Q: The year 2020 has been marked by the COVID crisis. What lessons have we learned?
A: Well, a great tragedy, the COVID crisis. Perhaps the biggest lesson is in vulnerability, how vulnerable we are as a society… in the face of major unforeseen events that affect us all over the planet and which have caused and still cause enormous pain. But there are also other, more positive lessons. How society responded. Everyone did: the authorities, companies, collectives such as health care professionals who have been there at the forefront of our response, and researchers as well. The fact that we have a vaccine in record time illustrates how when we get together, we prioritize health, and we can also overcome these great difficulties.
This is where the role of companies gains importance. Companies, of course, at BBVA we have taken a step forward with determination to deal with this crisis. We have placed health as an absolute priority from the outset. Customer health, employee health, the wellbeing of all our collaborators, and we’ve been providing an essential service during this difficult time. We also were in the frontline, thanks to our heroes who still look after us. We have also been supporting in other ways, with donations, with medical equipment… We’ve been, of course, providing funding and alleviating the financial burden at such a difficult time.
And then maybe other lessons that the crisis has taught us is BBVA’s success with its digitization strategy was spot on, and how that has allowed us to respond even more effectively. From the beginning, during the first wave, 80,000 employees were working from home, thanks to technology. A number that was of a greater magnitude than that of our competitors,I might even say in much broader magnitude than our competitors because we were so prepared. We also already had tools that have allowed customers to interact with their money from their own homes. We’ve seen a five-fold increase in our numbers. We’ve seen how our numbers have multiplied by five regarding app use, interactions with our smartphone app. And also how remote management tools have allowed us to maintain that personal relationship between our staff and our customers.
It has also been a year where, despite the complexity, we have made progress in our strategy. We have had very relevant strategic achievements that put us in a position of unparalleled financial strength to face the future and to continue creating value for our shareholders.
Q: And how do you see the evolution of this health and economic crisis, on a global level?
A: First of all, very uncertain. We still don’t know what’s going to happen. In terms of healthcare… I’m optimistic. The vaccine is certainly a ray of hope. Just seeing that the solution is right around the corner. But I’m wary about the uncertainty. That is, when will this solution, which is on its way, just a few months away, when will it produce the immunity needed to return to normal? We still have a long way. So, perhaps most importantly, we should be more careful than ever, be rigorous when implementing measures, wear masks in closed spaces, social distance, ventilate… And now more than ever, now that we see the end coming, we have to be especially careful.
Economically, there’s also a lot of uncertainty. Our forecasts for this year’s GDP for all economies, according to our BBVA Research team’s is a 3% drop with recovery of about 5% next year, with a very relevant rebound in the second half of the year, though, the situation will be fairly unequal. Between regions, we see how some regions, such as China or United States or Turkey, are going to go back to pre-crisis GDP levels, already in 2021 or throughout the year, at some point, while in other areas, such as Europe or Spain itself or South America, we’re going to have to wait probably until 2022. The rebound will be strong in the second half of 2021, but we’ll still need a few more months to go back to pre-crisis activity levels.
Q: And in the case of Spain, what measures do you consider appropriate in order to cope with the economic recovery and what do you make of the European recovery plan?
A: In the case of Spain, the GDP drop has been very strong in 2020. Our research team estimates a drop of about 11 percent this year. And even if we have a recovery, which we indeed think is going to be a major bounce in the second half of 2021, it’s true that it’ll take until 2022 to go back to previous levels.
Where would I focus on more? Encouraging private investment because, through private investment, we can create economic growth, we can create jobs, we can create wellbeing.
How do we encourage private investment? By generating trust. Trust is crucial and that means institutional stability, it means regulatory predictability regarding the rules and regulations, regarding what to expect. It also means that having a tax system that doesn’t distort decision-making, making it an efficient tax system. All of that builds trust. Besides, I think it’s very important that the authorities continue to give stimulus packages. They have worked well in 2020 and are still needed, both the monetary stimulus packages rolled out money itself put in motion by the European Central Bank as well as fiscal stimulus measures that the Spanish Government has implemented. It’s also very important that this continues. Reforms, we need reforms which also attract investors. And regarding reforms, the plan is pretty clear about what to do because it’s also the plan mandated by the European Union, the European Union dictates it. Recapitalization of companies. We’ve seen how cash flows have fallen under restrictions, especially in some sectors that have been subject to particularly stringent activity restrictions to carry out their activity, tourism being a clear example, and companies, not only from that sector, but from all, from sectors all around, have seen their income crash and, therefore, their cash flows. They’ve had to go into debt and now they have excessive indebtedness. How do we recapitalize companies? Well, ideally by setting up incentives. Ideally it would be incentives so private capital enters those companies. That would be, in short, the recipes that I would put on the table. Maybe I’ve missed a fifth thing which is adequate incentives. Adequate incentives, not just recapitalization. Incentives for additional investment.
And that goes well with European funds because, at first, the focus of European funds was placed on large public infrastructure projects or private initiatives, but on large projects, and maybe I’d focus more, not so much on that, but on the need for whether they adhere public authorities to establish the main goals to the authorities’ main goals, it’s a no-brainer. So which main goals? Sustainability, combating climate change, social inclusion, are clearly two very relevant pillars. Digitization, let’s modernize the Spanish economy towards data economy, digital economy. And once those big goals are set, with metrics that both we and the authorities can establish regarding what to achieve on those fronts, they should entail broader programs, not so much aimed at a company or a specific player, but on a wide spectrum. Making sure they reach small and medium-sized institutions and freelancers or families or single-family homes or multifamily housing who have to do housing restorations, well, anything, anything that trickles down leads to the economic players on a granular level with the right incentives so they do their part too. And be able to amplify public money with private money. In short, to utilize good reasoning when deciding how to use the funds in the private sector, and for funds to be used for private initiatives which have proven their ability. To judge better and have more criteria on which projects make the most sense and which projects the least. Always with transparent, agile, competitive schemes in resource allocation. It’s very important to make good use of such tremendous funds.
Q: And what role can the financial sector play in this whole process?
A: We can take advantage of our capacity, our capillarity and our readiness to channel funds and, along the way, we can also amplify them with funding that we can contribute by advancing, for example, part of the funds or adding private investment.
Deep down, it’s the same thing I said before: private investment. We can amplify public funds with our financial capacity. We can also give support when analyzing the projects themselves and processing the paperwork necessary to reach all economic operators, small businesses, buildings that can be restored. Our commercial capacity is very important. We are actually working with authorities here in Spain, on products, solutions, that allow this to be the case, so that some programs, such as housing rehabilitation, can be channeled through the financial sector.
Q: And going back to BBVA, how would you value the bank’s performance in this year 2020 that’s coming to an end?
A: I’m extremely proud. It’s been a very difficult year, with a lot of emotions, and the bank’s response has been incredible. Putting the emphasis on health first, on the health of our people, on the health of our customers, on the health of society and offering support beyond what our business was. Then, offering financial solutions, easing the burden, funding… Also participating in public funding programs, which have been very effective such as the ICO loans in the case of Spain and in other countries, we’ve had similar programs where we’ve also been actively involved, providing our services. Well, all of these are great accomplishments.
It’s been a very difficult year, with a lot of emotions, and the bank’s response has been incredible. Putting the emphasis on health first
From a strategic point of view, It has been a year to reaffirm our priorities. We’ve seen how the priorities we’d set in our strategy around digitization have proven to be an advantage, but also, the path we follow in the future regarding financial health, sustainability, because we’ve also seen that these are trends that are on the right track. And then it’s been a year of relevant strategic achievements that put us in an unique position in terms of financial strength to cope with 2021 and for distributions to shareholders.
Q: Before we talked about strength. I understand that this strength is related to the sale of the subsidiary in the United States. Why is the decision made and what does BBVA intend to do with the capital gains generated with this sale? Will it be possible to remunerate shareholders following the European Central Bank’s latest recommendation?
A: The selling of our franchise in the United States is a historic transaction.
For BBVA, it is a transaction that creates a huge value. We sold that subsidiary for an amount close to 10 billion euros. This amount is two and a half times higher than the value that analysts assigned to the bank there. And that has generated billions of euros of additional value that puts us in a position of unparalleled financial strength, certainly in Europe. Well, it’s generated 8.5 billion euros of additional capital. And that capital, that position of strength is a great place to face the difficulties that may continue to come, puts us in a very good position too to invest profitably in markets where we have leadership and puts us in an unrivalled situation also in terms of increasing distributions to shareholders. Deep down, it’s an operation that shows BBVA’s commitment to creating value for its shareholders.
With regard to remuneration and the European Central Bank, it’s very good news the recent update on their recommendation regarding dividends. That’s very good news because it’ll normalize regulations from 2021 onwards, from September 2021 in particular, it will normalize the European banks’ dividend policy, something much needed. On top of that, in BBVA’s case, when we announced the BBVA U.S. sale, we said that we considered it as a very interesting option, in addition to that of the dividends, a relevant share buyback. And that’s still the case at our current share prices, a very interesting alternative for shareholder distributions.
Q: Picking up what you just said, you mentioned that it also gives you options to invest profitably in your markets. Why hasn’t the Sabadell operation gone through and do you plan to invest more in Turkey?
A: The Sabadell operation was a good example of investment in markets where we are leaders and where we can generate shareholder value. It didn’t work out because we haven’t come to an agreement on the economic terms. And here, I repeat again, our guide is always to create shareholder value.
With regard to Turkey, our current position in the Bank, in Garanti, is a position that allows us to have control, allows us to manage the bank and we don’t foresee any changes. Earlier this year, 2020, BBVA renewed its strategic priorities and, soon after, the pandemic struck.
Q: How does BBVA’s strategy change in a post-COVID world?
A: I think the first thing, as I ‘ve said before, is that the pandemic has proven that we were very spot on in terms of BBVA’s early digitization strategy. We put a lot of focus from the beginning on digitization, quite a few years ago, and we’ve seen how we’ve been able to use all the developments to remain close to the customer, give them solutions, allowing them to stay on top of their money, and through our agents’ remote capabilities, etc. And that in itself, well, endorses what’s right about our strategy.
Also, looking to the future, I think what’s happened reconfirms that we were also right to focus on two main issues, which are the two cornerstones of our strategy in terms of the added value we want to deliver to our customers: one is financial health, the other is sustainability. What do we mean by financial health? We want to be next to our customers when making financial decisions, we want to help them have better day-to-day management, better, easier, simpler, controlled, and to be more on top of their finances, and we’ve made substantial progress. We have many tools that allow our customers to manage their money in a simpler way and make better decisions. The impact that all this can create is tremendous. We’ve seen it in the pandemic, too. Nearly 40 percent of our digital customers use some of the financial health management tools that we have and that we have put in the palm of their hands. So, we’ll keep moving down that path, also leveraging data and technology to deliver better solutions and allow people, businesses, to make better decisions with their money. That’s a big area we’ve been working on. This reconfirms its importance and we’ll continue to work on it.
We’ve seen how what’s occurred endorses these two pillars of financial health and sustainability
The other big area is sustainability. It’s got a lot of dimensions. A very important one is climate change. Climate change is one of the biggest disruptions in history, no doubt in the history of humanity and also in the history of business. And that’s where our aspirations are, on the one hand, helping our customers transition and help the world solve this problem, just as with the pandemic, like I said at the beginning, as we’ve come together to face the virus, we have to unite and we can all contribute to this and so, in this sense, we aspire to help our business customers to transition, our private customers, to contribute with their behavior to reduce the impact of climate change because it is also urgent that we all get to it. And then the dimension of our own impact, which is no less important. I mean, we at BBVA can do a lot, not just to accompany customers, but to finance that transition. We’re mobilizing tens of billions of euros every year. We have a very powerful commitment for 2025, which is reaching 100 billion euros mobilized. And we’re well on our way to exceeding that commitment. We also actively manage our direct impact. We are already neutral in direct CO2 emissions, since 2020. We have set, for example, an internal carbon price among our business units so that they are all aware of the cost of externalizing, how much those emissions cost. And, we’ll continue along this path.
In short, it has been a year where we have advanced despite the difficulties in our strategy and we’ve seen how what’s occurred endorses these two pillars of financial health and sustainability.
Q: Well, finally, I just want to ask you one last question. What are your hopes for 2021?
A: Well, firstly, I hope that the vaccine is effective because if the vaccine is effective, it will mean that 2021 is the year we leave the pandemic behind us and where we can kick start the economic recovery.
As far as BBVA is concerned, I hope that the step forward that we have taken in 2020 will be followed by another in 2021, especially, so that we can continue to help our customers in this phase of recovery as we face 2021 in a privileged position to do exactly that because of the financial strength we have, like no other, that will allow us to invest in economic growth, in recovery, and that will allow us to increase distributions to shareholders.
Q: Well, thank you very much, Carlos, for your time.
A: Thank you so much and happy holidays!
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Carlos Torres Vila shares his vision about BBVA and its strategy in 2021 - BBVA
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