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Three Understated Metrics For Banco Bilbao Vizcaya Argentaria SA (BME:BBVA) You Should Know

As a large-cap stock with market capitalization of €39.69b, Banco Bilbao Vizcaya Argentaria SA (BME:BBVA) is classified as a major bank. As these large financial institutions revert back to health after the Global Financial Crisis, we are seeing an increase in market confidence, and understanding of, these “too-big-to-fail” banking stocks. After the crisis, a set of reforms called Basel III was created with the purpose of strengthening regulation, risk management and supervision in the banking sector. Basel III target banking regulations to improve the sector’s ability to absorb shocks resulting from economic stress which may expose financial institutions like banks to vulnerabilities. Operating in EUR, BBVA is held to strict regulation which focus investor attention to the type and level of risk it takes on. Investors should be more cautious when it comes to financial stocks given the different type of risk to which they are exposed. Today we will analyse some bank-specific metrics and take a closer look at leverage and liquidity. See our latest analysis for Banco Bilbao Vizcaya Argentaria

BME:BBVA Historical Debt June 21st 18
BME:BBVA Historical Debt June 21st 18

Is BBVA’s Leverage Level Appropriate?

Banks with low leverage are better positioned to weather adverse headwinds as they have less debt to pay off. A bank’s leverage may be thought of as the level of assets it owns compared to its own shareholders’ equity. Financial institutions are required to have a certain level of buffer to meet capital adequacy levels. Banco Bilbao Vizcaya Argentaria’s leverage level of less than the suitable maximum level of 20x, at 13.23x, is considered to be very cautious and prudent. This means the bank has a sensibly high level of equity compared to the level of debt it has taken on to maintain operations which places it in a strong position to pay back its debt in unforeseen circumstances. Should the bank need to increase its debt levels to meet capital requirements, it will have abundant headroom to do so.

How Should We Measure BBVA’s Liquidity?

Handing Money Transparent
Handing Money Transparent

Due to its illiquid nature, loans are an important asset class we should learn more about. Usually, they should not be higher than 70% of total assets, which is consistent with Banco Bilbao Vizcaya Argentaria’s state given its ratio of 56.28%. This means slightly over half of the bank’s total assets are tied up in the form of illiquid loans, leading to a sensible balance between interest income and liquidity.

What is BBVA’s Liquidity Discrepancy?

A way banks make money is by lending out its deposits as loans. These loans tend to be fixed term which means they cannot be readily realized, however, customer deposits are liabilities which must be repaid on-demand and in short notice. The discrepancy between loan assets and deposit liabilities threatens the bank’s financial position. If an adverse event occurs, it may not be well-placed to repay its depositors immediately. Compared to the appropriate industry loan to deposit level of 90%, Banco Bilbao Vizcaya Argentaria’s ratio of over 92.58% is higher which puts the bank in a risky position as it borders negative liquidity disparity between loan and deposit levels. Essentially, for €1 of deposits with the bank, it lends out more than € 0.9 which is risky.

Next Steps:

The bank’s liquidity and leverage ratios suggest its sensible operational risk management. This means it is well-positioned to meet its financial obligations in case of any unforeseen and adverse macro events. We’ve only touched on operational risks for BBVA in this article. But as a stock investment, there are other fundamentals you need to understand. There are three essential aspects you should look at:

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  1. Future Outlook: What are well-informed industry analysts predicting for BBVA’s future growth? Take a look at our free research report of analyst consensus for BBVA’s outlook.

  2. Valuation: What is BBVA worth today? Has the future growth potential already been factored into the price? The intrinsic value infographic in our free research report helps visualize whether BBVA is currently mispriced by the market.

  3. Other High-Performing Stocks: Are there other stocks that provide better prospects with proven track records? Explore our free list of these great stocks here.


To help readers see pass the short term volatility of the financial market, we aim to bring you a long-term focused research analysis purely driven by fundamental data. Note that our analysis does not factor in the latest price sensitive company announcements.

The author is an independent contributor and at the time of publication had no position in the stocks mentioned.