Banco Bilbao Vizcaya Argentaria Performs Well In Stress Test

Narrow-moat Banco Bilbao Vizcaya Argentaria, or BBVA, performed well under the recent European Banking Authority, or EBA, stress test--especially if one adjusts for the positive capital impact of the sale of BBVA’s United States operations--which the regulator did not include in the stress test. Under the adverse scenario of the stress test, BBVA’s common equity Tier 1 ratio declines to 8.70% in 2023. This level of capital is barely ahead of the 8.60% regulatory minimum common equity Tier 1 ratio under which BBVA would still be able to pay dividends; however, this does not include the 2.40% boost BBVA’s common equity Tier 1 ratio received from the disposal of its U.S. operations during 2021. BBVA’s common equity Tier 1 ratio declined by 3.00% under the adverse scenario of the stress test from the 11.7% BBVA reported at the end of 2020. The average European bank we cover saw its common equity Tier 1 ratio shrink 4.60% when stressed under the adverse scenario. If we compare BBVA’s performance under the adverse scenario with the baseline scenario, revenue was more volatile than its peers. However, loan losses increased the least of all European banks we cover. We maintain our euro-share fair value estimate and our narrow moat rating.