strongly, reflecting our continued focus on strengthening this revenue line. Solid gross income growth supports positive jaws and efficiency gains with cost-to-income ratio improving to 41.6%. On asset quality, cost of risk stood at 276 basis points, somewhat elevated due to still high provisioning needs in Argentina's retail portfolios, where we expect a gradual improvement only towards the second half of 2026. Trends remain supportive, both in Peru and Colombia. Overall, we confirm our full year guidance for cost of risk in the region below 250 basis points. The strong start to the year reinforces our confidence to deliver on our full year guidance, also for activity and revenue growth. Finally, Rest of Business. As you know, Rest of Business houses the CIB business carried out by the branches and the digital bank activity. In the quarter, net profit reached EUR 236 million, driven by solid revenue growth supported by strong activity momentum. Loan growth remained robust and well balanced across geographies, mainly driven by corporate lending, which represents 77% of the total book and grew by 10% quarter-on-quarter. Activity growth translated into solid revenue growth with solid NII, remarkable evolution of fees across the board and higher net trading income supported by client activity. On cost, expense evolution continues to reflect the rollout of our strategic plan to support future growth and is in line with our guidance. Risk metrics remain very solid. Cost of risk rose to 30 basis points in the quarter, driven by higher provisioning linked to some specific exposures. Given the strong performance in the quarter, we are upgrading our 2026 guidance: loan and gross revenue growth now above 30% year-on-year while maintaining cost of risk guidance at around 20 basis points. And now back to Onur for the takeaways.
Thank you, Luisa. And lastly, for the main takeaways on Page 20, let me not take time by repeating all of the key messages. But in short, excellent results in the quarter, driven by the strength in core revenue evolution, further reinforcing our industry-leading growth, profitability and efficiency ratios. Given our positive momentum at the bottom of the page, you can also see that we have upgraded our 2026 outlook for group return on tangible equity and the rest of business reflecting improved expectations. In terms of bias, we are more optimistic about activity in Mexico, while remaining prudent in Turkey in a highly uncertain macroeconomic context. Very well, we can move on to Q&A. We typically finish at the hour, but let's do a positive surprise to those who joined at the hour. So let's start right away. Patricia?
Yes. Thank you very much. So we are ready now to start with the Q&A session. Operator, please.
Questions and answers
The first question goes to Francisco Riquel of Alantra.
I want to start with Mexico. Santander warned yesterday about asset quality in credit cards. So I wonder if you can please comment on asset quality trends in your credit cards business in particular, and overall in Mexico, an update on your cost of risk guidance for the year? And then you also mentioned upside risk to loan growth forecast. I wonder if you can update on your revenue guidance as well. NII is growing in line with loan growth in Q1. So I wonder what shall we expect for the rest of the year? In particular, the cost of deposits is picking up in a lower interest rate environment, can you comment on that?
The second question was also for Mexico? No?
Yes.
Okay.
Yes. Yes. Sorry, everything for Mexico.
Very good. So Paco, on the cost of risk, we feel quite confident on our guidance. It was 3.40%. You see in the documentation that this quarter it's 3.45%, which is exactly the same amount as the last quarter on a quarterly basis. As we did mention, in this quarter, we took EUR 98 million, close to EUR 100 million, of a post-model adjustment in all geographies, affecting mainly Spain and Turkey, but also slightly Mexico. So the number would have been even better if that post-model adjustment wasn't there. Mexico is least affected from all what's going on geopolitically in the world these days. In certain cases, it is positively affected. We do not see any deterioration whatsoever in credit cards. On the overall upside on NII and loans, as you can see on the page regarding Mexico, in the first quarter, year-over-year growth in lending is 8.4%. More importantly, what we have seen, especially in March, you can see also the market figures because the regulator in Mexico publishes all the figures monthly with a delay. The latest publicly available is February, but March was even better. When we look into the pipelines, especially on the corporate side, we are seeing positive momentum there. The first quarter macroeconomically in terms of GDP growth will come a bit soft in Mexico. In that environment, if we have delivered what we have delivered, which is 8.4% year-over-year, let me focus on the quarter: quarterly growth in the lending balances is 2.6% in Mexico for the quarter only. If you annualize it, it's quite strong. Given the relatively soft macro context, if we delivered 2.6% quarterly growth, saw very positive momentum in March and in pipelines, and the pipeline topic is important because after a long while in Mexico the long-term funding needs are picking up a bit. USMCA negotiations will mark the second quarter, but we are seeing some momentum in the country, mainly driven by the government's Plan Mexico. There is a lot of infrastructure and energy-related build being promoted by the government. We are seeing it in some of the projects coming in line and in the pipelines. In short, the first quarter, even in a relatively soft macroeconomic context, was very good. In the new context triggered partially by Plan Mexico, we are quite confident that we will deliver what we guided and deliver the positive bias on activity, which will be reflected in NII. The spread component of NII shows a slight decline in the quarter, a 19 basis point decline in customer spread. Seven basis points of that was driven purely by mix because we grew more in enterprise versus retail; that will normalize. It's seasonality: credit cards do not grow as much in the first quarter after a very strong fourth quarter. In the context of rates not coming down much more, as Luisa mentioned, our expectation for the year is 6.5% for the Central Bank rate. In that context, spreads will be supportive. All combined, we are quite positive on Mexico.
The next question goes to Maksym Mishyn of JB Capital.
Two from my side. The first one is on Spain. Loan growth has slowed down slightly. It seems mainly due to fewer corporate loans. I was just wondering what you expect in terms of growth for 2026 and how you see demand evolving per segment? The second one is on Turkey. You are now slightly more negative for 2026. How do you see the 2028 targets in the current macro context, please?
Yes, sure. What we've been seeing in the market, as you've mentioned, is resilient and improving growth dynamics. The market was growing around 4% according to the Bank of Spain February data. We think that could accelerate somewhat throughout the year. We stick to our mid-single-digit guidance for activity growth in the year. We have been focusing consistently on growing the areas where we feel there is more value. Growth has been structured especially in consumer and credit cards, but also across midsized companies, corporates and the public sector. There's seasonality in corporate growth quarter-on-quarter because the fourth quarter was quite strong, but that has been offset by good growth in the midsized company sector. New loan production is also positive year-on-year with growth of 5%, especially on the consumer side at 11% and the CIB sector at 12%. So new loan production is in line to achieve the guidance we've given. On the mortgage side, however, we have been losing market share in the quarter and in the year; it's down 27 basis points year-on-year. We believe the market continues to be priced inadequately. We've seen more rationality in the last few months, but our new loan production share of the market is below our natural share, and for the time being we will continue to be selective in mortgage growth. That's reflected in the 6.3% growth and the quarter-on-quarter dynamics as well.
Maks, a quick add-on. Quarter-over-quarter, the loan book in Spain has grown 1.2%. In the midsized company segment it grew 2.7%. If you annualize the quarterly figures, they are quite strong. Regarding Turkey, first, given geopolitical developments, Turkey is withstanding quite well so far. The change in our view is driven by macro parameter updates. In the fourth quarter results we made clear our assumptions for guidance: 25% inflation, 32% December 2026 interest rate and 19% depreciation of the Turkish lira versus the euro. At the time we provided sensitivities: every percentage point in interest rates implies around EUR 40 million impact; every percentage point of inflation around EUR 15-20 million; and every percentage point of depreciation around EUR 20 million. We recently increased our inflation expectation in Turkey from 25% to 28.5%. Given the change in the macro parameters, the guidance reflects that change. That's the reason for the downward bias rather than a full downgrade. We feel Turkey is withstanding the situation, the economy management is taking appropriate actions, and while we remain cautious, that's why we reflect the macro changes in our guidance.
The next question goes to Antonio Reale of Bank of America.
It's Antonio from Bank of America. Two questions please. The first on Turkey. The macro outlook for the region has changed now with inflation going the other way and rate expectations suggesting we might have a higher-for-longer rate environment. How should we think about your net interest margins and cost of risk going forward? Also, your costs in Turkey have been running somewhat higher than peers. Do you have any initiatives to target further efficiency gains in the region? Second, an update on capital distribution. You're about to launch the third tranche of your buyback program for EUR 1.5 billion. Your CET1 ratio is still well ahead of your target range of 11.5% to 12%. What's coming next in terms of distribution?
Thank you, Antonio. On capital distribution: as we mentioned many times, we will start the third tranche of the EUR 4 billion program, around EUR 1.5 billion, next Wednesday, the 6th of May. That will last until the end of June or June-July period. Our commitment is to deliver excess capital above the top end of our CET1 range of 12% back to shareholders. On Turkey, our guidance given in the fourth quarter was around 200 basis points for the year, with the first half higher and converging to 200 for the year. In Q1 2026 the cost of risk was 2.53%; excluding the PMA it was 2.38%, which is in line with what we guided: higher in the first half and converging to the full-year number with improvements in the second half. We must be cautious on the war impact; Turkey could be affected if the conflict extends a long duration. So while we stick to our guidance today, we have a negative bias because of potential further escalation. Regarding NII dynamics, when interest rates go up in Turkey, it's negative for the margin; the effective 3 percentage point hike is going to affect NII negatively in Q2, but it's a relatively small hit that we can absorb. We are activating other levers, including costs, to offset impacts. Overall, the bank in Turkey has been resilient.
The next question goes to Cecilia Romero of Barclays.
My first question is on USMCA. There is uncertainty around renegotiation. What is your current expectation on timing and likely outcomes? Is this potential increase in volatility already reflected in your business plan assumptions for Mexico? Or are your targets still based on a relatively benign macro and trade backdrop? Amid heightened geopolitical uncertainty, do you see any early signs of credit pressure anywhere? Is there any segment where you are becoming more cautious relative to your assumptions at the beginning of the year? You mentioned PMA updates; could you discuss how your macro assumptions in the business plan have changed in this update?
Very good. On USMCA, for context, the agreement was signed in 2018 and has provisions regarding renewal; this year there will be a decision by July on whether to extend another six years as part of the 16-year arrangement to 2042. If parties do not agree to the full extension, an annual periodic review without the six-year extension is possible. There is a third scenario — cancellation — which we do not consider likely. Most likely is either extension or continuation of the status quo with annual reviews. Even in the annual review scenario, the effective tariff advantage that Mexico currently enjoys for exports to the U.S. remains — exports to the U.S. face a blended tariff of 7.2% from Mexico versus higher tariffs for the rest of the world and especially China. Mexico has been gaining market share in U.S. imports, while Canada and China have lost share. Importantly, U.S. businesses have voiced strong support for the agreement. In sum, we expect either extension or continuation and do not see this as a material negative for Mexico. Regarding macro or war impacts, Luisa will take the question on signs of credit pressure and PMA adjustments.
We haven't seen signs of distress or pressure in outstanding credit in the cost of risk numbers provided. The roughly EUR 100 million PMA is a cautionary measure. We have very limited direct exposure to the Middle East; the exposure would be through second-round effects. We have identified 12 subsectors that are more exposed — electric power supply, transportation, steel, cement and similar sectors that would be sensitive to elevated energy costs, weaker demand and higher rates. We have conducted detailed analyses of clients in these sectors and have strengthened risk analysis for new origination and limit renewals with particular focus on interest rate sensitivity and energy shocks. We've implemented enhanced monitoring of vulnerable clients with higher leverage in these sectors and are conducting forward-looking risk assessments and stress testing of the negatively affected subsectors. We believe we are taking the right disciplined approach to risk but have not seen a deterioration that changes our overall cost of risk guidance across the footprint. We do not currently anticipate a downturn in the asset quality cycle based on available information.
The next question goes to Alvaro Serrano of Morgan Stanley.
One on Mexico and deposit yield. It's up 3 basis points in the quarter despite central bank rates being down in Q1. I know there's a change in mix and time deposits are up, but can you walk us through what's going on? Any deposit campaign or remuneration changes? Second, on the voluntary redundancy plan: can you give more color on how many employees have left the firm? Do you expect more down the line given automation? And to confirm, this restructuring charge is included in your full year cost guidance for Spain?
Regarding deposit cost in Mexico, the increase is explained by growth in time deposits. Time deposits have grown by 26% year-on-year and increased in the quarter as well. When interest rates were high, we preferred wholesale funding rather than pushing deposit price competition. As rates have come down, we decided to be more competitive and attract deposits, selectively, especially in the corporate and midsized company segments. This led to pulling in time deposits and a slight increase in the cost of funding to 2.12% versus 2.09% in the prior quarter, while wholesale funding needs were reduced. On the restructuring topic, Luisa will provide details.
The restructuring affected around 750 employees group-wide. The restructuring charges were mainly booked in Corporate Center and Spain. The payback period is around three years, so it's a very attractive investment. All the charges and the savings were already accounted for in the guidance provided at the beginning of the year. That's one of the reasons why the guidance for Spain was mid- to high single-digit growth in expenses; we were already including this voluntary redundancy charge.
The next question goes to Benjamin Toms of RBC.
On Slide 9, group cost growth in Q1 was 14% year-on-year excluding redundancies. That's above weighted average inflation of 9%. Are you comfortable operating with that gap over an extended period as long as you have positive jaws? Second, you upgraded ROTE guidance this morning for 2026. Your 2025-2028 guidance is for an average ROTE of 22%. Can you remind us of the expected shape of ROTE through 2026 to 2028? Should we expect improvement each year, and what might the exit rate be?
Very quickly. On the second question: 22% is the average across the four years. We expect continuous improvement year-on-year rather than a hockey-stick shape. Last year exit was 19.3%; we expect 2026 to be better than 2025, and 2027 and 2028 to be even better, with a steady improvement driven by our strategic plan and the expectation that rates will bottom out in our core markets, allowing activity growth to flow to the bottom line. On costs, our focus is on the jaws. Excluding the restructuring charges of EUR 125 million, cost growth would be 13.9% and practically all areas show positive jaws. Our management discipline is that growth must generate organic capital. We compare cost growth to revenue growth, not to inflation, and prioritize sustainable revenue-accretive growth.
The next question goes to Marta Sanchez Romero of JPMorgan.
First, on capital allocation: we've read headlines about potential disposal of Atom Bank and you recently announced the disposal of Garanti Romania. Does this mean you are taking a harder look at the footprint? Have you identified how much capital you could release from noncore asset disposals? Second, on Spain NII: your deposit growth is impressive at 8% year-on-year; are these primarily corporate deposits or more evenly split? And what is the balance of NII risk in Spain given your sensitivity?
On deposit growth, Luisa will give the details. Regarding footprint and disposals: we do not comment on rumors or potential transactions that are not public. The decision to divest Romania was consistent with our ongoing review of whether we have local scale to deliver above our cost of equity. We always review our footprint and deploy capital where we have competitive advantages and local scale. Romania was subscale with about 2% market share and did not deliver our required returns. This is an ongoing, disciplined exercise — not a one-off. When the market conditions allow, we act, but we are patient in these decisions. On the Spain NII upside, we considered whether to explicitly put Spain NII upside into guidance but decided not to, because the upside is driven by market rate developments, which are outside our control. For Mexico the upside we included is more activity-driven and within our control. We maintain a relatively positive outlook for Spain NII if rates remain, but we prefer not to assume that externally driven outcome in our guidance.
Indeed, deposit growth at 7.9% is driven by demand deposits growing 5.6%, supported by customer acquisition. Last year we grew around 1 million clients; in Q1 we grew around 250,000 clients. When we onboard clients, 30% bring a payroll or pension product within six months and 70% become active. This reflects our strong customer acquisition capability; we are number two in client acquisition in Spain this year and last year. We also grew time deposits significantly year-on-year, mainly driven by wholesale segments — commercial banking, corporate banking and CIB — where we've been active and which spurred time deposit growth.
The next question goes to Ignacio Ulargui of BNP Paribas.
Two questions: one on capital. How much SRT or risk transfer usage do you think you can do through the year and can the performance of the quarter be extrapolated for the next three quarters? Second, on Rest of Business: loan growth accelerated a lot in the first quarter, 50% year-on-year. Will you prioritize NII or fees there? I see NII is growing slightly below that level, so how should we think about revenue growth in the above-30% guidance — NII versus fees?
We did 12 basis points from SRTs this quarter. Last year at this time we did around 13 basis points. We are not changing our guidance to the market: we expect to do between 30 and 40 basis points of SRTs this year, and we are on track to do that. The deals are being well received and we've closed very good deals in the quarter at improved levels versus last year. We will continue with our SRT and asset mobilization plan throughout the year in line with the guidance provided.
On Rest of Business, conceptually we prioritize the client. If a client needs financing or other CIB services, revenue mix will reflect that need. Rest of Business covers two main areas: CIB beyond the footprint and the digital banks. Digital banks reduce NII as they scale because they are lower margin in early stages, so that partly explains why NII growth is lower than fee growth in the segment. We have a clear fee bias in CIB and will aim to increase the fee percentage where possible, but growth will come from both NII and fees depending on client needs.
The next question goes to Sofie Peterzens of Goldman Sachs.
First, could you elaborate on performance in Italy and Germany? Would you consider expanding into other European countries? Second, could you remind us how much of your net income and capital is hedged in Mexico and Turkey?
On Italy and Germany: we provide customer numbers. In Italy we are at 900,000 customers since launch in 2021, which is much better than our business plan. In Germany, launched mid-2025, we are above 100,000 customers after nine months, again better than plan. The digital bank proposition is exceeding our original expectations in both countries, though these remain long-term plays; digital banks typically take many years to reach profitability, though in our case we expect earlier break-even than the traditional nine-to-ten-year benchmark. We will share more transparency on underlying numbers as these businesses mature. Luisa will take the detailed hedging numbers.
For Turkey, at the capital level we maintain hedges of around 43%, flat quarter-on-quarter. We maintain a sensitivity of around 2 basis points negative to a 10% depreciation of the Turkish lira; the cost of hedging is around 0.5 basis points per month. On the P&L side, we usually hedge around 33% in Turkey. In Mexico, the hedging of excess capital is around 44%, slightly lower than December 2025 levels when we had 55-57%. The sensitivity to a 10% depreciation remains similar because we have implemented more option structures to optimize cost, so the sensitivity to a 10% depreciation of the Mexican peso is still around 15 basis points, but the hedging cost decreased to around 0.2 basis points per month. For P&L, in Mexico we are hedging around 37% of expected next 12 months' results.
The next question goes to Britta Schmidt of Autonomous Research.
Two questions on Mexico. With the positive bias on loan growth outlook, should we also read that across to NII where you previously guided NII growth slightly below loan growth, also considering you're still growing strongly in consumer finance? Second, in Mexico the jaws are flat this quarter partly thanks to stronger trading income, but cost growth remains high. Comment on the cost drivers and outlook: do you expect flat jaws for the year or could they deteriorate?
On NII: the guidance that NII growth will be slightly below loan growth still holds because average customer spreads year-on-year are likely to decline slightly. Given positive activity growth, NII will still grow but likely somewhat below loan growth. On jaws: it is important to maintain management discipline on jaws. In Mexico, we are achieving positive jaws and will keep that discipline. The jaws might be a small positive and we will continue to manage investments and costs to support future growth while preserving efficiency.
The next question goes to Andrea Filtri of Mediobanca.
Could you recap the breakdown by unit this quarter for the PMAs you have taken and the restructuring charges you booked? Second, do you foresee any improvement in EU regulation for banks given ongoing revisions and reassessments? When do you expect approval of the Danish compromise from the ECB for BBVA?
On the PMA, we don't provide a full detailed breakdown, but we've said that more than half of the EUR 100 million PMA primarily affects two countries: Turkey and Spain, due to size and sensitivity respectively. On the Danish compromise, EBA has published the list and the process requires ECB authorization to reflect that in the Danish compromise. The process is ongoing and part of normal procedure; we expect to have the full qualification in the second quarter.
The next question goes to Borja Ramirez of Citi.
Two questions. Firstly, on LatAm macro: one competitor indicated LatAm economies should be relatively better shielded since they are oil-producing and around 50% of your net profit last year came from LatAm. Could you provide more details? Linked to this, the Mexican peso has performed better than your plan; might there be upside to your ROTE target? Secondly, on Spain NII: deposit costs appear to have declined despite market share gains; I saw ALCO increased in Spain. Your NII sensitivity to higher rates in Spain is higher than peers at 4%-5% of NII per 100 bps. Are you better positioned if rates rise in Europe?
You're right to highlight diversification as a strength. I often say three key strengths: diversification across countries with room for lending growth, being a leading bank with scale in our markets, and embracing innovation. Regarding the potential impact of an extended Middle East crisis, Latin American geographies are generally neutral or potentially positive — Argentina and Colombia could benefit as commodity exporters. Mexico and Peru may also be resilient or benefit from supply chain shifts and tourism flows. These dynamics underline the strength of our diversification. On the Mexican peso: if it continues at current appreciated levels, that is upside to your models and could add to ROTE, but we retain our assumptions in the plan while acknowledging upside. Luisa will speak to NII sensitivity and ALCO.
On customer spreads and yields in Spain: we expect quarter-on-quarter spreads to remain stable during the year, perhaps picking up towards year-end. Most of our mortgage book has already repriced; about two-thirds reprices every six months. Yield compression on the floating rate portion (around 46%) is largely already reflected. On ALCO, the ALCO portfolio contributed positively in the quarter; we increased the ALCO book by EUR 1.7 billion and were able to purchase bonds at yields above 3.2%, which was successful. We are maintaining our interest rate sensitivity within 4%-5% of NII. Typically, if we do nothing, sensitivity grows due to the weight of sight deposits; we manage the balance sheet to maintain sensitivity at these levels and will decide whether to adjust based on policy rates and Euribor developments.
The next question goes to Ignacio Ulargui of BNP Paribas. (Note: this appears to be a repeat; final remaining questions will be taken.) The next question goes to Ignacio Cerezo of UBS.
First, on trading: could you give a breakdown of why the figure has been so strong across most geographies and comment on recurrence and sustainability? Seasonality? How recurring might that number be? Second, following up on Britta's point on cost growth in Mexico and jaws: is some cost growth front-loading investments and will jaws improve over time, or is the cost growth necessary to generate revenue in Mexico?
Trading strength is mainly coming from Global Markets. We are growing our CIB business in a cautious, risk-aware way, focused on cross-border flows and global transaction banking. Approximately 40% of our Global Markets revenue booked under net trading income is FX business. Given market volatility, clients traded more, especially in FX, which benefited NTI. Also, in some geographies we extended duration in the ALCO, selling short-end and buying long-end, which generated NTI in a steepening environment. But the core driver was Global Markets client activity and FX. On the jaws in Mexico, Luisa will answer.
On costs and investment timing: we invest with different horizons. Some investments have payback within the year, others over multiple years. More than a question of front-loading, our commitment in Mexico is to maintain efficiency in the low 30s, and the Q1 cost-to-income ratio of 30.8% is consistent with that target. We remain committed to delivering that efficiency level over time.
Thank you very much, Ignacio. Thank you all for participating in today's call. As always, the Investor Relations team remains at your disposal for any additional questions or clarifications. Have a great day. Thank you.
Thank you to all of you.
Thank you.