BBVA (BBVA) Q1 2026 earnings review
Record Profits Mask Underlying Margin and Risk Pressures
BBVA delivered an exceptional 1Q26, with Net Attributable Profit accelerating 14.1% YoY (at constant exchange rates) to €2.99B, crushing the narrative that rate cuts would destroy earnings. The engine was an unstoppable 17.0% expansion in lending activity that completely overpowered interest rate headwinds. Management confidently upgraded 2026 ROTE guidance to >20% and announced a new €1.5B share buyback tranche. However, the surface-level beat hides creeping issues: asset quality is decelerating across emerging markets, and Spain's core lending margins are reversing sharply, currently shielded only by sheer volume and ALCO portfolio gains.
🐂 Bull Case
Total loan growth accelerated 17.0% YoY (constant EUR). This raw volume expansion successfully decoupled revenue growth from the declining interest rate cycle, driving Net Interest Income up 20.2%.
Capital generation remains highly robust (CET1 at 12.83%). The bank is executing aggressively on its €4B buyback program, with the third tranche (€1.5B) launching immediately.
🐻 Bear Case
The Cost of Risk continues its upward march, hitting 1.54% (up from 1.30% a year ago). Elevated risk in Mexico (3.45%), Turkey (2.53%), and Argentina (7.84%) signals a deteriorating credit environment.
Customer spreads in Spain and Mexico are contracting. The bank is increasingly relying on Global Markets trading income and ALCO portfolio yields to maintain top-line growth.
⚖️ Verdict: 🟢
Bullish. The bank's ability to drive 18.3% constant-currency revenue growth in a falling rate environment proves the resilience of its geographic diversification. While risk metrics require tight monitoring, the upgraded >20% ROTE guidance and heavy buybacks make this a compelling capital return story.
Key Themes
AI Transformation Generating Hard ROI
BBVA is moving AI from pilots to production at scale. The deployment of the 'Blue' Personal Advisor and 8 specialized operational AI agents is yielding tangible operational leverage. Management reported a 50% time reduction in coding the new payments platform and a 30% time reduction in claims resolution in Mexico. This technological integration is the primary driver keeping the Efficiency Ratio stable and industry-leading at 38.0%, effectively absorbing inflationary wage pressures.
Wholesale & CIB Driving the Top Line
The 'Rest of Business' segment—dominated by Corporate & Investment Banking (CIB) across Europe, Asia, and the US—is accelerating rapidly. Lending activity here grew 12.6% QoQ, driving a 36.0% YoY surge in net profit. This proves BBVA's strategic pivot toward capital-light, cross-border corporate business is successfully diversifying earnings away from emerging market retail volatility.
Mexico Volume Overpowers Rate Cuts
Despite Banxico's aggressive policy rate cuts (down to 6.75%), Mexico's Net Interest Income still grew 8.3% YoY. This was driven by a 10.4% YoY acceleration in loan growth (excluding FX). Mexico continues to lean on its massive, low-cost retail deposit base to fund high-yield wholesale and consumer loans, protecting margins better than peers.
Spain Margin Compression (Data Contradiction)
While management highlighted a 3.6% YoY growth in Spain's Net Interest Income, the underlying unit economics contradict this rosy picture. Spain's customer spread is reversing sharply, plunging from 3.19% in 1Q25 to 2.82% in 1Q26. The NII growth is currently being artificially propped up by raw loan volume and €50B+ in ALCO portfolio yields (yielding +3.0%). If volume growth stalls, this core margin weakness will immediately hit the bottom line.
Cost of Risk Ticking Upward Globally
Group-wide asset quality is decelerating. The consolidated Cost of Risk has climbed steadily from 1.30% in 1Q25 to 1.54% in 1Q26. Financial asset impairments spiked 35.0% YoY. The pain points are geographically broad: Argentina's CoR skyrocketed to 7.84%, Mexico remains elevated at 3.45% due to retail mix shifts, and Turkey jumped to 2.53%.
Turkey Macro Risk Worsens
The macroeconomic situation in Turkey remains highly volatile. Driven by inflation shocks and geopolitical pressures, the CBRT pushed effective funding rates to 40%. Management explicitly placed a 'downward bias' on their ~€1B annual profit guidance for the country. Hyperinflation adjustments wiped out €339M from net profit in Q1 alone, and TL loans actually declined in real terms QoQ.
Other KPIs
Stable and improving from 38.2% in 1Q25. Gross income grew 18.3% (constant EUR), easily outpacing the 17.5% growth in operating expenses, generating positive jaws despite high footprint inflation (8.9% 12M average).
Accelerating. Delivered 18.1% YoY growth (excluding share buyback impacts), demonstrating massive internal capital generation capabilities.
Stable. The bank generated 75 bps of capital from earnings, cleanly offsetting 34 bps of RWA growth and 40 bps for dividends/AT1 coupons. Remains comfortably above the 11.5-12.0% target range.
Guidance
Accelerating. Upgraded from prior 'around 20%' guidance, driven by the structural beat in 1Q26 (21.7% actual) and sustained volume momentum overriding rate compression.
Accelerating. Management officially attached an 'upward bias' to the target following the massive 10.4% YoY growth achieved in Q1, reflecting booming wholesale credit demand.
Decelerating. A direct acknowledgement of the worsening macro reality, soaring inflation (30%+), and brutal central bank rate hikes (40%+ effective) strangling real loan growth.
Accelerating. A highly aggressive target reflecting BBVA's strategic land-grab in cross-border corporate lending and project finance in the US and Europe.
Key Questions
Spain Customer Spread Floor
Spain's customer spread compressed nearly 40 bps YoY to 2.82%. At what ECB policy rate do you expect this spread to finally trough, assuming ALCO portfolio rollovers cannot offset front-book repricing forever?
Cost of Risk Normalization
Group Cost of Risk has steadily marched up to 1.54%, with Mexico at 3.45% and Argentina near 8%. Is 1.5% the new structural normal for the Group, or do you see near-term catalysts that will reverse this trend?
AI Operating Leverage
You noted a 30-50% time reduction in specific tasks via the 'Blue' AI platform. When will these time savings translate into absolute headcount reductions or flat nominal operating expense growth, rather than just 'positive jaws'?