Macro and industry trends

The Global economy is recovering from the crisis caused by the COVID-19 pandemic, which resulted in a fall of around 3.2% of global GDP in 2020. Improved activity in the first half of 2021 was primarily due to the increasing rollout of coronavirus vaccines—which has allowed a relatively rapid reopening of the economy—as well as to strong monetary and fiscal stimuli. Similarly, recovery in global growth has been accompanied by higher pressure on prices than expected, mainly in the United States, where consumer inflation reached 5.4% in June 2021.

It is hoped that increased vaccination will enable greater control of the pandemic and that economic policy will remain focused on supporting economic activity. Economic recovery is therefore most likely to continue. According to BBVA Research, global GDP will increase by around 6.3% in 2021 and 4.7% in 2022, inflation will gradually moderate in the coming quarters as the supply of products and services reacts to the recent increase in demand, and monetary policy benchmark interest rates will remain at all-time lows in the United States, where growth will reach 6.7% in 2021 and 4.8% in 2022. Meanwhile, several factors, such as the United States Federal Reserve's withdrawal of monetary stimuli, more persistent inflation, or new coronavirus variants, are contributing to uncertainty remaining exceptionally high and pose a risk to the expected economic recovery scenario.

With regard to the banking system, in an environment in which much of the economic activity has been at a partial standstill for several quarters, the services it provides have played an essential role. There are two main reasons for this: first, the banks have ensured the proper functioning of collections and payments for households and companies, thereby contributing to the maintenance of economic activity; second, the granting of new credit or the renewal of existing credit has reduced the impact of the economic slowdown on household and business incomes. The support provided by the banks over the months of lockdown and public guarantees have been essential in softening the impact of the crisis on companies' liquidity and solvency, meaning that banking has become the main source of funding for most companies.

In terms of profitability the outset of the crisis, primarily because many entities made high allocations for provisions for financial asset impairment in the first half 2020 as a result of the worsening macroeconomic environment following the pandemic outbreak. However, the profitability of European banks recovered strongly in the first quarter of 2021. According to data published by the Risk Dashboard of the European Banking Authority (hereinafter "EBA"), the average ROE for the major EU banking groups (covering approximately 80% of the banking business in Europe) rose from 1.9% in 2020 to 7.6% in the first quarter of 2021, due to the widespread signs of economic recovery. Furthermore, the accumulation of capital by banks and the very low interest-rate environment we have found ourselves in for several years will continue to put pressure on bank profitability. Nevertheless, European entities are facing this situation from a healthy position and with solvency that has been constantly increasing since the 2008 crisis, with reinforced capital and liquidity buffers and, therefore, with a greater capacity to lend.


In the Eurozone, following a slight contraction of GDP in 1Q21, activity in the services sector and confidence are benefiting from eased restrictions and the increase in vaccination rates during 2Q21. Moreover, recovery in global demand should continue to support both manufacturing and exports. As a result, GDP is expected to see an upturn in 2Q21 and recovery is expected to increase in the coming quarters, supported by vaccine rollout, the European Recovery Fund (NGEU), and strong global growth. As a result, GDP could grow by 4.8% in 2021 and by 5% in 2022, after falling by 6.7% in 2020. Furthermore, national expansionary fiscal policies, the extension of support measures to the most affected sectors and support from the European Central Bank (hereinafter "ECB") should avoid more- persistent negative effects.

With regard to the banking system, according to the EBA, the levels of capital adequacy of the main EU banking groups improved in the first quarter of 2021, showing a slight improvement in the average fully-loaded CET1 to 15.6%. With regard to monetary conditions, the ECB's fundamental goal is to maintain favorable financial conditions. At its meeting in March, the monetary authority kept the interest rate for the main financing operations, and the interest rates for the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. It also announced a significant increase in asset purchases under the Pandemic Emergency Bond Purchase Program (hereinafter "PEPP") for the third quarter of the year. However, BBVA Research considers that the PEPP provision (€1.85 trillion) is large enough to comfortably increase purchases over the coming months without the ECB having to increase its provision.


In terms of GDP growth, the Spanish economy contracted in the first quarter of 2021, as expected. Data for the second quarter point to an economic uptick due to improved health indicators, along with eased restrictions, which have reduced uncertainty and allowed for progress in private spending. Recovery in household consumption is mainly in services and, of these services, in those with a social purpose. Investment in machinery and equipment also continues to perform well. Looking forward, conditions for recovery remain favorable given the speed of vaccination, immunization of the most vulnerable groups and the current demand policies, at the expense of restrictions that may be introduced due to an increasing number of infections associated with new COVID-19 variants. The return of a significant number of foreign visitors during the tourism season will be key. European NGEU funds are also expected to arrive. Both factors should have a positive impact, especially on service exports, durable goods consumption and investment in construction. Growth is therefore expected to stand at 6.5% at year-end and at 7% in 2022. The main risks surrounding this scenario are linked to the pandemic, the impact of the crisis on employment and production capacity, and slow implementation of projects relating to the NGEU program.

With regards the banking system, according to the latest Bank of Spain data available, the total volume of lending to the private sector remained virtually unchanged in April 2021 compared to the same month in the previous year, after growing 2.6% in 2020 due to the effect of new business lending transactions within the framework of the public guarantee programs implemented by the government to combat COVID-19. Asset quality indicators remain contained (the NPL ratio stood at 4.51% at year-end, and 4.53% in April 2021). Following losses in 2020, the system's profitability re-entered positive ground in the first quarter of 2021, with the system recording a record post-tax profit of €7,296m, of which €4,300m are attributable to negative goodwill from the merger between Caixabank and Bankia. Spanish entities maintain comfortable capital adequacy and liquidity levels, which allow them to weather the current environment.


Economic activity in the first quarter recovered beyond expectations and will allow Mexico's GDP to return to pre-pandemic levels in 2022. The services sector benefited during the first quarter of the year from the lifting of pandemic-related restrictions and increased mobility. Investment also grew higher than initial estimates, with the manufacturing industry having the greatest positive effect thanks to higher growth in the United States. BBVA Research estimates that the Mexican economy will grow 6.3% in 2021 and moderate to 3% in 2022. Inflation was a positive surprise, reflecting the impact of some services reopening, as well as new gains on some goods. These surprises led Banxico to preventively raise its interest rate from 4% to 4.25%, and BBVA Research estimates that the central bank will continue to increase its benchmark interest rate to close out the year at 5% and will continue to act in line with the Fed.

With regard to the banking system, based on data from the National Banking and Securities Commission (CNBV) as of May 2021, loans decreased by 7.1% year-on-year, and an increase was observed only in the mortgage portfolio (up 9.3% year-on-year), while total deposits increased by 0.8% year-on-year. The NPL ratio increased year-on-year, reaching an NPL ratio of 2.52%, and capital indicators remain comfortable.


The Turkish economy grew significantly in the first quarter of the year. Strong momentum so far, upward revisions to global growth forecasts, moderate growth in lending and the reopening of the economy have led BBVA Research to revise the GDP growth forecast upward from 5% to 9% in 2021, but to revise the forecast for 2022 downward slightly to 4% (previously 4.5%), due to negative base effects and higher interest rates over a longer period of time.

With regard to the banking system, the central bank (CBRT) kept its base rate at 19% in 2Q21. BBVA Research estimates that CBRT will start gradually cutting rates in 4Q21 to close out the year at 17.5%. Meanwhile, inflation estimates have been adjusted to 16% by the close of 2021. Based on data as of May 2021, the total volume of lending in the banking system increased by 22.0% year-on-year (up +20.7% in Turkish lira and +24.3% in foreign currency), while deposits increased 27.9%. These growth rates include the effect of inflation. The NPL ratio stood at 3.69% at the end of May 2021.


In Argentina, a new wave of COVID-19 infections accompanied by new shocks in supply hindered recovery in activity in the first part of the year, despite the good pace of vaccine rollout and high commodity prices. Private consumption grew lower than expected, and government spending, although somewhat higher than estimated, was unable to offset this. BBVA Research estimates that growth will stand at 6.5% in 2021 and that the economy will recover to pre-pandemic levels in 2022, at which point it will grow by around 3.5%. Argentina reached an agreement with the Paris Club that will allow it to avoid defaulting on its payments and continue negotiations with the IMF to refinance its foreign debt, whereby an agreement is expected to be reached by early 2022. Recent data confirm BBVA Research's forecast in terms of inflation, which we estimate will close the year at 50%, a level to be maintained in 2022.

In the banking system, the positive growth trend for both lending and deposits continued in May 2021, with growth of 29.8% and 46.0% respectively, both influenced by high inflation. The NPL ratio, however, fell slightly to 3.9% at the close of the first quarter in 2021.


During the first months of 2021, economic activity in Colombia was higher than initially estimated, driven by global growth and higher oil prices. The third wave of the pandemic had limited effects on private consumption, despite protests in May relating to the Tax Reform. A new Tax Reform initiative with a fiscal consolidation rule will be presented in Congress in the new term and is expected to be approved without delay, which will have a positive impact on public finances. BBVA Research estimates that growth will reach 7.5% in 2021 and moderate to 4.4% in 2022. Worsening public finances, together with difficulty in ensuring long-term fiscal sustainability, caused Colombia to lose its investment grade. Inflation saw upward surprises related not only to the protests, but also to higher energy prices and economic recovery. This could lead the central bank to bring interest rate hikes forward; BBVA Research now expects the first interest rate hike by the third quarter of 2021, taking inflation to around 2.25% at year-end and 3.25% at the close of 2022.

Total lending in the banking system fell by 1.0% year-on-year in March 2021, mainly due to the moderate decrease in the commercial loan portfolio (-2.6%) despite government-approved letters of credit and guarantee programs during the pandemic. The system's NPL ratio as of March 2021 stood at 4.91%. Meanwhile, total deposits increased by 4.2% year-on-year at the close of March 2021.


Despite the recovery in growth observed in the first quarter of the year, a third wave of infections has led to a substantial slowdown in activity, whereby pre-pandemic activity levels are estimated to be reached in the second half of 2022. This is in a context of higher global growth and high commodity prices. BBVA Research believes that the Peruvian economy will grow 9% in 2021 and 4.3% in 2022, influenced by the slowdown in domestic demand, which will feel the effects of the new wave of infections and political uncertainty. Inflation has been a positive surprise in recent months, and BBVA Research believes it will maintain close to the upper limit of the central bank's target range (3%) in the second half of 2021 and 2022. This situation of higher inflation in an environment of economic recovery will probably lead the central bank to bring the beginning of the cycle of hardening its monetary policy forward to the third quarter of 2021.

The banking system showed high year-on-year growth rates for lending and deposits (up +11.1% and +17.1% respectively, at the end of April 2021), due to strong stimulus from the Plan Reactiva Perú; the system showed lower profitability levels due to the COVID-19 crisis (ROE: 3.07% as of April 2021) but with contained NPLs (NPL ratio: 3.24% as of April 2021) due to the payment deferrals applied.


30-06-21 30-03-21 31-12-20 30-09-20 30-06-20
Official ECB rate 0.00 0.00 0.00 0.00 0.00
Euribor 3 months (1) (0.54) (0.54) (0.54) (0.49) (0.38)
Euribor 1 year (1) (0.48) (0.49) (0.50) (0.41) (0.15)
USA Federal rates 0.25 0.25 0.25 0.25 0.25
TIIE (Mexico) 4.25 4.00 4.25 4.25 5.00
CBRT (Turkey) 19.00 19.00 17.00 10.25 8.25
  • (1) Calculated as the month average.

The recovery led by the United States has favored the U.S. dollar, which has appreciated by 3.3% against the euro, compared to December 2020. The Mexican peso registered an appreciation of 3.6% against the euro, showing a good behavior and being reinforced by the interest rates increase carried by Banxico. The Turkish lira closes the quarter with a 11.7% depreciation against the euro, having been impacted since March by instability caused by the shifts in the central bank management. As to other foreign exchanges, Colombian peso (-5.7%) and Peruvian sol (-3.6%) depreciated against the Euro, due to political uncertainty in both regions. Chilean peso behavior against the Euro has been more stable, while the Argentine peso depreciated by 9.2%, registering a lower rhythm than the one shown in previous years.

For information on the BBVA Group's exchange rate risk management policies, see the "Risk Management" chapter of this report.


Year-end exchange rates Average exchange rates

∆% on
∆% on

∆% on
U.S. dollar 1.1884 (5.8) 3,3 1.2051 (8.6)
Mexican peso 23.5784 10.0 3.6 24.3235 (1.8)
Turkish lira 10.3210 (25.6) (11.7) 9.5232 (24.9)
Peruvian sol 4.6146 (14.5) 3.6 4.4918 (16.2)
Argentine peso (1) 113.74 (30.7) (9.2) - -
Chilean peso 873.81 4.6 (0.2) 867.87 3.2
Colombian peso 4,464.43 (5.7) (5.7) 4,368.23 (6.9)
  • (1) According to IAS 29 "Financial information in hyperinflationary economies", the year-end exchange rate is used for the conversion of the Argentina income statement.