Report 4Q 2023

Economic global growth has slowed down through 2023 and, particularly, during the last months, due to the high inflation, the tightening of monetary conditions and the gradual fading of the positive effects linked to the reopening after the COVID-19 pandemic. The slowdown has been, in general, less harsh than expected, and economic activity remains relatively dynamic, particularly in the Unites States, thanks to the dynamism of the labor markets, expansionary fiscal policies and the gradual fading of supply shocks triggered by the pandemic and the war in Ukraine.

Falling commodity prices compared to the levels seen in 2022 and the improvements in production process bottlenecks have contributed to a significant moderation of inflation. which, in annual terms, reached 3.4% in the United States and 2.9% in the Eurozone in December 2023, far below the levels registered at the end of 2022 (6.5% in the United States and 9.2% in the Eurozone).

In this context, the process of interest rate hikes launched approximately two years ago seems to have reached an end. According to BBVA Research, it is most likely that inflation will keep evolving favorably in the next months, enabling the start of a gradual process of relaxation of monetary conditions around mid-2024, which would take monetary policy interest rates to around 4.50% in the United States and 3.75% (in the case of refinancing operation rates) in the Eurozone by the end of 2024. However, it cannot be ruled out that monetary policy benchmark rates might be reduced more quickly in the future, mainly if inflation evolves surprisingly on the downside. In any case, it is expected that both the U.S. Federal Reserve ("Fed") and the European Central Bank ("ECB") will continue taking liquidity reduction measures over 2024.

BBVA Research forecasts that global growth will be approximately 3.0% in 2024 (unchanged from the previous forecast and similar to the forecasted for the GDP growth in 2023) In the United States, strong domestic demand supports a slightly upward revision of growth forecasts for 2023, from 2.3% to 2.4%, but the restrictive monetary conditions are likely to contribute to a growth deceleration in 2024, to 1.5%, without changes from the previous forecast. In China, structural challenges to avoid a fast economic deceleration remain, but a series of stimulus measures have enabled a greater than expected dynamism of activity in the past few months, which supports an upward revision of the growth in 2023 from 4.8% to 5.2%. The GDP growth forecast for 2024 remains unchanged at 4.4%. In the Eurozone, economic activity came to a standstill in the last months, reinforcing the low growth prospects; the forecast of the GDP expansion of the region remains at 0.4% for 2023 and it has been cut from 1.0% to 0.7% for 2024.

In this context of below potential growth and still high interest rates, aggregate demand moderation will probably favor an additional inflation reduction, which, however, would remain somewhat over the inflation targets in the United States and the Eurozone until the end of 2024.

In any case, uncertainty remains high, and a number of factors could lead to more adverse scenarios unfolding. Persistently high inflation and high interest rates, due to eventual supply shocks generated by the current geopolitical turbulence, and particularly by the recent maritime trade disruptions in the Red Sea, or other factors, could trigger a deep and widespread recession, as well as new bouts of financial volatility. Moreover, the slowdown in China could end up being more severe than expected. Finally, current geopolitical turbulence might contribute to higher energy prices and new disruptions in global supply chains.

The main indexes have shown a positive performance in 2023. In Europe, the Stoxx Europe 600 index increased by 12.7% compared to the end of 2022, and in Spain the Ibex 35 rose by 22.8% in the same period, showing a better relative performance. In the United States, the S&P 500 index also increased by 24.2%.

With regard to the banking sector indexes, the performance during 2023 was better than the general indexes in Europe. The Stoxx Europe 600 Banks index, which includes the banks in the United Kingdom, and the Euro Stoxx Banks, an index of Eurozone banks, increased by 20.3% and 23.5% respectively, while in the United States, the S&P Regional Banks sector index fell by -10.8% in the period.

As for BBVA’s share price, it increased by 46.0% during the year, outperforming its sector index, closing 2023 at €8.23.

The BBVA share and share performance ratios

Regarding shareholder remuneration, which includes cash payments and the remuneration resulting from the execution of the share buyback programs that the Group may execute, a cash gross distribution in the amount of €0.39 per share on April as final dividend of 2023 and the execution of a new Share Buyback Program of BBVA for an amount of €781m, subject to the corresponding regulatory authorizations and the communication with the program specific terms and conditions before its effective start, are expected to be submitted to the relevant governing bodies for consideration. Thus, the total distribution for the year 2023 will reach €4,010m, a 50% of the net attributable profit, which represents €0.68 per share, taking into account the payment in cash of €0.16 gross per share paid in October 2023 as interim dividend of the year.

During the year 2023, BBVA has executed two share buyback programs. The first program was announced on February 1, 2023 for a maximum amount of €422m and was part of the ordinary application of the shareholder remuneration policy of the year 2022. On April 21, 2023, BBVA announced the completion of this, having acquired 64,643,559 own shares between March 20 and April 20, 2023, representing approximately 1.07% of BBVA's share capital as of said date. The shares acquired in the execution of this first share buyback program were redeemed on June 2, 2023. The second program, which is considered extraordinary shareholder remuneration and thus is not included in the ordinary remuneration policy, was announced on July 28, 2023, for a maximum amount of €1,000m. On November 29, 2023, BBVA announced the completion of this, having acquired 127,532,625 own shares between October 2 and November 29, 2023, representing approximately 2.14% of BBVA's share capital as of said date. The shares acquired in the execution of this second share buyback program were redeemed on December 19, 2023. Thus, the total amount disbursed in both share buyback programs stands at €1,422m.

On December 31, 2023 the number of BBVA shares outstanding was 5,838 million. The number of shareholders reached 742,194, and by type of investor, 61.7% of the capital was held by institutional investors and the remaining 38.3% was in the hands of retail shareholders.

BBVA shares are included on the main stock market indexes. At the end of September 2023, the weighting of BBVA shares in the Ibex 35, Euro Stoxx 50 and the Stoxx Europe 600 index, were 9.2%, 1.6% and 0.5%, respectively. They are also included on several sector indexes, including Stoxx Europe 600 Banks, which includes the United Kingdom, with a weighting of 5.7% and the Euro Stoxx Banks index for the eurozone with a weighting of 9.5%. Moreover BBVA maintains a significant presence on a number of international sustainability indexes, such as, Dow Jones Sustainability Index (DJSI), FTSE4Good or MSCI ESG Indexes.