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BBVA raises 2024 profitability target as investors fret on emerging markets

Stock Markets12 minutes ago (Nov 18, 2021 10:16AM ET)

(C) Reuters. FILE PHOTO: A woman scans through her phone outside a BBVA bank building in Madrid, Spain, November 15, 2021. REUTERS/Juan Medina/File Photo

By Jesus Aguado and Emma Pinedo

MADRID (Reuters) -Spain’s BBVA (MC:BBVA) raised key profitability and cost targets and said it would add 10 million customers by 2024, betting on growth in countries such as Mexico and Turkey, yet its shares fell as investors fretted about exposure to emerging currencies.

The bank outlined the 2022-2024 plans at its investor day on Thursday, just a few days after it offered to buy the rest of Turkish bank Garanti for up to 2.25 billion euros ($2.6 billion), taking advantage of a slide in the lira.

BBVA said it expected its return on tangible equity (ROTE) to rise to 14% by the end of 2024 from the current 11.7%, and its cost-to-income ratio to fall to 42% from 44.7% even while keeping up investments in digital banking.

Its shares were down 5.9% percent at 1400 GMT, against a 1.1% fall on the European STOXX banking index.

Credit Suisse (SIX:CSGN) analysts said that, while they welcomed the ROTE target hike, they saw potential headwinds looming as a result of the bank’s exposures to emerging-market currencies, particularly in Mexico and Turkey.

“We remain cautious on the new strategy’s increased dependency on Turkey where we see continuing uncertainty over FX fluctuations and a less supportive rate outlook,” the Swiss broker said in a note to clients.

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BBVA, like rival Santander (MC:SAN), is struggling to earn money from more mature markets in Europe and has been expanding in emerging markets, where it sees greater growth opportunities.

Assuming a 100% take-up in Garanti, the weight of BBVA business in emerging markets will increase to around 70% from around 65.6% currently.

To cope with the pandemic and ultra-low interest rates, the lender sold its U.S. business last year, generating more than 8 billion euros in excess capital to focus on cost-cutting in Spain and strengthening shareholder returns.

On Thursday, in a presentation to the Spanish supervisor, BBVA also unveiled a new annual dividend distribution policy of between 40% and 50% of consolidated ordinary profit, compared to the previous policy of distributing between 35% and 40%.

BBVA said this policy would be implemented with the possibility of combining cash distributions and share buy-backs.

The lender’s board recently approved a 3.5 billion euro share buy-back programme, with the first 1.5 billion euro tranche expected to start early next week after the investor day, BBVA’s Chairman Carlos Torres told investors.

BBVA raises 2024 profitability target as investors fret on emerging markets

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