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BBVA Bets Big On Fintech

BBVA

BBVA has a lot of exposure to “risky” countries such as Turkey and Argentina. This has dragged down the stock.

The bank seems to be doing more than okay in terms of profitability (RoE) and capitalisation (capital ratio) when compared to European peers.

BBVA is known as a frontrunner in the digital banking space. It has invested over $1 billion in Fintech projects globally.

I believe the lessons learned from betting on Fintech immediately increase the value of the existing bank, but some of its investments could become big companies on their own.

Banco Bilbao Vizcaya Argentaria (BBVA) is a Spanish bank with operations all over the world. Main markets include Spain, South-America, Mexico, the US and…Turkey.

Even though I only have one bank stock in my portfolio, ICICI Bank (IBN), to have exposure to macro growth trends in India, I’ve been looking to add BBVA to my portfolio.

While I was looking for a good entry, it now seems I won’t build a position even though the stock has traded down sharply over the week.

BBVA is exposed to risky countries

There are two countries constantly in the news because of currency concerns: Turkey and Argentina. Unfortunately, BBVA has significant exposure to these countries. Of course, we should know whether the bank has hedged for these risks or not, but we haven’t seen any official communication on this.

Turkey

A research note by ABN Amro (OTCPK:ABNRY) states that 1/3 of BBVA’s pre-tax profits for 2017 are made in Turkey. When we take a look at H1 results for 2018, we can confirm that the profits in Turkey are material enough to be worried. The following picture is about Turkey only.

Source: BBVA’s H1 report

Operating income and net attributable profit rose a bit more than 25% year over year. Bloomberg also reports that nearly 14% of total loans are in Turkey.

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BBVA data by YCharts
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BBVA PE Ratio (TTM) data by YCharts

Oliver Smith

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