UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

FORM 20-F

 

[  ]        REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 20182020

OR

[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

OR

[  ]        SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

Commission file number: 1-10110

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

 

Kingdom of Spain

(Jurisdiction of incorporation or organization)

 

Calle Azul, 4

28050 Madrid

Spain

(Address of principal executive offices)

Jaime Sáenz de Tejada Pulido

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

 

(Name, Telephone, E-mail and /or Facsimile Number and Address of Company Contact Person)

 

 

 

 

 

 


 

Securities registered or to be registered pursuant to Section 12(b) of the Act.

 

 

 

 

Title of Each Class

Trading Symbol

Name of Each Exchange on which Registered

American Depositary Shares, each representing

the right to receive one ordinary share,

par value €0.49 per share

BBVA

New York Stock Exchange

Ordinary shares, par value €0.49 per share

BBVA*

New York Stock Exchange*

 

 

 

3.000%0.875% Fixed Rate Senior Notes due 20202023

BBVA 23

New York Stock Exchange

1.125% Fixed Rate Senior Notes due 2025

BBVA 25

New York Stock Exchange

 

 

 

*         The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.

 

 

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

 

Title of Each Class

 

Name of Each Exchange on which Registered

Non-StepNon-Step-Up Non-Cumulative Contingent Convertible Perpetual

Preferred Tier 1 Securities

 

Irish Stock Exchange

Series 9 Non-Step-Up Non-Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities

 

 

Irish Stock Exchange

The number of outstanding shares of each class of stock of the Registrant as of December 31, 2018,2020, was:

Ordinary shares, par value €0.49 per share—6,667,886,580

 

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X]

No [  ]

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes [  ]

No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X]

No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X]

No [  ]

 

 


 

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

 

Large accelerated filer [X]

Accelerated filer [  ]

Non-accelerated filer [  ]

Emerging growth company [  ]

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    [  ]

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.[X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

 

U.S. GAAP [  ]

International Financial Reporting Standards as Issued by the International Accounting Standards Board [X]

Other [  ]

 

  

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [  ]

Item 18 [  ]   

 

 

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ]

No [X]  

 

 

 

 


 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

 

 

 

 

 

PAGE

 

PART I

 

ITEM 1.

IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

57

A.

DirectorsDirector and Senior Management

57

B.

Advisers

57

C.

Auditors

57

ITEM 2.

OFFER STATISTICS AND EXPECTED TIMETABLE

57

ITEM 3.

KEY INFORMATION

67

A.

Selected Consolidated Financial Data

67

B.

Capitalization and Indebtedness

89

C.

Reasons for the Offer and Use of Proceeds

810

D.

Risk Factors

810

ITEM 4.

INFORMATION ON THE COMPANY

4026

A.

History and Development of the Company

4026

B.

Business Overview

4329

C.

Organizational Structure

8063

D.

Property, Plants and Equipment

8264

E.

Selected Statistical Information

8264

F.

Competition

11187

G.

Cybersecurity and Fraud Management

11491

ITEM 4A.

UNRESOLVED STAFF COMMENTS

11593

ITEM 5.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

11593

A.

Operating Results

12797

B.

Liquidity and Capital Resources

191162

C.

Research and Development, Patents and Licenses, etc.

196164

D.

Trend Information

196164

E.

Off-Balance Sheet Arrangements

198165

F.

Tabular Disclosure of Contractual Obligations

199165

ITEM 6.

DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

200166

A.

Directors and Senior Management

200166

B.

Compensation

210175

C.

Board Practices

221185

D.

Employees

229197

E.

Share Ownership

232200

ITEM 7.

MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

233201

A.

Major Shareholders

233201

B.

Related Party Transactions

233201

C.

Interests of Experts and Counsel

234202

ITEM 8.

FINANCIAL INFORMATION

235202

A.

Consolidated Statements and Other Financial Information

235202

B.

Significant Changes

238203

ITEM 9.

THE OFFER AND LISTING

238204

A.

Offer and Listing Details

238204

B.

Plan of Distribution

244210

C.

Markets

244210

D.

Selling Shareholders

244210

E.

Dilution

244210

F.

Expenses of the Issue

245210

 

 

 


 

 

 

 

 

 

PAGE

 

ITEM 10.

ADDITIONAL INFORMATION

245210

A.

Share Capital

245210

B.

Memorandum and Articles of Association

245210

C.

Material Contracts

248214

D.

Exchange Controls

249215

E.

Taxation

250216

F.

Dividends and Paying Agents

255221

G.

Statement by Experts

255221

H.

Documents on Display

255221

I.

Subsidiary Information

255221

ITEM 11.

QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

255221

ITEM 12.

DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

263221

A.

Debt Securities

263221

B.

Warrants and Rights

263221

C.

Other Securities

263221

D.

American Depositary Shares

263222

PART II

 

 

ITEM 13.

DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

264223

ITEM 14.

MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

264223

ITEM 15.

CONTROLS AND PROCEDURES

264223

ITEM 16.

[RESERVED]

267226

ITEM 16A.

AUDIT COMMITTEE FINANCIAL EXPERT

267226

ITEM 16B.

CODE OF ETHICS

267226

ITEM 16C.

PRINCIPAL ACCOUNTANT FEES AND SERVICES

268226

ITEM 16D.

EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

269227

ITEM 16E.

PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

269228

ITEM 16F.

CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

270228

ITEM 16G.

CORPORATE GOVERNANCE

270228

ITEM 16H.

MINE SAFETY DISCLOSURE

272230

PART III

 

 

ITEM 17.

FINANCIAL STATEMENTS

272230

ITEM 18.

FINANCIAL STATEMENTS

272230

ITEM 19.

EXHIBITS

273231

 

  

 

 


 

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

·          BBVA”, the “Bank”, the “Company”, the “Group”, the “BBVA Group” or first person personal pronouns, such as “we”, “us”, or “our”, mean Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

·      ��   BBVA BancomerMexico” means Grupo Financiero BBVA Bancomer, S.A. de C.V. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          BBVA CompassUSA” means BBVA CompassUSA Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          Consolidated Financial Statements” means our audited consolidated financial statements as of and for the years ended December 31, 2020, 2019 and 2018, 2017 and 2016 prepared in compliance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”) and in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 (each as(as defined herein)..

·          Garanti BBVA” means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          Latin America” refers to Mexico and the countries in which we operate in South America and Central America.

In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “” and “euro” refer to Euro.

1


CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual Report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”) Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions and includes statements regarding future growth rates. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this Annual Report, including, without limitation, the information under the items listed below, identifies important factors that could cause such differences:

·          “Item 3. Key Information—Risk Factors”;

·          “Item 4. Information on the Company”;

·          “Item 5. Operating and Financial Review and Prospects”; and

·          “Item 11. Quantitative and Qualitative Disclosures About Market Risk”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:

·          the impact of the coronavirus (COVID-19) pandemic and the measures adopted by governments and the private sector in connection therewith on our business and the economy, including any adverse developments, or the perception that such developments may occur, regarding credit quality, public debt sustainability and sovereign ratings, particularly Spain’s, among other factors;

·political, economic and business conditions in Spain, the European Union (“EU”), Latin America, Turkey, the United States and the other regions, countries or territoriesgeographies in which we operate;

1·our ability to complete the sale of BBVA USA as planned (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). Completion of the transaction is dependent on the satisfaction of certain closing conditions, which cannot be assured;


·          our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital, liquidity and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;taxation;

·          the monetary, interest rate and other policies of central banks, and the trade, economic and other policies of governments, in the EU, Spain, Mexico, Turkey, the United States Mexico, Turkey and elsewhere;

·          changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;

·          the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union;EU;

·          market adjustments in the real estate sectorsmarkets in the geographies in which we operate, in particular in Spain, Mexico, Turkey and the United States;

·          the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;deregulation affecting us or our competitors, and our ability to implement technological advances;

·          changes in consumer spending and savings habits, including changes in government policies which may influence spending, saving and investment decisions;

·          adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, exchange controls or other limitations on the distribution or repatriation of dividends, international ownership legislation, interest rate caps and tax policies;

2


·our ability to continue to access sources of liquidity and funding, including public sources of liquidity such as the funding provided by the European Central Bank (“ECB”) through the extraordinary measures adopted in connection with the COVID-19 pandemic, and our ability to receive dividends and other funds from our subsidiaries;

·          our ability to hedge certain risks economically;

·          downgrades in our credit ratings or in the Kingdom ofsovereign credit ratings, particularly Spain’s credit ratings;

·          the success of our acquisitions, divestitures, mergers, joint ventures and strategic alliances;

·          our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel;

·          the performance of our international operations and our ability to manage such operations;

·          weaknesses or failures in our Group’s internal or outsourced processes, systems (including information technology systems) and security;

·          weaknesses or failures of our anti-money laundering or anti-terrorism programs, or of our internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations;

·          security breaches, including cyber-attacks;cyber-attacks and identity theft;

·          the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations;

·          actions that are incompatible with our ethics and compliance standards, and our failure to timely detect or remedy any such actions;

·          uncertainty surrounding the integrity and continued existence of reference rates and the transition away from the Euro Interbank Offered Rate (EURIBOR), Euro OverNight Index Average (EONIA) and London Inter-bank Offered Rate (LIBOR) to new reference rates;

·our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not captured by the statistical models we use; and

·          force majeure and other events beyond our control.

2


Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

3


PRESENTATION OF FINANCIAL INFORMATION

Accounting Principles

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2017 of November 27, 2017 (“Circular 4/2017”), which replaced Circular 4/2004 of December 22, 2004, on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) for financial statements relating to periods ended January 1, 2018 or thereafter.

There are no differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 and IFRS-IASB for the years ended December 31, 2018, 20172020, 2019 and 2016.2018. The Consolidated Financial Statements included in this Annual Report have been prepared in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017.

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” and Note 2.2 to our Consolidated Financial Statements

The financial information as of and for the years ended December 31, 2017, 2016, 20152019 and 20142018 may differ from previously reported financial information as of such dates and for such periods in our respective annual reports on Form 20-F for certain prior years, as a result of the modificationschanges and adjustments referred to below (see “―Changes in Accounting Policies” and “—Changes in Operating Segments”) and certain retrospective adjustments made in prior years.below.

Changes in Accounting Policies

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies. Set forth below are certain material changes to our accounting policies in 2018.

Application of IFRS 916 –Leases – COVID-19 modifications

As On May 28, 2020, the IASB approved an amendment to IFRS 16 which provides an optional exemption for lessees from assessing whether rent concessions that occur due to COVID-19 (including payment holidays and deferrals of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and introduced changeslease payments for a period of time, in the requirements for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting. The impact of the first application of IFRS 9, which was significant, is presentedeach case in connection with payments due on or before June 30, 2020) are lease modifications. For additional information, see Note 2.42.3 to the Consolidated Financial Statements.

This amendment is effective from June 1, 2020 and has been endorsed by the European Union. The amendment, which has been applied by the Group, has had no significant impact on the Consolidated Financial Statements of the Group.

IAS 12 – “Income Taxes” Amendment

As permitted bypart of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, IFRS 9 has not been applied retrospectivelyan entity shall recognize the income tax consequences of payments of dividends in profit or loss, other comprehensive income or equity, depending on where the entity recognized the originating transaction or event that generated the distributable profits giving rise to the dividend. In accordance with the amended standard, we recorded the income tax consequences of dividends paid for the year ended December 31, 2019 (amounting to €91 million of income) under “Tax expense or income related to profit or loss from continuing operations” in our consolidated income statement within our Consolidated Financial Statements (see Note 19). Such income tax consequences were recorded under “Total equity” in our consolidated balance sheet in previous years. However,periods. In order to make the financial information for 2017 and 2016 included in the Consolidated Financial Statements, which was prepared in accordanceprior years comparable with the accounting policies and valuation criteria applicable under IAS 39, has been subject to the following non-significant modifications in order to improve its comparability with financial information for 2018:2019, the financial information for 2018 was restated retrospectively in this regard. The application of the amended standard resulted in an increase by €76 million in our “Profit attributable to parent company” for 2018 (an increase of 1.4% in the “Profit attributable to parent company” for 2018). The new standard had no significant impact on our consolidated total equity.

Hyperinflationary economies

·Considering the interpretation issued by the International Financial assets recorded under “Available-for-saleReporting Interpretations Committee (“IFRIC”) in its “IFRIC Update” of March 2020 on IAS 29 “Financial information in hyperinflationary economies”, the Group made an accounting policy change which involves recording the differences generated when translating the restated financial assets”statements of the subsidiaries in hyperinflationary economies into euros in the line item “Accumulated other comprehensive income – Items that may be reclassified to profit or loss – Foreign currency translation” of our consolidated balance sheet. In order to make the information as of December 31, 20172019 and 2016 in the consolidated financial statements included in the annual reports on Form 20-F for such years have been recorded under “Financial assets at fair value through other comprehensive income” (a new category introduced by IFRS 9) in the Consolidated Financial Statements.

·Financial assets recorded under “Loans and receivables”2018 comparable with information as of December 31, 2017 and 2016 in2020, the consolidated financial statements included in the annual reports on Form 20-F for such years have been recorded under “Financial assets at amortized cost” (a new category introduced by IFRS 9) in the Consolidated Financial Statements.information as of

34


 

·December 31, 2019 and 2018 has been restated by reclassifying €2,985 million and €2,987 million, respectively,  Financial assets recorded under “Held-to-maturity investments”from “Shareholders’ funds – Retained earnings” and €6 million and €20 million, respectively, from “Shareholders’ funds – Other reserves” to “Accumulated other comprehensive income – Items that may be reclassified to profit or loss – Foreign currency translation” and “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Share of other recognized income and expense of investments in joint ventures and associates” as of December 31, 20172019 and 20162018, respectively.

The reclassification has been recorded as “Effect of changes in accounting policies” under the balance as of January 1, 2020 and 2019 in the consolidated financial statements includedstatement of changes in the annual reports on Form 20-F for such years have been recorded as “Debt securities” in the new “Financial assets at amortized cost” portfolio in the Consolidated Financial Statements.

·Expense recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – Available-for-sale financial assets”equity for the years ended December 31, 20172019 and 20162018.

IFRS 9 – Collection of interest on impaired financial assets

As a consequence of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9, such collections are presented since 2020 as reductions in credit-related write-offs whereas previously they were included as interest income. In order to make the information for the years ended December 31, 2019 and 2018 comparable with the information for the year ended December 31, 2020, the consolidated income statement for the year ended December 31, 2019 has been restated by recognizing a €78 million reduction in the consolidated financial statements includedheading “Interest and other income” and a €78 million increase in the annual reports on Form 20-F for such years has been recorded underheading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at fair value through other comprehensive income” (a heading introduced following the implementation of IFRS 9)modification” (€80 million reduction in the Consolidated Financial Statements.

·Expense recorded under “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss – Loansheading “Interest and receivables” for the years ended December 31, 2017other income” and 2016a €80 million increase in the consolidated financial statements included in the annual reports on Form 20-F for such years has been recorded underheading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at amortized cost” (a heading introduced followingmodification” for the implementation of IFRS 9) inyear ended December 31, 2018). This reclassification has had no impact on the Consolidated Financial Statements.

Such modifications have not involvedprofit for the revaluation of our financial assetsyears ended December 31, 2019 and 2018 or on the consolidated total equity as of December 31, 20172019 and 2016 under IFRS 9 or the application of IFRS 9 in any other respect, and no other changes have been made in our consolidated financial statements for such years as a result thereof.2018.

Hyperinflationary economiesTrading derivatives recognition

As a resultInformation as of the Group’s experience of applying IAS 29 “Financial information in hyperinflationary economies” in connection with its subsidiaries in Venezuela, we believe that there is significant complexity in recording the accounting impacts of inflation and changes in exchange rates in a way that allows financial informationDecember 31, 2020 has been subject to be meaningful, especially where there is not a consistent evolution between inflation and exchange rates in a period.

With the aim of improving the reliability and relevance of the financial information presented, during 2018 the Group adopted a new accounting policy which involves recording in a single line item, “Shareholders’ funds – retained earnings”, both the revaluation of non-monetary items duecertain balance sheet presentation modifications related to the effect of hyperinflation and the differences generated when translating the financial statements of the subsidiaries located in hyperinflationary economies into euros. Prior to the accounting policy change, translation differences were recorded under “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreignnon-significant cross currency translation”. We believe that the accounting policy change, implemented in accordance with IAS 8, provides more reliable and relevant information with regards to operations in hyperinflationary economies.

swap transactions. In order to make the financial information of prior years comparable with the financial information of 2018, we have made the following modifications relating to the Group companies in Venezuela (an economy that was considered to be hyperinflationary in 2017 and 2016):

·we have reclassified €1,853 million, €1,836 million and €1,826 million from “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation” to “Shareholders’ funds – retained earnings” as of December 31, 2017, December 31, 20162019 and January 1, 2016, respectively; and

·we have reclassified €828 million, €817 million and €816 million from “Non-controlling interest –Accumulated other comprehensive income” to “Non-controlling interest – other”2018 comparable with the information as of December 31, 2017,2020, figures as of December 31, 20162019 and January 1, 2016,2018 have been restated by recognizing a €953 million and a €1,013 million reduction in “Total assets” and “Total liabilities”, respectively.

Intra-group reallocations

No reclassificationsFollowing the publication of our consolidated financial statements as of and for the year ended December 31, 2019, certain balance sheet intra-group adjustments between the Corporate Center and the operating segments were necessaryreallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities were reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of and for Argentina since the Argentinian economy was consideredyears ended December 31, 2019 and 2018 comparable with the information as of and for the year ended December 31, 2020, segmental balances as of and for the years ended December 31, 2019 and 2018 have been revised in conformity with these intra-group reallocations.

Agreement for the sale of BBVA USA Bancshares, Inc.

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of the share capital in BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business, for approximately $11.6 billion (€9.7 billion), to be hyperinflationarypaid in 2018cash. As a result, the assets and liabilities of these companies were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, respectively. In addition, the profit (loss) of these companies was recognized under “Profit / (loss) from discontinued operations, net” in the consolidated income statement for the first time.year ended December 31, 2020. In accordance with IFRS 5, for comparative purposes the profit (loss) of these companies for the years ended December 31, 2019 and 2018 was also reclassified under the heading “Profit / (loss) from discontinued operations, net”. In addition, in accordance with IFRS 5, and following IFRS 8 “Information by business segments”, information on the United States reportable segment in which the non-current asset (disposal group) is recognized, is provided for the years ended December 31, 2020, 2019 and 2018.For additional information, see Note 21 to our Consolidated Financial Statements.

45


 

The reclassification correspondingSegment information included in Item 4. Information on the Company—Business Overview” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment” is being presented under management criteria, pursuant to January 1, 2018, 2017which the assets, liabilities and 2016 is recorded as “Effects of changes in accounting policies” in the consolidated statements of changes in equity corresponding to the years ended December 31, 2018, 2017 and 2016. In the consolidated balance sheets as of December 31, 2018, 2017 and 2016, the heading “Shareholders’ funds – retained earnings” includes both the translation differences and the effectsprofit (loss) of the restatementaforementioned companies held for inflation forsale are included in every line item of the years 2018, 2017balance sheet and 2016income statement of the United States segment (rather than in a single item).

For additional information see Notes 1.3 and 2.2.20 to our Consolidated Financial Statements.

Changes in Operating Segments

There have been no significant changes in the composition of the operating segments of the BBVA Group during 2018. Since 2018, our Mexico segment includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years). In addition, there have been certain non-significant changes affecting the composition of our Banking Activity in Spain, Non Core Real Estate and Corporate Center segments. The financial information for 2017 relating to such segments included in the Consolidated Financial Statements and in this Annual Report has been revised accordingly to improve its comparability with financial information for 2018. However, financial information for 2016 has not been revised as a result thereof.

Statistical and Financial Information

The following principles should be noted in reviewing the statistical and financial information contained herein:

·          Average balances, when used, are based on the beginning and the month-end balances during each year. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.

·          Unless otherwise stated, any reference to loans refers to both loans and advances.

·          Financial information with respect to segments or subsidiaries may not reflect consolidation adjustments.

·Certain numerical information in this Annual Reportannual report may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

See “Item 4. Information on the CompanySelected Statistical Information” for information on how the information for BBVA USA has been treated for purposes of calculating the selected financial information contained herein.

6


PART I

ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A.   Director and Senior Management

Not Applicable.

B.   Advisers

Not Applicable.

C.   Auditors

Not Applicable.

ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

5


ITEM 3. KEY INFORMATION

A.Selected Consolidated Financial Data

The historical financial information set forth below for the years ended December 31, 2018, 20172020, 2019 and 20162018 has been selected from, and should be read together with, the Consolidated Financial Statements included herein. The audited consolidated financial statements for 2015 and 2014 are not included in this document, and the historical financial information set forth below for such years instead are derived from the respective financial statements included in annual reports on Form 20-F for certain prior years previously filed by us with retrospective adjustments made for the application of certain changes in accounting principles.

For information concerning the preparation and presentation of thesuch financial information, contained herein, see Presentation of Financial Information”.Information”.  

 

Year Ended December 31,

 

2018

2017

2016

2015

2014

 

(In Millions of Euros, Except Per Share/ADS Data (In Euros))

Consolidated Statement of Income Data

 

 

 

 

 

Interest and other income

29,831

29,296

27,708

24,783

22,838

Interest expense

(12,239)

(11,537)

(10,648)

(8,761)

(8,456)

Net interest income

17,591

17,758

17,059

16,022

14,382

Dividend income

157

334

467

415

531

Share of profit or loss of entities accounted for using the equity method

(7)

4

25

174

343

Fee and commission income

7,132

7,150

6,804

6,340

5,530

Fee and commission expense

(2,253)

(2,229)

(2,086)

(1,729)

(1,356)

Net gains (losses) on financial assets and liabilities (1)

1,234

938

1,661

865

1,435

Exchange differences, net

(9)

1,030

472

1,165

699

Other operating income

949

1,439

1,272

1,315

959

Other operating expense

(2,101)

(2,223)

(2,128)

(2,285)

(2,705)

Income on insurance and reinsurance contracts

2,949

3,342

3,652

3,678

3,622

Expense on insurance and reinsurance contracts

(1,894)

(2,272)

(2,545)

(2,599)

(2,714)

Gross income

23,747

25,270

24,653

23,362

20,725

Administration costs

(10,494)

(11,112)

(11,366)

(10,836)

(9,414)

Depreciation and amortization

(1,208)

(1,387)

(1,426)

(1,272)

(1,145)

Provisions or reversal of provisions

(373)

(745)

(1,186)

(731)

(1,142)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(3,981)

(4,803)

(3,801)

(4,272)

(4,340)

Net operating income

7,691

7,222

6,874

6,251

4,684

Impairment or reversal of impairment on non-financial assets

(138)

(364)

(521)

(273)

(297)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

78

47

70

(2,135)

46

Negative goodwill recognized in profit or loss

-

-

-

26

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

815

26

(31)

734

(453)

Operating profit before tax

8,446

6,931

6,392

4,603

3,980

Tax (expense) or income related to profit or loss from continuing operations

(2,295)

(2,169)

(1,699)

(1,274)

(898)

Profit from continuing operations

6,151

4,762

4,693

3,328

3,082

Profit

6,151

4,762

4,693

3,328

3,082

Profit attributable to parent company

5,324

3,519

3,475

2,642

2,618

Profit attributable to non-controlling interests

827

1,243

1,218

686

464

Per share/ADS(2) Data

 

 

 

 

 

Profit from continuing operations

0.92

0.71

0.71

0.52

0.50

Diluted profit attributable to parent company (3)

0.76

0.48

0.49

0.37

0.40

Basic profit attributable to parent company

0.76

0.48

0.49

0.37

0.40

Dividends declared (In Euros)

0.250

0.170

0.160

0.160

0.080

Dividends declared (In U.S. dollars)

0.286

0.204

0.169

0.174

0.097

Number of shares outstanding (at period end)

6,667,886,580

6,667,886,580

6,566,615,242

6,366,680,118

6,171,338,995

 

 

 

 

 

 

(1)    Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2)    Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

(3)    Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period  including the average number of estimated shares to be converted and, for comparative purposes, a correction factor to account for the capital increases carried out in April 2014, October 2014, December 2014, April 2015, October 2015, December 2015, April 2016, October 2016 and April 2017, excluding the weighted average number of treasury shares during the period (6,668 million, 6,642 million, 6,468 million, 6,290 million and 5,905 million  shares in 2018, 2017, 2016, 2015 and 2014, respectively).

67


 

 

Year Ended December 31,

 

2020

2019

2018

 

(In Millions of Euros, Except Per Share/ADS Data (in Euros))

Consolidated Statement of Income Data

 

 

 

Interest and other income

22,389

27,762

26,954

Interest expense

(7,797)

(11,972)

(11,669)

Net interest income

14,592

15,789

15,285

Fee and commission income

5,980

6,786

6,462

Fee and commission expense

(1,857)

(2,284)

(2,059)

Net gains (losses) on financial assets and liabilities (1)

1,187

705

1,136

Other operating income

492

639

929

Other operating expense

(1,662)

(1,943)

(2,021)

Income on insurance and reinsurance contracts

2,497

2,890

2,949

Expense on insurance and reinsurance contracts

(1,520)

(1,751)

(1,894)

Gross income

20,166

21,522

20,936

Administration costs

(7,799)

(8,769)

(9,020)

Depreciation and amortization

(1,288)

(1,386)

(1,034)

Provisions or reversal of provisions

(746)

(614)

(395)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(5,179)

(3,552)

(3,681)

Net operating income

5,153

7,202

6,807

Impairment or reversal of impairment of investments in joint ventures and associates

(190)

(46)

-

Impairment or reversal of impairment on non-financial assets

(153)

(128)

(137)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

(7)

(5)

80

Negative goodwill recognized in profit or loss

-

-

-

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

444

23

815

Operating profit / (loss) before tax

5,248

7,046

7,565

Tax (expense) or income related to profit or loss from continuing operations

(1,459)

(1,943)

(2,042)

Profit / (loss) from continuing operations

3,789

5,103

5,523

Profit / (loss) from discontinued operations, net

(1,729)

(758)

704

Profit

2,060

4,345

6,227

Profit / (loss) attributable to parent company

1,305

3,512

5,400

Profit attributable to non-controlling interests

756

833

827

Per share/ADS (2) Data

 

 

 

Earnings per share (In Euros)

0.14

0.47

0.75

Diluted earnings (losses) per share from continuing operations (3)

0.40

0.58

0.64

Basic earnings (losses) per share from continuing operations

0.40

0.58

0.64

Dividends declared (In Euros)

0.160

0.260

0.250

Dividends declared (In U.S. dollars)

0.196

0.292

0.286

Number of shares outstanding (at period end)

6,667,886,580

6,667,886,580

6,667,886,580

(1)Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2)Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

(3)  Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period, including the average number of estimated shares to be issued upon the conversion of convertible instruments, excluding the weighted average number of treasury shares during the year (6,655 million, 6,648 million and 6,636 million shares for the years ended December 31, 2020, 2019 and 2018, respectively).

 

 

As of and for Year Ended December 31,

 

2018

2017

2016

2015

2014

 

(In Millions of Euros, Except  Percentages)

Consolidated Balance Sheet Data

 

 

 

 

 

Total assets

676,689

690,059

731,856

749,855

631,942

Net assets

52,874

53,323

55,428

55,282

51,609

Common stock

3,267

3,267

3,218

3,120

3,024

Financial assets at amortized cost (1)

419,660

445,275

483,672

471,828

376,086

Financial liabilities at amortized cost - Customer deposits

375,970

376,379

401,465

403,362

319,334

Debt certificates

63,970

63,915

76,375

81,980

71,917

Non-controlling interest

5,764

6,979

8,064

7,992

2,511

Total equity

52,874

53,323

55,428

55,282

51,609

Consolidated ratios

 

 

 

 

 

Profitability ratios:

 

 

 

 

 

Net interest margin (2)

2.59%

2.52%

2.32%

2.27%

2.40%

Return on average total assets (3)

0.9%

0.7%

0.6%

0.5%

0.5%

Return on average shareholders’ funds (4)

10.1%

6.7%

6.7%

5.3%

5.6%

Credit quality data

 

 

 

 

 

Loan loss reserve (5)

12,217

12,784

16,016

18,742

14,273

Loan loss reserve as a percentage of financial assets at amortized cost (1)

2.91%

2.87%

3.31%

3.97%

3.83%

Non-performing asset ratio (NPA ratio) (6)

3.82%

4.49%

4.90%

5.37%

5.98%

Impaired loans and advances to customers at amortized cost

16,349

19,390

22,915

25,333

22,703

Impaired contingent liabilities to customers (7)

740

739

680

664

413

 

17,089

20,130

23,595

25,997

23,116

 

 

 

 

 

 

Loans and advances to customers (8)

400,049

401,074

430,629

432,921

353,029

Contingent liabilities to customers

47,575

47,671

50,540

49,876

33,741

 

447,624

448,745

481,169

482,797

386,770

 

 

 

 

 

 

(1)     With respect to 2015 and 2014, consists exclusively of assets recorded under “Loans and receivables” as of December 31, 2015 and 2014, respectively, in the consolidated financial statements included in the annual reports on Form 20-F for such years. With respect to 2017 and 2016, see “Presentation of Financial Information—Application of IFRS 9”.

(2)    Represents net interest income as a percentage of average total assets.

(3)    Represents profit as a percentage of average total assets.

(4)    Represents profit attributable to parent company for the year as a percentage of average shareholders’ funds for the year, excluding “Non-controlling interest”.

(5)    Represents impairment losses on loans and advances at amortized cost.

(6)     Represents the sum of impaired loans and advances to customers and impaired contingent liabilities to customers divided by the sum of loans and advances to customers and contingent liabilities to customers.

(7)    We include contingent liabilities in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired contingent liabilities should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with contingent liabilities (consisting mainly of financial guarantees provided to third-parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If impaired contingent liabilities were not included in the calculation of our NPA ratio, such ratio would be higher for the periods covered, amounting to approximately 4.1%, 4.8%, 5.3%, 5.9% and 6.4% as of December 31, 2018, 2017, 2016, 2015 and 2014, respectively.

(8)    Includes impaired loans and advances.

78


 

 

As of and for the Year Ended December 31,

 

2020

2019

2018

 

(In Millions of Euros, Except  Percentages)

Consolidated Balance Sheet Data

 

 

 

Total assets

736,176

697,737

675,675

Common stock

3,267

3,267

3,267

Financial assets at amortized cost

367,668

439,162

419,660

Financial liabilities at amortized cost - Customer deposits

342,661

384,219

375,970

Debt certificates

66,311

68,619

63,970

Non-controlling interest

5,471

6,201

5,764

Total equity (net assets)

50,020

54,925

52,874

Consolidated ratios

 

 

 

Net interest margin (1)

2.30%

2.62%

2.58%

Return on average total assets (2)

0.5%

0.8%

0.9%

Return on average shareholders’ funds (3)

6.9%

9.9%

11.7%

Equity to assets ratio (4)

6.8%

7.9%

7.8%

Credit quality data

 

 

 

Loan loss reserve  (5)

12,141

12,427

12,217

Loan loss reserve as a percentage of financial assets at amortized cost

3.30%

2.83%

2.91%

Non-performing asset ratio (NPA ratio) (6) (7)

4.11%

3.79%

3.94%

Impaired loans and advances to customers

14,672

15,954

16,349

Impaired loan commitments and guarantees to customers (7)

767

731

740

 

15,439

16,685

17,089

Loans and advances to customers at amortized cost (8)

323,252

394,763

386,225

Loan commitments and guarantees to customers

52,204

45,952

47,575

 

375,456

440,715

433,800

(1)  Represents net interest income as a percentage of average total assets.

(2)  Represents profit as a percentage of average total assets. In order to calculate “Return on average total assets” for the year ended December 31, 2020, the net capital gain from the bancassurance transaction with Allianz (€304 million) and the goodwill impairment in the United States cash-generating unit (CGU) (€2,084 million) have been excluded from profit. In order to calculate “Return on average total assets” for the year ended December 31, 2019, the goodwill impairment in the United States CGU (€1,318 million) has been excluded from profit. If such exclusions had not been made, “Return on average total assets” for the years ended December 31, 2020 and 2019 amounted to 0.3% and 0.6%, respectively. For additional information on the bancassurance transaction with Allianz, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2020—Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.”. For additional information on the goodwill impairment in the United States CGU, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Goodwill in consolidation”. 

(3)  Represents profit for the year as a percentage of average shareholders’ funds for the year. In order to calculate “Return on average shareholders’ funds” for the year ended December 31, 2020, the net capital gain from the bancassurance transaction with Allianz (€304 million) and the goodwill impairment in the United States CGU (€2,084 million) have been excluded from profit. In order to calculate “Return on average shareholders’ funds” for the year ended December 31, 2019, the goodwill impairment in the United States CGU (€1,318 million) has been excluded from profit. If such exclusions had not been made, “Return on average shareholders’ funds” for the years ended December 31, 2020 and 2019 amounted to 2.9% and 7.2%, respectively.

(4)  Represents average total equity (net assets) over average total assets.

(5)  Represents loss allowance on loans and advances at amortized cost.

(6)  Represents the sum of impaired loans and advances to customers and impaired loan commitments and guarantees to customers divided by the sum of loans and advances to customers and loan commitments and guarantees to customers.

(7)  We include loan commitments and guarantees to customers in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired loan commitments and guarantees to customers should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with loan commitments and guarantees to customers (consisting mainly of financial guarantees provided to third parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If impaired loan commitments and guarantees to customers were not included in the calculation of our NPA ratio, such ratio would be higher for the periods covered, amounting to 3.91%, 3.62% and 3.77% as of December 31, 2020, 2019 and 2018, respectively.

(8)  Includes impaired loans and advances.

B.   Capitalization and Indebtedness

Not Applicable.

9


C.   Reasons for the Offer and Use of Proceeds

Not Applicable.

D.   Risk Factors

Macroeconomic RisksMACROECONOMIC RISKS AND COVID-19 CONSEQUENCES

EconomicThe COVID-19 pandemic is adversely affecting the Group

The COVID-19 (coronavirus) pandemic has affected, and is expected to continue to adversely affect, the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession. Among other challenges, these countries are experiencing widespread increases in unemployment levels and falls in production, while public debt has increased significantly due to support and spending measures implemented by government authorities. In addition, there has been an increase in debt defaults by both companies and individuals, volatility in the financial markets, volatility in exchange rates and falls in the value of assets and investments, all of which have adversely affected the Group’s results in 2020 and are expected to continue affecting the Group’s results in the future.

Furthermore, the Group has been and may be affected by the measures or recommendations adopted by regulatory authorities in the banking sector, including but not limited to, the recent reductions in reference interest rates, the relaxation of prudential requirements, the suspension of dividend payments, the adoption of moratorium measures for bank customers (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments) and guarantee by public entities of certain provisions of credit, especially to companies and self-employed individuals, as well as changes in the financial asset purchase programs. As of December 31, 2020, the majority of the amounts that had been deferred pursuant to the mandatory COVID-19 moratoria will be due by the end of the first half of 2021, a period during which economic conditions will likely continue to be challenging.

Since the outbreak of COVID-19, the Group has experienced a decline in its activity. For example, the granting of new loans to individuals has significantly decreased since the beginning of the state of emergency or periods of confinement decreed in certain countries in which the Group operates. In addition, the Group faces various risks, such as an increased risk of deterioration in the value of its assets (including financial instruments valued at fair value, which may suffer significant fluctuations) and of the securities held for liquidity reasons, a possible significant increase in non-performing loans and risk-weighted assets and a negative impact on the Group’s cost of financing and on its access to financing (especially in an environment where credit ratings are affected). As of December 31, 2020, an estimated approximately 9% of the Group’s exposure at default (defined as the amount of risk exposure upon default by counterparties, considering the Group’s loans and advances at amortized cost) related to borrowers in certain industries facing particularly challenging conditions as a result of the COVID 19 pandemic, specifically leisure, real estate developers, non-food retailers, upstream and oilfield services and air and marine transportation.

In addition, in several of the countries in which the Group operates, including Spain, the Group temporarily closed a significant number of its offices and reduced the hours of working with the public, and the teams that provide central services have had to work remotely. While these measures were progressively reversed in most regions, additional restrictions on mobility could be adopted that affect the Group’s operations. The COVID-19 pandemic could also adversely affect the business and operations of third parties that provide critical services to the Group and, in particular, the greater demand and/or reduced availability of certain resources could in some cases make it more difficult for the Group to maintain the required service levels. Furthermore, the increase in remote working has increased the risks related to cybersecurity, as the use of non-corporate networks has increased.

The COVID-19 pandemic has had an adverse effect on the Group’s results for the year ended December 31, 2020 as well as on the Group’s capital base as of December 31, 2020. For information on the impact of the COVID-19 pandemic on the Group, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements.

10


The COVID-19 pandemic has also exacerbated, and is likely to continue to exacerbate, other risks disclosed in this section, including but not limited to risks associated with the credit quality of the Group’s borrowers and counterparties or collateral, any withdrawal of ECB funding (of which the Group has made and continues to make significant use), the Group’s exposure to sovereign debt and rating downgrades, the Group’s ability to comply with its regulatory requirements, including MREL (as defined herein) and other capital requirements, and the deterioration of economic conditions or changes in the institutional environment.

The final magnitude of the impact of the COVID-19 pandemic on the Group’s business, financial condition and results of operations, which is expected to be significant, will depend on future and uncertain events, including the intensity and persistence over time of the consequences arising from the COVID-19 pandemic in the different geographies in which the Group operates.

A deterioration in economic conditions or the institutional environment in the countries where the Group operates could have a material adverse effect on the Group’s business, financial condition and results of operationsoperations.

DespiteThe Group is sensitive to the sustained recent growth of the global economy, uncertainty remains. The deterioration of economic conditions inor the alteration of the institutional environment of the countries wherein which it operates, and especially Spain, Mexico, the United States and Turkey, which respectively represented 55.1%, 15.0%, 12.8% and 8.1% of the Group's assets as of December 31, 2020 (52.3%, 15.6%, 12.7% and 9.2% as of December 31, 2019, respectively). Additionally, the Group is exposed to sovereign debt, particularly sovereign debt related to these geographies. Please see “Item 5. Operating and Financial Review and Prospects—Operating Results—Operating Environment” for summarized information on some of the challenges that these countries are currently facing and that, therefore, could significantly affect the Group.

Currently, the world economy is facing several exceptional challenges. In particular, the crisis derived from the COVID-19 pandemic has abruptly and significantly deteriorated the economic conditions of the countries in which the Group operates, leading many of them to an economic recession in 2020. Furthermore, this crisis could adversely affectlead to a deglobalization of the costworld economy, produce an increase in protectionism or barriers to immigration, fuel the trade war between the United States and availabilityChina and result in a general withdrawal of funding forinternational trade in goods and services, as well as having other effects of long duration that transcend the pandemic itself. Added to this is the uncertainty regarding the United Kingdom’s (the “UK”) exit from the EU (“Brexit”). The long-term effects of Brexit will depend on the relationship between the UK and the EU after its complete exit from the European Single Market, which took place last December 31, 2020. Furthermore, in a scenario as uncertain as the current one, emerging economies (to which the Group is significantly exposed, particularly in the qualitycase of Mexico and Turkey) could be particularly vulnerable to a trade war or if there were changes in the Group’s loan and investment securities portfolios and levelsfinancial risk appetite. Likewise, the possible triggering of deposits and profitability, which may also requirea disorderly deleveraging process in China would pose a significant risk to these economies.

Thus, the Group to take impairments on its exposures or otherwise adversely affect the Group’s business, financial condition and results of operations. In addition, the process the Group uses to estimate losses inherent in its credit exposure requires complex judgments, including forecasts of economic conditions and how these economic conditions might impair the ability of its borrowers to repay their loans.

8


The degree of uncertainty concerning economic conditions may adversely affect the accuracy of the Group’s estimates, which may, in turn, affect the reliability of the process to determine and the sufficiency of the Group’s loan loss provisions.

The Group faces, among others, the following general risks to the economic risks:

·weakand institutional environment in which it operates: a deterioration in economic growth or recessionactivity in the countries in which it operates, which could lead to further economic recession in some or all of those countries; more intense deflationary pressures or even deflation; variations in exchange rates; a very low interest rate environment, or even a long period of negative interest rates in some regions where itthe Group operates;

· an unfavorable evolution of the real estate market, to which the Group remains significantly exposed; very low oil prices; changes in the institutional environment in the countries where it operates could evolve into sudden and intense economic downturns and/or regulatory changes;

·a global trade war triggered by increasing tariffs and non-tariff barriers between the main economic blocks. The increase in trade barriers might adversely affect global trade flows both directly and indirectly, through the increase in financial volatility and the decrease in confidence levels of businesses and households, which could trigger an intense global economic slowdown or even a recession;

·deflation, mainly in Europe, or significant inflation, such as the significant inflation recently experienced by Venezuelaand Argentina and, to a lesser extent, Turkey;

·changes in foreign exchange rates resulting in changes in the reported earnings of the Group’s subsidiaries, particularly in Venezuela and Argentina, together with the relevant impact on profits, assets (including risk-weighted assets) and liabilities;

·a lower interest rate environment, or even a prolonged period of negative interest rates in some areas where the Group operates, which could lead to decreased lending margins and lower returns on assets;

·a higher interest rate environment, including as a result of an increase in interest rates by the Federal Reserve or any further tightening of monetary policies, including to address potential inflationary pressures and currency devaluations in Latin America, which could endanger economic growth and make it more difficult for customers of the Group’s mortgage and consumer loan products to service their debts;

·adverse developments in the real estate market, especially in Spain, Mexico, the United States and Turkey, given the Group’s exposures to such markets;

·poor employment growth and structural challenges restricting employment growth, such as in Spain, where unemployment has remained relatively high, which may negatively affect household income levels of the Group’s retail customers and may adversely affect the recoverability of the Group’s retail loans, resulting in increased loan loss provisions;

·substantially lower oil prices, which could particularly affect producing areas, such as Venezuela, Mexico, Texas or Colombia, to which the Group is materially exposed or, conversely, substantially higher oil prices, which could have a negative impact on disposable income levels in oil consuming areas, such as Spain or Turkey, where the Group is also materially exposed;

·changes in laws, regulations and policies as a result of election processes in the different geographies in which the Group operates that could lead to sudden and sharp falls in GDP and/or regulatory changes; a growing public deficit that could lead to downgrades in sovereign debt credit ratings and even a possible default or restructuring of such debt; and episodes of volatility in markets, such as those currently being experienced, which may negativelycould lead the Group to register significant losses.

BUSINESS RISKS

The Group’s businesses are subject to inherent risks concerning borrower and counterparty credit quality, which have affected and are expected to continue to affect the recoverability and value of assets on the Group’s business or customers in those geographies and other geographies in whichbalance sheet

The total maximum credit risk exposure of the Group operates;

·as of December 31, 2020 was €749,524 million (€809,786 million and €763,082 million as of December 31, 2019 and 2018, respectively). The Group has exposures to many different products, counterparties and obligors and the potential exit by an EU Member State fromcredit quality of its exposures can have a significant effect on the European Monetary Union, which couldGroup’s earnings. Adverse changes in the credit quality of the Group’s borrowers and counterparties or collateral, or in their behavior or businesses, may reduce the value of the Group’s assets, and materially adversely affectincrease the EuropeanGroup’s write-downs and global economy, cause a redenomination of financial instruments or other contractual obligations from the euro to a different currency and substantially disrupt capital, interbank, banking and other markets, among other effects;loss allowances. Credit risk can be affected

·the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union; and

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by a range of factors, including an adverse economic environment, reduced consumer, corporate or government spending, changes in the rating of individual contractual counterparties, their debt levels and the environment in which they operate, increased unemployment, reduced asset values, increased retail or corporate insolvency levels, reduced corporate profits, changes (and the timing, quantum and pace of these changes) in interest rates, counterparty challenges to the interpretation or validity of contractual arrangements or provisions and legal and regulatory developments.

Non-performing or impaired customer loans have been adversely affecting, and are expected to continue to adversely affect, the Group's results given the increasing economic uncertainty. As of December 31, 2020, the Group had a 4.0% NPL ratio (as defined in the Glossary to our Consolidated Financial Statements) compared to 3.8% and 3.9% as of December 31, 2019 and 2018, respectively. Prior to the COVID-19 pandemic, NPL ratios progressively improved due in part to the low interest rates, which improved clients' ability to pay. However, NPLs are expected to significantly increase once payment moratoria schemes adopted by governments are lifted due to the effects of the COVID-19 pandemic.

In addition, it is possible that the current scenario of economic deterioration results in a decrease in the prices of real estate assets in Spain and other countries (in particular, Mexico, Turkey and the United States, given the Group’s exposure to these markets).

·As of December 31, 2020, the Group's exposure to the construction and real estate sectors (excluding the mortgage portfolio) in Spain was equivalent to €10,024 million, of which €2,565 million corresponded to loans for construction and development activities in Spain (representing 1.6% of the Group's loans and advances to customers in Spain (excluding the public sector) and 0.3% of the Group's consolidated assets). The Group continues to be exposed to the real estate market, mainly in Spain, due to the fact that many of its loans are secured by real estate assets, due to the significant volume of real estate assets that it maintains on its balance sheet, and due to its shareholding in real estate companies such as Metrovacesa, S.A. and Divarian Propiedad, S.A (“Divarianan eventual government”). The total real estate exposure (excluding the mortgage portfolio), including developer credit, foreclosed assets and other assets, reflected a coverage ratio of 53% in Spain as of December 31, 2020. A fall in the prices of real estate assets in Spain (or in other countries where the Group has significant real estate exposure such as Mexico) would reduce the value of the shareholdings referred to above, as well as the value of any real estate securing loans granted by the Group and, therefore, in the event of default, the amount of the “expected losses” related to such loans would increase. In addition, it could also have a significant adverse effect on the default rates of the Group's residential mortgage portfolio, the balance of which, as of December 31, 2020, was €103,923 million at a global level (€110,534 million and €111,526 million as of December 31, 2019 and 2018, respectively).

The magnitude, timing and pace of any increase in default rates will be key for the Group. Furthermore, it is possible that the Group has incorrectly assessed the creditworthiness or restructuringwillingness to pay of public debt,its borrowers and counterparties, that it has underestimated the credit risks and potential losses inherent in its credit exposure and that it has made insufficient provisions for such risks in a timely manner. These processes, which have a crucial impact on the Group's results and financial condition, require difficult, subjective and complex calculations, including forecasts of the impact that macroeconomic conditions could have on these borrowers and counterparties. In particular, the processes followed by the Group to estimate losses derived from its exposure to credit risk may prove to be inadequate or insufficient in the current environment of high economic uncertainty, which could affect the Group primarilyadequacy of the provisions for insolvencies provided by the Group. An increase in two ways: directly, through portfolio losses,non-performing or low-quality loans could significantly and indirectly, through instabilities that a defaultadversely affect the Group's business, financial condition and results of operations.

The Group’s business is particularly vulnerable to interest rates

The Group’s results of operations are substantially dependent upon the level of its net interest income, which is the difference between interest income from interest-earning assets and interest expense on or restructuringinterest-bearing liabilities. Interest rates are highly sensitive to many factors beyond the Group’s control, including fiscal and monetary policies of public debt could cause togovernments and central banks, regulation of the banking system as a whole, particularly since commercial banks’ exposure to government debt is generally highfinancial sector in several countriesthe markets in which it operates, domestic and international economic and political conditions and other factors. In this sense, the COVID-19 pandemic has triggered a process of cuts in reference interest rates, which, moreover, will likely take time to be raised and, if raised, interest rates will likely increase at a slower rate than previously foreseen. It is possible that changes in market interest rates, which could be negative in some cases, and the ongoing benchmark reform affect the Group’s interest-earning assets differently from the Group’s interest-bearing liabilities. This, in turn, may lead to a reduction in the Group's net interest margin, which could have a significant adverse effect on its results. Moreover, the ongoing benchmark reform exposes the Group operates.to other significant risks, including legal and operational risks.

For additional information relating12


Furthermore, if interest rates were to certain risks thatincrease in some or all of our markets, this could reduce the Group faces in Spain, see “—Sincedemand for credit and the Group’s loan portfolio is highly concentratedability to generate credit for its clients, as well as contribute to an increase in Spain, adverse changes affecting the Spanish economydefault rate.

As a result of the above, the evolution of interest rates could have a material adverse effect on itsthe Group’s business, financial condition or results of operations.

”. For additional information relating to certain risks that the Group faces in emerging market economies such as Latin America and Turkey, see “—The Group is exposed to risks related to the continued existence of certain reference rates and the transition to alternative reference rates

In recent years, international regulators have been driving a transition from the use of interbank offer rates (“IBORs”), including EURIBOR, LIBOR and EONIA, to alternative risk free rates (“RFRs”). This has resulted in regulatory reform and changes to existing IBORs, with further changes anticipated. These reforms and changes may cause an IBOR to perform differently than it has done in the past or to be discontinued. For example, in 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, and EONIA modified its methodology on October 2, 2019 and will likely be discontinued as from January 2022. In November 2019, the determination methodology for EURIBOR was changed to a new hybrid methodology using transaction-based data and other sources of data.

Uncertainty as to the nature and extent of such reforms and changes, and how they might affect financial instruments, may adversely affect the valuation or trading of a broad array of financial instruments that use IBORs, including any EURIBOR, EONIA or LIBOR-based securities, loans, deposits and derivatives that are issued by the Group or otherwise included in the Group’s financial assets and liabilities. Such uncertainty may also affect the availability and cost of hedging instruments and borrowings. The Group is particularly exposed to EURIBOR-based financial instruments.

It is not possible to predict the timing or full effect of the transition to RFRs. As a result of such transition, the Group will be required to adapt or amend documentation for new and the majority of existing financial instruments, and may be materially adversely affected by developmentssubject to disputes (including with customers of the Group) related thereto, either of which could have an adverse effect on the Group’s results of operations. The implementation of any alternative RFRs may be impossible or impracticable under the existing terms of certain financial instruments. Such transition could also result in pricing risks arising from how changes to reference rates could impact pricing mechanisms in some instruments, and could have an adverse effect on the value of, return on and trading market for such financial instruments and on the Group’s profitability. In addition, the transition to RFRs will require important operational changes to the Group’s systems and infrastructure as all systems will need to account for the changes in the emerging markets where it operates”. reference rates.

Any of the above risks couldthese factors may have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group faces increasing competition

The markets in which the Group operates are highly competitive and it is expected that this trend will continue in the coming years with the increasing entry of non-bank competitors (some of which have large client portfolios and strong brand recognition) and the emergence of new business models, as indicated by the Financial Stability Board’s report on FinTech and market structure in financial services. Although the Group is making efforts to anticipate these changes, betting on its digital transformation, its competitive position is affected by the regulatory asymmetry that benefits non-bank operators. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete with non-bank operators that are only subject to regulations specific to the activity they develop or that benefit from loopholes in the regulatory framework. Furthermore, when banking groups carry out financial activities through the use of new technologies, they are generally subject to additional internal governance rules that place such groups at a competitive disadvantage.

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Moreover, the widespread adoption of new technologies, including cryptocurrencies and payment systems, could require substantial investment to modify or adapt existing products and services as the Group continues to increase its mobile and internet banking capabilities. Likewise, the increasing use of these new technologies and mobile banking platforms could have an adverse impact on the Group's investments in facilities, equipment and employees of the branch network. A faster pace of transformation towards mobile and online banking models could require changes in the Group's commercial banking strategy, including the closure or sale of some branches and the restructuring of others, and reductions in employees. These changes could result in significant expenses as the Group reconfigures and transforms its commercial network. Failure to effectively implement such changes efficiently and on a timely basis could have a material adverse impact on the Group's competitive position or otherwise have a material adverse effect on the Group’s business, financial condition or results of operations.

The Group faces risks related to its acquisitions and divestitures

The Group has both acquired and sold various companies and businesses over the past few years. As of the date of this Annual Report, the closing of the sale of BBVA USA remains subject to obtaining the relevant regulatory authorizations. Other recent transactions include the sale of BBVA Paraguay, BBVA Chile and the Cerberus Transaction (as defined herein). For additional information, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures”.  

The Group may not complete any ongoing or future transactions in a timely manner, on a cost-effective basis or at all and, if completed, they may not obtain the expected results. In addition, if completed, the Group’s results of operations could be adversely affected by divestiture or acquisition-related charges and contingencies. The Group may be subject to litigation in connection with, or as a result of, divestitures or acquisitions, including claims from terminated employees, customers or third parties. In the case of an acquisition, the Group may be liable for potential or existing litigation and claims related to an acquired business, including because either the Group is not indemnified for such claims or the indemnification is insufficient. Further, in the case of a divestiture, the Group may be required to indemnify the buyer in respect of similar or other matters, including claims against the divested entity or business.

In the case of an acquisition, even though the Group reviews the companies it plans to acquire, it is often not possible for these reviews to be complete in all respects and there may be risks associated with unforeseen events or liabilities relating to the acquired assets or businesses that may not have been revealed or properly assessed during the due diligence processes, resulting in the Group assuming unforeseen liabilities or an acquisition not performing as expected. In addition, acquisitions are inherently risky because of the difficulties of integrating people, operations and technologies that may arise. There can be no assurance that any of the businesses the Group acquires can be successfully integrated or that they will perform well once integrated. Acquisitions may also lead to potential write-downs that adversely affect the Group’s results of operations.

Any of the foregoing may cause the Group to incur significant unexpected expenses, may divert significant resources and management attention from our other business concerns, or may otherwise have a material adverse impact on the Group’s business, financial condition and results of operations.

The Group faces risks derived from its international geographic diversification and its significant presence in emerging countries

The Group is made up of commercial banks, insurance companies and other financial services companies in various countries and its performance as a global business depends on its ability to manage its different businesses under various economic, social and political conditions, facing different normative and regulatory requirements in many of the jurisdictions in which it operates (including, among others, different supervisory regimes and different tax and legal regimes related to the repatriation of funds or the nationalization or expropriation of assets).

In addition, the Group's international operations may expose it to risks and challenges to which its local competitors may not be exposed, such as currency risk, the difficulty of managing or supervising a local entity from abroad, political risks (which could affect only foreign investors) or limitations on the distribution of dividends, thus worsening its position compared to that of local competitors.

14


There can be no guarantee that the Group will be successful in developing and implementing policies and strategies in all of the countries in which it operates, some of which have experienced significant economic, political and social volatility in recent decades. In particular, the Group has significant operations in several emerging countries, such as Mexico and Turkey, and is therefore vulnerable to the deterioration of these economies. Emerging markets are generally affected by the conditions of other commercially or financially related markets and by the evolution of global financial markets in general (they may be affected, for example, by the evolution of interest rates in the United States and the exchange rate of the U.S. dollar), as well as, in some cases, by fluctuations in the prices of commodities. The perception that the risks associated with investing in emerging economies have increased, in general, or in emerging markets where the Group operates, in particular, could reduce capital flows to those economies and adversely affect such economies, and therefore the Group. Moreover, emerging countries are more prone to experience significant changes in inflation and foreign exchange rates, which may have a material impact on the Group’s results of operations, assets (including RWAs (as defined herein)) and liabilities.

The Group's operations in emerging countries are also exposed to heightened political risks, such as changes in governmental policies, expropriation, nationalization, interest rate limits, exchange controls, government restrictions on dividends and adverse tax policies. For example, the repatriation of dividends from BBVA’s Venezuelan and Argentinean subsidiaries is subject to certain restrictions and there is no assurance that further restrictions will not be imposed.

If the Group failed to adopt effective and timely policies and strategies in response to the risks and challenges it faces in each of the regions where it operates, particularly in emerging countries, the Group’s business, financial condition and results of operations could be materially and adversely affected.

Since the Group’s loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on its financial condition

The Group has historically developedcarried out its lending businessactivity mainly in Spain, which continues to be one of its primary business areas, such that as of December 31, 2020, total risk in financial assets in Spain (calculated as set forth in item (c) of Appendix IX (Additional information on risk concentration) of our Consolidated Financial Statements) amounted to €236,016 million, equivalent to 42% of the main focuses ofGroup’s total risk in financial assets.The COVID-19 pandemic has had a significant impact on the Spanish economy and the sovereign fiscal position. Spanish GDP is estimated to have contracted around 11.0% in 2020, as the pandemic and the measures adopted to slow its business. After rapidspread brought about a sharp reduction in economic growth until 2007, Spanish gross domestic product (“GDP”) contractedactivity in the period 2009-10 and 2012-13. The effectsfirst half of the financial crisis were particularly pronouncedyear, which was among the most severe within the Eurozone. The sharp decline in Spaineconomic activity and measures adopted to support the economy have given its heightened need for foreign financingrise to concerns about public debt sustainability in the medium and long term. In addition, while increases in unemployment have been limited by the implementation of short-time work schemes (ERTEs), as reflected by its high current account deficit, resulting from the gap between domestic investment and savings, and its public deficit. The current account imbalance has been corrected and the public deficit isthese measures are withdrawn in a downward trend, with GDP growth above 3% in 2015, 2016 and 2017, falling to 2.5% in 2018, and2021, unemploymentfalling to 15.3% in 2018. While GDP growth is expected to remain positiverise. Further, while economic recovery is expected to be boosted by the implementation of EU-level initiatives, in particular the next years,financial support linked to the Next Generation EU (NGEU) plan, there is uncertainty regardingare risks as to the sustainabilitycapacity of external growth as well as doubts over Spain’s economic policy. Real or perceived difficulties in servicing public or private debt, triggered by foreign or domestic factors such as an increase in global financial risk or a decrease in the rate of domestic growth, could increase Spain’s financing costs, hindering economic growth, employmentSpanish economy to absorb the EU funds and households’ gross disposable income.

Thetranslate the support to productive investment. In addition, the Spanish economy is particularly sensitive to economic conditions in the Eurozone, the main export market for Spanish goods and services exports. Accordingly, adverse changesservices. The Group’s gross exposure of loans and advances to customers in Spain totaled €195,983 million as of December 31, 2020, representing 61% of the total amount of loans and advances to customers included on the Group’s consolidated balance sheet. Our Spanish business includes extensive operations in Catalonia, which represented 16% of the Group’s assets in Spain as of December 31, 2020 (18% as of December 31, 2019). While social and political tensions have generally declined since 2017, if such tensions were to increase, this could lead to scenarios of uncertainty, volatility in capital markets and a deterioration of economic and financing conditions in the Eurozone might have an adverse effect on Spanish economic growth. Spain.

Given the relevance of the Group’s loan portfolio in Spain, any adverse change affecting economic conditions in Spain could have a material adverse effect on our business, financial condition and results of operations.

15


FINANCIAL RISKS

The Group has a continuous demand for liquidity to finance its activities and the withdrawal of deposits or other sources of liquidity could significantly affect it

Traditionally, one of the Group's main sources of financing has been savings accounts and demand deposits. As of December 31, 2020, the balance of customer deposits represented 70% of the Group's total financial liabilities at amortized cost. However, the volume of wholesale and retail deposits can fluctuate significantly, including as a result of factors beyond the Group's control, such as general economic conditions, changes affectingin economic policy or administrative decisions that diminish their attractiveness as savings instruments (for example, as a consequence of changes in taxation, coverage by guarantee funds for deposits or expropriations) or competition from other savings or investment instruments (including deposits from other banks).

Likewise, changes in interest rates and credit spreads may significantly affect the cost of the Group’s short and long-term wholesale financing. Changes in credit spreads are driven by market factors and are also influenced by the market’s perception of the Group's solvency. As of December 31, 2020, debt securities issued by the Group represented 12.6% of the total financial liabilities at amortized cost of the Group.

In addition, the Group has made and continues to make significant use of public sources of liquidity, such as the European Central Bank's (ECB) extraordinary measures taken in response to the financial crisis since 2008 or those taken in connection with the crisis caused by the COVID-19 pandemic. The ECB announced in December 2020 the new conditions of Targeted Long Term Refinancing Operations (TLTRO) III, increasing the maximum amount that BBVA may receive from €35,000 million to €38,500 million and extending the enhanced conditions in terms of cost one additional year until June 2022. As of December 31, 2020, €35,032 million had been borrowed by BBVA (€7,000 million were drawn down as of each of December 2019 and March 2020, and €21,000 million as of June 2020). BBVA plans to take up an additional €3,500 million in March 2021 to reach its full allotment. However, the conditions of this or other programs could be revised or these programs could be cancelled.

In the event of a withdrawal of deposits or other sources of liquidity, especially if it is sudden or unexpected, the Group may not be able to finance its financial obligations or meet the minimum liquidity requirements that apply to it, and may be forced to incur higher financial costs, liquidate assets and take additional measures to reduce leverage. Furthermore, the Group could be subject to the adoption of early intervention measures or, ultimately, to the adoption of a resolution measure by the Relevant Spanish economyResolution Authority (see Item 4. Information on the Company—Business Overview—Supervision and Regulation—Principal Markets—Spain—Recovery and Resolution of Credit Institutions and Investment Firms). Any of the above could have a material adverse effect on the Group’s business, financial condition and results of operations.operations

We may be adversely affected by political events in CataloniaThe Group and some of its subsidiaries depend on their credit ratings and sovereign credit ratings

Our Spanish business includes extensive operationsRating agencies periodically review the Group's debt credit ratings. Any reduction, effective or anticipated, in Catalonia. Although actions carried out by the Spanish Government have helped diminish the level of uncertainty in the region resulting from its pro-independence movement, regional elections carried out in December 2017 resulted in pro-independence parties winning the majority of seats. Asany such ratings of the date of this Annual Report, there is still significant uncertainty regardingGroup, whether below investment grade or otherwise, could limit or impair the outcome of political and social tensions in Catalonia, which could result in volatileGroup's access to capital markets and other possible sources of liquidity and increase the Group’s financing conditionscost, and entail the breach or early termination of certain contracts or give rise to additional obligations under those contracts, such as the need to grant additional guarantees. The Group estimates that, if at December 31, 2020 rating agencieshad downgraded Banco Bilbao Vizcaya Argentaria, S.A.’s long-term senior debt rating by one notch, it would have had to provide additional guarantees/collateral amounting to €36.3 million under its derivative and other financial contracts. A hypothetical two-notch downgrade would have involved an outlay of €66.8 million in Spain or otherwise adverselyadditional guarantees/collateral. Furthermore, if the Group were required to cancel its derivative contracts with some of its counterparties and were unable to replace them, its market risk would worsen. Likewise, a reduction in the credit rating could affect the environmentGroup's ability to sell or market some of its products or to participate in which we operate in Cataloniacertain transactions, and could lead to the restloss of Spain, any of which could have an adverse effect on our business, liquidity, financial conditioncustomer deposits and results of operations.

10


Any decline in the Kingdom of Spain’s sovereign credit ratings could adversely affect the Group’s business, financial condition and results of operations

Since the Bank is a Spanish companymake third parties less willing to carry out commercial transactions with substantial operations in Spain, its credit ratings may be adversely affected by the assessment by rating agencies of the creditworthiness of the Kingdom of Spain. As a result, any decline in the Kingdom of Spain’s sovereign credit ratings could result in a decline in the Bank’s credit ratings. In addition, the Group holds(especially those that require a substantial amount of securities issued byminimum credit rating), having a significant adverse impact on the Kingdom of Spain, autonomous communities within Spain and other Spanish issuers. Any decline in the Kingdom of Spain’s credit ratings could adversely affect the value of the Kingdom of Spain’s and other public or private Spanish issuers’ respective securities held by the Group in its various portfolios or otherwise materially adversely affect the Group’s business, financial condition and results of operations. Furthermore, the counterparties to many of the Group’s loan agreements could be similarly affected by any decline in the Kingdom of Spain’s credit ratings, which could limit their ability to raise additional capital or otherwise adversely affect their ability to repay their outstanding commitments to the Group and, in turn, materially and adversely affect the Group’sGroup's business, financial condition and results of operations.

The Group may be materially adversely affected by developments in the emerging markets where it operates

The economies of some of the emerging markets where the Group operates, mainly Latin America and Turkey, experienced significant volatility in recent decades, characterized, in some cases, by slow or declining growth, declining investment, volatile interest rates, volatile currency values, hyperinflation and political tension.

Emerging markets are generally subject to greater risks than more developed markets. For example, there is typically a greater risk of loss in operating in emerging markets from unfavorable political and economic developments, both global and domestic, social and geopolitical instability, changes in economic policies (such as monetary, fiscal and macroprudential policies) or governmental decisions, including expropriation, nationalization, international ownership legislation, interest-rate caps, restrictions on business practices such as on commissions that can be charged, currency and exchange controls and tax policies and political unrest. In particular, Argentina, where the Bank operates through BBVA Banco Francés S.A. (“BBVA Banco Francés”), and Turkey, where the Bank operates through Garanti, have recently experienced significant exchange rate volatility (for example, the Argentine peso lost a significant portion of its value against the U.S. dollar during the course of 2018), rapidly-increasing interest rates and deteriorating economic conditions, adversely affecting our operations in such countries and the value of the related assets and liabilities when translated into euros.

In addition, emerging markets are affected by conditions in other related markets and in global financial markets generally (such as U.S. interest rates and the U.S. dollar exchange rate) and some are particularly affected by commodities price fluctuations, which in turn may affect financial market conditions through exchange rate fluctuations, interest rate volatility and deposits volatility. Despite sustained global economic growth, there are increasing risks of deterioration that might be triggered by a full-blown trade war, geopolitical events or changes in financial risk appetite. If global economic conditions deteriorate, the business, financial condition, operating results and cash flows of the Bank’s subsidiaries in emerging economies, mainly in Latin America and Turkey, may be materially adversely affected. Hyperinflation in Argentina had a negative impact of €266 million in the “Profit attributable to parent company” for 2018. For additional information, see Note 2.2.20 to the Consolidated Financial Statements.

Furthermore, financial turmoil in any particular emerging market could negatively affect other emerging markets or the global economy in general. Financial turmoil in a particular emerging market tends to adversely affect exchange rates, stock prices and debt securities prices of other emerging markets as investors move their money to more stable and developed markets, and may reduce liquidity to companies located in the affected markets. An increase in the perceived risks associated with investing in emerging economies in general, or the emerging markets where the Group operates in particular, could dampen capital flows to such economies and adversely affect such economies.

In addition, any changes in laws, regulations and policies pursued by the U.S. Government may adversely affect the emerging markets in which the Group operates, particularly Mexico due to the trade and other ties between Mexico and the United States. See “—Our business could be adversely affected by global political developments, particularly with regard to U.S. policies that affect Mexico

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If economic conditionsFurthermore, the Group's credit ratings could be affected by variations in sovereign credit ratings, particularly the rating of Spanish sovereign debt. The Group holds a significant portfolio of debt issued by the Kingdom of Spain, by the Spanish autonomous communities and by other Spanish issuers. As of December 31, 2020, the Group's exposure to the Kingdom of Spain's public debt portfolio was €46,401 million, representing 6% of the consolidated total assets of the Group. Any decrease in the emerging market economies wherecredit rating of the Kingdom of Spain could adversely affect the valuation of the respective debt portfolios held by the Group operates deteriorate,and lead to a reduction in the Group’s business, financial conditionGroup's credit ratings. Additionally, counterparties to many of the credit agreements signed with the Group could also be affected by a decrease in the credit rating of the Kingdom of Spain, which could limit their ability to attract additional resources or otherwise affect their ability to pay their outstanding obligations to the Group.

As a consequence of the COVID-19 pandemic, some rating agencies have reviewed the Group's credit ratings or trends. Specifically, on June 22, 2020 Fitch announced the modification of BBVA’s senior preferred debt long-term rating to A- with stable outlook from A with Rating Watch Negative. On April 1, 2020, DBRS confirmed BBVA’s long-term rating of A (High) and resultsmaintained the outlook as stable. On April 29, 2020 S&P confirmed BBVA's long-term rating of operations could be materially adversely affected.

WeA- and maintained its negative outlook. There may be adversely affected by the United Kingdom’s planned exit from the European Union

In a referendum heldmore ratings actions and changes in BBVA’s credit ratings in the United Kingdom on June 23, 2016, a majority of those voting voted for the United Kingdom to leave the European Union (referred to as “Brexit”). On March 29, 2017, the United Kingdom gave formal notice under Article 50 of the Treaty on European Union officially notifying the European Union of its decision to withdraw from the European Union, which began a statutory two-year period during which officials from the United Kingdom and the European Union have been negotiating the terms of the United Kingdom’s withdrawal from, and future relationship with, the European Union. No agreement has yet been reached and approved by the relevant parties as of the date of this Annual Report. Extensions of this period must be approved unanimously by all member states of the European Union. If no agreement is reached and approved by March 29, 2019, and no extension is agreed, the United Kingdom would automatically leave the European Union and EU laws and regulations would cease to apply to the United Kingdom on such date unless the United Kingdom revokes its formal notice under Article 50 of the Treaty on European Union.

As of the date of this Annual Report, the United Kingdom remains a member of the European Union. However, Brexit has already affected and could continue to adversely affect European and/or worldwide economic and market conditions and could continue to contribute to instability in the global financial markets. The long-term effects of Brexit will depend in part on whether the UK Parliament approves an agreement negotiated with the Council of the European Union, whether the United Kingdom leaves the European Union with no agreement in place (referred to as a “hard Brexit”), or whether the United Kingdom ultimately remains a member of the European Economic Area or the European Union, as a result of a second referendum, new UK elections or otherwise.

The Group currently maintains a branch in the United Kingdom, had 126 employees incrisis caused by the United Kingdom asCOVID-19 pandemic, any of December 31, 2018, has significant cross-border outstandings with the United Kingdom, primarily with banks and other financial institutions, as well as sovereign risk exposure of €51 million as of December 31, 2018, and has a 39.06% stake in the UK digital bank Atom Bank plc. In addition to its effects on the European and global economy and financial markets, Brexit, and in particular a hard Brexit, could impair or otherwise limit our ability to transact business in the United Kingdom or elsewhere. In addition, we expect that Brexit could lead to legal uncertainty and potentially divergent national laws and regulations as the United Kingdom determines which European Union laws to replicate or replace. If the United Kingdom were to significantly alter its regulations affecting the banking industry, we could face significant new costs and compliance difficulties as it may be time-consuming and expensive for us to alter our internal operations in order to comply with new regulations. In addition, we may face challenges in the recruitment and mobility of employees as well as adverse effects from fluctuations in the value of the pound sterling that may directly or indirectly affect the value of any assets of the Group, including those assets, and their respective risk-weighted assets, denominated in such currency. Moreover, it is possible that Brexit, particularly a hard Brexit, could cause a recession in the United Kingdom as well as in the European Union, including in Spain. Due to the ongoing political uncertainty as regards the terms of the United Kingdom’s possible withdrawal from the European Union and their future relationship, the precise impact on the business of the Group is difficult to determine. Any of the above or other effects of Brexit could have a material adverse effect on the Group’s business, financial condition and results of operations.operations.

Our business could be adversely affected by global political developments, particularly with regardThe Group's ability to U.S. policies that affect Mexicopay dividends depends, in part, on the receipt of dividends from its subsidiaries

ChangesSome of the Group’s operations are conducted through BBVA’s subsidiaries. As a result, BBVA’s results (and its ability to pay dividends) depend in economic, political and regulatory conditions in the United States or in U.S. laws and policies governing foreign trade and foreign relations could create uncertainty in the international markets and could have a negative impactpart on the Mexican economyability of its subsidiaries to generate earnings and public finances. This correlation is due,to pay dividends to BBVA. Due, in part, to the high levelGroup's decision to follow a 'Multiple Point of economic activity betweenEntry' strategy, in accordance with the two countries generally, includingframework for the trade facilitatedresolution of financial entities designed by the North American Free Trade AgreementFinancial Stability Board (FSB), the Group’s subsidiaries are self-sufficient and each subsidiary is responsible for managing its own capital and liquidity. This means that the payment of dividends, distributions and advances by the Group’s subsidiaries to BBVA depends not only on the results of those subsidiaries, but also on the context of their operations and liquidity needs, and may be further limited by legal, regulatory and contractual restrictions. For example, in response to the crisis caused by the COVID-19 pandemic, certain restrictions were adopted that affect the distribution and/or repatriation of dividends of some of the Group's subsidiaries. There is no assurance that these restrictions will not remain in effect or, where lifted, reinstated, or that similar or new restrictions will not be imposed in the future. Furthermore, the Group's right, as a shareholder, to participate in the distribution of assets resulting from the eventual liquidation or any reorganization of its subsidiaries will be effectively subordinated to the rights of the creditors of those subsidiaries, including their commercial creditors.

In addition, the Group (including the Bank) must comply with certain capital requirements, where non-compliance could lead to the imposition of restrictions or prohibitions on making any: (i) distributions relating to common equity tier (“CET1”) capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to additional tier 1 (“NAFTAAT1”), instruments (collectively, “discretionary payments”). Likewise, the ability of the Bank and its subsidiaries to pay dividends is conditioned by the recommendations and requirements of their respective supervisors, such as wellthose made in response to the COVID-19 pandemic. In this regard, on April 30, 2020, the Bank announced that it had agreed to modify, for the financial year 2020, the Group's shareholder remuneration policy, opting not to pay any amount as duea dividend corresponding to their physical proximity.the financial year 2020 until the uncertainties generated by the COVID-19 pandemic dissipate and, in any case, not before the close of the 2020 fiscal year. While, on January 29, 2021, in line with the latest recommendation of the ECB, the Bank announced its intention to distribute 0.059 euros per share in respect of 2020 profit and to reinstate during 2021 its dividend policy announced in 2017 once any recommendation is repealed and there are no additional restrictions or limitations, no assurance can be given that further supervisory restrictions or recommendations will not restrict our or our subsidiaries’ ability to distribute dividends in the future (see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”). 

Any dividends of BBVA or any of its subsidiaries may be subject to further regulatory restrictions or recommendations, or current restrictions or recommendations could be in place for a longer or indefinite period.

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Following the U.S. elections in November 2016 and the change in the U.S. administration for the four-year period from 2017 to 2020, there is uncertainty regarding future U.S. policies with respect to matters of importance to Mexico and its economy, including trade and immigration. In particular, since August 16, 2017, the U.S. administration has been renegotiating the terms of NAFTA with its Mexican and Canadian counterparts, and on November 30, 2018 the United States, Mexico and Canada signed the United States-Mexico-Canada Agreement (the “USMCA”). While the United States, Mexico and Canada have agreed the terms of USMCA, NAFTA currently remains in effect. In the United States, USMCA can come into effect only following the completion of the procedures required by the U.S. Trade Promotion Authority, including a Congressional vote on an implementing bill. USMCA will also need to be approved by the legislatures of Canada and Mexico. As such, there remains significant uncertainty as to whether USMCA will be ratified in its current form, or at all.

Because the Mexican economy is heavily influenced by the U.S. economy, the re-negotiation or termination of NAFTA and/or the adoption of USMCA or other U.S. government policies may adversely affect economic conditions in Mexico. Any decision taken by the U.S. administration that has an impact on the Mexican economy, such as by reducing the levels of remittances, reducing commercial activity among the two countries or slowing direct foreign investment in Mexico, could adversely affect the Group’s business, financial condition and results of operations.

U.S. immigration policies could also affect trade and other relations between Mexico and the United States and have other consequences for Mexican government policies. These factors could have an impact on Mexico’s GDP growth, the exchange rate between the U.S. dollar or euro and the Mexican peso, levels of foreign direct investment and portfolio investment in Mexico, interest rates, inflation and the Mexican economy generally, which in turn, may have an impact on the Group’s business, financial condition and results of operations.

The Group’s earnings and financial condition have been, and its future earnings and financial condition may continue to be, materially affected by asset impairment

Regulatory, business, economic or political changes and other factors could lead to asset impairment. SevereIn recent years, severe market events such as the past sovereign debt crisis, rising risk premiums and falls in share market prices, have resulted in the Group recording large write-downs on its credit market exposuresexposures. Doubts regarding the asset quality of European banks has also affected their evolution in the market in recent years.

Several ongoing factors could further depress the valuation of our assets or otherwise lead to the impairment of such assets (including goodwill and deferred tax assets). Current political processes such asThis includes the implementation ofCOVID-19 crisis, Brexit, which may result in the United Kingdom leaving the European Union, the surge of populist trends in several European countries, increased trade tensions orand potential changes in U.S. economic policies implemented by the new U.S. administration, any of which could increase global financial volatility and lead to the reallocation of assets. Doubts regarding the asset quality of European banks also affected their evolution in the market in recent years. In addition, uncertainty about China’s growth expectations and its policymaking capability to address certain severe challenges has contributed to the deterioration of the valuation of global assets and further increased volatility in the global financial markets. Additionally,

In particular, the final impact of the COVID-19 crisis on the valuation of the Group’s assets is still unknown. Since the outbreak of the crisis in dislocated markets, hedgingthe first quarter of 2020, public support measures have been introduced in the countries where the Group operates, most of which have been in the form of public guarantees on new loans to corporates and other risk management strategies may not beSMEs and moratoria and payment holidays on certain household loans. Once these measures come to an end, it is possible that the Group will need to record significant loan-loss provisions as effective as they area result of the deterioration in more normal market conditions due in part to the decreasing credit quality of hedge counterparties.our clients, especially SMEs. Any deterioration in economic and financial market conditionssuch provisions could lead to further impairment charges and write-downs. In addition, the Group may be required to derecognize deferred tax assets if it believes it is unable to use them over the period for which the deferred tax assets remain deductible.

Exposure to the real estate market makes the Group vulnerable to developments in this market

While the Group has recently taken several steps to reduce its exposure to the real estate market in Spain (see “Item 4. Information on the Company—Business Overview—Operating Segments—Non Core Real Estate”), it continues to be exposed to the real estate market due to the fact that real estate assets secure many of its outstanding loans and due to the significant amount of real estate assets held on its balance sheet and its stakes in real estate companies such as Metrovacesa, S.A. and Divarian Propiedad, S.A. Any deterioration of real estate prices could materially and adversely affect the Group’s business, financial condition and results of operations.

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Legal, Regulatory and Compliance Risks

In addition to the risk factors set forth below, see “Liquidity and Financial RisksImplementation of internationally accepted liquidity ratios might require changes in business practices that affect the profitability of the Bank’s business activities.

The Group is subject to substantial regulation and regulatory and governmental oversight. Changes in the regulatory framework could have a material adverse effect on its business, results of operations and financial condition

The financial services industry is among the most highly regulated industries in the world. In response to the global financial crisis and the European sovereign debt crisis, governments, regulatory authorities and others have made and continue to make proposals to reform the regulatory framework for the financial services industry to enhance its resilience against future crises. Legislation has already been enacted and regulations issued as a consequence of some of these proposals. The regulatory framework for financial institutions is likely to undergo further significant change.This creates significant uncertainty for the Group and the financial industry in general. The wide range of recent actions or current proposals includes, among other things, provisions for more stringent regulatory capital and liquidity standards, restrictions on compensation practices, special bank levies and financial transaction taxes, recovery and resolution powers to intervene in a crisis including “bail-in” of creditors, separation of certain businesses from deposit taking, stress testing and capital planning regimes, heightened reporting requirements and reforms of derivatives, other financial instruments, investment products and market infrastructures.

In addition, the supervisory framework has been intensified, in conjunction with the increased emphasis on the regulatory framework, such that the new institutional structure in Europe for supervision, with the creation of the single supervisory mechanism (the “SSM”), and for resolution, with the single resolution mechanism (the “SRM”), is changing the regulatory and supervisory framework (see “Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations”). The specific effects of a number of new laws and regulations remain uncertain because the drafting and implementation of these laws and regulations are still ongoing. In addition, since some of these laws and regulations have been recently adopted, the manner in which they are applied to the operations of financial institutions is still evolving. No assurance can be given that laws or regulations will be enforced or interpreted in a manner that will not have a material adverse effect on the Group’s business, financial condition and results of operations

The Group has a substantial amount of commitments with personnel considered wholly unfunded due to the absence of qualifying plan assets

The Group’s commitments with personnel which are considered to be wholly unfunded are recognized under the heading “Provisions—Provisions for pensions and cash flows.similar obligations” in its consolidated balance sheets included in the Consolidated Financial Statements. See Note 24 to the Consolidated Financial Statements.

The Group faces liquidity risk in connection with its ability to make payments on its unfunded commitments with personnel, which it seeks to mitigate, with respect to post-employment benefits, by maintaining insurance contracts which were contracted with insurance companies owned by the Group. The insurance companies have recorded in their balance sheets specific assets (fixed interest deposit and bonds) assigned to the funding of these commitments. The insurance companies also manage derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. The Group seeks to mitigate liquidity risk with respect to early retirements and post-employment welfare benefits through oversight by the Assets and Liabilities Committee (“ALCO”) of the Group. The Group’s ALCO manages a specific asset portfolio to mitigate the liquidity risk resulting from the payments of these commitments. These assets are government and covered bonds which are issued at fixed interest rates with maturities matching the aforementioned commitments. The Group’s ALCO also manages derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. Should BBVA fail to adequately manage liquidity risk and interest rate risk either as described above or otherwise, it could have a material adverse effect on the Group’s business, financial condition and results of operations.

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LEGAL RISKS

The Group is party to a number of legal and regulatory actions and proceedings

The financial sector faces an environment of increasing regulatory and litigation pressure. The Group is party to government procedures and investigations, such as those carried out by the antitrust authorities which, among other things, have in the past and could in the future result in sanctions, as well as lead to claims by customers and others. The various Group entities are also frequently party to individual or collective judicial proceedings (including class actions) resulting from their activity and operations, as well as arbitration proceedings. For example, in April 2017, the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) launched an antitrust investigation relating to alleged monopolistic practices of certain financial institutions, including BBVA’s subsidiary BBVA Bancomer, S.A. (“BBVA Mexico”) in connection with transactions in Mexican government bonds. The Mexican Banking and Securities Exchange Commission (Comisión Nacional Bancaria y de Valores) also initiated a separate investigation regarding this matter. These investigations resulted in certain fines, insignificant in amount, being initially imposed, certain of which BBVA Mexico has challenged. In March 2018, BBVA Mexico and certain other affiliates of the Group were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York, alleging that the defendant banks and their named subsidiaries engaged in collusion with respect to the purchase and sale of Mexican government bonds. In December 2019, following a decision from the judge assigned to hear the proceedings, plaintiffs withdrew their claims against BBVA Mexico’s affiliates. In November 2020, the judge granted the remaining defendants’ motion to dismiss for lack of personal, which the plaintiffs may appeal. More generally, in recent years, regulators have increased their supervisory focus on consumer protection and corporate behavior, which has resulted in a larger number of regulatory actions.

In Spain and in other jurisdictions where the Group operates, legal and regulatory actions and proceedings against financial institutions, prompted in part by certain recent national and supranational rulings in favor of consumers (with regards to matters such as credit cards and mortgage loans), have increased significantly in recent years and this trend could continue in the future. The legal and regulatory actions and proceedings faced by other financial institutions in relation to these and other matters, especially if such actions or proceedings result in favorable resolutions for the consumer, could also adversely affect the Group.

All of the above may result in a significant increase in operating and compliance costs and/or a reduction in revenues, and it is possible that an adverse outcome in any proceedings (depending on the amount thereof, the penalties imposed or the resulting procedural or management costs for the Group) could materially and adversely affect the Group, including by damaging its reputation.

It is difficult to predict the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and those that may arise in the future, including actions and proceedings relating to former Group subsidiaries or in respect of which the Group may have indemnification obligations. Any of such outcomes could be significantly adverse to the Group. In addition, a decision in any matter, whether against the Group or against another credit entity facing similar claims as those faced by the Group, could give rise to other claims against the Group. In addition, these actions and proceedings draw resources away from the Group and may require significant attention on the part of the Group's management and employees.

As of December 31, 2020, the Group had €612 million in provisions for the proceedings it is facing (which are included in the line item "Provisions for taxes and other legal contingencies" in the consolidated balance sheet), of which €574 million corresponded to legal contingencies and €38 million corresponded to tax related contingencies. However, the uncertainty arising from these proceedings (including those for which no provisions have been made, either because it is not possible to estimate any such provisions or for other reasons) makes it impossible to guarantee that the possible losses arising from such proceedings will not exceed, where applicable, the amounts that the Group currently has provisioned and, therefore, could affect the Group's consolidated results in a given period.

As a result of the above, legal and regulatory scrutiny under existing lawsactions and proceedings currently faced by the Group or to which it may become subject in the future or which may otherwise affect the Group, whether individually or in the aggregate, if resolved in whole or in part adversely to the Group's interests, could have a material adverse effect on the Group’s business, financial condition and results of operations.

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The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank

Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (“Cenyt”). Such investigation includes the provision of services by Cenyt to the Bank. On July 29, 2019, the Bank was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could constitute bribery, revelation of secrets and corruption. On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. Certain current and former officers and employees of the Group, as well as former directors, have also been named as investigated parties in connection with this investigation. The Bank has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of the facts. As at the date of this Annual Report, no formal accusation against the Bank has been made.

This criminal judicial proceeding is in the pre-trial phase. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.

REGULATORY, TAX AND REPORTING RISKS

The financial services sector is one of the most regulated in the world. The Group is subject to a broad regulatory and supervisory framework, which has increased significantly in the last decade. Regulatory activity in recent years has affected multiple areas, including changes in accounting standards; strict regulation of capital, liquidity and remuneration; bank charges and taxes on financial transactions; regulations has become more intense.affecting mortgages, banking products and consumers and users; recovery and resolution measures; stress tests; prevention of money laundering and terrorist financing; market abuse; conduct in the financial markets; anti-corruption; and requirements as to the periodic publication of information. Governments, regulatory authorities and other institutions continually make proposals to strengthen the resistance of financial institutions to future crises.

Furthermore, the international nature of the Group’s operations means that the Group is subject to a wide and complex range of local and international regulations in these matters, sometimes with overlapping scopes and areas regulated. This complexity, which can be exacerbated by differences and changes in the interpretation or application of these standards by local authorities, makes compliance risk management difficult, requiring highly sophisticated monitoring, qualified personnel and general training of employees.

Any change in the Group's business that is necessary to comply with any particular regulations at any time, especially in Spain, Mexico, Turkey or, pending completion of the sale of BBVA USA, the United States, could lead to a considerable loss of income, limit the Group's ability to identify business opportunities, affect the valuation of its assets, force the Group to increase its prices and, therefore, reduce the demand for its products, impose additional costs on the Group or otherwise adversely affect its business, financial condition and results of operations.

The Group is subject to a broad regulatory and supervisory framework, including resolution regulations, which could have a significant adverse effect on its business, financial condition and results of operations

Furthermore,The Group is subject to a comprehensive regulatory and supervisory framework the complexity and scope of which has increased significantly since the previous financial crisis and which could further increase as a result of the crisis caused by the COVID-19 pandemic. In particular, the banking sector is subject to continuous scrutiny at the political and supervisory levels, and it is foreseeable that in the future there will continue to be political involvement in regulatory and supervisory processes, as well as in the governance of the main financial entities. For this reason, the laws, regulations and policies to which the Group is subject, as well as their interpretation and application, may change at any time. In addition, supervisors and regulators have significant discretion in carrying out their duties, which gives rise to uncertainty regarding the interpretation and implementation of the regulatory framework. Moreover, regulatory fragmentation and the implementation by some countries of more flexible or stricter rules or regulations could also adversely affect the Group's ability to compete with financial institutions that may or may not have to comply with any such rules or regulations, as applicable.

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Regulatory changes, adopted or proposed, as well as their interpretation or application, have increased and may continue to substantially increase the Group's operating expenses and adversely affect its business model. For example, the imposition of prudential capital standards has limited and could further limit the ability of subsidiaries to distribute capital to the Group, while liquidity standards may require the Group to hold a higher proportion of financial instruments with higher liquidity and lower performance, which can adversely affect its net interest margin. In addition, the Group's regulatory and supervisory authorities may require the Group to increase its loan loss allowances or asset impairments, which could have substantial discretionan adverse effect on its financial condition. It is also possible that governments and regulators impose additional ad hoc regulations or requirements in howresponse to regulatethe crisis caused by the COVID-19 pandemic, including the imposition of requirements on credit institutions to provide financing to various entities such as, for example, the Fund for Orderly Bank Restructuring (Fondo de Reestructuración Ordenada Bancaria) (the “FROB”) or the Single Resolution Board (“SRB”). 

Any legislative or regulatory measure and superviseany necessary change in the Group's business operations as a consequence of such measure, as well as any failure to comply with it, could result in a significant loss of income, represent a limitation on the ability of the Group to take advantage of business opportunities and offer certain products and services, affect the value of the Group's assets, force the Group to increase prices (which could reduce the demand for its products), impose additional compliance costs or result in other possible negative effects for the Group.

One of the most significant regulatory changes resulting from the prior financial crisis was the introduction of resolution regulations (which are described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”). In the event that the Relevant Spanish Resolution Authority (as defined herein) considers that the Group is in a situation where conditions for early intervention or resolution are met, it may adopt the measures provided for in the applicable regulations, including without prior notice. Such determination, or the mere possibility that such determination could be made, could materially and adversely affect the Group's business, financial condition and results of operations, as well as the market price and behavior of certain securities issued by the Group (or their terms, in the event of an exercise of the Spanish Bail-in-Power (as defined herein)).

Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations

As described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, in its capacity as a Spanish credit institution, the Group is subject to compliance with a “Pillar 1” solvency requirement, a “Pillar 2” solvency requirement and a “combined buffer requirement” at both the individual and consolidated levels. As a result of the latest Supervisory Review and Evaluation Process (“SREP”) carried out by the ECB, and in accordance with the measures implemented by the ECB on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, at a consolidated level, a CET1 ratio of 8.59% and a total capital ratio of 12.75%. In addition, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.01% As of December 31, 2020, the Group’s phased-in total capital ratio was 16.46% on a consolidated basis and 20.68% on an individual basis, and its CET1 phased-in capital ratio was 12.15% on a consolidated basis and 15.14% on an individual basis.

Additionally, as described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, Banco Bilbao Vizcaya Argentaria, S.A., as a Spanish credit institution, must maintain a minimum level of own funds and eligible liabilities (the “MREL requirement”) in relation to total liabilities and own funds. On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain of its MREL, as determined by the SRB. The Bank’s MREL was set at 15.16% of the total liabilities and own funds of the Bank’s resolution group at a sub-consolidated level from January 1, 2021. Likewise, of this discretion,MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments, once the allowance established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Risk Weighted Assets (“RWAs”) of the Bank’s resolution group, while the subordination requirement included in the MREL is equivalent to 15.05% of the RWAs of the Group’s resolution group, once the corresponding allowance has been applied.

21


The Bank estimates that, following the entry into force of SRM Regulation II (as defined herein) (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement. However, both the total capital and the means availableMREL requirements are subject to regulatorsinterpretation and supervisors, have been steadily increasing during recent years. Regulationchange and, therefore, no assurance can be given that our interpretation is the appropriate one or that the Bank and/or the Group will not be subject to more stringent requirements at any future time. Likewise, no assurance can be given that the Bank and/or the Group will be able to fulfil whatever future requirements may be imposed, even if such requirements were to be equal or lower. There can also be no assurances as to the ability of the Bank and/or the Group to comply with any capital target announced to the market at any given time, which could be adversely perceived by investors and/or supervisors, who could interpret that a lack of capital-generating capacity exists or that the capital structure has deteriorated, either of which could adversely affect the market value or behavior of securities issued by the Bank and/or the Group (and, in particular, any eligible liabilities and any capital instruments) and, therefore, lead to the implementation of new recommendations or requirements regarding “Pillar 2” or (should the Relevant Spanish Resolution Authority interpret that obstacles may exist for the viability of the resolution of the Bank and /or the Group), MREL.

If the Bank or the Group failed to comply with its “combined buffer requirement” they would have to calculate the Maximum Distributable Amount (“MDA”) and, until such calculation has been undertaken and reported to the Bank of Spain, the affected entity would not be able to make any discretionary payments. Once the MDA has been calculated and reported, such discretionary payments would be limited to the calculated MDA. Likewise, should the Bank or the Group not meet the applicable capital requirements, additional requirements of “Pillar 2” or, if applicable, MREL could be imposed. Likewise, in accordance with the EU Banking Reforms (as defined below), any failure by the Bank or the Group to comply with its respective “combined buffer requirement” when considered in addition to its MREL could result in the imposition of restrictions or prohibitions on an ad hoc basisdiscretionary payments. Additionally, failure to comply with the capital requirements may result in the implementation of early intervention measures or, ultimately, resolution measures by governmentsthe resolution authorities.

Regulation (EU) 2019/876 of the European Parliament and regulators in response toof the Council, of May 20, 2019 (as amended, replaced or supplemented at any time, “CRR II”) establishes a crisis,binding requirement for the leverage ratio effective from June 28, 2021 of 3% of Tier 1 capital (as of December 31, 2020, the phased-in leverage ratio of the Group was 6.68% and these may especially affectfully loaded it was 6.46%). Moreover, the EU Banking Reforms include a leverage ratio buffer for financial institutions that are deemed to be systemically important (includingof global systemically important banks systemic importance ((“G-SIBs) and institutions deemed to be met with Tier 1 capital. Any failure to comply with this leverage ratio buffer may also result in the need to calculate and report the MDA, and restrictions on discretionary payments. Moreover, CRR II proposes new requirements that capital instruments must meet in order to be considered AT1 or Tier 2 instruments, including certain grandfathering measures until June 28, 2025. Once the grandfathering period in CRR II has elapsed, AT1 and/or Tier 2 instruments which do not comply with the new requirements at such date will no longer be considered as capital instruments. This could give rise to shortfalls in regulatory capital and, ultimately, could result in failure to comply with the applicable minimum regulatory capital requirements, with the aforementioned consequences.

Additionally, the implementation of local systemic importance, domestic systemically importantthe ECB expectations regarding prudential provisions for NPLs (published on May 15, 2018) and the ECB’s current review of internal models being used by banks subject to its supervision for the calculation of their RWAs (TRIMs) could result, respectively, in the need to increase provisions for future NPLs and increases in the Group’s capital needs.

(Furthermore, the implementation of the Basel III reforms described in Item 4. Information on the Company—Business Overview—Supervision and Regulation”D-SIBs), could result in an increase of the Bank’s and the Group’s total RWAs and, therefore, could also result in a decrease of the Bank’s and the Group’s capital ratios. Likewise, the lack of uniformity in the implementation of the Basel III reforms across jurisdictions in terms of timing and applicable regulations could give rise to inequalities and competition distortions. Moreover, the lack of regulatory coordination, with some countries bringing forward the application of Basel III requirements or increasing such requirements, could adversely affect an entity with global operations such as the Bank).Group and could affect its profitability.

Additionally, should the Total Loss Absorbing Capacity (TLAC) requirements, as described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, currently only imposed upon G-SIBs, be applicable upon non-G-SIBs entities or should the Group once again be classified as a G-SIB, additional minimum requirements similar to MREL could in the future be imposed upon the Group.

22


There can be no assurance that the above capital requirements or MREL will not adversely affect the Bank’s or its subsidiaries’ ability to make discretionary payments, or result in the cancellation of such payments (in whole or in part), or require the Bank or such subsidiaries to issue additional securities that qualify as eligible liabilities or regulatory capital, to liquidate assets, to curtail business or to take any other actions, any of which may have adverse effects on the Group’s business, financial condition and results of operations. Furthermore, an increase in capital requirements could adversely affect the return on equity and other of the Group’s financial results indicators. Moreover, the Bank’s or the Group’s failure to comply with their capital requirements and MREL could have a significant adverse effect on the Group’s business, financial condition and results of operations.

Lastly, the Group must also comply with liquidity and funding ratios. Several elements of the Liquidity Coverage Ratio (“LCRand net stable financing ratio (“NSFR”) (as such ratios are defined in Note 7.5 to our Consolidated Financial Statements), as introduced by national banking regulators and fulfilled by the Group, may require implementing changes in some of its commercial practices, which could expose the Group to additional expenses (including an increase in compliance expenses), affect the profitability of its activities or otherwise lead to a significant adverse effect over the Group’s business, financial condition or results of operations. As of December 31, 2020 and December 31, 2019, the Group's LCR was 149% and 129% respectively. The NSFR was 127% as of December 31, 2020 and 120% as of December 31, 2019. For further information, see Note 7.5 to our Consolidated Financial Statements.

The Group is exposed to tax risks that may adversely affect it

The size, geographic diversity and complexity of the Group and its commercial and financial relationships with both third parties and related parties result in the need to consider, evaluate and interpret a considerable number of tax laws and regulations, as well as any relevant interpretative materials, which in turn involve the use of estimates, the interpretation of indeterminate legal concepts and the determination of appropriate valuations in order to comply with the tax obligations of the Group. In addition, localparticular, the preparation of the Group's tax returns and the process for establishing tax provisions involve the use of estimates and interpretations of tax laws and regulations, which are complex and subject to review by the tax authorities. Any error or discrepancy with tax authorities in certainany of the jurisdictions wherein which the Group operates differ in a number of material respects from equivalent regulations in Spainmay give rise to prolonged administrative or the United States. Changes in regulationsjudicial proceedings that may have a material adverse effect on the Group’s results of operations.

In addition, governments in different jurisdictions are in the search for new funding sources, and they have recently focused on the financial sector. The Group's presence in various jurisdictions increases its exposure to regulatory and interpretative changes, which could, among other things, lead to (i) an increase in the types of tax to which the Group is subject, including in response to the demands of various political forces at the national and global level, (ii) changes in the calculation of tax bases and exemptions therefrom, such as the proposal in Spain to limit the exemption for dividends and capital gains from domestic and foreign subsidiaries to 95%, which would mean that 5% of the dividends and capital gains obtained by the Group companies in Spain would be subject to, and not exempt from, corporate tax,or (iii) the creation of new taxes, like the common financial transaction tax (“FTT”) in the proposed Tax Directive for the Financial Transactions Tax of the European Commission (which would tax the acquisitions of certain securities, including those issued by the Group) and the Spanish FTT which came into effect in Spain in January 2021, may have adverse effects on the business, financial condition and results of operations of the Group.

The Group is exposed to compliance risks

The Group, due to its role in the economy and financial condition, particularly in Mexico, the United States, Turkey, Venezuelanature of its activities, is singularly exposed to certain compliance risks. In particular, the Group must comply with regulations regarding customer conduct, market conduct, the prevention of money laundering and Argentina. Furthermore, regulatory fragmentation, with some countries implementing newthe financing of terrorist activities, the protection of personal data, the restrictions established by national or international sanctions programs and more stringent standardsanti-corruption laws (including the US Foreign Corrupt Practices Act of 1977 and the UK Bribery Act of 2010), the violations of which could lead to very significant penalties. These anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or regulation, could adversely affectretaining business or securing any improper business advantage. As part of the Group’s ability to compete with financial institutions based in other jurisdictions which do not need to comply with such new standards or regulation. In addition, financial institutions which are based in other jurisdictions, including the United States, could benefit from any deregulation efforts implemented in such jurisdictions. Moreover, to the extent recently adopted regulations are implemented inconsistently in the various jurisdictions in whichbusiness, the Group operates, the Group may face higher compliance costs.directly or indirectly, through third parties, deals with entities whose employees are considered to be government officials. The Group’s activities are also subject to complex customer protection and market integrity regulations.

1423


 

Any required changesGenerally, these regulations require banking entities to, among other measures, use diligence measures to manage compliance risk. Sometimes, banking entities must apply reinforced due diligence measures because they understand that, due to the Group’s business operations resulting fromvery nature of the legislationactivities they carry out (among others, private banking, money transfer and regulations applicable to such business could result in significant lossforeign currency exchange operations), they may present a higher risk of revenue, limit the Group’s ability to pursue business opportunities in whichmoney laundering or terrorist financing.

Although the Group might otherwise consider engaging, affecthas adopted policies, procedures, systems and other measures to manage compliance risk, it is dependent on its employees and external suppliers for the valueimplementation of assetsthese policies, procedures, systems and other measures, and it cannot guarantee that these are sufficient or that the Group holds, require the Group to increase its prices and therefore reduce demand for its products, impose additional costs onemployees (123,174 as of December 31, 2020) or other persons of the Group or otherwise adversely affectits business partners, agents and/or other third parties with a business or professional relationship with BBVA do not circumvent or violate current regulations or BBVA’s ethics and compliance regulations, acts for which such persons or the Group could be held ultimately responsible and/or that could damage the Group's reputation. In particular, acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the Group’s businesses. For example,reputation among existing and potential clients and other stakeholders. Actual or alleged misconduct by Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the Group is subjectuse and protection of data and systems, and the satisfaction of client expectations, and actions taken by regulators or others in response to substantial regulation relatingsuch misconduct, could lead to, liquidity. Future liquidity standards could require it to maintain a greater proportion of its assets in highly liquid but lower-yielding financial instruments, which would negatively affect its net interest margin. Moreover, the Group’s regulators, as part of their supervisory function, periodically review the Group’s allowance for loan losses. Such regulators may require the Group to increase its allowance for loan losses or to recognize further losses. Any such additional provisions for loan losses, as required by these regulators whose views may differ from those of the Group’s management, could have an adverse effect on the Group’s earningsamong other things, sanctions, fines and financial condition.

Adverse regulatory developments or changes in government policy relating toreputational damage, any of the foregoing or other matterswhich could have a material adverse effect on the Group’s business, financial condition and results of operationsoperations.

Furthermore, the Group may not be able to prevent third parties outside the Group from using the banking network in order to launder money or carry out illegal or inappropriate activities. Further, financial crimes continually evolve and emerging technologies, such as cryptocurrencies and blockchain, could limit the Group's ability to track the movement of funds. Additionally, in adverse economic conditions, it is possible that financial condition.crime attempts will increase significantly.

Increasingly onerous capital requirements mayIf there is a breach of the applicable regulations or BBVA’s ethics and compliance regulations or if the competent authorities consider that the Group does not perform the necessary due diligence inherent to its activities, such authorities could impose limitations on the Group's activities, the revocation of its authorizations and licenses, and economic penalties, in addition to having significant consequences for the Group's reputation, which could have a materialsignificant adverse effectimpact on the Bank’sGroup's business, financial condition and results of operations. Furthermore, the Group from time to time conducts investigations related to alleged violations of such regulations and BBVA’s ethics and compliance regulations, and any such investigation or any related procedure could be time consuming and costly, and its results difficult to predict.

Finally, in 2020 the COVID-19 outbreak has led in many countries to new specific regulations, mainly focused on consumer protection measures. The difficulties associated with the need to adapt the Group’s systems to these new regulations quickly along with the fact that the majority of BBVA’s employees have been working remotely could pose new compliance risks. Likewise, despite the existing controls in place, the increase in remote account opening driven by the pandemic could increase money laundering risks. Additionally, criminals are continuing to exploit the opportunities created by the pandemic across the globe and increased money laundering risks associated with counterfeiting of medical goods, investment fraud, cyber-crime scams and exploitation of economic stimulus measures put in place by governments. Increased strain on our communications surveillance frameworks could in turn raise our market conduct risk.

BBVA’s financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of its operations and financial position

The preparation of financial statements in compliance with IFRS-IASB requires the use of estimates. It also requires management to exercise judgment in applying relevant accounting policies. The key areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated and individual financial statements, include the classification, measurement and impairment of financial assets, particularly where such assets do not have a readily available market price, the assumptions used to quantify certain provisions and for the actuarial calculation of post-employment benefit liabilities and commitments, the useful life and impairment losses of tangible and intangible assets, the valuation of goodwill and purchase price allocation of business combinations, the fair value of certain unlisted financial assets and liabilities, the recoverability of deferred tax assets and the exchange and inflation rates of Venezuela. There is a risk that if the judgment exercised or the estimates or assumptions used subsequently turn out to be incorrect then this could result in significant loss to the Group beyond that anticipated or provided for, which could have an adverse effect on the Group’s business, financial condition and results of operations.

24


Observable market prices are not available for many of the financial assets and liabilities that the Group holds at fair value and a variety of techniques to estimate the fair value are used. Should the valuation of such financial assets or liabilities become observable, for example as a result of sales or trading in comparable assets or liabilities by third parties, this could result in a materially different valuation to the current carrying value in the Group’s financial statements.

The further development of standards and interpretations under IFRS-IASB could also significantly affect the results of operations, financial condition and prospects of the Group.

OPERATIONAL RISKS

Attacks, failures or deficiencies in the Group's procedures, systems and security or those of third parties to which the Group is exposed could have a significant adverse impact on the Group's business, financial condition and results of operations, and could be detrimental for its reputation

The Group's activities depend to a large extent on its ability to process and report effectively and accurately on a high volume of highly complex transactions with numerous and diverse products and services (by their nature, generally ephemeral), in different currencies and subject to different regulatory regimes. Therefore, it relies on highly sophisticated information technology (“IT”) systems for data transmission, processing and storage. However, IT systems are vulnerable to various problems, such as hardware and software malfunctions, computer viruses, hacking, and physical damage to IT centers. BBVA's exposure to these risks has increased significantly in recent years due to the Group's implementation of its ambitious digital strategy. According to data as of December 31, 2020, 63% of the Group’s customers are digital and 59% of customers regularly use their mobile phones to interact with BBVA, and digital sales represent 63.6% of total sales. BBVA already has more than 500,000 customers registered exclusively through digital channels in Spain, of which more than 50% did so via mobile. These digital services, as well as other alternatives that BBVA offers users to become BBVA customers, have become even more important after the COVID-19 outbreak and the ensuing restrictions on mobility in the countries in which the Group operates. Currently, one in three new clients chooses digital channels to start their relationship with BBVA. Any attack, failure or deficiency in the Group's systems could, among other things, lead to the misappropriation of funds of the Group's clients or the Group itself and the unauthorized disclosure, destruction or use of confidential information, as well as preventing the normal operation of the Group, and impair its ability to provide services and carry out its internal management. In addition, any attack, failure or deficiency could result in the loss of customers and business opportunities, damage to computers and systems, violation of regulations regarding data protection and/or other regulations, exposure to litigation, fines, sanctions or interventions, loss of confidence in the Group's security measures, damage to its reputation, reimbursements and compensation, and additional regulatory compliance expenses and could have a significant adverse impact on the Group's business, financial condition and results of operations. Furthermore, it is possible that such attacks, failures or deficiencies will not be detected on time or ever. The Group is likely to be forced to spend significant additional resources to improve its security measures in the future. As cyber-attacks are becoming increasingly sophisticated and difficult to prevent, the Group may not be able to anticipate or prevent all possible vulnerabilities, nor to implement preventive measures that are effective or sufficient.

Customers and other third parties to which the Group is significantly exposed, including the Group's service providers (such as data processing companies to which the Group has outsourced certain services), face similar risks. Any attack, failure or deficiency that may affect such third parties could, among other things, adversely affect the Group's ability to carry out operations or provide services to its clients or result in the unauthorized disclosure, destruction or use of confidential information. Furthermore, the Group may not be aware of such attack, failure or deficiency in time, which could limit its ability to react. Moreover, as a result of the increasing consolidation, interdependence and complexity of financial institutions and technological systems, an attack, failure or deficiency that significantly degrades, eliminates or compromises the systems or data of one or more financial institutions could have a significant impact on its counterparts or other market participants, including the Group.

25


ITEM 4.INFORMATION ON THE COMPANY

A.History and Development of the Company

BBVA’s predecessor bank, BBV (Banco Bilbao Vizcaya), was incorporated as a public limited company (a “sociedad anónima” or S.A.) under the Spanish Corporations Law on October 1, 1988. BBVA was formed following the merger of Argentaria into BBV (Banco Bilbao Vizcaya), which was approved by the shareholders of each entity on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, and operates out of Calle Azul, 4, 28050, Madrid, Spain (Telephone: +34-91-374-6201). BBVA’s agent in the U.S. for U.S. federal securities law purposes is Banco Bilbao Vizcaya Argentaria, S.A. New York Branch (1345 Avenue of the Americas, 44th Floor, New York, New York 10105 (Telephone: +1-212-728-1660)). BBVA is incorporated for an unlimited term.

Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. There were no significant capital expenditures in the years ended December 31, 2020, 2019 and 2018.

Capital Divestitures

Our principal divestitures are divestitures in our subsidiaries and affiliates. The main divestitures from 2018 to the date of this Annual Report were the following:

2020

Agreement for the sale of BBVA USA Bancshares, Inc.

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of the share capital in BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business, for approximately $11.6 billion (approximately equivalent to €9.7 billion), to be paid in cash (the “USA Sale”).  

The scope of the USA Sale does not include BBVA Securities Inc. (the Group’s broker-dealer in the United States), the Group’s stake in Propel Venture Partners US Fund I, L.P. and BBVA Processing Services, Inc. (together, the “Excluded Business”). Prior to the closing of the USA Sale, the Excluded Business will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York. 

It is expected that the USA Sale will result in an increase in BBVA Group’s CET1 (fully loaded) ratio of approximately 294 basis points. In addition, we expect to recognize profit net of taxes of approximately €580 million (based on an exchange rate of $1.20 per euro) for the companies included within the scope of the USA Sale from the date of the agreement through the date on which closing is expected to take place. Of this amount, approximately €300 million has already been recognized in the consolidated statement of income for the year ended December 31, 2020.In addition, of the expected impact on the BBVA Group’s CET1 (fully loaded) ratio, an increase of approximately 9 basis points had already been recognized as of December 31, 2020.

The closing of the USA Sale is subject to obtaining the relevant regulatory authorizations from the competent authorities. It is expected that the closing of the USA Sale may take place in mid-2021.

For additional information, see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”.

Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in Spain including a long-term exclusive distribution agreement for the sale of non-life insurance products, excluding the health insurance business, through BBVA’s branch network in Spain.

26


On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros, S.A. de Seguros y Reaseguros (“BBVA Seguros”) transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (“BBVA Seguros Generales”). BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points as of December 31, 2020.

2019

Sale of BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of our wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The sale closed on January 22, 2021 and BBVA received approximately $250 million (approximately €210 million) in cash. The transaction resulted in a loss of approximately €9 million net of taxes and is estimated to increase the Group’s CET1 (fully loaded) ratio by approximately 6 basis points in the first quarter of 2021.

2018

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement. The sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Transfer of real estate business and sale of stake in Divarian

On November 29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

27


Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report.

28


B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

Set forth below are the Group’s current six operating segments:

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

29


The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 was as follows:

 

As of December 31,

 

2020

2019

2018

 

(In Millions of Euros)

Spain

405,878

364,427

353,923

The United States (1)

93,953

88,529

82,057

Mexico

110,224

109,079

97,432

Turkey

59,585

64,416

66,250

South America

55,435

54,996

54,373

Rest of Eurasia

22,881

23,257

18,845

Subtotal Assets by Operating Segment

747,957

704,703

672,880

Corporate Center and Adjustments (2)

(11,781)

(6,967)

2,796

Total Assets BBVA Group

736,176

697,737

675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Intra-group reallocations”.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2020

2019

2018

2020

2019

2018

 

(In Millions of Euros)

(In Percentage)

Spain

606

1,386

1,400

15

23

24

The United States (1)

429

590

736

11

10

13

Mexico

1,759

2,699

2,367

45

45

41

Turkey

563

506

567

14

8

10

South America

446

721

578

11

12

10

Rest of Eurasia

137

127

96

3

2

2

Subtotal operating segments

3,940

6,029

5,743

100

100

100

Corporate Center

(2,635)

(2,517)

(343)

 

 

 

Profit attributable to parent company

1,305

3,512

5,400

 

 

 

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

30


The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Operating Segments

 

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Total (2)

 

(In Millions of Euros)

 

2020

 

 

 

 

 

 

 

 

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

 

 

 

 

 

 

 

 

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

 

 

 

 

 

 

 

 

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

31


The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations and public institutions;

·Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) amounted to €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €62,707 million, a 5.1% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

35


This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits, offset in part by the depreciation of the U.S. dollar against the euro

36


The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €50,002 million, a 13.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by the shift towards higher profitability investments such as private banking.

37


This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €5,332 million, a 1.2% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees, partially offset by the depreciation of the Turkish lira against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

38


The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The main business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 2019, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% increase compared with the €37,869 million recorded as of December 31, 2019.Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into their economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses included in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches in Taipei, Tokyo, Hong Kong, Singapore and Shanghai and representative offices in Seoul, Mumbai, Abu Dhabi and Jakarta.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal MarketsSpain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BankBBVA Group is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as(as amended, replaced or supplemented from time to time, the “CRD IV Directive),through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as(as amended, replaced or supplemented from time to time, the “CRR Iand, together with the CRD IV Directive and any measures implementing the CRD IV Directive or the CRR I which may from time to time be applicable in Spain, the CRD IV), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“(“Law 10/2014), Royal Decree 84/2015, ofFebruary 13 (“(“RDRoyal Decree 84/2015), Bank of Spain Circular 2/2014 ofJanuary 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016). 

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On November 23, 2016,June 7, 2019, the European Commission published a package of proposals with further reformsfollowing amendments to CRD IV and Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms ((“BRRD I”) were published:

·Directive 2019/878/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);  

·Directive 2019/879/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD); 

)· and Regulation (EU) NoNo. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·.Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the “SRM Regulation I”) as regards the loss-absorbing and amendingrecapitalization capacity of credit institutions and investment firms (SRM Regulation (EU) NoI. 1093/2010 (as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation), including measures to increase the resilience of EU institutions and enhance financial stability. On May 25, 2018, the Council of the European Union published the Presidency compromise proposals relating to the European Commission’s package of proposals referred to above and on June 25 and 28, 2018, the European Parliament Committee on Economic and Monetary Affairs published reports containing its proposed amendments to the European Commission’s package of proposals. The final political agreement between the European Parliament (CRD V, together with BRRD II and the Council on these reforms was published on February 15, 2019 (the European Commission’s package of proposals together with the Presidency compromise proposals, the proposed amendments of the European Parliament and such final political agreement,SRM Regulation II, the “EU Banking Reforms).  ).

The timing for the final implementation of these reforms as atEU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of this Annual Reporttheir entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is unclear.provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or after that date, as described therein.

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CRD IV, among other things, established minimuma “Pillar 1” minimum capital requirementsrequirement and increased the level of capital required by means of athrough the “combined capital buffer requirement” that entitiesinstitutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific countercyclicalcounter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macro prudentialmacroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and is required tomust be satisfied with common equity tier 1 (“CET1) capital.

The G-SIB buffer appliesis applicable to thosethe institutions included onin the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB). The Bank was excluded from this list with effect as fromJanuary 1, 2017, and so, unless otherwise indicated by the FSBFinancial Stability Board (or the Bank of Spain) in the future, itthe Bank will no longer be required to maintain athe G-SIB buffer.

The Bank of Spain announced on November 21, 201825, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer ofequivalent to a CET1 capital ratio of 0.75% on a consolidated basis.

TheIn December 2015, the Bank of Spain agreed in December 2015 to set the countercyclicalcounter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is revised each quarter.reviewed quarterly. The Bank of Spain agreed in December 201821, 2020 to maintain the countercyclicalcounter cyclical capital buffer applicable to credit exposures in Spain at 0% for the firstfourth quarter of 2019.2020. As of the date of this Annual Report, the countercyclicalcounter cyclical capital buffer applicable to the Group stands at 0.01% and relates to the Group’s exposures in other jurisdictions.0%.

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The Bank of Spain has greater discretion in relation to the determination of the institution-specific countercyclical buffer, the buffer for D-SIBs and the systemic risk buffer. With the entry into force of the SSM on November 4, 2014, the European Central Bank (the “ECB”) has the ability to provide certain recommendations in this respect and potentially increase such buffers.

Moreover,Additionally, Article 104 of the CRD IV Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, 2013 conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that in additionthe supervisory authorities may require credit institutions to meet capital requirements exceeding the minimum “Pillar 1” minimum capital requirements and the combined“combined capital buffer requirements, supervisory authorities may impose furtherrequirement” by establishing “Pillar 2” capital requirements (above(which, with respect to other requirements, are above “Pillar 1” requirements and below the combined“combined capital buffer requirements) to cover other risks, including those not considered to be fully captured by the minimum “own funds” “Pillar 1” requirements under CRD IV or to address macro-prudential considerations.requirement”).

Furthermore,, the ECB is required, under Regulation (EU) No.No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation), to carry out a supervisory review and evaluation process (the “SREP” ) of the Bank for us and the Group at least on an annual basis.

In addition to the above, the European Banking Authority (the “EBA” ) published on December 19, 2014 its final guidelines for common procedures and methodologies in respect of the SREP (the “EBA SREP Guidelines” ). Included in the EBA SREP Guidelines were the EBA’s proposed guidelines for a common approach to determining the amount and composition of additional “Pillar 2” own funds requirements to be implemented from January 1, 2016. In accordance with these guidelines, national supervisors should set the composition of the capital instruments required to comply with the “Pillar 2” requirement, so that at least 56% of the “Pillar 2” requirement is covered with CET1 capital and at least 75% with Tier 1 capital, as has also been provided in the EU Banking Reforms. The EBA SREP Guidelines and the EU Banking Reforms also contemplate that national supervisors should not set additional own funds requirements in respect of risks which are already covered by the “combined buffer requirement” and/or additional macro-prudential requirements.On July 19, 2018, the EBA published its final guidelines aimed atintended to further enhancing institutionsenhance risk management by institutions and supervisorythe convergence inof supervision with respect ofto the SREP. These guidelines focus on stress testing, particularly its use in settingto determine “Pillar 2”capital guidance and the level of interest rate risk.

AnyLikewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in 2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the form of 56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirementrequirements that the ECB may be imposedimpose on the Bank and/or the Group by the ECB pursuant tounder the SREP will require the Bank and/or the Group to holdmaintain capital levels abovehigher than the minimum “Pillar 1” minimum capital requirements.requirement.

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As a result of the most recent SREP carried out by the ECB, we received a communication fromEuropean Central Bank, and in accordance with the ECB pursuantmeasures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to which we are required tofulfil the “Pillar 2” requirement, BBVA must maintain, as from March 1, 2019 on a consolidated basis, a CET1 capital ratio of 9.26% (8.53%8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual basis)level, a CET1 ratio of 7.84% and a total capital ratio of 12.76% (12.03%12.00%.

For further information on an individual basis). This total capital requirement (on a consolidated basis) includes: (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the Additional Tier 1 capital (AT1) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2%); (iv) the CET1 capital requirement under Pillar 2 (1.5%), which remains unchanged since the prior SREP; (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).

As of December 31, 2018, the Bank’s phased-in total capital ratio was 15.71%on a consolidated basis and 22.07% on an individual basis. As of December 31, 2018, the Bank’s CET1 phased-in capital ratio was 11.58% on a consolidated basis and 17.45% on an individual basis. Such ratios exceed the applicable regulatory requirements described above, but there can be no assurance that the total capital requirements imposed on the Bank and/or the Group from time to time may not be higher than the levels of capital available at such point in time. There can also be no assurance asapplicable to the result of any future SREP carried out by the ECB and whether this will impose any further “Pillar 2” additional own funds requirements on the Bank and/or the Group.

Additionally, on February 1, 2019, the Bank announced its new CET1 fully-loaded capital target, consisting of a CET1 ratio within the rangebetween 11.5% and 12.0%on a consolidated basis, and which the Bank expectsBBVA Group, see Note 32 to achieve by 2019 year-end. No assurance can be given that the Bank will achieve this target. See “Cautionary Statement Regarding Forward-Looking Statements”. Any failure by the Bank to maintain a consolidated CET1 capital ratio in line with its CET1 fully-loaded capital target could adversely affect the market price or value or trading behavior of any securities issued by the Bank (and, in particular, any of its capital instruments) and ultimately lead to the imposition of further “Pillar 2” guidance or requirements.our Consolidated Financial Statements.

On March 15, 2018, the ECB further published the ECB’s supervisory expectations for prudent levels of provisions for non-performing loans (“NPLs”). This was published as an addendum (the “Addendum”) to the ECB’s guidance to banks on non-performing loans published on March 20, 2017, which clarified the ECB’s supervisory expectations regarding the identification, management, measurement and write-off of NPLs.The ECB states that the Addendum sets out what it deems to be a prudent treatment of NPLsIn accordance with the aim of avoiding an excessive build-up of non-covered aged NPLs on banks’ balance sheets in the future, which would require supervisory measures.

The ECB states that it will assess any differences between banks’ practices and the prudential provisioning expectations laid out in the Addendum at least annually and will link the supervisory expectations in the Addendum to new NPLs classified as such from April 1, 2018 onwards. Banks will be asked to inform the ECB of any differences between their practices and the ECB’s prudential provisioning expectations, as part of the SREP supervisory dialogue, from early 2021 onwards. Ultimately this could result in the ECB requiring banks to apply specific adjustments to own funds calculations where the accounting treatment applied by the bank is considered not prudent from a supervisory perspective, which could in turn impact on the capital position of the relevant bank. The supervisory expectations set out in the Addendum are expected to be reflected in the proposed amendments to the CRR as part of the EU Banking Reforms, which could impact the minimum coverage levels required for newly originated loans that become non-performing, requiring banks to increase their provisioning for future NPLs.

Furthermore, the EU Banking Reforms propose new requirements that capital instruments should meet in order to be considered as Additional Tier 1 instruments or Tier 2 instruments, including certain grandfathering measures. To the extent any of these new requirementsare not subject to a grandfathering or exemption regime for those Additional Tier 1 instruments and/or Tier 2 instruments already in issue at the time such new requirements are implemented, such instruments could be subject to regulatory uncertainties on their inclusion as capital. This may lead to regulatory capital shortfalls and ultimately a breach of the applicable minimum regulatory capital requirements.

 Any failure by the Bank and/or the Group to comply with its “Pillar 1” minimum regulatory capital ratios, any “Pillar 2” additional own funds requirements and/or any “combined buffer requirement” could result in the imposition of restrictions or prohibitions on “discretionary payments” by the Bank as discussed below or administrative actions or sanctions, which, in turn, may have a material adverse effect on the Group’s results of operations.

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According to Article 48 of Law 10/2014, Article 73 of RDRoyal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any entityinstitution not meeting its “combined capital buffer requirement” is required to determinecalculate its Maximum Distributable Amount maximum distributable amount (“(“MDA) as described therein. Untilstipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, where applicable, the relevant entity institution shall not make anyany: (i) distributions relating to CET1 capital,capital; (ii) payments in respect ofrelated to variable remuneration or discretionary pension revenuesbenefits; and (iii) distributions relatinglinked to Additional Tier 1AT1 instruments (“(“discretionary payments), and once the MDA has been calculated and communicated to the Bank of Spain,, any such the discretionary payments by that entity will be subject to suchthe limit of the MDA limit.calculated.

Furthermore, as set forth inAdditionally, pursuant to Article 48 of Law 10/2014, the adoption by the Bank of SpainSpain’s adoption of the measures prescribed inprovided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds orand limiting or prohibiting the distribution of dividends, respectively, will also result in aentail the requirement to determine the MDA and to restrict discretionary payments to such MDA. Pursuant toIn accordance with the EU Banking Reforms, the calculation of the MDA and the consequences thereof, as well as the restrictions specifieddescribed in the preceding paragraph above while such calculation is pending, could shall also be triggered by a breach of the MREL (as defined herein)requirement (see “—Any failure by the Bank and/or the Group to comply with its MREL couldItem 3. Risk Factors—Regulatory, Tax and Reporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Bank’sGroup’s business, financial condition and results of operations below) or a breach of the minimum leverage ratio requirement.

As set out in the “Opinion of the European Banking Authority on the interaction of Pillar 1, Pillar 2 and combined buffer requirements and restrictions on distributions” published on December 16, 2015 (the “December 2015 EBA Opinion”), in the EBA’s opinion competent authorities should ensure that the CET1 capital to be taken into account in determining the CET1 capital available to meet the “combined buffer requirement” for the purposes of the MDA calculation is limited to the amount not used to meet the “Pillar 1” and, if applicable, “Pillar 2” own funds requirements of the institution. There can be no assurance as to how and when binding effect will be given to the December 2015 EBA Opinion in Spain, including as to the consequences for an institution of its capital levels falling below those necessary to meet these requirements. The EU Banking Reforms propose certain amendments in order to clarify, for the purposes of restrictions on distributions, the hierarchy between the “Pillar 2” additional own funds requirements, the minimum “own funds” “Pillar 1” requirements, the own funds and eligible liabilities requirement, MREL and the “combined buffer requirements” (which is referred to as “stacking order”). In particular, no distinction is proposed to be made where discretionary payments are restricted to the MDA between distributions relating to CET1 capital or payments in respect of variable remuneration or discretionary pension revenues, and payments due on Additional Tier 1 instruments.

On July 1, 2016, the EBA published additional information explaining how supervisors should use the results of the 2016 EU-wide stress test for SREP assessments. The EBA stated, among other things, that the incorporation of the quantitative results of the EU-wide stress test into SREP assessments may include setting additional supervisory monitoring metrics in the form of capital guidance. Such guidance will not be included in MDA calculations but competent authorities would expect banks to meet that guidance except when explicitly agreed. Competent authorities have remedial tools if an institution refuses to follow such guidance. The EU Banking ReformsCRD V also propose that a distinction be madedistinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, with only the former being regarded as mandatory requirements. Notwithstanding the foregoing, the EU Banking Reforms proposeCRD V provides that, in addition to certainbesides other measures, supervisory authorities beare entitled to impose further “Pillar 2” capital requirements wherewhen an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

The ECB has also 46confirmed in its recommendation of January 7, 2019 on dividend distribution policies that credit institutions should establish dividend policies using conservative and prudent assumptions in order, after any distribution, to satisfy the applicable capital requirements and the outcomes of the SREP.

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Any failure by the Bank and/or the Group to comply with its regulatory capital requirements could also result, among other things, in the imposition of further “Pillar 2” requirements and the adoption of any early intervention or, ultimately, resolution measures by resolution authorities pursuant to Law 11/2015 of June 18 on the Recovery and Resolution of Credit Institutions and Investment Firms (Ley 11/2015 de 18 de junio de recuperación y resolución de entidades de crédito y empresas de servicios de inversión), as amended, replaced or supplemented from time to time (“Law 11/2015), which, together with Royal Decree 1012/2015 ofNovember 16 by virtue of which Law 11/2015 is developed and Royal Decree 2606/1996 ofDecember 20on credit entities’ deposit guarantee fund is amended (as amended, replaced or supplemented from time to time, “RD 1012/2015), has implemented the BRRD into Spanish law. See “—Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue below.

On November 2, 2018, the EBA, in cooperation with the ECB and the European Systemic Risk Board (the “ESRB”), published the results of its 2018 EU-wide stress test of 48 European banks, including the Bank. This assessment was based on the participating banks’ consolidated balance sheets as of December 31, 2017. The stress test examined the resilience of banks against two separate scenarios – a baseline scenario and an adverse scenario during a three-year period beginning on December 31, 2017 and ending on December 31, 2020. Under both scenarios, the CET1 fully-loaded ratios, among other measures, of participating banks were analyzed over that period to understand bank sensitivities under prescribed stressed economic conditions. The baseline scenario was provided by the ECB and reflected macroeconomic forecasts prevailing as of December 31, 2017. The adverse scenario was prepared by the ESRB in collaboration with the ECB and the EBA and represented a severe economic downturn. As the stress test uses the Bank’s consolidated balance sheet as of December 31, 2017, it does not take into account subsequent business strategies and management actions, including the sale of the Bank’s 68.2% stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”)  to The Bank of Nova Scotia group (“Scotiabank”) on July 6, 2018 or the Cerberus Transaction (as defined herein). The stress test is not a forecast of the Bank’s profits and does not include a defined pass/fail threshold. Instead, it was utilized by the SREP carried out by the ECB in 2018. Under the stress test, the Bank’s starting CET1 fully-loaded ratio as of December 31, 2017 was restated from 11.04% to 10.73% as a result of the implementation of IFRS 9. Under the baseline scenario, the Bank’s CET1 fully-loaded ratio increases 1.99 basis points to 12.72% as of December 31, 2020, and under the adverse scenario the Bank’s CET1 fully-loaded ratio decreases 1.93 basis points to 8.80% as of December 31, 2020.

At its meeting of January 12, 2014, the oversight body of the Basel Committee on Banking Supervision (“BCBS) endorsed the definition of the leverage ratio set forth inAdditionally, CRD IV, to promote consistent disclosure, which applied from January 1, 2015. As of the date of this Annual Report, there is no applicable regulation in Spain which establishes a specific leverage ratio requirement for credit institutions. However,the EU Banking Reforms proposeII sets a binding leverage ratio requirement of 3%3% of Tier 1 capital, that is addedin addition to anthe institution’s own funds requirements and that an institution must meet in addition to its risk basedrisk-weighted assets (“RWAs”)-based requirements. In particular, any breach of this leverage ratio could also result in a requirementwould entail the need to determine the MDA and restrict discretionary payments to such MDA, as well as trigger the restrictions referred to above while such calculation is pending.related consequences.

In addition,Furthermore, on December 7, 2017 the BCBS announced the finalizedend of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk sensitivity in suchthose weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such ratings-based approaches and provide for greaterenhance comparability acrossamong banks wherein which such internal ratings-based approaches are used. RevisedThe review of minimum capital floor requirements will also limit the regulatory capital benefit for banks inwhen calculating total risk-weighted assetsRWAs using internal risk models as compared towith the standardized approach, with a minimum capital requirement of 50% of risk-weighted assetsRWAs calculated using only the standardized approaches applyingthat will be applicable as from January 1, 2022, and increasingwhich is expected to increase to 72.5% as from January 1, 2027. To

Moreover, on March 15, 2018, the extent these reforms resultECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in an increaseorder to avoid future and excessive accumulation of non-performing loans without coverage in the total risk-weighted assetsbalance sheets of the Bank they could also result incredit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a corresponding decrease inyear and, from the Bank’s capital ratio.beginning of 2021, the banks must inform the ECB of any difference between their practices and the prudential provision expectations.

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TheIn addition, the ECB has announced that ita TRIM is conducting a targeted review ofbeing conducted on the internal models (“TRIM”) being used by banks subject to its supervision forto calculate their internal ratings-based approaches in applying risk weightings to assets. TRIM is being undertaken to assess the extent to which such internal models are considered to be in line with regulatory requirements, and the results of those internal models are reliable and comparable,RWAs, in order to harmonizereduce inconsistencies and unjustified variability in these internal models throughout the approaches toEuropean Union. Although the full results of the TRIM are not yet known, it could imply a change in the internal models used by banks acrossand, at the European Union. During 2016, the ECB launched preliminary questionnaires and data requests, and on-site investigations were conducted in 2017 and the first half of 2018. This first phase of TRIM involved a review of the models used to assess the credit risk for retail and small and medium-sized enterprise portfolios, as well as market risk and counterparty credit risk. Phase two, focusing on the models used to assess the credit risk for so-called low-default portfolios, started in the second half of 2018 and is expected to continue throughout 2019. Though the outcome of TRIM is at this stage unknown, the objective of the ECB in undertaking TRIM is to reduce unwarranted variability in risk-weighted assets across banks, not to increase risk-weighted assets in general. Nevertheless, TRIM could lead tosame time, increases or decreases in the capital needs of banks. Tobanks, including the extent TRIM resultsBank.

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in any changes being requiredrelation to total liabilities known as MREL requirement. According to the internal models usedCommission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (“MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by banksthe resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and such changes result in an increaseown funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the Bank’s risk-weighted assets, this could have a corresponding impact onrequirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s capital position.

The implementation of Basel reforms differs across jurisdictionsRWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of timingthe RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable rules.to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution Authority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This lackcould result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of uniformity among implemented rules may leaddiscretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an uneven playing field andentity in order to competition distortions. Moreover,comply with Its MREL could place an entity in a situation where the lack of regulatory coordination, with some countries bringing forwardconditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or increasing such requirements, could adversely affectMREL purposes.

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The EU Banking Reforms further include, as part of MREL, a banknew subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with global operationsown funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could affectbe undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its profitability.internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

There canWe are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no assuranceadditional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment Ratio

In the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the above capitalnotary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of customers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for revolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the credit on an annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to Regulation 924/2009: (i) the extension of the equality of charges principle to non-euro Member States; and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS”) or at ATM machines, as well as for credit transfers. The main changes introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of information, related to electronic communications, will enter into force in April 2021.

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In relation to payment services, Order ECE/1263/2019 of December 26, on transparency of conditions and information requirements applicable to payment services, entered into force on July 1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The main changes of this Royal Decree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be in effect on the same terms.

Regarding real estate, the Spanish government and the governments of several autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a national level, Decree Law 34/2020, of October 20, on urgent measures to support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for industrial and/or commercial activities that have been affected by the suspensions and restrictions adopted by the public authorities in response to the COVID-19 pandemic. Measures adopted by autonomous regions include the following:

·In the Autonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and retrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with transfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and housing acquired in a judicial mortgage foreclosure proceeding.

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·In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·In Andalusia, Decree-Law 2/2020, of March 9, on the improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not adversely affectenter into force for the Bank’s abilitytime being. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“makeMIFID II “discretionary payments) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the cancellationfunctioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such payments (in whole ordata (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in part), or requireall EU member states with the Banksame level of legally enforceable rights and obligations regarding personal data and imposing responsibilities on data controllers and processors to issue additional securities that qualify as regulatory capital, to liquidate assets, to curtail business or to take any other actions, anyensure consistent monitoring of which may have adverse effectsthe processing of personal data. Organic Law 3/2018, of December 5, on the Bank’s business, financial conditionprotection of personal data and resultsguarantee of operations. Furthermore,digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased capitaluptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the right to be forgotten or the right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements may negatively affectand the Bank’s returnlegitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on equityactual risk.

In terms of security, GDPR obligations and other financialrequirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance indicators.of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Bail-inRecovery and write-down powers underResolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the BRRDrecovery and resolution of credit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“RD 1012/2015”) and the SRM Regulation may adversely affect our business and the value of any securities we may issue

The BRRD (which has been implemented in Spain through Law 11/2015 and RD 1012/2015) and the SRM Regulation arewere designed to provide the authorities with a credible set of toolsmechanisms and instruments to intervene sufficiently early and quicklyrapidly in unsoundfailing or failinglikely to fail credit institutions or investment firms (each an “institutionEntity”) so asin order to ensure the continuity of the institution’sEntity’s critical financial and economic functions, while minimizing the impact of an institution’s failureits non-feasibility on the economyeconomic and financial system. The BRRD further providesprovided that anya Member State may only use additional financial stabilization instruments to provide extraordinary public financial support through additional financial stabilization tools is only to be used by a Member State as a last resort, after having assessed and utilizedonce the resolution tools set out belowinstruments (described further below) have been evaluated and used to the maximumfullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, an institutionEntity will be considered as failing or likely to fail in any of the following circumstances:situations: (i) it is,when the Entity significantly fails, or is likelymay reasonably be expected to significantly fail in the near future, to be, in significant breach of itscomply with the solvency requirements or any other requirements necessary for maintainingto maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, are, or are likelyit is reasonably foreseeable that they will exceed them in the near future to be, less than its liabilities;future; (iii) when the Entity is unable, or it is or is likelyreasonably foreseeable that it will not be able, to meet its enforceable obligations in the near future to be, unable to pay its debts as they fall due;a timely manner; or (iv) it requireswhen the Entity needs extraordinary public financial support (except in limited circumstances). The determination that an institutiondecision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that institution’sEntity’s control.

In line with the provisions of the BRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

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As provided in the BRRD, Law 11/2015 contains four resolution tools and powers which may be used alone or in combination where a Relevant Spanish Resolution Authority (as defined below) considers that (i) an institution is failing or likely to fail; (ii) there is no reasonable prospect that any other measure would prevent the failure of such institution within a reasonable timeframe; and (iii) a resolution action, instead of the winding up of the institution under normal insolvency proceedings, is in the public interest. The four resolution toolsinstruments are (i) sale of business, which enables resolution authorities to direct the sale of the institution orEntity’s business, which enables the wholeresolution authorities to transfer, under market conditions, all or part of itsthe business on commercial terms;of the Entity being resolved; (ii) bridge institution,“bridge institution”, which enables resolution authorities to transfer all or part of the business of the institutionEntity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control)which may limit the capacity of the institution to meet its repayment obligations; (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Spanish Bail-in Power (as defined below). Any exerciseTool.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Bail-in Power by the Relevant Spanish Resolution Authority, may includeunder: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the write down and/transposition or conversiondevelopment of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into equity orshares, other securities, or other obligations (which equity, securities andof such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations could alsomay be subjectdeemed to any future application of the Spanish Bail-in Power) of certain unsecured debt claims of an institution.

have been exercised. Relevant Spanish Resolution Authority” means the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria) (“FROBMREL Delegated Regulation”), the European Singlelevel of own funds and eligible liabilities required under MREL will be set by the resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and own funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s RWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of the RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution MechanismAuthority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This could result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of discretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an entity in order to comply with Its MREL could place an entity in a situation where the conditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“SRMTLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

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The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment Ratio

In the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of customers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for revolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the credit on an annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to Regulation 924/2009: (i) the extension of the equality of charges principle to non-euro Member States; and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS”) or at ATM machines, as well as for credit transfers. The main changes introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of information, related to electronic communications, will enter into force in April 2021.

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In relation to payment services, Order ECE/1263/2019 of December 26, on transparency of conditions and information requirements applicable to payment services, entered into force on July 1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The main changes of this Royal Decree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be in effect on the same terms.

Regarding real estate, the Spanish government and the governments of several autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a national level, Decree Law 34/2020, of October 20, on urgent measures to support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for industrial and/or commercial activities that have been affected by the suspensions and restrictions adopted by the public authorities in response to the COVID-19 pandemic. Measures adopted by autonomous regions include the following:

·In the Autonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and retrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with transfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and housing acquired in a judicial mortgage foreclosure proceeding.

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·In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·In Andalusia, Decree-Law 2/2020, of March 9, on the improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not enter into force for the time being. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“MIFID II”) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and obligations regarding personal data and imposing responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data. Organic Law 3/2018, of December 5, on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the case mayright to be accordingforgotten or the right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the Bankrecovery and resolution of Spaincredit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“RD 1012/2015”) and the CNMV (as defined herein),SRM Regulation were designed to provide the authorities with mechanisms and instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Entity”) in order to ensure the continuity of the Entity’s critical financial and economic functions, while minimizing the impact of its non-feasibility on the economic and financial system. The BRRD further provided that a Member State may only use additional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the resolution instruments (described further below) have been evaluated and used to the fullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, an Entity will be considered as failing or likely to fail in any of the following situations: (i) when the Entity significantly fails, or may reasonably be expected to significantly fail in the near future, to comply with the solvency requirements or other requirements necessary to maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to meet its enforceable obligations in a timely manner; or (iv) when the Entity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that Entity’s control.

In line with the provisions of the BRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

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The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) “bridge institution”, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the authority to exerciseBail-in Tool.

In the Spanish Bail-in Power from time to time.event that an Entity is in a resolution situation, theSpanish Bail-in PowerToolmeansis understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Resolution Authority, under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015;2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised.

In accordance with Article 48 of Law 11/2015 (and subject to any exclusions that may be applied by the Relevant Spanish Resolution Authority under Article 43 of Law 11/2015), in the case of any application of the Spanish Bail-in Power, the sequence of any resulting write-down or conversion by the Relevant Spanish Resolution Authority shall be in the following order: (i) CET1 items; (ii) the principal amount of Additional Tier 1 instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims that are not Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in normal insolvency proceedings.

In addition to the Spanish Bail-in Power, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Spanish Bail-in Power, the “Spanish Statutory Loss-Absorption Powers”) of an institution or a group. The point of non-viability of an institution is the point at which the Relevant Spanish Resolution Authority determines that the institution meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Relevant Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Relevant Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Spanish Bail-in Power or any other resolution tool or power (where the conditions for resolution referred to above are met).

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To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Spanish Statutory Loss-Absorption Powers (except, as indicated below, with respect to a Non-Viability Loss Absorption) is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation. Any such compensation, however, together with any other compensation provided by any Applicable Banking Regulations (including, among such other compensation, in accordance with article 36.5 of Law 11/2015) is unlikely to compensate that holder for the losses it has actually incurred and there is likely to be a considerable delay in the recovery of such compensation. Applicable Banking Regulations” means at any time the laws, regulations, requirements, guidelines and policies relating to capital adequacy, resolution and/or solvency then applicable to the Bank and/or the Group including, without limitation to the generality of the foregoing, CRD IV, the BRRD and those laws, regulations, requirements, guidelines and policies relating to capital adequacy, resolution and/or solvency then in effect in Spain (whether or not such regulations, requirements, guidelines or policies have the force of law and whether or not they are applied generally or specifically to the Bank and/or the Group). Compensation payments (if any) are also likely to be made considerably later than when amounts may otherwise have been due under the affected securities. In addition, in the case of a Non-Viability Loss Absorption it is not clear that a holder of the affected securities would have a right to compensation under the BRRD and the SRM Regulation if any resulting treatment of such holder pursuant to the exercise of the Non-Viability Loss Absorption was less favorable than would have been the case under such hierarchy in normal insolvency proceedings.

The powers set out in the BRRD, as implemented through Law 11/2015 and RD 1012/2015, and the SRM Regulation impact how credit institutions and investment firms are managed, as well as, in certain circumstances, the rights of creditors. Pursuant to Law 11/2015, upon any application of the Spanish Bail-in Power and/or Non-Viability Loss Absorption, holders of, among others, unsecured debt securities, subordinated obligations and shares issued by us may be subject to, among other things, a write-down (including to zero) and/or conversion into equity or other securities or obligations on any application of the Spanish Bail-in Power. The exercise of any such powers (or any of the other resolution powers and tools) may result in such holders of such securities losing some or all of their investment or otherwise having their rights under such securities adversely affected, including by becoming holders of further subordinated instruments. Such exercise could also involve modifications to, or the disapplication of, provisions in the terms and conditions of certain securities including alteration of the principal amount or any interest payable on debt instruments, the maturity date or any other dates on which payments may be due, as well as the suspension of payments for a certain period. As a result, the exercise of the Spanish Bail-in Power and/or Non-Viability Loss Absorption with respect to such securities or the taking by an authority of any other action, or any suggestion that the exercise or taking of any such action may happen, could materially adversely affect the rights of holders of such securities, the market price or value or trading behavior of our securities and/or the ability of the Bank to satisfy its obligations under any such securities.

The exercise of the Spanish Bail-in Power and/or Non-Viability Loss Absorption by the Relevant Spanish Resolution Authority is likely to be inherently unpredictable and may depend on a number of factors which may also be outside of the Bank’s control. In addition, as the Relevant Spanish Resolution Authority will retain an element of discretion, holders of such securities may not be able to refer to publicly available criteria in order to anticipate any potential exercise of any such Spanish Bail-in Power and/or Non-Viability Loss Absorption. Because of this inherent uncertainty, it will be difficult to predict when, if at all, the exercise of any such powers by the Relevant Spanish Resolution Authority may occur.

This uncertainty may adversely affect the value of the unsecured debt securities, subordinated obligations and shares issued by us. The price and trading behavior of such securities may be affected by the threat of a possible exercise of any power under Law 11/2015 and/or the SRM Regulation (including any early intervention measure before any resolution) or any suggestion of such exercise, even if the likelihood of such exercise is remote. Moreover, the Relevant Spanish Resolution Authority may exercise any such powers without providing any advance notice to the holders of affected securities.

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In addition, the EBA has published certain regulatory technical standards and implementing technical standards to be adopted by the European Commission and certain other guidelines. These standards and guidelines could be potentially relevant to determining when or how a Relevant Spanish Resolution Authority may exercise the Spanish Bail-in Power and impose a Non-Viability Loss Absorption. Included in this are guidelines on the treatment of shareholders in bail-in or the write-down and conversion of capital instruments, and on the rate of conversion of debt to equity or other securities or obligations in any bail-in. No assurance can be given that these standards and guidelines will not be detrimental to the rights under, and the value of, unsecured debt securities, subordinated obligations and shares issued by us.

Any failure by the Bank and/or the Group to comply with its MREL could have a material adverse effect on the Bank’s business, financial condition and results of operations

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as the minimum requirement for own funds and eligible liabilities (“MREL”). According to Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (the “MREL Delegated RegulationINFORMATION ON THE COMPANY

A.History and Development of the Company

BBVA’s predecessor bank, BBV (Banco Bilbao Vizcaya), was incorporated as a public limited company (a “sociedad anónima” or S.A.) under the Spanish Corporations Law on October 1, 1988. BBVA was formed following the merger of Argentaria into BBV (Banco Bilbao Vizcaya), which was approved by the shareholders of each entity on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, and operates out of Calle Azul, 4, 28050, Madrid, Spain (Telephone: +34-91-374-6201). BBVA’s agent in the U.S. for U.S. federal securities law purposes is Banco Bilbao Vizcaya Argentaria, S.A. New York Branch (1345 Avenue of the Americas, 44th Floor, New York, New York 10105 (Telephone: +1-212-728-1660)). BBVA is incorporated for an unlimited term.

Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. There were no significant capital expenditures in the years ended December 31, 2020, 2019 and 2018.

Capital Divestitures

Our principal divestitures are divestitures in our subsidiaries and affiliates. The main divestitures from 2018 to the date of this Annual Report were the following:

2020

Agreement for the sale of BBVA USA Bancshares, Inc.

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of the share capital in BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business, for approximately $11.6 billion (approximately equivalent to €9.7 billion), to be paid in cash (the “USA Sale”).  

The scope of the USA Sale does not include BBVA Securities Inc. (the Group’s broker-dealer in the United States), the Group’s stake in Propel Venture Partners US Fund I, L.P. and BBVA Processing Services, Inc. (together, the “Excluded Business”). Prior to the closing of the USA Sale, the Excluded Business will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York. 

It is expected that the USA Sale will result in an increase in BBVA Group’s CET1 (fully loaded) ratio of approximately 294 basis points. In addition, we expect to recognize profit net of taxes of approximately €580 million (based on an exchange rate of $1.20 per euro) for the companies included within the scope of the USA Sale from the date of the agreement through the date on which closing is expected to take place. Of this amount, approximately €300 million has already been recognized in the consolidated statement of income for the year ended December 31, 2020.In addition, of the expected impact on the BBVA Group’s CET1 (fully loaded) ratio, an increase of approximately 9 basis points had already been recognized as of December 31, 2020.

The closing of the USA Sale is subject to obtaining the relevant regulatory authorizations from the competent authorities. It is expected that the closing of the USA Sale may take place in mid-2021.

For additional information, see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”.

Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in Spain including a long-term exclusive distribution agreement for the sale of non-life insurance products, excluding the health insurance business, through BBVA’s branch network in Spain.

26


On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros, S.A. de Seguros y Reaseguros (“BBVA Seguros”) transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (“BBVA Seguros Generales”). BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points as of December 31, 2020.

2019

Sale of BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of our wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The sale closed on January 22, 2021 and BBVA received approximately $250 million (approximately €210 million) in cash. The transaction resulted in a loss of approximately €9 million net of taxes and is estimated to increase the Group’s CET1 (fully loaded) ratio by approximately 6 basis points in the first quarter of 2021.

2018

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement. The sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Transfer of real estate business and sale of stake in Divarian

On November 29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

27


Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report.

28


B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

Set forth below are the Group’s current six operating segments:

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

29


The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 was as follows:

 

As of December 31,

 

2020

2019

2018

 

(In Millions of Euros)

Spain

405,878

364,427

353,923

The United States (1)

93,953

88,529

82,057

Mexico

110,224

109,079

97,432

Turkey

59,585

64,416

66,250

South America

55,435

54,996

54,373

Rest of Eurasia

22,881

23,257

18,845

Subtotal Assets by Operating Segment

747,957

704,703

672,880

Corporate Center and Adjustments (2)

(11,781)

(6,967)

2,796

Total Assets BBVA Group

736,176

697,737

675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Intra-group reallocations”.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2020

2019

2018

2020

2019

2018

 

(In Millions of Euros)

(In Percentage)

Spain

606

1,386

1,400

15

23

24

The United States (1)

429

590

736

11

10

13

Mexico

1,759

2,699

2,367

45

45

41

Turkey

563

506

567

14

8

10

South America

446

721

578

11

12

10

Rest of Eurasia

137

127

96

3

2

2

Subtotal operating segments

3,940

6,029

5,743

100

100

100

Corporate Center

(2,635)

(2,517)

(343)

 

 

 

Profit attributable to parent company

1,305

3,512

5,400

 

 

 

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

30


The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Operating Segments

 

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Total (2)

 

(In Millions of Euros)

 

2020

 

 

 

 

 

 

 

 

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

 

 

 

 

 

 

 

 

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

 

 

 

 

 

 

 

 

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

31


The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations and public institutions;

·Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) amounted to €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €62,707 million, a 5.1% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

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This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits, offset in part by the depreciation of the U.S. dollar against the euro

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The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €50,002 million, a 13.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by the shift towards higher profitability investments such as private banking.

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This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €5,332 million, a 1.2% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees, partially offset by the depreciation of the Turkish lira against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

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The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The main business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 2019, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% increase compared with the €37,869 million recorded as of December 31, 2019.Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into their economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses included in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches in Taipei, Tokyo, Hong Kong, Singapore and Shanghai and representative offices in Seoul, Mumbai, Abu Dhabi and Jakarta.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal MarketsSpain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities required(“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under MREL willspecific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be setused only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the resolution authority for each bank (and/SSM as failing or group) based on, amonglikely to fail, which occurs when there is no other things,option to restore its viability (such as applying the criteria set forth in Article 45.6bank’s recovery plan) within the available time frame.

The third and final pillar of the BRRD, includingEBU, which is still under discussion, is the systemic importanceEuropean Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the institution. Eligible liabilities may be senior or subordinated, providedcountry of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that amongare part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, they haveon a remaining maturity of at least one year and, if governed by a non-EU law, they“Pillar 2” basis, as well as the qualitative requirements that the bank must be able to be written down or converted byaddress in the resolution authorityfollowing year. This exercise takes four different elements of a Member State under that law or through contractual provisions.bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

MREL came into force on January 1, 2016. However, the EBA has recognized the impact which this requirement may have on banks’ funding structures and costs, and the MREL Delegated Regulation states that the resolution authorities shall determine an appropriate transitional period but that this shall be as short as possible.

In addition, asany work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a resultsupervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Reforms,Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BBVA Group is subject to Directive (EU) 2017/23992013/36/EU of the European Parliament and of the Council of December 12, 2017June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR I” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “CRD IV”), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016”). 

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On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU as regardsof the rankingEuropean Parliament and of unsecured debt instruments in insolvency hierarchy was approved with the aim to harmonize national laws on insolvency andCouncil of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters ((“Real Decreto-ley 11/2017, de 23 de junio, de medidas urgentes en materia financieraBRRD I) introduced into Spanish law the new class of “non-preferred” senior debt.were published:

On November 9, 2015,·Directive 2019/878/EU of the FSB published its final Total Loss-Absorbing Capacity (“European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “TLACCRD V Directive”) Principlesamending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and Term Sheet (theas amended, replaced or supplemented from time to time, theTLAC Principles and Term SheetCRD Directive”), proposing that G-SIBs maintain significant minimum amounts;  

·Directive 2019/879/EU of liabilities that are subordinated (by law, contractthe European Parliament and of the Council of May 20, 2019 (as amended, replaced or structurally)supplemented from time to certain prior-ranking liabilities, suchtime, “BRRD II”) amending, among other things, BRRD I as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles onregards the loss-absorbing and recapitalization capacity of G-SIBs in resolutioncredit institutions and a term sheet forinvestment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of risk-weighted assets as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022. The Bank is no longer classified as a G-SIB by the FSB with effect from January 1, 2017. However, if the Bank were to be so classified in the future or if TLAC requirements as set out below are adopted and implemented in Spain and extended to non-G-SIBs through the imposition of requirements similar to MREL as set out below, then this could create additional minimum requirements for the Bank.BRRD”); 

Following the publication·Regulation (EU) No. 876/2019 of the Single Resolution Board’s (“European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “SRBCRR II” and, together with the CRD V Directive, “CRD V”) initial policy statementamending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on MREL in November 2018, the SRB published on January 16, 2019 its policy statement on MREL applicable to the second wave of resolution plans (which are those applicable to the most complex banking groups, including BBVA). This policy is based on the current regulatory framework but is also perceived to be preparing the ground for the implementation of the EU Banking Reforms.

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In addition, the EU Banking Reforms establish some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how those regulations and exemptions are to be interpreted and applied. This uncertainty may impact upon the ability of BBVA to comply with its MREL (at both individual and consolidated levels (together, “MRELs”)) by the relevant deadline. In this regard, the EBA submitted on December 14, 2016 its final report on the implementation and design of the MREL framework (the “EBA MREL Report”), which contains a number of recommendations to amend the current MREL framework. Additionally, the EU Banking Reforms contain the legislative proposal of the European Commission for the amendment of the MREL framework and the implementation of the TLAC standards. The EU Banking Reforms propose the amendment of a number of aspects of the MREL framework to align it with the TLAC standards included in the TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the EU Banking Reforms also propose a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities, in excesscounterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·Regulation (EU) No. 877/2019 of the requisite levels for certain purposes.

NeitherEuropean Parliament and of the BRRD nor the MREL Delegated Regulation provides details on the implications of a failure by an institution to comply with its MREL requirement. However, the EU Banking Reforms propose that this be addressed by the relevant authorities on the basis of their powers to address or remove impediments to resolution, the exercise of their supervisory powers under the CRD IV Directive, early intervention measures, and administrative penalties and other administrative measures.

Furthermore, in accordance with the EBA MREL Report, the EBA recommends that resolution authorities and competent authorities should engage in active monitoring of compliance with their respective requirements and considers that (i) the powers of resolution authorities to respond to a breach of MREL should be enhanced (which would require resolution authorities to be given the power to require the preparation and execution of an MREL restoration plan, to use their powers to address impediments to resolvability, to request that distribution restrictions be imposed on an institution by a competent authority and to request a joint restoration plan in cases where an institution breaches both MREL and minimum capital requirements); (ii) resolution authorities should assume a lead role in responding to a failure to issue or roll over MREL-eligible debt leading to a breach of MREL; and (iii) if there are both losses and a failure to roll over or issue MREL-eligible debt, both the relevant resolution authority and relevant competent authority should attempt to agree on a joint restoration plan (provided that both authorities believe that the institution is not failing or likely to fail). In addition, under the EBA Guidelines on triggers for use of early intervention measuresCouncil of May 8, 2015 a significant deterioration in20, 2019 (as amended, replaced or supplemented from time to time, the amount of eligible liabilities and own funds held by an institution for the purposes of meeting its MRELs may put an institution in a situation where conditions for early intervention are met, which may result in the application by the competent authority of early intervention measures.

Further, as outlined in the EBA MREL Report, the EBA’s recommendation is that an institution will not be able to use the same CET 1 capital to meet both MREL and the combined buffer requirements. In addition, the EU Banking Reforms provide that, in the case of the own funds of an institution that may otherwise contribute to the combined buffer requirement where there is any shortfall in MREL, this will be considered as a failure to meet the combined buffer requirement such that those own funds will automatically be used instead to meet that institution’s MRELs and will no longer count towards its combined buffer requirement. Accordingly, this could trigger a limit on discretionary payments (see —Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations”). 

Additionally, if the FROB, the SRM or a Relevant Spanish Resolution Authority finds that there could exist any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

Moreover, with respect to the EU Banking Reforms, there are uncertainties concerning how the subsidiaries of the Group would be treated in determining the resolution group of the Bank and the applicable MRELs, which may lead to a situation where the consolidated MREL of the Bank would not fully reflect its multiple-point-of-entry resolution strategy.

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On May 23, 2018, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.08% of the total liabilities and own funds of the Bank’s resolution group at a sub-consolidated level as of December 31, 2016, which corresponds to 28.04% of the risk-weighted assets of the Bank’s resolution group as of December 31, 2016, and must be met by January 1, 2020. Pursuant to the Group’s multiple-point-of-entry resolution strategy as established by the SRB, the Bank’s resolution group consists of the Bank and its subsidiaries which belong to the same European resolution group. As of December 31, 2016, the total liabilities and own funds of the Bank’s resolution group amounted to €385,647 million, of which the total liabilities and own funds of the Bank comprised approximately 95%, and the risk-weighted assets of the Bank’s resolution group amounted to €207,362 million.

According to our own estimates, we believe that the current own funds and eligible liabilities structure of the Bank’s resolution group is in line with the above MREL. However, the Bank’s MREL is subject to change and no assurance can be given that the Bank may not be subject to a higher MREL at any time in the future.

The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement shall be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the higher of 13.5% of the bank’s risk weighted assets (“RWAsSRM Regulation II”) and 5%amending Regulation (EU) No. 806/2014 of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Any failure or perceived failure by the Bank and/or the Group to comply with its MREL (including the subordination requirement) may have a material adverse effect on the Bank’s business, financial conditions and results of operations and could result in the imposition of restrictions or prohibitions on discretionary payments by the Bank, including the payment of dividends and interest or distributions on Additional Tier 1 instruments. There can also be no assurance as to the relationship between the “Pillar 2” additional own funds requirements, the “combined buffer requirement”, the MRELs once implemented in Spain and the restrictions or prohibitions on discretionary payments.

Increased taxation and other burdens imposed on the financial sector may have a material adverse effect on the Bank’s business, financial condition and results of operations

On February 14, 2013, the European Commission published a proposal (the “Commission’s Proposal”) for a Directive for a common financial transaction tax (“FTT”) in Belgium, Germany, Estonia, Greece, Spain, France, Italy, Austria, Portugal, SloveniaParliament and Slovakia (the “participating Member States”). However, Estonia has since stated that it will not participate.

The Commission’s Proposal has very broad scope and could, if introduced, apply to certain dealings in securities issued by the Group or other issuers (including secondary market transactions) in certain circumstances.

Under the Commission’s Proposal, the FTT could apply in certain circumstances to persons both within and outside the participating Member States. Generally, it would apply to certain dealings in securities where at least one party is a financial institution and at least one party is established in a participating Member State. A financial institution may be, or be deemed to be, “established” in a participating Member State in a broad range of circumstances, including (i) by transacting with a person established in a participating Member State or (ii) where the financial instrument which is subject to the dealings is issued in a participating Member State.

However, the FTT proposal remains subject to negotiation among the participating Member States. It may therefore be altered prior to any implementation, the timing of which remains unclear. Additional EU Member States may decide to participate and participating Member States may decide not to participate.

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While the final outcome of the Commission’s Proposal continues to be uncertain, the Spanish councilCouncil of ministers approved during a meeting held on January 18, 2019 the Bill on the Financial Transaction Tax (the “Spanish FTT Bill”), which is based in part on the Commission’s Proposal. The Spanish FTT Bill introduces a new indirect tax, amounting to 0.2%, to be charged on acquisitions of shares in Spanish companies, regardless of the tax residence of the participants in such transactions, provided that such companies are listed and their respective market capitalization is above €1,000 million. If the Spanish FTT Bill becomes law and subsequently the FTT is approved under a Directive, the Spanish FTT Law should be adapted to the Directive’s content.

Moreover, Law 18/July 15, 2014 of October 15, introduced a 0.03% tax on bank deposits in Spain. This tax is payable annually by Spanish banks.

There can be no assurance that additional national or transnational bank levies or financial transaction taxes will not be adopted by the authorities of the jurisdictions where the Bank operates.

Any levies, taxes or funding requirements imposed on the Bank pursuant to the foregoing or otherwise in any of the jurisdictions where it operates could have a material adverse effect on the Bank′s business, financial condition and results of operations.

Contributions for assisting in the future recovery and resolution of the Spanish banking sector may have a material adverse effect on the Bank’s business, financial condition and results of operations

Law 11/2015 and RD 1012/2015 require Spanish credit institutions, including BBVA, to make at least an annual ordinary contribution to the National Resolution Fund (Fondo de Resolución Nacional), payable on request of the FROB. The total amount of contributions to be made to the National Resolution Fund by all Spanish banking entities must equal at least 1% of the aggregate amount of all deposits guaranteed by the Deposit Guarantee Fund (Fondo de Garantía de Depósitos de Entidades de Crédito) by December 31, 2024. The contribution will be adjusted to the risk profile of each institution in accordance with the criteria set out in Council Implementing Regulation (EU) 2015/81 of December 19, 2014 and RD 1012/2015. The FROB may, in addition, collect extraordinary contributions.

Furthermore, Law 11/2015 also provides for an additional charge (tasa) which shall be used to further fund the activities of the FROB, in its capacity as a resolution authority, which charge shall equal 2.5% of the above annual ordinary contribution to be made to the National Resolution Fund.

Moreover, Commission Delegated Regulation (EU) 2017/2361 of September 14, 2017 establishes the system of contributions to the administrative expenditures of the Single Resolution Board, to be paid by credit institutions in the EU. In addition, since 2016, the Bank has been required to make contributions directly to the EU Single Resolution Fund, once the National Resolution Fund has been integrated into it.See “—Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations

Any levies, taxes or funding requirements imposed on the Bank pursuant to the foregoing or otherwise in any of the jurisdictions where it operates could have a material adverse effect on the Bank’s business, financial condition and results of operations.

Regulatory developments related to the EU fiscal and banking union may have a material adverse effect on the Bank’s business, financial condition and results of operations

The project of achieving a European banking union was launched in the summer of 2012. Its main goal is to resume progress towards the European single market for financial services by restoring confidence in the European banking sector and ensuring the proper functioning of monetary policy in the Eurozone.

Banking union is expected to be achieved through new harmonized banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the SSM and the SRM.

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The SSM is intended to assist in making the banking sector more transparent, unified and safer. In accordance with the SSM Framework Regulation, the ECB fully assumed its new supervisory responsibilities within the SSM, in particular the direct supervision of the largest European banks (including the Bank), on November 4, 2014.

The SSM represents a significant change in the approach to bank supervision at a European and global level, even if it is not expected to result in any radical change in bank supervisory practices in the short term. The SSM has resulted in the direct supervision by the ECB of the largest financial institutions, including the Bank, and indirect supervision of around 3,500 financial institutions. In the coming years, the SSM is expected to work to establish a new supervisory culture importing best practices from the 19 supervisory authorities that form part of the SSM. Several steps have already been taken in this regard, such as (i) the publication of the Supervisory Guidelines, (ii) the approval of the SSM Framework Regulation, (iii) the approval of Regulation (EU) 2016/445 of the ECB of March 14, 2016 on the exercise of options and discretions available in European Union law, and (iv) a set of guidelines on the application of CRR’s national options and discretions. In addition, the SSM represents an extra cost for the financial institutions that fund it through payment of supervisory fees.

The other main pillar of the EU banking union is the SRM, the main purpose of which is to ensure a prompt and coherent resolution of failing banks in Europe at minimum cost. The SRM Regulation establishesestablishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of the SRMa Single Resolution Mechanism and a Single Resolution Fund. The new SRB started operating on January 1, 2015Fund (the “SRM Regulation I”) as regards the loss-absorbing and fully assumed its resolution powers on January 1, 2016. The Single Resolution Fund has also been in place since January 1, 2016, funded by contributions from European banks in accordance with the methodology approved by the Councilrecapitalization capacity of the European Union. The Single Resolution Fund is intended to reach a total amount of €55 billion by 2024 and to be used as a separate backstop only after an 8% bail-in of a bank’s total liabilities including own funds has been applied to cover capital shortfalls (in line with the BRRD).

By allowing for the consistent application of EU banking rules through the SSM, the banking union is expected to help resume momentum toward economic and monetary union. In order to complete such union, a single deposit guarantee scheme is still needed, which may require a change to the existing European treaties. This is the subject of continued negotiation by European leaders to ensure further progress is made in European fiscal, economic and political integration.

Regulations adopted towards achieving banking and/or fiscal union in the EU and decisions adopted by the ECB in its capacity as the Bank’s main supervisory authority may have a material effect on the Bank’s business, financial condition and results of operations. In addition, on January 29, 2014, the European Commission released its proposal on the structural reforms of the European banking sector, which will impose new constraints on the structure of European banks. The proposal is aimed at ensuring the harmonization between the divergent national initiatives in Europe. It includes a prohibition on proprietary trading similar to that contained in Section 619 of the Dodd-Frank Act (also known as the Volcker Rule) and a mechanism to potentially require the separation of trading activities (including market-making), such as in the Financial Services (Banking Reform) Act 2013, complex securitizations and risky derivatives.

There can be no assurance that regulatory developments related to the EU fiscal and banking union, and initiatives undertaken at the EU level, will not have a material adverse effect on the Bank’s business, financial condition and results of operations.

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The Group’s anti-money laundering and anti-terrorism programs may be circumvented or otherwise not be sufficient to prevent all money laundering or terrorism financing

Group companies are subject to rules and regulations regarding money laundering and the financing of terrorism. Monitoring compliance with anti-money laundering and anti-terrorism financing rules can put a significant financial burden on banks and other financialcredit institutions and pose significant technical problems. Although the Group believes that its current anti-money laundering program (which includes, among other elements, policies, procedures, technical infrastructure, independent reviewsinvestment firms (SRM Regulation I as so amended by SRM Regulation II and training activities) is sufficient to comply with applicable rules and regulations, it cannot guarantee that its anti-money laundering and anti-terrorism financing programs will not be circumventedas amended, replaced or otherwise be sufficient to prevent all money laundering or terrorism financing. Any of such events may have severe consequences, including sanctions, fines and, notably, reputational consequences, which could have a material adverse effect on the Group’s financial condition and results of operations. Further, the Group engages in investigations relating to alleged or suspected violations of anti-money laundering or anti-terrorism rules and regulationssupplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and any such investigationsthe SRM Regulation II, the “EU Banking Reforms”).  

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or any related proceedings couldafter that date, as described therein.

CRD IV, among other things, established a “Pillar 1” minimum capital requirement and increased the level of capital required through the “combined capital buffer requirement” that institutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific counter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and must be time-consuming and costly.satisfied with CET1 capital.

The GroupG-SIB buffer is exposedapplicable to risksthe institutions included in relationthe list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB”). The Bank was excluded from this list with effect as from January 1, 2017, so, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to compliance with anti-corruption laws and regulations and economic sanctions programsmaintain the G-SIB buffer.

The GroupBank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to comply withmaintain a fully-loaded D-SIB buffer equivalent to a CET1 ratio of 0.75% on a consolidated basis.

In December 2015, the laws and regulationsBank of various jurisdictions where it conducts operations. In particular, its operations are subjectSpain agreed to various anti-corruption laws, includingset the U.S. Foreign Corrupt Practices Actcounter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. The Bank of 1977 andSpain agreed in December 21, 2020 to maintain the United Kingdom Bribery Act of 2010, and economic sanction programs, including those administered by the United Nations, the EU and the United States, including the U.S. Treasury Department’s Office of Foreign Assets Control. The anti-corruption laws generally prohibit providing anything of valuecounter cyclical capital buffer applicable to government officialscredit exposures in Spain at 0% for the purposesfourth quarter of obtaining or retaining business or securing any improper business advantage.2020. As part of the Group’s business,date of this Annual Report, the Group may directly or indirectly, through third parties, deal with entities the employees of which are considered government officials. In addition, economic sanctions programs restrict the Group’s business dealings with certain sanctioned countries, individuals and entities.

Although the Group has adopted internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations, there can be no assurance that such policies, procedures, systems and other mitigating measures will be sufficient or that its employees, directors, officers, partners, agents and service providers will not take actions in violation of the Group’s policies and procedures (or otherwise in violation of the relevant anti-corruption laws and sanctions regulations) for which it or they may be ultimately held responsible. The Group engages in investigations relating to alleged or suspected violations of anti-corruption laws and sanctions regulations from time to time and such investigations or any related proceedings could be time-consuming and costly and their outcomes difficult to predict.Violations of anti-corruption laws and sanctions regulations could lead to financial penalties being imposed on the Group, limits being placed on the Group’s activities, the Group’s authorizations and licenses being revoked, damage to the Group’s reputation and other consequences that could have a material adverse effect on the Group’s business, results of operations and financial condition.

Local regulation may have a material effect on the Bank’s business, financial condition, results of operations and cash flows

The Bank’s operations are subject to regulatory risks, including the effects of changes in laws, regulations, policies and interpretations, in the various jurisdictions outside Spain where it operates. Regulations in certain jurisdictions where the Bank operates differ in a number of material respects from equivalent regulations in Spain. For example, local regulations may require the Bank’s subsidiaries and affiliates to meetcounter cyclical capital requirements that are different from thosebuffer applicable to the Bank as a Spanish bank, they may prohibit certain activities permitted to be undertaken by the Bank in Spain or they may require certain approvals to be obtained in connection with such subsidiaries and affiliates’ activities. Changes in regulations may have a material effect on the Group’s business and operations, particularly changes affecting Mexico, the United States or Turkey, which are the Group’s most significant jurisdictions by assets other than Spain.Group stands at 0%.

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Additionally, Article 104 of the CRD Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that the supervisory authorities may require credit institutions to meet capital requirements exceeding the “Pillar 1” minimum capital requirements and the “combined capital buffer requirement” by establishing “Pillar 2” capital requirements (which, with respect to other requirements, are above “Pillar 1” requirements and below the “combined capital buffer requirement”).

Furthermore, the governments in certain regions whereECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation”), to carry out a SREP for us and the Group operates have exercised,at least on an annual basis.

On July 19, 2018, the EBA published its final guidelines intended to further enhance risk management by institutions and continuethe convergence of supervision with respect to exercise, significant influence over the local economy. Governmental actions, including changesSREP. These guidelines focus on stress testing, particularly to determine “Pillar 2” and the level of interest rate risk.

Likewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in laws or regulations or2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the interpretationform of existing laws or regulations, concerning56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirements that the economy and state-owned enterprises, or otherwise affecting the Group’s activity, could have a significant effectECB may impose on the private sector entitiesBank and/or the Group under the SREP will require the Bank and/or the Group to maintain capital levels higher than the “Pillar 1” minimum capital requirement.

As a result of the most recent SREP carried out by the European Central Bank, and in generalaccordance with the measures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, a CET1 ratio of 8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.00%.

For further information on the Bank’s subsidiariescountercyclical capital buffer and affiliatesthe total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in particular. In addition,such legislation. Should that requirement not be met and until the Group’s activities in emerging economies, such as Venezuela, areMDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the restrictions described in the preceding paragraph while such calculation is pending, shall also be triggered by a heightened riskbreach of changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest-rate caps, exchange controls, government restrictions on dividendsthe MREL requirement (see “Item 3. Risk Factors—Regulatory, Tax and tax policies. Any of these risks couldReporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group is operationsparty to a number of legal and regulatory actions and proceedings

BBVA and its subsidiaries are involved in a number of legal and regulatory actions and proceedings, including legal claims and proceedings, civil and criminal regulatory proceedings, governmental investigations and proceedings, tax proceedings and other proceedings, in jurisdictions around the world, the final outcome of which is unpredictable, including in the case of legal proceedings where claimants seek unspecified or undeterminable damages, or where the cases argue novel legal theories, involve a large number of parties or are at early stages of discovery or investigation.

Legal and regulatory actions and proceedings against financial institutions have been on the rise in Spain and other jurisdictions where the Group operates over the last decade, fueled in part by certain recent consumer-friendly rulings. In certain instances, these rulings were as a result of appeals made to national or supranational courts (such as the European Court of Justice). Legal and regulatory actions and proceedings faced by the Group include legal proceedings brought by clients before Spanish and European courts in relation to mortgage loan agreements in which claimants seek that certain provisions of such agreements be declared null and void (including provisions concerning fees and other expenses, early termination, the use of certain interest rate indexes and the use of “floor” clauses limiting the interest rates in mortgages loans). Legal and regulatory actions and proceedings faced by other financial institutions regarding these or other matters, especially if such actions or proceedings result in consumer-friendly rulings, could also adversely affect the Group. The Group is also involved in antitrust proceedings and investigations in certain countries which could, among other matters, give rise to sanctions or lead to lawsuits from clients or other persons. For example, in April 2017, the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica or the “COFECE”) launched an antitrust investigation relating to alleged monopolistic practices of certain financial institutions, including BBVA’s subsidiary BBVA Bancomer, in connection with transactions in Mexican government bonds. The Mexican Banking and Securities Exchange Commission (Comisión Nacional Bancaria y de Valores) also initiatedor a separate investigation regarding this matter, which resulted in certain fines being initially imposed, insignificant in amount, which BBVA Bancomer has challenged. In March 2018, BBVA Bancomer and certain other affiliatesbreach of the Group were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York, alleging that the defendant banks and their named subsidiaries engaged in collusion with respect to the purchase and sale of Mexican government bonds. The plaintiffs seek unspecified monetary relief.

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The outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations, is difficult to predict. However, in connection with such matters the Group may incur significant expense, regardless of the ultimate outcome, and any such matters could expose the Group to any of the following outcomes: substantial monetary damages, settlements and/or fines; remediation of affected customers and clients; other penalties and injunctive relief; additional litigation; criminal prosecution in certain circumstances; regulatory restrictions on the Group’s business operations including the withdrawal of authorizations; changes in business practices; increased regulatory compliance requirements; the suspension of operations; public reprimands; the loss of significant assets or business; a negative effect on the Group’s reputation; loss of confidence by investors, counterparties, customers, clients, supervisors and other stakeholders; risk of credit rating agency downgrades; a potential negative impact on the availability and cost of funding and liquidity; and the dismissal or resignation of key individuals. There is also a risk that the outcome of any legal or regulatory actions or proceedings in which the Group is involved may give rise to changes in laws or regulations as part of a wider response by relevant lawmakers and regulators. A decision in any matter, either against the Group or another financial institution facing similar claims, could lead to further claims against the Group. In addition, responding to the demands of litigation may divert management’s time and attention and the Group’s financial resources. Moreover, where provisions have already been taken in connection with an action or proceeding, such provisions could prove to be inadequate.

As a result of the above, legal and regulatory actions and proceedings currently faced by the Group or to which it may become subject in the future or otherwise affected by, individually or in the aggregate, if resolved in whole or in part adversely to the Group, could have a material adverse effect on the Group’s business, financial condition and results of operations.

We may be affected by actions that are incompatible with our ethics and compliance standards, and by our failure to timely detect or remedy any such actions

Some of our management and/or employees and/or persons doing business with us may engage in activities that are incompatible with our ethics and compliance standards. Although we have adopted measures designed to identify, monitor and mitigate such actions, and remediate them when we become aware of them, we are subject to the risk that our management and/or employees and/or persons doing business with us may engage in fraudulent activity, corruption or bribery, circumvent or override our internal controls and procedures or misappropriate or manipulate our assets for their personal or business advantage to our detriment.

Our business, including relationships with third parties, is guided by ethical principles. We have adopted a Code of Conduct, applicable to all companies and persons which form part of the Group, and a number of internal policies designed to guide our management and employees and reinforce our values and rules for ethical behavior and professional conduct. For further information on our Code of Conduct, seeItem 16B.Code of Ethics”. However, we are unable to ensure that all of our management and employees, more than 125,000 people, or persons doing business with us comply at all times with our ethical principles. Acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the Group’s reputation among existing and potential clients and other stakeholders. Negative public opinion could result from actual or alleged conduct by Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and from actions taken by regulators or others in response to such conduct.minimum leverage ratio requirement.

As ofCRD V also distinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, only the date of this Annual Report, we are conducting an investigation, led by PricewaterhouseCoopers throughformer being regarded as mandatory requirements. Notwithstanding the Bank’s external legal counsel Garrigues, along with Uría Menéndez, regarding allegations of improper activity related to our relationship with Grupo Cenyt which may have violated our ethical standards and applicable governance or regulatory obligations. Governmentalforegoing, CRD V provides that, besides other measures, supervisory authorities are also investigating this matter. We are carrying out our investigationentitled to protect the Group’s interests and in connection therewith are cooperating with governmental authorities and our supervisors. It is not possible at this time to predict the scope or duration of our investigation or any investigations by governmental authorities, or their likely outcomes.

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Any failure, whether real or perceived,impose further “Pillar 2” capital requirements when an institution repeatedly fails to follow our ethical principles or to comply with applicable governance or regulatory obligations could harm our reputation, subject us to additional regulatory scrutiny, or otherwise adversely affect the Group’s business, financial condition and results of operations.

Liquidity and Financial Risks

The Bank has a continuous demand for liquidity to fund its business activities. The Bank may suffer during periods of market-wide or firm-specific liquidity constraints, and liquidity may not be available to it even if its underlying business remains strong

Liquidity and funding continue to remain a key area of focus for the Group and the industry as a whole. Like all major banks, the Group is dependent on confidence in the short- and long-term wholesale funding markets. Should the Group, due to exceptional circumstances or otherwise, be unable to continue to source sustainable funding, its ability to fund its financial obligations could be affected.

The Bank’s profitability or solvency could be adversely affected if access to liquidity and funding is constrained or made more expensive for a prolonged period of time. Under extreme and unforeseen circumstances, such as the closure of financial markets and uncertainty as to the ability of a significant number of firms to ensure they can meet their liabilities as they fall due, the Group’s ability to meet its financial obligations as they fall due or to fulfil its commitments to lend could be affected through limited access to liquidity (including government and central bank facilities). In such extreme circumstances, the Group may not be in a position to continue to operate without additional funding support, which it may be unable to access. These factors may have a material adverse effect on the Group’s solvency, including its ability to meet its regulatory minimum liquidity requirements. These risks can be exacerbated by operational factors such as an over-reliance on a particular source of funding or changes in credit ratings, as well as market-wide phenomena such as market dislocation, regulatory change or major disasters.

In addition, corporate and institutional counterparties may seek to reduce aggregate credit exposures to the Bank (or to all banks), which could increase the Group’s cost of funding and limit its access to liquidity. The funding structure employed by the Group may also prove to be inefficient, thus giving rise to a level of funding cost where the cumulative costs are not sustainable over the longer term. The funding needs of the Group may increase and such increases may be material to the Group’s business, financial condition and results of operations.

Withdrawals of deposits or other sources of liquidity may make it more difficult or costly for the Group to fund its business on favorable terms, cause the Group to take other actions or even lead to the exercise of any Spanish Bail-in Power

Historically, one of the Group’s principal sources of funds has been savings and demand deposits. Large-denomination time deposits may, under some circumstances, such as during periods of significant interest-rate-based competition for these types of deposits, be a less stable source of deposits than savings and demand deposits. The level of wholesale and retail deposits may also fluctuate due to other factors outside the Group’s control, such as a loss of confidence (including as a result of administrative initiatives, including the exercise of any Spanish Bail-in Power and/or confiscation and/or taxation of creditors’ funds) or competition from investment funds or other products. The introduction of a national tax on outstanding deposits could adversely affect the Group’s activities, especially in Spain.

Moreover, there can be no assurance that, in the event of a sudden or unexpected withdrawal of deposits or shortage of funds in the banking systems or money markets in which the Group operates, or where such withdrawal specifically affects the Group, the Group will be able to maintain its current levels of funding without incurring higher funding costs or having to liquidate certain of its assets. Furthermore, in such an event, the Bank could be subject to the adoption of an early intervention or, ultimately, resolution measure by a Relevant Spanish Resolution Authoritypursuant to Law 11/2015 (including, among others but without limitation, the Spanish Bail-in Power and/or Non-Viability Loss Absorption). See “—Legal, Regulatory and Compliance Risks—Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue” below.“Pillar 2” capital guidance previously imposed.

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Additionally, CRD II sets a binding leverage ratio requirement of 3% of Tier 1 capital, in addition to the institution’s own funds requirements and risk-weighted assets (“RWAs”)-based requirements. In addition, if public sourcesparticular, any breach of liquidity,this leverage ratio would entail the need to determine the MDA and the related consequences.

Furthermore, on December 7, 2017 the BCBS announced the end of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk in those weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such approaches and enhance comparability among banks in which such internal ratings-based approaches are used. The review of minimum capital requirements will also limit the regulatory benefit for banks when calculating total RWAs using internal risk models as compared with the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches that will be applicable as from January 1, 2022, which is expected to increase to 72.5% as from January 1, 2027.

Moreover, on March 15, 2018, the ECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in order to avoid future and excessive accumulation of non-performing loans without coverage in the balance sheets of the credit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a year and, from the beginning of 2021, the banks must inform the ECB extraordinary measures adopted in response to the financial crisis since 2008, are removed from the market, there can be no assurance that the Group will be able to maintain its current levels of funding without incurring higher funding costs or having to liquidate certain of its assets or taking additional deleverage measures, and could be subject to the adoption of any early intervention or, ultimately, resolution measures by resolution authorities pursuant to Law 11/2015 (including, among others but without limitation, the Spanish Bail-in Power and/or Non-Viability Loss Absorption).

Implementation of internationally accepted liquidity ratios might require changes in businessdifference between their practices that affect the profitability of the Bank’s business activities

The liquidity coverage ratio (“LCR”) is a quantitative liquidity standard developed by the BCBS to ensure that those banking organizations to which this standard applies have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. The final standard was announced in January 2013 by the BCBS. The LCR has been progressively implemented since 2015 in accordance with the CRR, with banks having had to fully comply (100%) with such ratio since January 1, 2018. As of December 31, 2018, the LCR of the Group was 127%.

The BCBS’s net stable funding ratio (“NSFR”) has a time horizon of one year and has been developed to provide a sustainable maturity structure of assets and liabilities such that banks maintain a stable funding profile in relation to their on- and off-balance sheet activities that reduces the likelihood that disruptions to a bank’s regular sources of funding will erode its liquidity position in a way that could increase the risk of its failure. The BCBS contemplated that the NSFR, including any revisions, was to be implemented by member countries as a minimum standard by January 1, 2018, with no phase-in. While the NSFR has not yet been introduced, the EU Banking Reforms propose the introduction of a harmonized binding requirement for the NSFR across the EU.

Various elements of the LCR and the NSFR, as they are implemented by national banking regulators and complied with by the Bank, may cause changes that affect the profitability of business activities and require changes to certain business practices, which could expose the Bank to additional costs (including increased compliance costs) or have a material adverse effect on the Bank’s business, financial condition or results of operations. These changes may also cause the Bank to invest significant management attention and resources to make any necessary changes.

The Group’s businesses are subject to inherent risks concerning borrower and counterparty credit quality which have affected and are expected to continue to affect the recoverability and value of assets on the Group’s balance sheet

The Group has exposures to many different products, counterparties and obligors and the credit quality of its exposures can have a significant effect on the Group’s earnings. Adverse changes in the credit quality of the Group’s borrowers and counterparties or collateral, or in their behavior or businesses, may reduce the value of the Group’s assets, and materially increase the Group’s write-downs and provisions for impairment losses. Credit risk can be affected by a range of factors, including an adverse economic environment, reduced consumer and/or government spending, global economic slowdown, changes in the rating of individual counterparties, the debt levels of individual contractual counterparties and the economic environment they operate in, increased unemployment, reduced asset values, increased personal or corporate insolvency levels, reduced corporate profits, changes (and the timing, quantum and pace of these changes) in interest rates, counterparty challenges to the interpretation or validity of contractual arrangements and any external factors of a legislative or regulatory nature. In recent years, the global economic crisis has driven cyclically high bad debt charges.

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Non-performing or low credit quality loans have in the past and can continue to negatively affect the Bank’s results of operations. The Bank cannot assure that it will be able to effectively control the level of the impaired loans in its total loan portfolio. At present, default rates are partly cushioned by low rates of interest which have improved customer affordability, but the risk remains of increased default rates as interest rates start to rise. The timing, quantum and pace of any rise are key risk factors. All new lending is dependent on the Group’s assessment of each customer’s ability to pay, and there is an inherent risk that the Group has incorrectly assessed the credit quality or willingness of borrowers to pay, possibly as a result of incomplete or inaccurate disclosure by those borrowers or as a result of the inherent uncertainty that is involved in the exercise of constructing models to estimate the true risk of lending to counterparties. The Group estimates and establishes reserves for credit risks and potential credit losses inherent in its credit exposure. This process, which is critical to the Group’s results and financial condition, requires difficult, subjective and complex judgments, including forecasts of how macro-economic conditions might impair the ability of borrowers to repay their loans. As is the case with any such assessments, there is always a risk that the Group will fail to adequately identify the relevant factors or that it will fail to estimate accurately the effect of these identified factors, which could have a material adverse effect on the Group’s business, financial condition or results of operations.

The Group’s business is particularly vulnerable to volatility in interest rates

The Group’s results of operations are substantially dependent upon the level of its net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond the Group’s control, including fiscal and monetary policies of governments and central banks, regulation of the financial sectors in the markets in which it operates, domestic and international economic and political conditions and other factors. Changes in market interest rates,including cases of negative reference rates, can affect the interest rates that the Group receives on its interest-earning assets differently to the rates that it pays for its interest-bearing liabilities. This may, in turn, result in a reduction of the net interest income the Group receives, which could have a material adverse effect on its results of operations.prudential provision expectations.

In addition, the high proportionECB has announced that a TRIM is being conducted on the internal models used by banks subject to its supervision to calculate their RWAs, in order to reduce inconsistencies and unjustified variability in these internal models throughout the European Union. Although the full results of loans referenced to variable interest rates makes debt service on such loans more vulnerable to changes in interest rates. In addition,the TRIM are not yet known, it could imply a rise in interest rates could reduce the demand for credit and the Group’s ability to generate credit for its clients, as well as contribute to an increasechange in the credit default rate. As a result of theseinternal models used by banks and, at the above factors, significant changessame time, increases or volatility in interest rates could have a material adverse effect on the Group’s business, financial condition or results of operations.

The Group has a substantial amount of commitments with personnel considered wholly unfunded due to the absence of qualifying plan assets

The Group’s commitments with personnel which are considered to be wholly unfunded are recognized under the heading “Provisions—Provisions for Pensions and Similar Obligations” in its consolidated balance sheets includeddecreases in the Consolidated Financial Statements. For more information, please see Note 25 to our Consolidated Financial Statements.capital needs of banks, including the Bank.

The Group faces liquidity riskBRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in connection with its abilityrelation to make payments on its unfunded commitments with personnel, which it seeks to mitigate, with respect to post-employment benefits, by maintaining insurance contracts which were contracted with insurance companies owned by the Group. The insurance companies have recorded in their balance sheets specific assets (fixed interest deposit and bonds) assignedtotal liabilities known as MREL requirement. According to the fundingCommission Delegated Regulation (EU) 2016/1450 of these commitments. The insurance companies also manage derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. The Group seeks to mitigate liquidity risk with respect to early retirements and post-employment welfare benefits through oversight by the Assets and Liabilities CommitteeMay 23, 2016 (“ALCO”) of the Group. The Group’s ALCO manages a specific asset portfolio to mitigate the liquidity risk resulting from the payments of these commitments. These assets are government and covered bonds which are issued at fixed interest rates with maturities matching the aforementioned commitments. The Group’s ALCO also manages derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. Should BBVA fail to adequately manage liquidity risk and interest rate risk either as described above or otherwise, it could have a material adverse effect on the Group’s business, financial condition and results of operations.

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The Bank and certain of its subsidiaries are dependent on their credit ratings and any reduction of their credit ratings could materially and adversely affect the Group’s business, financial condition and results of operations

The Bank and certain of its subsidiaries are rated by various credit rating agencies. The credit ratings of the Bank and such subsidiaries are an assessment by rating agencies of their ability to pay their obligations when due. Any actual or anticipated decline in the Bank’s or such subsidiaries’ credit ratings to below investment grade or otherwise may increase the cost of and decrease the Group’s ability to finance itself in the capital markets, secured funding markets (by affecting its ability to replace downgraded assets with better-rated ones), or interbank markets, through wholesale deposits or otherwise, harm its reputation, require it to replace funding lost due to the downgrade, which may include the loss of customer deposits, and make third parties less willing to transact business with the Group or otherwise materially adversely affect its business, financial condition and results of operations. Furthermore, any decline in the Bank’s or such subsidiaries’ credit ratings to below investment grade or otherwise could breach certain agreements or trigger additional obligations under such agreements, such as a requirement to post additional collateral, which could materially adversely affect the Group’s business, financial condition and results of operations. See “Macroeconomic RisksAny decline in the Kingdom of Spain’s sovereign credit ratings could adversely affect the Group’s business, financial condition and results of operations”.

Highly-indebted households and corporations could endanger the Group’s asset quality and future revenues

In recent years, households and businesses have reached a high level of indebtedness, particularly in Spain, which has created increased risk in the Spanish banking system. In addition, the high proportion of loans referenced to variable interest rates makes debt service on such loans more vulnerable to upward movements in interest rates and the profitability of the loans more vulnerable to interest rate decreases. Highly indebted households and businesses are less likely to be able to service debt obligations as a result of adverse economic events, which could have an adverse effect on the Group’s loan portfolio and, as a result, on its financial condition and results of operations. Moreover, the increase in households’ and businesses’ indebtedness also limits their ability to incur additional debt, reducing the number of new products that the Group may otherwise be able to sell to them and limiting the Group’s ability to attract new customers who satisfy its credit standards, which could have an adverse effect on the Group’s ability to achieve its growth plans.

The Group depends in part upon dividends and other funds from subsidiaries

Some of the Group’s operations are conducted through its financial services subsidiaries. As a result, the Bank’s ability to pay dividends, to the extent the Bank decides to do so, depends in part on the ability of the Group’s subsidiaries to generate earnings and to pay dividends to BBVA. Payment of dividends, distributions and advances by the Group’s subsidiaries is contingent upon their earnings and business considerations and is or may be limited by legal, regulatory and contractual restrictions. For instance, the repatriation of dividends from the Group’s Venezuelan and Argentinean subsidiaries have been subject to certain restrictions and there is no assurance that further restrictions will not be imposed. Additionally, the Bank’s right to receive any assets of any of the Group’s subsidiaries as an equity holder of such subsidiaries upon their liquidation or reorganization will be effectively subordinated to the claims of subsidiaries’ creditors, including trade creditors. The Group also has to comply with increased capital requirements, which could result in the imposition of restrictions or prohibitions on discretionary payments including the payment of dividends and other distributions to the Bank by its subsidiaries (see “—Legal, Regulatory and Compliance RisksIncreasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations)

Business and Industry Risks
The Group faces increasing competition in its business lines

The markets in which the Group operates are highly competitive and this trend will likely continue with new business models likely to be developed in coming years whose impact is unforeseeable. In addition, the trend towards consolidation in the banking industry has created larger and stronger banks with which the Group must now compete.

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The Group also faces competition from non-bank competitors, such as payment platforms, e-commerce businesses, department stores (for some credit products), automotive finance corporations, leasing companies, factoring companies, mutual funds, pension funds, insurance companies, and public debt.

In recent years, the financial services sector has experienced a significant transformation, closely linked to the development of the internet and mobile technologies. Part of that transformation involves the entrance of new players, such as non-bank digital providers that compete (and cooperate) between them and with banks in most of the areas of financial services as well as large digital players such as Amazon, Google, Facebook or Apple, who have also started to offer financial services (mainly, payments and credit) ancillary to their core business. However, as of the date of this Annual Report, there is an uneven playing field between banks and such non-bank players. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete with non-bank players that are only subject to activity-specific regulations or benefit from regulatory uncertainty. In addition, fintech activities are generally subject to additional rules on internal governance when they are carried out within a banking group. For instance, the CRD IV Directive limits the ratio between the variable and the fixed salary that financial institutions can pay to certain staff members identified as risk takers. This places banking groups such as the Group at a competitive disadvantage for attracting and retaining digital talent and for retaining the founders and management teams of acquired start-ups.

Existing loopholes in the regulatory framework are another source of uneven playing fields between banks and non-bank players. Some new services or business models are not yet covered under existing regulations. In these cases, asymmetries between players arise since regulated providers often face obstacles to engage in unregulated activities. For instance, the EBA has recommended to competent authorities that they prevent credit institutions, payment institutions and e-money institutions from buying, holding or selling virtual currencies.

The Group’s future success may depend, in part, on its ability to use technology to provide products and services that provide convenience to customers. Despite the technological capabilities the Group has been developing and its commitment to digitalization, as a result of the uneven playing field referred to above or for other reasons, the Group may not be able to effectively implement new technology-driven products and services or be successful in marketing or delivering these products and services to its customers, which would adversely affect the Group’s business, financial condition and results of operations.

In addition, companies offering new applications and financial-related services based on artificial intelligence are becoming more competitive. The often lower cost and higher processing speed of these new applications and services can be especially attractive to technologically-adept purchasers. As technology continues to evolve, more tasks currently performed by people may be replaced by automation, machine learning and other advances outside of the Group’s control. If the Group is not able to successfully keep pace with these technological advances, its business may be adversely affected.

In addition, the project of achieving a European capital markets union was launched by the European Commission as a plan to mobilize capital in Europe, being one of its main objectives to provide businesses with a greater choice of funding at lower costs and to offer new opportunities for savers and investors. These objectives are expected to be achieved by developing a more diversified financial system complementing bank financing with deep and developed capital markets, which may adversely affect the Group’s business, financial condition and results of operations.

The Group faces risks related to its acquisitions and divestitures

The Group’s mergers and acquisitions activity involves divesting its interests in some businesses and strengthening other business areas through acquisitions. The Group may not complete these transactions in a timely manner, on a cost-effective basis or at all. Even though the Group reviews the companies it plans to acquire, it is generally not feasible for these reviews to be complete in all respects. As a result, the Group may assume unanticipated liabilities, or an acquisition may not perform as well as expected. In addition, transactions such as these are inherently risky because of the difficulties of integrating people, operations and technologies that may arise. There can be no assurance that any of the businesses the Group acquires can be successfully integrated or that they will perform well once integrated. Acquisitions may also lead to potential write-downs due to unforeseen business developments that may adversely affect the Group’s results of operations.

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The Group’s results of operations could also be negatively affected by acquisition or divestiture-related charges, amortization of expenses related to intangibles and charges for impairment of long-term assets. The Group may be subject to litigation in connection with, or as a result of, acquisitions or divestitures, including claims from terminated employees, customers or third parties, and the Group may be liable for future or existing litigation and claims related to the acquired business because either the Group is not indemnified for such claims or the indemnification is insufficient. Further, in the case of a divestiture, the Group may be required to indemnify the buyer in respect of certain matters, including claims against the divested entity or business. Any of the foregoing, could cause the Group to incur significant expenses and could materially adversely affect its business, financial condition and results of operations.

The Group’s ability to maintain its competitive position depends significantly on its international operations, which expose the Group to foreign exchange, political and other risks in the countries in which it operates, which could cause an adverse effect on its business, financial condition and results of operations

The Group operates commercial banks and insurance and other financial services companies in various countries and its overall success as a global business depends upon its ability to succeed in differing economic, social and political conditions. The Group is particularly sensitive to developments in Mexico, the United States, Turkey and Argentina, which represented 14.3%, 12.1%, 9.8% and 1.2% of the Group’s assets as at December 31, 2018, respectively.

The Group is confronted with different legal and regulatory requirements in many of the jurisdictions in which it operates. See ―Legal, Regulatory and Compliance Risks―Local regulation may have a material effect on the Bank’s business, financial condition, results of operations and cash flows. These include, but are not limited to, different tax regimes and laws relating to the repatriation of funds or nationalization or expropriation of assets. The Group’s international operations may also expose it to risks and challenges which its local competitors may not be required to face, such as exchange rate risk, difficulty in managing a local entity from abroad, political risk which may be particular to foreign investors and limitations on the distribution of dividends. As of December 31, 2018, approximately 45.4% of the Group’s assets and approximately 44.6% of its liabilities were denominated in currencies other than euro.

The Group’s presence in locations such as the Latin American markets or Turkey requires it to respond to rapid changes in market conditions in these countries and exposes the Group to increased risks relating to emerging markets. See “—Macroeconomic Risks—The Group may be materially adversely affected by developments in the emerging markets where it operates. There can be no assurance that the Group will succeed in developing and implementing policies and strategies that are effective in each country in which it operates or that any of the foregoing factors will not have a material adverse effect on its business, financial condition and results of operations.

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Reporting and Other Financial and Operational Risks
Weaknesses or failures in the Group’s internal or outsourced processes, systems and security could materially adversely affect its business, financial condition and results of operations and could result in reputational damage

Operational risks, through inadequate or failed internal processes, systems (including financial reporting and risk monitoring processes) or security, or from people-related or external events, including the risk of fraud and other criminal acts carried out by Group employees or against Group companies, are present in the Group’s businesses. These businesses are dependent on processing and reporting accurately and efficiently a high volume of complex transactions across numerous and diverse products and services, in different currencies and subject to a number of different legal and regulatory regimes. Any weakness in these internal processes, systems or security could have an adverse effect on the Group’s results, the reporting of such results, and on the ability to deliver appropriate customer outcomes during the affected period. In addition, any breach in security of the Group’s systems could disrupt its business, result in the disclosure of confidential information and create significant financial and legal exposure for the Group. Although the Group devotes significant resources to maintain and regularly update its processes and systems that are designed to protect the security of its systems, software, networks and other technology assets, there is no assurance that all of its security measures will provide absolute security. Furthermore, the Group has outsourced certain functions (such as the storage of certain information) to third parties and, as a result, it is dependent on the adequacy of the internal processes, systems and security measures of such third parties. Any actual or perceived inadequacies, weaknesses or failures in the Group’s systems, processes or security or the systems, processes or security of such third parties could damage the Group’s reputation (including harming customer confidence) or could otherwise have a material adverse effect on its business, financial condition and results of operations.

The financial industry is increasingly dependent on information technology systems, which may fail, may not be adequate for the tasks at hand or may no longer be available

Banks and their activities are increasingly dependent on highly sophisticated information technology(“IT”) systems. IT systems are vulnerable to a number of problems, such as software or hardware malfunctions, computer viruses, hacking and physical damage to vital IT centers. IT systems need regular upgrading and banks, including the Bank, may not be able to implement necessary upgrades on a timely basis or upgrades may fail to function as planned.

Furthermore, the Group is under continuous threat of loss due to cyber-attacks, especially as it continues to expand customer capabilities to utilize internet and other remote channels to transact business. Two of the most significant cyber-attack risks that it faces are e-fraud and breach of sensitive customer data. Loss from e-fraud occurs when cybercriminals breach and extract funds directly from customers’ or the Group’s accounts. A breach of sensitive customer data, such as account numbers, could present significant reputational impact and significant legal and/or regulatory costs to the Group.

Over the past few years, there have been a series of distributed denial of service attacks on financial services companies. Distributed denial of service attacks are designed to saturate the targeted online network with excessive amounts of network traffic, resulting in slow response times, or in some cases, causing the site to be temporarily unavailable. Generally, these attacks have not been conducted to steal financial data, but meant to interrupt or suspend a company’s internet service. While these events may not result in a breach of client data and account information, the attacks can adversely affect the performance of a company’s website and in some instances have prevented customers from accessing a company’s website. Distributed denial of service attacks, hacking and identity theft risks could cause serious reputational harm. Cyber threats are rapidly evolving and the Group may not be able to anticipate or prevent all such attacks. The Group’s risk and exposure to these matters remains heightened because of the evolving nature and complexity of these threats from cybercriminals and hackers, its plans to continue to provide internet banking and mobile banking channels, and its plans to develop additional remote connectivity solutions to serve its customers. The Group may incur increasing costs in an effort to minimize these risks and could be held liable for any security breach or loss.

Additionally, fraud risk may increase as the Group offers more products online or through mobile channels.

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In addition to costs that may be incurred as a result of any failure of its IT systems, the Group could face fines from bank regulators if it fails to comply with applicable banking or reporting regulations as a result of any such IT failure or otherwise.

Any of the above risks could have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group faces security risks, including denial of service attacks, hacking, social engineering attacks targeting its partners and customers, malware intrusion or data corruption attempts, and identity theft that could result in the disclosure of confidential information, adversely affect its business or reputation, and create significant legal and financial exposure

The Group’s computer systems and network infrastructure and those of third parties, on which it is highly dependent, are subject to security risks and could be susceptible to cyber-attacks, such as denial of service attacks, hacking, terrorist activities or identity theft. The Group’s business relies on the secure processing, transmission, storage and retrieval of confidential, proprietary and other information in its computer and data management systems and networks, and in the computer and data management systems and networks of third parties. In addition, to access the Group’s network, products and services, its customers and other third parties may use personal mobile devices or computing devices that are outside of its network environment and are subject to their own cybersecurity risks.

The Group, its customers, regulators and other third parties, including other financial services institutions and companies engaged in data processing, have been subject to, and are likely to continue to be the target of, cyber-attacks. These cyber-attacks include computer viruses, malicious or destructive code, phishing attacks, denial of service or information, ransomware, improper access by employees or vendors, attacks on personal email of employees, ransom demands to not expose security vulnerabilities in the Group’s systems or the systems of third parties or other security breaches that could result in the unauthorized release, gathering, monitoring, misuse, loss or destruction of confidential, proprietary and other information of the Group, its employees, its customers or of third parties, damage its systems or otherwise materially disrupt the Group’s or its customers’ or other third parties’ network access or business operations. As cyber threats continue to evolve, the Group may be required to expend significant additional resources to continue to modify or enhance its protective measures or to investigate and remediate any information security vulnerabilities or incidents. Despite efforts to ensure the integrity of the Group’s systems and implement controls, processes, policies and other protective measures, the Group may not be able to anticipate all security breaches, nor may it be able to implement guaranteed preventive measures against such security breaches and the measures implemented by the Group may not be sufficient. Cyber threats are rapidly evolving and the Group may not be able to anticipate or prevent all such attacks and could be held liable for any security breach or loss.

Cybersecurity risks for banking organizations have significantly increased in recent years in part because of the proliferation of new technologies, and the use of the internet and telecommunications technologies to conduct financial transactions. For example, cybersecurity risks may increase in the future as the Group continues to increase its mobile-payment and other internet-based product offerings and expand its internal usage of web-based products and applications. In addition, cybersecurity risks have significantly increased in recent years in part due to the increased sophistication and activities of organized crime affiliates, terrorist organizations, hostile foreign governments, disgruntled employees or vendors, activists and other external parties, including those involved in corporate espionage. Even the most advanced internal control environment may be vulnerable to compromise. Targeted social engineering attacks and “spear phishing” attacks are becoming more sophisticated and are extremely difficult to prevent. In such an attack, an attacker will attempt to fraudulently induce colleagues, customers or other users of the Group’s systems to disclose sensitive information in order to gain access to its data or that of its clients. Persistent attackers may succeed in penetrating the Group’s defenses given enough resources, time, and motive. The techniques used by cyber criminals change frequently, may not be recognized until launched and may not be recognized until well after a breach has occurred. The risk of a security breach caused by a cyber-attack at a vendor or by unauthorized vendor access has also increased in recent years. Additionally, the existence of cyber-attacks or security breaches at third-party vendors with access to the Group’s data may not be disclosed to it in a timely manner.

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The Group also faces indirect technology, cybersecurity and operational risks relating to the customers, clients and other third parties with whom it does business or upon whom it relies to facilitate or enable its business activities, including, for example, financial counterparties, regulators and providers of critical infrastructure such as internet access and electrical power. As a result of increasing consolidation, interdependence and complexity of financial entities and technology systems, a technology failure, cyber-attack or other information or security breach that significantly degrades, deletes or compromises the systems or data of one or more financial entities could have a material impact on counterparties or other market participants, including the Group. This consolidation, interconnectivity and complexity increase the risk of operational failure, on both individual and industry-wide bases, as disparate systems need to be integrated, often on an accelerated basis. Any third-party technology failure, cyber-attack or other information or security breach, termination or constraint could, among other things, adversely affect the Group’s ability to effect transactions, service its clients, manage its exposure to risk or expand its business.

Cyber-attacks or other information or security breaches, whether directed at the Group or third parties, may result in a material loss or have material consequences. Furthermore, the public perception that a cyber-attack on its systems has been successful, whether or not this perception is correct, may damage the Group’s reputation with customers and third parties with whom it does business. Hacking of personal information and identity theft risks, in particular, could cause serious reputational harm. A successful penetration or circumvention of system security could cause the Group serious negative consequences, including loss of customers and business opportunities, significant business disruption to its operations and business, misappropriation or destruction of its confidential information and/or that of its customers, or damage to the Group’s or its customers’ and/or third parties’ computers or systems, and could result in a violation of applicable privacy laws and other laws, litigation exposure, regulatory fines, penalties or intervention, loss of confidence in the Group’s security measures, reputational damage, reimbursement or other compensatory costs, additional compliance costs, and could adversely impact its results of operations, liquidity and financial condition.

The Group could be the subject of misinformation

The Group may be the subject of intentional misinformation and misrepresentations deliberately propagated to harm the Group’s reputation or for other deceitful purposes. Such misinformation could also be propagated by profiteering short sellers seeking to gain an illegal market advantage by spreading false information concerning the Group. The Group cannot assure that it will effectively neutralize and contain any false information that may be propagated regarding the Group, which could have an adverse effect on the Group’s business, financial condition and results of operations.

BBVA’s financial statements and periodic disclosure under securities laws may not give you the same information as financial statements prepared under U.S. accounting rules and periodic disclosures provided by domestic U.S. issuers

Publicly available information about public companies in Spain is generally less detailed and not as frequently updated as the information that is regularly published by or about listed companies in the United States. In addition, although BBVA is subject to the periodic reporting requirements of the Exchange Act, the periodic disclosure required of foreign private issuers such as BBVA under the Exchange Act is more limited than the periodic disclosure required of U.S. issuers. Finally, BBVA maintains its financial accounts and records and prepares its financial statements in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, which replaced the Bank of Spain’s Circular 4/2004 for financial statements relating to periods ended January 1, 2018 and thereafter, which differs in certain respects from U.S. GAAP, the financial reporting standard to which many investors in the United States may be more accustomed.

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BBVA’s financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of its operations and financial position

The preparation of financial statements in compliance with IFRS-IASB requires the use of estimates. It also requires management to exercise judgment in applying relevant accounting policies. The key areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated and individual financial statements, include the classification, measurement and impairment of financial assets, the assumptions used to quantify certain provisions and for the actuarial calculation of post-employment benefit liabilities and commitments, the useful life and impairment losses of tangible and intangible assets, the valuation of goodwill and purchase price allocation of business combinations, the fair value of certain unlisted financial assets and liabilities, the recoverability of deferred tax assets and the exchange and inflation rates of Venezuela. There is a risk that if the judgment exercised or the estimates or assumptions used subsequently turn out to be incorrect then this could result in significant loss to the Group beyond that anticipated or provided for, which could have an adverse effect on the Group’s business, financial condition and results of operations.

Observable market prices are not available for many of the financial assets and liabilities that the Group holds at fair value and a variety of techniques to estimate the fair value are used. Should the valuation of such financial assets or liabilities become observable, for example as a result of sales or trading in comparable assets or liabilities by third parties, this could result in a materially different valuation to the current carrying value in the Group’s financial statements.

The further development of standards and interpretations under IFRS-IASB could also significantly affect the results of operations, financial condition and prospects of the Group. See “—Our financial results, regulatory capital and ratios may be negatively affected by changes to accounting standards”. 

Our financial results, regulatory capital and ratios may be negatively affected by changes to accounting standards

We report our results and financial position in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, which replaced the Bank of Spain’s Circular 4/2004 for financial statements relating to periods ended January 1, 2018 and thereafter. Changes to IFRS or interpretations thereof may cause our future reported results and financial position to differ from current expectations, or historical results to differ from those previously reported due to the adoption of accounting standards on a retrospective basis. Such changes may also affect our regulatory capital and ratios. We monitor potential accounting changes and, when possible, we determine their potential impact and disclose significant future changes in our financial statements that we expect as a result of those changes. Currently, there are a number of issued but not yet effective IFRS changes, as well as potential IFRS changes, some of which could be expected to impact our reported results, financial position and regulatory capital in the future. For further information about developments in financial accounting and reporting standards, see Note 2.3 to our Consolidated Financial Statements (“Recent IFRS pronouncements”).

ITEM 4.INFORMATION ON THE COMPANY

A.    History and Development of the Company

BBVA’s predecessor bank, BBV (Banco Bilbao Vizcaya), was incorporated as a public limited company (a “sociedad anónima” or S.A.) under the Spanish Corporations Law on October 1, 1988. BBVA was formed following the merger of Argentaria into BBV (Banco Bilbao Vizcaya), which was approved by the shareholders of each entity on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, and operates out of Calle Azul, 4, 28050, Madrid, Spain (Telephone: +34-91-374-6201). BBVA’s agent in the U.S. for U.S. federal securities law purposes is Banco Bilbao Vizcaya Argentaria, S.A. New York Branch (1345 Avenue of the Americas, 44th Floor, New York, New York 10105 (Telephone: +1-212-728-1660)). BBVA is incorporated for an unlimited term.

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Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. There were no significant capital expenditures in the years ended December 31, 2020, 2019 and 2018.

Capital Divestitures

Our principal divestitures are divestitures in our subsidiaries and affiliates. The main capital expendituresdivestitures from 20162018 to the date of this Annual Report were the following:

2018

In 2018 there were no significant capital expenditures.

20172020

AcquisitionAgreement for the sale of an additional 9.95% of GarantiBBVA USA Bancshares, Inc.

On March 22, 2017, we acquired 41,790,000,000 shares (inNovember 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the aggregate)sale of Garanti (amounting to 9.95%100% of the total issued share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of Garanti) from Doğuş Holding A.Ş. and Doğuş Araştırma Geliştirme ve Müşavirlik Hizmetleri A.Ş., under certain agreements entered into on February 21, 2017, at a purchase pricethe share capital in BBVA USA, as well as other companies of 7.95 Turkish liras per share (approximately 3,322 million Turkish liras or €859 millionthe BBVA Group in the aggregate)United States with activities related to this banking business, for approximately $11.6 billion (approximately equivalent to €9.7 billion), to be paid in cash (the “USA Sale”).

The scope of the USA Sale does not include BBVA Securities Inc. (the Group’s broker-dealer in the United States), the Group’s stake in Propel Venture Partners US Fund I, L.P. and BBVA Processing Services, Inc. (together, the “Excluded Business”). Prior to the closing of the USA Sale, the Excluded Business will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York. 

It is expected that the USA Sale will result in an increase in BBVA Group’s CET1 (fully loaded) ratio of approximately 294 basis points. In addition, we expect to recognize profit net of taxes of approximately €580 million (based on an exchange rate of $1.20 per euro) for the companies included within the scope of the USA Sale from the date of the agreement through the date on which closing is expected to take place. Of this amount, approximately €300 million has already been recognized in the consolidated statement of income for the year ended December 31, 2020.In addition, of the expected impact on the BBVA Group’s CET1 (fully loaded) ratio, an increase of approximately 9 basis points had already been recognized as of December 31, 2020.

The closing of the USA Sale is subject to obtaining the relevant regulatory authorizations from the competent authorities. It is expected that the closing of the USA Sale may take place in mid-2021.

For additional information, see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”.

2016Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

In 2016 there were no significantOn April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in Spain including a long-term exclusive distribution agreement for the sale of non-life insurance products, excluding the health insurance business, through BBVA’s branch network in Spain.

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On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros, S.A. de Seguros y Reaseguros (“BBVA Seguros”) transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital expenditures.plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (“BBVA Seguros Generales”). BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points as of December 31, 2020.

Capital Divestitures

Our principal divestitures are financial divestitures2019

Sale of BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of our wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The sale closed on January 22, 2021 and BBVA received approximately $250 million (approximately €210 million) in our subsidiariescash. The transaction resulted in a loss of approximately €9 million net of taxes and affiliates. The main capital divestitures from 2016is estimated to increase the dateGroup’s CET1 (fully loaded) ratio by approximately 6 basis points in the first quarter of this Annual Report were the following:2021.

2018

Sale of BBVA’s stake in BBVA Chile

On November 28, 2017, BBVA received a binding offer (the “Offer”) from The Bank of Nova Scotia (“ScotiabanScotiabankk”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the Offeroffer and entered into a sale and purchase agreement and theagreement. The sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Agreement for the creationTransfer of a joint venture and transfer of the real estate business and sale of stake in SpainDivarian

On November 28,29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprises:comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, as further explained below)which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

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Although the BBVA Group has agreed to contribute all of the Business to Divarian the effective transfer of several REOs remains subject to the fulfilment of certain conditions precedent. The final price payable by Promontoria will be adjusted depending on the volume of REOs ultimately contributed to Divarian. For additional information see “Item 10. Additional Information—Material Contracts—Joint Venture Agreement with Cerberus”.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or Common Equity Tier 1CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

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Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the referred sale amounted to €478 million.

Sale of non-performing and in default mortgage creditsAgreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which iswas mainly composed byof non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completion of thecredits.

The transaction is subject to fulfilment of certain conditions and is expected to take placewas completed during the secondthird quarter of 2019.

2017

In 2017 there were no significant2019 and resulted in a capital divestitures.

2016

In 2016 there were no significant capital divestitures.gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report on Form 20-F.Report.

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B. Business Overview

The BBVA Group is a highlycustomer-centric global financial services group founded in 1857. Internationally diversified international financial group,and with strengths in the traditional banking businesses of retail banking, asset management private banking and wholesale banking. We also have investments in some of Spain’s leading companies.

Thebanking, the Group is committed to offering a compelling digital proposition andfocused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2018,2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

Set forth below are the Group’s current sevensix operating segments:

•       Banking Activity in Spain;

•       Non-Core Real Estate;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. As of December 31, 2018, BBVA’s 20% stake in Divarian wasis also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

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The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 2017 and 2016 iswas as follows:

As of December 31,

As of December 31,

2018

2017(1)

2016(2)

2020

2019

2018

(In Millions of Euros)

(In Millions of Euros)

Banking Activity in Spain

335,294

319,417

335,847

Non-Core Real Estate

4,163

9,714

13,713

The United States

82,057

75,775

88,902

Spain

405,878

364,427

353,923

The United States (1)

93,953

88,529

82,057

Mexico

96,455

94,061

93,318

110,224

109,079

97,432

Turkey

66,250

78,694

84,866

59,585

64,416

66,250

South America

52,385

74,636

77,918

55,435

54,996

54,373

Rest of Eurasia

18,000

17,265

19,106

22,881

23,257

18,845

Subtotal Assets by Operating Segment

654,605

669,562

713,670

747,957

704,703

672,880

Corporate Center and other adjustments

22,084

20,497

18,186

Corporate Center and Adjustments (2)

(11,781)

(6,967)

2,796

Total Assets BBVA Group

676,689

690,059

731,856

736,176

697,737

675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(1)   Revised.(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Changes in Operating Segments”Intra-group reallocations”.

(2)  Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), total assets of the United States and the Mexico operating segments would have been €84,726 million and €97,492 million, respectively, as of December 31, 2016.

44


The following table sets forth information relating to the profit (loss) attributable to parent company byfor each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2018, 20172020, 2019 and 2016:

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2018

2017(1)

2016(2)

2018

2017(1)

2016(2)

 

(In Millions of Euros)

(In Percentage)

Banking Activity in Spain

1,522

1,374

905

26

26

21

Non-Core Real Estate

(78)

(490)

(595)

(1)

(9)

(14)

The United States

735

486

459

13

9

11

Mexico

2,384

2,187

1,980

41

41

46

Turkey

569

826

599

10

15

14

South America

591

861

771

10

16

18

Rest of Eurasia

93

125

151

2

2

4

Subtotal operating segments

5,818

5,368

4,269

100

100

100

Corporate Center

(494)

(1,848)

(794)

 

 

 

Profit attributable to parent company

5,324

3,519

3,475

 

 

 

(1)   Revised. See 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see ““PresentationItem 5. Operating and Financial Review and Prospects—Operating Results—Results of Financial Information—Changes inOperations by Operating Segments”Segment

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2020

2019

2018

2020

2019

2018

 

(In Millions of Euros)

(In Percentage)

Spain

606

1,386

1,400

15

23

24

The United States (1)

429

590

736

11

10

13

Mexico

1,759

2,699

2,367

45

45

41

Turkey

563

506

567

14

8

10

South America

446

721

578

11

12

10

Rest of Eurasia

137

127

96

3

2

2

Subtotal operating segments

3,940

6,029

5,743

100

100

100

Corporate Center

(2,635)

(2,517)

(343)

 

 

 

Profit attributable to parent company

1,305

3,512

5,400

 

 

 

(2)  Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including(1)Includes the inclusionresults of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), profit attributable to parent company for the United StatesUSA and the Mexico operating segments would have been €442 million and €1,997 million, respectively, forother companies falling within the year ended December 31, 2016.scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

4530


 

The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2018, 20172020, 2019 and 20162018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “:Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

Operating Segments

 

Operating Segments

 

Banking Activity in Spain

Non-Core Real Estate

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

BBVA Group

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Total (2)

(In Millions of Euros)

 

(In Millions of Euros)

 

2020

 

 

 

 

 

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax(2)

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

 

 

 

 

 

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

 

 

 

 

 

 

Net interest income

3,672

32

2,276

5,568

3,135

3,009

175

(276)

17,591

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,943

38

2,989

7,193

3,901

3,701

415

(432)

23,747

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions(1)

2,680

(28)

1,127

4,825

2,658

2,011

124

(1,352)

12,045

Operating profit/(loss) before tax(2)

2,017

(129)

919

3,294

1,448

1,307

144

(1,420)

7,580

Profit attributable to parent company

1,522

(78)

735

2,384

569

591

93

(494)

5,324

2017(3)

 

Net interest income

3,738

71

2,119

5,476

3,331

3,200

180

(357)

17,758

Gross income

6,180

(17)

2,876

7,122

4,115

4,451

468

73

25,270

Net margin before provisions(1)

2,790

(116)

1,025

4,671

2,612

2,444

160

(815)

12,770

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,854

(656)

748

2,984

2,147

1,691

177

(2,013)

6,931

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit attributable to parent company

1,374

(490)

486

2,187

826

861

125

(1,848)

3,519

2016

 

Net interest income

3,877

60

1,953

5,126

3,404

2,930

166

(455)

17,059

Gross income

6,416

(6)

2,706

6,766

4,257

4,054

491

(31)

24,653

Net margin before provisions(1)

2,837

(130)

863

4,371

2,519

2,160

149

(907)

11,862

Operating profit/(loss) before tax

1,268

(743)

612

2,678

1,906

1,552

203

(1,084)

6,392

Profit attributable to parent company

905

(595)

459

1,980

599

771

151

(794)

3,475

 

(1) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(2) The information relating to our Corporate Center segment has been presented under management criteria pursuant to which “Operating profit/(loss) before tax” excludes the capital gain from the sale of our stake in BBVA Chile. For additional information on this adjustment, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”.

(3) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

4631


 

The following tables set forth information relating to the balance sheet of the mainour operating segments and the Group Corporate Center and adjustments as of December 31, 2018, 20172020, 2019 and 2016:2018:

 

 

As of December 31, 2018

As of December 31, 2020

Banking Activity in Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

(In Millions of Euros)

(In Millions of Euros)

Total Assets

335,294

82,057

96,455

66,250

52,385

18,000

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

27,841

4,835

8,274

7,853

8,987

273

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (1)

100,094

10,481

26,022

5,506

5,634

504

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

193,936

63,539

57,709

50,315

36,649

16,930

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

169,856

60,808

51,101

41,478

34,469

15,731

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

Residential mortgages

74,639

10,990

9,197

3,530

6,629

1,821

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,748

9,187

12,145

9,145

9,431

420

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

9,665

8,467

7,347

5,265

7,374

410

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,083

720

4,798

3,880

2,058

10

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

45,367

32,862

20,493

27,657

16,975

12,818

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

15,327

5,400

5,726

95

1,078

414

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

332,656

78,812

92,998

57,966

45,933

17,696

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

66,255

234

18,028

1,852

1,357

42

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

180,891

63,891

50,530

39,905

35,842

4,876

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

Current and savings accounts

142,199

41,206

38,147

12,530

23,025

3,544

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

38,263

16,857

11,593

27,367

12,817

1,333

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

2,638

3,245

3,457

8,284

6,452

304

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets Under Management

62,557

-

20,647

2,894

11,662

388

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

39,249

-

17,733

669

3,741

-

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

23,274

-

2,225

7,921

388

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

35

-

2,914

-

-

1,863

-

-

1,863

 

 

(1) Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

 

 

4732


 

As of December 31, 2017(1)

As of December 31, 2019

Banking Activity in Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

(In Millions of Euros)

(In Millions of Euros)

Total Assets

319,417

75,775

94,061

78,694

74,636

17,265

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

13,463

7,138

8,833

4,036

9,039

877

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (2)(3)

79,501

11,068

28,627

6,419

11,627

991

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

221,391

54,705

47,691

65,083

51,207

15,009

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

183,172

53,718

45,768

51,378

48,272

14,864

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

77,419

11,048

8,081

5,147

11,681

2,118

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

9,804

6,841

10,820

11,185

10,883

305

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

7,845

6,312

6,422

6,760

8,168

282

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

1,959

529

4,397

4,425

2,715

23

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

46,561

28,841

17,838

34,371

23,567

11,599

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

16,131

5,133

5,262

148

1,114

514

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

309,731

72,532

90,667

70,253

69,885

16,330

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

36,817

139

9,405

648

2,823

45

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

177,763

60,806

49,964

44,691

45,666

6,700

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

Current and savings accounts

126,737

38,486

34,855

14,240

26,200

4,278

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

48,085

16,767

10,237

30,300

20,099

2,422

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,686

3,243

3,394

8,441

4,751

935

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets Under Management

62,054

-

19,472

3,902

12,197

376

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

37,992

-

16,430

1,265

5,248

-

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,022

-

2,637

6,949

376

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

40

-

3,041

-

-

2,534

-

-

2,534

 

 

(1) Revised. See “Presentation of Financial Information—Changes in Operating Segments”.

(2) Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

 

 

4833


 

As of December 31, 2016

As of December 31, 2018

Banking Activity in Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

(In Millions of Euros)

(In Millions of Euros)

Total Assets

335,847

88,902

93,318

84,866

77,918

19,106

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

187,201

62,000

47,938

57,941

50,333

15,835

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

 

Residential mortgages

81,659

12,893

8,410

5,801

11,441

2,432

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

7,141

7,413

11,286

15,819

10,527

231

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,374

6,838

6,630

10,734

7,781

217

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

1,767

575

4,656

5,085

2,745

15

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

43,472

33,084

18,684

33,836

21,495

12,340

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

18,268

4,594

3,862

-

685

57

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

325,230

84,719

89,244

75,798

73,425

17,705

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

180,544

65,760

50,571

47,244

47,684

9,396

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

Current and savings accounts

98,989

49,430

31,112

12,237

23,369

4,442

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

70,696

13,765

7,048

35,231

20,509

4,773

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Other customer funds

5,124

-

5,324

21

4,456

107

Total Equity

10,617

4,183

4,074

9,068

4,493

1,401

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets Under Management

56,147

-

19,111

3,753

11,902

366

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

32,648

-

16,331

1,192

4,859

-

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,448

-

2,561

7,043

366

23,274

-

2,225

7,921

388

33,807

 

Other placements

51

-

2,780

-

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Banking Activity in Spain

The Banking Activity in SpainThis operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center and Non-Core Real Estate.Center. The mainprimary business units included in this operating segment are:

·          Spanish Retail NetworkSouth America

: including individual customers, private banking, small companies and businesses in the domestic market;Rest of Eurasia

Corporate Center

Total (2)

(In Millions of Euros)

2020

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

31


The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·          Corporate and Business Banking (CBB): which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

·Corporate and Investment Banking (C&IB): responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) and the Asset Management unit, which manages Spanish mutual funds and pension funds, and includes new loan production to real estate developers or loans to real estate developers that are no longer in difficulties, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

49


Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2018 amounted to €100,094 million, a 25.9% increase from the €79,501 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Loans and receivables” (and shown as “Financial assets at amortized cost” as of December 31, 2017 in this Annual Report (see Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets held for trading”. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €193,936 million, a 12.4% decrease compared with the €221,391 million recorded as of December 31, 2017. Within this heading, loans and advances to customers amounted to €169,856 million as of December 31, 2018, a 7.3% decrease from the €183,172 million recorded as of December 31, 2017, mainly as a result of the decrease in the mortgage portfolio, and to a lesser extent, the decrease in other commercial and public sector portfolios. These decreases were partially offset by the increase in consumer loans, credit card balances and loans to small enterprises and self-employed individuals, as well as by the transfer, in 2018, of outstanding performing loans to developers in an aggregate amount of €260 million from the Non-Core Real Estate segment to the Banking Activity in Spain segment. As of December 31, 2018, the proportion of loans to individuals over total loans in this operating segment was significantly higher than in other operating segments.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €66,255 million, an 80.0% increase compared with the €36,817 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits previously accounted at amortized cost to the held for trading portfolio (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments).

Customer deposits at amortized cost of this operating segment as of December 31, 2018 amounted to €180,891 million, a 1.8% increase compared with the €177,763 million recorded as of December 31, 2017, mainly a result of the 12.2% increase in demand deposits, partially offset by the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits previously accounted at amortized cost to the held for trading portfolio (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments) and the decrease in time deposits.

Mutual funds of this operating segment as of December 31, 2018 amounted to €39,249 million, a 3.3% increase from the €37,992million recorded as of December 31, 2017, mainly due to new net contributions.

Pension funds of this operating segment as of December 31, 2018 amounted to €23,274 million, a 3.1% decrease compared with the €24,022 million recorded as of December 31, 2017, mainly due to the unfavorable evolution of the markets.

This operating segment’s non-performing loan ratio decreased to 4.6% as of December 31, 2018, from 5.5% as of December 31, 2017, mainly due to a 16.0% decrease in the balance of non-performing loans in the period (€9,101 million as of December 2018 and €10,833 million as of December 31, 2017). This operating segment’s non-performing loan coverage ratio increased to 57% as of December 31, 2018, from 50% as of December 31, 2017.

Non-Core Real Estate

This operating segment was set up with the aim of providing specialized and structured management of the real estate assets accumulated by the Group as a result of the economic crisis in Spain. It primarily includes lending to real estate developers (except for those new loans to developers that are included in the Banking Activity in Spain segment) and foreclosed real estate assets originated from both residential mortgages and loans to developers.

50


In recent years BBVA has taken several steps to reduce its exposure to real estate assets in Spain. As part of such efforts, BBVA entered into the Cerberus Transaction. As of December 31, 2018, BBVA maintained a 20% stake in Divarian, which was recorded in the Corporate Center. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board, for the transfer of a portfolio of credit rights which is mainly composed by non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completion of the transaction is subject to fulfilment of certain conditions and is expected to take place during the second quarter of 2019. For additional information on these sales, see “—History and Development of the Company—Capital Divestitures—2018”.

In addition, outstanding performing loans to developers in an aggregate amount of €260 million were transferred from the Non-Core Real Estate segment to the Banking Activity in Spain segment in 2018.

As a result of the above, loans and advances to customers of this operating segment have significantly declined over recent years. As of December 31, 2018, loans and advances to customers amounted to €582 million, an 83.5% decrease compared with the €3,521 million recorded as of December 31, 2017, principally due to portfolio sales.

The non-performing loan ratio of this segment was 71.1% as of December 31, 2018. The coverage ratio of non-performing loan of this segment was 58% of the total amount of real estate assets in this operating segment as of December 31, 2018.

The number of real estate assets sold amounted to 18,808 units in 2018, 47.8% lower than in 2017. Additionally, during 2018, 43,900 units were transferred to Divarian.

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for 91.9% of this operating segment’s balance sheet as of December 31, 2018. Given the importance of BBVA Compass in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA branch in New York, which specializes in transactions with large corporations.

The U.S. dollar appreciated 4.7% against the euro as of December 31, 2018 compared with December 31, 2017, positively affecting the business activity of the United States operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €10,481 million, a 5.3% decrease from the €11,068 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see Presentation of Financial Information—Application of IFRS 9”))  to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €63,539 million, a 16.1% increase compared with the €54,705 million recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €60,808 million, a 13.2% increase compared with the €53,718 million recorded as of December 31, 2017, mainly due to the appreciation of the U.S. dollar against the euro and to the increase in the other commercial portfolio (which was the most significant part of the total portfolio in 2018), and to a lesser extent, to increases in the consumer and corporate portfolios, partially offset by the weaker performance of mortgage loans and loans to real estate developers (which were adversely affected by the increase in interest rates).

51


Customer deposits of this operating segment as of December 31, 2018 amounted to €63,891 million, a 5.1% increase compared with the €60,806 million recorded as of December 31, 2017, mainly due to the appreciation of the U.S. dollar against the euro and the increase in demand deposits, in a context of increased competition for deposits during the year.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 1.3%, compared with 1.2% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio decreased to 85% as of December 31, 2018, from 104% as of December 31, 2017, mainly due to the increase in non-performing loans and the release in 2018 of provisions associated with retail portfolios affected by hurricanes in 2017.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by BBVA Bancomer. Since 2018, it also includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years).

The Mexican peso appreciated 5.2% against the euro as of December 31, 2018 compared with December 31, 2017, positively affecting the business activity of the Mexico operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €26,022 million, a 9.1% decrease from the €28,627 million recorded as of December 31, 2017, attributable in part to the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €57,709 million, a 21.0% increase compared with the €47,691 million recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €51,101 million, a 11.7% increase compared with the €45,768 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro and to the increase in loans to enterprises, and to a lesser extent, the increase in the consumer portfolios and residential mortgages.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €18,028 million, a 91.7% increase compared with the €9,405 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain deposits at amortized cost to the held for trading portfolio.

Customer deposits of this operating segment as of December 31, 2018 amounted to €50,530 million, a 1.1% increase compared with the €49,964 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro.

Mutual funds of this operating segment as of December 31, 2018 amounted to €17,733 million, a 7.9% increase compared with the €16,430 million recorded as of December 31, 2017, primarily due to the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio was 2.1% as of December 31, 2018 and 2.3% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio increased to 154% as of December 31, 2018, from 123% as of December 31, 2017 due to an increase of 26.6% in the provisions mainly as a result of the first implementation of IFRS 9.

52


Turkey

This operating segment comprises the banking and insurance businesses conducted by Garanti and its consolidated subsidiaries.

The Turkish lira depreciated 25.0% against the euro as of December 31, 2018 compared to December 31, 2017, negatively affecting the business activity of the Turkey operating segment as of December 31, 2018 expressed in euros.

Financial assets designated at fair value of this operating segment as of December 31, 2018 amounted to €5,506 million, a 14.2% decrease from the €6,419 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €50,315, a 22.7% decrease compared with the €65,083 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €41,478 million, a 19.3% decrease compared with the €51,378 million recorded as of December 31, 2017 principally due to the depreciation of the Turkish lira and, to a lesser extent, the decrease in mortgage loans and loans to enterprises denominated in Turkish lira, offset in part by an increase in credit card lending and car loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2018 amounted to €1,852 million, a 185.9% increase compared with the €648 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018 (see Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments), which resulted in the reclassification of certain deposits at amortized cost to the held for trading portfolio, which more than offset the impact of the depreciation of the Turkish lira.

Customer deposits of this operating segment as of December 31, 2018 amounted to €39,905 million, a 10.7% decrease compared with the €44,691 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira, the increased relative weight of deposits held in Turkish lira and the decrease in deposits held in U.S. dollars, partially offset by the increase in deposits held in Turkish lira. The increase in deposits held in Turkish lira and the decrease in deposits held in U.S. dollars was mainly attributable to the higher interest rates paid on deposits held in Turkish lira.

Mutual funds in this operating segment as of December 31, 2018 amounted to €669 million, a 47.1% decrease compared with the €1,265 million as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro and the market evolution.

Pension funds in this operating segment as of December 31, 2018 amounted to €2,225 million, a 15.6% decrease compared with the €2,637 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro. Excluding the exchange rate effect, there was a 12.4% increase, mainly as a result of the increase in the number of participants to approximately 1.7 million from approximately 1.2 million as of December 31, 2017.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 5.3% compared with 3.9% as of December 31, 2017 mainly as a result of increased impairments of wholesale loans affected by the deteriorating macroeconomic scenario. This operating segment’s non-performing loan coverage ratio decreased to 81% as of December 31, 2018, from 85% as of December 31, 2017, mainly due to the 12.7% increase in the balance of non-performing loans as of December 31, 2018 in comparison with the balance recorded as of December 31, 2017.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

53


The business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Paraguay, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

In November 2017, BBVA reached an agreement for the sale of BBVA’s 68.2% direct and indirect stake in BBVA Chile. The sale was completed on July 6, 2018. For additional information, see “—History and Development of the Company—Capital Divestitures—2018—Sale of BBVA’s stake in BBVA Chile.” The Group keeps an automobile financing business in Chile, mainly carried out by Forum Servicios Financieros, S.A. BBVA has decided to initiate a strategic review of alternatives for its automobile financing business in this country.

As of December 31, 2018, the currencies of certain of the countries in which BBVA operates in South America (mainly the Argentine peso, which depreciated significantly, and the Colombian peso) depreciated against the euro compared to December 31, 2017, negatively affecting the business activity of the South America operating segment expressed in euros.

Financial assets designated at fair value for this operating segment as of December 31, 2018 amounted to €5,634 million, a 51.5% decrease compared with the €11,627 million recorded as of December 31, 2017, mainly attributable to the depreciation of certain local currencies, the sale of BBVA Chile and the initial implementation of IFRS 9 as of January 1, 2018. The initial implementation of IFRS 9 resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €36,649 million, a 28.4% decrease compared with the €51,207 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €34,469 million, a 28.6% decrease compared with the €48,272 million recorded as of December 31, 2017, mainly as a result of the sale of BBVA Chile and, to a lesser extent, the impact of the depreciation of certain currencies in the region, in particular the Argentine peso. By country, financial assets at amortized cost increased in Argentina (excluding the impact of currency depreciation), Colombia and Peru. At constant exchange rates, there were increases in residential mortgages, consumer finance and loans to enterprises.

Customer deposits of this operating segment as of December 31, 2018 amounted to €35,842 million, a 21.5% decrease compared with the €45,666 million recorded as of December 31, 2017 mainly as a result of the sale of BBVA Chile and, to a lesser extent, the impact of the depreciation of certain currencies in the region, in particular the Argentine peso. By country, customer deposits increased in Argentina (excluding the impact of currency depreciation), Colombia and Peru.

Mutual funds in this operating segment as of December 31, 2018 amounted to €3,741 million, a 28.7% decrease compared with the €5,248 million as of December 31, 2017, mainly due to the sale of BBVA Chile, and, to a lesser extent, the depreciation of certain currencies in the region, in particular the Argentine peso.

Pension funds in this operating segment as of December 31, 2018 amounted to €7,921 million, a 14.0% increase compared with the €6,949 million recorded as of December 31, 2017, mainly as a result of an increase in pension funds in Bolivia.

The non-performing loan ratio of this operating segment as of December 31, 2018 increased to 4.3% compared with 3.4% as of December 31, 2017, primarily due to the sale of BBVA Chile, which had better risk indicators than the other the countries where the Group operates in the region. This operating segment’s non-performing loan coverage ratio increased to 97% as of December 31, 2018, from 89% as of December 31, 2017, mainly due to the 7.3% decrease in the balance of non-performing loans as of December 31, 2018 compared to the balance recorded as of December 31, 2017.

54


Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, excluding Spain and Turkey.

Financial assets designated at fair value for this operating segment as of December 31, 2018 amounted to €504 million, a 49.1% decrease compared with the €991 million recorded as of December 31, 2017, mainly as a result of the initial implementation of IFRS 9 as of January 1, 2018, which resulted in the reclassification of certain financial assets previously accounted for as “Available for sale financial assets” (and shown as “Financial assets at fair value through other comprehensive income” as of December 31, 2017 in this Annual Report (see Presentation of Financial Information—Application of IFRS 9”)) to “Financial assets at amortized cost” as of December 31, 2018. See Note 2.4 to our Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of December 31, 2018 amounted to €16,930 million, a 12.8% increase compared with the €15,009 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of December 31, 2018 amounted to €15,731 million, a 5.8% increase compared with the €14,864 million recorded as of December 31, 2017, mainly as a result of an increase in enterprise loans.

Customer deposits of this operating segment as of December 31, 2018 amounted to €4,876 million, a 27.2% decrease compared with the €6,700 million recorded as of December 31, 2017, mainly as a result of the decrease in time deposits, as the low interest rate environment has caused larger clients not to renew their deposit contracts.

Pension funds in this operating segment as of December 31, 2018 amounted to €388 million, a 3.2% increase compared with the €376 million recorded as of December 31, 2017.

The non-performing loan ratio of this operating segment as of December 31, 2018 was 1.7% compared with 2.4% as of December 31, 2017. This operating segment’s non-performing loan coverage ratio increased to 83% as of December 31, 2018, from 74% as of December 31, 2017, mainly due to the 23% decrease in the balance of non-performing loans as of December 31, 2018, compared to the balance recorded as of December 31, 2017.

Insurance ActivityCorporate Center

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

See Note 23 to our Consolidated Financial Statements for information on our insurance activity.

Monetary PolicyTotal (2)

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

55


·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation(In Millions of Euros)

This section discusses the most significant supervision and regulatory matters applicable

2020

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below is information regarding supervision and regulatory matters applicableparent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to us under U.S. law as a result of our banking activities in the United States. In addition, we are generally subjectparent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to comprehensive regulation as a bank, asset manager or insurer, as applicable, in the other countries where we operate, such as Mexico and Turkey.

Since September 2012, significant progress has been made toward the establishment of a European banking union. The banking union is expected to be achieved through new harmonized banking rules (the single rulebook) and a new institutional framework with stronger systems for both banking supervision and resolution that will be managed at the European level. Its two main pillars are the Single Supervisory Mechanism (SSM) and the Single Resolution Mechanism (SRM). As a further step to a fully-fledged banking union, in November 2015, the European Commission put forward a proposal for a European Deposit Insurance Scheme (EDIS), which intends to provide a stronger and more uniform degree of insurance coverage for all retail depositors in the banking union. However, this element is still pending, with a high-level group being created (at a political, and not technical level), due to review its results in June 2019.

Pursuant to Article 127(6) of the Treaty on the Functioning of the EU and the SSM Framework Regulation, the ECB is responsible for specific tasks concerning the prudential supervision of credit institutions established in participating Member States. Since 2014, it carries out these supervisory tasks within the SSM framework, composed of the ECB and the relevant national authorities. The ECB is responsible for the effective and consistent functioning of the SSM, with a view to carrying out effective banking supervision, contributing to the safety and soundness of the banking system and the stability of the financial system.

Its main aims are to:

·parent companyensure the safety and soundness of the European banking system;

·increase financial integration and stability; and

·ensure consistent supervision.

The ECB, in cooperation with the relevant national supervisors, is responsible for the effective and consistent functioning of the SSM.

It has the authority to:

·conduct supervisory reviews, on-site inspections and investigations;

·grant or withdraw banking licenses;

·assess banks’ acquisitions and disposals of qualifying holdings;

·ensure compliance with EU prudential rules; and

·set higher capital requirements (“buffers”) in order to counter any financial risks.

56


In addition, since November 2014, it assumed the direct supervision of the most significant banks of the participating countries, including Banco Bilbao Vizcaya Argentaria, S.A. Ongoing supervision of the significant banks is carried out by Joint Supervisory Teams (“JSTs”). Each significant bank has a dedicated JST, comprising staff of the ECB and the relevant national supervisors (in our case, the Bank of Spain).

The criteria for determining whether a bank is considered significant (and therefore whether it falls under the ECB’s direct supervision) are set out in the SSM Framework Regulation and the SSM Framework Regulation. To qualify as significant, a bank must fulfill at least one of these criteria:

·size: the total value of its assets exceeds €30 billion;

·economic importance: for the specific country or the EU economy as a whole;

·cross border activities: the total value of its assets exceeds €5 billion and the ratio of its cross-border assets/liabilities in more than one other participating Member State to its total assets/liabilities is above 20%; or

·direct public financial assistance: it has requested or received funding from the European Stability Mechanism (the “ESM”) or the European Financial Stability Facility.

The ECB can decide at any time to classify a bank as significant to ensure that high supervisory standards are applied consistently.

The ECB indirectly supervises banks that are not considered significant (also known as “less significant” institutions), which continue to be supervised by their national supervisors, in close cooperation with the ECB. See “—Bank of Spain” below for an explanation of the tasks to be performed by the Bank of Spain.

Bank of Spain1,400

The Bank of Spain was established in 1962 as a public law entity (entidad de derecho público) that operates as Spain’s autonomous central bank. In addition, it has the ability to function as a private bank. Except in its public functions, the Bank of Spain’s relations with third parties are governed by private law, and its actions are subject to the civil and business law codes and regulations.

Until January 1, 1999, the Bank of Spain was also the sole entity responsible for implementing Spanish monetary policy. For a description of monetary policy since the introduction of the euro, see “—Monetary Policy”.

Since January 1, 1999, the Bank of Spain has performed the following basic functions attributed to the Eurosystem:

·defining and implementing the Eurosystem’s monetary policy, with the principal aim of maintaining price stability across the Eurozone;

·conducting currency exchange operations consistent with the provisions of Article 219 of the EU Treaty, and holding and managing the Member States’ official currency reserves;

·promoting the sound working of payment systems in the Eurozone; and

·issuing legal tender banknotes.

Recognizing the foregoing functions as a fully-fledged member of the Eurosystem, the Bank of Spain Law of Autonomy (Ley de Autonomía del Banco de España) stipulates the performance of the following functions by the Bank of Spain:

·holding and managing currency and precious metal reserves not transferred to the ECB;

·promoting the proper working and stability of the financial system and, without prejudice to the functions of the ECB, the proper working of the national payment systems, providing emergency liquidity assistance (ELA);

57


·promoting the sound working and stability of the financial system and, without prejudice to the functions of the ECB, of national payment systems;

·placing coins in circulation and the performance, on behalf of the State, of all such other functions entrusted to it in this connection;

·preparing and publishing statistics relating to its functions, and assisting the ECB in the compilation of the necessary statistical information;

·providing treasury services and acting as financial agent for government debt;

·advising the government, preparing the appropriate reports and studies; and

·exercising all other powers attributed to it by legislation.

As indicated above, on November 4, 2014 the ECB assumed responsibility for the supervision of Eurozone banks, following a year-long preparatory phase that included an in-depth examination of the resilience and balance sheets of the largest banks in the Eurozone. For all the banks not supervised directly by the ECB, around 3,500 banks, the ECB will also set and monitor the relevant supervisory standards and work closely with the national competent authorities in the supervision of these banks.

The ECB has set up homogenous criteria for all the supervised institutions under the SSM and has assumed decision-making power. National authorities, such as the Bank of Spain, provide their knowledge on their financial systems and the entities located in their jurisdictions. Therefore, the role of the Bank of Spain continues to be relevant for financial entities located in Spain. In particular, the Bank of Spain’s tasks include the following:

·it collaborates with the ECB in the supervision of significant entities through its participation in the JSTs of the relevant Spanish banks, and has a leading role in the on-site inspections;

·the Bank of Spain supervises directly the less significant Spanish banks. The ECB’s indirect supervision of these entities is focused on the homogenization of supervisory criteria and reception of information;

·there are several supervisory competencies over banking entities, for example money laundering and terrorist financing, customer protection and certain aspects of the monitoring of the financial markets that are out of the scope of the SSM and remain under the purview of the Bank of Spain;

·the Bank of Spain participates in certain administrative processes controlled by the ECB, such as the granting or withdrawal of licenses and the application of fit and proper tests to members of the board and senior management of Spanish banks, and supports the ECB in cross-border tasks such as the definition of policies, methodologies or crisis management;

·the Bank of Spain continues to supervise other institution such as appraisal companies or specialist credit institutions, e-money issuing entities, mutual guarantee and re-guarantee companies;

·the Bank of Spain participates in the governing bodies of the SSM contributing to the adoption of decisions affecting all credit institutions located in the Eurozone; and

·the Bank of Spain is also responsible for applying a number of macroprudential instruments, such as setting the countercyclical capital requirements and identifying and setting capital buffers for systemically important institutions.

Single Resolution Fund736

The Single Resolution Fund (the “Fund2,367”) was established pursuant to Regulation (EU) No 806/2014 as a single financing arrangement for all the Member States participating in the SSM.

58


The Fund should be used in resolution procedures where the Single Resolution Board (“SRB567”) considers it necessary to ensure the effective application of the resolution tools. The Fund should have adequate financial resources to allow for an effective functioning of the resolution framework by being able to intervene, where necessary, for the effective application of the resolution tools and to protect financial stability without recourse to taxpayers’ money.

The SRB should calculate the annual contributions to the Fund on the basis of a single target level established as 1% of the amount of covered deposits of all of the credit institutions authorized in all of the participating Member States. The SRB should ensure that the available financial means of the Fund reach at least the target level by the end of an initial period of eight years from January 1, 2016. The annual contribution to the Fund should be based on a flat contribution determined on the basis of an institution’s liabilities excluding own funds and covered deposits and a risk-adjusted contribution depending on the risk profile of that institution.

On the December 14, 2018 Euro Summit, participants endorsed the terms of reference of the common backstop to the Single Resolution Fund, which determine how it will be operationalized (subject to an assessment by 2020). Participants also endorsed the term sheet on the European Stability Mechanism (“ESM578”) reform, which includes a role as the backstop for the Fund. The Euro Summit requested the Eurogroup to prepare the adequate amendments to the ESM Treaty by June 2019.

Deposit Guarantee Fund of Credit Institutions96

The Deposit Guarantee Fund of Credit Institutions (Fondo de Garantía de Depósitos or “FGD”), which operates under the guidance of the Bank of Spain, was set up by virtue of Royal Decree-Law 16/2011, of October 14. It is an independent legal entity and enjoys full authority to fulfill its functions. Royal Decree-Law 16/2011 unified the three previous guarantee funds that existed in Spain: the Deposit Guarantee Fund of Saving Banks, the Deposit Guarantee Fund of Credit Entities and the Deposit Guarantee Fund of Banking Establishments.

The main objective of the FGD is to guarantee deposits and securities held by credit institutions, up to the limit of €100,000. It also has the authority to carry out any such actions necessary to reinforce the solvency and operation of credit institutions in difficulty, with the purpose of defending the interests of depositors and deposit guarantee funds.

In order to fulfill its purposes, the FGD receives annual contributions from member credit institutions. The current annual contribution requirement is €2 for every €1,000 guaranteed deposits held by the respective member institution as of year-end. The Minister of the Economy and Finance is authorized to reduce the contributions when the FGD’s equity is considered sufficient to meet its needs. Moreover, it may suspend contributions when the FGD’s total equity reaches 1% of the calculation base of the contributions of the member institutions as a whole. Under certain circumstances defined by law, there may be extraordinary contributions from the institutions, and the European Central Bank may also require exceptional contributions of an amount set by law.

As of December 31, 2018, 2017 and 2016 all of the Spanish banks belonging to the BBVA Group were members of the FGD and were thus obligated to make annual contributions to it.

Investment Guarantee Fund(343)

Royal Decree 948/2001, of August 3, regulates investor guarantee schemes (Fondo de Garantía de Inversores) related to both investment firms and to credit institutions. These schemes are set up through an investment guarantee fund for securities broker and broker-dealer firms and the deposit guarantee funds already in place for credit institutions. A series of specific regulations have also been enacted, defining the system for contributing to the funds.

The General Investment Guarantee Fund Management Company was created in a relatively short period of time and is a business corporation with capital in which all the fund members hold an interest. Member firms must make a joint annual contribution to the fund equal to 0.06% over the 5% of the securities that they hold on their client’s behalf. However, it is foreseen that these contributions may be reduced if the fund reaches a level considered to be sufficient.

59


Liquidity Requirements – Minimum Reserve Ratio5,400

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt securities issued with maturity up to two years and money market paper is 1%. For deposits with agreed maturity or period of notice over two years, repos and debt securities issued with maturity over two years there is no required reserve coefficient.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission of October 10, 2014, the LCR

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

31


The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations and public institutions;

·Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) amounted to €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €62,707 million, a 5.1% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

35


This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits, offset in part by the depreciation of the U.S. dollar against the euro

36


The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €50,002 million, a 13.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by the shift towards higher profitability investments such as private banking.

37


This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €5,332 million, a 1.2% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees, partially offset by the depreciation of the Turkish lira against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

38


The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The main business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 2019, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% increase compared with the €37,869 million recorded as of December 31, 2019.Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into their economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses included in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches in Taipei, Tokyo, Hong Kong, Singapore and Shanghai and representative offices in Seoul, Mumbai, Abu Dhabi and Jakarta.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal MarketsSpain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BBVA Group is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR I” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “CRD IV”), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016”). 

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On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD I”) were published:

·Directive 2019/878/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);  

·Directive 2019/879/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD”); 

·Regulation (EU) No. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the “SRM Regulation I”) as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (SRM Regulation I as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and the SRM Regulation II, the “EU Banking Reforms”).  

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or after that date, as described therein.

CRD IV, among other things, established a “Pillar 1” minimum capital requirement and increased the level of capital required through the “combined capital buffer requirement” that institutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific counter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and must be satisfied with CET1 capital.

The G-SIB buffer is applicable to the institutions included in the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB”). The Bank was excluded from this list with effect as from January 1, 2017, so, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to maintain the G-SIB buffer.

The Bank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer equivalent to a CET1 ratio of 0.75% on a consolidated basis.

In December 2015, the Bank of Spain agreed to set the counter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. The Bank of Spain agreed in December 21, 2020 to maintain the counter cyclical capital buffer applicable to credit exposures in Spain at 0% for the fourth quarter of 2020. As of the date of this Annual Report, the counter cyclical capital buffer applicable to the Group stands at 0%.

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Additionally, Article 104 of the CRD Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that the supervisory authorities may require credit institutions to meet capital requirements exceeding the “Pillar 1” minimum capital requirements and the “combined capital buffer requirement” by establishing “Pillar 2” capital requirements (which, with respect to other requirements, are above “Pillar 1” requirements and below the “combined capital buffer requirement”).

Furthermore, the ECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation”), to carry out a SREP for us and the Group at least on an annual basis.

On July 19, 2018, the EBA published its final guidelines intended to further enhance risk management by institutions and the convergence of supervision with respect to the SREP. These guidelines focus on stress testing, particularly to determine “Pillar 2” and the level of interest rate risk.

Likewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in 2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the form of 56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirements that the ECB may impose on the Bank and/or the Group under the SREP will require the Bank and/or the Group to maintain capital levels higher than the “Pillar 1” minimum capital requirement.

As a result of the most recent SREP carried out by the European Central Bank, and in accordance with the measures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, a CET1 ratio of 8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.00%.

For further information on the countercyclical capital buffer and the total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the restrictions described in the preceding paragraph while such calculation is pending, shall also be triggered by a breach of the MREL requirement (see “Item 3. Risk Factors—Regulatory, Tax and Reporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations”) or a breach of the minimum leverage ratio requirement.

CRD V also distinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, only the former being regarded as mandatory requirements. Notwithstanding the foregoing, CRD V provides that, besides other measures, supervisory authorities are entitled to impose further “Pillar 2” capital requirements when an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

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Additionally, CRD II sets a binding leverage ratio requirement of 3% of Tier 1 capital, in addition to the institution’s own funds requirements and risk-weighted assets (“RWAs”)-based requirements. In particular, any breach of this leverage ratio would entail the need to determine the MDA and the related consequences.

Furthermore, on December 7, 2017 the BCBS announced the end of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk in those weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such approaches and enhance comparability among banks in which such internal ratings-based approaches are used. The review of minimum capital requirements will also limit the regulatory benefit for banks when calculating total RWAs using internal risk models as compared with the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches that will be applicable as from January 1, 2022, which is expected to increase to 72.5% as from January 1, 2027.

Moreover, on March 15, 2018, the ECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in order to avoid future and excessive accumulation of non-performing loans without coverage in the balance sheets of the credit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a year and, from the beginning of 2021, the banks must inform the ECB of any difference between their practices and the prudential provision expectations.

In addition, the ECB has announced that a TRIM is being conducted on the internal models used by banks subject to its supervision to calculate their RWAs, in order to reduce inconsistencies and unjustified variability in these internal models throughout the European Union. Although the full results of the TRIM are not yet known, it could imply a change in the internal models used by banks and, at the same time, increases or decreases in the capital needs of banks, including the Bank.

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as MREL requirement. According to the Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (“MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by the resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and own funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s RWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of the RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution Authority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This could result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of discretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an entity in order to comply with Its MREL could place an entity in a situation where the conditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

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The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment RatioCapital Management

InBasel Capital Accord - Economic Capital

The Group’s capital management is performed at both the past,regulatory and economic levels. Regulatory capital management is based on the government used the investment ratio to allocate funds among specific sectors or investments. As partanalysis of the liberalizationcapital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the Spanish economy, it was gradually reducedinstitution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a ratereasonable limit in terms of zero percent asthe institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of December 31, 1992. However, the law that established the ratio has not been abolishedinstitution’s eligible capital.

Legal and the government could re-impose the ratio,Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable EU requirements.to Spanish companies. Please see “—Capital Requirements”.

Capital RequirementsImpairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

In December 2010, the Basel Committee on Banking Supervision (the “Basel Committee”) proposed a numberA bank may generally dedicate all of fundamental reformsits net profits and its distributable reserves to the regulatory capital framework for internationally active banks (the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see Basel III capital reforms”). The Basel III capital reforms raised the quantityItem 8. Financial Information—Consolidated Statements and quality of capitalOther Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, wecalculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the CRD IV Directive, through whichBank of Spain or the EU began implementingECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the Basel IIIdeclaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital reforms,requirements and any other requirements resulting from the SREP.

In accordance with effect from Januaryrecommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2014, with certain requirements being phased2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2019. The core regulation regarding2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the solvency ofECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions isexercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the CRR, which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, withoutECB will reevaluate the need for national implementation measures. The implementation of CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, Law 10/2014, RD 84/2015, Bank of Spain Circular 2/2014 and Bank of Spain Circular 2/2016. On November 23, 2016, the European Commission published a package of proposals, including, among others, proposed changeseconomic situation. BBVA intends to the CRD IV Directive and CRR in order to increase the resilience of EU institutions and enhance financial stability.  On May 25, 2018, the Councilreinstate its dividend policy of the European Union published the Presidency compromise proposals relating to the European Commission’s package of proposals referred to above and on June 25 and 28, 2018, the European Parliament Committee on Economic and Monetary Affairs published reports containing its proposed amendments to the European Commission’s package of proposals. The final political agreement between the European Parliament and the Council on these reforms was publishedGroup announced on February 15, 2019 (the European Commission’s package of proposals together with1, 2017 once the Presidency compromise proposals, the proposed amendments of the European Parliamentrecommendation ECB/2020/62 is repealed and such final political agreement, the “EU Banking Reforms”). there are no additional restrictions or limitations.

Among other things, CRD IV established minimum “Pillar 1” capital requirements both on a consolidated and individual basis (which includes a CET1 capital ratio of 4.5%, a Tier 1 capital ratio of 6% and a total capital ratio of 8% of risk-weighted assets). Additionally, CRD IV increased the level of capital required by means of a “combined buffer requirement” that entities must comply with from 2016 onwards. The “combined buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific countercyclical buffer, (iv) the D-SIB buffer, and (v) the systemic risk buffer.

The combination of the capital conservation buffer, the institution-specific countercyclical buffer and the higher of (depending on the institution) the systemic risk buffer, the G-SIB buffer and the D-SIB buffer, in each case (if applicable to the relevant institution—in the event that the systemic risk buffer only applies to local exposures, such buffer is added to the higher of the G-SIB buffer or the D-SIB buffer) is referred to as the “combined buffer requirement”. This “combined buffer requirement” is in addition to the minimum “Pillar 1” capital requirements and is requiredOur Bylaws allow for dividends to be satisfied with CET1 capital.paid in cash or in kind as determined by shareholders’ resolution.

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The G-SIB buffer applies to those institutions included on the list of G-SIBs, which is updated annually by the FSB. We have been excluded from this list with effect from January 1, 2017 and so, unless otherwise indicated by the FSB (or the Bank of Spain) in the future, we will not be required to maintain a G-SIB buffer any longer.

The Bank of Spain announced on November 21, 2018 that we continue to be considered a D-SIB, and consequently we are required to maintain a fully-loaded D-SIB buffer of a CET1 capital ratio of 0.75% on a consolidated basis.

The Bank of Spain agreed in December 2015 to set the countercyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is revised each quarter. The Bank of Spain agreed in December 2018 to maintain the countercyclical capital buffer at 0% for the first quarter of 2019. As of the date of this Annual Report, the countercyclical capital buffer applicable to the Group stands at 0.01% and relates to the Group’s exposures in other jurisdictions.

The Bank of Spain has greater discretion in relation to the determination of the institution-specific countercyclical buffer, the buffer for D-SIBs and the systemic risk buffer. With the entry into force of the SSM on November 4, 2014, the ECB has the ability to provide certain recommendations in this respect and potentially increase such buffers.

Moreover, Article 104 of the CRD IV Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of the SSM Regulation, also contemplates that in addition to the minimum “Pillar 1” capital requirements and the combined buffer requirements, supervisory authorities may impose further “Pillar 2” capital requirements (above “Pillar 1” requirements and below the combined buffer requirements) to cover other risks, including those not considered to be fully captured by the minimum “own funds” “Pillar 1” requirements under CRD IV or to address macro-prudential considerations.

Accordingly, any additional “Pillar 2” own funds requirement that may be imposed on us and/or the Group by the ECB pursuant to the SREP will require us and/or the Group to hold capital levels above the minimum “Pillar 1” capital requirements.

As a result of the most recent SREP carried out by the ECB, we received a communication from the ECB pursuant to which we are required to maintain, as from March 1, 2019, on a consolidated basis, a CET1 capital ratio of 9.26% (8.53% on an individual basis) and a total capital ratio of 12.76% (12.03% on an individual basis).

This total capital requirement (on a consolidated basis) includes: (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the Additional Tier 1 capital (AT1) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2.0%); (iv) the CET1 capital requirement under Pillar 2 (1.5%), which remains unchanged since the prior SREP; (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).

As of December 31, 2018, our phased-in total capital ratio was 15.71% on a consolidated basis and 22.07% on an individual basis. As of December 31, 2018, our CET1 phased-in capital ratio was 11.58% on a consolidated basis and 17.45% on an individual basis. Such ratios exceed the applicable regulatory requirements described above, but there can be no assurance that the total capital requirements imposed on us and/or the Group from time to time may not be higher than the levels of capital available at such point in time. There can also be no assurance as to the result of any future SREP carried out by the ECB and whether this will impose any further “Pillar 2” additional own funds requirements on us and/or the Group.

Additionally, on February 1, 2019, the Bank announced its new CET1 fully-loaded capital target, consisting of a CET1 ratio within the range between 11.5% and 12.0% on a consolidated basis, and which the Bank expects to achieve by 2019 year-end. No assurance can be given that the Bank will achieve this target. See “Cautionary Statement Regarding Forward-Looking Statements”. Any failure by the Bank to maintain a consolidated CET1 capital ratio in line with its CET1 fully-loaded capital target could adversely affect the market price or value or trading behavior of any securities issued by the Bank (and, in particular, any of its capital instruments) and ultimately lead to the imposition of further “Pillar 2” guidance or requirements.

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According to Article 48 of Law 10/2014, Article 73 of RD 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any entity not meeting its “combined buffer requirement” is required to determine its MDA as described therein. Until the MDA has been calculated and communicated to the Bank of Spain, where applicable, the relevant entity shall not make any (i) distributions relating to CET1 capital, (ii) payments in respect of variable remuneration or discretionary pension revenues and (iii) distributions relating to Additional Tier 1 instruments (“discretionary payments”) and, once the MDA has been calculated and communicated to the Bank of Spain, any such discretionary payments by that entity will be subject to such MDA limit. Furthermore, as set forth in Article 48 of Law 10/2014, the adoption by the Bank of Spain of the measures prescribed in Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds or limiting or prohibiting the distribution of dividends, respectively, will also result in a requirement to determine the MDA and restrict discretionary payments to such MDA. See “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Increasingly onerous capital requirements may have a material adverse effect on the Bank’s business, financial condition and results of operations” and “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Any failure by the Bank and/or the Group to comply with its MREL could have a material adverse effect on the Bank’s business, financial condition and results of operations” for additional information.

Additionally, BRRD prescribes that we shall hold a minimum level of own funds and eligible liabilities in relation to total (MREL). On May 23, 2018, we announced that we had received notification from the Bank of Spain regarding our MREL, as determined by the SRB. Our MREL has been set at 15.08% of the total liabilities and own funds of our resolution group at a sub-consolidated level as of December 31, 2016, which corresponds to 28.04% of the risk-weighted assets of the resolution group as of December 31, 2016, and must be met by January 1, 2020. Pursuant to the Group’s multiple-point-of-entry resolution strategy as established by the SRB, our resolution group consists of us and our subsidiaries which belong to the same European resolution group. As of December 31, 2016, the total liabilities and own funds of our resolution group amounted to €385,647 million, of which our total liabilities and own funds comprised approximately 95%, and the risk-weighted assets of our resolution group amounted to €207,362 million.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels.

Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using Basel (“the BIS”) Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. In recentVarious actions have been taken during the last years we have taken various actions in connection with our capital management and in order to comply with various capital requirements applicable to us. Weus related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise.

The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation (“IRB”) concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation atfor the Group and at its different business units.

The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines lendingcredit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, and fixed assetmodel risk, business risk, reputational risk and technical risks in the case of insurance companies.

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Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. However, forFor the purpose of allocating capital to operating segments, the Group prefers CER. Itfocuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive and thus better reflects management policies for the individual businessesperspective and the business portfolio.regulation requirement. These are designed to provide an equitable basis for assigning capital to businesses according toand ensure adequate capital management across the risks incurred and make it easier to compare returns.

To internal effects of management and pursuit of the operating segments, the Group realizes a capital allocation to each operating segment.Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution is subjectmust make available to Part Three, Title II, Chapter 3 of the CRR,NCAs its 20 largest exposures on a consolidated basis (but excluding those exempted fromcertain exposures, if allowed under the application of Article 395(1) of the CRR, shall be made available to the competent authorities. Additionally to the aforementioned exposures,CRR). In addition, an institution shallmust also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution shallmust not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value shallmust not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, shallmust not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in Article 81 of the CRD IV Directive to address and control concentration risk. Thisrisk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment onof Financial Assets

For a discussion of non-performing loan provisionsapplicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit risk,loss, see Note 2.2.1 to our Consolidated Financial Statements.

Regulation of the Disclosure of Fees and Interest Rates

Banks must publish their preferential rates, rates applied on overdrafts, and fees and commissions charged in connection with banking transactions. Banking clients must be provided with written disclosure adequate to permit customers to ascertain transaction costs. The foregoing regulations are enforced by the Bank of Spain in response to bank client complaints.

Law 44/2002, of November 22, concerning measures to reform the Spanish financial system, contained a rule concerning the calculation of variable interest applicable to loans and credit secured by mortgages, bails, pledges or any other equivalent guarantee.

Employee Pension Plans

Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish state. See Note 2.2.12 and Note 25 to our Consolidated Financial Statements.

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Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring interim dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of an interima dividend. It should be noted that theThe ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommendsrecommended that credit institutions to establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the supervisory reviewSREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, evaluation process (SREP).in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA will be subject to restrictions on discretionary payments, which includes, among others, dividend payments. See “—Capital Requirements”.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

Scrip Dividend

As in 2014, 2015 and 2016, during 2017 a scrip dividend scheme called “Dividend Option” was approved by the annual general meeting of shareholders held on March 17, 2017, whereby a resolution for a capital increase to be charged to voluntary reserves for the implementation of a “Dividend Option” in 2017 was passed. This resolution allowed BBVA to implement one “Dividend Option” in April 2017 and, as a consequence of the execution of the related capital increase, 101,271,338 new ordinary shares were issued.

In connection therewith, BBVA shareholders were given the option to receive all or part of their remuneration in newly issued ordinary shares of BBVA or in cash.

On February 1, 2017 BBVA updated its shareholders’ remuneration policy in order to implement a fully in cash remuneration policy after the execution of the 2017 “Dividend Option”. This fully in cash remuneration is expected to be composed, for each financial year, of an interim dividend and a final dividend, subject to any applicable restrictions and authorizations.

Limitations on Types of Business

Spanish banks are subject to certain limitations on the types of businesses in which they may engage directly, but they are subject to few limitations on the types of businesses in which they may engage indirectly. Law 10/2014 and Royal Decree 84/2015 established the regulation for governance, authorization, supervision and solvency for credit institutions.

Mortgage Legislation

Law 2/1981, of March 25, on mortgage market, as amended by Law 41/2007, regulates the different aspects of the Spanish mortgage market and establishes additional rules for the mortgage and financial system.

Royal Decree 716/2009, of April 24, implemented several aspects of Law 2/1981. The most significant aspect implemented by Royal Decree 716/2009 was the modification on the loan-to-value ratio requirement intending to improve the quality of Spanish mortgage-backed securities.

Increasing social pressure for the reform of mortgage legislation in Spain has resulted in changes to such legislation, which are described below.

Royal Decree-Law 6/2012, of March 9, on urgent measures to protect mortgage debtors without financial resources introduced measures to enable the restructuring of mortgage debt and easing of collateral foreclosure aimed to protect especially vulnerable debtors.resolution.

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Such measures include the following:

·Investment Ratiothe moderation of interest rates charged on mortgage arrears;

·the improvement of extrajudicial procedures as an alternative to legal foreclosure;

·the introduction of a voluntary code of conduct among lenders for regulated mortgage debt restructuring affecting especially vulnerable debtors; and

·where restructuring is unviable, lenders may, where appropriate and on an optional basis, offer the debtor partial debt forgiveness.

In addition, Royal Decree-Law 27/2012,the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of Novemberthe liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on urgent measuresdefault interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to enhancesigning a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of mortgage debtors providedcustomers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for a two-year moratorium, fromrevolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the date of its adoption,credit on evictions applicablean annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to debtor groups especially susceptible to social exclusion, which may remain at their homes for such period.

Law 1/2013, of May 14, on measures to protect mortgagees, debt restructuring and social rents, introduced important modifications to mortgage law and civil procedure law. The most relevant modifications are:

·Regulation 924/2009: (i) the extension of the two-year moratorium, established by Royal Decree 27/2012, until May 15, 2015;

·broadeningequality of charges principle to non-euro Member States; and (ii) new rules on the potential beneficiariestransparency of charges regarding currency conversions for payments at the moratoriumpoint of Royal Decree 6/2012;sale (

“POS”·limitation of the interest rates applied) or at ATM machines, as well as for delay or arrears;

·in the context of an auction, the base value of the property shall be the value set forth in the relevant mortgage deed and in no case shall it be less than 75% of the official appraisal value of the property;

·the possibility of suspension of enforcement proceedings when the loan or credit facility secured by the mortgage contains abusive clauses; and

·modification of the out-of-court notarial procedure.

Royal Decree-Law 11/2014, following the judgment of the EU Court of Justice of July 17, 2014 regarding Spanish foreclosure processes, allows debtors to appeal against a court’s resolution which rejects his or her opposition to the execution of a mortgage.

The Mortgage Credit Directive 2014/17/EU on credit agreements for consumers relating to residential immovable property was adopted on February 4, 2014. This Directive aims to create a Union-wide mortgage credit market with a high level of consumer protection. It applies to both secured credit and home loans. Member States will have to transpose its provisions into their national law by March 2016.

transfers. The main purposechanges introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of Royal Decree-Law 1/2015 of February 27 on the “second chance” mechanism isinformation, related to regulate such mechanism. This allows an individual who has been declared bankrupt to be discharged of outstanding obligations as long as he or she fulfills certain requirements: (i) the bankruptcy proceedings must have concluded, (ii) the debtor must have actedelectronic communications, will enter into force in good faith, the Royal Decree being restrictive as to when a debtor is considered to have acted in good faith, and (iii) the bankruptcy judge has to approve the terms of the discharge (and may revoke his or her approval under certain circumstances upon request of any creditor in the following five years). Discharge from mortgage obligations would only apply to the outstanding debts after the foreclosure, as long as such debts are considered ordinary or subordinate according to the Spanish Insolvency Law. Co-debtors and guarantors, if any, would remain liable.April 2021.

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Law 25/2015,In relation to payment services, Order ECE/1263/2019 of July 28,December 26, on the “second chance” mechanism reducing the financial burdentransparency of conditions and other measures of a social nature,information requirements applicable to payment services, entered into force on July 30, 2015.1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The passage through parliamentmain changes of this Royal Decree-Law 1/2015 allowed some new changesDecree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be added, such as introduction of a fee protection account for insolvency managers, limitsin effect on the remuneration of insolvency managerssame terms.

Regarding real estate, the Spanish government and the introductiongovernments of greater flexibilityseveral autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a numbernational level, Decree Law 34/2020, of elements of the second chance mechanism.

Royal Decree-Law 1/2017 of JanuaryOctober 20, on urgent measures on consumer protection on mortgage interest floor clauses, providesto support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for an extrajudicial procedure pursuant to which consumers may claim from banks amountsindustrial and/or commercial activities that might have been wrongly charged pursuantaffected by the suspensions and restrictions adopted by the public authorities in response to interest floor clauses that are deemed to be abusive and null (in light of the judgment ofCOVID-19 pandemic. Measures adopted by autonomous regions include the Court of Justice of the European Union of December 21, 2016).following:

Royal Decree-Law 5/2017, of March 17, expanded the number of beneficiaries of the Code of Good Practice (established in Royal Decree 6/2012, as modified by Law 1/2013); provided the possibility to those beneficiaries of the suspension of evictions referenced in Law 1/2013 to automatically suspend evictions in certain homes until May 2020.

The law implementing the European Mortgage Credit Directive (2014/17/EU) will apply to credits and loans to individuals and self-employed workers in connection with residential real estate properties. The most relevant modifications are:

·          In the draft law covers creditsAutonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and loans to individualsretrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with residential real estate properties (including landtransfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and the preservation of real estate properties), excluding reverse mortgages;

·establisheshousing acquired in a period for consumers to evaluate the mortgage-related documents, supervised by a Notary Public (Notario Público);judicial mortgage foreclosure proceeding.

·clarifies some controversial issues in which litigation has arisen in the past years (mainly, benchmark interest rates references, foreign currencies submission and default interests);

·establishes the possible fees that may be charged on borrowers;

·forbids linked sales; and

·settles rules regarding the early termination of mortgages based exclusively on the amount of defaulted payments by the borrower (in light of recent court decisions declaring null and void some early termination clauses for their abusive terms).

Consumer Alternative Dispute Resolution Systems For Consumer Disputes

Law 7/2017, of November 4, seeks to ensure access for Spanish and European consumers to independent, impartial, transparent and effective alternative dispute resolution systems. For financial institutions, a specific law shall be passed and financial institutions will be forced to participate in those alternative dispute resolution mechanism.

Payment Accounts

Royal Decree-Law 19/2017 of November 24, implements Directive 2014/92/EU on comparability of fees related to payment accounts, payment account switching and access to basic payment accounts. This Royal Decree-Law:

·regulates the right of access for legal residents in the EU and conditions for refusal;

·establishes the services linked to basic payment accounts and the maximum fees that may be charged by banks (which, in Spain, will be set by the Ministry of Economy);

·introduces changes to the information that should be provided to clients on features, costs, and conditions of services;

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·          facilitates account switching;In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·          introducesIn Andalusia, Decree-Law 2/2020, of March 9, on the Fee Information Document (FID)improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the StatementRevision of Fees (SoF)the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provide informationprovides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not enter into force for the time being. Furthermore, the EBA published its Action Plan on fees to clients;sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

·establishes that the BankIn terms of Spain may offer free access to websites that provide comparative information on the terms offered by financial entities with respect to payment accounts.

The limits on fees to be charged on basic payment accounts and the scope of individuals that can benefit from free basic payment accounts are pending approval. Regulation ECE/228/2018, of February 28, on basic payment accounts provides a maximum fee of €3 euro per month for basic payment accounts. In the following months, it is expected that a new regulation will establish the scope of individuals that can benefit from free basic payment accounts.

Payment Services

The second Payment Servicesmarkets legislation, Directive (EU) 2015/23662014/65 relating to markets in financial instruments (“PSD2”MIFID II) allows authorized third parties (with consent)has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to access customercreate and maintain key information that was previously only accessibledocuments (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to banks. PSD2 applies to payments withinprovide retail investors based in the European Economic Area (EEA)with KIDs to enable those investors to better understand and has been implemented in Spain through Royal Decree-Law 19/2018, of November 23. This Royal Decree-Law expandscompare products. Recently, European authorities have issued a consultation paper to obtain feedback from the scope of the consumer protection provisions included in PSD2 (related to transparency and information sharing) to “microenterprises” and prohibits merchants from requesting additional charges for using specific payment methods, including credit cards.

Mutual Fund Regulation

Law 22/2014 of November 12, introduced a new legal regime for private investment entitiesindustry in order to implement (i) Directive 2011/61/EUamend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of June 8 on Alternative Investment Fund Managers, and (ii) Directive 2013/14/EU of the European Parliament and of the Council of May 21.

Asset Management Activities

Asset management activities in the EU are expected to be significantly impacted by the new regulation referred to below:

·Regulation (EU) 2017/1131 of the European Parliament and of the Council of June 14, 2017 on money market funds (“MMFs”), which (with the exception of certain articles which are in force since July 20, 2017) will apply from July 21, 2018. The Regulation introduces a broad set of new regulatory measures that apply to MMFs established, managed or marketed in the EU. In light of the perceived systemic risk presented by MMFs, the Regulation aims to make these investment products more resilient and resistant to contagion risks. It does this by imposing rules on eligible assets, portfolio diversification, portfolio maturity and valuation of assets and introduces new categories of MMFs that can offer a constant net asset value per share if they meet certain requirements. The Regulation is meant to be an important step in adopting a uniform set of rules that are designed to ensure that MMFs are, as far as possible, in a position to honor redemption requests from investors, especially during stressed market conditions, and therefore remain a reliable tool for investors’ cash management needs.

·Proposal for a Regulation (EU) on pan-European Personal Pension Product (“PEPP”). The PEPP is expected to constitute one of the key measures towards the Commission’s project to create a single market for capital in the EU. It aims to provide pension providers with the tools to offer PEPPs outside their national markets, thereby creating a large and competitive EU-level market for personal pensions which allows consumers to voluntarily complement their savings for retirement, while benefitting from solid consumer protection. PEPPs will have the same standard features wherever they are sold in the EU and can be offered by a broad range of providers, such as insurance companies, banks, occupational pension funds, investment firms and asset managers. They will complement existing state-based, occupational and national personal pensions, but not replace or harmonize national personal pension regimes. In accordance with the Proposal, PEPP providers will need to be authorized by the European Insurance and Occupational Pensions Authority (EIOPA).

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·Proposal for a Regulation of the European Parliament and of the Council amending Regulation (EU) No 648/2012 as regards the clearing obligation, the suspension of the clearing obligation, the reporting requirements, the risk-mitigation techniques for OTC derivatives contracts not cleared by a central counterparty, the registration and supervision of trade repositories and the requirements for trade repositories.

·Royal Decree 62/2018, of February 9, reduces the maximum fees which may be charged to investors in connection with pension funds and plans and allows them to withdraw their savings after ten years of having made them from 2025 onwards. This Royal Decree introduces other minor changes to the regulation of pension funds and plans in Spain, including:

·reducing fee limits;

·making the regulation of investments in closed-end funds more flexible;

·clarification of the net asset value reference date used to determine the value of payments;

·eliminating restrictions on delegation and related-party transactions; and

·modifying time limits for the receipt of vested rights, order of priority for garnishment orders, reporting regime for participants and the schedule for adapting documentation for pension plans.

·Draft Law implementing Directive (EU) 2016/2341 of the European Parliament and of the Council of December 14,April 27, 2016 on the activities and supervisionprotection of institutions for occupational retirement provisions. Based on its current draft, this Law will (i)  clarify the access cross-border pension plans activities, (ii) articulate a governance system to protect investors, (iii) adapt the Spanish legislationnatural persons with regard to the Directiveprocessing of personal data and (iv) regulateon the termsfree movement of such data (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and scopeobligations regarding personal data and imposing responsibilities on data controllers and processors to ensure consistent monitoring of the prudential supervisionprocessing of personal data. Organic Law 3/2018, of December 5, on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to bethe incremental use of new technologies in almost any process carried out by the competent authorityGroup, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the exchange of information with other competent authorities.

·Law 11/2018 of December 28 modifyingway in which consent is obtained from the Code of Commerce, Royal Decree-Law 1/2010 of July 2 and Law 22/2015 of July 20 in relation to non-financial information and diversity include the following amendments to Law 35/2003 on Collective Investment Schemes: (i) recognition of electronic communication with clients, and only requiring communication in paper when requested by a participant, (ii) extension of omnibus accounts to participants and preexistent positions, equalizing the distribution of national and foreign ICCs and (iii) inclusion of the sanctions system from UCITS (Undertakings for Collective Investments in Transferable Securities) V and reducing the penalties for serious and very serious infringements.

·Royal Decree-Law 19/2018 of November 23 on payment services and other urgent financial measures, also introduced a sanctions system for money market funds, modified the Stock Market Law to include some provisions applicable to asset management companies and introduced several European regulations into Spanish law (including regulations related to Benchmarks, MAR, PRIIPS and transparency in securities financing transactions).

·Commission Delegated Regulation (EU) 2018/1619 of July 12, 2018 amending Delegated Regulation (EU) 2016/438 regarding the safe-keeping duties of depositaries.

·Draft Directive and Regulation (EU) regarding the cross-border distribution of collective investment funds (UCITS, FIA, FECR and FESE) with the aim of reducing regulatory barriers for the cross-border distribution of funds, in relationclient, to the European capital markets union.

Spanish Corporate Enterprises Act

The consolidated textimplementation of processes to put into effect new rights, such as the Corporate Enterprises Act adopted under Legislative Royal Decree 1/2010, of July 2, repealedright to be forgotten or the former Companies Act, adopted under Legislative Royal Decree 1564/1989, of December 22. This royal legislative decree has consolidated the legislation for public limited companies (sociedades anónimas) and limited liability companies (sociedades de responsabilidad limitada) in a single text, bringing together the contents of the two aforementioned acts, as well as a part of the Securities Exchange Act.

This law defines certain rights of shareholders, regulates the transfer of shares and establishes corporate governance obligations, among other matters.right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the recovery and resolution of credit institutions and investment firms (“

Law 11/2015 transposes a very important part of EU Law into Spanish law in respect of the recovery and resolution mechanisms for credit institutions and investment firms (the “institutions”). It further assumes many of the provisions of Law 9/2012 of November 14, 2012 on the restructuring and resolution of credit institutions, which it partially repeals.

The regime set in place constitutes a special and full administrative procedure that seeks to ensure maximum speed in the intervention of an institution so as to provide for the continuity of its core functions, while minimizing the impact of its non-viability on the economic system and on public resources.

Compared to Law 9/2012, Law 11/2015 regulates internal recapitalization as a resolution instrument conceived as a “bail-in” arrangement (the absorption of losses by the shareholders and by the creditors of an institution under resolution).

Internal recapitalization is a new resolution instrument, since the loss-absorption mechanism makes it extensive to all the institution’s creditors, and not only to the shareholders and the subordinated creditors as envisaged under Law 9/2012 of November 14, 2012.

In this respect, liabilities eligible for bail-in are all the institution’s liabilities that are not expressly excluded or have not been excluded further to a decision by the FROB. These liabilities shall be susceptible to amortization or conversion into capital for the internal recapitalization of the institution concerned. Among the liabilities excluded are deposits guaranteed by the Deposit Guarantee Fund (up to €100,000) and liabilities incurred with employees, trade creditors and the tax or social security authorities.

Certain changes were made to the regime applicable in the event of the insolvency of an institution, in order to provide greater protection to the deposits of individuals and SMEs. In this respect, the following shall be considered as privileged credits: (i) deposits guaranteed by the Deposit Guarantee Fund (maximum of €100,000) and the rights to which they may have been subrogated should the guarantee have been made effective and (ii) the portion of the deposits of individuals and SMEs that exceeds the guaranteed level, and those deposits of those individuals and SMEs that would be guaranteed had they not been set up in branches located outside the EU.

For additional information on Law 11/2015, see “Item 3. Key Information―Risk Factors―Legal, Regulatory and Compliance Risks―Bail-in and write-down powers under the BRRD and the SRM Regulation may adversely affect our business and the value of any securities we may issue”. 

In December 2017, Directive 2014/59/EU was amended by Directive 2017/2399/EU as regards the ranking of unsecured debt instruments in insolvency proceedings. In particular, this directive requires member states to create a new class of senior non-preferred debt that will rank in insolvency proceedings above own-funds instruments and subordinated liabilities that do not qualify as own-funds instruments, but below other senior liabilities (being senior preferred liabilities). This Directive has been implemented in Spain by Law 11/2015.

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Royal Decree 1012/2015, of November 6, on development of Lawlaw on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“

Royal DecreeRD 1012/2015 partially transposes”) and the BRRDSRM Regulation were designed to provide the authorities with mechanisms and develops Law 11/2015 (described above).instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Royal Decree 1012/2015 includes a package of measures aimed at: (i) establishingEntity”) in order to ensure the criteria for the applicationcontinuity of the regulation forEntity’s critical financial and economic functions, while minimizing the resolutionimpact of credit entities, (ii) establishingits non-feasibility on the content of the recoveryeconomic and resolution plans for credit entities, (iii) regulating thefinancial system. The BRRD further provided that a Member State may only use ofadditional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the resolution instruments set(described further below) have been evaluated and used to the fullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, andan Entity will be considered as failing or likely to fail in particular,any of the actionsfollowing situations: (i) when the Entity significantly fails, or may reasonably be expected to be carried out bysignificantly fail in the FROB, (iv) establishing the regime applicablenear future, to the FROB in connectioncomply with the managing ofsolvency requirements or other requirements necessary to maintain its authorization; (ii) when the funds addressedEntity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to financemeet its enforceable obligations in a timely manner; or (iv) when the resolution procedures andEntity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the contributions that credit entities must makeEntity is failing or likely to the National Resolution Fund and, (v) establishing the regime applicable to the resolution of cross border entities.

Law 5/2015 of April 27,fail may depend on promoting corporate financing

Among other matters, Law 5/2015 establishes a number of changes to encourage bank financing to SMEs, sets outfactors which may be outside of that Entity’s control.

In line with the new legal framework for financial credit entities and regulates crowd funding. Law 5/2015 has also introduced amendments on other matters, including securitizations and debt issuance. It consolidates into one piece of legislation what has, until now, been a dispersed legal framework on securitization.

Law 5/2015 imposes an obligation on credit institutions to provide SMEs at least three months prior notice in the event the funding flow to an SME is to be cancelled or reduced by at least 35%. In so doing, the law aims to provide SMEs sufficient time to find new funding sources or to adjust the management of their own funds to avoid sudden liquidity deficiencies.

The main novelties of this new regime are the following: (i) private limited liability companies (sociedades limitadas or S.L.s) can issue and guarantee standard debt securities issuances capped at twice their own funds, (ii) the quantitative limit on debt issuances by non-listed public limited liability companies (sociedades anónimas or S.A.s) is removed, (iii) the management body of an issuer is authorized to approve standard debt securities issuances which do not yield partprovisions of the profits, unless stated otherwiseBRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the issuer’s articlesSpanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of associationany other measures that would prevent the failure of such Entity within a reasonable period of time, and (iv) it(c) resolution is clarified that it is unnecessarynecessary or advisable, as opposed to appoint a commissioner and setthe winding up a syndicate of bondholders in debt issuances governed by foreign law and aimed at international markets.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010 of April 28, has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respectEntity through ordinary insolvency proceedings, for reasons of preventing money laundering and terrorist financing. Credit institutions are subject to this law, which establishes applicable due diligence, internal controls and reporting obligations.

Royal Decree-Law 11/2018, of August 31, amended Law 10/2010 by establishing additional obligations for the purpose of preventing money laundering and terrorist financing, as well as modifying the sanctions regime and establishment of complaint channels. This law implemented Directive 2015/849 of May 20, 2015 on the prevention of the use of the financial system for the purposes of money laundering or terrorist financing.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (General Data Protection Regulation or “GDPR”) aims to achieve effective protection of personal data, provide natural persons in all member states with the same level of legally enforceable rights and obligations regarding personal data, and imposes responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data.

Organic Law 3/2018 of December 5 on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.public interest.

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The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) “bridge institution”, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Bail-in Tool.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Resolution Authority, under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised. “Relevant Spanish Resolution Authority” means any of the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria), the European Single Resolution Mechanism and, as the case may be, according to Law 11/2015, RD 1012/2015 and the SRM Regulation, the Bank of Spain and the Spanish Securities Market Commission (CNMV) or any other entity with the authority to exercise the Spanish Bail-in Power from time to time.

In accordance with the provisions of Article 48 of Law 11/2015 (without prejudice to any exclusions that may be applied by the Spanish Resolution Authority in accordance with Article 43 of Law 11/2015), in the event of any application of the Bail-in Tool, any resulting write-down or conversion by the Spanish Resolution Authority will be carried out so that they affect instruments in the following sequence: (i) CET1 items; (ii) the principal amount of Additional Tier 1 capital instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims other than Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in Spanish normal insolvency proceedings (with senior non-preferred claims (créditos ordinarios no preferentes) subject to the Bail-in Tool after any subordinated claims (créditos subordinados) under Article 92 of the Insolvency Law, but before the other senior claims).

In addition to the Bail-in Tool, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments of an Entity at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Bail-in Tool, the “Spanish Bail-in Power” ). Any write-down or conversion must follow the same insolvency hierarchy as described below. The point of non-viability of an Entity is the point at which the Spanish Resolution Authority determines that the Entity meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Bail-in Tool or any other resolution tool or power (where the conditions for resolution referred to above are met).

To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Bail-in Tool is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation though the SRF under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation, together with any other compensation provided for in any applicable banking regulations including, inter alia, compensation in accordance with Article 36.5 of Law 11/2015. However, if the treatment of a creditor following a Non-Viability Loss Absorption is less favorable than it would have been under ordinary insolvency proceedings, it is uncertain whether said creditor would be entitled to the compensation provided for in the BRRD and the SRM Regulation.

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The SRF was established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation.

The SRF is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.

SRF will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by December 31, 2023.

Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:

·To guarantee the assets or the liabilities of the institution under resolution;

·To make loans to or to purchase assets of the institution under resolution;

·To make contributions to a bridge institution and an asset management vehicle;

·To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;

·To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.

The Intergovernmental Agreement (“IGA”) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.

In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.

In this scenario, the Eurogroup decided in 2017 to expand the ESM role to serve as a backstop for the SRF. While the new features of the expanded role for the ESM were agreed by 2019, it was not until late 2020 that the euro area finance ministers agreed to proceed with the reform of the ESM and was later signed by Member States (represented by their ambassadors to the EU) on January 27 (the ratification by national parliaments is pending to come into force). The backstop to the SRF will be operational at the beginning of 2022 (earlier than expected) and will be able to provide support for up to €68 billion (in the form of credit lines). If this financial assistance is requested, the SRF will pay back the ESM loan with funds obtained from banks’ contributions (in a period of three years, with the possibility to extend it to five years).

Mexico

BBVA’s operations in Mexico are highly regulated. The Mexican regulatory framework for financial and banking activities aims to ensure the stability of the financial system and combat money laundering, as well as to provide consumer protection and transparency in the provision of financial services.

The provision of financial and deposit products is mainly regulated in the Banking Law and provisions issued by the National Banking and Securities Commission (“CNBV”) and Banco de México (the Mexican Central Bank) (“BANXICO”), where CNBV issues prudential regulation and BANXICO regulates banking transactions, including financial and deposit products. In addition, the Financial Services Transparency and Regulation Law contains provisions regarding transparency and consumer protection.

The regulatory framework for capital markets includes specific regulations designed to develop the stock market in an equitable, efficient and transparent manner, protect the interests of investors and promote competition, as well as to minimize systemic risk.

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Regarding asset management, regulation encourages the creation and development of investment companies and promotes the strengthening and the decentralization of the stock market by facilitating the access of small and medium investors. It also establishes the rules for the organization and operation of investment funds, the intermediation of their shares in the stock market, as well as the organization and operation of the people who provide asset management services.

Regulatory activity increased throughout 2020 driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic. Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December 2020, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

Moreover, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

In addition, the President submitted a bill to ban outsourcing. Due to its importance, the negotiation and discussion of the bill have been postponed until February 2021. If approved, BBVA would need to evaluate its personnel hiring schemes and determine if a reorganization of the personnel structure is required.

The Federal Labor Law was recently amended in order to regulate home office. This amendment includes the employer’s obligation to assume employee’s expenses resulting from home office, including payment of telecommunication services and a portion of the electric bill.

Turkey

BBVA’s operations in Turkey are subject to regulation by Turkish national authorities. In general, the rules applicable to products and services that banks in Turkey offer to consumers are more stringent than rules applicable with respect to commercial and corporate banking customers. Besides general consumer protection regulations, there are specific regulations of the Banking Regulation and Supervision Agency (“BRSA”) on banking consumers. In 2020, new laws were introduced authorizing the Central Bank of Turkey (“CBT”) to impose restrictions regarding certain fees and commissions that may be charged to customers, thereby increasing the number of regulators that are focused on consumer protection-related matters in the banking sector.

Apart from fundamental legal rules and product/service-specific legal regulations, the most basic regulation for the sector is the Banking Law No. 5411. The purpose of this law is to regulate the principles and procedures for ensuring confidence and stability in financial markets, the efficient functioning of the credit system and the protection of the rights and interests of depositors.

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In 2020, a significant number of regulations were introduced, the majority of which related to measures taken as a result of COVID 19. These regulations focused on extending the delinquency period up to 180 days for the classification of non-performing loans, facilitating the use of credit cards such as by increasing limits on contactless cards, promoting the use of digital channels for almost all banking transactions, encouraging banks to extend loan maturities and stopping all execution and bankruptcy proceedings between March 22, 2020 and April 30, 2020, among others. New regulations were adopted to facilitate the restructuring and repayment of loans by distressed commercial customers, provided that they are willing to pay their debts but are not able to fulfill their obligations due to financial distress experienced as a result of COVID-19. The BRSA has encouraged banks to apply interest on extended maturities provided that the interest rates applicable for such extension shall be in line with the market rates applicable at the time of restructuring.

In March 2020, the BRSA also introduced a new asset ratio calculation which required the sum of all loans, securities held and swap transactions to be equal to all local and foreign currency deposits. Failure to comply with such requirement resulted in monetary fines. In the last quarter of 2020, this requirement was eliminated. Garanti BBVA complied with such requirement while in effect.

Floating interest rates can be applied to Turkish Lira deposits with a maturity of three months or more, and to foreign currency deposits with a maturity of more than six months. Regarding the interest rates applicable to credit cards and overdraft accounts a new law was introduced in October 2020 and as November 1, became effective. Pursuant to this new law CBT will announce the interest applicable to credit cards, which shall also be applied to overdraft accounts, on the last fifth business day every month.

In general, the Payment Systems Law regulates the procedures and principles of payment services, payment institutions and electronic money institutions. Significant amendments have been made to this law in 2019 and they all became effective in 2020. These amendments were introduced to: (i) answer the sectorial needs of the payment and electronic money institutions; (ii) eliminate the dual structure which consists of the CBT and BRSA and position the CBT as the sole regulatory and supervisory authority and; (iii) ensure the compliance of Turkish legislation with EU regulations (especially the Payment Services (PSD2) Directive). As part of these amendments, it will be possible to consolidate payment account information online with consenting users and initiate a payment for a payment account at another payment service provider.

In addition, in March 2020, the Regulation on Information Systems and Electronic Banking Services was enacted and it came into force at the end of June 2020. The regulation governs issues relating to information systems and electronic banking. Under such regulation, banks are required to establish a new governance structure pursuant to which an Information Security Function directly reporting to the CEO or the Board of Directors is established. The regulation further requires a strategic plan, better governance and controls over data management and various controls over back-up solutions and business continuity.

On electronic banking services, new rules have been adapted which regulates all electronic banking services and channels such as mobile banking, internet banking, telephone, banking and ATM banking. Particularly, customer identification rules have been modified and adapted with the new technological standards.

Article 73 of Banking Law No. 5411, which governs issues around bank secrecy, has been amended and introduced two new concepts in terms of the sharing of data with controlling shareholders. Banks operating in Turkey are now required to provide information subject to a “reasonableness” test yet to be defined by the BRSA. In addition, banks may only share customer specific information with third parties at the specific instruction of customers under the new rule.

In 2020, new provisions were introduced to the applicable banking laws and regulations allowing customer onboarding through digital channels and open banking practices. Secondary legislation detailing the principles and processes are to be published by the relevant regulators.

Banking Law No.5411 has also been amended to allow banks to enter into banking services agreements and various other banking products through digital channels. Furthermore, with the amendment introduced on Bank Cards and Credit Cards Law No.5464, credit card contracts can be established using digital or alternative channels of the banks.

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Garanti BBVA is required to conduct its investment banking business in accordance with the Turkish Capital Market Law and various related regulations issued by Capital Market Board of Turkey. As a commercial bank, Garanti BBVA has a license to carry out the following activities: (a) receipt and transmission of orders in relation to capital market instruments, (b) execution of orders in relation to capital market instruments (except shares and derivative instruments based on stock indices or stocks) in the name and account of the customer or in its own name and in the account of the customer, (c) dealing for its own account (except for derivative instruments based on stock indices and stocks) and (d) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody service.

Markets in Financial Instruments (MiFID II)United States

Royal Decree-Law 14/2018, of September 28, modifiesBBVA’s activities and operations in the Stock Markets LawUnited States are subject to partially implement Directive 2014/65 relating to the markets of financial instruments (“MiFID II”), which process began under Royal Decree-Law 21/2017. This Royal Decree-Law aims to improve the soundness, transparencyextensive U.S. federal and state supervision and regulation, of the Spanish financial market’s trading activities, increase investor protection and harmonize Spanish financial markets regulations with those of other member states.

PRIIPs

Regulation (EU) 1286/2014 (The Packaged Retail and Insurance-Based Investment Products (“PRIIPs”) Regulation) was adoptedin some cases, U.S. requirements may impose restrictions on December 29, 2014 and came into force on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling PRIIPs to provide retail investors based in the European Economic Area (“EEA”) with KIDs to enable investors to better understand and compare products.

A PRIIP is defined as any investment where the amount repayable to the investor is subject to fluctuations because of exposure to reference values. In addition to insurance products, some examples of PRIIPs are options, futures, CFDs and structured products.

The main objectives of the PRIIPs Regulation are to: (i) ensure understanding and comparability between similar products in order to help the investors make investment decisions, (ii) improve transparency and increase confidence in the retail investment market and (iii) promote a single European insurance market.

EMIR

The European Commission has proposed various amendments to the European Market Infrastructure Regulation (“EMIR”), as part of its Regulatory Fitness and Performance Program. Some of those changes may affect the definition of non-financial counterparties and clearing obligations (including the elimination of the frontloading requirement, the introduction of an exemption for small financial counterparties from their clearing obligations and certain changes to reporting obligations). The proposed changes are not expected to significantly affect BBVA’s operations.

EPSV

On December 29, 2017, the Finance Direction of the Basque Government issued Instruction 1/2017 modifying obligations for certain types of pension funds (entidades de previsión social voluntaria). It establishes rules on corporate governance and deposits of these entities.

U.S. Regulation

global activities. BBVA is a foreign banking organization and a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”). As such, and the International Banking Act of 1978, as amended (the “IBA”), and as a result, BBVA is subject to the regulation and supervision ofby the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to becomebe treated as a financial holding company. BBVA’s New York branch is supervised by the Federal Reserve through the Federal Reserve Bank of New York, as well as licensed and supervised by the New York State Department of Financial Services. BBVA Compass, including its main bank subsidiary Compass Bank, is regulated extensively under U.S. federal and state law. In addition, certain of BBVA Compass’ non-bank subsidiaries are subject to regulation under U.S. federal and state law.

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The legislative, regulatory and supervisory framework in the United States governing the financial services sector has undergone significant change since the financial crisis and the passage of the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”) . Moreover, the intensity of supervisory and regulatory scrutiny has also increased.  In response President Donald J. Trump issued an executive order that sets forth principles for the reform of the federal financial regulatory framework, and there have been several statutory and regulatory initiatives aimed at providing relief for the financial services industry. In May 2018 the United States Congress passed, and President Trump signed into law, the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”). Under EGRRCPA, bank holding companies with less than $100 billion in total consolidated assets are exempt from certain enhanced prudential standards, while bank holding companies with $100 billion or more but less than $250 billion in total consolidated assets will become exempt from certain enhanced prudential standards in November 2019 unless the Federal Reserve determines that particular enhanced prudential standards should apply. EGRRCPA made clear that the Federal Reserve retained the right to apply enhanced prudential standards to foreign banking organizations with greater than $100 billion in global total consolidated assets, such as BBVA.

In October 2018 the Federal Reserve and other U.S. banking agencies issued proposed rules to adjust, consistent with EGRRCPA, the thresholds at which certain enhanced prudential standards and other capital and liquidity standards apply to U.S. banking organizations with $100 billion or more in total consolidated assets. The proposed rules would not apply to foreign banking organizations, such as BBVA, or the separately capitalized top-tier U.S. intermediate holding company (“IHC”) of foreign banking organizations, such as BBVA Compass Bancshares, Inc. The Federal Reserve indicated that it intends to develop a separate proposal that would implement EGRRCPA for foreign banking organizations. It is not clear whether, and to what extent, BBVA and BBVA Compass would be eligible for regulatory relief under the forthcoming proposal. For the time being, the enhanced prudential standards that applied to BBVA and BBVA Compass Bancshares, Inc. prior to the passage ofEGRRCPA remain in effect. BBVA Compass expects few statutory changes to the financial regulatory framework during the current Congress and continues to expect that its business will remain subject to extensive regulation and supervision.

Financial Regulatory Authorities

Owing to its status asAs a bank holding company, BBVA’s direct and indirect activities and investments in the United States are limited to banking activities and certain non-banking activities that are “closely related to banking,” as determined by the Federal Reserve, and certain other activities permitted under the BHC Act.Act and IBA. BBVA also is required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any U.S. bank or bank holding company. AIn addition, a bank holding company, including BBVA, is required to act as a source of financial strength for its U.S. bank subsidiaries. Among other things, this source of strength obligation may result in a requirement for BBVA, as controlling shareholder, to inject capital into its U.S. bank subsidiary. BBVA’s U.S. branches and agencies are also subject to additional liquidity requirements, and in certain cases the entirety of BBVA’s U.S. operations are subject to additional risk management requirements. In addition, BBVA

BBVA’s New York branch is subject to requirements related tosupervised by the adequacyFederal Reserve through the Federal Reserve Bank of New York, as well as licensed and reportingsupervised by the New York State Department of its home country capital and stress testing standards.Financial Services.

The Federal Reserve’s Regulation YY requires foreign banking organizations with $50 billion or more inBBVA USA Bancshares, Inc., BBVA’s top-tier U.S. assets held outside of their U.S. branches and agencies to create an IHC. BBVA Compass Bancshares, Inc. is our designated IHC andintermediate holding company, holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, Compass Bank. BBVA CompassUSA. BBVA USA Bancshares, Inc. is also a bank holding company within the meaning of the BHC Act,that has elected to becomebe treated as a financial holding company and is subject to supervisionregulation and regulationsupervision by the Federal Reserve throughReserve. BBVA USA is regulated extensively under U.S. federal and state law by, among other regulators, the Federal Reserve, Bank of Atlanta.  BBVA Compass Bancshares, Inc.  is subject to U.S. risk-basedthe Federal Deposit Insurance Corporation (“FDIC”) and leverage capital requirements, liquidity requirements, capital planning and stress testing requirements, risk management requirements, single counterparty credit limits and other enhanced prudential standards on a consolidated basis. As a bank holding company, it must also act as a source of strength to its bank subsidiaries. BBVA Compass Bancshares, Inc. is also subject to the Alabama State Banking Department’s requirements for bank holding companies that hold Alabama state-chartered banks, like Compass Bank, under the bank holding company laws of the State of Alabama.Department. BBVA CompassUSA Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”). with respect to consumer protection laws. 

Upon completion of the previously announced stock purchase of 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. by PNC Financial Services Group, Inc., the requirements described in this section that apply only to BBVA USA Bancshares, Inc. and BBVA USA, but not BBVA, would no longer be applicable. However, BBVA will continue to be subject to U.S. federal and state supervision and regulation as a foreign banking organization and a bank holding company because it maintains a branch in the United States.

To continue to be treated as a financial holding company, each of BBVA and BBVA USA Bancshares, Inc. must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well-managed” for U.S. bank regulatory purposes. In addition, any U.S. depository institution subsidiaries of the foreign banking organization or bank holding company must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well-managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.

Sections 23A and 23B of Federal Reserve Act and Regulation W place various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to extensions of credit, credit exposures arising from derivative transactions, and securities borrowing and lending transactions from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. These restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

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Compass BankThe availability of dividends from banking organizations in the United States is subjectlimited by various statutes and regulations. Federal banking agencies are authorized to supervisiondetermine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and regulation byto prohibit payment thereof. In particular, the banking agencies have stated that paying dividends that deplete a varietybanking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of U.S. regulatory agencies. Compass Bank is an Alabama state-chartered bank, is a member of the Federal Reserve System, and has branches in Alabama, Arizona, California, Colorado, Florida, New Mexico, and Texas. Compass Bank is supervised and examined by the Federal Reserve, the Alabama State Banking Department and, with respect to consumer financial laws and regulations, the CFPB.current operating earnings. In addition, certain aspects of Compass Bank’s branch operations in Arizona, California, Colorado, Florida, New Mexico, and Texasstate-chartered banking institutions, including BBVA USA, are subject to examinationdividend limitations imposed by the respectiveapplicable federal and state banking regulators in such states. Compass Bank is a depository institution insured by, and subject to the regulation of, the Federal Deposit Insurance Corporation (the “FDIC”). 

BBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the State of California Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a money services business with the Financial Crimes Enforcement Network of the U.S. Department of the Treasury.laws.

BBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“BSI”), is subject to regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) with respect to its securities activities, as well as various U.S. state regulatory authorities. Additionally, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The activities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, Compass Bank has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Dodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is subject to regulation and supervision by various U.S. state insurance regulatory authorities.

BBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the regulations promulgated thereunder with the U.S. Commodity Futures Trading Commission (the “CFTC”), which subjects BBVA to regulation and supervision by the CFTC. BBVA’s world-wide swap activities are also subject to regulations adopted by the European Commission pursuant to the European Market Infrastructure Regulation (“EMIR”) and the EU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives. Compass Bank (and other entities of the BBVA Group) may register as a swap dealer if required by its swap activities or if it is determined to be beneficial to its business.

BBVA is currently assessing whether it will be required to register as a security-based swap dealer with the SEC, once such registration requirement comes into effect.

Enhanced Prudential Standards

InPursuant to the past few years, The Federal Reserve has imposed greater risk-basedDodd-Frank Wall Street Reform and leverageConsumer Protection Act of 2010 (the “Dodd-Frank Act”), BBVA and BBVA USA Bancshares, Inc. have been subject to certain enhanced prudential standards (including resolution planning), capital requirements, liquidityadequacy requirements, capital planning and stress testing, requirements,liquidity standards, risk management and governance requirements, single counterparty credit limitsamong other regulatory and other enhanced prudential standards for bank holding companies with $50 billion or more in total consolidated assets, which includes BBVA Compass.

Under the enhanced prudential standard regulations applicable to foreign banking organizations with $50 billion or more in U.S. assets held outside of their U.S. branches and agencies, BBVA designated BBVA Compass Bancshares, Inc. as its IHC. BBVA’s combined U.S. operations are also subject to U.S. risk-based and leverage capital requirements, liquidity requirements, capital planning and stress testing requirements, risk management requirements, and other enhanced prudential standards on a consolidated basis. BBVA’s U.S. branches and agencies (and in certain cases, the entire U.S. operations of BBVA) are also subject to liquidity buffer and risk managementsupervisory requirements. In addition, BBVA is subject to requirements related to the adequacy and reporting of its home country capital and stress testing standards.

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As noted in the “U.S. Regulation” section above, following the passage of EGRRCPA the federal banking agencies have begun to propose rules recalibrating the application of enhanced prudential standards to banking organizations with $100 billion or more in total consolidated assets. The Federal Reserve’s current proposals would not apply to foreign banking organizations, such as BBVA, or the U.S. IHCs of foreign banking organizations, such as BBVA Compass Bancshares, Inc. and it is currently unclear how foreign banking organizations or the U.S. IHCs of foreign banking organizations will be treated under forthcoming proposed rules. Enhanced prudential standards that applied to BBVA or BBVA Compass Bancshares, Inc. prior to the passage of EGRRCPA remain in effect for the time being.

Capital

BBVA Compass Bancshares, Inc. and Compass Bank are subject to the U.S. Basel III capital rule (“U.S. Basel III”), which is based on the Basel III regulatory capital standards established by the Basel Committee. Certain aspects of U.S. Basel III, such as the minimum capital ratios and the methodology for calculating risk-weighted assets, became effective on January 1, 2015 for BBVA Compass Bancshares, Inc. and Compass Bank. The minimum regulatory capital ratios under U.S. Basel III for bank holding companies are the following: Common Equity Tier 1 risk-based capital ratio of 4.5%; Tier 1 risk-based capital ratio of 6.0%; Total risk-based capital ratio of 8.0%; and Tier 1 leverage ratio of 4.0%.

Other aspects of the rule, such as the capital conservation buffer and certain regulatory deductions from and adjustments to capital were phased-in over several years while still others, such as the treatment of certain non-qualifying capital instruments, continue to be phased-in through 2021. As of January 1, 2019, BBVA Compass must maintain a capital conservation buffer of greater than 2.5% to avoid being subject to limitations on its ability to make capital distributions and certain discretionary bonus payments. The Federal Reserve has proposed replacing this 2.5% capital conservation buffer requirement with a dynamic stress capital buffer, as discussed below under “Proposed Stress Buffer Requirements”.

U.S. Basel III also revised the capital thresholds for the prompt corrective action framework for insured depository institutions. Under the prompt corrective action framework, U.S. federal banking regulators rate insured depository institutions on the basis of five capital categories: “well capitalized” (the highest rating), “adequately capitalized,” “undercapitalized,” “significantly undercapitalized,” and “critically undercapitalized” (the lowest rating). The federal banking regulators are required to take mandatory supervisory actions, and are authorized to take other discretionary actions, with respect to insured depository institutions in the three undercapitalized categories. The severity of those actions would depend upon the capital category to which the insured depository institution is assigned. To qualify as “well capitalized,” Compass Bank must maintain a Common Equity Tier 1 risk-based capital ratio of at least 6.5%, a Tier 1 risk-based capital ratio of at least 8.0%, a Total risk-based capital ratio of at least 10.0%, and a Tier 1 leverage ratio of at least 5.0%, and not be subject to any order or written directive to meet and maintain a specific capital level for any capital measure.

The Federal Reserve has not yet revised the well-capitalized standard for bank holding companies to reflect the higher capital requirements imposed under the U.S. Basel III capital rule. For purposes of the Federal Reserve’s Regulation Y, including determining whether a bank holding company meets the requirements to be a financial holding company, bank holding companies, such as BBVA Compass Bancshares, Inc., must maintain a Tier 1 Risk-Based Capital Ratio of 6 percent or greater and a Total Risk-Based Capital Ratio of 10 percent or greater to be well-capitalized.  If the Federal Reserve were to apply the same or a very similar well-capitalized standard to bank holding companies as that applicable to Compass Bank, BBVA Compass Bancshares Inc.’s capital ratios as of December 31, 2017 would exceed such revised well-capitalized standard.

Total Loss-Absorbing Capital and Long-Term Debt Requirements

The Federal Reserve’s final rule on the TLAC of U.S. G-SIBs and the IHCs of non-U.S. G-SIBs does not apply since neither the BBVA Compass nor BBVA are G-SIBs and are therefore not subject to the rule.

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Single Counterparty Credit Limits

In June 2018, the Federal Reserve issued a final rule implementing single counterparty credit limits applicable to the U.S. operations of major foreign banking organizations, such as BBVA, and to the consolidated operations of certain large U.S. IHCs of foreign banking organizations, such as BBVA Compass. The rule will impose percentage limitations on net credit exposures to individual counterparties (aggregated based on affiliation), generally as a percentage of tier 1 capital. These requirements will become effective in January 2020 for Compass Bank and in July 2020 for BBVA Compass, and could adversely affect the financial position of BBVA’s U.S. operations.

Periodic Capital Plans and Stress Testing

Under enhanced prudential standards currently applicable to U.S. IHCs with $50 billion or more of total consolidated assets, BBVA Compass is required to submit periodic capital plans to the Federal Reserve and generally may pay dividends and make other capital distributions only in accordance with a capital plan as to which the Federal Reserve has not objected. Under the Federal Reserve’s Comprehensive Capital Analysis and Review (“CCAR”) process, BBVA Compass’ capital plan must include an assessment of the expected uses and sources of capital over a forward-looking planning horizon of at least nine quarters, a detailed description of BBVA Compass’ process for assessing capital adequacy, BBVA Compass’ capital policy, and a discussion of any expected changes to BBVA Compass’ business plan that are likely to have a material impact on its capital adequacy or liquidity. Based on a quantitative assessment, including a supervisory stress test conducted as part of the CCAR process, the Federal Reserve will either object to BBVA Compass’ capital plan, in whole or in part, or provide a notice of non-objection to BBVA Compass. If the Federal Reserve objects to a capital plan, BBVA Compass may not make any capital distribution other than those with respect to which the Federal Reserve has indicated its non-objection.

Under revised CCAR rules that became effective on March 6, 2017, the Federal Reserve is no longer allowed to object to the capital plans of large and noncomplex bank holding companies, including BBVA Compass, on a qualitative, as opposed to quantitative, basis. Instead, the Federal Reserve may evaluate the strength of BBVA Compass’ qualitative capital planning process through the regular supervisory process and targeted horizontal reviews of particular aspects of capital planning.

In addition to capital planning requirements BBVA Compass and Compass Bank are subject to stress testing requirements under the Federal Reserve’s enhanced prudential standards rule and the Dodd-Frank Act. BBVA Compass must conduct periodic company-run stress tests and is subject to a periodic supervisory stress test conducted by the Federal Reserve.

For the capital plan and stress test cycle that began January 1, 2018, BBVA Compass submitted its capital plan to the Federal Reserve in April 2018 and the Federal Reserve published summary results on June 28, 2018. The Federal Reserve did not object to BBVA Compass’ 2018 capital plan. On February 5,October 2019, the Federal Reserve announcedfinalized rules that implement certain less-complex U.S. bank holding companies and U.S. IHCs with less than $250 billion in total consolidated assets, including BBVA Compass, would not be subject to supervisory stress testing, company-run stress testing or the CCAR process for the 2019 capital plan and stress test cycle. Although management believes that capital plans that BBVA Compass plans to submit will be reasonable and fiscally sound, BBVA Compass can make no assurances that the Federal Reserve will not object to BBVA Compass’ capital plans.

Proposed Stress Buffer Requirements

On April 10, 2018, the Federal Reserve issued a proposal to integrate its capital planning and stress testing requirements with certain ongoing regulatory capital requirements. The proposal, which would apply to the consolidated operations of U.S. IHCs, including BBVA Compass, would introduce a stress capital buffer and a stress leverage buffer, or stress buffer requirements, and related changes to the capital planning and stress testing processes.

For risk-based capital requirements, the stress capital buffer would replace the existing capital conservation buffer, which is now 2.5%. The stress capital buffer would equal the greater of (i) the maximum decline in our Common Equity Tier 1 Risk-Based Capital Ratio under the severely adverse scenario over the supervisory stress test measurement period, plus the sumprovisions of the ratios of the dollar amount of our planned common stock dividends to our projected risk-weighted assets for each of the fourth through seventh quarters of the supervisory stress test projection period,Economic Growth Regulatory Relief and (ii) 2.5%.

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Like the stress capital buffer, the stress leverage buffer would be calculated based on the results of our most recent supervisory stress tests. The stress leverage buffer would equal the maximum decline in our Tier 1 leverage ratio under the severely adverse scenario, plus the sum of the ratios of the dollar amount of our planned common stock dividends to our projected leverage ratio denominator for each of the fourth through seventh quarters of the supervisory stress test projection period. No floor would be established for the stress leverage buffer, which would apply in addition to the current minimum Tier 1 leverage ratio of 4%.

The proposal would make related changes to capital planning and stress testing processes for the consolidated operations of U.S. IHCs subject to the stress buffer requirements. In particular, the proposal would limit projected capital actions to planned common stock dividends in the fourth through seventh quarters of the supervisory stress test projection period and would assume that the consolidated operations of IHCs maintain a constant level of assets and risk-weighted assets throughout the supervisory stress test projection period.

In November 2018, the Federal Reserve’s Vice Chairman for Supervision stated that the Federal Reserve does not expect that the proposed stress buffer requirements will go into effect before 2020, and that, while the Federal Reserve expects to finalize certain elements of those requirements as proposed, other elements of the proposal will be re-proposed and again subject to public comment.

Liquidity

The Federal Reserve and other federal banking regulators have issued liquidity coverage ratioConsumer Protection Act (“LCREGRRCPA”) by tailoring enhanced prudential standards and capital and liquidity requirements which are based on the Basel Committee’s LCR standardapplicable to foreign and are designed to ensure that covereddomestic banking organizations, have sufficient high-quality liquid assets to cover expected net cash outflows over a 30-day liquidity stress period. This standard’s objective is to promote the short-term resilience of the liquidity risk profile of banking organizations.including BBVA and BBVA USA Bancshares, Inc. As a consolidated U.S. bank holding company with total assets of $50 billion or more that is not an advanced approaches bank holding company,result, both BBVA Compass isand BBVA USA Bancshares, Inc. have been subject to less restrictive enhanced prudential standards and capital and liquidity requirements. As of December 31, 2020, BBVA USA Bancshares, Inc. became a modified versionCategory IV banking organization for purposes of the LCR, pursuant to which, as of January 1, 2017, BBVA Compass has been required to maintain a minimum of 100% of the fully phased-in modified LCR. In addition, as of October 1, 2018, BBVA Compass is required to disclosethese rules, and certain quantitativeenhanced prudential standards and qualitative information related to its LCR calculation after each calendar quarter. Required disclosures include disclosure of the consolidated LCR, based on averages over the prior quarter, as well as consolidated HQLA amounts broken down by each HQLA category.

Under the federal banking agency proposals implementing EGRRCPA for U.S. banking organizations, BBVA Compass would no longer be subject to the LCR. Although these proposals are not yet final, the Federal Reserve has stated that itcapital and liquidity requirements will not take action to require bank holding companies with less than $100 billion in total consolidated assets, including BBVA Compass, to comply with certain existing regulatory requirements, including the LCR requirements. It is unclear how the anticipated proposal implementing EGRRCPA for foreign banking organizations and U.S. IHCs of foreign banking organizations would affect the applicability of the LCR for BBVA Compass.

In April 2016, the Federal Reserve and other federal banking regulators proposed a rule to implement a net stable funding ratio (“NSFR”), which is based on additional quantitative liquidity standards developed by the Basel Committee and is designed to ensure that an institution maintains sufficiently stable funding over a one-year time horizon. The proposal includes a modified, less stringent version of the NSFR that wouldagain apply to consolidated U.S. bank holding companies with total assets of $50 billion or more that are not advanced approaches bank holding companies, such as BBVA Compass.USA Bancshares, Inc. following applicable phase-in and transition periods.

Resolution Planning

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit annually a plan for the orderly resolution of its U.S. subsidiaries and U.S. operations in the event of future material financial distress or failure (the “Title I Resolution Plan”). For foreign-based companies subject to these resolution planning requirements, such as BBVA, the Title I Resolution Plan relates to subsidiaries, branches, agencies and businesses that are domiciled in, or whose activities are carried out in whole or in material part in, the United States. BBVA filed its most recent Title I Resolution Plan in December 2018. As a result of EGRRCPA and its implementing regulations, BBVA will now be required to file a reduced Title I Resolution Plan once every three years. In addition, Compass BankBBVA USA is subject to the FDIC rule requiring large insured depository institutions with total assets of $50 billion or more to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. Compass Bank’s most recent plan underThe FDIC has issued an advance notice of proposed rulemaking to revise the FDIC resolution plan rule, was submitted on July 1, 2018.

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but a notice of proposed rulemaking has yet to be issued. The deadline for the BBVA’sBBVA USA’s next Title I Resolution PlanFDIC rule resolution plan submission is currently unclear, as senior representatives frombut the Federal ReserveFDIC announced that it intends to resume requiring banks to submit FDIC resolution plans, and FDICthat banks subject to the rule will have recently indicated that the annual submission requirement may be relaxed under a forthcoming revised 165(d) rule. FDIC Chairman Jelena McWilliams has indicated that no firm will beat least 12 months’ advance notice before being required to submit another FDICdo so.

BBVA USA Bancshares, Inc. and BBVA USA are subject to the U.S. Basel III capital rule plan until(“U.S. Basel III”), which is based on the FDIC issuesBasel III regulatory capital standards established by the Basel Committee. In the past, BBVA USA Bancshares, Inc. and BBVA USA had been subject to certain additional capital planning, stress testing and liquidity requirements, but, as result of EGRRCPA and its implementing regulations, BBVA USA Bancshares, Inc. and BBVA USA were not subject to these additional requirements in 2020. As a revised FDIC rule.result of becoming a Category IV banking organization as of December 31, 2020, BBVA USA Bancshares, Inc. and BBVA USA will again be subject to certain of these additional requirements following applicable phase-in and transition periods.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as Compass Bank,BBVA USA, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, and permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. In the case of non-U.S. banking entities, such as BBVA, there is also an exemption permitting activities conducted solely outside of the United States, provided that certain criteria are satisfied. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities.

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In May 2018,October 2019, the five regulatory agencies charged with implementing the Volcker Rule released proposedfinalized amendments to the current Volcker Rule regulations. The proposal wouldregulations that tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. If adopted,In addition, in June 2020, the proposed changes regarding the definition of trading account would likely expand the scope of investing and trading activities subjectfive regulatory agencies finalized amendments to the Volcker Rule’s restrictions. Rule's restrictions on ownership interests in and relationships with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial services to additional types of funds and investments vehicles.

BBVA Compass is of the view that the impact of the Volcker Rule, oras amended and proposed amendments to the Volcker Rulebe amended, is not material to its business operations.

Derivatives

Title VII of the Dodd-Frank Act amendedBBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the Securities Exchange Act of 1934 to establish a comprehensive framework forregulations promulgated thereunder with the regulation of over-the-counter (“U.S. Commodity Futures Trading Commission (the “OTCCFTC”) derivatives, which subjects BBVA to regulation and supervision by the CFTC and the SEC, including by imposing mandatory clearing, exchange trading and transaction reporting requirements on such derivatives.  In addition, Title VII required the CFTC and SEC to adopt rules regarding the registration of certain entities that deal or are major market participants in certain OTC derivatives, as well as rules imposing capital, margin, business conduct, record keeping and other requirements on such entities. While the CFTC has completed the majority of its regulations in this area, most of which are in effect, the SEC has not yet adopted a number of its Title VII regulations. In December 2016, the CFTC reproposed regulations to impose position limits on certain futures and option contracts in specified energy, metal and agricultural commodities and for economically equivalent swaps.  This proposal has not yet been finalized. In addition, the Federal Reserve, FDIC, Office of the Comptroller of the Currency, the Farm Credit Administration and the Federal Housing Finance Agency adopted final rules establishing initial and variation margin requirements for non-cleared swaps and security-based swaps between certain entities, while the CFTC adopted final rules establishing initial and variation margin requirements for non-cleared swaps between certain entities. All swap dealers must currently comply with the variation margin requirements (to the extent applicable to a particular transaction); however, the initial margin requirements are still being phased in, generally based on the transactional volume of the parties and their affiliates.

National Futures Association. In general, as a non-U.S. swap dealer, BBVA is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to certain conditions, BBVA may comply with EU OTC derivatives requirements in lieu of somecertain CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.

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Deposit Insurance and Assessments

Deposits at Compass BankBBVA’s world-wide swap activities are insuredalso subject to regulations adopted by the Deposit Insurance FundEuropean Commission pursuant to the European Market Infrastructure Regulation (“DIFEMIR”) as administered byand the FDIC, up to the applicable limits established by law. The DIFEU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives.

BBVA is funded through assessments on banks, such as Compass Bank.  Changes in the methodology used to calculate these assessments resulting from the Dodd-Frank Act increased the assessments that Compass Bank iscurrently assessing whether it, or any of its affiliates, will be required to pay to the FDIC.  In addition, in March 2016, the FDIC issued a final rule imposing a surcharge on the assessments of insured depository institutions with total consolidated assets of $10 billion or more, such as Compass Bank, to raise the DIF’s reserve ratio. These surcharges ceased, effective October 1, 2018,register as a result of the FDIC’s reserve ration exceeding 1.35%.  The FDIC also collects Financing Corporation deposit assessments, which are calculated off of the assessment base established by the Dodd-Frank Act. Compass Bank pays the DIF assessment as well as the Financing Corporation assessments.

Revised Supervisory Rating System and Corporate Governance Expectations for IHCs

In November 2018, the Federal Reserve issued a final rule to revise its supervisory rating system for “Large Financial Institutions”, the definition of which includes, among other entities, IHCs established pursuant to the Federal Reserve’s Regulation YY, including BBVA Compass. Under the rule, Large Financial Institutions will receive separate ratings from the Federal Reserve for (1) capital planning and positions, (2) liquidity risk management and positions and (3) governance and controls. Each of these component areas will receive one of the following four ratings: (i) Broadly Meets Expectations, (ii) Conditionally Meets Expectations, (iii) Deficient-1, and (iv) Deficient-2. A covered company will need to maintain a rating of “Broadly Meets Expectations” or “Conditionally Meets Expectations” for each of the three components to be considered “well managed.” Existing statutes and regulations provide benefits to firms considered to be “well managed,” such as the ability to engage in additional permitted activities. BBVA Compass is currently scheduled to receive its first ratings under the revised rating system in early 2020. Also in August 2017, the Federal Reserve issued proposed guidance intended to enhance the effectiveness of boards of directors and refocus the Federal Reserve’s supervisory expectations for boards of directors on their core responsibilities, and also to delineate between roles and responsibilities for boards of directors and for senior management. Although the proposed guidance would not directly apply to BBVA Compass, the Federal Reserve solicited comments on how the guidance could be adapted to apply to an IHC, signaling that BBVA Compass could fall within the scope of a related future proposal.

Transactionssecurity-based swap dealer with Affiliates and Insiders

The Dodd-Frank Act broadened the application of Sections 23A and 23B of Federal Reserve Act, although the Federal Reserve has not yet implemented such changes in Regulation W (“Reg W”). Reg W places various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to borrowing or otherwise obtaining credit from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. Under the Dodd-Frank Act changes, credit exposure arising from derivative transactions, securities borrowing and lending transactions, and repurchase/reverse repurchase agreements are subject to the collateral and quantitative limitations. The Reg W restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

Consumer Protection Regulations

The regulations that the CFPB may adopt could affect the nature of the consumer activities that BBVA Compass Bancshares, Inc., Compass Bank and BBVA’s New York branch may conduct, and may impose restrictions and limitations on the conduct of such activities. The CFPB has promulgated many mortgage-related rules since it was established under the Dodd-Frank Act, including rules related to the ability to repay and qualified mortgage standards, mortgage servicing standards, loan originator compensation standards, high-cost mortgage requirements, Home Mortgage Disclosure Act requirements and appraisal and escrow standards for higher-priced mortgages. These rules have created operational and strategic challenges for Compass Bank, as it is both a mortgage originator and a servicer.

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Durbin Amendment’s Rules Affecting Debit Card Interchange Fees

Under the Durbin Amendment to the Dodd-Frank Act, the maximum permissible interchange fee that an issuer may receive for an electronic debit transaction is the sum of 21 cents per transaction, a 1 cent fraud prevention adjustment, and 5 basis points multiplied by the value of the transaction.

Incentive Compensation Regulations and Other Regulations Applicable to SEC-regulated Entities

The Dodd-Frank Act requires the SEC, to cause issuers with listed securities, which may include foreign private issuersonce such as BBVA, to establish a “claw back” policy to recoup previously awarded employee compensation in the event of an accounting restatement. The SEC proposed rules in 2015 to implement this provision. In addition, the Dodd-Frank Act requires U.S. regulatory agencies to prescribe regulations with respect to incentive-based compensation at financial institutions in order to prevent inappropriate behavior that could lead to a material financial loss. In 2016, federal regulators reproposed a rule that would require, among other things, the deferral of a percentage of certain incentive-based compensation for senior executives and certain other employees and, under certain circumstances, clawback of incentive-based compensation.

The Dodd-Frank Act also grants the SEC discretionary rule-making authority to impose a new fiduciary standard on brokers, dealers and investment advisers, and expands the extraterritorial jurisdiction of U.S. courts over actions brought by the SEC or the United States with respect to violations of the antifraud provisions in the Securities Act, the Exchange Act and the Investment Advisers Act of 1940.registration requirement comes into effect.

Anti-Money Laundering; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and certain of its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to, among other things, (i)(a) give special attention to correspondent and payable-through bank accounts, (ii)(b) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (iii)(c) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (iv)(d) develop and maintain anti-money laundering programs, customer identification procedures, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement compliance programs with respect to the sanctions programs administered by the Office of Foreign Assets Control. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Other Regulated U.S. Entities

CybersecurityBBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

In October 2016,Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the federal banking regulators issued an advance noticeState of proposed rulemaking regarding enhanced cyber risk management standards, which would apply toCalifornia Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a wide rangemoney services business with the Financial Crimes Enforcement Network (“FinCEN”) of large financial institutions and their third-party service providers, including BBVA Compass and itsthe U.S. bank subsidiaries. The proposed standards would expand existing cybersecurity regulations and guidance to focus on cyber risk governance and management; managementDepartment of internal and external dependencies; and incident response, cyber resilience and situational awareness. In addition, the proposal contemplates more stringent standards for institutions with systems that are critical to the financial sector.Treasury.

7962


 

Cybersecurity is also an area of increasing state legislative focus. For example, in June of 2018, the Governor of California signed into law the California Consumer Protection ActBBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“CCPABSI”). The new law, which becomes effective on January 1, 2020, applies, is subject to for-profit businesses that conduct business in Californiaregulation and meet certain revenue or data collection thresholds. The CCPA will give consumerssupervision by the right to request disclosure of information collected about them,Securities and whether that information has been sold or shared with others, the right to request deletion of personal information (subject to certain exceptions), the right to opt out of the sale of the consumer’s personal information,Exchange Commission (“SEC”) and the right notFinancial Industry Regulatory Authority (“FINRA”) with respect to be discriminated against for exercising their rights. its securities activities, as well as various U.S. state regulatory authorities. In addition, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The CCPA contains several exemptions, including an exemption applicable to information that is collected, processed, sold or disclosedactivities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, BBVA USA has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Gramm-Leach-Bliley Act (GLBA) if the GLBADodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is in conflict with the CCPA. The impact of the CCPA on BBVA Compass’ business is under review.subject to regulation and supervision by various U.S. state insurance regulatory authorities.

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

The BBVA Group discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure:

Legacy contractual obligations related to counter indemnities. Before 2007, the BBVA Group issued certain counter indemnities to its non-Iranian customers in Europe for various business activities relating to Iran in support of guarantees provided by Bank Melli, one of which remained outstanding as of January 1, 2018 and was executed on October 16, 2018, triggering a payment of €21,427.96. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure

Iranian embassy-related activity. TheOn a continuing basis, the BBVA Group maintains a bank accountsaccount in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the year ended December 31, 2018,2020, from embassy-related activity, which include fees and/or commissions, totaled 1,899.33.$128.98. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measuremeasure.

C.   Organizational Structure

AsFor information on the composition of the BBVA Group as of December 31, 2018, the BBVA Group was composed of 297 consolidated entities and 66 entities accounted for using the equity method.2020, see Note 1.1 to our Consolidated Financial Statements.

The companies comprising the BBVA Group are principally domiciled in the following countries: Argentina, Belgium, Bolivia, Brazil, Cayman Islands, Chile, Colombia, Finland, France, Germany, Ireland, Italy, Luxembourg, Mexico, Netherlands, Peru, Poland, Portugal, Romania, Spain, Switzerland, Turkey, United Kingdom, the United States of America Uruguay and Venezuela.Uruguay. In addition, BBVA has an active presence in Asia.

63


Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2018.2020.

80


Subsidiary

Country of Incorporation

Activity

BBVA Voting Power

BBVA Ownership

Total Assets (1)

 

 

 

     (in Percentages)

(In Millions of Euros)

BBVA BANCOMER

Mexico

Bank

100.00

100.00

 85,624    

COMPASS BANK

The United States

Bank

100.00

100.00

 68,737    

GARANTI

Turkey

Bank

49.85

49.85

 57,999    

BBVA BANCO CONTINENTAL, S.A.

Peru

Bank

92.24

46.12

 18,923    

BBVA SEGUROS, S.A., DE SEGUROS Y REASEGUROS

Spain

Insurance

99.96

99.96

 17,343    

BBVA COLOMBIA, S.A.

Colombia

Bank

95.46

95.46

 16,309    

BBVA BANCO FRANCES, S.A.

Argentina

Bank

66.55

66.55

 8,161    

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

Mexico

Insurance

100.00

100.00

 4,484    

SEGUROS BBVA BANCOMER S.A. DE C.V. GRUPO FINANCIERO BBVA BANCOMER

Mexico

Insurance

100.00

100.00

 4,014    

GARANTIBANK INTERNATIONAL NV

Netherlands

Bank

100.00

100.00

 4,141    

Subsidiary

Country of Incorporation

Activity

BBVA Voting Power

BBVA Ownership

Total Assets (1)

 

 

 

     (in Percentages)

(In Millions of Euros)

BBVA MEXICO

MEXICO

Bank

100.00

100.00

 97,518    

BBVA USA

THE UNITED STATES

Bank

100.00

100.00

 76,128    

GARANTI BBVA AS

TURKEY

Bank

49.85

49.85

 52,319    

BBVA PERU

PERU

Bank

92.24 (2)

46.12

 23,891    

BBVA SEGUROS S.A. DE SEGUROS Y REASEGUROS

SPAIN

Insurance

99.96

99.96

 17,601    

BBVA COLOMBIA S.A.

COLOMBIA

Bank

95.47

95.47

 15,573    

BANCO BBVA ARGENTINA S.A.

ARGENTINA

Bank

66.55

66.55

 6,553    

SEGUROS BBVA BANCOMER S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 5,391    

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 4,815    

GARANTIBANK BBVA INTERNATIONAL N.V.

THE NETHERLANDS

Bank

49.85

100.00

 3,398    

(1)   Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2018.2020.

81


(2)   Subject to certain exceptions.

D.   Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,8402,482 branch offices in Spain and, principally through our various subsidiaries, 5,1234,950 branch offices abroad as of December 31, 2018.2020. As of December 31, 2018,2020, approximately 67%68% of our branches in Spain and 63%66% of our branches abroad (58%(60% excluding those branches relating to the Garanti group)BBVA) were rented from third parties pursuant to short-term leases that may be renewed by mutual agreement.

E. Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Interest income figures, when used, do not include interest income on non-accruing loans to the extent that cash payments have been received, as a result of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9 (Collection of interest on impaired financial assets). See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”. Loan fees are included in the computation of interest revenue. Interest income figures include “other income”, which amounted to €534 million, €343 million and €268 million for the years ended December 31, 2020, 2019 and 2018, respectively. For additional information on “interest and other income” see Note 37.1 to our Consolidated Financial Statements.

64


Year-on-year variations in the selected statistical information presented herein have been affected by the planned USA Sale, mainly as follows:

·2020 year-end data. All assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet as of December 31, 2020. Accordingly, loans and advances and deposits as of December 31, 2020 (among other balance sheet information provided in this section as of such date) do not include the respective amounts of BBVA USA and other companies included within the scope of the USA Sale.

·2020 average data. As indicated in “Presentation of Financial Information—Statistical and Financial Information” and further below, average balance sheet information is based on the beginning and month-end balances in the relevant year. Up until the time the assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively (which occurred on November 15, 2020, upon the signing of the relevant share purchase agreement), the beginning and month-end balances of BBVA USA and other companies included within the scope of the USA Sale were considered to calculate the average balances of all balance sheet items provided in this section in the same manner as in 2019 and 2018. Following such reclassification, the beginning and month-end balances of these entities were no longer considered in such calculations and were included instead in the calculations of the average balances of “Other assets” and “Other liabilities”, as applicable, for the year ended December 31, 2020. The same approach was followed to calculate the respective Interest” and “Average Yield” of balance sheet items. In particular, tables included under “—Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest revenue.

82


 

Average Balance Sheet - Assets and Interest from Earning Assets

 

Year Ended December 31, 2018

Year Ended December 31, 2017

Year Ended December 31, 2016

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Assets

 

 

 

 

 

 

 

 

 

Cash and balances with central banks and other demand deposits

42,730

135

0.32%

33,917

83

0.25%

26,209

10

0.05%

Domestic

19,883

43

0.22%

12,150

34

0.28%

7,769

-

-

Foreign

22,847

92

0.40%

21,767

50

0.23%

18,441

10

0.05%

Debt securities and derivatives

179,672

5,707

3.18%

177,164

4,724

2.67%

202,388

5,072

2.51%

Domestic

116,998

1,212

1.04%

110,491

1,089

0.99%

133,009

1,772

1.33%

Foreign

62,674

4,495

7.17%

66,673

3,636

5.45%

69,379

3,300

4.76%

Financial assets

410,149

23,719

5.78%

444,518

24,003

5.40%

454,299

22,301

4.91%

Loans and advances to central banks

5,518

258

4.67%

10,945

258

2.36%

15,326

229

1.50%

Loans and advances to credit institutions

25,634

657

2.56%

26,420

485

1.83%

28,078

218

0.78%

Loans and advances to customers

378,996

22,804

6.02%

407,153

23,261

5.71%

410,895

21,853

5.32%

    In euros

181,668

3,381

1.86%

196,893

3,449

1.75%

201,967

3,750

1.86%

Domestic

172,561

3,276

1.90%

187,281

3,377

1.80%

192,186

3,685

1.92%

Foreign

9,107

105

1.16%

9,612

72

0.75%

9,781

65

0.66%

    In other currency

197,328

19,423

9.84%

210,261

19,812

9.42%

208,928

18,104

8.67%

Domestic

14,825

511

3.45%

15,329

403

2.63%

15,355

348

2.27%

Foreign

182,503

18,912

10.36%

194,932

19,409

9.96%

193,573

17,756

9.17%

Other assets(2)

46,343

270

0.58%

48,872

485

0.99%

52,748

325

0.62%

Total average assets (3)

678,893

29,831

4.39%

704,471

29,296

4.16%

735,645

27,708

3.77%

(1)    Rates have been presented on a non-taxable equivalent basis.

(2)    Includes “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures, associates and unconsolidated subsidiaries”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.“—

(3)    Foreign activity represented 45.28% of the total average assets for the year ended December 31, 2018, 46.99% for the year ended December 31, 2017 and 49.84% for the year ended December 31, 2016.

83


 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

Year Ended December 31, 2018

Year Ended December 31, 2017

Year Ended December 31,

 2016 

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Liabilities

 

 

 

 

 

 

 

 

 

Deposits from central banks and credit institutions

65,044

2,192

3.37%

90,619

2,212

2.44%

101,975

1,866

1.83%

Customer deposits

370,078

6,559

1.77%

392,057

7,007

1.79%

398,851

5,944

1.49%

    In euros

178,370

337

0.19%

186,261

461

0.25%

195,310

766

0.39%

Domestic

169,163

323

0.19%

176,429

447

0.25%

185,046

739

0.40%

Foreign

9,206

14

0.16%

9,832

14

0.14%

10,264

26

0.26%

    In other currency

191,709

6,222

3.25%

205,796

6,546

3.18%

203,541

5,178

2.54%

Domestic

10,738

130

1.21%

12,076

95

0.78%

11,543

39

0.34%

Foreign

180,971

6,092

3.37%

193,720

6,451

3.33%

191,998

5,139

2.68%

Debt certificates

75,927

1,753

2.31%

84,221

1,631

1.94%

89,876

1,738

1.93%

Other liabilities (2)

115,638

1,735

1.50%

82,699

687

0.83%

89,328

1,101

1.23%

Total average liabilities

626,688

12,239

1.95%

649,597

11,537

1.78%

680,029

10,648

1.57%

Shareholders’ equity

52,206

-

-

54,874

-

-

55,616

-

-

Total average liabilities and equity (3)

678,893

12,239

1.80%

704,471

11,537

1.64%

735,645

10,648

1.45%

(1)    Rates have been presented on a non-taxable equivalent basis.

(2)    Includes “Financial liabilities held for trading”, “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)    Foreign activity represented 47.54% of the total average liabilities for the year ended December 31, 2018, 46.99% for the year ended December 31, 2017 and 45.62% for the year ended December 31, 2016.

84


Changes in Net Interest Income-Volume and Rate Analysis” and “—Interest Earning Assets—Margin and Spread” were prepared on this basis.

Certain financial information as of and for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages.

65


 

Average Balance Sheet - Assets and Interest from Earning Assets

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Assets

 

 

 

 

 

 

 

 

 

Cash and balances with central banks and other demand deposits

60,172

68

0.11%

46,060

256

0.56%

42,730

135

0.32%

Domestic

30,120

8

0.03%

17,293

50

0.29%

19,883

43

0.22%

Foreign

30,051

60

0.20%

28,767

206

0.72%

22,847

92

0.40%

Debt securities and derivatives

205,245

4,253

2.07%

185,200

5,450

2.94%

178,729

5,677

3.18%

Domestic

134,179

891

0.66%

123,645

1,062

0.86%

116,055

1,202

1.04%

Foreign

71,067

3,362

4.73%

61,555

4,388

7.13%

62,674

4,475

7.14%

Financial assets

414,631

17,533

4.23%

415,580

21,729

5.23%

410,149

20,872

5.09%

Loans and advances to central banks

4,747

164

3.46%

5,086

267

5.25%

5,518

258

4.67%

Loans and advances to credit institutions

39,720

521

1.31%

32,448

806

2.48%

25,634

657

2.56%

Loans and advances to customers

370,165

16,847

4.55%

378,046

20,655

5.46%

378,996

19,957

5.27%

    In euros

179,433

3,030

1.69%

180,028

3,372

1.87%

181,668

3,381

1.86%

Domestic

170,926

2,998

1.75%

171,412

3,344

1.95%

172,561

3,276

1.90%

Foreign

8,507

32

0.37%

8,617

28

0.32%

9,107

105

1.16%

    In other currency

190,731

13,817

7.24%

198,018

17,284

8.73%

197,328

16,576

8.40%

Domestic

22,297

439

1.97%

18,622

601

3.23%

14,825

511

3.45%

Foreign

168,434

13,378

7.94%

179,397

16,682

9.30%

182,503

16,065

8.80%

Other assets (2)

49,786

535

1.07%

45,957

327

0.71%

46,343

270

0.58%

Total average assets (3)

729,833

22,389

3.07%

692,798

27,762

4.01%

677,951

26,954

3.98%

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)  Includes “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures and associates”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.

(3)  Foreign activity represented 41.27% of the total average assets for the year ended December 31, 2020, 43.60% for the year ended December 31, 2019 and 45.34% for the year ended December 31, 2018.

66


 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Liabilities

 

 

 

 

 

 

 

 

 

Deposits from central banks and credit institutions

71,279

1,525

2.14%

61,285

2,123

3.46%

65,044

2,192

3.37%

Customer deposits

387,563

3,908

1.01%

376,057

6,984

1.86%

370,078

6,559

1.77%

    In euros

195,410

315

0.16%

183,316

236

0.13%

178,370

337

0.19%

Domestic

186,594

310

0.17%

174,301

230

0.13%

169,163

323

0.19%

Foreign

8,816

5

0.05%

9,015

7

0.07%

9,206

14

0.16%

    In other currency

192,153

3,593

1.87%

192,741

6,748

3.50%

191,709

6,222

3.25%

Domestic

11,518

115

1.00%

9,505

178

1.87%

10,738

130

1.21%

Foreign

180,636

3,478

1.93%

183,236

6,571

3.59%

180,971

6,092

3.37%

Debt certificates

78,260

1,541

1.97%

77,438

1,884

2.43%

75,927

1,753

2.31%

Other liabilities (2)

142,056

823

0.58%

123,053

982

0.80%

114,695

1,165

1.02%

Total average liabilities

679,158

7,797

1.15%

637,833

11,973

1.88%

625,745

11,669

1.86%

Equity

50,675

-

-

54,964

-

-

52,206

-

-

Total average liabilities and equity (3)

729,833

7,797

1.07%

692,798

11,973

1.73%

677,951

11,669

1.72%

(1)  Rates have been presented on a non-taxable equivalent basis.

(2)  Includes “Financial liabilities held for trading”, “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)  Foreign activity represented 39.29% of the total average liabilities for the year ended December 31, 2020, 41.92% for the year ended December 31, 2019 and 47.61% for the year ended December 31, 2018.

67


Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the year ended December 31, 20182020 compared with the year ended December 31, 20172019, and the year ended December 31, 20172019 compared with the year ended December 31, 2016.2018. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the followingsuch table are interest payments on loans which are made in a period other than the period in which they are due. Loan fees were included in

 

2020 / 2019

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

78

(266)

(188)

Securities portfolio and derivatives

590

(1,787)

(1,197)

Loans and advances to central banks

(18)

(85)

(103)

Loans and advances to credit institutions

181

(466)

(285)

Loans and advances to customers

(431)

(3,377)

(3,808)

   In euros

(11)

(331)

(342)

Domestic

(9)

(336)

(346)

Foreign

-

4

4

   In other currencies

(636)

(2,830)

(3,466)

Domestic

119

(281)

(162)

Foreign

(1,019)

(2,285)

(3,304)

Other assets

27

180

208

Total income

 

 

(5,373)

Interest expense

 

 

 

Deposits from central banks and credit institutions

346

(944)

(598)

Customer deposits

214

(3,290)

(3,077)

   In euros

16

63

79

Domestic

16

64

80

Foreign

-

(2)

(2)

   In other currencies

(21)

(3,135)

(3,155)

Domestic

38

(100)

(63)

Foreign

(93)

(2,999)

(3,093)

Debt certificates

20

(363)

(343)

Other liabilities

152

(310)

(158)

Total expense

 

 

(4,175)

Net interest income

 

 

(1,197)

(1)  The volume effect is calculated as the computationresult of the average interest income.rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)  The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

 

2018 / 2017

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

22

30

51

Securities portfolio and derivatives

67

916

983

Loans and advances to central banks

(128)

128

(0)

Loans and advances to credit institutions

(14)

187

172

Loans and advances to customers

(1,609)

1,152

(456)

   In euros

(267)

199

(68)

Domestic

(265)

165

(101)

Foreign

(1)

34

33

   In other currencies

(1,219)

830

(389)

Domestic

(13)

121

108

Foreign

(1,205)

708

(497)

Other assets

(25)

(190)

(215)

Total income

-

-

535

Interest expense

 

 

 

Deposits from central banks and credit institutions

(624)

604

(20)

Customer deposits

(393)

(55)

(448)

   In euros

(20)

(104)

(124)

Domestic

(18)

(106)

(125)

Foreign

(1)

2

1

   In other currencies

(448)

124

(324)

Domestic

(10)

46

36

Foreign

(438)

78

(360)

Debt certificates

(161)

282

122

Other liabilities

274

774

1,048

Total expense

-

-

702

Net interest income

-

-

(167)

68


 

2019 / 2018

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

11

111

121

Securities portfolio and derivatives

206

(433)

(227)

Loans and advances to central banks

(20)

29

9

Loans and advances to credit institutions

175

(25)

150

Loans and advances to customers

(50)

748

698

   In euros

(31)

21

(10)

Domestic

(22)

90

68

Foreign

(6)

(72)

(78)

   In other currencies

58

650

708

Domestic

131

(41)

90

Foreign

(273)

891

618

Other assets

(2)

60

58

Total income

 

 

808

Interest expense

 

 

 

Deposits from central banks and credit institutions

(127)

57

(69)

Customer deposits

106

320

426

   In euros

9

(110)

(101)

Domestic

10

(103)

(93)

Foreign

(0)

(8)

(8)

   In other currencies

34

493

526

Domestic

(15)

62

47

Foreign

76

403

479

Debt certificates

35

96

131

Other liabilities

85

(268)

(183)

Total expense

 

 

303

Net interest income

 

 

504

(1)The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

85


 

2017 / 2016

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

3

71

74

Securities portfolio and derivatives

(632)

285

(347)

Loans and advances to central banks

(66)

94

29

Loans and advances to credit institutions

(13)

279

266

Loans and advances to customers

(199)

1,606

1,408

   In euros

(94)

(206)

(301)

Domestic

(94)

(214)

(308)

Foreign

(0)

7

7

   In other currencies

115

1,593

1,708

Domestic

(1)

56

55

Foreign

116

1,537

1,653

Other assets

(24)

184

160

Total income

-

-

1,588

Interest expense

 

 

 

Deposits from central banks and credit institutions

(208)

554

346

Customer deposits

(101)

1,164

1,063

   In euros

(35)

(269)

(305)

Domestic

(34)

(258)

(292)

Foreign

(1)

(12)

(13)

   In other currencies

57

1,311

1,368

Domestic

2

54

56

Foreign

56

1,256

1,312

Debt certificates

(109)

3

(106)

Other liabilities

(82)

(332)

(414)

Total expense

-

-

889

Net interest income

-

-

699

(1)69 The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

86


 

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.

 

December 31,

 

2018

2017

2016

 

(In Millions of Euro, Except Percentages)

Average interest earning assets

632,501

655,599

682,897

Gross yield(1)

4.7%

4.5%

4.1%

Net yield(2)

4.4%

4.2%

3.8%

Net interest margin(3)

2.8%

2.7%

2.5%

Average effective rate paid on all interest-bearing liabilities

2.4%

2.0%

1.8%

Spread(4)

2.3%

2.4%

2.3%

 

December 31,

 

2020

2019

2018

 

(In Millions of Euro, Except Percentages)

Average interest earning assets

680,047

646,841

631,608

Gross yield (1)

3.3%

4.3%

4.3%

Net yield (2)

3.1%

4.0%

4.0%

Average effective rate paid on interest-bearing liabilities

1.5%

2.3%

2.3%

Spread (3)

1.8%

2.0%

2.0%

(1)Gross yield   “Gross yield” represents total interest income divided by average interest earning assets.

(2)Net yield   “Net yield” represents total interest income divided by total average assets.

(3)Net interest margin represents net interest income as percentage of average interest earning assets.

(4)Spread is the difference between gross yield“Gross yield” and the average cost of“Average effective rate paid on interest-bearing liabilities.liabilities”.

8770


ASSETS

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Interest-Bearing Deposits in Other Banks

As of December 31, 2018,2020, interbank deposits (excluding deposits with central banks) represented 3.5%4.8% of our total assets. Of such interbank deposits, 14.6%18.6% were held outside of Spain and 85.4%81.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of December 31, 2018,2020, our total securities portfolio (consisting of investment securities and loans and advances) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of 115,918137,515 million, representing 17.1%18.7% of our total assets. €24,370€34,116 million, or 21.0%24.8%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 20182020 on the investment securities that BBVA held was 4.4%3.3%, compared with an average yield of approximately 5.8%2.0% earned on loans and advances during 2018.2020. See Notes 10 and 13 to our Consolidated Financial Statements for additional information.

The first table in Note 13.3 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under“Financial assets at fair value through other comprehensive income” as of December 31, 2020, 2019 and 2018.

Note 14.2 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under“Financial assets at amortized cost” as of December 31, 2020, 2019 and 2018.

This information is not provided for debt securities recorded under “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss” and “Financial assets designated at fair value through profit or loss” since the amortized costs and fair values of these items are the same. See Note 8 to our Consolidated Financial Statements.

The second table in Note 13.3 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at fair value through other comprehensive income” by rating categories defined by external rating agencies. The second table in Note 14.2 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at amortized cost”, by rating categories defined by external rating agencies.

Readers are directed to the tables and Notes referred to above for information regarding our securities portfolio.

For a discussion of our investments in affiliates,joint ventures and associates, see Note 16 to our Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to our Consolidated Financial Statements.

The following tables analyzetable analyzes the amortized cost and fair value, asmaturities of December 31, 2018, ofour debt securities recorded under “Financial assets at fair value through other comprehensive income” in our Consolidated Financial Statements and as of December 31, 2017 and December 31, 2016, of debt securities recorded under “Available for sale financial assets” and “Held-to-maturity investments” in the consolidated financial statements included in the annual reports on Form 20-F for such years. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018. Financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss and financial assets designated at fair value through profit or loss are not included in the tables below because the amortized costs and fair values of these items are the same. See Notes 8 and 13 to our Consolidated Financial Statements.

88


 

As of December 31, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

18,802

19,553

761

(10)

Spanish Government and other government agencies debt securities

17,205

17,857

661

(9)

Other debt securities

1,597

1,696

100

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

793

855

63

-

Issued by other institutions

804

841

37

(1)

Foreign

34,521

34,157

392

(758)

The United States

14,507

14,338

47

(217)

U.S. Treasury and other U.S. Government agencies debt securities

7,285

7,258

29

(56)

States and political subdivisions debt securities

3,942

3,872

8

(79)

Other debt securities

3,280

3,208

10

(82)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

49

50

1

-

Issued by other institutions

3,231

3,158

9

(82)

Mexico

6,299

6,163

6

(142)

Mexican Government and other government agencies debt securities

5,286

5,169

4

(121)

Other debt securities

1,013

994

2

(21)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

35

34

-

(1)

Issued by other institutions

978

961

2

(20)

Turkey

4,164

3,916

20

(269)

Turkey Government and other government agencies debt securities

4,007

3,771

20

(256)

Other debt securities

157

145

-

(13)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

157

145

-

(13)

Issued by other institutions

-

-

-

-

Other countries

9,551

9,740

319

(130)

Other foreign governments and other government agencies debt securities

4,510

4,601

173

(82)

Other debt securities

5,041

5,139

146

(48)

Issued by Central Banks

987

986

2

(4)

Issued by credit institutions

1,856

1,947

111

(20)

Issued by other institutions

2,197

2,206

33

(25)

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

53,323

53,709

1,153

(768)

 

 

 

 

 

(1)    Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

89


 

As of December 31, 2017

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AVAILABLE FOR SALE PORTFOLIO

 

 

 

 

Domestic

24,716

25,605

906

(17)

Spanish Government and other government agencies debt securities

22,765

23,539

791

(17)

Other debt securities

1,951

2,066

114

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

891

962

72

-

Issued by other institutions

1,061

1,103

43

-

Foreign

40,557

40,647

661

(572)

The United States

12,479

12,317

36

(198)

U.S. Treasury and other U.S. Government agencies debt securities

3,052

3,018

-

(34)

States and political subdivisions debt securities

5,573

5,482

8

(99)

Other debt securities

3,854

3,817

28

(65)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

56

57

1

-

Issued by other institutions

3,798

3,759

26

(65)

Mexico

9,755

9,658

45

(142)

Mexican Government and other government agencies debt securities

8,101

8,015

34

(120)

Other debt securities

1,654

1,643

11

(22)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

212

209

1

(3)

Issued by other institutions

1,442

1,434

10

(19)

Turkey

5,052

4,985

48

(115)

Turkey Government and other government agencies debt securities

5,033

4,967

48

(114)

Other debt securities

19

19

1

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

19

19

-

(1)

Issued by other institutions

-

-

-

-

Other countries

13,271

13,687

533

(117)

Other foreign governments and other government agencies debt securities

6,774

7,022

325

(77)

Other debt securities

6,497

6,664

208

(40)

Issued by Central Banks

1,330

1,331

2

(1)

Issued by credit institutions

2,535

2,654

139

(19)

Issued by other institutions

2,632

2,679

66

(19)

TOTAL AVAILABLE FOR SALE PORTFOLIO

65,273

66,251

1,567

(588)

HELD TO MATURITY PORTFOLIO

 

 

 

 

Domestic

5,984

6,043

59

-

Spanish Government and other government agencies debt securities

5,754

5,812

58

-

Other domestic debt securities

230

231

1

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

203

204

1

-

Issued by other institutions

27

27

 

-

Foreign

7,770

7,759

30

(42)

Government and other government agencies debt securities

6,864

6,844

18

(39)

Other debt securities

906

915

12

(3)

TOTAL HELD TO MATURITY PORTFOLIO

13,754

13,801

89

(42)

TOTAL DEBT SECURITIES

79,027

80,053

1,656

(630)

 

 

 

 

 

(1)    Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

90


 

As of December 31, 2016

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

 

 

 

 

 

AVAILABLE FOR SALE PORTFOLIO

 

 

 

 

Domestic

24,731

25,540

828

(19)

Spanish Government and other government agencies debt securities

22,427

23,119

711

(18)

Other debt securities

2,305

2,421

117

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

986

1,067

82

-

Issued by other institutions

1,319

1,354

36

(1)

Foreign

49,253

49,040

773

(987)

The United States

14,256

14,043

48

(261)

U.S. Treasury and other U.S. Government agencies debt securities

1,702

1,683

1

(19)

States and political subdivisions debt securities

6,758

6,654

8

(112)

Other debt securities

5,797

5,706

39

(130)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

95

97

2

-

Issued by other institutions

5,702

5,609

37

(130)

Mexico

11,525

11,200

19

(343)

Mexican Government and other government agencies debt securities

9,728

9,438

11

(301)

Other debt securities

1,797

1,763

8

(42)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

86

87

2

(1)

Issued by other institutions

1,710

1,675

6

(41)

Turkey

5,550

5,443

73

(180)

Turkey Government and other government agencies debt securities

5,055

4,961

70

(164)

Other debt securities

495

482

2

(16)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

448

436

2

(15)

Issued by other institutions

47

46

-

(1)

Other countries

17,923

18,354

634

(203)

Other foreign governments and other government agencies debt securities

7,882

8,156

373

(98)

Other debt securities

10,041

10,197

261

(105)

Issued by Central Banks

1,657

1,659

4

(2)

Issued by credit institutions

3,269

3,311

96

(54)

Issued by other institutions

5,115

5,227

161

(49)

 

 

 

 

 

TOTAL AVAILABLE FOR SALE PORTFOLIO

73,985

74,580

1,601

(1,006)

 

 

 

 

 

HELD TO MATURITY PORTFOLIO

 

 

 

 

Domestic

8,625

8,717

92

-

Spanish Government and other government agencies debt securities

8,063

8,153

90

-

Other domestic debt securities

562

564

2

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

494

496

2

-

Issued by other institutions

68

68

-

-

Foreign

9,071

8,902

16

(185)

Government and other government agencies debt securities

7,982

7,830

13

(165)

Other debt securities

1,089

1,072

4

(21)

TOTAL HELD TO MATURITY PORTFOLIO

17,696

17,619

108

(185)

TOTAL DEBT SECURITIES

91,681

92,199

1,709

(1,192)

 

 

 

 

 

(1)    Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

91


As of December 31, 2018, the carrying amount of debt securities classified within the fair value through other comprehensive income portfolio by rating categories defined by external rating agencies were as follows:

 

 

As of December 31, 2018

 

 

Debt Securities at Fair Value through Other Comprehensive Income

 

 

Carrying Amount

(In Millions of Euros)

 

Percentage of Total (%)

AAA

 

531

 

1.0%

AA+

 

13,100

 

24.4%

AA

 

222

 

0.4%

AA-

 

409

 

0.8%

A+

 

632

 

1.2%

A

 

687

 

1.3%

A-

 

18,426

 

34.3%

BBB+

 

9,195

 

17.1%

BBB

 

4,607

 

8.6%

BBB-

 

1,003

 

1.9%

BB+ or below

 

4,453

 

8.3%

Without rating

 

445

 

0.8%

TOTAL

 

53,709

 

100%

92


The following tables analyze the amortized cost and fair value, as of December 31, 2018, of our equity securities recorded under “Financial assets at fair value through other comprehensive income” in our Consolidated Financial Statements and, as of December 31, 2017 and December 31, 2016, of our equity securities recorded under “Available for sale financial assets” in the consolidated financial statements included in the annual reports on Form 20-F for such years. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

 

As of December 31, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

2,178

1,969

1

(210)

Equity listed

2,172

1,962

-

(210)

Equity unlisted

6

7

1

-

Foreign

543

627

97

(13)

United States

408

448

40

-

Equity listed

20

37

17

-

Equity unlisted

388

411

23

-

Other countries

135

179

57

(13)

Equity listed

70

84

26

(12)

Equity unlisted

65

95

31

(1)

TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

2,721

2,595

98

(223)

TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

56,044

56,304

1,251

(991)

 

 

 

 

 

(1)    Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

93


 

As of December 31, 2017

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AVAILABLE FOR SALE PORTFOLIO

 

 

 

 

Domestic

2,222

2,250

29

(1)

Equity listed

2,189

2,188

-

(1)

Equity unlisted

33

62

29

-

Foreign

880

975

110

(15)

United States

509

543

40

(6)

Equity listed

11

11

-

-

Equity unlisted

498

532

40

(6)

Other countries

371

432

70

(9)

Equity listed

204

230

33

(7)

Equity unlisted

167

202

37

(2)

TOTAL AVAILABLE FOR SALE PORTFOLIO

3,102

3,224

139

(16)

TOTAL INVESTMENT SECURITIES

82,129

83,278

1,795

(646)

(1)Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

94


 

As of December 31, 2016

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AVAILABLE FOR SALE PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

3,748

2,822

19

(945)

Equity listed

3,690

2,763

17

(944)

Equity unlisted

57

59

2

(1)

Foreign

1,501

1,820

336

(17)

United States

553

588

35

-

Equity listed

16

38

22

-

Equity unlisted

537

550

13

-

Other countries

948

1,231

301

(17)

Equity listed

777

1,028

268

(15)

Equity unlisted

171

203

33

(2)

TOTAL AVAILABLE FOR SALE PORTFOLIO

5,248

4,641

355

(962)

TOTAL INVESTMENT SECURITIES

96,930

96,839

2,064

(2,154)

(1)Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to our Consolidated Financial Statements.

95


The following table analyzes the maturities of our debt securities at fair value through other comprehensive income,amortized cost”, by type and geographical area, as of December 31, 2018:2020.

 

Maturity at One Year or Less

Maturity After One Year to Five Years

Maturity after Five Years to 10 Years

Maturity after 10 Years

Total

 

Amount

Yield % (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

 

(Millions of Euros, Except Percentages)

DEBT SECURITIES

 

 

 

 

 

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

3,749

0.84

1,367

2.51

7,861

2.99

4,880

4.35

17,857

Other debt securities

301

3.65

757

2.57

16

5.04

622

4.89

1,696

Total Domestic

4,050

1.03

2,125

2.54

7,876

2.97

5,502

4.27

19,553

Foreign

 

 

 

 

 

 

 

 

 

Mexico

1,212

1.86

2,959

3.05

1,964

2.29

28

4.15

6,163

Mexican Government and other government agency debt securities

1,117

1.67

2,281

2.75

1,771

2.08

-

-

5,169

Other debt securities

95

4.11

678

4.04

193

4.10

28

4.15

994

United States

549

1.30

6,645

2.04

1,620

2.88

5,524

2.67

14,338

U.S. Treasury and other government agency debt securities

264

0.44

5,841

1.98

1,153

2.59

-

-

7,258

States and political subdivisions debt securities

-

-

1

3.26

45

2.65

3,826

2.55

3,872

Other debt securities

285

2.08

803

2.49

422

3.69

1,698

2.95

3,208

Turkey

402

17.00

2,489

18.00

946

17.54

79

6.70

3,916

Turkey Government and other government agencies debt securities

387

16.96

2,359

19.96

946

17.54

79

6.70

3,771

Other debt securities

15

5.13

130

5.15

-

-

-

-

145

Other countries

2,927

1.84

2,650

2.62

2,295

3.42

1,868

4.07

9,740

Securities of other foreign governments(2)

1,201

1.14

797

2.46

1,528

2.48

1,075

4.20

4,601

Other debt securities of other countries

1,726

2.36

1,853

2.69

767

5.37

793

3.88

5,139

Total Foreign

5,090

3.05

14,743

5.14

6,825

6.20

7,499

3.06

34,157

TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

9,140

2.09

16,868

4.68

14,701

4.38

13,001

3.51

53,709

71


 

Maturity at One Year or Less

Maturity After One Year to Five Years

Maturity after Five Years to 10 Years

Maturity after 10 Years

Total

 

Amount

Yield % (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

 

(Millions of Euros, Except Percentages)

DEBT SECURITIES

 

 

 

 

 

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

12,413

0.16

10,359

1.58

4,064

4.31

2,532

3.62

29,367

Other debt securities

520

3.14

1,216

1.20

468

2.32

141

4.61

2,345

Total Domestic

12,932

0.28

11,576

1.54

4,531

4.10

2,673

3.67

31,712

Foreign

 

 

 

 

 

 

 

 

 

Mexico

272

5.17

5,673

4.96

3,402

4.36

48

5.72

9,395

Mexican Government and other government agency debt securities

92

6.29

5,267

4.96

3,186

4.30

35

6.41

8,580

Other debt securities

180

4.59

406

4.94

216

5.30

14

3.95

816

The United States

2,514

1.31

1,111

2.21

754

2.38

312

5.34

4,691

U.S. Treasury and other government agency debt securities

2,312

1.26

-

-

3

0.63

-

-

2,315

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

202

2.07

1,111

2.21

750

2.39

312

5.34

2,376

Turkey

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Turkey Government and other government agencies debt securities

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Other debt securities

-

-

-

-

-

-

-

-

-

Other countries

5,811

7.62

8,242

2.81

3,066

1.78

1,917

3.86

19,037

Securities of other foreign governments(2)

3,551

0.37

4,583

3.28

1,508

1.53

1,302

4.12

10,943

Other debt securities of other countries

2,260

19.06

3,660

2.23

1,559

1.99

616

3.34

8,094

Total Foreign

9,092

6.17

17,062

4.67

8,079

4.08

2,363

4.21

36,596

TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

22,024

2.58

28,637

3.39

12,611

4.09

5,036

3.92

68,308

AT AMORTIZED COST PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

95

2.95

956

1.11

10,858

1.33

1,748

0.85

13,656

Other debt securities

2,133

-

2,496

0.10

123

1.13

84

-

4,835

Total Domestic

2,228

0.13

3,452

0.38

10,980

1.33

1,831

0.81

18,492

Foreign

 

 

 

 

 

 

 

 

 

Mexico

691

6.63

2,297

6.19

826

4.37

3,956

3.94

7,771

Mexican Government and other government agency debt securities

634

6.88

2,266

6.22

611

4.52

3,452

3.94

6,963

Other debt securities

57

3.94

31

3.94

216

3.94

504

3.94

808

The United States

9

3.94

9

3.94

34

1.24

-

-

51

U.S. Treasury and other government agency debt securities

6

-

6

-

2

-

-

-

14

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

3

3.94

3

3.94

31

1.24

-

-

37

Turkey

384

9.90

2,301

10.80

942

10.78

-

-

3,628

Turkey Government and other government agencies debt securities

378

10.07

2,301

10.79

942

10.78

-

-

3,621

Other debt securities

6

-

1

18.10

-

-

-

-

7

Other countries

950

1.65

1,007

1.94

3,697

2.56

141

4.49

5,795

Securities of other foreign governments(2)

324

1.59

520

2.50

3,489

2.58

141

4.49

4,473

Other debt securities of other countries

626

1.68

487

1.31

208

1.93

-

-

1,322

Total Foreign

2,034

5.06

5,615

7.61

5,499

4.26

4,097

3.95

17,245

TOTAL AT AMORTIZED COST PORTFOLIO

4,262

2.42

9,067

4.77

16,479

2.30

5,928

2.96

35,737

TOTAL DEBT SECURITIES

26,286

2.55

37,705

3.72

29,090

3.08

10,964

3.40

104,044

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)   Securities of other foreign governments mainly include investments made by our subsidiaries in securities issued by the governments of the countries where they operate.

 

72


(1)   Rates haveLoans and Advances

In 2020, the Group’s loan activity has been presentedaffected by the COVID-19 pandemic, which resulted in a decrease in global activity driven by mandatory lock-downs and consumer caution. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements for additional information on a non-taxable equivalent basis.the impact of the COVID-19 pandemic on our financial condition and results of operations.

(2)   Securities of other foreign governments mainly include investments made by our subsidiariesIn addition, the year-on-year variation in securities issuedreported “Loans and advances” has been significantly affected by the governmentsUSA Sale. In particular, loans and advances of BBVA USA and other companies included within the scope of the USA Sale have been recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, while they are shown under “Loans and advances” in the consolidated balance sheets as of December 31, 2019 and 2018 (and, where applicable, prior years). See “Presentation of Financial Information—Agreement for the sale of BBVA USA Bancshares, Inc.”. 

Moreover, during 2020, the currencies of the main countries where they operate.the BBVA Group operates depreciated against the euro in terms of period-end exchange rates. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Loans and Advances to Credit Institutions and Central Banks

As of December 31, 2018,2020, our total loans and advances to credit institutions and central banks amounted to 29,866€41,368 million, or 4.4%5.6% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €13,122€20,820 million, or 1.9%2.8% of total assets. Net of our impairment losses,loss allowances, total loans and advances to credit institutions and central banks at amortized cost amounted to €13,104€20,784 million as of December 31, 2018,2020, or 1.9%2.8% of total assets.

96


Loans and Advances to Customers

As of December 31, 2018,2020, our total loans and advances to customers amounted to €400,049€336,056 million, or 59.12%45.6% of total assets. Net of our impairment losses,loss allowances, total loans and advances to customers amounted to €387,850€323,951 million as of December 31, 2018,2020, or 57.32%44.00% of our total assets.assets, a decline from 56.7% of our total assets as of December 31, 2019. As of December 31, 20182020 our total loans and advances to customers in Spain amounted to €171,361€166,905 million. Our total loans and advances to customers outside Spain amounted to €228,688€169,150 million as of December 31, 2018.2020, down from €243,332 million as of December 31, 2019 mainly due to the USA Sale and the depreciation of the currencies of the main countries where the BBVA Group operates.

73


Loans by Geographic Area

The following table shows by domicile of the customer, our net loans and advances to customers as of the dates indicated:

As of December 31,

As of December 31,

2018

2017

2016

2015

2014

2020

2019

2018

2017

2016

(In Millions of Euros)

(In Millions of Euros)

Domestic

171,361

180,033

182,492

192,227

178,410

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

Western Europe

29,322

25,308

25,763

23,327

19,696

27,729

31,483

29,322

25,308

25,763

The United States(1)

61,497

53,526

60,388

58,677

47,819

6,654

64,395

61,497

53,526

60,388

Mexico

53,772

48,463

50,242

51,842

49,904

54,663

61,455

53,772

48,463

50,242

Turkey

40,641

49,690

54,174

54,252

-

36,748

40,230

40,641

49,690

54,174

South America

38,680

39,814

53,512

47,862

53,616

37,192

39,091

38,680

39,814

53,512

Other

4,777

4,240

4,058

4,735

3,586

6,165

6,677

4,777

4,240

4,058

Total foreign

228,688

221,041

248,137

240,695

174,620

169,150

243,332

228,688

221,041

248,137

Total loans and advances (1)

400,049

401,074

430,629

432,921

353,030

336,056

408,364

400,049

401,074

430,629

Impairment losses

(12,199)

(12,748)

(15,974)

(18,691)

(14,244)

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending(2)

387,850

388,326

414,655

414,231

338,785

323,951

395,962

387,850

388,326

414,655

(1)  Balance as of December 31, 2020 corresponds to subsidiaries in the United States not included within the scope of the USA Sale.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: financial“Financial assets held for trading, non-tradingtrading”, “Non-trading financial assets mandatorily at fair value through profit or loss, financialloss”, “Financial assets designated at fair value through profit or lossloss” and financial“Financial assets at amortized cost.cost”, net of loss allowances. As of December 31, 2017 2016, 2015 and 2014,2016, includes loans and advances to customers previously reported as financial“Financial assets held for tradingtrading” and loans“Loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.receivables”.

9774


 

Loans by Type of Customer

The following table shows by domicile and type of customer, our net loans and advances to customers at each of the dates indicated. The classification by type of customer is based principally on regulatory authority requirements in each country:indicated:

As of December 31,

As of December 31,

2018

2017

2016

2015

2014

2020

2019

2018

2017

2016

(In Millions of Euros)

(In Millions of Euros)

Domestic

 

 

 

 

Government

16,671

18,116

20,741

23,549

23,421

16,456

14,477

16,671

18,116

20,741

Agriculture

1,118

1,231

1,076

1,064

1,221

1,268

1,224

1,118

1,231

1,076

Industrial

14,683

14,707

13,670

15,079

13,507

14,946

13,982

14,683

14,707

13,670

Real estate and construction

10,671

11,786

15,179

18,621

20,170

9,452

9,567

10,671

11,786

15,179

Commercial and financial

17,131

16,075

13,111

11,557

18,439

9,640

16,192

17,131

16,075

13,111

Loans to individuals(1)

98,131

99,780

102,299

105,157

86,362

Loans to individuals (1)

95,136

96,735

98,131

99,780

102,299

Other

12,955

18,338

16,415

17,200

15,289

20,007

12,855

12,955

18,338

16,415

Total Domestic

171,361

180,033

182,492

192,227

178,410

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

Government

13,900

14,289

14,132

15,062

13,691

24,415

14,840

13,900

14,289

14,132

Agriculture

2,566

2,646

3,236

3,251

3,127

2,169

2,533

2,566

2,646

3,236

Industrial

41,954

37,319

43,402

41,834

24,072

37,631

43,408

41,954

37,319

43,402

Real estate and construction

18,499

17,885

21,822

20,343

12,982

10,570

20,814

18,499

17,885

21,822

Commercial and financial

36,571

31,584

33,933

32,019

25,441

14,954

41,406

36,571

31,584

33,933

Loans to individuals(1)

80,224

78,162

89,981

89,132

72,223

Loans to individuals (1)

56,358

85,324

80,224

78,162

89,981

Other

34,973

39,156

41,630

39,054

23,082

23,054

35,007

34,973

39,156

41,630

Total Foreign

228,688

221,040

248,137

240,695

174,620

169,150

243,332

228,688

221,040

248,137

Total Loans and Advances (2)

400,049

401,074

430,629

432,921

353,030

336,056

408,364

400,049

401,074

430,629

Impairment losses

(12,199)

(12,748)

(15,974)

(18,691)

(14,244)

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending(2)

387,850

388,326

414,655

414,231

338,785

323,951

395,962

387,850

388,326

414,655

(1)   Includes mortgage loans to households for the acquisition of housing.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: financial“Financial assets held for trading, non-tradingtrading”, “Non-trading financial assets mandatorily at fair value through profit or loss, financialloss”, “Financial assets designated at fair value through profit or lossloss” and financial“Financial assets at amortized cost.cost”, net of loss allowances. As of December 31, 2017 2016, 2015 and 2014,2016, includes loans and advances to customers previously reported as financial“Financial assets held for tradingtrading” and loans“Loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.receivables”.

9875


 

The following table sets forth a breakdown, by currency, of our net loan portfolioloans and advances to customers as of December 31, 2020, 2019, 2018, 2017 2016, 2015 and 2014:2016:

As of December 31,

2018

2017

2016

2015

2014

As of December 31,

(In Millions of Euros)

2020

2019

2018

2017

2016

 

 

(In Millions of Euros)

In euros

193,702

199,399

199,289

204,549

182,903

188,729

191,083

193,702

199,399

199,289

In other currencies

194,148

188,926

215,366

209,681

155,882

135,221

204,879

194,148

188,926

215,366

Total net lending (1)

387,850

388,326

414,655

414,231

338,785

323,951

395,962

387,850

388,326

414,655

(1)   As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: financial“Financial assets held for trading, non-tradingtrading”, “Non-trading financial assets mandatorily at fair value through profit or loss, financialloss”, “Financial assets designated at fair value through profit or lossloss” and financial“Financial assets at amortized cost.cost”, net of loss allowances. As of December 31, 2017 2016, 2015 and 2014,2016, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables. See Note 2.4 to the Consolidated Financial Statements for information on the impact of IFRS 9 in the classification and measurement of financial assets and liabilities since January 1, 2018.

As of December 31, 2018,2020, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,866€1,743 million, compared with €510€1,682 million as of December 31, 2017.2019. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,671€16,456 million, or 4.2%4.9% of our total loans and advances to customers as of December 31, 20182020, compared with €18,116the €14,477 million, or 4.5%3.5% of our total loans and advances to customers as of December 31, 2017.2019. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of December 31, 20182020, excluding government-related loans amounted to €17,425€16,604  million or approximately 4.4%4.9% of our total outstanding loans and advances. As of December 31, 20182020 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

76


Maturity and Interest Sensitivity

The following table sets forth an analysisa breakdown by maturity of our total loans and advances to customers by domicile of the branch office that issued the loan and the type of customer as of December 31, 2018.2020. The determination of maturities is based on contract terms.

99


Maturity

Maturity

Due in One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

Due In One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

(in Millions of Euros)

(In Millions of Euros)

Domestic

 

 

 

 

 

 

Government

5,595

4,486

6,590

16,671

6,524

5,782

4,150

16,456

Agriculture

307

414

398

1,118

345

722

202

1,268

Industrial

5,644

4,892

4,147

14,683

5,923

6,723

2,300

14,946

Real estate and construction

1,902

3,539

5,231

10,671

1,667

4,118

3,667

9,452

Commercial and financial

10,531

4,246

2,354

17,131

3,617

4,865

1,158

9,640

Loans to individuals

5,513

8,903

83,716

98,131

11,356

24,653

59,127

95,136

Other

3,805

5,197

3,954

12,955

6,460

10,494

3,054

20,007

Total Domestic

33,296

31,677

106,389

171,361

35,892

57,356

73,657

166,905

Foreign

  

  

 

 

 

 

Government

3,352

1,732

8,816

13,900

14,493

3,606

6,317

24,415

Agriculture

1,489

769

308

2,566

1,207

762

200

2,169

Industrial

17,147

16,867

7,939

41,954

16,316

14,651

6,663

37,631

Real estate and construction

5,225

9,075

4,199

18,499

3,591

2,998

3,980

10,570

Commercial and financial

21,213

12,033

3,325

36,571

7,858

6,232

864

14,954

Loans to individuals

11,720

27,113

41,391

80,224

9,028

22,870

24,460

56,358

Other

10,940

16,179

7,854

34,973

8,762

10,328

3,963

23,054

Total Foreign

71,086

83,769

73,832

228,688

61,255

61,448

46,447

169,150

Total loans and advances (1)

104,382

115,446

180,221

400,049

97,147

118,804

120,105

336,056

(1)   Includes loans and advances to customers included in the following headings: financial“Financial assets held for trading, non-tradingtrading”, “Non-trading financial assets mandatorily at fair value through profit or loss, financialloss”, “Financial assets designated at fair value through profit or lossloss” and financial“Financial assets at amortized cost.cost”.

The followingsecond table sets forthin Note 14.3 to our Consolidated Financial Statements provides a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2018.

 

Interest Sensitivity of Outstanding Loans and Advances Maturing in More Than One Year

 

Domestic

Foreign

Total

 

(In Millions of Euros)

 

 

 

 

Fixed rate

52,559

59,995

112,554

Variable rate

85,507

97,606

183,113

Total loans and advances (1)

138,066

157,601

295,667

(1)  Includes loans and advances to customers included in the following headings: financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss, financial assets designated at fair value through profit or loss and financial assets at amortized cost.2020.

Impairment LossesLoss allowances on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment lossesFinancial instruments”. For a discussion of accounting standards related to loss allowances on financial assets”assets and credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

77


The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries with respectfor the periods indicated. Information as of December 31, 2020 and 2019 refers to customers, central banks and credit institutions and information as of December 31, 2018, 2017 and 2016 refers to customers and credit institutions for the periods indicated, based on their respective domicile.institutions:

100


 

As of and for the year ended December 31,

2018

2017

2016

2015

2014

 

As of and for the Year Ended December 31,

(In Millions of Euros)

2020

2019

2018

2017

2016

 

 

 

 

(In Millions of Euros)

Loan loss reserve at beginning of period:

 

 

 

 

 

 

Domestic

7,234

9,113

12,357

9,832

10,510

4,931

5,774

7,234

9,113

12,357

Foreign

5,550

6,903

6,385

4,441

4,480

7,496

6,437

5,550

6,903

6,385

First implementation of IFRS 9 (1)

1,171

-

-

-

Total Loan loss reserve at beginning of period

13,955

16,016

18,742

14,273

14,990

First implementation of IFRS 9

-

1,171

-

Total loan loss reserve at beginning of period

12,427

12,211

13,955

16,016

18,742

 

 

 

 

 

 

Loans charged off: (2)

 

 

 

 

Loans charged off: (1)

 

 

 

Total domestic

(2,818)

(3,709)

(3,298)

(3,340)

(2,628)

(495)

(1,006)

(2,818)

(3,709)

(3,298)

Total foreign

(1,956)

(2,330)

(2,400)

(1,933)

(1,836)

(2,073)

(2,250)

(1,956)

(2,330)

(2,400)

Total Loans charged off:

(4,774)

(6,039)

(5,698)

(5,273)

(4,464)

Total loans charged off

(2,568)

(3,256)

(4,774)

(6,039)

(5,698)

 

 

 

 

 

 

Provision for loan losses:

 

 

 

 

 

 

 

Domestic

910

1,155

1,095

1,933

2,308

1,289

764

910

1,155

1,095

Foreign

3,659

3,078

3,046

2,804

2,439

3,605

3,560

3,659

3,078

3,046

Total Provision for loan losses

4,569

4,233

4,141

4,737

4,747

Total provision for loan losses

4,894

4,324

4,569

4,233

4,141

 

 

 

 

 

 

Acquisition and disposition of subsidiaries (3)

-

(5)

-

6,572

-

Acquisition and disposition of subsidiaries

(1,123)

-

(5)

-

Effect of foreign currency translation

(239)

(926)

(601)

(862)

(119)

(1,204)

(20)

(239)

(926)

(601)

Other

(1,301)

(495)

(567)

(705)

(881)

(285)

(832)

(1,301)

(495)

(567)

Acquisition, foreign currency and others

(1,539)

(1,426)

(1,168)

5,005

(1,000)

(2,612)

(852)

(1,539)

(1,426)

(1,168)

 

 

 

 

 

 

Loan loss reserve at end of period:

 

 

 

 

 

 

 

Domestic

5,774

7,234

9,113

12,357

9,832

5,362

4,931

5,774

7,234

9,113

Foreign

6,437

5,550

6,903

6,385

4,441

6,779

7,496

6,437

5,550

6,903

Total Loan loss reserve at end of period

12,211

12,784

16,016

18,742

14,273

Total loan loss reserve at end of period

12,141

12,427

12,211

12,784

16,016

Loan loss reserve as a percentage of loans and advances at amortized cost at end of period

3.19%

3.09%

3.44%

3.97%

3.83%

3.66%

3.10%

3.19%

3.09%

3.44%

Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period

1.25%

1.46%

1.22%

1.12%

1.19%

0.77%

0.81%

1.25%

1.46%

1.22%

(1)    For additional information on the implementation of IFRS 9, see note 2.4 to our Consolidated Financial Statement.

(2)    Domestic      Domesticloans charged off in 2020, 2019, 2018, 2017 2016, 2015 and 20142016 were mainly related to the real estate sector.

(3)    In 2015, includes amounts related to Garanti (in which we acquired a further 14.89% stake in such year, following which we started to fully consolidate Garanti’s results in our consolidated financial statements) and Catalunya Banc (which we fully acquired in such year).

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

101


The loans charged off amounted to €4,774€2,568 million during the year ended December 31, 20182020, compared with €6,039€3,256 million during the year ended December 31, 2017.2019, mainly as a result of the decrease in loans charged off in Spain, as a result of moratorium measures for bank customers adopted in light of COVID-19 and the depreciation of the currencies of the main countries where the BBVA Group operates.

Our loan loss reserves as a percentage of total loans and advances to customers and credit institutions increased to 3.19%3.66% as of December 31, 2018 from 3.09%2020 compared with 3.10% as of December 31, 2017.2019.

78


Impaired Loans

As described in Note 2.2.1 to the Consolidated Financial Statements, loansLoans are considered to be credit-impaired under IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the loan.

Amounts collected in relation to impaired financial assets at amortized cost are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company in 2020, 2019, 2018, 2017 and 2016 2015 and 2014 was €412.5€249.1 million, €301.6 million, €310.5 million, €347.4 million and €264.2 million, €253.9 million, €231.2 million, respectively.

The following table provides information regarding our impaired loans ofto customers, central banks and credit institutions by their respective domicile and type, as of the dates indicated:

As of December 31,

As of December 31,

2018

2017

2016

2015

2014

2020

2019

2018

2017

2016

(In Millions of Euros)

(In Millions of Euros)

Impaired loans

 

 

 

 

 

Domestic

9,436

12,730

16,360

19,481

18,563

7,823

8,104

9,436

12,730

16,360

Public sector

112

158

270

191

172

68

86

112

158

270

Other resident sector

9,324

12,572

16,090

19,290

18,391

7,755

8,018

9,324

12,572

16,090

Foreign

6,923

6,671

6,565

5,882

4,167

6,855

7,855

6,923

6,671

6,565

Public sector

16

13

42

21

8

8

1

16

13

42

Other non-resident sector

6,906

6,658

6,523

5,860

4,159

6,847

7,853

6,906

6,658

6,523

Total impaired loans

16,359

19,401

22,925

25,363

22,730

14,678

15,959

16,359

19,401

22,925

Total loan loss reserve

(12,211)

(12,784)

(16,016)

(18,742)

(14,273)

(12,141)

(12,427)

(12,211)

(12,784)

(16,016)

Impaired loans net of reserves

4,148

6,617

6,909

6,621

8,457

2,537

3,533

4,148

6,617

6,909

Impaired loans as a percentage of loans and advances at amortized cost

4.27%

4.69%

4.92%

5.38%

6.10%

4.42%

3.99%

4.27%

4.69%

4.92%

Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost

1.08%

1.60%

1.48%

1.40%

2.27%

0.76%

0.88%

1.08%

1.60%

1.48%

Our total impaired loans to customers and credit institutions amounted to €16,359€14,678 million as of December 31, 2018, a 15.7%2020, an 8.0% decrease compared with €19,401€15,959 million as of December 31, 2017.2019. This decrease was mainly attributable to the reduction in impaired loans from households, as a result of the Group’s exposuremoratorium measures for bank customers adopted in light of COVID-19, and, to loans to individualsa lesser extent, the reclassification of the balance of BBVA USA and the real estate sector in Spain.other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020.

As mentioned in Note 2.2.1 to the Consolidated Financial Statements, ourOur loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets but which present an inherentexpected credit loss. As of December 31, 2018,2020, the loan loss reserve amounted to €12,211€12,141 million, a 4.5%2.3% decrease compared with €12,784the €12,427 million recorded as of December 31, 2017.2019, mainly due to the positive impact of changes in exchange rates on foreign currency positions and the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020. The decrease was offset, in part, by higher provisions for possible loan losses in Spain, in light of the uncertainty associated with the pace of economic recovery.

10279


 

The following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and accumulated impairmentloan loss reserve taken for each loan category, as of December 31, 20182020 and 2017,2019, by their respective domicile and type:type of customer:

2018

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

2020

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

(In Millions of Euros)

(In Millions of Euros)

Domestic:

 

 

 

 

Government

112

(59)

0.67%

68

(32)

0.41%

Credit institutions

-

-

 

-

-

Other sectors

9,324

(5,396)

6.03%

7,755

(5,319)

5.15%

Agriculture

57

(37)

5.07%

61

(38)

4.83%

Industrial

712

(502)

4.85%

664

(440)

4.44%

Real estate and construction

1,624

(1,060)

15.22%

722

(490)

7.64%

Commercial and other financial

1,104

(770)

6.46%

862

(608)

8.95%

Loans to individuals

5,065

(2,461)

5.16%

4,361

(2,686)

4.58%

Other

763

(566)

5.87%

1,084

(1,057)

5.42%

Total Domestic

9,436

(5,455)

5.51%

7,823

(5,351)

4.69%

Foreign:

 

 

 

 

 

Government

16

(24)

0.12%

8

(16)

0.03%

Credit institutions

10

(12)

0.41%

6

(36)

0.04%

Other sectors

6,896

(6,719)

3.21%

6,842

(6,738)

4.73%

Agriculture

66

(70)

2.56%

71

(70)

3.25%

Industrial

1,682

(1,163)

4.01%

1,477

(1,273)

3.93%

Real estate and construction

697

(571)

3.77%

675

(232)

6.39%

Commercial and other financial

667

(638)

1.85%

717

(747)

4.79%

Loans to individuals

2,773

(3,372)

3.46%

2,745

(3,209)

4.87%

Other

1,011

(905)

2.87%

1,156

(1,207)

5.02%

Total Foreign

6,923

(6,755)

3.03%

6,855

(6,790)

4.05%

Total

16,359

(12,211)

4.09%

14,678

(12,141)

4.37%

(1)   Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

10380


 

2017

Impaired Loans

Loan Loss Reserve

Impaired Loans as a Percentage of Loans by Category

2019

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

(In Millions of Euros)

(In Millions of Euros)

Domestic:

 

 

 

 

 

Government

158

(34)

0.87%

86

(36)

0.60%

Credit institutions

-

-

 

-

-

-

Other sectors

12,572

(5,204)

7.76%

8,018

(4,895)

5.33%

Agriculture

95

(43)

7.75%

60

(42)

4.93%

Industrial

902

(449)

6.13%

686

(513)

4.90%

Real estate and construction

3,647

(2,037)

30.94%

1,180

(751)

12.33%

Commercial and other financial

1,055

(557)

6.56%

1,173

(856)

7.24%

Loans to individuals

5,911

(1,676)

5.92%

4,257

(2,176)

4.40%

Other

961

(442)

5.24%

663

(557)

5.16%

Total Domestic

12,730

(5,238)

7.07%

8,104

(4,931)

4.91%

Foreign:

 

 

 

 

 

 

Government

13

(8)

0.09%

1

(23)

0.01%

Credit institutions

11

(6)

0.40%

6

(24)

0.04%

Other sectors

6,647

(3,424)

3.22%

7,848

(7,448)

3.43%

Agriculture

70

(41)

2.65%

93

(83)

3.69%

Industrial

756

(434)

2.02%

1,824

(1,405)

4.20%

Real estate and construction

517

(214)

2.89%

980

(652)

4.71%

Commercial and other financial

651

(390)

2.06%

835

(763)

2.02%

Loans to individuals

2,505

(1,345)

3.21%

3,124

(3,670)

3.66%

Other

2,148

(999)

5.49%

991

(876)

2.83%

Total Foreign

6,671

(3,437)

3.02%

7,855

(7,496)

3.23%

Collective allowance for incurred but not reported losses

-

(4,109)

 

Total

19,401

(12,784)

4.85%

15,959

(12,427)

3.91%

(1)   Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

10481


 

Troubled Debt Restructurings

As of December 31, 2018,2020, of the total troubled debt restructurings of €17,169€16,699 million, as described in€7,659 million were not considered impaired loans. See Note 7.37.2 and Appendix VIII to our Consolidated Financial Statements, €7,166 million were not considered impaired loans.Statements.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratioratios higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio

The Leisure, Automotive and Real Estate sectors have been among the most affected by the COVID-19 pandemic and they are the sectors that have most relied on payment deferrals granted by BBVA (see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”).  See Note 7.2 to our Consolidated Financial Statements for additional information.The non-performing asset ratio in our domestic real estate and construction portfolio was 15.2% 7.6% as of December 31, 20182020 (compared with 30.9%12.3% as of December 31, 2017)2019), substantially higher than the average non-performing asset ratio for all of our domestic activities (5.5%was 4.7% as of December 31, 2018 and 7.1%2020 (compared with 4.9% as of December 31, 2017)2019) and the average non-performing asset ratio for all of our consolidated activities (3.8% as of December 31, 2018 andwas 4.4% as of December 31, 2017)2020 (compared with 3.8% as of December 31, 2019). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 17.2%7.7% as of December 31, 20182020 (compared with 26.2%9.0% as of December 31, 2017)2019).

In light of the COVID-19 outbreak, various national and supranational supervisory authorities have published considerations to be taken into account regarding the accounting policy to be applied with respect to potential problem loans, providing the option to suspend the application of accounting guidance for potential problem loans, for a limited period of time, with respect to loans affected by moratoria or other relief measures adopted by authorities to address the effects of the COVID-19 pandemic. See Notes 1.5 and 7.2 to our Consolidated Financial Statements. See also “Item 5. Operating and Financial Review and Prospects―Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.  

Foreign Country Outstandings

The following table sets forth, as of the end of the years indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of December 31, 2018, December 31, 20172020, 2019 and December 31, 2016.2018. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

2018

2017

2016

2020

2019

2018

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

(In Millions of Euros, Except Percentages)

(In Millions of Euros, Except Percentages)

 

 

 

United Kingdom

7,114

1.1%

8,444

1.2%

5,854

0.8%

7,107

1.0%

6,086

0.9%

7,114

1.1%

Mexico

2,217

0.3%

2,635

0.4%

1,947

0.3%

1,128

0.2%

1,697

0.2%

2,217

0.3%

Turkey

5,060

0.7%

7,754

1.1%

1,665

0.2%

3,265

0.4%

3,856

0.6%

5,060

0.7%

Other OECD

7,779

1.1%

7,885

1.1%

7,745

1.1%

Other OECD (Organization for Economic Co-operation and Development)

9,715

1.3%

9,463

1.4%

7,779

1.1%

Total OECD

22,170

3.3%

26,718

3.9%

17,211

2.4%

21,215

2.9%

21,102

3.0%

22,170

3.3%

Central and South America

2,720

0.4%

3,980

0.6%

4,001

0.6%

3,142

0.4%

3,323

0.5%

2,720

0.4%

Other

4,739

0.7%

3,787

0.5%

4,056

0.6%

7,329

1.0%

6,924

1.0%

4,739

0.7%

Total

29,629

4.4%

34,485

5.0%

25,268

3.5%

31,686

4.3%

31,349

4.5%

29,629

4.4%

10582


 

The following table sets forth the amounts of our cross-border outstandings as of December 31, 2018, 20172020, 2019, and 20162018 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

Governments

Banks and Other Financial Institutions

Commercial, Industrial and Other

Total

Governments

Banks and Other Financial Institutions

Commercial, Industrial and Other

Total

(In Millions of Euros)

As of December 31, 2020

 

Mexico

44

4

1,080

1,128

Turkey

559

283

2,422

3,265

United Kingdom

-

6,204

904

7,107

Total

603

6,491

4,406

11,500

 

As of December 31, 2019

 

Mexico

188

8

1,501

1,697

Turkey

618

283

2,955

3,856

United Kingdom

-

5,246

839

6,086

Total

806

5,537

5,295

11,638

(In Millions of Euros)

 

As of December 31, 2018

 

 

 

Mexico

133

7

2,078

2,217

133

7

2,078

2,217

Turkey

1,250

505

3,304

5,060

1,250

505

3,304

5,060

United Kingdom

22

6,215

876

7,114

22

6,215

876

7,114

Total

1,405

6,727

6,258

14,391

1,405

6,727

6,258

14,391

 

 

As of December 31, 2017

 

 

Mexico

280

61

2,295

2,635

Turkey

3,211

1,488

3,055

8,444

United Kingdom

-

7,003

1,441

7,754

Total

3,491

8,552

6,791

18,833

 

 

As of December 31, 2016

 

 

Mexico

160

5

1,781

1,947

Turkey

105

439

1,120

1,665

United Kingdom

 - 

3,732

2,122

5,854

Total

266

4,176

5,024

9,466

83


The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €100€360 million, €130€184 million and €104€100 million as of December 31, 2018, 20172020, 2019 and 20162018, respectively. These figures do not reflect loan loss reserves of 8.3%, 12.5% and 38.0%, 19.1% and 35.6% respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 20182020 did not in the aggregate exceed 0.01%0.05% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2018, 20172020, 2019 and 20162018 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of December 31, 2018, 20172020, 2019 and 20162018 amounted to $90$50 million, $124$73 million and $90 million, respectively (approximately €78€41 million, €104€65 million and €85€78 million, respectively, based on a euro/dollar exchange rate on December 31, 2020 of $1.00 = €0.81, on December 31, 2019 of $1.00 = €0.89 and on December 31, 2018 of $1.00 = €0.87, on December 31, 2017 of $1.00 = €0.83, and on December 31, 2016 of $1.00 = €0.95)€0.87).

106


LIABILITIES

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated.indicated:

As of December 31, 2018

As of December 31, 2020

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

(In Millions of Euros)

(In Millions of Euros)

Total Domestic

166,403

26,544

4,563

197,510

188,757

37,822

1,751

228,330

Foreign

 

 

 

 

Western Europe

22,077

-

14,545

36,621

21,427

207

11,444

33,078

The United States

62,539

61

4,379

66,979

-

82

-

82

Mexico

50,991

133

566

51,690

54,398

3,422

1,549

59,370

Turkey

33,427

212

1,323

34,963

34,621

215

617

35,453

South America

37,970

330

2,335

40,635

36,989

3,428

2,041

42,458

Other

2,563

-

4,268

6,831

6,468

-

10,228

16,696

Total Foreign

209,567

737

27,415

237,719

153,904

7,355

25,878

187,137

Total

375,970

27,281

31,978

435,229

342,661

45,177

27,629

415,467

 

As of December 31, 2017

As of December 31, 2019

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

(In Millions of Euros)

(In Millions of Euros)

Total Domestic

165,559

28,044

5,518

199,121

171,611

24,318

3,218

199,147

Foreign

 

 

 

 

Western Europe

22,177

101

34,849

57,128

15,360

-

9,190

24,549

The United States

58,164

87

3,961

62,212

66,181

72

6,377

72,630

Mexico

52,387

3,316

2,429

58,132

56,564

492

1,634

58,689

Turkey

36,815

3,713

953

41,482

36,042

257

924

37,223

South America

38,764

1,792

2,999

43,555

36,661

811

2,840

40,311

Other

2,511

-

3,806

6,317

1,801

-

4,568

6,369

Total Foreign

210,819

9,010

48,998

268,826

212,608

1,631

25,533

239,772

Total

376,379

37,054

54,516

467,949

384,219

25,950

28,751

438,919

10784


 

As of December 31, 2016

As of December 31, 2018

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

(In Millions of Euros)

(In Millions of Euros)

Total Domestic

161,022

26,602

6,768

194,392

166,403

26,544

4,563

197,510

Foreign

 

 

 

 

 

 

Western Europe

30,949

101

38,338

69,388

22,077

-

14,545

36,621

The United States

62,311

38

5,040

67,388

62,539

61

4,379

66,979

Mexico

54,117

2,400

3,663

60,180

50,991

133

566

51,690

Turkey

38,211

3,191

1,463

42,865

33,427

212

1,323

34,963

South America

50,282

2,407

4,035

56,724

37,970

330

2,335

40,635

Other

4,572

-

4,194

8,766

2,563

-

4,268

6,831

Total Foreign

240,442

8,138

56,733

305,312

209,567

737

27,415

237,719

Total

401,465

34,740

63,501

499,706

375,970

27,281

31,978

435,229

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22 to our Consolidated Financial Statements.

As of December 31, 2018,2020, the maturity of our time deposits recorded under “Financial liabilities at amortized cost” (excluding interbank deposits) in denominations of $100,000 or greater was as follows:

As of December 31, 2018

As of December 31, 2020

Domestic

Foreign

Total 

Domestic

Foreign

Total 

(In Millions of Euros)

(In Millions of Euros)

3 months or under

5,361

40,513

45,873

3,799

22,584

26,383

Over 3 to 6 months

2,575

4,744

7,319

1,883

2,708

4,590

Over 6 to 12 months

4,083

7,320

11,403

2,960

2,083

5,043

Over 12 months

4,281

8,447

12,729

2,746

898

3,644

Total

16,300

61,025

77,324

11,388

28,272

39,659

Time deposits recorded under “Financial liabilities at amortized costcost” from Spanish and foreign financial institutions amounted to €19,015€16,079 million as of December 31, 2018,2020, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currencygeographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of December 31, 2018, 20172020, 2019 and 20162018 see Note 22 to our Consolidated Financial Statements.

10885


 

Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of December 31, 2018, 20172020, 2019 and 2016.2018.

The following table provides information about our total short-term borrowings for the years ended December 31, 2020, 2019 and 2018:

 

As of and for the Year Ended December 31, 2020 (1)

 

As of and for the Year Ended December 31, 2019 (1)

 

As of and for the Year Ended December 31, 2018 (1)

 

 

 

 

Amount

Average rate

 

Amount

Average rate

 

Amount

Average rate

 

(In Millions of Euros, Except Percentages)

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

As of end of period

43,543

1.0%

 

45,296

1.9%

 

16,524

4.3%

Average during period

50,100

1.1%

 

46,139

2.1%

 

16,836

4.7%

Maximum quarter-end balance

55,156

-

 

50,482

-

 

17,155

-

Bank promissory notes:

 

 

 

 

 

 

 

 

As of end of period

1,454

0.1%

 

801

0.4%

 

449

3.1%

Average during period

1,094

0.1%

 

681

0.7%

 

580

1.6%

Maximum quarter-end balance

1,454

-

 

939

-

 

1,036

-

Bonds and subordinated debt:

 

 

 

 

 

 

 

 

As of end of period

10,546

1.3%

 

9,249

3.8%

 

5,633

3.6%

Average during period

12,076

2.1%

 

6,799

4.5%

 

4,775

4.6%

Maximum quarter-end balance

12,928

-

 

9,468

-

 

5,633

-

Total short-term borrowings as of end of period

55,543

1.0%

 

55,346

2.2%

 

22,606

4.1%

(1)  As of December 31, 2020 and 2019, includes all repurchase agreements recorded under “Financial liabilities at amortized cost” and “Financial liabilities held for the years endedtrading”. As of December 31, 2018, 2017 and 2016:

 

As of and for the Year Ended December 31, 2018 (1)

 

As of and for the Year Ended December 31, 2017

 

As of and for the Year Ended December 31, 2016

 

 

 

 

Amount

Average rate

 

Amount

Average rate

 

Amount

Average rate

 

(In Millions of Euro, Except Percentages)

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

As of end of period

16,524

4.3%

 

33,208

1.7%

 

39,682

1.6%

Average during period

16,836

4.7%

 

32,475

2.4%

 

39,589

1.4%

Maximum quarter-end balance

17,155

-

 

33,863

-

 

41,399

 - 

Bank promissory notes:

 

 

 

 

 

 

 

 

As of end of period

449

3.1%

 

1,462

0.7%

 

1,033

0.2%

Average during period

580

1.6%

 

704

1.0%

 

883

0.7%

Maximum quarter-end balance

1,036

-

 

1,462

-

 

1,079

 - 

Bonds and subordinated debt:

 

 

 

 

 

 

 

 

As of end of period

5,633

3.6%

 

4,321

5.8%

 

14,708

3.7%

Average during period

4,775

4.6%

 

7,717

5.4%

 

15,092

3.5%

Maximum quarter-end balance

5,633

-

 

10,848

-

 

16,016

 - 

Total short-term borrowings as of end of period

22,606

4.1%

 

38,991

2.1%

 

55,423

2.1%

(1)     Following the implementation of IFRS 9 on January 1, 2018,includes only certain securities sold underrepurchase agreements to repurchase which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017 were reclassified to “Financial liabilities held for trading” and are not shown in the table.2017.

As of December 31, 2020, 2019 and 2018, the securities sold under agreements to repurchase were mainly Mexican and Spanish treasury bills. As of December 31, 2017bills and 2016, the securities sold undersuch agreements to repurchase were mainly Spanish treasury bills.

109


Return Ratios

The following table sets out our return ratios for the years ended December 31, 2018, 2017entered into with other financial and 2016:

 

As of or for the Year Ended December 31,

 

2018

2017

2016

 

(In Percentages)

Return on equity (1)

10.1%

6.7%

6.7%

Return on assets (2)

0.9%

0.7%

0.6%

Dividend pay-out ratio (3)

31.3%

32.0%

36.1%

Equity to assets ratio (4)

7.8%

7.7%

7.6%

(1)    Represents profit attributable to parent company for the year as a percentage of average stockholders’ funds for the year.

(2)    Represents profit attributable to parent company as a percentage of average total assets for the year.credit institutions.

(3)    Represents dividends declared by BBVA (including the cash remuneration paid under the “Dividend Option” scheme) as a percentage of profit attributable to parent company. This ratio does not take into account the non-cash remuneration paid by BBVA under the “Dividend Option” scheme (in the form of BBVA shares or ADSs). See “—Business Overview—Supervision and Regulation—Scrip Dividend” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”

(4)    Represents average total equity over average total assets.

110


EQUITY

Shareholders’ equity

As of December 31, 2020, shareholders’ equity amounted to €50,020 million, an 8.9% decrease compared to the €54,925 million recorded as of December 31, 2019, mainly as a result of the increase in accumulated other comprehensive loss.

Accumulated other comprehensive income (loss)

As of December 31, 2020, the accumulated other comprehensive loss amounted to €14,356 million, a 40.4% increase compared to the €10,226 million recorded as of December 31, 2019, mainly as a result of the adverse impact of the depreciation of the currencies of the main countries where the BBVA Group operates (in particular, the Mexican peso, the U.S. dollar and the Turkish lira) on “Foreign currency translation”. As of December 31, 2018, the accumulated other comprehensive loss amounted to €7,215 million, a 4.0% increase compared to the €6,939 million recorded as of December 31, 2017. As of December 31, 2016, the accumulated other comprehensive loss amounted to €3,622€10,223 million.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

86


F.   Competition

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the Single Resolution Board (SRB) for the latter. This has further increased the market share of Banco Santander in Spain.

We face strong competition in all of our principal areas of operations. The low interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to small and medium enterprises (SMEs), where new credit interest rates have fallen from an average of 5.5% between January 2012 and May 2014 to around 2.5% in December 2018, barely exceeding credit costs.

In addition, in the aftermath of the financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed deposits’ remuneration, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, many of which have become commercial banks and received financial or other forms of support from the Spanish government and the European Stability Mechanism, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

111


In Spain and in Europe, changes in banking regulation could have a significant potential impact on competition in the near future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the EU to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the SEPA (Single Euro Payments Area), which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the EU, and MiFID (Markets in Financial Instruments Directive), complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, decisive steps are being taken towards achieving a banking union in Europe. The ECB started to work as a single supervisor in November 2014, supervising more than 120 entities (including BBVA) in the Eurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the Single Resolution Fund and the appointment of the SRB which is operational since January 1, 2015. A new instrument of bank direct recapitalization was created within the ESM. The bail-in tool included in the BRRD entered into force on January 1, 2016. In November 2015, the European Commission put forward a proposal for a European Deposit Insurance Scheme (EDIS), which intends to provide a stronger and more uniform degree of insurance coverage for all retail depositors in the banking union, as a further step to a fully operational European banking union.

Following recent periods of financial turmoil, a number of banks have disappeared or have been absorbed by other banks. We believe this trend will likely continue in the future, with a number of mergers and acquisitions between financial entities both in Spain and at the European level. In Spain, the recapitalization of several entities with public funds and their subsequent privatization, with the purpose of achieving a stronger banking sector, has intensified this process. In this vein, Bankia and BMN merged in December 2017 and Unicaja Banco and Liberbank are currently discussing the terms of their merger. In the United States, the government has facilitated the purchase of troubled banks by other competitors in the context of the financial crisis, and European governments, including the Spanish government, have also expressed their willingness to facilitate these types of operations.

In the United States we operate primarily through BBVA Compass. The performance and health of the U.S. banking system continued to improve in 2018, supported by strong job creation, higher real incomes, solid private investment and higher interest rates. In addition, financial institutions benefited from lower corporate tax rates enacted at the end of 2017. As a result, during the first three quarters of 2018, net interest income for all FDIC-insured institutions reached an all-time high of $401.7 billion, while provisions for loan and lease losses declined 4% year-on-year to $36 billion. Meanwhile, applicable income taxes for these institutions declined $14.8 billion or 23.6% year-over-year. These trends boosted net income for these institutions by almost $40 billion, an increase of 27.4% year-over-year. In fact, in the third quarter of 2018, average return on assets for these institutions reached 1.41%, the highest ratio since 1986. We expect commercial banks in the United States to continue benefiting from a favorable environment in the short-term, albeit without the one-off effect from lower corporate taxes. Going forward, U.S. banks will be operating in an environment that becomes gradually more challenging as the credit cycle matures further, cost of funds increase and competition from online banks and non-banks intensifies.

In Turkey, where we operate through Garanti, the three public banks that operate in the country accounted for 39% of the total assets of financial institutions as of December 31, 2018, whereas private banks (including Garanti) accounted for 61%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 12% of the total. 2018 was a year of significant macroeconomic slow-down, particularly following the financial shock during the summer of 2018. TL lending (i.e., loans denominated in Turkish lira) growth decelerated to as low as 2% by the end of 2018 after the strong growth rate of 25% in 2017. TL lending to corporations grew by only 1%, while consumer loans registered a 3% growth and credit cards grew by 15%, mainly as a result of the higher inflation. Consequently, credit growth adjusted for the exchange rate depreciation slowed-down to 3% in 2018 from its solid 20% growth in 2017. Total customer deposits grew by 19% during the year. The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) surpassed the weak TL lending growth, and increased by 10% year-on-year. In contrast, foreign currency denominated customer deposits shrank by 6% in U.S. dollars terms. Thus, TL loan-to-deposit ratio diminished to 137% in 2018 from 148% in 2017, while the same ratio in foreign currency rose to 96% from 90%.

112


In Mexico, where we operate through BBVA Bancomer, the banking industry remained solvent. Total bank lending to the private sector decreased from an annual average growth of 12.8% in 2017 to 12.0% in 2018.  This nominal decrease was due to a lower inflation rate, since total lending showed a moderate annual increase in real terms from an average of 6.4% in 2017 to 6.7% in 2018. The moderate performance of economic activity, employment and income in 2018 restricted the dynamism of household lending. Credit to consumption decreased its annual average real growth rate from 3.7% in 2017 to 2.1% in 2018 while mortgages showed a slight recovery (from an average real growth rate of 3.6% in 2017 to a real growth rate of 3.7% in 2018). Corporate lending was the main source of growth in total credit to the private sector, because of the substitution of external financing sources for internal credit granted by commercial banks. The growth rate for traditional bank deposits decreased from 2017 to 2018 (11.5% compared to 10.0%, respectively, in nominal terms and 5.2% compared to 4.8%, respectively, in real terms), despite the higher dynamism observed in term deposits (which was fueled by higher interest rates). Concerning solvency, the overall capitalization level of the Mexican banking system reached 15.7% as of November 30, 2018, well above the minimum regulatory requirement.

At December 31, 2018, the Mexican banking sector had 50 operating banks, three more than the previous year. Those that started operations were Banco Shinan (January 2018), Banco S3 (March 2018) and Bank of China (July 2018). In addition, Banorte and Banco Interacciones ended their merger process (July 2018). This merger put Banorte as the second larger bank in the system (by total assets), just below BBVA Bancomer, while Santander kept the third position and Citi-Banamex fell to the fourth. As a market leader, we face strong competition in all of our principal business lines. The most relevant change in 2018 was the loss of our market leader position in the credit card segment to Banamex.

In Mexico, changes in banking regulation could have a significant potential impact on competition in the near future. The most relevant regulatory developments in 2018 and early 2019 include the following:

●      On March 9, 2018 the Fintech Law was passed. The law creates and regulates Financial Technology Institutions, which may engage in either crowdfunding or the issue of e-money. The law also tasks the Bank of Mexico with regulating the recognition and use of virtual assets. The law also introduces a regime of “innovative models for the provision of financial services” that will enable financial institutions (including fintechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox.

●      On September 10, 2018, the CNBV (National Banking and Securities Commission) issued the secondary regulation of the Fintech Law (Fintech Circular). The regulation establishes accounting principles, financial reporting and disclosure requirements and prudential standards relating to minimum capital, cash deposit limits and international transfers by Electronic Payment Funds Institutions, as well as limits for projects that can be published on Collective Finance Institutions’ platforms and diversification requirements for their investors. It also establishes requirements for the methodologies to be used in the evaluation, selection and classification of crowdfunding applicants and projects. On the same day, the Bank of Mexico published rules limiting transactions in foreign currencies by Electronic Payment Funds Institutions. These rules establish a regime for prompt refund of clients’ unrecognized charges and requires such institutions to participate in a payment system when warranted by the scale of their operations. Lastly, the Secretariat of Finance (SHCP) extended to the fintech system the anti-money laundering and control of terrorism financing regime that already applied to the rest of the financial system.

●      On October 29, 2018, the Bank of Mexico published Circular 15/2018 regarding the use of wages and salaries in support of financial services contracted by workers. This reform aims to ensure that employees can use their payroll deposits as a source of repayment of loans contracted with any bank on the same terms as those of the bank that administers the payroll account. This regulation seeks to cover the risk associated with the movement of salary accounts to other banks after a loan has been granted. It also seeks to facilitate the procedures required to allow employees to make such movements.

113


●      On November 8, 2018, the ruling-party’s majority leader in the Senate presented a bill to severely restrict banks’ fees. Although the bill was unexpected, its momentum appears to have faded and now seems on hold. In its place there is now a new coordinated effort between banks, the Secretaría de Hacienda y Crédito Público (SHCP) and the Bank of Mexico, which includes a broader and more comprehensive approach, and that aims to deal with banks’ fee structure, along with Mexico’s deficit on financial inclusion and the country’s excessive use of cash.  The results of this effort, which should be made public in the short term, are expected to benefit consumers without the significant consequences to the provision of banking services as the outright banning of fees would have had.

●      Early in 2019, CoDi (Digital Charge), a new digital payment system was unveiled by the Bank of Mexico which is intended to enable secure, immediate and free payments through mobile devices to its members. CoDi is intended to allow currently-unacquired merchants to access a modern payment system, and consumers to reduce their reliance on cash for everyday transactions.  CoDi has significant potential for financial inclusion and opens-up a new space for bank competition for the benefit of consumers.

In recent years, the global financial services sector has undergone significant transformation in relation to the development of the Internet and mobile and other exponential technologies and the entrance of new players into activities previously provided in the main by financial institutions. Whereas commercial banks were previously almost the sole providers of the whole range of financial products, from credit to deposits, or payments and investment services, today, a set of non-bank digital providers compete (and cooperate) among each other and with banks in the provision of financial services. These new fintech providers can be startup firms that are specialized in a specific service or niche of the financial services market, or large digital players (known as BigTechs). BigTech companies such as Amazon, Facebook and Apple have also started to offer financial services (mainly, in relation to payments and credit) ancillary to their core business.

In this new competitive environment, banks and other players are calling for a level playing field that ensures fair competition among the different financial services providers. Regulations on consumer protection and the integrity of the financial system (such as anti-money laundering regulations or regulations for combating the financing of terrorism) are generally activity-specific and, therefore, meet the principle of a level playing field, except for some exemptions based on the size of the firm.field. However, with regards to financial stability, banking groups are subject to prudential regulations that have implications for most of their activities, including those in which they compete with non-bank players that are only subject to activity-specific regulations, at best, or not regulated at all. Therefore, the scope of the perimeter of prudential consolidation to which the prudential regulation and supervision in the EUEuropean Union and elsewhere applies compromises the level playing field principle by requiring banking groups to apply banking-level controls to all subsidiaries, no matter their activities and actual risks involved. Restrictions on the activity of bank players, for instance as regards remuneration rules or internal governance requirements, leave EU banks at a competitive disadvantage as regards cost, time-to-market or talent attraction compared to their competitors.

Existing loopholes in the regulatory framework are another cause of an uneven playing field between banks and non-bank players. Some new services or business models are not yet subject to existing regulations. In such cases, not only are potential risks to financial stability, consumer protection and the integrity of the financial system unaddressed, but asymmetries may arise between players since regulated providers often face obstacles that unregulated providers do not.

Another significant trend in the market is consolidation. Following the prior global financial crisis, a number of banks disappeared or were absorbed by other banks. We believe that the COVID-19 crisis may result in a number of mergers and acquisitions between financial entities in the regions where the Group operates, as recently seen in Spain.

Additional information on certain market dynamics affecting the four main countries where we operate is provided below.

Spain

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, several M&A transactions have taken place in the Spanish banking system over the past 3-4 years. In this vein, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the SRB for the latter. This has further increased the market share of Banco Santander in Spain. In January 2018, the merger between Bankia and Banco Mare Nostrum (“BMN”) was completed. More recently, in September 2020 the merger between Caixabank and Bankia was announced, which creates the largest bank in Spain in terms of total assets. This transaction is expected to close during the first quarter of 2021 once all regulatory authorizations have been received. Finally, the merger between Unicaja and Liberbank was announced in December 2020. This transaction will create Spain’s fifth largest bank in terms of total assets.

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We face strong competition in all of our principal areas of operations. The low interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to SMEs, where new credit interest rates have fallen from a weighted average of 5.5% between January 2012 and May 2014 to around 2.7% since the outbreak of the COVID-19 crisis in March 2020, barely exceeding credit costs. Since the outbreak of the crisis in the first quarter of 2020, public support measures have been introduced in Spain, particularly in the form of public guarantees on new loans to corporates and SMEs and moratoria and payment holidays on certain loans. The former has resulted in decreased competition in the SME loans segment. However, these public guarantees will be lifted in the future, which will likely increase competition levels again. More broadly, the end of the COVID-19 related public relief measures might result in a deterioration in the credit quality of borrowers, especially SMEs, which might require the recording of high loan-loss provisions by banks.

In the aftermath of the prior global financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed remuneration for deposits, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services. More recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

In Spain and in Europe, changes in banking regulation could have a significant potential impact on competition in the near future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the European Union to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the Single Euro Payments Area, which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the European Union, and MiFID, complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, further steps have been taken towards achieving a banking and capital markets union in Europe. The ECB started to work as a single supervisor in November 2014, supervising 117 entities (including BBVA) in the Eurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the SRF, the appointment of the SRB which is operational since January 1, 2015 and the Bail-in Tool included in the BRRD, which entered into force on January 1, 2016. For additional information on regulatory developments, see “―Business Overview―Supervision and Regulation”.  

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United States

The U.S. banking system’s performance in 2020 deteriorated significantly compared to 2019. However, in light of the unprecedented contraction of economic output due to the COVID-19 pandemic, the system remained resilient. While profitability was adversely affected primarily by the large loan loss provisions, credit quality did not deteriorate as much as in previous recessions due to the forceful and large monetary and fiscal support that the economy received early into the pandemic-induced downturn. During the first three quarters of 2020, net interest income for all FDIC-insured commercial banks fell by 4.2% year-on-year, while non-interest income and expenses remained on their pre-crisis trajectory. At the same time, provisions for loan and lease losses increased by more than 3.5 times, and as a result, net income reached only 48% of the level achieved in the same period in 2019. Return on assets and return on equity declined to their lowest levels since 2009. The core capital ratio of FDIC-insured commercial banks declined from 9.6% in the fourth quarter of 2019 to 8.7% and 8.8% in the second and third quarter of 2020, respectively, the lowest since 2010. Going forward, we expect commercial banks to benefit from the economic recovery and any subsequent round of stimulus, while at the same time remaining somewhat challenged by the low interest rate environment that will likely persist for a number of years going forward.

Mexico

In Mexico, the banking sector had a capitalization ratio of 17.4% in October 2020 (higher than the ratio reported in October 2019 of 16.1%) (in each case considering the group of entities of “banca múltiple” operating in Mexico). On October 31, 2020, the Mexican banking sector had 50 operating banks, one less than the previous year.

The growth of total bank lending to the non-financial private sector in Mexico decreased from an annual nominal average growth rate of 8.8% from January to November of 2019 to 5.2% in the same period of 2020. The negative impact of the COVID-19 pandemic over economic activity and formal employment deepened the slowdown in private sector credit that was already evident at the end of 2019. After a short rebound in the first months of the pandemic (boosted by liquidity needs), corporate lending lost momentum and registered its first contraction since February 2010 in November (-0.9%). The reduction of private investment was reflected in a weak corporate credit demand, so that the average growth rate of corporate loans was 6.9% from January to November of 2020, below the 9.2% reached in the same period of the previous year.

 Credit to consumers also decreased its annual nominal average growth rate from 6.1% in January to November 2019 to -2.3% in the same period of 2020. Consumer credit experienced seven months of contraction (starting in May 2020), reaching a double digit fall of -10.7% in November 2020. Mobility restrictions (which limit consumption opportunities), the fall of formal employment (and therefore household income) as well as consumer caution as a response to the uncertainty associated with the pace of economic recovery, contributed to deteriorate the dynamism of this type of loans.

 Mortgage lending was the only category of commercial bank credit which ended 2020 without a contraction, with an average nominal growth rate of 9.3% in January to November 2020, slightly below the rate of 10.5% in the same period of 2019. This credit portfolio was able to maintain some dynamism due to both low and stable long-term interest rates and the lagged impact of the increase in the number of formal workers in previous years, since potential clients of this type of credit must prove a minimum time in service to obtain a mortgage. However, due to this deferred effect, the negative impact of job losses as a result of the COVID-19 pandemic is expected to affect the performance of this portfolio for some time.

Bank deposits in Mexico increased in 2020 as a result of the shift from consumption to savings due to the COVID-19 pandemic. Traditional bank deposits (sight deposits and term deposits) had an average annual growth rate of 11.4% in nominal terms between January and November 2020, which represented a 4.3 p.p. increase in comparison with the same period of 2019. This significant increase was underpinned mainly by the increase of sight deposits, which grew at an average annual growth rate of 15.7% between January and November 2020. It is worth noting that the resilience of sight deposits in a recessionary environment (stemming from the low unemployment rate among medium and high-income earners) coupled with a slump in consumption, led to a sharp increase in liquid deposits. 

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On the other hand, term deposits slowed down sharply as the economic recession and the drop in benchmark interest rates took their toll on medium-term savings. In fact, the nominal growth of term deposits halved in 2020 with respect to 2019 as the average annual nominal growth rate during the last eleven months of the year decreased to 5.2%. Finally, the growth of deposits in debt investment funds was hit too as the economy slumped, the Mexican peso depreciated and the demand for liquid assets rose. As a result the average annual growth rate of deposits in debt investment funds dropped from 10.4% between January and November 2019 to 5.9% during the same period of 2020. 

Throughout 2020, regulatory activity increased driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic.

Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

In November 2020, a bill was presented to the Senate which would affect the repatriation of U.S. dollars. Finally, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

Turkey

In Turkey, where we operate through Garanti BBVA, the three public deposit banks that operate in the country accounted for 37% of the total assets of financial institutions as of November 30, 2020, whereas private deposit banks (including Garanti BBVA) accounted for 49%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 14% of the total. The Turkish economy experienced a significant acceleration in the credit growth rate on the back of supportive economic policies implemented in the COVID-19 crisis. TL lending (i.e., loans denominated in Turkish lira) growth accelerated to 44% in 2020 from 14% in 2019 due to the supportive credit policies implemented in response to COVID-19. In 2020, TL lending to corporations grew by 45%, consumer loans grew by 45% and credit cards grew by 24.3%. Credit growth adjusted for the exchange rate depreciation rose to 22% in 2020 from its 6% growth in 2019. Total customer deposits grew by 35% during the year (16.4% on a foreign exchange adjusted basis, compared with 18.6% in 2019). The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) rose to 24% from 20% in 2019. Foreign exchange deposit growth rate rose to 16.8% from 16.3% in 2019. Given the increases in TL credits, the TL loan-to-deposit ratio rose to 152% from 130% in 2019. The foreign exchange loan-to-deposit ratio fell to 64% from 78% due to the increase in foreign exchange deposits.

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G.   Cybersecurity and Fraud Management

OurBBVA’s Corporate Security & Engineering Risk (CS&ER) Operations team handlesArea is responsible for ensuring adequate information security management, including by establishing security policies, procedures and controls regarding the main operational cybersecurity policies and measures regardingsecurity of the Group’s global infrastructures, digital channels and paymentspayment methods with a holistic and threat intelligence-led approach.

BBVA’s security strategy resides on three fundamental pillars: cybersecurity, data protection and security in business processes and fraud management. A program has been designed for each of these pillars, with the aim to reduce the risks identified in the developed taxonomy. These programs, which consider security industry best practices established by internationally accepted security standards, are periodically reviewed to evaluate the progress and the effective impact on the Group risks.

During 2020, within the framework of the implementation of the security strategy, security measures were adopted to ensure an adequate protection of BBVA’s information and the assets supporting business processes. The implementation of these measures, which were perceived as necessary to mitigate the security risks the BBVA Group is exposed to, was carried out with a global perspective and an integral approach (considering not only technological aspects but also aspects related to the Group’s staff, processes and security governance).

Measures adopted in 2020 included measures intended to: (i) ensure end-to-end protection of business processes, considering logical and physical security, privacy and fraud management, (ii) ensure compliance of the security and privacy by design principles; and (iii) improve client access control and authentication services related to online services, from a security and user experience perspective, using the mobile device as the main element, in line with BBVA’s digital transformation strategy.  

The main initiatives which are being implemented to improve BBVA’s security and client protection are the following:

·Aqua card launch, the first card without a printed card number or CVV, with a dynamic CVV, reinforcing security, since not having these data prevents their possible fraudulent use.

·Implementation of strong customer authentication measures in e-commerce, requiring two of the three possible authentication mechanisms (something you know, something you own, something you are).

·Implementation of the “where is my card?” functionality, that allows the customer to have an overview of all e-commerce or platforms where they have registered their bank cards.

·Implementation of new behavior biometrics and malware protection for digital clients to reinforce analytical and fraud detection capabilities in mobile channels.

·Enhancement of the information provide to clients in the BBVA app to make them aware of the main risks they are exposed to, so that they can prevent or act against possible threats.

Additionally, BBVA has continued carrying out training and awareness initiatives related to security and privacy, promoting training and awareness campaigns for BBVA’s employees, clients and society in general on matters such as the BBVA app, online channels and social networks, secure password management, phishing and other technical attacks detection, detection of scams, security in online purchases and protection of personal information.

Other lines of action also include the adequate training of BBVA’s Board members in the area of security and incident management, as well as the periodic performance of global and local simulation exercises in order to raise the level of training and awareness of the Board of Directors and certain key personnel and ensure an immediate and effective response in case of a security breach.

Cybersecurity

Ensuring the effective protection of BBVA’s assets and customers’ data is vital for the Group.

During 2020, the Group has detected an increase in the number of attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment.

Furthermore, the COVID-19 pandemic has been used by cybercriminals to increase the scope of social engineering attacks through email, SMS, instant messaging systems and social networks. It has also contributed to the emergence of new risks and challenges for companies, like the ones related to security in teleworking and the increase on the attack surface.

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The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed toat global users and the Group’s infrastructures,infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, is made up of approximately 100 peopleoperates 24x7 and provides services in all countries where the Group operates. We are currently in the processoperates, under a scheme of harmonizing the catalogue ofmanaged security services, that the Global CERT provides to our subsidiaries worldwide and we expect to complete such process by the end of 2019. The Global CERT operates 24x7, with operation lines dedicated to fraud and cybersecurity.

During 2018, the Group detected an increase in cyberattack attempts across the entire Group, especially phishing attacks, none of which were considered to be material. As cyberattacks evolve and become more sophisticated, the Group has had to strengthenstrengthened its prevention and monitorization efforts. AsSystem monitoring capabilities have been reinforced, with particular attention to the critical assets that support business processes in order to prevent threats from materializing and, if necessary, to immediately identify and respond to any security incident that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and automated platforms.

We believe that measures implemented by the Group have improved information security management as a result in part of the use of digital intelligence and advanced analytical capabilities. The main objective of these measures is to ensure an immediate and effective response to any security incident that occurs through the coordination of the different business and support areas involved, to reduce the possible negative impact and, if necessary, to report such efforts, incident in a timely manner to the relevant supervisory or regulatory authorities.

BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. Specialized teams periodically perform security technical tests in order to detect and correct possible security vulnerabilities. These tests include technical tests of technological platforms as well as malicious users simulated attacks performed by the “red team”. The outcome of such exerciseexercises is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

Data Protection

The Group also tests its continuity plans in order to improve disaster recovery in instances where an incident or vulnerability threatenssecond pillar of the continuity of one or several critical processes, services or platforms.

Other lines of action also includestrategy is based on the adequate trainingprotection of data and its treatment, which is a fundamental element of the data-centric strategy of the BBVA Group. The main initiatives in this area relate to the adoption of measures to ensure that BBVA’s board members ininformation assets are properly protected, limiting their use to their intended purposes and controlling access to them, considering the areasecurity guidelines established by the Group. All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of security and incident management. Each year BBVA carries out simulation exercises in order to raise the level of awareness and preparedness of certain key personnel.Bank are represented.

Security in Business Processes and Fraud

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of ourthe efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, we have athe Corporate Fraud Committee, that chaired by the Global Head of Engineering, oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

Our Corporate Fraud Committee is chaired by the Global Head of Engineering. The composition of this committee is quite broad and includes representatives from various units (in particular, Global Risk Management - Retail Credit, Global Risk Management - Non-Financial Risk, Finance, Internal Audit, Corporate Security, Client Solutions – Payments, Country Monitoring and Engineering Deployment). The Corporate Fraud Committee is convened three times per year.

We maintainBBVA maintains cybersecurity and fraud insurance policies in respect of each of ourits subsidiaries. These insurance policies are subject to certain loss limits, deductions and exclusions and weexclusions. We can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies.

With the aim of guaranteeing the effective implementation of the Group’s security strategy, BBVA has established a security governance model. Among the bodies composing the security governance model, there are Committees responsible for the approval and supervision of the execution of the information security strategy, in matters such as corporate security, information security and protection, and fraud management. One of the main elements of this security governance model is the Technology and Cybersecurity Commission, composed by BBVA’s Chairman and BBVA’s Board of Directors. This Commission is responsible for the oversight of the Group’s technological strategy and cybersecurity strategy and allows the Board of Directors to be informed of the main technological risks to which the Group is exposed, as well as current cybersecurity and technology trends and any relevant security event that can affect the BBVA Group.

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Regarding business continuity, during 2020 BBVA has included “resilience” as an integral part of its holistic approach. This change reflects the evolution from a model mainly oriented to guarantee the continuous provision of products and services in situations with high impact and low probability to a model where the organization has the ability to absorb and adapt to situations with an operative impact due to disruptions of different nature (such as pandemics, cyber incidents, natural disasters or technological failures). This transition has implied an intense activity of the Resilience Office that, together with the Group’s Crisis Management Committees and Continuity Committees has had a relevant role in the management of the crisis caused by the COVID-19 pandemic.

ITEM 4A.      UNRESOLVED STAFF COMMENTS

None.

ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. ItInternationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

BBVA has a solid leadership position in the Spanish market, it is the largest financial institution in Mexico in terms of assets, it has leading franchises in South America and the Sunbelt Region of the United States (see Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” ) and it is the leadinglargest shareholder in Garanti BBVA, Turkey’s biggest bank in terms of market capitalization. Its diversified business

The purpose of the BBVA Group is focusedto bring the age of opportunities to everyone, based on high-growth marketsour customers’ real needs, resting the institution in solid values: customer comes first, we think big and it relies on technology as a key sustainable competitive advantage. Corporate responsibility is at the core of its business model. BBVA fosters financial education and inclusion, and supports scientific research and culture.we are one team.

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The BBVA Group operates in Spain through Banco Bilbao Vizcaya Argentaria, S.A., a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. In addition to the transactions it carries out directly, Banco Bilbao Vizcaya Argentaria, S.A. is the parent company of the BBVA Group, which includes a group of subsidiaries, joint ventures and associates performing a wide range of activities.

As of December 31, 2018, the BBVA Group had 125,627 employees, 74.5 million customers, 7,963 branches and 32,029 ATMs and was present in more than 30 countries. As of such date the BBVA Group was composed of 297 consolidated entities and 66 entities accounted for using the equity method.

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“Critical Accounting PoliciesScotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement. The sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Transfer of real estate business and sale of stake in Divarian

On November 29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

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Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report.

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B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

Set forth below are the Group’s current six operating segments:

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

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The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 was as follows:

 

As of December 31,

 

2020

2019

2018

 

(In Millions of Euros)

Spain

405,878

364,427

353,923

The United States (1)

93,953

88,529

82,057

Mexico

110,224

109,079

97,432

Turkey

59,585

64,416

66,250

South America

55,435

54,996

54,373

Rest of Eurasia

22,881

23,257

18,845

Subtotal Assets by Operating Segment

747,957

704,703

672,880

Corporate Center and Adjustments (2)

(11,781)

(6,967)

2,796

Total Assets BBVA Group

736,176

697,737

675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Intra-group reallocations”.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2020

2019

2018

2020

2019

2018

 

(In Millions of Euros)

(In Percentage)

Spain

606

1,386

1,400

15

23

24

The United States (1)

429

590

736

11

10

13

Mexico

1,759

2,699

2,367

45

45

41

Turkey

563

506

567

14

8

10

South America

446

721

578

11

12

10

Rest of Eurasia

137

127

96

3

2

2

Subtotal operating segments

3,940

6,029

5,743

100

100

100

Corporate Center

(2,635)

(2,517)

(343)

 

 

 

Profit attributable to parent company

1,305

3,512

5,400

 

 

 

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

30


The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Operating Segments

 

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Total (2)

 

(In Millions of Euros)

 

2020

 

 

 

 

 

 

 

 

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

 

 

 

 

 

 

 

 

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

 

 

 

 

 

 

 

 

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

31


The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations and public institutions;

·Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) amounted to €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €62,707 million, a 5.1% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

35


This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits, offset in part by the depreciation of the U.S. dollar against the euro

36


The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €50,002 million, a 13.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by the shift towards higher profitability investments such as private banking.

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This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €5,332 million, a 1.2% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees, partially offset by the depreciation of the Turkish lira against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

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The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The main business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 2019, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% increase compared with the €37,869 million recorded as of December 31, 2019.Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into their economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses included in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches in Taipei, Tokyo, Hong Kong, Singapore and Shanghai and representative offices in Seoul, Mumbai, Abu Dhabi and Jakarta.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal MarketsSpain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BBVA Group is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR I” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “CRD IV”), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016”). 

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On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD I”) were published:

·Directive 2019/878/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);  

·Directive 2019/879/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD”); 

·Regulation (EU) No. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the “SRM Regulation I”) as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (SRM Regulation I as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and the SRM Regulation II, the “EU Banking Reforms”).  

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or after that date, as described therein.

CRD IV, among other things, established a “Pillar 1” minimum capital requirement and increased the level of capital required through the “combined capital buffer requirement” that institutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific counter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and must be satisfied with CET1 capital.

The G-SIB buffer is applicable to the institutions included in the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB”). The Bank was excluded from this list with effect as from January 1, 2017, so, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to maintain the G-SIB buffer.

The Bank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer equivalent to a CET1 ratio of 0.75% on a consolidated basis.

In December 2015, the Bank of Spain agreed to set the counter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. The Bank of Spain agreed in December 21, 2020 to maintain the counter cyclical capital buffer applicable to credit exposures in Spain at 0% for the fourth quarter of 2020. As of the date of this Annual Report, the counter cyclical capital buffer applicable to the Group stands at 0%.

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Additionally, Article 104 of the CRD Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that the supervisory authorities may require credit institutions to meet capital requirements exceeding the “Pillar 1” minimum capital requirements and the “combined capital buffer requirement” by establishing “Pillar 2” capital requirements (which, with respect to other requirements, are above “Pillar 1” requirements and below the “combined capital buffer requirement”).

Furthermore, the ECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation”), to carry out a SREP for us and the Group at least on an annual basis.

On July 19, 2018, the EBA published its final guidelines intended to further enhance risk management by institutions and the convergence of supervision with respect to the SREP. These guidelines focus on stress testing, particularly to determine “Pillar 2” and the level of interest rate risk.

Likewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in 2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the form of 56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirements that the ECB may impose on the Bank and/or the Group under the SREP will require the Bank and/or the Group to maintain capital levels higher than the “Pillar 1” minimum capital requirement.

As a result of the most recent SREP carried out by the European Central Bank, and in accordance with the measures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, a CET1 ratio of 8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.00%.

For further information on the countercyclical capital buffer and the total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the restrictions described in the preceding paragraph while such calculation is pending, shall also be triggered by a breach of the MREL requirement (see “Item 3. Risk Factors—Regulatory, Tax and Reporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations”) or a breach of the minimum leverage ratio requirement.

CRD V also distinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, only the former being regarded as mandatory requirements. Notwithstanding the foregoing, CRD V provides that, besides other measures, supervisory authorities are entitled to impose further “Pillar 2” capital requirements when an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

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Additionally, CRD II sets a binding leverage ratio requirement of 3% of Tier 1 capital, in addition to the institution’s own funds requirements and risk-weighted assets (“RWAs”)-based requirements. In particular, any breach of this leverage ratio would entail the need to determine the MDA and the related consequences.

Furthermore, on December 7, 2017 the BCBS announced the end of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk in those weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such approaches and enhance comparability among banks in which such internal ratings-based approaches are used. The review of minimum capital requirements will also limit the regulatory benefit for banks when calculating total RWAs using internal risk models as compared with the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches that will be applicable as from January 1, 2022, which is expected to increase to 72.5% as from January 1, 2027.

Moreover, on March 15, 2018, the ECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in order to avoid future and excessive accumulation of non-performing loans without coverage in the balance sheets of the credit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a year and, from the beginning of 2021, the banks must inform the ECB of any difference between their practices and the prudential provision expectations.

In addition, the ECB has announced that a TRIM is being conducted on the internal models used by banks subject to its supervision to calculate their RWAs, in order to reduce inconsistencies and unjustified variability in these internal models throughout the European Union. Although the full results of the TRIM are not yet known, it could imply a change in the internal models used by banks and, at the same time, increases or decreases in the capital needs of banks, including the Bank.

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as MREL requirement. According to the Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (“MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by the resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and own funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s RWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of the RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution Authority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This could result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of discretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an entity in order to comply with Its MREL could place an entity in a situation where the conditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

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The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment Ratio

In the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of customers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for revolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the credit on an annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to Regulation 924/2009: (i) the extension of the equality of charges principle to non-euro Member States; and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS”) or at ATM machines, as well as for credit transfers. The main changes introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of information, related to electronic communications, will enter into force in April 2021.

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In relation to payment services, Order ECE/1263/2019 of December 26, on transparency of conditions and information requirements applicable to payment services, entered into force on July 1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The main changes of this Royal Decree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be in effect on the same terms.

Regarding real estate, the Spanish government and the governments of several autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a national level, Decree Law 34/2020, of October 20, on urgent measures to support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for industrial and/or commercial activities that have been affected by the suspensions and restrictions adopted by the public authorities in response to the COVID-19 pandemic. Measures adopted by autonomous regions include the following:

·In the Autonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and retrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with transfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and housing acquired in a judicial mortgage foreclosure proceeding.

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·In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·In Andalusia, Decree-Law 2/2020, of March 9, on the improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not enter into force for the time being. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“MIFID II”) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and obligations regarding personal data and imposing responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data. Organic Law 3/2018, of December 5, on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the right to be forgotten or the right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the recovery and resolution of credit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“RD 1012/2015”) and the SRM Regulation were designed to provide the authorities with mechanisms and instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Entity”) in order to ensure the continuity of the Entity’s critical financial and economic functions, while minimizing the impact of its non-feasibility on the economic and financial system. The BRRD further provided that a Member State may only use additional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the resolution instruments (described further below) have been evaluated and used to the fullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, an Entity will be considered as failing or likely to fail in any of the following situations: (i) when the Entity significantly fails, or may reasonably be expected to significantly fail in the near future, to comply with the solvency requirements or other requirements necessary to maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to meet its enforceable obligations in a timely manner; or (iv) when the Entity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that Entity’s control.

In line with the provisions of the BRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

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The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) “bridge institution”, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Bail-in Tool.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Resolution Authority, under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised. “Relevant Spanish Resolution Authority” means any of the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria), the European Single Resolution Mechanism and, as the case may be, according to Law 11/2015, RD 1012/2015 and the SRM Regulation, the Bank of Spain and the Spanish Securities Market Commission (CNMV) or any other entity with the authority to exercise the Spanish Bail-in Power from time to time.

In accordance with the provisions of Article 48 of Law 11/2015 (without prejudice to any exclusions that may be applied by the Spanish Resolution Authority in accordance with Article 43 of Law 11/2015), in the event of any application of the Bail-in Tool, any resulting write-down or conversion by the Spanish Resolution Authority will be carried out so that they affect instruments in the following sequence: (i) CET1 items; (ii) the principal amount of Additional Tier 1 capital instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims other than Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in Spanish normal insolvency proceedings (with senior non-preferred claims (créditos ordinarios no preferentes) subject to the Bail-in Tool after any subordinated claims (créditos subordinados) under Article 92 of the Insolvency Law, but before the other senior claims).

In addition to the Bail-in Tool, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments of an Entity at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Bail-in Tool, the “Spanish Bail-in Power” ). Any write-down or conversion must follow the same insolvency hierarchy as described below. The point of non-viability of an Entity is the point at which the Spanish Resolution Authority determines that the Entity meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Bail-in Tool or any other resolution tool or power (where the conditions for resolution referred to above are met).

To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Bail-in Tool is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation though the SRF under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation, together with any other compensation provided for in any applicable banking regulations including, inter alia, compensation in accordance with Article 36.5 of Law 11/2015. However, if the treatment of a creditor following a Non-Viability Loss Absorption is less favorable than it would have been under ordinary insolvency proceedings, it is uncertain whether said creditor would be entitled to the compensation provided for in the BRRD and the SRM Regulation.

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The SRF was established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation.

The SRF is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.

SRF will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by December 31, 2023.

Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:

·To guarantee the assets or the liabilities of the institution under resolution;

·To make loans to or to purchase assets of the institution under resolution;

·To make contributions to a bridge institution and an asset management vehicle;

·To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;

·To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.

The Intergovernmental Agreement (“IGA”) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.

In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.

In this scenario, the Eurogroup decided in 2017 to expand the ESM role to serve as a backstop for the SRF. While the new features of the expanded role for the ESM were agreed by 2019, it was not until late 2020 that the euro area finance ministers agreed to proceed with the reform of the ESM and was later signed by Member States (represented by their ambassadors to the EU) on January 27 (the ratification by national parliaments is pending to come into force). The backstop to the SRF will be operational at the beginning of 2022 (earlier than expected) and will be able to provide support for up to €68 billion (in the form of credit lines). If this financial assistance is requested, the SRF will pay back the ESM loan with funds obtained from banks’ contributions (in a period of three years, with the possibility to extend it to five years).

Mexico

BBVA’s operations in Mexico are highly regulated. The Mexican regulatory framework for financial and banking activities aims to ensure the stability of the financial system and combat money laundering, as well as to provide consumer protection and transparency in the provision of financial services.

The provision of financial and deposit products is mainly regulated in the Banking Law and provisions issued by the National Banking and Securities Commission (“CNBV”) and Banco de México (the Mexican Central Bank) (“BANXICO”), where CNBV issues prudential regulation and BANXICO regulates banking transactions, including financial and deposit products. In addition, the Financial Services Transparency and Regulation Law contains provisions regarding transparency and consumer protection.

The regulatory framework for capital markets includes specific regulations designed to develop the stock market in an equitable, efficient and transparent manner, protect the interests of investors and promote competition, as well as to minimize systemic risk.

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Regarding asset management, regulation encourages the creation and development of investment companies and promotes the strengthening and the decentralization of the stock market by facilitating the access of small and medium investors. It also establishes the rules for the organization and operation of investment funds, the intermediation of their shares in the stock market, as well as the organization and operation of the people who provide asset management services.

Regulatory activity increased throughout 2020 driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic. Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December 2020, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

Moreover, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

In addition, the President submitted a bill to ban outsourcing. Due to its importance, the negotiation and discussion of the bill have been postponed until February 2021. If approved, BBVA would need to evaluate its personnel hiring schemes and determine if a reorganization of the personnel structure is required.

The Federal Labor Law was recently amended in order to regulate home office. This amendment includes the employer’s obligation to assume employee’s expenses resulting from home office, including payment of telecommunication services and a portion of the electric bill.

Turkey

BBVA’s operations in Turkey are subject to regulation by Turkish national authorities. In general, the rules applicable to products and services that banks in Turkey offer to consumers are more stringent than rules applicable with respect to commercial and corporate banking customers. Besides general consumer protection regulations, there are specific regulations of the Banking Regulation and Supervision Agency (“BRSA”) on banking consumers. In 2020, new laws were introduced authorizing the Central Bank of Turkey (“CBT”) to impose restrictions regarding certain fees and commissions that may be charged to customers, thereby increasing the number of regulators that are focused on consumer protection-related matters in the banking sector.

Apart from fundamental legal rules and product/service-specific legal regulations, the most basic regulation for the sector is the Banking Law No. 5411. The purpose of this law is to regulate the principles and procedures for ensuring confidence and stability in financial markets, the efficient functioning of the credit system and the protection of the rights and interests of depositors.

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In 2020, a significant number of regulations were introduced, the majority of which related to measures taken as a result of COVID 19. These regulations focused on extending the delinquency period up to 180 days for the classification of non-performing loans, facilitating the use of credit cards such as by increasing limits on contactless cards, promoting the use of digital channels for almost all banking transactions, encouraging banks to extend loan maturities and stopping all execution and bankruptcy proceedings between March 22, 2020 and April 30, 2020, among others. New regulations were adopted to facilitate the restructuring and repayment of loans by distressed commercial customers, provided that they are willing to pay their debts but are not able to fulfill their obligations due to financial distress experienced as a result of COVID-19. The BRSA has encouraged banks to apply interest on extended maturities provided that the interest rates applicable for such extension shall be in line with the market rates applicable at the time of restructuring.

In March 2020, the BRSA also introduced a new asset ratio calculation which required the sum of all loans, securities held and swap transactions to be equal to all local and foreign currency deposits. Failure to comply with such requirement resulted in monetary fines. In the last quarter of 2020, this requirement was eliminated. Garanti BBVA complied with such requirement while in effect.

Floating interest rates can be applied to Turkish Lira deposits with a maturity of three months or more, and to foreign currency deposits with a maturity of more than six months. Regarding the interest rates applicable to credit cards and overdraft accounts a new law was introduced in October 2020 and as November 1, became effective. Pursuant to this new law CBT will announce the interest applicable to credit cards, which shall also be applied to overdraft accounts, on the last fifth business day every month.

In general, the Payment Systems Law regulates the procedures and principles of payment services, payment institutions and electronic money institutions. Significant amendments have been made to this law in 2019 and they all became effective in 2020. These amendments were introduced to: (i) answer the sectorial needs of the payment and electronic money institutions; (ii) eliminate the dual structure which consists of the CBT and BRSA and position the CBT as the sole regulatory and supervisory authority and; (iii) ensure the compliance of Turkish legislation with EU regulations (especially the Payment Services (PSD2) Directive). As part of these amendments, it will be possible to consolidate payment account information online with consenting users and initiate a payment for a payment account at another payment service provider.

In addition, in March 2020, the Regulation on Information Systems and Electronic Banking Services was enacted and it came into force at the end of June 2020. The regulation governs issues relating to information systems and electronic banking. Under such regulation, banks are required to establish a new governance structure pursuant to which an Information Security Function directly reporting to the CEO or the Board of Directors is established. The regulation further requires a strategic plan, better governance and controls over data management and various controls over back-up solutions and business continuity.

On electronic banking services, new rules have been adapted which regulates all electronic banking services and channels such as mobile banking, internet banking, telephone, banking and ATM banking. Particularly, customer identification rules have been modified and adapted with the new technological standards.

Article 73 of Banking Law No. 5411, which governs issues around bank secrecy, has been amended and introduced two new concepts in terms of the sharing of data with controlling shareholders. Banks operating in Turkey are now required to provide information subject to a “reasonableness” test yet to be defined by the BRSA. In addition, banks may only share customer specific information with third parties at the specific instruction of customers under the new rule.

In 2020, new provisions were introduced to the applicable banking laws and regulations allowing customer onboarding through digital channels and open banking practices. Secondary legislation detailing the principles and processes are to be published by the relevant regulators.

Banking Law No.5411 has also been amended to allow banks to enter into banking services agreements and various other banking products through digital channels. Furthermore, with the amendment introduced on Bank Cards and Credit Cards Law No.5464, credit card contracts can be established using digital or alternative channels of the banks.

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Garanti BBVA is required to conduct its investment banking business in accordance with the Turkish Capital Market Law and various related regulations issued by Capital Market Board of Turkey. As a commercial bank, Garanti BBVA has a license to carry out the following activities: (a) receipt and transmission of orders in relation to capital market instruments, (b) execution of orders in relation to capital market instruments (except shares and derivative instruments based on stock indices or stocks) in the name and account of the customer or in its own name and in the account of the customer, (c) dealing for its own account (except for derivative instruments based on stock indices and stocks) and (d) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody service.

United States

BBVA’s activities and operations in the United States are subject to extensive U.S. federal and state supervision and regulation, and in some cases, U.S. requirements may impose restrictions on BBVA’s global activities. BBVA is a foreign banking organization and a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”) and the International Banking Act of 1978, as amended (the “IBA”), and as a result, BBVA is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to be treated as a financial holding company.

As a bank holding company, BBVA’s direct and indirect activities and investments in the United States are limited to banking activities and certain non-banking activities that are “closely related to banking,” as determined by the Federal Reserve, and certain other activities permitted under the BHC Act and IBA. BBVA is required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any U.S. bank or bank holding company. In addition, a bank holding company, including BBVA, is required to act as a source of financial strength for its U.S. bank subsidiaries. Among other things, this source of strength obligation may result in a requirement for BBVA, as controlling shareholder, to inject capital into its U.S. bank subsidiary. BBVA’s U.S. branches and agencies are also subject to additional liquidity requirements, and in certain cases the entirety of BBVA’s U.S. operations are subject to additional risk management requirements.

BBVA’s New York branch is supervised by the Federal Reserve through the Federal Reserve Bank of New York, as well as licensed and supervised by the New York State Department of Financial Services.

BBVA USA Bancshares, Inc., BBVA’s top-tier U.S. intermediate holding company, holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, BBVA USA. BBVA USA Bancshares, Inc. is also a bank holding company that has elected to be treated as a financial holding company and is subject to regulation and supervision by the Federal Reserve. BBVA USA is regulated extensively under U.S. federal and state law by, among other regulators, the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama State Banking Department. BBVA USA Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to consumer protection laws. 

Upon completion of the previously announced stock purchase of 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. by PNC Financial Services Group, Inc., the requirements described in this section that apply only to BBVA USA Bancshares, Inc. and BBVA USA, but not BBVA, would no longer be applicable. However, BBVA will continue to be subject to U.S. federal and state supervision and regulation as a foreign banking organization and a bank holding company because it maintains a branch in the United States.

To continue to be treated as a financial holding company, each of BBVA and BBVA USA Bancshares, Inc. must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well-managed” for U.S. bank regulatory purposes. In addition, any U.S. depository institution subsidiaries of the foreign banking organization or bank holding company must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well-managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.

Sections 23A and 23B of Federal Reserve Act and Regulation W place various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to extensions of credit, credit exposures arising from derivative transactions, and securities borrowing and lending transactions from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. These restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

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The availability of dividends from banking organizations in the United States is limited by various statutes and regulations. Federal banking agencies are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, the banking agencies have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, state-chartered banking institutions, including BBVA USA, are subject to dividend limitations imposed by applicable federal and state laws.

Enhanced Prudential Standards

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), BBVA and BBVA USA Bancshares, Inc. have been subject to certain enhanced prudential standards (including resolution planning), capital adequacy requirements, capital planning and stress testing, liquidity standards, risk management and governance requirements, among other regulatory and supervisory requirements. 

In October 2019, the Federal Reserve finalized rules that implement certain provisions of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”) by tailoring enhanced prudential standards and capital and liquidity requirements applicable to foreign and domestic banking organizations, including BBVA and BBVA USA Bancshares, Inc. As a result, both BBVA and BBVA USA Bancshares, Inc. have been subject to less restrictive enhanced prudential standards and capital and liquidity requirements. As of December 31, 2020, BBVA USA Bancshares, Inc. became a Category IV banking organization for purposes of these rules, and certain enhanced prudential standards and capital and liquidity requirements will again apply to BBVA USA Bancshares, Inc. following applicable phase-in and transition periods.

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit a plan for the orderly resolution of its U.S. subsidiaries and U.S. operations in the event of future material financial distress or failure (the “Title I Resolution Plan”). BBVA filed its most recent Title I Resolution Plan in December 2018. As a result of EGRRCPA and its implementing regulations, BBVA will now be required to file a reduced Title I Resolution Plan once every three years. In addition, BBVA USA is subject to the FDIC rule requiring large insured depository institutions to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. The FDIC has issued an advance notice of proposed rulemaking to revise the FDIC resolution plan rule, but a notice of proposed rulemaking has yet to be issued. The deadline for BBVA USA’s next FDIC rule resolution plan submission is currently unclear, but the FDIC announced that it intends to resume requiring banks to submit FDIC resolution plans, and that banks subject to the rule will have at least 12 months’ advance notice before being required to do so.

BBVA USA Bancshares, Inc. and BBVA USA are subject to the U.S. Basel III capital rule (“U.S. Basel III”), which is based on the Basel III regulatory capital standards established by the Basel Committee. In the past, BBVA USA Bancshares, Inc. and BBVA USA had been subject to certain additional capital planning, stress testing and liquidity requirements, but, as result of EGRRCPA and its implementing regulations, BBVA USA Bancshares, Inc. and BBVA USA were not subject to these additional requirements in 2020. As a result of becoming a Category IV banking organization as of December 31, 2020, BBVA USA Bancshares, Inc. and BBVA USA will again be subject to certain of these additional requirements following applicable phase-in and transition periods.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as BBVA USA, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, and permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. In the case of non-U.S. banking entities, such as BBVA, there is also an exemption permitting activities conducted solely outside of the United States, provided that certain criteria are satisfied. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities.

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In October 2019, the five regulatory agencies charged with implementing the Volcker Rule released finalized amendments to the current Volcker Rule regulations that tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. In addition, in June 2020, the five regulatory agencies finalized amendments to the Volcker Rule's restrictions on ownership interests in and relationships with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial services to additional types of funds and investments vehicles.

BBVA is of the view that the impact of the Volcker Rule, as amended and proposed to be amended, is not material to its business operations.

Derivatives

BBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the regulations promulgated thereunder with the U.S. Commodity Futures Trading Commission (the “CFTC”), which subjects BBVA to regulation and supervision by the CFTC and the National Futures Association. In general, as a non-U.S. swap dealer, BBVA is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to certain conditions, BBVA may comply with EU OTC derivatives requirements in lieu of certain CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.

BBVA’s world-wide swap activities are also subject to regulations adopted by the European Commission pursuant to the European Market Infrastructure Regulation (“EMIR”) and the EU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives.

BBVA is currently assessing whether it, or any of its affiliates, will be required to register as a security-based swap dealer with the SEC, once such registration requirement comes into effect.

Anti-Money Laundering; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and certain of its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to, among other things, (a) give special attention to correspondent and payable-through bank accounts, (b) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (c) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (d) develop and maintain anti-money laundering programs, customer identification procedures, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement compliance programs with respect to the sanctions programs administered by the Office of Foreign Assets Control. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Other Regulated U.S. Entities

BBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the State of California Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a money services business with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury.

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BBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“BSI”), is subject to regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) with respect to its securities activities, as well as various U.S. state regulatory authorities. In addition, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The activities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, BBVA USA has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Dodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is subject to regulation and supervision by various U.S. state insurance regulatory authorities.

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

The BBVA Group discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure:

Iranian embassy-related activity. On a continuing basis, the BBVA Group maintains a bank account in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the year ended December 31, 2020, from embassy-related activity, which include fees and/or commissions, totaled $128.98. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

C.   Organizational Structure

For information on the composition of the BBVA Group as of December 31, 2020, see Note 1.1 to our Consolidated Financial Statements.

The companies comprising the BBVA Group are principally domiciled in the following countries: Argentina, Bolivia, Chile, Colombia, Finland, France, Germany, Italy, Mexico, Netherlands, Peru, Portugal, Romania, Spain, Switzerland, Turkey, United Kingdom, the United States of America and Uruguay. In addition, BBVA has an active presence in Asia.

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Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2020.

Subsidiary

Country of Incorporation

Activity

BBVA Voting Power

BBVA Ownership

Total Assets (1)

 

 

 

     (in Percentages)

(In Millions of Euros)

BBVA MEXICO

MEXICO

Bank

100.00

100.00

 97,518    

BBVA USA

THE UNITED STATES

Bank

100.00

100.00

 76,128    

GARANTI BBVA AS

TURKEY

Bank

49.85

49.85

 52,319    

BBVA PERU

PERU

Bank

92.24 (2)

46.12

 23,891    

BBVA SEGUROS S.A. DE SEGUROS Y REASEGUROS

SPAIN

Insurance

99.96

99.96

 17,601    

BBVA COLOMBIA S.A.

COLOMBIA

Bank

95.47

95.47

 15,573    

BANCO BBVA ARGENTINA S.A.

ARGENTINA

Bank

66.55

66.55

 6,553    

SEGUROS BBVA BANCOMER S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 5,391    

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 4,815    

GARANTIBANK BBVA INTERNATIONAL N.V.

THE NETHERLANDS

Bank

49.85

100.00

 3,398    

(1)   Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2020.

(2)   Subject to certain exceptions.

D.   Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,482 branch offices in Spain and, principally through our various subsidiaries, 4,950 branch offices abroad as of December 31, 2020. As of December 31, 2020, approximately 68% of our branches in Spain and 66% of our branches abroad (60% excluding branches relating to Garanti BBVA) were rented from third parties pursuant to leases that may be renewed by mutual agreement.

E. Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Interest income figures, when used, do not include interest income on non-accruing loans to the extent that cash payments have been received, as a result of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9 (Collection of interest on impaired financial assets). See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”. Loan fees are included in the computation of interest revenue. Interest income figures include “other income”, which amounted to €534 million, €343 million and €268 million for the years ended December 31, 2020, 2019 and 2018, respectively. For additional information on “interest and other income” see Note 37.1 to our Consolidated Financial Statements.

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Year-on-year variations in the selected statistical information presented herein have been affected by the planned USA Sale, mainly as follows:

·2020 year-end data. All assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet as of December 31, 2020. Accordingly, loans and advances and deposits as of December 31, 2020 (among other balance sheet information provided in this section as of such date) do not include the respective amounts of BBVA USA and other companies included within the scope of the USA Sale.

·2020 average data. As indicated in “Presentation of Financial Information—Statistical and Financial Information” and further below, average balance sheet information is based on the beginning and month-end balances in the relevant year. Up until the time the assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively (which occurred on November 15, 2020, upon the signing of the relevant share purchase agreement), the beginning and month-end balances of BBVA USA and other companies included within the scope of the USA Sale were considered to calculate the average balances of all balance sheet items provided in this section in the same manner as in 2019 and 2018. Following such reclassification, the beginning and month-end balances of these entities were no longer considered in such calculations and were included instead in the calculations of the average balances of “Other assets” and “Other liabilities”, as applicable, for the year ended December 31, 2020. The same approach was followed to calculate the respective Interest” and “Average Yield” of balance sheet items. In particular, tables included under “—Average Balances and Rates”, “—Changes in Net Interest Income-Volume and Rate Analysis” and “—Interest Earning Assets—Margin and Spread” were prepared on this basis.

Certain financial information as of and for the years ended December 31, 2019 and 2018 2017has been restated for comparative purposes. See “Presentation of Financial Information”.

Average Balances and 2016 were preparedRates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages.

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Average Balance Sheet - Assets and Interest from Earning Assets

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Assets

 

 

 

 

 

 

 

 

 

Cash and balances with central banks and other demand deposits

60,172

68

0.11%

46,060

256

0.56%

42,730

135

0.32%

Domestic

30,120

8

0.03%

17,293

50

0.29%

19,883

43

0.22%

Foreign

30,051

60

0.20%

28,767

206

0.72%

22,847

92

0.40%

Debt securities and derivatives

205,245

4,253

2.07%

185,200

5,450

2.94%

178,729

5,677

3.18%

Domestic

134,179

891

0.66%

123,645

1,062

0.86%

116,055

1,202

1.04%

Foreign

71,067

3,362

4.73%

61,555

4,388

7.13%

62,674

4,475

7.14%

Financial assets

414,631

17,533

4.23%

415,580

21,729

5.23%

410,149

20,872

5.09%

Loans and advances to central banks

4,747

164

3.46%

5,086

267

5.25%

5,518

258

4.67%

Loans and advances to credit institutions

39,720

521

1.31%

32,448

806

2.48%

25,634

657

2.56%

Loans and advances to customers

370,165

16,847

4.55%

378,046

20,655

5.46%

378,996

19,957

5.27%

    In euros

179,433

3,030

1.69%

180,028

3,372

1.87%

181,668

3,381

1.86%

Domestic

170,926

2,998

1.75%

171,412

3,344

1.95%

172,561

3,276

1.90%

Foreign

8,507

32

0.37%

8,617

28

0.32%

9,107

105

1.16%

    In other currency

190,731

13,817

7.24%

198,018

17,284

8.73%

197,328

16,576

8.40%

Domestic

22,297

439

1.97%

18,622

601

3.23%

14,825

511

3.45%

Foreign

168,434

13,378

7.94%

179,397

16,682

9.30%

182,503

16,065

8.80%

Other assets (2)

49,786

535

1.07%

45,957

327

0.71%

46,343

270

0.58%

Total average assets (3)

729,833

22,389

3.07%

692,798

27,762

4.01%

677,951

26,954

3.98%

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)  Includes “Derivatives - Hedge accounting”, “Fair value changes of the Bank’s directorshedged items in compliance with IFRS-IASBportfolio hedges of interest rate risk”, “Joint ventures and in accordance with EU-IFRS required to be applied underassociates”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.

(3)  Foreign activity represented 41.27% of the Bank of Spain’s Circular 4/2017 and Circular 4/2004, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, so that they present fairly the Group’s total equity and financial position as of December 31, 2018, 2017 and 2016, and its results of operations and consolidated cash flowsaverage assets for the yearsyear ended December 31, 2018, 20172020, 43.60% for the year ended December 31, 2019 and 2016. The Consolidated Financial Statements were prepared45.34% for the year ended December 31, 2018.

66


 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Liabilities

 

 

 

 

 

 

 

 

 

Deposits from central banks and credit institutions

71,279

1,525

2.14%

61,285

2,123

3.46%

65,044

2,192

3.37%

Customer deposits

387,563

3,908

1.01%

376,057

6,984

1.86%

370,078

6,559

1.77%

    In euros

195,410

315

0.16%

183,316

236

0.13%

178,370

337

0.19%

Domestic

186,594

310

0.17%

174,301

230

0.13%

169,163

323

0.19%

Foreign

8,816

5

0.05%

9,015

7

0.07%

9,206

14

0.16%

    In other currency

192,153

3,593

1.87%

192,741

6,748

3.50%

191,709

6,222

3.25%

Domestic

11,518

115

1.00%

9,505

178

1.87%

10,738

130

1.21%

Foreign

180,636

3,478

1.93%

183,236

6,571

3.59%

180,971

6,092

3.37%

Debt certificates

78,260

1,541

1.97%

77,438

1,884

2.43%

75,927

1,753

2.31%

Other liabilities (2)

142,056

823

0.58%

123,053

982

0.80%

114,695

1,165

1.02%

Total average liabilities

679,158

7,797

1.15%

637,833

11,973

1.88%

625,745

11,669

1.86%

Equity

50,675

-

-

54,964

-

-

52,206

-

-

Total average liabilities and equity (3)

729,833

7,797

1.07%

692,798

11,973

1.73%

677,951

11,669

1.72%

(1)  Rates have been presented on the basisa non-taxable equivalent basis.

(2)  Includes “Financial liabilities held for trading”, “Derivatives - Hedge accounting”, “Fair value changes of the accounting records kepthedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)  Foreign activity represented 39.29% of the total average liabilities for the year ended December 31, 2020, 41.92% for the year ended December 31, 2019 and 47.61% for the year ended December 31, 2018.

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Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the year ended December 31, 2020 compared with the year ended December 31, 2019, and the year ended December 31, 2019 compared with the year ended December 31, 2018. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from such table are interest payments on loans which are made in a period other than the period in which they are due.

 

2020 / 2019

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

78

(266)

(188)

Securities portfolio and derivatives

590

(1,787)

(1,197)

Loans and advances to central banks

(18)

(85)

(103)

Loans and advances to credit institutions

181

(466)

(285)

Loans and advances to customers

(431)

(3,377)

(3,808)

   In euros

(11)

(331)

(342)

Domestic

(9)

(336)

(346)

Foreign

-

4

4

   In other currencies

(636)

(2,830)

(3,466)

Domestic

119

(281)

(162)

Foreign

(1,019)

(2,285)

(3,304)

Other assets

27

180

208

Total income

 

 

(5,373)

Interest expense

 

 

 

Deposits from central banks and credit institutions

346

(944)

(598)

Customer deposits

214

(3,290)

(3,077)

   In euros

16

63

79

Domestic

16

64

80

Foreign

-

(2)

(2)

   In other currencies

(21)

(3,135)

(3,155)

Domestic

38

(100)

(63)

Foreign

(93)

(2,999)

(3,093)

Debt certificates

20

(363)

(343)

Other liabilities

152

(310)

(158)

Total expense

 

 

(4,175)

Net interest income

 

 

(1,197)

(1)  The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the Bank and by eachdifference between the average balances of both periods.

(2)  The rate effect is calculated as the result of the other Group companies and includeaverage balance of the adjustments and reclassifications required to unify the accounting policies and measurement bases usedearlier period multiplied by the Group. See Note 2.2 to our Consolidated Financial Statements.

In preparingdifference between the Consolidated Financial Statements, estimates were madeaverage interest rates of both periods.

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2019 / 2018

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

11

111

121

Securities portfolio and derivatives

206

(433)

(227)

Loans and advances to central banks

(20)

29

9

Loans and advances to credit institutions

175

(25)

150

Loans and advances to customers

(50)

748

698

   In euros

(31)

21

(10)

Domestic

(22)

90

68

Foreign

(6)

(72)

(78)

   In other currencies

58

650

708

Domestic

131

(41)

90

Foreign

(273)

891

618

Other assets

(2)

60

58

Total income

 

 

808

Interest expense

 

 

 

Deposits from central banks and credit institutions

(127)

57

(69)

Customer deposits

106

320

426

   In euros

9

(110)

(101)

Domestic

10

(103)

(93)

Foreign

(0)

(8)

(8)

   In other currencies

34

493

526

Domestic

(15)

62

47

Foreign

76

403

479

Debt certificates

35

96

131

Other liabilities

85

(268)

(183)

Total expense

 

 

303

Net interest income

 

 

504

(1)  The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the Group anddifference between the consolidated companies in order to quantify certainaverage balances of both periods.

(2)  The rate effect is calculated as the result of the assets, liabilities, income, expenses and commitments reported herein. These estimates relate mainly to the following:

·The impairment on certain financial assets.

·The assumptions used to quantify other provisions and for the actuarial calculationaverage balance of the post- employment benefit liabilities and commitments.

·The useful life and impairment lossesearlier period multiplied by the difference between the average interest rates of tangible and intangible assets.

·The valuation of goodwill and price allocation of business combinations.

·The fair value of certain unlisted financial assets and liabilities.

·The recoverability of deferred tax assets.

Although these estimates were made on the basis of the best information available as of December 31, 2018, 2017 and 2016, respectively, events that take place in the future might make it necessary to revise these estimates (upwards or downwards) in coming years.

Note 2 to our Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these policies to be particularly important due to their effect on the financial reporting of our financial condition and results of operations and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our Consolidated Financial Statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our Consolidated Financial Statements and the discussion below.

We have identified the accounting policies enumerated below as critical to the understanding of our financial condition and results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if the assumptions used or underlying circumstances were to change.both periods.

11669


 

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.

 

December 31,

 

2020

2019

2018

 

(In Millions of Euro, Except Percentages)

Average interest earning assets

680,047

646,841

631,608

Gross yield (1)

3.3%

4.3%

4.3%

Net yield (2)

3.1%

4.0%

4.0%

Average effective rate paid on interest-bearing liabilities

1.5%

2.3%

2.3%

Spread (3)

1.8%

2.0%

2.0%

(1)   “Gross yield” represents total interest income divided by average interest earning assets.

(2)   “Net yield” represents total interest income divided by total average assets.

(3)    Spread is the difference between “Gross yield” and the “Average effective rate paid on interest-bearing liabilities”.

70


ASSETS

See Note 2.3the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Interest-Bearing Deposits in Other Banks

As of December 31, 2020, interbank deposits (excluding deposits with central banks) represented 4.8% of our total assets. Of such interbank deposits, 18.6% were held outside of Spain and 81.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of December 31, 2020, our total securities portfolio (consisting of investment securities and loans and advances) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of€137,515 million,representing 18.7% of our total assets. €34,116 million, or 24.8%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 2020 on the investment securities that BBVA held was 3.3%, compared with an average yield of approximately 2.0% earned on loans and advances during 2020. See Notes 10 and 13 to our Consolidated Financial Statements for information on changes to IFRS or their interpretation that will become effective after the date of this Annual Report.

Financial instrumentsadditional information.

As we describeThe first table in Note 1.313.3 to our Consolidated Financial Statements IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regardingsets forth the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting. As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years and financial information relating to 2017 and 2016 is presented in accordance with IAS 39 except for certain non-significant modifications in order to improve its comparability with financial information for 2018. See “Presentation of Financial Information—Application of IFRS 9”. The explanations included in this section refer to IFRS 9. For information regarding the classification and measurement of financial instruments under IAS 39, see Note 2.2.1 to our Consolidated Financial Statements.

Classification and measurement of financial assets

Classification of financial assets

IFRS 9 contains three main categories for the classification of financial assets: measured at amortized cost, measured at fair value through other comprehensive income, and measured at fair value through profit or loss.

The classification of financial assets must be carried out on the basis of two tests: the entity’s business model and the assessment of the contractual cash flow, commonly known as the “solely payments of principle and interest” criterion (the “SPPI”). A debt instrument will be classified in the amortized cost portfolio if the two following conditions are fulfilled:

·of our debt securities recorded under  the financial asset is managed with a business model, the purpose of which is to maintain financial assets to receive contractual cash flows; and

·in accordance with the contractual characteristics of the instrument, the cash flows it generates represent the return on the principal and interest only, as consideration for the time value of money and the debtor’s credit risk.

A debt instrument will be classified in the portfolio of financial“Financial assets at fair value through other comprehensive income if the two following conditions are fulfilled:

·the financial asset is managed with a business model, the purposeincome” as of which combines the collection of contractual cash flowsDecember 31, 2020, 2019 and the sale of assets, and2018.

·the contractual characteristics of the instrument generate, at specific dates, cash flows which only represent the return of the principal and interest.

A debt instrument will be classified at fair value through profit or loss when the business model used for its management or the contractual characteristics relating to its cash flows do not require classification into one of the portfolios described above.

In general, equity instruments will be measured at fair value through profit or loss. However the Group may make an irrevocable election at their initial recognition to present subsequent changes in their fair value through other comprehensive income.

Financial assets will only be reclassified when BBVA Group decides to change the relevant business model. In such a case, all of the financial assets assigned to the relevant business model will be reclassified. The change of the objective of the business model should occur before the date of the reclassification.

Valuation of financial assets

All financial instruments are initially recognized at fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument.

117


Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement in the period in which the change occurred (see Note 3714.2 to our Consolidated Financial Statements). The changes inStatements sets forth the fair value afterand the initial recognition,amortized cost of our debt securities recorded under“Financial assets at amortized cost” as of December 31, 2020, 2019 and 2018.

This information is not provided for reasons other than those mentioned in the preceding sentence, are treated as described below, according to the categories of financial assets.

“Financialdebt securities recorded under “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss” and “Financial assets designated at fair value through profit or loss” since the amortized costs and fair values of these items are the same. See Note 8 to our Consolidated Financial Statements.

The second table in Note 13.3 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at fair value through other comprehensive income” by rating categories defined by external rating agencies. The second table in Note 14.2 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at amortized cost”, by rating categories defined by external rating agencies.

Readers are directed to the tables and Notes referred to above for information regarding our securities portfolio.

For a discussion of our investments in joint ventures and associates, see Note 16 to our Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to our Consolidated Financial Statements.

The following table analyzes the maturities of our debt securities recorded under “Financial assets at fair value through other comprehensive income” and “Financial assets at amortized cost”, by type and geographical area, as of December 31, 2020.

71


 

Maturity at One Year or Less

Maturity After One Year to Five Years

Maturity after Five Years to 10 Years

Maturity after 10 Years

Total

 

Amount

Yield % (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

 

(Millions of Euros, Except Percentages)

DEBT SECURITIES

 

 

 

 

 

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

12,413

0.16

10,359

1.58

4,064

4.31

2,532

3.62

29,367

Other debt securities

520

3.14

1,216

1.20

468

2.32

141

4.61

2,345

Total Domestic

12,932

0.28

11,576

1.54

4,531

4.10

2,673

3.67

31,712

Foreign

 

 

 

 

 

 

 

 

 

Mexico

272

5.17

5,673

4.96

3,402

4.36

48

5.72

9,395

Mexican Government and other government agency debt securities

92

6.29

5,267

4.96

3,186

4.30

35

6.41

8,580

Other debt securities

180

4.59

406

4.94

216

5.30

14

3.95

816

The United States

2,514

1.31

1,111

2.21

754

2.38

312

5.34

4,691

U.S. Treasury and other government agency debt securities

2,312

1.26

-

-

3

0.63

-

-

2,315

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

202

2.07

1,111

2.21

750

2.39

312

5.34

2,376

Turkey

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Turkey Government and other government agencies debt securities

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Other debt securities

-

-

-

-

-

-

-

-

-

Other countries

5,811

7.62

8,242

2.81

3,066

1.78

1,917

3.86

19,037

Securities of other foreign governments(2)

3,551

0.37

4,583

3.28

1,508

1.53

1,302

4.12

10,943

Other debt securities of other countries

2,260

19.06

3,660

2.23

1,559

1.99

616

3.34

8,094

Total Foreign

9,092

6.17

17,062

4.67

8,079

4.08

2,363

4.21

36,596

TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

22,024

2.58

28,637

3.39

12,611

4.09

5,036

3.92

68,308

AT AMORTIZED COST PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

95

2.95

956

1.11

10,858

1.33

1,748

0.85

13,656

Other debt securities

2,133

-

2,496

0.10

123

1.13

84

-

4,835

Total Domestic

2,228

0.13

3,452

0.38

10,980

1.33

1,831

0.81

18,492

Foreign

 

 

 

 

 

 

 

 

 

Mexico

691

6.63

2,297

6.19

826

4.37

3,956

3.94

7,771

Mexican Government and other government agency debt securities

634

6.88

2,266

6.22

611

4.52

3,452

3.94

6,963

Other debt securities

57

3.94

31

3.94

216

3.94

504

3.94

808

The United States

9

3.94

9

3.94

34

1.24

-

-

51

U.S. Treasury and other government agency debt securities

6

-

6

-

2

-

-

-

14

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

3

3.94

3

3.94

31

1.24

-

-

37

Turkey

384

9.90

2,301

10.80

942

10.78

-

-

3,628

Turkey Government and other government agencies debt securities

378

10.07

2,301

10.79

942

10.78

-

-

3,621

Other debt securities

6

-

1

18.10

-

-

-

-

7

Other countries

950

1.65

1,007

1.94

3,697

2.56

141

4.49

5,795

Securities of other foreign governments(2)

324

1.59

520

2.50

3,489

2.58

141

4.49

4,473

Other debt securities of other countries

626

1.68

487

1.31

208

1.93

-

-

1,322

Total Foreign

2,034

5.06

5,615

7.61

5,499

4.26

4,097

3.95

17,245

TOTAL AT AMORTIZED COST PORTFOLIO

4,262

2.42

9,067

4.77

16,479

2.30

5,928

2.96

35,737

TOTAL DEBT SECURITIES

26,286

2.55

37,705

3.72

29,090

3.08

10,964

3.40

104,044

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)   Securities of other foreign governments mainly include investments made by our subsidiaries in securities issued by the governments of the countries where they operate.

 

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Loans and Advances

In 2020, the Group’s loan activity has been affected by the COVID-19 pandemic, which resulted in a decrease in global activity driven by mandatory lock-downs and consumer caution. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements for additional information on the impact of the COVID-19 pandemic on our financial condition and results of operations.

In addition, the year-on-year variation in reported “Loans and advances” has been significantly affected by the USA Sale. In particular, loans and advances of BBVA USA and other companies included within the scope of the USA Sale have been recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, while they are shown under “Loans and advances” in the consolidated balance sheets as of December 31, 2019 and 2018 (and, where applicable, prior years). See “Presentation of Financial Information—Agreement for the sale of BBVA USA Bancshares, Inc.”. 

Moreover, during 2020, the currencies of the main countries where the BBVA Group operates depreciated against the euro in terms of period-end exchange rates. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Loans and Advances to Credit Institutions and Central Banks

FinancialAs of December 31, 2020, our total loans and advances to credit institutions and central banks amounted to €41,368 million, or 5.6% of total assets, are recorded underof which total loans and advances to credit institutions and central banks at amortized cost amounted to €20,820 million, or 2.8% of total assets. Net of our loss allowances, total loans and advances to credit institutions and central banks at amortized cost amounted to €20,784 million as of December 31, 2020, or 2.8% of total assets.

Loans and Advances to Customers

As of December 31, 2020, our total loans and advances to customers amounted to €336,056 million, or 45.6% of total assets. Net of our loss allowances, total loans and advances to customers amounted to €323,951 million as of December 31, 2020, or 44.00% of our total assets, a decline from 56.7% of our total assets as of December 31, 2019. As of December 31, 2020 our total loans and advances to customers in Spain amounted to €166,905 million. Our total loans and advances to customers outside Spain amounted to €169,150 million as of December 31, 2020, down from €243,332 million as of December 31, 2019 mainly due to the headingUSA Sale and the depreciation of the currencies of the main countries where the BBVA Group operates.

73


Loans by Geographic Area

The following table shows our net loans and advances to customers as of the dates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Domestic

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

 

Western Europe

27,729

31,483

29,322

25,308

25,763

The United States (1)

6,654

64,395

61,497

53,526

60,388

Mexico

54,663

61,455

53,772

48,463

50,242

Turkey

36,748

40,230

40,641

49,690

54,174

South America

37,192

39,091

38,680

39,814

53,512

Other

6,165

6,677

4,777

4,240

4,058

Total foreign

169,150

243,332

228,688

221,041

248,137

Total loans and advances

336,056

408,364

400,049

401,074

430,629

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending (2)

323,951

395,962

387,850

388,326

414,655

(1)  Balance as of December 31, 2020 corresponds to subsidiaries in the United States not included within the scope of the USA Sale.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: “Financial assets held for trading” if the objective of the business model is to generate gains by buying and selling these financial instruments or generate short-term results. Financial assets recorded under the heading, “Non-trading financial assets mandatorily at fair value through profit or loss” are assigned to a business model which objective is to obtain the contractual cash flows and / or to sell those instruments but their contractual cash flows do not comply with the requirements of the SPPI test. The Group only classifies financial assets in, “Financial assets designated at fair value through profit or loss” if such classification results in the elimination or significant reduction of a measurement or recognition inconsistency (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases.

The assets recognized under these headings of the consolidated balance sheet are measured upon acquisition at fair value and changes in their fair value (gains or losses) are recognized at their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 of our Consolidated Financial Statements). Interest from derivatives designated as economic hedges on interest rates are recognized in “Interest and other income” or “Interest expense” (see Note 37 to our Consolidated Financial Statements), depending on the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

“Financial assets at fair value through other comprehensive income”

Debt instruments

Assets recognized under this heading in the consolidated balance sheet are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss – Fair value changes of debt instruments measured at fair value through other comprehensive income” in the consolidated balance sheet (see Note 30 to the Consolidated Financial Statements).

The amounts recognized under the headings “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Fair value changes of financial assets measured at fair value through other comprehensive income” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group’s consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net”, as appropriate, in the consolidated income statement for the period in which they are derecognized (see Note 41 to the Consolidated Financial Statements).

The net impairment losses in “Financial assets at fair value through other comprehensive income” over theamortized cost”, net of loss allowances. As of December 31, 2017 and 2016, includes loans and advances to customers reported year are recognized under the heading “Impairment losses on financialas “Financial assets net – Financial assets at fair value through other comprehensive income” (see Note 47 to our Consolidated Financial Statements) in the consolidated income statementheld for that period.trading” and “Loans and receivables”.

Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

11874


 

Equity instrumentsLoans by Type of Customer

The BBVA Group may,following table shows our net loans and advances to customers at each of the timedates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Domestic

 

 

 

 

 

Government

16,456

14,477

16,671

18,116

20,741

Agriculture

1,268

1,224

1,118

1,231

1,076

Industrial

14,946

13,982

14,683

14,707

13,670

Real estate and construction

9,452

9,567

10,671

11,786

15,179

Commercial and financial

9,640

16,192

17,131

16,075

13,111

Loans to individuals (1)

95,136

96,735

98,131

99,780

102,299

Other

20,007

12,855

12,955

18,338

16,415

Total Domestic

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

 

Government

24,415

14,840

13,900

14,289

14,132

Agriculture

2,169

2,533

2,566

2,646

3,236

Industrial

37,631

43,408

41,954

37,319

43,402

Real estate and construction

10,570

20,814

18,499

17,885

21,822

Commercial and financial

14,954

41,406

36,571

31,584

33,933

Loans to individuals (1)

56,358

85,324

80,224

78,162

89,981

Other

23,054

35,007

34,973

39,156

41,630

Total Foreign

169,150

243,332

228,688

221,040

248,137

Total Loans and Advances

336,056

408,364

400,049

401,074

430,629

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending (2)

323,951

395,962

387,850

388,326

414,655

(1)   Includes mortgage loans to households for the acquisition of initial recognition, electhousing.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to present changescustomers included in the fair value of an investment in an equity instrument that is notfollowing headings: “Financial assets held for trading in other comprehensive income. The election is irrevocable and can be made on an instrument-by-instrument basis. Subsequent changes in fair value (gains or losses) are recognized, under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of equity instruments measured at fair value through other comprehensive income”.

“Financial assets at amortized cost”

Subsequently after acquisition, a financial asset is classified and measured at amortized cost if it is held within a business model whose objective is to holdtrading”, “Non-trading financial assets in order to collect contractual cash flows and it meets the SPPI test.

The assets under this category are subsequently measured at amortized cost, using the effective interest rate method.

Net impairment losses of assets recorded under this heading arising in each period are recognized under the heading “Impairment or reversal of impairment on financial assets not measuredmandatorily at fair value through profit or loss or net gains by modification – Financialloss”, “Financial assets measured at amortized cost” (see Note 47 to our Consolidated Financial Statements) in the consolidated income statement for that period.

Classification and measurement of financial liabilities

Classification of financial liabilities

Under IFRS 9, financial liabilities are classified in the following categories:

·Financial liabilities at amortized cost;

·Financial liabilities held for trading: financial instruments are recorded in this category when the Group’s objective is to generate gains by buying and selling these financial instruments; and

·Financial liabilities designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of loss on initial recognition underallowances. As of December 31, 2017 and 2016, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

75


The following table sets forth a breakdown, by currency, of our net loans and advances to customers as of December 31, 2020, 2019, 2018, 2017 and 2016:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

In euros

188,729

191,083

193,702

199,399

199,289

In other currencies

135,221

204,879

194,148

188,926

215,366

Total net lending (1)

323,951

395,962

387,850

388,326

414,655

(1)   As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the fair value option. The Group has the option to designate irrevocably on initial recognition afollowing headings: “Financial assets held for trading”, “Non-trading financial liability asassets mandatorily at fair value through profit or loss provided that doing so results in the elimination or significant reduction of a measurement or recognition inconsistency, or if a group of financial liabilities, or a group of financialloss”, “Financial assets and financial liabilities, has to be managed, and its performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy.

Valuation of financial liabilities

All financial instruments are initially recognized at fair value plus, in the case of a financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial liability. Unless there is evidence to the contrary, the best evidence of the fair value of a financial instrument at initial recognition shall be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interest and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement for the period in which the change occurred (see Note 37 to our Consolidated Financial Statements).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial liabilities.

119


“Financial liabilities held for trading” and “Financial liabilities designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of loss allowances. As of December 31, 2017 and 2016, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables.

As of December 31, 2020, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,743 million, compared with €1,682 million as of December 31, 2019. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,456 million, or 4.9% of our total loans and advances to customers as of December 31, 2020, compared with the €14,477 million, or 3.5% of our total loans and advances to customers as of December 31, 2019. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of December 31, 2020 excluding government-related loans amounted to €16,604million or approximately 4.9% of our total outstanding loans and advances. As of December 31, 2020 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

76


Maturity and Interest Sensitivity

The subsequent changesfollowing table sets forth a breakdown by maturity of our total loans and advances to customers by type of customer as of December 31, 2020. The determination of maturities is based on contract terms.

 

Maturity

 

Due In One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

 

(In Millions of Euros)

Domestic

 

 

 

 

Government

6,524

5,782

4,150

16,456

Agriculture

345

722

202

1,268

Industrial

5,923

6,723

2,300

14,946

Real estate and construction

1,667

4,118

3,667

9,452

Commercial and financial

3,617

4,865

1,158

9,640

Loans to individuals

11,356

24,653

59,127

95,136

Other

6,460

10,494

3,054

20,007

Total Domestic

35,892

57,356

73,657

166,905

Foreign

 

 

 

 

Government

14,493

3,606

6,317

24,415

Agriculture

1,207

762

200

2,169

Industrial

16,316

14,651

6,663

37,631

Real estate and construction

3,591

2,998

3,980

10,570

Commercial and financial

7,858

6,232

864

14,954

Loans to individuals

9,028

22,870

24,460

56,358

Other

8,762

10,328

3,963

23,054

Total Foreign

61,255

61,448

46,447

169,150

Total loans and advances (1)

97,147

118,804

120,105

336,056

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value (gainsthrough profit or losses) of the liabilities recognized under these headings of the consolidated balance sheet are recognized at their net value under the heading “Gains (losses) on financialloss”, “Financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements), except with respect to the financial liabilities designated at fair value through profit or loss under the fair value option With respect to such financial liabilities, the amount of changeloss” and “Financial assets at amortized cost”.

The second table in the fair value that is attributable to changes in their related credit risk is presented under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk”. Interest from derivatives designated as economic hedges on interest rates are recognized in “Interest and other income” or “Interest expense” (see Note 3714.3 to our Consolidated Financial Statements), dependingStatements provides a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2020.

Loss allowances on the resultLoans and Advances

For a discussion of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses)loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Financial instruments”. For a discussion of accounting standards related to loss allowances on financial assets and liabilities, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

“Financial liabilities at amortized cost”

The liabilities under this category are subsequently measured at amortized cost, using the effective interest rate method.

“Derivatives-hedge accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk”

The below description describes hedge accounting under the IFRS 9 standard. However, as permitted by IFRS 9, the Group has elected to continue applying IAS 39 to its hedge accounting in 2018. For information on hedge accounting under IAS 39,credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Assets and liabilities recognized under these headings in the consolidated balance sheet are measured at fair value.

Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

·In fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement, with a corresponding offset under the headings where hedging items (“Hedging derivatives”) and the hedged items are recognized, as applicable. Almost all of the hedges used by the Group are for interest-rate risks. Therefore, the valuation changes are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the consolidated income statement (see Note 37 to our Consolidated Financial Statements).

·In fair value hedges of interest rate risk relating to a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains or losses from hedge accounting, net”, using, as a balancing item, the heading “Fair value changes of the hedged items in portfolio hedges of interest rate risk” in the consolidated balance sheet, as applicable).

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·77 In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion of such hedges are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges” in the consolidated balance sheet, with a balancing entry under the heading “Hedging derivatives” of the assets or liabilities of the consolidated balance sheet, as applicable. These differences are recognized in the consolidated income statement under the headings “Interest and other income” or “Interest expense” at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37 to our Consolidated Financial Statements).

·Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement (see Note 41 to our Consolidated Financial Statements).

·In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss – Hedging of net investments in foreign transactions” in the consolidated balance sheet with a balancing entry under the heading “Hedging derivatives” of the assets or liabilities of the consolidated balance sheet, as applicable. These differences in valuation are recognized under the heading “Exchange differences, net” in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41 to our Consolidated Financial Statements).

Impairment losses on financial assets

Definition of impaired financial assets under IFRS 9

IFRS 9 replaced the “incurred loss” model in IAS 39 with one of “expected credit loss”. The IFRS 9 impairment model is applied to financial assets valued at amortized cost and to financial assets valued at fair value through other comprehensive income, except for investments in equity instruments and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. All the financial instruments at fair value through profit or loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, based on the evolution of their related credit risk from the time of their initial recognition. As further explained at the end of this section, the first category includes transactions when they are initially recognized (Stage 1); the second category comprises financial assets in respect of which a significant increase in credit risk has been identified since their respective initial recognition (Stage 2); and the third category comprises impaired financial assets (Stage 3).

The calculation of provisions for credit risk in each of these three categories must be done differently. With respect to financial assets classified in the first of the aforementioned categories, the expected losses for the next 12 months must be recorded. With respect to financial assets classified in the other two categories, the expected losses for the remaining life of such financial assets must be recorded. Thus, IFRS 9 differentiates between the following concepts of “expected loss”:

·Expected loss for the next 12 months: this is the expected credit loss that arises from possible default events within 12 months following the date of the financial statements; and

·Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

Estimating the expected loss for a financial asset requires considerable judgment, both with respect to the expected losses estimation model and the making of forecasts as to how economic factors may affect such losses, which must be carried out on a weighted probability basis.

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The BBVA Group has appliedfollowing table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries for the following definitions in accordance with IFRS 9:

Default

BBVA has applied a definitionperiods indicated. Information as of default for financial instruments which is consistent with the definition used in internalDecember 31, 2020 and 2019 refers to customers, central banks and credit risk management,institutions and information as well as with the indicators under applicable regulation at the date of the implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

The Group considers there is a default when one of the following situations occurs:

·payment is past-due for more than 90 days; or

·there are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the Group considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018, 2017 and 2016 refers to customers and credit institutions:

 

 

As of and for the Year Ended December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Loan loss reserve at beginning of period:

 

 

 

 

 

Domestic

4,931

5,774

7,234

9,113

12,357

Foreign

7,496

6,437

5,550

6,903

6,385

First implementation of IFRS 9

-

-

1,171

-

-

Total loan loss reserve at beginning of period

12,427

12,211

13,955

16,016

18,742

 

 

 

 

 

 

Loans charged off: (1)

 

 

 

 

 

Total domestic

(495)

(1,006)

(2,818)

(3,709)

(3,298)

Total foreign

(2,073)

(2,250)

(1,956)

(2,330)

(2,400)

Total loans charged off

(2,568)

(3,256)

(4,774)

(6,039)

(5,698)

 

 

 

 

 

 

Provision for loan losses:

 

 

 

 

 

Domestic

1,289

764

910

1,155

1,095

Foreign

3,605

3,560

3,659

3,078

3,046

Total provision for loan losses

4,894

4,324

4,569

4,233

4,141

 

 

 

 

 

 

Acquisition and disposition of subsidiaries

(1,123)

-

-

(5)

-

Effect of foreign currency translation

(1,204)

(20)

(239)

(926)

(601)

Other

(285)

(832)

(1,301)

(495)

(567)

Acquisition, foreign currency and others

(2,612)

(852)

(1,539)

(1,426)

(1,168)

 

 

 

 

 

 

Loan loss reserve at end of period:

 

 

 

 

 

Domestic

5,362

4,931

5,774

7,234

9,113

Foreign

6,779

7,496

6,437

5,550

6,903

Total loan loss reserve at end of period

12,141

12,427

12,211

12,784

16,016

Loan loss reserve as a percentage of loans and advances at amortized cost at end of period

3.66%

3.10%

3.19%

3.09%

3.44%

Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period

0.77%

0.81%

1.25%

1.46%

1.22%

(1)Domestic loans charged off in 2020, 2019, 2018, 2017 and 2016 were mainly related to the Group has not considered periods longer than 90 days for any of its significant portfolios.

Credit impaired assetreal estate sector.

AccordingWhen the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

The loans charged off amounted to €2,568 million during the year ended December 31, 2020, compared with €3,256 million during the year ended December 31, 2019, mainly as a result of the decrease in loans charged off in Spain, as a result of moratorium measures for bank customers adopted in light of COVID-19 and the depreciation of the currencies of the main countries where the BBVA Group operates.

Our loan loss reserves as a percentage of total loans and advances increased to 3.66% as of December 31, 2020 compared with 3.10% as of December 31, 2019.

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Impaired Loans

Loans are considered to be credit-impaired under IFRS 9 an asset is credit impaired if one or more events havinghave occurred and they have a detrimental impact on the estimated future cash flows of the asset have occurred. Evidence that a financial asset is credit-impaired includes observable data about the following events:loan.

·significant financial difficulty of the issuer or the borrower;

·a breach of contract (e.g. a default or past due event);

·a lender having granted a concessionAmounts collected in relation to the borrower – for economic or contractual reasons relating to financial difficulties faced by the borrower – that the lender would not otherwise consider;

·it becoming probable that the borrower will enter bankruptcy or other financial reorganization;

·the disappearance of an active market for that financial asset because of financial difficulties; and

·the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The Group’s definition of impaired financial assets at amortized cost are used to recognize the related accrued interest and any excess amount is aligned with that set forthused to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in the above paragraphs.

Significant increaseprofit attributable to parent company in credit risk2020, 2019, 2018, 2017 and 2016 was €249.1 million, €301.6 million, €310.5 million, €347.4 million and €264.2 million, respectively.

The objectivefollowing table provides information regarding our impaired loans to customers, central banks and credit institutions as of the impairment requirements isdates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Impaired loans

 

 

 

 

 

Domestic

7,823

8,104

9,436

12,730

16,360

Public sector

68

86

112

158

270

Other resident sector

7,755

8,018

9,324

12,572

16,090

Foreign

6,855

7,855

6,923

6,671

6,565

Public sector

8

1

16

13

42

Other non-resident sector

6,847

7,853

6,906

6,658

6,523

Total impaired loans

14,678

15,959

16,359

19,401

22,925

Total loan loss reserve

(12,141)

(12,427)

(12,211)

(12,784)

(16,016)

Impaired loans net of reserves

2,537

3,533

4,148

6,617

6,909

Impaired loans as a percentage of loans and advances at amortized cost

4.42%

3.99%

4.27%

4.69%

4.92%

Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost

0.76%

0.88%

1.08%

1.60%

1.48%

Our total impaired loans amounted to recognize lifetime€14,678 million as of December 31, 2020, an 8.0% decrease compared with €15,959 million as of December 31, 2019. This decrease was mainly attributable to the reduction in impaired loans from households, as a result of the moratorium measures for bank customers adopted in light of COVID-19, and, to a lesser extent, the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020.

Our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets which present an expected credit losses for financial instruments for which there have been significant increasesloss. As of December 31, 2020, the loan loss reserve amounted to €12,141 million, a 2.3% decrease compared with the €12,427 million recorded as of December 31, 2019, mainly due to the positive impact of changes in credit risk since initial recognition considering all reasonableexchange rates on foreign currency positions and supportable information, including that which is forward looking.

The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally, although there are certain peculiarities for each geographic region:

·Quantitative criterion: the Group carries out a quantitative analysis based on comparing the current expected probability of default over the lifereclassification of the transactionbalance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020. The decrease was offset, in part, by higher provisions for possible loan losses in Spain, in light of the uncertainty associated with the original adjusted expected probabilitypace of default, so that both values are comparable in terms of expected default probability for its residual life. The thresholds used for considering an increase in risk as significant vary depending on the geographic area and portfolio. Depending on how old transactions were at the time the new standard was implemented, some simplifications were made to compare the original and current probabilities of default, based on the best information available at that time.economic recovery.

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·Qualitative criterion: since most indicatorsThe following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and loan loss reserve taken for detecting significant increase in risk are included in the Group’s systems through rating/scoring systems or macroeconomic scenarios, the quantitative analysis covers the majority of circumstances. The Group will only use additional qualitative criteria when it considers it necessary to include circumstances that may not be reflected in the rating/score systems or in the macroeconomic scenarios used.

Instruments meeting one of the following conditions are considered to be “Stage 2” instruments:

·More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption of impairment that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. Aseach loan category, as of December 31, 2018, the Group has not considered periods2020 and 2019, by type of more than 30 days for assessingcustomer:

2020

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

 

(In Millions of Euros)

Domestic:

 

 

 

Government

68

(32)

0.41%

Credit institutions

-

-

-

Other sectors

7,755

(5,319)

5.15%

Agriculture

61

(38)

4.83%

Industrial

664

(440)

4.44%

Real estate and construction

722

(490)

7.64%

Commercial and other financial

862

(608)

8.95%

Loans to individuals

4,361

(2,686)

4.58%

Other

1,084

(1,057)

5.42%

Total Domestic

7,823

(5,351)

4.69%

Foreign:

 

 

 

Government

8

(16)

0.03%

Credit institutions

6

(36)

0.04%

Other sectors

6,842

(6,738)

4.73%

Agriculture

71

(70)

3.25%

Industrial

1,477

(1,273)

3.93%

Real estate and construction

675

(232)

6.39%

Commercial and other financial

717

(747)

4.79%

Loans to individuals

2,745

(3,209)

4.87%

Other

1,156

(1,207)

5.02%

Total Foreign

6,855

(6,790)

4.05%

Total

14,678

(12,141)

4.37%

(1)   Includes impairment in any of its significant portfolios.

·Stage 1, 2 and 3 loans Watch list: These instruments are subject to special watch by the relevant Risks unit because there are negative signs relating to their credit quality, even though there may be no objective evidence of impairment.

·recorded under “Financial assets at amortized cost”Refinancing or restructuring that does not result in the evidence of impairment..

Although IFRS 9 introduces a series of operational simplifications or practical solutions for analyzing the increase in significant risk, the Group does not use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly just because they have a low credit risk at the date of the financial statements.

As indicated above, the classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

Stage 1– without significant increase in credit risk: Loss allowances in respect of financial assets which are not considered to have experienced a significant increase in credit risk are measured at an amount equal to the expected credit losses for the next 12 months.

Stage 2– significant increases in credit risk: When the credit risk of a financial asset has increased significantly since its initial recognition, the impairment losses of that financial asset are calculated as the expected credit loss during the entire life of the asset.

Stage 3 – Impaired: When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

·a considered and unbiased amount, determined by evaluating a range of possible results;

·the time value of money; and

·reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures expected losses both individually and collectively. The purpose of the Group’s individual measurement is to estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated as the difference between the expected discounted cash flows at the effective interest rate of the transaction and the carrying amount of the instrument.

12380


 

2019

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

 

(In Millions of Euros)

Domestic:

 

 

 

Government

86

(36)

0.60%

Credit institutions

-

-

-

Other sectors

8,018

(4,895)

5.33%

Agriculture

60

(42)

4.93%

Industrial

686

(513)

4.90%

Real estate and construction

1,180

(751)

12.33%

Commercial and other financial

1,173

(856)

7.24%

Loans to individuals

4,257

(2,176)

4.40%

Other

663

(557)

5.16%

Total Domestic

8,104

(4,931)

4.91%

Foreign:

 

 

 

Government

1

(23)

0.01%

Credit institutions

6

(24)

0.04%

Other sectors

7,848

(7,448)

3.43%

Agriculture

93

(83)

3.69%

Industrial

1,824

(1,405)

4.20%

Real estate and construction

980

(652)

4.71%

Commercial and other financial

835

(763)

2.02%

Loans to individuals

3,124

(3,670)

3.66%

Other

991

(876)

2.83%

Total Foreign

7,855

(7,496)

3.23%

Total

15,959

(12,427)

3.91%

For the collective measurement(1)   Includes impairment of expected losses the instruments are grouped into groups ofStage 1, 2 and 3 loans recorded under “Financial assets based on their risk characteristics. Exposure within each group is segmented according to shared credit risk characteristics, which may be indicative of the payment capacity of the borrower in accordance with the relevant contractual conditions. Characteristics taken into account must be considered to be relevant in estimating future flows of each group. Among others, we may consider the following factors:

·type of instrument;

·rating or scoring tools;

·credit risk scoring or rating;

·type of collateral;

·amount of time at default for stage 3;

·segment;

·qualitative criteria which can have a significant increase in risk; and

·collateral value if it has an impact on the probability of a default event.

The estimated losses are derived from the following parameters:

·PD: estimate of the probability of default in each period;

·EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the date of the financial statements; and

·LGD: estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees.

In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings.

To determine whether there is a significant increase in credit risk that is not reflected in published ratings, the Group also revises the changes in bond yields, and when they are available, the prices of Credit Quality Swap (CDS), together with the news and regulatory information available on the issuers.

Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur have to be considered, even though the possibility of a loss may be very small. Also, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using first the most probable scenario (baseline scenario) consistent with that used in the Group’s internal management processes, and then applying an additional adjustment, calculated by considering the weighted average of expected losses in two economic scenarios (one more positive and the other more negative). The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are Gross Domestic Product (GDP), tax rates, unemployment rate and loan to value (LTV)amortized cost”.

12481


 

Fair valueTroubled Debt Restructurings

As of financial instrumentsDecember 31, 2020, of the total troubled debt restructurings of €16,699 million, €7,659 million were not considered impaired loans. See Note 7.2 and Appendix VIII to our Consolidated Financial Statements.

Potential Problem Loans

The fairidentification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratios higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio

The Leisure, Automotive and Real Estate sectors have been among the most affected by the COVID-19 pandemic and they are the sectors that have most relied on payment deferrals granted by BBVA (see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of an asset or a liability on a given date is taken to be the price that would be received upon the saleour Results of an asset, or paid, upon the transfer of a liability in an orderly transaction between market participants at the measurement date. Operations and Financial Condition―The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“COVID-19 Pandemicquoted price” or “market price”).  

If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.

See Notes 2.2.1 and 8 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies.

Derivatives and other future transactions

These instruments include outstanding foreign currency purchase and sale transactions, outstanding securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.

All derivatives are recognized on the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized in the heading “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the consolidated income statement.

Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.

The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instruments discounted at the measurement date (“present value” or “theoretical value”). These derivatives are measured using methods recognized by the financial markets, including the net present value method and option price calculation models.

Financial derivatives that have equity instruments as their underlying, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost.

Financial derivatives designated as hedging items are included in the heading of the balance sheet “Hedging derivatives”. These financial derivatives are valued at fair value.

See Note 2.2.1 to our Consolidated Financial Statements, which contains a summary of our significant accounting policies with respect to these instruments.

Goodwill in consolidation

Pursuant to IFRS 3, if the difference on the date of a business combination between the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of equity interest previously held in the acquired entity, on one hand, and the fair value of the assets acquired and liabilities assumed, on the other hand, is positive, it is recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized.

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Goodwill is not amortized and is subject periodically to an impairment analysis. Any impaired goodwill is written off.

If the difference is negative, it is recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

Goodwill is allocated to one or more cash-generating units, or CGUs, expected to benefit from the synergies arising from business combinations. See Note 2.2.87.2 to our Consolidated Financial Statements for additional information. The non-performing asset ratio in our domestic real estate and construction portfolio was 7.6% as of December 31, 2020 (compared with 12.3% as of December 31, 2019), the definitionaverage non-performing asset ratio for all of CGU.our domestic activities was 4.7% as of December 31, 2020 (compared with 4.9% as of December 31, 2019) and the average non-performing asset ratio for all of our consolidated activities was 4.4% as of December 31, 2020 (compared with 3.8% as of December 31, 2019). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 7.7% as of December 31, 2020 (compared with 9.0% as of December 31, 2019).

The CGUs to which goodwill has been allocated are tested for impairment based on the carrying amountIn light of the unit includingCOVID-19 outbreak, various national and supranational supervisory authorities have published considerations to be taken into account regarding the allocated goodwill. Such testing is performed at least annually and whenever there is an indicationaccounting policy to be applied with respect to potential problem loans, providing the option to suspend the application of impairment.

Foraccounting guidance for potential problem loans, for a limited period of time, with respect to loans affected by moratoria or other relief measures adopted by authorities to address the purpose of determining the impairment of a CGU to which a part or all of goodwill has been allocated, the carrying amount of that CGU, adjusted by the theoretical amounteffects of the goodwill attributable to the non-controlling interests, shall be compared to its recoverable amount (except where they are not valued at fair value). The resulting difference shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining difference in proportion to the carrying amount of each of the assets in the CGU. In any case, impairment losses on goodwill can never be reversed.

COVID-19 pandemic. See Notes 2.2.71.5 and 2.2.87.2 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies related to goodwill.

The results from each of these tests on the dates mentioned were as follows:

As of December 31, 2018, 2017Statements. See also “Item 5. Operating and 2016, no impairment had been identified in any of the main CGUs.

The Group’s most significant goodwill corresponds to the CGU in the United States. The calculation of the impairment loss used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2018, the Group used a steady growth rate of 4.0% (the same rate was considered as of December 31, 2017Financial Review and 2016) to extrapolate the cash flows in perpetuity starting on the fifth year (2023), based on the real GDP growth rate of the United States and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 10.5% as of December 31, 2018 (10.0% as of December 31, 2017 and 2016, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2018 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €1,009 million and €1,176 million respectively (€1,159 million and €1,371 million respectively as of December 31, 2017). If, as of December 31, 2018, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €526 million and €451 million respectively (€661 million and €559 million respectively as of December 31, 2017).

Part of the Group’s goodwill balance corresponds to the CGU in Turkey. The calculation of the impairment loss used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2018, the Group used a steady growth rate of 7.0% (the same rate was considered as of December 31, 2017 and 2016) to extrapolate the cash flows in perpetuity starting on the fifth year (2023), based on the real GDP growth rate of Turkey and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 24.3% as of December 31, 2018 (18.0% and 17.7% as of December 31, 2017 and 2016, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2018 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €149 million and €158 million, respectively. If, as of December 31, 2018, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €40 million and €37 million, respectively.

As of December 31, 2018 the recoverable amounts of our main CGUs were in excess of their carrying value and, as such, were not at risk of impairment.

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Insurance contracts

The methods and techniques used to calculate the mathematical reserves for insurance contracts mainly involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each contract. Changes in insurance mathematical reserves may occur in the future as a consequence of changes in interest rates and other key assumptions. See Notes 2.2.9 and 23 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies and assumptions about our most significant insurance contracts.

Post-employment benefits and other long term commitments to employees

Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the future as a consequence of changes in interest rates, expected return on assets or other assumptions. See Notes 2.2.12 and 25 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies about pension and post-retirement benefit costs and credits.

A.   Prospects―Operating Results

Factors Affecting the Comparability of our Results of Operations and Financial ConditionCondition―The COVID-19 Pandemic”.  

Foreign Country Outstandings

Trends in Exchange Rates

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Colombian pesos and Peruvian new soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

Except with respect to hyperinflationary economies (Venezuela and Argentina), the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Consolidated Financial Statements, and income statement items have been converted at the average exchange rates for the period. See Note 2.2.20 to our Consolidated Financial Statements for information on the application of IAS 29 to hyperinflationary economies. The following table sets forth, as of the exchange ratesend of several Latin American currencies, the U.S. dollaryears indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the Turkish lira againsthome-country currency of the euro, expressedoffice where the item is booked) where outstandings in local currency per €1.00 as averages for 2018, 2017 and 2016 andthe borrower’s country exceeded 1% of our total assets as of December 31, 2018, 20172020, 2019 and 2016 according2018. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the ECB.extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

 

Average Exchange Rates

Period-End Exchange Rates

 

Year Ended December 31, 2018

Year Ended December 31, 2017

Year Ended December 31, 2016

As of December 31, 2018

As of December 31, 2017

As of December 31, 2016

Mexican peso

22.7046

21.3297

20.6637

22.4921

23.6614

21.7718

U.S. dollar

1.1810

1.1296

1.1069

1.1450

1.1993

1.0541

Argentine peso

43.2900

18.7375

16.3348

43.2900

22.5830

16.5846

Colombian peso

3,484.3206

3,333.3333

3,378.3784

3,745.3184

3,584.2294

3,164.5570

Peruvian new sol

3.8787

3.6813

3.7333

3.8621

3.8813

3.5310

Turkish lira

5.7058

4.1213

3.3427

6.0588

4.5464

3.7072

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

2020

2019

2018

 

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

 

(In Millions of Euros, Except Percentages)

 

 

 

 

 

 

 

United Kingdom

7,107

1.0%

6,086

0.9%

7,114

1.1%

Mexico

1,128

0.2%

1,697

0.2%

2,217

0.3%

Turkey

3,265

0.4%

3,856

0.6%

5,060

0.7%

Other OECD (Organization for Economic Co-operation and Development)

9,715

1.3%

9,463

1.4%

7,779

1.1%

Total OECD

21,215

2.9%

21,102

3.0%

22,170

3.3%

Central and South America

3,142

0.4%

3,323

0.5%

2,720

0.4%

Other

7,329

1.0%

6,924

1.0%

4,739

0.7%

Total

31,686

4.3%

31,349

4.5%

29,629

4.4%

12782


 

DuringThe following table sets forth the amounts of our cross-border outstandings as of December 31, 2020, 2019, and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

 

Governments

Banks and Other Financial Institutions

Commercial, Industrial and Other

Total

 

(In Millions of Euros)

As of December 31, 2020

 

 

 

 

Mexico

44

4

1,080

1,128

Turkey

559

283

2,422

3,265

United Kingdom

-

6,204

904

7,107

Total

603

6,491

4,406

11,500

 

 

 

 

 

As of December 31, 2019

 

 

 

 

Mexico

188

8

1,501

1,697

Turkey

618

283

2,955

3,856

United Kingdom

-

5,246

839

6,086

Total

806

5,537

5,295

11,638

 

 

 

 

 

As of December 31, 2018

 

 

 

 

Mexico

133

7

2,078

2,217

Turkey

1,250

505

3,304

5,060

United Kingdom

22

6,215

876

7,114

Total

1,405

6,727

6,258

14,391

83


The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €360 million, €184 million and €100 million as of December 31, 2020, 2019 and 2018, respectively. These figures do not reflect loan loss reserves of 8.3%, 12.5% and 38.0%, respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 2020 did not in the aggregate exceed 0.05% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2020, 2019 and 2018 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of December 31, 2020, 2019 and 2018 amounted to $50 million, $73 million and $90 million, respectively (approximately €41 million, €65 million and €78 million, respectively, based on a euro/dollar exchange rate on December 31, 2020 of $1.00 = €0.81, on December 31, 2019 of $1.00 = €0.89 and on December 31, 2018 of $1.00 = €0.87).

LIABILITIES

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated:

 

As of December 31, 2020

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

188,757

37,822

1,751

228,330

Foreign

 

 

 

 

Western Europe

21,427

207

11,444

33,078

The United States

-

82

-

82

Mexico

54,398

3,422

1,549

59,370

Turkey

34,621

215

617

35,453

South America

36,989

3,428

2,041

42,458

Other

6,468

-

10,228

16,696

Total Foreign

153,904

7,355

25,878

187,137

Total

342,661

45,177

27,629

415,467

 

As of December 31, 2019

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

171,611

24,318

3,218

199,147

Foreign

 

 

 

 

Western Europe

15,360

-

9,190

24,549

The United States

66,181

72

6,377

72,630

Mexico

56,564

492

1,634

58,689

Turkey

36,042

257

924

37,223

South America

36,661

811

2,840

40,311

Other

1,801

-

4,568

6,369

Total Foreign

212,608

1,631

25,533

239,772

Total

384,219

25,950

28,751

438,919

84


 

As of December 31, 2018

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

166,403

26,544

4,563

197,510

Foreign

 

 

 

 

Western Europe

22,077

-

14,545

36,621

The United States

62,539

61

4,379

66,979

Mexico

50,991

133

566

51,690

Turkey

33,427

212

1,323

34,963

South America

37,970

330

2,335

40,635

Other

2,563

-

4,268

6,831

Total Foreign

209,567

737

27,415

237,719

Total

375,970

27,281

31,978

435,229

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22 to our Consolidated Financial Statements.

As of December 31, 2020, the maturity of our time deposits recorded under “Financial liabilities at amortized cost” (excluding interbank deposits) in denominations of $100,000 or greater was as follows:

 

As of December 31, 2020

 

Domestic

Foreign

Total 

 

(In Millions of Euros)

3 months or under

3,799

22,584

26,383

Over 3 to 6 months

1,883

2,708

4,590

Over 6 to 12 months

2,960

2,083

5,043

Over 12 months

2,746

898

3,644

Total

11,388

28,272

39,659

Time deposits recorded under “Financial liabilities at amortized cost” from Spanish and foreign financial institutions amounted to €16,079 million as of December 31, 2020, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by geographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of December 31, 2020, 2019 and 2018 see Note 22 to our Consolidated Financial Statements.

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Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of December 31, 2020, 2019 and 2018.

The following table provides information about our total short-term borrowings for the years ended December 31, 2020, 2019 and 2018:

 

As of and for the Year Ended December 31, 2020 (1)

 

As of and for the Year Ended December 31, 2019 (1)

 

As of and for the Year Ended December 31, 2018 (1)

 

 

 

 

Amount

Average rate

 

Amount

Average rate

 

Amount

Average rate

 

(In Millions of Euros, Except Percentages)

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

As of end of period

43,543

1.0%

 

45,296

1.9%

 

16,524

4.3%

Average during period

50,100

1.1%

 

46,139

2.1%

 

16,836

4.7%

Maximum quarter-end balance

55,156

-

 

50,482

-

 

17,155

-

Bank promissory notes:

 

 

 

 

 

 

 

 

As of end of period

1,454

0.1%

 

801

0.4%

 

449

3.1%

Average during period

1,094

0.1%

 

681

0.7%

 

580

1.6%

Maximum quarter-end balance

1,454

-

 

939

-

 

1,036

-

Bonds and subordinated debt:

 

 

 

 

 

 

 

 

As of end of period

10,546

1.3%

 

9,249

3.8%

 

5,633

3.6%

Average during period

12,076

2.1%

 

6,799

4.5%

 

4,775

4.6%

Maximum quarter-end balance

12,928

-

 

9,468

-

 

5,633

-

Total short-term borrowings as of end of period

55,543

1.0%

 

55,346

2.2%

 

22,606

4.1%

(1)  As of December 31, 2020 and 2019, includes all repurchase agreements recorded under “Financial liabilities at amortized cost” and “Financial liabilities held for trading”. As of December 31, 2018, includes only certain repurchase agreements which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017.

As of December 31, 2020, 2019 and 2018, the securities sold under agreements to repurchase were mainly Mexican peso,and Spanish treasury bills and such agreements were entered into with other financial and credit institutions.

EQUITY

Shareholders’ equity

As of December 31, 2020, shareholders’ equity amounted to €50,020 million, an 8.9% decrease compared to the U.S. dollar,€54,925 million recorded as of December 31, 2019, mainly as a result of the Argentine peso,increase in accumulated other comprehensive loss.

Accumulated other comprehensive income (loss)

As of December 31, 2020, the Colombian peso,accumulated other comprehensive loss amounted to €14,356 million, a 40.4% increase compared to the Peruvian new sol and€10,226 million recorded as of December 31, 2019, mainly as a result of the Turkish lira depreciated againstadverse impact of the euro in average terms. With respect to period-end exchange rates,depreciation of the Argentine peso,currencies of the Colombian peso andmain countries where the Turkish lira depreciated against the euro. On the other hand,BBVA Group operates (in particular, the Mexican peso, the U.S. dollar and the PeruvianTurkish lira) on “Foreign currency translation”. As of December 31, 2018, the accumulated other comprehensive loss amounted to €10,223 million.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

86


F.   Competition

In recent years, the global financial services sector has undergone significant transformation in relation to the development of the Internet and mobile and other exponential technologies and the entrance of new sol appreciated againstplayers into activities previously provided in the euromain by financial institutions. Whereas commercial banks were previously almost the sole providers of the whole range of financial products, from credit to deposits, or payments and investment services, today, a set of non-bank digital providers compete (and cooperate) among each other and with banks in the provision of financial services. These new fintech providers can be startup firms that are specialized in a specific service or niche of the financial services market, or large digital players (known as BigTechs). BigTech companies such as Amazon, Facebook and Apple have also started to offer financial services (mainly, in relation to payments and credit) ancillary to their core business.

In this new competitive environment, banks and other players are calling for a level playing field that ensures fair competition among the different financial services providers. Regulations on consumer protection and the integrity of the financial system (such as anti-money laundering regulations or regulations for combating the financing of terrorism) are generally activity-specific and, therefore, meet the principle of a level playing field. However, with regards to financial stability, banking groups are subject to prudential regulations that have implications for most of their activities, including those in which they compete with non-bank players that are only subject to activity-specific regulations, at best, or not regulated at all. Therefore, the scope of the perimeter of prudential consolidation to which the prudential regulation and supervision in the European Union and elsewhere applies compromises the level playing field principle by requiring banking groups to apply banking-level controls to all subsidiaries, no matter their activities and actual risks involved. Restrictions on the activity of bank players, for instance as regards internal governance requirements, leave EU banks at a competitive disadvantage as regards cost, time-to-market or talent attraction compared to their competitors.

Existing loopholes in the regulatory framework are another cause of an uneven playing field between banks and non-bank players. Some new services or business models are not yet subject to existing regulations. In such cases, not only are potential risks to financial stability, consumer protection and the integrity of the financial system unaddressed, but asymmetries may arise between players since regulated providers often face obstacles that unregulated providers do not.

Another significant trend in the market is consolidation. Following the prior global financial crisis, a number of banks disappeared or were absorbed by other banks. We believe that the COVID-19 crisis may result in a number of mergers and acquisitions between financial entities in the regions where the Group operates, as recently seen in Spain.

Additional information on certain market dynamics affecting the four main countries where we operate is provided below.

Spain

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, several M&A transactions have taken place in the Spanish banking system over the past 3-4 years. In this vein, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the SRB for the latter. This has further increased the market share of Banco Santander in Spain. In January 2018, the merger between Bankia and Banco Mare Nostrum (“BMN”) was completed. More recently, in September 2020 the merger between Caixabank and Bankia was announced, which creates the largest bank in Spain in terms of period-end exchange rates.total assets. This transaction is expected to close during the first quarter of 2021 once all regulatory authorizations have been received. Finally, the merger between Unicaja and Liberbank was announced in December 2020. This transaction will create Spain’s fifth largest bank in terms of total assets.

87


We face strong competition in all of our principal areas of operations. The overall effectlow interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to SMEs, where new credit interest rates have fallen from a weighted average of 5.5% between January 2012 and May 2014 to around 2.7% since the outbreak of the COVID-19 crisis in March 2020, barely exceeding credit costs. Since the outbreak of the crisis in the first quarter of 2020, public support measures have been introduced in Spain, particularly in the form of public guarantees on new loans to corporates and SMEs and moratoria and payment holidays on certain loans. The former has resulted in decreased competition in the SME loans segment. However, these public guarantees will be lifted in the future, which will likely increase competition levels again. More broadly, the end of the COVID-19 related public relief measures might result in a deterioration in the credit quality of borrowers, especially SMEs, which might require the recording of high loan-loss provisions by banks.

In the aftermath of the prior global financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed remuneration for deposits, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services. More recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

In Spain and in Europe, changes in exchange rates was negative forbanking regulation could have a significant potential impact on competition in the period-on-period comparisonnear future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the Group’s income statementEuropean Union to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the Single Euro Payments Area, which is a payment-integration initiative for simplification of bank transfers, direct debits and positivepayment cards mainly within the European Union, and MiFID, complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, further steps have been taken towards achieving a banking and capital markets union in Europe. The ECB started to work as a single supervisor in November 2014, supervising 117 entities (including BBVA) in the period-on-period comparisonEurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the SRF, the appointment of the Group’s balance sheet.

During 2017, the Mexican peso, the U.S. dollar, the Argentine peso, the Venezuelan bolivarSRB which is operational since January 1, 2015 and the Turkish lira depreciated against the euro in average terms. In particular, the Venezuelan bolivar depreciated significantly. On the other hand, the Chilean peso, the Colombian peso and the Peruvian new sol appreciated against the euro in average terms.  With respect to period-end exchange rates, all of the above currencies depreciated against the euro. The overall effect of changes in exchange rates was negative both for the period-on-period comparison of the Group’s income statement and the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this Annual Report we have sometimes excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of such more recent period.

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and introduced changes in the requirements for the classification and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting. The impact of the first application of IFRS 9, which was significant, is presented in Note 2.4 to the Consolidated Financial Statements.

As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years. However, the financial information for 2017 and 2016Bail-in Tool included in the Consolidated Financial Statements,BRRD, which was prepared in accordance with the accounting policies and valuation criteria applicable under IAS 39, has been subject to certain non-significant modifications in order to improve its comparability with financial information for 2018. See “Presentation of Financial Information—Application of IFRS 9”.

The implementation of IFRS 9 has mainly affected the following line items of our consolidated income statement:

·“Dividend income” – sinceentered into force on January 1, 2018, dividends from “Financial assets held for trading” are recognized under “Net gains (losses) in financial assets2016. For additional information on regulatory developments, see “―Business Overview―Supervision and liabilities”, whereas in the prior year they were recognized under “Dividend income”Regulation”.  This has adversely affected the evolution of “Dividend income” in 2018 compared to 2017.

·“Net gains (losses) on financial assets and liabilities” – The following three headings have been affected:

·“Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net” was affected in 2018 due to the reclassification of the underlying portfolios as a result of the implementation of IFRS 9.

·“Gains (losses) on financial assets and liabilities held for trading, net” was affected in 2018 as a result of the implementation of IFRS 9, pursuant to which, since January 1, 2018, dividends from “Financial assets held for trading” are recognized under this heading. In addition, the heading was affected in 2018 by the reclassification of the underlying portfolios also as a result of the implementation of IFRS 9.

·“Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net” was first introduced in 2018 as a result of the implementation of IFRS 9. Previously, this category did not exist under IAS 39.

12888


 

United States

The U.S. banking system’s performance in 2020 deteriorated significantly compared to 2019. However, in light of the unprecedented contraction of economic output due to the COVID-19 pandemic, the system remained resilient. While profitability was adversely affected primarily by the large loan loss provisions, credit quality did not deteriorate as much as in previous recessions due to the forceful and large monetary and fiscal support that the economy received early into the pandemic-induced downturn. During the first three quarters of 2020, net interest income for all FDIC-insured commercial banks fell by 4.2% year-on-year, while non-interest income and expenses remained on their pre-crisis trajectory. At the same time, provisions for loan and lease losses increased by more than 3.5 times, and as a result, net income reached only 48% of the level achieved in the same period in 2019. Return on assets and return on equity declined to their lowest levels since 2009. The core capital ratio of FDIC-insured commercial banks declined from 9.6% in the fourth quarter of 2019 to 8.7% and 8.8% in the second and third quarter of 2020, respectively, the lowest since 2010. Going forward, we expect commercial banks to benefit from the economic recovery and any subsequent round of stimulus, while at the same time remaining somewhat challenged by the low interest rate environment that will likely persist for a number of years going forward.

Mexico

In Mexico, the banking sector had a capitalization ratio of 17.4% in October 2020 (higher than the ratio reported in October 2019 of 16.1%) (in each case considering the group of entities of “banca múltiple” operating in Mexico). On October 31, 2020, the Mexican banking sector had 50 operating banks, one less than the previous year.

The growth of total bank lending to the non-financial private sector in Mexico decreased from an annual nominal average growth rate of 8.8% from January to November of 2019 to 5.2% in the same period of 2020. The negative impact of the COVID-19 pandemic over economic activity and formal employment deepened the slowdown in private sector credit that was already evident at the end of 2019. After a short rebound in the first months of the pandemic (boosted by liquidity needs), corporate lending lost momentum and registered its first contraction since February 2010 in November (-0.9%). The reduction of private investment was reflected in a weak corporate credit demand, so that the average growth rate of corporate loans was 6.9% from January to November of 2020, below the 9.2% reached in the same period of the previous year.

 Credit to consumers also decreased its annual nominal average growth rate from 6.1% in January to November 2019 to -2.3% in the same period of 2020. Consumer credit experienced seven months of contraction (starting in May 2020), reaching a double digit fall of -10.7% in November 2020. Mobility restrictions (which limit consumption opportunities), the fall of formal employment (and therefore household income) as well as consumer caution as a response to the uncertainty associated with the pace of economic recovery, contributed to deteriorate the dynamism of this type of loans.

 Mortgage lending was the only category of commercial bank credit which ended 2020 without a contraction, with an average nominal growth rate of 9.3% in January to November 2020, slightly below the rate of 10.5% in the same period of 2019. This credit portfolio was able to maintain some dynamism due to both low and stable long-term interest rates and the lagged impact of the increase in the number of formal workers in previous years, since potential clients of this type of credit must prove a minimum time in service to obtain a mortgage. However, due to this deferred effect, the negative impact of job losses as a result of the COVID-19 pandemic is expected to affect the performance of this portfolio for some time.

Bank deposits in Mexico increased in 2020 as a result of the shift from consumption to savings due to the COVID-19 pandemic. Traditional bank deposits (sight deposits and term deposits) had an average annual growth rate of 11.4% in nominal terms between January and November 2020, which represented a 4.3 p.p. increase in comparison with the same period of 2019. This significant increase was underpinned mainly by the increase of sight deposits, which grew at an average annual growth rate of 15.7% between January and November 2020. It is worth noting that the resilience of sight deposits in a recessionary environment (stemming from the low unemployment rate among medium and high-income earners) coupled with a slump in consumption, led to a sharp increase in liquid deposits. 

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On the other hand, term deposits slowed down sharply as the economic recession and the drop in benchmark interest rates took their toll on medium-term savings. In fact, the nominal growth of term deposits halved in 2020 with respect to 2019 as the average annual nominal growth rate during the last eleven months of the year decreased to 5.2%. Finally, the growth of deposits in debt investment funds was hit too as the economy slumped, the Mexican peso depreciated and the demand for liquid assets rose. As a result the average annual growth rate of deposits in debt investment funds dropped from 10.4% between January and November 2019 to 5.9% during the same period of 2020. 

Throughout 2020, regulatory activity increased driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic.

Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

In November 2020, a bill was presented to the Senate which would affect the repatriation of U.S. dollars. Finally, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

Turkey

In Turkey, where we operate through Garanti BBVA, the three public deposit banks that operate in the country accounted for 37% of the total assets of financial institutions as of November 30, 2020, whereas private deposit banks (including Garanti BBVA) accounted for 49%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 14% of the total. The Turkish economy experienced a significant acceleration in the credit growth rate on the back of supportive economic policies implemented in the COVID-19 crisis. TL lending (i.e., loans denominated in Turkish lira) growth accelerated to 44% in 2020 from 14% in 2019 due to the supportive credit policies implemented in response to COVID-19. In 2020, TL lending to corporations grew by 45%, consumer loans grew by 45% and credit cards grew by 24.3%. Credit growth adjusted for the exchange rate depreciation rose to 22% in 2020 from its 6% growth in 2019. Total customer deposits grew by 35% during the year (16.4% on a foreign exchange adjusted basis, compared with 18.6% in 2019). The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) rose to 24% from 20% in 2019. Foreign exchange deposit growth rate rose to 16.8% from 16.3% in 2019. Given the increases in TL credits, the TL loan-to-deposit ratio rose to 152% from 130% in 2019. The foreign exchange loan-to-deposit ratio fell to 64% from 78% due to the increase in foreign exchange deposits.

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G.   Cybersecurity and Fraud Management

BBVA’s Corporate Security Area is responsible for ensuring adequate information security management, including by establishing security policies, procedures and controls regarding the security of the Group’s global infrastructures, digital channels and payment methods with a holistic and threat intelligence-led approach.

BBVA’s security strategy resides on three fundamental pillars: cybersecurity, data protection and security in business processes and fraud management. A program has been designed for each of these pillars, with the aim to reduce the risks identified in the developed taxonomy. These programs, which consider security industry best practices established by internationally accepted security standards, are periodically reviewed to evaluate the progress and the effective impact on the Group risks.

During 2020, within the framework of the implementation of the security strategy, security measures were adopted to ensure an adequate protection of BBVA’s information and the assets supporting business processes. The implementation of these measures, which were perceived as necessary to mitigate the security risks the BBVA Group is exposed to, was carried out with a global perspective and an integral approach (considering not only technological aspects but also aspects related to the Group’s staff, processes and security governance).

Measures adopted in 2020 included measures intended to: (i) ensure end-to-end protection of business processes, considering logical and physical security, privacy and fraud management, (ii) ensure compliance of the security and privacy by design principles; and (iii) improve client access control and authentication services related to online services, from a security and user experience perspective, using the mobile device as the main element, in line with BBVA’s digital transformation strategy.  

The main initiatives which are being implemented to improve BBVA’s security and client protection are the following:

·Aqua card launch, the first card without a printed card number or CVV, with a dynamic CVV, reinforcing security, since not having these data prevents their possible fraudulent use.

·Implementation of strong customer authentication measures in e-commerce, requiring two of the three possible authentication mechanisms (something you know, something you own, something you are).

·Implementation of the “where is my card?” functionality, that allows the customer to have an overview of all e-commerce or platforms where they have registered their bank cards.

·Implementation of new behavior biometrics and malware protection for digital clients to reinforce analytical and fraud detection capabilities in mobile channels.

·Enhancement of the information provide to clients in the BBVA app to make them aware of the main risks they are exposed to, so that they can prevent or act against possible threats.

Additionally, BBVA has continued carrying out training and awareness initiatives related to security and privacy, promoting training and awareness campaigns for BBVA’s employees, clients and society in general on matters such as the BBVA app, online channels and social networks, secure password management, phishing and other technical attacks detection, detection of scams, security in online purchases and protection of personal information.

Other lines of action also include the adequate training of BBVA’s Board members in the area of security and incident management, as well as the periodic performance of global and local simulation exercises in order to raise the level of training and awareness of the Board of Directors and certain key personnel and ensure an immediate and effective response in case of a security breach.

Cybersecurity

Ensuring the effective protection of BBVA’s assets and customers’ data is vital for the Group.

During 2020, the Group has detected an increase in the number of attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment.

Furthermore, the COVID-19 pandemic has been used by cybercriminals to increase the scope of social engineering attacks through email, SMS, instant messaging systems and social networks. It has also contributed to the emergence of new risks and challenges for companies, like the ones related to security in teleworking and the increase on the attack surface.

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The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed at global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, operates 24x7 and provides services in all countries where the Group operates, under a scheme of managed security services, with operation lines dedicated to fraud and cybersecurity.

As cyberattacks evolve and become more sophisticated, the Group has strengthened its prevention and monitorization efforts. System monitoring capabilities have been reinforced, with particular attention to the critical assets that support business processes in order to prevent threats from materializing and, if necessary, to immediately identify and respond to any security incident that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and automated platforms.

We believe that measures implemented by the Group have improved information security management as a result in part of the use of digital intelligence and advanced analytical capabilities. The main objective of these measures is to ensure an immediate and effective response to any security incident that occurs through the coordination of the different business and support areas involved, to reduce the possible negative impact and, if necessary, to report such incident in a timely manner to the relevant supervisory or regulatory authorities.

BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. Specialized teams periodically perform security technical tests in order to detect and correct possible security vulnerabilities. These tests include technical tests of technological platforms as well as malicious users simulated attacks performed by the “red team”. The outcome of such exercises is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

Data Protection

The second pillar of the strategy is based on the adequate protection of data and its treatment, which is a fundamental element of the data-centric strategy of the BBVA Group. The main initiatives in this area relate to the adoption of measures to ensure that BBVA’s information assets are properly protected, limiting their use to their intended purposes and controlling access to them, considering the security guidelines established by the Group. All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of the Bank are represented.

Security in Business Processes and Fraud

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of the efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, the Corporate Fraud Committee, chaired by the Global Head of Engineering, oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

BBVA maintains cybersecurity and fraud insurance policies in respect of each of its subsidiaries. These insurance policies are subject to certain loss limits, deductions and exclusions. We can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies.

With the aim of guaranteeing the effective implementation of the Group’s security strategy, BBVA has established a security governance model. Among the bodies composing the security governance model, there are Committees responsible for the approval and supervision of the execution of the information security strategy, in matters such as corporate security, information security and protection, and fraud management. One of the main elements of this security governance model is the Technology and Cybersecurity Commission, composed by BBVA’s Chairman and BBVA’s Board of Directors. This Commission is responsible for the oversight of the Group’s technological strategy and cybersecurity strategy and allows the Board of Directors to be informed of the main technological risks to which the Group is exposed, as well as current cybersecurity and technology trends and any relevant security event that can affect the BBVA Group.

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Regarding business continuity, during 2020 BBVA has included “resilience” as an integral part of its holistic approach. This change reflects the evolution from a model mainly oriented to guarantee the continuous provision of products and services in situations with high impact and low probability to a model where the organization has the ability to absorb and adapt to situations with an operative impact due to disruptions of different nature (such as pandemics, cyber incidents, natural disasters or technological failures). This transition has implied an intense activity of the Resilience Office that, together with the Group’s Crisis Management Committees and Continuity Committees has had a relevant role in the management of the crisis caused by the COVID-19 pandemic.

ITEM 4A.      UNRESOLVED STAFF COMMENTS

None.

ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

BBVA has a solid leadership position in the Spanish market, it is the largest financial institution in Mexico in terms of assets, it has leading franchises in South America and the Sunbelt Region of the United States (see Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” ) and it is the largest shareholder in Garanti BBVA, Turkey’s biggest bank in terms of market capitalization.

The purpose of the BBVA Group is to bring the age of opportunities to everyone, based on our customers’ real needs, resting the institution in solid values: customer comes first, we think big and we are one team.

The BBVA Group operates in Spain through Banco Bilbao Vizcaya Argentaria, S.A., a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. In addition to the transactions it carries out directly, Banco Bilbao Vizcaya Argentaria, S.A. is the parent company of the BBVA Group, which includes a group of subsidiaries, joint ventures and associates performing a wide range of activities.

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement. The sale was completed on July 6, 2018, we completed2018.

The consideration received in cash by BBVA in the referred sale of our 68.19% stake in BBVA Chileamounted to Scotiabank forapproximately $2,200 million in cash.million. The transaction resulted in a capital gain, net of taxes, of €633 million. BBVA Chilemillion, which was part of our South America segment. For additional information on this sale, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018.recognized in 2018.

Transfer of Businessreal estate business and sale of stake in Divarian

On November 29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except(except for part of the agreed REOs)REOs, which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

27


Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report.

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B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. In 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

Operating Segments

Set forth below are the Group’s current six operating segments:

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       Rest of Eurasia.

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

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The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 was as follows:

 

As of December 31,

 

2020

2019

2018

 

(In Millions of Euros)

Spain

405,878

364,427

353,923

The United States (1)

93,953

88,529

82,057

Mexico

110,224

109,079

97,432

Turkey

59,585

64,416

66,250

South America

55,435

54,996

54,373

Rest of Eurasia

22,881

23,257

18,845

Subtotal Assets by Operating Segment

747,957

704,703

672,880

Corporate Center and Adjustments (2)

(11,781)

(6,967)

2,796

Total Assets BBVA Group

736,176

697,737

675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Intra-group reallocations”.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Profit/(Loss) Attributable to Parent Company

% of Profit/(Loss) Attributable to Parent Company

 

For the Year Ended December 31,

 

2020

2019

2018

2020

2019

2018

 

(In Millions of Euros)

(In Percentage)

Spain

606

1,386

1,400

15

23

24

The United States (1)

429

590

736

11

10

13

Mexico

1,759

2,699

2,367

45

45

41

Turkey

563

506

567

14

8

10

South America

446

721

578

11

12

10

Rest of Eurasia

137

127

96

3

2

2

Subtotal operating segments

3,940

6,029

5,743

100

100

100

Corporate Center

(2,635)

(2,517)

(343)

 

 

 

Profit attributable to parent company

1,305

3,512

5,400

 

 

 

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

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The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

 

Operating Segments

 

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Total (2)

 

(In Millions of Euros)

 

2020

 

 

 

 

 

 

 

 

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

16,801

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

22,974

Net margin before provisions (3)

2,515

1,281

4,677

2,544

1,853

225

(876)

12,219

Operating profit/(loss) before tax

809

502

2,472

1,522

896

184

(2,810)

3,576

Profit /(loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

1,305

2019

 

 

 

 

 

 

 

 

Net interest income

3,567

2,395

6,209

2,814

3,196

175

(233)

18,124

Gross income

5,656

3,223

8,029

3,590

3,850

454

(339)

24,463

Net margin before provisions (3)

2,402

1,257

5,384

2,375

2,276

161

(1,294)

12,561

Operating profit/(loss) before tax

1,878

705

3,691

1,341

1,396

163

(2,775)

6,397

Profit /(loss) attributable to parent company

1,386

590

2,699

506

721

127

(2,517)

3,512

2018

 

 

 

 

 

 

 

 

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

17,511

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

23,667

Net margin before provisions (3)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

11,965

Operating profit/(loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

7,580

Profit /(loss) attributable to parent company

1,400

736

2,367

567

578

96

(343)

5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

(3)“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

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The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

 

As of December 31, 2020

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

405,878

93,953

110,224

59,585

55,435

22,881

747,957

(11,781)

Cash, cash balances at central banks and other demand deposits

38,360

17,260

9,159

5,477

7,126

285

77,667

(364)

Financial assets designated at fair value (3)

137,969

6,792

36,360

5,332

7,329

492

194,274

(4,452)

Financial assets at amortized cost

198,173

66,933

59,814

46,705

38,549

21,839

432,014

(1,754)

Loans and advances to customers

167,998

57,983

50,002

37,295

33,615

18,908

365,801

(796)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

71,530

12,465

9,890

2,349

6,252

1,436

103,923

 

Consumer finance

11,820

4,633

7,025

5,626

6,773

497

36,373

 

Loans

5,859

1,153

1,629

630

974

183

10,427

 

Credit cards

2,087

700

4,682

3,259

2,008

7

12,744

 

Loans to enterprises

61,748

33,975

22,549

24,597

16,392

16,011

175,273

 

Loans to public sector

12,468

4,860

4,670

178

1,319

773

24,267

 

Total Liabilities

395,422

90,317

104,888

57,050

53,283

22,003

722,963

(36,807)

Financial liabilities held for trading and designated at fair value through profit or loss

73,921

952

23,801

2,336

1,326

46

102,382

(5,746)

Financial liabilities at amortized cost - Customer deposits

206,428

69,923

54,052

39,353

36,874

4,578

411,208

(2,086)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

174,789

61,354

43,460

20,075

25,847

3,481

329,008

 

Time deposits

31,019

8,571

10,315

19,270

11,038

1,097

81,310

 

Total Equity

10,457

3,636

5,336

2,535

2,152

879

24,995

25,025

Assets under management

62,707

-

22,524

3,425

13,722

569

102,947

 

Mutual funds

38,434

-

20,660

1,087

4,687

-

64,869

 

Pension funds

24,273

-

-

2,337

9,035

569

36,215

 

Other placements

-

-

1,863

-

-

-

1,863

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

32


 

As of December 31, 2019

 

Spain

The United States (1)

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and Adjustments (2)

 

(In Millions of Euros)

Total Assets

364,427

88,529

109,079

64,416

54,996

23,257

704,703

(6,967)

Cash, cash balances at central banks and other demand deposits

15,903

8,293

6,489

5,486

8,601

247

45,019

(716)

Financial assets designated at fair value (3)

121,890

7,659

31,402

5,268

6,120

477

172,817

(3,128)

Financial assets at amortized cost

195,260

69,510

66,180

51,285

37,869

22,233

442,336

(3,174)

Loans and advances to customers

167,332

63,162

58,081

40,500

35,701

19,669

384,445

(2,085)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

73,871

14,160

10,786

2,928

7,168

1,624

110,534

 

Consumer finance

11,390

5,201

8,683

5,603

7,573

453

38,904

 

Loans

5,586

1,213

1,802

635

1,074

195

10,505

 

Credit cards

2,213

883

5,748

3,837

2,239

8

14,929

 

Loans to enterprises

57,194

36,346

24,778

26,552

16,251

16,716

177,836

 

Loans to public sector

13,886

5,373

6,819

107

1,368

667

28,220

 

Total Liabilities

355,198

84,686

104,190

61,744

52,504

22,393

680,714

(37,902)

Financial liabilities held for trading and designated at fair value through profit or loss

77,731

282

21,784

2,184

1,860

57

103,898

(5,208)

Financial liabilities at amortized cost - Customer deposits

182,370

67,525

55,934

41,335

36,104

4,708

387,976

(3,757)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

150,917

53,001

42,959

15,737

22,682

3,292

288,588

 

Time deposits

31,453

14,527

12,372

25,587

13,441

1,416

98,797

 

Total Equity

9,229

3,843

4,889

2,672

2,492

864

23,989

30,936

Assets under management

66,068

-

24,464

3,906

12,864

500

107,803

 

Mutual funds

41,390

-

21,929

1,460

3,860

-

68,639

 

Pension funds

24,678

-

-

2,446

9,005

500

36,630

 

Other placements

-

-

2,534

-

-

-

2,534

 

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

33


 

As of December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and  Adjustments (1)

 

(In Millions of Euros)

Total Assets

353,923

82,057

97,432

66,250

54,373

18,845

672,880

2,796

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

106,307

10,481

26,022

5,506

5,634

504

154,454

(2,564)

Financial assets at amortized cost

195,457

63,539

57,709

50,315

36,649

17,809

421,477

(1,818)

Loans and advances to customers

170,427

60,808

51,101

41,478

34,469

16,609

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

76,388

13,961

9,197

3,530

6,629

1,821

111,526

 

Consumer finance

9,665

5,353

7,347

5,265

6,900

410

34,940

 

Loans

5,564

1,086

1,766

570

955

212

10,153

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

57,306

34,264

22,553

27,657

16,897

13,685

172,362

 

Loans to public sector

15,379

5,400

5,726

95

1,078

414

28,093

 

Total Liabilities

345,215

78,675

93,291

63,721

52,019

18,126

651,046

(28,245)

Financial liabilities held for trading and designated at fair value through profit or loss

70,020

234

18,028

1,852

1,357

42

91,532

(4,778)

Financial liabilities at amortized cost - Customer deposits

183,413

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Demand and savings deposits

142,912

47,031

38,167

12,530

23,195

3,544

267,379

 

Time deposits

40,072

16,857

11,573

27,367

12,817

1,333

110,018

 

Total Equity

8,708

3,383

4,140

2,529

2,355

719

21,834

31,041

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(2)Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

34


Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. The primary business units included in this operating segment are:

·Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

·Corporate and Business Banking: which manages small and medium sized enterprises (“SMEs”), companies and corporations and public institutions;

·Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·Other units: which includes the insurance business unit in Spain (BBVA Seguros) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) amounted to €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €62,707 million, a 5.1% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

35


This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits, offset in part by the depreciation of the U.S. dollar against the euro

36


The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €50,002 million, a 13.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by the shift towards higher profitability investments such as private banking.

37


This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €5,332 million, a 1.2% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees, partially offset by the depreciation of the Turkish lira against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

38


The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

The South America operating segment includes the Group’s banking and insurance businesses in the region.

The main business units included in the South America operating segment are:

·Retail and Corporate Banking: includes banks in Argentina, Colombia, Peru, Uruguay and Venezuela.

·Insurance: includes insurance businesses in Argentina, Colombia and Venezuela.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 2019, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% increase compared with the €37,869 million recorded as of December 31, 2019.Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into their economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses included in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches in Taipei, Tokyo, Hong Kong, Singapore and Shanghai and representative offices in Seoul, Mumbai, Abu Dhabi and Jakarta.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal MarketsSpain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BBVA Group is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR I” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “CRD IV”), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016”). 

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On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD I”) were published:

·Directive 2019/878/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);  

·Directive 2019/879/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD”); 

·Regulation (EU) No. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the “SRM Regulation I”) as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (SRM Regulation I as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and the SRM Regulation II, the “EU Banking Reforms”).  

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or after that date, as described therein.

CRD IV, among other things, established a “Pillar 1” minimum capital requirement and increased the level of capital required through the “combined capital buffer requirement” that institutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific counter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and must be satisfied with CET1 capital.

The G-SIB buffer is applicable to the institutions included in the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB”). The Bank was excluded from this list with effect as from January 1, 2017, so, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to maintain the G-SIB buffer.

The Bank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer equivalent to a CET1 ratio of 0.75% on a consolidated basis.

In December 2015, the Bank of Spain agreed to set the counter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. The Bank of Spain agreed in December 21, 2020 to maintain the counter cyclical capital buffer applicable to credit exposures in Spain at 0% for the fourth quarter of 2020. As of the date of this Annual Report, the counter cyclical capital buffer applicable to the Group stands at 0%.

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Additionally, Article 104 of the CRD Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that the supervisory authorities may require credit institutions to meet capital requirements exceeding the “Pillar 1” minimum capital requirements and the “combined capital buffer requirement” by establishing “Pillar 2” capital requirements (which, with respect to other requirements, are above “Pillar 1” requirements and below the “combined capital buffer requirement”).

Furthermore, the ECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation”), to carry out a SREP for us and the Group at least on an annual basis.

On July 19, 2018, the EBA published its final guidelines intended to further enhance risk management by institutions and the convergence of supervision with respect to the SREP. These guidelines focus on stress testing, particularly to determine “Pillar 2” and the level of interest rate risk.

Likewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in 2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the form of 56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirements that the ECB may impose on the Bank and/or the Group under the SREP will require the Bank and/or the Group to maintain capital levels higher than the “Pillar 1” minimum capital requirement.

As a result of the most recent SREP carried out by the European Central Bank, and in accordance with the measures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, a CET1 ratio of 8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.00%.

For further information on the countercyclical capital buffer and the total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the restrictions described in the preceding paragraph while such calculation is pending, shall also be triggered by a breach of the MREL requirement (see “Item 3. Risk Factors—Regulatory, Tax and Reporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations”) or a breach of the minimum leverage ratio requirement.

CRD V also distinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, only the former being regarded as mandatory requirements. Notwithstanding the foregoing, CRD V provides that, besides other measures, supervisory authorities are entitled to impose further “Pillar 2” capital requirements when an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

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Additionally, CRD II sets a binding leverage ratio requirement of 3% of Tier 1 capital, in addition to the institution’s own funds requirements and risk-weighted assets (“RWAs”)-based requirements. In particular, any breach of this leverage ratio would entail the need to determine the MDA and the related consequences.

Furthermore, on December 7, 2017 the BCBS announced the end of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk in those weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such approaches and enhance comparability among banks in which such internal ratings-based approaches are used. The review of minimum capital requirements will also limit the regulatory benefit for banks when calculating total RWAs using internal risk models as compared with the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches that will be applicable as from January 1, 2022, which is expected to increase to 72.5% as from January 1, 2027.

Moreover, on March 15, 2018, the ECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in order to avoid future and excessive accumulation of non-performing loans without coverage in the balance sheets of the credit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a year and, from the beginning of 2021, the banks must inform the ECB of any difference between their practices and the prudential provision expectations.

In addition, the ECB has announced that a TRIM is being conducted on the internal models used by banks subject to its supervision to calculate their RWAs, in order to reduce inconsistencies and unjustified variability in these internal models throughout the European Union. Although the full results of the TRIM are not yet known, it could imply a change in the internal models used by banks and, at the same time, increases or decreases in the capital needs of banks, including the Bank.

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as MREL requirement. According to the Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (“MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by the resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and own funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s RWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of the RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution Authority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This could result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of discretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an entity in order to comply with Its MREL could place an entity in a situation where the conditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

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The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment Ratio

In the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of customers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for revolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the credit on an annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to Regulation 924/2009: (i) the extension of the equality of charges principle to non-euro Member States; and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS”) or at ATM machines, as well as for credit transfers. The main changes introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of information, related to electronic communications, will enter into force in April 2021.

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In relation to payment services, Order ECE/1263/2019 of December 26, on transparency of conditions and information requirements applicable to payment services, entered into force on July 1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The main changes of this Royal Decree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be in effect on the same terms.

Regarding real estate, the Spanish government and the governments of several autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a national level, Decree Law 34/2020, of October 20, on urgent measures to support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for industrial and/or commercial activities that have been affected by the suspensions and restrictions adopted by the public authorities in response to the COVID-19 pandemic. Measures adopted by autonomous regions include the following:

·In the Autonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and retrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with transfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and housing acquired in a judicial mortgage foreclosure proceeding.

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·In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·In Andalusia, Decree-Law 2/2020, of March 9, on the improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not enter into force for the time being. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“MIFID II”) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and obligations regarding personal data and imposing responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data. Organic Law 3/2018, of December 5, on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the right to be forgotten or the right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the recovery and resolution of credit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“RD 1012/2015”) and the SRM Regulation were designed to provide the authorities with mechanisms and instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Entity”) in order to ensure the continuity of the Entity’s critical financial and economic functions, while minimizing the impact of its non-feasibility on the economic and financial system. The BRRD further provided that a Member State may only use additional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the resolution instruments (described further below) have been evaluated and used to the fullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, an Entity will be considered as failing or likely to fail in any of the following situations: (i) when the Entity significantly fails, or may reasonably be expected to significantly fail in the near future, to comply with the solvency requirements or other requirements necessary to maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to meet its enforceable obligations in a timely manner; or (iv) when the Entity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that Entity’s control.

In line with the provisions of the BRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

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The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) “bridge institution”, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Bail-in Tool.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Resolution Authority, under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised. “Relevant Spanish Resolution Authority” means any of the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria), the European Single Resolution Mechanism and, as the case may be, according to Law 11/2015, RD 1012/2015 and the SRM Regulation, the Bank of Spain and the Spanish Securities Market Commission (CNMV) or any other entity with the authority to exercise the Spanish Bail-in Power from time to time.

In accordance with the provisions of Article 48 of Law 11/2015 (without prejudice to any exclusions that may be applied by the Spanish Resolution Authority in accordance with Article 43 of Law 11/2015), in the event of any application of the Bail-in Tool, any resulting write-down or conversion by the Spanish Resolution Authority will be carried out so that they affect instruments in the following sequence: (i) CET1 items; (ii) the principal amount of Additional Tier 1 capital instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims other than Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in Spanish normal insolvency proceedings (with senior non-preferred claims (créditos ordinarios no preferentes) subject to the Bail-in Tool after any subordinated claims (créditos subordinados) under Article 92 of the Insolvency Law, but before the other senior claims).

In addition to the Bail-in Tool, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments of an Entity at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Bail-in Tool, the “Spanish Bail-in Power” ). Any write-down or conversion must follow the same insolvency hierarchy as described below. The point of non-viability of an Entity is the point at which the Spanish Resolution Authority determines that the Entity meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Bail-in Tool or any other resolution tool or power (where the conditions for resolution referred to above are met).

To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Bail-in Tool is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation though the SRF under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation, together with any other compensation provided for in any applicable banking regulations including, inter alia, compensation in accordance with Article 36.5 of Law 11/2015. However, if the treatment of a creditor following a Non-Viability Loss Absorption is less favorable than it would have been under ordinary insolvency proceedings, it is uncertain whether said creditor would be entitled to the compensation provided for in the BRRD and the SRM Regulation.

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The SRF was established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation.

The SRF is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.

SRF will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by December 31, 2023.

Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:

·To guarantee the assets or the liabilities of the institution under resolution;

·To make loans to or to purchase assets of the institution under resolution;

·To make contributions to a bridge institution and an asset management vehicle;

·To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;

·To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.

The Intergovernmental Agreement (“IGA”) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.

In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.

In this scenario, the Eurogroup decided in 2017 to expand the ESM role to serve as a backstop for the SRF. While the new features of the expanded role for the ESM were agreed by 2019, it was not until late 2020 that the euro area finance ministers agreed to proceed with the reform of the ESM and was later signed by Member States (represented by their ambassadors to the EU) on January 27 (the ratification by national parliaments is pending to come into force). The backstop to the SRF will be operational at the beginning of 2022 (earlier than expected) and will be able to provide support for up to €68 billion (in the form of credit lines). If this financial assistance is requested, the SRF will pay back the ESM loan with funds obtained from banks’ contributions (in a period of three years, with the possibility to extend it to five years).

Mexico

BBVA’s operations in Mexico are highly regulated. The Mexican regulatory framework for financial and banking activities aims to ensure the stability of the financial system and combat money laundering, as well as to provide consumer protection and transparency in the provision of financial services.

The provision of financial and deposit products is mainly regulated in the Banking Law and provisions issued by the National Banking and Securities Commission (“CNBV”) and Banco de México (the Mexican Central Bank) (“BANXICO”), where CNBV issues prudential regulation and BANXICO regulates banking transactions, including financial and deposit products. In addition, the Financial Services Transparency and Regulation Law contains provisions regarding transparency and consumer protection.

The regulatory framework for capital markets includes specific regulations designed to develop the stock market in an equitable, efficient and transparent manner, protect the interests of investors and promote competition, as well as to minimize systemic risk.

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Regarding asset management, regulation encourages the creation and development of investment companies and promotes the strengthening and the decentralization of the stock market by facilitating the access of small and medium investors. It also establishes the rules for the organization and operation of investment funds, the intermediation of their shares in the stock market, as well as the organization and operation of the people who provide asset management services.

Regulatory activity increased throughout 2020 driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic. Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December 2020, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

Moreover, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

In addition, the President submitted a bill to ban outsourcing. Due to its importance, the negotiation and discussion of the bill have been postponed until February 2021. If approved, BBVA would need to evaluate its personnel hiring schemes and determine if a reorganization of the personnel structure is required.

The Federal Labor Law was recently amended in order to regulate home office. This amendment includes the employer’s obligation to assume employee’s expenses resulting from home office, including payment of telecommunication services and a portion of the electric bill.

Turkey

BBVA’s operations in Turkey are subject to regulation by Turkish national authorities. In general, the rules applicable to products and services that banks in Turkey offer to consumers are more stringent than rules applicable with respect to commercial and corporate banking customers. Besides general consumer protection regulations, there are specific regulations of the Banking Regulation and Supervision Agency (“BRSA”) on banking consumers. In 2020, new laws were introduced authorizing the Central Bank of Turkey (“CBT”) to impose restrictions regarding certain fees and commissions that may be charged to customers, thereby increasing the number of regulators that are focused on consumer protection-related matters in the banking sector.

Apart from fundamental legal rules and product/service-specific legal regulations, the most basic regulation for the sector is the Banking Law No. 5411. The purpose of this law is to regulate the principles and procedures for ensuring confidence and stability in financial markets, the efficient functioning of the credit system and the protection of the rights and interests of depositors.

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In 2020, a significant number of regulations were introduced, the majority of which related to measures taken as a result of COVID 19. These regulations focused on extending the delinquency period up to 180 days for the classification of non-performing loans, facilitating the use of credit cards such as by increasing limits on contactless cards, promoting the use of digital channels for almost all banking transactions, encouraging banks to extend loan maturities and stopping all execution and bankruptcy proceedings between March 22, 2020 and April 30, 2020, among others. New regulations were adopted to facilitate the restructuring and repayment of loans by distressed commercial customers, provided that they are willing to pay their debts but are not able to fulfill their obligations due to financial distress experienced as a result of COVID-19. The BRSA has encouraged banks to apply interest on extended maturities provided that the interest rates applicable for such extension shall be in line with the market rates applicable at the time of restructuring.

In March 2020, the BRSA also introduced a new asset ratio calculation which required the sum of all loans, securities held and swap transactions to be equal to all local and foreign currency deposits. Failure to comply with such requirement resulted in monetary fines. In the last quarter of 2020, this requirement was eliminated. Garanti BBVA complied with such requirement while in effect.

Floating interest rates can be applied to Turkish Lira deposits with a maturity of three months or more, and to foreign currency deposits with a maturity of more than six months. Regarding the interest rates applicable to credit cards and overdraft accounts a new law was introduced in October 2020 and as November 1, became effective. Pursuant to this new law CBT will announce the interest applicable to credit cards, which shall also be applied to overdraft accounts, on the last fifth business day every month.

In general, the Payment Systems Law regulates the procedures and principles of payment services, payment institutions and electronic money institutions. Significant amendments have been made to this law in 2019 and they all became effective in 2020. These amendments were introduced to: (i) answer the sectorial needs of the payment and electronic money institutions; (ii) eliminate the dual structure which consists of the CBT and BRSA and position the CBT as the sole regulatory and supervisory authority and; (iii) ensure the compliance of Turkish legislation with EU regulations (especially the Payment Services (PSD2) Directive). As part of these amendments, it will be possible to consolidate payment account information online with consenting users and initiate a payment for a payment account at another payment service provider.

In addition, in March 2020, the Regulation on Information Systems and Electronic Banking Services was enacted and it came into force at the end of June 2020. The regulation governs issues relating to information systems and electronic banking. Under such regulation, banks are required to establish a new governance structure pursuant to which an Information Security Function directly reporting to the CEO or the Board of Directors is established. The regulation further requires a strategic plan, better governance and controls over data management and various controls over back-up solutions and business continuity.

On electronic banking services, new rules have been adapted which regulates all electronic banking services and channels such as mobile banking, internet banking, telephone, banking and ATM banking. Particularly, customer identification rules have been modified and adapted with the new technological standards.

Article 73 of Banking Law No. 5411, which governs issues around bank secrecy, has been amended and introduced two new concepts in terms of the sharing of data with controlling shareholders. Banks operating in Turkey are now required to provide information subject to a “reasonableness” test yet to be defined by the BRSA. In addition, banks may only share customer specific information with third parties at the specific instruction of customers under the new rule.

In 2020, new provisions were introduced to the applicable banking laws and regulations allowing customer onboarding through digital channels and open banking practices. Secondary legislation detailing the principles and processes are to be published by the relevant regulators.

Banking Law No.5411 has also been amended to allow banks to enter into banking services agreements and various other banking products through digital channels. Furthermore, with the amendment introduced on Bank Cards and Credit Cards Law No.5464, credit card contracts can be established using digital or alternative channels of the banks.

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Garanti BBVA is required to conduct its investment banking business in accordance with the Turkish Capital Market Law and various related regulations issued by Capital Market Board of Turkey. As a commercial bank, Garanti BBVA has a license to carry out the following activities: (a) receipt and transmission of orders in relation to capital market instruments, (b) execution of orders in relation to capital market instruments (except shares and derivative instruments based on stock indices or stocks) in the name and account of the customer or in its own name and in the account of the customer, (c) dealing for its own account (except for derivative instruments based on stock indices and stocks) and (d) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody service.

United States

BBVA’s activities and operations in the United States are subject to extensive U.S. federal and state supervision and regulation, and in some cases, U.S. requirements may impose restrictions on BBVA’s global activities. BBVA is a foreign banking organization and a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”) and the International Banking Act of 1978, as amended (the “IBA”), and as a result, BBVA is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to be treated as a financial holding company.

As a bank holding company, BBVA’s direct and indirect activities and investments in the United States are limited to banking activities and certain non-banking activities that are “closely related to banking,” as determined by the Federal Reserve, and certain other activities permitted under the BHC Act and IBA. BBVA is required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any U.S. bank or bank holding company. In addition, a bank holding company, including BBVA, is required to act as a source of financial strength for its U.S. bank subsidiaries. Among other things, this source of strength obligation may result in a requirement for BBVA, as controlling shareholder, to inject capital into its U.S. bank subsidiary. BBVA’s U.S. branches and agencies are also subject to additional liquidity requirements, and in certain cases the entirety of BBVA’s U.S. operations are subject to additional risk management requirements.

BBVA’s New York branch is supervised by the Federal Reserve through the Federal Reserve Bank of New York, as well as licensed and supervised by the New York State Department of Financial Services.

BBVA USA Bancshares, Inc., BBVA’s top-tier U.S. intermediate holding company, holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, BBVA USA. BBVA USA Bancshares, Inc. is also a bank holding company that has elected to be treated as a financial holding company and is subject to regulation and supervision by the Federal Reserve. BBVA USA is regulated extensively under U.S. federal and state law by, among other regulators, the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama State Banking Department. BBVA USA Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to consumer protection laws. 

Upon completion of the previously announced stock purchase of 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. by PNC Financial Services Group, Inc., the requirements described in this section that apply only to BBVA USA Bancshares, Inc. and BBVA USA, but not BBVA, would no longer be applicable. However, BBVA will continue to be subject to U.S. federal and state supervision and regulation as a foreign banking organization and a bank holding company because it maintains a branch in the United States.

To continue to be treated as a financial holding company, each of BBVA and BBVA USA Bancshares, Inc. must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well-managed” for U.S. bank regulatory purposes. In addition, any U.S. depository institution subsidiaries of the foreign banking organization or bank holding company must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well-managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.

Sections 23A and 23B of Federal Reserve Act and Regulation W place various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to extensions of credit, credit exposures arising from derivative transactions, and securities borrowing and lending transactions from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. These restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

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The availability of dividends from banking organizations in the United States is limited by various statutes and regulations. Federal banking agencies are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, the banking agencies have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, state-chartered banking institutions, including BBVA USA, are subject to dividend limitations imposed by applicable federal and state laws.

Enhanced Prudential Standards

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), BBVA and BBVA USA Bancshares, Inc. have been subject to certain enhanced prudential standards (including resolution planning), capital adequacy requirements, capital planning and stress testing, liquidity standards, risk management and governance requirements, among other regulatory and supervisory requirements. 

In October 2019, the Federal Reserve finalized rules that implement certain provisions of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”) by tailoring enhanced prudential standards and capital and liquidity requirements applicable to foreign and domestic banking organizations, including BBVA and BBVA USA Bancshares, Inc. As a result, both BBVA and BBVA USA Bancshares, Inc. have been subject to less restrictive enhanced prudential standards and capital and liquidity requirements. As of December 31, 2020, BBVA USA Bancshares, Inc. became a Category IV banking organization for purposes of these rules, and certain enhanced prudential standards and capital and liquidity requirements will again apply to BBVA USA Bancshares, Inc. following applicable phase-in and transition periods.

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit a plan for the orderly resolution of its U.S. subsidiaries and U.S. operations in the event of future material financial distress or failure (the “Title I Resolution Plan”). BBVA filed its most recent Title I Resolution Plan in December 2018. As a result of EGRRCPA and its implementing regulations, BBVA will now be required to file a reduced Title I Resolution Plan once every three years. In addition, BBVA USA is subject to the FDIC rule requiring large insured depository institutions to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. The FDIC has issued an advance notice of proposed rulemaking to revise the FDIC resolution plan rule, but a notice of proposed rulemaking has yet to be issued. The deadline for BBVA USA’s next FDIC rule resolution plan submission is currently unclear, but the FDIC announced that it intends to resume requiring banks to submit FDIC resolution plans, and that banks subject to the rule will have at least 12 months’ advance notice before being required to do so.

BBVA USA Bancshares, Inc. and BBVA USA are subject to the U.S. Basel III capital rule (“U.S. Basel III”), which is based on the Basel III regulatory capital standards established by the Basel Committee. In the past, BBVA USA Bancshares, Inc. and BBVA USA had been subject to certain additional capital planning, stress testing and liquidity requirements, but, as result of EGRRCPA and its implementing regulations, BBVA USA Bancshares, Inc. and BBVA USA were not subject to these additional requirements in 2020. As a result of becoming a Category IV banking organization as of December 31, 2020, BBVA USA Bancshares, Inc. and BBVA USA will again be subject to certain of these additional requirements following applicable phase-in and transition periods.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as BBVA USA, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, and permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. In the case of non-U.S. banking entities, such as BBVA, there is also an exemption permitting activities conducted solely outside of the United States, provided that certain criteria are satisfied. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities.

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In October 2019, the five regulatory agencies charged with implementing the Volcker Rule released finalized amendments to the current Volcker Rule regulations that tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. In addition, in June 2020, the five regulatory agencies finalized amendments to the Volcker Rule's restrictions on ownership interests in and relationships with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial services to additional types of funds and investments vehicles.

BBVA is of the view that the impact of the Volcker Rule, as amended and proposed to be amended, is not material to its business operations.

Derivatives

BBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the regulations promulgated thereunder with the U.S. Commodity Futures Trading Commission (the “CFTC”), which subjects BBVA to regulation and supervision by the CFTC and the National Futures Association. In general, as a non-U.S. swap dealer, BBVA is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to certain conditions, BBVA may comply with EU OTC derivatives requirements in lieu of certain CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.

BBVA’s world-wide swap activities are also subject to regulations adopted by the European Commission pursuant to the European Market Infrastructure Regulation (“EMIR”) and the EU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives.

BBVA is currently assessing whether it, or any of its affiliates, will be required to register as a security-based swap dealer with the SEC, once such registration requirement comes into effect.

Anti-Money Laundering; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and certain of its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to, among other things, (a) give special attention to correspondent and payable-through bank accounts, (b) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (c) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (d) develop and maintain anti-money laundering programs, customer identification procedures, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement compliance programs with respect to the sanctions programs administered by the Office of Foreign Assets Control. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Other Regulated U.S. Entities

BBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the State of California Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a money services business with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury.

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BBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“BSI”), is subject to regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) with respect to its securities activities, as well as various U.S. state regulatory authorities. In addition, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The activities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, BBVA USA has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Dodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is subject to regulation and supervision by various U.S. state insurance regulatory authorities.

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

The BBVA Group discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure:

Iranian embassy-related activity. On a continuing basis, the BBVA Group maintains a bank account in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the year ended December 31, 2020, from embassy-related activity, which include fees and/or commissions, totaled $128.98. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

C.   Organizational Structure

For information on the composition of the BBVA Group as of December 31, 2020, see Note 1.1 to our Consolidated Financial Statements.

The companies comprising the BBVA Group are principally domiciled in the following countries: Argentina, Bolivia, Chile, Colombia, Finland, France, Germany, Italy, Mexico, Netherlands, Peru, Portugal, Romania, Spain, Switzerland, Turkey, United Kingdom, the United States of America and Uruguay. In addition, BBVA has an active presence in Asia.

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Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2020.

Subsidiary

Country of Incorporation

Activity

BBVA Voting Power

BBVA Ownership

Total Assets (1)

 

 

 

     (in Percentages)

(In Millions of Euros)

BBVA MEXICO

MEXICO

Bank

100.00

100.00

 97,518    

BBVA USA

THE UNITED STATES

Bank

100.00

100.00

 76,128    

GARANTI BBVA AS

TURKEY

Bank

49.85

49.85

 52,319    

BBVA PERU

PERU

Bank

92.24 (2)

46.12

 23,891    

BBVA SEGUROS S.A. DE SEGUROS Y REASEGUROS

SPAIN

Insurance

99.96

99.96

 17,601    

BBVA COLOMBIA S.A.

COLOMBIA

Bank

95.47

95.47

 15,573    

BANCO BBVA ARGENTINA S.A.

ARGENTINA

Bank

66.55

66.55

 6,553    

SEGUROS BBVA BANCOMER S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 5,391    

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

Insurance

100.00

100.00

 4,815    

GARANTIBANK BBVA INTERNATIONAL N.V.

THE NETHERLANDS

Bank

49.85

100.00

 3,398    

(1)   Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2020.

(2)   Subject to certain exceptions.

D.   Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,482 branch offices in Spain and, principally through our various subsidiaries, 4,950 branch offices abroad as of December 31, 2020. As of December 31, 2020, approximately 68% of our branches in Spain and 66% of our branches abroad (60% excluding branches relating to Garanti BBVA) were rented from third parties pursuant to leases that may be renewed by mutual agreement.

E. Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Interest income figures, when used, do not include interest income on non-accruing loans to the extent that cash payments have been received, as a result of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9 (Collection of interest on impaired financial assets). See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”. Loan fees are included in the computation of interest revenue. Interest income figures include “other income”, which amounted to €534 million, €343 million and €268 million for the years ended December 31, 2020, 2019 and 2018, respectively. For additional information on “interest and other income” see Note 37.1 to our Consolidated Financial Statements.

64


Year-on-year variations in the selected statistical information presented herein have been affected by the planned USA Sale, mainly as follows:

·2020 year-end data. All assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet as of December 31, 2020. Accordingly, loans and advances and deposits as of December 31, 2020 (among other balance sheet information provided in this section as of such date) do not include the respective amounts of BBVA USA and other companies included within the scope of the USA Sale.

·2020 average data. As indicated in “Presentation of Financial Information—Statistical and Financial Information” and further below, average balance sheet information is based on the beginning and month-end balances in the relevant year. Up until the time the assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively (which occurred on November 15, 2020, upon the signing of the relevant share purchase agreement), the beginning and month-end balances of BBVA USA and other companies included within the scope of the USA Sale were considered to calculate the average balances of all balance sheet items provided in this section in the same manner as in 2019 and 2018. Following such reclassification, the beginning and month-end balances of these entities were no longer considered in such calculations and were included instead in the calculations of the average balances of “Other assets” and “Other liabilities”, as applicable, for the year ended December 31, 2020. The same approach was followed to calculate the respective Interest” and “Average Yield” of balance sheet items. In particular, tables included under “—Average Balances and Rates”, “—Changes in Net Interest Income-Volume and Rate Analysis” and “—Interest Earning Assets—Margin and Spread” were prepared on this basis.

Certain financial information as of and for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages.

65


 

Average Balance Sheet - Assets and Interest from Earning Assets

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Assets

 

 

 

 

 

 

 

 

 

Cash and balances with central banks and other demand deposits

60,172

68

0.11%

46,060

256

0.56%

42,730

135

0.32%

Domestic

30,120

8

0.03%

17,293

50

0.29%

19,883

43

0.22%

Foreign

30,051

60

0.20%

28,767

206

0.72%

22,847

92

0.40%

Debt securities and derivatives

205,245

4,253

2.07%

185,200

5,450

2.94%

178,729

5,677

3.18%

Domestic

134,179

891

0.66%

123,645

1,062

0.86%

116,055

1,202

1.04%

Foreign

71,067

3,362

4.73%

61,555

4,388

7.13%

62,674

4,475

7.14%

Financial assets

414,631

17,533

4.23%

415,580

21,729

5.23%

410,149

20,872

5.09%

Loans and advances to central banks

4,747

164

3.46%

5,086

267

5.25%

5,518

258

4.67%

Loans and advances to credit institutions

39,720

521

1.31%

32,448

806

2.48%

25,634

657

2.56%

Loans and advances to customers

370,165

16,847

4.55%

378,046

20,655

5.46%

378,996

19,957

5.27%

    In euros

179,433

3,030

1.69%

180,028

3,372

1.87%

181,668

3,381

1.86%

Domestic

170,926

2,998

1.75%

171,412

3,344

1.95%

172,561

3,276

1.90%

Foreign

8,507

32

0.37%

8,617

28

0.32%

9,107

105

1.16%

    In other currency

190,731

13,817

7.24%

198,018

17,284

8.73%

197,328

16,576

8.40%

Domestic

22,297

439

1.97%

18,622

601

3.23%

14,825

511

3.45%

Foreign

168,434

13,378

7.94%

179,397

16,682

9.30%

182,503

16,065

8.80%

Other assets (2)

49,786

535

1.07%

45,957

327

0.71%

46,343

270

0.58%

Total average assets (3)

729,833

22,389

3.07%

692,798

27,762

4.01%

677,951

26,954

3.98%

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)  Includes “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures and associates”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.

(3)  Foreign activity represented 41.27% of the total average assets for the year ended December 31, 2020, 43.60% for the year ended December 31, 2019 and 45.34% for the year ended December 31, 2018.

66


 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

 

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

Average Balance

Interest

Average Yield (1)

 

(In Millions of Euros, Except Percentages)

Liabilities

 

 

 

 

 

 

 

 

 

Deposits from central banks and credit institutions

71,279

1,525

2.14%

61,285

2,123

3.46%

65,044

2,192

3.37%

Customer deposits

387,563

3,908

1.01%

376,057

6,984

1.86%

370,078

6,559

1.77%

    In euros

195,410

315

0.16%

183,316

236

0.13%

178,370

337

0.19%

Domestic

186,594

310

0.17%

174,301

230

0.13%

169,163

323

0.19%

Foreign

8,816

5

0.05%

9,015

7

0.07%

9,206

14

0.16%

    In other currency

192,153

3,593

1.87%

192,741

6,748

3.50%

191,709

6,222

3.25%

Domestic

11,518

115

1.00%

9,505

178

1.87%

10,738

130

1.21%

Foreign

180,636

3,478

1.93%

183,236

6,571

3.59%

180,971

6,092

3.37%

Debt certificates

78,260

1,541

1.97%

77,438

1,884

2.43%

75,927

1,753

2.31%

Other liabilities (2)

142,056

823

0.58%

123,053

982

0.80%

114,695

1,165

1.02%

Total average liabilities

679,158

7,797

1.15%

637,833

11,973

1.88%

625,745

11,669

1.86%

Equity

50,675

-

-

54,964

-

-

52,206

-

-

Total average liabilities and equity (3)

729,833

7,797

1.07%

692,798

11,973

1.73%

677,951

11,669

1.72%

(1)  Rates have been presented on a non-taxable equivalent basis.

(2)  Includes “Financial liabilities held for trading”, “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)  Foreign activity represented 39.29% of the total average liabilities for the year ended December 31, 2020, 41.92% for the year ended December 31, 2019 and 47.61% for the year ended December 31, 2018.

67


Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the year ended December 31, 2020 compared with the year ended December 31, 2019, and the year ended December 31, 2019 compared with the year ended December 31, 2018. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from such table are interest payments on loans which are made in a period other than the period in which they are due.

 

2020 / 2019

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

78

(266)

(188)

Securities portfolio and derivatives

590

(1,787)

(1,197)

Loans and advances to central banks

(18)

(85)

(103)

Loans and advances to credit institutions

181

(466)

(285)

Loans and advances to customers

(431)

(3,377)

(3,808)

   In euros

(11)

(331)

(342)

Domestic

(9)

(336)

(346)

Foreign

-

4

4

   In other currencies

(636)

(2,830)

(3,466)

Domestic

119

(281)

(162)

Foreign

(1,019)

(2,285)

(3,304)

Other assets

27

180

208

Total income

 

 

(5,373)

Interest expense

 

 

 

Deposits from central banks and credit institutions

346

(944)

(598)

Customer deposits

214

(3,290)

(3,077)

   In euros

16

63

79

Domestic

16

64

80

Foreign

-

(2)

(2)

   In other currencies

(21)

(3,135)

(3,155)

Domestic

38

(100)

(63)

Foreign

(93)

(2,999)

(3,093)

Debt certificates

20

(363)

(343)

Other liabilities

152

(310)

(158)

Total expense

 

 

(4,175)

Net interest income

 

 

(1,197)

(1)  The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)  The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

68


 

2019 / 2018

 

Increase (Decrease) Due to Changes in

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

11

111

121

Securities portfolio and derivatives

206

(433)

(227)

Loans and advances to central banks

(20)

29

9

Loans and advances to credit institutions

175

(25)

150

Loans and advances to customers

(50)

748

698

   In euros

(31)

21

(10)

Domestic

(22)

90

68

Foreign

(6)

(72)

(78)

   In other currencies

58

650

708

Domestic

131

(41)

90

Foreign

(273)

891

618

Other assets

(2)

60

58

Total income

 

 

808

Interest expense

 

 

 

Deposits from central banks and credit institutions

(127)

57

(69)

Customer deposits

106

320

426

   In euros

9

(110)

(101)

Domestic

10

(103)

(93)

Foreign

(0)

(8)

(8)

   In other currencies

34

493

526

Domestic

(15)

62

47

Foreign

76

403

479

Debt certificates

35

96

131

Other liabilities

85

(268)

(183)

Total expense

 

 

303

Net interest income

 

 

504

(1)  The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)  The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

69


Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the years indicated.

 

December 31,

 

2020

2019

2018

 

(In Millions of Euro, Except Percentages)

Average interest earning assets

680,047

646,841

631,608

Gross yield (1)

3.3%

4.3%

4.3%

Net yield (2)

3.1%

4.0%

4.0%

Average effective rate paid on interest-bearing liabilities

1.5%

2.3%

2.3%

Spread (3)

1.8%

2.0%

2.0%

(1)   “Gross yield” represents total interest income divided by average interest earning assets.

(2)   “Net yield” represents total interest income divided by total average assets.

(3)    Spread is the difference between “Gross yield” and the “Average effective rate paid on interest-bearing liabilities”.

70


ASSETS

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Interest-Bearing Deposits in Other Banks

As of December 31, 2020, interbank deposits (excluding deposits with central banks) represented 4.8% of our total assets. Of such interbank deposits, 18.6% were held outside of Spain and 81.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of December 31, 2020, our total securities portfolio (consisting of investment securities and loans and advances) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of€137,515 million,representing 18.7% of our total assets. €34,116 million, or 24.8%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 2020 on the investment securities that BBVA held was 3.3%, compared with an average yield of approximately 2.0% earned on loans and advances during 2020. See Notes 10 and 13 to our Consolidated Financial Statements for additional information.

The first table in Note 13.3 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under“Financial assets at fair value through other comprehensive income” as of December 31, 2020, 2019 and 2018.

Note 14.2 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under“Financial assets at amortized cost” as of December 31, 2020, 2019 and 2018.

This information is not provided for debt securities recorded under “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss” and “Financial assets designated at fair value through profit or loss” since the amortized costs and fair values of these items are the same. See Note 8 to our Consolidated Financial Statements.

The second table in Note 13.3 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at fair value through other comprehensive income” by rating categories defined by external rating agencies. The second table in Note 14.2 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at amortized cost”, by rating categories defined by external rating agencies.

Readers are directed to the tables and Notes referred to above for information regarding our securities portfolio.

For a discussion of our investments in joint ventures and associates, see Note 16 to our Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to our Consolidated Financial Statements.

The following table analyzes the maturities of our debt securities recorded under “Financial assets at fair value through other comprehensive income” and “Financial assets at amortized cost”, by type and geographical area, as of December 31, 2020.

71


 

Maturity at One Year or Less

Maturity After One Year to Five Years

Maturity after Five Years to 10 Years

Maturity after 10 Years

Total

 

Amount

Yield % (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

Yield %  (1)

Amount

 

(Millions of Euros, Except Percentages)

DEBT SECURITIES

 

 

 

 

 

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

12,413

0.16

10,359

1.58

4,064

4.31

2,532

3.62

29,367

Other debt securities

520

3.14

1,216

1.20

468

2.32

141

4.61

2,345

Total Domestic

12,932

0.28

11,576

1.54

4,531

4.10

2,673

3.67

31,712

Foreign

 

 

 

 

 

 

 

 

 

Mexico

272

5.17

5,673

4.96

3,402

4.36

48

5.72

9,395

Mexican Government and other government agency debt securities

92

6.29

5,267

4.96

3,186

4.30

35

6.41

8,580

Other debt securities

180

4.59

406

4.94

216

5.30

14

3.95

816

The United States

2,514

1.31

1,111

2.21

754

2.38

312

5.34

4,691

U.S. Treasury and other government agency debt securities

2,312

1.26

-

-

3

0.63

-

-

2,315

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

202

2.07

1,111

2.21

750

2.39

312

5.34

2,376

Turkey

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Turkey Government and other government agencies debt securities

495

10.33

2,036

12.58

858

11.74

85

6.81

3,473

Other debt securities

-

-

-

-

-

-

-

-

-

Other countries

5,811

7.62

8,242

2.81

3,066

1.78

1,917

3.86

19,037

Securities of other foreign governments(2)

3,551

0.37

4,583

3.28

1,508

1.53

1,302

4.12

10,943

Other debt securities of other countries

2,260

19.06

3,660

2.23

1,559

1.99

616

3.34

8,094

Total Foreign

9,092

6.17

17,062

4.67

8,079

4.08

2,363

4.21

36,596

TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

22,024

2.58

28,637

3.39

12,611

4.09

5,036

3.92

68,308

AT AMORTIZED COST PORTFOLIO

 

 

 

 

 

 

 

 

 

Domestic

 

 

 

 

 

 

 

 

 

Spanish government and other government agencies debt securities

95

2.95

956

1.11

10,858

1.33

1,748

0.85

13,656

Other debt securities

2,133

-

2,496

0.10

123

1.13

84

-

4,835

Total Domestic

2,228

0.13

3,452

0.38

10,980

1.33

1,831

0.81

18,492

Foreign

 

 

 

 

 

 

 

 

 

Mexico

691

6.63

2,297

6.19

826

4.37

3,956

3.94

7,771

Mexican Government and other government agency debt securities

634

6.88

2,266

6.22

611

4.52

3,452

3.94

6,963

Other debt securities

57

3.94

31

3.94

216

3.94

504

3.94

808

The United States

9

3.94

9

3.94

34

1.24

-

-

51

U.S. Treasury and other government agency debt securities

6

-

6

-

2

-

-

-

14

States and political subdivisions debt securities

-

-

-

-

-

-

-

-

-

Other debt securities

3

3.94

3

3.94

31

1.24

-

-

37

Turkey

384

9.90

2,301

10.80

942

10.78

-

-

3,628

Turkey Government and other government agencies debt securities

378

10.07

2,301

10.79

942

10.78

-

-

3,621

Other debt securities

6

-

1

18.10

-

-

-

-

7

Other countries

950

1.65

1,007

1.94

3,697

2.56

141

4.49

5,795

Securities of other foreign governments(2)

324

1.59

520

2.50

3,489

2.58

141

4.49

4,473

Other debt securities of other countries

626

1.68

487

1.31

208

1.93

-

-

1,322

Total Foreign

2,034

5.06

5,615

7.61

5,499

4.26

4,097

3.95

17,245

TOTAL AT AMORTIZED COST PORTFOLIO

4,262

2.42

9,067

4.77

16,479

2.30

5,928

2.96

35,737

TOTAL DEBT SECURITIES

26,286

2.55

37,705

3.72

29,090

3.08

10,964

3.40

104,044

(1)   Rates have been presented on a non-taxable equivalent basis.

(2)   Securities of other foreign governments mainly include investments made by our subsidiaries in securities issued by the governments of the countries where they operate.

 

72


Loans and Advances

In 2020, the Group’s loan activity has been affected by the COVID-19 pandemic, which resulted in a decrease in global activity driven by mandatory lock-downs and consumer caution. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements for additional information on the impact of the COVID-19 pandemic on our financial condition and results of operations.

In addition, the year-on-year variation in reported “Loans and advances” has been significantly affected by the USA Sale. In particular, loans and advances of BBVA USA and other companies included within the scope of the USA Sale have been recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, while they are shown under “Loans and advances” in the consolidated balance sheets as of December 31, 2019 and 2018 (and, where applicable, prior years). See “Presentation of Financial Information—Agreement for the sale of BBVA USA Bancshares, Inc.”. 

Moreover, during 2020, the currencies of the main countries where the BBVA Group operates depreciated against the euro in terms of period-end exchange rates. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Loans and Advances to Credit Institutions and Central Banks

As of December 31, 2020, our total loans and advances to credit institutions and central banks amounted to €41,368 million, or 5.6% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €20,820 million, or 2.8% of total assets. Net of our loss allowances, total loans and advances to credit institutions and central banks at amortized cost amounted to €20,784 million as of December 31, 2020, or 2.8% of total assets.

Loans and Advances to Customers

As of December 31, 2020, our total loans and advances to customers amounted to €336,056 million, or 45.6% of total assets. Net of our loss allowances, total loans and advances to customers amounted to €323,951 million as of December 31, 2020, or 44.00% of our total assets, a decline from 56.7% of our total assets as of December 31, 2019. As of December 31, 2020 our total loans and advances to customers in Spain amounted to €166,905 million. Our total loans and advances to customers outside Spain amounted to €169,150 million as of December 31, 2020, down from €243,332 million as of December 31, 2019 mainly due to the USA Sale and the depreciation of the currencies of the main countries where the BBVA Group operates.

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Loans by Geographic Area

The following table shows our net loans and advances to customers as of the dates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Domestic

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

 

Western Europe

27,729

31,483

29,322

25,308

25,763

The United States (1)

6,654

64,395

61,497

53,526

60,388

Mexico

54,663

61,455

53,772

48,463

50,242

Turkey

36,748

40,230

40,641

49,690

54,174

South America

37,192

39,091

38,680

39,814

53,512

Other

6,165

6,677

4,777

4,240

4,058

Total foreign

169,150

243,332

228,688

221,041

248,137

Total loans and advances

336,056

408,364

400,049

401,074

430,629

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending (2)

323,951

395,962

387,850

388,326

414,655

(1)  Balance as of December 31, 2020 corresponds to subsidiaries in the United States not included within the scope of the USA Sale.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of loss allowances. As of December 31, 2017 and 2016, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

74


Loans by Type of Customer

The following table shows our net loans and advances to customers at each of the dates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Domestic

 

 

 

 

 

Government

16,456

14,477

16,671

18,116

20,741

Agriculture

1,268

1,224

1,118

1,231

1,076

Industrial

14,946

13,982

14,683

14,707

13,670

Real estate and construction

9,452

9,567

10,671

11,786

15,179

Commercial and financial

9,640

16,192

17,131

16,075

13,111

Loans to individuals (1)

95,136

96,735

98,131

99,780

102,299

Other

20,007

12,855

12,955

18,338

16,415

Total Domestic

166,905

165,032

171,361

180,033

182,492

Foreign

 

 

 

 

 

Government

24,415

14,840

13,900

14,289

14,132

Agriculture

2,169

2,533

2,566

2,646

3,236

Industrial

37,631

43,408

41,954

37,319

43,402

Real estate and construction

10,570

20,814

18,499

17,885

21,822

Commercial and financial

14,954

41,406

36,571

31,584

33,933

Loans to individuals (1)

56,358

85,324

80,224

78,162

89,981

Other

23,054

35,007

34,973

39,156

41,630

Total Foreign

169,150

243,332

228,688

221,040

248,137

Total Loans and Advances

336,056

408,364

400,049

401,074

430,629

Loss allowances

(12,105)

(12,402)

(12,199)

(12,748)

(15,974)

Total net lending (2)

323,951

395,962

387,850

388,326

414,655

(1)   Includes mortgage loans to households for the acquisition of housing.

(2)  As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of loss allowances. As of December 31, 2017 and 2016, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

75


The following table sets forth a breakdown, by currency, of our net loans and advances to customers as of December 31, 2020, 2019, 2018, 2017 and 2016:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

In euros

188,729

191,083

193,702

199,399

199,289

In other currencies

135,221

204,879

194,148

188,926

215,366

Total net lending (1)

323,951

395,962

387,850

388,326

414,655

(1)   As of December 31, 2020, 2019 and 2018, includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of loss allowances. As of December 31, 2017 and 2016, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables.

As of December 31, 2020, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,743 million, compared with €1,682 million as of December 31, 2019. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,456 million, or 4.9% of our total loans and advances to customers as of December 31, 2020, compared with the €14,477 million, or 3.5% of our total loans and advances to customers as of December 31, 2019. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of December 31, 2020 excluding government-related loans amounted to €16,604million or approximately 4.9% of our total outstanding loans and advances. As of December 31, 2020 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

76


Maturity and Interest Sensitivity

The following table sets forth a breakdown by maturity of our total loans and advances to customers by type of customer as of December 31, 2020. The determination of maturities is based on contract terms.

 

Maturity

 

Due In One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

 

(In Millions of Euros)

Domestic

 

 

 

 

Government

6,524

5,782

4,150

16,456

Agriculture

345

722

202

1,268

Industrial

5,923

6,723

2,300

14,946

Real estate and construction

1,667

4,118

3,667

9,452

Commercial and financial

3,617

4,865

1,158

9,640

Loans to individuals

11,356

24,653

59,127

95,136

Other

6,460

10,494

3,054

20,007

Total Domestic

35,892

57,356

73,657

166,905

Foreign

 

 

 

 

Government

14,493

3,606

6,317

24,415

Agriculture

1,207

762

200

2,169

Industrial

16,316

14,651

6,663

37,631

Real estate and construction

3,591

2,998

3,980

10,570

Commercial and financial

7,858

6,232

864

14,954

Loans to individuals

9,028

22,870

24,460

56,358

Other

8,762

10,328

3,963

23,054

Total Foreign

61,255

61,448

46,447

169,150

Total loans and advances (1)

97,147

118,804

120,105

336,056

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”.

The second table in Note 14.3 to our Consolidated Financial Statements provides a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2020.

Loss allowances on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Financial instruments”. For a discussion of accounting standards related to loss allowances on financial assets and credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

77


The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries for the periods indicated. Information as of December 31, 2020 and 2019 refers to customers, central banks and credit institutions and information as of December 31, 2018, 2017 and 2016 refers to customers and credit institutions:

 

 

As of and for the Year Ended December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Loan loss reserve at beginning of period:

 

 

 

 

 

Domestic

4,931

5,774

7,234

9,113

12,357

Foreign

7,496

6,437

5,550

6,903

6,385

First implementation of IFRS 9

-

-

1,171

-

-

Total loan loss reserve at beginning of period

12,427

12,211

13,955

16,016

18,742

 

 

 

 

 

 

Loans charged off: (1)

 

 

 

 

 

Total domestic

(495)

(1,006)

(2,818)

(3,709)

(3,298)

Total foreign

(2,073)

(2,250)

(1,956)

(2,330)

(2,400)

Total loans charged off

(2,568)

(3,256)

(4,774)

(6,039)

(5,698)

 

 

 

 

 

 

Provision for loan losses:

 

 

 

 

 

Domestic

1,289

764

910

1,155

1,095

Foreign

3,605

3,560

3,659

3,078

3,046

Total provision for loan losses

4,894

4,324

4,569

4,233

4,141

 

 

 

 

 

 

Acquisition and disposition of subsidiaries

(1,123)

-

-

(5)

-

Effect of foreign currency translation

(1,204)

(20)

(239)

(926)

(601)

Other

(285)

(832)

(1,301)

(495)

(567)

Acquisition, foreign currency and others

(2,612)

(852)

(1,539)

(1,426)

(1,168)

 

 

 

 

 

 

Loan loss reserve at end of period:

 

 

 

 

 

Domestic

5,362

4,931

5,774

7,234

9,113

Foreign

6,779

7,496

6,437

5,550

6,903

Total loan loss reserve at end of period

12,141

12,427

12,211

12,784

16,016

Loan loss reserve as a percentage of loans and advances at amortized cost at end of period

3.66%

3.10%

3.19%

3.09%

3.44%

Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period

0.77%

0.81%

1.25%

1.46%

1.22%

(1)Domestic loans charged off in 2020, 2019, 2018, 2017 and 2016 were mainly related to the real estate sector.

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

The loans charged off amounted to €2,568 million during the year ended December 31, 2020, compared with €3,256 million during the year ended December 31, 2019, mainly as a result of the decrease in loans charged off in Spain, as a result of moratorium measures for bank customers adopted in light of COVID-19 and the depreciation of the currencies of the main countries where the BBVA Group operates.

Our loan loss reserves as a percentage of total loans and advances increased to 3.66% as of December 31, 2020 compared with 3.10% as of December 31, 2019.

78


Impaired Loans

Loans are considered to be credit-impaired under IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the loan.

Amounts collected in relation to impaired financial assets at amortized cost are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company in 2020, 2019, 2018, 2017 and 2016 was €249.1 million, €301.6 million, €310.5 million, €347.4 million and €264.2 million, respectively.

The following table provides information regarding our impaired loans to customers, central banks and credit institutions as of the dates indicated:

 

As of December 31,

 

2020

2019

2018

2017

2016

 

(In Millions of Euros)

Impaired loans

 

 

 

 

 

Domestic

7,823

8,104

9,436

12,730

16,360

Public sector

68

86

112

158

270

Other resident sector

7,755

8,018

9,324

12,572

16,090

Foreign

6,855

7,855

6,923

6,671

6,565

Public sector

8

1

16

13

42

Other non-resident sector

6,847

7,853

6,906

6,658

6,523

Total impaired loans

14,678

15,959

16,359

19,401

22,925

Total loan loss reserve

(12,141)

(12,427)

(12,211)

(12,784)

(16,016)

Impaired loans net of reserves

2,537

3,533

4,148

6,617

6,909

Impaired loans as a percentage of loans and advances at amortized cost

4.42%

3.99%

4.27%

4.69%

4.92%

Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost

0.76%

0.88%

1.08%

1.60%

1.48%

Our total impaired loans amounted to €14,678 million as of December 31, 2020, an 8.0% decrease compared with €15,959 million as of December 31, 2019. This decrease was mainly attributable to the reduction in impaired loans from households, as a result of the moratorium measures for bank customers adopted in light of COVID-19, and, to a lesser extent, the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020.

Our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets which present an expected credit loss. As of December 31, 2020, the loan loss reserve amounted to €12,141 million, a 2.3% decrease compared with the €12,427 million recorded as of December 31, 2019, mainly due to the positive impact of changes in exchange rates on foreign currency positions and the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020. The decrease was offset, in part, by higher provisions for possible loan losses in Spain, in light of the uncertainty associated with the pace of economic recovery.

79


The following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and loan loss reserve taken for each loan category, as of December 31, 2020 and 2019, by type of customer:

2020

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

 

(In Millions of Euros)

Domestic:

 

 

 

Government

68

(32)

0.41%

Credit institutions

-

-

-

Other sectors

7,755

(5,319)

5.15%

Agriculture

61

(38)

4.83%

Industrial

664

(440)

4.44%

Real estate and construction

722

(490)

7.64%

Commercial and other financial

862

(608)

8.95%

Loans to individuals

4,361

(2,686)

4.58%

Other

1,084

(1,057)

5.42%

Total Domestic

7,823

(5,351)

4.69%

Foreign:

 

 

 

Government

8

(16)

0.03%

Credit institutions

6

(36)

0.04%

Other sectors

6,842

(6,738)

4.73%

Agriculture

71

(70)

3.25%

Industrial

1,477

(1,273)

3.93%

Real estate and construction

675

(232)

6.39%

Commercial and other financial

717

(747)

4.79%

Loans to individuals

2,745

(3,209)

4.87%

Other

1,156

(1,207)

5.02%

Total Foreign

6,855

(6,790)

4.05%

Total

14,678

(12,141)

4.37%

(1)   Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

80


2019

Impaired Loans

Loan Loss Reserve (1)

Impaired Loans as a Percentage of Loans by Category

 

(In Millions of Euros)

Domestic:

 

 

 

Government

86

(36)

0.60%

Credit institutions

-

-

-

Other sectors

8,018

(4,895)

5.33%

Agriculture

60

(42)

4.93%

Industrial

686

(513)

4.90%

Real estate and construction

1,180

(751)

12.33%

Commercial and other financial

1,173

(856)

7.24%

Loans to individuals

4,257

(2,176)

4.40%

Other

663

(557)

5.16%

Total Domestic

8,104

(4,931)

4.91%

Foreign:

 

 

 

Government

1

(23)

0.01%

Credit institutions

6

(24)

0.04%

Other sectors

7,848

(7,448)

3.43%

Agriculture

93

(83)

3.69%

Industrial

1,824

(1,405)

4.20%

Real estate and construction

980

(652)

4.71%

Commercial and other financial

835

(763)

2.02%

Loans to individuals

3,124

(3,670)

3.66%

Other

991

(876)

2.83%

Total Foreign

7,855

(7,496)

3.23%

Total

15,959

(12,427)

3.91%

(1)   Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

81


Troubled Debt Restructurings

As of December 31, 2020, of the total troubled debt restructurings of €16,699 million, €7,659 million were not considered impaired loans. See Note 7.2 and Appendix VIII to our Consolidated Financial Statements.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratios higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio

The Leisure, Automotive and Real Estate sectors have been among the most affected by the COVID-19 pandemic and they are the sectors that have most relied on payment deferrals granted by BBVA (see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”).  See Note 7.2 to our Consolidated Financial Statements for additional information. The non-performing asset ratio in our domestic real estate and construction portfolio was 7.6% as of December 31, 2020 (compared with 12.3% as of December 31, 2019), the average non-performing asset ratio for all of our domestic activities was 4.7% as of December 31, 2020 (compared with 4.9% as of December 31, 2019) and the average non-performing asset ratio for all of our consolidated activities was 4.4% as of December 31, 2020 (compared with 3.8% as of December 31, 2019). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 7.7% as of December 31, 2020 (compared with 9.0% as of December 31, 2019).

In light of the COVID-19 outbreak, various national and supranational supervisory authorities have published considerations to be taken into account regarding the accounting policy to be applied with respect to potential problem loans, providing the option to suspend the application of accounting guidance for potential problem loans, for a limited period of time, with respect to loans affected by moratoria or other relief measures adopted by authorities to address the effects of the COVID-19 pandemic. See Notes 1.5 and 7.2 to our Consolidated Financial Statements. See also “Item 5. Operating and Financial Review and Prospects―Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.  

Foreign Country Outstandings

The following table sets forth, as of the end of the years indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of December 31, 2020, 2019 and 2018. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

 

2020

2019

2018

 

Amount

% of Total Assets

Amount

% of Total Assets

Amount

% of Total Assets

 

(In Millions of Euros, Except Percentages)

 

 

 

 

 

 

 

United Kingdom

7,107

1.0%

6,086

0.9%

7,114

1.1%

Mexico

1,128

0.2%

1,697

0.2%

2,217

0.3%

Turkey

3,265

0.4%

3,856

0.6%

5,060

0.7%

Other OECD (Organization for Economic Co-operation and Development)

9,715

1.3%

9,463

1.4%

7,779

1.1%

Total OECD

21,215

2.9%

21,102

3.0%

22,170

3.3%

Central and South America

3,142

0.4%

3,323

0.5%

2,720

0.4%

Other

7,329

1.0%

6,924

1.0%

4,739

0.7%

Total

31,686

4.3%

31,349

4.5%

29,629

4.4%

82


The following table sets forth the amounts of our cross-border outstandings as of December 31, 2020, 2019, and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

 

Governments

Banks and Other Financial Institutions

Commercial, Industrial and Other

Total

 

(In Millions of Euros)

As of December 31, 2020

 

 

 

 

Mexico

44

4

1,080

1,128

Turkey

559

283

2,422

3,265

United Kingdom

-

6,204

904

7,107

Total

603

6,491

4,406

11,500

 

 

 

 

 

As of December 31, 2019

 

 

 

 

Mexico

188

8

1,501

1,697

Turkey

618

283

2,955

3,856

United Kingdom

-

5,246

839

6,086

Total

806

5,537

5,295

11,638

 

 

 

 

 

As of December 31, 2018

 

 

 

 

Mexico

133

7

2,078

2,217

Turkey

1,250

505

3,304

5,060

United Kingdom

22

6,215

876

7,114

Total

1,405

6,727

6,258

14,391

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The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €360 million, €184 million and €100 million as of December 31, 2020, 2019 and 2018, respectively. These figures do not reflect loan loss reserves of 8.3%, 12.5% and 38.0%, respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 2020 did not in the aggregate exceed 0.05% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2020, 2019 and 2018 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of December 31, 2020, 2019 and 2018 amounted to $50 million, $73 million and $90 million, respectively (approximately €41 million, €65 million and €78 million, respectively, based on a euro/dollar exchange rate on December 31, 2020 of $1.00 = €0.81, on December 31, 2019 of $1.00 = €0.89 and on December 31, 2018 of $1.00 = €0.87).

LIABILITIES

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated:

 

As of December 31, 2020

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

188,757

37,822

1,751

228,330

Foreign

 

 

 

 

Western Europe

21,427

207

11,444

33,078

The United States

-

82

-

82

Mexico

54,398

3,422

1,549

59,370

Turkey

34,621

215

617

35,453

South America

36,989

3,428

2,041

42,458

Other

6,468

-

10,228

16,696

Total Foreign

153,904

7,355

25,878

187,137

Total

342,661

45,177

27,629

415,467

 

As of December 31, 2019

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

171,611

24,318

3,218

199,147

Foreign

 

 

 

 

Western Europe

15,360

-

9,190

24,549

The United States

66,181

72

6,377

72,630

Mexico

56,564

492

1,634

58,689

Turkey

36,042

257

924

37,223

South America

36,661

811

2,840

40,311

Other

1,801

-

4,568

6,369

Total Foreign

212,608

1,631

25,533

239,772

Total

384,219

25,950

28,751

438,919

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As of December 31, 2018

 

Customer Deposits

Bank of Spain and Other Central Banks

Other Credit Institutions

Total

 

(In Millions of Euros)

Total Domestic

166,403

26,544

4,563

197,510

Foreign

 

 

 

 

Western Europe

22,077

-

14,545

36,621

The United States

62,539

61

4,379

66,979

Mexico

50,991

133

566

51,690

Turkey

33,427

212

1,323

34,963

South America

37,970

330

2,335

40,635

Other

2,563

-

4,268

6,831

Total Foreign

209,567

737

27,415

237,719

Total

375,970

27,281

31,978

435,229

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22 to our Consolidated Financial Statements.

As of December 31, 2020, the maturity of our time deposits recorded under “Financial liabilities at amortized cost” (excluding interbank deposits) in denominations of $100,000 or greater was as follows:

 

As of December 31, 2020

 

Domestic

Foreign

Total 

 

(In Millions of Euros)

3 months or under

3,799

22,584

26,383

Over 3 to 6 months

1,883

2,708

4,590

Over 6 to 12 months

2,960

2,083

5,043

Over 12 months

2,746

898

3,644

Total

11,388

28,272

39,659

Time deposits recorded under “Financial liabilities at amortized cost” from Spanish and foreign financial institutions amounted to €16,079 million as of December 31, 2020, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by geographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of December 31, 2020, 2019 and 2018 see Note 22 to our Consolidated Financial Statements.

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Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of December 31, 2020, 2019 and 2018.

The following table provides information about our total short-term borrowings for the years ended December 31, 2020, 2019 and 2018:

 

As of and for the Year Ended December 31, 2020 (1)

 

As of and for the Year Ended December 31, 2019 (1)

 

As of and for the Year Ended December 31, 2018 (1)

 

 

 

 

Amount

Average rate

 

Amount

Average rate

 

Amount

Average rate

 

(In Millions of Euros, Except Percentages)

Securities sold under agreements to repurchase:

 

 

 

 

 

 

 

 

As of end of period

43,543

1.0%

 

45,296

1.9%

 

16,524

4.3%

Average during period

50,100

1.1%

 

46,139

2.1%

 

16,836

4.7%

Maximum quarter-end balance

55,156

-

 

50,482

-

 

17,155

-

Bank promissory notes:

 

 

 

 

 

 

 

 

As of end of period

1,454

0.1%

 

801

0.4%

 

449

3.1%

Average during period

1,094

0.1%

 

681

0.7%

 

580

1.6%

Maximum quarter-end balance

1,454

-

 

939

-

 

1,036

-

Bonds and subordinated debt:

 

 

 

 

 

 

 

 

As of end of period

10,546

1.3%

 

9,249

3.8%

 

5,633

3.6%

Average during period

12,076

2.1%

 

6,799

4.5%

 

4,775

4.6%

Maximum quarter-end balance

12,928

-

 

9,468

-

 

5,633

-

Total short-term borrowings as of end of period

55,543

1.0%

 

55,346

2.2%

 

22,606

4.1%

(1)  As of December 31, 2020 and 2019, includes all repurchase agreements recorded under “Financial liabilities at amortized cost” and “Financial liabilities held for trading”. As of December 31, 2018, includes only certain repurchase agreements which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017.

As of December 31, 2020, 2019 and 2018, the securities sold under agreements to repurchase were mainly Mexican and Spanish treasury bills and such agreements were entered into with other financial and credit institutions.

EQUITY

Shareholders’ equity

As of December 31, 2020, shareholders’ equity amounted to €50,020 million, an 8.9% decrease compared to the €54,925 million recorded as of December 31, 2019, mainly as a result of the increase in accumulated other comprehensive loss.

Accumulated other comprehensive income (loss)

As of December 31, 2020, the accumulated other comprehensive loss amounted to €14,356 million, a 40.4% increase compared to the €10,226 million recorded as of December 31, 2019, mainly as a result of the adverse impact of the depreciation of the currencies of the main countries where the BBVA Group operates (in particular, the Mexican peso, the U.S. dollar and the Turkish lira) on “Foreign currency translation”. As of December 31, 2018, the accumulated other comprehensive loss amounted to €10,223 million.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

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F.   Competition

In recent years, the global financial services sector has undergone significant transformation in relation to the development of the Internet and mobile and other exponential technologies and the entrance of new players into activities previously provided in the main by financial institutions. Whereas commercial banks were previously almost the sole providers of the whole range of financial products, from credit to deposits, or payments and investment services, today, a set of non-bank digital providers compete (and cooperate) among each other and with banks in the provision of financial services. These new fintech providers can be startup firms that are specialized in a specific service or niche of the financial services market, or large digital players (known as BigTechs). BigTech companies such as Amazon, Facebook and Apple have also started to offer financial services (mainly, in relation to payments and credit) ancillary to their core business.

In this new competitive environment, banks and other players are calling for a level playing field that ensures fair competition among the different financial services providers. Regulations on consumer protection and the integrity of the financial system (such as anti-money laundering regulations or regulations for combating the financing of terrorism) are generally activity-specific and, therefore, meet the principle of a level playing field. However, with regards to financial stability, banking groups are subject to prudential regulations that have implications for most of their activities, including those in which they compete with non-bank players that are only subject to activity-specific regulations, at best, or not regulated at all. Therefore, the scope of the perimeter of prudential consolidation to which the prudential regulation and supervision in the European Union and elsewhere applies compromises the level playing field principle by requiring banking groups to apply banking-level controls to all subsidiaries, no matter their activities and actual risks involved. Restrictions on the activity of bank players, for instance as regards internal governance requirements, leave EU banks at a competitive disadvantage as regards cost, time-to-market or talent attraction compared to their competitors.

Existing loopholes in the regulatory framework are another cause of an uneven playing field between banks and non-bank players. Some new services or business models are not yet subject to existing regulations. In such cases, not only are potential risks to financial stability, consumer protection and the integrity of the financial system unaddressed, but asymmetries may arise between players since regulated providers often face obstacles that unregulated providers do not.

Another significant trend in the market is consolidation. Following the prior global financial crisis, a number of banks disappeared or were absorbed by other banks. We believe that the COVID-19 crisis may result in a number of mergers and acquisitions between financial entities in the regions where the Group operates, as recently seen in Spain.

Additional information on certain market dynamics affecting the four main countries where we operate is provided below.

Spain

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, several M&A transactions have taken place in the Spanish banking system over the past 3-4 years. In this vein, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the SRB for the latter. This has further increased the market share of Banco Santander in Spain. In January 2018, the merger between Bankia and Banco Mare Nostrum (“BMN”) was completed. More recently, in September 2020 the merger between Caixabank and Bankia was announced, which creates the largest bank in Spain in terms of total assets. This transaction is expected to close during the first quarter of 2021 once all regulatory authorizations have been received. Finally, the merger between Unicaja and Liberbank was announced in December 2020. This transaction will create Spain’s fifth largest bank in terms of total assets.

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We face strong competition in all of our principal areas of operations. The low interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to SMEs, where new credit interest rates have fallen from a weighted average of 5.5% between January 2012 and May 2014 to around 2.7% since the outbreak of the COVID-19 crisis in March 2020, barely exceeding credit costs. Since the outbreak of the crisis in the first quarter of 2020, public support measures have been introduced in Spain, particularly in the form of public guarantees on new loans to corporates and SMEs and moratoria and payment holidays on certain loans. The former has resulted in decreased competition in the SME loans segment. However, these public guarantees will be lifted in the future, which will likely increase competition levels again. More broadly, the end of the COVID-19 related public relief measures might result in a deterioration in the credit quality of borrowers, especially SMEs, which might require the recording of high loan-loss provisions by banks.

In the aftermath of the prior global financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed remuneration for deposits, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services. More recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

In Spain and in Europe, changes in banking regulation could have a significant potential impact on competition in the near future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the European Union to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the Single Euro Payments Area, which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the European Union, and MiFID, complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, further steps have been taken towards achieving a banking and capital markets union in Europe. The ECB started to work as a single supervisor in November 2014, supervising 117 entities (including BBVA) in the Eurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the SRF, the appointment of the SRB which is operational since January 1, 2015 and the Bail-in Tool included in the BRRD, which entered into force on January 1, 2016. For additional information on regulatory developments, see “―Business Overview―Supervision and Regulation”.  

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United States

The U.S. banking system’s performance in 2020 deteriorated significantly compared to 2019. However, in light of the unprecedented contraction of economic output due to the COVID-19 pandemic, the system remained resilient. While profitability was adversely affected primarily by the large loan loss provisions, credit quality did not deteriorate as much as in previous recessions due to the forceful and large monetary and fiscal support that the economy received early into the pandemic-induced downturn. During the first three quarters of 2020, net interest income for all FDIC-insured commercial banks fell by 4.2% year-on-year, while non-interest income and expenses remained on their pre-crisis trajectory. At the same time, provisions for loan and lease losses increased by more than 3.5 times, and as a result, net income reached only 48% of the level achieved in the same period in 2019. Return on assets and return on equity declined to their lowest levels since 2009. The core capital ratio of FDIC-insured commercial banks declined from 9.6% in the fourth quarter of 2019 to 8.7% and 8.8% in the second and third quarter of 2020, respectively, the lowest since 2010. Going forward, we expect commercial banks to benefit from the economic recovery and any subsequent round of stimulus, while at the same time remaining somewhat challenged by the low interest rate environment that will likely persist for a number of years going forward.

Mexico

In Mexico, the banking sector had a capitalization ratio of 17.4% in October 2020 (higher than the ratio reported in October 2019 of 16.1%) (in each case considering the group of entities of “banca múltiple” operating in Mexico). On October 31, 2020, the Mexican banking sector had 50 operating banks, one less than the previous year.

The growth of total bank lending to the non-financial private sector in Mexico decreased from an annual nominal average growth rate of 8.8% from January to November of 2019 to 5.2% in the same period of 2020. The negative impact of the COVID-19 pandemic over economic activity and formal employment deepened the slowdown in private sector credit that was already evident at the end of 2019. After a short rebound in the first months of the pandemic (boosted by liquidity needs), corporate lending lost momentum and registered its first contraction since February 2010 in November (-0.9%). The reduction of private investment was reflected in a weak corporate credit demand, so that the average growth rate of corporate loans was 6.9% from January to November of 2020, below the 9.2% reached in the same period of the previous year.

 Credit to consumers also decreased its annual nominal average growth rate from 6.1% in January to November 2019 to -2.3% in the same period of 2020. Consumer credit experienced seven months of contraction (starting in May 2020), reaching a double digit fall of -10.7% in November 2020. Mobility restrictions (which limit consumption opportunities), the fall of formal employment (and therefore household income) as well as consumer caution as a response to the uncertainty associated with the pace of economic recovery, contributed to deteriorate the dynamism of this type of loans.

 Mortgage lending was the only category of commercial bank credit which ended 2020 without a contraction, with an average nominal growth rate of 9.3% in January to November 2020, slightly below the rate of 10.5% in the same period of 2019. This credit portfolio was able to maintain some dynamism due to both low and stable long-term interest rates and the lagged impact of the increase in the number of formal workers in previous years, since potential clients of this type of credit must prove a minimum time in service to obtain a mortgage. However, due to this deferred effect, the negative impact of job losses as a result of the COVID-19 pandemic is expected to affect the performance of this portfolio for some time.

Bank deposits in Mexico increased in 2020 as a result of the shift from consumption to savings due to the COVID-19 pandemic. Traditional bank deposits (sight deposits and term deposits) had an average annual growth rate of 11.4% in nominal terms between January and November 2020, which represented a 4.3 p.p. increase in comparison with the same period of 2019. This significant increase was underpinned mainly by the increase of sight deposits, which grew at an average annual growth rate of 15.7% between January and November 2020. It is worth noting that the resilience of sight deposits in a recessionary environment (stemming from the low unemployment rate among medium and high-income earners) coupled with a slump in consumption, led to a sharp increase in liquid deposits. 

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On the other hand, term deposits slowed down sharply as the economic recession and the drop in benchmark interest rates took their toll on medium-term savings. In fact, the nominal growth of term deposits halved in 2020 with respect to 2019 as the average annual nominal growth rate during the last eleven months of the year decreased to 5.2%. Finally, the growth of deposits in debt investment funds was hit too as the economy slumped, the Mexican peso depreciated and the demand for liquid assets rose. As a result the average annual growth rate of deposits in debt investment funds dropped from 10.4% between January and November 2019 to 5.9% during the same period of 2020. 

Throughout 2020, regulatory activity increased driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic.

Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

In November 2020, a bill was presented to the Senate which would affect the repatriation of U.S. dollars. Finally, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

Turkey

In Turkey, where we operate through Garanti BBVA, the three public deposit banks that operate in the country accounted for 37% of the total assets of financial institutions as of November 30, 2020, whereas private deposit banks (including Garanti BBVA) accounted for 49%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 14% of the total. The Turkish economy experienced a significant acceleration in the credit growth rate on the back of supportive economic policies implemented in the COVID-19 crisis. TL lending (i.e., loans denominated in Turkish lira) growth accelerated to 44% in 2020 from 14% in 2019 due to the supportive credit policies implemented in response to COVID-19. In 2020, TL lending to corporations grew by 45%, consumer loans grew by 45% and credit cards grew by 24.3%. Credit growth adjusted for the exchange rate depreciation rose to 22% in 2020 from its 6% growth in 2019. Total customer deposits grew by 35% during the year (16.4% on a foreign exchange adjusted basis, compared with 18.6% in 2019). The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) rose to 24% from 20% in 2019. Foreign exchange deposit growth rate rose to 16.8% from 16.3% in 2019. Given the increases in TL credits, the TL loan-to-deposit ratio rose to 152% from 130% in 2019. The foreign exchange loan-to-deposit ratio fell to 64% from 78% due to the increase in foreign exchange deposits.

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G.   Cybersecurity and Fraud Management

BBVA’s Corporate Security Area is responsible for ensuring adequate information security management, including by establishing security policies, procedures and controls regarding the security of the Group’s global infrastructures, digital channels and payment methods with a holistic and threat intelligence-led approach.

BBVA’s security strategy resides on three fundamental pillars: cybersecurity, data protection and security in business processes and fraud management. A program has been designed for each of these pillars, with the aim to reduce the risks identified in the developed taxonomy. These programs, which consider security industry best practices established by internationally accepted security standards, are periodically reviewed to evaluate the progress and the effective impact on the Group risks.

During 2020, within the framework of the implementation of the security strategy, security measures were adopted to ensure an adequate protection of BBVA’s information and the assets supporting business processes. The implementation of these measures, which were perceived as necessary to mitigate the security risks the BBVA Group is exposed to, was carried out with a global perspective and an integral approach (considering not only technological aspects but also aspects related to the Group’s staff, processes and security governance).

Measures adopted in 2020 included measures intended to: (i) ensure end-to-end protection of business processes, considering logical and physical security, privacy and fraud management, (ii) ensure compliance of the security and privacy by design principles; and (iii) improve client access control and authentication services related to online services, from a security and user experience perspective, using the mobile device as the main element, in line with BBVA’s digital transformation strategy.  

The main initiatives which are being implemented to improve BBVA’s security and client protection are the following:

·Aqua card launch, the first card without a printed card number or CVV, with a dynamic CVV, reinforcing security, since not having these data prevents their possible fraudulent use.

·Implementation of strong customer authentication measures in e-commerce, requiring two of the three possible authentication mechanisms (something you know, something you own, something you are).

·Implementation of the “where is my card?” functionality, that allows the customer to have an overview of all e-commerce or platforms where they have registered their bank cards.

·Implementation of new behavior biometrics and malware protection for digital clients to reinforce analytical and fraud detection capabilities in mobile channels.

·Enhancement of the information provide to clients in the BBVA app to make them aware of the main risks they are exposed to, so that they can prevent or act against possible threats.

Additionally, BBVA has continued carrying out training and awareness initiatives related to security and privacy, promoting training and awareness campaigns for BBVA’s employees, clients and society in general on matters such as the BBVA app, online channels and social networks, secure password management, phishing and other technical attacks detection, detection of scams, security in online purchases and protection of personal information.

Other lines of action also include the adequate training of BBVA’s Board members in the area of security and incident management, as well as the periodic performance of global and local simulation exercises in order to raise the level of training and awareness of the Board of Directors and certain key personnel and ensure an immediate and effective response in case of a security breach.

Cybersecurity

Ensuring the effective protection of BBVA’s assets and customers’ data is vital for the Group.

During 2020, the Group has detected an increase in the number of attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment.

Furthermore, the COVID-19 pandemic has been used by cybercriminals to increase the scope of social engineering attacks through email, SMS, instant messaging systems and social networks. It has also contributed to the emergence of new risks and challenges for companies, like the ones related to security in teleworking and the increase on the attack surface.

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The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed at global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, operates 24x7 and provides services in all countries where the Group operates, under a scheme of managed security services, with operation lines dedicated to fraud and cybersecurity.

As cyberattacks evolve and become more sophisticated, the Group has strengthened its prevention and monitorization efforts. System monitoring capabilities have been reinforced, with particular attention to the critical assets that support business processes in order to prevent threats from materializing and, if necessary, to immediately identify and respond to any security incident that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and automated platforms.

We believe that measures implemented by the Group have improved information security management as a result in part of the use of digital intelligence and advanced analytical capabilities. The main objective of these measures is to ensure an immediate and effective response to any security incident that occurs through the coordination of the different business and support areas involved, to reduce the possible negative impact and, if necessary, to report such incident in a timely manner to the relevant supervisory or regulatory authorities.

BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. Specialized teams periodically perform security technical tests in order to detect and correct possible security vulnerabilities. These tests include technical tests of technological platforms as well as malicious users simulated attacks performed by the “red team”. The outcome of such exercises is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

Data Protection

The second pillar of the strategy is based on the adequate protection of data and its treatment, which is a fundamental element of the data-centric strategy of the BBVA Group. The main initiatives in this area relate to the adoption of measures to ensure that BBVA’s information assets are properly protected, limiting their use to their intended purposes and controlling access to them, considering the security guidelines established by the Group. All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of the Bank are represented.

Security in Business Processes and Fraud

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of the efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, the Corporate Fraud Committee, chaired by the Global Head of Engineering, oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

BBVA maintains cybersecurity and fraud insurance policies in respect of each of its subsidiaries. These insurance policies are subject to certain loss limits, deductions and exclusions. We can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies.

With the aim of guaranteeing the effective implementation of the Group’s security strategy, BBVA has established a security governance model. Among the bodies composing the security governance model, there are Committees responsible for the approval and supervision of the execution of the information security strategy, in matters such as corporate security, information security and protection, and fraud management. One of the main elements of this security governance model is the Technology and Cybersecurity Commission, composed by BBVA’s Chairman and BBVA’s Board of Directors. This Commission is responsible for the oversight of the Group’s technological strategy and cybersecurity strategy and allows the Board of Directors to be informed of the main technological risks to which the Group is exposed, as well as current cybersecurity and technology trends and any relevant security event that can affect the BBVA Group.

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Regarding business continuity, during 2020 BBVA has included “resilience” as an integral part of its holistic approach. This change reflects the evolution from a model mainly oriented to guarantee the continuous provision of products and services in situations with high impact and low probability to a model where the organization has the ability to absorb and adapt to situations with an operative impact due to disruptions of different nature (such as pandemics, cyber incidents, natural disasters or technological failures). This transition has implied an intense activity of the Resilience Office that, together with the Group’s Crisis Management Committees and Continuity Committees has had a relevant role in the management of the crisis caused by the COVID-19 pandemic.

ITEM 4A.      UNRESOLVED STAFF COMMENTS

None.

ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

BBVA has a solid leadership position in the Spanish market, it is the largest financial institution in Mexico in terms of assets, it has leading franchises in South America and the Sunbelt Region of the United States (see Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” ) and it is the largest shareholder in Garanti BBVA, Turkey’s biggest bank in terms of market capitalization.

The purpose of the BBVA Group is to bring the age of opportunities to everyone, based on our customers’ real needs, resting the institution in solid values: customer comes first, we think big and we are one team.

The BBVA Group operates in Spain through Banco Bilbao Vizcaya Argentaria, S.A., a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. In addition to the transactions it carries out directly, Banco Bilbao Vizcaya Argentaria, S.A. is the parent company of the BBVA Group, which includes a group of subsidiaries, joint ventures and associates performing a wide range of activities.

Critical Accounting Policies

The Consolidated Financial Statements as of and for the years ended December 31, 2020, 2019 and 2018 were prepared by the Bank’s directors in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, so that they present fairly the Group’s total equity and financial position as of December 31, 2020, 2019 and 2018, and its results of operations and consolidated cash flows for the years ended December 31, 2020, 2019 and 2018. The Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group. See Note 2.2 to our Consolidated Financial Statements.

In preparing the Consolidated Financial Statements, estimates were made by the Group and the consolidated companies in order to quantify certain of the assets, liabilities, income, expense and commitments reported herein. These estimates relate mainly to the following:

·The loss allowance of certain financial assets.

·The assumptions used to quantify certain provisions and for the actuarial calculation of the post- employment benefit liabilities and commitments.

·The useful life and impairment losses of tangible and intangible assets.

·The valuation of goodwill and price allocation of business combinations.

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·The fair value of certain unlisted financial assets and liabilities.

·The recoverability of deferred tax assets.

Although these estimates were made on the basis of the best information available as of December 31, 2020, 2019 and 2018, respectively, events that take place in the future might make it necessary to revise these estimates (upwards or downwards) in coming years.

Note 2 to our Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these policies to be particularly important due to their effect on the financial reporting of our financial condition and results of operations and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our Consolidated Financial Statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our Consolidated Financial Statements and the discussion below.

We have identified the accounting policies enumerated below as critical to the understanding of our financial condition and results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if the assumptions used or underlying circumstances were to change.

See Note 2.3 to our Consolidated Financial Statements for information on changes to IFRS or their interpretation that were not yet effective as of December 31, 2020.

Financial instruments

As we describe in Note 1.3 to our Consolidated Financial Statements, IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.

Fair value of financial instruments

The fair value of an asset or a liability on a given date is taken to be the price that would be received upon the sale of an asset, or paid, upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“quoted price” or “market price”). 

If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.

See Notes 2.2.1 and 8 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies.

Derivatives and other future transactions

These instruments include outstanding foreign currency purchase and sale transactions, outstanding securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.

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All derivatives are recognized on the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized in the heading “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the consolidated income statement.

Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.

The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instruments discounted at the measurement date (“present value” or “theoretical value”). These derivatives are measured using methods recognized by the financial markets, including the net present value method and option price calculation models.

Financial derivatives that have equity instruments as their underlying, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost, although the amortized cost criteria is not used when accounting for these instruments.

Financial derivatives designated as hedging items are included in the heading of the balance sheet “Derivatives - Hedge accounting”. These financial derivatives are valued at fair value.

See Note 2.2.1 to our Consolidated Financial Statements, which contains a summary of our significant accounting policies with respect to these instruments.

Goodwill in consolidation

Pursuant to IFRS 3, if the difference on the date of a business combination between the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of equity interest previously held in the acquired entity, on one hand, and the fair value of the assets acquired and liabilities assumed, on the other hand, is positive, it is recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized.

Goodwill is not amortized and is subject periodically to an impairment analysis. Any impaired goodwill is written off.

If the difference is negative, it is recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

Goodwill is allocated to one or more cash-generating units, or CGUs, expected to benefit from the synergies arising from business combinations. See Note 2.2.7 to our Consolidated Financial Statements for the definition of CGU.

The CGUs to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.

For the purpose of determining the impairment of a CGU to which a part or all of goodwill has been allocated, the carrying amount of that CGU, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, shall be compared to its recoverable amount (except where they are not valued at fair value). The resulting difference shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining difference in proportion to the carrying amount of each of the assets in the CGU. In any case, impairment losses on goodwill can never be reversed.

See Notes 2.2.6 and 2.2.7 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies related to goodwill.

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The results from each of these tests on the dates mentioned were as follows:

As of March 31, 2020, we identified an indicator of impairment of goodwill in the United States CGU and, as a result of the goodwill impairment test performed, an impairment of €2,084 million was recognized in the United States CGU, which was mainly due to the negative impact of the macroeconomic scenario following the COVID-19 pandemic. This recognition did not affect the tangible book value or the solvency ratio of the BBVA Group. For additional information, see Note 18.1 to our Consolidated Financial Statements. As of December 31, 2020, as a result of the CGUs assessment, the Group concluded there is no evidence of further indicators of impairment that requires recognizing significant additional impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.

As of December 31, 2019, an impairment of €1,318 million was recognized in the United States CGU and was mainly the result of the negative changes in interest rates, especially in the second half of 2019, which together with the slowdown of the economy caused the expected results to be below prior estimates. For additional information, see Note 18.1 to our Consolidated Financial Statements.

As of December 31, 2018, as a result of the CGUs assessment, the Group concluded there was no evidence of indicators of impairment that require recognizing significant impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.

United States CGU

As of December 31, 2020, the remaining goodwill corresponding to the United States CGU has been reclassified to the heading "Non-current assets and disposal groups classified as held for sale" in the consolidated balance sheet. Pursuant to IFRS 5.15, the CGU must be measured at the lower of fair value less costs to sell and the carrying amount. Given the price agreed in the USA Sale share purchase agreement, the fair value less costs to sell is higher than the carrying amount of the assets and liabilities of the CGU, which means that as of December 31, 2020 the assets and liabilities of the CGU will remain valued at their carrying amount (including goodwill) on the reclassification date.

The calculation of the impairment test performed as of March 31, 2020 used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of March 31, 2020, the Group used a growth rate of 3.0% (3.5% and 4.0% as of December 31, 2019 and 2018, respectively) to extrapolate the cash flows in perpetuity starting in the fifth year, based on the real GDP growth rate of the United States, the expected inflation and the potential growth of the banking sector in the United States. The GDP growth rate is lower than the historical average nominal GDP growth rate of the United States for the past 30 years and lower than the real GDP growth rate forecasted by the IMF. The rate used to discount cash flows is the cost of capital assigned to the CGU, 10.3% as of March 31, 2020 (10.0% and 10.5% as of December 31, 2019 and 2018, respectively), which consists of the risk free rate plus a risk premium.

As of March 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €755 million and €869 million, respectively (€871 million and €1,017 million, respectively, as of December 31, 2019, and €1,009 million and €1,176 million, respectively, as of December 31, 2018). If, as of March 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €270 million and €235 million, respectively (€340 million and €292 million, respectively, as of December 31, 2019, and €526 million and €451 million, respectively, as of December 31, 2018).

Mexico CGU

Part of the Group’s goodwill balance corresponds to the CGU in Mexico. The impairment test used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2020, the Group used a growth rate of 5.7% (5.9% as of December 31, 2019 and 5.6% as of December 31, 2018) to extrapolate the cash flows in perpetuity starting in the fifth year, based on the real GDP growth rate of Mexico, expected inflation and the potential growth of the banking sector in Mexico. The rate used to discount cash flows is the cost of capital assigned to the CGU, 15.3% as of December 31, 2020 (14.8% as of December 31, 2019 and 2018).

As of December 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €1,043 million and €1,156 million, respectively (€1,453 million and €1,624 million, respectively, as of December 31, 2019). If, as of December 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €688 million and €620 million, respectively (€957 million and €856 million, respectively, as of December 31, 2019).

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Turkey CGU

Part of the Group’s goodwill balance corresponds to the CGU in Turkey. The impairment test used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2020, the Group used a growth rate of 7.0% (the same rate was considered as of December 31, 2019 and 2018) to extrapolate the cash flows in perpetuity starting in the fifth year, based on the real GDP growth rate of Turkey and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 21.0% as of December 31, 2020 (17.4% and 24.3% as of December 31, 2019 and 2018, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €164 million and €175 million, respectively (€192 million and €212 million, respectively, as of December 31, 2019). If, as of December 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €29 million and €26 million, respectively (€31 million and €28 million, respectively, as of December 31, 2019).

As of December 31, 2020, December 31, 2019 and December 31, 2018 the recoverable amounts of the CGUs not listed above were in excess of their carrying value.

 Insurance contracts

The methods and techniques used to calculate the mathematical reserves for insurance contracts mainly involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each contract. Changes in insurance mathematical reserves may occur in the future as a consequence of changes in interest rates and other key assumptions. See Notes 2.2.8 and 23 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies and assumptions about our most significant insurance contracts.

Post-employment benefits and other long term commitments to employees

Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the future as a consequence of changes in interest rates, expected return on assets or other assumptions. See Notes 2.2.11 and 25 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies about pension and post-retirement benefit costs and credits.

A.   Operating Results

Factors Affecting the Comparability of our Results of Operations and Financial Condition

Trends in Exchange Rates

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Colombian pesos and Peruvian soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

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Except with respect to hyperinflationary economies, the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Consolidated Financial Statements, and income statement items have been converted at the average exchange rates for the period. See Note 2.2.19 to our Consolidated Financial Statements for information on the application of IAS 29 to hyperinflationary economies. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per €1.00 as averages for the years ended December 31, 2020, 2019 and 2018 and as period-end exchange rates as of December 31, 2020, 2019 and 2018 according to the European Central Bank (the “ECB”). 

 

Average Exchange Rates

Period-End Exchange Rates

 

Year Ended December 31, 2020

Year Ended December 31, 2019

Year Ended December 31, 2018

As of December 31, 2020

As of December 31, 2019

As of December 31, 2018

Mexican peso

24.5301

21.5531

22.7046

24.4160

21.2202

22.4921

U.S. dollar

1.1418

1.1195

1.1810

1.2271

1.1234

1.1450

Argentine peso

 

 

 

103.2543

67.2860

43.2900

Colombian peso

4,216.8126

3,673.6747

3,484.3206

4,212.0208

3,681.5391

3,745.3184

Peruvian sol

3.9923

3.7335

3.8787

4.4470

3.7205

3.8621

Turkish lira

8.0501

6.3595

5.7058

9.1131

6.6843

6.0588

During 2020, foreign exchange markets have been affected by the COVID-19 pandemic, which has generally had an adverse impact on currencies of emerging economies. The COVID-19 pandemic also affected the U.S. dollar as the extraordinary response taken by the U.S. government and the Federal Reserve placed downward pressure on the U.S. dollar. All currencies listed above depreciated against the euro in average terms compared with average exchange rates in the prior year.In terms of period-end exchange rates, all these currencies depreciated as well against the euro. As a result, the overall effect of changes in exchange rates was negative for the period-on-period comparison of the Group’s income statement and balance sheet.

During 2019, the Turkish lira, the Argentine peso and the Colombian peso depreciated against the euro in average terms compared with average exchange rates in the prior year. On the other hand, the Mexican peso, the U.S. dollar and the Peruvian sol appreciated against the euro in average terms. In terms of period-end exchange rates, the Argentine peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian sol appreciated against the euro. The overall effect of changes in exchange rates was positive for the period-on-period comparison of the Group’s income statement and negative for the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this annual report on Form 20-F we have sometimes excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of the more recent period for both period ends.

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COVID-19 pandemic

On March 11, 2020, the World Health Organization declared the outbreak of coronavirus (COVID-19) a pandemic.

The coronavirus (COVID-19) pandemic has affected, and is expected to continue to adversely affect, the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession. Among other challenges, these countries are experiencing widespread increases in unemployment levels and falls in production, while public debt has increased significantly due to support and spending measures implemented by government authorities. In addition, there has been an increase in debt defaults by both companies and individuals, volatility in the financial markets, volatility in exchange rates and reductions in the value of assets and investments, all of which have adversely affected the Group’s results in the year ended 2020, and are expected to continue affecting the Group’s results in the future.

Furthermore, the Group may be affected by the measures or recommendations adopted by regulatory authorities in the banking sector, including but not limited to, the reductions in reference interest rates, the relaxation of prudential requirements, restrictions on the distribution of dividends, the adoption of moratorium measures for bank customers (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement (as defined below) to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments), the implementation of credit programs supported by public guarantees for corporates, SMEs and self-employed individuals, as well as changes in the financial asset purchase programs.

Since the outbreak of COVID-19, the Group has experienced a slowdown in its activity. For example, the granting of new loans to individuals significantly decreased during the state of emergency or periods of confinement decreed in certain countries in which the Group operates. In addition, the Group faces various risks, such as an increased risk of deterioration in the value of its assets (including financial instruments valued at fair value, which may suffer significant fluctuations) and of the securities held for liquidity reasons, a possible significant increase in non-performing loans and RWAs, a negative impact on the Group’s cost of financing and on its access to financing (especially in an environment where credit ratings are affected) and the deterioration of the Group’s capital ratios. 

In addition, in several of the countries in which the Group operates, including Spain, the Group temporarily closed a significant number of its offices and reduced hours of working with the public, with teams that provide central services working remotely. These measures were partially reversed in some regions. However, due to the continued expansion of the COVID-19 pandemic, it is unclear how long it will take for normal operations to be fully resumed.

The COVID-19 pandemic could also adversely affect the business and operations of third parties that provide critical services to the Group and, in particular, the greater demand and/or reduced availability of certain resources could in some cases make it more difficult for the Group to maintain the required service levels. Furthermore, the increase in remote working has increased the risks related to cybersecurity, as the use of non-corporate networks has increased.

As a result of the above, the COVID-19 pandemic has had an adverse effect on the Group’s results and capital base. During the first half of the year the main accumulated impacts were the following:

a)a deterioration in the portfolio of financial assets at amortized cost (mainly loans and advances to customers), mainly due to the deterioration of the macroeconomic environment, which had a negative impact of €2,009 million (including the initial adverse effect of moratoria) and provisions for credit risk and contingent commitments in an aggregate amount of €95 million (see Notes 7.2, 46 and 47 to our Consolidated Financial Statements); and

b)a deterioration in the value of the goodwill of the Group’s subsidiary in the United States, mainly due to the deterioration of the macroeconomic scenario in the United States, which had a net negative impact of €2,084 million on the Group’s attributed profit (although this impact does not affect the tangible book value, nor the solvency or the liquidity of the Group) (see Notes 18.1 and 49 to our Consolidated Financial Statements).

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From June 30, 2020 on, and as a consequence of the general economic deterioration in many countries and the pick up in activity in certain countries in the latter part of the year, we believe that the specific impact of COVID-19 cannot be easily isolated and we have therefore not quantified its impact for the year ended December 31, 2020. We expect the COVID-19 pandemic to continue adversely affecting the Group. Among other impacts, we expect non-performing loans and RWAs to increase once payment moratoria schemes adopted by governments are lifted.

For information on the impact of the COVID-19 pandemic on our capital, see “—Capital”. 

Measures adopted in light of the COVID-19 pandemic

For summarized information on certain supervisory pronouncements to be taken into account in the implementation of the accounting and prudential frameworks applicable to financial institutions, see “—Pronouncements of regulatory bodies and supervisors regarding COVID-19” below. The Group has taken such pronouncements into consideration when preparing the Consolidated Financial Statements. For summarized information on certain relief measures adopted by the ECB regarding capital and liquidity requirements, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Capital Requirements”. 

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludes distributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”. 

Since the beginning of the pandemic, the Group has offered payment deferrals to its customers in all the geographies in which it operates. These measures have been driven both by government-led initiatives (typically reflected in local laws and regulation) and non-legally-imposed initiatives (based on sectorial or individual schemes), aimed at mitigating the effects of COVID-19. Generally, the payment of principal and/or interest has been deferred without there being lease modifications in accordance with IFRS 16. See “Presentation of Financial Information—Changes in Accounting Policies—IFRS 16 –Leases – COVID-19 modifications”. Generally, these deferrals have been given for a period of less than one year. Deferrals have been granted to customers in all categories (retail, SMEs and wholesale). With respect to corporates, they are mainly in the Leisure, Real Estate and Automotive sectors. Except in the case of Mexico and Argentina (where the period for qualifying for payment deferrals has already ended), additional customers may qualify for these deferrals. The deadline for qualifying for payment deferrals in most regions ends in the first quarter of 2021, except in Turkey (May 2021), Colombia (July 2021) and in the United States (January 2022).

Set forth below is summarized information on certain economic measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic, as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments.

Europe

In Europe, fiscal stimulus packages continue to be implemented by all the relevant European authorities, the European Union (EU) and member states, with the recovery fund (Next Generation EU) approved by the EU being the most relevant. Such fund would mean an initial endowment of €750,000 million and an additional endowment of €600,000 million until June 2021 (or until the ECB considers the crisis has been resolved) to support the recovery within the coming years through the promotion of investment and the development of structural reforms. As a consequence of the transfers expected to be made thereunder, member states most affected by the health crisis would avoid incurring higher debt and the plan is expected to result in a lower cost of funding for member states.

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In addition, on April 30, 2020, the ECB relaxed some of the terms and conditions of the TLTRO III facilities to support banks’ liquidity and, therefore, support the continued access of companies and households to bank credit. Entities whose eligible net credit investment exceeds 0% between March 1, 2020 and March 31, 2021 will pay an interest rate 0.5% lower than the average rate of their deposit facilities from June 24, 2020 to June 23, 2021, meaning that the interest rate applicable to the facilities arranged is -1%. Outside of this period, the average interest rate of the deposit facilities will be applied (currently -0.5%) provided that the financing objectives are met according to the conditions of the ECB. BBVA participated in the TLTRO III program windows in December 2019 and in March and June 2020 (with an amount drawn down at the end of December 2020 of €35,032 million) due to their favorable conditions in terms of cost and term, repaying in turn the corresponding part of the TLTRO II program.

In addition, a new program for long-term refinancing transactions without a specific emergency objective (PELTRO) was established.

Spain

In Spain, measures adopted in response to the COVID-19 pandemic include credit facilities for SMEs and self-employed workers and credit guaranteed by the Instituto de Crédito Oficial (“ICO”), upfront payment of pension payments and unemployment benefits, credit guaranteed by the ICO for rent payment, payment deferrals on insurance and credit cards, as well as grace periods on loans for the most affected population. Such measures have been covered mainly by Royal Decree Laws 8/2020 and 11/2020 (jointly, the “RDL”), as well as the agreement promoted by the Spanish Banking Association (“AEB”) to which BBVA has adhered (the “CECA-AEB agreement”).  

The moratoria measures included in the RDL have been directed to the especially vulnerable groups indicated in the regulation. These measures consist of a three-month payment deferral of principal and interest. Additionally, once the term of such deferral has expired, customers have the possibility of joining the relevant sector agreement. By type of customer, they are aimed at individuals and individual or self-employed entrepreneurs, and by type of product, mortgage, personal and consumer loans.

The moratoria measures included in the CECA-AEB agreement to which BBVA has adhered allow loan debtors to extend maturities and defer interest payments. As originally drafted, these measures consisted of an up to 12-month payment deferral of principal in the case of mortgage loans and an up to six-month payment deferral of principal and interest in personal loans. Said agreement expired on September 29, 2020, but was extended (with certain changes) until March 30, 2021. In particular, the new conditions provide an up to nine-month payment deferral of principal in the case of mortgage loans (while the duration of the deferral for personal loans continued to be the same).

Additionally, the ICO has implemented several aid programs aimed at self-employed individuals, SMEs and entities, through which a public guarantee which covers between 60% and 80% of the principal amount of a loan is granted for a period of up to five years in respect of loans eligible under such programs. The amount of the guarantee and the term depend on the size of the company and the type of product. The ICO has also granted loans to individuals in an aggregate amount equivalent to up to six months of rent in loans to be repaid in up to six years.

The United States

In the United States, the Federal Reserve has cut interest rates to zero, launched a program of massive purchases of financial assets, created a number of credit facilities and revised its monetary policy strategy, suggesting greater tolerance for inflation in the future. In addition, the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which seek to provide economic assistance for workers, families and businesses, and preserve jobs were launched.

Measures adopted by the Group in the United States include affording flexibility in the repayment of loans for businesses and for consumer finance customers, and the removal of certain fees for individual customers. In addition, the Group participates in the PPP and other loan programs.

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Mexico

In Mexico, the National Banking Commission of Securities (“CNBV”) published official letters P285 / 2020 of March 26, 2020 and P293 / 2020 of April 15, 2020, allowing the granting of capital and interest payment deferral for a period of four months, extendable for two additional months. These measures were relied on both by individuals and corporates, affecting mortgage loans, personal loans and consumer loans, including credit cards. During March and April 2020, BANXICO reduced the monetary policy rate and announced certain measures to promote the orderly behavior of the financial markets, strengthen credit granting channels and provide liquidity for the development of the financial system. It also announced a reduction in the Monetary Regulation Deposit, the instrument through which the Central Bank balances its long-term liquidity, and the start of auctions of U.S. dollars with credit institutions in which BBVA Mexico participated since April, in the aggregate amount of $1,250 million, and partially renewed that position from June to September for $700 million.

Measures adopted by the Group in Mexico include a repayment deferral on various credit products, a fixed payment plan to reduce monthly credit card charges, the suspension of point of sale fees to support retailers with lower turnover and certain plans to support large corporate customers.

Turkey

Due to the COVID-19 outbreak, the Turkish government has announced a program of fiscal measures (Economic Stability Shield) to offset the effects of the pandemic by allowing banks to defer payments for three months, extendable for three additional months, which was accompanied by several communications from the BRSA. These support measures are granted to both individuals and companies. Additionally, public support programs have been implemented, through which a public guarantee which covers up to 80% of the principal amount of a loan eligible thereunder is granted for a period of one year.

The Central Bank has decreased the average financing rate, tightened its monetary policy and increased the reserve requirement rates, in addition to taking measures to provide liquidity with long term instruments and discount rates.

Measures adopted by the Group in Turkey include a deferral of certain loan repayments and penalty-free interest and principal payments.

For information on additional measures adopted in Turkey, see Item 4. Information on the Company—Business Overview—Supervision and Regulation—Principal Markets—Turkey”. 

South America

In South America, various central banks and governments have implemented measures to stimulate economic activity and provide greater liquidity in financial systems.

In Colombia, the binding legislation for moratoria was approved by the Financial Superintendency, through Circulars 07/2020 and 14/2020, as well as Resolution No. 385. The moratoria consist of the payment deferral of principal and interest payments for up to six months. The deadline to apply for them has been extended until July 2021.

 In Peru, a fiscal package has been implemented to alleviate the negative impacts of COVID-19 on households and businesses. The measures were approved through various official letters issued by the Superintendency of Banking and Insurance, allowing the deferral of principal and interest payments initially up to six months and then extended to up to 12, mainly to individuals, self-employed entrepreneurs and SMEs. Additionally, there have been public support programs such as Reactiva, Crecer or FAE aimed at companies and micro-companies.

102


 In Argentina, the repeated implementation of quarantine restrictions has been accompanied by government fiscal support measures targeting certain sectors and regions. Exchange-rate restrictions have been adopted in order to halt the fall in reserves. Further, moratorium measures have been mainly reflected on state legislation, such as Royal Decree 544/2020 or Decree 319/202, as well as various Central Bank regulations. Aimed at a broad group of clients, they facilitate the deferral of capital and interest for up to three months. Public support programs have also been adopted in Argentina. Such programs offer public guarantees of up to 100% of the principal amount of eligible loans to micro-SMEs or self-employed entrepreneurs and up to 25% with respect to loans to other companies for up to one year.

Pronouncements of regulatory bodies and supervisors regarding COVID-19

With the aim of mitigating the impact of COVID-19, various European and international bodies have made pronouncements to be taken into accountin the implementation of the accounting and prudential frameworks applicable to financial institutions. In particular, the ECB and/or the EBA, as the case may be, have adopted the following relief measures regarding asset quality deterioration and non-performing loans: (i) with respect to loans affected by legally imposed payment moratoria related to the COVID-19 pandemic, it has afforded flexibility to the unlikely-to-pay classification of such loans in regard to timing and scope of the assessment, taking into account all available support measures, and (ii) with respect to COVID-19 related financing with public guarantees, it has provided flexibility regarding the classification of obligors as unlikely to pay, and will give public-guaranteed loans a preferential treatment in terms of their minimum coverage expectation. Furthermore, Regulation (EU) 2020/873 of the European Parliament and of the Council of June 24, amending the CRR, as regards certain adjustments in response to the COVID-19 pandemic (the “CRR Quick Fix”) , contains a number of adjustments to the CRR to facilitate lending by banks as a response to the COVID-19 crisis. The adjustments also reflect recent statements of the Basel Committee on Banking Supervision addressing the challenges of the pandemic. These adjustments include extending for two years the transition period for arrangements related to the implementation of IFRS 9; bringing forward the introduction of some capital relief measures for banks under CRR2, including the preferential treatment of certain loans backed by pensions or salaries and of certain exposures to SMEs and infrastructure; and changing the minimum amount of capital that banks are required to hold for non-performing loans under the prudential backstop.

On December 2, 2020, recognizing the exceptional circumstances of the second wave of COVID-19, the EBA expanded the period for applying the beneficial regulatory treatment for moratoria until March 31, 2021, updating the guidelines on legally-imposed and non-legally-imposed moratoria on loan repayments, including additional safeguards against the risk of an excessive increase in unrecognized losses on banks’ balance sheets.

The Group has taken the pronouncements referred to above into consideration when preparing its Consolidated Financial Statements. See Note 1.5 to our Consolidated Financial Statements for additional information.

Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in Spain including a long-term exclusive distribution agreement for the sale of non-life insurance products, excluding the health insurance business, through BBVA’s branch network in Spain.

On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital plus one share in BBVA Seguros Generales. BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of approximately €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points.

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Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduced a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA applied both exceptions.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Properties, plants and equipment” and “Tangible assets – Investment properties” in our Consolidated Financial Statements (see Note 17), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in our Consolidated Financial Statements (see Note 22.5). For the consolidated income statement within our Consolidated Financial Statements, the amortization of the right to use asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 45) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 37.2).

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

At the adoption date, the Group decided to apply the modified retrospective approach which required the recognition of lease liabilities in an amount equal to the present value of any future payments committed under the Group’s leases as of such date. Regarding the measurement of its right-of-use assets, the Group elected to record an amount equal to the lease liabilities, adjusted for the amount of any advance or accrued lease payment related to the Group’s leases recognized in the consolidated financial statements immediately before the adoption date.

As of January 1, 2019, the Group recognized right-of-use assets and lease liabilities for an amount of €3,419 million and €3,472 million, respectively. The impact in terms of the CET1 of the Group amounted to -11 basis points.

As allowed by IFRS 16, consolidated financial information as of December 31, 2018 and for the year then ended has not been restated retrospectively in this regard.

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from Scotiabank for the acquisition of BBVA’s stake in BBVA Chile as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement and the sale was completed on July 6, 2018. The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018. BBVA Chile was part of our South America segment.

Transfer of real estate business and sale of stake in Divarian

On October 10, 2018, after obtaining the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian and the sale of an 80% stake in Divarian to Promontoria. Prior to its contribution to Divarian, the Business was part of our former Non-Core Real Estate segment (which was subsequently integrated into our Spain operating segment)Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian, which is accounted for under the Corporate Center. For additional information on the Cerberus Transaction, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—Material Contracts—Joint Venture Agreement with Cerberus

Hyperinflationary economiesAgreement with Voyager Investing UK Limited Partnership (Anfora)

Argentina, which is part of the South America segment, was considered to be a hyperinflationary country inOn December 21, 2018, BBVA reached an agreement with Voyager, an entity managed by Canada Pension Plan Investment Board, for the first time. Hyperinflation in Argentina hadtransfer by us of a negative impactportfolio of €266 million in the “Profit attributable to parent company” for 2018. For additional information, see Note 2.2.20credit rights which was mainly composed of the Consolidated Financial Statements.

Changes in operating segments

Since 2018, our Mexico segment includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous years). In addition, there have been certain non-significant changes affecting the composition of our Banking Activity in Spain, Non Core Real Estate and Corporate Center segments. The financial information for 2017 relating to such segments included in the Consolidated Financial Statementsnon-performing and in this Annual Report has been revised accordingly to improve its comparability with financial information for 2018. However, financial information for 2016 has not been revised asdefault mortgage credits. The transaction was completed during the third quarter of 2019 and resulted in a result thereof. Asgain, net of taxes, of €138 million and a result,slightly positive impact on the consolidated financial information relating to such segments for 2016 is not fully comparable with such information for 2017 and 2018.BBVA Group’s CET1.

129104


 

Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits but also intermediation of financial products such as sovereign or corporate debt) in the countries in which we operate. Demand for our products and services in those countries is affected by the performance of their respective economies in terms of gross domestic product (GDP),GDP, as well as prevailing levels of employment, inflation and, particularly, interest rates. TheTypically, the demand for loans and saving products correlates positively with income, which correlates in turn with the GDP, employment and corporate profits evolution. Regarding interestInterest rates they have a direct impact on banking results as the banking activity mainly relies on the generation of positive interest margins by paying lower interest on liabilities, primarily deposits, than the interest received on assets, primarily loans. However, it should be noted that higher interest rates, all else being equal, also reduce the demand for banking loans and increase the cost of funding of the banking business.

The global environment has deteriorated during the second half of 2018, with a more evident effect of the increase in protectionism in global trade and the industrial sector together with the signs of a slowdown in China, the Eurozone and the United States. Faced with this scenario of global uncertainty, the main central banks have shown signs of caution in their normalization plans, and have been key to containing the sharp rise in financial tensions. BBVA Research’s forecast is for a smooth deceleration of the growth in the global economy, from 3.6% in 2018 to 3.5% in 2019 and 3.4% in 2020. This is based on the scenario referred to above and the assumption that financial volatility may continue during the first half of 2019 and that some of the uncertainties weighing on the global economy may not dissipate (as a result, for example, of the lack of an agreement between the United States and China to curb trade disputes and avoid a new tariff hike, or of a solution that avoids a no-deal Brexit).

Regarding the evolution of key economic areas for the Group, after growing above 3% in each of 2017 and 2016, the Spanish economy slowed slightly in 2018 but is still expanding at a positive rate. The positive inertia of the economy along with supportive monetary and fiscal policies is supporting the dynamism of Spanish domestic demand and offsetting some headwinds created by increasing oil prices and higher uncertainty. According to BBVA Research’s current estimates, growth is expected to slow to slightly below 2.5% in 2019. Elections taking place this year are being held in an environment of increased political fragmentation, which may result in an outcome that may hinder the implementation of  necessary structural reforms, thus adding new uncertainty.

Mexico’s GDP grew at an annualized rate of 2.0% in 2018 (2.3% in 2017) driven by robust private consumption, and throughout most of the year, the manufacturing sector. At the beginning of 2019, BBVA Research’s GDP growth forecast was slightly revised downwards to of 2% due to delays in investment works and less dynamic U.S. industrial manufacturing production, combined with increased uncertainty related to the economic policies of the new government. PEMEX’s business model and the decline in its rating increases risk in the Mexican economy. On the other hand, we believe the declining trend in inflation is likely to continue to improve the purchasing power of households and underpin private consumption in 2019. Sound fiscal and monetary policy oriented to maintaining price stability are likely to be crucial to limiting any potential negative impacts upon, or any uncertainties with regards to, the Mexican economy.

South AmericanBBVA Research estimates that the world’s GDP grew by 0.2%contracted severely in 2018 after having grown by 0.7% in 2017. Low regional growth was mainly as a result of the weak macroeconomic performance of some Mercosur countries, such as Argentina, where GDP declined by 2.4% in 2018, largely2020 due to the effects of the foreign exchange crisis triggered by concerns aboutCOVID-19 pandemic. Global growth is expected to go back to positive in 2021, but the fundingrecovery is expected to be gradual and heterogeneous across countries. Supply, demand and financial factors caused an unprecedented drop in GDP in the first half of the current account deficityear. Supported by decisive measures on fiscal and monetary policy, as well as tighter control of the spread of the virus, global growth rebounded more significantly than expected in an environmentthe third quarter, before moderating in the fourth quarter, when the number of declining global liquidity. Moving forward, accordinginfections rose again in many regions, mainly in the United States and Europe. The negative evolution of the pandemic is expected to BBVA Research, the global slowdown will likely limit the recovery of economicadversely affect activity in South America, with weaker growth in developed countries, higher global financial volatilitythe short term and worse prospects for commodity prices, in addition to certain idiosyncratic factors that are likely to negatively affectnew fiscal and monetary stimuli as well as the region. BBVA Research expects average GDP growth to be around 0.7% in 2019, with higher growth, around 3.5%, in Peru, Chile, Colombia and Paraguay, and approximately 2% growth in Mexico, Brazil and Uruguay. In Argentina, BBVA Research expects that GDPinoculation of vaccines will decline again in 2019 as a whole, although positive quarterly growth may returnsupport the recovery from the middle of the year onwards. Inyear.

Uncertainty remains high despite the improvement in prospects created by vaccines. Slow vaccination rates, new strains of the coronavirus as well as stress generated by high public and private debt could, for example, pave the way for more negative scenarios. But more positive scenarios, either due to a context where there is scarce room for expansionarysharper rebound in confidence following the inoculation of the vaccines or stimulated by further monetary and fiscal policies most(especially in the United States) should not be ruled out.

In Spain, according to BBVA Research estimates, GDP contracted by an estimated 11.0% in 2020 and could grow by around 5.5% in 2021 and 7.0% in 2022. The performance of the region will likely continueeconomy improved during the third quarter of 2020, but it slowed down in the fourth quarter of 2020, as the impact of public policies on domestic demand showed symptoms of exhaustion. Both private consumption and investment -public and private-, are expected to benefit from lax monetary policies. However, the strengtheningvaccination campaign, the expansive fiscal policy and favorable financing conditions. The vaccination campaign is expected to boost activity as it would reduce health uncertainty and relax restrictions on the mobility and the permit the re-opening of domestic demand and/service sector businesses. Funds associated with the European Recovery Plan (Next generation EU or NGEU”) are expected to have an increasing effect over time. Estimates of the exchange rate pass-through depreciation will likely gradually leadimpact of these funds on the economy continue to point to a significant effect this year and the next two years.

105


Meanwhile, at a European level, fiscal packages have been enacted by all relevant European authorities, the EU and member states. The European Commission has approved the NGEU plan, a €750 billion temporary recovery instrument (5.4% EU GDP). Its centerpiece, the Recovery and Resilience Facility has been launched to support reforms and investments undertaken by EU countries, and includes €390 billion in grants to be released until 2023, and €360 billion in loans which are expected to be in place until 2026. According to the eliminationEuropean Commission estimates, NGEU could lift GDP growth by 1.5%-2% by 2024. Moreover, the ECB has extended the Pandemic Emergency Purchase Programme (PEPP) to up to €1,850 billion, while purchases have been extended until March 2022, and the terms of monetary stimuliliquidity operations TLTROs III have also been relaxed. After a quarterly GDP rebound of 12.5% in the coming years. In contrast, with respectthird quarter of 2020 in the Eurozone, the resurgence of COVID-19 infections since the autumn and the accompanying tighter social restrictions started to Argentina,take their toll again on activity in the fourth quarter of 2020 and they are expected to extend into the first half of 2021. However, unlike the first COVID-19 wave, the new lockdown measures are more limited and both the manufacturing sector and exports seem to be more resilient due also to the recovery in global demand, especially from China, and some positive effects due to higher inventories related to the end of the Brexit transition period. This could partly offset the sharp fall in activity in social consumption sectors and services. BBVA Research expects the world’s GDP to have fallen around -2.6% quarter-on-quarter in the fourth quarter of 2020, resulting in an estimated annual GDP fall of -7.3% in 2020. Weaker momentum in the first half of 2021 is expected to result in a slow recovery in 2021 (4.1%), although the roll out of the vaccines and the EU’s fiscal program is expected to underpin growth as from the second half of 2021 and in 2022 (4.4%).

After a rebound in growth during the third quarter of 2020, the Mexican economy moderated its recovery in the fourth quarter of 2020, due in part to the announcement of new restrictions on mobility at the end of the year. The economy contracted by 8.5% in 2020 and BBVA Research expects it to grow by 3.2% in 2021. The lack of fiscal stimulus in Mexico could make the recovery particularly slow. Regarding the vaccine, Mexico has purchased doses from different suppliers, which could boost the opening of economic activities, although the distribution of these vaccines and the speed of the vaccination process represent an important challenge that will need to be addressed throughout the year. Inflation is expected to remain within the target range of BANXICO and BBVA Research expects that BANXICO will continue the cycle of lowering the monetary policy is likelyrate and that it will lower it from the current 4.25% to become gradually less restrictive once inflation moderates after the recent rebound. The main risks3.5% by May 2021.

In Turkey, BBVA Research estimates GDP grew by 1% in 2020, and expects that GDP will increase by 5.5% in 2021 and 4.5% in 2022. GDP growth in the region are relatedthird quarter of 2020 was better than estimated, with the services sector, which is very sensitive to political and fiscal issues and possible delaysthe COVID-19 crisis, contributing positively while other main sub sectors also showing a strong rebound.

In the United States, GDP contracted by 3.5% in investment projects, in addition to more general risks in2020. Although the contextspread of COVID-19 may adversely affect the beginning of 2021, BBVA Research expects that the progressive vaccination of the global environment.population as well as highly expansionary fiscal and monetary policies will increasingly support economic activity. BBVA Research expects GDP to expand 3.6% in 2021 and 2.4% in 2022, after having contracted around 3.6% in 2020. The new administration is expected to adopt further fiscal stimulus measures.

130106


 

In Argentina, the United States,third quarter of 2020 GDP growth accelerated strongly in 2018, by half a percentage point to 2.9%, buoyedwas better than expected, driven by the decrease in mobility restrictions. Overall, BBVA Research estimates that GDP contracted by -11.0% in 2020 and it expects Argentina to grow by 6.0% in 2021. Growth in 2021 will depend on the rebound of the economy but GDP levels are expected to remain below those of 2019. At the end of 2020, some fiscal stimulus, butmeasures were implemented to reduce the fiscal deficit, so that the primary deficit is estimated to have closed the year at around 6.5% of GDP, significantly below what was expected. It is expected that an agreement will be reached with the IMF by the second quarter. The vaccination process has already begun.

In Colombia, BBVA Research estimates a GDP contraction of 7.2% in 2020 and a partial recovery of 4.8% in 2021. Growth dynamics this year are expected to be led by housing construction, one of the pillars of the government’s recovery policies. On the other hand, the recovery is expected to be limited by the effect of new mobility restrictions adopted in light of the COVID-19 outbreaks (which, however, are expected to have less effect than those adopted during 2020) and the effect of a potential tax reform that would imply higher VAT. Going forward, growth risks are expected to be mainly related to the new wave of infections that could lead authorities to impose new mobility restrictions as well as delays in the second halfvaccination process.

 Peru’s GDP in the fourth quarter of 2020 was better than expected, with a contraction close to 3.3%. BBVA Research estimates that in 2020 GDP contracted by 11.5%. In 2021 it expects growth to be 10%. The elections scheduled for April may lead to political uncertainty for at least the first part of the year there were certain signs of moderation, such as the flagging performance of external demand, the appreciationyear. The risks ahead are related to an eventual outbreak of the dollarvirus and the figures for private sector investment, which appear not to have responded greatly to the government’s fiscal package. In a context of greater uncertainty both at home and abroad and doubt regarding the fiscal stimulus measures, BBVA Research believes growth may slow to 2.5% in 2019 and 2% in 2020. Despite the strength of domestic demand, and an unemployment rate below 4%, inflationary pressures remain contained, and BBVA Research expects the declining trend in oil prices will bring inflation down from 2.5% in 2018 to 2.2% in 2019 and 2.1% in 2020. In such a scenario of slowing growth, and with inflation tending towards 2%, the increase in downside risks may make the Federal Reserve more cautious.

As regards Turkey, in 2018 GDP growth slowed notably to 2.6% from 7.4% in 2017, as tightening financial conditions and increasing geopolitical stress weighed on domestic demand, while the sharp depreciation of the lira lead to a positive adjustmentgovernance in the current account (although at the expenseface of a sharp rise in inflation). The tightening of monetary and fiscal policy designed to correct imbalances generated in prior years will likely continue to slow down growth to around 1% in 2019, before starting to gain some momentum in 2020 with a 2.5% expected growth.fragmented congress.

BBVA Group results of operations for 20182020 compared to 20172019

The table below shows the Group’s consolidated income statements for 20182020 and 2017:2019.

As a consequence of the proposed USA Sale, the profit (loss) of companies falling within the scope of this transaction was recognized under “Profit / (loss) from discontinued operations, net” in the consolidated income statement for the year ended December 31, 2020. The Group’s consolidated income statement for 2019 has been restated for comparative purposes. See “Presentation of Financial Information” for additional information.

 

Year Ended December 31,

 

 

 

 

2018

2017

Change

 

(In Millions of Euros)

(In %)

Interest and other income

29,831

29,296

1.8

Interest expense

(12,239)

(11,537)

6.1

Net interest income

17,591

17,758

(0.9)

Dividend income

157

334

(53.0)

Share of profit or loss of entities accounted for using the equity method

(7)

4

n.m. (1)

Fee and commission income

7,132

7,150

(0.3)

Fee and commission expense

(2,253)

(2,229)

1.1

Net gains (losses) on financial assets and liabilities (2)

1,234

938

31.6

Exchange differences, net

(9)

1,030

n.m. (1)

Other operating income

949

1,439

(34.1)

Other operating expense

(2,101)

(2,223)

(5.5)

Income on insurance and reinsurance contracts

2,949

3,342

(11.8)

Expense on insurance and reinsurance contracts

(1,894)

(2,272)

(16.6)

Gross income

23,747

25,270

(6.0)

Administration costs

(10,494)

(11,112)

(5.6)

Personnel expense

(6,120)

(6,571)

(6.9)

Other administrative expense

(4,374)

(4,541)

(3.7)

Depreciation and amortization

(1,208)

(1,387)

(12.9)

Net margin before provisions (3)

12,045

12,771

(5.7)

Provisions or reversal of provisions

(373)

(745)

(49.9)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(3,981)

(4,803)

(17.1)

Impairment or reversal of impairment on non-financial assets

(138)

(364)

(62.1)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

78

47

66.0

Negative goodwill recognized in profit or loss

-

-

0.0

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

815

26

n.m. (1)

Operating profit/(loss) before tax

8,446

6,931

21.9

Tax expense or income related to profit or loss from continuing operations

(2,295)

(2,169)

5.8

Profit from continuing operations

6,151

4,762

29.2

Profit from discontinued operations, net

-

-

0.0

Profit

6,151

4,762

29.2

Profit attributable to parent company

5,324

3,519

51.3

Profit attributable to non-controlling interests

827

1,243

(33.5)

 

 

 

 

(1)    Not meaningful.

(2)  Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(3)    Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

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Year Ended December 31,

 

 

 

 

2020

2019

Change

 

(In Millions of Euros)

(In %)

Interest and other income

22,389

27,762

(19.4)

Interest expense

(7,797)

(11,972)

(34.9)

Net interest income

14,592

15,789

(7.6)

Dividend income

137

153

(10.1)

Share of profit or loss of entities accounted for using the equity method

(39)

(42)

(6.9)

Fee and commission income

5,980

6,786

(11.9)

Fee and commission expense

(1,857)

(2,284)

(18.7)

Net gains (losses) on financial assets and liabilities (1)

1,187

705

68.4

Exchange differences, net

359

581

(38.2)

Other operating income

492

639

(23.0)

Other operating expense

(1,662)

(1,943)

(14.4)

Income on insurance and reinsurance contracts

2,497

2,890

(13.6)

Expense on insurance and reinsurance contracts

(1,520)

(1,751)

(13.2)

Gross income

20,166

21,522

(6.3)

Administration costs

(7,799)

(8,769)

(11.1)

Personnel expense

(4,695)

(5,351)

(12.3)

Other administrative expense

(3,105)

(3,418)

(9.2)

Depreciation and amortization

(1,288)

(1,386)

(7.0)

Net margin before provisions (2)

11,079

11,368

(2.5)

Provisions or reversal of provisions and other results

(746)

(614)

21.6

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(5,179)

(3,552)

45.8

Impairment or reversal of impairment on non-financial assets

(153)

(128)

19.2

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

(197)

(50)

293.0

Negative goodwill recognized in profit or loss

-

-

-

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

444

23

n.m. (3)

Operating profit/(loss) before tax

5,248

7,046

(25.5)

Tax expense or income related to profit or loss from continuing operations

(1,459)

(1,943)

(24.9)

Profit /(loss) from continuing operations

3,789

5,103

(25.8)

Profit /(loss) from discontinued operations, net

(1,729)

(758)

128.1

Profit /(loss)

2,060

4,345

(52.6)

Profit /(loss) attributable to parent company

1,305

3,512

(62.9)

Profit /(loss) attributable to non-controlling interests

756

833

(9.3)

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2)   Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

131108


 

The changes in our consolidated income statements for 2018the years ended December 31, 2020 and 20172019 were as follows:

Net interest income

The following table summarizes net interest income for 2018the years ended December 31, 2020 and 2017.2019.

Year Ended December 31,

 

Year Ended December 31,

 

 

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Interest and other income

29,831

29,296

1.8

22,389

27,762

(19.4)

Interest expense

(12,239)

(11,537)

6.1

(7,797)

(11,972)

(34.9)

Net interest income

17,591

17,758

(0.9)

14,592

15,789

(7.6)

Net interest income for the year ended December 31, 20182020 amounted to €17,591€14,592 million, a 0.9%7.6% decrease compared with the €17,758€15,789 million recorded for the year ended December 31, 2017,2019, as interest and other income declined by 19.4% due mainly to the decrease in volumes and yields (see “Item 4. Information on the CompanySelected Statistical InformationAverage Balances and Rates”), combined with a decrease in interest expense of 34.9%, mainly driven by lower funding costs. By region, the decline in net interest income was mainly as a result of the decreases in net interest income in Mexico and South America (as described below). At constant exchange rates, net interest income increased by 4.8%. The following factors, set out by region, were the main contributors to the 7.6% decrease in net interest income:

·Mexico: there was a 12.8% decrease mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in the interest reference rate by 300 basis points during 2020 in response to the COVID-19 pandemic crisis. At constant exchange rates, there was a 0.7% decrease.

·South America: there was a 15.5% decrease mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates (in average terms) and, to a lesser extent,in the evolution in Spain (described below). Excludingregion against the impact of the depreciation of these currencies, net interest income increased by 10.8% mainly as a result of the growth in loans. The following factors, set out by region, were the main contributors toward the 0.9% decrease in net interest income:

·Spain:euro. At constant exchange rates, there was a 1.8% year-on-year decrease in net interest income mainly as a result of the decrease in the average volume of interest-earning assets and the increase in the costs of wholesale funding due to the fact that targeted longer-term refinancing operations (TLTRO) were partially replaced by other types of funding which bear higher interest rates0.9.% increase.

·          Turkey: there was a 5.9% year-on-year1.1% decrease in net interest incomemainly as a result of the depreciation of the Turkish lira against the euro. Excluding this effect, net interest income grew by 30.3%, despite the pressure on customer spreads, mainly due to significant income from inflation-linked bonds, whose contribution in 2018, compared to 2017, more than doubled.

·South America:At a constant exchange rate, there was a 6.0% year-on-year decrease in net interest income as a result of the depreciation of the currencies in the region against the euro as well as the sale of BBVA Chile.

The decrease in net interest income was partially offset by:

·United States: there was a 7.4% year-on-year increase in net interest income due mainly to higher interest rates (as a result of the Federal Reserve Board benchmark interest rate increases) and to measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (including an improved deposit mix and wholesale funding).

·Mexico: there was a 1.7% year-on-year25.2% increase in net interest income, mainly as a result of an increasehigher customer spreads in the average volume ofTurkish lira-denominated loans and advances to customers.higher loan volumes.

·Spain: there was a 0.4% decrease mainly as a result of the lower interest rates.

Dividend income

Dividend income for the year ended December 31, 20182020 amounted to €157€137 million, a 53%10.1% decrease compared with the €334€153 million recorded for the year ended December 31, 2017,2019 mainly as a result of the implementationrestriction imposed by the Central Bank of IFRS 9, pursuantthe Argentine Republic (BCRA) to which, since January 1, 2018, dividends from “Financial assets heldprivate banks on the distribution of profits to shareholders until June 30, 2021, with the goal of preserving available liquidity for trading” are recognized under “Net gains (losses) in financial assetsthe granting of loans to customers, and, liabilities”, whereas into a lesser extent, the prior year they were recognized under “Dividend income”.depreciation of the currencies of the main countries where the Group operates against the euro.

132


 

Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method for the year ended December 31, 20182020 amounted to a €7€39 million loss, compared with the €4€42 million profitloss recorded for the year ended December 31, 2017.2019.

109


Fee and commission income

The table below provides a breakdown of fee and commission income for the years ended December 31, 20182020 and 2017 is as follows:2019:

 

Year Ended December 31,

 

 

2018

2017

Change

 

(In Millions of Euros)

(In %)

Bills receivables

39

46

(15.2)

Current accounts

451

507

(11.0)

Credit and debit cards

2,900

2,834

2.3

Checks

194

212

(8.5)

Transfers and others payment orders

605

601

0.7

Insurance product commissions

171

192

(10.9)

Commitment fees

223

231

(3.5)

Contingent risks

390

396

(1.5)

Asset Management

1,023

923

10.8

Securities fees

325

385

(15.6)

Custody securities

122

122

0.0

Other

689

700

(1.6)

Fee and commission income

7,132

7,150

(0.3)

 

Year Ended December 31,

 

 

2020

2019

Change

 

(In Millions of Euros)

(In %)

Bills receivables

27

39

(30.8)

Demand accounts

322

301

7.0

Credit and debit cards and TPVs

2,089

2,862

(27.0)

Checks

136

198

(31.3)

Transfers and other payment orders

555

623

(10.9)

Insurance product commissions

159

158

0.6

Loan commitments given

185

187

(1.1)

Other commitments and financial guarantees given

349

377

(7.4)

Asset management

1,100

1,026

7.2

Securities fees

367

294

24.8

Custody securities

135

123

10.0

Other fees and commissions

556

599

(7.2)

Fee and commission income

5,980

6,786

(11.9)

Fee and commission income decreased by 0.3%11.9% to €7,132€5,980 million for the year ended December 31, 20182020 from €7,150the €6,786 million recorded for the year ended December 31, 2017 mainly as a result of2019, primarily due to the depreciation of the currencies of the main countries where the BBVA Group operates againstand the euro, which more thanlower volume of transactions as a result of the COVID-19 pandemic, especially in Mexico, particularly involving credit cards, and the temporary elimination or reduction of fees in certain regions, such as point of sale fees in Mexico and Turkey in order to support retailers with lower turnover, partially offset by the increase in fee and commission income from asset management fees.activities in Spain.

Fee and commission expense

The breakdown of fee and commission expense for 2018the years ended December 31, 2020 and 20172019 is as follows:

Year Ended December 31,

 

Year Ended December 31,

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Demand accounts

5

6

(16.7)

Credit and debit cards

1,502

1,458

3.0

1,130

1,566

(27.8)

Transfers and others payment orders

96

102

(5.9)

Transfers and other payment orders

97

81

19.8

Commissions for selling insurance

48

60

(20.0)

54

0.0

Custody securities

52

30

73.3

Other fees and commissions

607

610

(0.5)

519

548

(5.3)

Fee and commission expense

2,253

2,229

1.1

1,857

2,284

(18.7)

Fee and commission expense increaseddecreased by 1.1%18.7% to €2,253€1,857 million for the year ended December 31, 20182020 from €2,229the €2,284 million recorded for the year ended December 31, 2017,2019, primarily due to an increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in Spain and Mexico, which more than offset the impact of the depreciation of the currencies of the main countries where the BBVA Group operates againstand the euro.lower volume of transactions as a result of the COVID-19 pandemic, particularly involving credit cards, and the temporary elimination or reduction of fees in certain regions.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities increased by 31.6%68.4% to €1,234€1,187 million for the year ended December 31, 20182020 compared to athe net gain of €938€705 million recorded for the year ended December 31, 2017.2019, mainly due to increased sales in the Global Markets unit in Mexico and securities’ sales within the ALCO portfolio in Mexico, partially offset by decreased sales in the Global Markets unit in Spain and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

110


The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 20182020 and 2017:2019:

 

Year Ended December 31,

 

 

2018

2017

Change

 

(In Millions of Euros)

(In %)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

216

985

(78.1)

Financial assets at amortized cost

51

133

(61.7)

Other financial assets and liabilities

164

852

(80.8)

Gains (losses) on financial assets and liabilities held for trading, net

707

218

224.3

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

96

-

n.m. (1)

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

143

(56)

n.m. (1)

Gains (losses) from hedge accounting, net

72

(209)

n.m. (1)

Net gains (losses) on financial assets and liabilities

1,234

938

31.6

 

 

 

 

(1)    Not meaningful.

133


 

Year Ended December 31,

 

 

2020

2019

Change

 

(In Millions of Euros)

(In %)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

139

186

(25.0)

Financial assets at fair value through other comprehensive income

114

142

(20.2)

Financial assets at amortized cost

106

44

138.6

Other financial assets and liabilities

(81)

(1)

n.m. (1)

Gains (losses) on financial assets and liabilities held for trading, net

777

419

85.2

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

208

143

45.6

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

56

(98)

n.m. (1)

Gains (losses) from hedge accounting, net

7

55

(87.4)

Net gains (losses) on financial assets and liabilities

1,187

705

68.4

(1)   Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased 25.0% to €216€139 million in the year ended December 31, 20182020 from €985€186 million in the year ended December 31, 20172019 mainly due to lower ALCO portfoliodecreased sales and reclassifications ofin the underlying portfolios caused by the implementation of IFRS 9.Global Markets unit in Spain.

Gains on financial assets and liabilities held for trading increased by 85.2%, to €707€777 million in the year ended December 31, 20182020 from €218€419 million in the year ended December 31, 20172019, mainly as a result of higher sales in the implementation of IFRS 9, which led toGlobal Markets unit in Mexico and securities’ sales within the reclassification of the underlying portfolios and the recording, since January 1, 2018, of dividends from “Financial assets and liabilities held for trading” under this heading.ALCO portfolio in Mexico.

Gains on non-trading financial assets mandatorily at fair value through profit or loss amountedincreased by 45.6% to €96 million. This heading was first introduced€208 million in 2018 asthe year ended December 31, 2020 from €143 million in the year ended December 31, 2019, primarily due to the positive evolution of a resultparticular customer portfolio in Turkey and the positive impact of the implementation of IFRS 9changes in exchange rates on January 1, 2018. Previously, this category did not exist under IAS 39.certain foreign currency positions.

Exchange differences, net

Exchange differences decreased to a €9 million loss for the year ended December 31, 2018 from a €1,030€359 million gain for the year ended December 31, 2017. Exchange differences were €1,0302020 from a €581 million gain for the year ended December 31, 20172019 mainly as a result of certain financial transactions particularly in Turkey. the depreciation of the currencies of the main countries where the Group operates against the euro.

Other operating income and expense, net

Other operating income for the year ended December 31, 20182020 decreased 34.1%by 23.0% to €949€492 million compared with the €1,439€639 million recorded for the year ended December 31, 2017,2019, mainly as a result of the lower adjustment for hyperinflation in Argentina, the lower dividend income from real-estate related services in Spaininvestees accounted for under the equity method and the depreciation of the currencies of the main countries where BBVAthe Group operates against the euro.euro.

Other operating expense for the year ended December 31, 20182020 amounted to €2,101€1,662 million, a 5.5%14.4% decrease compared with the €2,223€1,943 million recorded for the year ended December 31, 2017,2019, mainly as a result ofdriven by the lower expense from real-estate related servicesadjustment for hyperinflation in SpainArgentina and the depreciation of the currencies of the main countries where the BBVA Group operates, against the euro, partially offset in part by the impact of hyperinflation in Argentina and the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution FundFund.

111.


Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 20182020 was €2,949€2,497 million, a 11.8%13.6% decrease compared with the €3,342€2,890 million of income recorded for the for the year ended December 31, 2017,2019, mainly as a result ofdue to the lower insurance premiumsactivity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

Expense on insurance and reinsurance contracts for the year ended December 31, 20182020 was €1,894€1,520 million, a 16.6%13.2% decrease compared with the €2,272€1,751 million expense recorded for the year ended December 31, 2017,2019, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

134


Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 20182020 amounted to €10,494€7,799 million, a 5.6%an 11.1% decrease compared with the €11,112€8,769 million recorded for the year ended December 31, 2017,2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates against the euro which was offsetand lower costs driven by efficiency plans, in part by a 63.7% increaseparticular in technology and systems expense.Spain.

The table below provides a breakdown of personnel expense for the years ended December 31, 20182020 and 2017:2019:

Year Ended December 31,

 

Year Ended December 31,

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Wages and salaries

4,786

5,163

(7.3)

3,610

4,103

(12.0)

Social security costs

722

761

(5.1)

671

725

(7.5)

Defined contribution plan expense

89

87

2.3

72

95

(23.7)

Defined benefit plan expense

58

62

(6.5)

49

(1.4)

Other personnel expense

465

497

(6.4)

293

379

(22.7)

Personnel expense

6,120

6,571

(6.9)

4,695

5,351

(12.3)

The table below provides a breakdown of other administrative expense for the years ended December 31, 20182020 and 2017:2019:

Year Ended December 31,

 

Year Ended December 31,

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Technology and systems

1,133

692

63.7

1,088

1,060

2.6

Communications

235

269

(12.6)

172

181

(4.7)

Advertising

336

352

(4.5)

186

250

(25.5)

Property, fixtures and materials

982

1,033

(4.9)

404

477

(15.4)

Of which:

 

 

Rent expense

552

581

(5.0)

Taxes other than income tax

417

456

(8.6)

344

378

(8.9)

Surveillance and cash courier services

161

188

(14.2)

Other expense

1,271

1,738

(26.9)

749

885

(15.4)

Other administrative expense

4,374

4,541

(3.7)

3,105

3,418

(9.2)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 20182020 was €1,208€1,288 million, a 12.9%7.0% decrease compared with the €1,387€1,386 million recorded for the year ended December 31, 2017,2019, mainly as a result of lower expense from amortization of intangible assets, particularly relateddue to software in Spain, and the depreciation of the currencies of the main countries where the BBVA Group operates against the euroeuro.

112.


Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results for the year ended December 31, 20182020 amounted to an expense of €373€746 million, a 49.9% decrease21.6% increase compared with the €745€614 million expense recorded for the year ended December 31, 2017,2019, mainly as a result of a decrease in thehigher provisions related to early retirements and contributions to pension fundsfor various purposes, including mainly contingent risks in Spain, as a resultMexico and South America, offset in part toby the transfer of certain employees to Divarian (as partdepreciation of the Cerberus Transaction)currencies of the main countries where the BBVA Group operates against the euro.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 20182020 was an expense of €3,981€5,179 million, a 17.1% decrease45.8% increase compared with the €4,803€3,552 million expense recorded for the year ended December 31, 2017. In 2017, we recognized impairment losses2019, mainly due to the deterioration of €1,123macroeconomic conditions due to the negative effects of COVID-19 especially during the first half of 2020, which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers) in the main countries where the Group operates. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its retail, SMEs and wholesale customers amounting to €33,828 million relatingas of December 31, 2020 (see Note 7.2 to our stake in Telefónica, S.A.the Consolidated Financial Statements), and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

The table below provides thea breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the years ended December 31, 20182020 and 2017:2019:

Year Ended December 31,

 

Year Ended December 31,

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Financial assets at fair value through other comprehensive income

1

1,127

(99.9)

19

82

(77.1)

Financial assets at amortized cost

3,980

3,676

8.3

5,160

3,470

48.7

Impairment or (reversal) of impairment on financial assets

not measured at fair value through profit or loss

3,981

4,803

(17.1)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

5,179

3,552

45.8

135


Impairment or reversal of impairment on non-financial assets

Impairment or reversal of impairment on non-financial assets for the year ended December 31, 2020 amounted to an expense of €153 million, compared with the €128 million expense recorded for the year ended December 31, 2019, mainly as a result of the impairment on tangible assets, mostly real estate assets of own use.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates for the year ended December 31, 20182020 amounted to €78a €197 million a 66% increaseloss compared with the € 47€50 million gainloss recorded for the year ended December 31, 2017, mainly as a result of capital gains from the sale of portfolios in the Mexico and Non-Core Real Estate segments.2019.

Profit (loss)Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

ProfitGains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 20182020 was €815€444 million, compared with the €26€23 million profit recorded for the year ended December 31, 2017,2019, mainly as due to the sale to Allianz, Compañía resultde Seguros y Reaseguros, S.A. of 50% of the saleshare capital plus one share in BBVA Allianz Seguros y Reaseguros, S.A. in the fourth quarter of BBVA Chile2020. See “― Factors Affecting the Comparability of our Results of Operations and the Cerberus Transaction.Financial Condition―Alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.” and Note 3 to our Consolidated Financial Statements.

113


Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 20182020 amounted to €8,446€5,248 million, a 21.9% increase25.5% decrease compared with the €6,931€7,046 million operating profit before tax recorded for the year ended December 31, 2017.2019.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations for the year ended December 31, 20182020 amounted to €2,295€1,459 million, a 5.8% increase24.9% decrease compared with the €2,169€1,943 million expense recorded for the year ended December 31, 2017, attributable in part2019, mainly due to the higherdecrease in operating profit before tax. Tax expense relatedamounted to 27.8% of operating profit before tax for the year ended December 31, 2020 and 27.6% for the year ended December 31, 2019.

Profit / (loss) from continuingdiscontinued operations, net

Loss from discontinued operations for the year ended December 31, 2017 was adversely affected2020 amounted to €1,729 million compared with the €758 million recorded for the year ended December 31, 2019, due to the year-on-year increase in the loss recognized by the recognitionGroup from the companies held for sale in the United States. Such increase was mainly the result of the goodwill impairment losses relatingrecognized in the United States CGU, which are recorded in this line item in light of the pending sale of such business.

See Presentation of Financial Information―Agreement for the sale of BBVA USA Bancshares, Inc., “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” and Note 21 to our stake in Telefónica, S.A., which adversely affected our operating profit before tax but had no impact on taxable income for such year.Consolidated Financial Statements.

Profit / (loss)

As a result of the foregoing, profit for the year ended December 31, 20182020 amounted to €6,151€2,060 million, a 29.2% increase52.6% decrease compared with the €4,762€4,345 million recorded for the year ended December 31, 2017.2019.

Profit / (loss) attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 20182020 amounted to €5,324€1,305 million, a 51.3% increase62.9% decrease compared with the €3,519€3,512 million recorded for the year ended December 31, 2017.2019.

Profit / (loss) attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 20182020 amounted to €827€756 million, a 33.5%9.3% decrease compared with the €1,243€833 million profit attributable to non-controlling interests recorded for the year ended December 31, 2017, mainly as a result of the decrease in the profit attributable to non-controlling interests in Turkey and Argentina.2019.

136114


 

BBVA Group results of operations for 20172019 compared with 2016to 2018

The table below shows the Group’s consolidated income statements for 20172019 and 2016:2018. These consolidated income statements have been restated for comparative purposes, including to reflect the impact of the proposed USA Sale. See “Presentation of Financial Information”.

 

Year Ended December 31,

 

 

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Interest and other income

29,296

27,708

5.7

Interest expense

(11,537)

(10,648)

8.3

Net interest income

17,758

17,059

4.1

Dividend income

334

467

(28.5)

Share of profit or loss of entities accounted for using the equity method

4

25

(84.0)

Fee and commission income

7,150

6,804

5.1

Fee and commission expense

(2,229)

(2,086)

6.9

Net gains (losses) on financial assets and liabilities (1)

938

1,661

(43.5)

Exchange differences, net

1,030

472

118.2

Other operating income

1,439

1,272

13.1

Other operating expense

(2,223)

(2,128)

4.5

Income on insurance and reinsurance contracts

3,342

3,652

(8.5)

Expense on insurance and reinsurance contracts

(2,272)

(2,545)

(10.7)

Gross income

25,270

24,653

2.5

Administration costs

(11,112)

(11,366)

(2.2)

Personnel expense

(6,571)

(6,722)

(2.2)

Other administrative expense

(4,541)

(4,644)

(2.2)

Depreciation and amortization

(1,387)

(1,426)

(2.7)

Net margin before provisions (2)

12,771

11,861

7.7

Provisions or reversal of provisions

(745)

(1,186)

(37.2)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(4,803)

(3,801)

26.4

Impairment or reversal of impairment on non-financial assets

(364)

(521)

(30.1)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

47

70

(32.9)

Negative goodwill recognized in profit or loss

-

-

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

26

(31)

n.m. (3)

Operating profit/(loss) before tax

6,931

6,392

8.4

Tax expense or income related to profit or loss from continuing operations

(2,169)

(1,699)

27.7

Profit from continuing operations

4,762

4,693

1.5

Profit from discontinued operations, net

-

-

-

Profit

4,762

4,693

1.5

Profit attributable to parent company

3,519

3,475

1.3

Profit attributable to non-controlling interests

1,243

1,218

2.1

 

 

Year Ended December 31,

 

 

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Interest and other income

27,762

26,954

3.0

Interest expense

(11,972)

(11,669)

2.6

Net interest income

15,789

15,285

3.3

Dividend income

153

145

5.7

Share of profit or loss of entities accounted for using the equity method

(42)

(7)

n.m. (3)

Fee and commission income

6,786

6,462

5.0

Fee and commission expense

(2,284)

(2,059)

10.9

Net gains (losses) on financial assets and liabilities (1)

705

1,136

(37.9)

Exchange differences, net

581

13

n.m. (3)

Other operating income

639

929

(31.2)

Other operating expense

(1,943)

(2,021)

(3.9)

Income on insurance and reinsurance contracts

2,890

2,949

(2.0)

Expense on insurance and reinsurance contracts

(1,751)

(1,894)

(7.5)

Gross income

21,522

20,936

2.8

Administration costs

(8,769)

(9,020)

(2.8)

Personnel expense

(5,351)

(5,205)

2.8

Other administrative expense

(3,418)

(3,816)

(10.4)

Depreciation and amortization

(1,386)

(1,034)

34.0

Net margin before provisions (2)

11,368

10,883

4.5

Provisions or reversal of provisions and other results

(614)

(395)

55.4

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(3,552)

(3,681)

(3.5)

Impairment or reversal of impairment on non-financial assets

(128)

(137)

(6.2)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

(50)

80

n.m. (3)

Negative goodwill recognized in profit or loss

-

-

-

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

23

815

(97.2)

Operating profit/(loss) before tax

7,046

7,565

(6.9)

Tax expense or income related to profit or loss from continuing operations

(1,943)

(2,042)

(4.9)

Profit from continuing operations

5,103

5,523

(7.6)

Profit (loss) from discontinued operations, net

(758)

704

n.m. (3)

Profit

4,345

6,227

(30.2)

Profit attributable to parent company

3,512

5,400

(35.0)

Profit attributable to non-controlling interests

833

827

0.8

(1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” and “Gains (losses) from hedge accounting, net”.

(2)   Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

137115


 

The changes in our consolidated income statements for 2017the years ended December 31, 2019 and 20162018 were as follows:

Net interest income

The following table summarizes net interest income for 2017the years ended December 31, 2019 and 2016:2018.

Year Ended December 31,

 

Year Ended December 31,

 

 

 

2017

2016

Change

2019

2018

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Interest and other income

29,296

27,708

5.7

27,762

26,954

3.0

Interest expense

(11,537)

(10,648)

8.3

(11,972)

(11,669)

2.6

Net interest income

17,758

17,059

4.1

15,789

15,285

3.3

Net interest income for the year ended December 31, 20172019 amounted to €17,758€15,789 million, a 4.1%3.3% increase compared with the €17,059€15,285 million recorded for the year ended December 31, 2016, mainly as a result of higher interest rates of interest-earning assets, particularly foreign loans and advances to customers,  which more than offset the higher growth in interest and similar expenses. By segment, the increase in net interest income was driven mainly by net interest income increases in the following regions:

·in the United States,2018, mainly as a result of the impact of Federal Reserve Board benchmarkincreases in net interest rate increases;income in Mexico and, to a lesser extent, South America (as described below). At constant exchange rates, net interest income increased by 4.1%. The following factors, set out by region, were the main contributors to the 3.3% increase in net interest income:

·          Mexico: there was an 11.5% period-on-period increase in Mexico, net interest income mainly as a result of higher interest rates applicable to loansincreases in the volume of interest-earning assets in the retail portfolio and advances to customersvolumes and yields in the wholesale portfolio and, to a lesser extent, anthe appreciation of the Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers;customers, particularly to enterprises and households. The increase was partially offset by greater funding costs. 

·          South America: there was a 6.2% period-on-period increase in South America, generally due to increasesnet interest income mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets particularlyin retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans and advances to customers, in Colombia increased during 2019. These effects were partially offset by the countries indepreciation of the region where BBVA operates;Argentine peso against the euro. At constant exchange rates, there was a 15.2% increase.

and whichThe increase in net interest income was partially offset by:

·          the performanceSpain: there was a 1.4% period-on-period decrease in net interest income mainly as a result of the Banking Activity in Spain operating segment, which was adversely affected bylower contribution from the lower average volumes of interest-earning assets (mainly securities, derivatives and loans); andALCO portfolio.

·          the performance of the Turkey operating segment,Turkey: there was a 10.2% period-on-period decrease in net interest income mainly as a result of the negative impact of the depreciation of the Turkish lira which more than offset the higher interest rates of interest-earning assets, particularly loans and advances to customers, and growth in activity, particularly in cash and cash balances with central banks.lira. At a constant exchange rate, there was a 0.1% increase.

Dividend income

Dividend income for the year ended December 31, 20172019 amounted to €334€153 million, a 28.5% decrease5.7% increase compared with the €467€145 million recorded for the year ended December 31, 2016, mainly as a result of our divestment in China CITIC Bank Corporation Limited (“CNCB”), a 2.14% stake of which we sold  in 2017, and lower dividends from Telefónica, S.A.2018.

Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method for the year ended December 31, 20172019 amounted to €4a €42 million an 84% decreaseloss, compared with the €25€7 million loss recorded for the year ended December 31, 2016.2018.

116


Fee and commission income

The table below provides a breakdown of fee and commission income for the years ended December 31, 20172019 and 2016 is as follows:2018:

 

Year Ended December 31,

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Bills receivables

46

52

(11.5)

Current accounts

507

469

8.1

Credit and debit cards

2,834

2,679

5.8

Checks

212

207

2.4

Transfers and others payment orders

601

578

4.0

Insurance product commissions

192

178

7.9

Commitment fees

231

237

(2.5)

Contingent risks

396

406

(2.5)

Asset Management

923

839

10.0

Securities fees

385

335

14.9

Custody securities

122

122

0.0

Other

700

701

(0.1)

Fee and commission income

7,150

6,804

5.1

138


 

 

Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Bills receivables

39

39

-

Demand accounts

301

249

20.9

Credit and debit cards and TPVs

2,862

2,690

6.4

Checks

198

188

5.3

Transfers and other payment orders

623

595

4.7

Insurance product commissions

158

169

(6.5)

Loan commitments given

187

183

2.2

Other commitments and financial guarantees given

377

374

0.8

Asset management

1,026

986

4.1

Securities fees

294

301

(2.3)

Custody securities

123

123

-

Other fees and commissions

599

564

6.2

Fee and commission income

6,786

6,462

5.0

Fee and commission income increased by 5.1%5.0% to €7,150€6,786 million for the year ended December 31, 20172019 from €6,804the €6,462 million recorded for the year ended December 31, 2016, mainly2018, primarily due to the increase in commissions relating to the use of credit and debit cards, as a result of anthe increased level of transactions (mainly in Mexico), the appreciation of the currencies of some of the main countries where the Group operates against the euro and, to a lesser extent, the increase in fees and commissions from the usenumber of credit cards in South America, Mexico, Spaincorporate banking transactions and the United States, and an increase in securities fees andpositive performance of asset management feesactivities in Spain.

Fee and commission expense

The breakdown of fee and commission expense for 2017the years ended December 31, 2019 and 20162018 is as follows:

Year Ended December 31,

 

Year Ended December 31,

 

2017

2016

Change

2019

2018

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Demand accounts

6

11

(45.5)

Credit and debit cards

1,458

1,334

9.3

1,566

1,403

11.6

Transfers and others payment orders

102

-

Transfers and other payment orders

81

36

125.0

Commissions for selling insurance

60

63

(4.8)

54

48

12.5

Custody securities

30

29

3.4

Other fees and commissions

610

587

3.9

548

531

3.2

Fee and commission expense

2,229

2,086

6.9

2,284

2,059

10.9

Fee and commission expense increased by 6.9%10.9% to €2,229€2,284 million for the year ended December 31,, 2017 2019 from €2,086the €2,059 million recorded for the year ended December 31, 2016, primarily 2018, mainly due to anthe increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in South America, Mexico and Spain.Turkey, and the appreciation of the currencies of some of the main countries where BBVA operates against the euro.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities decreased 43.5%by 37.9% to €938€705 million for the year ended December 31, 2017,2019 compared with ato the net gain of €1,661€1,136 million recorded for the year ended December 31, 2016, primarily as result of lower sales of ALCO (Assets and Liabilities Committee) portfolios in Spain. In addition, the gain in the prior period was partially2018, mainly due to the saleweaker performance in Spain, due mainly to uneven market conditions, lower portfolio sales in 2019, and the depreciation of our stake in VISA Europe, Ltd. recorded in the second quarter of 2016, which resulted in a €225 million gain.Turkish lira.

117


The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 20172019 and 2016:2018:

 

Year Ended December 31,

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

985

1,375

(28.4)

Available-for-sale financial assets

843

1,271

(33.7)

Loans and receivables

133

95

40.6

Other

9

10

(7.1)

Gains (losses) on financial assets and liabilities held for trading, net

218

248

(12.1)

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

(56)

114

n.m. (1)

Gains (losses) from hedge accounting, net

(209)

(76)

175.0

Net gains (losses) on financial assets and liabilities

938

1,661

(43.5)

 

 

 

 

(1)    Not meaningful.

139


 

 

Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

186

191

(3.0)

Financial assets at fair value through other comprehensive income

142

153

(6.7)

Financial assets at amortized cost

44

37

21.9

Other financial assets and liabilities

(1)

2

n.m. (1)

Gains (losses) on financial assets and liabilities held for trading, net

419

640

(34.5)

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

143

96

49.4

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

(98)

139

n.m. (1)

Gains (losses) from hedge accounting, net

55

69

(20.2)

Net gains (losses) on financial assets and liabilities

705

1,136

(37.9)

(1)   Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased to €186 million in the year ended December 31, 2019 from €191 million in the year ended December 31, 2018.

Gains on financial assets and liabilities held for trading decreased by 34.5%, to €419 million in the year ended December 31, 2019 from €640 million in the year ended December 31, 2018, mainly as a result of the decrease in the volume of U.S. Treasury securities and the depreciation of the Turkish lira, as well as the decrease in gains associated with derivatives and interest-bearing securities in Spain.

Gains on non-trading financial assets mandatorily at fair value through profit or loss increased to €143 million in the year ended December 31, 2019 from €96 million in the year ended December 31, 2018, primarily due to increased foreign-currency transactions and the valuation and sale of the stake in Prisma Medios de Pago, S.A. in Argentina.

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss amounted to a €98 million loss in the year ended December 31, 2019 compared to the €139 million gain recorded in the year ended December 31, 2018.

Exchange differences, net

Exchange differences increased to €1,030a €581 million gain for the year ended December 31, 20172019 from €472a €13 million gain for the year ended December 31, 20162018 mainly as a result of certain financial operations particularly in Turkey.the appreciation of the currencies of some of the main countries where BBVA operates against the euro (in average terms).

Other operating income and expense, net

Other operating income for the year ended December 31, 2017 increased 13.1%2019 decreased by 31.2% to €1,439€639 million compared with the €1,272€929 million recorded for the year ended December 31, 2016,2018, mainly as a result of higherlower income from real estate-relatedestate related services in Spain.Spain following the various dispositions of real estate related assets completed (see “—Results of Operations by Operating Segment— Results of Operations by Operating Segment for 2019 Compared with 2018—Spain”) and, to a lesser extent, decreased dividends from Telefónica, S.A.

Other operating expense for the year ended December 31, 20172019 amounted to €2,223€1,943 million, a 4.5% increase3.9% decrease compared with the €2,128€2,021 million recorded for the year ended December 31, 2016,2018, mainly as a result of higherlower expense from real estate-relatedestate related services in Spain.Spain and the impact of the hyperinflation adjustment in Argentina.

118


Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 20172019 was €3,342€2,890 million, an 8.5%a 2.0% decrease compared with the €3,652€2,949 million of income recorded for the year ended December 31, 2016, mainly as a result of lower insurance activity in Spain and the impact of the depreciation of certain currencies against the euro.2018.

Expense on insurance and reinsurance contracts for the year ended December 31, 2017 were €2,2722019 was €1,751 million, a 10.7%7.5% decrease compared with the €2,545€1,894 million expense recorded for the year ended December 31, 2016,2018, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the impact of the depreciation of certain currenciesthe Argentine peso against the euro mentioned above, which had a corresponding impact on expenses on insurance and reinsurance contracts.euro.

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 20172019 amounted to an expense of €11,112€8,769 million, a 2.2%2.8% decrease compared with the €11,366€9,020 million recorded for the year ended December 31, 2016, driven by declines in both personnel expense and other administrative expense,2018, mainly as a result of some synergiesthe lower rent expense due to the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, partially offset by increases in Spain (following the integration of Catalunya Banc)wages and the impact of the depreciation of certain currencies, particularly the Turkish Lira.salaries and increased technology costs.

The table below provides a breakdown of personnel expense for the years ended December 31, 20172019 and 2016:2018:

 

Year Ended December 31,

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Wages and salaries

5,163

5,267

(2.0)

Social security costs

761

784

(2.9)

Defined contribution plan expense

87

87

0.0

Defined benefit plan expense

62

67

(7.5)

Other personnel expense

497

516

(3.7)

Personnel expense

6,571

6,722

(2.2)

140


 

 

Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Wages and salaries

4,103

4,031

1.8

Social security costs

725

670

8.2

Defined contribution plan expense

95

72

31.0

Defined benefit plan expense

49

58

(15.2)

Other personnel expense

379

373

1.5

Personnel expense

5,351

5,205

2.8

The table below provides a breakdown of other administrative expense for the years ended December 31, 20172019 and 2016:2018:

Year Ended December 31,

 

Year Ended December 31,

 

2017

2016

Change

2019

2018

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Technology and systems

692

673

2.8

1,060

1,000

6.0

Communications

269

294

(8.5)

181

193

(6.2)

Advertising

352

398

(11.6)

250

265

(5.7)

Property, fixtures and materials

1,033

1,080

(4.4)

477

865

(44.9)

Of which:

 

 

Rent expense

581

616

(5.7)

Taxes other than income tax

456

433

5.3

378

395

(4.3)

Surveillance and cash courier services

188

177

6.2

Other expense

1,738

1,766

(1.6)

885

921

(3.9)

Other administrative expense

4,541

4,644

(2.2)

3,418

3,816

(10.4)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 20172019 was €1,387€1,386 million, a 2.7% decrease34.0% increase compared with the €1,426€1,034 million recorded for the year ended December 31, 2016,2018, mainly as a result of the impactimplementation of IFRS 16, which had the depreciationeffect of some currencies againstaccounting for the euro.amortization of right-to-use assets under the heading “Right-of-use assets” (within “Depreciation and amortization”).

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results for the year ended December 31, 20172019 amounted to an expense of €745€614 million, a 37.2% decrease55.4% increase compared with the €1,186€395 million expense recorded for the year ended December 31, 2016,2018, mainly attributable toas a result of increased provisions recordedfor commitments and guarantees given in 2016 related toTurkey and Spain, the invalidityincrease in provisions for various purposes, particularly in Argentina, and the higher pension and pre-early retirement provisions in Spain, partially offset by lower real estate-related costs and the reversal of clauses limiting interest ratesprovisions in certain mortgage loans with customers (referred to as ”floor” clauses) in Spain. BBVA has made additional provisions during 2017 to cover possible contingencies and claims that may arise in connection with this matter in amounts that BBVA considers not significant.

119


Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 20172019 was an expense of €4,803€3,552 million, a 26.4%3.5% increase compared with the €3,801€3,681 million expense recorded for the year ended December 31, 2016,2018, mainly as a resultdue to the increase in allowances for loan losses driven by the contagion rules for retail exposures (‘pulling effect’) and macroeconomic deterioration, especially in Mexico and South America. In addition, there was credit quality deterioration in Argentina and Peru (which more than offset the impact of the recognitiondepreciation of the Argentine peso).

The table below provides a breakdown of impairment lossesor reversal of €1,123 million relating to our slightly above 5% stake in Telefónica, S.A. resulting fromimpairment on financial assets not measured at fair value through profit or loss or net gains by modification for the fact that its stock price fell below our acquisition cost for a prolonged period

The Group’s non-performing asset ratio was 4.4% as ofyears ended December 31, 2017, compared with 4.9% as of December 31, 2016.2019 and 2018:

 

Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Financial assets at fair value through other comprehensive income

82

1

n.m.(1)

Financial assets at amortized cost

3,470

3,680

(5.7)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

3,552

3,681

(3.5)

(1)   Not meaningful.

Impairment or reversal of impairment on non-financial assets

Impairment lossesor reversal of impairment on non-financial assets for the year ended December 31, 20172019 amounted to €364an expense of €128 million, a 30.1% decrease compared with the €521€137 million lossexpense recorded for the year ended December 31, 2016, mainly due to lower impairment losses on real estate investment properties in Spain.2018.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

Gains (losses) on derecognition of non-financial assets and subsidiaries net and Impairment or reversal of impairment of investments in joint ventures and associates, for the year ended December 31, 20172019 amounted to €47a €50 million a 32.9% decreaseloss compared with the €70€80 million gain recorded for the year ended December 31, 2016.2018. Capital gains in the year ended December 31, 2018 related mainly to the sale of portfolios in the Mexico and Spain segments.

141


Profit (loss)Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

ProfitGains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 20172019 was €26€23 million, compared with the €31€815 million loss recorded for the year ended December 31, 2016.2018, mainly due to the result of the sale of BBVA Chile and the Cerberus Transaction recognized in 2018.

Operating profit/(loss)profit before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 20172019 amounted to €6,931€7,046 million, an 8.4% increasea 6.9% decrease compared with the €6,392€7,565 million operating profit before tax recorded for the year ended December 31, 2016.2018.

120


Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations for the year ended December 31, 2017 was an expense of €2,1692019 amounted to €1,943 million, a 27.7% increase4.9% decrease compared with the €1,699€2,042 million expense recorded for the year ended December 31, 2016,2018, mainly as a resultdue to the decrease in operating profit before tax. The year-on-year variation was also affected by the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 tax declaration presented in July 2018) in Spain and the recognition of the higherincome tax deductibility for hyperinflation in Argentina. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018. Tax expense amounted to 27.6% of operating profit before tax for the year ended December 31, 2019 and 27.0% for the recognitionyear ended December 31, 2018.

Profit (loss) from discontinued operations, net

Loss from discontinued operations for the year ended December 31, 2019 amounted to €758 million, compared with €704 million profit for the year ended December 31, 2018. The year-on-year variation was mainly the result of the goodwill impairment losses relating to our stakerecognized in Telefónica, S.A. which adversely affected our operating profit before tax but had no impact on taxable income.the United States CGU in 2019.

Profit

As a result of the foregoing, profit for the year ended December 31, 20172019 amounted to 4,762 €4,345 million, a 1.5% increase30.2% decrease compared with the €4,693€6,227 million recorded for the year ended December 31, 2016.2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 20172019 amounted to €3,519€3,512 million, a 1.3% increase35.0% decrease compared with the €3,475€5,400 million recorded for the year ended December 31, 2016.2018.

121


Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 20172019 amounted to €1,243€833 million, a 2.1%0.8% increase compared with the €1,218€827 million profit attributable to non-controlling interests recorded for the year ended December 31, 2016,2018, mainly as a result of the stronger performance of our Peruvian and Argentinian operations which have minority shareholders,  as well as the reduction of our stakeincrease in our Argentinian operations during the year, which more than offset the effect of the completion of the acquisition of an additional 9.95% stakeprofit in Garanti in March 2017 (which resulted in a reduction in the stake held by others in Garanti).South America.

142


Results of Operations by Operating Segment

The information contained in this section is presented under management criteria.

The tables set forth below reconcileshow the income statement of our operating segments presented in this sectionand Corporate Center for the years indicated. In addition, the income statement of our operating segments and Corporate Center is reconciled to the consolidated income statement of the Group. The “Adjustments” column reflectsin the tables for such years (and, in the table for 2018, the “Adjustments” and “Other adjustments” columns) shows the differences between the Group income statement and the income statement calculated in accordance with the management operating segment reporting criteria. In particular:

·in 2020, such differences relate to the accounting of (i) the earnings of BBVA USA and the other entities included within the scope of the USA Sale. In particular, such earnings were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information for such companies is being presented under management criteria, for 2018,pursuant to which is set forththeir results are included in every line item of the income statement of the United States segment (the “BBVA USA Adjustment”); and (ii) the impairment of goodwill in the immediately succeeding paragraph.

On July 6, 2018, we completed the sale of our 68.19% stake in BBVA Chile, whose results were consolidated in our South America operating segmentUnited States’ CGU, which amounted to €2,084 million for the periodyear ended December 31, 2020. In particular, such losses were recognized under “Profit / (loss) from January 1 until its sale. For additional information on this sale, see “Item 4. Information on the Company—History and Developmentdiscontinued operations, net” of the Company—Capital Divestitures—2018”. This transaction resulted in a capital gain, net of taxes, of €633 million, which was recorded in our Corporate Center segment.Group income statement. In this section, information relating to our Corporate Center segment for 2018 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”;

·in 2019, such differences relate to (i) the BBVA USA Adjustment; (ii) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”; and (iii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group income statement, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”; and

·in 2018, such differences relate to (i) the BBVA USA Adjustment; and (ii) the capital gain resulting from the sale of our stake in BBVA Chile has been recorded under “Profit from corporate operations, net”(which amounted to €633 million, net of taxes). However,With respect to the latter, for purposes of the Group financial statements, theincome statement, such capital gain from such sale has beenwas recorded under the heading “Profit (loss)“Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations”. In this section, information relating to our Corporate Center for 2018 has been presented under management criteria pursuant to which such capital gain has been recorded under “Profit from corporate operations, net”.

 

143122


Consolidated financial information for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.  

 

For the Year Ended December 31, 2020

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Adjustments (1)

Group

 

(In Millions of Euros)

Net interest income

3,553

2,284

5,415

2,783

2,701

214

(149)

(2,209)

14,592

Net fees and commissions

1,802

665

1,065

510

484

150

(59)

(494)

4,123

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

174

220

423

227

407

137

104

(145)

1,546

Other operating income and expense, net (3)

25

(17)

114

53

(367)

9

47

40

(95)

Gross income

5,554

3,152

7,017

3,573

3,225

510

(57)

(2,808)

20,166

Administration costs

(2,580)

(1,662)

(2,028)

(880)

(1,219)

(268)

(625)

1,462

(7,799)

Depreciation and amortization

(460)

(209)

(311)

(150)

(154)

(17)

(194)

205

(1,288)

Net margin before provisions (4)

2,515

1,281

4,677

2,544

1,853

225

(876)

(1,140)

11,079

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,167)

(776)

(2,172)

(895)

(864)

(38)

4

729

(5,179)

Provisions or reversal of provisions and other results

(538)

(4)

(33)

(127)

(93)

(2)

(1,938)

2,235

(499)

Impairment or reversal of impairment on non-financial assets

-

-

-

-

-

-

-

(153)

(153)

Operating  profit/ (loss) before tax

809

502

2,472

1,522

896

184

(2,810)

1,671

5,248

Tax expense or income related to profit or loss from continuing operations

(200)

(73)

(713)

(380)

(277)

(48)

174

57

(1,459)

Profit / (loss) from continuing operations

610

429

1,759

1,142

619

137

(2,635)

1,729

3,789

Profit from discontinued operations/ Profit from corporate operations, net

-

-

-

-

-

-

-

(1,729)

(1,729)

Profit / (loss)

610

429

1,759

1,142

619

137

(2,635)

-

2,060

Profit / (loss) attributable to non-controlling interests

(3)

-

-

(579)

(173)

-

-

-

(756)

Profit / (loss) attributable to parent company

606

429

1,759

563

446

137

(2,635)

-

1,305

(1)  Corresponds to (i) the BBVA USA Adjustment; and (ii) the impairment of goodwill in the United States’ CGU, which amounted to €2,084 million for the year ended December 31, 2020. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”.

(2)  Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

123


 

 

For the year ended December 31, 2018

For the Year Ended December 31, 2019

 

Banking Activity in Spain

Non-Core Real Estate

United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

 

Total

Adjustments

(1)

 

Group Income

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Adjustments (1)

Group

(In Millions of Euros)

(In Millions of Euros)

Net interest income

3,672

32

2,276

5,568

3,135

3,009

175

(276)

 

17,591

- 

 

17,591

3,567

2,395

6,209

2,814

3,196

175

(233)

(2,335)

15,789

Net fees and commissions

1,681

1

596

1,205

686

631

138

(59)

 

4,879

 

4,879

1,751

644

1,298

717

557

139

(73)

(531)

4,502

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

466

64

109

223

11

405

101

(155)

 

1,223

- 

 

1,223

239

173

310

10

576

131

(54)

(98)

1,286

Other operating income and expense, net (3)

124

(59)

9

197

70

(344)

-

57

 

54

- 

 

54

98

12

212

50

(479)

9

21

22

(55)

Gross income

5,943

38

2,989

7,193

3,901

3,701

415

(432)

 

23,747

- 

 

23,747

5,656

3,223

8,029

3,590

3,850

454

(339)

(2,941)

21,522

Administration costs

(2,974)

(60)

(1,684)

(2,115)

(1,105)

(1,565)

(285)

(706)

 

(10,494)

- 

 

(10,494)

(2,777)

(1,747)

(2,299)

(1,036)

(1,403)

(275)

(765)

1,534

(8,769)

Depreciation and amortization

(288)

(5)

(178)

(253)

(138)

(125)

(6)

(214)

 

(1,208)

- 

 

(1,208)

(476)

(219)

(346)

(179)

(171)

(18)

(190)

214

(1,386)

Net margin before provisions (4)

2,680

(28)

1,127

4,825

2,658

2,011

124

(1,352)

 

12,045

- 

 

12,045

2,402

1,257

5,384

2,375

2,276

161

(1,294)

(1,193)

11,368

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(371)

(12)

(225)

(1,555)

(1,202)

(638)

24

(2)

 

(3,981)

- 

 

(3,981)

(138)

(550)

(1,698)

(906)

(777)

(4)

-

521

(3,552)

Provisions or reversal of provisions and other results

(292)

(89)

16

24

(8)

(65)

(3)

(65)

 

(483)

866 

 

382

(386)

(2)

5

(128)

(103)

6

(1,481)

1,447

(641)

Impairment or reversal of impairment on non-financial assets

-

(128)

Operating profit/ (loss) before tax

2,017

(129)

919

3,294

1,448

1,307

144

(1,420)

 

7,580

866 

 

8,446

1,878

705

3,691

1,341

1,396

163

(2,775)

648

7,046

Tax expense or income related to profit or loss from continuing operations

(492)

52

(184)

(909)

(294)

(475)

(51)

290

 

(2,062)

(233) 

 

(2,295)

(489)

(115)

(992)

(312)

(368)

(36)

258

110

(1,943)

Profit from continuing operations excluding corporate operations

1,525

(78)

735

2,385

1,154

833

93

(1,130)

 

5,518

 

 

6,151

Profit from corporate operations, net

-

-

-

-

633

 

633

(633) 

 

-

Profit from continuing operations

1,389

590

2,699

1,029

1,028

127

(2,517)

758

5,103

Profit from discontinued operations/ Profit from corporate operations, net

-

-

(758)

Profit

1,525

(78)

735

2,385

1,154

833

93

(497)

 

6,151

-

 

6,151

1,389

590

2,699

1,029

1,028

127

(2,517)

-

4,345

Profit attributable to non-controlling interests

(3)

-

-

(1)

(585)

(241)

-

3

 

(827)

-

 

(827)

(3)

-

(524)

(307)

-

(833)

Profit attributable to parent company

1,522

(78)

735

2,384

569

591

93

(494)

 

5,324

-

 

5,324

1,386

590

2,699

506

721

127

(2,517)

-

3,512

           

(1)  Consists of (i) the BBVA USA Adjustment; (ii) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results” and (iii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group income statement, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”.

(2)  Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

124


 

 

For the Year Ended December 31, 2018

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Adjustments (1)

Other adjustments (2)

Group

 

(In Millions of Euros)

Net interest income

3,618

2,276

5,568

3,135

3,009

175

(269)

(2,227)

-

15,285

Net fees and commissions

1,682

596

1,205

686

631

138

(59)

(476)

-

4,403

Net gains (losses) on financial assets and liabilities and exchange differences, net (3)

529

109

223

11

405

101

(155)

(75)

-

1,148

Other operating income and expense, net (4)

59

9

197

70

(344)

-

63

47

-

100

Gross income

5,888

2,989

7,193

3,901

3,701

414

(420)

(2,731)

-

20,936

Administration costs

(3,027)

(1,683)

(2,139)

(1,109)

(1,584)

(281)

(672)

1,474

-

(9,020)

Depreciation and amortization

(308)

(178)

(253)

(138)

(125)

(6)

(200)

174

-

(1,034)

Net margin before provisions (5)

2,554

1,129

4,800

2,654

1,992

127

(1,291)

(1,083)

-

10,883

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(303)

(225)

(1,555)

(1,202)

(638)

24

(2)

221

-

(3,681)

Provisions or reversal of provisions and other results

(410)

16

24

(8)

(65)

(3)

(36)

118

866

500

Impairment or reversal of impairment on non-financial assets

-

-

-

-

-

-

-

(137)

-

(137)

Operating  profit/ (loss) before tax

1,840

920

3,269

1,444

1,288

148

(1,329)

(881)

866

7,565

Tax expense or income related to profit or loss from continuing operations

(437)

(185)

(901)

(293)

(469)

(52)

350

177

(233)

(2,042)

Profit from continuing operations excluding corporate operations

1,403

736

2,368

1,151

819

96

(979)

(704)

633

5,523

Profit from discontinued operations/ Profit from corporate operations, net

-

-

-

-

-

-

633

704

(633)

704

Profit

1,403

736

2,368

1,151

819

96

(346)

-

-

6,227

Profit attributable to non-controlling interests

(3)

-

-

(585)

(241)

-

3

-

-

(827)

Profit attributable to parent company

1,400

736

2,367

567

578

96

(343)

-

 -    

5,400

(1)Adjustments  Consists of the BBVA USA Adjustment.

(2)  Other adjustments in 2018 relate to the treatment of the capital gain derived from the sale of our 68.19% stake in BBVA Chile. In particular, information relating to our Corporate Center segment for 2018 has been presented under management criteria pursuant to which such capital gain has been recorded under “Profit from corporate operations, net”. However, for purposes of the Group Income,income statement, the capital gain from the sale of our stake in BBVA Chile has been recorded under the heading “Profit (loss)“Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” (which is included in “Provisions or reversal of provisions and other results” in the table above).

(3)   Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

 (4)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

 (5)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

125


(2)Results of Operations by Operating Segment for 2020 Compared with 2019

SPAIN

 

For the Year Ended December 31,

 

 

2020

2019

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,553

3,567

(0.4)

Net fees and commissions

1,802

1,751

2.9

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

174

239

(27.2)

Other operating income and expense, net

(440)

(419)

4.9

Income and expense on insurance and reinsurance contracts

465

518

(10.1)

Gross income

5,554

5,656

(1.8)

Administration costs

(2,580)

(2,777)

(7.1)

Depreciation and amortization

(460)

(476)

(3.4)

Net margin before provisions (2)

2,515

2,402

4.7

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,167)

(138)

n.m. (3)

Provisions or reversal of provisions and other results

(538)

(386)

39.3

Operating profit/(loss) before tax

809

1,878

(56.9)

Tax expense or income related to profit or loss from continuing operations

(200)

(489)

(59.1)

Profit from continuing operations

610

1,389

(56.1)

Profit from corporate operations, net

-

-

-

Profit

610

1,389

(56.1)

Profit attributable to non-controlling interests

(3)

(3)

-

Profit attributable to parent company

606

1,386

(56.3)

 

 

 

 

(1)  Includes the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)(2)  Includes the following income statement line items contained in the Consolidated Financial Statements: “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4)Calculated“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €3,553 million, a 0.4% decrease compared with the €3,567 million recorded for the year ended December 31, 2019, mainly as a result of the lower interest rates. The net interest margin over total average assets of this operating segment amounted to 0.89% for the year ended December 31, 2020, compared with 0.99% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €1,802 million, a 2.9% increase compared with the €1,751 million recorded for the year ended December 31, 2019,mainly due to the increase in fee and commission income from asset management activities.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 was a net gain of €174 million, a 27.2% decrease compared with the €239 million net gain recorded for the year ended December 31, 2019, mainly as a result of decreased sales in the Global Markets unit in Spain, partially offset by greater ALCO portfolio sales.

144126


 

 

For the Year Ended December 31, 2017 (1)

 

 

 

Banking Activity in Spain

Non-Core Real Estate

United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

 

Group Income

 

(In Millions of Euros)

 

 

Net interest income

3,738

71

2,119

5,476

3,331

3,200

180

(357)

 

17,758

Net fees and commissions

1,561

3

644

1,219

703

713

164

(86)

 

4,921

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

555

-

111

249

14

480

123

436

 

1,968

Other operating income and expense, net (3)

327

(91)

2

177

67

59

1

80

 

622

Gross income

6,180

(17)

2,876

7,122

4,115

4,451

468

73

 

25,270

Administration costs

(3,071)

(81)

(1,665)

(2,195)

(1,325)

(1,886)

(297)

(592)

 

(11,112)

Depreciation and amortization

(319)

(18)

(187)

(256)

(178)

(121)

(11)

(297)

 

(1,387)

Net margin before provisions(4)

2,790

(116)

1,025

4,671

2,612

2,444

160

(815)

 

12,770

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(567)

(138)

(241)

(1,651)

(453)

(650)

23

(1,125)

 

(4,803)

Provisions or reversal of provisions and other results

(369)

(403)

(36)

(35)

(12)

(103)

(6)

(73)

 

(1,036)

Operating  profit/ (loss) before tax

1,854

(657)

748

2,984

2,147

1,691

177

(2,013)

 

6,931

Tax expense or income related to profit or loss from continuing operations

(477)

166

(262)

(797)

(426)

(486)

(52)

166

 

(2,169)

Profit from continuing operations

1,377

(491)

486

2,187

1,720

1,205

125

(1,847)

 

4,762

Profit from discontinued operations /Profit from corporate operations, net

-

-

-

-

-

-

-

-

 

-

Profit

1,377

(491)

486

2,187

1,720

1,205

125

(1,847)

 

4,762

Profit attributable to non-controlling interests

(3)

1

-

-

(895)

(345)

-

(1)

 

(1,243)

Profit attributable to parent company

1,374

(490)

486

2,187

826

861

125

(1,848)

 

3,519

(1)   Revised.Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2020 amounted to €440 million, a 4.9% increase compared with the €419 million expense recorded for the year ended December 31, 2019, mainly due to the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €465 million, a 10.1% decrease compared with the €518 million recorded for the year ended December 31, 2019, mainly as a result of lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and to a lesser extent, as a consequence of the sale agreement of the non-life portfolio (excluding health insurance) to Allianz in the fourth quarter of 2020. See “Presentation of Financial Information—Changes in Operating Segments”.Item 4. Information on the Company—History and Development of the Company―Capital Divestitures—2020”.

(2)  Includes “Gains (losses)Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €2,580 million, a 7.1% decrease compared with the €2,777 million recorded for the year ended December 31, 2019, mainly as a result of cost reduction plansand a decrease in certain general expenses driven by the lockdown derived from the COVID-19 pandemic.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €460 million, a 3.4% decrease compared with the €476 million recorded for the year ended December 31, 2019.

Impairment or reversal of impairment on derecognition of financial assets and liabilities not measured at fair value through profit or loss net”, “Gains (losses)or net gains by modification

Impairment or reversal of impairment on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

145


 

For the Year Ended December 31, 2016

 

Banking Activity in Spain

Non-Core Real Estate

United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

 

Group Income

 

(In Millions of Euros)

Net interest income

3,877

60

1,953

5,126

3,404

2,930

166

(455)

 

17,059

Net fees and commissions

1,477

6

638

1,149

731

634

194

(110)

 

4,718

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

786

(3)

142

222

77

464

87

357

 

2,133

Other operating income and expense, net (2)

277

(68)

(27)

270

46

25

45

177

 

744

Gross income

6,416

(6)

2,706

6,766

4,257

4,054

491

(31)

 

24,653

Administration costs

(3,252)

(96)

(1,652)

(2,149)

(1,524)

(1,793)

(330)

(569)

 

(11,366)

Depreciation and amortization

(327)

(27)

(190)

(247)

(214)

(100)

(12)

(307)

 

(1,426)

Net margin before provisions(3)

2,837

(130)

863

4,371

2,519

2,160

149

(907)

 

11,862

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(763)

(138)

(221)

(1,626)

(520)

(526)

30

(37)

 

(3,801)

Provisions or reversal of provisions and other results

(807)

(475)

(30)

(67)

(93)

(82)

23

(139)

 

(1,668)

Operating  profit/ (loss) before tax

1,268

(743)

612

2,678

1,906

1,552

203

(1,084)

 

6,392

Tax expense or income related to profit or loss from continuing operations

(360)

148

(153)

(697)

(390)

(487)

(52)

293

 

(1,699)

Profit from continuing operations

908

(595)

459

1,981

1,515

1,065

151

(791)

 

4,693

Profit from discontinued operations /Profit from corporate operations, net

-

-

-

-

-

-

-

-

 

-

Profit

908

(595)

459

1,981

1,515

1,065

151

(791)

 

4,693

Profit attributable to non-controlling interests

(3)

-

-

(1)

(917)

(294)

-

(3)

 

(1,218)

Profit attributable to parent company

905

(595)

459

1,980

599

771

151

(794)

 

3,475

(1)  Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss net”, “Gains (losses)or net gains by modification of this operating segment for the year ended December 31, 2020 amounted to a  €1,167 million expense compared with the €138 million expense recorded for the year ended December 31, 2019, mainly as a result of the deterioration of macroeconomic conditions especially during the first half of 2020, caused by COVID-19 (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers from the leisure and transportation sectors)) and lower write-off recoveries. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees granted by the Group to its customers (by which lower quality loans were replaced with higher quality loans). Impairment or reversal of impairment on financial assets and liabilities designatednot measured at fair value through profit or loss net”, “Gains (losses) on financial assetsor net gains by modification of this operating segment for the year ended December 31, 2019 was positively affected by our sale of non-performing and liabilities heldin-default mortgage credits as part of the Anfora transaction in the third quarter of 2019 (see “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Agreement with Voyager Investing UK Limited Partnership (Anfora)”) .

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for trading, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.the year ended December 31, 2020 were a €538 million expense, a 39.3% increase compared with the €386 million expense recorded for the year ended December 31, 2019, mainly due to higher provisions for various purposes, including potential claims.

(2)  Includes “Dividend income”, “ShareOperating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €809 million, a 56.9% decrease compared with the €1,878 million profit recorded for the year ended December 31, 2019.

127


Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of entities accounted for using the equity method” and “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

(3) “Net margin before provisions” is calculated as “Gross income” less ��Administration costs” and “Depreciation and amortization”.

146


Results of operations bythis operating segment for 2018 Comparedthe year ended December 31, 2020 was an expense of €200 million, a 59.1% decreasecompared with 2017the €489 million expense recorded for the year ended December 31, 2019 as a result of the lower operating profit recorded for the year ended December 31, 2020. Tax expense amounted to 24.7% of operating profit before tax for the year ended December 31, 2020 and 26.0% for the year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €606 million, a 56.3% decrease compared with the €1,386 million profit recorded for the year ended December 31, 2019.

BANKING ACTIVITY IN SPAINTHE UNITED STATES

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

2017 (1)

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

3,672

3,738

(1.8)

2,284

2,395

(4.6)

Net fees and commissions

1,681

1,561

7.7

665

644

3.2

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)(1)

466

555

(16.1)

220

173

27.4

Other operating income and expense, net

(361)

(106)

239.4

(17)

12

n.m. (2)

Income and expense on insurance and reinsurance contracts

485

433

12.0

-

-

Gross income

5,943

6,180

(3.8)

3,152

3,223

(2.2)

Administration costs

(2,974)

(3,071)

(3.1)

(1,662)

(1,747)

(4.9)

Depreciation and amortization

(288)

(319)

(9.8)

(209)

(219)

(4.7)

Net margin before provisions (3)

2,680

2,790

(3.9)

1,281

1,257

1.9

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(371)

(567)

(34.6)

(776)

(550)

41.0

Provisions or reversal of provisions and other results

(292)

(369)

(20.9)

(4)

(2)

70.8

Operating profit/(loss) before tax

2,017

1,854

8.8

502

705

(28.8)

Tax expense or income related to profit or loss from continuing operations

(492)

(477)

3.1

(73)

(115)

(36.8)

Profit from continuing operations

1,525

1,377

10.8

429

590

(27.2)

Profit from corporate operations, net

-

-

-

-

Profit

1,525

1,377

10.8

429

590

(27.2)

Profit attributable to non-controlling interests

(3)

7.1

-

-

Profit attributable to parent company

1,522

1,374

10.8

429

590

(27.2)

 

 

 

 

 

 

(1)  Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3)   Calculated“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

In the year ended December 31, 2020 the U.S. dollar depreciated 2.0% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

147128


Net interest income

Net interest income of this operating segment for the year ended December 31, 20182020 amounted to €3,672€2,284 million, a 1.8%4.6% decrease compared with the €3,738€2,395 million recorded for the year ended December 31, 2017,2019, mainly as a result of the decrease in the average volume of interest-earning assets and the increase in the costs of wholesale funding due to the fact that targeted longer-term refinancing operations (TLTRO) wereFederal Reserve’s decrease in interest rates since the second half of 2019, including in response to COVID-19 (by 225 basis points in total), thus lower income from the commercial banking and retail portfolios, partially replacedoffset by other typeslower funding costs and the depreciation of funding which bear higher interest rates.the U.S. dollar. The net interest margin over total average assets of this operating segment amounted to 1.13%2.36% for the year ended December 31, 20182020, compared with 1.18%2.78% for the year ended December 31, 2017.2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 20182020 amounted to €1,681665 million, a 7.7%3.2% increase compared with the €1,561€644 million recorded for the year ended December 31, 2017, mainly as a result of the significant contribution from asset management fees and banking commissions, particularly those associated with account maintenance.2019.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 20182020 was a net gain of €466220 million, a 16.1% decrease27.4% increase compared with the €555€173 million net gain recorded for the year ended December 31, 2017,2019, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) portfolios.higher corporate banking gains.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 20182020 amounted to €36117 million, compared with the €106€12 million income recorded for the year ended December 31, 2017, mainly as a result of the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund as compared with 2017.

Income and expense on insurance and reinsurance contracts2019.

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €485 million, a 12.0% increase compared with the €433 million recorded for the year ended December 31, 2017, mainly as a result of a lower claims ratio and new contract origination.

Administration costs

Administration costs of this operating segment for the year ended December 31, 20182020 amounted to €2,974€1,662 million, a 3.1%4.9% decrease compared with the €3,071€1,747 million recorded for the year ended December 31, 2017,2019 mainly asdue to a resultdecrease in general expenses and the depreciation of the U.S. dollar.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €209 million, a decline in both personnel expense and other administrative expense driven by4.7% decrease compared with the evolution of efficiency plans (which generated savings of €19€219 million on communications, rent and legal expense).recorded for the year ended December 31, 2019.

148


Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment was a €776 million expense for the year ended December 31, 2018 amounted to2020, a €371 million expense, a 34.6% decrease41.0% increase compared with the €567€550 million expense recorded for the year ended December 31, 2017,2019, mainly as a result of lower gross additionsmacroeconomic deterioration, especially during the first half of 2020, due to non-performingthe negative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and loan-loss provisions for large customers.advances to customers in the Oil & Gas sector), partially offset by the depreciation of the U.S. dollar.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 2020 were a €292€4 million expense, a 20.9% decrease compared with the €369€2 million expense recorded for the year ended December 31, 2017, mainly as a result of the decrease in provisions related to early retirements and contributions to pension funds.

2019.

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20182020 was €2,017502 million, an 8.8% increase compared with the €1,854€705 million of operating profit recorded for the year ended December 31, 2017.2019.

129


Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20182020 was an expense of €49273 million, a 3.1% increase compared with the €477€115 million expense recorded for the year ended December 31, 2017 mainly 2019, as a result of the higherlower operating profit before tax.tax and changes to the applicable tax rate. Tax expense amounted to 24.4%14.5% of operating profit before tax for the year ended December 31, 2018 and 25.7%2020, compared with 16.3% for the year ended December 31, 2017.2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20182020 amounted to €1,522429 million, a 10.8% increase compared with the €1,374€590 million recorded for the year ended December 31, 2017.

2019.

 

149130


 

NON-CORE REAL ESTATEMEXICO

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

2017 (1)

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

32

71

(55.8)

5,415

6,209

(12.8)

Net fees and commissions

1

3

(56.7)

1,065

1,298

(17.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)(1)

64

-

n.m. (3)

423

310

36.4

Other operating income and expenses, net

(59)

(91)

(35.7)

Income and expenses on insurance and reinsurance contracts

-

0.0

Other operating income and expense, net

(248)

(267)

(7.1)

Income and expense on insurance and reinsurance contracts

362

479

(24.4)

Gross income

38

(17)

n.m. (3)

7,017

8,029

(12.6)

Administration costs

(60)

(81)

(25.1)

(2,028)

(2,299)

(11.8)

Depreciation and amortization

(5)

(18)

(73.3)

(311)

(346)

(9.9)

Net margin before provisions (4)(2)

(28)

(116)

(76.1)

4,677

5,384

(13.1)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(12)

(138)

(91.0)

(2,172)

(1,698)

28.0

Provisions or reversal of provisions and other results

(89)

(403)

(77.8)

(33)

5

n.m. (3)

Operating profit/(loss) before tax

(129)

(657)

(80.3)

2,472

3,691

(33.0)

Tax expense or income related to profit or loss from continuing operations

52

166

(68.8)

(713)

(992)

(28.1)

Profit from continuing operations

(78)

(491)

(84.2)

1,759

2,699

(34.8)

Profit from corporate operations, net

-

-

-

-

Profit

(78)

(491)

(84.2)

1,759

2,699

(34.8)

Profit attributable to non-controlling interests

-

1

n.m. (3)

-

-

Profit attributable to parent company

(78)

(490)

(84.2)

1,759

2,699

(34.8)

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)  Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   Not meaningful.

(4)(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

150(3)   Not meaningful.


 

Net real estate exposure (which includes loans to developers, foreclosed real estate assets and other real estate assets, net of provisions) amounted to €2,498 million as of December 31, 2018, a 61.1% reduction in year-on-year terms compared to net real estate exposure of €6,416 million as of December 31, 2017 as a result mainly of the Cerberus Transaction. In addition, outstanding performing loans to developers in an aggregate amount of €260 million were transferred from the Non-Core Real Estate segment to the Banking Activity in Spain segment in 2018.

In recent years BBVA has taken several steps to reduce its exposure to real estate assets in Spain. As part of such efforts, BBVA entered into the Cerberus Transaction. As ofyear ended December 31, 2018, BBVA maintained2020, the Mexican peso depreciated 12.1% against the euro in average terms compared with the year ended December 31, 2019, resulting in a 20% stake in Divarian, which was recordednegative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the Corporate Center. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board, for the transferresults of a portfolio of credit rights which is mainly composed by non-performing and in default mortgage credits, with an aggregate outstanding balance amounting to approximately €1,490 million. Completionoperations of the transaction is subject to fulfilmentMexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of certain conditionsour Results of Operations and is expected to take place during the second quarter of 2019. For additional information on these sales, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 20182020 amounted to €32 5,415 million, a 55.8%12.8% decrease compared with the €71€6,209 million recorded for the year ended December 31, 20172019, mainly as a result of the transferdepreciation of certain loan portfolios, includingthe Mexican peso against the euro and the decrease in the interest reference rate by 300 basis points during 2020 in response to the COVID-19 pandemic crisis. At constant exchange rates, there was a 0.7% decrease.

The net interest margin over total average assets of this operating segment amounted to 5.00% for the year ended December 31, 2020, compared with 5.91% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €1,065 million, a 17.9% decrease compared with the €1,298 million recorded for the year ended December 31, 2019, mainly due to the depreciation of the Mexican peso and, to a lesser extent, the decreased volume of transactions by credit card customers as a result of the Cerberus Transaction.restrictions on mobility adopted in response to the COVID-19 pandemic, which led to an increase in the volume of transactions through digital channels (which do not generate commissions for retail customers) and the temporary elimination or reduction of certain fees, such as point of sale fees. At a constant exchange rate, there was a 6.6% year-on-year decrease.

131


Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences net of this operating segment for the year ended December 31, 2018 amounted to €642020 were €423 million, a 36.4% increase compared with nilthe €310 million gain recorded for the year ended December 31, 20172019, mainly due toas a result of increased sales in the payment received fromGlobal Markets unit in Mexico and securities’ sales within the Deposit Guarantee FundALCO portfolio, along with the positive impact of Credit Institutionschanges in relation to an impairment recordedexchange rates on foreign currency positions, offset in 2017.part by the depreciation of the Mexican peso against the euro

Other operating income and expense, net

Other net operating income and expense, net of this operating segment for the year ended December 31, 20182020 was €59a net expense of €248 million, a 35.7%7.1% decrease compared with the €91€267 million net expense recorded for the year ended December 31, 2017.2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by greater contributions made to the Deposit Guarantee Fund as a result of increases in the volume of deposits (in local currency).

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €362 million, a 24.4% decrease compared with the €479 million net income recorded for the year ended December 31, 2019, due to a higher claims ratio and, to a lesser extent, the depreciation of the Mexican peso against the euro.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €602020 were €2,028 million, a 25.1%an 11.8% decrease compared with the €81€2,299 million recorded for the year ended December 31, 2017, mainly2019, as a result of the Cerberus Transaction which resulted indepreciation of the transferMexican peso. At a constant exchange rate, administration costs increased by 0.4%. Such increase was below Mexico’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €311 million, a 9.9% decrease compared with the €346 million recorded for the year ended December 31, 2019 mainly due to the depreciation of certain employees to Divarian.the Mexican peso against the euro. At a constant exchange rate, depreciation and amortization increased by 2.5%.

151


Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 20182020 was ana €2,172 million expense, of €12 million, a 91.0% decrease28.0% increase compared with the €138€1,698 million expense recorded for the year ended December 31, 2017,2019, mainly due to the macroeconomic deterioration especially in the first half of 2020, as a result of decreased impaired assets due to the reductionnegative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio size.of financial assets measured at amortized cost (mainly loans and advances to customers). The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers and the depreciation of the Mexican peso.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 amounted to an €892020 were a €33 million expense a 77.8% decrease compared with the €403€5 million expenseincome recorded for the year ended December 31, 2017,2019, mainly as a result of lower provisions due to higher provisions for contingent risks related to the Cerberus Transaction, including the transfer of certain employees to Divarian.COVID-19 pandemic.

132


Operating profit/profit / (loss) before tax

As a result of the foregoing, operating lossprofit before tax of this operating segment for the year ended December 31, 20182020 was €129€2,472 million, an 80.3%a 33.0% decrease compared with the €657€3,691 million lossof operating profit recorded for the year ended December 31, 2017.2019.

Tax expense or income related to profit or loss from continuing operations

Tax incomeexpense related to lossprofit from continuing operations of this operating segment for the year ended December 31, 2018 amounted to €522020 was €713 million, a 68.8%28.1% decrease compared with the €166€992 million incomeexpense recorded for the year ended December 31, 2017. Consequently,2019, mainly as a result of the lower operating profit before tax. The tax incomeexpense amounted to 40.0%28.8% of the operating lossprofit before tax for the year ended December 31, 2018,2020, and 25.2%26.9% for the year ended December 31, 2017.2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 was2020 amounted to €1,759 million, a loss of €78 million, an 84.2%34.8% decrease compared with the €490€2,699 million loss recorded for the year ended December 31, 2017.2019.

 

152133


 

UNITED STATESTURKEY

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

2017 (1)

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

2,276

2,119

7.4

2,783

2,814

(1.1)

Net fees and commissions

596

644

(7.5)

510

717

(28.8)

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)(1)

109

111

(1.9)

227

10

n.m. (2)

Other operating income and expense, net

9

2

n.m. (3)

(11)

(10)

12.4

Income and expense on insurance and reinsurance contracts

-

-

64

60

8.1

Gross income

2,989

2,876

3.9

3,573

3,590

(0.5)

Administration costs

(1,684)

(1,665)

1.2

(880)

(1,036)

(15.1)

Depreciation and amortization

(178)

(187)

(4.6)

(150)

(179)

(16.4)

Net margin before provisions (4)(3)

1,127

1,025

10.0

2,544

2,375

7.1

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(225)

(241)

(6.8)

(895)

(906)

(1.2)

Provisions or reversal of provisions and other results

16

(36)

n.m. (3)

(127)

(128)

(1.0)

Operating profit/(loss) before tax

919

748

22.9

1,522

1,341

13.5

Tax expense or income related to profit or loss from continuing operations

(184)

(262)

(29.8)

(380)

(312)

21.7

Profit from continuing operations

735

486

51.3

1,142

1,029

11.0

Profit from corporate operations, net

-

-

-

-

Profit

735

486

51.3

1,142

1,029

11.0

Profit attributable to non-controlling interests

-

-

(579)

(524)

10.6

Profit attributable to parent company

735

486

51.3

563

506

11.4

(1)  Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2) Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)  Not meaningful.

(3)   Not meaningful.

(4) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

153


 

InThe Turkish lira depreciated 21.0% against the euro in average terms in the year ended December 31, 2018 the U.S. dollar depreciated 4.3% against the euro in average terms,2020, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 20172020 and in the results of operations of the United StatesTurkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 20182020 amounted to €2,276 2,783 million, a 7.4% increase1.1% decrease compared with the €2,119€2,814 million recorded for the year ended December 31, 2017, due mainly to higher interest rates (as2019 as a result of the Federal Reserve Board benchmark interest rate increases) and to measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (including an improved deposit mix and wholesale funding), partially offset by the depreciation of the U.S. dollarTurkish lira against the euro andeuro. At a constant exchange rate, there was a 25.2% increase in net interest income, mainly as a result of the higher levels of interest on depositscustomer spreads in Turkish lira-denominated loans and interest on FHLB and other borrowings. higher loan volumes. 

The net interest margin over total average assets of this operating segment amounted to 2.91%4.53% for the year ended December 31, 20182020, compared with 2.68%4.26% for the year ended December 31, 2017.2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 20182020 amounted to €596510 million, a 7.5%28.8% decrease compared with the €644€717 million recorded for the year ended December 31, 2017,2019, mainly as a result of the depreciation of the U.S. dollar againstTurkish lira and, to a lesser extent, a reduction in the eurocommissions charged to customers and the decrease in investment banking and advisory fees.impact of the COVID-19 pandemic on the volume of transactions.

134


Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 was a net2020 amounted to €227 million gain, of €109 million, a 1.9% decrease compared with the €111€10 million gain recorded for the year ended December 31, 2017,2019, mainly as a resultdue to the results generated by trading transactions and the positive impact of changes in exchange rates on foreign currency positions, offset in part by the depreciation of the U.S. dollar against the euro, which was partially offset by trading gains from bonds and foreign exchange transactions.Turkish lira.

Other operating income and expense, net

Other net operating income and expense, net of this operating segment for the year ended December 31, 20182020 was €9a €11 million expense compared with the €2€10 million of net expense recorded for the year ended December 31, 2017.2019.

154Income and expense on insurance and reinsurance contracts


Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €64 million, an 8.1% increase compared with the €60 million income recorded for the year ended December 31, 2019, mainly as a result of higher sales in the insurance business, partially offset by the depreciation of the Turkish lira.

Administration costs

Administration costs of this operating segment for the year ended December 31, 20182020 amounted to €1,684 880 million, a 1.2% increase15.1% decrease compared with the €1,665€1,036 million recorded for the year ended December 31, 2017,2019, mainly due to an increase in technology and systems expense and advertising expense,as a result of the depreciation of the Turkish lira against the euro, partially offset by the depreciation ofincrease in certain general expenses. At a constant exchange rate, administration costs increased by 7.5%, which was below Turkey’s inflation rate for the U.S. dollar againstperiod.

Depreciation and amortization

Depreciation and amortization for the euro.year ended December 31, 2020 was €150 million, a 16.4% decrease compared with the €179 million recorded for the year ended December 31, 2019.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 20182020 was a €225895 million expense, a 6.8%1.2% decrease compared with the €241€906 million expense recorded for the year ended December 31, 2017,2019, mainly due to the depreciation of the Turkish lira against the euro and the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers, partially offset by the impact of the macroeconomic deterioration as a result of the lowernegative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers), and to certain allowances for loan losses in those portfolios affected byfor specific commercial portfolio customers.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the 2017 hurricanes and, toyear ended December 31, 2020 were a lesser extent, 127 million expense compared with the depreciation of€128 million expense recorded for the U.S. dollar against the euro.year ended December 31, 2019.

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20182020 was €919 1,522 million, a 22.9%13.5% increase compared with the €748€1,341 million of operating profit recorded for the year ended December 31, 2017.2019. At a constant exchange rate, operating profit increased by 43.7%.

135


Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20182020 was €184380 million, a 29.8% decrease21.7% increase compared with the €262€312 million expense recorded for the year ended December 31, 2017. Tax expense2019,mainly as a result of the higher operating profit before tax. The effective tax rate amounted to 20.0%24.9% of the operating profit before tax for the year ended December 31, 2018, compared with 35.1%2020, and 23.3% for the year ended December 31, 2017, due2019.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the reduction inyear ended December 31, 2020 amounted to €579 million, a 10.6% increase compared with the effective tax rate following€524 million recorded for the tax reform approved in 2017.year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20182020 amounted to €735€563 million, a 51.3%an 11.4% increase compared with the €486€506 million recorded for the year ended December 31, 2017.2019.

 

155136


 

MEXICOSOUTH AMERICA

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

2017 (1)

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

5,568

5,476

1.7

2,701

3,196

(15.5)

Net fees and commissions

1,205

1,219

(1.2)

484

557

(13.1)

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)(1)

223

249

(10.4)

407

576

(29.3)

Other operating income and expense, net

(236)

(239)

(1.3)

(459)

(580)

(20.9)

Income and expense on insurance and reinsurance contracts

433

416

4.1

92

101

(8.8)

Gross income

7,193

7,122

1.0

3,225

3,850

(16.2)

Administration costs

(2,115)

(2,195)

(3.7)

(1,219)

(1,403)

(13.1)

Depreciation and amortization

(253)

(256)

(1.3)

(154)

(171)

(10.3)

Net margin before provisions (3)(2)

4,825

4,671

3.3

1,853

2,276

(18.6)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,555)

(1,651)

(5.8)

(864)

(777)

11.3

Provisions or reversal of provisions and other results

24

(35)

n.m. (4)

(93)

(103)

(10.2)

Operating profit/(loss) before tax

3,294

2,984

10.4

896

1,396

(35.8)

Tax expense or income related to profit or loss from continuing operations

(909)

(797)

14.0

(277)

(368)

(24.5)

Profit from continuing operations

2,385

2,187

9.0

619

1,028

(39.8)

Profit from corporate operations, net

-

-

-

-

Profit

2,385

2,187

9.0

619

1,028

(39.8)

Profit attributable to non-controlling interests

(1)

-

n.m. (4)

(173)

(307)

(43.7)

Profit attributable to parent company

2,384

2,187

9.0

446

721

(38.2)

(1)  Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(4)   Not meaningful.

156


 

In the year ended December 31, 2018,2020, the MexicanArgentine peso, the Colombian peso and the Peruvian sol depreciated 6.1%by 34.8% (considering the period-end exchange rates), 12.9% and 6.5%, respectively, against the euro in average terms, resultingcompared with the year ended December 31, 2019. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 20182020 and in the results of operations of the MexicoSouth America operating segment for such period expressed in euros.See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

As of December 31, 2020 and 2019 and for the years then ended, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies”). 

Net interest income

Net interest income of this operating segment for the year ended December 31, 20182020 amounted to €5,568 2,701 million, a 1.7% increase15.5% decrease compared with the €5,476€3,196 million recorded for the year ended December 31, 2017, and an 8.2% increase excluding the negative exchange rate effect, which was2019, mainly as a result of an increase in the average volumedepreciation of loans and advances to customers.the currencies of the main countries where the BBVA Group operates against the euro. At constant exchange rates, there was a 0.9% increase. The net interest margin over total average assets of this operating segment amounted to 5.78%4.84% for 2018 (5.63%the year ended December 31, 2020, compared with 5.71% for 2017).the year ended December 31, 2019.

137


Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 20182020 amounted to €1,205484 million, a 1.2%13.1% decrease compared with the €1,219€557 million recorded for the year ended December 31, 2017, 2019,mainly as a result of the depreciation of the Mexican pesocurrencies of the main countries where the BBVA Group operates within this operating segment against the euro. At a constant exchange rate, there was a 5.1% increase mainly as a result of increased activity in mutual funds, as well as a higher volume of transactions with on-line banking and credit card customers.0.6% increase.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 20182020 were €223€407 million, a 10.4%29.3% decrease compared with the €249€576 million gain recorded for the year ended December 31, 2017,2019, mainly as a resultdue to the negative impact of changes in exchange rates on foreign currency positions and the depreciation of the weaker performancecurrencies of the Global Markets unit during 2018.main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increased valuation of the BBVA Group’s stake in Prisma Medios de Pago, S.A. in Argentina. Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 was positively affected by the sale of the stake BBVA Argentina had in Prisma Medios de Pago S.A. in the first quarter of 2019.

Other operating income and expense, net

Other net operating income and expense net of this operating segment for the year ended December 31, 20182020 was a net expense of €236459 million, a 1.3%20.9% decrease compared with the €239€580 million net expense recorded for the year ended December 31, 2017.2019, mainly driven by the adjustment for hyperinflation in Argentina and, to a lesser extent, the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 20182020 was €43392 million, a 4.1% increasean 8.8% decrease compared with the €416€101 million net income recorded for the year ended December 31, 2017, mainly2019 as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro. At constant exchange rates, there was a 16.9% increase mainly explained by the increase in income derived from collectiverelated to life insurance policies.in Colombia.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 were €2,115 2020 amounted to €1,219 million, a 3.7%13.1% decrease compared with the €2,195€1,403 million recorded for the year ended December 31, 2017,2019, mainly as a result of the depreciation of the Mexican pesocurrencies of the main countries where the BBVA Group operates within this operating segment against the euro. At a constant exchange rate, administration costs increased by 2.5%, whichrates, there was below Mexico’s inflation ratea 3.0% increase.

Depreciation and amortization

Depreciation and amortization for the period.year ended December 31, 2020 was €154 million, a 10.3% decrease compared with the €171 million recorded for the year ended December 31, 2019, mainly due to the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

157138


Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 20182020 was a €1,555864 million expense, a 5.8% decreasean 11.3% increase compared with the €1,651€777 million expense recorded for the year ended December 31, 2017. At2019, mainly due to the deterioration in the macroeconomic scenario especially during the first half of 2020, caused by the impact of COVID-19 (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers)), in particular in Peru and Colombia. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers and the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro and reversals in Argentina mainly driven by a constant exchange rate, there was a 0.2%CPI increase in impairment losses on financial assets.the last quarter of 2020.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €93 million expense, compared with the €103 million expense recorded for the year ended December 31, 2019.

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20182020 was €3,294 896 million, a 10.4% increase35.8% decrease compared with the €2,984€1,396 million of operating profit recorded for the year ended December 31, 2017.2019.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20182020 was €909277 million, a 14.0% increase24.5% decrease compared with the €797€368 million expense recorded for the year ended December 31, 2017,2019, mainly as a result of the higherlower operating profit before tax. Consequently, thetax. The effective tax expenserate amounted to 27.6%31.0% of operating profit before tax for the year ended December 31, 2018,2020, and 26.7%26.3% for the year ended December 31, 2017.2019, mainly driven by the increase in the applicable tax rate in Colombia, from 33% to 36%.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2020 amounted to €173 million, a 43.7% decrease compared with the €307 million recorded for the year ended December 31, 2019, due to the lower operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20182020 amounted to €2,384446 million, a 9.0% increase38.2% decrease compared with the €2,187€721 million recorded for the year ended December 31, 2017.2019.

 

158139


 

TURKEYREST OF EURASIA

 

For the Year Ended December 31,

 

 

2020

2019

Change

 

(In Millions of Euros)

(In %)

Net interest income

214

175

22.4

Net fees and commissions

150

139

8.2

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

137

131

4.4

Other operating income and expense, net

3

4

(15.5)

Income and expense on insurance and reinsurance contracts

6

5

2.56

Gross income

510

454

12.3

Administration costs

(268)

(275)

(2.5)

Depreciation and amortization

(17)

(18)

(5.5)

Net margin before provisions (2)

225

161

39.8

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(38)

(4)

n.m. (3)

Provisions or reversal of provisions and other results

(2)

6

n.m. (3)

Operating profit/(loss) before tax

184

163

13.3

Tax expense or income related to profit or loss from continuing operations

(48)

(36)

33.3

Profit from continuing operations

137

127

7.6

Profit from corporate operations, net

-

-

-

Profit

137

127

7.6

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

137

127

7.6

From July 2015 to March 2017, we held 39.90% of Garanti’s share capital and, on March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti, increasing our total holding of Garanti’s share capital to 49.85%. See “Item 4. Information on the Company—History and Development of the Company—Capital expenditures—2017”. 

 

For the Year Ended December 31,

 

 

2018

2017

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,135

3,331

(5.9)

Net fees and commissions

686

703

(2.4)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

11

14

(24.2)

Other operating income and expense, net

23

5

n.m. (2)

Income and expense on insurance and reinsurance contracts

46

62

(25.9)

Gross income

3,901

4,115

(5.2)

Administration costs

(1,105)

(1,325)

(16.6)

Depreciation and amortization

(138)

(178)

(22.4)

Net margin before provisions (3)

2,658

2,612

1.8

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,202)

(453)

165.3

Provisions or reversal of provisions and other results

(8)

(12)

(33.7)

Operating profit/(loss) before tax

1,448

2,147

(32.5)

Tax expense or income related to profit or loss from continuing operations

(294)

(426)

(31.0)

Profit from continuing operations

1,154

1,720

(32.9)

Profit from corporate operations, net

-

-

-

Profit

1,154

1,720

(32.9)

Profit attributable to non-controlling interests

(585)

(895)

(34.6)

Profit attributable to parent company

569

826

(31.0)

(1)  Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3)  “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

159


The Turkish lira depreciated 27.8% against the euro in average terms the year ended December 31, 2018, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the Turkey operating segment for such period expressed in euros.(3)   Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 20182020 amounted to €3,135€214 million, a 5.9% decrease22.4% increase compared with the €3,331€175 million recorded for the year ended December 31, 2017,2019 mainly as a resultdue to increased transactional banking and investment activity, in particular during the last quarter of the depreciation of the Turkish lira. At a constant exchange rate, there was a 30.3% increase in net interest income, mainly as a result of higher income from inflation-linked bonds.2020. The net interest margin over total average assets of this operating segment amounted to 4.36%0.86% for the year ended December 31, 2018 (4.05%2020 compared with 0.84% for 2017).the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 20182020 amounted to €686€150 million, a 2.4% decreasean 8.2% increase compared with the €703€139 million recorded for the year ended December 31, 2017, 2019 mainly as a resultdue to increased transactional banking and investment activity, in particular during the last quarter of the depreciation of the Turkish lira which more than offset the overall growth in net fees and commissions, on a constant exchange rate basis, mainly related to payment systems, advances, money transfers and other commissions.2020.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 20182020 were €11€137 million, a 24.2% decrease4.4% increase compared with the €14€131 million net gain recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira against the euro, which offset the positive performance of global markets, asset and liabilities management and derivatives.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2018 was €23 million, compared with the €5 million of net expense recorded for the year ended December 31, 2017, mainly as a result of the lower contribution to the Deposit Guarantee Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2018 was €46 million, a 25.9% decrease compared with the €62 million income recorded for the year ended December 31, 2017, mainly as a result of the depreciation of the Turkish lira.2019.

Administration costs

Administration costs of this operating segment for the year ended December 31, 20182020 amounted to €1,105€268 million, a 16.6%2.5% decrease compared with the €1,325€275 million recorded for the year ended December 31, 2017, mainly as a result of2019.

140


Depreciation and amortization

Depreciation and amortization for the depreciation ofyear ended December 31, 2020 was €17 million, compared with the Turkish lira. At a constant exchange rate, administration costs increased by 15.4%, mainly as a result of€18 million recorded for the 20.3% average inflation rate in 2018.year ended December 31, 2019.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was a €1,2022020 amounted to an expense of €38 million expense, a 165.3% increase compared with the €453€4 million expense recorded for the year ended December 31, 2017,2019 mainly as a result of higher loan loss allowances for certain specific wholesale customers.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the deterioration ofyear ended December 31, 2020 were a €2 million expense compared with the wholesale-customer portfolio and€6 million income recorded for the adverse macroeconomic scenario.year ended December 31, 2019.

160


Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20182020 was €1,448€184 million, a 32.5% decrease13.3% increase compared with the €2,147€163 million of operating profit recorded for the year ended December 31, 2017.2019.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20182020 was €294€48 million, a 31.0% decrease33.3% increase compared with the €426€36 million expense recorded for the year ended December 31, 2017. Consequently, the effective tax rate amounted to 20.3% of operating profit before tax for the year ended December 31, 2018, and 19.9% for the year ended December 31, 2017.

2019, Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2018 amounted to €585 million, a 34.6% decrease compared with the €895 million recorded for the or the year ended December 31, 2017 mainly as a result of the depreciation of the Turkish lira against the euro and our acquisition of an additional 9.95% stake in Garanti on March 22, 2017.higher operating profit before tax

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20182020 amounted to €569€137 million, a 31.0% decrease7.6% increase compared with the €826€127 million recorded for the year ended December 31, 2017 mainly as a result of the depreciation of the Turkish lira against the euro, offset in part by our acquisition of an additional 9.95% stake in Garanti on March 22, 2017.2019.

 

161141


 

SOUTH AMERICACORPORATE CENTER

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2018

2017

Change

2020

2019

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

3,009

3,200

(6.0)

(149)

(233)

(36.0)

Net fees and commissions

631

713

(11.4)

(59)

(73)

(18.6)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

405

480

(15.7)

104

(54)

n.m. (2)

Other operating income and expense, net

(454)

(113)

n.m. (2)

64

41

54.2

Income and expense on insurance and reinsurance contracts

110

172

(36.0)

(17)

(20)

(16.2)

Gross income

3,701

4,451

(16.9)

(57)

(339)

(83.1)

Administration costs

(1,565)

(1,886)

(17.1)

(625)

(765)

(18.2)

Depreciation and amortization

(125)

(121)

3.2

(194)

(190)

1.7

Net margin before provisions (3)

2,011

2,444

(17.7)

(876)

(1,294)

(32.3)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(638)

(650)

(1.9)

4

-

n.m. (2)

Provisions or reversal of provisions and other results

(65)

(103)

(36.3)

(1,938)

(1,481)

30.9

Operating profit/(loss) before tax

1,307

1,691

(22.7)

(2,810)

(2,775)

1.3

Tax expense or income related to profit or loss from continuing operations

(475)

(486)

(2.2)

174

258

(32.5)

Profit from continuing operations

833

1,205

(30.9)

Profit from continuing operations excluding corporate operations

(2,635)

(2,517)

4.7

Profit from corporate operations, net

-

-

-

-

Profit

833

1,205

(30.9)

(2,635)

(2,517)

4.7

Profit attributable to non-controlling interests

(241)

(345)

(30.1)

-

-

-

Profit attributable to parent company

591

861

(31.3)

(2,635)

(2,517)

4.7

(1)  Comprises the following income statement line items contained in the Consolidated Financial Statements:Includes “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.meaningful.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

In the year ended December 31, 2018, the Argentine peso depreciated 56.7% against the euro in average terms, compared with the year ended December 31, 2017. In addition, the Chilean peso, Colombian peso and Peruvian new sol also depreciated in average terms against the euro compared with the year ended December 31, 2017, by 3.2%, 4.3% and 5.1%, respectively. As a result, changes in exchange rates resulted in a negative impact on the results of operationsNet interest income / (expense)

Net interest expense of the South America operating segmentCorporate Center for the year ended December 31, 2018  expressed in euros.

At the year-end 2018, the Argentinian economy2020 was considered to be hyperinflationary as defined by IAS 29 (see Note 2.2.20 to our Consolidated Financial Statements). The negative impact of accounting for hyperinflation in Argentina in the net attributable profit of this operating segment was €266 million.

In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”

162


Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €3,009€149 million, a 6.0%36.0% decrease compared with the €3,200€233 million net expense recorded for the year ended December 31, 2017,2019, mainly due to the lower funding costs as a result of the depreciation of the currencies of the region against the euro. At constant exchangereductions in reference interest rates there was a 12.8% increase mainly as a result of the growth in the average volume of and in the yield on interest-earning assets, which more than offset the impact of the sale of BBVA Chile. The net interest margin over total average assets of this operating segment amounted to 4.64% for. the year ended December 31, 2018 (4.22% for 2017).

Net fees and commissions

Net fees and commissions of the Corporate Center for the year ended December 31, 2020 was an expense of €59 million, an 18.6% decrease compared with the €73 million expense recorded for the year ended December 31, 2019.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of the Corporate Center for the year ended December 31, 2020 were €104 million, compared with the €54 million net losses recorded for the year ended December 31, 2019, mainly as a result of the positive impact of changes in exchange rates on foreign currency positions.

Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2020 was €64 million compared with the €41 million of net income recorded for the year ended December 31, 2019.

142


Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2020 amounted to €625 million, an 18.2% decrease compared with the €765 million recorded for the year ended December 31, 2019, mainly as a result of the decrease in personnel expense and in certain other general expenses.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €194 million compared with the €190 million recorded for the year ended December 31, 2019.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of the Corporate Center for the year ended December 31, 2020 were a €1,938 million expense compared with the €1,481 million expense recorded for the year ended December 31, 2019, mainly as a result of the goodwill impairment losses recognized in the United States CGU. This impairment had a net negative impact on the “Profit attributable to parent company” of €2,084 million, and was mainly the result of the negative impact of the update of the macroeconomic scenario following the onset of COVID-19. For additional information, see “—Critical Accounting Policies—Goodwill in consolidation”. This expense was partially offset by the profit recognized from the transaction with Allianz Compañía de Seguros y Reaseguros, S.A. (see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2020”).

Operating profit / (loss) before tax

As a result of the foregoing, operating loss before tax of the Corporate Center for the year ended December 31, 2020 was €2,810 million compared with the €2,775 million loss recorded for the year ended December 31, 2019.

Tax expense or income related to profit or loss from continuing operations

Tax income related to profit or loss from continuing operations of the Corporate Center for the year ended December 31, 2020 amounted to €174 million, a 32.5% decrease compared with the €258 million income recorded for the year ended December 31, 2019

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of the Corporate Center for the year ended December 31, 2019 was a loss of €2,635 million, compared with the €2,517 million loss recorded for the year ended December 31, 2019.

143


Results of Operations by Operating Segment for 2019 Compared with 2018

Consolidated financial information for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.  

SPAIN

 

For the Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,567

3,618

(1.4)

Net fees and commissions

1,751

1,682

4.1

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

239

529

(54.9)

Other operating income and expense, net

(419)

(425)

(1.5)

Income and expense on insurance and reinsurance contracts

518

485

6.7

Gross income

5,656

5,888

(4.0)

Administration costs

(2,777)

(3,027)

(8.2)

Depreciation and amortization

(476)

(308)

54.8

Net margin before provisions (2)

2,402

2,554

(5.9)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(138)

(303)

(54.5)

Provisions or reversal of provisions and other results

(386)

(410)

(5.9)

Operating profit/(loss) before tax

1,878

1,840

2.0

Tax expense or income related to profit or loss from continuing operations

(489)

(437)

12.0

Profit from continuing operations

1,389

1,403

(1.1)

Profit from corporate operations, net

-

-

-

Profit

1,389

1,403

(1.1)

Profit attributable to non-controlling interests

(3)

(3)

-

Profit attributable to parent company

1,386

1,400

(1.0)

 (1) Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of an important part of the real estate business of BBVA in Spain to Divarian and the sale of an 80% stake in Divarian to Promontoria Marina, S.L.U., a company managed by Cerberus Capital Management, L.P. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa Residencial SOCIMI, S.A. for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager (Anfora), for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in-default mortgage credits. The transaction was completed during the third quarter of 2019. The completion of these transactions has affected the comparability of year-on-year results for this operating segment. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 20182019 amounted to €631€3,567 million, a 11.4%1.4% decrease compared with the €713€3,618 million recorded for the year ended December 31, 2017,2018, mainly as a result of the depreciationlower contribution from the ALCO portfolio. The net interest margin over total average assets of this operating segment amounted to 0.99% for the currenciesyear ended December 31, 2019, compared with 1.06% for the year ended December 31, 2018.

144


Net fees and commissions

Net fees and commissions of this operating segment for the region againstyear ended December 31, 2019 amounted to €1,751 million, a 4.1% increase compared with the euro. At a constant exchange rate, there was a 10.9%€1,682 million recorded for the year ended December 31, 2018, mainly due to the increase mainly as a result of an increase in creditcorporate banking transactions and debit card commissions, which more than offset the impactpositive performance of the sale of BBVA Chile.asset management activities.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €4052019 was a net gain of €239 million, a 15.7%54.9% decrease compared with the €480€529 million net gain recorded for the year ended December 31, 2017,2018, mainly as a result of the depreciation of the currencies of the region against the euro. At a constant exchange rate, there was a 5.2% increase mainly as a result of foreign-currency operations.uneven market conditions and lower portfolio sales in 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2018 was €4542019 amounted to €419 million, a 1.5% decrease compared with the €113€425 million expense recorded for the year ended December 31, 2017, mainly as a result of the recording of the adjustment for hyperinflation in Argentina.2018.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 20182019 was €110€518 million, a 36.0% decrease6.7% increase compared with the €172€485 million net income recorded for the year ended December 31, 2017,2018, mainly as a result of higher premiums collected and a lower claims ratio, partially offset by the depreciation of the currencies of the region against the euro. At constant exchange rates, there was a 5.4% decrease mainly as a result of the sale of thelower insurance business in Chile.activity related to insurance-savings products (through BBVA Seguros).

Administration costs

Administration costs of this operating segment for the year ended December 31, 20182019 amounted to €1,565€2,777 million, a 17.1%an 8.2% decrease compared with the €1,886€3,027 million recorded for the year ended December 31, 2017,2018, mainly as a result of the depreciationlower rent expense due tothe implementation of IFRS 16 on January 1, 2019, which had the currencieseffect of accounting for the region againstamortization of right-to-use assets under the euro. At constant exchange rates, there was a 6.6% increase mainly as a result of the high inflation registered in some countries of the region, which more than offset the impact of the sale of BBVA Chile.heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 20182019 was €125€476 million, a 3.2%54.8% increase compared with the €121€308 million recorded for the year ended December 31, 20172018, mainly as a result of higher expense related to software in Peru.the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 was2019 amounted to an expense of €138 million, a €638 million expense, a 1.9%54.5% decrease compared with the €650€303 million expense recorded for the year ended December 31, 2017,2018, mainly as a result of the depreciationsale of currencies in the region against the euro, which more than offset the increase in impaired assets duenon-performing and in-default mortgage credits and to lower loan loss provisions of real estate developer loans previously allocated to the increase informer Non-Core Real Estate operating segment following the sizeAnfora transaction (see “—Factors Affecting the Comparability of the loan portfolioour Results of Operations and the deterioration in credit qualityFinancial Condition—Agreement with Voyager Investing UK Limited Partnership (Anfora)”)

163145


 

Provisions or reversal of provisionsand other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 20182019 were a €65€386 million expense, a 36.3%5.9% decrease compared with the €103€410 million expense recorded for the year ended December 31, 2017,2018, mainly as a result of the depreciation of currencies in the region against the euro.      due to lower real estate related costs and other results, partially offset by higher pension and pre-early retirement provisions.

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20182019 was €1,307€1,878 million, a 22.7% decrease2.0% increase compared with the €1,691€1,840 million of operating profit recorded for the year ended December 31, 2017.2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20182019 was €475an expense of €489 million, a 2.2% decrease12.0% increase compared with the €486€437 million expense recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 mainly as a result oftax declaration presented in July 2018) and the lowerhigher operating profit before tax. Consequently, the effective tax rateTax expense amounted to 36.3%26.0% of operating profit before tax for the year ended December 31, 2018,2019 and 28.7%23.7% for the year ended December 31, 2017.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2018 amounted to €241 million, a 30.1% decrease compared with the €345 million recorded for the year ended December 31, 2017, mainly as a result of the depreciation of currencies in the region against the euro and the sale of BBVA Chile (which had minority interests), offset in part by the impact of accounting for hyperinflation in Argentina.2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20182019 amounted to €591€1,386 million, a 31.1%1.0% decrease compared with the €861€1,400 million recorded for the year ended December 31, 2017 affected by the accounting of hyperinflation in Argentina (which detracted €266 million from profit attributable to parent company), the depreciation of currencies in the region against the euro and the sale of BBVA Chile.2018.

 

164146


 

REST OF EURASIA

 

For the Year Ended December 31,

 

 

2018

2017

Change

 

(In Millions of Euros)

(In %)

Net interest income

175

180

(2.5)

Net fees and commissions

138

164

(15.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

101

123

(17.3)

Other operating income and expense, net

-

1

n.m. (2)

Income and expense on insurance and reinsurance contracts

-

-

-

Gross income

415

468

(11.4)

Administration costs

(285)

(297)

(4.1)

Depreciation and amortization

(6)

(11)

(44.2)

Net margin before provisions (3)

124

160

(22.5)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

24

23

4.0

Provisions or reversal of provisions and other results

(3)

(6)

(40.4)

Operating profit/(loss) before tax

144

177

(18.5)

Tax expense or income related to profit or loss from continuing operations

(51)

(52)

(2.6)

Profit from continuing operations

93

125

(25.2)

Profit from corporate operations, net

-

-

-

Profit

93

125

(25.2)

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

93

125

(25.2)

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3) “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

165


Net interest income

Net interest income of this operating segment for the year ended December 31, 2018 amounted to €175 million, a 2.5% decrease compared with the €180 million recorded for the year ended December 31, 2017, mainly as a result of a weaker performance of the Global Finance unit in Asia, particularly Corporate and Investment Banking (C&IB), partially offset by the performance of the Global Trade unit in Asia.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 amounted to €138 million, a 15.9% decrease compared with the €164 million recorded for the year ended December 31, 2017, mainly as a result of lower commissions in the branch network in Europe.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €101 million, a 17.3% decrease compared with the €123 million net gain recorded for the year ended December 31, 2017, mainly as a result of the weaker performance of the Global Markets unit in Europe.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €285 million, a 4.1% decrease compared with the €297 million recorded for the year ended December 31, 2017, mainly as a result of the expense reduction efforts in the Corporate and Investment Banking (C&IB) unit and the Global Markets unit in Europe.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 amounted to income of €24 million, a 4.0% increase compared with the €23 million income recorded for the year ended December 31, 2017, mainly as a result of the lower loan loss provisions in Europe.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2018 was €144 million, an 18.5% decrease compared with the €177 million of operating profit recorded for the year ended December 31, 2017

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2018 was €51 million, a 2.6% decrease compared with the €52 million expense recorded for the year ended December 31, 2017. Consequently, the effective tax rate amounted to 35.2% of operating profit before tax for the year ended December 31, 2018, and 29.5% for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 amounted to €93 million, a 25.2% decrease compared with the €125 million recorded for the year ended December 31, 2017.

166


CORPORATE CENTER

 

For the Year Ended December 31,

 

 

2018

2017 (1)

Change

 

(In Millions of Euros)

(In %)

Net interest income

(276)

(357)

(22.8)

Net fees and commissions

(59)

(86)

(32.1)

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

(155)

436

n.m. (3)

Other operating income and expense, net

76

99

(23.8)

Income and expense on insurance and reinsurance contracts

(19)

(19)

(1.1)

Gross income

(432)

73

n.m. (3)

Administration costs

(706)

(592)

19.3

Depreciation and amortization

(214)

(297)

(27.8)

Net margin before provisions (4)

(1,352)

(815)

65.9

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(2)

(1,125)

(99.8)

Provisions or reversal of provisions and other results

(65)

(73)

(10.8)

Operating profit/(loss) before tax

(1,420)

(2,013)

(29.5)

Tax expense or income related to profit or loss from continuing operations

290

166

75.0

Profit from continuing operations excluding corporate operations

(1,130)

(1,847)

(38.8)

Profit from corporate operations, net

633

-

n.m. (3)

Profit

(497)

(1,847)

(73.1)

Profit attributable to non-controlling interests

3

(1)

n.m. (3)

Profit attributable to parent company

(494)

(1,848)

(73.3)

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)  Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   Not meaningful.

(4)  “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

167


Net interest income / (expense)

Net interest expense of this operating segment for the year ended December 31, 2018 was €276 million, a 22.8% decrease compared with the €357 million net expense recorded for the year ended December 31, 2017, mainly as a result of the lower cost of funding and the evolution of interest rates.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2018 was an expense of €59 million, a 32.1% decrease compared with an expense of €86 million expense recorded for the year ended December 31, 2017, mainly as a result of the lower commissions paid in 2018 for cross-selling agreements.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2018 were €155 million, compared with the €436 million gain recorded for the year ended December 31, 2017, which was principally due to the sale of a 2.14% stake in CNCB in 2017.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2018 amounted to €706 million, a 19.3% increase compared with the €592 million recorded for the year ended December 31, 2017, mainly as a result of an increase in IT for the development of new capabilities, cybersecurity and process reengineering.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2018 amounted to a €2 million expense, a 99.8% decrease compared with the €1,125 million expense recorded for the year ended December 31, 2017, which related mainly to the recognition of impairment losses of €1,123 million in connection with BBVA’s stake in Telefónica, S.A. in such year.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2018 were a €65 million expense, a 10.8% decrease compared with the €73 million expense recorded for the year ended December 31, 2017.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2018 was €1,420 million, a 29.5% decrease compared with the €2,013 million loss recorded for the year ended December 31, 2017.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2018 amounted to €290 million, compared with the €166 million income recorded for the year ended December 31, 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2018 was a loss of €494 million, compared with the €1,848 million loss recorded for the year ended December 31, 2017, mainly as a result of capital gains (net of taxes) originated by the sale of BBVA Chile, which amounted to €633 million.

168


Results of Operations by Operating Segment for 2017 Compared with 2016

BANKING ACTIVITY IN SPAIN

 

For the Year Ended December 31,

 

 

2017 (1)

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,738

3,877

(3.6)

Net fees and commissions

1,561

1,477

5.7

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

555

786

(29.4)

Other operating income and expense, net

(106)

(123)

(13.3)

Income and expense on insurance and reinsurance contracts

433

400

8.3

Gross income

6,180

6,416

(3.7)

Administration costs

(3,071)

(3,252)

(5.6)

Depreciation and amortization

(319)

(327)

(2.4)

Net margin before provisions (3)

2,790

2,837

(1.7)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(567)

(763)

(25.7)

Provisions or reversal of provisions and other results

(369)

(807)

(54.3)

Operating profit/(loss) before tax

1,854

1,268

46.3

Tax expense or income related to profit or loss from continuing operations

(477)

(360)

32.5

Profit from continuing operations

1,377

908

51.7

Profit from corporate operations, net

-

-

-

Profit

1,377

908

51.7

Profit attributable to non-controlling interests

(3)

(3)

3.2

Profit attributable to parent company

1,374

905

51.9

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,738 million, a 3.6% decrease compared with the €3,877 million recorded for the year ended December 31, 2016, mainly as a result of a decrease in the average volume of interest-earning assets, particularly in the securities portfolio and derivatives as a result of the sale of certain wholesales portfolios and, to a lesser extent, lower average loans and advances to customers, partially offset by the lower funding cost of interest-bearing liabilities. The net interest margin over this operating segment’s total average assets amounted to 1.18% for the year ended December 31, 2017 compared with 1.15% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €1,561 million, a 5.7% increase compared with the €1,477 million recorded for the year ended December 31, 2016, mainly as a result of an increase in securities fees due to increased activity in our wholesale businesses and growth in mutual funds driven primarily by higher share prices.

169


Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 was a net gain of €555 million, a 29.4% decrease compared with the €786 million recorded for the year ended December 31, 2016, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) portfolios. The gain in the prior period was also partially due to the gains from the sale of our stake in VISA Europe, Ltd. recorded in the second quarter of 2016.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €106 million, a 13.3% decrease compared with the €123 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a reduced annual contribution to the Single Resolution Fund and increased income from insurance activities.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €433 million, an 8.3% increase compared with the €400 million net income recorded for the year ended December 31, 2016, mainly as a result of the lower claims ratio and new contract origination.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to an expense of €3,071 million, a 5.6% decrease compared with the €3,252 million recorded for the year ended December 31, 2016, mainly as a result of a €66 million decrease in wages and salaries, a €38 million decrease in rent expense due to a reduction in the number of branches, a €20 million decrease in IT expense and a €23 million decrease in third-party services expense. Administration costs decreased for the six consecutive quarters ended December 31, 2017 due to the synergies related to the integration of Catalunya Bank and the implementation of efficiency plans.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to a €567 million expense, a 25.7% decrease compared with the €763 million expense recorded for the year ended December 31, 2016, mainly as a result of decreased impaired assets due to the improvement of credit quality, partially offset by the increase in the size of the loan portfolio by year-end. The non-performing asset ratio of this operating segment as of December 31, 2017 was 5.2% compared with 5.8% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €369 million expense, a 54.3% decrease compared with the €807 million expense recorded for the year ended December 31, 2016. Provisions recorded in 2016 were adversely affected by provisioning related to the invalidity of clauses limiting interest rates in certain mortgage loans with customers (referred to as “floor” clauses).  BBVA made additional provisions during 2017 to cover possible contingencies and claims in connection with this matter in amounts that BBVA considers not significant.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €1,854 million, a 46.3% increase compared with the €1,268 million recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was an expense of €477 million, a 32.5% increase compared with the €360 million expense recorded for the year ended December 31, 2016 mainly as a result of the higher operating profit before tax. The tax expense amounted to 25.8% of operating profit before tax for the year ended December 31, 2017, and 28.4% for the year ended December 31, 2016.

170


Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €1,374 million, a 51.9% increase compared with the €905 million recorded for the year ended December 31, 2016.

NON-CORE REAL ESTATE

 

For the Year Ended December 31,

 

 

2017 (1)

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

71

60

19.5

Net fees and commissions

3

6

(50.7)

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

-

(3)

(100.0)

Other operating income and expense, net

(91)

(68)

33.2

Income and expense on insurance and reinsurance contracts

-

-

-

Gross income

(17)

(6)

160.2

Administration costs

(81)

(96)

(16.4)

Depreciation and amortization

(18)

(27)

(33.8)

Net margin before provisions (3)

(116)

(130)

(11.2)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(138)

(138)

0.4

Provisions or reversal of provisions and other results

(403)

(475)

(15.2)

Operating profit/(loss) before tax

(657)

(743)

(11.6)

Tax expense or income related to profit or loss from continuing operations

166

148

12.1

Profit from continuing operations

(491)

(595)

(17.5)

Profit from corporate operations, net

-

-

-

Profit

(491)

(595)

(17.5)

Profit attributable to non-controlling interests

1

-

n.m. (4)

Profit attributable to parent company

(490)

(595)

(17.7)

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(4)   Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €71 million, a 19.5% increase compared with the €60 million recorded for the year ended December 31, 2016, mainly as a result of higher interest income from construction sector loans.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €3 million, a 50.7% decrease compared with the €6 million recorded for the year ended December 31, 2016, mainly as a result of a decrease in insurance product commissions.

171


Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €91 million, compared with the €68 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a €32 million decrease in income from non-financial services.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €81 million, a 16.4% decrease compared with the €96 million recorded for the year ended December 31, 2016.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to an expense of €138 million, a 0.4% increase compared with the €138 million expense recorded for the year ended December 31, 2016. The non-performing asset ratio of this operating segment as of December 31, 2017 was 52.8% compared with 56.1% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €403 million expense, a 15.2% decrease compared with the €475 million expense recorded for the year ended December 31, 2016, mainly as a result of portfolio sales.

Operating profit/ (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segment for the year ended December 31, 2017 was €657 million, an 11.6% decrease compared with the €743 million loss recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax income related to loss from continuing operations of this operating segment for the year ended December 31, 2017 amounted to €166 million, a 12.1% increase compared with the €148 million gain recorded for the year ended December 31, 2016. Consequently, tax income amounted to 25.3% of the operating loss before tax for the year ended December 31, 2017, and 19.9% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 was a loss of €490 million, a 17.7% decrease compared with the €595 million loss recorded for the year ended December 31, 2016.

172


THE UNITED STATES

 

For the Year Ended December 31,

 

 

2017 (1)

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

2,119

1,953

8.5

Net fees and commissions

644

638

1.1

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

111

142

(22.2)

Other operating income and expense, net

2

(27)

n.m. (3)

Income and expense on insurance and reinsurance contracts

-

-

-

Gross income

2,876

2,706

6.3

Administration costs

(1,665)

(1,652)

0.7

Depreciation and amortization

(187)

(190)

(2.0)

Net margin before provisions (4)

1,025

863

18.8

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(241)

(221)

9.0

Provisions or reversal of provisions and other results

(36)

(30)

21.4

Operating profit/(loss) before tax

748

612

22.2

Tax expense or income related to profit or loss from continuing operations

(262)

(153)

71.3

Profit from continuing operations

486

459

5.9

Profit from corporate operations, net

-

-

-

Profit

486

459

5.9

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

486

459

5.9

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   Not meaningful.

(4)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

173


In 2017 the U.S. dollar depreciated 2.0% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement and in the results of operations of the United States operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €2,119 million, an 8.5% increase compared with the €1,953 million recorded for the year ended December 31, 2016, mainly as a result of higher interest rates (including as a result of the impact of the Federal Reserve Board benchmark interest rate increases), particularly related to loans and advances to customers, and, to a lesser extent, securities portfolio and derivatives, partially offset by the effect of higher interests on deposits, particularly from Federal Home Loan Banks. The net interest margin over total average assets of this operating segment amounted to 2.68% for the year ended December 31, 2017 compared with 2.26% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €644 million, a 1.1% increase compared with the €638 million recorded for the year ended December 31, 2016, mainly as a result of an  increase in commissions, particularly in credit and debit card commissions.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 amounted to €111 million, a 22.2% decrease compared with the €142 million gain recorded for the year ended December 31, 2016, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) securities and mortgage portfolios.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €2 million, compared with the €27 million of net expense recorded for the year ended December 31, 2016, mainly as a result of the lower contribution made to the Deposit Guarantee Fund.

174


Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,665 million, a 0.7% increase compared with the €1,652 million recorded for the year ended December 31, 2016, mainly as a result of increases in general and administrative expense, particularly IT, consulting and marketing expense, and, to a lesser extent, an increase in personnel expense.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification  of this operating segment for the year ended December 31, 2017 was a €241 million expense, an 9.0% increase compared with the €221 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of additional allowances for loan losses related to the impact of hurricanes Harvey and Irma, and higher loan-loss provisioning related to consumer portfolios, partially offset by decreased impaired assets due to an improvement in the credit quality indicators of energy loans during 2017. The non-performing asset ratio of this operating segment as of December 31, 2017 was 1.2%, compared with 1.5% as of December 31, 2016.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €748 million, a 22.2% increase compared with the €612 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €262 million, a 71.3% increase compared with the €153 million expense recorded for the year ended December 31, 2016, mainly as a result of the higher operating profit before tax and the impact of the remeasurement of deferred tax assets and liabilities due to the impact of the Tax Cuts and Jobs Act signed into law on December 22, 2017 (pursuant to which the corporate tax rate was also reduced). Consequently, tax expense amounted to 34.9% of operating profit before tax for the year ended December 31, 2017, compared with 25.0% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €486 million, a 5.9% increase compared with the €459 million recorded for the year ended December 31, 2016.

175


MEXICO

 

For the Year Ended December 31,

 

 

2017 (1)

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

5,476

5,126

6.8

Net fees and commissions

1,219

1,149

6.1

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)

249

222

12.3

Other operating income and expense, net

(239)

(237)

1.0

Income and expense on insurance and reinsurance contracts

416

507

(17.8)

Gross income

7,122

6,766

5.3

Administration costs

(2,195)

(2,149)

2.2

Depreciation and amortization

(256)

(247)

3.8

Net margin before provisions (3)

4,671

4,371

6.9

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,651)

(1,626)

1.6

Provisions or reversal of provisions and other results

(35)

(67)

(47.8)

Operating profit/(loss) before tax

2,984

2,678

11.4

Tax expense or income related to profit or loss from continuing operations

(797)

(697)

14.4

Profit from continuing operations

2,187

1,981

10.4

Profit from corporate operations, net

-

-

-

Profit

2,187

1,981

10.4

Profit attributable to non-controlling interests

-

(1)

(100.0)

Profit attributable to parent company

2,187

1,980

10.5

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

176


In 2017, the Mexican peso depreciated 3.1% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement and in the results of operations of the Mexico operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €5,476 million, a 6.8% increase compared with the €5,126 million recorded for the year ended December 31, 2016, and a 9.5% increase excluding the negative exchange rate effect. The increase was mainly the result of higher interest rates, particularly due to the effect of higher interest rates on the securities portfolio and loans and advances to customers, and to a lesser extent, an increase in the average volume of loans and advances to customers. Net interest margin over total average assets of this operating segment amounted to 5.63% for the year ended December 31, 2017 compared with 5.47% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €1,219 million, a 6.1% increase compared with the €1,149 million recorded for the year ended December 31, 2016, mainly as a result of an overall increase in commissions, particularly in credit and debit card commissions and fees from online and investment banking, partially offset by a decrease in commissions for selling insurance and the impact of the depreciation of the Mexican peso against the euro.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €249 million, a 12.3% increase compared with the €222 million gain recorded for the year ended December 31, 2016, mainly as a result of portfolio sales.

Other operating income and expense, net

Other net operating income and expense of this operating segment for the year ended December 31, 2017 amounted to a net expense of €239 million, compared with the €237 million of net expense recorded for the year ended December 31, 2016.

177


Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €416 million, a 17.8% decrease compared with the €507 million net income recorded for the year ended December 31, 2016, mainly as a result of the higher rate of claims brought by customers (particularly in the last quarter of 2017) as a result of the impact of natural disasters that took place during 2017.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 were €2,195 million, a 2.2% increase compared with the €2,149 million recorded for the year ended December 31, 2016, mainly as a result of an increase in general and administrative expense, particularly IT expense, and, to a lesser extent, an increase in personnel expense. The increase was below Mexico’s inflation rate for 2017.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €1,651 million expense, a 1.6% increase compared with the €1,626 million expense recorded for the year ended December 31, 2016. Excluding the impact of the depreciation of the Mexican peso, the increase in impairment losses on financial assets (4.9%) was in line with the increase recorded in loans and advances to customers (5.3%). The non-performing asset ratio of this operating segment was 2.3% for both years ended December 31, 2017 and 2016.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €2,984 million, an 11.4% increase compared with the €2,678 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €797 million, a 14.4% increase compared with the €697 million expense recorded for the year ended December 31, 2016, mainly as a result of higher operating profit before tax. Consequently, tax expense amounted to 26.7% of operating profit before tax for the year ended December 31, 2017, and 26.0% for the year ended December 31, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €2,187 million, a 10.5% increase compared with the €1,980 million recorded for the year ended December 31, 2016.

178


TURKEY

Since July 2015 we have fully consolidated Garanti’s results in our consolidated financial statements. From July 2015 to March 2017, we held 39.90% of Garanti’s share capital and, on March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti, increasing our total holding of Garanti’s share capital to 49.85%. See “Item 4. Information on the Company—History and Development of the Company—Capital Expenditures—2017”. 

 

For the Year Ended December 31,

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,331

3,404

(2.1)

Net fees and commissions

703

731

(3.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

14

77

(81.2)

Other operating income and expense, net

5

(18)

n.m. (2)

Income and expense on insurance and reinsurance contracts

62

64

(2.6)

Gross income

4,115

4,257

(3.3)

Administration costs

(1,325)

(1,524)

(13.1)

Depreciation and amortization

(178)

(214)

(16.7)

Net margin before provisions (3)

2,612

2,519

3.7

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(453)

(520)

(13.0)

Provisions or reversal of provisions and other results

(12)

(93)

(87.2)

Operating profit/(loss) before tax

2,147

1,906

12.7

Tax expense or income related to profit or loss from continuing operations

(426)

(390)

9.2

Profit from continuing operations

1,720

1,515

13.5

Profit from corporate operations, net

-

-

-

Profit

1,720

1,515

13.5

Profit attributable to non-controlling interests

(895)

(917)

(2.4)

Profit attributable to parent company

826

599

37.9

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

(3)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

179


The Turkish lira depreciated 18.9% against the euro in average terms during 2017, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2017 and in the results of operations of the Turkey operating segment for such year expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,331 million, a 2.1% decrease compared with the €3,404 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, there was a 20.6% increase in net interest income, mainly as a result of higher interest rates, particularly in loans and advances to customers and inflation-linked bonds, and the growth in activity, particularly in cash and cash balances with central banks, in line with the growth of the Turkish financial sector. The net interest margin over total average assets of this operating segment amounted to 4.05% for the year ended December 31, 2017 compared to 3.81% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €703 million, a 3.9% decrease compared with the €731 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, there was an 18.5% increase in net fees and commissions, mainly as a result of an increase in credit and debit card commissions, which amounted to €51 million, and, to a lesser extent, due to an increase in checks and bills receivables commissions, which increased by €32 million.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €14 million, an 81.2% decrease compared with the €77 million gain recorded for the year ended December 31, 2016. The gain in 2016 was partially due to the sale of Garanti’s stake in VISA Europe, Ltd. recorded in the second quarter of 2016.

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €5 million, compared with the €18 million of net expense recorded for the year ended December 31, 2016, mainly as a result of a €13 million increase in financial income from real estate-related services.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €62 million, a 2.6% decrease compared with the €64 million in net income recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira.

180


Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,325 million, a 13.1% decrease compared with the €1,524 million recorded for the year ended December 31, 2016, mainly as a result of the depreciation of the Turkish lira. Excluding this impact, administration costs increased by 7.2%, mainly as a result of the 11.9% inflation rate, which led to a €78 million increase in personnel expense and an €11 million increase in general and administrative expense.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was a €453 million expense, a 13.0% decrease compared with the €520 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Turkish lira. Excluding this impact, impairment losses on financial assets increased by 7.3%, mainly as a result of deterioration in credit quality and an increase in the size of the loan portfolio. The non-performing asset ratio of this operating segment as of December 31, 2017 was 3.9% compared with 2.7% as of December 31, 2016. This increase was mainly the result of increased impairments of wholesale loans, the majority of which had already been fully provisioned.

Operating profit/(loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €2,147 million, a 12.7% increase compared with the €1,906 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €426 million, a 9.2% increase compared with the €390 million expense recorded for the year ended December 31, 2016, mainly as a result of the higher operating profit before tax. Consequently, the tax expense amounted to 19.9% of operating profit before tax for the year ended December 31, 2017, and 20.5% for the year ended December 31, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2017 amounted to €895 million, a 2.4% decrease compared with the €917 million recorded for the year ended December 31, 2016 mainly as a result of the completion of our acquisition of an additional 9.95% stake in Garanti on March 22, 2017, which more than offset the effect of the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €826 million, a 37.9% increase compared with the €599 million recorded for the year ended December 31, 2016 mainly as a result of the higher operating profit before tax and our acquisition of an additional 9.95% stake in Garanti during the year.

181


SOUTH AMERICA

 

For the Year Ended December 31,

 

 

2017

2016

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,200

2,930

9.2

Net fees and commissions

713

634

12.4

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

480

464

3.4

Other operating income and expense, net

(113)

(133)

(15.0)

Income and expense on insurance and reinsurance contracts

172

158

8.8

Gross income

4,451

4,054

9.8

Administration costs

(1,886)

(1,793)

5.2

Depreciation and amortization

(121)

(100)

20.8

Net margin before provisions (2)

2,444

2,160

13.1

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(650)

(526)

23.6

Provisions or reversal of provisions and other results

(103)

(82)

26.2

Operating profit/(loss) before tax

1,691

1,552

8.9

Tax expense or income related to profit or loss from continuing operations

(486)

(487)

(0.3)

Profit from continuing operations

1,205

1,065

13.1

Profit from corporate operations, net

-

-

-

Profit

1,205

1,065

13.1

Profit attributable to non-controlling interests

(345)

(294)

17.0

Profit attributable to parent company

861

771

11.6

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”,  “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

182


In 2017, the Venezuelan bolivar depreciated significantly against the euro in average terms compared with the year ended December 31, 2016. In the year ended December 31, 2017the Group used an estimated exchange rate of 18,182 Venezuelan bolivars per euro. In addition, the Argentine peso depreciated 12.8% against the euro in average terms. On the other hand, the Chilean peso, Colombian peso and Peruvian new sol appreciated in average terms against the euro compared with the year ended December 31, 2016, by 2.1%, 1.4% and 1.4%, respectively. In the aggregate, changes in exchange rates resulted in a negative impact on most of the headings of the results of operations of the South America operating segment for the year ended December 31, 2017 expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2017 amounted to €3,200 million, a 9.2% increase compared with the €2,930 million recorded for the year ended December 31, 2016, mainly as a result of growth in the average volume of interest-earning assets, particularly loans and advances to customers, and, to a lesser extent, in the securities portfolio and derivatives, partially offset by the depreciation of the Venezuelan bolivar and the Argentine peso. Assuming constant exchange rates, net interest income increased by 15.1%. The net interest margin over total average assets of this operating segment amounted to 4.22% for the year ended December 31, 2017 compared with 4.09% for the year ended December 31, 2016.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 amounted to €713 million, a 12.4% increase compared with the €634 million recorded for the year ended December 31, 2016, mainly as a result of an increase in credit and debit card commissions, which amounted to €33 million, and, to a lesser extent, due to an increase in checks and bills receivables commissions which increased by €13 million, partially offset by the depreciation of local currencies against the euro. By country, the main variation was registered in Argentina where net fees and commissions, at a constant exchange rate, increased by €65 million.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €480 million, a 3.4% increase compared with the €464 million gain recorded for the year ended December 31, 2016, mainly as a result of foreign-currency operations.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2017 were €113 million, a 15.0% decrease compared with the €133 million recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Venezuelan bolivar and the Argentine peso.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 was €172 million, an 8.8% increase compared with the €158 million in net income recorded for the year ended December 31, 2016, mainly as a result of the performance in Colombia where income on insurance and reinsurance contracts, at a constant exchange rate, increased by €14 million.

183


Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €1,886 million, a 5.2% increase compared with the €1,793 million recorded for the year ended December 31, 2016, in line with the average inflation rate in most countries and partially offset by the impact of the depreciation of the Venezuelan bolivar and the Argentine peso.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 was an expense of €650 million, a 23.6% increase compared with the €526 million expense recorded for the year ended December 31, 2016, mainly as a result of increased impaired assets due to the deterioration of credit quality with certain customers, partially offset by a decrease in the volume of the loan portfolio, higher recovery of written-off assets and depreciation of the Venezuelan bolivar and the Argentine peso. The non-performing asset ratio of this operating segment as of December 31, 2017 was 3.4% compared with 2.9% as of December 31, 2016.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2017 were a €103 million expense, a 26.2% increase compared with the €82 million expense recorded for the year ended December 31, 2016, mainly as a result of an increase in contingent liabilities.

Operating profit/ (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2017 was €1,691 million, an 8.9% increase compared with the €1,552 million of operating profit recorded for the year ended December 31, 2016.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2017 was €486 million, a 0.3% decrease compared with the €487 million expense recorded for the year ended December 31, 2016, mainly as a result of the impact of the depreciation of the Venezuelan bolivar and the Argentine peso. Assuming constant exchange rates, tax expense increased by 10.1%, in line with the 8.9% increase in operating profit before tax. Consequently, tax expense amounted to 28.7% of operating profit before tax for the year ended December 31, 2017, and 31.4% for the year ended December 31, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2017 amounted to €345 million, a 17.2% increase compared with the €294 million recorded for the year ended December 31, 2016 mainly as a result of the stronger performance of our Peruvian and Argentinian operations, where there are minority shareholders, as well as the reduction of our stake in our Argentinian operations during 2017.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2017 amounted to €861 million, an 11.6% increase compared with the €771 million recorded for the year ended December 31, 2016.

184


REST OF EURASIA

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2017

2016

Change

2019

2018

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

180

166

8.7

2,395

2,276

5.2

Net fees and commissions

164

194

(15.2)

644

596

8.1

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

123

87

40.4

173

109

58.8

Other operating income and expense, net

1

45

(97.3)

12

9

31.7

Income and expense on insurance and reinsurance contracts

-

-

Gross income

468

491

(4.8)

3,223

2,989

7.8

Administration costs

(297)

(330)

(9.9)

(1,747)

(1,683)

3.8

Depreciation and amortization

(11)

(12)

(10.4)

(219)

(178)

23.1

Net margin before provisions (2)

160

149

7.0

1,257

1,129

11.4

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

23

30

(24.3)

(550)

(225)

n.m. (3)

Provisions or reversal of provisions and other results

(6)

23

n.m.(3)

(2)

16

n.m. (3)

Operating profit/(loss) before tax

177

203

(12.9)

705

920

(23.4)

Tax expense or income related to profit or loss from continuing operations

(52)

0.3

(115)

(185)

(37.7)

Profit from continuing operations

125

151

(17.4)

590

736

(19.9)

Profit from corporate operations, net

-

-

-

-

Profit

125

151

(17.4)

590

736

(19.9)

Profit attributable to non-controlling interests

-

-

-

-

Profit attributable to parent company

125

151

(17.4)

590

736

(19.9)

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

185In the year ended December 31, 2019 the U.S. dollar appreciated 5.5% against the euro in average terms, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 


 

Net interest income

Net interest income of this operating segment for the year ended December 31, 20172019 amounted to €180€2,395 million, an 8.7%a 5.2% increase compared with the €166€2,276 million recorded for the year ended December 31, 2016,2018, mainly as a resultdue to the appreciation of the performance of the Global Finance unit in Europe, particularly in retail businesses and Corporate and Investment Banking (C&IB),  and, to a lesser extent the performance of the Global Markets unit in Europe,U.S. dollar, partially offset by performancehigher funding costs. Additionally, while the Federal Reserve’s increase in interest rates in 2018 positively impacted net interest income, subsequent rate reductions in 2019 have negatively impacted results especially in the second half of 2019. The net interest margin over total average assets of this operating segment amounted to 2.78% for the Global Markets unit in Asia.year ended December 31, 2019, compared with 2.96% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 20172019 amounted to €164€644 million, a 15.2% decreasean 8.1% increase compared with the €194€596 million recorded for the year ended December 31, 2016,2018, mainly as a resultdue to higher service charges on deposit accounts, higher card and merchant processing fees, lower commissions paid and the appreciation of a decrease in securities fees.the U.S. dollar against the euro. 

147


Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2017 were €1232019 was a net gain of €173 million, a 40.4%58.8% increase compared with the €87€109 million net gain recorded for the year ended December 31, 2016,2018, mainly as a result of a €21 million increasehigher ALCO portfolio sales, the performance in the gains on financial assetsBBVA branch in retail businesses, particularly in Portugal (€13 million increase)New York and a €28 million increasethe appreciation of the Global Markets unit in Europe, partially offset by a €25 million decrease ofU.S. dollar against the Global Markets unit in Asia.euro. 

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2017 was €12019 amounted to €12 million, compared with €45the €9 million in other net operating income recorded for the year ended December 31, 2016, mainly as a result of our divestment in CNCB, a 2.14% stake of which we sold in 2017, which resulted in lower dividends from CNCB.2018.

Administration costs

Administration costs of this operating segment for the year ended December 31, 20172019 amounted to €297€1,747 million, a 9.9% decrease3.8% increase compared with the €330€1,683 million recorded for the year ended December 31, 2016,2018, mainly as a result of increased expenses relating to professional services, business development and deposit campaigns, partially offset by the lower rent expense reduction efforts indue to the Corporateimplementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and Investment Banking (C&IB) unit in Asiaamortization”.

Depreciation and amortization

Depreciation and amortization for the retail business in Europe.year ended December 31, 2019 was €219 million, a 23.1% increase compared with the €178 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”. 

186


Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2017 amounted to income of €232019 was a €550 million a 24.3% decreaseexpense compared with the €30€225 million incomeexpense recorded for the year ended December 31, 2016,2018, mainly as a result of higher loan loss allowances for specific commercial portfolio customers and losses within the consumer loan portfolios as well as an increase in the loss allowances for individually evaluated non-performing loans in the commercial, financial and agricultural loan portfolios and, to a lesser extent, the deterioration of macroeconomic conditions. In addition, the comparison is affected by the release of provisions particularly in Portugal. The non-performing asset ratio of this operating segment as of December 31, 2017 was 1.2% compared with 1.5% as of December 31, 2016.2018 related to the hurricanes in the United States. 

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 20172019 was €177€705 million, a 12.9%23.4% decrease compared with the €203€920 million of operating profit recorded for the year ended December 31, 2016.2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 20172019 was €52€115 million, a 0.3% increase37.7% decrease compared with the €52€185 million expense recorded for the year ended December 31, 2016,2018, mainly as a result of a higher effective tax rate attributable in part tothe lower dividends received in 2017. Consequently, taxoperating profit before tax. Tax expense amounted to 29.5%16.3% of operating profit before tax for the year ended December 31, 2017, and 25.6%2019, compared with 20.1% for the year ended December 31, 2016.2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 20172019 amounted to €125€590 million, a 17.4%19.9% decrease compared with the €151€736 million recorded for the year ended December 31, 2016.2018.

 

187148


 

CORPORATE CENTERMEXICO

For the Year Ended December 31,

 

For the Year Ended December 31,

 

2017 (1)

2016

Change

2019

2018

Change

(In Millions of Euros)

(In %)

(In Millions of Euros)

(In %)

Net interest income

(357)

(455)

(21.6)

6,209

5,568

11.5

Net fees and commissions

(86)

(110)

(21.2)

1,298

1,205

7.8

Net gains (losses) on financial assets and liabilities and exchange differences, net (2)(1)

436

357

22.2

310

223

38.7

Other operating income and expense, net

99

197

(49.7)

(267)

(236)

13.1

Income and expense on insurance and reinsurance contracts

(19)

(21)

(9.8)

479

433

10.6

Gross income

73

(31)

n.m. (3)

8,029

7,193

11.6

Administration costs

(592)

(569)

4.1

(2,299)

(2,139)

7.5

Depreciation and amortization

(297)

(307)

(3.5)

(346)

(253)

36.6

Net margin before provisions (4)(2)

(815)

(907)

(10.2)

5,384

4,800

12.2

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(1,125)

(37)

n.m. (3)

(1,698)

(1,555)

9.2

Provisions or reversal of provisions and other results

(73)

(139)

(47.3)

5

24

(80.4)

Operating profit/(loss) before tax

(2,013)

(1,084)

85.8

3,691

3,269

12.9

Tax expense or income related to profit or loss from continuing operations

166

293

(43.3)

(992)

(901)

10.0

Profit from continuing operations

(1,847)

(791)

133.6

2,699

2,368

14.0

Profit from corporate operations, net

-

-

-

-

-

Profit

(1,847)

(791)

133.6

2,699

2,368

14.0

Profit attributable to non-controlling interests

(1)

(3)

(60.0)

-

-

-

Profit attributable to parent company

(1,848)

(794)

132.9

2,699

2,367

14.0

(1)   Revised. See “Presentation of Financial Information—Changes in Operating Segments”. 

(2)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)   Not meaningful.

(4)(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

188In the year ended December 31, 2019, the Mexican peso appreciated 5.3% against the euro in average terms compared with the year ended December 31, 2018, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Mexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 


Net interest income / (expense)

Net interest expenseincome of this operating segment for the year ended December 31, 2017 was €3572019 amounted to €6,209 million, a 21.6% decreasean 11.5% increase compared with the €455€5,568 million expense recorded for the year ended December 31, 2016,2018, mainly as a result of lower funding costsincreases in the volume of interest-earning assets in the retail portfolio and volumes and yields in the wholesale portfolio and, to a lesser extent, the appreciation of the Group’s investments.Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers, particularly to enterprises and households. The increase was partially offset by greater funding costs.

The net interest margin over total average assets of this operating segment amounted to 5.91% for the year ended December 31, 2019, compared with 5.81% for the year ended December 31, 2018.

149


Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2017 were an expense of €862019 amounted to €1,298 million, a 21.2% decrease7.8% increase compared with an expense of €110the €1,205 million loss recorded for the year ended December 31, 2016,2018, mainly as a result of anthe increased use of credit and debit cards, as a result of the increased level of transactions during the period, and the appreciation of the Mexican peso, partially offset by the increase in funds commissions income.paid to other financial institutions in connection with the increased use of credit and debit cards.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 20172019 were €436€310 million, a 22.2%38.7% increase compared with the €357€223 million gain recorded for the year ended December 31, 2016,2018, mainly as a result of higher income from the saleALCO portfolio and higher securities sales, partially offset by the Global Markets unit’s performance during the period and the appreciation of a 2.14% stake in CNCB in 2017.the Mexican peso against the euro.

Other operating income and expense, net

Other net operating income and expense, net of this operating segment for the year ended December 31, 20172019 was €99a net expense of €267 million, a 49.7% decrease13.1% increase compared with the €197€236 million net incomeexpense recorded for the year ended December 31, 2016,2018, mainly as a result of decreased dividends from Telefónica, S.A. as it lowered its dividends from €0.55 per share to €0.4 per share, and from CNCB, which also lowered its dividends and also duethe higher contribution to the smaller stake held byDeposit Guarantee Fund and the Group in CNCB (followingappreciation of the sale of a 2.14% stake in 2017).Mexican peso. 

Income and expense on insurance and reinsurance contracts

Income and expenseNet income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2017 amounted to an expense of €192019 was €479 million, a 9.8% decrease10.6% increase compared with the €21€433 million expensenet income recorded for the year ended December 31, 2016.2018, mainly as a result of the positive performance of savings products and the appreciation of the Mexican peso.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2017 amounted to €5922019 were €2,299 million, a 4.1%7.5% increase compared with the €569€2,139 million recorded for the year ended December 31, 2016,2018, mainly as a result of the €15 million increase in fixed remunerationdigital infrastructure costs, the increase in the contribution to the BBVA Mexico’s foundation and alsothe appreciation of the Mexican peso, partially offset by the lower rent expense, due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 2.0%. Such increase was below Mexico’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €346 million, a 36.6% increase compared with the €253 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and the appreciation of the Mexican peso. 

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €1,698 million expense, a 9.2% increase compared with the €1,555 million expense recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 3.6% increase in allowances for loan losses driven by the operation of the contagion rules for retail exposures (‘pulling effect’) in the amortized cost portfolio. In addition, the deterioration of macroeconomic conditions and the change in the parameters used to estimate loan loss allowances for the retail portfolio have adversely affected the year-on-year comparison.

150


Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 amounted to €5 million of income compared with the €24 million income recorded for the year ended December 31, 2018. During 2018, other income was recognized from the sale of the stake that BBVA Mexico held in certain real estate developments.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €3,691 million, a 12.9% increase compared with the €3,269 million of operating profit recorded for the year ended December 31, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €992 million, a 10.0% increase compared with the €901 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher operating profit before tax. The tax expense amounted to 26.9% of operating profit before tax for the year ended December 31, 2019, and 27.6% for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €2,699 million, a 14.0% increase compared with the €2,367 million recorded for the year ended December 31, 2018.

151


TURKEY

 

For the Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

2,814

3,135

(10.2)

Net fees and commissions

717

686

4.5

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

10

11

(11.7)

Other operating income and expense, net

(10)

23

n.m. (3)

Income and expense on insurance and reinsurance contracts

60

46

28.7

Gross income

3,590

3,901

(8.0)

Administration costs

(1,036)

(1,109)

(6.6)

Depreciation and amortization

(179)

(138)

29.3

Net margin before provisions (2)

2,375

2,654

(10.5)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(906)

(1,202)

(24.6)

Provisions or reversal of provisions and other results

(128)

(8)

n.m. (3)

Operating profit/(loss) before tax

1,341

1,444

(7.1)

Tax expense or income related to profit or loss from continuing operations

(312)

(293)

6.5

Profit from continuing operations

1,029

1,151

(10.6)

Profit from corporate operations, net

-

-

-

Profit

1,029

1,151

(10.6)

Profit attributable to non-controlling interests

(524)

(585)

(10.4)

Profit attributable to parent company

506

567

(10.7)

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)  “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

The Turkish lira depreciated 10.3% against the euro in average terms in the year ended December 31, 2019, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Turkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €2,814 million, a 10.2% decrease compared with the €3,135 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 0.1% increase in net interest income. 

The net interest margin over total average assets of this operating segment amounted to 4.26% for the year ended December 31, 2019, compared with 4.35% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €717 million, a 4.5% increase compared with the €686 million recorded for the year ended December 31, 2018, mainly as a result of the positive performance of payment instruments and cash transfers, partially offset by the depreciation of the Turkish lira and the increase in commissions paid to other financial institutions in connection with the increased use of credit and debit cards.

152


Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 amounted to €10 million, compared with the €11 million gain recorded for the year ended December 31, 2018, mainly as a result of the lower gains from derivatives and the Global Markets unit’s transactions due to uneven market conditions, which were partially offset by the positive impact of changes in foreign exchange rates on foreign currency positions. 

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2019 was a €10 million expense compared with the €23 million of net income recorded for the year ended December 31, 2018 mainly as a result of the higher contribution to the Deposit Guarantee Fund due to a €11modification in local regulations.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €60 million a 28.7% increase compared with the €46 million income recorded for the year ended December 31, 2018, mainly as a result of higher sales in the insurance business. 

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,036 million, a 6.6% decrease compared with the €1,109 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira and, to a lesser extent, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 4.2%, which was below Turkey’s inflation rate for the period, mainly as a result of higher technology and professional services expenses.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €179 million, a 29.3% increase compared with the €138 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”. 

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €906 million expense, a 24.6% decrease compared with the €1,202 million expense recorded for the year ended December 31, 2018, mainly as a result of lower impairments due to the improved macroeconomic prospects and the depreciation of the Turkish Lira.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €128 million expense compared with the €8 million expense recorded for the year ended December 31, 2018, mainly due to the increase in generalprovisions for loan commitments and administrativeguarantees given in Turkey.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €1,341 million, a 7.1% decrease compared with the €1,444 million recorded for the year ended December 31, 2018. At a constant exchange rate, operating profit increased by 3.5%.

153


Tax expense particularly IT expense.or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €312 million, a 6.5% increase compared with the €293 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets. The effective tax rate amounted to 23.3% of the operating profit before tax for the year ended December 31, 2019, and 20.3% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €524 million, a 10.4% decrease compared with the €585 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

Profit attributable to parent company

Profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €506 million, a 10.7% decrease compared with the €567 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

154


SOUTH AMERICA

 

For the Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

3,196

3,009

6.2

Net fees and commissions

557

631

(11.9)

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

576

405

42.3

Other operating income and expense, net

(580)

(454)

27.7

Income and expense on insurance and reinsurance contracts

101

110

(8.1)

Gross income

3,850

3,701

4.0

Administration costs

(1,403)

(1,584)

(11.4)

Depreciation and amortization

(171)

(125)

36.7

Net margin before provisions (2)

2,276

1,992

14.3

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(777)

(638)

21.7

Provisions or reversal of provisions and other results

(103)

(65)

57.8

Operating profit/(loss) before tax

1,396

1,288

8.3

Tax expense or income related to profit or loss from continuing operations

(368)

(469)

(21.6)

Profit from continuing operations

1,028

819

25.5

Profit from corporate operations, net

-

-

-

Profit

1,028

819

25.5

Profit  attributable to non-controlling interests

(307)

(241)

27.4

Profit attributable to parent company

721

578

24.7

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

In the year ended December 31, 2019, the Argentine peso and the Colombian peso depreciated by 35.7% and 5.2%, respectively, against the euro in average terms, compared with the year ended December 31, 2018. On the other hand, the Peruvian sol appreciated by 3.9% against the euro in average terms. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the South America operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

As of December 31, 2019 and 2018 and for the years then ended, the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies―Hyperinflationary economies”). 

In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Sale of BBVA Chile”. 

189155


Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €3,196 million, a 6.2% increase compared with the €3,009 million recorded for the year ended December 31, 2018, mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans in Colombia increased during 2019. These effects were partially offset by the depreciation of the Argentine peso against the euro. At constant exchange rates, there was a 10.5% year-on-year increase in net interest income. The net interest margin over total average assets of this operating segment amounted to 5.71% for the year ended December 31, 2019, compared with 4.65% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €557 million, an 11.9% decrease compared with the €631 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of  the Argentine peso. At a constant exchange rate, there was a 6.9% decrease mainly due to the sale of our stake in BBVA Chile.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 were €576 million, a 42.3% increase compared with the €405 million gain recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 48.6% increase, mainly as a result of increased foreign-currency transactions in Argentina and Peru and the sale of BBVA’s 51% stake in Prisma Medios de Pago, S.A. in Argentina. Additionally, the remaining stake held by BBVA in this entity increased its value during 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 was €580 million, a 27.7% increase compared with the €454 million expense recorded for the year ended December 31, 2018, mainly driven by certain non-income taxes which were previously accounted for under “Administration costs” in Argentina. 

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €101 million, an 8.1% decrease compared with the €110 million net income recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the depreciation of the Argentine peso against the euro in 2019 and the sale of the insurance business in Chile in 2018. At constant exchange rates, there was a 10.6% increase mainly explained by the positive performance in Argentina and Colombia.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,403 million, an 11.4% decrease compared with the €1,584 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Argentine peso and the Colombian peso, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, and the reclassification of certain non-income taxes to the heading “Other operating income and expense, net” in Argentina, which more than offset the impact of the high inflation registered in certain countries in the region. At constant exchange rates, there was a 4.2% decrease.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €171 million, a 36.7% increase compared with the €125 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and higher expense related to software in Peru.

156


 

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 20172019 was a €1,125€777 million expense, a 21.7% increase compared with the €37€638 million expense recorded for the year ended December 31, 2016,2018, mainly as a result of the credit quality deterioration in the portfolio measured at amortized cost, in particular in Peru, Colombia and Argentina, and the deterioration of macroeconomic conditions, partially offset by the depreciation of the Argentine peso and the Colombian peso against the euro.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €103 million expense, a 57.8% increase compared with the €65 million expense recorded for the year ended December 31, 2018, mainly as a result of the increase in provisions for various purposes, particularly in Argentina

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €1,396 million, an 8.3% increase compared with the €1,288 million recorded for the year ended December 31, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €368 million, a 21.6% decrease compared with the €469 million expense recorded for the year ended December 31, 2018, as a result in part of the recognition of the income tax deduction related to inflation in Argentina in 2019. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018. Consequently, the effective tax rate amounted to 26.3% of operating profit before tax for the year ended December 31, 2019, and 36.4% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €307 million, a 27.4% increase compared with the €241 million recorded for the year ended December 31, 2018, mainly due to the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €721 million, a 24.7% increase compared with the €578 million recorded for the year ended December 31, 2018.

157


REST OF EURASIA

 

For the Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

175

175

-

Net fees and commissions

139

138

0.4

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

131

101

29.2

Other operating income and expense, net

4

-

n.m. (3)

Income and expense on insurance and reinsurance contracts

5

-

n.m. (3)

Gross income

454

414

9.7

Administration costs

(275)

(281)

(2.0)

Depreciation and amortization

(18)

(6)

194.2

Net margin before provisions (2)

161

127

26.5

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

(4)

24

n.m. (3)

Provisions or reversal of provisions and other results

6

(3)

n.m. (3)

Operating profit/(loss) before tax

163

148

9.9

Tax expense or income related to profit or loss from continuing operations

(36)

(52)

(31.3)

Profit from continuing operations

127

96

32.3

Profit from corporate operations, net

-

-

-

Profit

127

96

32.3

Profit attributable to non-controlling interests

-

-

-

Profit attributable to parent company

127

96

32.3

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

Net interest income

Net interest income of this operating segment for the years ended December 31, 2019 and 2018 amounted to €175 million. The net interest margin over total average assets of this operating segment amounted to 0.84% for the year ended December 31, 2019 compared with 0.94% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €139 million, a 0.4% increase compared with the €138 million recorded for the year ended December 31, 2018.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 were €131 million, a 29.2% increase compared with the €101 million net gain recorded for the year ended December 31, 2018, due mainly to increased commercial activity in the Global Market’s unit.

158


Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2019 was €9 million, compared with the nil other net operating income recorded for the year ended December 31, 2018, as a result of higher activity in the insurance business.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €275 million, a 2.0% decrease compared with the €281 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €18 million, compared with the €6 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 amounted to a €4 million expense compared with the €24 million of income recorded for the year ended December 31, 2018.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €6 million income compared with the €3 million expense recorded for the year ended December 31, 2018, mainly due to the positive results of investment joint ventures and associates.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €163 million, a 9.9% increase compared with the €148 million recorded for the year ended December 31, 2018.

Tax expense or income related to profit or loss from continuing operations

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €36 million, a 31.3% decrease compared with the €52 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €127 million, a 32.3% increase compared with the €96 million recorded for the year ended December 31, 2018.

159


CORPORATE CENTER

 

For the Year Ended December 31,

 

 

2019

2018

Change

 

(In Millions of Euros)

(In %)

Net interest income

(233)

(269)

(13.4)

Net fees and commissions

(73)

(59)

24.0

Net gains (losses) on financial assets and liabilities and exchange differences, net (1)

(54)

(155)

(65.0)

Other operating income and expense, net

41

82

(49.3)

Income and expense on insurance and reinsurance contracts

(20)

(19)

7.2

Gross income

(339)

(420)

(19.3)

Administration costs

(765)

(672)

13.9

Depreciation and amortization

(190)

(200)

(4.6)

Net margin before provisions (2)

(1,294)

(1,291)

0.2

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

-

(2)

(98.4)

Provisions or reversal of provisions and other results

(1,481)

(36)

n.m. (3)

Operating profit/(loss) before tax

(2,775)

(1,329)

108.7

Tax expense or income related to profit or loss from continuing operations

258

350

(26.4)

Profit from continuing operations excluding corporate operations

(2,517)

(979)

157.1

Profit from corporate operations, net

-

633

-

Profit

(2,517)

(346)

n.m. (3)

Profit attributable to non-controlling interests

-

3

(91.8)

Profit attributable to parent company

(2,517)

(343)

n.m. (3)

(1)   Comprises the following income statement line items contained in the Consolidated Financial Statements: “Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net”, “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   “Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3)   Not meaningful.

Net interest income / (expense)

Net interest expense of the Corporate Center for the year ended December 31, 2019 was €233 million, a 13.4% decrease compared with the €269 million net expense recorded for the year ended December 31, 2018, mainly due to lower funding costs.

Net fees and commissions

Net fees and commissions of the Corporate Center for the year ended December 31, 2019 was an expense of €73 million, a 24.0% increase compared with the €59 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher fees and commissions paid related to the issuance and placement of contingent convertible bonds in 2019.

Net gains (losses) on financial assets and liabilities and exchange differences, net

Net losses on financial assets and liabilities and exchange differences of €1,123the Corporate Center for the year ended December 31, 2019 were €54 million, relating to our slightly above 5% stake ina 65.0% decrease compared with the €155 million net losses recorded for the year ended December 31, 2018, mainly as a result of updated valuations being made at current market values of certain investments.

160


Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2019 was €41 million, compared with the €82 million of net income recorded for the year ended December 31, 2018, mainly as a result of the decreased dividends from Telefónica, S.A. resulting(as it lowered its dividends from €0.4 per share to €0.2 per share) and the fact that its stock price fell below our acquisition costlower dividend income from investees accounted for under the equity method.

Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2019 amounted to €765 million, a prolonged period.13.9% increase compared with the €672 million recorded for the year ended December 31, 2018, mainly as a result of the increase in personnel expense, partially offset by the lower rent expense as a result of the entry into force of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €190 million, a 4.6% decrease compared with the €200 million recorded for the year ended December 31, 2018.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segmentthe Corporate Center for the year ended December 31, 20172019 were a €73€1,481 million expense a 47.3% decrease compared with the €139€36 million expense recorded for the year ended December 31, 2016,2018, mainly dueas a result of the goodwill impairment losses recognized in the United States CGU. This impairment had a net negative impact on the “Profit attributable to lower provisions for early retirements.parent company” of €1,318 million, and was mainly the result of the negative changes in interest rates, especially in the second half of 2019, which together with the slowdown of the economy caused the expected results to be below the previous estimate. For additional information, see Note 18.1 to our Consolidated Financial Statements.

Operating profit/profit / (loss) before tax

As a result of the foregoing, operating loss before tax of this operating segmentthe Corporate Center for the year ended December 31, 20172019 was €2,013€2,775 million an 85.8% increase compared with the €1,084€1,329 million loss recorded for the year ended December 31, 2016.2018.

Tax expense or income related to profit or loss from continuing operations

Tax income related to profit or loss from continuing operations of this operating segmentthe Corporate Center for the year ended December 31, 20172019 amounted to €166€258 million, a 43.3% decrease compared with the €293€350 million tax income recorded for the year ended December 31, 2016, despite an increase2018. Tax income related to profit or loss from continuing operations in operating2019 was affected by the application of the amendment to IAS 12 in such year. In addition, tax income related to profit or loss before tax sincefrom continuing operations in 2018 was affected by the recognition of impairment losses relating to ourthe tax impact from the sale of BBVA’s stake in Telefónica, S.A. had no impact on taxable income. Consequently, tax income amounted to 8.3%Chile in such year.

Profit from corporate operations, net

Profit from corporate operations of operating loss before taxthe Corporate Center was nil for the year ended December 31, 2017, and 27.0%2019, compared with the €633 million recorded for the year ended December 31, 2016.2018, which related to the sale of our stake in BBVA Chile in 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segmentthe Corporate Center for the year ended December 31, 20172019 was a loss of €1,848€2,517 million, compared with the €794€343 million loss recorded for the year ended December 31, 2016.2018.

190161


B.   Liquidity and Capital Resources

Liquidity risk management and controls are explained inSee Note 7.5.17.5 to theour Consolidated Financial Statements. In addition,Statements for information on encumbered assetsthe BBVA Groups liquidity. Certain additional information is provided in Note 7.5.2 to the Consolidated Financial Statements. For information concerning our short-term borrowing, see below.“Item 4. Information on the Company—Selected Statistical Information—Liabilities—Short-term Borrowings”.

The BBVA Group’s goals for liquidity and finance management are to fund the growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance.

A core principle in the BBVA Group’s liquidity and finance management is the financial independence of its banking subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation. Accordingly, we maintain liquidity pools at individual Liquidity Management Units (“LMUs”) at each of Banco Bilbao Vizcaya Argentaria, S.A. and our banking subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti and our Latin American subsidiaries.

The table below shows the composition of the liquidity pools of Banco Bilbao Vizcaya Argentaria, S.A. and each of our significant subsidiaries as of December 31, 2018 based on the categories set forth by the European Banking Authority:

 

BBVA Eurozone (1)

BBVA Bancomer

BBVA Compass

Garanti

Others

 

(In Millions of Euros)

Cash and withdrawable central bank reserves

26,506

7,666

1,667

7,633

6,677

Level 1 tradable assets

29,938

4,995

10,490

6,502

3,652

Level 2A tradable assets

449

409

510

-

-

Level 2B tradable assets

4,040

33

-

-

-

Other tradable assets

5,661

1,372

1,043

499

617

Non-tradable assets eligible for central banks

-

-

2,314

-

-

Accumulated available balance

66,594

14,475

16,024

14,634

10,946

(1)Includes Spain, Portugal and Rest of Eurasia.

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities comprising the Group. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management also helps avoid possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. LMUs have been set up for this reason in the geographical areas where the Group’s main foreign subsidiaries operate, and also for the parent company of the Group (Banco Bilbao Vizcaya Argentaria S.A.), within the Euro currency scope, which LMU also includes BBVA Portugal and the Rest of Eurasia.

The Finance Division, through the Global Assets and Liabilities Management unit manages the BBVA Group’s liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMU and proposes to the Assets and Liabilities Committee (“ALCO”) the actions to adopt in this regard in accordance with the policies and limits established by the Executive Committee.

As a first core element, the Bank’s targets in terms of liquidity and funding risk are centered on the Liquidity Coverage Ratio (“LCR”) and the Loan-to-Stable-Customer-Deposits (“LtSCD”) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resilience in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a requirement for compliance with the LCR ratio both for the Group as a whole and for each of the LMUs individually. The internal levels required were designed to comply in advance with the implementation of the regulatory requirements of 2018, at a level above 100%.

191


LCR came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, progressively increased (phased-in) up to 100% in 2018. Throughout 2018, the LCR level at the BBVA Group remained above 100%. As of December 31, 2018, the LCR ratio at Group level was 127%.

Although this regulatory requirement is mandatory for the Group on a consolidated basis as a Eurozone bank, all of the Group’s subsidiaries are also above this minimum. Liquidity excesses in subsidiaries are not deemed transferable when calculating the consolidated LCR ratio. Taking into account the impact of High Quality Liquid Assets that are otherwise excluded, the Group’s LCR ratio would be 154%, which is +27% higher than  the Group’s LCR.

For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, the Global Risk Management (“GRM”) Structural Risk unit identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas. The behavior of the indicators reflects that the funding structure remained robust in 2018 and 2017, in the sense that all the LMUs maintained levels of self-funding with stable customer funds which were higher than the required levels.

The second core element in liquidity and funding risk management is the achievement of proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term borrowing comprising both wholesale funding as well as less stable funds from non-retail customers. Regarding long-term funding, its maturity profile does not show significant concentrations, which contributes to the adaptation of the anticipated securities issuance schedule to financial conditions of the markets. Moreover, concentration risk is monitored at the LMU level, with a view to ensuring appropriate diversification both by counterparty and by instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, helping ensure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets, such as collaterals for central banks, and the maturities of wholesale liabilities and volatile funds, at different terms, with special relevance being given to 30-day maturities.

BBVA’s principal source of funds is its customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on customer deposits, BBVA also accesses the interbank market (overnight and time deposits) and domestic and international capital markets for its additional liquidity requirements. To access the capital markets, BBVA has in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. Another source of liquidity is the generation of cash flow from operations. Finally, BBVA supplements its funding requirements with borrowings from the Bank of Spain and from the ECB or the respective central banks of the countries where its subsidiaries are located (see Note 9. Recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.As of December 31, 2020, BBVA had drawn down €35,032 million under the TLTRO III and it intends to take up the Consolidated Financial Statements for information on our borrowings from central banks).remaining €3,468 million that is available to it thereunder in March 2021.

The following table shows the balances as of December 31, 2018, 20172020, 2019 and 20162018 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):

 

 

As of December 31,

 

 

2018

2017

2016

 

(In Millions of Euros)

Deposits from central banks

37,792

37,054

34,740

Deposits from credit institutions

47,665

54,516

63,501

Customer deposits

388,682

376,379

401,465

Debt certificates

63,970

63,915

76,375

Other financial liabilities

16,003

14,072

13,129

Total

554,112

545,936

589,210

192


 

 

As of December 31,

 

 

2020

2019

2018

 

(In Millions of Euros)

Deposits from central banks

51,454

33,585

37,792

Deposits from credit institutions

44,187

53,720

47,665

Customer deposits

353,224

394,924

388,682

Debt certificates

66,311

68,619

63,970

Other financial liabilities

17,975

18,168

16,003

Total

533,152

569,016

554,112

Customer deposits

Customer deposits (including “Financial liabilities at amortized cost - Customer deposits”, “Financial liabilities designated at fair value through profit or loss – Customer deposits” and “Financial liabilities held for trading – Customer deposits”) amounted to €388,682€353,224 million as of December 31, 20182020 compared with €376,379€394,924 million as of December 31, 2017 and €401,4652019 (€388,682 million as of December 31, 2016. The increase was2018), a 10.6% decrease, mainly a resultattributable to the reclassification to “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 of the 12.7% increase in demand deposits in Banking Activity in Spain.companies held for sale following the agreement BBVA reached on November 16, 2020 with The PNC Financial Services Group, Inc. and, to a lesser extent, the depreciation of the currencies of the main countries where the BBVA Group operates. See “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”. 

Our customer deposits, excluding assets sold under repurchase agreements, amounted to €374,763€343,608 million as of December 31, 20182020 compared with €367,300€385,235 million as of December 31, 2017 and €387,9742019 (€377,216 million as of December 31, 2016.2018).

Deposits from credit institutions and central banks

The following table shows amounts due to credit institutions and central banks as of December 31, 2018, 20172020, 2019 and 2016:2018:

 

As of December 31,

 

As of December 31,

2018

2017

2016

2020

2019

2018

(In Millions of Euros)

(In Millions of Euros)

Deposits from credit institutions

47,665

54,516

63,501

44,187

53,720

47,665

Deposits from central banks

37,792

37,054

34,740

51,454

33,585

37,792

Total

85,457

91,570

98,241

95,642

87,305

85,457

162


Deposits from credit institutions and central banks amounted to €85,457€95,642 million as of December 31, 20182020 compared with €91,570the €87,305 million as of December 31, 2017 and €98,2412019 (€85,457 million as of December 31, 2016.2018). The decreaseincrease as of December 31, 20182020 compared withto December 31, 20172019 was mainly attributable to an increase in time deposits as a result of higher drawdowns under the decreaseTLTRO III facilities of the ECB. The increase as of December 31, 2019 compared to December 31, 2018 was mainly attributable to higher volumes of repurchase agreements with credit institutions in the amount of deposits in Turkey as well as to the depreciation of certain local currencies, including the Turkish lira.Spain.

Capital markets

We make debt issuances in the domestic and international capital markets in order to finance our activities. As of December 31, 20182020 we had €43,477€45,304 million of senior debt outstanding,certificates, comprising €39,973€43,419 million in bonds and debentures and €3,504€1,884 million in promissory notes and other securities, compared with €47,027€46,329 million, €42,561€44,381 million and €4,466€1,947 million outstanding, respectively, as of December 31, 20172019, and €59,390€43,477 million, €58,173€39,973 million and €1,217€3,504 million outstanding, respectively, as of December 31, 20162018 (see Note 22.4 to the Consolidated Financial Statements).

In addition, we had a total of €17,866€16,295 million in subordinated debt and €181subordinated deposits and €194 million in preferred securities outstanding as of December 31, 20182020 compared with €17,153€17,859 million and €163€159 million, respectively, as of December 31, 20172019 (€15,71817,866 million and €987€181 million, respectively, as of December 31, 2016)2018).

The breakdown of the outstanding subordinated debt and preferred securities by issuer, maturity, interest rate and currency is disclosed in Appendix VI of the Consolidated Financial Statements.

The following is a breakdown as of December 31, 20182020  of the maturities of our debt securitiescertificates (including bonds) from credit institutions, subordinated debt, subordinated deposits and subordinated liabilities recorded under “Financial liabilities at amortized cost”.preferred securities. Regulatory equity instruments have been classified according to their contractual maturity:

 

Demand

Up to 1 Month

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

 

(In Millions of Euros)

Senior debt

21

2,601

672

2,923

27,912

9,346

43,476

Subordinated debt and preferred securities

-

 

1

44

4,214

13,789

18,047

Total

21

2,601

673

2,967

32,126

23,135

61,523

193


 

Demand

Up to 1 Month

1 to 3 Months

3 to 12 Months

1 to 5 Years

Over 5 Years

Total

 

(In Millions of Euros)

Debt certificates (including bonds)

-

4,428

1,417

4,865

23,515

11,079

45,304

Subordinated debt, subordinated deposits and preferred securities

2

2

641

110

2,104

13,629

16,488

Total

2

4,430

2,057

4,976

25,619

24,708

61,792

Generation of Cash Flow

We operate in Spain, Mexico, Turkey, the United States and over 30 other countries, mainly in Europe, Latin America, and Asia. Our banking subsidiaries around the world including BBVA Compass, are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of different solvency, resolution and/or governance requirements. The obligation to satisfy such requirements may affect the ability of our banking subsidiaries including BBVA Compass, to transfer funds to us in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where our subsidiaries including BBVA Compass, are incorporated, dividends may only be paid out of funds legally available and, in certain cases, subject to the prior approval of the competent regulatory or supervisory authorities. For example, BBVA Compass is incorporated in Alabama and under Alabama law it is not able to pay any dividends without the prior approval of the Superintendent of Banking of Alabama if the dividend would exceed the total net earnings for the year combined with the bank’s retained net earnings of the preceding two years.authorities.

Even where any applicable requirements are met and funds are legally available, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise. For example, in response to the crisis caused by the COVID-19 pandemic, certain restrictions were adopted that affect the distribution and/or repatriation of dividends of some of the Group's subsidiaries. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.

There is no assurance that in the future other similar restrictions will not be adopted or that, if adopted, they will not negativelyadversely affect our liquidity. The geographic diversification of our businesses, however, may help to limit the effect on the Group of any restrictions that could be adopted in any given country.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

See Note 51 of the Consolidated Financial Statements for additional information on our consolidated statements of cash flows.

163


Capital

As of December 31, 20182020, 2019 and 2017,2018, equity is calculated in accordance with current regulations on minimum capital base requirements for Spanish credit institutions on both an individual and consolidated basis. These regulations dictate how to calculate equity levels, as well as the various internal capital adequacy assessment processes they should have in place and the information such institutions should disclose to the market.

The minimum capital base requirements established by the current regulations are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in these regulations and internal corporate governance obligations.

As of February 14, 2019 BBVA received a communication of the ECB about the results of the supervisory review and evaluation process (SREP). Taking into account the full application of capital buffers since January 1, 2019 and considering the latest capital requirement communicated from the ECB, BBVA is required to maintain from March 1, 2019:

1.   A CET1 ratio of 9.26% at the consolidated level; and

2.   A total capital ratio of 12.76% at the consolidated level. This total consolidated capital ratio includes i) the minimum CET1 requirement under Pillar 1 (4.5%); ii) the additional tier 1 capital (AT1) requirement under Pillar 1 (1.5%); iii) the tier 2 capital requirement under Pillar 1 (2%); iv) the CET1 capital requirement under Pillar 2 (1.5%); v) the capital conservation buffer (2.5% of CET1); vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and vii) the countercyclical capital buffer (0.01% of CET1).

OurFor information on our SREP requirements, our consolidated ratios as of December 31, 2020, 2019 and 2018, and December 31, 2017 were as follows:

 

As of December 31,

As of December 31,

% Change

 

2018

2017

2018-2017

 

(In Millions of Euros)

Ordinary Tier 1 Capital

50,887

50,935

(0.1)

Adjustments

(10,573)

(8,594)

23.0

Mandatory convertible bonds

-

-

-

CORE CAPITAL (a)

40,313

42,341

(4.8)

Preferred securities

5,634

6,296

(10.5)

Adjustments

-

(1,657)

(100.0)

CAPITAL (TIER 1) (b)

45,947

46,980

(2.2)

OTHER ELIGIBLE CAPITAL (TIER 2) (c)

8,756

8,798

(0.5)

CAPITAL BASE (TIER 1 + TIER 2) (d)

54,703

55,778

(1.9)

Minimum capital requirement

41,619

40,370

3.1

CAPITAL SURPLUS

13,085

15,408

(15.1)

RISK WEIGHTED ASSETS (RWA) (e)

348,264

362,875

(4.0)

 

 

 

 

BIS RATIO (d)/(e)

15.71%

15.37%

 

CORE CAPITAL (a)/(e)

11.58%

11.67%

 

TIER 1 (b)/(e)

13.19%

12.95%

 

TIER 2 (c)/(e)

2.51%

2.42%

 

194


As of December 31, 2018, the Group’s CET1 phased-in ratio was 11.6% (in fully-loaded terms, the Group’s CET1 phased-in ratio was 11.3%). Excluding the effect of the phased-in calendar in minority interests and deductions that goes from 80% in 2017 to 100% in 2018, and including the positive impact of the sale of the stake in BBVA Chile (+50 bps), the CET1 phased-in ratio increased by +48 bps. This increase is mainly explained by the generation of profit net of dividend payments and remunerations of AT1 instrumentsour RWAs, our MREL requirements and the contained evolution of risk-weighted assets.

The Group’s CET1 phased-in ratio includes the impact of the initial implementation of IFRS 9. In this context, the European Commission and Parliament have established temporary arrangements that are voluntary for banking institutions, adapting the impact of IFRS 9 on capital adequacy ratios. BBVA has informed the supervisory board of its adherence to these arrangements.

Additionally, the transfer of a significant portion of BBVA’s real estate business in Spain to Divarian had no material impact on the ratio.

The Group’s Tier 1 phased-in ratio stood at 13.2% as of December 31, 2018. This included two new issuances of contingent convertible preferred shares(CoCos)Banco Bilbao Vizcaya Argentaria, S.A., rated as Additional Tier 1 instruments for an aggregate amount of $1,000 million and €1,000 million, respectively. In addition, the Group no longer includes a $1.500 million issuance of Additional Tier 1 instruments which was redeemed in early May 2018 and another €1,500 million issuance which the Group announced it would redeem in January 2019. The net impact of the two new emissions and the two exclusions referred to above on the phased-in Tier 1 capital ratio was -26 basis points.

With respect to the Group’s Tier 2 ratio, the Group received authorization from the ECB in the third quarter of 2018 to include a subordinated issuance of $300 million which was completed in May. Following the sale of the Group’s stake in BBVA Chile, the Group’s Tier 2 ratio no longer includes BBVA Chile’s issuances.

As a result of the above, the Group’s total capital phased-in ratio as of December 31, 2018 was 15.7%.

In addition, the Group has continued to meet applicable MREL requirements by carrying out two senior non-preferred issuances amounting to €2,500 million in the aggregate. Considering BBVA’s Multiple Point of Entry (MPE) resolution strategy, the Single Resolution Board (SRB) determined that BBVA must meet, starting on January 1, 2020, a MREL requirement of 15.08% of the total liabilities and own funds of its European resolution group (including BBVA and its subsidiaries), based on its consolidated financial information as of December 31, 2016 (28.04% expressed in terms of risk-weighted assets). Accordingsee Note 32.1 to our estimates, the current own funds and eligible liabilities structure of BBVA’s European resolution group is in line with the applicable MREL requirement.

195


Risk-weighted assets decreased during the year ended December 31, 2018, largely due to the sale of BBVA Chile, the Cerberus Transaction and the depreciation of currencies in countries where the Group operates against the euro. In addition, the Group completed three securitization transactions in 2018: (a) a traditional securitization transaction in June 2018 of a consumer automobile loan portfolio amounting to €800 million, and (b) two synthetic securitization transactions in March and December 2018, respectively, in respect of which the European Investment Fund (a subsidiary of the European Investment Bank) provided a financial guarantee. These three securitization transactions have resulted in a positive impact on capital of €971 million through a reduction of risk-weighted assets. During the first half of 2018, BBVA received an authorization from the ECB to update the calculation of its risk-weighted assets on structural exchange risk under the standard model.Consolidated Financial Statements.

C.   Research and Development, Patents and Licenses, etc.

In 2018,2020, we continued to foster the use of new technologies as a key component of our global development strategy. We explored new business and growth opportunities, focusing on three major areas: emerging technologies; digital banking; and data driven initiatives, in each case with the customer as the focal point of our banking business.

The BBVA Group is not materially dependent on the issuance of patents, licenses and industrial, mercantile or financial contracts or on new manufacturing processes in carrying out its business purpose.

D.   Trend Information

The European financial services sector is expected to remain competitive in the current challenging environment. FurtherSee “Item 4. Information on the Company―Competition”. The COVID-19 pandemic may lead to further consolidation in the sector through mergers, acquisitions or alliances, might be possible.alliances. Some banks have exited some lines of their non-core businesses and activities.

There are four main trends that are expected to shape the sector profitability in the future: the slow economic recovery, the low (or even negative) interest rate environment (especially in Spain), the surge of alternative finance providers and the completion and the implementation of the already existing financial regulatory reforms. At the same time there are new and evolving risks, such as market based and asset management activities, misconduct risks and the decline of correspondent banking, among others.

·the COVID-19 pandemic crisis and actions taken by governments in connection therewith. For a discussion on the slowimpact of COVID-19 on the Group’s business and, more generally, economic recovery trend,conditions, see “―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”and “―Operating Results―Operating Environment”;

·the low (or even negative) interest rate environment (especially in Spain). Regarding the second trend, theThe impact of the ultra-expansionary monetary policy is significant in the sector’s results, where the reductions of credit interest rates cannotmay not be compensatedfully offset by a similar contraction of the deposit rates as customers are not accustomed to negative deposit rates and that funding source isdeposits are crucial for the funding of banks. This isInterest rate cuts are particularly important in a countrycountries like Spain, where mortgages account for a significant proportion of credit (more than 40%) and nine out of 10 mortgages are estimated to be on variable rates.rates;

·a more challenging competitive environment with the entry of non-bank digital financial services providers. Further, alternative financenon-bank digital financial services providers are growing very fast in line with technological advances and becoming a very important competitor for the banking industry (see also “Item 4. Information on the Company―Competition”).industry. These entities which form part of the shadow banking sector, do not have to comply with a regulation scheme as strict as that applicable to banks. Finally, regardingFor additional information, see “Item 4. Information on the fourth trend,Company―Competition”; and

164


·the completion and the implementation of the ongoing financial regulatory reforms. On one hand, when such reforms are applied locally, inconsistently and heterogeneously, regulatory fragmentation and the implementation by some countries of more flexible or stricter rules or regulations may put certain banks at a disadvantage. Conversely, it is possible that, in the framework of the banking union and in the capital markets union, regulatory changes and enhanced institutional architecture might contribute to a less fragmented, but more competitive, landscape. Moreover, regulatory changes, adopted or proposed, as well as their interpretation or application, have increased and less fragmented landscape.may continue to substantially increase operating expenses and decrease margins. For information on certain significant supervision and regulatory matters which affect the Group, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation”. 

ThereIn addition, there are still some challenges to be addressed,new and evolving risks, such as the banking conduct and culture and their implications on consumer and investor protection issues. An ethical behavior isincreased risk of the utmost importance for the banking business to recover the trust that was lost during the last financial crisis.

Financial stability and consumer protection are the final goals of the global financial regulatory reform that started ten years ago. However, if such reform is applied locally, inconsistently and heterogeneously, it can lead to divergences, regulatory inconsistencies and regulatory arbitrages with unintended consequences. In addition to that, the lack of homogeneity at the European level makes it difficult for investors to evaluate financial institutions and often impose additional burdens on financial institutions. This could reduce the potential synergies for the Group, as it might not be allowed to sell the same products across all the jurisdictions in which it carries out its activities.

196


Regarding consumer protection rules, the European Commission proposed on February 10, 2016 the application of the revised Markets in Financial Instruments Directive (MiFID II) and Regulation (MiFIR) of the European Parliament and of the European Council be delayed by one year until January 3, 2018. Six days later, the European Parliament also proposed the deferral of its transposition into national legislation for one year, until July 3, 2017. This decision responded to concerns expressed by the European Securities and Markets Authority (the “ESMA”) regarding the fact that neither the competent authorities, nor market participants, would have the necessary information technology systems ready in time for earlier implementation.

Broadly, MiFID II / MiFIR goals are fostering investor protection, enhancing market transparency, multilateral trading (instead of bilateral or OTC trading) and competition and improving corporate governance and compliance, all at the same time. It represents a significant overhaul of MiFID -that came into force in 2007- and will have a significant impact in European markets and all types of financial instruments, both equity and non-equity. It represents a significant effort in terms of costs for regulators, supervisors and financial entities to adapt their systems to the new requirements.

For fostering investor protection, MiFID II / MiFIR establish (i) stricter requirements for product design, distribution and follow-up; (ii) tougher conditions for the provision of independent services; (iii) the prohibition, subject to certain exceptions, of any remuneration, discount or non-monetary benefit in exchange for advisory services, including research and (iv) a detailed cost disclosure.

The greater pre-trade transparency and multilateral trading in markets might result in narrower margins due to a compression of spreads and in a change of paradigm in the competitive landscape. In addition, the higher post-trade transparency may have unintended consequencesmoney laundering (including as a result of the availability of public information related to transactions closed on book positions.

Another key regulation for consumer protectionincrease in Europe isremote account opening driven by the Packaged RetailCOVID-19 pandemic), market based and Insurance-based Investment Products (“PRIIPs”). The original proposal from the European Commission was released on July 3, 2012asset management activities, misconduct risks and the regulation on Key Information Documents (“KIDs”) for PRIIPS was passed and published in the Official Journaldecline of the EU on November 26, 2014 and was expected to become effective on January 1, 2017. However, the Commission decided to extend by one year the implementation of the PRIIPS regulation in order to align its implementation with MiFID II and assure a smooth implementation for European consumers and ensure legal certainty for the sector.

The PRIIPs regulation aims at increasing transparency and comparabilitycorrespondent banking, among investment products. As such, financial institutions have to provide consumers with the most relevant information to make their investment decisions with a clear understanding of all the risks, costs and possible performance scenarios involved. The European Supervisory Authorities (“ESAs”) launched a Joint Consultation Paper on November 10, 2015 with the proposed Regulatory Technical Standards (RTS) that define the Level 2 requirements of the PRIIPs Regulation, including both presentation and content of the KIDs. On June 30, 2016 the Commission adopted a delegated act setting the RTS specifying the content and underlying methodology of the KIDs. However, on September 14, 2016 the European Parliament voted down the delegated act and called for certain modifications. The final version of the RTS was published in the Official Journal of the EU on April 8, 2017 and is in effect from January 1, 2018.

The Bank Recovery and Resolution Directive (BRRD) has been binding in Spain since June 2015 when it was implemented by Law 11/2015. The BRRD sets a common framework for all EU countries with the intention to pre-empt bank crises and resolve financial institutions in an orderly manner in the event of failure, while preserving essential bank operations and minimizing taxpayer costs, thus helping to restore confidence in Europe’s financial sector. The bail-in tool, in effect in Spain since 2016, implies that a large part of a bank’s creditors will be written-down or converted into equity in a resolution scenario, thereby helping to recapitalize a failing bank without recourse to taxpayers. For that to be effective, the BRRD requires banks to have enough loss-absorbing liabilities by forcing them to comply with a new requisite: the Minimum Requirement of own funds and Eligible Liabilities (MREL). Despite the impact on banks’ liability structure, we believe the introduction of the bail-in tool and the MREL enhances banks’ fundamentals, encourages positive discrimination between issuers, breaks down the sovereign-banking link, increases market discipline, and, importantly, minimizes the possibility of bail-outs in the future.

197


On December 14, 2016, the EBA submitted its final report on the implementation and design of the MREL framework, which contains a number of recommendations to amend the current MREL framework. In parallel, the EU Commission launched a legislative proposal known as the EU Banking Reform Package in order to amend current banking prudential and resolution frameworks by, among other things, improving the MREL framework and implementing the international loss absorption requirement for G-SIBS known as Total Loss Absorption Capacity (TLAC).

After more than two years, the negotiations in the EU Council and the EU Parliament are coming to an end. A political agreement was reached in December 2018 and the subsequent phase of technical amendments ended in February 2019. The final text is expected to be published by June 2019 and will enter into force in between one and a half to two years after the date of their publication in the Official Journal of the EU. The revision includes the implementation of several international standards into EU law (including some regulatory pieces adopted by the Basel Committee after 2010 and the TLAC standard). The revision also includes a legislative proposal to partially harmonize bank creditor hierarchies across the EU and to create a new bank debt class known as senior non-preferred, ranking below traditional senior debt but above subordinated creditors. This specific proposal was approved through a fast track process at the end of 2017 and all EU Member States were required to transpose it into their national law by the end of 2018. Spain chose to anticipate this proposal by transposing this proposal in the summer of 2017. Since then, many Spanish banks including BBVA have issued senior non-preferred bonds.

In 2018, the SRB communicated the MREL requirement to BBVA on the basis of the current legislation, including the SRB MREL policies. As of today, BBVA is already complying with MREL and its funding plan is aimed at the fulfillment of MREL by 2020, the date when it will become binding for the Group.others.

E.   Off-Balance Sheet Arrangements

In additionNote 33 to loans, the following amounts of off-balance sheet arrangements were outstandingConsolidated Financial Statements provides information on loan commitments and financial guarantees given by the Group as of the dates indicated:December 31, 2020, 2019 and 2018.

 

As of December 31,

 

2018

2017

2016

 

(In Millions of Euros)

Bank guarantees

40,227

38,889

39,722

Letters of credit

7,347

8,781

10,210

Total financial guarantees given (contingent risks)

47,575

47,671

49,932

In addition to the off-balance sheet arrangements described above, theThe following tables providetable provides information regarding commitments to extend credit and assets under management as of the dates indicated:

 

As of December 31,

 

2018

2017

2016

 

(In Millions of Euros)

Credit institutions

9,635

946

859

Government and other government agencies

2,318

2,198

3,110

Other resident sectors

48,600

32,990

28,323

Non-resident sector

58,405

58,133

74,961

Total contingent liabilities

118,959

94,268

107,253

Total contingent risks and contingent liabilities

166,534

141,939

157,185

 

As of December 31,

 

2020

2019

2018

 

(In Millions of Euros)

Mutual funds

64,869

68,639

61,393

Pension funds

36,215

36,630

33,807

Other resources

1,863

2,534

2,949

Total assets under management

102,947

107,803

98,150

 

As of December 31,

 

2018

2017

2016

 

(In Millions of Euros)

Mutual funds

61,393

60,939

55,037

Pension funds

33,807

33,985

33,418

Customer portfolios

29,953

36,901

40,805

Other resources

2,949

3,081

2,831

Total assets under management

128,102

134,906

132,091

198


See Notes 33 and 36 to the Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.

F.   Tabular Disclosure of Contractual Obligations

Our consolidated contractual obligations as of December 31, 20182020  based on when they are due, were as follows:

 

Less Than One Year

One to Three Years

Three to Five Years

Over Five Years

Total

 

(In Millions of Euros)

 

 

 

 

 

 

Senior debt (1)

6,218

12,252

15,661

9,346

43,476

Subordinated debt and preferred securities (1)

44

2,493

1,721

13,789

18,047

Customer deposits (1)

345,449

15,368

3,251

11,901

375,970

Capital lease obligations

-

-

-

-

-

Operating lease obligations

251

253

554

1,879

2,937

Purchase obligations

28

-

-

-

28

Post-employment benefits (2)

815

1,386

1,052

1,979

5,232

Insurance commitments (3)

1,686

1,041

1,822

5,285

9,834

Total (4)

354,491

32,794

24,060

44,180

455,524

 

Less Than One Year

One to Three Years

Three to Five Years

Over Five Years

Total

 

(In Millions of Euros)

Debt certificates (including bonds)

10,710

13,898

9,617

11,079

45,304

Subordinated debt, subordinated deposits and preferred securities

755

1,602

502

13,629

16,488

Customer deposits

325,448

8,920

3,731

4,562

342,661

Lease obligations

244

430

397

1,602

2,674

Purchase obligations

36

-

-

-

36

Post-employment benefits (1)

683

1,119

860

1,810

4,473

Insurance commitments (2)

1,227

950

1,616

6,158

9,951

Total (3)

339,103

26,921

16,723

38,840

421,588

(1)   Refers to liabilities recorded under “Financial liabilities at amortized cost”.

(2)   Represents the Group’s estimated aggregate amounts for pension commitments in defined-benefit plans and other post-employment commitments (such as early retirement and welfare benefits), based on certain actuarial assumptions. Post-employment benefits are detailed in Note 25 to the Consolidated Financial Statements.

(3)(2)   Liabilities under insurance and reinsurance contracts.

(4)(3)   The majority of senior and subordinated debt was issued at fixed rates (see Note 22.4 to the Consolidated Financial Statements). Floating-rate amounts were calculated based on the conditions prevailing as of December 31, 2018.2020. The financial cost of such issuances for 2020, 2019 and 2018 2017 and 2016 is detailedincluded in Note 37.2 to the Consolidated Financial Statements.

165 

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ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

We have a one-tier board system with a single collegiate body, the Board of Directors, that is collectively responsible for the highest functions of managing the Company and overseeing and controlling the management of the Company, all with the aim of achieving the Company’s purpose and best corporate interest.

Our Board of Directors is committed to ensuring a good corporate governance system in the design and operation of our corporate bodies in the best interests of the Company and our shareholders.

Our Board of Directors is subject to Board Regulations that reflect and implement the principles and elements of BBVA’s concept of corporate governance. These Board Regulations compriseinclude standards for the internal management and operation of the Board and its Committees, as well as the rights and obligations of directors in the performance of their duties, which are contained in the directors’ charter.Board Regulations.

General shareholders’ meetings are subject to their own set of regulations on issues such as how they operate and what rights shareholders enjoy regardinghave at such meetings. These establish the possibility of exercising or delegating votes over remote communication media.

Our Board of Directors has approved athe annual report on corporate governance and a report on directors’ remuneration for 2018,2020, according to the forms set forth underprovisions established in the Spanish regulation for listed companies.

Shareholders and investors may find the documents referred to above on ourBBVA’s website (www.bbva.com)., under the “Shareholders and Investors” and “Corporate Governance and Remuneration Policy” sections.

OurBBVA’s website was created as an instrument to facilitate information and communication with shareholders.shareholders and other stakeholders. It provides special direct access to all information considered relevant to BBVA’s corporate governance system in a user-friendly manner. In addition, all the information required by articleArticle 539 of the Spanish Corporate Enterprises Act can be accessed on BBVA’s website (www.bbva.com).

A.   Directors and Senior Management

We are managed by a Board of Directors that is currently composed of 15 members.members, 13 of which are non-executive directors and two are executive directors.

Pursuant to articleArticle 1 of the Board Regulations, Bank directorships may be executive or non-executive. Executive directors are those who perform management functionsduties in the CompanyBank or any of its Group entities, regardlesscompanies, irrespective of the legal relationship they have with such companies.it. All other Board members will be considered non-executiveshold non-executive directorships, and they may be proprietary, independent or other external directors.

Independent directors are those non-executive directors who have been appointed in view ofbased on their personal and professional backgroundqualities and who canmay perform their duties without being constrained by their relationsrelationship with the Company, or its Group, its significant shareholders or its executives.managers. Under the Board Regulations, directors cannotmay not be deemedconsidered independent if they:in any of the following situations:

(a)   they have been employees or have been executive directors inof Group companies unlessin the last threeor five years, have elapsed, respectively since they ceased as employees or executive directors, as the case may be;respectively;

(b)   they receive from the CompanyBank, or itsfrom Group entities,companies, any amount or benefit for anany item other than director’s remuneration, except for those which are not significant for such director. For the purposes of this item, neither dividends nor pension allowances received by directors relating to their directorship, except where the sum is insignificant. This does not include either dividends or pension supplements that a director may receive due to a formerprevious professional or employment relationship,relations will be taken into account, provided thesethat said allowances are unconditional in nature and, consequently,therefore, the company paying themthat provides said allowances may not at its own discretion, suspend, amendmodify or revoke their accrual unless there has been a breach of duty;at its discretion without breaching its obligations;

(c)   they are, partnersor have been in the past three years, a partner of thean external auditor or in charge of the audit report or have been so inresponsible during this time for the last three years, whether the audit in question was carried out onauditor’s report of the Company or any other Group entity;company within its Group;

(d)   they are executive directors or senior managers of another company infor which a Company’san executive director or senior manager of the Company is an external director;

200166


 

(e)   maintain anythey have, or have had over the last year, a significant business relationship with the CompanyBank or with any company within its Group, company or have done so over the last year, eitherwhether in their own name or as a significant shareholder, director or senior manager of a company that maintainshas, or has maintainedhad, such a relationship. Business relationship here means any relationship as supplier ofrelationships include supplying goods or services, including financial goods or services, and as advisorwell as acting as an adviser or consultant;

(f)   they are significant shareholders, executive directors or senior managers of any entitya company that receives, or has received overin the lastpast three years,donations from the Company or from its Group. Those persons who are merelysimply trustees inof a foundation receiving donations shallwill not be deemed to beconsidered included underin this letter;item;

(g)   they are spouses, partners in a similar relationship of affection or spousal equivalents or relatedrelatives up to the second degree of kinship to an executive director or senior manager of the Company;

(h)   they have not been proposed for appointment or renewal by the Appointments Committee for appointment or renewal;and Corporate Governance Committee;

(i)   they have held a directorshipbeen directors for a continuous period of more than 12twelve years; or

(j)   are relatedin relation to anya significant shareholder or shareholder represented on the Board of Directors, under any of the circumstances described under lettersreferred to in items (a), (e), (f) or (g) above.above shall apply. In the event of the kinship relationships mentionedrelations referred to in letteritem (g), the limitation will apply not only with respect to the shareholder, but also with respect to theirany proprietary directors inof the company in which the shareholder holds an interest.shares are held.

Directors who hold shareswith a shareholding in the BankCompany may be considered independent provided that they comply withdo not meet the conditions above conditions and, in addition, that their shareholding is not legally considered to beregarded as significant.

Regulations of the Board of Directors

The principles and elements comprising our corporate governance are set forth in our Board Regulations, which govern the internal procedures and the operation of the Board and its Committees, andas well as directors’ rights and duties as described in their charter.duties.

The full text of the Board Regulations and those of the Board committees can be found on the Bank’s corporateBBVA’s website (www.bbva.com).

The following provides a brief description of several significant matters covered in the Regulations of the Board of Directors.

Performance of Directors’ Duties

Directors must complyfulfil the duties imposed by applicable law and the Bylaws with their duties as defined by legislation and by our Bylaws in a manner that is faithfulfidelity to the interestscorporate interest, which is understood as the interest of the Company.

They will participate in the deliberations, discussions and debates on matters submitted for their consideration, expressingand they should clearly express their opposition when they consider that a draft resolutionany proposal submitted to the BoardBank’s corporate bodies may be contrary to the Company’s interestscorporate interest and will be appraisedprovided in advance with the information needed to form an opinion with respect to the matters within the remit of the necessary information to be able to form their own opinions regarding questions corresponding to ourBank’s corporate bodies. They may requestask for any additional information and advice they requirerequired to comply withperform their duties. They must devote to their dutiesduty the necessary time and effort which is necessary to perform them efficientlyit effectively and they are obligedrequired to attend the meetings of the corporate bodies and of the Board Committees on which they sit, unless they can justify the reasonexcept for their absence.a justifiable reason.

The directors may also request the Board of Directors for external expert assistance from external experts onfor any matters subjectsubmitted to their consideration whose special complexity or importance so requires.

201


Conflicts of Interest

The rules comprising the BBVA directors’ charterBoard Regulations detail different situations in which conflicts of interest could arise between directors, their family members and/or organizations withto which they are linked, and the BBVA Group. They set out procedures for such cases, in order to avoid conduct contrary to our best interests. The rules contained in the BBVA Board of Directors’ charterRegulations are in line with the specific regulationregulations established onin the Spanish Corporate Enterprises Act.

167


These rules help ensure directors’ conduct reflects stringent ethical codes, in keeping with applicable standards and according to core values of the BBVA Group.

Incompatibilities

Directors are also subject to the rules on limitations and incompatibilities established under the applicable regulations at any time and, in particular, to the provisions of Spanish Law 10/2014 and Circular 2/2016, of the Bank of Spain, for credit institutions on supervision and solvency. A director of BBVA may not simultaneously hold more positions than those provided for in the following combinations: (i) one executive position and two non-executive positions; or (ii) four non-executive positions. Executive positions are understood to be those that undertake management duties irrespective of the legal bond attributed by those duties. The following will count as a director insingle position: 1) executive or non-executive positions held within the same group; 2) executive or non-executive positions held within (i) entities that form part of the same institutional protection scheme or (ii) traded companies in which the Groupentity holds a significant shareholding. Positions held in non-profit organizations or anyentities or companies pursuing non-commercial purposes will not count when determining the maximum number of the Group companies hold a stake, subject to the exceptions set forth below. Non-executive directors may hold a directorship in the Bank’s associated companies or in any other Group company provided the directorship is not related to the Group’s holding in such companies. As an exception and when proposed bypositions. Nevertheless, the Bank executive directors are able to hold directorships in companies directly or indirectly controlled by the Bank with the approval of the Executive Committee, and in other associated companies with the approvalSpain may authorize members of the Board to hold an additional non-executive position if it deems that this would not interfere with the proper performance of Directors.the director’s activities in the credit institution.

DirectorsIn addition, pursuant to the provisions of Article 11 of Board Regulations, directors may not provide professional services to enterprisescompanies competing with the Bank or any of theits Group entities,companies, unless they have received express prior authorization from the Board of Directors or the general shareholders’ meeting, as the case may be,appropriate, or unless such services orthese activities werehad been provided or performedconducted before they became directors ofthe director joined the Bank, they do not involvehad posed no effective competition withand they had informed the Bank and they were reported to the Bankof such at the time of appointment.that time.

Term of Directorships and Director Age Limit

Directors will stay in office for the term set out in our Bylaws (three years). If they have been co-opted, they will stay in office until the first general shareholders’ meeting is held. The general shareholders’ meeting may then ratify their appointment for the term of office established under our Bylaws.

BBVA’s Board of Directors Regulations establishesestablish an age limit for sitting on the Bank’s Board. Directors must presentsubmit their resignation at the first meeting of the Bank’s Board of Directors to be held after the general shareholders’ meeting that approvesapproving the accounts for the financial year in which they reach the age of seventy-five years.

Appointment and Re-election of Directors

The proposals that the Board submits to the Company’s general shareholders’ meeting for the appointment or re-election of directors andsubmitted by the Board of Directors to the general shareholders’ meeting, as well as the appointments the Board makesmade directly to coverfill vacancies exercisingunder its co-opting powers, of co-option will be approved at the proposal of the Appointments and Corporate Governance Committee in the case offor independent directors and following aprior report from saidthis Committee for all other directors.

In all such cases theThe proposal must be accompanied by aan explanatory report of the Board explaining the grounds on whichby the Board of Directors has assessedassessing the competence,skills, experience and merits of the candidate proposed, which will be attachedadded to the minutes of the general shareholders’ meeting or of the Board of Directors.Directors meeting.

To such end, the Appointments and Corporate Governance Committee will evaluate the balance of knowledge, skills knowledge and expertise onexperience of the Board of Directors, as well as the conditions that the candidates should displaymust meet to fillcover the vacancies arising,that arise, assessing the dedication of time considered necessary to be able to suitably performadequately carry out their duties, in view of the needs thatof the Company’s governingcorporate bodies may have at any given time.

202


Directors’ Resignation and Dismissal

Furthermore, in the following circumstances, reflected in the Board Regulations, directors must placeoffer their office at the disposal ofresignation to the Board of Directors and accept its decision regarding their continuity in office or non-continuity in office.not. Should the Board resolvedecide against their continuity, they do not continue in office, they will be obligedare required to tender their resignation:

·          when they are affected by circumstances of incompatibility or prohibition as defined under prevailing legislation in ourforce, in the Bylaws or in the Board Regulations;

·          when significant changes occur in their professionalpersonal or personalprofessional situation that may affect the conditionstatus by virtue of which they were appointed to the Board of Directors;as directors;

168


·          when they are in the event of serious derelictionbreach of their duties in the performance of their role as directors;

·          when, for reasons attributable to the directordirectors in his or her conditiontheir status as such, serious damage has been done to the Company’s net worth, creditequity, standing or reputation; or

·          when they lose their suitabilityare no longer suitable to hold the positionstatus of director of the Bank.

Evaluation

Article 17 of the Board Regulations indicates that the Board of Directors will assess the quality and efficiencyeffectiveness of the Board’s operation andof the Board of Directors, as well as will assess the performance of the duties of the Chairman of the Board, based in each case on the report submitted by the Appointments and Corporate Governance Committee (process which will be led by the Lead Director). Such assessment will always begin with the report submitted by the Appointments Committee. Likewise, the Board will carry out the evaluationassessment of the operation of its Committees, based on the basis of the report that each Committee submits toreports submit thereby. Furthermore, the Board of Directors.Directors will assess the performance of the Chief Executive Officer, based on the report submitted by the Appointments and Corporate Governance Committee, which will include the assessment made by the Executive Committee.

Moreover, article 5Article 18 of the Board Regulations establishes that the Chairman who is responsible for the efficient running of the Board of Directors, will organize and coordinate the periodic assessment of the Board’s performance with the Chairschairs of the relevant Committees.committees. Pursuant to the provisions of the Board Regulations, during the evaluation process conducted for 2018,2020, the Board of Directors evaluated: (i) the quality and efficiency of the operation of the Board of Directors and the Executive Committee;Directors; (ii) the performance of the different rolesduties of the Board of Directors;Chairman and (iii) the qualityChief Executive Officer; and efficiency of(iii) the operation of the different Committees of the Board of Directors.Committees.

203


The Board of Directors

OurAs of the date of this Annual Report, our Board of Directors is currently comprised of 15 members.members, 13 of which are non-executive directors and two are executive directors.

The following table sets forth the names of the members of the Board of Directors as of thatthe date of this Annual Report, on Form 20-F, their date of appointment and, if applicable, re-election, their current positions and their present principal outside occupation and main employment history.

169


Name

Birth Year

Current Position

Date Nominated

Date
Re-elected

Present Principal Outside OccupationBusiness Activities and Employment History(*)

Carlos Torres Vila(1)(6)

1966

Group Executive Chairman

May 4, 2015

March 15, 2019

Chairman of the Board of Directors and Group Executive Chairman of BBVA since December 2018.BBVA. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 until his appointment as Chairman.to December 2018. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.

Onur Genç (1)

1974

Chief Executive Officer

December 20, 2018

March 15, 2019

Chief Executive Officer of BBVA and member of the Executive Committee since December 2018.BBVA. Director of BBVA CompassUSA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. ChairmanPresident and CEO of BBVA CompassUSA and BBVA’s Country Manager in the USAUnited States from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Executive Vice President for retail and private banking at Garanti BBVA between 2012 and 2015.

Tomás Alfaro Drake(4)(6)

1951

External Director

March 18, 2006

March 17, 2017

Director of Internal Development and Professor in the Finance department of Universidad Francisco de Vitoria.

José Miguel Andrés Torrecillas(1)(2)(3)(5)(7)(8)

1955

Deputy Chair; Independent Director

March 13, 2015

March 16, 2018

ChairmanDeputy Chair of the Audit and Compliance Committee andBBVA Board of Directors since April 2019. Chair of the Appointments and Corporate Governance Committee. Director of Zardoya Otis.Otis, S.A. Chairman of Ernst & Young Spain from 2004 to 2014, where he was a partner since 1987 and also held a series of senior offices, including DirectorManaging Partner of the Banking Group from 1989 to 2004 and Managing Director of the Audit and Advisory practices at Ernst & Young Italy and Portugal from 2008 to 2013.

204


Jaime Félix Caruana Lacorte(1)(2)(5)(6)

1952

Independent Director

March 16, 2018

Not applicable

Chair of the Audit Committee since April 2019. Member of the Group of Thirty (G-30) and Sponsor (patrono) of the Spanish Aspen Institute Foundation. General DirectorManager of the Bank of International Settlements (BIS) between 2009 and 2017. Between 2006 and 2009 he was Head of the Monetary, Capital Markets Department and Financial Counselor and General Manager at the International Monetary Fund (IMF), between 2003 and 2006 he was ChairChairman of the Basel’sBasel Committee on Banking Supervision, Committee, between 2000 and 2006 he was Governor of the Bank of Spain, and between 1999 and 2000 he was General Manager of Banking Supervision at the Bank of Spain.

Raúl Catarino Galamba de Oliveira (5) (6)

1964

Independent Director

March 13, 2020

Not applicable

Independent Chair of the Board of Directors of CTT – Correios de Portugal, S.A. and non-executive director of José de Mello Saúde and José de Mello Capital. His career path has been mainly linked to McKinsey & Company, where he was appointed partner in 1995, Director of the Portugal office in 2000, Managing Partner for Spain and Portugal between 2005 and 2011, Managing Partner of Global Risk practice between 2013 and 2016, member of the Global Shareholders Board from 2005 to 2011, member of the Partner Election and Evaluation Committees between 2001 and 2017, member of the Remuneration Committee from 2005 to 2013 and Chairman of the Global Learning Board from 2006 to 2011.

170


Belén Garijo López(2)(3)(4)

1960

Independent Director

March 16, 2012

March 16, 2018

Chair of the RemunerationRemunerations Committee. Member of the Executive Board of Merck Group and CEO of Merck Healthcare, member of the Board of Directors of L’Oréal and, since 2011, Chair of the International Senior Executive Committee (ISEC) of PhRMA, ISEC (Pharmaceutical Research and Manufacturers of America).

José Manuel González-Páramo Martínez-Murillo

1958

Executive Director

May 29, 2013

March 17, 2017

Executive Director Previously, she was President of BBVA since May 2013. Chairman of European DataWarehouse GmbH. Head of BBVA’s Global Economics & Public Affairs Area. Member of the European Central Bank (ECB) Governing CouncilCommercial Operations for Europe and Executive Committee from 2004 to 2012.Canada at Sanofi Aventis.

Sunir Kumar Kapoor(6)

1963

Independent Director

March 11, 2016

March 15, 2019

Operating partner at Atlantic Bridge Capital, independent director of Stratio Big Data and advisor to mCloud. President and CEO of UBmatrix Inc from 2005 to 2011. Executive Vice President and CMO of Cassatt Corporation from 2004 to 2005. Oracle Corporation, Vice President Collaboration Suite from 2002 to 2004. Founder and CEO of Tsola Inc from 1999 to 2001. President and CEO of E-Stamp Corporation from 1996 to 1999. Vice President of Strategy, Marketing and Planning of Oracle Corporation from 1994 to 1996. Currently, he is an independent consultant to various leading companies in the technology sector, such as cloud infrastructures or data analysis.

Carlos Loring Martínez de Irujo(1)(4)(5)

1947

External Director

February 28, 2004

March 17, 2017

Partner of J&A Garrigues from 1977 to 2004, where he has also held a series of senior offices, including Director of M&A Department, Director of Banking and Capital Markets Department and member of its Management Committee.

Lourdes Máiz Carro(2)(3)(4)

1959

Independent Director

March 14, 2014

March 17, 201713, 2020

Secretary of the Board of Directors and Director of Legal Services at Iberia, Líneas Aéreas de España from 2001 until 2016. Joined the Spanish State Counsel Corps (Cuerpo(Cuerpo de Abogados del Estado)Estado) and from 1992 until 1993 she was Deputy to the Director in the Ministry of Public Administration. From 1993 to 2001 held various senior positions in the Public Administration.Administration, including Director of the Cabinet of the Assistant Secretary of Public Administration and General Director of the Sociedad Estatal de Participaciones Patrimoniales (SEPPA) within the Ministry of Economy and Finance.

205


José Maldonado Ramos(1)(3)

1952

External Director

January 28, 2000

March 16, 2018

Appointed Director and General Secretary of BBVA in January 2000. Took early retirement as Bank executive in December 2009. Previously, he was Board Secretary and Director of Legal Services for Empresa Nacional para el Desarrollo de la Industria Alimentaria, S.A. (Endiasa); Astilleros Españoles, S.A.; and Iberia, Líneas Aéreas de España, S.A.

Ana Cristina Peralta Moreno(2)(4)

1961

Independent Director

March 16, 2018

Not applicable

Independent member of the Board of Directors of Grenergy Renovables. General DirectorRenovables, S.A. and of RisksInmobiliaria Colonial, SOCIMI, S.A. She was an independent member of the Board of Directors of Deutsche Bank SAE from 2014 to 2018 and Banco Etcheverría, S.A. from 2013 to 2014. Chief Risk Officer and Member of the Management Committee of Banco Pastor, S.A. between 2008 and 2011. Before that, she held several positions at Bankinter, including Chief Risk Officer and was a member of the Management Committee between 2004 and 2008. She was also an independent member of the Board of Directors of Deutsche Bank SAE (2014-2018) and Banco Etcheverría (2013-2014).

Juan Pi Llorens(2)(3)(5)(6)(7)

1950

Independent Director

July 27, 2011

March 16, 2018

Lead Director of BBVA and Chairman of the Risk and Compliance Committee. Chairman of the Board of Directors of Ecolumber.Ecolumber, S.A. and non-executive director of Oesía Networks, S.L. and of Tecnobit, S.L.U. Had a professional career at IBM holding various senior posts at a national and international level including Vice President for Sales at IBM Europe from 2005 to 2008, Vice President of Technology & Systems Group at IBM Europe from 2008 to 2010 and Vice President of the Finance Services Sector at GMU (Growth Markets Units) in China.China from 2009 to 2011. He was executive President of IBM Spain.Spain between 1998 and 2001.

171


Ana Leonor Revenga Shanklin (5)

1963

Independent Director

March 13, 2020

Not applicable

Senior Fellow at the Brookings Institution and President of the Board at the ISEAK Foundation since 2018 and Associate Professor at the Walsh School of Foreign Service at Georgetown University since 2019.She has held several positions of responsibility at the World Bank, including Senior Director Global of the Poverty and Equity Practice between 2014 and 2016 and Deputy Chief Economist in 2016 and 2017.

Susana Rodríguez Vidarte(1)(3)(5)

1955

External Director

May 28, 2002

March 17, 201713, 2020

Professor of Strategy at the Faculty of Economics and Business Sciences at Universidad de Deusto. She was Dean of the faculty of Economics and Business Administration of the University of Deusto from 1996 to 2009, Director of the Instituto Internacional de Dirección de Empresas (INSIDE) from 2003 to 2008 and Director of the Postgraduate Area from 2009 to 2012. Doctor in Economic and Business Sciences from Universidad de Deusto.

Carlos Vicente Salazar Lomelín (4)

1951

External Director

March 13, 2020

Not applicable

Chairman of the Consejo Coordinador Empresarial de México (the Mexican Business Coordinating Council) since 2019 and independent director of Sukarne and Alsea since 2017 and 2019, respectively.Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. His career path has been linked to the Grupo Fomento Económico Mexicano S.A.B. de C.V. (Femsa) until 2019, having held roles such as General Manager of Cervecería Cuauhtémoc-Moctezuma and General Manager of Femsa from 2014 to 2017.

Jan Paul Marie Francis Verplancke(4)(6)

1963

Independent Director

March 16, 2018

Not applicable

Director, Chief Information Officer, Group Head of Technology and Banking Operations, of Standard Chartered Bank, between 2004 and 2015. Before that, he held Chief several positions in multinational companies, such as Vice President of Technology and Chief Information Officer, in the EMEA region of Dell (1999-2004) and Vice President of Information.

(*)   Where no date is provided, the position is currently held.

(1)   Member of the Youth Category (USA)Executive Committee.

(2)   Member of Levi Strauss (1998-1999).the Audit Committee.

(3)   Member of the Appointments and Corporate Governance Committee.

(4)   Member of the Remunerations Committee.

(5)   Member of the Risk and Compliance Committee.

(6)   Member of the Technology and Cybersecurity Committee.

(7)   Lead Director.

(8)   Deputy Chair.

(*)   Where no date is provided, the position is currently held.

(1)   Member of the Executive Committee.172

(2)   Member of the Audit and Compliance Committee.

(3)   Member of the Appointments Committee.

(4)   Member of the Remuneration Committee.

(5)   Member of the Risk Committee.

(6)   Member of the Technology and Cybersecurity Committee.

(7)   Lead Director.

206


 

Senior Management

Our senior managers were each appointed for an indefinite term. Their positions as of the date of this Annual Report on Form 20-F are as follows:

Name

Current Position

Present Principal Outside Occupation and Employment History(*)

Carlos Torres Vila

Group Executive Chairman

Chairman of the Board of Directors and Group Executive Chairman of BBVA since December 2018.BBVA. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 until his appointment as Chairman.to December 2018. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.

Onur Genç

Chief Executive Officer

Chief Executive Officer of BBVA and member of the Executive Committee since December 2018.BBVA. Director of BBVA CompassUSA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. ChairmanPresident and CEO of BBVA CompassUSA and BBVA’s Country Manager in the USAUnited States from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Executive Vice President for retail and private banking at Garanti BBVA between 2012 and 2015.

José Manuel González-Páramo Martínez-Murillo

Head of Global Economics & Public Affairs

Executive Director of BBVA since May 2013. Chairman of European DataWarehouse GmbH. Head of BBVA’s Global Economics & Public Affairs Area. Member of the European Central Bank (ECB) Governing Council and Executive Committee from 2004 to 2012.

Eduardo Arbizu Lostao

Head of Regulation & Internal Control

Head of the Supervisors, Regulation & Compliance Area since December 2018, which in March 2019 integrated the non-financial risks and internal risk control areas, therefore changing its name to Regulation & Internal Control. Head of Legal & Compliance area of BBVA from 2002 to December 2018; Chief Executive Officer and Managing Director of Retail Operations in Continental Europe (France, Spain, Portugal, Italy and Greece) from 1997 to 2002 at Barclays.

Domingo Armengol Calvo

General Secretary

General Secretary and Secretary of the Board of Directors of BBVA since 2009. Deputy Secretary of the Board from 2005 to 2009 and Head of the Institutional Legal Department of BBVA from 2000 to 2009.

María Jesús Arribas de Paz

Head of Legal

Head of Legal since December 2018. Director of BBVA OP3N. She held the position of Head of Corporate Legal Services between 2002 and 2018. Before that, she was head of Legal services and board secretary at Finanzia Banco de Crédito S.A. (1996-2002).

Pello Xabier Belausteguigoitia Mateache

Spain Country Manager

Spain Country Manager since December 2019. Director of BBVA Seguros, S.A. Seguros y Reaseguros. Head of Business Development BBVA Spain from 2017 to 2019, Director of BBVA Spain’s Northern Region from 2015 to 2017, Director of BBVA Spain’s Eastern Region from 2014 to 2015, Local Director at BBVA Spain’s Northwestern Region between 2011 and 2014 and Director of Commercial Businesses at BBVA Spain’s Northwestern Region from 2008 to 2011.

Carlos Casas Moreno

Head of Talent & Culture

Head of Talent & Culture since December 2018. He was Head of Compensation, Benefits & Key Roles from 2016 to December 2018, and was responsible for Organization Matters and Global Talent Management Policies in the Talent & Culture area between 2015 and 2016. Between 2010 and 2015, he worked on Process Re-engineering within the Innovation and Technology area. He worked at McKinsey & Company between 2000 and 2010, where he was an Associated Partner prior to leaving.

207


Victoria del Castillo Marchese

Head of Strategy & M&A

Head of Strategy & M&A since December 2018. Before that sheShe has held severalother relevant positions within the BBVA Group, such as Head of M&A for Europe and Turkey (2014 to December 2018), Director of Strategic Projects of the Finance Area (2009 to 2014) and Head of M&A for the USA (2006 to 2009).

Ricardo Forcano GarcíaJosé Luis Elechiguerra Joven (**)

Head of Engineering & Organization

Head of Engineering & Organization since December 2018. Head of Talent & Culture from July 2016 to December 2018. Previously, he2020. He has held other posts atrelevant positions within the BBVA Group such as Head of Client Solutions at BBVA USA during 2019, Global Director of Data Governance from 2017 to 2019 and Global Director of Organization & Business Development of Growth MarketsProcess Engineering from 2015 to 2016, 2017, both positions at BBVA. Director of Business Transformation from 2013 to 2015, Director of Strategic & Financial Planning for the Retail Business from 2011 to 2013 and Director of Business Development & Strategic Planning for the Mortgage Business, all of them at BBVA México.

Ana Fernández Manrique

Head of Regulation & Internal Control

Head of Regulation & Internal Control since July 2019. She has held several relevant positions within the BBVA Group such as Director of Non-Financial Risks during 2018, Director of Strategy and Finance – Digital Bankingat BBVA Real Estate Area from 2014 to 2015,2017, Director of Corporate Strategy and Finance at Global Retail Area from 20122011 to 2014, and Head of New Business Models from 2011 to 2012. Prior to joining BBVA he was DeputyStrategy & M&A Managing Director of Corporate Strategy of Endesa from 2003 to 2007.between 2008 and 2011.

173


María Luisa Gómez Bravo

Head of Corporate & Investment Banking

Head of Corporate & Investment Banking since December 2018. She has held several relevant positions within the BBVA Group such as Head of Investment & Cost Management (between 2017 and December 2018), Head of Investors & Shareholders Relations (between 2014 and 2017), Head of Transformation & Operations at BBVA Spain and Portugal (between 2012 and 2014), and Head of Asset Management (between 2008 and 2012), among others.

Joaquín Manuel Gortari Díez

Head of Internal Audit

Head of Internal Audit since December 2018. Before that heHe has held several relevant positions within the BBVA Group, such as Chief of Staff to the Chairman (from 2010 to 2018), CFO in the Area of Technology and Operations (from 2008 to 2010), CFO of BBVA in the USA (from 2004 to 2008) and Deputy CFO of BBVA (from 2003 to 2004).

Ricardo Martín Manjón

Head of Data

Head of Data since April 2019. Director of BBVA Data & Analytics. Previously he was Global Head of Data Strategy & Data Science Innovation from 2017 to 2019, Head of Digital Transformation at BBVA Spain between 2013 and 2016, Marketing Director at BBVA Spain from 2011 to 2013. In addition, he held the position of Global Head of Digital Banking at Nordea between 2016 and 2017.

Eduardo Osuna Osuna

Mexico Country Manager

Mexico Country Manager since May 2015 and General Manager of BBVA Bancomer. Previously he was Head of Government and Corporate Banking of BBVA Bancomer from 2012 to 2015 and Head of Commercial Banking of BBVA Bancomer from 2010 to 2012.

Cristina de Parias Halcón

Spain Country Manager

Spain Country Manager since May 2015. Director of BBVA Seguros, S.A. Compañía de Seguros y Reaseguros. Head of Spain and Portugal from 2014 to 2015 and Head of the Central Area in Spain from 2011 to 2014. She joined BBVA in 1998 and has held positions in digital business development, payment systems, Uno-e and consumer finance from 1998 to 2011.

David Puente Vicente

Head of DataClient Solutions

Head of DataClient Solutions since March 2017 and Director of  BBVA Seguros, S.A., Compañía de Seguros y Reaseguros and of BBVA Data & Analytics.April 2019. Previously, he was Head of Data from 2017 to 2019, Head of Business Development Spain sincefrom May 2015.2015 to 2017. Previously, he held others posts at BBVA such as Head of CEO’s Office from 2009 to 2012 and Head of New Business Models from 2004 to 2006. He was Senior Associate at MckinseyMcKinsey & Company from 2002 to 2004.

208


Jaime Sáenz de Tejada Pulido

Chief Financial Officer

Head of the Finance &Area since May 2015 (which in December 2018 incorporated the Accounting Area since December 2018.Area). Director of Garanti. Head of Finance from May 2015 to December 2018.Garanti BBVA. Head of Strategy and Finance from 2014 to 2015 and Head of Spain and Portugal from 2012 to 2014. Business Development Manager of Spain and Portugal at BBVA from 2011 to 2012. Central Area Manager of Madrid and Castilla La Mancha from 2007 to 2010.

Jorge Sáenz-Azcúnaga Carranza

Head of Country Monitoring

Head of Country Monitoring since July 2016. Director of BBVA Bancomer, S.A., Institución de Banca Múltiple, ofGrupo Financiero BBVA Bancomer, of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA CompassUSA Bancshares, Inc., and Vice President of Garanti. Garanti BBVA. He joined BBVA in 1993 and he has held various senior posts such as Country Networks - Head of Business Monitoring Spain, USA and Turkey from 2015 to 2016, Head of Strategy and Planning, Spain & Portugal from 2008 to 2013 and Head of CEO Office from 2002 to 2005.

Rafael Salinas Martínez de Lecea

Head of Global Risk Management

Head of Global Risk Management since May 2015 and Director of Garanti.Garanti BBVA. Prior to this post, he was Head of Risk and Portfolio Management from 2006 to 2015 and CFO of Banco de Crédito Local de España from 2003 to 2005.

Derek Jensen White(*)   Where no date is provided, positions are currently held.

Head(**) The exercise of Client Solutions

Headhis duties as Senior Manager of Client Solutions since 2016. Directorthe Bank is subject to his prior registration on the Registry of 4D Internet Solutions andSenior Officers of Dallas Creation Center. Prior to joining BBVA he held various senior posts at Barclays such as Chief Design & Digital Officer from 2013 to 2016 and Chief Customer Experience Officer, Global Retail & Business Banking from 2011 to 2013.the Bank of Spain.

(*)   Where no date is provided, positions are currently held.174 

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B.   Compensation

The provisions of BBVA’s Bylaws that relate to compensation of directors are in accordance with the relevant provisions of Spanish law. Furthermore, BBVA has a remuneration policy for BBVA directors (the “Directors’ Remuneration PolicyPolicy”),”), which is aligned with the specific regulations applicable to credit institutions and best market practices.

Directors’ Remuneration Policy

The Directors’ Remuneration Policy for 2017, 20182019, 2020 and 20192021 was approved by the general shareholders’ meeting held on March 17, 2017,15, 2019, by a majority of 96.54%94.83%. This policy is available aton our website (www.bbva.com)(www.bbva.com).

BBVA has defined its Directors’ Remuneration Policy on the basis of the general principles of the Group’s remuneration policy, taking into consideration compliance with legal requirements applicable to credit institutions and those applicable in the different sectors in which it operates, as well as alignment with best market practices, while including items devised to reduce exposure to excessive risks and to adjust remuneration to the targets, values and long-term interests of the Group.

On the basis of the principles of the Group’s remuneration policy, and pursuant to the statutory requirements established by applicable regulations, BBVA has devised a specific incentives system for staff whose professional activities have a significant impact on the Group’s risk profile (the “Identified Staff”), which includes BBVA executive directors and BBVA Senior Management, that is aligned with the regulations and recommendations applicable to the remuneration schemes offor this staff. The result is a remuneration scheme for the Identified Staff based, inter alia, on the following basic characteristics, applicable towith the particularities set forth below for executive directors and BBVA Senior Management:

·       Adequate balance between the fixed and variable components of total remuneration, in line with applicable regulations, designed to provide flexibility with regard to payment and amounts of the variable components, allowing for such components to be reduced, in part or in full, where appropriate. The proportion between the two components is established in accordance with the type of functions carried out by each beneficiary.

·       The variable remuneration shall be based on effective risk management and linked to the level of achievement of financial and non-financial targets previously established and defined at the Group, area and individual level,levels, that take into account present and future risks assumed and the Group’s long-term interests.

·       The variable remuneration for each year will not accrue, or will accrue in a reduced amount, should a certain level of profit and capital ratio not be achieved, and it shall be subject to ex ante adjustments, so that it shall be reduced at the time of the performance assessment in the event of a downturn in the Group’s results or other parameters such as the level of achievement of budgeted targets.

·       The annual variable remuneration shall be calculated on the basis of: (i) annual performance indicators (financial and non-financial); (ii) scales of achievement, as per the weightings allocated to each indicator; and (iii) a target annual variable remuneration, representing the amount of annual variable remuneration if 100% of the pre-established targets are met. The resulting amount shall constitute the annual variable remuneration of each beneficiary.

·       The annual variable remuneration shall be subject to a specific settlement and payment system, which includes the following rules as regards executive directors:rules:

-·40% of the annual variable remuneration for members of the Identified Staff and 60% of the annual variable remuneration for executive directors, Senior Management and those members of the Identified Staff with particularly high variable remuneration amounts shall be deferred over a period of three years (for members of the Identified Staff) and for five years.years (for executive directors and Senior Management).

-     The175


·Both the upfront portion and the deferred portion of the annual variable remuneration for members of the Identified Staff shall be paid 50% in cash and 50% in BBVA shares. For executive directors and members of Senior Management, the upfront portion shall also be paid 50% in cash and 50% in BBVA shares whereasand the deferred portion shall be paid 60% in BBVA shares and 40% in cash.

-     ·Shares vested as annual variable remuneration shall be withheld for a one-year lock-up period after delivery, except for the transfer of those shares required to honor the payment of taxes.

210


-     ·The deferred component of annual variable remuneration may be reduced, in part or in full, but never increased, based on the result of multi-year performance indicators aligned with the Group’s core risk management and control metrics, related to the solvency, capital, liquidity, funding or profitability, or to the share performance and recurring results of the Group, measured over a period of three years.

-     ·The deferred component of annual variable remuneration for members of the Identified Staff, subject to the multi-year performance indicators, shall be delivered,vest, if conditions are met, after the third year of deferral, except that, in the case of executive directors and Senior Management, it shall vest, if conditions are met, under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and 20% after the fifth year of deferral.

-     ·Resulting cash portions of the deferred annual variable remuneration to be vested, after assessment of multi-year performance indicators, shall be updated according to the criteria established by the Board of Directors.

-     ·No personal hedging strategies or insurance may be used in connection with their remuneration and responsibility if such personal hedging strategies or liability thatinsurance may undermine the effects of alignmenttheir incentives to align with sound risk management.

-     ·The variable component of remuneration for a year shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the general shareholders’ meeting resolves to increase this percentage up to a maximum of 200%.

-     ·The entire annual variable remuneration shall be subject to “malus” and “clawback” arrangements during the whole deferral and lock-up period, in the same terms as for the rest of the Identified Staff, as follows:

Up to 100% of the annual variable remuneration of each executive director corresponding to each year shall be subject to “malus” and “clawback” arrangements, both linked to a downturn in financial performance of the Bank as a whole, or of a specific unit or area, or of exposures generated by such executive director, when such downturn in financial performance arises from any of the following circumstances:

a)        misconduct, fraud or serious infringement of the Code of Conduct and other applicable internal rules by such executive director;

b)        regulatory sanctions or judicial convictions due to events that could be attributed to such executive director;

c)        significant failure of risk management committed by the Bank or by a business or risk control unit, to which the willful misconduct or gross negligence of such executive director contributed; or

d)        restatement of the Bank’s annual accounts, except where such restatement is due to a change in applicable accounting legislation.

For these purposes, the Bank will compare the performance assessment carried out for the relevant executive directormember of the Identified Staff with the ex post evolution of some of the criteria that contributed to achieve the achievement of any targets. Both “malus” and “clawback” will apply to the annual variable remuneration of the year in which the event giving rise to application of the “malus” and/or “clawback” arrangements occurred, and they may be applied during the entire deferral and lock-up period applicable to the annual variable remuneration.

Notwithstanding the foregoing, in the event that these scenarios give rise to a dismissal or termination of contract of the executive directormember of the Identified Staff due to serious and guilty breach of duties, malus“malus” arrangements may apply to the entire deferred annual variable remuneration pending payment atas of the date of the dismissal or termination of contract,decision is taken, in light of the extent of the damage caused.

In any case, the variable remuneration will be paid or vest only if it is sustainable consideringaccording to the situation of the BBVA Group as a whole, and if justified on the basis of the Bank’s results, the business unit and of the executive director concerned.

211


Additionally, upon vesting of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value to twice their annual fixed remuneration for at least three years after their delivery.

176


As regards non-executive directors, their remuneration system, in accordance with the Bank’s Bylaws and Directors’ Remuneration Policy, is based on the criteria of responsibility, dedication and incompatibilities inherent to their role, and consists entirely of fixed remuneration.

During 2019, following a proposal of the Remuneration Committee, the Board of Directors decided to submit to the general shareholders’ meeting an update of the Remuneration Policy for BBVA Directors approved in 2017, which will be applicable for 2019, 2020 and 2021. The new Remuneration Policy maintains the same remuneration scheme as established in the policy approved in 2017 (which has been explained above) and introduces certain adjustments in the contractual conditions of the new Group Executive Chairman and Chief Executive Officer (CEO) as a result of their new roles and functions, as well as some technical improvements. This update is aimed at providing shareholders and the market with the utmost transparency and clarity about the Bank’s remuneration scheme for directors. This Directors’ Remuneration Policy was approved by the general shareholders’ meeting held on March 15, 2019, by a majority of 95.03%. This policy is available at our website (www.bbva.com).

Remuneration forreceived by non-executive directors received in 20182020

RemunerationThe remuneration paid to the non-executive members of the Board of Directors during 20182020 is indicated below, individually and itemized for each non-executive director. The table shows

 

Board of Directors

Executive Committee

Audit Committee

Risk and Compliance Committee

Remunerations Committee

Appointments and Corporate Governance Committee

Technology and Cybersecurity Committee

Other Functions (1)

Total

(thousands of euros)

José Miguel Andrés Torrecillas

129

111

66

36

 

115

 

50

507

Jaime Caruana Lacorte

129

167

165

107

 

 

 

 

567

Raúl Galamba de Oliveira (2)

107

  

71

 

 

32

 

211

Belén Garijo López

129

 

66

 

107

46

 

 

349

Sunir Kumar Kapoor

129

 

 

 

 

 

43

 

172

Lourdes Máiz Carro

129

 

66

 

43

 

 

 

238

José Maldonado Ramos

129

167

 

 

 

46

 

 

342

Ana Peralta Moreno

129

 

66

 

43

 

 

 

238

Juan Pi Llorens

129

 

 

214

 

46

43

80

512

Ana Revenga Shanklin (2)

97

 

 

71

 

   

168

Susana Rodríguez Vidarte

129

167

 

107

 

46

 

 

449

Carlos Salazar Lomelín (2)

97

 

 

 

29

 

 

 

125

Jan Verplancke

129

 

 

 

29

 

43

 

200

Total (3)

1,588

611

431

606

250

301

161

130

4,078

           

(1)   Includes amounts received during the non-executive members2020 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as of December 31, 2018.

 

Board of Directors

Executive Committee

Audit and Compliance Committee

Risk Committee

Remuneration Committee

Appointments Committee

Technology and Cybersecurity Committee

Total

Tomás Alfaro Drake

129

-

18

-

43

25

43

258

José Miguel Andrés Torrecillas

129

-

179

107

-

71

-

485

Jaime Félix Caruana Lacorte (1)

75

83

-

53

-

-

25

237

Belén Garijo López

129

-

71

-

107

20

-

328

Sunir Kumar Kapoor

129

-

-

-

-

-

43

172

Carlos Loring Martínez de Irujo

129

167

-

107

43

-

-

445

Lourdes Máiz Carro

129

-

71

-

43

41

-

284

José Maldonado Ramos

129

167

-

53

-

41

-

390

Ana Peralta Moreno (1)

86

-

36

-

21

-

-

143

Juan Pi Llorens

129

-

71

214

-

-

43

457

Susana Rodríguez Vidarte

129

167

-

107

-

41

-

443

Jan Verplancke (1)

107

-

-

-

-

-

-

132

Total (2)

1,427

584

446

642

257

239

179

3,773

          

Lead Director.

(1)(2)   Directors appointed by the general shareholders’ meeting held on March 16, 2018. This includes13, 2020. Remunerations paid based on the date on which the position was accepted.

(3)   Includes remuneration paid for membership on the Board Committees in 2018.and its various committees during the 2020 financial year. The composition of these Committees was modified on June 27, 2018. Remuneration was paid in accordance withcommittees changed following the date of acceptanceresolution of the relevant appointment.Board of Directors of April 29, 2020.

(2)

In addition, José Antonio Fernández Rivero, who stepped down as director on March 16, 2018, received a total ofduring the 2020 financial year, €95 thousand in 2018, for his membership on the Board and Board Committees.

Also, during 2018, €107 thousand was paid out in healthcarecasualty and casualtyhealthcare insurance premiums for non-executive members of the Board of Directors.

212Moreover, Tomás Alfaro Drake and Carlos Loring Martínez de Irujo, who left their roles as directors on March 13, 2020, received a total remuneration of €54 thousand and €111 thousand, respectively, for their membership on the Board and the relevant committees thereof during the first quarter of 2020. The Bank also paid casualty and healthcare insurance premiums in an aggregate amount of €18 thousand in connection with such individuals.


Remuneration forreceived by executive directors received in 20182020

During 2018,the 2020 financial year, the executive directors received the amount of the annual fixed remuneration corresponding to thatsuch financial year, established for each director in the Directors’ Remuneration Policy, applicable in 2018, which was approved by the general shareholders’ meeting held on March 17, 2017.15, 2019.

177


In addition, the executive directors received the upfront portion of the annual variable remuneration corresponding to 2017for the 2019 financial year, which, payment vested during the first quarter of 2018, in accordance with the settlement and payment system establishedset out in said Directors’ Remuneration Policy.the remuneration policy applicable to such year, was due to be paid to them during the 2020 financial year.

In accordance with thatHence, in application of this settlement and payment system:

·          40% of the 20172019 annual variable remuneration for executive directors was paid in 2018, with the applicable conditions having been met (hereinafter, the “Upfront Portion”2020 financial year (the “upfront portion), 50%in equal parts in cash and 50% in shares.

·          The remaining 60% of the annual variable remuneration bothwas deferred (40% in cash and 60% in shares, has been deferred in its entiretyshares) for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (hereinafter, the “Deferred Portion”(the “deferred portion). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion,deferred portion, even in its entirety, but in no event will the Deferred Portiondeferred portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid, (40% in cash and 60% in shares),BBVA shares, according to the following payment schedule: 60% in 2021,2023, 20% in 20222024 and the remaining 20% in 2023.2025.

·          All of the shares delivered to the executive directors as annual variable remuneration, including both as part of the Upfront Portionupfront portion and the Deferred Portion,deferred portion, will be withheld for a period of one year lock-up period after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received.

·          The Deferred Portiondeferred portion of the annual variable remuneration payable in cash will be subject to updating under the terms established by the Board of Directors.

·          Executive directors may not use personal hedging strategies or insurance in connection with their remuneration and/orand responsibility if such personal hedging strategies or insurance may undermine their incentives to align with prudentsound risk management.

·          The variable component of the remuneration for executive directors corresponding to 20172019 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting.meeting held during such financial year.

·          Over the entire deferral and withholding period, the entire annual variable remuneration for the executive directors will be subject to reduction“malus” and recovery (“malus” and “clawback”) arrangements.

Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value to twice their annual fixed remuneration for at least three years after their delivery.

Similarly,Moreover, during the 2020 financial year, in accordance with the applicable remuneration policies for 2016 and in application of the settlement and payment system applicable toof the annual variable remuneration for 2014, pursuant to the remuneration policy applicable at that time,such financial year, the executive directors received in 2018 the last thirddeferred portion of the deferred annual variable remuneration for 2014,the 2016 financial year (50% of the annual variable remuneration), the vesting of which was due during the 2020 financial year after being adjusted downwards following the result of the multi-year performance indicators. This remuneration was paid in equal parts in cash and in shares, together with the corresponding update in cash, thus concluding payment of the deferredannual variable remuneration to the executive directors for 2014.the 2016 financial year.

In accordance with the above, the remunerations paid to executive directors during 20182020 are indicated below, individually and itemized:

213


Annual fixed remunerationFixed Remuneration for 2020 (thousands of euro), received in 2018euros)

Carlos Torres VilaGroup Executive Chairman

1,9652,453

José Manuel González-Páramo Martínez-MurilloChief Executive Officer

8342,179

Total

2,7994,632

178


 

In addition, in accordance with the current Directors’ Remuneration Policy, during the 2020 financial year, the Chief Executive Officer (Consejero Delegado) received a corresponding amount of fixed remuneration in cash in lieu of pension (see “—Pension Commitments”), and for his mobility allowance. The Bank paid the Chief Executive Officer €654 thousand and €600 thousand, respectively, during the 2020 financial year.

Variable remuneration for 2017, received in 2018

 

In cash (1)  (thousands of euros)

In shares (1)   

Carlos Torres Vila

562

77,493

José Manuel González-Páramo Martínez-Murillo  

87

12,029

Total

649

89,522

Annual Variable Remuneration for 2019

 

In cash (1)  (thousands of euros)

In shares (1)   

Group Executive Chairman

636

126,470

Chief Executive Officer

571

113,492

Total

1,207

239,962

    

(1)      RemunerationRepresents remunerations corresponding to the Upfront Portionupfront portion (40%) of the annual variable remuneration for 2017,the 2019 financial year (paid 50% in cash and 50% in shares.BBVA shares).

Deferred variable remuneration for 2014, received in 2018  

 

In cash (1) (thousands of euro)

In shares (1)  

Carlos Torres Vila

105

11,766

José Manuel González-Páramo Martínez-Murillo  

33

3,678

Total  

137

15,444

    

Deferred Annual Variable Remuneration for 2016

 

In cash (1) (thousands of euros)

In shares (1)  

Group Executive Chairman

656

89,158

Chief Executive Officer

204

31,086

Total  

861

120,244

 

    

(1) (1 Remuneration) Represents remunerations corresponding to the last third of the Deferred Portiondeferred portion of the annual variable remuneration for 2014, 50%the 2016 financial year (50% of the annual variable remuneration for 2016 in equal parts in cash and 50% in shares, alongshares), payment of which was due during the 2020 financial year, together with its corresponding update in cash.cash, and after its downward adjustment following the result of the multi-year performance indicators. In the case of both the Group Executive Chairman and the Chief Executive Officer, this remuneration is associated with their previous positions.

During 2018,In addition, the executive directors also received remuneration in kind during the 2020 financial year, including insurance premiums and others, amounting to a total of €236€360 thousand, of which €154€228 thousand relatedwas paid to payments on behalf of Carlos Torres Vilathe Group Executive Chairman and €82€132 thousand of which relatedwas paid to payments on behalf of the Chief Executive Officer.

José Manuel González-Páramo Martínez-Murillo.

Former Group Executive Chairman, Francisco González Rodríguez,nez-Murillo, former Head of Global Economics & Public Affairs (GE&PA), who stepped down from this positionceased to be an executive director on December 21, 2018,March 13, 2020, received in 2018: €2,475€168 thousand as annual fixed remuneration; €660€174 thousand and 90,93328,353 BBVA shares corresponding to both the Upfront Portionupfront portion (40%) of the annual variable remuneration for 2017;the 2019 financial year and €332 thousand and 37,390 BBVA shares as settlementthe deferred portion of the last third of the Deferred Portion ofannual variable remuneration for 2014,the 2016 financial year, including the corresponding cash update; as well as €20€33 thousand inas remuneration in kind.

CEO Onur Genç, who was appointedRemuneration received by BBVA’s BoardSenior Management in 2020

During the 2020 financial year, the members of Directors on December 20, 2018, did not receive anySenior Management, excluding executive directors, received the amount of the annual fixed remuneration corresponding to such financial year.

In addition, they received the upfront portion of the annual variable remuneration for his current role in 2018, having received fixed and variable remunerationthe 2019 financial year, which, in accordance with his previous position as President and CEO of BBVA Compass. This remuneration is subject to the settlement and payment system set out in the remuneration policy applicable for such financial year, was due to his former position. Thus,be paid to them during the 2020 financial year.

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Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among others, that the upfront portion (40% of the annual variable remuneration) will be paid in the financial year following the year to which it corresponds, in equal parts in cash and in shares, and the deferred portion (60% of the annual variable remuneration) will be deferred (40% in cash and 60% in shares) over a five-year period, with its accrual and payment being subject to compliance with a series of multi-year indicators, applying the coursesame payment schedule established for executive directors. Any shares received, including both as part of 2018, he received €2,240 thousand as annual fixed remuneration; €191 thousandthe upfront portion and 26,531 BBVA ADSsthe deferred portion, will be withheld for a one year lock-up period after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received. Likewise, members of Senior Management may not use personal hedging strategies or insurance in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management. The variable component of the remuneration for Senior Management corresponding to the Upfront Portion2019 financial year will be limited to a maximum amount of 200% of the fixed component of the total remuneration. Over the entire deferral and withholding period, the annual variable remuneration will be subject to “malus” and “clawback” arrangements.

Moreover, during the 2020 financial year, in accordance with the remuneration policy applicable to Senior Management in 2016 and in application of the settlement and payment system of the annual variable remuneration for such financial year, the members of Senior Management who were beneficiaries of such remuneration received the deferred portion of the annual variable remuneration for the 2016 financial year, after being adjusted downwards following the result of the multi-year performance indicators. This remuneration was paid in equal parts in cash and in shares, along with the corresponding update in cash, concluding the payment of this remuneration to the members of Senior Management for the 2016 financial year.

In accordance with the above, the remuneration paid during the 2020 financial year to members of the Senior Management as a whole, who held that position as of December 31, 2020 (15 members), excluding executive directors, is indicated and itemized below:

Annual Fixed Remuneration for 2020 (Thousands of Euros)

Senior Management Total

14,101

Annual Variable Remuneration for 2019

 

In cash (thousands of euros) (1)

In shares (1)  

Senior Management Total

1,402

280,055

(1) Represents remunerations corresponding to the upfront portion (40%) of the annual variable remuneration for 2017;the 2019 financial year (paid 50% in cash and €376 thousand50% in BBVA shares), as well as the upfront portion of the retention plans for two members of the Senior Management.

Deferred Annual Variable Remuneration for 2016

 

In cash  (thousands of euros) (1)

In shares (1)  

Senior Management Total

1,380

182,461

(1)   Represents remunerations corresponding to the deferred portion of annual variable remuneration for the 2016 financial year (50% of the annual variable remuneration for 2016 in equal parts in cash and in shares), payment of which was due during the 2020 financial year, together with its corresponding update in cash, and after its downward adjustment following the result of the multi-year performance indicators.

In addition, all of the members of Senior Management, excluding executive directors, received remuneration in kind which includes certain benefits for his expatriate statusduring the 2020 financial year, including insurance premiums and others, amounting to a total of €1,086 thousand.

Remuneration to be received by executive directors in the United States. In each case, cash remuneration was paid in U.S. dollars.2021 and subsequent financial years

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Annual variable remuneration for executive directors for 20182020

In view of the exceptional circumstances arising from the COVID-19 crisis, the executive directors have voluntarily waived their annual variable remuneration corresponding to the 2020 financial year, so they will not accrue any remuneration in this respect.

Following year-end, the180


Deferred annual variable remuneration for executive directors for 2018 was determined, applying2017

Following the conditions established at the beginningend of the 2020 financial year, as set forth in the Directors’ Remuneration Policy approved by the general shareholders’ meeting on March 17, 2017. This remuneration has the following settlement and payment schedule:

·The Upfront Portion (40%) of the annual variable remuneration of the executive directors for 2018 is to be paid, if conditions are met, in equal parts in cash and shares. These amounts to €479 thousand and 100,436 BBVA shares in the case of Carlos Torres Vila; and €79 thousand and 16,641 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo.

·The Deferred Portion (60%) is deferred for a five-year period, subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of 2018, calculated over the first three-year deferral period. Provided that the relevant conditions are met, the resulting amount will vest (40% in cash and 60% in shares), under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and the remaining 20% after the fifth year of deferral. In accordance with the aforementioned, the maximum amount corresponding to the total deferred component that could be received by executive directors is as follows: €574 thousand and 180,785 BBVA shares in the case of Carlos Torres Vila and €95 thousand and 29,954 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo. All the above is subject to the settlement and payment system conditions set out in the Directors’ Remuneration Policy, which includes “malus” and “clawback” arrangements and lock-up periods for the shares.

As regards former Group Executive Chairman, Francisco González Rodríguez, his annual variable remuneration for 2018 was determined. This annual variable remuneration for 2018 is to be paid, if applicable conditions are met, in accordance with the settlement and payment system applicable to executive directors which includes deferral rules, “malus” and “clawback” arrangements and lock-up periods for the shares. Thus, the Upfront Portion (40%) was determined to amount to €528 thousand and 110,814 BBVA shares. Accrual and paymentportion of the Deferred Portion (60%), 40% in cash and 60% in shares, will be subject to compliance with multi-year performance indicators approved by the Board of Directors. In accordance with the aforementioned, the maximum amount corresponding to the total deferred component that could be received by Francisco González Rodríguez is €634 thousand and 199,468 BBVA shares.

As regards CEO Onur Genç and as aforementioned, his annual variable remuneration for 2018 is linked to his previous position as President and CEO of BBVA Compass and has been determined in accordance with the settlement and payment system applicable for such position. Thus, if applicable conditions are met, 40% of the annual variable remuneration for 2018 is to be paid, amounting to a total of €196 thousand (to be paid in U.S. dollars) and 41,267 BBVA shares. Accrual and payment of the remaining 60% of the annual variable remuneration for 2018, 50% in cash and 50% in shares, will be deferred for a three-year period and will be subject to compliance with multi-year performance indicators set by the Board of Directors for the whole Identified Staff at the beginning of 2018 and measured over the course of the three-year period.

Deferred annual variable remuneration of executive directors for 2015

Following year-end, the deferred annual variable remuneration of executive directors for 20152017 financial year was determined, with delivery to occur,vesting, if applicable conditions are met, subjectduring 2021, in accordance with the conditions set out in the remuneration policies applicable to the conditions established for this purpose in the Remuneration Policy for BBVA Directors approved by the general shareholders’ meeting on March 13, 2015.2017 financial year and applicable to each executive director.

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Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 20152017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the annual variable remuneration for 2015 was adjusted downwards in light of the result of the total shareholder return (TSR) indicator, which scale led to a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the annual variable remuneration for 2015, after the corresponding adjustment in light of the2017 financial year was determined.

As a result, of the TSR indicator,such remuneration was determined in an amount of €612€411 thousand and 79,15783,692 BBVA shares, in the case of Carlos Torres Vila,the Group Executive Chairman, and €113€307 thousand and 14,66739,796 BBVA shares, in the case of José Manuel González-Páramo Martínez-Murillo, which includesthe Chief Executive Officer, including in both cases the corresponding update.updates.

As regards the former Group Executive Chairman, Francisco González Rodríguez, his deferred annual variable remuneration for 2015 was determined to amount to a total of €1,035 thousand and 133,947 BBVA shares, which includes the corresponding update, to be received, if applicable conditions are met, in accordance with the settlement and payment system applicable to executive directors.

Last,At year-end 2020, in accordance with the conditions established in the remuneration policies applicable toin previous years, the corresponding years, 50% and 60% of the annual variable remuneration of the executive directors for 2016 and 2017, respectively, was deferred,following amounts continued to be received in future years,deferred and were pending determination and payment, if the applicable conditions are met.

The remaining rules applicable to the settlement and payment of 2018 annual variable remuneration have been detailed under the subheading “—Directors’ Remuneration Policy” above.

Remuneration for Senior Management received in 2018

The members of Senior Management, excluding executive directors, who held their positions when the Bank approved organizational changes on December 20, 2018 (15 members) have, over the course of 2018, received the amountmet: (i) 40% of the fixed remuneration for 2018 and the annual variable remuneration for 2017, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to Senior Management in 2017, was paid during the first quarter of 2018.

In application of this settlement and payment system:

·The Upfront Portion (40%) of the annual variable remuneration due to members of the Senior Management for 2017 was paid, as the conditions had been met, in the first quarter of 2018, 50% in cash and 50% in shares.

·The Deferred Portion (60%) of the annual variable remuneration, in both cash and shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators. The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event may the Deferred Portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following payment schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023.

·The shares received as annual variable remuneration will be withheld for a period of one year after their delivery, with the exception of those transferred to honor the payment of taxes arising from their delivery.

·The deferred portion of the annual variable remuneration in cash will be subject to updating underfor the terms established by the Board of Directors.

·No personal hedging strategies or insurance may be used in connection with the remuneration and/or responsibility if such personal hedging strategies or insurance may undermine the relevant person’s incentives to align with prudent risk management.

·The variable component2017 financial year of the remuneration corresponding to 2017 will be limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting.

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·Over the entire deferralGroup Executive Chairman, and withholding period, the total annual variable remuneration will be subject to variable “malus” and “clawback” arrangements.

Similarly, in application of the settlement and payment system(ii) 60% of the annual variable remuneration for 2014, pursuant to the remuneration policy applicable at that time, the Senior Management who were beneficiaries2018 and 2019 financial years of such remuneration, have received the last third of the deferred annual variable remuneration for that year, which delivery occurred in the first quarter of 2018, thus concluding payment of the deferred variable remuneration for 2014.both executive directors.

In accordance with the above, the remuneration paid to members of the Senior Management as a whole, who held that position as at December 20, 2018, excluding executive directors, during 2018 is indicated below and itemized:

Annual fixed remuneration (thousands of euro) received in 2018

Senior Management total

16,129

Annual variable remuneration for 2017, received in 2018

 

In cash (thousands of euro)

In shares  

Senior Management total

1,489

205,104

Deferred variable remuneration for 2014, received in 2018

 

In cash  (thousands of euro)

In shares  

Senior Management total  

573

64,853

In addition, during 2018, all members of Senior Management who held that position as at December 20, 2018, excluding executive directors, received remuneration in kind, including insurance premiums and others, amounting to an aggregate of €875 thousand.

In accordance with the conditions established in the remuneration policies applicable to the corresponding year, components of the annual variable remuneration of members of the Senior Management who are entitled to remuneration in connection with 2016 and 2017, were deferred at year-end,Remuneration to be received in future years, if applicable conditions are met.

The members of theby Senior Management who were appointed by BBVA’s Board of Directors on December 20, 2018 (five members) have not received any remuneration in 2018 for their current roles, having received fixed2021 and variable remuneration for their former roles amounting to an aggregate of €1,757 thousand as annual fixed remuneration; €337 thousand and 24,293 BBVA shares for the Upfront Portion of the annual variable remuneration for 2017; and €33 thousand and 3,684 BBVA shares for the deferred last third of the annual variable remuneration for 2014 corresponding to the members of the Senior Management who were beneficiaries of such remuneration, including the corresponding update, as well as remuneration in kind and others for an amount of €158 thousand, all in application of the remuneration policy to which they were entitled in their condition as members of the Identified Staff.subsequent financial years

Annual variable remuneration for Senior Management for 20182020

Following year-end,In view of the annual variable remuneration for 2018exceptional circumstances arising from the COVID-19 crisis, the members of Senior Management excludinghave, like the executive directors, who held that position as at December 20, 2018 (15 members), was determined.

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The 2018 annual variable remuneration to all of the Senior Management, excluding executive directors, was determined to total €7,074 thousand, in application of the settlement and payment system for this group. The Upfront Portion (40%) of the annual variable remuneration is to be paid, in 50% cash and 50% shares, if applicable conditions are met. The Deferred Portion (60%) of the annual variable remuneration (40% in cash and 60% in shares) will be subject to compliance with a series of multi-year indicators and to the rest of the settlement and payment system conditions set out in the remuneration policy applicable to Senior Management, which includes “malus” and “clawback” arrangements and lock-up periods for the shares.

As regards those members of the Senior Management who were appointed by resolution of BBVA’s Board of Directors on December 20, 2018 (five members),voluntarily waived their annual variable remuneration for 2018 was calculated in line with their former roles, amounting to an aggregate of €633 thousand, being subjectcorresponding to the conditions set out2020 financial year, so they will not accrue any remuneration in the remuneration policy to which they were entitled in their condition as members of the Identified Staff.this respect.

Deferred annual variable remuneration of Senior Management for 2015financial year 2017

Following year-end,the end of the 2020 financial year, the deferred portion of the annual variable remuneration for 2015 of Senior Management (15 members as of December 31, 2020, excluding executive directors, who held that position as at December 20, 2018 (15 members),directors) for the 2017 financial year was determined.determined, with vesting, if conditions are met, taking place during the 2021 financial year, subject to the conditions established for this purpose in the applicable remuneration policy.

BasedThus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 20152017 to calculate the deferred portion of this remuneration, and in application of the correspondingrelevant scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the annual variable remuneration for 2015 was adjusted downwards in light of the TSR indicator, which scale led to a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the annual variable remuneration for 2015members of Senior Management for the 2017 financial year was determined. The aggregate total amount for the Senior Management, excluding executive directors, was determined to be paid€610 thousand and 107,740 BBVA shares, including the corresponding updates.

At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, the following amounts continued to Senior Management beneficiaries of such remuneration,be deferred and were pending determination and payment, if the applicable conditions are met, after the corresponding adjustment in lightmet: (i) 40% of the resultdeferred portion of the TSR indicator, has been determined in an amount of €2,936 thousand and 382,407 BBVA shares, which includesannual variable remuneration for the corresponding update.

As regards those2017 financial year with respect to certain members of the Senior Management, who were appointed by resolutionand (ii) 60% of BBVA’s Board of Directors on December 20, 2018 (five members) who were entitled to such deferred remuneration, their the annual variable remuneration for 2015 was calculated in line with their former positionsthe 2018 and functions, amounting to an aggregate of €110 thousand and 14,203 BBVA shares, which includes the corresponding update, all in application of the remuneration policy to which they were entitled in their condition as members of the Identified Staff.2019 financial years.

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RemunerationFixed remuneration system in shares with deferred delivery for non-executive directors

BBVA has a fixed remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the general shareholders’ meeting held on March 18, 2006 and extended by resolutions of the general shareholders’ meetings held on March 11, 2011 and on March 11, 2016, respectively, for a further five-year period in each case.

This system is based on the annual allocation to non-executive directors of a number of “theoretical shares”, equivalent to 20% of the total remuneration in cash received by each director in the previous year, calculated according to the average closing prices of BBVA shares during the sixty trading sessions prior to the annual general shareholders’ meetings approving the corresponding financial statements for each financial year.

These shares will vest, where applicable, to each beneficiary after they leave directorship for any reason other than serious breach of their duties.

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The number of “theoretical shares” allocated in 2018during the 2020 financial year to each non-executive director beneficiary of the remuneration system in shares“theoretical shares” with deferred delivery, corresponding to 20% of the total remuneration received in cash by saidsuch directors in 2017,during the 2019 financial year, was as follows:

Theoretical shares allocated in 2018

Theoretical shares accumulated as of December 31, 2018

Theoretical shares allocated in 2020

Theoretical shares accumulated as of December 31, 2020

Tomás Alfaro Drake

10,367

83,449

José Miguel Andrés Torrecillas

12,755

36,565

20,252

75,912

Jaime Caruana Lacorte

22,067

31,387

Raúl Galamba de Oliveira

-

-

Belén Garijo López

7,865

34,641

14,598

62,126

Sunir Kumar Kapoor

4,811

8,976

7,189

22,915

Carlos Loring Martínez de Irujo

11,985

98,876

Lourdes Máiz Carro

7,454

23,160

10,609

44,929

José Maldonado Ramos

11,176

78,995

14,245

108,568

Ana Peralta Moreno

10,041

15,665

Juan Pi Llorens

11,562

54,171

20,676

92,817

Ana Revenga Shanklin

-

-

Susana Rodríguez Vidarte

12,425

104,983

18,724

141,138

Carlos Salazar Lomelín

-

-

Jan Verplancke

7,189

12,392

Total (1)

90,400

523,816

145,590

607,849

(1)  In addition, in 2018, 10,188Furthermore, 8,984 “theoretical shares” were allocatedassigned to José Antonio Fernández Rivero,Tomás Alfaro Drake and 18,655 “theoretical shares” were assigned to Carlos Loring Martínez de Irujo, who ceasedleft their roles as a directordirectors on March 16, 2018.13, 2020. After leaving their roles, both directors received a number of BBVA shares equivalent to the total number of “theoretical shares” that each of them had accumulated until that date (102,571 and 135,046 BBVA shares, respectively) by application of the system.

Pension commitments with directors and Senior Management

At year-end, theThe Bank has undertakendoes not have pension commitments in favor of executive directors Carlos Torres Vila and José Manuel González-Páramo Martínez-Murillo to cover contingencies for retirement, disability and death, in accordance with the Bylaws, the Remuneration Policy for BBVA Directors and their respective contracts entered into with the Bank.non-executive directors.

With regard to Carlos Torres Vila,the Group Executive Chairman, the Directors’ Remuneration Policy provides forestablishes a benefitspension framework according to whichwhereby he is entitled,eligible, provided that he does not leave his position due toas a result of a serious breach of duties, to receive a retirement pension, paid as a lump sum or in installments, when he reaches the legally established retirement age, as a lump sum or as income.age. The amount of this pension shall result from the funds accumulatedwill be determined by the Bank up to December 2016 to cover the commitments under his previous benefits scheme and the sum of the annual contributions made by the Bank, from January 1, 2017together with their corresponding accumulated yields as of that date.

The annual contribution to cover said pension,the retirement contingency for the Group Executive Chairman’s defined-contribution system, as well as the corresponding accumulated yields.

The amount set outestablished in the Directors’ Remuneration Policy, was determined as a result of the conversion of his previous defined-benefit system into a defined-contribution system, in the annual contribution to cover retirement benefitamount of €1,642 thousand. The Board of Directors may update this amount during the term of the Directors’ Remuneration Policy, in the same way and under the defined-contribution scheme for Carlos Torres Vila is €1,642 thousand.same terms as it may update the annual fixed remuneration.

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15% of the aforementioned agreed annual contribution 15% will be based on variable components and considered “discretionary pension benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance withregulations.

In the Directors’ Remuneration Policy.

Shouldevent the contractual relationship be terminatedGroup Executive Chairman’s contract terminates before he reaches thereaching retirement age for reasons other than serious breach of duties, the retirement benefitpension due to Carlos Torres Vila when he reachesthe Group Executive Chairman upon reaching the legally established retirement age will be calculated based on the totalfunds accumulated through the contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event from the time of termination.

With respect to the commitments to cover the contingencies for death and disability for Carlos Torres Vila, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up coveragebenefits for the death and disability contingencies included in his benefits scheme.

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During 2018, in line with the foregoing, €1,896 thousand was recorded to meet the benefits commitments for Carlos Torres Vila, amount which includes the contribution relating to retirement (€1,642 thousand) and to death and disability (€212 thousand), as well as €42 thousand corresponding to the adjustments made to the amount of “discretionary pension benefits” for 2017, as declared at 2017 year-end and which had to be registered in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Carlos Torres Vila amounted to €18,581 thousand as at December 31, 2018.

Of the agreed annual contribution to his retirement, 15% (€246 thousand) was registered in 2018 as “discretionary pension benefits”. Following year-end, this amount was adjusted according to the criteria established to determine Carlos Torres Vila’s annual variable remuneration for 2018. Accordingly, the “discretionary pension benefits” for 2018 amounted to €245 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Portion of his annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

In the case of José Manuel González-Páramo Martínez-Murillo, the pension scheme provided for in the Directors’ Remuneration Policy establishes an annual contribution of 30% of his annual fixed remuneration, to cover the contingency of his retirement, as well as the payment of the corresponding insurance premiums in order to top up the coverage of the death and disability contingencies.

Of the aforementioned agreed annual contribution, 15% will be based on variable components and be considered “discretionary pension benefits”, therefore subject to the conditions of delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions of variable remuneration that may be applicable in accordance with the Directors’ Remuneration Policy.

José Manuel González-Páramo Martínez-Murillo, upon reaching retirement age, will be entitled to receive, as a lump sum or as income, the benefits arising from contributions made by the Bank to cover pension commitments, plus the corresponding yield accumulated up to that date, provided he does not leave his position due to serious breach of duties. In the event that he voluntarily terminates his employment relationship with the Bank before retirement, the benefits will be limited to 50% of the contributions made by the Bank up to that date, as well as the corresponding accumulated yield, with no additional contributions to be made by the Bank upon termination.

With respect to the commitments to cover the contingencies for death and disability for José Manuel González-Páramo Martínez-Murillo,Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage for the death and disability contingencies of his pension system.these contingencies.

In line with the above, during 2018, €405 thousand wasthe 2020 financial year, the following amounts were recorded to meet the benefitspension commitments for José Manuel González-Páramo Martínez-Murillo, which amount includes both the contribution relatingGroup Executive Chairman: €1,642 thousand with regard to the retirement (€250 thousand)contingency and €377 thousand for the payment of premiums for the death and disability (€147 thousand),contingencies, as well as €8the upwards adjustment of €15 thousand corresponding to the adjustments made to the amount offor “discretionary pension benefits” for 2017, asthe 2019 financial year, which were declared at 2017 year-endthe end of the 2019 financial year and which had to be registered in the accumulated fund in 2018. the 2020 financial year.

As a result,of December 31, 2020, the total accumulated amount of the fund to meet the retirement commitments with José Manuel González-Páramofor the Group Executive Chairman amounted to €1,067 thousand as at December 31, 2018.€23,057 thousand.

OfWith regard to the agreed annual contribution to the retirement contingency corresponding to the 2020 financial year, 15% (€38246 thousand) was registered in 2018that financial year as “discretionary pension benefits”. Following year-end,the end of the 2020 financial year, this amount was adjusted according toapplying the same criteria establishedused to determine José Manuel González-Páramo Martínez-Murillo’sthe annual variable remuneration for 2018. Accordingly,the rest of the Bank’s staff. Thus, the “discretionary pension benefits” for the 2020 financial year amounted to €42were determined in an amount of €148 thousand, whichfollowing a downwards adjustment of €98 thousand. These “discretionary pension benefits” will be included in the accumulated fund for 2019,the 2021 financial year and will be subject to the same conditions as the Deferred Portion of his annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the Directors’ Remuneration Policy.

AsWith regard to the Chief Executive Officer, in accordance with the provisions of December 31, 2018 therethe current Directors’ Remuneration Policy and his contract, the Bank is not required to make any contributions to a retirement pension, although he is entitled to an annual cash sum instead of a retirement pension equal to 30% of his annual fixed remuneration. However, the Bank does have pension commitments to cover the death and disability contingencies, for which purpose the corresponding annual insurance premiums will be paid.

In accordance with the above, in the 2020 financial year the Bank paid the Chief Executive Officer the amount of fixed remuneration as cash in lieu of pension set out under “—Remuneration received by executive directors in 2020”. Furthermore, €253 thousand was recorded for the payment of the annual insurance premiums to cover the death and disability contingencies.

In the case of the former Head of GE&PA, as a former executive director, €89 thousand were no otherregistered as contributions to fulfil the pension commitments undertaken in favorproportion to the time he spent in office during the 2020 financial year. This corresponds to: (i) the sum of otherthe annual contribution made to cover the retirement pension commitment and the adjustment made to the “discretionary pension benefits” for the 2019 financial year that became due in the 2020 financial year once the annual variable remuneration for the year 2019 had been determined (€52 thousand); and to the death and disability premiums (€37 thousand).

As of the date on which he left his position, the total accumulated fund to meet the retirement commitments for such former executive directors.director amounted to €1,404 thousand, with no additional contributions to be made by the Bank from that point on.

“Discretionary pension benefits” for the 2020 financial year for such former executive director (which were calculated in proportion to the time he remained in office in 2020) were determined in accordance with the same criteria used for the Group Executive Chairman, in an amount of €5 thousand, following a downwards adjustment of €3 thousand, and will be included in the accumulated fund for the 2021 financial year subject to the conditions established in the Remuneration Policy for BBVA Directors.

220183


During 2018, €4,754 thousand was recordedFurthermore, in the 2020 financial year, to meet the benefitspension commitments undertaken withfor members of the Senior Management (15 members as of December 31, 2020, excluding executive directors, who held their positions as at December 20, 2018 (15 members)directors), which amount includes the contribution relating to retirement (€3,883 thousand) and to death and disability (€831 thousand), as well as €40following amounts were recorded: €2,739 thousand corresponding to the adjustments madecontribution to the amountretirement contingency and €978 thousand corresponding to premiums to cover the death and disability contingencies, as well as the upwards adjustment of €12 thousand for “discretionary pension benefits” for 2017, asthe 2019 financial year, which were declared at 20172019 year-end and which had to be registered in the accumulated fund in 2018. As a result,2020.

At December 31, 2020, the total accumulated amount of the fund to meet the retirement commitments withfor members of Senior Management amounted to €57,429 thousand as at December 31, 2018.€22,156 thousand.

Of15% of the agreed annual contributions for members of the Senior Management who held that position as at December 20, 2018, 15%to cover retirement contingencies will be based on variable components and considered “discretionary pension benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of the Senior Management.

OfAccordingly, with regard to the agreed annual contribution tofor the retirement contingency registered in the 2020 financial year, an amount of €571€405 thousand was registered in 2018 as “discretionary pension benefits”. Following year-end, during the 2020 financial year, and following the end of the 2020 financial year, this amount was adjusted according toapplying the same criteria establishedused to determine the annual variable remuneration for the rest of the Senior ManagementBank's staff, in the same way as for 2018. the Group Executive Chairman, but taking into account, as well, the area and individual results of each senior manager established to these effects.

Accordingly, the “discretionary pension benefits” for the year, corresponding to members of the Senior Management who held that position as at December 20, 2018, amounted to €555for the 2020 financial year were determined in an amount of €255 thousand, following a downwards adjustment of €150 thousand, which will be included in the accumulated fund for 2019,the 2021 financial year, subject to the same conditions as the Deferred Portion of the annual variable remuneration for 2018, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

During 2018, €146 thousand was recorded to meet the benefits commitments undertakenManagement, in accordance with the members of the Senior Management, excluding executive directors, who were appointed by BBVA’s Board of Directorsregulations applicable to BBVA on December 20, 2018 (five members), pursuant to the commitments made by the Bank with each of them in relation to their previous positions and functions, with such amount including both the contribution to retirement (€97 thousand) as well as to death and disability (€49 thousand), with the fund accumulated to meet retirement commitments for this group amounting to a total of €1,713 thousand.matter.

Extinction of contractual relationship

In accordance with the Directors’ Remuneration Policy, the Bank has no commitments to pay severance indemnitybenefits to any executive directors.

The contractual framework defined for the executive directors, in accordance with the Directors’ Remuneration Policy, for Carlos Torres Vila and for the executive director José Manuel González-Páramo Martínez-Murillo, includesestablishes a post-contractual non-compete agreementclause, effective for a period of two (2) years after they ceaseleave their role as BBVA executive directors, in accordance with whichprovided that they will receive remuneration fromdo not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the Bank forshall award them remuneration of an amount equivalent to onetheir annual fixed remuneration for each year of duration of the non-compete arrangement,agreement, which shallwill be paid periodicallyawarded monthly over the course of the two years,years.

Accordingly, the former Head of GE&PA, who left his role on March 13, 2020, received for this concept, €625 thousand during the 2020 financial year.

With regard to Senior Management, excluding executive directors, during the 2020 financial year, the Bank paid out a total of €2,185 thousand resulting from the extinction of the contractual relationship with one member of the Senior Management and in fulfilment of the provisions of such member’s contract (for the payment of legal severance benefits and notice). Such former member’s contract includes the right to receive the corresponding legal severance pay, provided that theythe member of Senior Management does not leave their positionsof his own will, for retirement, disability or due to a serious breach of duties, which will be calculated in accordance with the provisions of applicable labor regulations. Such contract also includes a notice clause. In addition, the contract establishes a non-compete clause, effective for a period of one (1) year after the member leaves the role as executive directors for reasons other thana senior manager of BBVA, provided that the member does not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the member of Senior Management received a total of €898 thousand during 2020.

These payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which members of Senior Management belong.

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C.    Board Practices

Committees

Our corporate governance system is based on the distribution of functions between the Board, the Executive Committee and the following other specialized Board Committees: the Audit and Compliance Committee; the Appointments and Corporate Governance Committee; the RemunerationRemunerations Committee; the Risk and Compliance Committee; and the Technology and Cybersecurity Committee.

Additional information on our Board Committees, including their current composition, is provided below.in the following sections.

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Executive Committee

Our Board of Directors is assisted in fulfilling its responsibilities by the Executive Committee (Comisión Delegada Permanente) of the Board of Directors.

As of the date of this Annual Report, BBVA’s Executive Committee is comprised of two executive directors, two external directors and four non-executive directors,two independent director, who are the following:

Position (type of directorship)

Name

Chairman (Executive)

Mr. Carlos Torres Vila

MembersMember (Executive)

Mr. Onur Genç

Member (Independent)

Mr. José Miguel Andrés Torrecillas

Member (Independent)

Mr. Jaime Félix Caruana Lacorte

Mr. Carlos Loring Martínez de IrujoMember (External)

Mr. José Maldonado Ramos

Member (External)

Mrs. Susana Rodríguez Vidarte

According to our Boardthe Regulations of the Executive Committee, the Executive Committee will be apprised of such business asdeal with matters delegated to it by the Board of Directors resolvesand, in particular, will have the following functions, among others:

Support functions to conferthe Board of Directors in its decision-making:

·On strategy: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors in relation to the Bank’s Strategic Plan or other strategic decisions, including the Risk Appetite Framework; (ii) prior analysis of the strategic and financial aspects of the proposals submitted to the Board of Directors in relation to corporate transactions corresponding to its decision-making powers, in respect of which it will submit its report to the Board, accompanied, where necessary, by reports from the other Board committees on those matters within their respective remits.

·On budgets: (i) prior analysis of the proposals submitted to the Board of Directors in relation to the Bank’s budgets; (ii) adoption of the corresponding decisions for the implementation of the budget approved by the Board of Directors; (iii) analysis of deviations from the approved budget and, where appropriate, reporting such to the Board of Directors.

·On finances: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors relating to the Bank’s funding plan, its capital and liquidity structure, and its dividends policy; (ii) adoption of implementation decisions of mandates expressly conferred on it by the Board of Directors in these fields.

·Analysis of matters relating to business risk in the proposals and plans submitted to the Board of Directors.

·Analysis, assessment and management of matters relating to reputational risk.

Functions of prior reporting on policies submitted to the Board of Directors and approval of general Group and Company policies:

·Analyze, prior to their consideration by the Board of Directors, the general Group and Company policies that, in accordance with prevailing legislation, our Bylawsthe law or ourinternal regulations, must be approved by the Board Regulations.of Directors, except for policies relating to issues within other Board committees’ remit, which will be approved or reported to the Board beforehand by the corresponding committee.

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Monitoring and control functions:

·The Committee will perform monitoring and control functions regarding the following matters, among others: (i) the Group’s activity and results; (ii) budget monitoring; (iii) progress of the Strategic Plan, through the key performance indicators established for this purpose; (iv) monitoring of the Group’s liquidity and funding plan and capital situation, as well as of the activity of the Assets and Liabilities Committee; (v) analysis of the markets in which the Group carries out its activities; (vi) progress of the projects and investments agreed upon within its remit.

Decision-making powers over the following issues, among others:

·Investments and divestments exceeding €50 million and not reaching €400 million, unless they are of a strategic nature due to their particular characteristics, in which case the decision will correspond to the Board of Directors.

·Plans and projects that are considered of importance to the Group and that arise from its activities, when they do not fall within the remit of the Board of Directors.

·The granting and revoking of the Bank’s powers of attorney.

·Proposals for the appointment and replacement of directors in the Bank’s subsidiaries or investee companies with more than €50 million in own funds.

The Executive Committee shallwill meet onwhenever it is convened by its Chair, who is empowered to call the dates indicated in theCommittee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of scheduled meetings, and whenconsidering the chairman or acting chairman so decides.amount of time to be devoted to its different tasks. During 2018,2020, the Executive Committee met nineteen (19)thirty (30) times.

Audit and Compliance Committee

The Audit and Compliance Committee shall perform the duties required under applicable laws,law, Board regulations, our Bylaws and our Bylaws.its specific Regulations. Essentially, its mission is to assist the Board in overseeing the preparation of the financial statements and public information, and the exercise ofrelationship with the Group control duties.external auditor and the Internal Audit function.

The Board Regulations establish that the Audit and Compliance Committee shall havewill be composed of a minimum of four members, one of which shalldirectors to be appointed by the Board of Directors, which will also appoint its Chair, who will be replaced every four years and may be re-elected one year after ceasing to hold the position. The Audit Committee will be composed exclusively of independent directors. The Board of Directors will endeavor to ensure that the members of the Committee have the knowledge and experience appropriate to the duties they are called upon to perform. In any event, at least one member will be appointed taking into account his/his or her knowledge and backgroundexperience in accounting, auditing or both. In accordance with the Board Regulation, they shall all be independent directors, one of whom shall act as Chairman, also appointed by the Board. See “Item 16.A. Audit Committee Financial Expert”.  

As of the date of this Annual Report, the Audit and Compliance Committee is comprised of five independent directors, who are the following:

Position (type of directorship)

Name

Chairman (Independent)

Mr. Jaime Félix Caruana Lacorte

Member (Independent)

Mr. José Miguel Andrés Torrecillas

MembersMember (Independent)

Mrs. Belén Garijo López

Member (Independent)

Mrs. Lourdes Máiz Carro

Member (Independent)

Mrs. Ana Cristina Peralta Moreno

Mr. Juan Pi Llorens

Under the Board

According to its Regulations, and the charter of the Audit and Compliance Committee has the scope of its functions is as follows (for purposes of the below, “entity” refers to BBVA):following functions:

·        report toInform the general shareholders’ meeting on the questions raised with respectin relation to thosethe matters fallingthat are within the Committee’s competenceremit of the Committee and, in particular, on the result of the audit, explaining how itthe audit has contributed to the completenessintegrity of the financial information and the function performed by the Committee in this process;

·        oversee the efficacy of the internal control of the Company, the internal audit and the risk-management systems inOversee the process of drawing uppreparing and reporting financial information and submit recommendations or proposals to the regulatoryBoard of Directors aimed at safeguarding the integrity thereof.

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·Likewise, analyze, prior to their submission to the Board of Directors and in enough detail to guarantee their accuracy, reliability, sufficiency and clarity, the financial statements of the Bank and of its consolidated Group contained in the annual, six-monthly and quarterly reports, as well as in all other required financial and related non-financial information.

·Additionally, the Committee shall review the necessary consolidation perimeter, the correct application of accounting criteria, and all the relevant changes relating to the accounting principles used and to the presentation of the financial statements.

·Oversee the effectiveness of the Company’s internal control and risk management systems, in terms of the process of preparing and reporting financial information, including tax risks. Also tofiscal risks, and discuss with the financial auditor any significant weaknesses in the internal control system detected whenduring the audit, is conducted without undermining its independence. For such purposes, and where appropriate, the Committee may submit recommendations or proposals to the Board of Directors, andalong with the corresponding perioddeadline for monitoring;their follow-up;

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·        overseeWith regard to the processInternal Audit function:

a)Propose to the Board of drawing upDirectors the selection, appointment, re-election and reporting financial informationremoval of the head of the Internal Audit function, based on candidates from within the executive level pre-selected by the Talent & Culture area.

b)Monitor the independence, effectiveness and submit recommendationsoperation of the Internal Audit function.

c)Analyze and establish objectives for the head of the Internal Audit function and assess his or her performance, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors aimed at safeguardingDirectors.

d)Ensure that the Internal Audit function has the necessary material and human resources for the effective performance of its completeness;functions, in terms of personnel, as well as material elements, systems, procedures and operation manuals.

e)Analyze and, where appropriate, approve the annual work plan for the Internal Audit function, as well as any other occasional or specific plans to be implemented as a result of regulatory changes or as required for the organization of the Group’s business.

·        submitReceive monthly information from the head of the Internal Audit function regarding the activities carried out by the Internal Audit function, as well as regarding any incidents and obstacles that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports.

·Be apprised of the audited units’ degree of compliance with corrective measures previously recommended by Internal Audit, and report to the Board on those cases that may involve a significant risk for the Group.

·Submit to the Board of Directors proposals onfor the selection, appointment, re-election and replacement of the external auditor, taking responsibility for the selection process in accordance with applicable regulations, as well as their contractualthe hiring conditions of the external auditor, and regularly collectto periodically obtain information from the external auditor regardingon the external audit plan and its implementation, as well asexecution, in addition to preserving the auditor’sits independence in the performance of their duties;its functions;

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·Ensure the independence of the auditor in two senses: (i) avoiding that the auditor’s warnings, opinions or recommendations may be adversely influenced. To this end, ensuring that compensation for the auditor’s work does not compromise either its quality or independence, in compliance with the auditing legislation in force at any given moment; (ii) establishing incompatibility between the provision of audit and consulting services, unless they are tasks required by supervisors or the provision of which by the auditor is permitted by applicable legislation, and there are no alternatives on the market that are equal in terms of content, quality or efficiency to those provided by the auditor, in which case, conformity of the Committee will be required, and this decision may be delegated in advance to its Chair.

·        establish correctEstablish appropriate relations with the external auditor in order to receive information on any matters that may jeopardize their independence for examination by the Committee, and any others relating toother matters in connection with the auditing process, of the financial auditing; as well as those other communications provided for by law and byin auditing standards. In any event, the auditing regulations. Each year itCommittee must unfailingly receive from the external auditors’ declarationauditors, on an annual basis, a statement of their independence with regard to the Company or entities directly or indirectly related toassociated with it, as well as detailed and individualized information on additional services provided of any kind provided and the corresponding fees received by the external auditor or by persons or entities linked to themassociated with the external auditor, as provided for under the legislation on financial auditing;in auditing legislation;

·        Where appropriate, authorize the provision of additional services other than prohibited services, by the auditor or associated persons or entities, the performance of which is required by applicable regulations in each yearcase, under the terms provided for in auditing legislation.

·Issue, on an annual basis and before the external financial auditor issues theiraudit report on the financial statements, to issueis issued, a report expressing an opinion on whether the auditor’s independence of the external financial auditor has been compromised. This report must, unfailinglyin all cases, contain thea reasoned valuationassessment of the provision of each of theand every additional servicesservice referred to in the previous subsection,preceding paragraph, considered individually and as a whole,collectively, other than the legally-requiredlegal audit, and with respectrelating to the regimeframework of independence or to the standards regulating theregulations on audit activity;

·        report,Verify, with the appropriate frequency, that the external audit program is being carried out in accordance with the contract conditions and is thereby meeting the requirements of the competent official authorities and the corporate bodies. The Committee will also periodically – at least once per year – request from the auditor an evaluation of the quality of the internal control procedures regarding the preparation and reporting of the Group’s financial information;

·Ensure that the auditor holds an annual meeting with the full Board of Directors to inform it of the work carried out and the progress of the Company’s risks and accounting situations;

·Be apprised of any infringements, situations requiring adjustments, or anomalies that may be detected during the course of the external audit, provided that these are relevant;

·Be apprised of reports, documents or communications from external supervisory bodies related to the scope of the Committee’s functions in the terms set out above. The Committee will ensure that the instructions, requirements and recommendations received from the supervisory bodies are implemented in due time and form, in order to correct any irregularities, shortfalls or inadequacies that may be detected in the inspections performed, within the scope of their functions;

·Report on all matters within its remit as provided for in the law, the Bylaws and the Regulations of the Board of Directors prior to any decisions that the Board of Directors may be required to adopt regarding such matters, and in particular on: financial information that the Company is required to publish; economic conditions and accounting impact of relevant corporate transactions and structural modifications (modificaciones estructurales); the creation or acquisition of shares in special purpose vehicles or in entities domiciled in territories considered to be tax havens; and related-party transactions;

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The Audit Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Audit Committee met thirteen (13) times.

Executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, in particular, Accounting and Internal Audit areas and, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called. In any event, the Committee will endeavor to hold private meetings with the head of Internal Audit and with the external auditor, without the attendance of other persons and at appropriate intervals.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence.

Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

Appointments and Corporate Governance Committee

The Appointments and Corporate Governance Committee assists the Board of Directors in matters relating to the selection and appointment of members of the Board of Directors; the assessment of performance; the drafting of succession plans; the Bank’s corporate governance system; and the supervision of the conduct of directors and any conflicts of interest that may affect them.

In compliance with the Board Regulations, this Committee will be composed of a minimum of three directors who must be non-executive directors appointed by the Board of Directors, which will also appoint its Chair. The Chair and the majority of its members must be independent directors.

As of the date of this Annual Report, the Appointments and Corporate Governance Committee is composed of three independent directors, including its Chair, and of two external directors, who are the following:

Position (type of directorship)

Name

Chairman (Independent)

Mr. José Miguel Andrés Torrecillas

Member (Independent)

Mrs. Belén Garijo López

Member (External)

Mr. José Maldonado Ramos

Member (Independent)

Mr. Juan Pi Llorens

Member (External)

Mrs. Susana Rodríguez Vidarte

The functions of the Appointments and Corporate Governance Committee according to its Regulations are as follows:

·Submit proposals to the Board of Directors adopting resolutions,for the appointment, re-election or removal of independent directors and report on all those matters established by law, by our Bylawsproposals for the appointment, re-election or removal of the remaining directors.

To this end, the Committee will evaluate the balance of knowledge, skills and byexperience of the Board Regulations,of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, assessing the dedication of time considered necessary to adequately carry out their duties, in view of the needs that the corporate bodies have at any given time.

The Committee will ensure that selection procedures are not implicitly biased in such a way that may entail any kind of discrimination and, in particular, on:that may hinder the selection of directors of the underrepresented gender, endeavoring that directors of said gender who display the professional profile sought are included amongst potential candidates.

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The Committee, when drafting the corresponding proposals for the appointment of directors, will take into consideration, in case they may be considered suitable, any requests that may be made by any member of the Board of Directors regarding potential candidates to fill the vacancies that have arisen;

·Submit proposals to the Board of Directors on policies on the selection and diversity of the members of the Board of Directors;

·        Establish a target for representation of the financial informationunderrepresented gender on the Board of Directors and draw up guidelines on how to reach that the Company must periodically publish;target;

·        Analyze the creationstructure, size and composition of the Board of Directors, at least once per year, when assessing its operation;

·Analyze the suitability of the members of the Board of Directors;

·Review the status of each director each year, so that this may be reflected in the Annual Corporate Governance Report;

·Report on proposals for the appointment of the Chairman of the Board and Secretary and, where appropriate, the Deputy Chair and the Deputy Secretary, as well as the Chief Executive Officer (Consejero Delegado);

·Submit to the Board of Directors proposals for the appointment, removal or acquisitionre-election of the Lead Director;

·Determine the procedure for assessing the performance of the Chairman of the Board of Directors, the Chief Executive Officer, the Board of Directors as a holdingwhole and the Board’s committees, and to oversee its implementation;

·Report on the quality and efficiency of the performance of the Board of Directors.

·Report on the performance of the Chairman of the Board of Directors and of the Chief Executive Officer, integrating for the latter the assessment made in special-purpose entitiesthis regard by the Executive Committee, for the purpose of the periodic assessment of both by the Board of Directors;

·Examine and organize the succession of the Chairman of the Board of Directors, the Chief Executive Officer and, where applicable, the Deputy Chair, in coordination with the Lead Director in the case of the Chairman of the Board and, where appropriate, submit proposals to the Board of Directors to ensure that the succession takes place in an orderly and planned manner;

·Review the Board of Directors’ policy on the selection and appointment of members of the Senior Management, and submit recommendations to the Board when applicable;

·Report on proposals for the appointment and removal of senior managers;

·Regularly review and assess the Company’s corporate governance system and, where applicable, submit proposals to the Board of Directors, for approval or entities domiciledsubsequent submission to the general shareholders’ meeting, on any amendments and updates that would contribute to its implementation and continuous improvement;

·Ensure compliance with the provisions applicable to directors contained in countriesthe Regulations of the Board of Directors or territories considered tax havens;in the applicable legislation, as well as with the rules relating to conduct on the securities markets, and inform the Board of these if it deems it necessary; and

·        related-party transactions;Report, prior to any decisions that may be made by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and the Regulations of the Appointments and Corporate Governance Committee, and in particular on situations of conflict of interest of the directors.

In the performance of its duties, the Appointments and Corporate Governance Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

In accordance with the Regulations of the Appointments and Corporate Governance Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

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Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence. Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Appointments and Corporate Governance Committee met four (4) times.

Remunerations Committee

The Remunerations Committee, in accordance with the Board of Directors Regulations, assists the Board of Directors in remuneration matters within its remit and, in particular, those relating to the remuneration of directors, senior managers and those employees whose professional activities have a significant impact on the Group’s risk profile.

Under the Board Regulations, the Committee will be composed of a minimum of three directors appointed by the Board of Directors. All the members must be non-executive directors, with a majority of independent directors, including the Chair.

As of the date of this Annual Report, the Remunerations Committee is composed of four independent directors, including its Chair, and of one external director, who are the following:

Position (type of directorship)

Name

Chairman (Independent)

Mrs. Belén Garijo López

Member (Independent)

Mrs. Lourdes Máiz Carro

Member (Independent)

Mrs. Ana Cristina Peralta Moreno

Member (External)

Mr. Carlos Salazar Lomelín

Member (Independent)

Mr. Jan Paul Marie Francis Verplancke

In accordance with the Regulations of the Remunerations Committee, the scope of the functions of the Remunerations Committee is as follows:

·Propose to the Board of Directors, for submission to the general shareholders’ meeting, the  remuneration policy for directors, and also submit its corresponding report, all in accordance with the terms established by applicable regulations at any given time;

·        Determine the remuneration of non-executive directors, as provided for in the remuneration policy for directors, submitting the corresponding proposals to the Board;

·Determine the extent and amount of the individual remunerations, rights and other economic rewards, as well as the remaining contractual conditions for executive directors, so that these can be contractually agreed, in accordance with the remuneration policy for directors, submitting the corresponding proposals to the Board of Directors;

·Determine the objectives and criteria for measuring the variable remuneration of the executive directors and assess the degree of achievement thereof, submitting the corresponding proposals to the Board of Directors, which, in the case of the Chief Executive Officer (Consejero Delegado), will take into account the assessment made by the Executive Committee and, in the case of other executive directors who may report to the Group Executive Chairman or to the Chief Executive Officer, the assessment made by these;

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·Analyze, where appropriate, the need to make ex-ante or ex-post adjustments to variable remuneration, including the application of malus or clawback arrangements for variable remuneration, submitting the corresponding proposals to the Board of Directors, prior report of the corresponding committees in each case;

·Annually submit the proposal of the annual report on the remuneration of the Bank’s directors to the Board of Directors, which will then be submitted to the annual general shareholders’ meeting, in accordance with the provisions of the applicable law;

·Propose to the Board of Directors the remuneration policy for senior managers and employees whose professional activities have a significant impact on the Group’s risk profile. Likewise, oversee its implementation, including supervision of the process for identifying such employees;

·Submit a proposal to the Board of Directors, and supervise the implementation of, the Group’s remuneration policy, which may include the policy for senior managers and the policy for employees whose professional activities have a significant impact on the Group’s risk profile, stated in the previous paragraph;

·Submit to the Board of Directors the proposals for basic contractual conditions for senior managers, including their remuneration and severance indemnity in the event of termination;

·Directly oversee the remuneration of senior managers and determine, within the framework of the remuneration model applicable to Senior Management at any given time, the objectives and criteria for measuring variable remuneration of the heads of the Regulation and Internal Control function and of the Internal Audit function, submitting the corresponding proposals to the Board of Directors, on the basis of those submitted to it in this regard by the Risk and Compliance Committee and the Audit Committee, respectively;

·Ensure observance of the remuneration policies established by the Company and review them periodically, proposing, where appropriate, any modifications deemed necessary to ensure, amongst other things, that they are adequate for the purposes of attracting and retaining the best professionals, that they contribute to the creation of long-term value and adequate control and management of risks, and that they attend to the principle of pay equity. In particular, ensure that the remuneration policies established by the Company are subject to internal, central and independent review at least once a year;

·Verify the information on the remuneration of directors and senior managers contained in the various corporate documents, including the annual report on the remuneration of directors; and

·Oversee the selection of external advisers, whose advice or support is required for the performance of their functions in remuneration matters, ensuring that any potential conflicts of interest do not impair the independence of the advice provided.

In the performance of its duties, the Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

Pursuant to the Regulations of the Remunerations Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Remunerations Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Remunerations Committee met on four (4) occasions.

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Risk and Compliance Committee

The Board’s Risk and Compliance Committee’s essential function is to assist the Board of Directors in the determination and monitoring of the Group’s risk control and management policy, including risk internal control and non-financial risks, with the exception of those related to internal financial control, which are within the Audit Committee’s remit; those related to technological risk, which are within the Technology and Cybersecurity Committee’s remit; and those related to business and reputational risk, which are within the Executive Committee’s remit. It will also assist the Board of Directors in the oversight of the Compliance functions and the implementation of a risk and compliance culture in the Group.

The Risk and Compliance Committee will consist of a minimum of three directors appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non-executive directors and the majority, including the Chair, must be independent directors. The Board of Directors will endeavor to ensure that the members of the Committee possess the appropriate knowledge, ability and experience to understand and control the risk strategy.

As of the date of this Annual Report, the Risk and Compliance Committee is composed of four independent directors, including its Chair, and of one external director, who are the following:

Position (type of directorship)

Name

Chairman (Independent)

Mr. Juan Pi Llorens

Member (Independent)

Mr. Jaime Félix Caruana Lacorte

Member (Independent)

Mr. Raúl Catarino Galamba de Oliveira

Member (Independent)

Mrs. Ana Leonor Revenga Shanklin

Member (External)

Mrs. Susana Rodríguez Vidarte

Under the Regulations of the Risk and Compliance Committee, such Committee has the following duties:

·Based on the strategic elements established by either the Board of Directors or the Executive Committee at any given time, analyze and submit to the Board proposals regarding the Group’s risk strategy, management and control, identifying in particular:

a)The Group’s risk appetite; and

b)Determination of the level of risk considered acceptable in terms of risk profile and capital at risk, broken down by the Group’s businesses and areas of activity.

The foregoing will include the Bank’s Risk Appetite Framework, the internal capital and liquidity adequacy assessment processes, which the Committee will analyze and submit to the Board of Directors, based on the strategic-financial approaches determined by both the Board of Directors and the Executive Committee;

·Address, in a manner consistent with the Risk Appetite Framework established by the Board of Directors, the control and management policies for the different risks, including financial risks, and, to the extent that they do not correspond to another Board committee, non-financial risks, as well as information and internal control systems;

·Oversee the effectiveness of the Regulation and Internal Control function (integrated by the Regulation, Supervisors and Compliance areas, as well as the Risk Internal Control and the Non-Financial Risks areas), which will hierarchically report to the Board of Directors, through the Committee, and in particular:

a)propose to the Board of Directors the appointment and removal of the head of Regulation and Internal Control function, based on candidates from within the executive level pre-selected by the Talent & Culture area;

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b)analyze and establish objectives for the head of Regulation and Internal Control function and assess his or her performance, incorporating the assessment of the Chairman of the Board regarding the Regulation and Supervisors functions, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors;

c)ensure that the Regulation and Internal Control function has the necessary material and human resources for the effective performance of its functions; and

d)analyze and, where appropriate, approve the annual work plan for the Regulation and Internal Control function, as well as its modifications, and monitor compliance thereof;

·Receive monthly information from the head of Regulation and Internal Control function regarding the activities carried out by this area, as well as regarding any incidents that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports. Notwithstanding the foregoing, the head of Regulation and Internal Control function will also report quarterly to the full Board of Directors.

The Committee will also receive periodic information, as often as appropriate, from the heads of the Compliance, Risk Internal Control and Non-Financial Risk areas, integrated in the Regulation and Internal Control function;

·Monitor the evolution of the Group’s risks and their degree of compatibility with established strategies and policies,  and with the Group’s Risk Appetite Framework, and oversee procedures, tools and risk measurement indicators established at Group level to obtain a global view of the Bank’s and the Group’s risks. Likewise, monitor compliance with prudential regulation and supervisory requirements regarding risks.

Furthermore, analyze, where appropriate, the measures envisaged to mitigate the impact of identified risks, should these materialize, to be adopted by the Executive Committee or the Board of Directors, as appropriate;

·Analyze, within its remit, the risks associated with projects that are considered strategic for the Group or with corporate transactions to be submitted to consideration by the Board of Directors or, where appropriate, to consideration by the Executive Committee and, where necessary, submit the corresponding report;

·Analyze, prior to their submission to the Board of Directors or to the Executive Committee those risk operations to be submitted to their consideration;

·Examine whether the prices of the assets and liabilities offered to customers fully take into account the Bank’s business model and risk strategy and, if not, submit a plan to the Board of Directors aimed at rectifying the situation;

·Participate in the process of establishing the remuneration policy, ascertaining that it is compatible with an adequate and effective risk management strategy and that it does not offer incentives to assume risks that exceed the level tolerated by the Bank;

·Verify that the Company and the Group have means, systems, structures and resources that are consistent with best practices that enable to implement their risk management strategy, ensuring that the Bank’s risk management mechanisms are adequate in relation thereto;

·Report, prior to any decisions that may have to be adopted by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and these Regulations;

·Ensure compliance with applicable domestic andnational or international regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to anti-trust regulations. Also tocompetition, and ensure that any requests for actioninformation or informationaction made by official authorities with competence inon these matters are dealt with in due time and in due form;an appropriate manner;

·        ensureBe informed on any breach of the applicable internal or external regulations, as well as the relevant events that the codesareas reporting to the Committee may have identified within their oversight and control functions. Likewise, the Committee shall be informed on those issues related to legal risks which may arise in the course of ethics and of internal conduct on the securities market, as they apply to Group personnel, comply with regulatory requirements and are adequate;Group’s activity;

·        especially Examine draft codes of ethics and conduct and their respective modifications prepared by the corresponding area of the Group, and issue its opinion in advance of the proposals to oversee compliance with the provisions applicable to directors contained in the Board Regulations, as well as their compliance with the applicable standards of conduct on the securities markets;

·any other duties that may have been allocated under the Board Regulations or attributedbe drawn up to the Committee by a Board of Directors resolution; and

·the Committee shall also monitor the independence of external auditors. This entails the following two duties:

·preventing any influence over the auditor’s warnings, opinions or recommendations. To this end, ensure that compensation for the auditor’s work does not compromise either its quality or independence, in compliance with current legislation on auditing at all times; andcorporate bodies;

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·        stipulating as incompatibleBe apprised of reports, documents or communications from external supervisory bodies, notwithstanding any communication made with the provision of audit and consulting services unless they are works required by supervisors or whose provision by the auditor is allowed by applicable legislation, and there are not available in the market alternatives as regards content, quality or efficiency of equal valueremaining committees with regard to those which the auditor could provide; in this case approval by the Committee shall be required, but this decision can be delegated in advance to its Chairman. The auditor shall be prohibited from providing prohibited services outside the audit, in compliance with what is set out at all times by audit legislation.

The Committee leads the selection process of the external auditor for the Bank and its Group. It musttheir respective remits. Likewise, verify that the audit schedule is being carried outinstructions, requirements and recommendations received from the supervisory bodies in order to correct the irregularities, shortfalls or inadequacies identified in the inspections performed are fulfilled in due time and appropriate manner.

·Ensure the promotion of risk culture across the Group;

·Supervise the Group’s criminal risk prevention model; and

·Review and supervise the systems under which Group professionals may confidentially report any possible irregularities in the service agreement and that it satisfiesfield of financial information or other matters.

Pursuant to the requirementsRegulations of the competent authorities and the Bank’s governing bodies. The Committee will also require the auditors, at least once each year, to assess the quality of the Group’s internal oversight procedures.

The AuditRisk and Compliance Committee, meets as often as necessary to comply with its functions, although an annual calendar of meetings will be drawn up in accordance with its duties. During 2018,executives responsible for the Audit and Compliance Committee met twelve (12) times.

Executives heading areas that manage matters within the scope of its competence, especially the Accounting, Internal Audit and Compliance departments,Committee’s remit may be called to attend the Auditmeetings, in particular, Regulation and Compliance Committee’s meetingsInternal Control area and Risks area, and, at the request of these executives, other staff from these departmentsthereof, those persons within the Group who have particular knowledge of or responsibility infor the matters contained incovered by the agenda, when their presence at the meeting is deemed advisable. However, only the Committee members and the secretary will be present when the results and conclusions of the meeting are assessed.

convenient The Committee may engage external advisory servicesalso call any other Group employee or manager, and even arrange for relevant issues whenthem to attend without the presence of any other manager.

Notwithstanding the foregoing, it considerswill seek to ensure that these cannot be properly provided by experts or technical staff within the Group on groundspresence of specialization or independence.

Likewise,persons outside the Committee may callduring these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the personal cooperation and reports of any employee or member of the management team when it considers it necessary to comply with its functions in relevant issues.

The Committee has its own specific regulations, approved by the Board of Directors. Theseagenda for which they are available on our website and, among other things, regulate its operation.

Appointments Committee

The Appointments Committee is tasked with assisting the Board on issues related to the selection and appointment of Board members and other matters contained in the Board Regulations.

In compliance with the Board Regulations, this Committee shall comprise a minimum of three members who must be non-executive directors appointed by the Board of Directors, which will also appoint its Chairman. The Chairman and the majority of its members must be independent directors.

As of the date of this Annual Report, the Appointments Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position

Name

Chairman

Mr. José Miguel Andrés Torrecillas

Members

Mrs. Belén Garijo López

Mrs. Lourdes Máiz Carro

Mr. José Maldonado Ramos

Mrs. Susana Rodríguez Vidarte

The duties of the Appointments Committee under the Board Regulations are as follows:

·submit proposals to the Board of Directors on the appointment, reelection or separation of independent directors and report on proposals for the appointment, re-election or separation of the other directors.

224


To such end, the Committee will evaluate the balance of skills, knowledge and expertise on the Board of Directors, as well as the conditions that candidates should display to fill the vacancies arising, assessing the dedication necessary to be able to suitably perform their duties in view of the needs that the Company’s governing bodies may have at any time.called.

The Committee will ensure that when filling new vacancies, the selection procedures are not marredmeet whenever it is convened by implicit biases that may entail any discrimination and in particular discrimination that may hinder the selection of female directors, tryingits Chair, who is empowered to ensure that women who display the professional profile being sought are included on the shortlists.

Likewise, when drawing up proposals within its scope of competence for the appointment of directorscall the Committee will take into account in case they may be considered suitable, any applications that may be made by any member of the Board of Directors for potential candidatesmeetings and to fill the vacancies;

·submit proposals to the Board of Directors for policies on the selection and diversity of members of the Board of Directors;

·establish a target for representation of the underrepresented gender in the Board of Directors and draw up guidelines on how to reach that target;

·analyze the structure, size and composition of the Board of Directors, at least once a year when carrying out its operational assessment;

·analyze the suitability of the various members of the Board of Directors;

·perform an annual review of the status of each director, so that this may be reflected in the annual corporate governance report;

·report the proposals for the appointment of the Chairman and the Secretary and, where applicable, the Deputy Chairman and the Deputy Secretary;

·report on the performance of the duties of the Chairman of the Board, for the purposes of the periodic assessment by the Board of Directors, under the terms established in the Board Regulations;

·examine and organize the succession of the Chairman in conjunction with the Lead Director and, as applicable, file proposals with the Board of Directors so that the succession takes place in a planned and orderly manner;

·review the Board of Directors’ policy on the selection and appointment of members of senior management, and file recommendations with the Board when applicable;

·report on proposals for appointment and separation of senior managers; and

·any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

In the performance of its duties, the Appointmentsset their agendas. The Committee will consult with the Chairman of the Board via the Committee chair, especially with respect to matters related to executive directors and senior managers.

In accordance with our Board Regulations, the Committee may request the attendance at its sessions of persons with tasks in the Group that are related to the Committee’s duties. It may also obtain such advice as may be necessaryendeavor to establish an informed opinion on matters relatedannual calendar of meetings, considering the amount of time to be devoted to its business.

The chair of the Appointments Committee will convene it as often as necessary to perform its functions. During 2018, the Appointments Committee met ten (10) times.

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Remuneration Committee

The Remuneration Committee is the body that assists the Board in matters related to remuneration, as set out in the Board Regulations. It seeks to ensure that the remuneration policy established by the Company is duly observed.

Under the Board Regulations, the Committee will comprise a minimum of three members appointed by the Board. All the members must be non-executive directors, with a majority of independent directors, including the Committee Chair.

As of the date of this Annual Report, the Remuneration Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position

Name

Chairman

Mrs. Belén Garijo López

Members

Mr. Tomás Alfaro Drake

Mr. Carlos Loring Martínez de Irujo

Mrs. Lourdes Máiz Carro

Mrs. Ana Cristina Peralta Moreno

different tasks. In accordance with the Board Regulations, the scope of the functions of the Remuneration Committee is as follows:

·propose to the Board of Directors, for its submission to the general shareholders’ meeting, the directors’ remuneration policy, with respect to its items, amounts, and parameters for its determination and its vesting. Also to submit the corresponding report, in the terms established by applicable law at any time;

·determine the extent and amount of the individual remunerations, entitlements and other economic compensations and other contractual conditions for the executive directors, so that these can be reflected in their contracts. The Committee’s proposals on such matters will be submitted to the Board of Directors;

·propose the annual report on the remuneration of the Bank’s directors to the Board of Directors each year, which will then be submitted to the annual general shareholders’ meeting, in compliance with the applicable legislation;

·propose the remuneration policy to the Board of Directors for senior managers and employees whose professional activities have a significant impact on the Company’s risk profile;

·propose the basic conditions of the senior management contracts to the Board of Directors, and directly supervise the remuneration of the senior managers in charge of risk management and compliance functions within the Company;

·oversee observance of the remuneration policy established by the Company and periodically review the remuneration policy applied to directors, senior managers and employees whose professional activities have a significant impact on the Company’s risk profile;

·verify the information on directors and senior managers remunerations contained in the different corporate documents, including the annual report on directors’ remuneration; and

·any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

In the performance of its duties, the Remuneration Committee will consult with the Chairman of the Board via the Committee Chair, especially with respect to matters related to executive directors and senior managers.

Pursuant to our Board Regulations, the Committee may request the attendance at its meetings of persons with tasks in the Group that are related to the Committee’s duties. It may also obtain such advice as may be necessary to establish an informed opinion on matters related to its business.

The Remuneration Committee will meet as often as necessary to perform its duties, convened by its Chair. During 2018, the Remuneration Committee met on five (5) occasions.

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Risk Committee

The Board’s Risk Committee’s essential function is to assist the Board of Directors in the determination and monitoring of the Group risk management and control policy and its strategy within this scope.

The Risk Committee will comprise a minimum of three members, appointed by the Board of Directors, which will also appoint its Chairman. All Committee members must be non-executive directors, of whom at least one third must be independent directors. Its Chairman must also be an independent director.

As of the date of this Annual Report, the Risk Committee is comprised of three independent directors, including its Chair, and of two external directors, who are the following:

Position

Name

Chairman

Mr. Juan Pi Llorens

Members

Mr. José Miguel Andrés Torrecillas

Mr. Jaime Félix Caruana Lacorte

Mr. Carlos Loring Martínez de Irujo

Mrs. Susana Rodríguez Vidarte

Under the Board Regulations, it has the following duties:

·analyze and assess proposals related to the Group’s risk management, control and strategy. In particular, these will identify:

·the Group’s risk appetite; and

·establishment of the level of risk considered acceptable according to the risk profile and capital at risk, broken down by the Group’s businesses and areas of activity;

·analyze and assess the control and management policies for the Group’s different risks and information and internal control systems;

·the measures established to mitigate the impact of the risks identified, should they materialize;

·monitor the performance of the Group’s risks and their fit with the strategies and policies defined and the Group’s risk appetite;

·analyze, prior to submitting them to the Board of Directors or the Executive Committee, those risk transactions that must be put to its consideration;

·review whether the prices of assets and liabilities offered to customers take fully into account the Bank’s business model and risk strategy and, if not, present a remedy plan to the Board of Directors;

·participate in the process of establishing the remuneration policy, checking that it is consistent with sound and effective risk management and does not encourage risk-taking that exceeds the level of tolerated risk of the Company;

·check that the Company and its Group has the means, systems, structures and resources in line with best practices that enable it to implement its risk-management strategy, ensuring that the entity’s risk management mechanisms are matched to its strategy; and

·any other duties that may have been allocated under the Board Regulations or attributed to the Committee by a Board of Directors resolution or by applicable legislation.

Pursuant to our Board Regulations, the Committee may request the attendance of the Head of the Global Risk Management Area at its meetings and also of other executives heading different risks areas or the persons who, within the Group organization, have missions related to its functions. It may also obtain such advice as may be necessary to establish an informed opinion on matters related to its business.

227


The Committee meets as often as necessary to comply with its duties, usually fortnightly. In 2018,2020, it held twenty-one (21)twenty-three (23) meetings.

The Committee has its own specific regulations, approved by the Board of Directors. These are available on our website and, among other things, regulate its operation.

Technology and Cybersecurity Committee

The Technology and Cybersecurity Committee’s essential functions arefunction is to assist the Board of Directors in the understanding oversight of the risks associated to technologytechnological risk and information systems related tocybersecurity management and in monitoring the Group’s activity and the oversight of its management and control and in the supervision of the infrastructure and technology strategy of the Group.strategy.

The Technology and Cybersecurity Committee will haveconsist of a minimum of three membersdirectors appointed by the Board among its directors,of Directors, which will nominatealso appoint its Chair. The Board of Directors will endeavor to ensure that the chairmanmembers of this Committee. For this purpose, the Board will take into considerationCommittee have the knowledge and experience in technology, information systems and cyber-security matters of its members.appropriate to the duties they are called upon to perform.

As of the date of this Annual Report, the Technology and Cybersecurity Committee is comprisedcomposed of one executive director and five non-executivefour independent directors, who are the following:

Position (type of directorship)

Name

Chairman (Executive)

Mr. Carlos Torres Vila

MembersMember (Independent)

Mr. Tomás Alfaro DrakeRaúl Catarino Galamba de Oliveira

Mr. Jaime Félix Caruana LacorteMember (Independent)

Mr. Sunir Kumar Kapoor

Member (Independent)

Mr. Juan Pi Llorens

Member (Independent)

Mr. Jan Paul Marie Francis Verplancke

Under its regulations, the Technology and Cybersecurity Committee has the following responsibilities:functions:

- Oversight of technology-related riskstechnological risk and cyber-security management, which include the following:cybersecurity management:

·        AssessReview the Group’s exposures to the main technology-relatedtechnological risks, to which including the Bank is exposed, includingrisks related to information security and cyber-security risks, andcybersecurity, as well as the steps management has takenprocedures adopted by the executive area to monitor and control its exposure to such risks.exposures.

·        Review the policies and systems in place for the assessment, control and management of the Group’s technology-relatedtechnological infrastructures and risks, and its infrastructure, including responses to cyber-attacksthe response and recovery plans.

·Obtain business continuity planning reports on technology and infrastructure matters from management.

·Obtain reports from management, as and when appropriate, on:plans in the event of cyber-attacks.

·        IT-related compliance risks; and

·The steps taken to identify, assess, monitor, manage and mitigate those risks.

·Additionally, the Technology and Cybersecurity Committee will beBe informed of any relevant event that may occur regarding cyber-security issues. These are deemed to be those which, individually orbusiness continuity plans in the aggregate, may have a material impact on the Group’s equity, resultsmatters of operation or reputation. In any case, such events shall be informed to the chair of the Committee as soon as possible.

- Keeping abreast about the technology strategy of the Group, which include the following:

·Obtaining reports from management, as and when appropriate, on technology strategy and trends that may affect the Company’s strategic plans, including the monitoring of overall industry trends.technological infrastructure.

228195


 

·        ObtainingBe informed, as appropriate, of:

a)        reports from management,compliance risks associated with information technologies;

b)procedures established to identify, assess, oversee, manage and mitigate these risks.

·Be informed of any relevant events that may have occurred with regard to cybersecurity, i.e. events that, either in isolation or as a whole, may cause significant impact or harm to the Group’s equity, results or reputation. In any case, such events will be communicated, as soon as they are identified, to the Chair of the Committee.

·Be informed, with the frequency required by the head of the Technological Security area, of the activities carried out thereby, as well as of any incidents that may arise.

- Monitoring the Technology Strategy:

·Be informed, as appropriate, of the technology strategy and whentrends that may affect the Group’s strategic plans, including the monitoring of general industry trends.

·Be informed, as appropriate, onof the metrics established by the Group for the management and control of IT-related matters,in the technological field, including the progress of theGroup’s developments and investments carried out by the Group in this field.

·        Obtaining reports from management,Be informed, as and when appropriate, onof matters related to new technologies, applications, information systems and best practices that may affect the Group’s ITtechnology strategy or plans.

·        Obtaining reports from management onBe informed, as appropriate, of the coremain policies, strategic projects and plans defined by the engineering area of the Bank.Engineering area.

·        Informing Report to the Board of Directors and, if applicable,where appropriate, to the Executive Committee, on any IT-relatedinformation technology-related matters falling within the scope of their functions.its remit.

For a better performance of its functions, channels for an appropriate coordination systems will be established between the Technology and Cybersecurity Committee and the Audit and Compliance Committee will be established to ensure:facilitate:

 (i)a)        That the Technology and Cybersecurity Committee has access tois aware of the conclusions of the work performedcarried out by the Internal Audit Departmentarea in technologytechnology and cybersecurity matters; andmatters.

(ii)b)That the Audit and Compliance Committee is informed on IT-relatedof the information technology related systems and processes that are related to or affect the Bank’sGroup’s internal control systems and other matters falling within the scope of its functions.remit.

The Committee meets as often as necessarywill meet whenever it is convened by its Chair, who is empowered to comply withcall the Committee meetings and to set their agenda. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its functions.different tasks. In 20182020 it held seven (7) meetings.

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The Committee has its own specific regulations, approved by the Board of Directors. These are available on our website and, among other things, they regulate the Committee’s operation.

D.      Employees

As of December 31, 2020, we had 123,174 employees. Approximately 93% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

 

As of December 31, 2020

Country

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

     

Spain

23,971

-

5,359

29,330

United Kingdom

118

-

-

118

France

68

-

-

68

Italy

49

-

2

51

Germany

42

1

-

43

Switzerland

-

113

-

113

Portugal

-

447

-

447

Belgium

22

-

-

22

“The Netherlands” (Holland)

-

236

-

236

Russia

1

-

-

1

Romania

-

1,199

-

1,199

Ireland

-

-

-

-

Luxembourg

-

-

-

-

Turkey

-

20,357

-

20,357

Malta

-

13

-

13

Cyprus

-

103

-

103

Finland

-

-

125

125

Total Europe

24,271

22,469

5,486

52,226

 

 

 

 

 

The United States

149

10,746

-

10,895

 

 

 

 

 

Argentina

-

6,052

-

6,052

Brazil

-

 

6

6

Colombia

-

6,592

-

6,592

Venezuela

-

2,012

 

2012

Mexico

-

36,699

154

36,853

Uruguay

-

590

-

590

Paraguay

-

430

-

430

Bolivia

-

 

476

476

Chile

-

696

-

696

Cuba

1

 

-

1

Peru

-

6,204

-

6,204

 

 

 

 

 

Total Latin America

1

59,275

636

59,912

 

 

 

 

 

Hong Kong

80

-

-

80

Japan

3

-

-

3

China

28

1

-

29

Singapore

10

-

-

10

India

2

-

-

2

South Korea

2

-

-

2

United Arab Emirates

2

-

-

2

Taiwan

11

-

-

11

Indonesia

2

-

-

2

 

 

 

 

 

Total Asia

140

1

-

141

 

 

 

 

 

Total

24,561

92,491

6,122

123,174

197


As of December 31, 2019, we had 126,973 employees. Approximately 89% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

 

As of December 31, 2019

Country

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

     

Spain

24,921

-

5,362

30,283

United Kingdom

120

-

-

120

France

71

-

-

71

Italy

49

-

2

51

Germany

43

1

-

44

Switzerland

-

116

-

116

Portugal

-

458

-

458

Belgium

23

-

-

23

“The Netherlands” (Holland)

 

247

-

247

Russia

3

-

-

3

Romania

-

1267

-

1,267

Ireland

-

-

-

-

Luxembourg

-

-

-

-

Turkey

-

20,634

-

20,634

Malta

-

14

-

14

Cyprus

-

111

-

111

Finland

-

-

112

112

Total Europe

25,230

22,848

5,476

53,554

     

The United States

148

10,677

-

10,825

     

Argentina

-

6,402

-

6,402

Brazil

-

-

6

6

Colombia

-

6,899

-

6,899

Venezuela

-

2,532

-

2,532

Mexico

-

37,724

81

37,805

Uruguay

-

576

-

576

Paraguay

-

428

-

428

Bolivia

-

-

424

424

Chile

-

956

-

956

Cuba

1

-

-

1

Peru

-

6,420

-

6,420

     

Total Latin America

1

61,937

511

62,449

     

Hong Kong

85

-

-

85

Japan

3

-

-

3

China

26

1

2

29

Singapore

9

-

-

9

India

2

-

-

2

South Korea

2

-

-

2

United Arab Emirates

2

-

-

2

Taiwan

11

-

-

11

Indonesia

2

-

-

2

    

 

Total Asia

142

1

2

145

     

Total

25,521

95,463

5,989

126,973

198


As of December 31, 2018, we had 125,627 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

As of December 31, 2018

As of December 31, 2018

Country

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

        

Spain

25,419

-

4,919

30,338

25,419

-

4,919

30,338

United Kingdom

126

-

-

126

126

-

-

126

France

72

-

-

72

72

-

-

72

Italy

50

-

2

52

50

-

2

52

Germany

41

-

-

41

41

-

-

41

Switzerland

-

122

-

122

-

122

-

122

Portugal

469

-

-

469

469

-

-

469

Belgium

24

-

-

24

24

-

-

24

The Netherlands (Holland)

-

256

-

256

“The Netherlands” (Holland)

-

256

-

256

Russia

3

-

-

3

3

-

-

3

Romania

-

1,313

-

1,313

-

1,313

-

1,313

Ireland

-

4

-

4

-

4

-

4

Luxembourg

-

-

-

-

-

-

-

-

Turkey

-

20,425

-

20,425

-

20,305

-

20,305

Malta

-

13

-

13

Cyprus

-

107

-

107

Finland

-

-

83

83

-

-

83

83

Total Europe

26,204

22,120

5,004

53,328

26,204

22,120

5,004

53,328

        

The United States

141

10,843

-

10,984

141

10,843

-

10,984

        

Argentina

-

6,262

-

6,262

-

6,262

-

6,262

Brazil

-

-

6

6

-

-

6

6

Colombia

-

6,803

-

6,803

-

6,803

-

6,803

Venezuela

-

3,384

-

3,384

-

3,384

-

3,384

Mexico

-

36,123

-

36,123

-

36,123

-

36,123

Uruguay

-

578

-

578

-

578

-

578

Paraguay

-

430

-

430

-

430

-

430

Bolivia

-

-

396

396

-

-

396

396

Chile

-

923

-

923

-

923

-

923

Cuba

1

-

-

1

1

-

-

1

Peru

-

6,267

-

6,267

-

6,267

-

6,267

        

Total Latin America

1

60,770

402

61,173

1

60,770

402

61,173

        

Hong Kong

89

-

-

89

89

-

-

89

Japan

3

-

-

3

3

-

-

3

China

23

-

2

25

23

-

2

25

Singapore

8

-

-

8

8

-

-

8

India

2

-

-

2

2

-

-

2

South Korea

2

-

-

2

2

-

-

2

United Arab Emirates

2

-

-

2

2

-

-

2

Taiwan

9

-

-

9

9

-

-

9

Indonesia

2

-

-

2

2

-

-

2

   

 

   

 

Total Asia

140

-

2

142

140

-

2

142

        

Total

26,017

94,202

5,408

125,627

26,017

94,202

5,408

125,627

The number of employees decreased by 3.0% during 2020, while it increased by 1.1% in 2019. The decrease in the number of employees in 2020 was mainly attributable to divestitures and restructuring plans.

229199


 

As of December 31, 2017, we had 131,856 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

 

As of December 31, 2017

Country

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

     

Spain

26,048

-

4,536

30,584

United Kingdom

125

-

-

125

France

72

-

-

72

Italy

51

-

5

56

Germany

44

-

-

44

Switzerland

-

121

-

121

Portugal

-

472

-

472

Belgium

27

-

-

27

The Netherlands (Holland)

-

242

-

242

Russia

3

-

-

3

Romania

-

1,255

-

1,255

Ireland

-

4

-

4

Luxembourg

-

-

3

3

Turkey

-

21,118

-

21,118

Finland

-

-

39

39

Total Europe

26,370

23,212

4,583

54,165

     

The United States

131

10,797

-

10,928

     

Argentina

-

6,264

-

6,264

Brazil

-

-

6

6

Colombia

-

6,769

-

6,769

Venezuela

-

4,159

-

4,159

Mexico

-

37,207

-

37,207

Uruguay

-

592

-

592

Paraguay

-

446

-

446

Bolivia

-

-

379

379

Chile

-

4,852

-

4,852

Cuba

1

-

-

1

Peru

-

5,955

-

5,955

     

Total Latin America

1

66,244

385

66,630

     

Hong Kong

85

-

-

85

Japan

3

-

-

3

China

18

-

2

20

Singapore

8

-

-

8

India

2

-

-

2

South Korea

2

-

-

2

United Arab Emirates

2

-

-

2

Taiwan

9

-

-

9

Indonesia

2

-

-

2

     

Total Asia

131

-

2

133

     

Total

26,633

100,253

4,970

131,856

230


As of December 31, 2016, we had 134,792 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

 

As of December 31, 2016

Country

BBVA

Bank Subsidiaries

Non-bank Subsidiaries

Total

     

Spain

26,884

-

4,567

31,451

United Kingdom

150

-

-

150

France

78

-

-

78

Italy

53

-

8

61

Germany

45

-

-

45

Switzerland

-

125

-

125

Portugal

-

490

-

490

Belgium

32

-

-

32

The Netherlands (Holland)

-

248

-

248

Russia

3

-

-

3

Romania

-

1,290

-

1,290

Ireland

-

4

-

4

Luxembourg

-

-

3

3

Turkey

-

22,140

-

22,140

Finland

-

-

39

39

Total Europe

27,245

24,297

4,617

56,159

     

The United States

128

10,416

-

10,544

     

Argentina

-

6,439

-

6,439

Brazil

1

-

7

8

Colombia

-

7,228

-

7,228

Venezuela

-

4,888

-

4,888

Mexico

-

37,378

-

37,378

Uruguay

-

618

-

618

Paraguay

-

463

-

463

Bolivia

-

-

366

366

Chile

-

4,522

-

4,522

Cuba

1

-

-

1

Peru

-

6,010

-

6,010

     

Total Latin America

2

67,546

373

67,921

     

Hong Kong

89

-

-

89

Japan

10

-

-

10

China

18

-

8

26

Singapore

10

-

-

10

India

2

-

-

2

South Korea

17

-

-

17

United Arab Emirates

3

-

-

3

Taiwan

7

-

-

7

Indonesia

2

-

-

2

     

Total Asia

158

-

8

166

     

Australia

2

-

-

2

Total Oceania

2

-

-

2

     

Total

27,535

102,259

4,998

134,792

231


The reduction in the number of employees in the last two years is mainly attributable to divestitures and restructuring plans. See Notes 2.2.12, 3 and 25 to the Consolidated Financial Statements.

The terms and basic conditions of employment in private sector banks in Spain are negotiated with trade unions representing sector bank employees. Wage negotiations take place on an industry-wide basis. This process has historically produced collective bargaining agreements binding upon all Spanish banks and their employees. On June 15, 2016, the XXIII collective bargaining agreementBanking Collective Bargaining Agreement (BCBA) was signed. This agreement became effective as ofon January 1, 2015 and expiredwas due to expire on December 31, 2018. However the effectiveness of the XXIII BCBA has been extended until January 31, 2021 or, if earlier, the date on which a new collective bargaining agreement becomes effective. As of the date of this Annual Report, thea new collective bargaining agreement is being reviewednegotiated among the Spanish Banking Association (AEB) and updated.trade unions.

As of December 31, 2018, 20172020, 2019 and 2016,2018, we had 1,305, 1,300746, 1,212 and 1,5981,305 temporary employees in Spain, respectively.

Employee Pension Plans

Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish government. See Note 2.2.12 and Note 25 to our Spanish offices, respectively.Consolidated Financial Statements.

E.      Share Ownership

As of March 25, 2019,February 23, 2021, the members of the Board of Directors owned an aggregate of BBVA shares as shown in the table below:

Name

Directly owned shares

Indirectly owned shares

Total shares

% Capital Stock

Name

Directly owned shares

Indirectly owned shares

Total shares

% Capital Stock

Carlos Torres Vila

380,138

-

380,138

0.006%

859,051

-

859,051

0.013

Onur Genç *

51,057

-

51,057

0.001%

516,651

-

516,651

0.008

Tomás Alfaro Drake

18,459

-

18,459

0.000%

José Miguel Andrés Torrecillas

10,828

-

10,828

0.000%

10,828

-

10,828

0.000

Jaime Félix Caruana Lacorte

-

Jaime Caruana Lacorte

35,000

10,000

45,000

0.001

Raúl Galamba de Oliveira

20,000

-

20,000

0.000

Belén Garijo López

-

-

-

-

José Manuel González-Páramo Martínez-Murillo

88,225

-

88,225

0.001%

Sunir Kumar Kapoor *

10,000

-

10,000

0.000%

10,000

-

10,000

0.000

Carlos Loring Martínez de Irujo

59,390

-

59,390

0.001%

Lourdes Máiz Carro

-

-

-

-

José Maldonado Ramos

38,761

-

38,761

0.001%

38,761

-

38,761

0.001

Ana Cristina Peralta Moreno

-

Ana Peralta Moreno

-

-

-

Juan Pi Llorens

-

-

-

-

Ana Revenga Shanklin*

10,000

-

10,000

0.000

Susana Rodríguez Vidarte

26,980

-

26,980

0.000%

26,980

-

26,980

0.000

Jan P. M. F. Verplancke

-

Carlos Salazar Lomelín

260,929

-

260,929

0,004

Jan Verplancke

-

-

-

TOTAL

683,838

0.000%

683,838

0.010%

1,788,200

10,000

1,798,200

0.027

* Onur Genç and, Sunir Kumar Kapoor and Ana Revenga Shanklin owned 10631,326, 10,000 and 10,000 shares in the form of ADSs, respectively.respectively

BBVA has not granted options on its shares to any members of its administrative, supervisory or management bodies.

232200


 

As of March 25, 2019February 23, 2021 the Senior Management (excluding executive directors) owned an aggregate of BBVA shares as shown in the table below:

Name

Directly owned shares

Indirectly owned shares

Total shares

% Capital Stock

Directly owned shares

Indirectly owned shares

Total shares

% Capital Stock

Eduardo Arbizu Lostao

326,634

-

326,634

0.005

Domingo Armengol Calvo

102,798

-

102,798

0.002

144,906

-

144,906

0.002

María Jesús Arribas de Paz

73,181

-

73,181

0.001

105,079

-

105,079

0.002

Pello Belausteguigoitia Mateache

98,933

-

98,933

0.002

Carlos Casas Moreno

21,000

-

21,000

0.000

52,695

-

52,695

0.001

Cristina de Parias Halcón

171,804

-

171,804

0.003

Victoria del Castillo Marchese

12,033

-

12,033

0.000

30,572

-

30,572

0.000

Ricardo Forcano García

34,087

-

34,087

0.001

José Luis Elechiguerra Joven

53,379

-

53,379

0.001

Ana Fernández Manrique

95,651

105,031

200,682

0.003

María Luisa Gómez Bravo

129,100

-

129,100

0.002

190,547

-

190,547

0.003

Joaquín M. Gortari Díez

48,712

-

48,712

0.001

Joaquín Gortari Díez

79,816

-

79,816

0.001

Ricardo Martín Manjón

17,370

8,026

25,396

0.000

Eduardo Osuna Osuna

16,853

-

16,853

0.000

62,185

-

62,185

0.001

David Puente Vicente

65,218

-

65,218

0.001

144,637

-

144,637

0.002

Jaime Sáenz de Tejada Pulido

481,146

211

481,357

0.007

Jorge Sáenz-Azcúnaga Carranza

94,682

-

94,682

0.001

144,241

-

144,241

0.002

Jaime Sáenz de Tejada Pulido

332,160

211

332,371

0.005

Rafael Salinas Martínez de Lecea

185,936

19,530

205,466

0.003

294,757

21,274

316,031

0.005

Derek Jensen White

47,761

-

47,761

0.001

TOTAL

1,661,959

19,741

1,681,700

0.025

1,995,914

134,542

2,130,456

0.032

As of March 22, 2019February 23, 2021 a total of 19,63819,258 employees (excluding the members of the Senior Management and executive directors) owned 62,097,62769,274,166 shares, which represented 0.93%1.04% of our capital stock.

 ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.       Major Shareholders

On February 4, 2019,May 8, 2020, Norges Bank reported that it had voting power over 3.366% of BBVA’s common stock, of which 3.235% were voting rights attributed to shares, and 0.131% voting rights through financial instruments.

On January 28, 2021, Blackrock, Inc. reported to the SEC that as of December 31, 2018, it beneficially owned 6.6%5.8% of BBVA’s common stock.

On February 8, 2021, GQG Partners LLC reported that it directly had voting power over 3.090% of BBVA’s common stock (all voting rights were attributed to shares).

As of March 22, 2019,February 23, 2021, no other person, corporation or government beneficially owned, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of March 22, 2019,February 23, 2021, there were 891,978870,540 registered holders of BBVA’s shares, with an aggregate of 6,667,886,580 shares, of which 658729 shareholders with registered addresses in the United States held a total of 1,338,586,9201,703,004,805 shares (including shares represented by American Depositary Shares evidenced by American Depositary Receipts (“ADRs”)). Since certain of such shares and ADRs are held by nominees, the foregoing figures are not representative of the number of beneficial holders.

B.      Related Party Transactions

Loans to Directors, Senior Management and Other Related Parties

As of December 31, 2018, 2017 and 2016, there were no loans granted by the Group’s entities to the members of the Board of Directors. The amount availed against the loans by the Group’s entities to the members of Senior Management (excluding the executive directors) amounted to €3,783 thousand, €4,049 thousand and €5,573 thousand as of December 31, 2018, 2017 and 2016, respectively.

As of December 31, 2018, 2017 and 2016, there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2018, 2017 and 2016 the amount availed against the loans to parties related to members of the Senior Management amounted to €69 thousand, €85 thousand and €98 thousand, respectively.

As of December 31, 2018, 2017 and 2016, no guarantees had been granted to any member of the Board of Directors.

233


As of December 31, 2018, 2017 and 2016, the amount availed against guarantees arranged with members of the Senior Management amounted to €38 thousand, €28 thousand and €28 thousand, respectively.

As of December 31, 2018, no guarantees had been granted with parties related to the members of the Bank’s Board of Directors and the Senior Management. As of December 31, 2017 and 2016, the amount availed against guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management totaled €8 thousand and €8 thousand, respectively.

Related Party Transactions in the Ordinary Course of Business

Loans extended to related parties (including guarantees) were made in the ordinary course of business, on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons, and did not involve more than the normal risk of collectability or present other unfavorable features.

BBVA subsidiaries engage, on a regular and routine basis, in a number of customary transactions with other BBVA subsidiaries, including:

·including overnight call deposits;

·deposits, time deposits;

·deposits, foreign exchange purchases and sales;

·sales, derivative transactions such(such as forward purchases and sales;

·sales), money market fund transfers;

·transfers, letters of credit for imports and exports;

·exports, financial guarantees;

·guarantees and service level agreements;agreements.

201


and

They also engage in other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services, towith our shareholders, to employees, of all levels, to associates and to family members of all the above and to other BBVA non-banking subsidiaries or affiliates. All theseThese transactions have been made:

·are made in the ordinary course of business;

·on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and

·did do not involve more than the normal risk of collectability or present other unfavorable features.

For information on these transactions as of December 31, 2020, 2019 and 2018, see Note 53 to our Consolidated Financial Statements.

C.      C.      Interests of Experts and Counsel

Not Applicable.

234


ITEM 8.     FINANCIAL INFORMATION

A.      Consolidated Statements and Other Financial Information

Financial Information

See Item 18

Dividends

The table below sets forth the gross amount of interim, final and total cash dividends and distributions paid or expected to be paid by BBVA on its shares for the years 20142016 to 2018.2020. The rate used to convert euro amounts to U.S. dollars was the noon buying rate at the end of each year.

Per Share

Per Share  

First Interim

Second Interim

Third Interim

Final

Total

First Interim  

Second Interim  

Third Interim  

Final  

Total  

 

 

 

 

 

 

 

 

$

$

$

$

$

2014

€ 0.080

$ 0.097

(*)

-

-

(*)

€ 0.080

$ 0.097

2015

€ 0.080

$ 0.087

(*)

€ 0.080

$ 0.087

(*)

€ 0.160

$ 0.174

2016

€ 0.080

$ 0.084

(*)

€ 0.080

$ 0.084

(*)

€ 0.160

$ 0.169

€ 0.080

$ 0.084

(*)

€ 0.080

$ 0.084

(*)

€ 0.160

$ 0.169

2017

€ 0.090

$ 0.108

-

-

€ 0.150

$ 0.185

€ 0.240

$ 0.293

€ 0.090

$ 0.108

-

-

€ 0.150

$ 0.185

€ 0.240

$ 0.293

2018

€ 0.100

$ 0.115

-

-

€ 0.160

$ 0.183

€ 0.260

$ 0.298

€ 0.100

$ 0.115

-

-

€ 0.160

$ 0.183

€ 0.260

$ 0.298

2019

€ 0.100

$ 0.112

-

-

€ 0.160

$ 0.180

€ 0.260

$ 0.292

2020

-

-

€ 0.059

$ 0.072

€ 0.059

$ 0.072

(*)  In execution of the 2014, 2015, 2016 2017 and 2018 “Dividend Option” schemes described under “Item 4. Information on the Company—Business Overview —Supervision and Regulation—Dividends approved by the shareholders in the respective general shareholders’ meetings, BBVA shareholders were given the option to receive their remuneration in newly issued ordinary shares or in cash.

235


On February 1, 2017, BBVA updated its shareholders’ remuneration policy in order to implement a fully in cash remuneration policy after the execution of the 2017 “Dividend Option”, which took place during April 2017 (see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”). This fully in cash shareholders’2017. Under such policy, remuneration policy is expected to be composed, for each financial year, of an interim dividend and a final dividend, subject to any applicable restrictions and authorizations.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On April 10, 2019,July 27, 2020, the final dividend for 2018 will be paid. The rate used to convert euro amounts to U.S. dollars was 1.130 as of March 22, 2019.ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

We have paid annual On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to our shareholders sinceresults of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the date we were founded. TheECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

202


On January 29, 2021, it was announced that a cash dividenddistribution in the amount of €0.059 gross per share, as shareholder remuneration in relation to the Group’s result for the 2020 financial year, was expected to be submitted to the relevant governing bodies of BBVA for their consideration.

“Final” dividends for a year isare proposed by the Board of Directors to be approved by the annual general shareholders’ meeting following the end of the year to which it relates and includes any interim dividend that may be passed bythey relate. Additionally, the Board of Directors during that period. The scripmay approve the payment of “interim” dividends if applicable, are proposed for approvalon account of our shareholders inthe year’s end profits following the fulfilment of certain requirements under Spanish law, which payment is endorsed by the annual general shareholders’ meeting, for being implemented during a period of one year from their approval.meeting. Interim and final dividends are payable to holdersshareholders of record on the record date for the dividend payment date. Unclaimedpayment. Any unclaimed cash dividends revert to BBVA five years after declaration. For additional information see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”. 

While we expect to declare and pay dividends on our shares in the future, the payment of dividends will depend upon the results of BBVA, market conditions, the regulatory framework, the recommendations or restrictions regarding dividends that may be adopted by domestic or European regulatory bodies or authorities and other factors. In particular, BBVA may not pay dividends except out of its annual results and its distributable reserves, after taking into account the applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction, if applicable. Capital adequacy requirements are applied on both a consolidated and individual basis. See “Item 4. Information on the Company— Business Overview—Supervision and Regulation—Capital Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”.  

Subject to the terms of the deposit agreement entered into with the Bank of New York Mellon, holders of ADSs are entitled to receive dividends (in cash or scrip, as applicable) attributable to the shares represented by the ADSs evidenced by ADRs to the same extent as if they were holders of such shares.

236


BBVA may not pay dividends except out of its annual results and its distributable reserves, after taking into account the applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction, if applicable. Capital adequacy requirements are applied on both a consolidated and individual basis. See “Item 4. Information on the Company— Business Overview—Supervision and Regulation—Capital Requirements”and “Item“Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”. Under applicable capital adequacy requirements, we estimate that as of December 31, 2018,2020, BBVA had approximately €13.1 billion of reserves in excess of applicable capital and reserve requirements (based on an 11.95%a 12.75% phased-in total capital minimum requirement).

Legal Proceedings

BBVA and its subsidiaries are involved in a number of legal and regulatory actions and proceedings, including legal claims and proceedings, civil and criminal regulatory proceedings, governmental investigations and proceedings, tax proceedings and other proceedings, in jurisdictions around the world. Legal and regulatory actions and proceedings are subject to many uncertainties, and their outcomes, including the timing thereof, the amount of fines or settlements or the form of any settlements, or changes in business practices we may need to introduce as a result thereof, any of which may be material, are often difficult to predict, particularly in the early stages of a particular legal or regulatory matter.

As of the date hereof, the Group is involved in a number of legal and regulatory actions and proceedings in various jurisdictions around the world (including, among others, Spain, Mexico and the United States), the adverse resolution of which may also adversely impact the Group. See “Item 3. Key Information—Risk Factors—Legal, Regulatory, Tax and ComplianceReporting Risks—Legal Risks—The Group is party to a number of legal and regulatory actions and proceedings, “Item 3. Key Information—Risk Factors—Legal Risks—The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank and “Item 3. Key Information—Risk Factors—Legal, Regulatory, Tax and Reporting Risk—Compliance Risks—We may be affected by actions that are incompatible with our ethics and The Group is exposed to compliance standards, and by our failure to timely detect or remedy any such actionsrisks”. 

BBVA can provide no assurance that the legal and regulatory actions and proceedings to which it is subject, or to which it may become subject in the future or otherwise affected by, will not, if resolved adversely, result in a material adverse effect on the Group’s business, financial position, results of operations or liquidity.

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B.      Significant Changes

No significant change has occurred since the date of the Consolidated Financial Statements other than those mentioned in this Annual Report or our Consolidated Financial Statements.

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ITEM 9.       THE OFFER AND LISTING

A.     Offer and Listing Details

BBVA’s shares are listedtraded on the stock markets of Madrid, Barcelona, Bilbao Barcelona and Valencia stock exchanges (the “Spanish Stock Exchanges”) and onthrough the computerized trading system of the Spanish Stock Exchanges (the “Automated Quotation System”) under the symbol “BBVA”. BBVA’s shares are also listed on the Mexican and London stock exchangesSistema de Interconexión Bursátil Español (Mercado Continuo), as well as quoted on SEAQ International in London. BBVA’s shares are listed on the New York Stock Exchange as American Depositary Shares (ADSs) under the symbol “BBVA”.London and Mexico stock markets. BBVA

s ADSs are listed on the New York Stock Exchange and are also traded on the Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two exchanges. Each ADS represents the right to receive one share. For information on BBVAs shares and ADSs, see Note 26 to our Consolidated Financial Statements and “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”.  

Fluctuations in the exchange rate between the euro and the dollar will affect the dollar equivalent of the euro price of BBVA’s shares on the Spanish Stock Exchanges and the price of BBVA’s ADSs on the New York Stock Exchange. Cash dividends are paid by BBVA in euro, and exchange rate fluctuations between the euro and the dollar will affect the dollar amounts received by holders of ADRs on conversion by The Bank of New York Mellon (acting as depositary) of cash dividends on the shares underlying the ADSs evidenced by such ADRs.

As of December 31, 2018, State Street Bank and Trust Co., The Bank of New York Mellon, SA NV and Chase Nominees Ltd in their capacity as international custodian/depositary banks, held 10.69%, 2.31% and 6.33% of BBVA’s common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding. See also “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”. 

From January 1, 20182020 through December 31, 20182020 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.200%0.008% and 0.850%0.464%, calculated on a daily basis. As of February 28, 2019,January 29, 2021, the percentage of outstanding shares held by BBVA and its affiliates was 0.500%0.242%.

Securities Trading in Spain

The Spanish securities market for equity securities consists of the Automated Quotation System and the four stock exchanges located in Madrid, Bilbao, Barcelona and Valencia. During 2018,2020, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish Stock Exchanges.

Automated Quotation System. The Automated Quotation System (Sistema de Interconexión Bursátil) links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates certain of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”), a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish Stock Exchange directly. Since January 1, 2000, Spanish banks have been allowed to place trades on the Automated Quotation System and have been allowed to become members of the Spanish Stock Exchanges. We are currently a member of the four Spanish Stock Exchanges and can trade through the Automated Quotation System.

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Sociedad de Bolsas reinstated the Operating Rules of the Spanish Automated Quotation System by means of Sociedad de Bolsas Circular 1/2017, of December 18, which came into effect January 3, 2018.2018 and which was further amended in September 2018, November 2019 and April and June 2020 with respect to the minimum variation of share prices, the incorporation of rules on retail liquidity providers, measures to prevent auto-execution of transactions, and Direct Market Access respectively. Changes introduced in such Operating Rules include changes to the way trading is technically undertaken (e.g. by introducing new types of orders such as “hidden orders” and “combined blocks”, VWAP trades and midpoint orders), the suppression of the New Market segment and the introduction of a Market Making scheme as per MiFID II standards. BBVA, as an active market member in the Spanish market has adapted its technical means and procedures to such changes.

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In a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an opening price is established for each security traded on the Automated Quotation System based on orders placed at that time. The regime concerning opening prices was changed by an internal rule issued by the Sociedad de Bolsas. In this new regime all references to maximum changes in share prices are substituted by static and dynamic price ranges for each listed share, calculated on the basis of the most recent historical volatility of each share, and made publicly available and updated on a regular basis by the Sociedad de Bolsas. The computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which time the trading price of a security is permitted to vary by up to the stated levels. If, during the open session, the quoted price of a share exceeds these static or dynamic price ranges, Volatility Auctionsvolatility auctions are triggered, resulting in new static or dynamic price ranges being set for the share object of the same. Between 5:30 p.m. and 5:35 p.m. a closing price is established for each security through an auction system similar to the one held for the pre-opening early in the morning.

Trading hours for block trades (i.e., operations involving a large number of shares)shares previously agreed and executed out of the order book) are also from 9:00 a.m. to 5:30 p.m.

Between 5:30 p.m. and 8:00 p.m., special operations, whether “authorized” or “communicated”, can take place outside the computerized matching system of the Sociedad de Bolsas if they fulfill certain requirements. In such respect “communicated” special operations (those that do not need the prior authorization of the Sociedad de Bolsas) can be traded if all of the following requirements are met: (i) the trade price of the share must be within the range of 5% above the higher of the weighted average price and closing price for the day and 5% below the lower of the weighted average price and closing price for the day; (ii) the market member executing the trade must have previously covered certain positions in securities and cash before executing the trade; (iii) the purchase and (iii)the sale shall be the result of only one order; and (iv) the size of the trade must involve at least €300,000 and represent at least a 20% of the average daily trading volume of the shares in the Automated Quotation System during the preceding three months. If any of the aforementioned requirements is not met, a special operation may still take place, but it will need to take the form of “authorized” special operation (i.e., those needing the prior authorization of the Sociedad de Bolsas). Such authorization will only be upheld if any of the following requirements are met:

·          the trade involves more than €1.5 million and more than 40% of the average daily volume of the stock during the preceding three months;

·          the transaction derives from a merger or spin-off process or from the reorganization of a group of companies;

·          the transaction is executed for the purposes of settling a litigation or completing a complex group of contracts; or

·          the Sociedad de Bolsas finds other justifiable cause.

Information with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to the Sociedad de Bolsas by the end of the trading day and published in the Boletín de Cotización and in the computer system by the beginning of the next trading day.

Sociedad de Bolsas is also the manager of the IBEX 35® Index. This index is made up by the 35 most liquid securities traded on the Spanish Market and, technically, it is a price index that is weighted by capitalization and adjusted according to the free float of each company comprised in the index. Apart from its quotation on the four Spanish Exchanges, BBVA is also currently included in the IBEX 35® Index.

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Clearing and Settlement System

On April 1, 2003, by virtue of Law 44/2002 and of Order ECO 689/2003 of March 27, 2003 approved by the Spanish Ministry of Economy, the integration of the two main existing book-entry settlement systems existing in Spain at the time (the equity settlement system Servicio de Compensación y Liquidación de Valores (“SCLV”) and the Public Debt settlement system Central de Anotaciones de Deuda del Estado (“CADE”)) took placeAs a result of this integration, a single entity, known as Sociedad de Gestión de los Sistemas de Registro Compensación y Liquidación de Valores (“Iberclear”) assumed the functions formerly performed by SCLV and CADE according to the legal regime then stated in article 44 bis of the Spanish Securities Market Act (Law 24/1988).

Notwithstanding the above, rules concerning the book-entry settlement systems enacted before this date by SCLV and the Bank of Spain, as former manager of CADE, continued in force, but any reference to the SCLV or CADE was deemed to be substituted by Iberclear.

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In addition, and according to Law 41/1999, Iberclear currently manages the ARCO Securities settlement system (the “ARCO System”) for securities in book-entry form listed on the four Spanish Stock Exchanges, on the Spanish Public Debt Book-Entry Market, on “AIAF Mercado de Renta Fija”, or on other Multilateral Trading Facilities that have appointed Iberclear for such purposes. Cash settlement for all systems is managed through the TARGET2-Banco de España payment system.

Laws 32/2011 and 11/2015 amended the Spanish Securities Market Act and Royal Decree 878/2015 replaced Royal Decree 116/1992 from February 3, 2016, introducing changes to the Spanish clearing, settlement and book-entry registry procedures applicable to securities transactions to allow post-trading Spanish systems to integrate into the TARGET2 Securities System (T2S). The project to reform Spain’s clearing, settlement and registry system and connect it to the T2S (the “Reform”) introduced significant changes that affected all classes of securities and all post-trade activities.

The Reform was implemented in two phases:

The first phase took place from April 27, 2016 and involved setting up a new system for equities including all the changes envisaged in the Reform, encompassing the incorporation of central counterparty clearing (performed by, among others, BME Clearing, S.A.U.) in a post-trading scheme compatible with the T2S (including with respect to messages, account structure, definition of operations, etc.). Accordingly, the SCLV (Servicio de Compensación y Liquidación de Valores) platform was discontinued.

The T+3 settlement cycle for trades executed in trading venues, affecting mainly equities, was reduced to T+2 from October 2016, in line with what is set forth in European Regulation 909/2014, of July 23 on improving securities settlement in the European Union and on Central Securities Depositories (“CSDR”).

The CADE platform continued to operate unchanged until the last quarter of 2017, and cash settlements in the new system continue to be made through the TARGET2-Bank of Spain cash accounts.

The second phase started on September 18, 2017, when Iberclear successfully connected itself to T2S. At this time, fixed-income securities were transferred to the new system (being the CADE discontinued), as well as equity securities, with both types of securities beginning to be also settled in accordance with the procedures, formats and time periods of the T2S and under the ARCO System. The Reform culminated with the successful migration to T2S.

The latest amendments to Iberclear’s Rulebook reflecting the Reform were officially published in the Spanish Official Gazette (May 3 and August 18, 2016 and September 14, 2017) while each Spanish Stock Exchange has approved its respective new rulebook between April 2016 and December 2017.

During the last quarter of 2017, Iberclear filed for authorization as Central Securities Depository pursuant to CSDR.

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On September 23, 2019, Iberclear made public that it had been granted the authorization to continue providing services as a Central Securities Depositary.

Under Law 41/1999 and Royal Decree 878/2015 (which replaced Royal Decree 116/1992 on February 3, 2016), transactions carried out on the Spanish Stock Exchanges are cleared and settled through Iberclear and its participants (each an entidad participante)participante”), through the ARCO System. Only Iberclear participants to this ARCO System are entitled to use it, with participation restricted to credit entities, investment firms authorized to render custody services, certain public bodies, and Central Securities Depositories and Central Counterparties authorized under their respective European Union Regulations. BBVA is currently a participant in Iberclear. Iberclear and its participants are responsible for maintaining records of purchases and sales under the book-entry system. In order to be listed, shares of Spanish companies must be held in book-entry form. Iberclear, maintains a “two-step” book-entry registry reflecting the number of shares held by each of its participants as well as the amount of such shares held on behalf of beneficial owners. Each participant, in turn, maintains a registry of the owners of such shares. Spanish law considers the legal owner of the shares to be:

·          the participant appearing in the records of Iberclear as holding the relevant shares in its own name, or

·          the investor appearing in the records of the participant as holding the shares.

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Obtaining legal title to shares of a company listed on a Spanish Stock Exchange requires the participation of an investment firm, bank or other entity authorized under Spanish law to record the transfer of shares in book-entry form in its capacity as Iberclear participant for the equity securities settlement system. To evidence title to shares, at the owner’s request the relevant participant entity must issue a certificate of ownership. In the event the owner is a participant entity, Iberclear is in charge of the issuance of the certificate with respect to the shares held in the participant entity’s own name.

According to the Securities Market Act, brokerage commissions are not regulated. Brokers’ fees, to the extent charged, will apply upon transfer of title of our shares from the depositary to a holder of ADSs, and upon any later sale of such shares by such holder. Transfers of ADSs do not require the participation of a member of a Spanish Stock Exchange. The deposit agreement provides that holders depositing our shares with the depositary in exchange for ADSs or withdrawing our shares in exchange for ADSs will pay the fees of the official stockbroker or other person or entity authorized under Spanish law applicable both to such holder and to the depositary.

Securities Market Legislation

The Securities Markets Act was enacted in 1988 with the purpose of reforming the organization and supervision of the Spanish securities markets. This legislation and the regulation implementing it:

·            established an independent regulatory authority, the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores or “CNMV”), to supervise the securities markets;

·            established a framework for the regulation of trading practices, tender offers and insider trading;

·            required stock exchange members to be corporate entities;

·            required companies listed on a Spanish Stock Exchange to file annual audited financial statements and to make public quarterly financial information;

·            established the legal framework for the Automated Quotation System;

·            exempted the sale of securities from transfer and value added taxes;

·            deregulated brokerage commissions; and

·            provided for transfer of shares by book-entry or by delivery of evidence of title.

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On February 14, 1992, Royal Decree No. 116/92 established the clearance and settlement system and the book-entry system, and required that all companies listed on a Spanish Stock Exchange adopt the book-entry system. On February 3, 2016 Royal Decree 878/2015 came into force and replaced Royal Decree 116/1992 (Royal Decree 827/2017, of September 1 and Royal Decree 1464/2018, of December 21, amended Royal Decree 878/2015 by reflecting certain aspects of the Reform and of MiFID II).

On April 12, 2007, the Spanish Congress approved Law 6/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/25/EC on takeover bids, and Directive 2004/109/EC on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (amending Directive 2001/34/EC). Regarding the transparency of listed companies, Law 6/2007 amended the reporting requirements and the disclosure regime, and established changes in the supervision system. On the takeover bids side, Law 6/2007 has established the cases in which a company must launch a takeover bid and the ownership thresholds at which a takeover bid must be launched. It also regulates conduct rules for the board of directors of target companies and the squeeze-out and sell-out when a 90% of the share capital is held after a takeover bid. Additionally, Law 6/2007 was further developed by Royal Decree 1362/2007, on transparency requirements for issuers of listed securities, which was subsequently amended. See “—Trading by the Bank and its Affiliates in the Shares”.

On December 19, 2007, the Spanish Congress approved Law 47/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/37/EC on markets in financial instruments (MiFID), Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions, and Directive 2006/73/EC implementing Directive 2004/39/EC with respect to organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive. Further MiFID implementation was introduced by Royal Decree 217/2008. Royal Decree 217/2008 has been amended from time to time, including in 2018 by Royal Decree 1464/2018, of December 21, in order to adapt it to the MiFID II rules.rules that became effective on January 3, 2018.

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The Regulation of the European Parliament and of the Council on short selling and certain aspects of credit default swaps (EU) No 236/2012 (Regulation) has been in force since March 25, 2012 and became directly effective in EU countries from November 1, 2012. This Regulation introduced a pan-European regulatory framework for dealing with short selling and requires persons to disclose short positions in relation to shares of EU listed companies and EU sovereign debt. For significant net short positions in shares of EU listed companies, these regulations create a two-tier reporting model: (i) when a net short position reaches 0.20% of an issuer’s share capital (and at every 0.1% thereafter), such position must be privately reported to the relevant regulator; and (ii) when such position reaches 0.50% (and at every 0.1% thereafter) of an issuer’s share capital, apart from being disclosed to the regulators, such position must be publicly reported to the market.

Law 9/2012In response to COVID-19, on March 16, 2020 ESMA lowered the aforementioned threshold from 0.2% to 0.1%, requiring net short position holders to report positions of 0.1% and Royal Decree 1698/2012 implementedabove. This measure was renewed on September 18, 2020 and on December 17, 2020 until March 19, 2021. Additionally, in line with other European Directive 2010/73/EU (which amended Directive 2003/71/EC,supervisors, on March 16, 2020, the prospectus to be published when securities are offered to the public orCNMV banned net short positions in shares admitted to trading and Directive 2004/109/EC,to Spanish trading venues for which the CNMV is the competent authority as well as to all related instruments relevant for the calculation of the net short position. The CNMV ban became ineffective on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market). May 18, 2020.

The main changes to requirements applicable to prospectuses introduced byProspectus Regulation (EU) 2017/1129 of the European Parliament and of the Council, of October 14, will come into effectwhich became effective on July 21, 2019.2019, aims to achieve greater harmonization of prospectus rules throughout the European Union. Such rules are applicable to issuers which offer debt or equity securities to the public or which seek admission to trading on a regulated market in the EU.

Directive 2014/65/EU (MiFID II) of the European Parliament and of the Council of May 15, 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II) and Regulation (EU) 600/2014 of the European Parliament and Council of May 15, 2014 on markets in financial instruments and amending Regulation (EU) 648/2012 (MiFIR), were published on June 12, 2014 and when fully implemented and in force. will affectbecame applicable on January 3, 2018, affecting the Spanish securities market legislation, markets and infrastructures and implying higher compliance costs for financial institutions. MiFID II has been implemented into Spanish Law by Royal Decree-Law 21/2017, of December 29, by Royal Decree-Law 14/2018, of September 28, and by Royal Decree 1464/2018, of December 21.

Royal Legislative Decree 4/2015, of October 23, approved the reinstated text of the Securities Markets Act and it has also been affected and amended by the aforementioned MiFID II implementation rules.

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Trading by the Bank and its Affiliates in the Shares

Trading by subsidiaries in their parent companies shares is restricted by the Corporate Enterprises Act.

Neither BBVA nor its affiliates may purchase BBVA’s shares unless the making of such purchases is authorized at a meeting of BBVA’s shareholders by means of a resolution establishing, among other matters, the maximum number of shares to be acquired and the authorization term, which cannot exceed five years. Restricted reserves equal to the purchase price of any shares that are purchased by BBVA or its subsidiaries must be made by the purchasing entity. The total number of shares held by BBVA and its subsidiaries may not exceed 10% of BBVA’s total share capital, as per the treasury stock limits set forth in the Corporate Enterprises Act (Royal Legislative Decree 1/2010). It is the practice of Spanish banking groups, including the BBVA Group, to establish subsidiaries to trade in their parent company’s shares in order to meet imbalances of supply and demand, to provide liquidity (especially for trades by their customers) and to modulate swings in the market price of their parent company’s shares.

Spanish Financial Transaction Tax Bill

During a meeting held on January 18, 2019, the Spanish council of ministers approved the Bill on theThe Financial Transaction Tax which is based in part on the Commission’s Proposal.(FTT) was enacted by means of Law 5/2020, of October 15, 2020. The Spanish FTT Bill introducesis a new indirect tax, amounting to 0.2%, to be charged on acquisitions of shares in Spanish companies, regardless of the tax residence of the participants in such transactions, provided that such companies are listed and their respective market capitalization is above €1,000 million. The bill is currently under discussion in the Spanish Parliament, and while there is no assurance it will be approved due to the forthcoming general elections, if it did, it would affectAccordingly, any purchaser of BBVA’s shares not falling under an exemption and likely, BBVA itself as purchaser of its treasury stock.will be subject to the Spanish FTT.

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Reporting Requirements

Royal Decree 1362/2007, as amended, requires that any person or entity which acquires or transfers shares and as a consequence the number of voting rights held exceeds, reaches or is below the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% and 90% of the capital stock of a company listed on a Spanish Stock Exchange must, within four stock exchange business days after that acquisition or transfer, report it to such company, and to the CNMV. This duty to report the holding of a significant stake is applicable not only to the acquisitions and transfers in the terms described above, but also to those cases in which in the absence of an acquisition or transfer of shares, the ratio of an individual’s voting rights exceeds, reaches or is below the thresholds that trigger the duty to report, as a consequence of an alteration in the total number of voting rights of an issuer.

In addition, any company listed on a Spanish Stock Exchange must report on a non-public basis to the CNMV, within four Stock Exchange business days, any acquisition by such company (or an affiliate) of the company’s own shares if such acquisition, together with any previous one from the date of the last communication, exceeds 1% of its capital stock, regardless of the balance retained. Members of the board of directors must report the ratio of voting rights held at the time of their appointment as members of the board, when they are ceased as members, and each time they transfer or acquire share capital of a company listed on the Spanish Stock Exchanges, regardless of the size of the transaction. Additionally, since we are a credit entity, any individual or company who intends to acquire a significant participation in BBVA’s share capital must obtain prior approval from the Bank of Spain in order to carry out the transaction. See “Item 10. Additional Information—Exchange Controls—Restrictions on Acquisitions of Shares”.  

Royal Decree 1362/2007 also establishes reporting requirements in connection with any entity acting from a tax haven or a country where no securities regulatory commission exists, in which case the threshold of three percent is reduced to one percent.

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Royal Decree 1362/2007 was amended in 2015 in order to, among other matters, include some changes to the reporting requirements applicable to major shareholdings. In particular, cash settled instruments creating long positions on underlying listed shares shall be disclosed if the specified shareholding threshold is reached or exceeded; cash holdings and holdings as a result of financial instruments shall be aggregated for disclosure purposes and a disclosure exemption for shareholding positions held by financial entities in their trading books is available.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse (“MAR”) and its implementing regulations entered into force on July 3, 2016, involving a number of changes for BBVA as a listed issuer, including in relation to areas such as disclosure of inside information to the market, maintenance of insider lists and disclosure of restrictions on dealings by directors and persons discharging managerial responsibilities.

Through Royal Decree-Law 19/2018 of November 23, on payment services and other urgent financial measures, the consolidated text of the Securities Market Act has been completelywas adapted to the European MAR framework, including the following changes:

·            the Spanish legislator has opted for certain solutions among those permitted by the European MAR framework in certain specific cases;

·            several amendments have beenwere introduced in the sanctioning regime on market abuse (inside information and market manipulation); and

·            some special provisions applicable to listed companies in this area which were not compatible with this European regulatory framework or not consistent with the objective of MAR of achieving full harmonization throughout the European Union have beenwere expressly repealed.

EachOrganic Law 1/2019, of February 20, modifies, among other laws and regulations, the Spanish bank is requiredCriminal Code in order to provideimplement in Spain Directive 2014/57/UE regarding applicable criminal sanctions related to market abuse, complementing the Bank of Spain, within one month following each natural quarter, a list of all the bank’s shareholders that are financial institutions and other non-financial institution shareholders owning at least 0.25% of a bank’s total share capital. Furthermore, the banksMAR framework.

Banks are required to inform the Bank of Spain as soon as they become aware, of any acquisitions or disposals of holdings in their capital that cross any of the levels indicated in Articles 16 (at least 10% of the capital or of the voting rights of the credit institution), 17 (either the percentage of voting rights or capital held is equal to or greater than 20%, 30% or 50%, or the acquisition entails acquiring control of the credit institution) and 21 (the percentage of voting rights or of capital held falls below 20%, 30% or 50% or the disposal entails the loss of control of the credit institution) of Law 10/2014, of June 26, 2014.

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Tax Requirements

According to Law 10/2014, an issuer’s parent company (credit entity or listed company) is required, on an annual basis, to provide the Spanish tax authorities with the following: (i) disclosure of information regarding those investors with Spanish Tax residency obtaining income from securities and (ii) the amount of income obtained by them in each period.

B.       Plan of distribution

Not Applicable.

C.Markets

See “Item 9. The Offer and Listing”.

D.Selling Shareholders

Not Applicable.

E.Dilution

Not Applicable.

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F.Expenses of the Issue

Not Applicable.

ITEM 10.       ADDITIONAL INFORMATION

A.   Share Capital

Not Applicable.

B.   Memorandum and Articles of Association

Spanish law and BBVA’s Bylaws are the main sources of regulation affecting the Company. All rights and obligations of BBVA’s shareholders are contained in BBVA’s Bylaws and in Spanish law. Pursuant to Royal Decree 84/2015 of February 13, implementing Law 10/2014, amendments of the Bylawsbylaws of a bank are subject to notice or prior authorization of the Bank of Spain.

Registry and Company’s Objects and Purposes

BBVA is registered with the Commercial Registry of Bizkaia (Spain). Its registration number at the Commercial Registry of Bizkaia is volume 2,083, Company section folio 1, sheet BI-17-1,BI-17-A, 1st entry. Its corporate purpose is to engage in all kinds of activities, operations, acts, contracts and services within the banking business or directly or indirectly related to it that are permitted or not prohibited by prevailing provisions and ancillary activities. Its corporate purpose also includes the acquisition, holding, utilization and divestment of securities, public offerings to buy and sell securities, and any kind of holdings in any company or enterprise. BBVA’s corporate purpose is contained in Article 3 of BBVA’s Bylaws.

Certain Powers of the Board of Directors

In general, provisions regarding directors are contained in our Bylaws.bylaws. Also, our Board Regulations govern the internal procedures and the operation of the Board of Directors and its Committeescommittees and directors’ rights and duties as described in their charter. The referred Board Regulations limit a director’s right to voteestablishes that directors must refrain from participating in deliberations and votes on a proposal, arrangementresolutions or contractdecisions in which the director is materially interestedthey or a related party may have a direct or indirect conflict of interest and require retirement of directors at a certain age. Directors are not required to hold shares of BBVA in order to be appointed as such. As regards compensation in shares for executive directors, please see “Item 6. Directors, Senior Management and Employees—Compensation”

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Lastly, the Board Regulations contain a series of ethical standards. For more information please see “Item 6. Directors, Senior Management and Employees”

Certain Provisions Regarding Privileged Shares

Our Bylaws authorize us to issue ordinary, non-voting, redeemable and privileged shares. As of the date of the filing of this Annual Report, we have no non-voting, redeemable or privileged shares outstanding.

The Company may issue shares that confer some privilege over ordinary shares under the legally established terms and conditions, complying with the formalities prescribed for amending our Bylaws.bylaws.

Redemption of shares may only occur according to the terms set forth when they are issued. Redeemable shares must be fully paid-up at the time of their subscription. If the redemption right was attributed exclusively to the issuer, it may not be enforced until three years have elapsed since the issue. Redemption of redeemable shares must be charged to earnings or to free reserves or be made with the proceeds of a new share issueissuance made under a resolution from the general shareholders’ meeting or, as the case may be, from the Board of Directors, for the purpose of financing the redemption transaction. If the redemption of these shares is charged to earnings or to free reserves, the Company must set up a reserve for the amount of the nominal value of the shares redeemed. If the redemption is not charged to earnings or free reserves or made with the proceeds of the issuance of new shares, it may only be carried out under the requirements established for the reduction of share capital by refunding contributions.

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Holders of non-voting shares, if issued, are entitled to receive a minimum fixed or variable annual dividend, as resolved by the general shareholders’ meeting and/or the Board of Directors at the time of deciding to issue the shares. The right of non-voting shares to accumulate unpaid dividends whenever funds to pay dividends are not available, any preemptive subscription rights associated with non-voting shares, and the ability of holders of non-voting shares to recover voting rights also must be established at the time of deciding to issue the shares. Once the minimum dividend has been agreed upon, holders of non-voting shares will be entitled to the same dividend as holders of ordinary shares. If there are distributable earnings, the Company is obliged to agree to distribute the minimum divided mentioned above. If there are no distributable earnings or they are insufficient, the unpaid part of the minimum dividend will accumulate or not, pursuant to the terms agreed by the general shareholders’ meeting at the time of deciding to issue the shares. Holders of non-voting shares may exercise their pre-emptive subscription right should the general shareholders’ meeting and/or the Board of Directors so resolve at the time of issuing shares or share-convertible debentures. Recovery of voting rights must be resolved at the same time.

Certain Provisions Regarding Shareholders Rights

As of the date of the filing of this Annual Report, our capital is comprised of one class of ordinary shares, all of which have the same rights.

Once the allocation requirements established by law and in our Bylaws have been covered, dividends may be paid out to shareholders and charged to the year’s profit or to unrestricted reserves, in proportion to the capital they may have paid up, provided the value of the total net assets is not, or as a result of such distribution would not be, less than the share capital. In addition, BBVA must take into account any applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction that may be applicable. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”. Shareholders will participate in the distribution of corporate earnings in proportion to their capital paid-up. The right to collect a dividend lapses after five years as of the date in which it was first available to the shareholders. Shareholders also have the right to participate in proportion to their capital paid-up in any distribution of net assets resulting from our liquidation. For more information regarding dividends see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”. 

Each voting share will confer the right to one vote on the holder present or represented at the general shareholders’ meeting. However, unpaid shares with respect to which a shareholder is in default of the resolutions of the Board of Directors relating to their payment will not be entitled to vote. Our Bylaws contain no provisions regarding cumulative voting.

Our Bylaws do not contain any provisions relating to sinking funds or potential liability of shareholders to further capital calls by us.

Our Bylaws do not establish that special quorums are required to change the rights of shareholders. Under Spanish law, the rights of shareholders may only be changed by an amendment to the Bylaws that complies with the requirements explained below under “—Shareholders’ Meetings”, plus the affirmative vote of the majority of the shares of the class that will be affected by the amendment.

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Shareholders’ Meetings

The annual general shareholders’ meeting has its own set of regulations on issues such as how it operates and what rights shareholders enjoy regarding general meetings. These establish the possibility of voting or delegating votes over remote communication media.

General shareholders’ meetings may be annual or extraordinary. The annual general shareholders’ meeting is held within the first six months of each year. It will give approval, among other things and where applicable, to the corporate management of the Company and the financial statements for the previous year and resolve as to the allocation of profits or losses. Extraordinary general shareholders’ meetings are those meetings that are not ordinary. In any case, the requirements mentioned below for constitution and adoption of resolutions are applicable to both categories of general shareholders’ meetings.

General shareholders’ meetings will be called at the initiative of and according to the agenda determined by the Board of Directors, whenever it deems necessary or advisable for the Company’s interests, and in any case on the dates or in the periods determined by law and the Company Bylaws, or upon the request of one or several shareholders representing at least three percent of our share capital.

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Our general shareholders’ meeting Regulations establish that annual and extraordinary general shareholders’ meetings must be called within the notice period required by law. This will be done by means of an announcement published by the Board of Directors or its proxy in the Official Gazette of the Companies Registry (“BORME”) or one of the most widely disseminated daily newspapers in Spain, as well as being disseminated on the CNMV (the Spanish Securities Market Commission) website and the Company website, except when legal provisions establish other media for disseminating the notice.

The Company’s general shareholders’ meetings may be attended by anyone owning the minimum number of shares established in our Bylaws (500), provided that their holding is registered in the corresponding accounting records five days before the meeting is scheduled and that they keep at least that same number of shares until the meeting is held. Holders of fewer shares may group together until they make up at least that number, appointing a representative.

General shareholders’ meetings will be validly constituted at first summons with the presence of at least 25% of our voting capital, either in person or by proxy. No minimum quorum is required to hold a general shareholders’ meeting at second summons. In either case, resolutions will be agreed by the majority of the votes. However, a general shareholders’ meeting will only be validly held with the presence of 50% of our voting capital at first summons or of 25% of the voting capital at second summons, in the case of resolutions concerning the following matters:

·debt issuances;

–   debt issuances;

–   ·share capital increases or decreases;

–   ·the exclusion or limitation of the pre-emptive subscription rights over new shares;

–   ·transformation, merger of BBVA or spin-off and global assignment of assets and liabilities;

–   ·the off-shoring of domicile, and

–   ·any other amendment to the Bylaws.

In these cases, resolutions may only be approved with the vote of the absolute majority of the shares if at least 50% of the voting capital is present or represented at the general shareholders’ meeting. If the voting capital present or represented at the meeting at second summons is less than 50% (but over 25%), then resolutions may only be adopted by two-thirds of the shares present or represented.

Additionally, our Bylaws state that, in order to adopt resolutions approving the replacement of the corporate purpose, the transformation, total spin-off, the winding up of BBVA and amending that paragraph of the relevant article of our Bylaws, two-thirds of the subscribed voting capital must attend the general shareholders’ meeting at first summons, or 60% of that capital at second summons.

Restrictions on the Ownership of Shares

Our Bylaws do not provide for any restrictions on the ownership of our ordinary shares. Spanish law, however, provides for certain restrictions which are described below under “—Exchange Controls—Restrictions on Acquisitions of Shares”.  

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Restrictions on Foreign Investments

Exchange controls and foreign investments are regulated under Law 19/2003, of July 4 (“Law 19/2003”), as amended pursuant to Royal Decree-Law 8/2020, of March 17, Royal Decree-Law 11/2020, of March 31 and Royal Decree-Law 34/2020, of November 17. Foreign investments are generally liberalized unless they fall within the scope of article 7 bis of Law 19/2003, enacted in March 2020, Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only with respect to investments in the defense sector—article 11 of Royal Decree 664/1999, of April 23.

Article 7 bis of Law 19/2003 establishes a screening mechanism for certain investments made by non-EU and non-EFTA residents (“foreign investors”), based on public order, public health and public security reasons (the “Screening Mechanism”). The Spanish Stock Exchanges are open to foreign investors. Investments in sharesScreening Mechanism aligns part of Spanish companies by foreign entities or individuals may be freely executed but require the notification to the Spanish Foreign Investment Authoritiesforeign investment legal framework with Regulation (EU) 2019/452 of March 19, 2019 establishing a framework for administrative statisticalthe screening of foreign direct investments into the European Union. Certain provisions of Regulation (EU) 2019/452—such as the list of sectors affecting public order and economical purposes. See “—Exchange Controls”. public security or the definition of state-owned enterprises and other similar investors—are mirrored in the regulations establishing the Screening Mechanism.

In addition, and according to Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, effective November 19, 2020 and until June 30, 2021, the following persons will also be deemed to be foreign investors, provided they invest in listed companies or the investment value exceeds 500 million euros—for investments in private – non listed – companies:

  • EU and EFTA residents in countries other than Spain, and
  • Spanish residents beneficially owned by EU or EFTA residents in countries other than Spain, that is, those in which a EU or EFTA resident other than in Spain ultimately owns or controls more than 25% of the share capital or voting rights of, or otherwise exercises control over, the Spanish resident.

Foreign direct investments ("FDI") are:

  • investments that result in a foreign investor reaching a stake of at least 10% of the share capital of a Spanish company; and
  • any corporate transaction, business action or legal transaction which enables effective participation in the management or control of a Spanish company.

Not all foreign direct investments are subject to the Screening Mechanism. Investors are subject to the Screening Mechanism only if they qualify as FDI and the investment is made in one of the critical sectors mentioned in article 7 bis of Law 19/2003, is made pursuant to what is foreseen in Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only where the investor is a Non-UE or non-EFTA investor—by investors that meet certain restrictions and requirements whichsubjective criteria regardless of the business of the target.

Foreign direct investments by the following “foreign investors” are also applicablesubject to the Screening Mechanism, regardless of the business of the target:

·Investors directly or indirectly controlled by the government, including state bodies or armed forces, of a non EU/EFTA country.

·Investors that have already made an investment affecting national security, public order or public health in another EU Member State, including an investment in any of the above-mentioned sectors.

·Investors subject to ongoing judicial or administrative proceedings for engaging in illegal or criminal activities.

Foreign direct investments by domestic entitiesthe following non-EU and non-EFTA investors are also subject to the Screening Mechanism, regardless of the business of the target:

·Investors directly or individuals.indirectly controlled by a non-EU and non-EFTA government, including state bodies, armed forces or sovereign wealth funds; the possibility of exercising decisive influence as a result of an agreement or through the ownership of shares or interests in another person (directly or indirectly) is deemed to constitute “control” for these purposes.

Current Spanish regulations provide·Investors that foreign investors may freely transfer outhave already made an investment affecting national security, public order or public health in another EU Member State, including an investment in any of Spain any amounts of invested capital, capital gains and dividends subject to applicable taxes. See “—Exchange Controls”. the above-mentioned sectors.

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·If there is a serious risk that the investor engages in illegal or criminal activities affecting national security, public order or public health in Spain.

Foreign direct investments described above shall be subject to prior administrative authorization granted by the relevant Spanish Authority, in accordance with the administrative conditions established.

C.Material Contracts

Joint Venture Agreement with CerberusSale of BBVA USA to The PNC Financial Services Group

On November 28, 2017, BBVA and various BBVA Group companies15, 2020, Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) entered into a joint venture agreementStock Purchase Agreement (the Joint Venture Agreement“Stock Purchase Agreement”) with Promontoria Marina, S.L.U.The PNC Financial Services Group, Inc. (“PromontoriaPNC”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for. Upon the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was contributed. The Business comprises: (i) REOs held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction, the Business was valued at approximately €5,000 million. The final price will be determined based on the volume of REOs effectively contributed.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the contribution of the Business (except for part of the agreed REOs, as further explained below) to a company called Divarian Propiedad, S.A. (“Divarian”), and the sale of an 80% stake in Divarian to Promontoria.

The Joint Venture Agreement governs the main terms and conditions of the contribution of the Business and the sale of the 80% stake in Divarian to Promontoria (including the granting by BBVA of certain representation and warranties in favor of Promontoria in relation to the Joint Venture Agreement and its assets and REOs).

As of the date of this Annual Report, the transfer of several REOs remains subject to the fulfilmentconditions set forth in the Stock Purchase Agreement, PNC will purchase from BBVA 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. (the “Stock Purchase”), a financial holding company (“BBVA USA Holdco”) conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA, an Alabama-chartered bank (“BBVA USA Bank”), for $11.6 billion in cash on hand in a fixed price structure, subject to certain adjustments related to transaction expenses and tax matters. PNC is not acquiring BBVA Securities, Inc. (PNC will acquire BBVA Securities, Inc.’s retail brokerage business, but not the entity), Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. (the “Carve-Out Transactions”). In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York.

The completion of the Stock Purchase is subject to certain conditions, including, among others, the absence of any injunction or other legal prohibition on the completion of the Stock Purchase, the receipt of required governmental approvals and/or the expiration of certain conditions:

(i)failure bywaiting periods, the Public Administration to exercise the preferential acquisition right over the REOs located in Catalonia (this condition has to be fulfilled by June 30, 2019);

(ii)authorization by the Public Administrationaccuracy of the transferrepresentations and warranties of the REOsother party (generally subject to a special public protection scheme (viviendas de protección pública) (this condition has to be fulfilledmaterial adverse effect standard), material compliance by April 10, 2020); and

(iii)recording of REOs in the Land Registry in favor of BBVA (this condition has to be fulfilled by April 10, 2020).

On October 10, 2018other party with its obligations under the parties executed the following agreements (among others):

(i)a loan agreement by virtue of which BBVA granted a loan to Promontoria Holding 208 B.V., a Dutch entityStock Purchase Agreement, and the sole shareholder of Promontoria, for the payment of 20%completion of the purchase price;Carve-Out Transactions prior to closing.

(ii)a shareholders’ agreement for Divarian entered into between BBVA and Promontoria, in whichUnder the rights and obligations of the parties are regulated. According to this shareholders’ agreement, Divarian will be primarily managed by Promontoria and BBVA will have no representation in the board of directors. However, BBVA will have certain veto rights at the general shareholders’ meeting over material decisions. The shareholders’ agreement also provides for a lock-up period of two years for Promontoria and BBVA, and sets forth drag-along, first refusal and the tag-along rights (the first two in favor of Promontoria and the third one in favor of BBVA). In addition, Promontoria has granted to BBVA an option to require Promontoria to acquire BBVA’s stake in the share capital of Divarian, which may be exercised within 12 months from the third anniversary of the closing date (October 10, 2018).

(iii)a services agreement entered into between BBVA and Haya Real Estate, S.L.U. (“Haya”), a company managed by Cerberus, by virtue of which Haya has agreed to provide management services for most of the real estate portfolio held by BBVA in Spain which was not contributed to Divarian (and for real estate assets in Spain that come into BBVA’s possession after June 26, 2017) for a term of 10 years as from October 10, 2018; and

(iv)a transition services agreement entered into between BBVA and Divarian by virtue of whichStock Purchase Agreement, BBVA has agreed to provide support servicestake or refrain from taking certain actions, including, among others, (i) to cause BBVA USA Holdco and its subsidiaries, including BBVA USA Bank, to operate in the ordinary course of business consistent with past practice and not to enter into certain types of transactions between the execution of the Stock Purchase Agreement and the closing of the Stock Purchase and (ii) subject to certain exceptions, not to (a) engage in a retail banking business in the U.S. for two years following the closing of the Stock Purchase, or (b) solicit or hire any employees of BBVA USA Holdco or its subsidiaries, including BBVA USA Bank, for one year following the closing of the Stock Purchase.

Under the Stock Purchase Agreement, PNC has agreed to take or refrain from taking certain actions, including, among others, (i) to use reasonable best efforts to obtain any necessary regulatory consents and (ii) subject to certain exceptions contained in the Stock Purchase Agreement, not to solicit or hire any BBVA employees retained by BBVA for one year following the closing of the Stock Purchase.

The Stock Purchase Agreement contains customary representations and warranties of BBVA and PNC. The Stock Purchase Agreement also contains certain indemnification obligations of each party with respect to breaches of representations, warranties and covenants and certain other specified matters.

The Stock Purchase Agreement contains certain termination rights for PNC and BBVA, as the case may be, applicable upon, among other events, (i) the Stock Purchase having not been completed on or prior to November 15, 2021 (subject to extension in certain circumstance), or (ii) a transitional termbreach by the other party that is not or cannot be cured within 45 days’ notice of such breach or is not capable of being cured by November 15, 2021, which duration varies depending onbreach would result in the particular service.failure of the conditions to the terminating party’s obligations to complete the transactions contemplated by the Stock Purchase Agreement.

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The foregoing description of the Stock Purchase and the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, which is filed as Exhibit 2.1 hereto, and is incorporated into this report by reference. The Stock Purchase Agreement and the above description of the Stock Purchase Agreement have been included to provide investors and security holders with information regarding the terms of the Stock Purchase Agreement. It is not intended to provide any other factual information about PNC, BBVA or their respective subsidiaries and affiliates. The Stock Purchase Agreement contains representations and warranties of each of PNC, on the one hand, and BBVA, on the other hand, made solely for the benefit of the other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the Stock Purchase Agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Stock Purchase Agreement. In addition, such representations and warranties may apply standards of materiality in a way that is different from what may be viewed as material by security holders of, or other investors in, PNC or BBVA. Moreover, the representations and warranties in the Stock Purchase Agreement were used for the purpose of allocating risk between PNC, on the one hand, and BBVA, on the other hand, and not necessarily for establishing matters as fact, and information concerning the subject matter of the representations, warranties and covenants may change after the date of the Stock Purchase Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures. Security holders and investors are not third-party beneficiaries under the Stock Purchase Agreement. Accordingly, you should read the representations and warranties in the Stock Purchase Agreement not in isolation but only in conjunction with the other information about PNC and BBVA, or any of their respective subsidiaries or affiliates.

D.   Exchange Controls

In 1991, Spain adopted the EU Standards for free movement of capital and services. As a result, foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation as to amount, subject to applicable taxes. See “—Taxation”.  

Pursuant to Spanish Law 18/1992 on Foreign Investments and Royal Decree 664/1999, of April 23, on the Applicable rules to Foreign Investments, foreign investors may freely invest in shares of Spanish companies except in the case they fall within the scope of certain strategic industries.

Notwithstanding this,article 7 bis of Law 19/2003, enacted in March 2020, Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only with respect to investments in the defense sector—article 11 of Royal Decree 664/1999, of April 23. For information on certain additional regulation applicable to foreign direct investments, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Restrictions on Foreign Investments”. Likewise, Royal Decree 664/1999, of April 23, and Law 19/2003, on exchange controls and foreign transactions, require notification of all foreign investments in Spain and liquidations of such investments upon completion of such investments to the Investments Registry of the Ministry of Economy Affairs and CompetitivenessDigital Transformation for administrative statistical and economical purposes. Shares in listed Spanish companies acquired or held by foreign investors must be reported to the Spanish Registry of Foreign Investments by the depositary bank or relevant Iberclear member. When a foreign investor acquires shares that are subject to the reporting requirements of the CNMV regarding significant stakes, notice must be given directly by the foreign investor to the relevant authorities.

Moreover, investments by foreigners domiciled in enumerated tax haven jurisdictions, under Royal Decree 1080/1991, are subject to special reporting requirements.

InFor information on certain circumstancesadditional regulation applicable to foreign direct investments, see “Item 10. Additional Information­—Memorandum and following a specific procedure, the CouncilArticles of Ministers may agree to suspend the application of Royal Decree 664/1999, if the investments, due to their nature, form or condition, affect or may potentially affect Association—Restrictions on Foreign Investmentsactivities”.  relating to the exercise of public powers, national security or public health. Law 19/2003 authorizes the Spanish Government to take measures to impose specific limits or prohibitions, related to third countries, when such measures have been previously approved by the European Union or by an international organization to which Spain is member. Should such regimes be suspended, the affected investor shall obtain prior administrative authorization.

Restrictions on Acquisitions of Shares

Pursuant to Spanish Law 10/2014, any individual or corporation, acting alone or in concert with others, intending to directly or indirectly acquire a significant holding in a Spanish financial institution (as defined in article 16 of the aforementioned Law 10/2014) or to directly or indirectly increase its holding in one in such a way that either the percentage of voting rights or of capital owned were equal to or exceed 20%, 30% or 50%, or by virtue of the acquisition, might take control over the financial institution, must first notify the Bank of Spain.

For the purpose of this Law, a significant participation is considered 10% of the outstanding share capital of a financial institution or a lower percentage if such holding allows for the exercise of a significant influence.

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The Bank of Spain will be responsible for evaluating the proposed transaction, in accordance with the terms established by Royal Decree 84/2015, of February 13 (as stated in Article 25.1 of said Royal Decree 84/2015) in order to guarantee the sound and prudent operation on the target financial institution. The Bank of Spain will submit a proposition before the European Central Bank, which will be in charge of deciding upon the proposed transaction in the term of 60 working days after the date on which the notification was received.

Any acquisition without such prior notification, or before the period established in the Royal Decree 84/2015 has elapsed or against the objection of the Bank of Spain, will produce the following results:

-   ·the acquired shares will have no voting rights;

-   ·if considered appropriate, the target bank may be taken over or its directors replaced; and

-   ·the sanctions established in Title IV of Law 10/2014.

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Regarding the transparency of listed companies, such matter is mainly regulated in Spain in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act. The transparency requirements set out in such Act are further developed by Royal Decree 1362/2007 developing the Securities Market Act on transparency requirement for issuers of listed securities, which stipulates among other matters a communication threshold of 3% for significant stakes and extends the disclosure obligations to the acquisition or transfer of financial instruments that grant rights to acquire shares with voting rights. For more information see “Item 9. The Offer and Listing—Offer and Listing Details — Reporting Requirements”. 

Tender Offers

The Spanish legal regime concerning takeover bids, which reflects the related EU regulation (mainly(mainly Directive 2004/25/EC), is set forth in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act, and Royal Decree 1066/2007, of July 29, on takeover bids.

E.       Taxation

Spanish Tax Considerations

The following is a summary of the material Spanish tax consequences to U.S. Residents (as defined below) of the acquisition, ownership and disposition of BBVA’s ADSs or ordinary shares as of the date of the filing of this Annual Report. This summary does not address all tax considerations that may be relevant to all categories of potential purchasers, some of whom (such as life insurance companies, tax-exempt entities, dealers in securities or financial institutions) may be subject to special rules. In particular, the summary deals only with U.S. Holders (as defined below) that will hold ADSs or ordinary shares as capital assets and who do not at any time own individually, and are not treated as owning, 25%10% or more of BBVA’s shares, including ADSs.

As used in this particular section, the following terms have the following meanings:

(1) “U.S. Holder” means a beneficial owner of BBVA’s ADSs or ordinary shares that is for U.S. federal income tax purposes:

·          a citizen or an individual resident of the United States,

·          a corporation or other entity treated as a corporation, created or organized under the laws of the United States, any state therein or the District of Columbia, or

·          an estate or trust the income of which is subject to U.S. federal income tax without regard to its source.

(2) “Treaty” means the Convention between the United States and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol.

(3) “U.S. Resident” means a U.S. Holder that is a resident of the United States for the purposes of the Treaty and entitled to the benefits of the Treaty, whose holding is not effectively connected with (1) a permanent establishment in Spain through which such holder carries on or has carried on business, or (2) a fixed base in Spain from which such holder performs or has performed independent personal services.

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Holders of ADSs or ordinary shares should consult their tax advisors, particularly as to the applicability of any tax treaty. The statements regarding Spanish tax laws set out below are based on interpretations of those laws in force as of the date of this Annual Report. Such statements also assume that each obligation in the Deposit Agreement and any related agreement will be performed in full accordance with the terms of those agreements.

Taxation of Dividends

Under Spanish law, cash dividends paid by BBVA to a holder of ordinary shares or ADSs who is not resident in Spain for tax purposes and does not operate through a permanent establishment in Spain, are subject to Spanish Non-Resident Income Tax, withheld at source at a 19% tax rate. For these purposes, upon distribution of the dividend, BBVA or its paying agent will withhold an amount equal to the tax due according to the rules set forth above (applying a withholding tax rate of 19%), transferring the resulting net amount to the depositary. However, in the case of cash distribution of share premium no withholding tax would be applicable.

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However, under the Treaty, in cash dividends distributions, if you are a U.S. Resident, you are entitled to a reduced withholding tax rate of 15%. To benefit from the Treaty-reduced rate of 15%, if you are a U.S. Resident, you must provide to BBVA through our paying agent depositary, before the tenth day following the end of the month in which the dividends were payable, a certificate from the U.S. Internal Revenue Service (“IRSIRS”) stating that, to the best knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty and entitled to its benefits.

If the paying agent depositary provides timely evidence (i.e., by means of the IRS certificate) of your right to apply the Treaty-reduced rate it will immediately receive the surplus amount withheld, which will be credited to you. The IRS certificate is valid for a period of one year from issuance.

To help shareholders obtain such certificates, BBVA has set up an online procedure to make this as easy as possible.

If the certificate referred to in the above paragraph is not provided to us through our paying agent depositary within said term, you may afterwards obtain a refund of the amount withheld in excess of the rate provided for in the Treaty.

Spanish Refund Procedure

According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a U.S. Resident, you are required to file:

·            the corresponding Spanish tax form,

·            the certificate referred to in the preceding section, and

·            evidence of the Spanish Non-Resident Income Tax that was withheld with respect to you.

The refund claim must be filed within four years from the date in which the withheld tax was collected by the Spanish tax authorities, but not before February 1 of the following year.

U.S. Residents are urged to consult their own tax advisors regarding refund procedures and any U.S. tax implications thereof.

U.S. Holders should consult their tax advisors regarding the availability of, and the procedures to be followed in connection with, this exemption.

Taxation of Rights

Distribution of preemptive rights to subscribe for new shares made with respect to shares in BBVA will not be treated as income under Spanish law and, therefore, will not be subject to Spanish Non-Resident Income Tax. The exercise of such preemptive rights is not considered a taxable event under Spanish law and thus is not subject to Spanish tax. Capital gains derived from the disposition of preemptive rights received by U.S. Residents are generally not taxed in Spain provided that certain conditions are met (see “—Taxation of Capital Gains” below). 

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Taxation of Capital Gains

Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish-source income and, therefore, are taxable in Spain. For Spanish tax purposes, gain recognized by U.S. Residents from the sale of BBVA’s ADSs or ordinary shares will be treated as capital gains. Spanish Non-Resident Income Tax is currently levied at a 19% tax rate, on capital gains recognized by persons who are not residents of Spain for tax purposes, who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation and who do not operate through a fixed base or a permanent establishment in Spain.

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Notwithstanding the discussion above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is resident in a country that has entered into a treaty for the avoidance of double taxation with an “exchange of information” clause (the Treaty contains such a clause) will be exempt from taxation in Spain. Additionally, capital gains realized by non-residents of Spain who are entitled to the benefit of an applicable treaty for the avoidance of double taxation will, in the majority of cases, not be taxed in Spain (since most tax treaties provide for taxation only in the taxpayer’s country of residence). Under the Treaty, U.S. Residents’ capital gains arising from the disposition of ordinary shares or ADSs will not be taxed in Spain. U.S. Residents will be required to establish that they are entitled to this exemption by providing to the relevant Spanish tax authorities a certificate of residence in the United States from the IRS (discussed above in “—Taxation of Dividends”), together with the corresponding Spanish tax form.

Spanish Inheritance and Gift Taxes

Transfers of BBVA’s shares or ADSs upon death or by gift to individuals are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987), if the transferee is a resident in Spain for tax purposes, or if BBVA’s shares or ADSs are located in Spain, regardless of the residence of the transferee. In this regard, the Spanish tax authorities may argue that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate for individuals, after applying all relevant factors, ranges between approximately 7.65% and 81.6% under Spanish Law 29/1987. After determining the tax rate, multipliers that range from 1.0 to 2.4, are applied in order to assess the tax due. Those multipliers take into account the preexisting wealth of the inheritor / donee, and the kinship with the deceased / donor.

Corporations that are non-residents of Spain that receive BBVA’s shares or ADSs as a gift are subject to Spanish Non-Resident Income Tax at a 19% tax rate on the fair market value of such ordinary shares or ADSs as a capital gain tax. If the donee is a U.S. resident corporation, the exclusions available under the Treaty described in “—Taxation of Capital Gains” above will be applicable.

Spanish Transfer Tax

Transfers of BBVA’s ordinary shares or ADSs will be exempt from Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) or Value-Added Tax. Additionally, no stamp duty will be levied on such transfers.

U.S. Tax Considerations

The following summary describes material U.S. federal income tax consequences of the ownership and disposition of ADSs or ordinary shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold the securities. The summary applies only to U.S. Holders that are eligible for the benefits of the Treaty (in each case, as defined under “Spanish Tax Considerations” above) and that hold ADSs or ordinary shares as capital assets for tax purposes. This discussion does not address all of the tax consequences that may be relevant to any particular U.S. Holder, including the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, and tax consequences that may be relevant to holders subject to special rules, such as:

•    certain financial institutions;

•    dealers or traders in securities who use a mark-to-market method of accounting;

•   persons holding ADSs or ordinary shares as part of a hedging transaction, straddle, wash sale, conversion   transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs or ordinary shares;

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•     persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;

•     persons liable for the alternative minimum tax;

•     tax-exempt entities;

•     partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

•   persons holding ADSs or ordinary shares in connection with a trade or business conducted outside of the United States;

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•   persons who acquired our ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation; or

•     persons who own or are deemed to own 10% or more of our stock, by vote or value.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADSs or ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ADSs or ordinary shares and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs or ordinary shares.

The summary is based upon the tax laws of the United States, including the Code, the Treaty, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect. In addition, the summary is based in part on representations by the depositary and assumes that each obligation provided for in or otherwise contemplated by BBVA’s deposit agreement and any other related document will be performed in accordance with its terms. Prospective purchasers or owners of the ADSs or ordinary shares are urged to consult their tax advisors as to the U.S., Spanish or other tax consequences of the ownership and disposition of ADSs or ordinary shares in their particular circumstances, including the effect of any U.S. state or local tax laws.

In general, for United States federal income tax purposes, a U.S. Holder who owns ADSs will be treated as the owner of the underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.

The U.S. Treasury has expressed concerns that parties to whom American depositary shares are released before shares are delivered to the depositary, or intermediaries in the chain of ownership between holders and the issuer of the security underlying the American depositary shares, may be taking actions that are inconsistent with the claiming of foreign tax credits by U.S. holders of American depositary shares. Such actions would also be inconsistent with the claiming of the reduced rate of tax applicable to dividends received by certain non-corporate U.S. Holders, as described below. Accordingly, the analysis of the creditability of Spanish taxes and the availability of the reduced tax rate for dividends received by certain non-corporate U.S. Holders, each described below, could be affected by future actions that may be taken by such parties.

This discussion assumes that BBVA has not been, and will not become, a passive foreign investment company (“PFIC”) (as discussed below).

Taxation of Distributions

Distributions, before reduction for any Spanish income tax withheld by BBVA or its paying agent, made with respect to ADSs or ordinary shares (other than certain pro rata distributions of ordinary shares or rights to subscribe for ordinary shares of BBVA’s capital stock) will be includible in the income of a U.S. Holder as ordinary income, to the extent paid out of BBVA’s current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. The amount of such dividends will generally be treated as foreign-source dividend income and will not be eligible for the “dividends-received deduction” generally allowed to U.S. corporations under the Code. Subject to applicable limitations (including the satisfaction of a minimum holding period and the discussion above regarding concerns expressed by the U.S. Treasury,certain other requirements), dividends paid to certain non-corporate U.S. Holders of ADSs will be taxable as “qualified dividend income” and therefore will be taxable at favorable rates applicable to long-term capital gains. U.S. Holders should consult their own tax advisors to determine the availability of these favorable rates in their particular circumstances.

The amount of dividend income will equal the U.S. dollar value of the euro received, calculated by reference to the exchange rate in effect on the date of receipt (which, for U.S. Holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euro received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

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Subject to applicable limitations that vary depending upon a U.S. Holder’s circumstances, and subject to the discussion above regarding concerns expressed by the U.S. Treasury, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Spanish income taxes withheld by BBVA or its paying agent at a rate not exceeding the rate the U.S. Holder is entitled to under Spanish domestic law or the Treaty. Spanish taxes withheld in excess of the rate applicable under Spanish domestic law or the Treaty will not be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. See “Spanish Tax Considerations—Taxation of Dividends” for a discussion of how to obtain the Treaty rate. The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisors regarding the availability of foreign tax credits in their particular circumstances. Instead of claiming a credit, the U.S. Holder may, at its election and subject to applicable limitations, deduct such Spanish taxes in computing its U.S. federal taxable income. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

Sale or Other Disposition of ADSs or Shares

For U.S. federal income tax purposes, gain or loss realized by a U.S. Holder on the sale or other disposition of ADSs or ordinary shares will be capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year at the time of disposition. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

Based upon certain proposed Treasury regulations, including those which are proposed to be effective for taxable years beginning after December 31, 1994 (“Proposed Regulations”), we believe that we were not a PFIC for U.S. federal income tax purposes for our 20182020 taxable year. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time and since there is no guarantee that the Proposed Regulations will be adopted in their current form and because the manner of the application of the Proposed Regulations is not entirely clear, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we were treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of an ADS or an ordinary share would be allocated ratably over the U.S. Holder’s holding period for the ADS or the ordinary share. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable for that taxable year, and an interest charge would be imposed on the amount of tax allocated to such taxable year. The same treatment would apply to any distribution received by a U.S. Holder on its ordinary shares or ADSs to the extent that such distribution exceeds 125% of the average of the annual distributions on the ordinary shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the favorable tax rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. Certain elections may be available (including a mark-to-market election) that may provide alternative tax treatments. U.S. Holders should consult their tax advisors regarding whether we are or were a PFIC, the potential application of the PFIC rules to their ownership and disposition of ordinary shares or ADSs, whether any of these elections for alternative treatment would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. If we were a PFIC for any taxable year during which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file IRS Form 8621 with their annual U.S. federal income tax returns, subject to certain exceptions.

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Information Reporting and Backup Withholding

Information returns may be filed with the IRS in connection with payments of dividends on, and the proceeds from a sale or other disposition of, ADSs or ordinary shares. A U.S. Holder may be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

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Certain U.S. Holders who are individuals or specified entities may be required to report information relating to securities of non-U.S. companies, or non-U.S. accounts through which they are held. U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership or disposition of ordinary shares or ADSs.

F.      Dividends and Paying Agents

Not Applicable.

G.      Statement by Experts

Not Applicable.

H.     Documents on Display

We are subject to the information requirements of the Exchange Act, except that as a foreign private issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by BBVA with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which BBVA’s ADSs are listed. In addition, the SEC maintains a web site that contains information filed or furnished electronically with the SEC, which can be accessed over the internet at http://www.sec.gov. Except as otherwise expressly indicated herein, any such information does not form part of this Annual Report on Form 20-F.

I.       Subsidiary Information

Not Applicable.

ITEM 11.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

Trading Portfolio Activities

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial productsFor quantitative and assets. The main risks can be classified as follows:

·Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

·Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

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·Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

·Credit-spread risk: Credit spread is an indicator of an issuer’s credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

·Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

We believe the metrics developed to control and monitorqualitative disclosures about market risk, in the BBVA Group are aligned with best practices in the market,see Notes 7.3 and they are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group’s Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used by the Group7.4 to measure market risk in the trading portfolio is Value at Risk (“VaR”), which indicates the maximum loss expected to occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers various market risks, such as credit-spread risk, basis risk, volatility risk and correlation risk, among others.

Headings of the balance sheet subject to VaR measurement

We rely on VaR to measure market risk in our trading portfolio. The table below shows the aggregate amount of our traded financial products and assets, by accounting line of the consolidated balance sheet, as of December 31, 2018, in respect of which there is a market risk and therefore is subject to a VaR measurement:

As of December 31, 2018

VaR

(In Millions of Euros)

Assets subject to market risk

Financial assets held for trading

57,486

Financial assets at fair value through other comprehensive income

5,652

Of which: Equity instruments

-

Hedging derivatives

688

Liabilities subject to market risk

Financial liabilities held for trading

38,844

Hedging derivatives

550

Although the table above provides information on the financial positions in our trading portfolio subject to market risk and therefore VaR measurement, such information is provided for information purposes only and does not reflect how market risk in trading activity is managed.

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With respect to the risk measurement models used by the BBVA Group, the Bank of Spain has authorized the use of the internal market risk model to determine bank capital requirements deriving from risk positions on the Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer trading book, which jointly accounted for around 76% and 70% of the Group’s trading book market risk as of December 31, 2018 and 2017, respectively. For the rest of the geographical areas where the Group operates (applicable mainly to the Group’s South America subsidiaries, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the Standardised Approach defined by the Basel Committee on Banking Supervision (which is referred to herein as the “standard model”).

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the “historical simulation” methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it predicts the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used by Banco Bilbao Vizcaya Argentaria, S.A., BBVA Bancomer, BBVA Colombia, S.A., Compass Bank and Garanti.

VaR figures are estimated following two methodologies:

·VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

·VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

In the case of the Global Markets units of Argentina and Peru, a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain’s regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

·VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the risk factors inherent to market operations (including interest-rate risk, exchange-rate risk, equity risk and credit risk, among others). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

·Specific Risk - Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The IRC charge is exclusively applied in entities in respect of which the internal market risk model is used (i.e., Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer). The IRC charge is determined based on the associated losses (calculated at 99.9% confidence level over a one year horizon under the hypothesis of constant risk) due to a rating change and/or default of the issuer with respect to an asset. In addition, the price risk is included in sovereign positions for the specified items.

·Specific Risk - Securitization and correlation portfolios. Capital charges for securitizations and correlation portfolios are assessed based on the potential losses associated with the rating level of a specific credit structure. They are calculated by the standard model. The scope of the correlation portfolios refers to the First To Default (FTD)-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

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Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the assessed positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at a trading desk level in order to enable more specific monitoring of the validity of the measurement models.

Market risk in 2018

The Group’s market risk related to its trading portfolio remains at low levels compared with other risks managed by BBVA, particularly credit risk. This is due to the nature of the business. During 2018 the average VaR was €21 million, below the average and highest figures for 2017. VaR reached a high on March 16, 2018 of €26 million. The evolution in the Group’s market risk during 2018, measured as VaR without smoothing with a 99% confidence level and a one-day horizon (shown in millions of euros) was as follows:

By type of market risk assumed by the Group’s trading portfolio, the main risk factor for the Group continued to be that linked to interest rates, with a weight of 55% of the total at December 31, 2018 (this figure includes the spread risk). The relative weight of this risk increased compared with its relative weight at December 31, 2017 (48%). Exchange-rate risk had a relative weight of 14%, the same as in 2017, while the relative weight of equity, volatility and correlation risk decreased from 38% at December 31, 2017 to 31% at December 31, 2018.

The VaR average in 2018, 2017 and 2016 was €21 million, €27 million and €29 million, respectively. The total VaR figures for 2018, 2017 and 2016 can be broken down as follows:

Risk

2018

2017

2016

 

(In Millions of Euros)

At December 31

 

 

 

Interest/Spread risk

19

23

29

Currency risk

5

7

7

Stock-market risk

3

4

2

Vega/Correlation risk

7

14

12

Diversification effect(*)

(17)

(26)

(24)

For period

17

22

26

VaR average in the period

21

27

29

VaR max in the period

26

34

38

VaR min in the period

16

22

23

 

 

 

 

(*)     The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

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VaR and other measures of the risk of loss used by the Group involve risks and uncertainties. See “Cautionary Statement Regarding Forward-Looking Statements”. 

Validation of the internal market risk model

The internal market risk model is validated on a regular basis by backtesting in both Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer. The aim of backtesting is to validate the quality and precision of the internal market risk model used by the Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group’s results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both Banco Bilbao Vizcaya Argentaria, S.A. and BBVA Bancomer is adequate and precise.

Two types of backtesting were carried out during the years ended December 31, 2018, 2017 and 2016:

“Hypothetical” backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

“Real” backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at a risk factor or business type level, thus making a deeper comparison of the results with respect to risk measurements.

During the year ended December 31, 2018, we carried out the backtesting of the internal VaR calculation model, comparing the daily results obtained with the risk level estimated by the internal VaR calculation model. At the end of 2018, the comparison showed the internal VaR calculation model was working correctly, within the “green” zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

Stress test analysis

A number of stress tests are carried out on the Group’s trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the “Tequilazo” crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

·Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings.

·Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

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·Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on a resampling methodology. This methodology is based on the use of dynamic scenarios that are recalculated periodically depending on the main risks affecting the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from January 1, 2008 until the date of the assessment), a simulation is performed by resampling of historic observations, generating a distribution of losses and gains that serve to analyze the most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a greater richness of information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) there is flexibility in the inclusion of new risk factors and c) it allows the introduction of a lot of variability in the simulations (desirable for considering extreme events).

Structural Risk — Non-Trading Activities

Structural interest-rate risk

The structural interest-rate risk (“SIRR”) is related to the potential impact that variations in market interest rates have on an entity’s net interest income and equity. In order to measure SIRR, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Assets and Liabilities Management unit carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and other limits in the different balance sheets and for the Group as a whole, and complying with current and future regulatory requirements.

BBVA’s structural interest-rate risk management control and monitoring is based on a set of metrics and tools aimed at enabling the entity’s risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as earnings at risk (“EaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to evaluate its effectiveness, the model is subjected to regular internal validation, which includes backtesting. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

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The model is necessarily underpinned by an elaborate set of assumptions that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of deposits with no explicit maturity, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The assumptions are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

The impacts on the metrics are assessed both from a point of view of economic value with a static model (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the estimated impact on net interest income and economic value as of December 31, 2018, for the next succeeding year, of the main entities in the BBVA Group in 2018 of 100 basis points increases/decreases in interest rates (while certain information in this table is provisional, the distributions should not be significantly affected):

Impact on Net Interest Income (*)

Impact on Economic Value(**)

100 Basis-Point Increase

100 Basis-Point Decrease

100 Basis-Point Increase

100 Basis-Point Decrease

Europe (***)

+ (5% - 10%)

- (5% - 10%)

+ (0% - 5%)

- (0% - 5%)

USA

+ (5% - 10%)

- (5% - 10%)

- (5% - 10%)

+ (0% - 5%)

Mexico

+ (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

- (0% - 5%)

Turkey

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

South America

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

BBVA Group

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

- (0% - 5%)

(*)     Percentage impact of “one year” net interest income forecast for each unit.

(**)   Percentage impact of core capital for each unit.

(***) In Europe falling interest rates at more negative levels than the current interest rates.

In 2018, European monetary policy has remained expansionary, maintaining interest rates at 0% and the deposit rate at (0.4)%. In the United States, the rising rate cycle initiated by the Federal Reserve in 2015 has continued. In Mexico and Turkey, the upward cycle has continued as a result of volatility in their currencies and inflation prospects. In South America, monetary policy has continued to be expansive in most of the economies where the Group operates, with the exception of Argentina, where rates increased and actions were taken to slow inflation.

The Group overall maintains a positive and moderate sensitivity in its net interest income to an increase in interest rates. Higher relative net interest income sensitivities are particularly observed in markets using the euro and U.S. dollar. In Europe, however, the possible decrease in interest rates is limited by the very low or even negative prevailing interest rates, which prevent that very adverse scenarios may occur. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In the Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account diversification.

The corporate Assets and Liabilities Management unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group’s subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the framework of limits are integrated into management and supplemented with additional assessment indicators. At the corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

261


The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

In 2018, emerging markets experienced higher volatility levels in exchange rates. As for the main currencies of the countries where the Group operates, the Mexican peso and U.S. dollar appreciated against the euro in terms of period-end exchange rates (around 5% in both cases), while the Turkish lira and Argentine peso have strongly depreciated against the euro (25% and 48%, respectively) affected by idiosyncratic factors at period-end.

The Group’s structural exchange-rate risk exposure level has remained fairly stable since the end of 2017. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro and focuses on the Mexican peso and the Turkish lira. The risk mitigation level in BBVA’s capital ratio due to the book value of the Group’s holdings in foreign emerging markets currencies stood at around 70% and, as of the end of 2018, the CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency was as follows: U.S. dollar +1.1 bps; Mexican peso -0.2 bps; Turkish lira -0.2 bps; and other currencies -0.2 bps. Hedging of emerging markets-currency denominated earnings in 2018 increased to 82% (from 61% in 2017), concentrated in the Mexican peso, Turkish lira and other main Latin American currencies.

Structural equity risk

The Group’s exposure to structural equity risk stems mainly from minority shareholdings in industrial and financial companies held with long or medium-term investment horizons. This exposure is modulated in some portfolios with positions held in derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.

The management of structural equity portfolios is the responsibility of the Group’s units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, which complies with the defined management principles of BBVA and its Risk Appetite Framework.

The Group’s risk management systems also make it possible to anticipate potential negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This aims to check that the risks are limited and that the tolerance levels set by the Group are not at risk.

Backtesting is carried out on a regular basis on the risk measurement model used.

With regards to equity markets, the world indexes at the end of 2018 experienced generalized falls and volatility surges in a scenario of global growth slowdown, increase of political uncertainty and normalization of monetary policies.

Structural equity risk, measured in terms of economic capital, decreased in 2018 mainly due to lower exposure. The aggregate sensitivity of the Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio was around €(28) million as of December 31, 2018 and €(32) million as of December 31, 2017. This estimate takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area portfolios) and the net delta-equivalent positions in derivatives on the same underlyings.

See Note 7 of the Consolidated Financial Statements for additional information on risks faced by BBVA.Statements.

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ITEM 12.       DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.       Debt Securities

Not Applicable.

B.Warrants and Rights

Not Applicable.

C.Other Securities

Not Applicable.

221


D.       American Depositary Shares

Our ADSs are listed on the New York Stock Exchange under the symbol “BBVA”. The Bank of New York Mellon is the depositary (the “Depositary”) issuing ADSs pursuant to an amended and restated deposit agreement dated June 29, 2007 among BBVA, the Depositary and the holders from time to time of ADSs (the “Deposit Agreement”). Each ADS represents the right to receive one share. The table below sets forth the fees payable, either directly or indirectly, by a holder of ADSs as of the date of this Annual Report.

Category

Depositary Actions

Associated Fee / By Whom Paid

(a) Depositing or substituting the underlying shares

Issuance of ADSs

Up to $5.00 for each 100 ADSs (or portion thereof) evidenced by the new ADSs delivered (charged to person depositing the shares or receiving the ADSs)

(b) Receiving or distributing dividends

Distribution of cash dividends or other cash distributions; distribution of share dividends or other free share distributions; distribution of securities other than ADSs or rights to purchase additional ADSs

Not applicable

(c) Selling or exercising rights

Distribution or sale of securities

Not applicable

 

(d) Withdrawing an underlying security

Acceptance of ADSs surrendered for withdrawal of deposited securities

Up to $5.00 for each 100 ADSs (or portion thereof) evidenced by the ADSs surrendered (charged to person surrendering or to person to whom withdrawn securities are being delivered)

 

(e) Transferring, splitting or grouping receipts

Transfers, combining or grouping of depositary receipts

Not applicable

 

(f) General depositary services, particularly those charged on an annual basis

Other services performed by the Depositary in administering the ADSs

Not applicable

 

(g) Expenses of the Depositary

Expenses incurred on behalf of holders in connection with

·         stock transfer or other taxes (including Spanish income taxes) and other governmental charges;

·         cable, telex and facsimile transmission and delivery charges incurred at request of holder of ADS or person depositing shares for the issuance of ADSs;

·         transfer, brokerage or registration fees for the registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian;

·         reasonable and customary expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars

Expenses payable by holders of ADSs or persons depositing shares for the issuance of ADSs; expenses payable in connection with the conversion of foreign currency into U.S. dollars are payable out of such foreign currency

263


The Depositary may remit to us all or a portion of the Depositary fees charged for the reimbursement of certain of the expenses we incur in respect of the ADS program established pursuant to the Deposit Agreement upon such terms and conditions as we may agree from time to time. In the year ended December 31, 2018,2020, the Depositary reimbursed us $897,129$502,122 with respect to certain fees and expenses. The table below sets forth the types of expenses that the Depositary has agreed to reimburse and the amounts reimbursed in 2018.2020.

Category of Expenses

Amount Reimbursed in the Year Ended December 31, 20182020

 

(In Dollars)

NYSE Listing Fees

359,262307,610

Investor Relations Marketing

260,6934,833

Professional Services

103,71440,590

Annual General Shareholders’ Meeting Expenses

167,552149,089

Other

5,908-

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PART II

ITEM 13.       DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

ITEM 14.       MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not Applicable.

ITEM 15.       CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2018,2020, BBVA, under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Based upon their evaluation, BBVA’s Group Executive Chairman, Chief Executive Officer and Chief Financial Officer concluded that BBVA’s disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information relating to BBVA, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the management, including principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

264


Management’s Report on Internal Control Over Financial Reporting

The management of BBVA is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. BBVA’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·          pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BBVA;

·          provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of BBVA’s management and directors; and

·          provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

223


Under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that, as of December 31, 2018,2020, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control Over Financial Reporting

There have been no changes in BBVA’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which have materially affected or are reasonably likely to materially affect BBVA’s internal control over financial reporting during the year ended December 31, 2018. BBVA adopted IFRS 9 on January 1, 2018 and has updated and modified certain controls over financial reporting as a result of the new accounting standard, embedding them into the existing control environment.2020.

Our internal control over financial reporting as of December 31, 20182020 has been audited by KPMG Auditores S.L., an independent registered public accounting firm, as stated in their report which follows below.

265224


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRMReport of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on Internal Control Over Financial Reporting

We have audited Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 20182020, 2019 and 2017,2018, the related consolidated statements of income, recognized income and expenses,expense, changes in equity, and cash flows for the years then ended, and the related notes, included on pages F-4 through F-182 (collectively, the consolidated financial statements), and our report dated March 28, 2019February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting.Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Auditores, S.L.

Madrid, Spain

March 28, 2019February 26, 2021

266225


ITEM 16.       [RESERVED]

ITEM 16A.       AUDIT COMMITTEE FINANCIAL EXPERT

The charter for our Audit and Compliance Committee provides that the membersRegulations of the Audit and Compliance Committee and particularly its Chairman, shallestablish that committee members will be appointed with regardby the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their duties. In any event, at least one member will be appointed taking into account his or her knowledge and backgroundexperience in accounting, auditing and risk management, and weor both. As a whole, the Committee members will possess relevant technical knowledge in the financial sector.

We have determined that Mr. Jaime Félix Caruana Lacorte, current Chairman of the Audit Committee, and the Audit Committee members Mr. José Miguel Andrés Torrecillas, the Chairman of the AuditMrs. Belén Garijo López and Compliance Committee has such experience and knowledge and is anMrs. Ana Cristina Peralta Moreno are “audit committee financial expert”experts” as such term is defined by the regulations of the SecuritiesSEC.

Mr. Jaime Félix Caruana Lacorte, Mr. José Miguel Andrés Torrecillas, Mrs. Belén Garijo López and Exchange Commission issued pursuant to Section 407 of the Sarbanes-Oxley Act of 2002. Mr. Andrés isMrs. Ana Cristina Peralta Moreno are independent within the meaning of Rule 10A-3 under the New York Stock Exchange listing standards.Act.

In addition, we believe that the remaining members of the Audit and Compliance Committee have an understanding of applicable generally accepted accounting principles, experience analyzing and evaluating financial statements that present a breadth and level of complexity of accounting issues that are generally comparable to the breadth and complexity of issues that can reasonably be expected to be raised by our Consolidated Financial Statements, an understanding of internal controls over financial reporting, and an understanding of audit committee functions. Our Audit and Compliance Committee has experience overseeing and assessing the performance of BBVA and its consolidated subsidiaries and our external auditors with respect to the preparation, auditing and evaluation of our Consolidated Financial Statements.

ITEM 16B.       CODE OF ETHICS

The BBVA Group Code of Conduct, which was updated by the Board of Directors on May 28, 2015, applies to all companies and persons which form part of the BBVA Group. This Code sets out the standards of behavior that should be adhered to so that the Group’s conduct towards its customers, colleagues and the society be consistent with BBVA’s values. The BBVA Group Code of Conduct can be found on BBVA’s website at www.bbva.com.

267


ITEM 16C.       PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table provides information on the aggregate fees paid and payable byto our principal accountants KPMG Auditores S.L. and its worldwide affiliates, by type of service rendered for the periods indicated.

 

 

 

 

Year ended December 31,

 

Services Rendered

 

2018

 

2017

 

 

(In Millions of Euros)

Audit Fees(1)

22.7

23.3

Audit-Related Fees(2)

5.2

6.1

Tax Fees(3)

-

-

All Other Fees(4)

-

0.2

Total

27.9

29.6

    

 

Year ended December 31,

 

Services Rendered

 

2020

 

2019

 

 

(In Millions of Euros)

Audit Fees(1)

28.1

28.7

Audit-Related Fees(2)

1.2

1.3

Tax Fees(3)

-

-

All Other Fees(4)

0.1

-

Total

29.4

30.0

(1)       Aggregate fees paid and payable for each of the last two fiscal yearsby BBVA for professional services rendered by our principal accountants and its worldwide affiliates for the audit of BBVA’s annual financial statements, review of interim financial statements, SEC regulatory filings or services that are normally provided by our principal accountants and its worldwide affiliates in connection with statutory and regulatory filings or engagements for thosethe relevant fiscal years.year.

(2)       Aggregate fees paid and payable in each of the last two fiscal yearsby BBVA for assurance and related services by our principal accountants  and  its worldwide affiliates that are reasonably related to the performance of the audit or review of BBVA’s financial statements and are not reported under (1) above. This includes work related to the corporate social responsibility report of certain Group entities and certain regulatory work rendered by the independent auditor.   

(3)       Aggregate fees paid and payable in each of the last two fiscal yearsby BBVA for professional services rendered by our principal accountants and its worldwide affiliates for tax compliance, tax advice, and tax planning.

(4)       Aggregate fees paid and payable in each of the last two fiscal yearsby BBVA for products and services provided by our principal accountants and its worldwide affiliates other than the services reported in (1), (2) and (3) above. Services in this category consisted primarily of consultancy and implementation of new regulation.regulation.

268226


 

The Audit and Compliance Committee’s Pre-Approval Policies and Procedures

In order to assist in ensuring the independence of our external auditor, the regulations of our Audit and Compliance Committee provides that our external auditor is generally prohibited from providing us with non-audit services, other than under the specific circumstance described below. For this reason, our Audit and Compliance Committee has developed a pre-approval policy regarding the contracting of BBVA’s external auditor, or any affiliate of the external auditor, for professional services. The professional services covered by such policy include audit and non-audit services provided to BBVA or any of its subsidiaries reflected in agreements dated on or after May 6, 2003.

The pre-approval policy is as follows:

1.   The hiring of BBVA’s external auditor or any of its affiliates is prohibited, unless there is no other firm available to provide the needed services at a comparable cost and that could deliver a similar level of quality.

2.   In the event that there is no other firm available to provide needed services at a comparable cost and delivering a similar level of quality, the external auditor (or any of its affiliates) may be hired to perform such services, but only with the pre-approval of the Audit and Compliance Committee.

3.   The Chairman of the Audit and Compliance Committee has been delegated the authority to approve the hiring of BBVA’s external auditor (or any of its affiliates). In such an event, however, the Chairman would be required to inform the Audit and Compliance Committee of such decision at the Committee’s next meeting.

4.   The hiring of the external auditor for any of BBVA’s subsidiaries must also be pre-approved by the Audit and Compliance Committee.

ITEM 16D.       EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

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ITEM 16E.        PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The below table shows the purchases of BBVA shares made by or on behalf of BBVA or any affiliated purchaser during 2020. These purchases were made in open-market transactions and none of the shares were purchased under a publicly announced plan or program.

2018

Total Number of Ordinary Shares Purchased  

Average Price Paid per Share (or Unit) in Euros

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs  

Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 

 
 
 

January 1 to January 31

10,576,152

7.37

—  

 

February 1 to February 28

34,678,539

7.06

—  

 

March 1 to March 31

24,133,223

6.60

—  

 

April 1 to April 30

21,355,583

6.45

—  

 

May 1 to May 31

22,620,981

6.39

—  

 

June 1 to June 30

29,272,628

6.14

—  

 

July 1 to July 31

16,255,315

6.08

—  

 

August 1 to August 31

20,605,698

5.64

—  

 

September 1 to September 30

24,846,251

5.58

—  

 

October 1 to October 31

32,025,964

5.13

—  

 

November 1 to November 30

22,330,170

4.95

—  

 

December 1 to December 31

21,203,340

5.24

—  

 

Total  

279,903,844

6.01

—  

 

2020

Total Number of Ordinary Shares Purchased  

Average Price Paid per Share (or Unit) in Euros

Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs  

Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs 

 
 
 

January 

12,427,533

4.78

 

February 

33,414,182

4.89

 

March

33,312,325

3.24

 

April 

14,362,659

2.80

 

May

14,946,334

2.81

 

June 

25,555,734

3.17

 

July

20,880,943

3.09

 

August 

12,243,174

2.54

 

September

25,515,697

2.40

 

October

8,226,400

2.38

 

November 

15,932,539

3.31

 

December

17,874,367

4.68

 

Total  

234,691,887

3.44

 

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During 2018,2020, we sold a total of 245,985,735232,956,244 shares for an average price of €6.13€3.56 per share.

ITEM 16F.        CHANGE IN REGISTRANTS CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.         CORPORATE GOVERNANCE

Compliance with NYSE Listing Standards on Corporate Governance

On November 4, 2003, the SEC approved rules proposed by the New York Stock Exchange (the “NYSE”) intended to strengthen corporate governance standards for listed companies. In compliance therewith, the following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards.

Independence of the Directors on the Board of Directors and Board Committees

Under the NYSE corporate governance rules, (i) a majority of a U.S. company’s board of directors must be composed of independent directors, (ii) all members of the audit committee must be independent and (iii) all U.S. companies listed on the NYSE must have a compensation committee and a nominations committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules promulgated by the NYSE and, in the case of the audit committee, the NYSE and the SEC.

228


The Spanish Corporate Enterprises Act sets out a definition of what constitutes independence for the purpose of board or committee membership. Such definition is in line with the definition provided by our Board Regulations.

In addition, pursuant to the Spanish Corporate Enterprises Act, listed companies shall have, at least, an audit committee and an appointments and remuneration committee. This LawAct also establishes that such committees (i) shall be composed exclusively byof non-executive directors, (ii) shall have a majority of independent directors (in the case of the audit committee) or at least two of their members shall be independent directors (in the case of the appointments and remuneration committee) and (iii) they shall be chaired by an independent director.

Likewise, Law 10/2014, which completes the transposition of CRD IV into Spanish legislation, includes rules on corporate governance, among others, as regards board committees and their membership, establishing that the remuneration committee, the appointments committee and risk committee shall be composed of non-executive directors and at least one third of their members shall be independent and, in any event, the Chairman of these committees shall also be an independent director.

270


Moreover, pursuant to the Good Governance Code for Listed Companies of the CNMV, which includes non-binding recommendations applicable to listed companies in Spain, under the comply or explain principle: (i) independent directors must represent, at least, half of the total board members; (ii) the majority of the members of the audit committee and the appointments and remuneration committee must be independent; and (iii) companies with high market capitalization must have two separate committees, an appointments committee and a remuneration committee.

Pursuant to articleArticle 1 of our Board Regulations, BBVA considers that independent directors are non-executive directors appointed forbased on their personal and professional backgroundqualities and who canmay perform their duties without being constrained by their relationsrelationship with the Company, or its Group, its significant shareholders or its executives.managers. Directors cannotmay not be deemedconsidered independent if they:in any of the following situations:

a)   they have been employees or have been executive directors inof Group companies unlessin the last three or five years, have elapsed, respectively since they ceased as employees or executive directors, as the case may be;respectively;

b)  they receive from the CompanyBank, or itsfrom Group entities,companies, any amount or benefit for anany item other than remuneration for theirthe directorship, except wherethose amounts which are not significant for the sum is insignificant and expect further forrelevant director. For the purposes of this requirement, neither  dividends ornor pension supplements that a director may receive dueallowances received by directors relating to a formertheir previous professional or employment relationship,relations will be taken into account, provided thesethat said allowances are unconditional in nature and, consequently,therefore, the company paying themthat provides said allowances may not at its own discretion, suspend, amendmodify or revoke their accrual unless there has been a breach of duty;at its discretion without breaching its obligations;

c)   they are, partnersor have been in the past three years, a partner of thean external auditor or in charge of the audit report or have been so inresponsible during this time for the last three years, whether the audit in question was carried out onauditor's report for the Company or any other Group entity;company within its Group;

d)   they are executive directors or senior managers of another company infor which a Company’san executive director or senior manager of the Company is an external director;

e)   maintain anythey have, or have had over the last year, a significant business relationship with the CompanyBank or with any company within its Group, company or have done so over the last year, eitherwhether in their own name or as a significant shareholder, director or senior manager of a company that maintainshas, or has maintainedhad, such a relationship. Business relationship here means any relationship as supplier ofrelationships include supplying goods or services, including financial goods or services, and as advisorwell as acting as an adviser or consultant;

f)   they are significant shareholders, executive directors or senior managers of any entitya company that receives, or has received overin the lastpast three years, donations from the Company or from its Group. Those persons who are merelysimply trustees inof a foundation receiving donations shallwill not be deemedconsidered to be included underin this letter;category;

g)   they are spouses, partners in a similar relationship of affection or spousal equivalents or relatedrelatives up to the second degree of kinship to an executive director or senior manager of the Company;

h)   they have not been proposed for appointment or renewal by the Appointments Committee for appointment or renewal;and Corporate Governance Committee;

229


i)   they have held a directorshipbeen directors for a continuous period of more than 12twelve years; or

j)   are relatedin relation to anya significant shareholder or shareholder represented on the Board of Directors, under any of the circumstances described under lettersreferred to in items (a), (e), (f) or (g) above.above shall apply. In the event of the kinship relationships mentionedrelations referred to in letteritem (g), the limitation will apply not only with respect to the shareholder, but also with respect to theirany proprietary directors inof the company in which the shareholder holds an interest.shares are held.

Directors who hold sharesThe directors with a shareholding in the BankCompany may be considered independent provided that they comply withdo not meet the conditions above conditions and, in addition, that their shareholding is not legally considered to beregarded as significant.

As of the date of this Annual Report, 13 of the 15 members of our Board of Directors has a large number ofare non-executive directors and eightten out of the 15 members of our Board are independent under the definition of independence described above, which is in line with the definition provided by the Spanish Corporate Enterprises Act.

271


In addition, our Audit and Compliance Committee is composed exclusively of independent directors who are not members of the Bank’s Executive Committee and the Committee chairmanchair has experience in accounting, auditing and risk management,technical knowledge in financial sector, in accordance with the specific regulations of the Audit and Compliance Committee. Our Risk and Compliance Committee is composed exclusively of non-executive directors, the majority of whom (including its chairman) are independent directors.directors. Also, in accordance with the Spanish Corporate Enterprises Act and with corporate governance non-binding recommendations, our Board of Directors has two separate committees: an Appointments and Corporate Governance Committee and a RemunerationRemunerations Committee, which are composed exclusively of non-executive directors,, the majority of whom (including(including their chairman)chairmen) are independent directorsdirectors..

Separate Meetings for Independent Directors

In accordance with the NYSE corporate governance rules, independent directors must meet periodically outside of the presence of the executive directors. Under Spanish law, this requirement is not contemplated as such. We note, however, that our non-executive directors meet periodically outside the presence of our executive directors every time a Committee with oversight functions meets, since these Committees are comprised solely of non- executivenon-executive directors. Furthermore,, the Board of Directors has appointed a Lead Director with powers to coordinate and meet with the non-executive directors, among other faculties conferred by theapplicable law and in Article 5 ter21 of our Board Regulations. The Lead Director also maintains ongoing contact, holds meetings and has conversations with other Bank directors in order to seek their opinions on the corporate governance and operation of Directors Regulations.the Bank’s corporate bodies. In addition, our independentin accordance with Article 37 of the Board Regulations, the Lead Director coordinated during 2020 various meetings with non-executive directors, meet outside the presence of our executive directors as often as they deem fit, and usually prior to meetingswhich were held after each ordinary meeting of the Board of Directors or its Committees.Directors.

Code of Ethics

The NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. For information with respect to BBVA’s code of business conduct and ethics see “Item“Item 16 B. Code of Ethics”.

ITEM 16H.        MINE SAFETY DISCLOSURE

Not Applicable.

PART III

ITEM 17.        FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.

ITEM 18.        FINANCIAL STATEMENTS

Please see pages F-1 through F-319.F-242.  

 

272230


ITEM 19         EXHIBITS 

 

Exhibit

Number

 

Description

 

 

 

1.1

Amended and Restated Bylaws (Estatutos) of the Registrant (English translation) (*)

2.1

Description of Registrant’s Securities Registered under Section 12 of the Exchange Act

4.1

Information on Compensation Plans (**)

 

 

8.1

Consolidated Companies Composing Registrant (see Appendix I to IX to our Consolidated Financial Statements included herein)

 

 

10.1

Information on Compensation Plans (**)Share Purchase Agreement between Banco Bilbao Vizcaya Argentaria, S.A. and The PNC Financial Services Group of November 15, 2020

 

12.1

Section 302 Group Executive Chairman Certification

 

 

12.2

Section 302 Chief Executive Officer Certification

 

 

12.3

Section 302 Chief Financial Officer Certification

 

 

13.1

Section 906 Certification

 

 

15.1

Consent of Independent Registered Public Accounting Firm

15.2

Consent of Independent Registered Public Accounting Firm

 

 

101

Interactive Data File

 

(*) Incorporated by reference to BBVA’s Annual Report on Form 20-F for the year ended December 31, 20172017.

(**)Incorporated by reference to BBVA’s report on Form 6-K submitted on February 14, 201916, 2021 (SEC Accession No. 0001193125-19-039617)0001193125-21-043182).

 

We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.

   
 

273231


 

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and had duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

 

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

 

 

By:   

/s/ Jaime Sáenz de Tejada Pulido

 

Name:  

Jaime Sáenz de Tejada Pulido  

 

Title:

Chief Financial Officer

Date: March 28, 2019February 26, 2021

 

274232


 

 

 

 

 

 

Consolidated Financial Statements and ReportsReport of Independent Registered Public Accounting FirmsFirm for the years 2018, 2017,2020, 2019 and 20162018

 

 

 

 

 

 

 

  


 

Contents

CONSOLIDATED FINANCIAL STATEMENTS

NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS

1.

Introduction, basis for the presentation of the Consolidated Financial Statements, internal controlInternal Control over financial informationFinancial Reporting and other information

F-12F-13

2.

Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

F-16F-17

3.

BBVA Group

F-63F-41

4.

Shareholder remuneration system

F-66F-44

5.

Earnings per share

F-69F-45

6.

Operating segment reporting

F-70F-46

7.

Risk management

F-73F-47

8.

Fair Valuevalue of financial instruments

F-140F-97

9.

Cash, cash balances at central banks and other demandsdemand deposits

F-153F-108

10.

Financial assets and liabilities held for trading

F-154F-109

11.

Non-trading financial assets mandatorily at fair value through profit or loss

F-160F-110

12.

Financial assets and liabilities designated at fair value through profit or loss

F-160F-110

13.

Financial assets at fair value through other comprehensive income

F-161F-111

14.

Financial assets at amortized cost

F-168F-114

15.

Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk

F-170F-116

16.

Investments in joint ventures and associates

F-172F-118

17.

Tangible assets

F-174F-120

18.

Intangible assets

F-177F-123

19.

Tax assets and liabilities

F-181F-126

20.

Other assets and liabilities

F-185F-130

21.

Non-current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale

F-186F-130

22.

Financial liabilities at amortized cost

F-189F-135

23.

Assets and Liabilitiesliabilities under insurance and reinsurance contracts

F-194F-141

24.

Provisions

F-196F-142

25.

Post-employment and other employee benefit commitments

F-198F-145

26.

Common stock

F-207F-153

27.

Share premium

F-210F-154

28.

Retained earnings, revaluation reserves and other reserves

F-210F-154

29.

Treasury shares

F-213F-156

30.

Accumulated other comprehensive income (loss)

F-214F-157

31.

MinorityNon-controlling interest

F-215F-158

32.

Capital base and capital management

F-216F-159

33.

Commitments and guarantees given

F-219F-163

34.

Other contingent assets and liabilities

F-219F-163

35.

Purchase and sale commitments and future payment obligations

F-220F-163

36.

Transactions on behalf of third parties

F-221F-164

37.

Net interest income

F-222F-164

38.

Dividend income

F-224F-165

39.

Share of profit or loss of entities accounted for using the equity method

F-224F-165

40.

Fee and commission income and expense

F-225F-165

41.

Gains (losses) on financial assets and liabilities, nethedge accounting and Exchangeexchange differences, net

F-226F-166

42.

Other operating income and expense

F-228F-167

43.

Income and expense from insurance and reinsurance contracts

F-229F-167

44.

Administration costs

F-230F-168

45.

Depreciation and amortization

F-233F-170

46.

Provisions or (reversal)reversal of provisions

F-233F-170

47.

Impairment or (reversal)reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

F-234F-171

48.

Impairment or (reversal)reversal of impairment of investments in joint ventures and associates

F-171

49.

Impairment or reversal of impairment on non-financial assets

F-234

49.

Gains (losses) on derecognition of non - financial assets and subsidiaries, net

F-234F-171

50.

Profit (loss)Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

F-235F-172

51.

Consolidated statements of cash flows

F-236F-172

52.

Accountant fees and services

F-237F-173

53.

Related-party transactions

F-238F-174

54.

Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management

F-240F-176

55.

Other information

F-252F-182

56.

Subsequent events

F-254F-182



Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors


Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on the ConsolidatedFinancial Statements

We have audited the accompanying consolidated balance sheets of Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries (the Company) as of December 31, 20182020, 2019 and 2017,2018, the related consolidated statements of income, recognized income and expenses,expense, changes in equity, and cash flows for the years then ended, and the related notes, included on pages F-4 through F-182 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 20182020, 2019 and 2017,2018, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2018,2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated March 28, 2019February 26, 2021 expressedan unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Changes in Accounting PrinciplesSale of BBVA USA Bancshares, Inc.

As discussed in Note 1.3Notes 3 and 21 to the consolidated financial statements, in 2018during 2020 the Company has changedreached an agreement to sell its methodUSA subsidiary, BBVA USA Bancshares, Inc., as well as other companies in the United States with activities related to this banking business. As a result, the assets and liabilities of accountingthe companies included in the sale agreement have been classified under the headings Non-current assets and disposal groups classified as held for financial instruments due tosale and Liabilities included in disposal groups classified as held for sale in the adoptionconsolidated balance sheet as of International Financial Reporting Standard 9, Financial Instruments,December 31, 2020, and the Company has elected to change its methodresults of accountingthese companies have been classified under the heading Profit (loss) after tax from discontinued operations in the consolidated statements of income for hyperinflationary economies under International Accounting Standard 29, Financial Reporting in Hyperinflationary Economies.each of the years ended December 31, 2020, 2019 and 2018.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Expected credit losses related to loans and advances

As discussed in Note 7 to the consolidated financial statements, the Company’s provision for expected credit losses (ECL) related to loans and advances was €12,105 million as of December 31, 2020.

F-1


We identified the assessment of the ECL related to loans and advances as a critical audit matter because it involved subjective and complex auditor judgment as well as specialized skills and knowledge due to significant measurement uncertainty. In addition, the COVID-19 pandemic has negatively affected the economy and business activities in the countries where the Company operates, which has significantly impacted the Company´s future forecasts and further increased measurement uncertainty associated with the significant assumptions used to estimate the ECL as of December 31, 2020.

Specifically, our assessment encompassed an evaluation of the Company´s overall methodology for estimating ECL related to loans and advances, inclusive of the methodologies and significant assumptions used to estimate the probability of default (PD), exposure at default (EAD) and loss given default (LGD), as well as certain future macroeconomic variables such as GDP, and the need for and measurement of qualitative adjustments to the collective ECL including those used to account for the impacts of COVID-19. Our assessment also included an evaluation of the significant assumptions used to estimate the ECL for certain individually evaluated loans, including the terminal value, cost of capital, and collateral values, if applicable. Our assessment also included an evaluation of the mathematical accuracy of the ECL calculations. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s measurement of the ECL estimate, including controls related to (i) development and approval of the overall ECL methodology, (ii) validation of the PD, EAD, and LGD models, including the determination of the methodologies and assumptions used, (iii) determination of certain future macroeconomic variables such as GDP, (iv) determination of the need for and measurement of qualitative adjustments to the collective ECL, and (v) calculation of the ECL estimates.  This also included controls related to the significant assumptions used to estimate the ECL for individually evaluated loans, including the terminal value, cost of capital, and collateral values, if applicable.

We involved credit risk professionals with specialized skills and knowledge who assisted in (i) evaluating the Company’s ECL methodology for compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) assessing whether certain models used in calculating the PD, EAD, and LGD are suitable for their intended use by inspecting model documentation, assessing the conceptual soundness and ongoing performance, and assessing the methodologies used and certain assumptions, (iii) evaluating certain future macroeconomic variables such as GDP by comparing the Company´s forecasts against published external sources, and (iv) assessing the need for and measurement of qualitative adjustments to the ECL, including those used to account for the impacts of COVID-19, and (v) assessing the mathematical accuracy of the ECL calculation for a sample of loans.

We involved credit risk and valuation professionals with specialized skills and knowledge who assisted in testing the significant assumptions used to estimate the ECL for a sample of individually evaluated loans, including the terminal value, cost of capital and collateral values, if applicable.

We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the Company´s ECL.

Measurement of fair value of certain difficult-to-value financial instruments

As discussed in Note 8 to the consolidated financial statements, the Company has recorded €186,004 million of financial assets measured at fair value (of which €84,143 million were classified as Level 2 and €3,445 million were classified as Level 3) and €98,856 million of financial liabilities measured at fair value (of which €68,853 million were classified as Level 2 and €2,363 million were classified as Level 3) as of December 31, 2020 (collectively, difficult-to-value financial instruments). 

We identified the assessment of the measurement of fair value of certain difficult-to-value financial instruments as a critical audit matter.  Specifically, there was a high degree of subjectivity and judgment involved in evaluating the models and methodologies used to estimate fair value of certain difficult-to-value financial instruments. Subjective auditor judgment was also required to evaluate the models’ significant inputs and/or assumptions which were not directly observable in financial markets, such as certain interest rates, recovery rates, issuer credit risk, correlations and volatility inputs.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s process to measure fair value of certain difficult-to-value financial instruments, including controls over (i) the development and approval and/or reassessment of the Company´s valuation models and methodologies and (ii) the appropriateness, relevance and reliability of the significant inputs and/or assumptions used to estimate fair values for certain difficult-to-value financial instruments.

F-2


In addition, we involved valuation professionals with specialized skills and knowledge who assisted in (i) assessing the compliance of certain valuation models and methodologies with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) testing the Company’s process to develop the fair value of certain difficult-to-value financial instruments, including evaluating whether the inputs and/or assumptions are appropriate, relevant and reliable, and/or (iii) developing an independent fair value estimate and comparing it to the Company’s fair value estimate for a sample of certain difficult-to-value financial instruments.

/s/ KPMG Auditores, S.L.

We have served as the Company’s auditor since 2017.

Madrid, Spain
February 26, 2021

March 28, 2019

F-1


 

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Directors and Shareholders

Banco Bilbao Vizcaya Argentaria, S.A.:

We have audited the accompanying consolidated balance sheet of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. (the “Company”) and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group (the “Group” - Note 3) as of December 31, 2016 and the related consolidated income statement, statement of recognized income and expenses, statement of changes in equity and statement of cash flows for the year then ended. These consolidated financial statements are the responsibility of the Group’s Directors. Our responsibility is to express an opinion on these financial statements based on our audit.

We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provide a reasonable basis for our opinion.

In our opinion, such consolidated financial statements present fairly, in all material respects, the consolidated financial position of BANCO BILBAO VIZCAYA ARGENTARIA, S.A. and subsidiaries composing the BANCO BILBAO VIZCAYA ARGENTARIA Group as of December 31, 2016 and the consolidated results of their operations and their cash flows for the year then ended in conformity with the International Financial Reporting Standards, as issued by the International Accounting Standards Board (“IFRS – IASB”).

/s/ DELOITTE, S.L.

Madrid, Spain

March 31, 2017

F-2


Consolidated balance sheets as of December 31, 2018, 2017 and 2016

ASSETS (Millions of Euros)

 

Notes

2018

2017

2016

CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS

9

58,196

42,680

40,039

FINANCIAL ASSETS HELD FOR TRADING

10

90,117

64,695

74,950

     Derivatives

 

30,536

35,265

42,955

     Equity instruments

 

5,254

6,801

4,675

     Debt securities

 

25,577

22,573

27,166

     Loans and advances to central banks

 

2,163

-

-

     Loans and advances to credit institutions

 

14,566

-

-

     Loans and advances to customers

 

12,021

56

154

NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS

11

5,135

 

 

     Equity instruments

 

3,095

 

 

     Debt securities

 

237

 

 

     Loans and advances to central banks

 

-

 

 

     Loans and advances to credit institutions

 

-

 

 

     Loans and advances to customers

 

1,803

 

 

FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

12

1,313

2,709

2,062

     Equity instruments

 

-

1,888

1,920

     Debt securities

 

1,313

174

142

     Loans and advances to central banks

 

-

-

-

     Loans and advances to credit institutions

 

-

-

-

     Loans and advances to customers

 

-

648

-

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

13

56,337

69,476

79,221

     Equity instruments

 

2,595

3,224

4,641

     Debt securities

 

53,709

66,251

74,580

     Loans and advances to central banks

 

-

-

-

     Loans and advances to credit institutions

 

33

-

-

     Loans and advances to customers

 

-

-

-

FINANCIAL ASSETS AT AMORTIZED COST

14

419,660

445,275

483,672

     Debt securities

 

32,530

24,093

28,905

     Loans and advances to central banks

 

3,941

7,300

8,894

     Loans and advances to credit institutions

 

9,163

26,261

31,373

     Loans and advances to customers

 

374,027

387,621

414,500

HEDGING DERIVATIVES

15

2,892

2,485

2,833

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

 

(21)

(25)

17

JOINT VENTURES AND ASSOCIATES

16

1,578

1,588

765

     Joint ventures

 

173

256

229

     Associates

 

1,405

1,332

536

INSURANCE AND REINSURANCE ASSETS

23

366

421

447

TANGIBLE ASSETS

17

7,229

7,191

8,941

     Property, plants and equipment

 

7,066

6,996

8,250

        For own use

 

6,756

6,581

7,519

        Other assets leased out under an operating lease

 

310

415

732

     Investment properties

 

163

195

691

INTANGIBLE ASSETS

18

8,314

8,464

9,786

     Goodwill

 

6,180

6,062

6,937

     Other intangible assets

 

2,134

2,402

2,849

TAX ASSETS

19

18,100

16,888

18,245

     Current

 

2,784

2,163

1,853

     Deferred

 

15,316

14,725

16,391

OTHER ASSETS

20

5,472

4,359

7,274

   Insurance contracts linked to pensions

 

-

-

-

   Inventories

 

635

229

3,298

    Other

 

4,837

4,130

3,976

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE

21

2,001

23,853

3,603

TOTAL ASSETS

 

676,689

690,059

731,856

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-3  


Consolidated balance sheets as offor the years ended December 31, 2018, 20172020, 2019 and 20162018

LIABILITIES AND EQUITY (Millions of Euros)

 

Notes

2018

2017

2016

FINANCIAL LIABILITIES HELD FOR TRADING

10

80,774

46,182

54,675

     Trading derivatives

 

31,815

36,169

43,118

     Short positions

 

11,025

10,013

11,556

     Deposits from central banks

 

10,511

-

-

     Deposits from credit institutions

 

15,687

-

-

     Customer deposits

 

11,736

-

-

     Debt certificates

 

-

-

-

     Other financial liabilities

 

-

-

-

FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

12

6,993

2,222

2,338

     Deposits from central banks

 

-

-

-

     Deposits from credit institutions

 

-

-

-

     Customer deposits

 

976

-

-

     Debt certificates

 

2,858

-

-

     Other financial liabilities

 

3,159

2,222

2,338

     Of which: Subordinated liabilities

 

-

-

-

FINANCIAL LIABILITIES AT AMORTIZED COST

22

509,185

543,713

589,210

     Deposits from central banks

 

27,281

37,054

34,740

     Deposits from credit institutions

 

31,978

54,516

63,501

     Customer Deposits

 

375,970

376,379

401,465

     Debt certificates

 

61,112

63,915

76,375

     Other financial liabilities

 

12,844

11,850

13,129

     Of which: Subordinated liabilities

 

18,047

17,316

17,230

HEDGING DERIVATIVES

15

2,680

2,880

2,347

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

 

-

(7)

-

LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS

23

9,834

9,223

9,139

PROVISIONS

24

6,772

7,477

9,071

     Provisions for pensions and similar obligations

 

4,787

5,407

6,025

     Other long term employee benefits

 

62

67

69

     Provisions for taxes and other legal contingencies

 

686

756

418

     Provisions for contingent risks and commitments

 

636

578

950

     Other provisions

 

601

669

1,609

TAX LIABILITIES

19

3,276

3,298

4,668

     Current

 

1,230

1,114

1,276

     Deferred

 

2,046

2,184

3,392

OTHER LIABILITIES

20

4,301

4,550

4,979

LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

 

-

17,197

-

TOTAL LIABILITIES

 

623,814

636,736

676,428

ASSETS (Millions of Euros)

 

Notes

2020

2019

2018

CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS

9

65,520

44,303

58,196

FINANCIAL ASSETS HELD FOR TRADING

10

108,257

101,735

89,103

Derivatives

 

40,183

32,232

29,523

Equity instruments

 

11,458

8,892

5,254

Debt securities

 

23,970

26,309

25,577

Loans and advances to central banks

 

53

535

2,163

Loans and advances to credit institutions

 

20,499

21,286

14,566

Loans and advances to customers

 

12,095

12,482

12,021

NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS

11

5,198

5,557

5,135

Equity instruments

 

4,133

4,327

3,095

Debt securities

 

356

110

237

Loans and advances to customers

 

709

1,120

1,803

FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

12

1,117

1,214

1,313

Debt securities

 

1,117

1,214

1,313

FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME

13

69,440

61,183

56,337

Equity instruments

 

1,100

2,420

2,595

Debt securities

 

68,308

58,731

53,709

Loans and advances to credit institutions

 

33

33

33

FINANCIAL ASSETS AT AMORTIZED COST

14

367,668

439,162

419,660

Debt securities

 

35,737

38,877

32,530

Loans and advances to central banks

 

6,209

4,275

3,941

Loans and advances to credit institutions

 

14,575

13,649

9,163

Loans and advances to customers

 

311,147

382,360

374,027

DERIVATIVES - HEDGE ACCOUNTING

15

1,991

1,729

2,892

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

15

51

28

(21)

JOINT VENTURES AND ASSOCIATES

16

1,437

1,488

1,578

Joint ventures

 

149

154

173

Associates

 

1,288

1,334

1,405

INSURANCE AND REINSURANCE ASSETS

23

306

341

366

TANGIBLE ASSETS

17

7,823

10,068

7,229

Properties, plant and equipment

 

7,601

9,816

7,066

For own use

 

7,311

9,554

6,756

Other assets leased out under an operating lease

 

290

263

310

Investment properties

 

222

252

163

INTANGIBLE ASSETS

18

2,345

6,966

8,314

Goodwill

 

910

4,955

6,180

Other intangible assets

 

1,435

2,010

2,134

TAX ASSETS

19

16,526

17,083

18,100

Current tax assets

 

1,199

1,765

2,784

Deferred tax assets

 

15,327

15,318

15,316

OTHER ASSETS

20

2,513

3,800

5,472

Insurance contracts linked to pensions

 

-

-

-

Inventories

 

572

581

635

Other

 

1,941

3,220

4,837

NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

21

85,987

3,079

2,001

TOTAL ASSETS

3, 6

736,176

697,737

675,675

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-4  


Consolidated balance sheets as offor the years ended December 31, 2018, 20172020, 2019 and 20162018

LIABILITIES AND EQUITY (Continued) (Millions of Euros)

 

Notes

2018

2017

2016

SHAREHOLDERS’ FUNDS

 

54,326

53,283

50,985

Capital

26

3,267

3,267

3,218

Paid up capital

 

3,267

3,267

3,218

Unpaid capital which has been called up

 

-

-

-

Share premium

27

23,992

23,992

23,992

Equity instruments issued other than capital

 

-

-

-

Other equity instruments

 

50

54

54

Retained earnings

28

23,018

23,612

21,844

Revaluation reserves

28

3

12

20

Other reserves

28

(58)

(35)

(59)

Reserves or accumulated losses of investments in subsidiaries, joint ventures and associates

 

(58)

(35)

(59)

Other

 

-

-

-

Less: Treasury shares

29

(296)

(96)

(48)

Profit or loss attributable to owners of the parent

 

5,324

3,519

3,475

Less: Interim dividends

 

(975)

(1,043)

(1,510)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

30

(7,215)

(6,939)

(3,622)

Items that will not be reclassified to profit or loss

 

(1,284)

(1,183)

(1,095)

Actuarial gains or losses on defined benefit pension plans

 

(1,245)

(1,183)

(1,095)

Non-current assets and disposal groups classified as held for sale

 

-

-

-

 Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

-

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

 

(155)

-

-

Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income

 

-

 

 

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item)

 

-

 

 

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument)

 

-

 

 

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

 

116

 

 

Items that may be reclassified to profit or loss

 

(5,932)

(5,755)

(2,527)

Hedge of net investments in foreign operations (effective portion)

 

(218)

1

(118)

Foreign currency translation

 

(6,643)

(7,297)

(3,341)

Hedging derivatives. Cash flow hedges (effective portion)

 

(6)

(34)

16

Financial assets available for sale

 

 

1,641

947

Fair value changes of debt instruments measured at fair value through other comprehensive income

 

 

943

 

 

Hedging instruments (non-designated items)

 

-

 

 

Non-current assets and disposal groups classified as held for sale

 

1

(26)

-

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

(9)

(40)

(31)

MINORITY INTERESTS (NON-CONTROLLING INTEREST)

31

5,764

6,979

8,064

Accumulated other comprehensive income (loss)

 

(3,236)

(2,550)

(1,430)

Other

 

9,000

9,530

9,494

TOTAL EQUITY

 

52,874

53,323

55,428

TOTAL EQUITY AND TOTAL LIABILITIES

 

676,689

690,059

731,856

 

 

 

 

 

MEMORANDUM  ITEM (OFF-BALANCE SHEET EXPOSURES)  (Millions of Euros)

 

 

 

 

0

Notes

2018

2017

2016

Loan commitments given

33

118,959

94,268

107,254

Financial guarantees given

33

16,454

16,545

18,267

Other commitments given

33

35,098

45,738

42,592

LIABILITIES AND EQUITY (Millions of Euros)

 

Notes

2020

2019

2018

FINANCIAL LIABILITIES HELD FOR TRADING

10

86,488

88,680

79,761

Derivatives

 

41,680

34,066

30,801

Short positions

 

12,312

12,249

11,025

Deposits from central banks

 

6,277

7,635

10,511

Deposits from credit institutions

 

16,558

24,969

15,687

Customer deposits

 

9,660

9,761

11,736

Debt certificates

 

-

-

-

Other financial liabilities

 

-

-

-

FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS

12

10,050

10,010

6,993

Deposits from central banks

 

-

-

-

Deposits from credit institutions

 

-

-

-

Customer deposits

 

902

944

976

Debt certificates

 

4,531

4,656

2,858

Other financial liabilities

 

4,617

4,410

3,159

Memorandum item: Subordinated liabilities

 

-

-

-

FINANCIAL LIABILITIES AT AMORTIZED COST

22

490,606

516,641

509,185

Deposits from central banks

 

45,177

25,950

27,281

Deposits from credit institutions

 

27,629

28,751

31,978

Customer deposits

 

342,661

384,219

375,970

Debt certificates

 

61,780

63,963

61,112

Other financial liabilities

 

13,358

13,758

12,844

Memorandum item: Subordinated liabilities

 

16,488

18,018

18,047

DERIVATIVES - HEDGE ACCOUNTING

15

2,318

2,233

2,680

FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK

15

-

-

-

LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS

23

9,951

10,606

9,834

PROVISIONS

24

6,141

6,538

6,772

Pensions and other post employment defined benefit obligations

 

4,272

4,631

4,787

Other long term employee benefits

 

49

61

62

Provisions for taxes and other legal contingencies

 

612

677

686

Commitments and guarantees given

 

728

711

636

Other provisions

 

479

457

601

TAX LIABILITIES

19

2,355

2,808

3,276

Current tax liabilities

 

545

880

1,230

Deferred tax liabilities

 

1,809

1,928

2,046

OTHER LIABILITIES

20

2,802

3,742

4,301

LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE

21

75,446

1,554

-

TOTAL LIABILITIES

 

686,156

642,812

622,801

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-5  


Consolidated income statementsbalance sheets for the years ended December 31, 2018, 20172020, 2019 and 20162018

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)

 

Notes

2018

2017

2016

Interest and other income

37.1

29,831

29,296

27,708

Interest expense

37.2

(12,239)

(11,537)

(10,648)

NET INTEREST INCOME

 

17,591

17,758

17,059

Dividend income

38

157

334

467

Share of profit or loss of entities accounted for using the equity method

39

(7)

4

25

Fee and commission income

40

7,132

7,150

6,804

Fee and commission expense

40

(2,253)

(2,229)

(2,086)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

41

216

985

1,375

Gains (losses) on financial assets and liabilities held for trading, net

41

707

218

248

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

41

96

 

 

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

41

143

(56)

114

Gains (losses) from hedge accounting, net

41

72

(209)

(76)

Exchange differences, net

41

(9)

1,030

472

Other operating income

42

949

1,439

1,272

Other operating expense

42

(2,101)

(2,223)

(2,128)

Income from insurance and reinsurance contracts

43

2,949

3,342

3,652

Expense from insurance and reinsurance contracts

43

(1,894)

(2,272)

(2,545)

GROSS INCOME

 

23,747

25,270

24,653

Administration costs

 

(10,494)

(11,112)

(11,366)

     Personnel expenses

44.1

(6,120)

(6,571)

(6,722)

     Other administrative expenses

44.2

(4,374)

(4,541)

(4,644)

Depreciation and amortization

45

(1,208)

(1,387)

(1,426)

Provisions or reversal of provisions

46

(373)

(745)

(1,186)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

47

(3,981)

(4,803)

(3,801)

     Financial assets measured at amortized cost

 

(3,980)

(3,676)

(3,598)

     Financial assets at fair value through other comprehensive income

 

(1)

(1,127)

(202)

NET OPERATING INCOME

 

7,691

7,222

6,874

Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates

 

-

-

-

Impairment or reversal of impairment on non-financial assets

48

(138)

(364)

(521)

     Tangible assets

 

(5)

(42)

(143)

     Intangible assets

 

(83)

(16)

(3)

     Other assets

 

(51)

(306)

(375)

Gains (losses) on derecognition of non - financial assets and subsidiaries, net

49

78

47

70

Negative goodwill recognized in profit or loss

 

-

-

-

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations   

50

815

26

(31)

PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS

55.2

8,446

6,931

6,392

Tax expense or income related to profit or loss from continuing operations

 

(2,295)

(2,169)

(1,699)

PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS

 

6,151

4,762

4,693

Profit or loss after tax from discontinued operations, net

 

-

-

-

PROFIT FOR THE YEAR

 

6,151

4,762

4,693

Attributable to minority interest [non-controlling interest]

31

827

1,243

1,218

Attributable to owners of the parent

55.2

5,324

3,519

3,475

 

 

 

 

 

 

 

2018

2017

2016

EARNINGS PER SHARE  (Euros)

 

0.76

0.48

0.49

     Basic earnings per share from continued operations

 

0.76

0.48

0.49

     Diluted earnings per share from continued operations

 

0.76

0.48

0.49

     Basic earnings per share from discontinued operations

 

-

-

-

     Diluted earnings per share from discontinued operations

 

-

-

-

LIABILITIES AND EQUITY (Continued) (Millions of Euros)

 

Notes

2020

2019

2018

SHAREHOLDERS’ FUNDS

 

58,904

58,950

57,333

Capital

26

3,267

3,267

3,267

Paid up capital

 

3,267

3,267

3,267

Unpaid capital which has been called up

 

-

-

-

Share premium

27

23,992

23,992

23,992

Equity instruments issued other than capital

 

-

-

-

Other equity

 

42

56

50

Retained earnings

28

30,508

29,388

26,063

Revaluation reserves

28

-

-

3

Other reserves

28

(164)

(119)

(37)

Reserves or accumulated losses of investments in joint ventures and associates

 

(164)

(119)

(37)

Other

 

-

-

-

Less: treasury shares

29

(46)

(62)

(296)

Profit or loss attributable to owners of the parent

 

1,305

3,512

5,400

Less: interim dividends

 

-

(1,084)

(1,109)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

30

(14,356)

(10,226)

(10,223)

Items that will not be reclassified to profit or loss

 

(2,815)

(1,875)

(1,284)

Actuarial gains (losses) on defined benefit pension plans

 

(1,474)

(1,498)

(1,245)

Non-current assets and disposal groups classified as held for sale

 

(65)

3

-

 Share of other recognized income and expense of investments joint ventures and associates

 

-

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

 

(1,256)

(404)

(155)

Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income

 

-

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item)

 

-

-

-

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument)

 

-

-

-

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

 

(21)

24

116

Items that may be reclassified to profit or loss

 

(11,541)

(8,351)

(8,939)

Hedge of net investments in foreign operations (effective portion)

 

(62)

(896)

(218)

Foreign currency translation

 

(14,185)

(9,147)

(9,630)

Hedging derivatives. Cash flow hedges (effective portion)

 

10

(44)

(6)

Fair value changes of debt instruments measured at fair value through other comprehensive income

 

2,069

1,760

943

Hedging instruments (non-designated items)

 

-

-

-

Non-current assets and disposal groups classified as held for sale

 

644

(18)

1

Share of other recognized income and expense of investments in joint ventures and associates

 

(17)

(5)

(29)

MINORITY INTERESTS (NON-CONTROLLING INTERESTS)

31

5,471

6,201

5,764

Accumulated other comprehensive income (loss)

 

(6,949)

(5,572)

(5,290)

Other items

 

12,421

11,773

11,053

TOTAL EQUITY

 

50,020

54,925

52,874

TOTAL EQUITY AND TOTAL LIABILITIES

 

736,176

697,737

675,675

 

 

 

 

 

MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES) (Millions of Euros)

 

 

 

 

 

Notes

2020

2019

2018

Loan commitments given

33

132,584

130,923

118,959

Financial guarantees given

33

10,665

10,984

16,454

Other commitments given

33

36,190

39,209

35,098

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-6  


Consolidated income statements for the years ended December 31, 2020, 2019 and 2018

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)

 

Notes

2020

2019 (*)

2018 (*)

Interest and other income

37.1

22,389

27,762

26,954

Interest expense

37.2

(7,797)

(11,972)

(11,669)

NET INTEREST INCOME

 

14,592

15,789

15,285

Dividend income

38

137

153

145

Share of profit or loss of entities accounted for using the equity method

39

(39)

(42)

(7)

Fee and commission income

40

5,980

6,786

6,462

Fee and commission expense

40

(1,857)

(2,284)

(2,059)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

41

139

186

191

Gains (losses) on financial assets and liabilities held for trading, net

41

777

419

640

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

41

208

143

96

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

41

56

(98)

139

Gains (losses) from hedge accounting, net

41

7

55

69

Exchange differences, net

41

359

581

13

Other operating income

42

492

639

929

Other operating expense

42

(1,662)

(1,943)

(2,021)

Income from insurance and reinsurance contracts

43

2,497

2,890

2,949

Expense from insurance and reinsurance contracts

43

(1,520)

(1,751)

(1,894)

GROSS INCOME

 

20,166

21,522

20,936

Administration costs

 

(7,799)

(8,769)

(9,020)

   Personnel expense

44.1

(4,695)

(5,351)

(5,205)

   Other administrative expense

44.2

(3,105)

(3,418)

(3,816)

Depreciation and amortization

45

(1,288)

(1,386)

(1,034)

Provisions or reversal of provisions

46

(746)

(614)

(395)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

47

(5,179)

(3,552)

(3,681)

   Financial assets measured at amortized cost

 

(5,160)

(3,470)

(3,680)

   Financial assets at fair value through other comprehensive income

 

(19)

(82)

(1)

NET OPERATING INCOME

 

5,153

7,202

6,807

Impairment or reversal of impairment of investments in joint ventures and associates

48

(190)

(46)

-

Impairment or reversal of impairment on non-financial assets

49

(153)

(128)

(137)

   Tangible assets

 

(125)

(94)

(4)

   Intangible assets

 

(19)

(12)

(83)

   Other assets

 

(9)

(23)

(50)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

 

(7)

(5)

80

Negative goodwill recognized in profit or loss

 

-

-

-

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations 

50

444

23

815

PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS

 

5,248

7,046

7,565

Tax expense or income related to profit or loss from continuing operations

19

(1,459)

(1,943)

(2,042)

PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS

 

3,789

5,103

5,523

Profit (loss) after tax from discontinued operations

21

(1,729)

(758)

704

PROFIT FOR THE YEAR

 

2,060

4,345

6,227

ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS)

31

756

833

827

ATTRIBUTABLE TO OWNERS OF THE PARENT

 

1,305

3,512

5,400

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

 

 

 

 

 

Notes

2020

2019 (*)

2018 (*)

EARNINGS PER SHARE (Euros)

5

0.14

0.47

0.75

   Basic earnings (losses) per share from continued operations

 

0.40

0.58

0.64

   Diluted earnings (losses) per share from continued operations

 

0.40

0.58

0.64

   Basic earnings (losses) per share from discontinued operations

 

(0.26)

(0.11)

0.11

   Diluted earnings (losses) per share from discontinued operations

 

(0.26)

(0.11)

0.11

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

The accompanying Notes are an integral part of the consolidated financial statements.

F-7  


Consolidated statements of recognized income and expensesexpense for the years ended December 31, 2018, 20172020, 2019 and 20162018

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (MILLIONS OF EUROS)

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE (Millions of Euros)

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE (Millions of Euros)

2018

2017

2016

2020

2019 (*)

2018 (*)

PROFIT RECOGNIZED IN INCOME STATEMENT

6,151

4,762

4,693

2,060

4,345

6,227

OTHER RECOGNIZED INCOME (EXPENSES)

(2,523)

(4,439)

(3,012)

OTHER RECOGNIZED INCOME (EXPENSE)

(5,375)

(286)

(2,605)

ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT

(141)

(91)

(240)

(822)

(584)

(141)

Actuarial gains and losses from defined benefit pension plans

(79)

(96)

(303)

Actuarial gains (losses) from defined benefit pension plans

(88)

(364)

(79)

Non-current assets and disposal groups held for sale

-

17

2

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

(172)

 

Share of other recognized income and expense of entities accounted for using the equity method

-

Fair value changes of equity instruments measured at fair value through other comprehensive income, net

(796)

(229)

(172)

Gains (losses) from hedge accounting of equity instruments at fair value through other comprehensive income, net

-

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

166

 

4

(133)

166

Income tax related to items not subject to reclassification to income statement

(56)

5

63

40

140

(56)

ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT

(2,382)

(4,348)

(2,772)

(4,553)

298

(2,464)

Hedge of net investments in foreign operations (effective portion)

(244)

80

166

378

(687)

(244)

Valuation gains or losses taken to equity

(244)

112

166

Valuation gains (losses) taken to equity

378

(687)

(244)

Transferred to profit or loss

-

-

Other reclassifications

-

(32)

-

-

Foreign currency translation

(1,537)

(5,080)

(2,157)

(4,873)

(104)

(2,186)

Valuation gains or losses taken to equity

(1,542)

(5,089)

(2,110)

Translation gains (losses) taken to equity

(4,873)

(123)

(2,191)

Transferred to profit or loss

5

(22)

(47)

-

1

5

Other reclassifications

-

31

-

-

18

-

Cash flow hedges (effective portion)

27

(67)

80

230

(203)

(10)

Valuation gains or losses taken to equity

(32)

(122)

134

Valuation gains (losses) taken to equity

230

(193)

(69)

Transferred to profit or loss

58

55

(54)

-

(10)

58

Transferred to initial carrying amount of hedged items

-

-

Other reclassifications

-

-

Available-for-sale financial assets

 

719

(694)

Valuation gains or losses taken to equity

 

384

438

Transferred to profit or loss

 

347

(1,248)

Other reclassifications

 

(12)

116

Debt securities at fair value through other comprehensive income

(901)

 

460

1,131

(860)

Valuation gains or losses taken to equity

(766)

 

Valuation gains (losses) taken to equity

515

1,280

(725)

Transferred to profit or loss

(135)

 

(54)

(149)

(135)

Other reclassifications

-

 

-

Non-current assets and disposal groups held for sale

20

(20)

-

(492)

461

581

Valuation gains or losses taken to equity

-

Valuation gains (losses) taken to equity

(472)

472

561

Transferred to profit or loss

20

-

(20)

-

20

Other reclassifications

-

(20)

-

-

(11)

-

Entities accounted for using the equity method

9

(14)

(89)

(13)

31

11

Income tax relating to items subject to reclassification to income statements

244

35

(78)

(243)

(332)

244

TOTAL RECOGNIZED INCOME/EXPENSES

3,628

323

1,681

TOTAL RECOGNIZED INCOME/EXPENSE

(3,315)

4,060

3,622

Attributable to minority interest (non-controlling interests)

(420)

127

305

(606)

552

(443)

Attributable to the parent company

4,048

196

1,376

(2,709)

3,509

4,065

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

 

F-7F-8  


Consolidated statements of changes in equity for the years ended December 31, 2018, 20172020, 2019 and 20162018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

Capital

(Note 26)

Share Premium

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income

 (Note 30)

Non-controlling interest

Total

Capital

(Note 26)

Share Premium (Note 27)

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares (Note 29)

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income (loss)

  (Note 30)

Non-controlling interest

Total

2018

Valuation adjustments (Note 31)

Other

(Note 31)

Balances as of January 1, 2018

3,267

23,992

-

54

25,474

12

(44)

(96)

3,519

(1,043)

(8,792)

(3,378)

10,358

53,323

2020

Capital

(Note 26)

Share Premium (Note 27)

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares (Note 29)

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income (loss)

  (Note 30)

Accumulated other comprehensive income (loss) (Note 31)

Other

(Note 31)

Total

Balances as of January 1, 2020 (*)

(3,526)

9,727

Effect of changes in accounting policies ( Note 1.3)

-

(2,713)

-

9

-

-

1,756

850

(822)

(919)

-

2,985

-

6

-

-

(2,992)

(2,045)

2,045

-

Adjusted initial balance

3,267

23,992

-

54

22,761

12

(34)

(96)

3,519

(1,043)

(7,036)

(2,528)

9,536

52,404

3,267

23,992

-

56

29,388

-

(119)

(62)

3,512

(1,084)

(10,226)

(5,572)

11,773

54,925

Total income/expense recognized

-

5,324

-

(1,276)

(1,247)

827

3,628

-

1,305

-

(4,013)

(1,362)

756

(3,315)

Other changes in equity

-

(4)

256

(10)

(23)

(199)

(3,519)

68

1,096

540

(1,364)

(3,158)

-

(14)

1,120

-

(45)

16

(3,512)

1,084

(116)

(16)

(107)

(1,590)

Issuances of common shares

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

Dividend distribution

-

(992)

-

(4)

-

(975)

-

-

(378)

(2,349)

-

(1,065)

-

-

(124)

(1,190)

Purchase of treasury shares

-

(1,684)

-

-

-

-

(1,684)

-

(807)

-

-

(807)

Sale or cancellation of treasury shares

-

(24)

-

1,484

-

-

-

-

1,460

-

823

-

-

822

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

Transfers within total equity (see Note 2.2.20)

-

1,408

(10)

(19)

-

(3,519)

1,043

1,096

540

(540)

-

Transfers within total equity (see Note 2.2.19)

-

2,585

-

(40)

-

(3,512)

1,084

(116)

(16)

16

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

Share based payments

-

(19)

-

-

-

-

(19)

-

(22)

-

-

(22)

Other increases or (-) decreases in equity

-

15

(135)

-

-

-

-

(446)

(566)

-

8

(399)

-

(4)

-

-

1

(394)

Balances as of December 31, 2018

3,267

23,992

-

50

23,018

3

(58)

(296)

5,324

(975)

(7,215)

(3,236)

9,000

52,874

Balances as of December 31, 2020

3,267

23,992

-

42

30,508

-

(164)

(46)

1,305

-

(14,356)

(6,949)

12,421

50,020

(*)  Balances as of December 31, 2019 as originally reported in the consolidated Financial Statements for the year 2019.

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-8


Consolidated statements of changes in equity for the years ended December 31, 2018, 2017 and 2016

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)

 

Capital

(Note 26)

Share Premium

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income

 (Note 30)

Non-controlling interest

Total

2017

Valuation adjustments (Note 31)

Other

(Note 31)

Balances as of January 1, 2017

3,218

23,992

-

54

23,688

20

(67)

(48)

3,475

(1,510)

(5,458)

(2,246)

10,310

55,428

Effect of changes in accounting policies ( Note 1.3)

-

-

-

-

(1,843)

-

7

-

-

-

1,836

817

(817)

-

Adjusted initial balance

3,218

23,992

-

54

21,845

20

(60)

(48)

3,475

(1,510)

(3,622)

(1,429)

9,493

55,428

Total income/expense recognized

-

-

-

-

-

-

-

-

3,519

-

(3,317)

(1,122)

1,243

323

Other changes in equity

50

-

-

-

1,768

(8)

25

(48)

(3,475)

467

-

-

(1,207)

(2,428)

Issuances of common shares

50

-

-

-

(50)

-

-

-

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Dividend distribution

-

-

-

-

9

-

(9)

-

-

(900)

-

-

(290)

(1,189)

Purchase of treasury shares

-

-

-

-

-

-

-

(1,674)

-

-

-

-

-

(1,674)

Sale or cancellation of treasury shares

-

-

-

-

1

-

-

1,626

-

-

-

-

-

1,627

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Transfers within total equity

-

-

-

-

1,932

(8)

41

-

(3,475)

1,510

-

-

-

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Share based payments

-

-

-

(22)

-

-

-

-

-

-

-

-

-

(22)

Other increases or (-) decreases in equity

-

-

-

22

(125)

-

(6)

-

-

(144)

-

-

(917)

(1,169)

Balances as of December 31, 2017

3,267

23,992

-

54

23,612

12

(34)

(96)

3,519

(1,043)

(6,939)

(2,551)

9,529

53,323

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-9  


 

Consolidated statements of changes in equity for the years ended December 31, 2018, 20172020, 2019 and 20162018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (MILLIONS OF EUROS)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

Capital

(Note 26)

Share Premium

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income

 (Note 30)

Non-controlling interest

Total

Capital

(Note 26)

Share Premium (Note 27)

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares (Note 29)

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income (loss)

  (Note 30)

Non-controlling interest

Total

2016

Valuation adjustments (Note 31)

Other

(Note 31)

Balances as of January 1, 2016

3,120

23,992

-

35

22,588

22

(98)

(309)

2,642

(1,352)

(3,349)

(1,333)

9,325

55,281

2019 (*)

Capital

(Note 26)

Share Premium (Note 27)

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares (Note 29)

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income (loss)

  (Note 30)

Accumulated other comprehensive income (loss) (Note 31)

Other

(Note 31)

Total

Balances as of January 1, 2019 (**)

(3,236)

9,000

Effect of changes in accounting policies ( Note 1.3)

-

(1,834)

-

7

-

-

1,826

816

(816)

-

-

3,045

-

20

-

76

(134)

(3,007)

(2,054)

2,054

-

Adjusted initial balance

3,120

23,992

-

35

20,754

22

(91)

(309)

2,642

(1,352)

(1,523)

(517)

8,509

55,282

3,267

23,992

-

50

26,063

3

(38)

(296)

5,400

(1,109)

(10,223)

(5,290)

11,054

52,874

Total income/expense recognized

-

3,475

-

(2,099)

(913)

1,218

1,681

-

3,512

-

(3)

(282)

833

4,060

Other changes in equity

98

-

19

1,090

(2)

31

260

(2,642)

(158)

-

-

(233)

(1,535)

-

6

3,326

(3)

(82)

234

(5,400)

25

-

(115)

(2,009)

Issuances of common shares

98

-

(98)

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

Dividend distribution

-

93

-

(93)

-

(1,301)

-

-

(234)

(1,535)

-

(1,063)

-

(1,084)

-

(142)

(2,289)

Purchase of treasury shares

-

(2,004)

-

-

-

-

(2,004)

-

(1,088)

-

-

(1,088)

Sale or cancellation of treasury shares

-

(30)

-

2,264

-

-

-

-

2,234

-

13

-

1,322

-

-

1,335

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

Transfers within total equity

-

1,166

(2)

126

-

(2,642)

1,352

-

-

Transfers within total equity (see Note 2.2.19)

-

4,364

(3)

(70)

-

(5,400)

1,109

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

Share based payments

-

(16)

3

-

-

-

-

(12)

-

(4)

-

-

(4)

Other increases or (-) decreases in equity

-

35

(44)

-

(2)

-

(210)

-

-

2

(219)

-

11

13

-

(13)

-

-

27

38

Balances as of December 31, 2016

3,218

23,992

-

54

21,845

20

(60)

(48)

3,475

(1,510)

(3,622)

(1,429)

9,494

55,428

Balances as of December 31, 2019

3,267

23,992

-

56

29,388

-

(119)

(62)

3,512

(1,084)

(10,226)

(5,572)

11,773

54,925

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

(**) Balances as of December 31, 2018 as originally reported in the consolidated Financial Statements for the year 2018.

The accompanying Notes 1are an integral part of the consolidated financial statements.

F-10


Consolidated statements of changes in equity for the years ended December 31, 2020, 2019 and 2018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)

 

Capital

(Note 26)

Share Premium (Note 27)

Equity instruments issued other than capital

Other Equity

 

Retained earnings

(Note 28)

Revaluation reserves

 (Note 28)

Other reserves

(Note 28)

(-) Treasury shares (Note 29)

Profit or loss attributable to owners of the parent

(-) Interim dividends (Note 4)

Accumulated other comprehensive income (loss)

  (Note 30)

Non-controlling interest

Total

2018 (*)

Accumulated other comprehensive income (loss) (Note 31)

Other

(Note 31)

Balances as of January 1, 2018 (**)

3,267

23,992

-

54

25,474

12

(44)

(96)

3,519

(1,043)

(8,792)

(3,378)

10,358

53,323

Effect of changes in accounting policies (Note 1.3)

-

-

-

-

348

-

30

-

(5)

(129)

(1,192)

(1,181)

1,209

(919)

Adjusted initial balance

3,267

23,992

-

54

25,822

12

(13)

(96)

3,514

(1,172)

(9,984)

(4,559)

11,567

52,404

Total income/expense recognized

-

-

-

-

-

-

-

-

5,400

-

(1,335)

(1,270)

827

3,622

Other changes in equity

-

-

-

(4)

240

(10)

(24)

(199)

(3,514)

63

1,096

540

(1,341)

(3,152)

Issuances of common shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuances of preferred shares

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Issuance of other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Settlement or maturity of other equity instruments issued

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Conversion of debt on equity

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Common Stock reduction

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Dividend distribution

-

-

-

-

(996)

-

-

-

-

(1,109)

-

-

(378)

(2,483)

Purchase of treasury shares

-

-

-

-

-

-

-

(1,684)

-

-

-

-

-

(1,684)

Sale or cancellation of treasury shares

-

-

-

-

(24)

-

-

1,484

-

-

-

-

-

1,460

Reclassification of other equity instruments to financial liabilities

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Reclassification of financial liabilities to other equity instruments

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Transfers within total equity (see Note 2.2.19)

-

-

-

-

1,278

(10)

(23)

-

(3,514)

1,172

1,096

540

(540)

-

Increase/Reduction of equity due to business combinations

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Share based payments

-

-

-

(19)

-

-

-

-

-

-

-

-

-

(19)

Other increases or (-) decreases in equity

-

-

-

15

(17)

-

(1)

-

-

-

-

-

(423)

(426)

Balances as of December 31, 2018

3,267

23,992

-

50

26,063

3

(38)

(296)

5,400

(1,109)

(10,223)

(5,290)

11,054

52,874

(*) Restated due to 56the sale of the stake in BBVA USA (see Notes 3 and 21).

(**)  Balances as of December 31, 2017 as originally reported in the consolidated Financial Statements for the year 2017.

The accompanying Notes are an integral part of the consolidated financial statements.

 

F-10F-11  


 

Consolidated statements of cash flows for the years ended December 31, 2018, 20172020, 2019 and 20162018

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (MILLIONS OF EUROS)

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (Millions of Euros)

CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (Millions of Euros)

Notes

2018

2017

2016

 

2020

2019

2018

A) CASH FLOWS FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5)

51

8,664

2,055

6,623

 

39,349

(10,654)

13,436

1. Profit for the year

 

6,151

4,762

4,693

 

2,060

4,345

6,227

2. Adjustments to obtain the cash flow from operating activities:

 

7,695

8,526

6,784

2. Adjustments to obtain the cash flow from operating activities

 

11,653

9,582

7,619

Depreciation and amortization

 

1,208

1,387

1,426

 

1,288

1,386

1,034

Other adjustments

 

6,487

7,139

5,358

 

10,365

8,196

6,585

3. Net increase/decrease in operating assets

 

(12,679)

(4,894)

(4,428)

 

(57,484)

(39,247)

(7,762)

Financial assets held for trading

 

1,379

5,662

1,289

 

(10,465)

(11,724)

1,524

Non-trading financial assets mandatorily at fair value through profit or loss

 

(643)

 

 

(241)

(318)

(643)

Other financial assets designated at fair value through profit or loss

 

349

(783)

(2)

 

97

99

349

Financial assets at fair value through other comprehensive income

 

(206)

5,032

14,445

 

(16,649)

(3,755)

(206)

Loans and receivables

 

(12,652)

(14,503)

(21,075)

Financial assets at amortized cost

 

(30,212)

(26,559)

(7,880)

Other operating assets

 

(906)

(302)

915

 

(15)

3,010

(906)

4. Net increase/decrease in operating liabilities

 

10,286

(3,916)

1,273

 

85,074

16,268

10,141

Financial liabilities held for trading

 

(466)

(6,057)

361

 

361

8,121

(611)

Other financial liabilities designated at fair value through profit or loss

 

1,338

19

(53)

 

647

2,680

1,338

Financial liabilities at amortized cost

 

10,481

2,111

(7)

 

84,853

8,016

10,481

Other operating liabilities

 

(1,067)

11

972

 

(787)

(2,549)

(1,067)

5. Collection/Payments for income tax

 

(2,789)

(2,423)

(1,699)

 

(1,955)

(1,602)

(2,789)

B) CASH FLOWS FROM INVESTING ACTIVITIES (1 + 2)

51

7,516

2,902

(560)

 

(37)

98

7,516

1. Investment

 

(2,154)

(2,339)

(3,978)

 

(1,185)

(1,494)

(2,154)

Tangible assets

 

(943)

(777)

(1,312)

 

(632)

(852)

(943)

Intangible assets

 

(552)

(564)

(645)

 

(491)

(528)

(552)

Investments in joint ventures and associates

 

(150)

(101)

(76)

 

(62)

(114)

(150)

Subsidiaries and other business units

 

(20)

(897)

(95)

Non-current assets held for sale and associated liabilities

 

(489)

-

Held-to-maturity investments

 

 

-

(1,850)

Other business units

 

-

(20)

Non-current assets classified as held for sale and associated liabilities

 

-

(489)

Other settlements related to investing activities

 

-

 

-

2. Divestments

 

9,670

5,241

3,418

 

1,148

1,592

9,670

Tangible assets

 

731

518

795

 

558

128

731

Intangible assets

 

-

47

20

 

-

Investments in joint ventures and associates

 

558

18

322

 

307

98

558

Subsidiaries and other business units

 

4,268

936

73

 

-

5

4,268

Non-current assets held for sale and associated liabilities

 

3,917

1,002

900

Held-to-maturity investments

 

 

2,711

1,215

Non-current assets classified as held for sale and associated liabilities

 

283

1,198

3,917

Other collections related to investing activities

 

196

9

93

 

-

162

196

C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2)

51

(5,092)

(98)

(1,113)

 

(2,069)

(2,702)

(5,092)

1. Payments

 

(8,995)

(5,763)

(4,335)

 

(5,316)

(7,418)

(8,995)

Dividends

 

(2,107)

(1,698)

(1,599)

 

(1,065)

(2,147)

(2,107)

Subordinated liabilities

 

(4,825)

(2,098)

(502)

 

(2,820)

(3,571)

(4,825)

Treasury stock amortization

 

-

 

-

Treasury stock acquisition

 

(1,686)

(1,674)

(2,004)

 

(807)

(1,088)

(1,686)

Other items relating to financing activities

 

(377)

(293)

(230)

 

(624)

(612)

(377)

2. Collections

 

3,903

5,665

3,222

 

3,247

4,716

3,903

Subordinated liabilities

 

2,451

4,038

1,000

 

2,425

3,381

2,451

Treasury shares increase

 

-

 

-

Treasury shares disposal

 

1,452

1,627

2,222

 

822

1,335

1,452

Other items relating to financing activities

 

-

 

-

D) EFFECT OF EXCHANGE RATE CHANGES

 

(2,498)

(4,266)

(3,463)

 

(4,658)

(634)

(344)

E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D)

 

8,590

594

1,489

 

32,585

(13,892)

15,516

F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR

 

45,549

44,955

43,466

 

44,303

58,196

42,680

G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (E+F)

51

54,138

45,549

44,955

G) CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (INCLUDING ENTITIES HELD FOR SALE IN THE UNITED STATES) (E+F)

 

76,888

44,303

58,196

 

 

 

COMPONENTS OF CASH AND EQUIVALENT AT END OF THE YEAR (Millions of Euros)

 

 

 

 

 

2018

2017

2016

Notes

2020

2019

2018

Cash

 

6,346

6,416

7,413

9

6,447

7,060

6,346

Balance of cash equivalent in central banks

 

47,792

39,132

37,542

9

53,079

31,755

43,880

Other financial assets

 

-

9

5,994

5,488

7,970

Less: Bank overdraft refundable on demand

 

-

 

-

TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR

51

54,138

45,549

44,955

 

65,520

44,303

58,196

TOTAL CASH AND CASH EQUIVALENTS CLASSIFIED AS NON-CURRENT ASSETS AND DISPOSABLE GROUPS CLASSIFIED AS HELD FOR SALE IN THE UNITED STATES

21

11,368

-

 

The accompanying Notes 1 to 56 are an integral part of the consolidated financial statements.

F-11F-12  


Notes to the accompanying Consolidated Financial Statements

1. Introduction, basis for the presentation of the Consolidated Financial Statements, internal controlInternal Control over financial reportingFinancial Reporting and other information

1.11.1. Introduction

Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank”, “BBVA" or “BBVA"“BBVA, S.A.”) is a private-law entity subject to the laws and regulations governing banking entities operating in Spain.Spain. It carries out its activity through branches and agencies across the country and abroad.

The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza(Plaza San Nicolás, 4 Bilbao)Bilbao) as noted on its web site (www.bbva.com).

In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint ventures and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, “thethe “Group” or the “BBVA Group” or “the BBVA Group). In addition to its own separate Financial Statements,financial statements, the Bank is required to prepare Consolidated Financial Statements comprising all consolidated subsidiaries of the Group.

As of December 31, 2018,2020, the BBVA Group had 297269 consolidated entities and 6648 entities accounted for using the equity method (see Notes 3 and 16 and Appendix I to V).

The Consolidated Financial Statements of the BBVA Group for the year ended December 31, 20182020 have been authorized for issue on March 28, 2019.February 26, 2021.

1.21.2. Basis for the presentation of the Consolidated Financial Statements

The BBVA Group’s Consolidated Financial Statements are presented in compliance with IFRS-IASB (International Financial Reporting Standards as issued by the International Accounting Standards Board), as well as in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”(“EU-IFRS”) applicable as of December 31, 2018,2020, considering the Bank of Spain Circular 4/2017, and with any other legislation governing financial reporting which is applicable toand with the Groupformat and mark-up requirements established in Spain.the EU Delegated Regulation 2019/815 of the European Commission.

The BBVA Group’s accompanying Consolidated Financial Statements for the year ended December 31, 20182020 were prepared by the Group’s Directors (through the Board of Directors meeting held on February 11, 2019)8, 2021) by applying the principles of consolidation, accounting policies and valuation criteria described in Note 2, so that they present fairly the Group’s total consolidated equity and financial position as of December 31, 2018,2020, together with the consolidated results of its operations and cash flows generated during the year ended December 31, 2018.2020.

These Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. Moreover, they include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the Group (see Note 2.2).

All effective accounting standards and valuation criteria with a significant effect in the Consolidated Financial Statements were applied in their preparation.

F-12


The amounts reflected in the accompanying Consolidated Financial Statements are presented in millions of euros, unless it is more appropriate to use smaller units. Some items that appear without a balance in these Consolidated Financial Statements are due to how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures.

The percentage changes in amounts have been calculated using figures expressed in thousands of euros.euros.

1.31.3. Comparative information

Changes in accounting policies

Application of IFRS 9

As of January 1, 2018, IFRS 9 “Financial instruments” replaced IAS 39 “Financial Instruments: Recognition and Measurement” and includes changesThe information included in the requirementsaccompanying consolidated financial statements for the classificationyears ended December 31, 2019 and measurement of financial assets and financial liabilities, the impairment of financial assets and hedge accounting (see Note 2.2.1). As permitted by the standard, IFRS 9 has not been applied retrospectively for previous years. The impact of the first application of IFRS 9December 31, 2018, is presented in Note 2.4.

As a consequenceaccordance with the applicable regulation, for the purpose of comparison with the application of IFRS 9, the comparative information for the financial years 2017year ended December 31, 2020.

F-13


Agreement for the sale of BBVA’s U.S. subsidiary to PNC Financial Service Group

As mentioned in Note 3, in 2020 BBVA reached an agreement to sell its entire stake in BBVA USA Bancshares, Inc., parent company of the Group companies engaged in the banking business in the United States. As required by IFRS 5 "Non-current assets held for sale and 2016discontinued operations", the balances of assets and liabilities corresponding to said companies for sale have been reclassified from their corresponding accounting headings to the headings "Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” respectively, from the consolidated balance sheet as of December 31, 2020. Similarly, as required by the aforementioned IFRS 5, the results generated by these Consolidated Financial Statements has been subject to some non-significant modifications in order to improve the comparability with the figures ofcompanies during the financial year 2018.2020 are presented in the heading “Profit (loss) after taxes from discontinued operations” of the consolidated income statement for such year, and in the heading "Non-current assets and disposal groups classified as held for sale" in the consolidated statements of recognized income and expense for such year. Additionally, the results corresponding to the years 2019 and 2018 have been reclassified, to facilitate the comparison between years, to that same section of the respective consolidated income statements and consolidated statements of recognized income and expense for both years. Finally, in the consolidated statements of cash flows, the balances corresponding to cash and cash equivalents have been reclassified to the heading "Total cash and cash equivalents classified as non-current assets and disposal groups classified as held for sale" as of and for the year ended December 31, 2020.

Note 21 includes the condensed consolidated balance sheets, the condensed consolidated income statements and the condensed consolidated cash flow statements of the companies for sale in the United States as of and for the years 2020, 2019 and 2018.

Hyperinflationary economies

The Group’s experience applyingConsidering the interpretation issued by the International Financial Reporting Interpretations Committee (IFRIC) in its “IFRIC Update” of March 2020 on IAS 29 "Financial“Financial information in hyperinflationary economies" in its subsidiaries in Venezuela allows us to confirm the complexity of applying the accounting mechanism of inflation together with the historical movements of the exchange rates in a way that results are economically understandable, especially when there is not a consistent evolution between inflation and exchange rate in each period.

In this context, with the aim of improving the faithful representation of the financial statements, during 2018economies”, the Group made an accounting policy change which involves recording in a single account of "Shareholders’ funds – retained earnings", both the revaluation of non-monetary items due to the effect of hyperinflation and the differences generated when translating the restated financial statements of the subsidiaries in hyperinflationary economies into euros. Translation differences, prior toeuros in the accounting policy change were recorded in theline item “Accumulated other comprehensive income (loss) itemsItems that may be reclassified to profit or loss – foreignForeign currency translation” (see Notes 2.2.16 and 2.2.20). The accounting policy change, in accordance with IAS 8, offers and provides more reliable and relevant information of operations in hyperinflationary economies.our consolidated balance sheet net equity.

In order to make the information as of December 31, 2019 and 2018 comparable we havewith information as of December 31, 2020, such information has been restated by reclassifying €2,985 million and €2,987 million, respectively, from “Shareholders’ funds – Retained earnings” and €6 million and €20 million, respectively, from “Shareholders’ funds – Other reserves” to the information of the previous years, in such a way that €1,853, €1,836 and €1,826 million have been reclassified from "Accumulatedheadings “Accumulated other comprehensive income (loss) itemsItems that may be reclassified to profit or loss – foreignForeign currency translation"translation and “Accumulated other comprehensive income (loss) – Items that may be reclassified to "Shareholders’ fundsprofit or lossretained earnings"Share of other recognized income and expense of investments in joint ventures and associates” as of December 31, 2017, December 31, 20162019 and January 1, 2016, respectively, relating to the Group companies registered in Venezuela (an economy that was also considered hyperinflationary in 2017 and 2016). Additionally, €828, €817 and €816 million have been reclassified from “Non-controlling interest –Accumulated other comprehensive income” to “Non-controlling interest – other” as of December 31, 2017, December 31, 2016 and January 1, 2016,2018, respectively.

F-13


The reclassificationreclassifications corresponding to January 1, 2018, 20172020 and 2016 is recorded2019 are included as "Effects"Effect of changes in accounting policies" in the Consolidated StatementTotal Statements of Changes in Equity corresponding to the years ended December 31, 2019 and 2018, 2017 and 2016.respectively.

IFRS 9- collection of interest on impaired financial assets

As a consequence of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9, such collections are presented since 2020 as reductions in credit-related write-offs whereas previously they were included as interest income. In order to make the information comparable, the consolidated balance sheetincome statement information for the years ended December 31, 2019 and 2018 has been restated by recognizing a €78 and €80 million reduction in the heading “Interest and other income”, respectively against the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification”. This reclassification has had no net impact on the profit for the years ended December 31, 2019 and 2018, respectively, nor on the consolidated net equity as of December 31, 2019 and 2018, 2017respectively.

Trading derivatives recognition

Information as of and 2016,for the heading " Shareholders’ funds – retained earnings” includes bothyear ended December 31, 2020 has been subject to certain non-significant presentation modifications, in the translation differences and the effects of restatement for inflation.

Operating segments

During 2018, there were no significant changesbalance sheet related to the existing structurederivative activity. In order to make the information as of and for the BBVA Group’s operating segments in comparison to 2017 (see Note 6). Certain prioryears ended December 31, 2019 and 2018 comparable with the information as of and for the year balancesended December 31, 2020, figures as of and for the years ended December 31, 2019 and 2018 have been reclassified to conform to current year presentation.restated by recognizing a €953 million and a €1,013 million reduction in the Total Assets and Total Liabilities, respectively.

1.41.4. Seasonal nature of income and expensesexpense

The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to typical activities carried out by financial institutions, whichand are not significantly affected by seasonal factors within the same year.

F-14


1.5. Management and impacts of the COVID-19 pandemic

The appearance of the Coronavirus COVID-19 in China and its global expansion to a large number of countries, motivated the viral outbreak to be classified as a global pandemic by the World Health Organization since last March 11, 2020. The pandemic has affected and continues to adversely affect the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession. The governments of the different countries in which the Group operates have adopted different measures that have conditioned the evolution of the year (see Note 7.2).

In this pandemic situation, BBVA has focused its attention on enabling the continuity of the business operational security as a priority and monitoring the impacts on the business and on the risks of the Group (such as the impacts on results, capital or liquidity). Additionally, BBVA adopted from the beginning a series of measures to support its main interest groups. In this sense, the purpose and the Group's long-term strategic priorities remain the same and are even reinforced, with a commitment to technology and data-driven decision-making.

With the aim of mitigating the impact of COVID-19, various European and International bodies have made pronouncements to be taken into account in the implementation of the accounting and prudential frameworks. The BBVA Group has taken these pronouncements into consideration when preparing these consolidated financial statements (see Note 7.2.1).

The main impacts of COVID-19 pandemic in the BBVA Group's consolidated Financial Statements are detailed in the following Notes:

·Note 1.6 includes information on the consideration of the COVID-19 pandemic in the estimates made.

·Note 4 mentions the amendment of the Group’s shareholder remuneration policy, in accordance with the recommendation issued by the European Central Bank, which no longer pays any amount as a dividend for the financial year 2020 until as long as the uncertainties generated by the pandemic remain.

·Note 7.1 details the main risks associated with the pandemic as well as the impacts that have occurred both in the operations and in the consolidated financial statements for the year ended December 31, 2020. Information on the impact of COVID-19 is included in the macroeconomic forecasts and in the calculation of expected losses.

·Note 7.2 includes information related to the initiatives carried out by the Group to help the most affected clients, jointly with the corresponding governments. Likewise, it contains, among others, information regarding the level of activity and the amount corresponding to moratorium measures, both public and private, granted by the Group worldwide.

·Note 7.5 presents information regarding the impact on liquidity and financing risk.

·Note 18.1 includes information concerning the impairment of the goodwill in the United States carried out during the first quarter of 2020, mainly due to the impact of COVID-19 in updating the macroeconomic scenario and the expected evolution of interest rates.

·Note 32 includes information with regard to the impact on the Group's capital.

·Note 47 includes information on the impact of the update of the macroeconomic scenario affected by the COVID-19 pandemic.

1.51.6. Responsibility for the information and for the estimates made

The information contained in the BBVA Group’s Consolidated Financial Statements is the responsibility of the Group’s Directors.

Estimates were required to be made at times when preparing these Consolidated Financial Statements in order to calculate the recorded or disclosed amount of some assets, liabilities, income, expensesexpense and commitments. These estimates relate mainly to the following:

·           ImpairmentLoss allowances on certain financial assets (see Notes 7, 12, 13, 14 and 16).

·           The assumptions used to quantify certain provisions (see NoteNotes 23 and 24) and for the actuarial calculation of post-employment benefit liabilities and commitments (see Note 25).

·           The useful life and impairment losses of tangible and intangible assets (see Notes 17, 18, 20 and 21).

·           The valuation of goodwill and price allocation of business combinations (see Note 18).

·           The fair value of certain unlisted financial assets and liabilities (see Notes 7, 8, 10, 11, 12 and 13).

·           The recoverability of deferred tax assets (See(see Note 19).

As mentioned before, on March 11, 2020, COVID-19 was declared as a global pandemic by the World Health Organization (see Note 1.5). The great uncertainty associated to the unprecedented nature of this pandemic entails a greater complexity of developing reliable estimations and applying judgment.

F-15


AlthoughTherefore, these estimates were made on the basis of the best available information availableon the matters analyzed, as of the end of the reporting period, futureDecember 31, 2020. However, it is possible that events may take place in the future which could make it necessary to modify them (either upamend these estimations (upward or down) over the coming years. Thisdownward), which would be donecarried out prospectively, in accordance with applicable standards, recognizing the effects of changesthe change in the estimatesestimation in the corresponding consolidated income statement.

During 2018, 2017 and 20162020 there werehave been no significantrelevant changes toin the assumptions and estimations, exceptestimates made as of December 31, 2019 and 2018, with the exception of those indicated in these Consolidatedconsolidated Financial Statements.

1.61.7. BBVA Group’s Internal Control over Financial Reporting

BBVA Group’s Consolidated Financial Statements are prepared under an Internal Control over Financial Reporting Model (hereinafter “ICFR")(ICFR). It provides reasonable assurance with respect to the reliability and the integrity of the consolidated financial statements. It is also aimed to ensuresupport that the transactions are processed in accordance with the applicable laws and regulations.

F-14


The ICFR is in accordance with the control framework established in 2013 by the “Committee of Sponsoring Organizations of the Treadway Commission” (hereinafter, "COSO"). The COSO 2013 framework sets five components that constitute the basis of the effectiveness and efficiency of the internal control systems:

·           The establishment of an appropriate control framework.

·           The assessment of the risks that could arise during the preparation of the financial information.

·           The design of the necessary controls to mitigate the identified risks.

·           The establishment of an appropriate system of information to detect and report system weaknesses.

·           The monitoring activities over the controls to ensuresupport they perform correctly and are effective over time.

The ICFR is a dynamic model that evolves continuously over time to reflect the reality of the BBVA Group’s businesses and processes, as well as the risks and controls designed to mitigate them. It is subject to a continuous evaluation by the internal control units located in the different entities of BBVA Group.

These internal control units are integrated within the BBVA internal control model, defined and led by Regulation & Internal Control, and which is based in two pillars:

·           A control system organizedorganized into three lines of defense:defense that has been updated and strengthened in 2020, as described below:

- ·The first line of defense (1LoD) is located within the business and support units, which are responsible for identifying risks associated with their processes, as well as for implementing and to executeexecuting the necessary controls established to mitigate them. In 2019, in order to reinforce the adequate risk management in each area’s processes, the role of the Risk Control Assurer was created.

- ·The second line of defense (2LoD) comprises the specialized control units (Compliance, Internal Financial Control, Internal Risk Control, Engineering Risk, Fraud & Security, and Operations Controlfor each type of risk (Finance, Legal, IT, Third Party, Compliance or Processes among others). This second line defines the modelsmitigation and controls undercontrol frameworks for their areas of responsibility across the entire organization and monitorsperforms challenge to the design, correctcontrol model (supervises the implementation and effectivenessdesign of the controls and assesses their effectiveness).

- ·The third line of defense (3LoD) is the Internal Audit unit, which conducts an independent review of the model, verifying the compliance and effectiveness of the model.

·           A set of committeescommittee structure in the Group, called Corporate Assurance, that helps to escalatewhich enables the escalation of possible weaknesses and internal control issues to the management at a Group level and also in each of the countries where the Group operates.

The internal control units within Finance comply with a common and standard methodology established at the Group level, as set out in the following diagram:

F-16


The ICFR Model is subject to annual evaluations by the Group’s Internal Audit Unit. It is also supervised by the Audit and Compliance Committee of the Bank’s Board of Directors.

The BBVA Group is also required to comply with the Sarbanes-Oxley Act (hereafter “SOX”) for Consolidated Financial Statements as a listed company with the U.S. Securities and Exchange Commission (“SEC”). The main senior executives of the Group are involved in the design, compliance and implementation of the internal control model to make it effective and to ensuresupport the quality and accuracy of the financial information.

F-15


2. Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

The Glossary includes the definition of some of the financial and economic terms used in Note 2 and subsequent Notes.Notes of the accompanying consolidated Financial Statements.

2.12.1. Principles of consolidation

In terms of its consolidation, in accordance with the criteria established by IFRS, the BBVA Group is made up of four types of entities: subsidiaries, joint ventures, associates and structured entities, defined as follows:

·           Subsidiaries

Subsidiaries are entities controlled by the Group.Group (for definition of control, see Glossary). The financial statements of the subsidiaries are fully consolidated with those of the Bank. The share of non-controlling interests from subsidiaries in the Group’s consolidated total equity is presented under the heading “Minority interests (Non-controlling interests)” in the consolidated balance sheet. Their share in the profit or loss for the period or year is presented under the heading “Attributable to minority interest (non-controlling interests)” in the accompanying consolidated income statement (see Note 31).

Note 3 includes information related to the main subsidiaries in the Group as of December 31, 2020, 2019 and 2018. Appendix I includes other significant information on theseall entities.

·           Joint ventures

Joint ventures are those entities overfor which there is a joint arrangement to joint control with third parties other than the Group (for definitions of joint arrangement, joint control and joint venture, refer to Glossary).

The investments in joint ventures are accounted for using the equity method (see Note 16). Appendix II shows the main figures for joint ventures accounted for using the equity method.method as of December 31, 2020.

·           Associates

Associates are entities in which the Group is able to exercise significant influence (for definition of significant influence, see Glossary). Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly, unless it can be clearly demonstrated that this is not the case.

However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since the Group does not have the ability to exercise significant influence over these entities. Investments in these entities, which do not represent material amounts for the Group, are classified as “Financial“Financial assets at fair value through other comprehensive income”income” or “Non-trading financial assets mandatorily at fair value through profit or loss.

In contrast, some investments in entities in which the Group holds less than 20% of the voting rights are accounted for as Group associates, as the Group is considered to have the ability to exercise significant influence over these entities. As of December 31, 2018, 20172020, 2019 and 20162018, these entities are not significant into the Group.

Appendix II shows the most significant information related to the associates (see Note 16), which are accounted for using the equity method.

·           Structured Entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when the voting rights relate to administrative matters only and the relevant activities are directed by means of contractual arrangements (see Glossary).

F-16F-17  


 

In those cases where the Group sets up entities or has a holding in such entities, in order to allow its customers access to certain investments, to transfer risks or for other purposes, in accordance with internal criteria and procedures and with applicable regulations, the Group determines whether control over the entity in question actually exists and therefore whether it should be subject to consolidation.

Such methods and procedures determine whether there is control by the Group, considering how the decisions are made about the relevant activities, assessesassessing whether the Group has all powercontrol over the relevant elements, exposure or rights, to variable returns from involvement with the investee and the ability to use powercontrol over the investee to affect the amount of the investor’s returns.

·           Structured entities subject to consolidation

To determine if a structured entity is controlled by the Group, and therefore should be consolidated into the Group, the existing contractual rights (different from the voting rights) are analyzed. For this reason, an analysis of the structure and purpose of each investee is performed and, among others, the following factors will be considered:

- ·Evidence of the current ability to manage the relevant activities of the investee according to the specific business needs (including any decisions that may arise only in particular circumstances).

- ·Potential existence of a special relationship with the investee.

- ·Implicit or explicit Group commitments to support the investee.

- ·The ability to use the Group´s power over the investee to affect the amount of the Group’s returns.

There areThese types of entities include cases where the Group has a high exposure to variable returns and retains decision-making power over the investee, either directly or through an agent.

The main structured entities of the Group are the asset securitization funds, to which the BBVA Group transfers loans and receivables portfolios,advances, and other vehicles, which allow the Group’s customers to gain access to certain investments or to allow for the transfer of risks or for other purposes (see Appendices I and V). The BBVA Group maintains the decision-making power over the relevant activities of these vehicles and financial support through securitized market standard contracts. The most common ones are: investment positions in equity note tranches, funding through subordinated debt, credit enhancements through derivative instruments or liquidity lines, management rights of defaulted securitized assets, “clean-up” call derivatives, and asset repurchase clauses by the grantor.

For these reasons, the loans and receivable portfolios related to the vast majority of the securitizations carried out by the Bank or Group subsidiaries are not derecognized in the books of said entity and the issuances of the related debt securities are recorded as liabilities within the Group’s consolidated balance sheet.

For additional information on the accounting treatment for the transfer and derecognition of financial instruments, see Note 2.2.2. “Transfers and derecognition of financial assets and liabilities”.

·           Non-consolidated structured entities

The Group owns other vehicles also for the purpose of allowing customers access to certain investments, to transfer risks, and for other purposes, but without the Group having control of the vehicles, which are not consolidated in accordance with “IFRSIFRS 10 - Consolidated– “Consolidated Financial Statements”. The balance of assets and liabilities of these vehicles is not material in relation to the Group’s Consolidated Financial Statements.

As of December 31, 2018, 20172020, 2019 and 20162018, there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities.

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The Group does not consolidate any of the mutual funds it manages since the necessary control conditions are not met (see definition of control in the Glossary).met. Particularly, the BBVA Group does not act as arranger but as agent since it operates the mutual funds on behalf and for the benefit of investors or parties (arranger or arrangers) and, for this reason it does not control the mutual funds when exercising its authority for decision making.

The mutual funds managed by the Group are not considered structured entities (generally, retail funds without corporate identity over which investors have participations which gives them ownership of said managed equity). These funds are not dependent on a capital structure that could prevent them from carrycarrying out activities without additional financial support, being in any case insufficient as far as the activities themselves are concerned. Additionally, the risk of the investment is absorbed by the fund participants, and the Group is only exposed when it becomes a participant, and as such, there is no other risk for the Group.

In all cases, the operating results of equity method investees acquired by the BBVA Group in a particular period only include the period from the date of acquisition to the financial statements date. Similarly, the results of entities disposed of during any year only include year the period from the start of the year to the date of disposal.

The consolidated financial statements of subsidiaries, associates and joint ventures used in the preparation of the Consolidated Financial Statements of the Group have the same presentation date as the Consolidated Financial Statements. If financial statements at those same dates are not available, the most recent will be used, as long as these are not older than three months, and adjusted to take into account the most significant transactions. As of December 31, 2018,2020, financial statements as of December 31 of all Group entities were utilized except for the case of the consolidated financial statements of two subsidiaries and six6 associates and joint-ventures deemed non-significant for which financial statementsas of November 30, 20182020 were used, used.

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2.2. Accounting principles and policies and applied valuation methods

The accounting principles and policies and the December 31, 2018valuation methods applied in the preparation of the consolidated financial statements formay differ from those used, at the individual level, by some of all Groupthe entities were utilized.

that are part of the BBVA banking subsidiaries, associates and joint ventures worldwide, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of such entities to transfer fundsGroup; This is why, in the form of cash dividends, loans or advances. consolidation process, the necessary adjustments and reclassifications are made to standardize such principles and criteria among themselves and bring them into line with the IFRS-EU.

In addition, underpreparing the laws ofaccompanying consolidated Annual Accounts, the various jurisdictions where such entities are incorporated, dividends may only be paid out through funds legally available for such purpose. Even when the minimum capital requirements are metfollowing accounting principles and funds are legally available, the relevant regulators or other public administrations could discourage or delay the transfer of funds to the Group in the form of cash, dividends, loans or advances for prudential reasons.policies and assessment criteria have been applied:

2.2   Accounting policies and valuation criteria applied

The accounting standards and policies and the valuation criteria applied in preparing these Consolidated Financial Statements may differ from those used by some of the entities within the BBVA Group. For this reason, necessary adjustments and reclassifications have been made in the consolidation process to standardize these principles and criteria and comply with the IFRS-IASB.

The accounting standards and policies and valuation criteria used in preparing the accompanying Consolidated Financial Statements are as follows:

2.2.12.2.1. Financial instruments

As mentioned in Note 1.3, IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.

The disclosures related However, the Group has chosen to continue applying IAS 39 for accounting for hedges, until the financial years 2017 and 2016 are based oncompletion of the accounting policies and valuation criteria applicable under IAS 39.macro-hedging project of IFRS 9 as permitted by IFRS 9.

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Classification and measurement of financial assets under IFRS 9

Classification of financial assets

IFRS 9 contains three main categories for financial assets classification: measured at amortized cost, measured at fair value with changes through other comprehensive income, and measured at fair value through profit or loss.

The classification of financial assets measured atinstruments in the categories of amortized cost or fair value must be carried outdepends on the basis of two tests: the entity's business model with which the entity manages the assets and the assessmentcontractual characteristics of the contractual cash flow,flows, commonly known as the "solely payments of principle and interest" criterion (hereinafter, the SPPI).

The assessment of the business model should reflect the way the Group manages groups of financial assets and does not depend on the intention for an individual instrument. Thus, for each entity within the BBVA Group there are different business models for managing assets.

In order to determine the business model, the following aspects are taken into account:

·The way in which the performance of the business model (and that of the assets which comprise such business model) is evaluated and reported to the entity's key personnel;

·The risks and the way in which the risks that affect the performance of the business model are managed;

·The way in which business model managers are remunerated;

·The frequency, amount and timing of sales in previous years, the reasons for such sales and expectations regarding future sales.

Regarding the SPPI test, the analysis of the cash flows aims to determine whether the contractual cash flows of the assets correspond only to payments of principal and interest on the principal amount outstanding at the beginning of the transaction. Interest is understood here as the consideration for the time value of money; and for the credit risk associated with the principal amount outstanding during a specific period; and for financing and structure costs, plus a profit margin.

The most significant judgments used by the Group in evaluating compliance with the conditions of the SPPI test are the following:

·Modified time value: in the event that a financial asset includes a periodic interest rate adjustment but the frequency of this adjustment does not coincide with the term of the reference interest rate (for example, the interest rate reset every six months to a one-year rate), the Group assesses, at the time of the initial recognition, this mismatch to determine whether the contractual cash flows (undiscounted) differ significantly or not from the cash flows (undiscounted) of a benchmark financial asset, for which there would be no change in the time value of money. The defined tolerance thresholds are 10% for the differences in each period and 5% for the analysis accumulated throughout the financial asset life.

·Contractual clauses: The contractual clauses can modify the calendar or the amount of the contractual cash flows are analyzed to verify if the contractual cash flows that would be generated during the life of the instrument due to the exercise of those clauses are only payments of principal and interest on the principal amount outstanding. To do this, the contractual cash flows that may be generated before and after the modification are analyzed.

The main criteria taken into account in the analysis are:

·Early termination clauses: generally a contractual clause that permits the debtor to prepay a debt instrument before maturity is consistent with SPPI when the prepayment amount substantially represents unpaid amounts of principal and interest on the principal amount outstanding (which may include reasonable additional compensation for the early termination of the contract).

·Instruments with an interest rate linked to contingent events:

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·An instrument whose interest rate is reset to a higher rate if the debtor misses a particular payment may meet the SPPI criterion because of the relationship between missed payments and an increase in credit risk.

·An instrument with contractual cash flows that are indexed to the debtor’s performance – e.g. net income or is adjusted based on a certain index or stock market value would not meet the SPPI criterion.

·Perpetual instruments: to the extent that they can be considered instruments with continuous (multiple) extension options, they meet the SPPI test if the contractual flows meet it. When the issuer can defer the payment of interest, if such payment would affect their solvency, they would meet the SPPI test if the deferred interest accrues additional interest, while if they do not, they would not meet the test.

·Non-recourse financial instruments: In the case of debt instruments that are repaid primarily with the cash flows of specific assets or projects and the debtor has no legal responsibility, the underlying assets or cash flows are evaluated to determine whether the contractual cash flows of the instrument are consistent with payments of principal and interest on the principal amount outstanding.

·If the contractual terms do not give rise to additional cash flows to payments of principal and interest on the amount of principal outstanding or limitations to these payments, the SPPI test is met.

·If the debt instrument effectively represents an investment in the underlying assets and its cash flows are inconsistent with principal and interest (because they depend on the performance of a business), the SPPI test is not met.

·Contractually linked instruments: a look-through analysis is carried out in the case of transactions that are set through the issuance of multiple financial instruments forming tranches that create concentrations of credit risk in which there is an order of priority that specifies how the flows of cash generated by the underlying set of financial instruments are allocated to the different tranches. The debt tranches of the instrument will comply with the requirement that their cash flows represent only payment of principal and interest on the outstanding principal if:

a)the contractual terms of the tranche being assessed for classification (without looking through to the underlying pool of financial instruments) give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding

b)the underlying pool of financial instruments comprises instruments with cash flow that are solely payments of principal and interest on the principal amount outstanding, and

c)the exposure to credit risk in the underlying pool of financial instruments inherent in the tranche is equal to or lower than the exposure to credit risk of the underlying pool of financial instruments (for example, the credit rating of the tranche being assessed for classification is equal to or higher than the credit rating that would apply to a single tranche that funded the underlying pool of financial instruments)

In any event, the contractual conditions that, at the time of the initial recognition, have a minimal effect on cash flows or depend on the occurrence of exceptional and highly unlikely events do not prevent compliance with the conditions of the SPPI test.

Based on the above characteristics, financial assets will be classified and valued as described below.

A debt instrument will be classified in the amortized cost portfolio if the two following conditions are fulfilled:

·           The financial asset is managed within a business model whose purpose is to maintain the financial assets to maturity, to receive contractual cash flows; and

·           In accordance with theThe contractual characteristicsconditions of the instrument itsfinancial asset give rise to cash flows that are only represent the returnpayments of the principal and interest, basically understood as consideration for the time value of money and the debtor's credit risk.interest.

A debt instrument will be classified in the portfolio of financial assets at fair value with changes through other comprehensive income if the two following conditions are fulfilled:

·           The financial asset is managed with a business model whose purpose combines collection of the contractual cash flows and sale of the assets, and

·           The contractual characteristics of the instrument generate at specific dates, cash flows which only represent the return of the principal and interest.

A debt instrument will be classified at fair value with changes in profit and loss provided that the entity's business model for their management or the contractual characteristics of its cash flows do not require classification into one of the portfolios described above.

In general, equity instruments will be measured at fair value through profit or loss. However the Group may make an irrevocable election, at initial recognition to present subsequent changes in the fair value through other“other comprehensive income.income”.

Financial assets will only be reclassified when BBVA Group decides to change the business model. In this case, all of the financial assets assigned to this business model will be reclassified. The change of the objective of the business model should occur before the date of the reclassification.

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ValuationMeasurement of financial assets

All financial instruments are initially recognized at fair value, plus, inthose transaction costs which are directly attributable to the caseissue of athe particular instrument, with the exception of those financial asset notassets which are classified at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the instrument.loss.

Excluding all trading derivatives not considered as accounting or economic hedges, all theAll changes in the fair value of financial assets due to the financial instruments arising from theinterest accrual of interest and similar items are recognized underrecorded in the headings “Interest"Interest income and other income”similar income" or “Interest expense”"Interest expenses", as appropriate, inof the accompanying consolidated income statement inof the periodyear in which the changeaccrual occurred (see Note 37). ,except for trading derivatives that are not economic and accounting hedges.

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets.

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“Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit and loss” andor “Financial assets designated at fair value through profit or loss”

Financial assets are recorded under the heading “Financial assets held for trading” if the objective of the business model is to generate gains by buying and selling these financial instruments or generate short-term results. The financial assets recorded in the heading “Non-trading financial assets mandatorily at fair value through profit andor loss” are assigned to a business model which objective is to obtain the contractual cash flows and / or to sell those instruments but its contractual cash flows do not comply with the requirements of the SPPI test. InFinancial assets are classified in “Financial assets designated at fair value through profit or loss” the Group classifies financial assets only if it eliminates or significantly reduces a measurement or recognition inconsistency (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases.

The assets recognized under these headings of the consolidated balance sheetssheet are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the headingheadings “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net” and “Gains (losses) on financial assets designated at fair value through profit or loss, net” in the accompanying consolidated income statementsstatement (see Note 41). Interests from derivatives designated as economic hedges on interest rate are recognized in “Interest and other income” or “Interest expense” (see Note 37), depending on the result of the hedging instrument. However, changesChanges in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities,“Exchange differences, net” in the accompanying consolidated income statements (Note 41).

”Financial assets at fair value through other comprehensive income”

·           Debt instruments

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. SubsequentThis category of valuation implies the recognition of the information in the income statement as if it were an instrument valued at amortized cost, while the instrument is valued at fair value in the balance sheet. Thus, both interest income on these instruments and the exchange differences and impairment that arise in their case are recorded in the profit and loss account, while subsequent changes in its fair value (gains or losses) are recognized temporarily (by the amount net of tax effect,effect) under the heading “Accumulated other comprehensive income-income (loss) - Items that may be reclassified to profit or loss - Fair value changes of debt instruments measured at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).

The amounts recognized under the headings “Accumulated other comprehensive income-income (loss) - Items that may be reclassified to profit or loss - Fair value changes of financial assets measured at fair value through other comprehensive income” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group's consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairmenta loss allowance is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net", as appropriate, in the consolidated income statement for the year in which they are derecognized (see Note 41).

The net impairment lossesloss allowances in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Impairment lossesor reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at fair value through other comprehensive income” (see Note 47)48) in the consolidated income statementsstatement for that period.

Interest income on these instruments are recorded in the consolidated profit and loss account (see Note 37). Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net" in the accompanying consolidated income statements (see Note 41).

·Equity instruments

The BBVA Group, atAt the time of the initial recognition of specific investments in equity instruments, the BBVA Group may electmake the irrevocable decision to present subsequent changes in the fair value in other comprehensive income of an investment in an equity instrument that is not held for trading. The election is irrevocable and can be made on an instrument-by-instrument basis.income. Subsequent changes in fair value (gains or losses) arethis valuation will be recognized under the heading “Accumulated otherin "Other accumulated comprehensive income (loss) –- Items that will not be reclassified to profit or loss – Fairin results - Changes in the fair value changes of equity instruments measured at fair value throughwith changes in other comprehensive income”income". Dividends received from these investments are recorded in the heading "Dividend income" in the consolidated income statement (see Note 38). These instruments are not subject to the impairment model of IFRS 9.

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“Financial assets at amortized cost”

A financial asset is classified as subsequently measured at amortized cost if it is held within a business model whose objective is to hold financial assets in order to collect and it meets the SPPI Criterion.

The assets under this category are subsequently measured at amortized cost, using the effective interest rate method.

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Net impairment lossesloss allowances of assets recorded under these headings arising in each period are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification – financial assets measured at amortized cost” (see Note 47) in the consolidated income statement for that period.such period (see Note 47).

Classification and measurement of financial liabilities under IFRS 9

Classification of financial liabilities

Under IFRS 9, financial liabilities are classified in the following categories:

·           Financial liabilities at amortized cost;

·           Financial liabilities that are held for trading, including derivatives, are financial instruments which are recorded in this category when the Group’s objective is to generate gains by buying and selling these financial instruments;

·           Financial liabilities that are designated at fair value through profit or loss on initial recognition under the Fair Value Option. The Group has the option to designate irrevocably, on the initial moment of recognition, a financial liability as at fair value through profit or loss provided that doing so results in the elimination or significant reduction of measurement or recognition inconsistency, or if a group of financial liabilities, or a group of financial assets and financial liabilities, has to be managed, and its performance evaluated, on a fair value basis in accordance with a documented risk management or investment strategy.

ValuationMeasurement of financial liabilities

All financial instrumentsFinancial liabilities are initially recognizedrecorded at fair value, plus, in the case of a financial liability not at fair value through profit or loss,less transaction costs that are directly attributable to the acquisitionissuance of instruments, except for financial instruments that are classified at fair value through profit or issueloss.

Variations in the value of the financial liability. Unless there is evidenceliabilities due to the contrary, the best evidence of the fair value of a financial instrument at initial recognition shall be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from theinterest accrual of interest and similar items are recognized underrecorded in the headings “Interest income and other similar income” or “Interest expense”, as appropriate, inof the accompanying consolidated income statement infor the period in which the changeaccrual occurred (see Note 37)., except for trading derivatives that are not economic and accounting hedges.

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial liabilities.

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“Financial liabilities held for trading” and “Financial liabilities designated at fair value through profit or loss“

The subsequent changes in the fair value (gains or losses) of the liabilities recognized under these headings of the consolidated balance sheets are recognized as their net value under the headingheadings “Gains (losses) on financial assets and liabilities held for trading, net” and “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the accompanying consolidated income statements (see Note 41), except for. Nevertheless, the financial liabilities designated at fair value through profit and loss under the fair value option for which the amount of change in the fair value that is attributable to changes in the own credit risk whichof the liabilities designated under the fair value option is presented in under the heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk”. Interests from derivatives designated as economic hedges on interest rate are recognized, unless this treatment brings about or increases an asymmetry in “Interest and other income” or “Interest expense” (Note 37), depending on the result of the hedging instrument.income statement. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Gains (losses) on financial assets and liabilities,“Exchange differences, net” in the accompanying consolidated income statements (Note 41).

“Financial liabilities at amortized cost”

The liabilities under this category are subsequently measured at amortized cost, using the effective“effective interest raterate” method.

Measurement ofHybrid financial assets and liabilities under IAS 39 applicable in the financial years 2017 and 2016

Measurement of financial instruments and recognition of changes in subsequent fair value

All financial instruments are initially accounted for at fair value plus, in the case ofWhen a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable tocontains an embedded derivative, the acquisition or issueGroup analyzes whether the economic characteristics and risks of the financial asset or financial liability. Unless there is evidence toembedded derivative and the contrary,host instrument are closely related.

If the best evidencecharacteristics and risks of the fair value ofhost and the derivative are closely related, the instrument as a financial instrument at initial recognition shallwhole will be the transaction price.

Excluding all trading derivatives not considered as accounting or economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interestclassified and similar items are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement the year in which the change occurred (see Note 37). The dividends received from other entities, other than associated entities and joint venture entities, are recognized under the heading “Dividend income” in the accompanying consolidated income statement in the year in which the right to receive them arises (see Note 38).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the precedingparagraph, are treated as described below,measured according to the categories ofgeneral rules for financial assetsliabilities. If, on the other hand, the economic characteristics and liabilities.

“Financial assets and liabilities held for trading” and “Financial assets and liabilities designated at fair value through profit or loss”

The assets and liabilities recognized under these headingsrisks of the consolidated balance sheetsembedded derivative are measured upon acquisition at fair valuenot closely related to the economic characteristics and changes in the fair value (gains or losses) are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (see Note 41). Interests from derivatives designated as economic or accounting hedges on interest rate are recognized under the heading “Interest and other income” or “Interest expense” (Note 37), depending on the resultrisks of the hedging instrument. Changes in fair value resulting from variations in foreign exchange rates are recognized underhost, its terms meet the heading “Gains (losses) on financial assetsdefinition of a derivative and liabilities, net” in the accompanying consolidated income statements (Note 41).

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“Financial assets at fair value through other comprehensive income”

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily net of tax effect, under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).

The amounts recognized under the headings “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income” and “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group's consolidated equity until the corresponding assethybrid contract is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” or “Exchange differences, net", as appropriate, in the consolidated income statement for the year in which they are derecognized (see Note 41).

The net impairment losses in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Impairment losses on financial assets, net – Other financial instruments not at fair value through profit or loss” (see Note 47) in the consolidated income statements for that year.

Changes in the value of non-monetary items resulting from changes in foreign exchange rates are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the accompanying consolidated balance sheets. Changes in foreign exchange rates which affect monetary items are recognized under the heading “Exchange differences, net" in the accompanying consolidated income statements (see Note 41).

“Financial assets and liabilities at amortized cost”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are subsequently measured at “amortized cost” using the “effective interest rate” method. This is because the consolidated entities generally intend to hold such financial instruments to maturity.

Net impairment losses of assets recognized under these headings arising in each year are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value throughwith changes in fair value recognized in profit or loss, – financial assetsthe embedded derivative shall be separated from the host and accounted for as a derivative separately at fair value with changes in profit and loss and the host instrument will be classified and measured at cost” (see Note 47) in the consolidated income statement for that year.according to its nature.

Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk” applicable in therisk

The Group uses financial years 2018, 2017derivatives as a tool for managing financial risks, mainly interest rates and 2016exchange rates (See Note 7).

Assets and liabilities recognized underWhen these headings in the accompanying consolidated balance sheetstransactions meet certain requirements, they are measured at fairvalue.  considered "hedging".

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Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

·             In fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized under the heading “Gains or losses(losses) from hedge accounting, net” in the consolidated income statement, with a corresponding offset under the headings where hedging items ("Hedging derivatives") and the hedged items are recognized, as applicable. Almostapplicable, except for interest-rate risks hedges (which are almost all of the hedges used by the Group areGroup), for interest-rate risks. Therefore,which the valuation changes are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement (see Note 37).

·             In fair value hedges of interest rate risk of a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, with the corresponding offset on the headings “Derivatives-Hedge Accounting” and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains or losses(losses) from hedge accounting, net”, using, as a balancing item, the headings "Fair value changes of the hedged items in portfolio hedges of interest rate risk" in the consolidated balance sheets, as applicable).

·             In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion are recognized temporarily under the heading ”Accumulated“Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges”hedges (effective portion)” in the consolidated balance sheets, with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences are recognized in the accompanying consolidated income statement under the headings “Interest and other income” or “Interest expense” at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37).

·             Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly in the heading “Gains or losses(losses) from hedge accounting, net” in the consolidated income statement (see Note 41).

·             In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading "Accumulated other comprehensive income (loss) - Items that may be reclassified toto profit or loss – Hedging of net investments in foreign transactions"operations (effective portion)" in the consolidated balance sheets with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences in valuation are recognized under the heading “Exchange differences, net" in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41).

Other financial instruments under IAS 39 applicable in the financial years 2017 and 2016

The following exceptions are applicable with respect to the above general criteria:

·Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying asset and are settled by delivery of those instruments are recorded in the consolidated balance sheet at acquisition cost; this may be adjusted, where appropriate, for any impairment loss (see Note 8).

·Accumulated other comprehensive income arising from financial instruments classified at the consolidated balance sheet date as “Non-current assets and disposal groups classified as held for sale” are recognized with the corresponding entry under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss – Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets (see note 30).

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Impairment lossesLoss allowances on financial assets

Definition of impaired financial assets under IFRS 9

IFRS 9 replaced the "incurred loss" model in IAS 39 with one of "expected credit loss". The IFRS 9“expected losses” impairment model is applied to financial assets valued at amortized cost, and to financial assetsdebt instruments valued at fair value with changes in other accumulated other comprehensive income, except for investments in equity instrumentsto financial guarantee contracts and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. Likewise, all theother commitments. All financial instruments valued at fair value with change through profit andor loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized (Stage 1); the second comprises the financial assets for which a significant increase in credit risk has been identified since its initial recognition (Stage 2) and the third one, the impaired financial assets (Stage 3).

The calculation of the provisions for credit risk in each of these three categories must be done differently. In this way, expected loss up to 12 months for the financial assets classified in the first of the aforementioned categories must be recorded, while expected losses estimated for the remaining life of the financial assets classified in the other two categories must be recorded. Thus, IFRS 9 differentiates between the following concepts of expected loss:

·             Expected loss at 12 months: expected credit loss that arises from possible default events within 12 months following the presentation date of the financial statements; and

·             Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

All this requires considerable judgment, both inBoth, the modeling for the estimation of the expected losses estimates and in the forecasts, on how the economic factors affectaffecting such losses forecasts require considerable judgment, which must be carried out on a weighted probability basis.

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The BBVA Group has applied the following definitions in accordance with IFRS 9:definitions:

·Default

BBVAThe Group has applied a definition of default for financial instruments that is consistent with that used in internal credit risk management, as well asand coherent with the indicators under applicable regulation atdefinition applied by the date of implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

Group within the prudential context. The Group has considered there is athe existence of default when one of the following situations occurs:

·           Payment past-due for more than 90 days; or

·           There are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the entity considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018,2020, the Group has not considered periods higher than 90 days for any significant portfolio.

These criteria are aligned in all the geographies where the Group operates, being only minor differences kept in order to facilitate management adoption al a national level. In this sense, national criteria are permitted, within the Group standards and searching for consistency and coherence between the geographies, easing the adoption of the significant portfolios.default definition management.

·Credit impaired asset

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

·           Significant financial difficulty of the issuer or the borrower.borrower,

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·           A breach of contract (e.g. a default or past due event).,

·           A lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider.consider,

·           It becoming probable that the borrower will enter bankruptcy or other financial reorganization.reorganization,

·           The disappearance of an active market for that financial asset because of financial difficulties.difficulties, or

·           The purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The definition of impaired financial assets in the Group is aligned with the definition of default explained in the above paragraphs.

Credit risk management for wholesale counterparties is carried out at the customer (or group) level. For this reason, the classification of any of a client's exposures as impaired, whether due to more than 90 days of default or due to any of the subjective criteria, implies the classification as impaired of all the client's exposures. There may be some justified exception that, in any case, are not significant.

Regarding retail clients, which are managed at the operation level, the scoring systems review their score, among other reasons, in the event of a breach in any of their transactions which also triggers the necessary recovery actions. These include refinancing measures that, where appropriate, may lead to all customer transactions being considered impaired. Furthermore, given the granularity of the retail portfolios, the differential behavior of these clients in relation to their products and collateral provided, as well as the time necessary to find the best solution, the Group has established as an indicator that when a transaction of a retail client has default in excess of 90 days and this represents more than 20% of the client's total balance, all its transactions are considered impaired, this without prejudice to the fact that lower limits have been established due to management practices in some geography.

·Significant increase in credit risk

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward-looking.

The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally although(for more detail on the specific characteristics of each geographic area are respected:methodology used, see Note 7.2.1):

·           Quantitative criterion: the Group uses a quantitative analysis based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default, so that both values are comparable in terms of expected default probability for their residual life. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios. Depending on how old current transactions are at the time implementation of the standard, some simplifications were made to compare the probabilities of default between the current and the initial moment, based on the best information available at that moment.life (see Note 7.2.1).

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·           Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/rating and scoring systems or macroeconomic scenarios, so the quantitative analysis covers the majority of circumstances. The Group will useuses additional qualitative criteria when it considers it necessaryto identify significant increase in credit risk and thus, to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.

Additionally, instruments under one of Such qualitative criteria are the following circumstances are considered Stage 2:following:

·           More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. As of December 31, 2018,2020, the Group has not considered periods higher than 30 days for any of the significant portfolios.days.

·           Watch list: They are subject to special watch by the RisksRisk units because they show negative signs in their credit quality, even though there may be no objective evidence of impairment.

·           Refinance or restructuring that does not show evidence of impairment.impairment, or that, having been previously identified, the existence of significant increase in credit risk is still considered.

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Although the standard introduces a series of operational simplifications, oralso known as practical solutions, for analyzing the increase in significant risk, the Group does not use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly because they have a low credit risk at the presentation date. This possibility is limited to those financial instruments that are classified as having high credit quality and high liquidity to comply with the liquidity coverage ratio (“LCR”). This does not prevent these assets from being assigned the credit risk coverage that corresponds to their classification as Stage 1 based on their credit rating and macroeconomic expectations.

Thus theThe classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

·           Stage 1– without significant increase in credit risk

Financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to 12 months expected credit losses.losses derived from defaults.

·           Stage 2– significant increases in credit risk

When the credit risk of a financial asset has increased significantly since the initial recognition, the impairment lossesloss allowances of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

·           Stage 3 – Impaired

When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Definition of impaired financial assets under IAS 39 applicable in the financial years 2017 and 2016

A financial asset is considered impaired – and therefore its carrying amount is adjusted to reflect the effect of impairment – when there is objective evidence that events have occurred, which:

·In the case of debt instruments (loans and advances and debt securities), reduce the future cash flows that were estimated at the time the instruments were acquired. So they are considered impaired when there are reasonable doubts that the carrying amounts will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed.

·In the case of equity instruments, it means that their carrying amount may not be fully recovered.

As a general rule, the carrying amount of impaired financial assets is adjusted with a charge to the consolidated income statement for the year in which the impairment becomes known. The recoveries of previously recognized impairment losses are reflected, if appropriate, in the consolidated income statement for the year in which the impairment is reversed or reduced, with an exception: any recovery of previously recognized impairment losses for an investment in an equity instrument classified as financial assets at fair value through other comprehensive income is not recognized in the consolidated income statement, but under the heading " Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets at fair value through other comprehensive income" in the consolidated balance sheet (see Note 30).

In general, amounts collected on impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal.

When the recovery of any recognized amount is considered remote, such amount is written-off on the consolidated balance sheet, without prejudice to any actions that may be taken in order to collect the amount until the rights extinguish in full either because it is time-barred debt, the debt is forgiven, or other reasons.

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Method for calculating expected credit loss under IFRS 9

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

·         A considered and unbiased amount, determined by evaluating a range of possible results.results;

·         The time value of money.money, and

·         Reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures the expectedExpected losses are measured both individually and collectively. collectively

The purpose of the Group's individual measurement is toindividualized estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated asresults from calculating the difference between the expected discounted cash flows discounted at the effective interest rate of the transaction and the carrying amount of the instrument.instrument (See Note 7.2.1).

For the collective measurement of expected losses the instruments are groupedclassified into groups of assets based on their risk characteristics. Exposure within each group is segmented according to the common credit risk common characteristics, similar characteristics of the credit risk, indicative ofwhich indicate the payment capacity of the borrower in accordance with theiraccording to the contractual conditions. These risk characteristics have to be relevant in estimating the future flows of each group. The characteristics of credit risk may consider, among others, the following factors:factors (see Note 7):

·           Type of instrument.

·           Rating or scoring tools.

·           Credit risk scoring or rating.

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·           Type of collateral.

·           Amount of time at default for stage 3.

·           Segment.

·           Qualitative criteria which can have a significant increase in risk.

·Collateral value if it has an impact on the probability of a default event.

The estimated losses are derived from the following parameters:

·    ��      PD: estimate of the probability of default in each period.

·         EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the presentation date of the financial statements.

·           LGD: estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees. For these purposes, the probability of executing the guarantee is considered in the estimation, the moment until its ownership and subsequent realization, the expected cashflows and acquisition and sale costs.

In· CCF: cash conversion factor is the case of debt securities,estimate made on off-balance sheet to determine the Group supervises the changes inexposure subject to credit risk through monitoring the external published credit ratings.

To determine whether there is a significant increase in credit risk that is not reflected in the published ratings,event of a default.

At the BBVA Group, also revises the calculated expected credit losses are based on internal models developed for all portfolios within the IFRS 9 scope, except for the cases that are subject to individual analysis.

The calculation and recognition of expected losses includes exposures with governments and credit institutions, for which, despite having a reduced number of defaults in the information databases, internal models have been developed, considering, as sources of information, the data provided by external rating agencies or other observed in the market, such as changes in bond yields, and when they are available, the prices of CDS, together with the news and regulatorycredit default swaps or any other public information available on the issuers.them.

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Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur have to be considered, even though the possibility of a loss may be very small. Also,low. To achieve this, the Group generally evaluates the linear relationship between its estimated loss parameters (PD, GDP, EAD) with the historical and future forecasts of the macroeconomic scenarios.

Additionally, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using a methodology based on the use of three scenarios. The first is the most probable scenario (baseline(base scenario) that is consistent with that used in the Group's internal management processes, and then applying antwo additional adjustment, calculated by considering the weighted average of expected losses in other economic scenarios (oneones, one more positive and the other more negative).negative. The combined outcome of these three scenarios is calculated considering the weight given to each of them. The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are the Gross Domestic Product (GDP), taxthe real estate price index, interest rates and the unemployment rate, and loan to value (LTV).

Method for calculating the impairment on financial assets under IAS 39 applicablealthough, in the financial years 2017 and 2016

The impairment on financial assetsfirst place, the main goal is determined by type of instrument and other circumstances that could affect it, taking into accountseeking the guarantees received to assure (in part or in full) the performance of the financial assets. The BBVA Group recognizes impairment charges directly against the impaired financial asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it recognizes non-performing loan provisions for the estimated losses.

Impairment of debt instruments measured at amortized cost

With regard to impairment losses arising from insolvency risk of the obligors (credit risk), a debt instrument, mainly Loans and receivables, is impaired due to insolvency when a deterioration in the ability to pay by the obligor is evidenced, either due to past due status or for other reasons.

The BBVA Group has developed policies, methods and procedures to estimate incurred losses on outstanding credit risk. These policies, methods and procedures are applied in the due diligence, approval and execution of debt instruments and commitments and guarantees given; as well as in identifying the impairment and, where appropriate, in calculating the amounts necessary to cover estimated losses.

The amount of impairment losses on debt instruments measured at amortized cost is calculated based on whether the impairment losses are determined individually or collectively. First it is determined whether there is objective evidence of impairment individually for individually significant debt instrument, and collectively for debt instrument that are not individually significant. If the Group determines that there is no objective evidence of impairment, the assets are classified in groups of debt instrument based on similar risk characteristics and impairment is assessed collectively.

In determining whether there is objective evidence of impairment the Group uses observable data in the following aspects:

·Significant financial difficulties of the obligors.

·Ongoing delays in the payment of interest or principal.

·Refinancing of credit due to financial difficulties by the counterparty.

·Bankruptcy or reorganization / liquidation are considered likely.

·Disappearance of the active market for a financial asset because of financial difficulties.

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·Observable data indicating a reduction in future cash flows from the initial recognition such as adverse changes in the payment status of the counterparty (delays in payments, reaching credit cards limits, etc.).

·National or local economic conditions that are linked to "defaults" in the financial assets (unemployment rate, falling property prices, etc.).

Impairment losses on financial assets individually evaluated for impairment

The amount of the impairment losses incurred on financial assets represents the excess of their respective carrying amounts over the present values of their expected future cash flows. These cash flows are discounted using the original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.

As an exceptiongreatest predictive capacity with respect to the rule described above, the market value of listed debt instruments is deemed to be a fair estimate of the present value of their expected future cash flows.

The following is to be taken into consideration when estimating the future cash flows of debt instruments:

·All amounts that are expected to be recovered over the remaining life of the debt instrument; including, where appropriate, those which may result from the collateral and other credit enhancements provided for the debt instrument (after deducting the costs required for foreclosure and subsequent sale). Impairment losses include an estimate for the possibility of collecting accrued, past-due and uncollected interest.

·The various types of risk to which each debt instrument is subject.

·The circumstances in which collections will foreseeably be made.

Impairment losses on financial assets collectively evaluated for impairment

With regard to the collective impairment analysis, financial assets are grouped by risk type considering the debtor's capacity to pay based on the contractual terms. As part of this analysis, the BBVA Group estimates the impairment loan losses that are not individually significant, distinguishing between those that show objective evidence of impairment, and those that do not show objective evidence of impairment, as well as the impairment of significant loans that the BBVA Group has deemed as not showing an objective evidence of impairment.

With respect to financial assets that have no objective evidence of impairment, the Group applies statistical methods using historical experience and other specific information to estimate the losses that the Group has incurred as a result of events that have occurred as of the date of preparation of the Consolidated Financial Statements but have not been known and will be apparent, individually after the date of submission of the information. This calculation is an intermediate step until these losses are identified on an individual level, at which time these financial instruments will be segregated from the portfolio of financial assets without objective evidence of impairment.

The incurred loss is calculated taking into account three key factors: exposure at default, probability of default and loss given default.

·Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty.

·Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.

·Loss given default (LGD) is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.

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In order to calculate the LGD at each balance sheet date, the Group evaluates the whole amount expected to be obtained over the remaining life of the financial asset. The recoverable amount from executable secured collateral is estimated based on the property valuation, discounting the necessary adjustments to adequately account for the potential fall in value until its execution and sale, as well as execution costs, maintenance costs and sale costs.

In addition, to identify the possible incurred but not reported losses (IBNR) in the unimpaired portfolio, an additional parameter called "LIP" (loss identification period) has to be introduced. The LIP parameter is the period between the time at which the event that generates a given loss occurs and the time when the loss is identified at an individual level.

When the property right is contractually acquired at the end of the foreclosure process or when the assets of distressed borrowers are purchased, the asset is recognized in the consolidated balance sheetsformer two (see Note 2.2.4)7.2.1).

Impairment of other debt instruments classified as financial assets available for sale

The impairment losses on other debt instruments included in the “Available-for-sale financial asset” portfolio are equal to the excess of their acquisition cost (net of any principal repayment), after deducting any impairment loss previously recognized in the consolidated income statement over their fair value.

When there is objective evidence that the negative differences arising on measurement of these debt instruments are due to impairment, they are no longer considered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets at fair value through other comprehensive income” and are recognized in the consolidated income statement.

If all, or part of the impairment losses are subsequently recovered, the amount is recognized in the consolidated income statement for the year in which the recovery occurred, up to the amount previously recognized in the income statement.

Impairment of equity instruments

The amount of the impairment in the equity instruments is determined by the category where they are recognized:

·Equity instruments classified at available for sale at fair value:

When there is objective evidence that the negative differences arising on measurement of these equity instruments are due to impairment, they are no longer recorded as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Financial assets available for sale” and are recognized in the consolidated income statement. In general, the Group considers that there is objective evidence of impairment on equity instruments classified as available-for-sale when significant unrealized losses have existed over a sustained period of time due to a price reduction of at least 40% or over a period of more than 18 months.

When applying this evidence of impairment, the Group takes into account the volatility in the price of each individual equity instrument to determine whether it is a percentage that can be recovered through its sale in the market; other different thresholds may exist for certain equity instruments or specific sectors.

In addition, for individually significant investments, the Group compares the valuation of the most significant equity instruments against valuations performed by independent experts.

Any recovery of previously recognized impairment losses for an investment in an equity instrument classified at fair value through other comprehensive income is not recognized in the consolidated income statement, but under the heading " Accumulated other comprehensive income - Items that may be reclassified to profit or loss - financial assets available for sale" in the consolidated balance sheet (see Note 30).

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·Equity instruments measured at cost:

The impairment losses on equity instruments measured at acquisition cost are equal to the excess of their carrying amount over the present value of expected future cash flows discounted at the market rate of return for similar equity instruments. In order to determine these impairment losses, unless there is better evidence, an assessment of the equity of the investee is carried out (excluding Accumulated other comprehensive income due to cash flow hedges) based on the last approved (consolidated) balance sheet, adjusted by the unrealized gains at measurement date.

Impairment losses are recognized in the consolidated income statement in the year in which they arise as a direct reduction of the cost of the instrument. These impairment losses may only be recovered subsequently in the event of the sale of these assets.

2.2.22.2.2. Transfers and derecognition of financial assets and liabilities  

The accounting treatment of transfers of financial assets is determined by the form in which risks and benefits associated with the financial assets involved are transferred to third parties. Thus the financial assets are only derecognized from the consolidated balance sheet when the cash flows that they generate are extinguished, when their implicit risks and benefits have been substantially transferred to third parties or when the control of financial asset is transferred even in case of no physical transfer or substantial retention of such assets. In the latter case, the financial asset transferred is derecognized from the consolidated balance sheet, and any right or obligation retained or created as a result of the transfer is simultaneously recognized.

Similarly, financial liabilities are derecognized from the consolidated balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).

The Group is considered to have transferred substantially all the risks and benefits if such risks and benefits account for the majority of the risks and benefits involved in ownership of the transferred financial assets. If substantially all the risks and benefits associated with the transferred financial asset are retained:

·           The transferred financial asset is not derecognized from the consolidated balance sheet and continues to be measured using the same criteria as those used before the transfer.

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·           A financial liability is recognized at the amount equal to the amount received, which is subsequently measured at amortized cost or fair value with changes in the income statement, whichever the case.

·           Both the income generated on the transferred (but not derecognized) financial asset and the expensesexpense of the new financial liability continue to be recognized.

Treatment of securitizations

The securitizations to which the Group entities transfer their credit portfolios are consolidated entities of the Group. For more information, refer to Note 2.1 “Principles of consolidation”.

The Group considers that the risks and benefits of the securitizations are substantially retained if the subordinated bonds are held and/ or if subordination funding has been granted to those securitization funds, which means that the credit loss risk of the securitized assets will be assumed. Consequently, the Group is not derecognizing those transferred loan portfolios.

On the other hand, the Group has carried out synthetic securitizations, which are transactions where risk is transferred through derivatives or financial guarantees and in which the exposure of these securitizations remains in the balance sheet of the Group. The Group has established the synthetic securitizations through received financial guarantees. As for the commissions paid, they are accrued during the term of the financial guarantee.

2.2.3   2.2.3. Financial guarantees

Financial guarantees are considered to be those contracts that require their issuer to make specific payments to reimburse the holder of the financial guarantee for a loss incurred when a specific borrower breaches its payment obligations on the terms – whether original or subsequently modified – of a debt instrument, irrespective of the legal form it may take. Financial guarantees may take the form of a deposit, bank guarantee, insurance contract or credit derivative, among others.

In their initial recognition, financial guarantees are recognized as liabilities in the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and interest receivable from these contracts over the term thereof, and the Group simultaneously recognizerecognizes a corresponding asset in the consolidated balance sheet for the amount of the fees and commissions received at the inception of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.

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Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required for them. The credit risk is determined by application of criteria similar to those established for quantifying impairment lossesloss allowances on debt instruments measured at amortized cost (see Note 2.2.1).

The provisions recognized for financial guarantees considered impaired are recognized under the heading “Provisions - Provisions for contingent risks and commitments” on the liability side in the consolidated balance sheets (see Note 24). These provisions are recognized and reversed with a charge or credit, respectively;respectively to “Provisions or reversal of provision” in the consolidated income statements (see Note 46).

Income from financial guarantees is recorded under the heading “Fee and commission income” in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee (see Note 40).

Synthetic securitizations made by the Group to date meet the requirements of the accounting regulations for accounting as guarantees. Consideration as a financial guarantee means recognition of the commission paid for it over the period.

2.2.4   2.2.4. Non-current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for saleand Liabilities included in disposal groups classified as held for sale

The headingsheading “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheetssheet includes the carrying amount of assets that are not part of the BBVA Group’s operating activities. The recovery of this carrying amount is expected to take place through the price obtained on its disposal (see Note 21).

These headings include individual items and groups ofor items (“integrated in a group ("disposal groups”group") and disposal groupsor that form part of a major operating segmentsignificant business line or geographic area that it is intended to be disposed of (“discontinued operation”) whose sale is highly probable that it will take place under the conditions in which such assets are currently located within a period of one year from the date to which the financial statements refer. Additionally, assets that were expected to be disposed of within a year but which disposal is delayed and are beingis caused by events and circumstances beyond the control of the Group can be classified as held for sale as part of a disposal plan (“discontinued operations”)(see Note 21). The heading “Non-current assets and disposal groups held for sale” include the assets received by the subsidiaries from their debtors, in full or partial settlement of the debtors’ payment obligations (assets foreclosed or received in payment of debt and recovery of lease finance transactions), unless the Group has decided to make continued use of these assets. The BBVA Group has units that specialize in real estate management and the sale of this type of asset.

Symmetrically, the heading “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheetssheet reflects the balances payable arising from disposal groups and discontinued operations.

The heading "Non-current assets and disposal groups as held for sale" includes the assets received by the subsidiaries for the satisfaction, in whole or in part, of the payment obligations of their debtors (foreclosed or received in payment of debt or recoveries from financial leasing transactions, unless the Group has decided to make continued use of those assets). The BBVA Group has specific units focused on real estate management and sale of these types of assets.

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Non-current assets and disposal groups classified as held for sale are generally measured, at the acquisition date and at any later date deemed necessary, at either their carrying amount or the fair value of the property (less costs to sell), whichever is lower. An impairment or reversal of impairment for the difference is recognized if applicable. When the amount of the sale less estimated costs of sale is higher than the carrying value, the gain is not recognized until the moment of disposal and derecognition from the balance sheet.

Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under the heading “Non-current assets and disposal groups classified as held for sale”.

In the case of real estate assets foreclosed or received in payment of debts, they are initially recognized at the lower of: the restated carrying amount of the financial asset and the fair value at the time of the foreclosure or receipt of the asset less estimated sales costs. The carrying amount of the financial asset is updated at the time of the foreclosure, treating the real property received as a secured collateral and taking into account the credit risk coverage that would correspond to it according to its classification prior to the delivery. For these purposes, the collateral will be valued at its current fair value (less sale costs) at the time of foreclosure. This carrying amount will be compared with the previous carrying amount and the difference will be recognized as a provision increase, if applicable. On the other hand, the fair value of the foreclosed assetassets is obtainedbased mainly on appraisals or valuations carried out by independent experts on an annual basis or more frequently if there are indications of impairment by appraisal, evaluating the need to apply a discount on the asset derived from the specific conditions of the asset or the market situation for these assets and in any case, deducting the company’s estimated sale costs.

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At the time of the initial recognition, these real estate assets foreclosed or received in payment of debts, classified as “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” are valued at the lower of: their restated fair value less estimated sale costs and their carrying amount; a deterioration or impairment reversal can be recognized for the difference if applicable.

Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under the heading “Non-current assets and disposal groups held for sale”.

Fair value of non-current assets held for sale from foreclosures or recoveries is based, mainly, in appraisals or valuations made by independent experts on an annual basis or more frequently, should there be indicators of impairment.

Gains and losses generated on the disposal of assets and liabilities classified as non-current held for sale, and liabilities included in disposal groups classified as held for sale as well as impairment losses and, where pertinent, the related recoveries, are recognized in “Profit or loss“Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” in the consolidated income statement (see Note 50). The remaining income and expense items associated with these assets and liabilities are classified within the relevant consolidated income statement headings.

Income and expensesexpense for discontinued operations, whatever their nature, generated during the year, even if they have occurred before their classification as discontinued operations, are presented net of the tax effect as a single amount under the heading “Profit (loss) after tax from discontinued operations” in the consolidated income statement whether the business remains on the consolidated balance sheet or is derecognized from the consolidated balance sheet. As long as an asset remains in this category, it will not be amortized.(see Note 1.3 and 21). This heading includes the earnings from their sale or other disposal.disposal (net of tax effects).

2.2.52.2.5. Tangible assetsAssets

Property, plant and equipment for own use

This heading includes the assets under ownership or acquired under finance lease terms (right to use), intended for future or current use by the BBVA Group and that it expects to hold for more than one year. It also includes tangible assets received by the consolidated entities in full or partial settlement of financial assets representing receivables from third parties and those assetswhich are expected to be held for continuing use.

For more information regarding the accounting treatment of right to use assets under lease terms, see Note 2.2.18 "Leases".

Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing thisthe net carrying amount of each item with its corresponding recoverable amount (see Note 17).

Depreciation is calculated using the straight-line method, during the useful life of the asset, on the basis of the acquisition cost of the assets less their residual value; the land is considered to have an indefinite life and is therefore not depreciated.depreciated.

The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45) and are based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):

Depreciation Ratesrates for Tangible Assets

tangible assets

Type of Assetsassets

Annual Percentage

Buildings for own use

1% - 4%

Furniture

8% - 10%

Fixtures

6% - 12%

Office supplies and hardware

8% - 25%

Lease use rights

The lesser of the lease term or the useful life of the underlying asset

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At each reporting date, the Group entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (as(defined as the higher between its recoverable amount less disposal costs and its value in use). When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.

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Similarly, if there is any indication that the value of a previously impaired tangible asset is now recoverable, the consolidated entities will estimate the recoverable amounts of the asset and recognize it in the consolidated income statement, recording the reversal of the impairment loss recognized in previous years and thus adjusting future depreciation charges. Under no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.

In the BBVA Group, most of the buildings held for own use are assigned to the different Cash-Generating-Units (CGU) to which they belong. The corresponding impairment analysisanalyses are performed for these CGUs to check whether sufficient cash flows are generated to support the value of the assets comprised within.

RunningOperating and maintenance expensesexpense relating to tangible assets held for own use are recognized as an expense in the year they are incurred and recognized in the consolidated income statements under the heading "Administration costs - Other administrative expensesexpense - Property, fixtures and equipment"materials" (see Note 44.2).

Other assets leased out under an operating lease

The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses on them, are the same as those described in relation to tangible assets for own use.

Investment properties

The heading “Tangible assets - Investment properties” in the consolidated balance sheets reflects the net values (purchase cost minus the corresponding accumulated depreciation and, if appropriate, estimated impairment losses) of the land, buildings and other structures that are held either to earn rentals or for capital appreciation through sale and that are neither expected to be sold off in the ordinary course of business nor are destined for own use (see Note 17).

The criteria used to recognize the acquisition cost of investment properties, calculate their depreciation and their respective estimated useful lives and recognize the impairment losses on them, are the same as those described in relation to tangible assets held for own use.

The BBVA Group determines periodically the fair value of its investment properties in such a way that, at the end of the financial year, the fair value reflects the market conditions of investment property assets’ market at thissuch date. This fair value will be determined taking as references the valuations performed by independent experts.

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2.2.6   Inventories

The balance under the heading “Other assets - Inventories” in the consolidated balance sheets mainly includes the land and other properties that the BBVA Group’s real estate entities hold for development and sale as part of their real estate development activities (see Note 20).

The cost of inventories includes those costs incurred in their acquisition and development, as well as other direct and indirect costs incurred in getting them to their current condition and location.

In the case of the cost of real estate assets accounted for as inventories, the cost is comprised of: the acquisition cost of the land, the cost of urban planning and construction, non-recoverable taxes and costs corresponding to construction supervision, coordination and management. Financing cost incurred during the year form part of cost, provided that the inventories require more than a year to be in a condition to be sold.

Properties purchased from customers in distress, which the Group manages for sale, are measured at the acquisition date and any subsequent time, at either their related carrying amount or the fair value of the property (less costs to sell), whichever is lower. The carrying amount at acquisition date of these properties is defined as the balance pending collection on those assets that originated said purchases (net of provisions).

Impairment

The amount of any subsequent adjustment due to inventory valuation for reasons such as damage, obsolescence, reduction in sale price to its net realizable value, as well as losses for other reasons and, if appropriate, subsequent recoveries of value up to the limit of the initial cost value, are recognized under the heading "Impairment or reversal of impairment on non-financial assets” in the accompanying consolidated income statements (see Note 48) for the year in which they are incurred.

In the case of the above mentioned real-estate assets, if the fair value less costs to sell is lower than the carrying amount of the loan recognized in the consolidated balance sheet, a loss is recognized under the heading "Impairment or reversal of impairment on non-financial assets" in the consolidated income statement for the year. In the case of real-estate assets accounted for as inventories, the BBVA Group’s criterion for determining their net realizable value is mainly based on independent appraisals no more than one year old, or less if there are indications of impairment.

Inventory sales

In sale transactions, the carrying amount of inventories is derecognized from the consolidated balance sheet and recognized as an expense under the income statement heading "Other operating expenses – Changes in inventories” in the year in which the income from its sale is recognized. This income is recognized under the heading “Other operating income – Financial income from non-financial services” in the consolidated income statements (see Note 42).

2.2.7   2.2.6. Business combinations

A business combination is a transaction, or any other deal, by which the Group obtains control of one or more businesses. It is accounted for by applying the acquisition method.“acquisition method”.

According to this method, the acquirer has to recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the acquired entity had not recognized in the accounts. The method involves the measurement of the consideration received for the business combination and its allocation to the assets, liabilities and contingent liabilities measured according to their fair value, at the purchase date, as well as the recognition of any non-controlling participation (minority interests) that may arise from the transaction.

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In a business combination achieved in stages, the acquirer shall remeasuremeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss under the heading “Gains (losses) on derecognition of non-financial assets and subsidiaries, net” of the consolidated income statements. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.

In addition, the acquirer shall recognize an asset in the consolidated balance sheet under the heading “Intangible asset - Goodwill” if on the acquisition date there is a positive difference between:

·the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of stock previously held in the acquired business; and

·the net fair value of the assets acquired and liabilities assumed.

If this difference is negative, it shall be recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

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Non-controlling interests in the acquired entity may be measured in two ways: either at their fair value; or at the proportional percentage of net assets identified in the acquired entity. The method of valuing non-controlling interest may be elected in each business combination. BBVA Group has always elected for the second method.

2.2.82.2.7. Intangible assets

Goodwill

Goodwill represents a portion of consideration transferred in advance by the acquiring entity for the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is never amortized. It is subject periodically to an impairment analysis, and is written off if there has been impairment (see Note 18).

Goodwill is assigned to one or more cash-generating unitsCGUs that expect to be the beneficiaries of the synergies derived from the business combinations. The cash-generating unitsCGUs represent the Group’s smallest identifiable asset groups that generate cash flows for the Group and that are largely independent of the flows generated from the Group’s other assets or groups of assets. Each unit or units to which goodwill is allocated:

·Is the lowest level at which the entity manages goodwill internally.

·Is not larger than an operating segment.

The cash-generatingcash generating units to which goodwill has been allocated are tested for impairment (including the allocated goodwill in their carrying amount). This analysis is performed at least annually or more frequently if there is any indication of impairment.

For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that cash-generating unit, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, in the event they are not valued at fair value, is compared with its recoverable amount.

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The recoverable amount of a cash-generating unit is equal to the fair value less sale costs or its value in use, whichever is greater. Value in use is calculated as the discounted value of the cash flow projections that the unit’s management estimates and is based on the latest budgets approved for the coming years. The main assumptions used in its calculation are: a sustainable growth rate to extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows, which is equal to the cost of the capital assigned to each cash-generating unit, and equivalent to the sum of the risk-free rate plus a risk premium inherent to the cash-generating unit being evaluated for impairment.

If the carrying amount of the cash-generating unit exceeds the related recoverable amount, the Group recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized, the carrying amount of the remainder of the assets. This is done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. In the event the non-controlling interests are measured at fair value, the deterioration of goodwill attributable to non-controlling interests will be recognized. In any case, an impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Goodwill impairment losses are recognized under the heading "Impairment or reversal of impairment on non-financial assets – Intangible assets” in the consolidated income statements (see Note 48)49).

Other intangible assets

These assets may have an indefinite useful life if, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities. In all other cases they have a finite useful life (see Note 18).

Intangible assets with a finite useful life are amortized according to the duration of this useful life, using methods similar to those used to depreciate tangible assets. The defined useful life intangible asset is made up mainly of IT applications acquisition costs which have a useful life of 3 to 5 years. The depreciationamortization charge of these assets is recognized in the accompanying consolidated income statements under the heading "Depreciation and amortization" (see Note 45).

The consolidated entities recognize any impairment losslosses on the carrying amount of these assets with charge to the heading “Impairment or reversal of impairment on non - financialnon-financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 48)49). The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior years, are similar to those used for tangible assets.

2.2.9   2.2.8. Insurance and reinsurance contracts

The assets and liabilities of the BBVA Group’s insurance subsidiaries are recognized according to their nature under the corresponding headings of the consolidated balance sheets, and the initial recognition and valuation is carried out according to the criteria set out in IFRS 4.

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The heading “Insurance and reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance subsidiaries are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the reinsurer´s share of the technical provisions recognized by the consolidated insurance subsidiaries.

The heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets includes the technical provisions for direct insurance and inward reinsurance recognized by the consolidated insurance subsidiaries to cover claims arising from insurance contracts open at period-end (see Note 23).

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The income or expensesexpense reported by the BBVA Group’s consolidated insurance subsidiaries on their insurance activities is recognized, in accordance with their nature, in the corresponding items of the consolidated income statements.

The consolidated insurance entities of the BBVA Group recognize the amounts of the premiums written and a charge for the estimated cost of the claims that will be incurred at their final settlement to their consolidated income statements. At the close of each year the amounts collected and unearned, as well as the costs incurred and unpaid, are accrued.

The most significant provisions recorded by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23.

According to the type of product, the provisions may be as follows:

Life insurance provisions:

Represents the value of the net obligations undertaken with the life insurance policyholder. These provisions include:

·           Provisions for unearned premiums. These are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until the closing date that has to be allocated to the period from year-end to the end of the insurance policy period.

·           Mathematical reserves: Represents the value of the life insurance obligations of the insurance entities at year-end, net of the policyholder’s obligations, arising from life insurance contracted.

Non-life insurance provisions:

·           Provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until the closing date that has to be allocated to the period between the year-end and the end of the policy period.

·           Provisions for unexpired risks: The provision for unexpired risks supplements the provision for unearned premiums by the amount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered by the consolidated insurance subsidiaries in the policy period not elapsed at year-end.

Provision for claims:

This reflects the total amount of the outstanding obligations arising from claims incurred prior to year-end. Insurance subsidiaries calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.

·Provision for bonuses and rebates:

This provision includes the amount of the bonuses accruing to policyholders, insurees or beneficiaries and the premiums to be returned to policyholders or insurees, as the case may be, based on the behavior of the risk insured, to the extent that such amounts have not been individually assigned to each of them.

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Technical provisions for reinsurance ceded:

Calculated by applying the criteria indicated above for direct insurance, taking account of the assignment conditions established in the open reinsurance contracts.

·Other technical provisions:

Insurance entities have recognized provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the valuation of the technical provisions.

The BBVA Group controls and monitors the exposure of the insurance subsidiaries to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.

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2.2.102.2.9. Tax assets and liabilities

Expenses on corporate income tax applicable to the BBVA Group’s Spanish entities and on similar income taxes applicable to consolidated foreign entities are recognized in the consolidated income statement, except when they result from transactions on which the profits or losses are recognized directly in equity, in which case the related tax effect is also recognized in equity.

The total corporate income tax expense is calculated by aggregating the current tax arising from the application of the corresponding tax rate as per the tax base for the year (after deducting the tax credits or discounts allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the consolidated income statement.

Deferred tax assets and liabilities include temporary differences, defined as the amounts to be payable or recoverable in future years arising from the differences between the carrying amount of assets and liabilities and their tax bases (the “tax value”), and tax loss and tax credit or discount carry forwardsforwards. These amounts are calculated by applying to each temporary difference the tax rates that are expected to apply when the asset is realized or the liability settled (see Note 19).

The "Tax Assets" line item in the accompanying consolidated balance sheets includes the amount of all the assets of a tax nature, broken down into: "Current” (amounts of tax recoverable in the next twelve months) and "Deferred" (which includes the amount of tax to be recovered in future years, including those arising from tax losses or credits for deductions or rebates that can be compensated). The "Tax Liabilities" line item in the accompanying consolidated balance sheets includes the amount of all the liabilities of a tax nature, except for provisions for taxes, broken down into: "Current” (income tax payable on taxable profit for the year and other taxes payable in the next twelve months) and "Deferred" (the amount of corporate tax payable in subsequent years).

Deferred tax liabilities attributable to taxable temporary differences associated with investments in subsidiaries, associates or joint venture entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is unlikely that it will reverse in the future. Deferred tax assets are recognized to the extent that it is considered probable that the consolidated entities will have sufficientgenerate enough taxable profits in the future against which theto make deferred tax assets can be utilizedeffective and aredo not correspond to those from the initial recognition (except in the case of a business combination) of other assets or liabilities in a transaction thatcombinations), which also does not affect the fiscal outcome or the accounting result.outcome.

The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still qualify as deferred tax assets and liabilities, and the appropriate adjustments are made on the basis of the findings of the analyses performed. In those circumstances in which it is unclear how a specific requirement of the tax law applies to a particular transaction or circumstance, and the acceptability of the definitive tax treatment depends on the decisions taken by the relevant taxation authority in future, the entity recognizes current and deferred tax liabilities and assets considering whether it is probable or not that a taxation authority will accept an uncertain tax treatment.

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Thus, if the entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, the entity uses the amount expected to be paid to (recovered from) the taxation authorities.

The income and expensesexpense directly recognized in consolidated equity that do not increase or decrease taxable income are accounted for as temporary differences.

2.2.11   2.2.10. Provisions, contingent assets and contingent liabilities

The heading “Provisions” in the consolidated balance sheets includes amounts recognized to cover the BBVA Group’s current obligations arising as a result of past events. These are certain in terms of nature but uncertain in terms of amount and/or settlement date. The settlement of these obligations is deemed likely to entail an outflow of resources embodying economic benefits (see Note 24). The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group entities relative to third parties in relation to the assumption of certain responsibilities or through virtually certain developments of particular aspects of the regulations applicable to the operation of the entities; and, specifically, future legislation to which the Group will certainly be subject. The provisions are recognized in the consolidated balance sheets when each and every one of the following requirements is met:

·They represent a current obligation that has arisen from a past event. At the date of the Consolidated Financial Statements, there is more probability that the obligation will have to be met than that it will not.

·It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

·The amount of the obligation can be reasonably estimated.

Among other items, these provisions include the commitments made to employees by some of the Group entities (mentionedmentioned in Note 2.2.12),2.2.11, as well as provisions for tax and legal litigation.

Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement; however, they will be disclosed, should they exist, in the Notes to the Consolidated Financial Statements, provided that it is probable will give rise to an increase in resources embodying economic benefits.

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Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the Group. They also include the existing obligations of the Group when it is not probable that an outflow of resources embodying economic benefits will be required to settle them; or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.

Contingent liabilities are not recognized in the consolidated balance sheet or the income statement (excluding contingent liabilities from business combination)businesses combinations) but are disclosed in the Notes to the Consolidated Financial Statements, unless the possibility of an outflow of resources embodying economic benefits is remote.

2.2.12   2.2.11. Pensions and other post-employment commitments

Below we provide a description of the most significant accounting policies relating to post-employment and other employee benefit commitments assumed by BBVA Group entities (see Note 25).

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Short-term employee benefits

Benefits for current active employees which are accrued and settled during the year and for which a provision is not required in the entity´s accounts. These include wages and salaries, social security charges and other personnel expenses.expense.

Costs are charged and recognized under the heading “Administration costs – Personnel expensesexpense – Other personnel expenses”expense” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-contribution plans

The Group sponsors defined-contribution plans for the majority of its active employees. The amount of these benefits is established as a percentage of remuneration and/or as a fixed amount.

The contributions made to these plans in each year by BBVA Group entities are charged and recognized under the heading “Administration costs – Personnel expenses –expense– Defined-contribution plan expense” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-benefit plans

Some Group entities maintain pension commitments with employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. These commitments are covered by insurance contracts, pension funds and internal provisions.

In addition, some of the Spanish entities have offered certain employees the option to retire before their normal retirement age, recognizing the necessary provisions to cover the costs of the associated benefit commitments, which include both the liability for the benefit payments due as well as the contributions payable to external pension funds during the early retirement period.

Furthermore, certain Group entities provide welfare and medical benefits which extend beyond the date of retirement of the employees entitled to the benefits.

All of these commitments are quantified based on actuarial valuations, with the amounts recorded under the heading “Provisions – Provisions for pensions and similar obligations” in the consolidated balance sheet and determined as the difference between the value of the defined-benefit commitments and the fair value of plan assets at the date of the Consolidated Financial Statements (see Note 25).

Current service cost areis charged and recognized under the heading “Administration costs – Personnel expensesexpense – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1).

Interest credits/charges relating to these commitments are charged and recognized in net terms under the headings “Interest and other income” andor, where appropriated, “Interest expense” of the consolidated income statement (see Note 37).

Past service costs arising from benefit plan changes as well as early retirements granted during the year are recognized under the heading “Provisions or reversals of provisions” of the consolidated income statement (see Note 46).

Other long-term employee benefits

In addition to the above commitments, certain Group entities provide long-term service awards to their employees, consisting of monetary amounts or periods of vacation granted upon completion of a number of years of qualifying service.

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These commitments are quantified based on actuarial valuations and the amounts recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet (see Note 24).

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Valuation of commitments: actuarial assumptions and recognition of gains/losses

The present value of these commitments is determined based on individual member data. Active employee costs are determined using the “projected unit credit” method, which treats each period of service as giving rise to an additional unit of benefit and values each unit separately.

In establishing the actuarial assumptions we take into account that:

·They should be unbiased, i.e. neither unduly optimistic nor excessively conservative.

·Each assumption does not contradict the others and adequately reflect the existing relationship between economic variables such as price inflation, expected wage increases, discount rates and the expected return on plan assets, etc. Future wage and benefit levels should be based on market expectations, at the balance sheet date, for the period over which the obligations are to be settled.

·The interest rate used to discount benefit commitments is determined by reference to market yields, at the balance sheet date, on high quality bonds.

The BBVA Group recognizes actuarial gains/lossesgains (losses) relating to early retirement benefits, long service awards and other similar items under the heading “Provisions or reversal of provisions” of the consolidated income statement for the period in which they arise (see Note 46). Actuarial gains/lossesgains (losses) relating to pension and medical benefits are directly charged and recognized under the heading "Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Actuarial gains or losses(losses) on defined benefit pension plans" of equity in the consolidated balance sheet (see Note 30).

2.2.13   2.2.12. Equity-settled share-based payment transactions

ProvidedEquity –settled share-based payment transactions, provided they constitute the delivery of such equity instruments following theonce completion of a specific period of services equity-settled share-based payment transactionshas occurred, are recognized as an expense for services being provided by employees, by way of a balancing entry under the heading “Shareholders’ funds – Other equity instruments” in the consolidated balance sheet. These services are measured at fair value for the employees services received, unless such fair value cannot be calculated reliably. In such case, they are measured by reference to the fair value of the equity instruments granted, taking into account the date on which the commitments were granted and the terms and other conditions included in the commitments.

When the initial compensation agreement includes what may be considered market conditions among its terms, any changes in these conditions will not be reflected in the consolidated income statement, as these have already been accounted for in calculating the initial fair value of the equity instruments. Non-market vesting conditions are not taken into account when estimating the initial fair value of equity instruments, but they are taken into account when determining the number of equity instruments to be issued. This will be recognized on the consolidated income statement with the corresponding increase in total consolidated equity.

2.2.14   2.2.13. Termination benefits

Termination benefits are recognized in the financial statements when the BBVA Group agrees to terminate employment contracts with its employees and has established a detailed plan.  

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2.2.152.2.14. Treasury shares

The value of common stock issued by the BBVA Group’s entities and held by them - basically, shares and derivatives on the Bank’s shares held by some consolidated entities that comply with the requirements to be recognized as equity instruments - are recognized as a decrease to net equity, under the heading "Shareholders’ funds - Treasury stock" in the consolidated balance sheets (see Note 29).

These financial assets are recognized at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Shareholders’ funds - Retained earnings” in the consolidated balance sheets (see Note 28).

2.2.16   2.2.15. Foreign-currency transactions and exchange differences

The BBVA Group’s functional currency, and thus the currency in which the Consolidated Financial Statements are presented, is the euro. As such, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”.

Conversion to euros of the balances held in foreign currency is performed in two consecutive stages:

·Conversion of the foreign currency to the entity’s functional currency (currency of the main economic environment in which the entity operates); and

·Conversion to euros of the balances held in the functional currencies of the entities whose functional currency is not the euro.

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Conversion of the foreign currency to the entity’s functional currency

Transactions denominated in foreign currencies carried out by the consolidated entities (or entities accounted for using the equity method) are initially accounted for in their respective currencies. Subsequently, the monetary balances in foreign currencies are converted to their respective functional currencies using the exchange rate at the close of the financial year. In addition,

·Non-monetary items valued at their historical cost are converted to the functional currency at the exchange rate applicable on the purchase date.

·Non-monetary items valued at their fair value are converted at the exchange rate in force on the date on which such fair value was determined.

·Monetary items are converted to the functional currency at the closing exchange rate.

Income and expensesexpense are converted at the period’s average exchange rates for all the operations carried out during the year. When applying this criterion the BBVA Group considers whether significant variations have taken place in exchange rates during the year which, owing to their impact on the statements as a whole, may require the application of exchange rates as of the date of the transaction instead of such average exchange rates.

The exchange differences produced when converting the balances in foreign currency to the functional currency of the consolidated entities are generally recognized under the heading "Exchange differences, net" in the consolidated income statements (see Note 41). However, the exchange differences in non-monetary items measured at fair value are recognized temporarily in consolidatedrecorded to equity under the heading “AccumulatedAccumulated other comprehensive income (loss) - Items that maywill not be reclassified to profit or loss - Exchange differences”Fair value changes of equity instruments measured at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).

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Conversion of functional currencies to euros

The balances in the financial statements of consolidated entities whose functional currency is not the euro are converted to euros as follows:

·Assets and liabilities: at the closing spot exchange rates as of the date of each of the consolidated balance sheets.

·Income and expensesexpense and cash flows are converted by applying the exchange rate applicable on the date of the transaction, and the average exchange rate for the financial year may be used, unless it has undergone significant variations.variations during the year.

·Equity items: at the historical exchange rates.

The exchange differences arising from the conversion to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recognized under the heading “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss - Exchange differences”Foreign currency translation” in the consolidated balance sheets (Notes 30 and 31 respectively). Meanwhile, the differences arising from the conversion to euros of the financial statements of entities accounted for by the equity method are recognized under the heading " Accumulated“Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - Entities accounted for using the equity method"of other recognized income and expense of investments in joint ventures and associates" (Note 30) until the item to which they relate is derecognized, at which time they are recognized in the income statement.

The financial statements of companies of hyperinflationary economies are restated for the effects of changes in prices before their conversion to euros following the provisions of IAS 29 "Financial information in hyperinflationary economies" (see note 2.2.20)Note 2.2.19). Both these adjustments for inflation and the exchange differences that arise when converting the financial statements of companies into hyperinflationary economies are accounted for in Reserves.“Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss - Foreign currency translation”.

The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII.

Venezuela

Local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the consolidated financial statements. As Venezuela is a country with strong exchange restrictions andthat has different rates officially published, and, since December 31, 2015, the Board of Directors considers that the use of the Venezuelan officialthese exchanges rates for converting bolivars into euros in preparing the Consolidated Financial Statements does not reflect the true picture of the financial statements of the Group and the financial position of the Group subsidiaries in Venezuela.this country. Therefore, since the year ended December 31, 2015, the exchange rate for converting bolivars into euros is an estimation taking into account the lack of official data and the evolution of the estimated inflation in Venezuela.

As of December 31, 2018, 20172020, 2019 and 2016,2018, the impact on the financial statements that would have resulted by applying the last published official exchange rate instead of the exchange rate estimated by BBVA Group was not significant.significant (see Note 2.2.19).  

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2.2.172.2.16. Recognition of income and expensesexpense

The most significant policies used by the BBVA Group to recognize its income and expensesexpense are as follows.

Interest income and expensesexpense and similar items:

As a general rule, interest income and expensesexpense and similar items are recognized on the basis of their period of accrual using the effective interest rate method.

TheyThey shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates the income or expenses:expense:

·           The interest income past-due before the initial recognition and pending to be received will form part of the gross carrying amount of the debt instrument.

·           The interest income accrued after the initial recognition will form part of the gross carrying amount of the debt instrument until it will be received.

The financial fees and commissions that arise on the arrangement of loans and advances (basically origination and analysis fees) are deferred and recognized in the income statement over the expected life of the loan.loan. From that amount, the transaction costs identified as directly attributable to the arrangement of the loans and advances will be deducted. These fees are part of the effective interest rate for the loans and advances.

Once a debt instrument has been impaired, interest income is recognized applying the effective interest rate used to discount the estimated recoverable cash flows on the carrying amount of the asset.

Income from dividends received:

Dividends shall be recognized within the consolidated income statement according to the following  criteria, independently from the financial instruments’ portfolio which generates this income:

·           When the right to receive payment has been declared before the initial recognition and when the payment is pending to be received, the dividends will not form part of the gross carrying amount of the equity instrument and will not be recognized as income. Those dividends are accounted for as financial assets separately from the net equity instrument.

·           If the right to receive payment is received after the initial recognition, the dividends from the net equity instruments will be recognized within the consolidated income statement. If the dividends correspond indubitable to the profits of the issuer before the date of initial recognition, they will not be recognized as income but as reduction of the gross carrying amount of the equity instrument because it represents a partlypartial recuperation of the investment. Amongst other circumstances, the generation date can be considered to be prior to the date of initial recognition if the amounts distributed by the issuer as from the initial recognition are higher than its profits during the same period.

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Commissions, fees and similar items:

·Income and expensesexpense relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to the nature of such items. The most significant items in this connection are:

·           Those relating to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected/paid.

·           Those arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services.

·           Those relating to a singular transaction, which are recognized when this singular transaction is carried out.

Non-financial income and expenses:expense:

These are recognized for accounting purposes on an accrual basis.

Deferred collections and payments:

These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

2.2.18   2.2.17. Sales of assets and income from the provision of non-financial services

The heading “Other operating income” in the consolidated income statements includes the proceeds of the sales of assets and income from the services provided by the Group entities that are not financial institutions. In the case of the Group, these entities are mainly real estate and service entities (see Note 42).

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2.2.19   2.2.18. Leases

Effective January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The single lessee accounting model requires the lessee to record assets and liabilities for all lease contracts. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA elected to apply both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings ‘‘Tangible assets – Property plants and equipment’’ and ‘‘Tangible assets – Investment properties’’ of the consolidated balance sheet (see Note 17) and a lease liability representing its obligation to make lease payments which is recorded under the heading ‘‘ Financial liabilities at amortized cost – Other financial liabilities’’ in the consolidated balance sheet (see Note 22.5).

At the initial date of the lease, the lease liability represents the present value of all lease unpaid payments. The liabilities registered under this heading of the consolidated balance sheets are measured after their initial recognition at amortized cost, this being determined in accordance with the “effective interest rate” method.

The right to use assets are initially recorded at cost. This cost consists of the initial measurement of the lease liability, any payment made before the initial date less any lease incentives received, all direct initial expenses incurred, as well as an estimate of the expenses to be incurred by the lessee, such as expenses related to the removal and dismantling of the underlying asset. The right to use assets recorded under this heading of the consolidated balance sheets are measured after their initial recognition at cost less:

Lease·The accumulated depreciation and accumulated impairment

·Any remeasurement of the lease liability.

The interest expense on the lease liability is recorded in the consolidated income statements under the heading “Interest expense” (see note 37). Variable payments not included in the initial measurement of the lease liability are recorded under the heading “Administration costs – Other administrative expense” (see Note 44).

Amortization is calculated using the straight-line method over the lifetime of the lease contract, on the basis of the cost of the assets. The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45).

In case of electing one of the exceptions in order not to recognize the corresponding right to use and the liability in the consolidated balance sheets, payments related to the corresponding lease are recognized in the consolidated income statements, over the contract period, lineally, or in the way that best represents the structure of the lease operation, under the heading "Other operating expense” (see Note 42).

Operating lease and sublease incomes are recognized in the consolidated income statements under the headings “Other operating income” (see Note 42).

As a lessor, lease contracts are classified as finance leases from the inception of the transaction if they substantially transfer all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. Leases other than finance leases are classified as operating leases.

When the consolidated entities act as the lessor of an asset under finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recognized as financing provided to third parties and, therefore, are included under the heading “Loans and receivables”advances” in the accompanying consolidated balance sheets (see Note 14).

When the consolidated entities act as lessors of an asset in operating leases, the acquisition cost of the leased assets is recognized under "Tangible assets – Property, plant and equipment – Other assets leased out under an operating lease" in the consolidated balance sheets (see Note 17). These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statements on a straight-line basis within “Other operating income” and "Other operating expenses"expense" (see Note 42).

If a fair value sale and leaseback results in an operatinga lease, the profit or loss generated from the effectively transferred part of the sale is recognized in the consolidated income statement at the time of sale. If such a transaction gives rise to a finance lease,sale (only for the corresponding gains or losses are accrued over the lease period.effectively transmitted part).

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The assets leased out under operating lease contracts to other entities in the Group are treated in the Consolidated Financial Statements as for own use, and thus rental expense and income is eliminated in consolidation and the corresponding depreciation is recognized.

2.2.20   2.2.19. Entities and branches located in countries with hyperinflationary economies

In accordance with the IFRSIFRS-IASB criteria, to determine whether an economy has a high inflation rate the country's economic situation is examined, analyzing whether certain circumstances are fulfilled, such as whether the population prefers to keep its wealth or savings in non-monetary assets or in a relatively stable foreign currency, whether prices can be set in that currency, whether interest rates, wages and prices are pegged to a price index or whether the accumulated inflation rate over three years reaches or exceeds 100%. The fact that any of these circumstances is fulfilled will not be a decisive factor in considering an economy hyperinflationary, but it does provide some reasons to consider it as such.

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Argentina

InSince 2018, the Argentinian economy wasof Argentina has been considered to be hyperinflationary as defined byunder the aforementionedabove criteria. Accordingly, as of December 31, 2018, it was necessary to adjustAs a result, the financial statements of the Group's subsidiaries basedBBVA Group’s entities located in Argentina have therefore been adjusted to correct for the effecteffects of inflation.

Pursuant to the requirements of IAS 29, the monetary headings (mainly loans and deposits) have not been re-expressed, while the non-monetary headings (mainly tangible fixed assets and equity) have been re- expressed in accordance with the change in the country's Consumer Price Index.

The accumulated historical differences between the re-expressed costs and the previous costs in the non-monetary headings as of December 31, 2017 were credited to “Equity” in the balance sheet, effective on January 1, 2018, while the differences corresponding to 2018, and the re-expression of results were recognized in the consolidated income statement for 2018 in accordance with the nature of the income and expenses.

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During the year ended December 31, 2018 there was a reclassification in “Transfers within total equity” of the Consolidated Statements of Changes in Equity between “Accumulated other comprehensive income” and “Shareholders’ funds – Retained earnings” for €1,096 million, and from “Non-controlling interest – Accumulated other comprehensive income (loss)” to “Non-controlling interest – Other” for €540 millioninflation in accordance with IAS 29 and the accounting policy approved by the Group“Financial reporting in relation to the hyperinflation (see Note 1.3)hyperinflationary economies“.

During 2020, 2019 and 2018, the increase in the reserves of Group entities located in Argentina derived from the re-expression for hyperinflation (IAS 29) amountedamounts to €343, €470 and €703 million, respectively, of which €228, €313 and €463 million, respectively, have been recorded within “Shareholders’ funds - Retained earnings”“Equity – Accumulated other comprehensive income /(loss)” and €115, €157 and €240 million, respectively, within “Minority interests – Other”Accumulated other comprehensive income/(loss)”. Furthermore, during 2020, 2019 and 2018 the decrease in the reserves of Group entities located in Argentina derived from the conversion (IAS 21) amountsamounted to €-773€482, €460 and €773 million, respectively, of which €-515€320, €305 and €515 million, respectively, have been recorded within “Shareholders’ funds - Retained earnings”“Equity – Accumulated other comprehensive income/(loss)”, and €-258€162, €155 and €258 million, respectively, within “Minority interests – Other”Accumulated other comprehensive income/(loss)”. The net impact of both effects is presented under the caption “Other increases or (-) decreases in equity” in the consolidated Statementstatement of Changeschanges in Equityequity for the yearyears ended December 31, 2020, 2019 and 2018. The net loss in the profit attributable to the parent company of the Group in 2020, 2019 and 2018 derived from the application of IAS 29 amounted to €148, €190 and €209 million.million, respectively. In addition, there is a net loss in the profit attributable to the parent company of the Group in 2020, 2019 and 2018 derived from the application of IAS 21 which amounted to €26, €34 and €57 million.million, respectively.

The breakdown of the General Price Index (“GPI”) and the inflation index used as of December 31, 20182020 for the inflation restatement of the financial statements of the Group companies located in Argentina is as follows:  

General Price Index

2018

GPI

184

Average GPI

152

Inflation of the period

48%

General Price Index

0

2020

GPI

387

Average GPI

331

Inflation of the period

36.5%

Venezuela

Since 2009, the economy of Venezuela can behas been considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Venezuela have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “Financial Reportingreporting in Hyperinflationary Economies“hyperinflationary economies“. As stated in Note 1.3, BBVA has restated prior year information in relation to a change in the accounting policy for applying IAS 29.

The losses recognized under the heading “Profit attributable to the parent company” in the accompanying consolidated income statement as a result of the adjustment for inflation on net monetary position of the Group entities in Venezuela amounted to €12, €13€5, €8 and €28€12 million in 2018, 20172020, 2019 and 20162018, respectively (see Note 2.2.16)2.2.15).

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2.3   Recent IFRS pronouncements

Changes introduced2.3. Recent IFRS pronouncements

Standards and interpretations that became effective in 20182020

The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective on or after January 1, 2018.in 2020.

IFRS 9 - “Financial instruments”IAS 1 and IAS 8 – “Definition of Material”

IFRS 9 replaced IAS 39 forThe amendments clarify the definition of “material” in the preparation of the financial statements from Januaryby aligning the definition of the Conceptual Framework, IAS 1 2018 onwards and includesIAS 8 (which, before such amendment, contained similar but not identical definitions). The new classification and measurement requirements fordefinition of material is as follows: “information is material if its omission, misrepresentation or obscuration can reasonably be expected to influence the decisions made by the primary users of a specific entity’s general purpose financial assets and liabilities and impairment requirements forstatements, based on those financial assets (see Note 2.2.1).statements.”

Regarding the hedge accounting, the GroupThe implementation of this standard has elected to continue applying IAS 39 to its hedge accounting as permitted by IFRS 9.

Amended IFRS 9 – Prepayment Features with Negative Compensation

The amendments to IFRS 9 allow entities to measure certain prepayable financial assets with negative compensation at amortized cost or at fair value through other comprehensive income if a specified condition is met, instead of at fair value through profit or loss. The condition is that the financial asset would otherwise meet the criteria of having contractual cash flows that are solely payments of principal and interest but do not meet that condition only as a result of that prepayment feature.

The amendments should be applied to the accounting periods beginning on or after January 1, 2019, although early application is permitted. The Group has applied this amendment to the accounting period beginning on January 1, 2018 and it has not had ano significant impact on the Group´s consolidated financial statements.

Amended IFRS 7 - “Financial instruments: Disclosures”3 – “Definition of a business”

The IASB modified IFRS 7 in December 2011 to include new disclosures on financial instruments that entities have to provide inamendment clarifies the period that they apply IFRS 9difference between “acquiring a business” or “acquiring a group of assets” for accounting purposes. To determine whether a transaction is the first time.

IFRS 15 - “Revenue from contracts with customers”

IFRS 15 contains the principles thatacquisition of a business, an entity shall applyhas to account for revenueevaluate and cash flows arising fromconclude that the following two conditions are met:

·The fair value of the assets acquired is not in a contract withsingle asset or group of similar assets.

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·The set of acquired activities and assets includes, as a customer (see Note 2.2.17).

The core principle of IFRS 15 isminimum, an input and a substantive process that a company should recognize revenue to depict the transfer of promised goods or servicestogether contribute to the customer in an amount that reflects the considerationability to which the company expects to be entitled in exchange for those goods or services, in accordance with contractual agreements (create products.either over time or at a certain time). It is considered that the good or service is transferred when the customer obtains control over it.

The new Standard replaces IAS 18 – Revenue, IAS 11 - Construction Contracts, IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the Constructionimplementation of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC 31 – Revenue-Transactions Involving Advertising Services.

Thisthis standard has not had ano significant impact on the Group's Consolidated Financial Statements.Group´s consolidated financial statements.

IFRS 9, IAS 39 and IFRS 7 – Modifications – IBOR Reform

The IBOR Reform (Phase 1) refers to the amendments issued by the IASB on IFRS 9, IAS 39 and IFRS 7 to avoid that some accounting hedges have to be discontinued in the period before the reform of the reference rates becomes effective. BBVA Group applies IAS 39 for hedge accounting, and therefore the amendments to IFRS 9 referred to in this section do not apply.

In some cases, and/or jurisdictions, there may exist uncertainty about the future of some reference rates or their impact on the entity’s contracts, which directly causes uncertainty about the timing or amounts of cash flows of the hedged instrument or the hedging instrument. Due to such uncertainties, some entities may be forced to discontinue an accounting hedge, or not be able to designate new hedging relationships.

Consequently, the amendments include several temporary simplifications of the requirements for the application of hedge accounting which apply to all hedging relationships that are affected by the uncertainty arising from the Reform. A hedging relationship is affected by the reform if it generates uncertainty about the timing or amount of cash flows of the hedged financial instrument or the hedge linked to the specific benchmark. The simplifications refer to the requirements on the highly probable future transaction in cash flow hedges, on prospective and retrospective effectiveness (exemption from compliance with the 80%-125% effectiveness ratio) and on the need to separately identify the risk component.

As the amendments aim is to provide temporary exceptions to the application of certain specific hedge accounting requirements, these exceptions should terminate once the uncertainty is resolved or the hedge ceases to exist.

The Group also has cash flow and fair value hedge accounting relationships which are exposed to different IBORS, predominantly EURIBOR, LIBOR in US dollars and to a much lesser degree Sterling LIBOR and other benchmark interest rates. The Group considers that the amendments to IAS 39 and IFRS 7 are applicable when there is uncertainty about future cash flows.

The nominal amount of the hedging instruments directly affected by the IBOR reform as of December 31, 2020 is the following:

Millions of Euros

 

LIBOR USD

LIBOR GBP

Other - TIIE (*)

TOTAL

Cash flow hedges

9,084

-

574

9,658

Fair value hedges

10,608

266

1,477

12,351

F-50(*) Equilibrium Interbank Interest Rate used in Mexico.

As of December 31, 2020, the Group considers that, in general, there is no uncertainty regarding EURIBOR as it has been replaced by the hybrid EURIBOR which uses a methodology that meets the standards required by the various international organizations. In the case of accounting hedges which are referenced to other benchmark interest rates, despite the uncertainty, based on the simplifications provided by the standard, the hedging relationships for the annual period that ended on December 31, 2020, will not be affected by the IBOR reform.

IFRS 16 –Leases – COVID-19 modifications

On May 28, 2020, the IASB approved an amendment to IFRS 16 to include a practical expedient to the accounting treatment for rent concessions (payment deferrals and temporary rent reductions) that occur due to a direct consequence of COVID-19 (see Note 1.5).

The amendment permits lessees to account for rent concessions as if they were not lease modifications to the initial ones.It is applicable to rent concessions related to COVID-19, which reduces lease payments before June 30, 2021. This amendment is effective from June 1, 2020.

The implementation of this standard has had no significant impact on the Group´s consolidated financial statements.

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IFRS 2 – “Classification and Measurement of Share-based Payment Transactions”

The amendments made to IFRS 2 provide requirements on three different aspects:

·When measuring the fair value of a cash-settled share-based payment vesting conditions, other than market conditions, the conditions for the irrevocability shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction.

·A transaction in which an entity settles a share-base payment arrangement net by withholding a specified portion of the equity instruments to meet a statutory tax withholding obligation will be classified as equity settled in its entirety if, without the net settlement feature, the entire share-based payment would otherwise be classified as equity-settled.

·In case of modification of a share-based payment from cash-settled to equity-settled, the modification will be accounted for derecognizing the original liability and recognizing in equity the fair value of the equity instruments granted to the extent that services have been rendered up to the modification date; any difference will be recognized immediately in profit or loss.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

Amended IFRS 4 – “Insurance Contracts”

The amendments made to IFRS 4 address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts standard, by introducing two optional solutions:

·The deferral approach or temporary exemption, that gives entities whose predominant activities are connected with insurance the option to defer the application of IFRS 9 and continue applying IAS 39 until 2021.

·The overlay approach, that gives all issuers of insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the additional accounting volatility that may arise from applying IFRS 9 compared to applying IAS 39 before applying the forthcoming insurance contracts standard.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

Annual improvements cycle to IFRSs 2014-2016 – Minor amendments to IFRS 1 and IAS 28

The annual improvements cycle to IFRSs 2014-2016 includes minor changes and clarifications to IFRS 1- First-time Adoption of International Financial Reporting Standards and IAS 28 – Investments in Associates and Joint Ventures, which should be applied to the accounting periods beginning on or after January 1, 2018, although early application was permitted for modifications to IAS 28.

This standard has not had a significant impact on the Group's Consolidated Financial Statements.

IFRIC 22 – Foreign Currency Transactions and Advance Consideration

The Interpretation addresses how to determine the date of the transaction, and thus, the exchange rate to use to translate the related asset, expense or income on initial recognition, in circumstances in which a non-monetary prepayment asset or a non-monetary deferred income liability arising from the payment or receipt of advance consideration is recognized in advance of the related asset, income or expense. It requires that the date of the transaction will be the date on which an entity initially recognizes the non-monetary asset or non-monetary liability.

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If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.

This standard has not had a significant impact on the Group's consolidated financial statements.

Amended IAS 40 – Investment Property

The amendment states that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property.

This standard has not had a significant impact on the Group's financial statements.

Standards and interpretations issued but not yet effective as of December 31, 20182020

The following new International Financial Reporting Standards together with their interpretationsInterpretations had been published at the date of preparation of the accompanying consolidated financial statements, but are not mandatory as of December 31, 2018.2020. Although in some cases the IASB International Accounting Standards Board (“IASB”) allows early adoption before their effective date, the BBVA Group has not proceeded with this option for any such new standards.

Amended IFRS 10 – “Consolidated financial statements”9, IAS 39, IFRS 7, IFRS 4 and IAS 28 amendedIFRS 16 - Modifications - IBOR reform

TheOn August 27, 2020, the IASB issued the second phase of the IBOR reform that involves the introduction of amendments to IFRS 109, IAS 39, IFRS 7, IFRS 4 and IAS 28 establishIFRS 16, to ensure that when an entity sells or transfers assets which are considered a business (including its consolidated subsidiaries) to an associate or joint venturethe financial statements reflect the economic effects of the entity,IBOR reform. The amendments focus on the latteraccounting for financial instruments once a new benchmark has been introduced.

Such modifications introduce the practical simplification of accounting for changes in the cash flows of the financial instruments directly caused by the IBOR reform and, if they take place under an “economically equivalent” context, through the effective interest rate of the financial instrument update. Similarly, a practical simplification will havebe applied to recognize any gains or losses derived from such transactionIFRS 16 “Leases” for leases, when accounting for modifications in its entirety. Notwithstanding, iflease agreements as a consequence of the assets sold or transferred are not considered a business, the entity will have to recognize the gains or losses derived onlyIBOR reform. Additionally, some exemptions to the extenthedging requirements are introduced so as not to discontinue certain hedging relationships. However, similar to the phase 1 amendments, these phase 2 amendments do not provide exceptions to the valuation requirements applicable to hedged items and hedging instruments in accordance with IFRS 9 or IAS 39. Thus, once the new benchmark has been implemented, the hedged items and hedging instruments must be valued according to the new index, and any possible ineffectiveness that may exist in the hedge will be recognized in profit or loss. On the other hand, new disclosures are introduced.

The IBOR transition is considered to be a complex initiative, which affects BBVA Group in different geographical areas and business lines, as well as in a multitude of products, systems and processes. Therefore, BBVA Group has established an IBOR transition program, provided with a robust governance structure by means of an Executive Steering Committee, with representation from senior management of the interests inaffected areas, which reports directly to the associate or joint venture with unrelated investors.

These changes will be applicable to accounting periods beginning onGroup's Global Leadership Team. At the effective date, still to be determined, although early adoption is allowed.

IFRS 16 – “Leases”

On January 13, 2016, the IASB issued IFRS 16 which will replace IAS 17 “Leases” for financial statements from January 1, 2019 onwards. The new standard introduceslocal level, each geography has defined a single lessee accounting model and will require a lessee to recognize assets and liabilities for all leases. The only exceptions are short-term contracts and those in which the underlying assets have low value. A lessee will be required to recognize a right-of-use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and account for those two types of leases differently.

During the financial years 2017 and 2018 the Group has carried out a project to implement IFRS 16local governance structure with the participation of all affected areas.senior management. The standard will mainly affectcoordination between geographies is realized through the accountingProject Management Office (PMO) and the Global Working Groups that incorporate a multi-geographic and transversal view on the areas of operating leasesLegal, Risk, Regulatory, Engineering, Finance and Accounting. The project also involves both Corporate Assurance of the different geographies and business lines and Global Corporate Assurance of the Group.

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With regardThe IBOR transition project within BBVA Group takes into account the different approaches and timings of transition to the estimated impact onnew RFRs (risk-free rate) when evaluating the Consolidated Financial Statements, ateconomic, operational, legal, financial, reputational or compliance risks associated with the transition, date, the Group has decided to apply the modified retrospective approach which requires recognition of a lease liability equal to the present value of the future payments committed on January 1, 2019. Regarding the measurement of the right-of-use asset, the Group has elected to record an amount equal to the lease liability. As a result of this approach, the Group expects to recognize assets for the right-of-use and lease liabilities for an approximate amount of 3,600 million euros mainly coming from the Group’s activity in Spain as well as from bank branches leases.defining the lines of action to mitigate them. A relevant aspect of this transition is its impact on contracts referenced to LIBOR (mainly dollar) and EONIA rates that mature after 2021. In this regard, in the case of the EONIA, BBVA aims to carry out a novation of the contracts maturing after 2021 (it should be noted that these exposures are immaterial in the Group) and has already begun, proactively, the renegotiation of collateral contracts to adapt them to the operations against clearing houses homogeneously which already migrated last July. The estimated impactGroup already has new fallbacks in termsplace which incorporate the €STR as a replacement rate, as well as language to incorporate this benchmark as the main reference rate in new contracts. In the case of capital (CET1)LIBOR, BBVA Group has identified the stock of contracts expiring after 2021 and is working on the implementation of tools/systems that will allow the stock to be migrated to solutions such as those proposed by ISDA (Group entities are either already adhering to the ISDA protocol or in the process of doing so). Likewise, BBVA Group continues to work on adapting all its systems and processes to deal with alternative Risk Free Rates, such as SOFR and SONIA. In the case of EURIBOR, the European authorities have encouraged amendments of its methodology so that it complies with the requirements of the European Regulation on Benchmarks. BBVA actively participates in various working groups, including the EURO RFR WG which works specifically, amongst others, on the definition of fallbacks in contracts, in anticipation of an option to change the index in the future.

BBVA Group has a significant number of financial assets and liabilities referenced to IBOR rates, especially EURIBOR, which are used, among others, in loans, deposits, debt issuances and financial derivatives. Furthermore, although the exposure to EONIA is lower in the banking book, this benchmark interest rate is used in financial derivatives in the trading book, as well as in the collateral agreements and most are booked in Spain. In the case of LIBOR, the USD is the most relevant currency for both cash products and financial derivatives in the Group amounts to -12 basis points.banking book and the trading book. Other LIBOR currencies (CHF, GBP and JPY) have a much lower specific weight.

The final impactThese modifications introduced in the second phase of adopting the standardreform will be mandatory as of January 1, 2019 may change because:

·2021, with possible early adoption. In this sense, based on the progress of the transition to the new indices in the Group, the BBVA Group has considered that it is not concludednecessary to early adopt IBOR reform phase 2 in the tests;BBVA Group in 2020. On January 13, 2021, the European Commission has endorsed the aforementioned modifications.

·the new accounting policies, methodologies and parameters may be subject to changes until the Grouppresents its financial statements that include the final impact as of the date of initial application.

IFRS 17 – Insurance Contracts

IFRS 17 establishes the principles for the accounting for insurance contracts and supersedes IFRS 4. The new standard introduces a single accounting model for all insurance contracts and requires the entities to use updated assumptions.

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An entity shall divide the contracts into groups and recognize and measure groups of insurance contracts at the total of:

·           the fulfilment cash flows, that comprises the estimate of future cash flows, an adjustment to reflect the time value of money and the financial risk associated with the future cash flows and a risk adjustment for non-financial risk; and

·           the contractual service margin that represents the unearned profit.

The amounts recognized in the consolidated income statement shall be disaggregated into insurance revenue, insurance service expenses and insurance finance income or expenses. Insurance revenue and insurance service expenses shall exclude any investment components. Insurance revenue shall be recognized over the period the entity provides insurance coverage and in proportion to the value of the provision of coverage that the insurer provides in the period.

This Standard will be applied to the accounting years starting on or after January 1, 2021.

IFRIC 23 - Uncertainty over Income Tax Treatments

IFRIC 23 provides guidance on how to apply2023. In 2019, the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.

If the entity considers that it is probable that the taxation authority will acceptGroup established an uncertain tax treatment, the Interpretation requires the entity to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistentlyIFRS 17 implementation project with the tax treatment used or plannedobjective of harmonizing the criteria in the Group and with the participation of all the affected areas.

Amendments to be usedIFRS 4 Insurance Contracts

The amendment to IFRS 4 includes a deferral in its income tax filings.

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If the entity considers thattemporary exception option regarding the application of IFRS 9 for entities whose business model is predominantly an insurance model until January 1, 2023, aligning it is not probable thatwith the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to use the most likely amount or the expected value (sumentry into force of the probability. weighted amounts in a range of possible outcomes) in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The method used should be the method that the entity expects to provide the better prediction of the resolution of the uncertainty.

The interpretationIFRS 17 Insurance Contracts rule. This modification will be applied to the accounting periods beginning on or after January 1, 2019.

Amended IAS 28 – Long-term Interests in Associates and Joint Ventures

The amendments to IAS 28 clarify that an entity is required to apply IFRS 9 to long term interests in an associate or joint venture that, in substance, form part of the net investment in the associate or joint venture but to which the equity method is not applied.

The amendments will be applied to the accounting periods beginning on or after January 1, 2019.

Annual improvements cycle to IFRSs 2015-2017

The annual improvements cycle to IFRSs 2015-2017 includes minor changes and clarifications to IFRS 3- Business Combinations, IFRS 11 – Joint Arrangements, IAS 12 – Income Taxes and IAS 23 – Borrowing Costs, which will be applied to the accounting periods beginning on or after January 1, 2019, although early application is permitted.

Amended IAS 19 – Plan Amendment, Curtailment or Settlement

The small amendments in IAS 19 concern the cases if a plan is amended, curtailed or settled during the period. In these cases, an entity should ensure that the current service cost and the net interest for the period after the remeasurement are determined using the assumptions used for the remeasurement. In addition, amendments have been included to clarify the effect of a plan amendment, curtailment or settlement on the requirements regarding the asset ceiling.

The amendments will be applied to the accounting periods beginning on or after January 1, 2019.

Amended IFRS 3 – Definition of a business

The amendments clarify the difference between the acquisition of a business or the acquisition of a set of assets. To determine whether a transaction is an acquisition of a business, an entity should evaluate and conclude if the two following conditions are fulfilled:

·the fair value of the acquired assets is not concentrated in one single asset or group of similar assets.

·the entirety of acquired activities and assets includes, as a minimum, an input and a substantial process which, together, contribute to the capacity to create products.

The amendments will be applied to the accounting periods beginning on or after January 1, 2020, although early application is permitted.

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Amended IAS 1 and IAS 8 – Definition of material

The amendments clarify the definition of material in the elaboration of the financial statements by aligning the definition of the conceptual framework, IAS 1 and IAS 8 (which, before the amendments, included similar but not identical definitions). The new definition of material is the following: “Information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity”.

The amendments will be applied to the accounting periods beginning on or after January 1, 2020, although early application is permitted.

2.4    Transition to IFRS 9 and condensed consolidated opening balance sheet as of January 1, 2018

2.4.1   Transition to IFRS 9

As mentioned in the Notes 1.3, 2.2.1 and 2.3, IFRS 9 replaced IAS 39 for financial statementsapplicable from January 1, 2018 onwards and includes new classification and measurement requirements for financial assets and liabilities, impairment requirements for financial assets and hedge accounting policy.

The application of this standard on January 1, 2018, had a significant impact on the consolidated financial statements of the Group at that date.

Classification and measurement of financial instruments

Financial assets

IFRS 9 has a new approach to classification and measurement of financial assets which is a mirror of the business model used for asset management purposes and its cash flow characteristics.

IFRS 9 contains three main categories for financial assets classification: valued at amortized cost, valued at fair value with changes in other accumulated comprehensive income, and valued at fair value through profit or loss. The standard eliminates the IAS 39 categories of held-to-maturity investments, loans and receivables, and available-for-sale financial assets.

The classification of financial instruments measured at amortized cost or fair value must be carried out on the basis of: the entity's business model and the assessment of the contractual cash flow, commonly known as the "solely payments of principle and interest" criterion (hereinafter, the SPPI). The purpose of the SPPI test is to determine whether in accordance with the contractual characteristics of the instrument its cash flows only represent the return of the principal and interest, basically understood as consideration for the time value of money and the debtor's credit risk.

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A financial instrument will be classified in the amortized cost portfolio when2021, although it is managed with a business model whose purpose is to maintain the financial assets to receive contractual cash flows, and passes the SPPI test. They will be classified in the portfolio of financial assets at fair value with changes in other comprehensive income if they are managed with a business model whose purpose combines collection of the contractual cash flows and sale of the assets, and meets the SPPI test. They will be classified at fair value with changes in profit and loss provided that the entity's business model for their management or the contractual characteristics of its cash flows do not require classification into one of the portfolios described above.

The Group reviewed the existing business models in the geographic areas where it operates to establish classification in accordance with IFRS 9, taking into account the special characteristics of the local structures and organizations, as well as the type of products.

The Group has defined criteria to determine the acceptable frequency and reasons for sales so that the instrument can remain in the category of held to collect contractual cash flows.

Regardless of the frequency and importance of the sales, some types of sales are not incompatible with the category of held to collect contractual flows: sales due to reduction in credit quality; sales close to the maturity of transactions so that variations in market prices will not have a significant effect on the cash flows of the financial asset; sales in response to a change in regulations or in taxation; sales in response to an internal restructuring or significant business combination; sales derived from the execution of a liquidity crisis plan when the crisis event is not reasonably foreseeable.

The Group segmented the portfolio of instruments for carrying out the SPPI test by differentiating products with standard contracts (all the instruments have identical contractual characteristics and are broadly used), for which the Group has carried out the SPPI test by reviewing the standard framework contract. For those products with similar, but not identical characteristics compliance has been assessed through a sampling exercise of contracts. All the financial instruments with specific contractual characteristics have been analyzed individually. 

As a result of the analyses carried out on both the business model and the contractual characteristics, certain accounting reclassifications resulted affecting both financial assets and, as the case may be, financial liabilities related to those assets. In general, there is a greater volume of assets valued at fair value with changes in the income statement and the valuation method of some instruments has also been changed according to the one that best reflects the business model to which they belong. Changes in the valuation model to avoid exceeding the criterion of solely payment of principal and interest are not significant.

As of December 31, 2017, the Group had certain investments in financial instruments classified as available-for-sale which, in accordance with IFRS 9, the Group designated as financial assets at fair value through other comprehensive income. As a result, all the gains and losses at fair value of these instruments are now reported in accumulated other comprehensive income. Impairment losses would not be recognized to profit and loss, and gains or losses would not be reclassified to the income statement in the case of divestment. The remaining investments held by the Group as of December 31, 2017 in equity instruments classified as available-for-sale are now accounted for as fair value through changes in profit or loss.

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Financial liabilities

IFRS 9 largely maintains the requirements under IAS 39 for classifying financial liabilities. However, a new aspect introduced by IFRS 9 is the recognition of changes in the fair value of the financial liabilities to which the fair value option is applied. In this case, the changes in the fair value attributable to the credit risk itself are recognized as other comprehensive income, while the rest of the variation is recognized in the income statement. In any case, the variation of credit risk itself may be recognized in the income statement if the treatment described above generates accounting asymmetry.

Financial assets impairments

IFRS 9 replaced the "incurred loss" model in IAS 39 with one of "expected credit loss". The IFRS 9 impairment model is applied to financial assets valued at amortized cost and to financial assets valued at fair value through other comprehensive income, except for investments in equity instruments and contracts for financial guarantees and loan commitments unilaterally revocable by BBVA. Likewise, all the financial instruments valued at fair value with change through profit and loss are excluded from the impairment model.

The new standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized (Stage 1); the second comprises the financial assets for which a significant increase in credit risk has been identified since its initial recognition (Stage 2) and the third one, the impaired financial assets (Stage 3).

The calculation of the provisions for credit risk in each of these three categories must be done differently. In this way, expected loss up to 12 months for the financial assets classified in the first of the aforementioned categories must be recorded, while expected losses estimated for the remaining life of the financial assets classified in the other two categories must be recorded. Thus, IFRS 9 differentiates between the following concepts of expected loss:

·Expected loss at 12 months: expected credit loss that arises from possible default events within  12  months following the presentation date of the financial statements; and

·Expected loss during the life of the transaction: this is the expected credit loss that arises from all possible default events over the remaining life of the financial instrument.

All this requires considerable judgment, both in the modeling for the estimation of the expected losses and in the forecasts, on how the economic factors affect such losses, which must be carried out on a weighted probability basis.

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The BBVA Group has applied the following definitions in accordance with IFRS 9:

·Default

BBVA has applied a definition of default for financial instruments that is consistent with that used in internal credit risk management, as well as the indicators under applicable regulation at the date of implementation of IFRS 9. Both qualitative and quantitative indicators have been considered.

The Group has considered there is a default when one of the following situations occurs:

- payment past-due for more than 90 days; or

- there are reasonable doubts regarding the full reimbursement of the instrument.

In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the entity considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2018, the Group has not considered periods higher than 90 days for any of the significant portfolios.

·Credit impaired asset

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

- Significant financial difficulty of the issuer or the borrower.

- A breach of contract (e.g. a default or past due event).

- A lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider.

- It becoming probable that the borrower will enter bankruptcy or other financial reorganization.

- The disappearance of an active market for that financial asset because of financial difficulties.

- The purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

The definition of impaired financial assets in the Group is aligned with the definition of default explained in the above paragraphs.

·Significant increase in credit risk

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward-looking.

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The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally, although the specific characteristics of each geographic area are respected:

- Quantitative criterion: the Group uses a quantitative analysis based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default, so that both values are comparable in terms of expected default probability for their residual life. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios. Depending on how old current financial assets are, at the time implementation of the standard, some simplification has been made to compare the probabilities of default between the current and the original moment, based on the best information available at that moment.

- Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so quantitative analysis covers the majority of circumstances. The Group will use additional qualitative criteria when it considers it necessary to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.

Additionally, instruments under one of the following circumstances are considered Stage 2:

- More than 30 days past due. According to IFRS 9, default of more than 30 days is a presumption that can be rebutted in those cases in which the entity considers, based on reasonable and documented information, that such non-payment does not represent a significant increase in risk. As of December 31, 2018, the Group has not considered periods superior to 30 days for any of the significant portfolios.

- Watch list: They are subject to special watch by the Risks units because they show negative signs in their credit quality, even though there may be no objective evidence of impairment.

- Refinance or restructuring that does not show evidence of impairment.

Although the standard introduces a series of operational simplifications or practical solutions for analyzing the increase in significant risk, the Group does not expect to use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly because they have a low credit risk at the presentation date.

Thus the classification of financial instruments subject to impairment under the new IFRS 9 is as follows:

·Stage 1– without significant increase in credit risk

Financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to 12 months expected credit losses.

·Stage 2– significant increases in credit risk

When the credit risk of a financial asset has increased significantly since the initial recognition, the impairment losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

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·Stage 3 - Impaired

When there is objective evidence that the instrument is credit impaired, the financial asset is transferred to this category in which the provision for losses of that financial instrument is calculated as the expected credit loss during the entire life of the asset.

Method for calculating expected loss

In accordance with IFRS 9, the measurement of expected losses must reflect:

·A considered and unbiased amount, determined by evaluating a range of possible results.

·The time value of money.

·Reasonable and supportable information that is available without undue cost or effort and that reflects current conditions and forecasts of future economic conditions.

The Group measures the expected losses both individually and collectively. The purpose of the Group's individual measurement is to estimate expected losses for significant impaired instruments, or instruments classified in Stage 2. In these cases, the amount of credit losses is calculated as the difference between expected discounted cash flows at the effective interest rate of the transaction and the carrying amount of the instrument.

For the collective measurement of expected losses the instruments are grouped into groups of assets based on their risk characteristics. Exposure within each group is segmented according to the common credit risk characteristics, similar characteristics of the credit risk, indicative of the payment capacity of the borrower in accordance with their contractual conditions. These risk characteristics have to be relevant in estimating the future flows of each group. The characteristics of credit risk may consider, among others, the following factors:

·Type of instrument.

·Rating or scoring tools.

·Credit risk scoring or rating.

·Type of collateral.

·Amount of time at default for stage 3.

·Segment.

·Qualitative criteria which can have a significant increase in risk.

Collateral value if it has an impact on the probability of a default event.

·The estimated losses are derived fromGroup since the following parameters:

·PD: estimate of the probability of default in each period.

·EAD: estimate of the exposure in case of default at each future period, taking into account the changes in exposure after the presentation date of the financial statements.

·LGD:  estimate of the loss in case of default, calculated as the difference between the contractual cash flows and receivables, including guarantees.

In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings.

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To determine whether there is a significant increase in credit risk that is not reflected in the published ratings, the Group has also revised the changes in bond yields, and when they are available, the prices of CDS, together with the news and regulatory information available on the issuers.

Use of present, past and future information

IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss.

The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability itBank will not occur will also have to be considered, even though the possibility of a loss may be very small. Also, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.

The approach used by the Group consists of using first the most probable scenario (baseline scenario) consistent with that used in the Group's internal management processes, and then applying an additional adjustment, calculated by considering the weighted average of expected losses in other economic scenarios (one more positive and the other more negative). The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are GDP, tax rates, unemployment rate and LTV.take such option.

2.4.2   Condensed consolidated opening balance sheet as of January 1, 2018

Condensed Consolidated balance sheets (Millions of Euros)

 

 

 

 

ASSETS

December 2017 IAS 39

Classification and measurement of financial instruments

Impairment

Opening balance sheet 2018

Cash, cash balances at central banks and other demand deposits

42,680

-

-

42,680

Financial assets held for trading

64,695

27,159

-

91,854

     Derivatives

35,265

-

-

35,265

     Equity instruments

6,801

48

-

6,849

     Debt securities

22,573

-

-

22,573

     Loans and advances to central banks

-

245

-

245

     Loans and advances to credit institutions

-

14,895

-

14,895

     Loans and advances to customers

56

11,970

-

12,026

Non-trading financial assets mandatorily at fair value through profit or loss

 

4,451

-

4,451

Financial assets designated at fair value through profit or loss

2,709

(1,690)

-

1,019

Financial assets at fair value through other comprehensive income

 

62,107

8

62,115

     Equity instruments

 

2,761

-

2,761

     Debt securities

 

59,293

8

59,301

     Loans and advances

 

140

-

140

Available for sale financial assets

69,476

(69,476)

-

 

Financial assets at amortized cost

431,521

(8,680)

(1,158)

421,685

     Debt securities

10,339

19,623

(3)

29,959

     Loans and advances to central banks

7,300

(245)

-

7,055

     Loans and advances to credit institutions

26,261

(15,622)

22

10,661

     Loans and advances to customers

387,621

(12,435)

(1,177)

374,009

Held to maturity investments

13,754

(13,754)

-

 

Hedging derivatives

2,485

-

-

2,485

Fair value changes of the hedged items in portfolio hedges of interest rate risk

(25)

-

-

(25)

Joint ventures, associates and unconsolidated subsidiaries

1,588

1

-

1,589

Insurance and reinsurance assets

421

-

-

421

Tangible assets

7,191

-

-

7,191

Intangible assets

8,464

-

-

8,464

Tax assets

16,888

8

400

17,296

Other assets

4,359

-

-

4,359

Non-current assets and disposal groups held for sale

23,853

(1)

(21)

23,832

TOTAL ASSETS

690,059

125

(770)

689,414

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The change registered in the heading “Financial assets held for trading” is mainly due to financial assets affected by the activity of Global Markets, which are reclassified from "Financial assets at amortized cost".

The change registered in the heading "Available for sale financial assets" are mainly due to the reclassification to the new heading "Financial assets at fair value through other comprehensive income".

The change registered in the heading “Financial assets at amortized cost” is mainly due to the reclassification to the item "Financial assets held for trading".

LIABILITIES AND EQUITY

December 2017 IAS 39

Classification and measurement of financial instruments

Impairment

Opening balance sheet 2018

Financial liabilities held for trading

46,182

34,601

-

80,783

Financial liabilities designated at fair value through profit or loss

2,222

3,273

-

5,495

Financial liabilities at amortized cost

543,713

(37,595)

-

506,118

     Deposits from central banks

37,054

(3,261)

-

33,793

     Deposits from credit institutions

54,516

(19,381)

-

35,135

     Customer Deposits

376,379

(12,690)

-

363,689

     Debt certificates

63,915

(2,266)

-

61,649

     Other financial liabilities

11,850

1

-

11,851

Hedging derivatives

2,880

(112)

-

2,768

Fair value changes of the hedged items in portfolio hedges of interest rate risk

(7)

-

-

(7)

Liabilities under insurance and reinsurance contracts

9,223

-

-

9,223

Provisions

7,477

-

125

7,602

Tax liabilities

3,298

(24)

17

3,291

Share capital repayable on demand

-

-

-

-

Other liabilities

4,550

-

-

4,550

Liabilities included in disposal groups classified as held for sale

17,197

1

(10)

17,188

TOTAL LIABILITIES

636,736

142

132

637,010

SHAREHOLDERS’ FUNDS

53,283

71

(923)

52,432

Capital

3,267

-

-

3,267

Share premium

23,992

-

-

23,992

Equity instruments issued other than capital

-

-

-

-

Other equity

54

-

-

54

Retained earnings

23,612

71

(923)

22,760

Revaluation reserves

12

-

-

12

Other reserves

(35)

-

-

(35)

Less: Treasury shares

(96)

-

-

(96)

Profit or loss attributable to owners of the parent

3,519

-

-

3,519

Less: Interim dividends

(1,043)

-

-

(1,043)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

(6,939)

(109)

13

(7,036)

MINORITY INTERESTS (NON-CONTROLLING INTEREST)

6,979

21

8

7,008

TOTAL EQUITY

53,323

(17)

(902)

52,404

TOTAL EQUITY AND TOTAL LIABILITIES

690,059

125

(770)

689,414

The change registered in the heading “Financial liabilities held for trading” is mainly due to financial liabilities affected by the activity of Global Markets, which are reclassified from "Financial liabilities at amortized cost".

The change registered in the heading “Financial liabilities at amortized cost” is mainly due to the reclassification to "Liabilities held for trading".

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3. BBVA Group

The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking and asset management and private banking.management. The Group also operates in other sectors such asthe insurance real estate, operational leasing, etc.sector.

The following information is detailed in the Appendicesappendices of these consolidated financial statements of the Consolidated Financial Statements ofGroup for the Group:year ended December 31, 2020:

·             Appendix I shows relevant information related to the consolidated subsidiaries and structured entities.

·             Appendix II shows relevant information related to investments in subsidiaries, joint ventures and associates accounted for using the equity method.

·             Appendix III shows the main changes and notification of investments and divestments in the BBVA Group.

·             Appendix IV shows fully consolidated subsidiaries with more than 10% owned by non-Group shareholders.

The following table sets forth information related to the Group’s total assets as of December 31, 2018, 20172020, 2019 and 2016,2018, broken down by the Group’s entities according to their activity:

Contribution to Consolidated Group Total Assets. Entities by Main Activities (Millions of euros)

Contribution to Consolidated Group total assets. Entities by main activities (Millions of euros)

Contribution to Consolidated Group total assets. Entities by main activities (Millions of euros)

 

2018

2017

2016

2020

2019

2018

Banks and other financial services

 

647,164

659,414

699,592

Banking and other financial services

705,683

666,366

646,199

Insurance and pension fund managing companies

 

26,732

26,134

26,831

28,667

29,300

26,684

Other non-financial services

 

2,793

4,511

5,433

1,826

2,071

2,793

Total

 

676,689

690,059

731,856

736,176

697,737

675,675

The total assets and results of operations broken down by the geographical areas, in which the BBVA Group operates,operating segments are included in Note 6.

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The BBVA Group’s activities are mainly located in Spain, Mexico, South America, the United States and

Turkey, with active presence in other countries,, as shown below:

·           Spain

The Group’s activity in Spain is mainly carried out through Banco Bilbao Vizcaya Argentaria, S.A., which is the parent company of the BBVA Group. The Group also has other entities that mainly operate in Spain’s banking sector and insurance sector, real estate sector, services and as operational leasing entities.sector.

·           MéxicoMexico

The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through Grupo Financiero Bancomer.BBVA Mexico.

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·           South America

The BBVA Group’s activities in South America are mainly focused on the banking, financial and insurance sectors, in the following countries: Argentina, Chile, Colombia, Peru, Paraguay, Uruguay and Venezuela.Chile. It has a representative office in Sao Paulo (Brazil).

The Group owns more than 50% of most of the entities based in these countries. Appendix I shows a list of the entities which, although less than 50% owned by the BBVA Group as of December 31, 2018,2020, are consolidated (see Note 2.1).

·           The United States

The Group’s activity in the United States is mainly carried out through a group of entities withthe BBVA, Compass Bancshares, Inc. at their head, as well as, theS.A. New York branch, the Houston branch of BBVA branchMexico, the stake in Propel Venture Partners and the business developed through its broker dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).Regarding the sale agreement reached with PNC, it includes BBVA USA and other subsidiaries in the United States with activities related to the banking activity (see below “Significant transactions in the Group in 2020” in this same Note)

·           Turkey

The Group’s activity in Turkey is mainly carried out through the Garanti BBVA Group.

·           Rest of Europe

The Group’s activity in Europe is carried out through banks and financial institutions in Ireland, Switzerland, Italy, Germany, the Netherlands,, Finland and Romania, and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom, and a representative office in Moscow.Kingdom.

·           Asia-Pacific

The GroupsGroup’s activity in this region is carried out through the Bank branches (in Taipei, Tokyo, Hong Kong, Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta).

Significant transactions in the Group in 2020

Divestitures

Agreement for the sale of BBVA’s U.S. subsidiary to PNC Financial Service Group

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the capital stock of its subsidiary BBVA USA Bancshares, Inc., which in turn owns all the capital stock of the bank, BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business.

The agreement reached does not include the sale of the institutional business of the BBVA Group developed through its broker dealer BBVA Securities Inc. nor the participation in Propel Venture Partners US Fund I, L.P. which will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group prior to the closing of the transaction. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York.

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The price of the transaction amounts to approximately $11,600 million. The price will be fully paid in cash.

It is expected that the transaction would result in a positive impact on BBVA Group’s Common Equity Tier 1 ratio (fully loaded) of approximately 294 basis points and positive results (net of taxes) of approximately €580 million (calculated at an exchange rate 1.20 EUR /USD). During the year ended December 31, 2020, approximately €300 million has been recognized for the entities to be disposed of (which corresponds to the results of the entities to be disposed of recognized in the caption Profit (loss) after tax from discontinued operations excluding the impacts of the impairment of goodwill), as well as an approximately positive impact of 9 basis points of Common Equity Tier I (fully loaded).

The closing of the transaction is subject to obtaining regulatory authorizations from the competent authorities. It is estimated that the closing of the transaction would take place in mid 2021.

Note 21 shows, among other information the condensed balance sheets of the entities to be disposed of as of December 31, 2020, 2019 and 2018 and the related condensed income statements as of and for the years ended December 31, 2020, 2019 and 2018.

MainAlliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance line of the business.

On December 14, 2020, once the required authorizations had been obtained, BBVA completed the operation and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, SA, for which it received €274 million, without taking into account a variable part of the price (up to 100 million euros depending on certain objectives and planned milestones). This operation has resulted in a profit net of taxes of 304 million euros and a positive impact on the fully loaded CET1 of the BBVA Group of 7 basis points.

Significant transactions in the Group in 2019

Divestitures

Sale of BBVA’s stake in BBVA Paraguay

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of its wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). BBVA owned, directly and indirectly, 100% of its share capital in BBVA Paraguay.

On January 22, 2021 and after obtaining all required authorizations, BBVA has completed the sale to Banco GNB Paraguay, S.A., an affiliate of Grupo Gilinski, of its 100% direct and indirect stake share capital in Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”).

The amount received by BBVA amounts to approximately USD250 million (approximately €210 million). The transaction results in a capital loss of approximately €9 million net of taxes. A positive impact on BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points is estimated to be recognized during the first quarter of 2021 (see Note 56).

Significant transactions in the Group in 2018

Divestitures

Sale of BBVA’s stake in BBVA Chile

On November 28, 2017, BBVA received a binding offer (the “Offer”) from The Bank of Nova Scotia group (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (amongst them, BBVA Seguros Vida, S.A.). BBVA owned approximately, directly and indirectly, 68.19% of BBVA Chile share capital.capital. On December 5, 2017, BBVA accepted the Offer and entered into a sale and purchase agreement and the sale was completed on July, 6, 2018.

The consideration received in cash by BBVA as consequence of the referred sale amountsamounted to, approximately, USD 2,200 million. The transaction resultsresulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

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Agreement for the creation of a joint-venture and transfer of the Real - Estatereal estate business in Spain

On November 29, 2017, BBVA reached an agreement with a subsidiary of Cerberus Capital Management, L.P. (“Cerberus”) for the creation of a “joint venture” to which an important part of the real estate business of BBVA in Spain iswas transferred (the “Business”).

F-43


The Business comprises: (i) foreclosed real estate assets (the “REOs”), with a gross book value of approximately €13,000 million, taking as starting point the position of the REOs as of June 26, 2017; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For the purpose of the agreement with Cerberus, the whole Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all required authorizations, BBVA completed the transfer of the real estate business in Spain. Closing of the transaction has resulted in the sale of 80% of the share capital of the company Divarian Propiedad, S.A. to an entity managed by Cerberus.

Cerberus. Divarian is the company to which the BBVA Group has contributed the Business provided that the effective transfer of several real estate assets (REO´s) remains subject to the fulfilment of certain conditions precedent. The final price payable by Cerberus will be adjusted depending on the volume of REO´s effectively contributed.Business.

As of December 31, 2018, theThe transaction did not have a significant impact on BBVA Group’s attributable profit of 2018 or the Common Equity Tier 1 (fully loaded).

Main transactions in the Group in 2017

Investments

 On February 21, 2017, BBVA Group entered into an agreement for the acquisition from Dogus Holding A.S. and Dogus Arastirma Gelistirme ve Musavirlik Hizmetleri A.S of 41,790,000,000 shares of Turkiye Garanti Bankasi, A.S. (“Garanti Bank”), amounting to 9.95% of the total issued share capital of Garanti Bank. On March 22, 2017, the sale and purchase agreement was completed, and therefore BBVA´s total stake in Garanti Bank as of December 31, 2017 amounts to 49.85% (See Note 31).

Main transactions in the Group in 2016

Mergers

The BBVA Group, at its Board of Directors meeting held on March 31, 2016, adopted a resolution to begin a merger process of BBVA S.A. (absorbing company), Catalunya Banc, S.A., Banco Depositario BBVA, S.A. y Unoe Bank, S.A.

This transaction was part of the corporate reorganization of its banking subsidiaries in Spain, was successfully completed throughout 2016 and has no impact in the Consolidated Financial Statements both from the accounting and the solvency stand points.2018.

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4. Shareholder remuneration system

BBVA’s shareholder remuneration policy communicated in October 2013 established the distribution of an annual pay-out of between 35% and 40% of the profits earned in each year and the progressive reduction of the remuneration via “Dividend Options”, so that the shareholders’ remuneration would ultimately be fully in cash. As announced on February 1, 2017, BBVA’s Board of Directors executed a capital increase to be charged to voluntary reserves for the instrumentation of the last “Dividend Option”, being the subsequent shareholders’ remunerations fully in cash, dated March 29, 2017.

This fully – in - cash shareholders’ remuneration policy would be composed, for each year, of a distribution on account of the dividend of such year (expected to be paid in October) and a final dividend (which would be paid once the year has ended and the profit allocation has been approved, expected for April), subject to the applicable authorizations by the competent governing bodies.

Shareholder remuneration scheme “Dividend Option”

During 2012, 2013, 2014, 2015, 2016 and 2017, the Group implemented a shareholder remuneration system referred to as “Dividend Option”.

Under such remuneration scheme, BBVA offered its shareholders the possibility to receive all or part of their remuneration in the form of newly-issued BBVA ordinary shares, whilst maintaining the possibility for BBVA shareholders to receive their entire remuneration in cash by selling the rights of free allocation assigned either to BBVA (in execution of the commitment assumed by BBVA to acquire the rights of free allocation at a guaranteed fixed price) or by selling the rights of free allocation on the market at the prevailing market price at that time. However, the execution of the commitment assumed by BBVA was only available to whoever had been originally assigned such rights of free allocation and only in connection with the rights of free allocation initially allocated at such time.

On March 29, 2017, BBVA’s Board of Directors resolved to execute the capital increase to be charged to voluntary reserves approved by the Annual General Meeting (“AGM”) held on March 17, 2017, under agenda item three, to implement a “Dividend Option” this year. As a result of this increase, the Bank’s share capital increased by €49,622,955.62 through the issuance of 101,271,338 newly-issued BBVA ordinary shares at 0.49 euros par value, given that 83.28% of owners of the rights of free allocation opted to receive newly issued BBVA ordinary shares. The remaining 16.72% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 1,097,962,903 rights (at a gross price of €0.131 each) for a total amount of €143,833,140.29. This amount is recorded in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2017 (see Note 26).

On September, 28 2016, BBVA’s Board of Directors resolved to execute the second of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016. As a result of this increase, the Bank’s share capital increased by €42,266,085.33 through the issuance of 86,257,317 newly-issued BBVA ordinary shares at 0.49 euros par value, given that 87.85% of owners of the rights of free allocation opted to receive newly-issued BBVA ordinary shares. The remaining 12.15% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 787,374,942 rights (at a gross price of €0.08 each) for a total amount of €62,989,995.36. This amount is recorded in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2016 (see Note 26).

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On March 31, 2016, BBVA’s Board of Directors resolved to execute the first of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016 for the implementation of the shareholder remuneration system called the “Dividend Option”. As a result of this increase, the Bank’s share capital increased by €55,702,125.43 through the issuance of 113,677,807 newly-issued BBVA ordinary shares at a €0.49 par value, given that 82.13% of owners of the rights of free allocation opted to receive newly-issued BBVA ordinary shares. The remaining 17.87% of the owners of the rights of free allocation exercised the commitment assumed by BBVA, and as a result, BBVA acquired 1,137,500,965 rights (at a gross price of €0.129 each) for a total amount of €146,737,624.49. This amount is recorded in “Total Equity- Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2016 (see Note 26).

Cash Dividends

Throughout 2016, 20172018, 2019 and 2018,2020, BBVA’s Board of Directors approved the payment of the following dividends (interim or final dividends) fully in cash, recorded in “Total Equity- Interim Dividends” and “Total Equity – Retained earnings” of the consolidated balance sheet of the relevant year:

·           The Board of Directors, at its meeting held on June 22, 2016, approved the payment in cash of €0.08 (€0.0648 net of withholding tax) per BBVA share as the first gross interim dividend against 2016 results. The total amount paid to shareholders on July 11, 2016, after deducting treasury shares held by the Group's companies, amounted to €517 million and is recognized under the headings “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2016.

·The Board of Directors, at its meeting held on December 21, 2016, approved the payment in cash of €0.08 (€0.0648 withholding tax) per BBVA share, as the second gross interim dividend against 2016 results. The total amount paid to shareholders on January 12, 2017, after deducting treasury shares held by the Group’s Companies, amounted to €525 million and is recognized under the heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2016.

·The Board of Directors, at its meeting held on September 27, 2017, approved the payment in cash of €0.09 (€0.0729 net of withholding tax) per BBVA share, as the first gross interim dividend against 2017 results. The total amount paid to shareholders on October 10, 2017, after deducting treasury shares held by the Group's companies, amounted to €599 million and is recognized under the heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2017.

·The Annual General Meeting of BBVA held on March 16, 2018 approved, under item 1 of the Agenda, the payment of a final dividend for 2017, in addition to other dividends previously paid, in cash for an amount equal to €0.15 (€0.1215 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2018, after deducting treasury shares held by the Group’s companies, amounted to €996 million and is recognized under heading “Total Equity-  Final Dividends”equity- Retained earnings” of the consolidated balance sheet as of December 31, 2018.

·           The Board of Directors, at its meeting held on September 26, 2018, approved the payment in cash of €0.10 (€0.081 net of withholding tax rate of 19%)tax) per BBVA share, as gross interim dividend based onagainst 2018 results. The total amount paid to shareholders on October 10, 2018, after deducting treasury shares held by the Group´sGroup's companies, amounted to €663 million and is recognized under the heading “Total Equity-equity- Interim Dividends”dividends” of the consolidated balance sheet as of December 31, 2018.

·The Annual General Meeting of BBVA held on March 15, 2019, approved, under item 1 of the Agenda, the payment of a final dividend for 2018, in addition to other dividends previously paid, in cash for an amount equal to €0.16 (€0.1296 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2019, after deducting treasury shares held by the Group’s Companies, amounted to €1,064 million and is recognized under the heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2019.

·The Board of Directors, at its meeting held on October 2, 2019, approved the payment in cash of €0.10 (€0.081 net of withholding tax) per BBVA share, as gross interim dividend based on 2019 results. The total amount paid to shareholders on October 15, 2019, after deducting treasury shares held by the Group´s companies, amounted to €665 million and is recognized under the heading “Total equity- Interim dividends” of the consolidated balance sheet as of December 31, 2019.

·The Annual General Meeting of BBVA held on March 13, 2020, approved, under item 1 of the Agenda, the payment of a final dividend for 2019, in addition to other dividends previously paid, in cash for an amount equal to €0.16 (€0.1296 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 9, 2020, after deducting treasury shares held by the Group’s Companies, amounted to €1,065 million and is recognized under the heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2020.

In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, not before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excluding distributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

F-67F-44  


 

The interim accounting statements prepared in accordance with legal requirements evidencing the existence of sufficient liquidity for the distribution of the amounts agreed on September 26, 2018, mentioned above are as follows:

Available Amount for Interim Dividend Payments (Millions of euros)

August, 31, 2018

Profit  of BBVA, S.A., after the provision for income tax

2,462

Additional Tier I capital instruments remuneration

236

Maximum amount distributable

2,226

Amount of proposed interim dividend

667

BBVA cash balance available to the date

4,577

Proposal on allocation of earnings of BBVA, S.A. for 20182020

The allocationBoard of earningsDirectors will submit for 2018 subject to the approval of the BoardOrdinary General Shareholders’ Meeting the proposal to apply the result of Directors atBanco Bilbao Vizcaya Argentaria, S.A. for the Annual Shareholders Meeting is presented below:2020 financial year amounting to €2,182 million of losses to the prior years’ losses account. Furthermore, the offsetting of the prior years’ losses will likewise be submitted for approval, the amount of which amounts to €2,182 million, after the application of the 2020 financial year results in accordance with the previous paragraph, against the voluntary reserves account under the "Retained earnings" heading.

Other shareholder remuneration

On January 29, 2021, it was announced that a cash distribution in the amount of €0.059 gross per share as shareholder remuneration in relation to the Group’s result in the 2020 financial year was expected to be submitted to the relevant governing bodies of BBVA for consideration (see Note 56).

Allocation of Earnings (Millions of euros)

December 2018

Profit for year (*)

2,316

Distribution:

Interim dividends

667

Final dividend

1,067

Additional Tier 1 securities

313

Voluntary reserves

269

(*)  Net income of BBVA, S.A.

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5. Earnings per share

Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For more information see Glossary of terms.

The calculation of earnings per share is as follows:

Basic and Diluted Earnings per Share

Basic and Diluted Earnings per Share

Basic and Diluted Earnings per Share

2018

2017

2016

2020

2019 (**)

2018 (**)

Numerator for basic and diluted earnings per share (millions of euros)

 

 

Profit attributable to parent company

5,324

3,519

3,475

1,305

3,512

5,400

Adjustment: Additional Tier 1 securities (1)

(313)

(301)

(260)

(387)

(419)

(447)

Profit adjusted (millions of euros) (A)

5,011

3,218

3,215

917

3,093

4,953

Profit from discontinued operations (net of non-controlling interest) (B)

-

Of which: profit from discontinued operations (net of non-controlling interest) (B) (See Note 21)

(1,729)

(758)

704

Denominator for basic earnings per share (number of shares outstanding)

-

 

Weighted average number of shares outstanding (2)

6,668

6,642

6,468

6,668

Weighted average number of shares outstanding x corrective factor (3)

6,668

6,642

6,592

6,668

Adjusted number of shares - Basic earning per share (C)

6,636

6,642

6,592

Adjusted number of shares - diluted earning per share (D)

6,636

6,642

6,592

Earnings per share (*)

0.76

0.48

0.49

Basic earnings per share from continued operations (Euros per share)A-B/C

0.76

0.48

0.49

Diluted earnings per share from continued operations (Euros per share)A-B/D

0.76

0.48

0.49

Basic earnings per share from discontinued operations (Euros per share)B/C

-

Diluted earnings per share from discontinued operations (Euros per share)B/D

-

Adjusted number of shares - Basic earnings per share (C)

6,655

6,648

6,636

Adjusted number of shares - diluted earnings per share (D)

6,655

6,648

6,636

Earnings (losses) per share (*)

0.14

0.47

0.75

Basic earnings (losses) per share from continued operations (Euros per share)A-B/C

0.40

0.58

0.64

Diluted earnings (losses) per share from continued operations (Euros per share)A-B/D

0.40

0.58

0.64

Basic earnings (losses) per share from discontinued operations (Euros per share)B/C

(0.26)

(0.11)

0.11

Diluted earnings (losses) per share from discontinued operations (Euros per share)B/D

(0.26)

(0.11)

0.11

(1) Remuneration in the year related to contingent convertible securities, recognized in equity (see Note 22.4).

(2) Weighted average number of shares outstanding (millions of euros), excluding weighted average of treasury shares during the period.year.

(3) Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years.

(*) As of December 31,In 2020, 2019 and 2018 the weighted average number of shares outstanding was 6,668 million (6,642 and 6,468 million as of December 31, 2017 and 2016, respectively) and the adjustment of additional Tier 1 securities amounted to €313€387 million (€301419 and €260€447 million asin 2019 and 2018, respectively).

 (**) Restated due to the sale of December 31, 2017the stake in BBVA USA (see Notes 3 and 2016, respectively)21).

As of December 31, 2018, 20172020, 2019 and 2016,2018, there were no other financial instruments or share option commitments to employees that could potentially affect the calculation of the diluted earnings per share for the years presented. For this reason, basic and diluted earnings per share are the same.

F-69F-45  


6. Operating segment reporting

Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group and, ultimately, into the reportable operating segments themselves.

During 2018, there have not been significant changes inAs of December 31, 2020, the reporting structure of the information by operating segments of the BBVA Group although its composition is different fromremains basically the close of 2017,same as a resultthat of the financial year ended 2019, although BBVA reached agreements that, in some cases, could affect its structure. Due to the agreement ofreached for the sale of the Group's entire stake in BBVA ChileUSA Bancshares, Inc., parent company of the Group companies related to the banking business in the United States, the balance sheet items of the companies for sale and the gains and losses generated by them have been classified in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations” (see Note 3)Notes 2.2.4 and 21). This transaction, which has affected South America´s area composition, is presented as follows, as well asLikewise, in accordance with IFRS 8 “Operating Segments”, information on the otherUnited States operating segment including the balances of the companies for sale continues to be provided for the years 2020, 2019 and 2018. The BBVA Group's operating segments withinand the BBVA Group:agreements reached are summarized below:

·           Banking activity in Spain

Includes as in previous years,mainly the Retail Networkbanking and insurance business that the Group carries out in Spain, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management units in Spain. It also includesincluding the loans to developers that are granted new or that are no longer in difficult conditions, as well as the portfolios, finance and structural interest-rate positionsresults of the euro balance sheet.

·Non Core Real - Estate

It manages loans in Spain to developers who were in difficulty and real estate assets, mainly from foreclosed properties, both residential mortgages and developers. On November 29, 2017, thenew company BBVA Group signed a sale agreement with Cerberus for the subsequent sale of 80% of the company created to a subsidiary of CerberusAllianz Seguros y Reaseguros, S.A. (see Note 3). The effective transfer of some real estate owned assets are subject to the fulfillment of certain conditions and in the meanwhile, BBVA will continue to manage those assets.

·           The United States

Includes the Group’s business activity of BBVA USA, comprising the Group's wholesale business through the New York branch, the stake in Propel Venture Partners and the business developed through its broker dealer BBVA Securities Inc. None of the aforementioned activities has been included in the country throughsale agreement reached with PNC. Regarding this agreement, it includes BBVA USA and other subsidiaries in the BBVA Compass GroupUnited States with activities related to the banking activity (see Notes 1.3, 3 and the BBVA New York branch.Note 21).

·           Mexico

Basically includes all the Includes banking and insurance businesses carried out byin this country as well as the Groupactivity of BBVA Mexico in the country. Since 2018 it has also included the BBVA Bancomer branch in Houston (in previous years located in the United States). Consequently, the figures from previous years have been recalculated to incorporate this change and show comparable series.Houston.  

·           Turkey

Includes Reports theactivity of Garanti BBVA group that is mainly carried out in this country and, to a lesser extent, in Romania and the BBVA Group business in Turkey through Garanti Group.Netherlands.

·           South America

Includes BBVA’s Primarily includes the Group´s banking and insurance businesses in the region. On July 6, 2018,In relation to the sale of BBVA Chile to The BankParaguay, the closing of Nova Scotia (Scotiabank)the transaction took place in January 2021 (see Note 3) was completed which affects the comparability of the results, the balance sheet, the activity and the most significant ratios of this business area with prior periods..

·           Rest of Eurasia

Includes businessactivity in the rest ofbanking business activity carried out by the Group in Europe and Asia, i.e. the Group´s retail and wholesale businesses in the area.excluding Spain.

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Lastly, the Corporate Center is comprised of the rest of the assets and liabilities that have not been allocated to the operating segments, as it corresponds to the Group’s holding function. It includes:performs centralized Group functions, including: the costs of the head offices that havewith a corporate function; management of structural exchange-rateexchange rate positions; specific issues of capitalsome equity instruments issuances to ensuresupport an adequate management of the Group’sGroup's global solvency;solvency. It also includes portfolios and their corresponding results, whose management is not linked to customer relations,relationships, such as industrial holdings;holdings, certain tax assets and liabilities; funds due to commitments withto employees; goodwill and other intangibles. As of December 31, 2018, it contains the 20% stake of BBVA in Divarian´s share capital (see Note 3).intangible assets.

The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2018, 20172020, 2019 and 2016,2018, is as follows:

Total Assets by Operating Segments (Millions of euros)

 

2018

2017 (1)

2016 (2)

Banking Activity in Spain

335,294

319,417

335,847

Non Core Real Estate

4,163

9,714

13,713

United States

82,057

75,775

88,902

Mexico

96,455

94,061

93,318

Turkey

66,250

78,694

84,866

South America

52,385

74,636

77,918

Rest of Eurasia

18,000

17,265

19,106

Subtotal Assets by Operating Segments

654,605

669,562

713,670

Corporate Center

22,084

20,497

18,186

Total Assets BBVA Group

676,689

690,059

731,856

Total assets by operating segments (Millions of Euros)

 

2020

2019

2018

Spain

405,878

364,427

353,923

The United States

93,953

88,529

82,057

Mexico

110,224

109,079

97,432

Turkey

59,585

64,416

66,250

South America

55,435

54,996

54,373

Rest of Eurasia

22,881

23,257

18,845

Subtotal assets by operating segments

747,957

704,703

672,880

Corporate Center and adjustments

(11,781)

(6,967)

2,796

Total assets BBVA Group

736,176

697,737

675,675

(1)  The figures corresponding to 2017 have been restated (see Note 1.3).

(2)  Financial information for 2016 has not been revised to reflect changes in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), total assets of the United States and the Mexico operating segments would have been €84,726 million and €97,492 million, respectively, as of December 31, 2016.

F-71F-46  


 

The attributable profitfollowing table sets forth certain summarized information relating to results of each operating segment and main earning figures in the consolidated income statementsCorporate Center for the years ended December 31, 2018, 20172020, 2019 and 2016 by operating segments are as follows:2018:

Main Margins and Profits by Operating Segments (Millions of euros)

 

Operating Segments

BBVA Group

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

Adjustments (***)

 

BBVA Group

Spain

Non Core Real Estate

United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

2018

Notes

 

 

2020

 

Net interest income

 

17,591

3,672

32

2,276

5,568

3,135

3,009

175

(276)

14,592

3,553

2,284

5,415

2,783

2,701

214

(149)

(2,209)

Gross income

 

23,747

5,943

38

2,989

7,193

3,901

3,701

415

(432)

20,166

5,554

3,152

7,017

3,573

3,225

510

(57)

(2,808)

Operating income

11,079

2,515

1,281

4,677

2,544

1,853

225

(876)

(1,140)

Operating profit /(loss) before tax

 

7,580

2,017

(129)

919

3,294

1,448

1,307

144

(1,420)

5,248

809

502

2,472

1,522

896

184

(1,160)

22

Profit

55.2

5,324

1,522

(78)

735

2,384

569

591

93

(494)

2017(1)

 

 

 

Profit (loss) after tax from discontinued operations

(1,729)

-

(1,729)

Net attributable profit (loss) (**)

1,305

606

429

1,759

563

446

137

(2,635)

-

2019 (*)

 

Net interest income

 

17,758

3,738

71

2,119

5,476

3,331

3,200

180

(357)

15,789

3,567

2,395

6,209

2,814

3,196

175

(233)

(2,335)

Gross income

 

25,270

6,180

(17)

2,876

7,122

4,115

4,451

468

73

21,522

5,656

3,223

8,029

3,590

3,850

454

(339)

(2,941)

Operating income

11,368

2,402

1,257

5,384

2,375

2,276

161

(1,294)

(1,193)

Operating profit /(loss) before tax

 

6,931

1,854

(656)

748

2,984

2,147

1,691

177

(2,013)

7,046

1,878

705

3,691

1,341

1,396

163

(1,457)

(670)

Profit

55.2

3,519

1,374

(490)

486

2,187

826

861

125

(1,848)

2016(2)

 

 

 

Profit (loss) after tax from discontinued operations

(758)

-

(758)

Net attributable profit (loss) (**)

3,512

1,386

590

2,699

506

721

127

(2,517)

-

2018 (*)

 

Net interest income

 

17,059

3,877

60

1,953

5,126

3,404

2,930

166

(455)

15,285

3,618

2,276

5,568

3,135

3,009

175

(269)

(2,227)

Gross income

 

24,653

6,416

(6)

2,706

6,766

4,257

4,054

491

(31)

20,936

5,888

2,989

7,193

3,901

3,701

415

(420)

(2,731)

Operating income

10,883

2,554

1,129

4,800

2,654

1,992

128

(1,291)

(1,083)

Operating profit /(loss) before tax

 

6,392

1,268

(743)

612

2,678

1,906

1,552

203

(1,084)

7,565

1,840

920

3,269

1,444

1,288

147

(1,329)

(15)

Profit

55.2

3,475

905

(595)

459

1,980

599

771

151

(794)

Profit (loss) after tax from discontinued operations

704

-

704

Net attributable profit (loss) (**)

5,400

1,400

736

2,367

567

578

96

(343)

-

(1)(*) The figures corresponding to 20172019 and 2018 have been restated (see Note 1.3).

(**) See Note 55.

(2)  Financial information(***) It includes the reclassification as “Profit (loss) after tax from discontinued operations” of the balances from companies for 2016 has not been revised to reflect changessale in our operating segments in 2018, including the inclusion of BBVA Bancomer’s branch in Houston (which was previously part of our United States operating segment) in our Mexico operating segment since 2018. If BBVA Bancomer’s branch in Houston had been part of our Mexico operating segment in 2016 (rather than of our United States operating segment), profit attributable to parent company for the United States and the Mexico operating segments would have been €442 million and €1,997 million, respectively, for the year ended December 31, 2016.USA (see Note 21).  

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7.1   General risk management and control model

The BBVA Group has an overall risk management and control model (hereinafter 'the model') tailored to its business model, its organization and the geographies in which it operates, This model allows BBVA Group to develop its activity in accordance with the risk strategy and risk controls and management policies defined by the governing bodies of the Bank and to adapt to a changing economic and regulatory environment, tackling risk management globally and adapted to the circumstances at all times. The model establishes a system of appropriate risk management regarding risk profile and strategy of the Group.

This model is applied comprehensively in the Group and consists of the basic elements listed below:

·Governance and organization.

·Risk Appetite Framework.

·Decisions and processes.

·Assessment, monitoring and reporting.

·Infrastructure.

The Group promotes the development of a risk culture which aims to ensure consistent application of the risk management and control model in the Group, so that the risk function is understood and assimilated at all levels of the organization.

7.1.1   Governance and organization

BBVA Group´s risk governance model is characterized by a special involvement of its corporate bodies, both in setting the risk strategy and in the ongoing monitoring and supervision of its implementation.

Thus, as developed below, the corporate bodies are the ones that approve this risk strategy and corporate policies for the different types of risk. The risk function is responsible at management level for their implementation and development, and reporting to the governing bodies.

The responsibility for the daily management of the risks lies on the businesses which abide in the development of their activity to meet the policies, rules, procedures, infrastructures and controls, which are defined by the function risk on the basis of the framework set by the governing bodies.

To perform this task properly, the risk function in the BBVA Group is configured as a single, global function with an independent role from commercial areas.

Corporate bodies

The BBVA Board of Directors (hereinafter also referred to as "the Board") approves the risk strategy and oversees the internal management and control systems. Specifically, in relation to the risk strategy, the Board approves the Group's risk appetite statement, the core metrics (and their statements) and the main metrics by type of risk, as well as the general risk management and control model.

The Board of Directors is also responsible for approving and monitoring the strategic and business plan, the annual budget and management goals, as well as the investment and funding policy, in a consistent way and in line with the approved Risk Appetite Framework. For this reason, the processes for defining the Risk Appetite Framework proposals and the strategic and budgetary planning at Group level are coordinated by the executive areas for submission to the Board.

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With the aim of integrating the Risk Appetite Framework into management, on the basis established by the Board of Directors, the Executive Committee approves the metrics by type of risk in relation to profitability and income recurrence and the Group's basic structure of limits by geographical area, risk type, asset type and portfolio level. This committee also approves specific corporate policies for each type of risk.

Lastly, the Board has set up a Board committee specialized in risks, the Risk Committee, that assists the Board and the Executive Committee in determining the Group's risk strategy and the risk limits and policies, respectively, analyzing and assessing beforehand the proposals submitted to those bodies. The Board of Directors has the exclusive authority to amend the Group’s risk strategy and its elements, including the Risk Appetite Framework metrics within its scope of decision, while the Executive Committee is responsible for amending the metrics by type of risk within its scope of decision and the Group's basic structure of limits (core limits), when applicable. In both cases, the amendments follow the same decision-making process described above, so the proposals for amendment are submitted by the executive area (Chief Risk Officer, “CRO”) and analyzed by the Risk Committee, for later submission to the Board of Directors or to the Executive Committee, as appropriate.

Moreover, the Risk Committee, the Executive Committee and the Board itself conduct adequate monitoring of the risk strategy implementation and of the Group's risk profile. The risk function regularly reports on the development of the Group's Risk Appetite Framework metrics to the Board and to the Executive Committee, after the analysis by the Risk Committee, whose role in this monitoring and control work is particularly relevant.

Risk Function: CRO. Organizational structure and committees

The head of the risk function at executive level is the Group’s CRO, who carries out his functions independently and with the necessary authority, rank, experience, knowledge and resources. He is appointed by the Board as a member of its senior management and has direct access to its corporate bodies (Board, Executive Standing Committee and Risk Committee), to whom he reports regularly on the status of risks in the Group.

The CRO is supported in the exercise of his functions by a structure consisting of cross-sectional risk units in the corporate area and the specific risk units in the geographical and/or business areas of the Group. Each of the latter units is headed by a Chief Risk Officer for the geographical and/or business area who, within his/her area of responsibility, carries out risk management and control functions and is responsible for applying the corporate policies and rules approved at Group level in a consistent manner, adapting them if necessary to local requirements and reporting to the local corporate bodies.

The Chief Risk Officers of the geographical and/or business areas report both to the Group's CRO and to the head of their geographical and/or business area. The aim of this dual reporting system is that the local risk management function is independent from the operating functions and enable its alignment with the Group's corporate risk policies and goals.

As explained above, the risk management function consists of risk units from the corporate area, which carry out cross-sectional functions, and risk units from the geographical and/or business areas.

·The corporate area's risk units develop and submit to the Group CRO the proposal for the Group's Risk Appetite Framework, the corporate policies, rules and global procedures and infrastructures within the framework approved by the corporate bodies; they monitor their application and report either directly or through the CRO to the Bank's corporate bodies. Their functions include:

- Management of the different types of risks at Group level in accordance with the strategy defined by the corporate bodies.

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- Risk planning aligned with the risk appetite framework principles defined by the Group.

- Monitoring and control of the Group's risk profile in relation to the risk appetite framework approved by the Bank's corporate bodies, providing accurate and reliable information with the required frequency and in the necessary format.

- Prospective analyses to enable an evaluation of compliance with the risk appetite framework in stress scenarios and the analysis of risk mitigation mechanisms.

- Management of the technological and methodological developments required for implementing the Model in the Group.

- Design of the Group's Internal Control model and definition of the methodology, corporate criteria and procedures for identifying and prioritizing the risk inherent in each unit's activities and processes.

- Validation of the models used and the results obtained by them in order to verify their adaptation to the different uses to which they are applied.

·The risk units in the business units develop and present to the Chief Risk Officer of the geographical and/or business area the risk appetite framework proposal applicable in each geographical and/or business area, independently and always within the Group's strategy/Risk Appetite Framework. They also monitor that the corporate policies and rules are approved and applied consistently at a Group level, adapting them if necessary to local requirements; that they are provided with appropriate infrastructures for management and control of their risks, within the global risk infrastructure framework defined by the corporate areas; and that they report to their corporate bodies and/or to senior management, as appropriate.

The local risk units thus work with the corporate area risk units in order to adapt to the risk strategy at Group level and share all the information necessary for monitoring the development of their risks.

The risk function has a decision-making process to perform its functions, underpinned by a structure of committees, where the Global Risk Management Committee (GRMC) acts as the top-level committee within the risk function. It proposes, examines and, where applicable, approves, among others, the internal risk regulatory framework and the procedures and infrastructures needed to identify, assess, measure and manage the material risks faced by the Group in carrying out its business, and the determination of risk limits by portfolio. The members of this Committee are the Group's CRO, the Heads of the main Areas of the GRM Front, the Heads of GRM Corporate Discipline Units and the Head of Risk Management Group of GRM.

The GRMC carries out its functions assisted by various support committees which include:

·Global Credit Risk Management Committee: It is responsible for analyzing and decision-making related to wholesale credit risk admission.

·Wholesale Credit Risk Management Committee: its purpose is the analysis and decision-making regarding the admission of wholesale credit risk of certain customer segments of the BBVA Group.

·Work Out Committee: its purpose is to be informed about decisions taken under the delegation framework regarding risk proposals concerning clients on Watch List and clients classified as NPL of certain customer segments of the BBVA Group, as well the sanction of proposals regarding entries, exits and changes of Watch List, entries and exits in non-performing unlikely to pay and turns to written off.

·Asset Allocation Committee: The executive authority responsible for analyzing and deciding on credit risk issues related to processes aimed at achieving a portfolios combination and composition that, under the restrictions imposed by the Risk Appetite framework, allows to maximize the risk adjusted return on equity.

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·Risk Models Management Committee: It ensures an appropriate decision-making process regarding the planning, development, implementation, use, validation and monitoring of the  models required to achieve an appropriate management of the Model Risk in  the BBVA Group.

·Global Markets Risk Unit Global Committee: It is responsible for formalizing, supervising and communicating the monitoring of trading desk risk in all the Global Markets business units, as well as coordinating and approving GMRU key decisions activity, and developing and proposing to GRMC the corporate regulation of the unit.

·Operational Risk and Product Governance Corporate Admission Committee: It identifies, analyzes and assesses the operational risks associated initiatives related with new business, products or services, outsourcing, process transformation and new systems, prior to its launch. As well, it will verify that Product Governance normative requirements are met and will decide about the insurance scheme (global policies).

·Retail Credit Risk Committee: It provides for the analysis, discussion and decision support on all issues regarding the retail credit risk management that impact or potentially do in the practices, processes and corporate metrics established in the Policies, Rules and Operating Frameworks.

·Asset Management Global Risk Steering Committee: its purpose is to develop and coordinate the strategies, policies, procedures, and infrastructure necessary to identify, assess, measure and manage the material risks facing the bank in the operation of businesses linked to BBVA Asset Management.

·Global Insurance Risk Committee: its purpose is to monitor and promote the alignment and the communication between all the Insurance Risk Units in the BBVA Group. It will do this by promoting the application of standardized principles, policies, tools and risk metrics in the different regions with the aim of maintaining proper integration of insurance risk management in the Group.

·COPOR: its purpose is to analyze and make decision in relation to the operations of the various geographies in which Global Markets is present.

Each geographical and/or business area has its own risk management committee (or committees), with objectives and contents similar to those of the corporate area, which perform their duties consistently and in line with corporate risk policies and rules, whose decisions are reflected in the corresponding minutes.

Under this organizational scheme, the risk management function monitors that the risk strategy, the regulatory framework, and standardized risk infrastructures and controls are integrated and applied across the entire Group. It also benefits from the knowledge and proximity to customers in each geographical and/or business area, and transmits the corporate risk culture to the Group's different levels. Moreover, this organization enables the risks function to conduct and report to the corporate bodies integrated monitoring and control of the entire Group's risks.

Internal Risk Control and Internal Validation

The Group has a specific Internal Risk Control unit. Its main function is to manage that there is an adequate internal regulatory framework, a process and measures defined for each type of risk identified in the Group (and for those other types of risk that may potentially affect the Group). It controls their application and operation, as well as integrating the risk strategy into the Group's management. In this regard, the Internal Risk Control monitors verifies the performance of their duties by the units that develop the risk models, manage the processes and execute the controls. Its scope of action is global, from the geographical point of view and the type of risks.

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The Group's Head of Internal Risk Control is responsible for the function and reports on its activities and informs of its work plans to the CRO and to the Board's Risks Committee, assisting it in any matters where requested. For these purposes the Internal Risk Control department has a Technical Secretary's Office, which offers the Committee the technical support it needs to better perform its duties.

In addition, the Group has an Internal Validation unit, which reviews the performance of its duties by the units that develop the risk models and of those that use them in management. Its functions include review and independent validation at internal level of the models used for management and control of risks in the Group.

7.1.2   Risk Appetite Framework

The Group's Risk Appetite Framework, approved by the corporate bodies, determines the risks (and their level) that the Group is willing to assume to achieve its business objectives considering an organic evolution of its business. These are expressed in terms of solvency, profitability and liquidity and funding, which are reviewed periodically as well as in case of material changes to the entity’s business or relevant corporate transactions. The definition of the risk appetite has the following goals:

·To express themaximum levels of risk it is willing to assume, at both Group and geographical and/or business area level.

·To establish a set of guidelines for action and a management framework for the medium and long term that prevent actions from being taken (at both Group and geographical and/or business area level) that could compromise the future viability of the Group.

·To establish a framework for relations with the geographical and/or business areas that, while preserving their decision-making autonomy, monitors they act consistently, avoiding uneven behavior.

·To establish a common language throughout the organization and develop a compliance-oriented risk culture.

·Alignment with the new regulatory requirements, facilitating communication with regulators, investors and other stakeholders, thanks to an integrated and stable risk management framework.

Risk appetite framework is expressed through the following elements:

Risk Appetite Statement

It sets out the general principles of the Group's risk strategy and the target risk profile. The 2018 Group’s Risk appetite statement is as follows:

BBVA Group's Risk Policy is aimed to promote a multichannel and responsible universal banking model, based on principles, targeting sustainable growth, risk adjusted profitability and recurrent value creation. To achieve these objectives, the Risk Management Model is oriented to maintain a moderate risk profile that allows the Group to keep strong financial fundamentals in adverse environments preserving our strategic goals, maintaining a prudent management, an integral view of risks, and a portfolio diversification by geography, asset class and client segment, focusing on keeping a long term relationship with our customers.

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Core metrics

Based on the risk appetite statement, statements are established to set down the general risk management principles in terms of solvency, liquidity and funding, profitability and income recurrence.

·Solvency: a sound capital position, maintaining resilient capital buffer from regulatory and internal requirements that supports the regular development of banking activity even under stress situations. As a result, BBVA proactively manages its capital position, which is tested under different stress scenarios from a regular basis.

·Liquidity and funding: A sound balance-sheet structure to sustain the business model. Maintenance of an adequate volume of stable resources, a diversified wholesale funding structure, which limits the weight of short term funding and ensures the access to the different funding markets, optimizing the costs and preserving a cushion of liquid assets to overcome a liquidity survival period under stress scenarios.

·Profitability and income recurrence: A sound margin-generation capacity supported by a recurrent business model based on the diversification of assets, a stable funding and a customer focus; combined with a moderate risk profile that limits the credit losses even under stress situations; all focused on allowing income stability and maximizing the risk-adjusted profitability.

The core metrics define, in quantitative terms, the principles and the target risk profile set out in the risk appetite statement and are in line with the strategy of the Group. Each metric has three thresholds (traffic-light approach) ranging from a standard business management to higher deterioration levels: Management reference, Maximum appetite and Maximum capacity. The 2018 Group’s Core metrics are:

By type of risk metrics

Based on the core metrics, statements are established for each type of risk reflecting the main principles governing the management of that risk and several metrics are calibrated, compliance with which enables compliance with the core metrics and the risk appetite statement of the Group. The metrics by type of risk have a maximum appetite threshold.

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Basic limits structure (core limits)

The purpose of the basic limits structure or core limits is to shape the Risk Appetite Framework at geographical area risk type, asset type and portfolio level, ensuring that the management of risks on an ongoing basis is within the thresholds set forth for by type of risk.

In addition to this framework, there’s a level of management limits that is defined and managed by the risk function developing the core limits, in order to ensure that the anticipatory management of risks by subcategories or by subportfolios complies with that core limits and, in general, with the Risk Appetite Framework.

The following graphic summarizes the structure of BBVA’s Risk Appetite Framework:

The corporate risk area works with the various geographical and/or business areas to define their risk appetite framework, which will be coordinated with and integrated into the Group's risk appetite to ensure that its profile fits as defined.

The Risk Appetite Framework is integrated into the management and the processes for defining the Risk Appetite Framework proposals and strategic and budgetary planning at Group level are coordinates.

As explained above, the core metrics of BBVA Risk Appetite Framework measure Groups performance in terms of solvency, liquidity and funding, profitability and income recurrence; most of the core metrics are accounting related or regulatory metrics which are published regularly to the market in the BBVA Group annual report and in the quarterly financial reports. During 2018, the Group risk profile evolved in line with the Risk Appetite metrics.

7.1.3   Decisions and processes

The transfer of risk appetite framework to ordinary management is supported by three basic aspects:

·A standardized set of regulations.

·Risk planning.

·Comprehensive management of risks over their life cycle.

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Standardized regulatory framework

The corporate risk area is responsible for the definition and proposal of the corporate policies, specific rules, procedures and schemes of delegation based on which risk decisions should be taken within the Group.

This process aims for the following objectives:

·Hierarchy and structure: well-structured information through a clear and simple hierarchy creating relations between documents that depend on each other.

·Simplicity: an appropriate and sufficient number of documents.

·Standardization: a standardized name and content of document.

·Accessibility: ability to search for, and easy access to, documentation through the corporate risk management library.

The approval of corporate policies for all types of risks is the responsibility of the corporate bodies of the Bank, while the corporate risk area endorses the remaining regulations.

Risk units of geographical and / or business areas comply with this set of regulations and, where necessary, adapt it to local requirements for the purpose of having a decision process that is appropriate at local level and aligned with the Group policies. If such adaptation is necessary, the local risk area must inform the corporate area of GRM, who must ensure the consistency of the regulatory body at the Group level and, therefore, if necessary, give prior approval to the modifications proposed by the local risk areas.

Risk planning

Risk planning monitors that the risk appetite framework is integrated into management through a cascade process for establishing limits and profitability adjusted to the risk profile, in which the function of the corporate area risk units and the geographical and/or business areas is to guarantee the alignment of this process with the Group's Risk Appetite Framework in terms of solvency, liquidity and funding, profitability and income recurrence.

There are tools in place that allow the Risk Appetite Framework defined at aggregate level to be assigned and monitored by business areas, legal entities, types of risk, concentrations and any other level considered necessary.

The risk planning process is aligned and taken into consideration within the rest of the Group's planning framework so as to ensure consistency.

Comprehensive management

All risks must be managed comprehensively during their life cycle, and be treated differently depending on the type.

The risk management cycle is composed of five elements:

·Planning: with the aim of ensuring that the Group's activities are consistent with the target risk profile and guaranteeing solvency in the development of the strategy.

·Assessment: a process focused on identifying all the risks inherent to the activities carried out by the Group.

·Formalization: includes the risk origination, approval and formalization stages.

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·Monitoring and reporting: continuous and structured monitoring of risks and preparation of reports for internal and/or external (market, investors, etc.) consumption.

·Active portfolio management: focused on identifying business opportunities in existing portfolios and new markets, businesses and products.

7.1.4   Assessment, monitoring and reporting

Assessment, monitoring and reporting is a cross-cutting element that monitors that the Model has a dynamic and proactive vision to enable compliance with the risk appetite framework approved by the corporate bodies, even in adverse scenarios. The materialization of this process has the following objectives:

·Assess compliance with the risk appetite framework at the present time, through monitoring of the core metrics, metrics by type of risk and the basic structure of limits.

·Assess compliance with the risk appetite framework in the future, through the projection of the risk appetite framework variables, in both a baseline scenario determined by the budget and a risk scenario determined by the stress tests.

·Identify and assess the risk factors and scenarios that could compromise compliance with the risk appetite framework, through the development of a risk repository and an analysis of the impact of those risks.

·Act to mitigate the impact in the Group of the identified risk factors and scenarios, ensuring this impact remains within the target risk profile.

·Supervise the key variables that are not a direct part of the risk appetite framework, but that condition its compliance. These can be either external or internal.

This process is integrated in the activity of the risk units, both of the corporate area and in the business units, and it is carried out during the following phases:

·Identification of the risk factors that can compromise the performance of the Group or of the geographical and/or business areas in relation to the defined risk thresholds.

·Assessment of the impact of the materialization of the risk factors on the metrics that define the Risk Appetite Framework based on different scenarios, including stress scenarios.

·Response to unwanted situations and proposals for readjustment to enable a dynamic management of the situation, even before it takes place.

·Monitoring of the Group's risk profile and of the identified risk factors, through internal, competitor and market indicators, among others, to anticipate their future development.

·Reporting: Complete and reliable information on the development of risks for the corporate bodies and senior management, with the frequency and completeness appropriate to the nature, significance and complexity of the reported risks. The principle of transparency governs al reporting of risk information.

7.1.5   Infrastructure

The infrastructure is an element that must manage that the Group has the human and technological resources needed for effective management and supervision of risks in order to carry out the functions set out in the Group's risk Model and the achievement of their objectives.

With respect to human resources, the Group risk function has an adequate workforce, in terms of number, skills, knowledge and experience.

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With regards to technology, the Group risk function manages the integrity of management information systems and the provision of the infrastructure needed for supporting risk management, including tools appropriate to the needs arising from the different types of risks for their admission, management, assessment and monitoring.

The principles that govern the Group risk technology are:

·Standardization: the criteria are consistent across the Group, thus ensuring that risk handling is standardized at geographical and/or business area level.

·Integration in management: the tools incorporate the corporate risk policies and are applied in the Group's day-to-day management.

·Automation of the main processes making up the risk management cycle.

·Appropriateness: provision of adequate information at the right time.

Through the “Risk Analytics” function, the Group has a corporate framework in place for developing the measurement techniques and models. It covers all the types of risks and the different purposes and uses a standard language for all the activities and geographical/business areas and decentralized execution to make the most of the Group's global reach. The aim is to continually evolve the existing risk models and generate others that cover the new areas of the businesses that develop them, so as to reinforce the anticipation and proactiveness that characterize the Group's risk function.

Also the risk units of geographical and / or business areas have sufficient means from the point of view of resources, structures and tools to develop a risk management in line with the corporate model.

7.1.6   Risk culture

The BBVA Group promotes the development of a risk culture based on the observance and understanding of values, attitudes, and behaviors that allow the compliance with the regulations and frameworks that contribute to an appropriate risk management.

At BBVA the Risk Governance Model is characterized by a special involvement of social bodies, as they define the risk culture that permeates the rest of the organization and has the following main elements:

·Our Purpose which defines our reason to be and with our values and behaviors guide the performance of our organization and the people who are part of it.

·The Risk Appetite Framework which determines the risks and levels of risks that the Group is willing to assume in order to fulfill its goals.

·The Code of Conduct establishes the behavior guidelines that we must follow to adjust our behavior to the BBVA values.

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The Risk Culture at BBVA is based on these levers:

·Communication: The BBVA Group promotes the dissemination of the principles and values that should govern the conduct and risk management in a comprehensive and consistent manner. To do this, the most appropriate channels of communication are used, to allow for the Risk culture to be integrated into the business activities at all levels of the organization.

·Training: The BBVA Group favors the understanding of the values, risk management model, and the code of conduct in all scenarios, ensuring standards in skills and knowledge.

·Motivation: The BBVA Group aims to define incentives for BBVA employees that support the risk culture at all levels. Among these incentives, the role of the Compensation policy and incentive programs stand out, as well as implementation of risk culture control mechanisms, including the complaint channels and the disciplinary committees.

·Monitoring: The BBVA Group pursues at the highest levels of the organization a continuous evaluation and monitoring of the risk culture to guarantee its implementation and identification of areas for improvement.

7.27.1. Risk factors

As mentioned earlier, BBVA Group has processes in place for identifying risks and analyzing scenarios thatin order to enable the Group to manage risks in a dynamic and proactive way.

The risk identification processes are forward looking to ensureseek the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.

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Risks are capturedidentified and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

ToIn this extent,context, there are a number of emerging risks that could affect the Group’s business trends.evolution of the Group's business. These risks are describedincluded in the following main sections:blocks:

Macroeconomic·The coronavirus (COVID-19) pandemic is adversely affecting the world economy and geopolitical riskseconomic activity and conditions in the countries in which the Group operates, leading many of them to economic recession in 2020 and relatively moderate activity growth in 2021, so that probably only from 2022 will the GDP levels observed before the crisis recover. Among other challenges, these countries are experiencing widespread increases in unemployment levels and falls in production, while public debt has increased significantly due to support and spending measures implemented by government authorities. In addition, there is an increase in defaults on debts by both companies and individuals, volatility in financial markets, including exchange rates, and falls in the value of assets and investments, all of which have had a negative impact on the Group's in the year 2020 and is expected to continue to affect in the future.

Global economic growth maintained robustFurthermore, the Group may be affected by the measures adopted by regulatory authorities in 2018 even ifthe banking sector, including but not limited to, the recent reductions in reference interest rates, the relaxation of prudential requirements, the suspension of dividend payments, the adoption of payment deferrals measures for bank clients (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments) and facilities to grant credit through a line of guarantees or public guarantees, especially to companies and the self-employed individuals, as well as any changes in the financial asset purchase programs.

Since the outbreak of COVID-19 pandemic, the Group has experienced a decline in its activity. For example, the granting of new loans to individuals has significantly decreased since the beginning of mobility restriction measures approved in certain countries in which the Group operates. In addition, the Group faces several risks, such as a greater risk of impairment of the value of its assets (including financial instruments valued at fair value, which may undergo significant fluctuations) and of the securities held for liquidity reasons, a possible significant increase in non-performing loans and a negative impact on the cost of the Group's financing and its access to financing (especially in an environment where credit ratings are affected).

Furthermore, in several of the countries in which the Group operates, including Spain, the Group has temporarily closed a significant number of its offices and reduced opening hours to the public, and the teams that provide central services have been working remotely. Although these measures have been gradually reversed due to the continued expansion of the COVID-19 pandemic, it slowed downis unclear how long it will take until normal operations can fully resume. On the other hand, the pandemic could adversely affect the business and operations of third parties that provide critical services to the Group and, in particular, the higher demand and / or lower availability of certain resources could in some cases make it more than expected duringdifficult to maintain the secondservice levels. In addition, the generalization of remote work has increased the risks related to cybersecurity, as the use of non-corporate networks has increased.

As a result of the above, the COVID-19 pandemic has had an adverse effect on the Group's results and capital base. During the first half of the year as a result of the worse development of the trade and the industrial sector as well as the strongmain accumulated impacts were:

(i)an increase in financial tensions, especially in developed economiesthe cost of risk associated with the lending activity, mainly due to the risedeterioration of uncertainties. To the worse economic developmentmacroeconomic environment, which has had a negative impact of €2,009 million in Europethe Group (including the initial adverse effect of the payment deferral) and in China, it has to be added the downturn in Asian countriesprovisions for credit risk and thecontingent commitments for €95 million, (see Notes 7.2, 46 and 47); and

(ii)a deterioration in the expansive cyclegoodwill of the United States. In this context, both the Federal Reserve (Fed) and the ECB have demonstrated to be more prudent and patient at the time of advancing with the normalization of their monetary policies and their future decisions will depend on the economic evolution. The main risk at sort-term continues to be protectionism not only for the direct effect on global trade, but also for the indirect impact of lower confidence and financial volatility. To this, it has to be added the concerns about the degree of the impact on the economic activitiesGroup's subsidiary in the United States, and Chinamainly due to the deterioration of the macroeconomic scenario in the following quarters have to be added as well asUnited States, which has had a net negative impact of €2,084 million on the increased political uncertaintyGroup's attributed profit in Europe.this period (although this impact does not affect the tangible book value, nor the solvency or the liquidity of the Group) (see Notes 18.1 and 49).

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From June 30, 2020 on, and as a consequence of the general deterioration of the global macroeconomic scenario, its specific effects cannot be isolated, affecting all of the Group's consolidated Financial Statements.

·Macroeconomic and geopolitical risks

The Global economy is being severely affected by the COVID-19 pandemic. Supply, demand and financial factors caused an unprecedented fall in GDP in the first half of 2020. Supported by strong fiscal and monetary policy measures, as well as greater control over the spread of the virus, global growth rebounded more than expected in the third quarter, before slowing down in the fourth, when the number of infections rose again in many regions, mainly in the United States and Europe. As for 2021, the unfavorable evolution of the pandemic is expected to adversely affect activity in the short term, while new fiscal and monetary stimuli, as well as the administering of coronavirus vaccines, are expected to support recovery from mid-year onwards.

Following the massive fiscal and monetary stimuli to support economic activity and reduce financial tensions, government debt has increased across the board and interest rates have been cut, and are now at historical low levels. Additional countercyclical measures may be required. Similarly, a significant reduction in current stimuli is not expected, at least until the recovery takes hold.

Tensions in the financial markets have moderated rapidly since the end of March 2020, following the decisive actions taken by the main central banks and the fiscal packages announced in many countries. In summary,recent months, the uncertaintymarkets have shown relative stability and, at certain times, risk-taking movements. Likewise, progress related to the development of COVID-19 vaccines and prospects for economic perspectives continuesrecovery should pave the way for financial volatility to be elevated duepersist at relatively low levels in general going forward.

BBVA Research estimates that global GDP contracted by around 2.6% in 2020 and will expand by around 5.3% in 2021 and 4.1% in 2022. Activity will recover gradually and heterogeneously among countries. Various epidemiological, financial and geopolitical factors are also contributing to the fearpersistent exceptionally high uncertainty.

With regard to the banking system, in an environment in which much of the economic activity has been at a protectionist escalationstand still for several months, the services provided have played an essential role, basically for two reasons: firstly, the banks have ensured the proper functioning of collections and payments for households and companies, thereby contributing to the maintenance of economic activity; secondly, the granting of new lending or the renewal of existing lending has reduced the impact of the economic slowdown on household and business income. 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 its main source of funding for most companies.

In terms of profitability, European and Spanish banking have deteriorated, primarily because many entities recorded high provisions for impairment on financial assets in the first two quarters of 2020 as a higher perceptionresult of the worsening macroeconomic environment following the pandemic outbreak. Pre-pandemic profitability levels remained far from the levels prior to the previous financial crisis. This is in addition to the accumulation of capital since the previous crisis and the very low interest rate environment that we have been experiencing for several years. Nevertheless, the banks 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 lending capacity.

The BBVA Group has a General Risk Management and Control Model appropriate to its business model, its organization, the countries in which it operates and its corporate governance system, which allows it to carry out its activity within the framework of the risk relatedmanagement and control strategy and policy defined by the corporate bodies. This model deals with management in global form adapting itself to the circumstances of each moment. This Model is applied integrally in the Group.

 In this sense, from the beginning of the crisis, the BBVA Group implemented specific measures for the proper management of these associated risks, establishing different global economic growth.initiatives that define the risk management strategy during the crisis, with common action protocols that should be implemented and adapted, when needed, to local needs.

The BBVA Group global risk unit - Global Risk Management (hereinafter, “GRM”) - has increased the frequency and intensity of the evaluation of potential impacts on the different groups and clients, in order to prevent their future evolution, and carried out appropriate adjustments and reclassifications, reinforcing its processes, governance and teams in Holding and countries to act in a coordinated manner, focusing priority on crisis management

Over the past year, it has been found that the pandemic has a global impact, affecting to a greater extent the sectors in which there is a high level of human interaction (transport, especially air transport, leisure, especially hotel establishments, as well as industries and activities dependent on them), regardless of the regional area in question. For this reason, the Bank's risk management has clearly been intensified by sectorial vectors over other conditioning factors such as geographic.

·Regulatory and reputational risks

·Financial institutions are exposed to a complex and ever-changing regulatory environment defined by governments and regulators. This can affect their ability to grow and the capacity of certain businesses to develop, and result in stricter liquidity and capital requirements with lower profitability ratios. The Group constantly monitors changes in the regulatory framework that allow for anticipation and adaptation to them in a timely manner, adopt industry practices and more efficient and rigorous criteria in its implementation.

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The financial sector is under ever closer scrutiny by regulators, governments and society itself. In the course of activities, situations which might cause relevant reputational damage to the entity could raise and might affect the regular course of business. The attitudes and behaviors of the Group and its members are governed by the principles of integrity, honesty, long-term vision and industry practices through, inter alia, the internal control Model,model, the Code of Conduct, the Corporate Principles in tax strategymatters and Responsible Business Strategy of the Group.

·Business, operational and legal risks

·New technologies and forms of customer relationships: Developments in the digital world and in information technologies pose significant challenges for financial institutions, entailing threats (new competitors, disintermediation…disintermediation, etc.) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels...channels, etc.). Digital transformation is a priority for the Group as it aims to lead digital banking of the future as one of its objectives.

·Technological risks and security breaches: The Group is exposed to new threats such as cyber-attacks, theft of internal and customer databases, fraud in payment systems, etc. that require major investments in security from both the technological and human point of view. The Group gives great importance to the active operational and technological risk management and control. One example was the early adoption of advanced models for management of these risks (AMA - Advanced Measurement Approach).

·The financial sector is exposedfaces an environment of increasing regulatory and litigious pressure, and thus, the various Group entities are usually party to increasing litigiousness, such that financial institutions face a large number ofindividual or collective judicial proceedings of every kind -civil, criminal, administrative(including class actions) resulting from their activity and otherwise-,operations, as well as arbitration proceedings. The Group is also party to other government procedures and investigations, such as those carried out by the antitrust authorities in certain countries which, among other things, have in the past and could in the future result into sanctions, as well as lead to claims by customers and others. In addition, the regulatory framework, in the jurisdictions in which the Group operates, is evolving towards a supervisory investigations, in multiple jurisdictions,approach more focused on the consequencesopening of whichsanctioning proceedings while some regulators are difficult to determine (including those proceedings where an undetermined number of claimants is involved, where damages claimed are not easy to estimate, where exorbitant amounts are claimed, where novel legal questions are introduced using new, creative legal theoriesfocusing their attention on consumer protection and where proceedings are at a very early stage).behavioral risk.

In Spain and in many currentother jurisdictions where the Group operates, legal and regulatory actions and proceedings claimants seek,against financial institutions, prompted in part by certain judgments in favor of consumers handed down by national and supranational courts, have increased significantly in recent years and this trend could continue in the future. The legal and regulatory actions and proceedings faced by other financial institutions in relation to these and other matters, especially if such actions or proceedings result in favorable resolutions for the consumer, could also adversely affect the Group.

All of the above may result in a significant increase in operating and compliance costs or even a reduction of revenues, and it is possible that an adverse outcome in any proceedings (depending on the amount thereof, the penalties imposed or the procedural or management costs for the Group) could damage the Group's reputation, generate a knock-on effect or otherwise adversely affect the Group.

It is difficult to predict the outcome of legal and regulatory actions and proceedings, both at Spanish courtsthose to which the Group is currently exposed and through preliminary rulings sought fromthose that may arise in the European Union Courtfuture, including actions and proceedings relating to former Group subsidiaries or in respect of Justice, that various clauses typically included within mortgage loan agreements with credit institutionswhich the Group may have indemnification obligations, but such outcome could be declared abusive (including clauses relatedsignificantly adverse to mortgage fees, early termination rights, reference interest rates and arrangement fees). Unfavorable resolutions of such proceedingsthe Group. In addition, a decision in any matter, whether against the Group or against other banking entities may directly or indirectly affectanother credit entity facing similar claims as those faced by the Group.

The BBVA Group, is under regulatory investigations in several countries which maycould give rise to sanctionsother claims against the Group. In addition, these actions and claimsproceedings attract resources from the Group and may occupy a great deal of attention on part of the Group's management and employees.

As of December 31, 2020, the Group had €612 million in provisions for damagesthe proceedings it is facing (included in the line "Provisions for litigation and pending tax cases" in the consolidated balance sheet) (see Note 25), of which €574 million correspond to legal contingencies and €38 million to tax related matters. However, the uncertainty arising from these proceedings (including those for which no provisions have been made, either because it is not possible to estimate them or for other reasons) makes it impossible to guarantee that the possible losses arising from these proceedings will not exceed, where applicable, the amounts that the Group currently has provisioned and, therefore, could affect the Group's consolidated results in a given period.

As a result of the above, legal and regulatory actions and proceedings currently faced by third parties.the Group or to which it may become subject in the future or otherwise affected by, individually or in the aggregate, if resolved in whole or in part adversely to the Group ́s interests, could have a material adverse effect on the Group’s business, financial condition and results of operations.

Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to the Bank. On 29th July, 2019, the Bank was named as an official suspect (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could be constitutive of bribery, revelation of secrets and corruption. On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. Certain current and former officers and employees of the Group, as well as former directors have also been named as official suspects in connection with this investigation. The Bank has been and continues to proactively collaborate with the Spanish judicial authorities, including sharing with the courts the relevant information obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of the facts. As of the date of the approval of the consolidated financial statements, no formal accusation against the Bank has been made.

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The Group may likewise be subjectThis criminal judicial proceeding is at the pre-trial phase. Therefore, it is not possible at this time to investigations by legal authorities, of which we have not heretofore received formal notice to such effect, in relation with the contracting of supposedly irregular services, that may have a negative reputational or economic impact on the Bank. The Bank is undertaking a forensic investigation, led by PwC, through the Bank’s external legal counsel Garrigues, together with Uría,predict the scope or duration of which it is not currentlysuch proceeding or any related proceeding or its or their possible to predict, nor is it possible to predict the outcomeoutcomes or implications for the Group, ofincluding any such investigation byfines, damages or harm to the legal authorities.

The BBVA Group undertakes constant management and monitoring of legal and regulatory investigations, proceedings and actions where its interests may be defended, and allocates (on the basis of the number of disputes, rulings and the state of proceedings or actions) what we believe are the appropriate provisions where necessary. Nevertheless, the results of judicial or regulatory investigations, proceedings or actions, whether to which the Bank is currently party, to which it may be party in the future, or to which other banking entities are party, are difficult to predict, and if jurisprudential criteria are modified or unexpected results occur, such allocated provisions may prove insufficient.Group’s reputation caused thereby.

7.37.2. Credit risk

Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party.

It is the most important risk for the Group and includes counterparty risk, issuer risk, settlement risk and country risk management.

The general principles underpinninggoverning credit risk management in the BBVA are as follows:Group are:

·           Availability of basic information forRisks taken should comply with the study and proposal ofgeneral risk and supporting documentation for approval, which sets out the conditions requiredpolicy established by the internalBoard of Directors of BBVA.

·Risks taken should be in line with the level of equity and generation of recurring revenue of the BBVA Group prioritizing risk diversification and avoiding relevant bodyconcentrations.

·Risks taken should be identified, measured and assessed and there should be management and monitoring procedures, in addition to sound mitigation and control mechanisms.

·Risks should be managed in a prudent and integrated manner during their life cycle and their treatment should be based on the type of risk. In addition, portfolios should be actively managed on the basis of a common metric (economic capital).

·           Sufficient generation of funds and asset solvencyThe main criterion when granting credit risks is the capability of the customerborrower or obligor to assume principal and interest repaymentsfulfill on a timely basis all financial obligations with its business income or source of loans owed.income without depending upon guarantors, bondsmen or pledged assets.

·           EstablishmentImprove the financial health of adequateour clients, help them in their decision making and sufficient guarantees that allow effective recoveryin the daily management of their finances based on personalized advice.

·Help our clients in the transaction, this being consideredtransition towards a secondarysustainable future, with a focus on climate change and exceptional method of recovery when the first has failed.inclusive and sustainable social development.

Credit risk management in the Group has an integrated structure for all its functions, allowing decisions to be taken objectively and independently throughout the life cycle of the risk.

·           At Group level: frameworks for action and standard rules of conduct are defined for handling risk, specifically, the circuits,channels, procedures, structure and supervision.

·           At the business area level: they are responsible for adapting the Group's criteria to the local realities of each geographical area and for direct management of risk according to the decision-making circuit:channel:

- ·Retail risks: in general, the decisions are formalized according to the scoring tools, within the general framework for action of each business area, with regard to risks. The changes in weighting and variables of these tools must be validated by the GRM area.

- ·Wholesale risks: in general, the decisions are formalized by each business area within its general framework for action with regard to risks, which incorporates the delegation rule and the Group's corporate policies.

The risk function has a decision-making process supported by a structure of committees with a solid governance scheme, which describes their purposes and functioning for a proper performance of their tasks.

Payment deferral

This governance scheme has been fundamental in managing the COVID-19 crisis in all the geographies where the Group operates, where both, assessing the flow of necessary funds for the economies with the rigor in the analysis and monitoring of the credit quality of the exposures.

Since the beginning of the pandemic, the Group has offered payment deferral to its customers (retail, SMEs and wholesale) in all the geographies where it operates. These moratoriums have been both legislative (based on national laws) and non-legislative (based on sectorial or individual schemes), aimed at mitigating the effects of COVID-19. Depending on the cases, the payment of principal and / or interest has been postponed, maintaining the original contract. Generally, these deferrals have been given for a period of less than one year. This measure has been extended to different sectors, being Leisure, Real Estate and Auto the main users. The deadline to qualify for the moratorium has been extended in some geographies in recent months, having already come to an end in Mexico and Argentina. In the others, where this measure is still in force, this period ends in the first quarter of 2021, except Turkey (in May 2021), Colombia (in July 2021) and the USA (in January 2022).

Specifically, the Group's participation in the following moratorium or public guarantee measures by geography stands out:

·In Spain, payment deferral measures have been covered mainly by Royal Decree Law 8/2020 and 11/2020, as well as the agreement promoted by the Spanish Banking Association (hereinafter “AEB”) to which BBVA has adhered.

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The moratoriums covered by the Royal Decree Law have been proposed to the especially vulnerable groups indicated in the regulation. These measures consist of payment deferral of three months of principal and interest. In addition, the possibility of customers joining sector agreements for the remaining term until the limit established has been offered that, once said legal moratorium has expired. By type of customer, they are aimed at individuals, individual or self-employed entrepreneurs, and by type of product, mortgage, personal loans or consumer loans.

The moratoriums granted under the sectorial agreement of the AEB are aimed at individuals for up to 12 months of capital deferral in the case of mortgage loans and up to 6 months in personal loans. Said sector agreement has been in force until September 29, 2020, but it has been extended until March 30, 2021, although the new conditions only provide for the payment deferral of capital in mortgages up to 9 months, remaining 6 months on personal loans.

In addition, the Official Credit Institute (ICO) has published several aid programs aimed at the self-employed, SMEs and companies, through which a guarantee of between 60% and 80% is granted for a period of up to 5 years to the new financing granted. The amount of the guarantee and its length depends on the size of the company and the type of product. The ICO has also subsidized individuals the amount of the rent up to 6 months in loans up to 6 years.

·In Mexico, the National Banking Commission of Securities (“CNBV”) published official letters P285/2020 of March 26, 2020 and P293/2020 of April 15, 2020, allowing the granting of capital and interest payment deferral for a period 4 months extendable for additional 2 additional months. These measures were mainly used by individuals and companies, affecting mortgage loans, personal loans and consumer loans, including credit cards.

·In the United States, payment deferral measures have been mainly encouraged by the CARES Act, signed on March 27, 2020, which includes a wide range of supporting measures for companies and individuals, as well as an interagency statement (Office of the Comptroller of the Monetary Board of Governors of the Federal Reserve System, Federal Deposit Insurance Corporation, Office of Consumer Financial Protection and National Administration of Credit Unions) of April 7, 2020.

·In Turkey, in mid March the government announced a program to stimulate the economy (Economic Stability Shield) allowing banks to defer payments for 3 months, with the possibility of extending up to 6 months, which was accompanied by several communications of the Banking Regulation and Supervisory Agency (“BRSA”) in this regard. These supporting measures are granted to both individuals and companies.

Likewise, public support programs have been recognized guaranteeing up to 80% of loans granted to companies for a period of 1 year.

·In Colombia, the binding legislation for payment deferral comes from the Financial Superintendency, specifically from its Circulars 07/2020 and 14/2020, as well as from Resolution No. 385. The payment deferral consists of the deferral of payments of principal and interest until 6 months. The term to avail themselves of them has been extended until July 2021.

·In Peru, measures were approved through various official letters issued by the Superintendency of Banking and Insurance (“SBS”), allowing the deferral of principal and interest payments initially up to 6 months and then extended to 12, mainly to individuals, self-employed and small companies.

Additionally, there have been public support programs such as “Reactiva”, “Crecer” or “FAE” aimed at companies and micro-companies with guaranteed amounts that, depending on the program and the type of company, are in a range of between 60% and 98%.

·In Argentina, payment deferral measures are based on state legislation such as Royal Decree 544/2020 or Decree 319/202, as well as various Central Bank regulations. Aimed at a broad group of customers, they facilitate deferral of capital and interest for up to 3 months.

Certain public support programs offering guarantees of up to 100% to micro-SMEs or individuals and up to 25% to other companies in financing for up to 1 year.

The amount of payment deferrals (existing and completed) and the financing granted with public guarantees given at a Group level, as well as the number of customers of both measures, as of December 31, 2020 are as follows:

Amount of payment deferral and financing with public guarantees as of December 31, 2020 (Millions of Euros)

 

Payment deferral

Financing with

public guarantees

 

 

 

Existing

Completed

Total

Number of

 customers 

Total

Number of

customers

Total

Payment deferral and guarantees

(%) credit investment

Group

6,803

27,025

33,828

2,843,977

18,619

271,870

52,446

13.1%

The amount of payment deferrals (existing and completed) and financing granted with public guarantees given at a Group level, broken down by segment, as of December 31, 2020 are as follows:

Amount of payment deferral and financing with public guarantees as of December 31, 2020 (Millions of Euros)

 

Payment deferral

Financing with

 public guarantees

 

Existing

Completed

Total

Group

6,803

27,025

33,828

18,619

Customers

4,657

16,676

21,333

1,237

Of which: Mortgages

3,664

8,723

12,387

1

SMEs

1,031

5,056

6,087

11,373

Non-financial corporations

1,055

5,095

6,150

5,930

Other

60

198

258

79

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Amount of payment deferral by stages as of December 31, 2020 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

Total

Group

21,670

9,761

2,397

33,828

Customers

13,608

5,920

1,805

21,333

Of which: Mortgages

8,310

3,163

914

12,387

SMEs

4,326

1,461

299

6,087

Non-financial corporations

3,495

2,362

293

6,150

Other

240

17

-

258

The payment deferral measures for bank customers result in the temporary suspension, total or partial, of the contractual obligations with a deferral for a specific period of time. Considering that the payment deferrals granted in connection with COVID-19 provide temporary relief to debtors and that the economic value of the affected loans has not been significantly impacted, the payment deferral measures granted have not been considered substantial contractual modifications and, therefore, modified loans are accounted for as a continuation of the originals. When a payment deferral does not generate interest collection rights, a temporary loss of value is triggered for the transaction, which is calculated as the difference between the current value of the original and the modified cash flows, both discounted at the effective interest rate of the original transaction. The difference is recognized at the initial time in the income statement under the heading “Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss or net gains by modification” in the balance sheet as a reduction of the asset value of the loans. From that point on, said correction accrues as net interest income at the original effective interest rate within the period of the payment deferral. Thus, at the end of the moratorium period, the impact on net attributed profit is basically neutral.As of December 31, 2020, the temporary value loss of the payment deferral included in the consolidated income statements amounted to €304 million, from which €300 million have already been recognized as a higher interest margin as of that date.

Regarding the classification of exposures according to their credit risk, the Group has maintained a rigorous application of IFRS 9 when granting the payment deferrals and has reinforced the procedures for monitoring credit risk both throughout the life of the transactions and at their maturity.

This means that the payment deferrals granting does not imply in itself an automatic trigger for a significant increase in risk and that the transactions subject to the payment deferrals are initially classified in the stage they had previously, unless, based on their risk profile, they should be classified in a worse stage. On the other hand, as evidence of payment has ceased to exist or has been reduced, the Group has introduced additional indicators or segmentations to identify the significant increase in credit risk that may have occurred in some transactions or a set of them and, where appropriate, it has been classified in Stage 2. Furthermore, the indications provided by the European Banking Authority (EBA) have been taken into account to not consider forbearance the payment deferrals that meet a series of requirements. All this without prejudice to maintaining its consideration as a forbearance if it was previously qualified as such or classifying the exposure in the corresponding stage previously stated.

On the other hand, the treatment planned for the payment deferrals that expire and may require additional support will be in accordance with the updated evaluation of the customer's credit quality and the characteristics of the solution granted. If applicable, they will be treated as Refinancing or Restructuring as described in Note 7.2.7 of the Financial Statements.

Regarding public support for the loans’ lending, it does not affect the evaluation of the significant increase in risk since it is valued through the credit quality of the instrument. However, in estimating the expected loss, the existence of the guarantor implies a possible reduction in the level of provisions necessary since, for the hedged part, the loss that would be incurred in the foreclosure of the guarantee is taken into account.

The public guarantees granted in the different geographies in which the Group operates have been considered as an integral part of the terms and conditions of the loans granted under the consideration that the guarantees are granted at the same time that the financing is granted to the client and in a way inseparable from it.

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7.3.17.2.1. Measurement of Expected Credit Loss (ECL)

IFRS 9 requires determining the expected credit loss (ECL) of a financial instrument in a way that reflects an unbiased estimation removing any conservatism or optimism, including the time value of money and a forward lookingforward-looking perspective (including the economic forecast)., all this based on the information that is available at a certain point in time and that is reasonable and bearable with respect to future economic conditions.

Therefore, the recognition and measurement of expected credit losses (ECL) is highly complex and involves the use of significant analysis and estimation including formulation and incorporation of forward-looking economic conditions into ECL.the ECL model.

The modeling of the ECL calculation is subject to a governance system that is common to the entire Group. Within this common framework, each geography makes the necessary adaptations to capture its particularities. The methodology, assumptions and observations used by each geography are reviewed annually, and after a validation and approval process, the outcome of this review is incorporated into the ECL calculations.

Risk parameters by homogeneous groups

Expected losses can be estimated both individually and collectively. Regarding the collective estimate, the instruments are distributed in homogeneous groups (segments) that share similar risk characteristics. Following the guidelines established by the Group for the development of models under IFRS 9, each geography performs the grouping based on the information available, its representativeness or relevance and compliance with the necessary statistical requirements.

Depending on the portfolio or the parameter being estimated, one risk driver or another will apply and different segments will reflect differences in PDs and LGDs. Thus, in each segment, changes in the level of credit risk will respond to the impact of changing conditions on the common range of credit risk drivers. The effect on the group’s credit risk in response to changes in forward-looking information will be considered as well. Macroeconomic modeling for each segment is carried out using some of the shared risk characteristics.

These segments share credit risk characteristics such that changes in credit risk in a part of the portfolio are not concealed by the performance of other parts of the portfolio. In that sense, the methodology developed for ECL estimation indicates the risk drivers that have to be taken into account for PD segmentation purposes, depending on whether the estimation is for retail or wholesale portfolios.

As an example of the variables that can be taken into consideration to determine the final models, the following stand out:

·PD - Retail: Contractual residual maturity, credit risk scoring, type of product, days past due, forbearance, time on books, time to maturity, nationality of the debtor, sale channel, original term, indicator of credit card activity, percentage of initial drawn balance.

·PD - Wholesale: Credit Risk Rating, type of product, watch-list level, forbearance (client), time to maturity, industry sector, updated balance (y/n), written off, grace period.

·LGD – retail: credit Risk Scoring, segment, type of product, secured / unsecured, type of collateral, sales channel, nationality, business area, debtor’s commercial segment, forbearance (account) EAD (this risk driver could be correlated with the time on books or the LTV so, before including it, an assessment should be done in order to avoid a double counting effect), time on default of the account (for defaulted exposures), geographical location.

·LGD - wholesale: credit Risk Rating, geographical location, segment, type of product, secured / Unsecured, type of collateral, business area, forbearance (client), debtor’s commercial segment time on default of the deal (for defaulted exposures).

·CCF: wholesale/retail, percentage of initial drawn balance, debtor’s commercial segment, days past due, forbearance, credit limit activity, time on books.

In the BBVA Group, the expected losses calculated are based on the internal models developed for all the Group's portfolios, unless clients are subject to individualized estimates.

Exposures with other credit institutions, sovereign debt or with public administrations are characterized by a low number of defaults, so the Group's historical bases do not contain sufficiently representative information to build impairment models based on them. However, there are external sources of information that, based on broader observations, are capable of providing the necessary inputs to develop models of expected losses. Therefore, based on the rating assigned to these exposures and taking into account the inputs obtained from these sources, the calculations of expected losses are developed internally, including their projection based on the macroeconomic perspectives.

Individual estimation of expected credit losses

The Group periodically and individually reviews the situation and credit rating of its customers, regardless of their classification, taking into consideration the information deemed necessary to do so. It also has procedures in place within the risk management framework to identify the factors that may lead to increased risk and, consequently, to a greater need for provisions.

The monitoring model established by the Group consists of continuously monitoring the risks to which it is exposed, which guarantees their proper classification in the different categories of IFRS 9. The original analysis of the exposures is reviewed through the procedures for updating the rating tools (rating and scoring), which periodically review the financial situation of clients, influencing the classification by stages of exposures.

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Within this credit risk management framework, the Group has procedures that guarantee the review, at least annually, of all its wholesale counterparties through the so-called financial programs, which include the current and proposed positioning of the Group with the customer in terms of credit risk. This review is based on a detailed analysis of the client's up-to-date financial situation, which is complemented by other information available in relation to individual perspectives on business performance, industry trends, macroeconomic prospects or other public data. As a result of this analysis, the preliminary rating of the client is obtained, which, after undergoing the internal procedure, can be revised down if deemed appropriate (for example, general economic environment or evolution of the sector). These factors in addition to the information that the client can provide are used to review the ratings even before the scheduled financial plan reviews are conducted if circumstances warrant.

Additionally, the Group has established procedures to identify wholesale customers in the internal Watch List category, which is defined as that risk in which, derived from an individualized credit analysis, an increase in credit risk is observed, either due to economic or financial difficulties or because they have suffered, or are expected to suffer, adverse situations in their environment, without meeting the criteria for classification as impaired risk. Under this procedure, all a customer's Watch List exposures are considered Stage 2 regardless of when they originated, if as a result of the analysis the customer is considered to have significantly increased risk.

Finally, the Group has so-called Workout Committees, both local and corporate, which analyze not only the situation and evolution of significant clients in Watch List and doubtful situations, but also those significant clients in which, without having still rated on Watch List, they may present some Stage 2 rated exposure for a quantitative reason (PD comparison from origination). This analysis is carried out in order to decide if, derived from this situation, all the client's exposures should be considered in the Watch List category, which would imply the migration of all the client's operations to Stage 2 regardless of the date on which they originated.

With this, the Group supports an individualized review of the credit quality of its wholesale counterparties, identifying the situations in which a change in the risk profile of these clients may have occurred and proceeding, where appropriate, to estimate individualized credit losses.Along with this review, the Group individually estimates the expected losses of those clients whose total exposure exceeds certain thresholds, including those that part of their operations may be classified in stage 1 and part in stage 2. In setting thresholds, each geography determines the minimum amount of a client's exposure whose expected losses must be estimated individually taking into account the following:

·For clients with exposures in stage 3. The analysis of clients with total risk above this threshold implies analyzing at least 40% of the total risk of the wholesale portfolio in stage 3. Although the calibration of the threshold is done on the wholesale portfolio, clients of other portfolios must be analyzed if they exceed the threshold, staying in Stage 3.

·For all other situations. The analysis of clients with total risk above this threshold implies analyzing at least 20% of the total risk of the Watch List wholesale portfolio. Although the threshold calibration is carried out on the exposure classified as Watch List, wholesale clients or clients belonging to other portfolios that have exposures classified in stage 2 and whose total exposure exceeds the mentioned threshold must be analyzed individually, considering both the exposures classified in stage 1 as in stage 2.

Regarding the methodology for the individual estimation of expected losses, it should be mentioned, firstly, that these are measured as the difference between the asset’s carrying amount and the estimated future cash flows discounted at the financial asset’s effective interest

The estimated recoverable amount should correspond to the amount calculated under the following method:

·The present value of estimated future cash flows discounted at the financial asset’s original effective interest rate; and

·The estimation of the recoverable amount of a collateralized exposure reflects the cash flows that may result from the liquidation of the collateral.

The estimated future cash flows depend on the type of approach applied, which can be:

Going concern scenario: when the entity has updated and reliable information about the solvency and ability of payment of the holders or guarantors. The operating cash flows of the debtor, or the guarantor, continue and can be used to repay the financial debt to all creditors. In addition, collateral may be exercised to the extent it does not influence operating cash flows. The following aspects should be taken into account:

·Future operating cash flows should be based on the financial statements of the debtor.

·When the projections made on these financial statements assume a growth rate, a constant or decreasing growth rate must be used over a maximum growth period of 3 to 5 years, and subsequently constant cash flows

·The growth rate should be based on the analysis of the evolution of the debtor's financial statements or on a sound and applicable business restructuring plan, taking into account the resulting changes in the structure of the company (for example, due to divestments or the interruption of unprofitable lines of business).

·(Re)-investments that are needed to preserve cash flows should be considered, as well as any foreseeable future cash-flow changes (e.g. if a patent or a long-term loan expires).

·When the recoverability of the exposure relies on the realization of the disposal of some assets by the debtor, the selling price should reflect the estimated future cash flows that may result from the sale of the assets less the estimated costs associated with the disposal.

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Gone concern scenario: when the entity does not have updated and reliable information, it should consider that the estimation of loan receivable flows is of high uncertainty. Estimation should be carried out through the estimation of recoverable amounts from the effective real guarantees received. It will not be admissible as effective guarantees, those whose effectiveness depends substantially on the creditworthiness of the debtor or economic group in which it takes part. Under a gone concern scenario, the collateral is exercised and the operating cash flows of the debtor cease. This could be the case if:

·The exposure has been past due for a long period. There is a rebuttable presumption that the allowance should be estimated under a gone concern criterion when arrears are greater than 18 months.

·Future operating cash flows of the debtor are estimated to be low or negative.

·Exposure is significantly collateralized, and this collateral is central to cash-flow generation

· There is a significant degree of uncertainty surrounding the estimation of the future cash flows. This would be the case if the earnings before interest, taxes, depreciation and amortization (EBITDA) of the two previous years had been negative, or if the business plans of the previous years had been flawed (due to material discrepancies in the back-testing)

· Insufficient information is available to perform a going concern analysis

Significant increase in credit risk

As indicated in Note 2.2, the criteria for identifying the significant increase in risk are applied consistently throughout the Group, distinguishing between quantitative reasons or by comparison of probabilities of default and qualitative reasons (more than 30 days of default, watch list consideration or non-impaired refinancing).

To manage credit risk, the Group uses all relevant information that is available and that may affect the credit quality of the exposures. This information may come mainly from the internal processes of admission, analysis and monitoring of operations, from the strategy defined by the Group regarding the price of operations or distribution by geographies, products or sectors of activity, from the observance of the macroeconomic environment, from market data such as interest rate curves, or prices of the different financial instruments, or from external sources of credit rating.

This set of information is the basis for determining the rating and scoring (see note 7.1.4 for more information on rating and scoring systems) corresponding to each of the exposures and which are assigned a probability of default (PD) that, as already mentioned, it undergoes an annual review process that assesses its representativeness (backtesting) and is updated with new observations. Furthermore, the projection of these PDs over time has been modeled based on macroeconomic expectations, which allows obtaining the probabilities of default throughout the life of the operations.

Based on this common methodology, and in accordance with the provisions of IFRS 9 and the EBA guidelines on credit risk management practices (EBA / GL / 2017/06), each geography has established absolute and relative thresholds for identifying whether the expected changes in the probabilities of default have increased significantly compared to the initial moment, adapted to the particularities of each one of them in terms of origination levels, product characteristics, distribution by sectors or portfolios, and macroeconomic situation. To establish the aforementioned thresholds, a series of general principles are considered, such as:

Uniformity: Based on the rating and scoring systems that, in a homogeneous manner, are implemented in the Group's units.

 Stability: The thresholds must be established to identify the significant increase in risk produced in exposures since their initial recognition and not only to identify those situations in which it is already foreseeable that they will reach the level of impairment. For this reason, it is to be expected that of the total exposures there will always be a representative group for which said increased risk is identified.

 Anticipation: The thresholds must consider the identification of the increased risk in advance with respect to the recognition of the exposures as impaired or even before a real default occurs. The calibration of the thresholds should minimize the cases in which the instruments are classified in stage 3 without having previously been recognized as stage 2.

 Indicators or metrics: It is expected that the classification of the exposures in stage 2 will have sufficient permanence to allow them to develop an anticipatory management of them before, where appropriate, they end up migrating to stage 3.

 Symmetry: IFRS 9 provides for a symmetric treatment both to identify the significant increase in risk and to identify that it has disappeared, so the thresholds also work to improve the credit classification of exposures. In this sense, it is expected that the cases in which the exhibitions that improve from stage 3 are directly classified into stage 1 will be minimal.

The identification of the significant increase in risk from the comparison of the probabilities of default should be the main reason why exposures in stage 2 are recognized.

F-56


Specifically, a contract will be transferred to stage 2 when the following two conditions are met by comparing the current PD values and the origination PD values:

Current PD – Origination PD> Absolute threshold (pbs)

These absolute and relative thresholds are consistently established for each geography and for each portfolio, taking into account their particularities and based on the principles described. The thresholds set by each geography are included within the annual review process and, generally, are in the range of 30% to 250% for the relative threshold and from 10 to 150 basis points for the absolute threshold.

The establishment of absolute and relative thresholds, as well as their different levels, comply with the provisions of IFRS 9 when it indicates that a certain change, in absolute terms, in the risk of a default will be more significant for a financial instrument with a lower initial risk of default compared to a financial instrument with higher initial risk of default.

For existing contracts before the implementation of IFRS 9, given the limitations in the information available on them, the thresholds are calibrated based on the PDs obtained from the prudential or economic models for calculating capital.

Risk Parameters Adjusted by Macroeconomic Scenarios

Expected Credit Loss must include forward looking information, in accordance with IFRS 9, which states that the comprehensive credit risk information must incorporate not only historical information but also all relevant credit information, including forward-looking macroeconomic information. BBVA Group uses the classical credit risk parameters PD, LGD and EAD in order to calculate the ECL for the credit portfolios.

BBVA´BBVA Group´s methodological approach in order to incorporate the forward looking information aims to determine the relation between macroeconomic variables and risk parameters following three main steps:

·           Step 1: Analysis and transformation of time series data.

·           Step 2: For each dependent variable find conditional forecasting models that are economically consistent.

·           Step 3: Select the best conditional forecasting model from the set of candidates defined in Step 2, based on their out of sample forecasting performance.capacity.

How economic scenarios are reflected in calculation of ECL

The forward looking component is added to the calculation of the ECL through the introduction of macroeconomic scenarios as an input. Inputs would highly depend on the particular combination of region and portfolio, so inputs are adapted to available data.data regarding each of them.

Based on economic theory and analysis, the macroeconomic variablesmain indicators most directly relevant for explaining and forecasting the selected risk parameters (PD, LGD)LGD and EAD) are:

·           a) The net income of families, corporates or public administrations.

·           b) The outstanding payment amounts on the principal and interest on the outstanding loans.financial instruments.

·           c) The value of the collateral assets pledge to the loan.

BBVA Group approximates these variables by using a proxy indicator from the set included in the macroeconomic scenarios provided by the economic research department.

Only a single specific indicator for each of the three categories can be used and only one of the following core macroeconomic indicators should be chosen as first choice: for a) using Realoption:

·The real GDP Growthgrowth for the purpose of conditional forecasting can be seen as the single sufficientonly “factor” required for capturing the influence of all potentially relevant macro-financial scenarioscenarios on internal PDs and LGD ; for b) using theLGD.

·The most representative short term interest rate (typically the policy rate or the most liquid sovereign yield or interbank rate or EMBI)rate) or exchange rates expressed in real termsterms.

·A comprehensive and for c) using a comprehensiverepresentative index of the price of real estate properties also expressed in real terms in the case of mortgage loans and a representative and real term index of the price of the relevant commodity (in real terms) for corporate loan portfolios concentrated in exporters or producer of such commodity.

F-87F-57  


Real GDP growth is given priority over any other indicator not only because it is the most comprehensive indicator of income and economic activity but also because it is the central variable in the generation of macroeconomic scenarios.

Multiple scenario approach under IFRS 9

IFRS 9 requires calculating an unbiased probability weighted measurement of expected credit losses (“ECL”) by evaluating a range of possible outcomes, including forecasts of future economic conditions.

The BBVA Research teams within the BBVA Group produce forecasts of the macroeconomic variables under the baseline scenario, which are used in the rest of the related processes of the bank,Group, such as budgeting, ICAAP and risk appetite framework, stress testing, etc.

Additionally, the BBVA Research teams produced alternative scenarios to the baseline scenario so as to meet the requirements under the IFRS 9 standard.

Alternative macroeconomic scenarios

·           For each of the macro-financial variables, BBVA Research produces three scenarios.

·           BBVA Research tracks, analyzes and forecasts the economic environment to provide a consistent forward looking assessment about the most likely scenario and risks that impact BBVA’s footprint. To build economic scenarios, BBVA Research combines official data, econometric techniques and expert knowledge.

·Each of these scenarios corresponds to the expected value of a different area of the probabilistic distribution of the possible projections of the economic variables.

·The non-linearity overlay is defined as the ratio between the probability-weighted ECL under the alternative scenarios and the baseline scenario, where the scenario’s probability depends on the distance of the alternative scenarios from the base one.

·BBVA Group establishes equally weighted scenarios, being the probability 34% for the baseline scenario, 33% for the worst alternative scenario and 33% for the best alternative scenario.

The approach in BBVA Group consists on using the scenario that is the most likely scenario, which is the baseline scenario, consistent with the rest of internal processes (ICAAP, Budgeting…) and then applying an overlay adjustment that is calculated by taking into account the weighted average of the ECL determined by each of the scenarios. This effect is calculated taking into account the weighted weight of the expected loss determined for each scenario.

It is important to note that inIn general, it is expected that the effect of the overlay is to increase the ECL. It is possible to obtain an overlay that does not have that effect, whenever the relationship between macro scenarios and losses is linear. However, the overlay is not expected to reduce the ECL.ECL On the other hand, the BBVA Group also takes into account the range of possible scenarios when defining its significant increase in credit risk. Thus, the PDs used in the quantitative process to identify the significant increase in credit risk will be those that result from making a weighted average of the PDs calculated under the three scenarios.

Macroeconomic scenarios as a result of the COVID-19 pandemic

The COVID-19 pandemic has generated a macroeconomic uncertainty situation with a direct impact on credit risk of the entities, particularly, on the expected credit losses under IFRS 9. Even though the situation is unclear and of an unforeseeable time length, the expectation is that this situation will provoke a severe recession followed by an economic recovery, which will not achieve the pre-crisis GDP levels in the short-term, supported by the measures issued by governments and monetary authorities.

This situation has allowed the accounting authorities and the banking supervisors to adopt measures in order to mitigate the impacts that this crisis could imply on the calculation of expected credit losses under IFRS 9 as well as on solvency, urging:

·the entities to evaluate all the available information, weighing more the long-term forecasts against the short-term economic situation

·the governments to adopt measures to avoid the effects of impairment,

·the entities to develop managerial measures as the design of specific products adapted to the situation which could occur during this crisis.

Almost all accounting and prudential authorities have issued recommendations or measures within the COVID-19 crisis framework regarding the estimation of the expected losses under IFRS 9 in a coordinated manner.

F-88F-58  


 

The common denominator of all of these recommendations is that, given the difficulty of establishing reliable macroeconomic forecasts, the transitory term of the economic shock and the need to incorporate the effect of the mitigating measures issued by the governments, a review of the automatic application of the models in order to increase the weight of the long-term macroeconomic forecasts in the calculation of the expected losses is needed. As a result thereof, the expected outcome over the lifetime of the transactions will have more weight than the short-term macroeconomic impact.

In this respect, the BBVA Group has taken into account those recommendations in the calculation of the expected credit losses under IFRS 9, considering that the economic situation caused by the COVID-19 pandemic is transitory and will be followed by a recovery, even if there is uncertainty over the level and the time period of such recovery. As a consequence, different scenarios have been taken into consideration in the calculation of expected losses, resulting in the model management believes suits best the current economic situation and the combined recommendations issued by the authorities. In addition to the outcome of the calculation of the scenarios, individual analysis of exposures which could be most affected by the circumstances caused by the COVID-19, have been taken into account.

The estimate for the next five years of the Gross Domestic Product (GDP), of the variation in the unemployment rate and of the House Price Index (HPI), for the most relevant countries where it represents a significant factor, is determined by BBVA Research and it has been used at the time of the calculation of the expected credit loss as of December 31, 2020:

Positive scenario of GDP, unemployment rate and HPI for the main geographies

 

Spain

Mexico

Turkey

Date

GDP

Unemployment

HPI

GDP

Unemployment

HPI

GDP

Unemployment

2020

(11.20%)

16.44%

(1.44%)

(8.85%)

4.57%

1.71%

2.07%

13.45%

2021

6.63%

16.03%

(3.28%)

4.58%

5.40%

(1.23%)

9.08%

12.60%

2022

6.27%

12.72%

4.56%

3.80%

5.17%

0.32%

5.30%

11.58%

2023

2.95%

10.82%

5.79%

1.62%

5.04%

0.31%

4.13%

11.58%

2024

2.07%

9.58%

3.66%

1.47%

4.91%

1.01%

4.11%

11.19%

2025

2.01%

8.55%

3.57%

1.47%

4.76%

1.72%

4.10%

10.85%

 

 

Peru

Argentina

Colombia

Date

GDP

Unemployment

GDP

Unemployment

GDP

Unemployment

2020

(11.74%)

12.75%

(10.64%)

13.60%

(6.80%)

18.14%

2021

12.56%

10.29%

9.95%

14.39%

6.80%

16.14%

2022

5.25%

10.00%

3.52%

11.88%

3.70%

14.53%

2023

3.68%

8.73%

2.08%

8.99%

3.15%

14.28%

2024

3.58%

7.23%

2.11%

7.69%

3.27%

12.49%

2025

3.35%

6.88%

2.14%

6.78%

3.60%

12.28%

Estimate of GDP, unemployment rate and HPI for the main geographies

 

Spain

Mexico

Turkey

Date

GDP

Unemployment

HPI

GDP

Unemployment

HPI

GDP

Unemployment

2020

(11.48%)

16.95%

(1.98%)

(9.25%)

4.62%

1.81%

(0.01%)

13.98%

2021

5.99%

17.51%

(5.08%)

3.71%

5.57%

(1.32%)

5.52%

14.05%

2022

6.04%

14.35%

3.48%

3.53%

5.35%

0.15%

4.53%

12.58%

2023

2.93%

12.41%

5.44%

1.55%

5.19%

0.31%

4.01%

11.95%

2024

2.07%

11.14%

3.20%

1.45%

5.03%

1.02%

3.99%

11.38%

2025

2.01%

9.99%

3.12%

1.46%

4.88%

1.71%

3.98%

11.03%

F-59


 

 

Peru

Argentina

Colombia

Date

GDP

Unemployment

GDP

Unemployment

GDP

Unemployment

2020

(13.04%)

12.80%

(13.00%)

13.98%

(7.51%)

18.23%

2021

10.05%

10.48%

5.54%

15.40%

5.48%

16.40%

2022

4.52%

10.23%

2.54%

12.80%

3.46%

14.83%

2023

3.69%

8.93%

1.98%

9.60%

3.15%

14.57%

2024

3.58%

7.41%

1.98%

8.18%

3.27%

12.78%

2025

3.35%

7.06%

2.01%

7.28%

3.60%

12.55%

Negative scenario of GDP, unemployment rate and HPI for the main geographies

 

Spain

Mexico

Turkey

Date

GDP

Unemployment

HPI

GDP

Unemployment

HPI

GDP

Unemployment

2020

(11.76%)

17.44%

(2.60%)

(9.64%)

4.67%

1.89%

(2.10%)

14.49%

2021

5.37%

18.94%

(6.69%)

2.84%

5.75%

(1.48%)

1.75%

15.51%

2022

5.82%

15.92%

2.49%

3.25%

5.53%

(0.06%)

3.56%

13.64%

2023

2.88%

13.99%

4.94%

1.48%

5.34%

0.17%

3.92%

12.33%

2024

2.03%

12.70%

2.45%

1.41%

5.17%

0.99%

3.91%

11.56%

2025

1.97%

11.45%

2.36%

1.41%

5.02%

1.70%

3.91%

11.20%

 

 

Peru

Argentina

Colombia

Date

GDP

Unemployment

GDP

Unemployment

GDP

Unemployment

2020

(14.33%)

12.85%

(15.28%)

14.34%

(8.25%)

18.31%

2021

7.53%

10.69%

0.89%

16.38%

4.16%

16.66%

2022

3.78%

10.48%

1.33%

13.69%

3.16%

15.10%

2023

3.69%

9.15%

1.86%

10.19%

3.15%

14.84%

2024

3.57%

7.62%

1.83%

8.63%

3.27%

13.04%

2025

3.35%

7.27%

1.86%

7.75%

3.60%

12.80%

F-60


The estimate for the next five years of the Gross Domestic Product (GDP), is determined by BBVA Research and it has been used at the time of the calculation of the expected credit loss as of December 31, 2019:

GDP for the main geographies

 

Spain

Mexico

Turkey

United States

Date

GDP negative scenario

GDP base scenario

GDP positive scenario

GDP negative scenario

GDP base scenario

GDP positive scenario

GDP negative scenario

GDP base scenario

GDP positive scenario

GDP negative scenario

GDP base scenario

GDP positive scenario

2019

0.96%

1.54%

2.15%

(0.58%)

0.23%

1.06%

(0.60%)

3.32%

7.06%

1.16%

2.12%

3.13%

2020

1.35%

1.87%

2.42%

0.93%

1.66%

2.39%

(0.68%)

2.48%

5.27%

1.00%

1.81%

2.62%

2021

2.01%

2.10%

2.19%

2.05%

2.14%

2.23%

4.60%

4.74%

4.91%

1.84%

1.92%

2.03%

2022

1.85%

1.89%

1.88%

2.07%

2.14%

2.19%

4.28%

4.38%

4.47%

1.83%

1.86%

1.91%

2023

1.81%

1.85%

1.85%

2.11%

2.15%

2.17%

4.31%

4.38%

4.50%

1.88%

1.91%

1.94%

GDP for the main geographies

 

Peru

Argentina

Colombia

Date

GDP negative scenario

GDP base scenario

GDP positive scenario

GDP negative scenario

GDP base scenario

GDP positive scenario

GDP negative scenario

GDP base scenario

GDP positive scenario

2019

0.34%

2.92%

5.43%

(7.41%)

(2.47%)

2.40%

1.93%

3.29%

4.58%

2020

0.32%

2.46%

4.56%

(6.62%)

(2.57%)

0.85%

1.71%

2.73%

3.74%

2021

3.07%

3.28%

3.49%

2.08%

2.30%

2.51%

3.61%

3.61%

3.61%

2022

3.39%

3.39%

3.39%

1.64%

1.78%

1.88%

3.59%

3.59%

3.59%

2023

3.86%

3.86%

3.86%

1.95%

2.10%

2.23%

3.59%

3.59%

3.59%

Sensitivity to macroeconomic scenarios

A sensitivity exercise has been carried out on the expected losses due to variations in the key hypotheses as they are the ones that introduce the greatest uncertainty in estimating such losses. As a first step, GDP and House Prices have been identified as the most relevant variables. These variables have been subjected to shocks of +/- 100 bps in their entire projection window. Independent sensitivities have been assessed, under the assumption of assigning a 100% probability to each determined scenario with these independent shocks. 

Variation in provisions is determined both by re-staging (that is: in worse scenarios due to the recognition of lifetime credit losses for additional operations that are transferred to stage 2 from stage1 where 12 months of losses are valued: or vice versa in improvement scenarios) as well as variations in the collective risk parameters (PD and LGD) of each financial instrument due to the changes defined in the macroeconomic forecasts of the scenario.

Expected loss variation

 

BBVA Group

 

Spain

 

Mexico

 

Turkey

GDP

Total Portfolio

Retail

Mortgages

Wholesaler

Fixed income

Total Portfolio

Mortgages

Companies

Total Portfolio

Mortgages

Cards

Total Portfolio

Mortgages

Cards

-100pb

3.55%

3.47%

3.72%

3.91%

1.58%

3.72%

4.39%

3.96%

3.91%

2.20%

6.30%

1.56%

1.58%

1.62%

+100pb

(3.25%)

(3.14%)

(3.03%)

(3.69%)

(1.97%)

(3.32%)

(3.57%)

(3.53%)

(3.64%)

(2.07%)

(5.78%)

(1.47%)

(1.55%)

(1.47%)

Housing price

 

 

 

 

 

 

 

 

 

 

 

 

 

 

-100pb

 

 

 

 

 

 

5.41%

0.79%

 

3.13%

 

 

 

 

+100pb

 

 

 

 

 

 

(5.35%)

(0.77%)

 

(4.47%)

 

 

 

 

Additional adjustments to expect loss measurement

In addition to what is described on individualized and collective estimates of expected losses and macroeconomic estimates, the Group may supplement the expected losses if it deems it necessary to collect the effects that may not be included, either by considering risk drivers or by the incorporation of sectorial particularities or that may affect a set of operations or borrowers. These adjustments should be temporary, until the reasons that motivated them disappear or materialize.

For this reason, the expected losses have been supplemented with additional amounts that have been considered necessary to collect the particular characteristics of borrowers, sectors or portfolios and that may not be identified in the general process. Of the supplementary amounts recognized throughout the year, at the end of the year 2020, 244 million euros are pending allocation to specific borrowers, of which 223 million euros are located in Spain (mainly 57 million euros based on the volume of arrears pending maturity and whose behavior pattern is still subject to uncertainty, 127 million euros in sectors most affected by the pandemic and 40 million euros as a complement to the individualized analyzes) and 21 million euros in the United States in relation to the uncertainty of the Oil & Gas sector.

F-61


7.3.27.2.2. Credit risk exposure

In accordance with IFRS 7 “Financial Instruments:instruments: Disclosures”, the BBVA Group’s maximum credit risk exposure (see definition below) by headings in the balance sheets as of December 31, 2020, 2019 and 2018 is provided below. It does not consider the loss allowances and the availability of collateral or other credit enhancements to guaranteeenable compliance with payment obligations. The details are broken down by financial instruments and counterparties.counterparties:

Maximum Credit Risk Exposure (Millions of euros)

Maximum credit risk exposure (Millions of Euros)

Maximum credit risk exposure (Millions of Euros)

Notes

2018

 

Notes

December                

 2020 

Stage 1

Stage 2

Stage 3

Financial assets held for trading

 

59,581

 

 

68,075

 

 

Debt securities

10

25,577

 

10

23,970

 

Equity instruments

10

5,254

 

10

11,458

 

Loans and advances

10

28,750

 

10

32,647

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

5,135

 

 

5,198

 

Loans and advances

11

1,803

 

11

709

 

Debt securities

11

237

 

11

356

 

Equity instruments

11

3,095

 

11

4,133

 

Financial assets designated at fair value through profit or loss

12

1,313

 

12

1,117

 

Derivatives (trading and hedging)

 

38,249

Stage 1

Stage 2

Stage 3

 

46,302

 

Financial assets at fair value through other comprehensive income

 

56,332

56,329

3

-

 

69,537

 

Debt securities

13.1

53,737

53,734

3

-

 

68,404

67,995

410

-

Equity instruments

13.1

2,595

-

13

1,100

 

Loans and advances to credit institutions

13

33

-

Financial assets at amortized cost

 

431,927

384,632

30,902

16,394

 

379,857

334,552

30,607

14,698

Loans and advances to central banks

 

3,947

-

 

6,229

-

Loans and advances to credit institutions

 

9,175

9,131

34

10

 

14,591

14,565

20

6

Loans and advances to customers

 

386,225

339,204

30,673

16,348

 

323,252

277,998

30,581

14,672

Debt securities

 

32,580

32,350

195

35

 

35,785

35,759

6

20

Total financial assets risk

 

592,538

440,960

30,905

16,394

 

570,084

-

Total loan commitments and financial guarantees

33

170,511

161,404

8,120

987

 

179,440

165,726

12,682

1,032

Loan commitments given

33

132,584

124,104

8,214

265

Financial guarantees given

33

10,665

9,208

1,168

290

Other commitments given

33

36,190

32,414

3,300

477

Total maximum credit exposure

 

763,049

 

 

749,524

 

F-62


Maximum credit risk exposure (Millions of Euros)

 

Notes

December 2019

Stage 1

Stage 2

Stage 3

Financial assets held for trading

 

69,503

 

 

 

Debt securities

10

26,309

 

 

 

Equity instruments

10

8,892

 

 

 

Loans and advances

10

34,303

 

 

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

5,557

 

 

 

Loans and advances

11

1,120

 

 

 

Debt securities

11

110

 

 

 

Equity instruments

11

4,327

 

 

 

Financial assets designated at fair value through profit or loss

12

1,214

 

 

 

Derivatives (trading and hedging)

 

39,462

 

 

 

Financial assets at fair value through other comprehensive income

 

61,293

 

 

 

Debt securities

 

58,841

58,590

250

-

Equity instruments

13

2,420

 

 

 

Loans and advances to credit institutions

13

33

33

-

-

Financial assets at amortized cost

 

451,640

402,024

33,624

15,993

Loans and advances to central banks

 

4,285

4,285

-

-

Loans and advances to credit institutions

 

13,664

13,500

158

6

Loans and advances to customers

 

394,763

345,449

33,360

15,954

Debt securities

 

38,930

38,790

106

33

Total financial assets risk

 

628,670

 

 

 

Total loan commitments and financial guarantees

 

181,116

169,663

10,452

1,001

Loan commitments given

33

130,923

123,707

6,945

270

Financial guarantees given

33

10,984

9,804

955

224

Other commitments given

33

39,209

36,151

2,552

506

Total maximum credit exposure

 

809,786

 

 

 

F-63


There was no similar breakdown before the implementation of IFRS 9 on January 1, 2018 (see Note 2.1).

Maximum credit risk exposure (Millions of Euros)

 

Notes

December 2018

Stage 1

Stage 2

Stage 3

Financial assets held for trading

 

59,581

 

 

 

Debt securities

10

25,577

 

 

 

Equity instruments

10

5,254

 

 

 

Loans and advances

10

28,750

 

 

 

Non-trading financial assets mandatorily at fair value through profit or loss

 

5,135

 

 

 

Loans and advances

11

1,803

 

 

 

Debt securities

11

237

 

 

 

Equity instruments

11

3,095

 

 

 

Financial assets designated at fair value through profit or loss

12

1,313

 

 

 

Derivatives (trading and hedging)

 

38,249

 

 

 

Financial assets at fair value through other comprehensive income

 

56,365

 

 

 

Debt securities

 

53,737

53,734

3

-

Equity instruments

13

2,595

 

 

 

Loans and advances to credit institutions

13

33

33

-

-

Financial assets at amortized cost

 

431,927

384,632

30,902

16,394

Loans and advances to central banks

 

3,947

3,947

-

-

Loans and advances to credit institutions

 

9,175

9,131

34

10

Loans and advances to customers

 

386,225

339,204

30,673

16,348

Debt securities

 

32,580

32,350

195

35

Total financial assets risk

 

592,571

 

 

 

Total loan commitments and financial guarantees

 

170,511

161,404

8,120

987

Loan commitments given

33

118,959

113,403

5,308

247

Financial guarantees given

33

16,454

14,902

1,220

332

Other commitments given

33

35,098

33,099

1,591

408

Total maximum credit exposure

 

763,082

 

 

 

 

F-89F-64  


 

The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:

·           In the case of financial assetsinstruments recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including impairment losses),loss allowances) with the soleonly exception of derivativestrading and hedging derivatives.

·           The maximum credit risk exposure on financial commitments and guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, and that is their amount.or the higher amount pending to be disposed from the customer in the case of commitments.

·           The calculation of risk exposure for derivatives is based on the sum of two factors: the derivatives fair value and their potential risk (or "add-on").

- The first factor, fair value, reflects the difference between original commitmentsbreakdown by geographical location and fair values on the reporting date (mark-to-market).

- The second factor, potential risk (‘add-on’), is an estimateStage of the maximum increase to be expected oncredit risk exposure, over a derivative fair value (at a given statistical confidence level)the accumulated allowances recorded and the carrying amount of the loans and advances to customers as a result of future changesDecember 31, 2020, 2019 and 2018 is shown below:

December 2020 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Carrying amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Spain (*)

195,983

171,397

16,387

8,199

(5,679)

(753)

(849)

(4,077)

190,304

170,644

15,538

4,122

Mexico

52,211

46,373

4,071

1,767

(2,211)

(685)

(442)

(1,083)

50,000

45,688

3,628

684

Turkey (**)

39,633

30,832

5,806

2,995

(2,338)

(246)

(535)

(1,557)

37,295

30,586

5,272

1,438

South America (***)

34,499

28,484

4,312

1,703

(1,870)

(320)

(460)

(1,090)

32,629

28,165

3,852

612

Others

925

912

5

8

(7)

(1)

-

(6)

918

911

4

2

Total (****)

323,252

277,998

30,581

14,672

(12,105)

(2,005)

(2,287)

(7,813)

311,147

275,993

28,294

6,860

Of which: individual

 

 

 

 

(2,611)

(10)

(479)

(2,122)

 

 

 

 

Of which: collective

 

 

 

 

(9,494)

(1,995)

(1,808)

(5,691)

 

 

 

 

(*)   Spain includes all countries where BBVA, S.A. operates.

(**)   Turkey includes all countries in which Garanti BBVA operates.

(***)  In South America, BBVA Group operates mainly in Argentina, Colombia, Peru and Uruguay.

(****) The amount of the fair valueaccumulated impairment includes the provisions recorded for credit risk over the remaining termexpected lifetime of purchased financial instruments. Those provisions were determined at the moment of the derivatives.

- The considerationPurchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2020, the potential risk ("add-on") relatesremaining balance was €363 million). These valuation adjustments are recognized in the risk exposure to the exposure level at the time of a customer’s default. The exposure level will depend on the customer’s credit quality and the type of transaction with such customer. Given the fact that default is an uncertain event which might occur any timeconsolidated income statement during the life of a contract, the BBVA Group has to consider not only the credit exposure of the derivatives on the reporting date, but also the potential changes in exposure during theresidual life of the contract. Thisoperations or are applied to the value corrections when the losses materialize.

December 2019 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Carrying amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Spain (*)

197,058

173,843

14,599

8,616

(5,311)

(712)

(661)

(3,939)

191,747

173,131

13,939

4,677

The United States

57,387

49,744

7,011

632

(688)

(165)

(342)

(182)

56,699

49,580

6,670

450

Mexico

60,099

54,748

3,873

1,478

(2,013)

(697)

(404)

(912)

58,087

54,052

3,469

566

Turkey (**)

43,113

34,536

5,127

3,451

(2,613)

(189)

(450)

(1,974)

40,500

34,347

4,677

1,477

South America (***)

36,265

31,754

2,742

1,769

(1,769)

(366)

(323)

(1,079)

34,497

31,388

2,419

690

Others

839

824

7

9

(8)

(1)

(1)

(6)

832

823

6

2

Total (****)

394,763

345,449

33,360

15,954

(12,402)

(2,129)

(2,181)

(8,093)

382,360

343,320

31,179

7,861

Of which: individual

 

 

 

 

(2,795)

(6)

(347)

(2,441)

 

 

 

 

Of which: collective

 

 

 

 

(9,608)

(2,123)

(1,834)

(5,652)

 

 

 

 

(*)    Spain includes all countries where BBVA, S.A. operates.

(**)   Turkey includes all countries in which Garanti BBVA operates.

(***)  In South America, BBVA Group operates mainly in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.

(****) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2019 the remaining balance was €433 million). These valuation adjustments are recognized in the consolidated income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.

F-65


December 2018 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Carrying amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Spain (*)

195,447

172,599

12,827

10,021

(5,874)

(713)

(877)

(4,284)

189,574

171,886

11,951

5,737

The United States

57,321

50,665

5,923

733

(658)

(206)

(299)

(153)

56,663

50,459

5,624

580

Mexico

52,858

48,354

3,366

1,138

(1,750)

(640)

(373)

(737)

51,107

47,714

2,992

401

Turkey (**)

43,718

34,883

6,113

2,722

(2,241)

(171)

(591)

(1,479)

41,479

34,712

5,523

1,244

South America (***)

36,098

31,947

2,436

1,715

(1,656)

(338)

(234)

(1,084)

34,442

31,609

2,202

631

Others

783

756

8

19

(19)

-

(1)

(18)

763

755

7

1

Total (****)

386,225

339,204

30,673

16,348

(12,199)

(2,070)

(2,374)

(7,755)

374,027

337,134

28,299

8,593

Of which: individual

 

 

 

 

(3,333)

(3)

(504)

(2,826)

 

 

 

 

Of which: collective

 

 

 

 

(8,866)

(2,067)

(1,870)

(4,929)

 

 

 

 

(*)    Spain includes all countries where BBVA, S.A. operates.

(**)   Turkey includes all countries in which Garanti BBVA operates.

(***)   In South America, BBVA Group operates mainly in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.

(****)  The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2018 the remaining balance was €540 million). These valuation adjustments are recognized in the consolidated income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.

The breakdown by counterparty of the maximum credit risk exposure, the accumulated allowances recorded, as well as the carrying amount by stages of loans and advances to customers as of December 31, 2020, 2019 and 2018 is especially important for derivatives, whose valuation changes substantially throughout their terms, depending on the fluctuation of market prices.shown below:

December 2020 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Net amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Public administrations

19,439

19,163

200

76

(48)

(14)

(9)

(25)

19,391

19,149

191

51

Other financial corporations

9,856

9,747

95

14

(39)

(25)

(6)

(7)

9,817

9,722

88

7

Non-financial corporations

142,547

119,891

15,179

7,477

(6,123)

(774)

(1,110)

(4,239)

136,424

119,117

14,069

3,238

Individuals

151,410

129,196

15,108

7,106

(5,895)

(1,192)

(1,161)

(3,542)

145,515

128,005

13,946

3,564

Loans and advances to customers

323,252

277,998

30,581

14,672

(12,105)

(2,005)

(2,287)

(7,813)

311,147

275,993

28,294

6,860

December 2019 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Net amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Public administrations

28,281

27,511

682

88

(59)

(15)

(22)

(21)

28,222

27,496

660

66

Other financial corporations

11,239

11,085

136

17

(31)

(19)

(2)

(10)

11,207

11,066

134

8

Non-financial corporations

173,254

148,768

16,018

8,468

(6,465)

(811)

(904)

(4,750)

166,789

147,957

15,114

3,718

Individuals

181,989

158,085

16,523

7,381

(5,847)

(1,283)

(1,252)

(3,312)

176,142

156,801

15,272

4,069

Loans and advances to customers

394,763

345,449

33,360

15,954

(12,402)

(2,129)

(2,181)

(8,093)

382,360

343,320

31,179

7,861

December 2018 (Millions of Euros)

 

Gross exposure

Accumulated allowances

Net amount

 

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Total

Stage 1

Stage 2

Stage 3

Public administrations

28,632

27,740

764

128

(84)

(21)

(25)

(38)

28,549

27,719

739

91

Other financial corporations

9,490

9,189

291

11

(22)

(13)

(4)

(4)

9,468

9,176

286

6

Non-financial corporations

169,764

145,875

15,516

8,372

(6,260)

(730)

(1,190)

(4,341)

163,503

145,145

14,327

4,031

Individuals

178,339

156,400

14,102

7,838

(5,833)

(1,305)

(1,155)

(3,372)

172,506

155,094

12,946

4,466

Loans and advances to customers

386,225

339,204

30,673

16,348

(12,199)

(2,070)

(2,374)

(7,755)

374,027

337,134

28,299

8,593

The breakdown by counterparty and product of loans and advances, net of impairment losses,loss allowances, as well as the gross carrying amount by type of product, classified in the different headings of the assets, as of December 31, 2018, 20172020, 2019 and 20162018 is shown belowbelow::

December 2020 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Gross carrying amount

On demand and short notice

-

7

-

502

1,798

528

2,835

3,021

Credit card debt

-

-

-

2

1,485

11,605

13,093

14,220

Commercial debtors

 

898

-

317

14,262

67

15,544

15,796

Finance leases

-

197

-

6

7,125

322

7,650

8,013

Reverse repurchase loans

472

-

1,914

-

71

-

2,457

2,463

Other term loans

5,690

18,111

3,972

5,799

111,141

132,603

277,317

287,467

Advances that are not loans

48

260

8,721

3,191

1,084

473

13,777

13,833

LOANS AND ADVANCES

6,209

19,475

14,608

9,817

136,966

145,598

332,672

344,813

By secured loans

 

 

 

 

 

 

 

 

Of which: mortgage loans collateralized by immovable property

 

372

-

209

22,091

94,147

116,819

120,194

Of which: other collateralized loans

472

952

-

317

3,763

2,059

7,562

7,776

By purpose of the loan

 

 

 

 

 

 

 

 

Of which: credit for consumption

 

 

 

 

 

39,799

39,799

43,037

Of which: lending for house purchase

 

 

 

 

 

94,098

94,098

95,751

By subordination

 

 

 

 

 

 

 

 

Of which: project finance loans

 

 

 

 

10,721

 

10,721

11,032

F-90F-66  


December 2018 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Provisions

Gross carrying amount

By product

 

 

 

 

 

 

 

 

 

On demand and short notice

-

10

-

151

2,833

648

3,641

(193)

3,834

Credit card debt

-

8

1

2

2,328

13,108

15,446

(1,048)

16,495

Trade receivables

 

948

-

195

16,190

103

17,436

(280)

17,716

Finance leases

-

226

-

3

8,014

406

8,650

(427)

9,077

Reverse repurchase loans

-

293

477

-

-

-

770

(1)

772

Other term loans

3,911

26,839

2,947

7,030

133,573

157,760

332,060

(10,204)

342,264

Advances that are not loans

29

1,592

5,771

2,088

984

498

10,962

(63)

11,025

Loans and advances

3,941

29,917

9,196

9,468

163,922

172,522

388,966

(12,217)

401,183

By secured loans

 

 

 

 

 

 

 

 

 

of which: mortgage loans collateralized by immovable property

 

1,056

15

219

26,784

111,809

139,883

(4,122)

144,005

of which: other collateralized loans

-

7,179

285

1,389

31,393

6,835

47,081

(774)

47,855

By purpose of the loan

 

 

 

 

 

 

 

 

 

of which: credit for consumption

 

 

 

 

 

40,124

40,124

(2,613)

42,736

of which: lending for house purchase

 

 

 

 

 

111,007

111,007

(1,945)

112,952

By subordination

 

 

 

 

 

 

 

 

 

of which: project finance loans

 

 

 

 

13,973

 

13,973

(312)

14,286

 

F-91

December 2019 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Gross carrying amount

On demand and short notice

-

9

-

118

2,328

595

3,050

3,251

Credit card debt

-

10

1

3

1,940

14,401

16,355

17,608

Commercial debtors

 

971

-

230

15,976

99

17,276

17,617

Finance leases

-

227

-

6

8,091

387

8,711

9,095

Reverse repurchase loans

-

-

1,817

-

26

-

1,843

1,848

Other term loans

4,240

26,734

4,121

7,795

137,934

160,223

341,047

351,230

Advances that are not loans

35

865

7,743

3,056

951

506

13,156

13,214

LOANS AND ADVANCES

4,275

28,816

13,682

11,208

167,246

176,211

401,438

413,863

By secured loans

 

 

 

 

 

 

 

 

Of which: mortgage loans collateralized by immovable property

 

1,067

15

261

23,575

111,085

136,003

139,317

Of which: other collateralized loans

-

10,447

93

2,106

29,009

6,893

48,548

49,266

By purpose of the loan

 

 

 

 

 

 

 

 

Of which: credit for consumption

 

 

 

 

 

46,356

46,356

49,474

Of which: lending for house purchase

 

 

 

 

 

110,178

110,178

111,636

By subordination

 

 

 

 

 

 

 

 

Of which: project finance loans

 

 

 

 

12,259

 

12,259

12,415


December 2017 (Millions of euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

On demand and short notice

-

222

-

270

7,663

2,405

10,560

Credit card debt

-

6

-

3

1,862

13,964

15,835

Trade receivables

 

1,624

-

497

20,385

198

22,705

Finance leases

-

205

-

36

8,040

361

8,642

Reverse repurchase loans

305

1,290

13,793

10,912

-

-

26,300

Other term loans

6,993

26,983

4,463

5,763

125,228

155,418

324,848

Advances that are not loans

2

1,964

8,005

1,044

1,459

522

12,995

Loans and advances

7,301

32,294

26,261

18,525

164,637

172,868

421,886

of which: mortgage loans (Loans collateralized by immovable property)

 

998

-

308

37,353

116,938

155,597

of which: other collateralized loans

 

7,167

13,501

12,907

24,100

9,092

66,767

of which: credit for consumption

 

 

 

 

 

40,705

40,705

of which: lending for house purchase

 

 

 

 

 

114,709

114,709

of which: project finance loans

 

 

 

 

16,412

 

16,412

 

F-92


December 2016 (Millions of euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

On demand and short notice

-

373

-

246

8,125

2,507

11,251

Credit card debt

-

1

-

1

1,875

14,719

16,596

Trade receivables

 

2,091

-

998

20,246

418

23,753

Finance leases

-

261

-

57

8,647

477

9,442

Reverse repurchase loans

81

544

15,597

6,746

-

-

22,968

Other term loans

8,814

29,140

7,694

6,878

136,105

167,892

356,524

Advances that are not loans

-

2,410

8,083

2,082

1,194

620

14,389

Loans and advances

8,894

34,820

31,373

17,009

176,192

186,633

454,921

of which: mortgage loans [Loans collateralized by immovable property]

 

4,722

112

690

44,406

132,398

182,328

of which: other collateralized loans

 

3,700

15,191

8,164

21,863

6,061

54,979

of which: credit for consumption

 

 

 

 

 

44,504

44,504

of which: lending for house purchase

 

 

 

 

 

127,606

127,606

of which: project finance loans

 

 

 

 

19,269

 

19,269

December 2018 (Millions of Euros)

 

Central banks

General governments

Credit institutions

Other financial corporations

Non-financial corporations

Households

Total

Gross carrying amount

On demand and short notice

-

10

-

151

2,833

648

3,641

3,834

Credit card debt

-

8

1

2

2,328

13,108

15,446

16,495

Commercial debtors

 

948

-

195

16,190

103

17,436

17,716

Finance leases

-

226

-

3

8,014

406

8,650

9,077

Reverse repurchase loans

-

293

477

-

-

-

770

772

Other term loans

3,911

26,839

2,947

7,030

133,573

157,760

332,060

342,264

Advances that are not loans

29

1,592

5,771

2,088

984

498

10,962

11,025

LOANS AND ADVANCES

3,941

29,917

9,196

9,468

163,922

172,522

388,966

401,183

By secured loans

 

 

 

 

 

 

 

 

Of which: mortgage loans collateralized by immovable property

 

1,056

15

219

26,784

111,809

139,883

144,005

Of which: other collateralized loans

-

7,179

285

1,389

31,393

6,835

47,081

47,855

By purpose of the loan

 

 

 

 

 

 

 

 

Of which: credit for consumption

 

 

 

 

 

40,124

40,124

42,736

Of which: lending for house purchase

 

 

 

 

 

111,007

111,007

112,952

By subordination

 

 

 

 

 

 

 

 

Of which: project finance loans

 

 

 

 

13,973

 

13,973

14,286

F-93


7.3.37.2.3. Mitigation of credit risk, collateralized credit risk and other credit enhancements

In most cases, maximum credit risk exposure is reduced by collateral, credit enhancements and other actions which mitigate the Group’s exposure. The BBVA Group applies a credit risk hedging and mitigation policy deriving from a banking approach focused on relationship banking. The existence of guarantees could be a necessary but not sufficient instrument for accepting risks, as the assumption of risks by the Group requires prior evaluation of the debtor’s capacity for repayment, or that the debtor can generate sufficient resources to allow the amortization of the risk incurred under the agreed terms.

The policy of accepting risks is therefore organized into three different levels in the BBVA Group:

·           Analysis of the financial risk of the transaction, based on the debtor’s capacity for repayment or generation of funds.

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·           The constitution of guarantees that are adequate, or at any rate generally accepted, for the risk assumed, in any of the generally accepted forms: monetary, secured, personal or hedge guarantees; and finally

·           Assessment of the repayment risk (asset liquidity) of the guarantees received.

This is carried out through a prudent risk policy that consists of the analysis of the financial risk, based on the capacity for reimbursement or generation of resources of the borrower, the analysis of the guarantee, assessing, among others, the efficiency, the robustness and the risk, the adequacy of the guarantee with the operation and other aspects such as the location, currency, concentration or the existence of limitations. Additionally, the necessary tasks for the constitution of guarantees must be carried out - in any of the generally accepted forms (collaterals, personal guarantees and financial hedge instruments) - appropriate to the risk assumed.

The procedures for the management and valuation of collateral are set out in the Corporate Policiescorporate general policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers. The criteria for the systematic, standardized and effective treatment of collateral in credit transaction procedures in BBVA Group’s wholesale and retail banking are included in the Specific Collateral Rules.

The methods used to value the collateral are in line with the best market practices and imply the use of appraisal of real-estate collateral, the market price in market securities, the trading price of shares in mutual funds, etc. All the collaterals received must be correctly assigned and entered in the corresponding register. They must also have the approval of the Group’s legal units.

The valuation of the collateral is taken into account in the calculation of the expected losses. The Group has developed internal models to estimate the realization value of the collaterals received, the time that elapses until then, the costs for their acquisition, maintenance and subsequent sale, from real observations based on its own experience. This modeling is part of the LGD estimation processes that are applied to the different segments, and is included within the annual review and validation procedures.

The following is a description of the main types of collateral for each financial instrument class:

·           FinancialDebt instruments held for trading: The guarantees or credit enhancements obtained directly from the issuer or counterparty are implicit in the clauses of the instrument.instrument (mainly guarantees of the issuer).

·           Derivatives and hedging derivatives: In derivatives, credit risk is minimized through contractual netting agreements, where positive- and negative-value derivatives with the same counterparty are offset for their net balance. There may likewise be other kinds of guarantees and collaterals, depending on counterparty solvency and the nature of the transaction.transaction (mainly collaterals).

·The summary of the compensationoffsetting effect (via netting and collateral) for derivatives and securities operations as of December 31, 2020 is presented in Note 7.4.3.7.3.2.

·           Other financial assets designated at fair value through profit or loss and financial assets at fair value through other comprehensive income: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.instrument (mainly personal guarantees).

·AtAs of December 31, 2020, 2019 and 2018, BBVA Group had no credit risk exposure of impaired financial assets at fair value through other comprehensive income at December 31, 2018 (see Note 7.3.2)7.2.2).

F-94


·           Financial assets at amortized cost:

- ·Loans and advances to credit institutions: These usually only have the counterparty’s personal guarantee.guarantee or pledged securities in the case of repos.

- ·Loans and advances to customers: Most of these loans and advances are backed by personal guarantees extended by the customer. There may also be collateral to secure loans and advances to customers (such as mortgages, cash collaterals, pledged securities and other collateral), or to obtain other credit enhancements (bonds hedging, etc.)or insurances).

- ·Debt securities: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

The disclosure of impaired financial assets at amortized cost covered by collateral (see Note 7.3.2), by type of collateral, at December 31, 2018, is the following:

December 2018 (Millions of Euros)

 

Maximum exposure to credit risk

Of which secured by collateral

 

Residential properties

Commercial properties

Cash

Others

Financial

Impaired financial assets at amortized cost

16,394

3,484

1,255

13

317

502

Total

16,394

3,484

1,255

13

317

502

·           Financial guarantees, other contingent risks and drawable by third parties:These these have the counterparty’s personal guarantee.guarantee or other types of collaterals.

The disclosure of impaired loans and advances at amortized cost covered by collateral (see Note 7.2.6), by type of collateral, as of December 31, 2020, 2019 and 2018, is the following:

December 2020 (Millions of Euros)

 

Maximum exposure to credit risk

Of which secured by collateral

 

Residential properties

Commercial properties

Cash

Others

Financial

Impaired loans and advances at amortized cost

14,678

2,717

789

18

52

575

Total

14,678

2,717

789

18

52

575

December 2019 (Millions of Euros)

 

Maximum exposure to credit risk

Of which secured by collateral

 

Residential properties

Commercial properties

Cash

Others

Financial

Impaired loans and advances at amortized cost

15,959

3,396

939

35

221

542

Total

15,959

3,396

939

35

221

542

F-68


December 2018 (Millions of Euros)

 

Maximum exposure to credit risk

Of which secured by collateral

 

Residential properties

Commercial properties

Cash

Others

Financial

Impaired loans and advances at amortized cost

16,359

3,484

1,255

13

317

502

Total

16,359

3,484

1,255

13

317

502

The value of guarantees received as of December 31, 2020, 2019 and 2018, is the following:

Guarantees received (Millions of Euros)

 

2020

2019

2018

Value of collateral

116,900

152,454

158,268

Of which: guarantees normal risks under special monitoring

11,296

14,623

14,087

Of which: guarantees non-performing risks

3,577

4,590

5,068

Value of other guarantees

47,012

35,464

16,897

Of which: guarantees normal risks under special monitoring

4,045

3,306

1,519

Of which: guarantees non-performing risks

575

542

502

Total value of guarantees received

163,912

187,918

175,165

The maximum credit risk exposure of impaired financial guarantees and other commitments at December 31, 2020, 2019 and 2018 amounts to €1,032, €1,001 and €987 million, respectively (see Note 7.3.2)7.2.2).

7.3.47.2.4. Credit quality of financial assets that are neither past due nor impaired

The BBVA Group has tools (“scoring” and “rating”) that enable it to rank the credit quality of its transactions and customers based on an assessment and its correspondence with the probability of default (“PD”) scales. To analyze the performance of PD, the Group has a series of tracking tools and historical databases that collect the pertinent internally generated information. These tools can be grouped together into scoring and rating models.

Scoring

Scoring is a decision-making model that contributes to both the arrangement and management of retail loans: consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to originate a loan, what amount should be originated and what strategies can help establish the price, because it is an algorithm that sorts transactions by their credit quality. This algorithm enables the BBVA Group to assign a score to each transaction requested by a customer, on the basis of a series of objective characteristics that have statistically been shown to discriminate between the quality and risk of this type of transactions. The advantage of scoring lies in its simplicity and homogeneity: all that is needed is a series of objective data for each customer, and this data is analyzed automatically using an algorithm.

F-95


There are three types of scoring, based on the information used and on its purpose:

·           Reactive scoring: measures the risk of a transaction requested by an individual using variables relating to the requested transaction and to the customer’s socio-economic data available at the time of the request. The new transaction is approved or rejected depending on the score.

·           Behavioral scoring: scores transactions for a given product in an outstanding risk portfolio of the entity, enabling the credit rating to be tracked and the customer’s needs to be anticipated. It uses transaction and customer variables available internally. Specifically, variables that refer to the behavior of both the product and the customer.

·           Proactive scoring: gives a score at customer level using variables related to the individual’s general behavior with the entity, and to his/her payment behavior in all the contracted products. The purpose is to track the customer’s credit quality and it is used to pre-approvedpre-approve new transactions.

Rating

Rating tools, as opposed to scoring tools, do not assess transactions but focus on the rating of customers instead: companies, corporations, SMEs, general governments, etc. A rating tool is an instrument that, based on a detailed financial study, helps determine a customer’s ability to meet his/her financial obligations. The final rating is usually a combination of various factors: on one hand, quantitative factors, and on the other hand, qualitative factors. It is a middle road between an individual analysis and a statistical analysis.

F-69


The main difference between ratings and scorings is that the latter are used to assess retail products, while ratings use a wholesale banking customer approach. Moreover, scorings only include objective variables, while ratings add qualitative information. And although both are based on statistical studies, adding a business view, rating tools give more weight to the business criterion compared to scoring tools.

For portfolios where the number of defaults is low (sovereign risk, corporates, financial entities, etc.) the internal information is supplemented by “benchmarking” of the external rating agencies (Moody’s, Standard & Poor’s and Fitch). To this end, each year the PDs compiled by the rating agencies at each level of risk rating are compared, and the measurements compiled by the various agencies are mapped against those of the BBVA master rating scale.

Once the probability of default of a transaction or customer has been calculated, a "business cycle adjustment" is carried out. This is a means of establishing a measure of risk that goes beyond the time of its calculation. The aim is to capture representative information of the behavior of portfolios over a complete economic cycle. This probability is linked to the Master Rating Scale prepared by the BBVA Group to enable uniform classification of the Group’s various asset risk portfolios.

The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of December 31, 2018:2020:

External rating 

Internal rating 

Probability of default

(basis points)

Standard&Poor's List

Reduced List (22 groups)

Average

Minimum from >=

Maximum

AAA

AAA

1

-

2

AA+

AA+

2

2

3

AA

AA

3

3

4

AA-

AA-

4

4

5

A+

A+

5

5

6

A

A

8

6

9

A-

A-

10

9

11

BBB+

BBB+

14

11

17

BBB

BBB

20

17

24

BBB-

BBB-

31

24

39

BB+

BB+

51

39

67

BB

BB

88

67

116

BB-

BB-

150

116

194

B+

B+

255

194

335

B

B

441

335

581

B-

B-

785

581

1,061

CCC+

CCC+

1,191

1,061

1,336

CCC

CCC

1,500

1,336

1,684

CCC-

CCC-

1,890

1,684

2,121

CC+

CC+

2,381

2,121

2,673

CC

CC

3,000

2,673

3,367

CC-

CC-

3,780

3,367

4,243

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These different levels and their probability of default were calculated by using as a reference the rating scales and default rates provided by the external agencies Standard & Poor’s and Moody’s. These calculations establish the levels of probability of default for the BBVA Group’s Master Rating Scale. Although this scale is common to the entire Group, the calibrations (mapping scores to PD sections/Master Rating Scale levels) are carried out at tool level for each country in which the Group has tools available.

The table below outlines the distribution by probability of default within 12 months and stages of the gross carrying amount of loans and advances to customers in percentage terms of the BBVA Group as of December 31, 2020, 2019 and 2018 is shown below:

Probability of default (basis points)

Probability of default (basis points)

December 2018

2020

2019

2018

Subject to 12 month ECL (Stage 1)

Subject to lifetime ECL (Stage 2)

Subject to 12 month ECL (Stage 1)

Subject to lifetime ECL (Stage 2)

Subject to 12 month ECL (Stage 1)

Subject to lifetime ECL (Stage 2)

Subject to 12 month ECL (Stage 1)

Subject to lifetime ECL (Stage 2)

Probability of default

(basis points)

%

%

%

0 to 2

9.6

0.0

4.0

-

5.5

-

9.6

-

2 to 5

10.8

0.1

10.2

0.1

6.3

-

10.8

0.1

5 to 11

6.3

0.0

7.7

0.1

14.6

0.2

6.3

-

11 to 39

20.9

0.4

26.8

0.5

24.5

0.8

20.9

0.4

39 to 194

30.1

1.8

24.0

2.3

24.5

1.6

30.1

1.8

194 to 1,061

12.2

3.6

15.1

3.4

14.0

3.6

12.2

3.6

1,061 to 2,121

1.6

1.2

1.5

1.2

1.4

1.2

1.6

1.2

> 2,021

0.2

1.2

> 2,121

0.6

2.5

0.4

1.5

0.2

1.2

Total

91.7

8.3

89.9

10.1

91.0

9.0

91.7

8.3

There was no similar breakdown before the implementation of IFRS 9 on January 1, 2018 (see Note 2.1).

7.3.5   Past due but not impaired and impaired secured loans risks

The tables below provides details by counterpart and by product of past due risks but not considered to be impaired, as of December 31, 2018, 2017 and 2016, listed by their first past-due date; as well as the breakdown of the debt securities and loans and advances individually and collectively estimated (see Note 2.2.1):

F-97F-70  


December 2018 (Millions of euros)

 

Assets without significant increase in credit risk since initial recognition (Stage 1)

Assets with significant increase in credit risk since initial recognition but not credit-impaired (Stage 2)

Credit-impaired assets (Stage 3)

 

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

<= 30 days

> 30 days <= 90 days

> 90 days

Debt securities

-

-

-

-

-

-

-

-

5

Loans and advances

4,191

454

-

4,261

3,228

-

407

900

2,769

Central banks

-

-

-

-

-

-

-

-

-

General governments

95

7

-

5

1

-

5

5

26

Credit institutions

3

-

-

-

-

-

-

-

-

Other financial corporations

117

224

-

2

-

-

-

-

5

Non-financial corporations

1,140

158

-

1,282

1,180

-

149

276

1,333

Households

2,835

64

-

2,971

2,047

-

254

618

1,404

TOTAL

4,191

454

-

4,261

3,228

-

407

900

2,774

Loans and advances by product, by collateral and by subordination

 

 

 

 

 

 

 

 

 

On demand (call) and short notice (current account)

127

-

-

25

47

-

3

4

52

Credit card debt

182

10

-

598

102

-

24

25

120

Trade receivables

46

12

-

20

106

-

2

11

50

Finance leases

307

16

-

43

102

-

10

20

110

Reverse repurchase loans

-

-

-

-

-

-

-

-

-

Other term loans

3,421

325

-

3,575

2,869

-

369

840

2,433

Advances that are not loans

108

89

-

-

1

-

-

-

4

of which: mortgage loans collateralized by immovable property

1,681

38

-

1,598

1,745

-

251

712

1,365

of which: other collateralized loans

255

14

-

742

99

-

22

21

103

of which: credit for consumption

910

27

-

1,278

424

-

49

49

281

of which: lending for house purchase

1,365

24

-

1,394

1,404

-

170

507

839

of which: project finance loans

1

-

-

-

382

-

-

-

71

F-987.2.5. Impaired secured loan risks


December 2017 (Millions of euros) (*)

 

Past due but not impaired

Impaired assets

Carrying amount of the impaired assets

Specific allowances for financial assets, individually and collectively estimated

Collective allowances for incurred but not reported losses

Accumulated write-offs

 

≤ 30 days

> 30 days ≤ 60 days

> 60 days ≤ 90 days

Debt securities

-

-

-

66

38

(28)

(21)

-

Loans and advances

3,432

759

503

19,401

10,726

(8,675)

(4,109)

(29,938)

Central banks

-

-

-

-

-

-

-

-

General governments

75

3

13

171

129

(42)

(69)

(27)

Credit institutions

-

-

-

11

5

(6)

(30)

(5)

Other financial corporations

2

-

-

12

6

(7)

(19)

(5)

Non-financial corporations

843

153

170

10,791

5,192

(5,599)

(1,939)

(18,988)

Households

2,512

603

319

8,417

5,395

(3,022)

(2,052)

(10,913)

TOTAL

3,432

759

503

19,467

10,764

(8,703)

(4,130)

(29,938)

Loans and advances by product, by collateral and by subordination

 

 

 

 

 

 

 

 

On demand (call) and short notice (current account)

77

12

11

389

151

(238)

 

 

Credit card debt

397

66

118

629

190

(439)

 

 

Trade receivables

115

8

9

515

179

(336)

 

 

Finance leases

138

66

47

431

155

(276)

 

 

Reverse repurchase loans

-

-

-

-

-

-

 

 

Other term loans

2,705

606

317

17,417

10,047

(7,370)

 

 

Advances that are not loans

1

-

1

20

3

(16)

 

 

of which: mortgage loans (Loans collateralized by immovable property)

1,345

360

164

11,388

7,630

(3,757)

 

 

of which: other collateralized loans

592

137

43

803

493

(310)

 

 

of which: credit for consumption

1,260

248

207

1,551

457

(1,093)

 

 

of which: lending for house purchase

1,034

307

107

5,730

4,444

(1,286)

 

 

of which: project finance loans

13

-

25

1,165

895

(271)

 

 

(*)  Figures originally reported in the year 2017 in accordance to the applicable regulation, without restatements.T

F-99


December 2016 (Millions of euros) (*)

 

Past due but not impaired

Impaired assets

Carrying amount of the impaired assets

Specific allowances for financial assets, individually and collectively estimated

Collective allowances for incurred but not reported losses

Accumulated write-offs

 

<= 30 days

> 30 days <= 60 days

> 60 days <= 90 days

Debt securities

-

-

-

272

128

(144)

(46)

(1)

Loans and advances

3,384

696

735

22,925

12,133

(10,793)

(5,224)

(29,346)

Central banks

-

-

-

-

-

-

-

-

General governments

66

-

2

295

256

(39)

(13)

(13)

Credit institutions

3

-

82

10

3

(7)

(36)

(5)

Other financial corporations

4

7

21

34

8

(25)

(57)

(6)

Non-financial corporations

968

209

204

13,786

6,383

(7,402)

(2,789)

(18,020)

Households

2,343

479

426

8,801

5,483

(3,319)

(2,329)

(11,303)

TOTAL

3,384

696

735

23,197

12,261

(10,937)

(5,270)

(29,347)

Loans and advances by product, by collateral and by subordination

 

 

 

 

 

 

 

 

On demand (call) and short notice (current account)

79

15

29

562

249

(313)

 

 

Credit card debt

377

88

124

643

114

(529)

 

 

Trade receivables

51

15

13

424

87

(337)

 

 

Finance leases

188

107

59

516

252

(264)

 

 

Reverse repurchase loans

-

-

82

1

-

(1)

 

 

Other term loans

2,685

469

407

20,765

11,429

(9,336)

 

 

Advances that are not loans

5

-

21

14

2

(12)

 

 

of which: mortgage loans (Loans collateralized by immovable property)

1,202

265

254

16,526

9,008

(5,850)

 

 

of which: other collateralized loans

593

124

47

1,129

656

(275)

 

 

of which: credit for consumption

1,186

227

269

1,622

455

(1,168)

 

 

of which: lending for house purchase

883

194

105

6,094

4,546

(1,548)

 

 

of which: project finance loans

138

-

-

253

105

(147)

 

 

(*)  Figures originally reported in the year 2016 in accordance to the applicable regulation, without restatements.

F-100


Thehe breakdown of loans and advances, within financial assets at amortized cost, impairednon-performing and accumulated impairment, as well as the gross carrying amount, by sectorscounterparties as of December 31, 2018, 20172020, 2019 and 20162018 is as follows:

December 2018 (Millions of euros)

 

December 2020 (Millions of Euros)

December 2020 (Millions of Euros)

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Gross carrying amount

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Central banks

6,229

-

(20)

-

General governments

128

(84)

0.4%

19,439

76

(48)

0.4%

Credit institutions

10

(12)

0.1%

14,591

6

(16)

-

Other financial corporations

11

(22)

0.1%

9,856

14

(39)

0.1%

Non-financial corporations

8,372

(6,260)

4.9%

142,547

7,477

(6,123)

5.2%

Agriculture, forestry and fishing

122

(107)

3.3%

3,438

132

(108)

3.8%

Mining and quarrying

96

(70)

1.9%

4,349

47

(59)

1.1%

Manufacturing

1,695

(1,134)

4.6%

33,771

1,486

(1,129)

4.4%

Electricity, gas, steam and air conditioning supply

585

(446)

4.2%

13,490

591

(509)

4.4%

Water supply

19

(15)

1.8%

899

17

(15)

1.9%

Construction

1,488

(1,007)

12.5%

10,019

1,397

(722)

13.9%

Wholesale and retail trade

1,624

(1,259)

6.3%

24,594

1,456

(1,223)

5.9%

Transport and storage

459

(374)

4.7%

8,117

489

(368)

6.0%

Accommodation and food service activities

315

(204)

4.0%

8,337

358

(294)

4.3%

Information and communication

113

(72)

2.1%

Information and communications

5,764

73

(60)

1.3%

Financial and insurance activities

147

(128)

2.1%

5,298

123

(132)

2.3%

Real estate activities

834

(624)

4.8%

10,025

617

(494)

6.2%

Professional, scientific and technical activities

204

(171)

4.0%

2,886

177

(124)

6.1%

Administrative and support service activities

128

(125)

4.0%

3,955

142

(192)

3.6%

Public administration and defense, compulsory social security

5

(7)

1.6%

Public administration and defense; compulsory social security

129

5

(4)

3.5%

Education

31

(31)

3.4%

665

54

(43)

8.1%

Human health services and social work activities

63

(63)

1.4%

1,812

67

(59)

3.7%

Arts, entertainment and recreation

59

(41)

4.5%

1,131

46

(65)

4.1%

Other services

386

(382)

3.9%

3,871

198

(523)

5.1%

Households

7,838

(5,833)

4.4%

151,410

7,106

(5,895)

4.7%

LOANS AND ADVANCES

16,359

(12,211)

4.1%

344,072

14,678

(12,141)

4.3%

 

December 2019 (Millions of Euros)

 

Gross carrying amount

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Central banks

4,285

-

(9)

-

General governments

28,281

88

(60)

0.3%

Credit institutions

13,664

6

(15)

-

Other financial corporations

11,239

17

(31)

0.2%

Non-financial corporations

173,254

8,467

(6,465)

4.9%

Agriculture, forestry and fishing

3,758

154

(124)

4.1%

Mining and quarrying

4,669

100

(86)

2.1%

Manufacturing

39,517

1,711

(1,242)

4.3%

Electricity, gas, steam and air conditioning supply

12,305

684

(575)

5.6%

Water supply

900

14

(16)

1.6%

Construction

10,945

1,377

(876)

12.6%

Wholesale and retail trade

27,467

1,799

(1,448)

6.6%

Transport and storage

9,638

507

(392)

5.3%

Accommodation and food service activities

8,703

279

(203)

3.2%

Information and communications

6,316

95

(65)

1.5%

Financial and insurance activities

6,864

191

(140)

2.8%

Real estate activities

19,435

782

(527)

4.0%

Professional, scientific and technical activities

4,375

167

(140)

3.8%

Administrative and support service activities

3,415

118

(134)

3.4%

Public administration and defense, compulsory social security

282

5

(6)

1.7%

Education

903

41

(38)

4.5%

Human health services and social work activities

4,696

66

(55)

1.4%

Arts, entertainment and recreation

1,396

47

(39)

3.4%

Other services

7,671

331

(360)

4.3%

Households

181,989

7,381

(5,847)

4.1%

LOANS AND ADVANCES

412,711

15,959

(12,427)

3.9%

F-101F-71  


 

December 2017 (Millions of euros)

December 2018 (Millions of Euros)

December 2018 (Millions of Euros)

Non-performing loans and advances

Accumulated impairment or Accumulated changes in fair value due to credit risk

Non-performing loans and advances as a % of the total

Gross carrying amount

Non-performing loans and advances

Accumulated impairment

Non-performing loans and advances as a % of the total

Central banks

3,947

-

(6)

-

General governments

171

(111)

0.5%

28,198

128

(84)

0.4%

Credit institutions

11

(36)

0.3%

9,175

10

(12)

0.1%

Other financial corporations

12

(26)

0.1%

9,490

11

(22)

0.1%

Non-financial corporations

10,791

(7,538)

6.3%

170,182

8,372

(6,260)

4.9%

Agriculture, forestry and fishing

166

(123)

4.3%

3,685

122

(107)

3.3%

Mining and quarrying

177

(123)

3.7%

4,952

96

(70)

1.9%

Manufacturing

1,239

(955)

3.6%

36,772

1,695

(1,134)

4.6%

Electricity, gas, steam and air conditioning supply

213

(289)

1.8%

13,853

585

(446)

4.2%

Water supply

29

(11)

4.5%

1,061

19

(15)

1.8%

Construction

2,993

(1,708)

20.1%

11,899

1,488

(1,007)

12.5%

Wholesale and retail trade

1,706

(1,230)

5.9%

25,833

1,624

(1,259)

6.3%

Transport and storage

441

(353)

4.2%

9,798

459

(374)

4.7%

Accommodation and food service activities

362

(222)

4.3%

7,882

315

(204)

4.0%

Information and communication

984

(256)

17.0%

Information and communications

5,238

113

(72)

2.1%

Financial and insurance activities

6,929

147

(128)

2.1%

Real estate activities

1,171

(1,100)

7.9%

17,272

834

(624)

4.8%

Professional, scientific and technical activities

252

(183)

3.8%

5,096

204

(171)

4.0%

Administrative and support service activities

188

(130)

6.3%

3,162

128

(125)

4.0%

Public administration and defense, compulsory social security

4

(6)

1.9%

319

5

(7)

1.6%

Education

31

(25)

3.4%

912

31

(31)

3.4%

Human health services and social work activities

75

(68)

1.7%

4,406

63

(63)

1.4%

Arts, entertainment and recreation

69

(38)

4.6%

1,323

59

(41)

4.5%

Other services

690

(716)

4.3%

9,791

386

(382)

3.9%

Households

8,417

(5,073)

4.7%

178,355

7,838

(5,833)

4.4%

LOANS AND ADVANCES

19,401

(12,784)

4.5%

399,347

16,359

(12,217)

4.1%

 

 

F-102


December 2016 (Millions of euros)

 

Non-performing

Accumulated impairment or Accumulated changes in fair value due to credit risk

Non-performing loans and advances as a % of the total

General governments

295

(52)

0.8%

Credit institutions

10

(42)

0.0%

Other financial corporations

34

(82)

0.2%

Non-financial corporations

13,786

(10,192)

7.4%

Agriculture, forestry and fishing

221

(188)

5.1%

Mining and quarrying

126

(83)

3.3%

Manufacturing

1,569

(1,201)

4.5%

Electricity, gas, steam and air conditioning supply

569

(402)

3.2%

Water supply

29

(10)

3.5%

Construction

5,358

(3,162)

26.3%

Wholesale and retail trade

1,857

(1,418)

6.2%

Transport and storage

442

(501)

4.5%

Accommodation and food service activities

499

(273)

5.9%

Information and communication

112

(110)

2.2%

Real estate activities

1,441

(1,074)

8.7%

Professional, scientific and technical activities

442

(380)

6.0%

Administrative and support service activities

182

(107)

7.3%

Public administration and defense, compulsory social security

18

(25)

3.0%

Education

58

(31)

5.4%

Human health services and social work activities

89

(88)

1.8%

Arts, entertainment and recreation

84

(51)

5.1%

Other services

691

(1,088)

4.2%

Households

8,801

(5,648)

4.6%

LOANS AND ADVANCES

22,925

(16,016)

5.0%

F-103F-72  


 

The changes during the years 2018, 20172020, 2019 and 20162018 of impaired financial assets and contingent risks are as follow:

Changes in Impaired Financial Assets and Contingent Risks (Millions of euros)

Changes in impaired financial assets and contingent risks (Millions of Euros)

Changes in impaired financial assets and contingent risks (Millions of Euros)

2018

2017

2016

2020

2019

2018

Balance at the beginning

20,590

23,877

26,103

16,770

17,134

20,590

Additions

9,792

10,856

11,133

9,533

9,857

9,792

Decreases (*)

(6,909)

(7,771)

(7,633)

(5,024)

(5,874)

(6,909)

Net additions

2,883

3,085

3,500

4,509

3,983

2,883

Amounts written-off

(5,076)

(5,758)

(5,592)

(3,603)

(3,803)

(5,076)

Exchange differences and other

(1,264)

(615)

(134)

(968)

(544)

(1,264)

Balance at the end

17,134

20,590

23,877

16,708

16,770

17,134

(*)  Reflects the total amount of impaired loans derecognized from the consolidated balance sheet throughout the year as a result of mortgage foreclosures and real estate assets received in lieu of payment as well as monetary recoveries (see Notes 19 and 20 to the Consolidated Financial Statement for additional information).recoveries.

The changes during the years 2020, 2019 and 2018 2017 and 2016 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely (hereinafter "write-offs"("write-offs"), is shown below:

Changes in Impaired Financial Assets Written-Off from the Balance Sheet (Millions of Euros)

Changes in impaired financial assets written-off from the balance sheet (Millions of Euros)

Changes in impaired financial assets written-off from the balance sheet (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Balance at the beginning

 

30,139

29,347

26,143

 

26,245

32,343

30,139

Acquisition of subsidiaries in the year

 

-

Increase:

 

6,164

5,986

5,699

Companies held for sale (*)

 

(4,646)

-

Increase

 

3,440

4,712

6,164

Decrease:

 

(4,210)

(4,442)

(2,384)

 

(2,715)

(11,039)

(4,210)

Re-financing or restructuring

 

(10)

(9)

(32)

 

(7)

(2)

(10)

Cash recovery

47

(589)

(558)

(541)

47

(339)

(919)

(589)

Foreclosed assets

 

(625)

(149)

(210)

 

(479)

(617)

(625)

Sales of written-off

 

(1,805)

(2,284)

(45)

Sales (**)

 

(1,223)

(8,325)

(1,805)

Debt forgiveness

 

(889)

(1,121)

(864)

 

(607)

(493)

(889)

Time-barred debt and other causes

 

(292)

(321)

(692)

 

(60)

(682)

(292)

Net exchange differences

 

250

(752)

(111)

 

(323)

230

250

Balance at the end

 

32,343

30,139

29,347

 

22,001

26,245

32,343

(*)  Amount in 2020 is mainly due to the sale of the stake in BBVA USA (see Notes 3 and 21).

(**)  Includes principal and interest.

As indicated in Note 2.2.1, although they have been derecognized from the consolidated balance sheet, the BBVA Group continues to attempt to collect on these written-off financial assets, until the rights to receive them are fully extinguished, either because it is a time-barred financial asset, the financial asset is condoned,forgiven, or other reasons.reason.

7.3.6   Impairment losses7.2.6. Loss allowances

BelowMovements in gross accounting balances and accumulated allowances for loan losses during 2020 and 2019 are the changes in the years ended December 31, 2018, 2017 and 2016, in the provisions recognizedrecorded on the accompanying consolidated balance sheetssheet as of December 31, 2020 and 2019, in order to cover the estimated impairment lossesloss allowances in loans and advances and debt securities measured at amortized cost and financial assets at fair value through other comprehensive income as well as the loan commitment and financial guarantees:cost.

Changes in gross accounting balances of loans and advances at amortized cost. 2020 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

Total

Opening balance

363,234

33,518

15,959

412,711

Transfers of financial assets:

(11,935)

8,807

3,128

-

Transfers from stage 1 to Stage 2

(15,843)

15,843

-

-

Transfers from stage 2 to Stage 1

5,107

(5,107)

-

-

Transfers to Stage 3

(1,701)

(2,659)

4,359

-

Transfers from Stage 3

502

729

(1,231)

-

Net annual origination of financial assets

16,119

(827)

102

15,395

Becoming write-offs

(3)

(2)

(2,944)

(2,949)

Changes in model / methodology

-

-

-

-

Foreign exchange

(21,472)

(2,342)

(1,157)

(24,970)

Modifications that do not result in derecognition

(204)

827

511

1,134

Other

(283)

(190)

270

(204)

Discontinued operations

(46,664)

(9,190)

(1,192)

(57,045)

Closing balance

298,793

30,601

14,678

344,072

F-104F-73  


Financial assets at amortized cost. December 2018 (Millions of Euros)

 

Not credit-impaired

Credit-impaired

Total

 

Stage 1

Stage 2

Credit-impaired

(Stage 3)

Purchased/originated credit-impaired

(Stage 3)

 

Loss allowances

Loss allowances (collectively assessed)

Loss allowances (individually assessed)

Loss allowances

Loss allowances

Loss allowances

Opening balance (under IFRS 9)

(2,237)

(1,827)

(525)

(9,371)

-

(13,960)

Transfers of financial assets:

-

-

-

-

-

-

Transfers from Stage 1 to Stage 2 (not credit-impaired)

208

(930)

(218)

-

-

(940)

Transfers from Stage 2 (not credit - impaired) to Stage 1

(125)

619

50

-

-

544

Transfers to Stage 3

55

282

564

(2,127)

-

(1,226)

Transfers from Stage 3 to Stage 1 or 2

(7)

(126)

(68)

333

-

132

Changes without transfers between Stages

358

(53)

(260)

(3,775)

-

(3,730)

New financial assets originated

(1,072)

(375)

(244)

-

-

(1,692)

Purchased

-

-

-

-

-

-

Disposals

2

3

-

110

-

115

Repayments

641

432

118

1,432

-

2,623

Write-offs

13

14

2

4,433

-

4,461

Changes in model/ methodology

-

-

-

-

-

-

Foreign exchange

(84)

72

(93)

343

-

239

Modifications that result in derecognition

5

10

25

98

-

138

Modifications that do not result in derecognition

3

(8)

1

(362)

-

(366)

Other

135

133

20

1,111

-

1,399

Closing balance

(2,106)

(1,753)

(628)

(7,777)

-

(12,264)

 

F-105

Changes in allowances of loans and advances at amortized cost. 2020 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

Total

Opening balance

(2,149)

(2,183)

(8,094)

(12,427)

Transfers of financial assets:

184

(511)

(1,806)

(2,133)

Transfers from stage 1 to Stage 2

156

(923)

-

(766)

Transfers from stage 2 to Stage 1

(50)

253

-

202

Transfers to Stage 3

81

218

(1,950)

(1,652)

Transfers from Stage 3

(3)

(59)

144

83

Net annual origination of allowances

(872)

(795)

(1,329)

(2,996)

Becoming write-offs

-

-

2,567

2,568

Changes in model / methodology

-

-

-

-

Foreign exchange

227

256

721

1,204

Modifications that do not result in derecognition

12

(118)

(177)

(283)

Other

160

618

25

803

Discontinued operations

401

444

278

1,123

Closing balance

(2,037)

(2,289)

(7,815)

(12,141)


Financial assets at fair value through other comprehensive income. December 2018 (Millions of Euros)

 

Not credit-impaired

Credit-impaired

Total

 

Stage 1

Stage 2

Credit-impaired

(Stage 3)

Purchased/originated credit-impaired

(Stage 3)

 

Loss allowances

Loss allowances (collectively assessed)

Loss allowances (individually assessed)

Loss allowances

Loss allowances

Loss allowances

Opening balance (under IFRS 9)

(20)

(1)

-

(14)

-

(35)

Transfers of financial assets:

-

-

-

-

-

-

Transfers from Stage 1 to Stage 2 (not credit-impaired)

-

-

-

-

-

-

Transfers from Stage 2 (not credit - impaired) to Stage 1

-

-

-

-

-

-

Transfers to Stage 3

-

-

-

-

-

-

Transfers from Stage 3 to Stage 1 or 2

-

-

-

-

-

-

Changes without transfers between Stages

(7)

-

-

16

-

9

New financial assets originated

(3)

-

-

-

-

(3)

Purchased

-

-

-

-

-

-

Disposals

-

-

-

-

-

-

Repayments

5

-

-

-

-

5

Write-offs

-

-

-

-

-

-

Changes in model/ methodology

-

-

-

-

-

-

Foreign exchange

2

-

-

-

-

2

Modifications that result in derecognition

-

-

-

-

-

-

Modifications that do not result in derecognition

-

-

-

(11)

-

(11)

Other

(5)

1

-

8

-

4

Closing balance

(28)

-

-

-

-

(28)

 

F-106

Changes in gross accounting balances of loans and advances at amortized cost. 2019 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

Total

Opening balance

352,282

30,707

16,359

399,347

Transfers of financial assets:

(9,021)

6,279

2,741

-

Transfers from stage 1 to Stage 2

(13,546)

13,546

-

-

Transfers from stage 2 to Stage 1

5,656

(5,656)

-

-

Transfers to Stage 3

(1,571)

(2,698)

4,269

-

Transfers from Stage 3

440

1,087

(1,527)

-

Net annual origination of financial assets

20,296

(2,739)

246

17,804

Becoming write-offs

(152)

(349)

(3,407)

(3,908)

Changes in model / methodology

-

-

-

-

Foreign exchange

1,611

35

16

1,662

Modifications that do not result in derecognition

(1)

(27)

15

(13)

Other

(1,782)

(388)

(11)

(2,180)

Closing balance

363,234

33,518

15,959

412,711


Loan commitments and financial guarantees. December 2018 (Millions of Euros)

 

Not credit-impaired

Credit-impaired

Total

 

Stage 1

Stage 2

Credit-impaired

(Stage 3)

Purchased/originated credit-impaired

(Stage 3)

 

Loss allowances

Loss allowances (collectively assessed)

Loss allowances (individually assessed)

Loss allowances

Loss allowances

Loss allowances

Opening balance (under IFRS 9)

(200)

(135)

(84)

(285)

-

(704)

Transfers of financial assets:

-

-

-

-

-

-

Transfers from Stage 1 to Stage 2 (not credit-impaired)

14

(84)

(11)

-

-

(81)

Transfers from Stage 2 (not credit - impaired) to Stage 1

(8)

65

1

-

-

58

Transfers to Stage 3

1

4

16

(48)

-

(27)

Transfers from Stage 3 to Stage 1 or 2

(3)

(3)

-

20

-

14

Changes without transfers between Stages

14

12

6

35

-

67

New financial assets originated

(102)

(32)

(20)

-

-

(154)

Purchased

-

-

-

-

-

-

Disposals

-

-

-

1

-

1

Repayments

47

58

24

73

-

202

Write-offs

-

-

-

-

-

-

Changes in model/ methodology

-

-

-

-

-

-

Foreign exchange

11

1

(2)

6

-

16

Modifications that result in derecognition

-

-

-

-

-

-

Modifications that do not result in derecognition

-

-

-

(32)

-

(32)

Other

(6)

(13)

10

13

-

4

Closing balance

(232)

(127)

(60)

(217)

-

(636)

 

F-107

Changes in allowances of loans and advances at amortized cost. 2019 (Millions of Euros)

 

Stage 1

Stage 2

Stage 3

Total

Opening balance

(2,082)

(2,375)

(7,761)

(12,217)

Transfers of financial assets:

176

(227)

(1,574)

(1,626)

Transfers from stage 1 to Stage 2

126

(649)

-

(523)

Transfers from stage 2 to Stage 1

(38)

273

-

235

Transfers to Stage 3

89

234

(1,810)

(1,487)

Transfers from Stage 3

(1)

(86)

236

149

Net annual origination of allowances

(542)

(116)

(1,711)

(2,370)

Becoming write-offs

130

337

2,789

3,256

Changes in model / methodology

-

-

-

-

Foreign exchange

(30)

(18)

69

20

Modifications that do not result in derecognition

(15)

(149)

(89)

(254)

Other

215

366

183

764

Closing balance

(2,149)

(2,183)

(8,094)

(12,427)


December 2017 (Millions of euros) (*)

 

Opening balance

Increases due to amounts set aside  for estimated loan losses during the period

Decreases due to amounts  reversed for estimated loan losses during the period

Decreases due to amounts taken against allowances

Transfers between allowances

Other adjustments

Closing balance

Recoveries  recorded directly to the statement of profit or loss

 

 

 

 

 

 

 

 

 

Equity instruments

 

 

 

 

 

 

 

 

Specific allowances for financial assets, individually and collectively estimated

(10,937)

(7,484)

2,878

4,503

1,810

526

(8,703)

558

Debt securities

(144)

(26)

6

-

123

13

(28)

-

Central banks

-

-

-

-

-

-

-

-

General governments

-

-

-

-

-

-

-

-

Credit institutions

(15)

(5)

4

-

16

-

-

-

Other financial corporations

(26)

(4)

2

-

-

13

(16)

-

Non-financial corporations

(103)

(17)

-

-

107

-

(12)

-

Loans and advances

(10,793)

(7,458)

2,872

4,503

1,687

513

(8,675)

558

Central banks

-

-

-

-

-

-

-

-

General governments

(39)

(70)

37

14

1

15

(42)

1

Credit institutions

(7)

(2)

2

-

-

1

(6)

-

Other financial corporations

(25)

(287)

3

38

227

38

(7)

-

Non-financial corporations

(7,402)

(3,627)

1,993

3,029

(228)

636

(5,599)

345

Households

(3,319)

(3,472)

837

1,422

1,687

(177)

(3,022)

212

Collective allowances for incurred but not reported losses on financial assets

(5,270)

(1,783)

2,159

1,537

(1,328)

557

(4,130)

-

Debt securities

(46)

(8)

30

1

-

3

(21)

-

Loans and advances

(5,224)

(1,776)

2,128

1,536

(1,328)

554

(4,109)

-

Total

(16,206)

(9,267)

5,037

6,038

482

1,083

(12,833)

558

(*)  Figures originally reportedThe following are the movements produced during 2018 in the year 2017 in accordance to the applicable regulation, without restatements.

F-108


December 2016 (Millions of euros)

 

Opening balance

Increases due to amounts set aside  for estimated loan losses during the period

Decreases due to amounts  reversed for estimated loan losses during the period

Decreases due to amounts taken against allowances

Transfers between allowances

Other adjustments

Closing balance

Recoveries  recorded directly to the statement of profit or loss

Equity instruments

 

 

 

 

 

 

 

 

Specific allowances for financial assets, individually and collectively estimated

(12,866)

(6,912)

2,708

5,673

(123)

583

(10,937)

540

Debt securities

(35)

(167)

6

64

(10)

(2)

(144)

-

Central banks

-

-

-

-

-

-

-

-

General governments

-

-

-

-

-

-

-

-

Credit institutions

(20)

-

-

5

-

-

(15)

-

Other financial corporations

(15)

(29)

3

26

(10)

(1)

(26)

-

Non-financial corporations

-

(138)

3

33

-

(1)

(103)

-

Loans and advances

(12,831)

(6,745)

2,702

5,610

(113)

585

(10,793)

540

Central banks

-

-

-

-

-

-

-

-

General governments

(37)

(2)

20

6

(27)

2

(39)

1

Credit institutions

(17)

(2)

3

-

10

(3)

(7)

-

Other financial corporations

(38)

(34)

9

22

10

6

(25)

-

Non-financial corporations

(9,225)

(3,705)

2,158

3,257

(278)

391

(7,402)

335

Households

(3,514)

(3,002)

511

2,325

172

189

(3,319)

205

Collective allowances for incurred but not reported losses on financial assets

(6,024)

(1,558)

1,463

88

775

(15)

(5,270)

1

Debt securities

(113)

(11)

15

1

64

-

(46)

-

Loans and advances

(5,911)

(1,546)

1,449

87

711

(15)

(5,224)

-

Total

(18,890)

(8,470)

4,172

5,762

652

568

(16,206)

541

(*)  Figures originally reportedvalue adjustments recorded in the year 2016 in accordanceaccompanying balance sheets to cover the applicable regulation, without restatements.impairment or reversal of the estimated impairment of financial assets at amortized cost:

Financial assets at amortized cost. December 2018 (Millions of Euros)

 

Not credit-impaired

Credit-impaired

Total

 

Stage 1

Stage 2

Credit-impaired

(Stage 3)

 

Loss allowances

Loss allowances (collectively assessed)

Loss allowances (individually assessed)

Loss allowances

Loss allowances

Opening balance

(2,237)

(1,827)

(525)

(9,371)

(13,960)

Transfers of financial assets:

131

(155)

328

(1,794)

(1,490)

Transfers from Stage 1 to Stage 2 (not credit-impaired)

208

(930)

(218)

-

(940)

Transfers from Stage 2 (not credit - impaired) to Stage 1

(125)

619

50

-

544

Transfers to Stage 3

55

282

564

(2,127)

(1,226)

Transfers from Stage 3 to Stage 1 or 2

(7)

(126)

(68)

333

132

Changes without transfers between Stages 

358

(53)

(260)

(3,775)

(3,730)

New financial assets originated

(1,072)

(375)

(244)

-

(1,692)

Purchased

-

-

-

-

-

Disposals

2

3

-

110

115

Repayments

641

432

118

1,432

2,623

Write-offs

13

14

2

4,433

4,461

Changes in model/ methodology

-

-

-

-

-

Foreign exchange

(84)

72

(93)

343

239

Modifications that result in derecognition

5

10

25

98

138

Modifications that do not result in derecognition

3

(8)

1

(362)

(366)

Other

135

133

20

1,111

1,399

Closing balance

(2,106)

(1,753)

(628)

(7,777)

(12,264)

Of which: Loans and advances

 

 

 

 

(12,217)

Of which: Debt certificates

 

 

 

 

(46)

F-109F-74  


 

7.3.77.2.7. Refinancing and restructuring operationstransactions

Group policies and principles with respect to refinancing and restructuring operationstransactions

Refinancing and restructuring transactions (see definition in the Glossary) are carried out with customers who have requested such an operationa transaction in order to meet their current loan payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinancing and restructuring operationtransaction is to provide the customer with a situation of financial viability over time by adapting repayment of the loan incurred with the Group to the customer’s new situation of fund generation. The use of refinancing and restructuring for other purposes, such as to delay loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing and restructuring policies are based on the following general principles:

·           Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the industry in which it operates.

·           With the aim of increasing the solvency of the operation,transaction, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees.

·           This analysis is carried out from the overall customer or group perspective.

·           Refinancing and restructuring operationstransactions do not in general increase the amount of the customer’s loan, except for the expensesexpense inherent to the operationtransaction itself.

·           The capacity to refinance and restructure a loan is not delegated to the branches, but decided on by the risk units.

·           The decisions made are reviewed from time to time with the aim of evaluating full compliance with refinancing and restructuring policies.

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring a loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of the customer’s loan. The solution required is adapted to each case and the loan repayment is made easier, in accordance with the following principles:

·           Analysis of the viability of operationstransactions based on the customer’s willingness and ability to pay, which may be reduced, but should nevertheless be present. The customer must therefore repay at least the interest on the operationtransaction in all cases. No arrangements may be concluded that involve a grace period for both principal and interest.

·           Refinancing and restructuring of operationstransactions is only allowed on those loans in which the BBVA Group originally entered into.

·           Customers subject to refinancing and restructuring operationstransactions are excluded from marketing campaigns of any kind.

F-110F-75  


In the case of non-retail customers (mainly companies, enterprises and corporates), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

·           Forecasted future income, margins and cash flows to allow entities to implement cost adjustment measures (industrial restructuring) and a business development plan that can help reduce the level of leverage to sustainable levels (capacity to access the financial markets).

·           Where appropriate, the existence of a divestment plan for assets and/or operating segments that can generate cash to assist the deleveraging process.

·           The capacity of shareholders to contribute capital and/or guarantees that can support the viability of the plan.

In accordance with the Group’s policy, the conclusion of a loan refinancing and restructuring operationtransaction does not meetmean the loan is reclassified from "impaired" or "significant increase in credit risk" to outstandingnormal risk. The reclassification to "significant increase in credit risk" or normal risk categories must be based on the analysis mentioned earlier of the viability, upon completion of the probationary periods described below.

The Group maintains the policy of including risks related to refinanced and restructured loans as either:

·           "Impaired assets", as although the customer is up to date with payments, they are classified as unlikely to pay when there are significant doubts that the terms of their refinancing may not be met; or

·           "Significant increase in credit risk" until the conditions established for their consideration as normal risk are met)met.

The assets classified as "Impaired assets" should comply with the following conditions in order to be reclassified to "Significant increase in credit risk":

·The customer has to have paid a significant part of the pending exposure.

·At least one year must have elapsed since its classification as "Impaired asset".

·The customer does not have past due payments and objective criteria, demonstrating the borrower´s ability to pay, have been verified.

The conditions established for assets classified as “Significant increase in credit risk” to be reclassified out of this category are as follows:

·           The customer must have paid past-due amounts (principal and interest) since the date of the renegotiation or restructuring of the loan or other objective criteria, demonstrating the borrower´s ability to pay, have been verified; none of its exposures is more than 30 days past-due; andpast-due.

·           At least two years must have elapsed since completion of the renegotiation or restructuring of the loan and regular payments must have been made during at least half of this probation period; and

·           It is unlikely that the customer will have financial difficulties and, therefore, it is expected that the customer will be able to meet its loan payment obligations (principal and interest) in a timely manner.

The economic impact caused by the Covid-19 pandemic has required the adaptation of the repayment schedule of a large volume of loans in all geographies and portfolios. In general, this support has been conducted through the concession of deferrals that comply with the principles established by the EBA, which has allowed for the application of a differential accounting and prudential treatment.

Renewals and renegotiations will be classified as normal risk, provided that there is no significant increase in risk. This classification is applicable at the initial moment, and in the event of any deterioration, the criteria established in the existing governance are followed. In this sense, the aforementioned conditions are considered, including, among others, no facility with more than 30 days delinquency and not being identified as 'unlikely to pay'.

The BBVA Group’s refinancing and restructuring policy provides for the possibility of two modifications in a 24 month period for loans that are not in compliance with the payment schedule.

The internal models used to determine allowances for loan losses consider the restructuring and renegotiation of a loan, as well as re-defaults on such a loan, by assigning a lower internal rating to restructured and renegotiated loans than the average internal rating assigned to non-restructured/renegotiated loans. This downgrade results in an increase in the probability of default (PD) assigned to restructured/renegotiated loans (with the resulting PD being higher than the average PD of the non- renegotiated loans in the same portfolios).

For quantitative information on refinancing and restructuring operationstransactions see Appendix VIII.

F-111F-76  


7.4    Market risk

7.4.1  Market risk trading portfolios

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial products and assets. The main risks generated can be classified as follows:

·Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all the financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

·Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

·Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

·Credit-spread risk: Credit spread is an indicator of an issuer's credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

·Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

The metrics developed to control and monitor market risk in BBVA Group are aligned with market practices and are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group's Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers risks, such as credit spread, basis risk as well as volatility and correlation risk.

F-112


Most of the headings on the Group's balance sheet subject to market risk are positions in the Group´s trading portfolio whose metric for measuring their market risk is VaR. This table shows the accounting lines of the consolidated balance sheet as of December 31, 2018, 2017 and 2016in which there is a market risk in the Group´s trading and non-trading portfolios:

Headings of the balance sheet under market risk (Millions of euros)

 

December 2018

December 2017

December 2016

 

Main market risk metrics - VaR

Main market risk metrics -

Others (*)

Main market risk metrics - VaR

Main market risk metrics -

Others (*)

Main market risk metrics - VaR

Main market risk metrics -

Others (*)

Assets subject to market risk

 

 

 

 

 

 

Financial assets held for trading

57,486

28,459

59,008

441

64,623

1,480

Financial assets at fair value through other comprehensive income

5,652

19,125

5,661

24,083

7,119

28,771

Of which: Equity instruments

-

2,046

-

2,404

-

3,559

Derivatives - Hedging accounting

688

1,061

829

1,397

1,041

1,415

Liabilities subject to market risk

 

 

 

 

 

 

Financial liabilities held for trading

38,844

40,026

42,468

2,526

47,491

2,223

Derivatives - Hedging accounting

550

910

1,157

638

1,305

689

(*)  Includes mainly assets and liabilities managed by ALCO.

Although the prior table shows details of the financial positions subject to market risk, it should be noted that the data are for information purposes only and do not reflect how the risk is managed in trading activity, where it is not classified into assets and liabilities.

With respect to the risk measurement models used in BBVA Group, the Bank of Spain has authorized the use of the internal model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Bancomer trading book, which jointly account for around 76%, 70% and 66% of the Group’s trading-book market risk as of December 31, 2018, 2017 and 2016. For the rest of the geographical areas (mainly South America, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the standard model.

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the "historical simulation" methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it infers the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used in BBVA S.A., BBVA Bancomer, BBVA Colombia, Compass Bank and Garanti.

F-113


VaR figures are estimated following two methodologies:

·VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

·VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

In the case of Global Markets Argentina and Global Markets Peru a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain's regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the new measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

·VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the two risk factors inherent to market operations (interest rates, FX, RV, credit, etc.). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

·Specific Risk: Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The specific capital risk by IRC is a charge exclusively used in the geographical areas with the internal model approved (BBVA S.A. and Bancomer). The capital charge is determined according to the associated losses (at 99.9% in a 1-year horizon under the hypothesis of constant risk) due to the rating migration and/or default state the issuer of an asset. In addition, the price risk is included in sovereign positions for the items specified.

·Specific Risk: Securitization and correlation portfolios. Capital charge for securitizations and the correlation portfolio to include the potential losses associated at the level of rating a specific credit structure (rating). Both are calculated by the standard method. The scope of the correlation portfolios refers to the FTD-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at trading desk level in order to enable more specific monitoring of the validity of the measurement models.

F-114


Market risk in 2018

The Group’s market risk remains at low levels compared to other risks managed by BBVA, particularly in terms of credit risk. This is due to the nature of the business. During the financial year 2018 the average VaR was €21 million, below the figure of 2017, with a high on March 16, 2018 of €26 million. The evolution in the BBVA Group’s market risk during 2018, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:

By type of market risk assumed by the Group's trading portfolio, the main risk factor for the Group continues to be that linked to interest rates, with a weight of 55% of the total at the end of year ended December 31, 2018 (this figure includes the spread risk). The relative weight has increased compared with the close of 2017 (48%). Exchange-rate risk maintains its proportion with respect to 2017 (14%), while equity, volatility and correlation risk have decreased, with a weight of 31% at the close of 2018 (vs. 38% at the close of 2017).

F-115


As of December 31, 2018, 2017 and 2016 the balance of VaR was €17 million, €22 million and €26 million, respectively. These figures can be broken down as follows:

VaR by Risk Factor (Millions of euros)

 

Interest/Spread Risk

Currency Risk

Stock-market Risk

Vega/Correlation Risk

Diversification Effect(*)

Total

December 2018

 

 

 

 

 

 

VaR average in the year

20

6

4

9

(20)

21

VaR max in the year

23

7

6

11

(21)

26

VaR min in the year

17

6

4

7

(18)

16

End of period VaR

19

5

3

7

(17)

17

December 2017

 

 

 

 

 

 

VaR average in the year

25

10

3

13

(23)

27

VaR max in the year

27

11

2

12

(19)

34

VaR min in the year

23

7

4

14

(26)

22

End of period VaR

23

7

4

14

(26)

22

December 2016

 

 

 

 

 

 

VaR average in the year

28

10

4

11

(23)

29

VaR max in the year

30

16

4

11

(23)

38

VaR min in the year

21

10

1

11

(20)

23

End of period VaR

29

7

2

12

(24)

26

(*)  The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

Validation of the model

The internal market risk model is validated on a regular basis by backtesting in both BBVA S.A. and Bancomer. The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group's results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both BBVA, S.A. and Bancomer is adequate and precise.

Two types of backtesting have been carried out during 2018, 2017 and 2016:

·"Hypothetical" backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

·"Real" backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at the level of risk factor or business type, thus making a deeper comparison of the results with respect to risk measurements.

For the period between the year ended December 31, 2017 and the year ended December 31, 2018, the backtesting of the internal VaR calculation model was carried out, comparing the daily results obtained to the estimated risk level by the internal VaR calculation model. At the end of the year the comparison showed the internal VaR calculation model was working correctly, within the "green" zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

F-116


Stress test analysis

A number of stress tests are carried out on BBVA Group's trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the "Tequilazo" crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

·Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings. 

·Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

·Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on Resampling methodology. This methodology is based on the use of dynamic scenarios are recalculated periodically depending on the main risks held in the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from 1-1-2008 until today), a simulation is performed by resampling of historic observations, generating a loss distribution and profits to analyze most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a richer information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) flexibility in the inclusion of new risk factors and c) to allow the introduction of a lot of variability in the simulations (desirable to consider extreme events).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio (Expected shortfall 95% to 20 days) as of December 31, 2018 is as follows:

Millions of Euros

 

Europe

Mexico

Peru

Venezuela

Argentina

Colombia

Turkey

Compass

Expected Shortfall

(99)

(33)

(11)

-

(5)

(6)

(6)

(1)

F-117


7.4.2   Structural risk

The Assets and Liabilities Committee (ALCO) is the main responsible body for the management of structural risks relating to liquidity/funding, interest rates, currency rates, equity and solvency. Every month, with the assistance of the CEO and representatives from the areas of Finance, Risks and Business Areas, this committee monitors the above risks and is presented with proposals for managing them for its approval. These management proposals are made proactively by the Finance area, taking into account the risk appetite framework and with the aim of guaranteeing recurrent earnings and financial stability and preserving the entity's solvency. All the balance-sheet management units have a local ALCO, assisted constantly by the members of the Corporate Center. There is also a corporate ALCO where the management strategies in the Group's subsidiaries are monitored and presented.

Structural interest-rate risk

The structural interest-rate risk (“IRRBB”) is related to the potential impact that variations in market interest rates have on an entity's net interest income and equity. In order to properly measure IRRBB, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Assets and Liabilities Management unit carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and limits in the different balance-sheets and for BBVA Group as a whole; and complying with current and future regulatory requirements.

BBVA's structural interest-rate risk management control and monitoring is based on a set of metrics and tools that enable the entity's risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as earnings at risk (“EaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to evaluate its effectiveness, the model is subjected to regular internal validation. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

The model is necessarily underpinned by an elaborate set of hypotheses that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of Non Maturity Deposits, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The assumptions are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

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The impacts on the metrics are assessed both from a point of view of economic value with a static model (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the profile of average sensitivities to net interest income and value of the main banks in BBVA Group in 2018:

Sensitivity to Interest-Rate Analysis - December 2018

Impact on Net Interest Income (*)

Impact on Economic Value       (**)

100 Basis-Point Increase

100 Basis-Point Decrease

100 Basis-Point Increase

100 Basis-Point Decrease

Europe (***)

+ (5% - 10%)

- (5% - 10%)

+ (0% - 5%)

- (0% - 5%)

Mexico

+ (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

- (0% - 5%)

USA

+ (5% - 10%)

- (5% - 10%)

- (5% - 10%)

+ (0% - 5%)

Turkey

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

South America

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

+ (0% - 5%)

BBVA Group

+ (0% - 5%)

- (0% - 5%)

- (0% - 5%)

- (0% - 5%)

(*)    Percentage of "1 year" net interest income forecast for each unit.

(**)   Percentage of Core Capital for each unit.

(***)  In Europe downward movement including rates below the current ones.

In 2018 in Europe monetary policy has remained expansionary, maintaining rates at 0% and the deposit rate at -0.4%. In USA the rising rate cycle initiated by the Federal Reserve in 2015 has continued. In Mexico and Turkey, the upward cycle has continued because of volatility of their currencies and inflation prospects. In South America, monetary policy has continued to be expansive in most of the economies where the Group operates, with the exception of Argentina, where rates increased and actions were taken not to increase the monetary basis and slow the inflation.

The BBVA Group maintains, overall a positive and moderate sensitivity in its net interest income to an increase in interest rates. The higher relative net interest income sensitivities are observed in, particularly Euro and USD. In Europe however, the decrease in interest rates is limited by the downward path scope in interest rates. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account the diversification.

The corporate Global ALM unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group's subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the framework of limits are integrated into management and supplemented with additional assessment indicators. At corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

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The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

2018 has been characterized by higher volatility levels of FX rates in emerging markets. As for the main currencies of the geographies where the Group operates, it is worth mentioning the appreciation of Mexican peso and US Dollar against the euro (around 5% in both cases), while Turkish lira and Argentinian peso have strongly depreciated (25% and 48%, respectively) affected by idiosyncratic factors.

The Group's structural exchange-rate risk exposure level has remained fairly stable since the end of 2017.  The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro and focuses on Mexican peso and Turkish lira. The risk mitigation level in capital ratio due to the book value of BBVA Group's holdings in foreign emerging currencies stood at around 70% and, as of the end of 2018, CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency is: US Dollar +1.1 bps; Mexican peso -0.2 bps; Turkish Lira -0.2 bps; other currencies -0.2 bps. On the other hand, hedging of emerging-currency denominated earnings of 2018 has reached an 82%, concentrated in Mexican peso, Turkish lira and the main Latin American currencies.

Structural equity risk

BBVA Group's exposure to structural equity risk stems basically from minority shareholdings in industrial and financial companies held with long or medium-term investment horizons. This exposure is modulated in some portfolios with positions held in derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.

The management of structural equity portfolios is a responsibility of the Group's units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, complying with the defined management principles and Risk Appetite Framework.

The Group's risk management systems also make it possible to anticipate potential negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This checks that the risks are limited and that the tolerance levels set by the Group are not at risk.

Backtesting is carried out on a regular basis on the risk measurement model used.

With regard to the equity markets, the world indexes have closed the year 2018 with generalized falls and volatility surges in a macro environment of global growth slowdown, increase of the political uncertainty and normalization of the monetary policies.

Structural equity risk, measured in terms of economic capital, has decreased in the period mainly due to lower exposure. The aggregate sensitivity of the BBVA Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio remained at around €-28 million as of December 31, 2018 and €-32 million as of December 31, 2017. This estimation takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area and the net delta-equivalent positions in derivatives on the same underlyings.

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7.4.3   Financial Instruments offset

Financial assets and liabilities may be netted, i.e. they are presented for a net amount on the consolidated balance sheet only when the Group's entities satisfy with the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability.

In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling net. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity.

In the current market context, derivatives are contracted under different framework contracts being the most widespread developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”). Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as "Master Netting Agreement", greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with professional counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, in transactions involving assets purchased or sold under a repurchase agreement there is a high volume transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signature of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.

A summary of the effect of the compensation (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2018, 2017 and 2016:

December 2018 (Millions of euros)

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets (D)

 

 

Notes

Gross Amounts Recognized (A)

Gross Amounts Offset in the Consolidated Balance Sheets (B)

Net Amount Presented in the Consolidated Balance Sheets (C=A-B)

Financial Instruments

Cash Collateral Received/ Pledged

Net Amount (E=C-D)

Trading and hedging derivatives

10, 15

49,908

16,480

33,428

25,024

7,790

613

Reverse repurchase, securities borrowing and similar agreements

 

28,074

42

28,032

28,022

169

(159)

Total Assets

 

77,982

16,522

61,460

53,046

7,959

454

 

 

 

 

 

 

 

 

Trading and hedging derivatives

10, 15

51,596

17,101

34,494

25,024

6,788

2,682

Repurchase, securities lending and similar agreements

 

43,035

42

42,993

42,877

34

82

Total liabilities

 

94,631

17,143

77,487

67,901

6,822

2,765

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December 2017 (Millions of euros)

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets (D)

 

 

Notes

Gross Amounts Recognized (A)

Gross Amounts Offset in the Consolidated Balance Sheets (B)

Net Amount Presented in the Consolidated Balance Sheets (C=A-B)

Financial Instruments

Cash Collateral Received/ Pledged

Net Amount (E=C-D)

Trading and hedging derivatives

10, 15

49,333

11,584

37,749

27,106

7,442

3,202

Reverse repurchase, securities borrowing and similar agreements

 

26,426

56

26,369

26,612

141

(384)

Total Assets

 

75,759

11,641

64,118

53,717

7,583

2,818

 

 

 

 

 

 

 

 

Trading and hedging derivatives

10, 15

50,693

11,644

39,049

27,106

8,328

3,615

Repurchase, securities lending and similar agreements

 

40,134

56

40,078

40,158

21

(101)

Total liabilities

 

90,827

11,701

79,126

67,264

8,349

3,514

December 2016 (Millions of euros)

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets (D)

 

 

Notes

Gross Amounts Recognized (A)

Gross Amounts Offset in the Consolidated Balance Sheets (B)

Net Amount Presented in the Consolidated Balance Sheets (C=A-B)

Financial Instruments

Cash Collateral Received/ Pledged

Net Amount (E=C-D)

Trading and hedging derivatives

10, 15

59,374

13,587

45,788

32,146

6,571

7,070

Reverse repurchase, securities borrowing and similar agreements

 

25,833

2,912

22,921

23,080

174

(333)

Total Assets

 

85,208

16,499

68,709

55,226

6,745

6,738

 

 

 

 

 

 

 

 

Trading and hedging derivatives

10, 15

59,545

14,080

45,465

32,146

7,272

6,047

Repurchase, securities lending and similar agreements

 

49,474

2,912

46,562

47,915

176

(1,529)

Total liabilities

 

109,019

16,991

92,027

80,061

7,448

4,518

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7.5    Liquidity risk

7.5.1   Liquidity risk management

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management avoids possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. Liquidity Management Units (LMUs) have been set up for this reason in the geographical areas where the main foreign subsidiaries operate, and also for the parent BBVA S.A.

Assets and Liabilities Management unit manages BBVA Group's liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMUs and proposes to ALCO the actions to adopt in this regard in accordance with the policies and limits established by the Standing Committee.

As first core element, the Bank's target in terms of liquidity and funding risk is characterized through the Liquidity Coverage Ratio (LCR) and the Loan-to-Stable-Customer-Deposits (LtSCD) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resistance in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a level of requirement for compliance with the LCR ratio both for the Group as a whole and for each of the Liquidity Management Units (LMUs) individually. The internal levels required are geared to comply sufficiently and efficiently in advance with the implementation of the regulatory requirement of 2018, at a level above 100%.

LCR ratio in Europe was applicable as from October 1, 2015. With an initial 60% minimum requirement, progressively increased (phased-in) up to 100% in 2018. Throughout the year 2018, LCR level at BBVA Group has been above 100%. As of December 31, 2018, the LCR ratio at Group level is 127%.

Although this regulatory requirement is mandatory at a Group level and Eurozone banks, all subsidiaries are above this minimum. In any case, it should be noted that liquidity excesses in subsidiaries are not deemed transferable when calculating the consolidated ratio. Taking into account the impact of these High Quality Liquid Assets excluded, LCR ratio would be 154%, which is +27% above the Group’s LCR.

LCR main LMU

 

December 2018

December 2017

Group

127%

128%

Eurozone

145%

151%

Bancomer

154%

148%

Compass(*)

143%

144%

Garanti

209%

134%

(*)  Compass LCR calculated according to local regulation (Fed Modified LCR).

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The LtSCD measures the relation between the net loans credit investment and stable customer deposits. The aim is to preserve a stable funding structure in the medium term for each of the LMUs making up BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile.

Stable customer deposits are defined as the customer funds captured and managed by business units among their target customers. These funds usually show little sensitivity to market changes and are largely non-volatile in terms of aggregate amounts per transaction, thanks to customer linkage to the unit. Stable funds in each LMU are calculated by analyzing the behavior of the balance sheets of the different customer segments identified as likely to provide stability to the funding structure, and by prioritizing an established relationship and applying bigger haircuts to the funding lines of less stable customers. The main base of stable funds is composed of deposits by retail individual customers and small businesses.

For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, GRM-Structural Risks identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas.

The behavior of the indicators reflects that the funding structure remained robust in 2018, 2017 and 2016, in the sense that all the LMUs maintain levels of self-funding with stable customer funds higher than the required levels.

LtSCD by LMU

 

December 2018

December 2017

December 2016

Group (average)

106%

110%

113%

Eurozone

101%

108%

113%

Bancomer

114%

109%

113%

Compass

119%

109%

108%

Garanti

110%

122%

124%

Other LMUs

99%

108%

107%

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The second core element in liquidity and funding risk management is to achieve proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term funding comprising both wholesale funding as well as funds from less stable non-retail customers. Regarding long-term funding, the maturity profile does not show significant concentrations, which enables adaptation of the anticipated issuance schedule to the best financial conditions of the markets. Finally, concentration risk is monitored at the LMU level, with a view to ensuring the right diversification both per counterparty and per instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, making sure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets and the maturities of wholesale liabilities and volatile funds, at different terms to one year, with special relevance being given to 30 and 90-day maturities.

Each entity maintains an individual liquidity buffer, both Banco Bilbao Vizcaya Argentaria, S.A. and its subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti Bank and the Latin American subsidiaries. The table below shows the liquidity available by instrument as of December 31, 2018 and 2017 for the most significant entities based on prudential supervisor’s information (Commission Implementing Regulations (EU) 2017/2114 of November 9, 2017):

December 2018 (Millions of euros)

 

BBVA Eurozone

BBVA Bancomer

BBVA Compass

Garanti Bank

Other

Cash and withdrawable central bank reserves

26,506

7,666

1,667

7,633

6,677

Level 1 tradable assets

29,938

4,995

10,490

6,502

3,652

Level 2A tradable assets

449

409

510

-

-

Level 2B tradable assets

4,040

33

-

-

-

Other tradable assets

5,661

1,372

1,043

499

617

Non tradable assets eligible for central banks

-

-

2,314

-

-

Cumulated Counterbalancing Capacity

66,594

14,475

16,024

14,634

10,946

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December 2017 (Millions of euros)

 

BBVA Eurozone (1)

BBVA Bancomer

BBVA Compass

Garanti Bank

Other

Cash and withdrawable central bank reserves

15,634

8,649

2,150

6,692

6,083

Level 1 tradable assets

38,954

3,805

9,028

5,705

6,141

Level 2A tradable assets

386

418

753

-

10

Level 2B tradable assets

4,995

69

-

-

21

Other tradable assets

6,734

1,703

1,252

962

1,573

Non tradable assets eligible for central banks

-

-

2,800

-

-

Cumulated Counterbalancing Capacity

66,703

14,644

15,983

13,359

13,828

(1)  Includes Spain, Portugal and Rest of Eurasia.

Stress analyses are also a basic element of the liquidity and funding risk monitoring system, as they help anticipate deviations from the liquidity targets and limits set out in the risk appetite as well as establish tolerance ranges at different management levels. They also play a key role in the design of the Liquidity Contingency Plan and in defining the specific measures for action for realigning the risk profile.

For each of the scenarios, a check is carried out whether BBVA has sufficient liquid assets to meet the liquidity commitments/outflows in the various periods analyzed. The analysis considers four scenarios, one core and three crisis-related: systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the BBVA's customers; and a mixed scenario, as a combination of the two aforementioned scenarios. Each scenario considers the following factors: liquidity existing on the market, customer behavior and sources of funding, impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the performance of the BBVA's asset quality.

The results of these stress analyses carried out regularly reveal that BBVA has a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario such as a combination of a systemic crisis and an unexpected internal crisis, during a period in general longer than 3 months for LMUs, including a major downgrade in the BBVA's rating (by up to three notches).

Beside the results of stress exercises and risk metrics, Early Warning Indicators play an important role in the corporate model and also in the Liquidity Contingency Plan. These are mainly financing structure indicators, related to asset encumbrance, counterparty concentration, outflows of customer deposits, unexpected use of credit lines, and market indicators, which help to anticipate potential risks and capture market expectations.

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Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2018, 2017 and 2016:

December 2018. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

9,550

40,599

-

-

-

-

-

-

-

-

50,149

Deposits in credit entities

801

3,211

216

141

83

152

133

178

27

1,269

6,211

Deposits in other financial institutions

1

1,408

750

664

647

375

1,724

896

1,286

2,764

10,515

Reverse repo, securities borrowing and margin lending

-

21,266

1,655

1,158

805

498

205

1,352

390

210

27,539

Loans and Advances

132

19,825

25,939

23,265

15,347

16,433

42,100

32,336

53,386

120,571

349,334

Securities' portfolio settlement

-

1,875

4,379

5,990

2,148

6,823

8,592

12,423

11,533

42,738

96,501

December 2018. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

1

2,678

1,652

2,160

2,425

2,736

7,225

8,578

16,040

26,363

69,858

Deposits in financial institutions

7,107

5,599

751

1,992

377

1,240

1,149

229

196

904

19,544

Deposits in other financial institutions and international agencies

10,680

4,327

1,580

458

302

309

781

304

825

1,692

21,258

Customer deposits

252,630

44,866

18,514

10,625

6,217

7,345

5,667

2,137

1,207

1,310

350,518

Security pledge funding

40

46,489

2,219

2,274

114

97

22,911

526

218

1,627

76,515

Derivatives, net

-

(75)

(523)

(68)

(5)

(117)

498

(91)

(67)

(392)

(840)

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December 2017. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

8,179

31,029

-

-

-

-

-

-

-

-

39,208

Deposits in credit entities

252

4,391

181

169

120

122

116

112

157

1,868

7,488

Deposits in other financial institutions

1

939

758

796

628

447

1,029

681

806

1,975

8,060

Reverse repo, securities borrowing and margin lending

18,979

2,689

1,921

541

426

815

30

727

226

-

26,354

Loans and Advances

267

21,203

26,323

23,606

15,380

17,516

43,973

35,383

50,809

123,568

358,028

Securities' portfolio settlement

1

1,579

4,159

4,423

2,380

13,391

5,789

11,289

12,070

44,666

99,747

December 2017. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

-

3,648

4,209

4,238

1,227

2,456

5,772

6,432

18,391

30,162

76,535

Deposits in financial institutions

6,831

5,863

1,082

2,335

392

1,714

930

765

171

1,429

21,512

Deposits in other financial institutions and international agencies

10,700

4,827

3,290

1,959

554

1,328

963

286

355

1,045

25,307

Customer deposits

233,068

45,171

18,616

11,428

8,711

10,368

7,607

2,612

1,833

2,034

341,448

Security pledge funding

-

35,502

2,284

1,405

396

973

64

23,009

338

1,697

65,668

Derivatives, net

-

(18)

(110)

(116)

(135)

(117)

(336)

(91)

(106)

(419)

(1,448)

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December 2016. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

23,191

13,825

-

-

-

-

-

-

-

-

37,016

Deposits in credit entities

991

4,068

254

155

48

72

117

87

122

4,087

10,002

Deposits in other financial institutions

1

1,192

967

675

714

532

1,330

918

942

336

7,608

Reverse repo, securities borrowing and margin lending

-

20,232

544

523

-

428

500

286

124

189

22,826

Loans and Advances

591

20,272

25,990

22,318

16,212

15,613

44,956

35,093

55,561

133,589

370,195

Securities' portfolio settlement

-

708

3,566

3,688

2,301

4,312

19,320

10,010

16,662

51,472

112,039

December 2016. Contractual Maturities (Millions of euros)

 

Demand

Up to 1 Month

1 to 3 Months

3 to 6 Months

6 to 9 Months

9 to 12 Months

1 to 2 Years

2 to 3 Years

3 to 5 Years

Over 5 Years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

419

7,380

2,943

5,547

3,463

5,967

7,825

5,963

14,016

31,875

85,397

Deposits in financial institutions

6,762

5,365

1,181

2,104

800

2,176

746

1,156

859

3,714

24,862

Deposits in other financial institutions and international agencies

15,375

6,542

8,624

3,382

2,566

1,897

1,340

686

875

2,825

44,114

Customer deposits

206,140

49,053

25,522

15,736

11,863

11,343

8,619

5,060

781

936

335,052

Security pledge funding

-

38,153

3,561

1,403

1,004

912

1,281

640

23,959

1,712

72,626

Derivatives, net

-

(2,123)

(95)

(190)

(111)

(326)

(132)

(82)

(105)

(47)

(3,210)

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The matrix shows the retail nature of the funding structure, with a loan portfolio being mostly funded by customer deposits (66%). On the outflows side of the matrix, the “demand” maturity bucket mainly contains the retail customer sight accounts whose behavior historically showed a high level of stability and little concentration. According to a behavior analysis which is done every year in every entity, this type of account is considered to be stable and for liquidity risk purposes, it is estimated that 78% have a maturity of more than 5 years.

In the Euro Liquidity Management Unit (LMU), solid liquidity and funding situation, where activity has continued to generate liquidity through the decrease of Credit Gap. In addition, during 2018 the Euro LMU made 3 issues in the public market for €3,500 million; Senior Non Preferred (“SNP”) at 5 years for €1,500 million, Green bond SNP at 7 years for €1,000 million and AT1 for €1,000 million, which have allowed it to obtain long-term funding at favorable price conditions. These public operations have been complemented by a private issue T2 for USD 300 million.

In Mexico, sound liquidity position despite the market volatility, the Credit Gap has increased in 2018 due to a minor increase in deposits mainly because of the outflows of non-profitable USD deposits. During the financial year 2018, BBVA Bancomer made a local Tier II issuance on international markets for USD 1,000 million as well as an issuance on the local market for 7,000 million of Mexican pesos in 2 tranches: at 3 and 5 years, being the 3 years tranche the first Green Bond issued by a private bank.

In the United States, the containment of the cost of liabilities has led to a slightly increase in the credit gap. During the financial year 2018, BBVA Compass successfully issued 3 year senior debt for USD 1,150 million.

In Turkey an adequate liquidity situation is maintained, after having been affected by the currency volatility at the beginning of the second semester. Despite this, Garanti showed a good performance with the roll-over of the 2018 maturities of corporate funding. The main operations during the year were two syndicated loans for USD 2,300 million, the first Green Bond at 6 years for USD 75 million and future flows securitization (Diversified Payment Rights) for USD 375 million at 7 years.

Argentina was affected by the market volatility but no relevant impact on the liquidity situation of the entity has been noted. BBVA Francés maintains a solid liquidity situation distinguished by a major volume of cash reserves.

The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a solid liquidity position in all the jurisdictions in which the Group operates. Access to capital markets of these subsidiaries has also been maintained with recurring issuances in the local market.

In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while guaranteeing a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets.

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7.5.2   Asset encumbrance

As of December 31, 2018, 2017 and 2016, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:

December 2018 (Millions of euros)

 

Encumbered assets

Non-Encumbered assets

 

Book value of Encumbered assets

Market value of Encumbered assets

Book value of non-encumbered assets

Market value of non-encumbered assets

Assets

 

 

 

 

Equity instruments

1,864

1,864

6,485

6,485

Debt Securities

31,157

32,216

82,209

82,209

Loans and Advances and other assets

74,928

 

478,880

 

December 2017 (Millions of euros)

 

Encumbered assets

Non-Encumbered assets

 

Book value of Encumbered assets

Market value of Encumbered assets

Book value of non-encumbered assets

Market value of non-encumbered assets

Assets

 

 

 

 

Equity instruments

2,297

2,297

9,616

9,616

Debt Securities

28,700

29,798

84,391

84,391

Loans and Advances and other assets

79,604

 

485,451

 

December 2016 (Millions of euros)

 

Encumbered assets

Non-Encumbered assets

 

Book value of Encumbered assets

Market value of Encumbered assets

Book value of non-encumbered assets

Market value of non-encumbered assets

Assets

 

 

 

 

Equity instruments

2,214

2,214

9,022

9,022

Debt Securities

40,114

39,972

90,679

90,679

Loans and Advances and other assets

94,718

 

495,109

 

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The committed value of "Loans and Advances and other assets" corresponds mainly to loans linked to the issue of covered bonds, territorial bonds or long-term securitized bonds (see Note 22.3) as well as those used as a guarantee to access certain funding transactions with central banks. Debt securities and equity instruments correspond to underlying that are delivered in repos with different types of counterparties, mainly clearing houses or credit institutions, and to a lesser extent central banks. Collateral provided to guarantee derivative transactions is also included as committed assets.

As of December 31, 2018, 2017 and 2016, collateral pledge mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:

December 2018. Collateral received (Millions of euros)

 

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

27,474

5,633

319

Equity instruments

89

82

-

Debt securities

27,385

5,542

300

Loans and Advances and other assets

-

8

19

Own debt securities issued other than own covered bonds or ABSs

78

87

-

December 2017. Collateral received (Millions of euros)

 

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

23,881

9,630

201

Equity instruments

103

5

-

Debt securities

23,715

9,619

121

Loans and Advances and other assets

63

6

80

Own debt securities issued other than own covered bonds or ABSs

3

161

-

December 2016. Collateral received (Millions of euros)

 

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

19,921

10,039

173

Equity instruments

58

59

-

Debt securities

19,863

8,230

28

Loans and Advances and other assets

-

1,750

144

Own debt securities issued other than own covered bonds or ABSs

5

-

-

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The guarantees received in the form of reverse repurchase agreements or security lending transactions are committed by their use in repurchase agreements, as is the case with debt securities.

As of December 31, 2018, 2017 and 2016, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:

December 2018. Sources of encumbrance (Millions of euros)

 

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Book value of financial liabilities

113,498

131,172

Derivatives

8,972

11,036

Loans and Advances

85,989

97,361

Outstanding subordinated debt

18,538

22,775

Other sources

3,972

4,330

December 2017. Sources of encumbrance (Millions of euros)

 

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Book value of financial liabilities

118,704

133,312

Derivatives

11,843

11,103

Loans and Advances

87,484

98,478

Outstanding subordinated debt

19,377

23,732

Other sources

305

1,028

December 2016. Sources of encumbrance (Millions of euros)

 

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Book value of financial liabilities

134,387

153,632

Derivatives

9,304

9,794

Loans and Advances

96,137

108,268

Outstanding subordinated debt

28,946

35,569

Other sources

-

2,594

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7.6    Operational Risk

BBVA defines operational risk (“OR”) as any risk that could result in losses caused by human errors, inadequate or faulty internal processes, misconduct with clients or in the markets, failures, disruptions or deficiencies of systems or communications, inadequate data management, legal risks and, lastly, from external events, including cyberattacks, frauds committed by third parties, disasters and an unsatisfactory service provided by suppliers.

Operational risk management is oriented towards the identification of the root causes to avoid their occurrence and mitigate possible consequences. This is carried out through the establishment of mitigation plans and control frameworks aimed at minimizing resulting losses and their impact on the recurrent generation of income and the profit of the Group. Operational risk management is integrated into the global risk management structure of the BBVA Group.

This section addresses general aspects of operational risk management as the main component of non-financial risks. However, sections devoted to conduct and compliance risk and to cybersecurity risk management are also included in this report.

Operational Risk Management Principles

The BBVA Group is committed to preferably applying advanced operational risk management models, regardless of the capital calculation regulatory model applicable at the time. Operational risk management at the BBVA Group shall:

·Be in line with the Risk Appetite Framework approved by BBVA's Board of Directors.

·Meet BBVA’s management needs arising from compliance with rules, regulation, industry standards and from decisions or positions taken by the governing bodies of the Group.

·Predict potential operational risks to which the Group shall be exposed as a result of the emergence or changes on new products, activities, processes or systems and services procurement or outsourcing decisions; and establish mechanisms to achieve a reasonable assessment and mitigation before implementation, in addition to a regular review on all existing processes.

·Establish methodologies, procedures and indicators to regularly reassess the relevant operational risks to which the Group is exposed to implement the most appropriate mitigation measures in each case, once the identified risk and the mitigation cost have been considered (cost-benefit analysis) and preserving the solvency of the Group at all times.

·Seek the causes behind the operational events suffered by the Group and establish the appropriate redressing measures (always considering the cost-benefit analysis). To that end, procedures for analyzing operational events must be in place, in addition to mechanisms to capture the potential operational losses resulting from those events.

·Analyze the public events with significant operational risk in other entities and to promote, if applicable, the implementation of the appropriate measures to avoid its occurrence in the Group.

·Identify, analyze and try to quantify events with a low probability of occurrence and a high impact that, due to their exceptional nature, may not be included in the loss database or, if included, with not highly representative impacts, in order to assess possible mitigation measures.

·Have an effective governance on which the functions and responsibilities of the Areas and Bodies intervening in OR management are clearly defined.

Irrespective of the implementation of all the possible measures and controls designed to avoid or mitigate the frequency and severity of OR events, BBVA ensures at all times the capital required to face potential expected or unexpected losses.

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Operational risk control and management model

The operational risk management cycle at BBVA is similar to the one implemented for the rest of risks. Its elements are:

Planning

Operational risk forms part of the risk appetite framework of the Group and includes three types of metrics:

·Economic capital calculated with the operational losses database of the Group and the industry, considering the corresponding diversification effects and the additional estimation of potential and emerging risks through stress scenarios designed for the main types of risks. The economic capital is regularly calculated for the main banks of the group and simulation capabilities are available to anticipate the impact of changes on the risk profile or new potential events.

·IRO metrics (operational risk losses vs. gross income) broken down by geography, business area and type of risk.

·In addition, work is in progress on the implementation in the entire group of a common and more granular scheme of metrics that covers the main types of operational risks.

Operational risk admission

The main purposes of the operational risk admission phase are the following:

·Anticipate potential operational risks to which the Group would be exposed with the emergence of new initiatives (new business, product, outsourcing, process transformation, new systems, etc.) or changes in those initiatives in place.

·Ensure that the implementation is carried out once the appropriate mitigation measures have been adopted, among others risk insurance, where appropriate.

The Corporate Policy on Operational Risk Management and Control sets out the specific operational risk admission framework through different committees, at a corporate and Business Area level, that follow a delegation structure based on the risk level of proposed initiatives.

Operational risk monitoring

The purpose of this phase is to check that the target operational risk profile of the group is within the authorized limits. Operational risk monitoring considers 2 scopes:

·Monitoring the operational risk admission process, oriented towards checking that accepted risks levels are within the limits and that defined controls are effective.

·Monitoring the operational risk “stock” linked to the processes, in order to carry out a regular reassessment to confirm that residual risks and target risk are reasonably aligned and, if not, to implement action plans to redress gaps to the desired level.

This process is supported by a corporate Governance, Risk & Compliance tool that monitors OR at a local level and its aggregation at a corporate level.

In addition, and in line with the best practices and recommendations provided by the BIS, BBVA has procedures to collect the operational losses occurred in the different entities of the Group and in other financial groups, with the appropriate level of detail to carry out an effective analysis that provides useful information for management purposes. To that end, a corporate tool implemented in all the countries of the Group is used.

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Operational risk mitigation

Several cross-sectional operational risk plans have been promoted over the last two years for the entire BBVA Group to encourage a forward-looking management of these risks. To that end, focuses have been identified from events, self-assessments and recommendations from auditors and supervisors in different geographies, both in the Group and the industry, thereby analyzing the best practices and fostering comprehensive action plans to strengthen and standardize the control environment.

One of the core plans is outsourcing management, which is an increasingly important subject in the Group, the industry and the regulatory environment. Some of the different initiatives launched under this scheme are summarized below:

·Strengthening the admission process of these initiatives and their control and monitoring frameworks.

·New internal regulation comprising the best practices of the industry.

·Integration in the 3 lines of defense control model: roles and responsibilities in each phase of its life cycle.

·Risk management of the service and the supplier.

·Review of its governance process, which is included in operational risk governance, and escalation criteria.

·Adaptation of the management tool to the new requirements.

·Internal communication process and training between outsourcing units and senior management, including these issues on the agenda of the main control committees of the Group.

This plan will still be promoted in the year 2019 with a focus on a review of the most significant outsourcing stock.

Governance of Non-financial risks

The non-financial risks governance model at the BBVA Group is based on two components:

·The three lines of defense control model, in accordance with the best practices of the industry and through which compliance with the most advanced standards in terms of operational risk internal control is ensured.

·Scheme of Corporate Assurance Committees and Operational Risk and Internal Control Committees at the level of the different business areas.

Corporate Assurance establishes a structure of corporate and local committees that provides Senior Management with a comprehensive and consistent view of the most relevant non-financial risks. The purpose is to ensure a forward-looking and prompt decision-making process for the mitigation or taking of the major risks both at a local level and at the level of the consolidated Group.

In addition, the Non-Financial Risks unit periodically reports the Risk Committee of the Board on the situation of non-financial risks management in the Group.

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7.77.2.8. Risk concentration

Policies for preventing excessive risk concentration

In order to prevent the build-up of excessive risk concentrations at the individual, sector, portfolio and portfoliogeography levels, BBVA Group maintains updated maximum permitted risk concentration indices which are tied to the various observable variables related to concentration risk.

Together with the limits for individual concentration, the Group uses the Herfindahl index to measure the concentration of the Group's portfolio and the banking group's subsidiaries. At the BBVA Group level, the index reached implies a "very low" degree of concentration.

The limit on the Group’s exposure or financial commitment to a specific customer therefore depends on the customer’s credit rating, the nature of the risks involved, and the Group’s presence in a given market, based on the following guidelines:

·           The aim is, as much as possible, to reconcile the customer's credit needs (commercial/financial, short-term/long-term, etc.) with the interests of the Group.

·           Any legal limits that may exist concerning risk concentration are taken into account (relationship between risks with a customer and the capital of the shareholder´s entity that assumes them), the markets, the macroeconomic situation, etc.

Risk concentrations by geography

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix IX.

Sovereign risk concentration

Sovereign risk management

The risk associated with the transactions involving sovereign risk is identified, measured, controlled and tracked by a centralized unit integrated in the BBVA Group’s Risk Area. Its basic functions involve the preparation of reports in the countries where sovereign risk exists (called “financial programs”), tracking such risks, assigning ratings to these countries and, in general, supporting the Group in terms of reporting requirements for any transactions involving sovereign risk. The risk policies established in the financial programs are approved by the relevant risk committees.

The country risk unit tracks the evolution of the risks associated with the various countries to which the Group are exposed (including sovereign risk) on an ongoing basis in order to adapt its risk and mitigation policies to any macroeconomic and political changes that may occur. Moreover, it regularly updates its internal ratings and forecasts for these countries. The methodology is based on the assessment of quantitative and qualitative parameters which are in line with those used by certain multilateral organizations such as the International Monetary Fund (IMF) and the World Bank, rating agencies and export credit organizations.

For additional information on sovereign risk in Europe see Appendix IX.

Valuation and impairment methods

The valuation methods used to assess the instruments that are subject to sovereign risks are the same ones used for other instruments included in the relevant portfolios and are detailed in Note 8.

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Specifically, the fair value of sovereign debt securities of European countries has been considered equivalent to their listed price in active markets (Level 1 as defined in Note 8).

Risk related to the developer and Real-Estate sector in Spain

The relative weight of the investment in Real Estate developments has dramatically decreased during the last years, especially since 2014.2014 and during 2018, when doubtful assets exited the balance sheet and recovery of the sector concluded. A corporate sales policy has been rolled out to eliminate those real estate assets from the balance sheet which have been most difficult to be commercialized.commercialize. The sales of 80% of the Group’s share in Divarian and of other performing and NPL wholesale portfolios to Funds and specialized investors have been some of the most relevant transactions (see Note 3).

Policies and strategies established by the Group to deal with risks related to the developer and real-estate sector

BBVA Group has teams specializing in the management of the Real-EstateReal Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in the Risk-Acceptancerisk teams, but throughout the handling, commercial, problem risks and legal, etc. It also includes the research department of the BBVA Group (BBVA Research), which helps determine the medium/long-term vision needed to manage this portfolio.

The policies established to address the risks related to the developer and real-estate sector, aim to accomplish, among others, the following objectives: to avoid concentration in terms of customers, products and regions; to estimate the risk profile for the portfolio; and to anticipate possible worsening of the portfolio within a sector is highly cycliccyclical.

F-77


Specific policies for analysis and admissiongranting of new developer risk transactions

In the analysis of new operations,transactions, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant.

The monitoring of the work, the sales prospects and the legal situation of the project are essential aspects for the admission and follow-up of new real estate operations.transactions. With regard the participation of the Risk Acceptance teams, they have a direct link and participate in the committees of areas such as Valuation, Legal, Research and Recoveries. This guarantees coordination and exchange of information in all the processes.

The following strategies have been implementedIn this context, and within the current Real Estate cycle, the strategy with customersclients is subject to an Asset Allocation limit and to an action framework that allows defining a target portfolio, both in the developer sector: avoidance of large corporate transactions, which had already reduced their share in the years of greatest market growth. Additionally, very restrictive limits have been established for the second-home market and for the of land operations. Feasibility studies, at project level, are performed by doing a contrast analysis in the pre-commercialization phase, with an appropriate funding cyclevolume and in locations with low commercialization risk.credit quality.

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Risk monitoring policies

The base information for analyzing the real estate portfolios is updated monthly. The tools used include the so-called “watch-list”, whichThere is updated monthlya systematic monitoring of developments under close monitoring with the progressevolution of each client under watch,works and the different strategic plans for management of special groups. There are plans that involve an intensification of the review of the portfolio for financing land, while, in the case of ongoing promotions, they are classified based on the rate of progress of the projects. This implies a comparison of the progress of the work and the sales, including a scoreboard which enables the persons in charge to detect timely any deviation from the project’s initial plan.

These actions have enabled BBVA to identify possible impairment situations, by always keeping an eye on BBVA’s position with each customer (whether or not as first creditor). In this regard, key aspects include management of the risk policy to be followed with each customer, contract review, improved collateral and rate review (repricing.sales. Since 2013, there are no threats of new defaults in the portfolio

Proper management of the relationship with each customer requires knowledge of various aspects such as an analysis of the company’s future viability, the updating of the information on the debtor and the guarantors (their current situation and business course, economic-financial information, debt analysis and generation of funds), and the updating of the appraisal of the assets offered as collateral.

The volume of restructurings during the last period has been very low, being close to 0.portfolio.

Policies applied in the management of real estate assets in Spain

Regarding theThe internal Rules on Real Estate Financing, which establish recommendations for financing of real estate, a new regulation has beenhousing development business, are reviewed and updated in 2018 in which recommendations for the promotion of residential real estate are established.annually.

The recommendations represent guidelines about how to manage the credit admission activity of BBVA Group entities based on best practices of markets in which this activity is performed. It is expected that a high percentage of the current transactions will be in compliance with the latter.

The guidelines apply to new transactions with clients which are not classified as impaired or Watchlist (WL1 or WL2).

The policies deriving from the guidelines foresee a prudential intervention in a market which has changed its cycle in almost all of the geographies and which is showing a more sustainable behavior in terms of demography, employment and economic and investment capacities.

For quantitative information about the risk related to the developer and Real-Estate sector in Spain see Appendix IX.

7.3. Market risk

Market risk originates from the possibility of experiencing losses in the value of positions held as a result of movements in market variables that affect the valuation of financial assets and liabilities. Market risk in the Group's trading portfolios stems mainly from the portfolios originated by Global Markets valued at fair value and held for the purpose of trading and generating short-term results. Market risk in the field of banking book is clearly and distinctly addressed and can be broken down into structural risks relating to interest rate, exchange rate and equity (see Note 7.4).

7.3.1. Market risk in trading portfolios

The main risks in the trading portfolios can be classified as follows:

Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all the financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

Credit-spread risk: Credit spread is an indicator of an issuer's credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

The metrics developed to assess market risk in the BBVA Group are aligned with market practices and are implemented consistently across all the local market risk units.

F-139F-78


Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group's Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers various risks, such as credit spread risk, basis risk, as well as volatility and correlation risk.

With respect to the risk measurement models used by the BBVA Group, the Bank of Spain has authorized the use of the internal market risk model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Mexico trading book, which jointly accounted for around 72%, 72% and 76% of the Group’s trading-book market risk as of December 31, 2020, 2019 and 2018. For the rest of the geographical areas where the Group operates (applicable mainly to the Group´s South America subsidiaries, Garanti BBVA and BBVA USA), bank capital for the risk positions in the trading book is calculated using the Standardized Approach defined by the Basel Committee on Banking Supervision (which is referred to herein as the "standard model”).

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the historical simulation methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it predicts the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years.

VaR figures are estimated with the following methodologies:

VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

The use of VaR by historical simulation methodology as a risk metric has many advantages, but also certain limitations, among which it is worth highlighting:

The estimate of the maximum daily loss of the Global Markets portfolio positions (with a confidence level of 99%) depends on the market movements of the last two years, not picking up the impact of large market events if they have not occurred within that historical window

The use of the 99% confidence level does not consider potential losses that can occur beyond this level. To mitigate this limitation, different stress exercises are also performed, as described later.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain's regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the risk factors inherent to market operations (including interest-rate risk, exchange-rate risk, equity risk and credit risk, among others). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

Specific Risk - Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The IRC charge is exclusively applied in entities in respect of which the internal market risk model is used (i.e. BBVA, S.A. and BBVA Mexico). The IRC charge is determined based on the associated losses (calculated at 99.9% confidence level over a one year horizon under the hypothesis of constant risk) due to a rating change and/or default of the issuer with respect to an asset. In addition, the price risk is included in sovereign positions for the specified items.

Specific Risk - Securitization and correlation portfolios. Capital charges for securitizations and correlation portfolios are assessed based on the potential losses associated with the rating level of a specific credit structure. They are calculated by the standard model. The scope of the correlation portfolios refers to the First To Default (FTD)-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the assessed positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at a trading desk level in order to enable more specific monitoring of the validity of the measurement models.

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Market risk in 2020

The Group’s market risk related to its trading portfolio remained at low levels compared to other risks managed by BBVA, particularly credit risk. This is due to the nature of the business. In 2020 the average VaR was €27 million, above the figure of 2019, with a maximum level in the year reached on the day May 14, 2020 of €39 million. The evolution in the BBVA Group’s market risk during 2020, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:

By type of market risk assumed by the Group's trading portfolio, the main risk factor for the Group continued to be that linked to interest rates, with a weight of 56% of the total at December 31, 2020 (this figure includes the spread risk). The relative weight of this risk has increased compared with the close of 2019 (58%). Exchange-rate risk accounted for 22% of the total risk, increasing its weight with respect to December 2019 (13%), while equity, volatility and correlation risk has decreased, with a weight of 22% at the close of 2020 (vs. 29% at the close of 2019).

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As of December 31, 2020, 2019 and 2018 the VaR was €32 million, €20 million and €17 million, respectively. The total VaR figures for 2020, 2019 and 2018 can be broken down as follows:

VaR by Risk Factor (Millions of Euros)

 

Interest/Spread risk

Currency risk

Stock-market risk

Vega/Correlation risk

Diversification effect(*)

Total

2020

 

 

 

 

 

 

VaR average in the year

29

12

4

11

(28)

27

VaR max in the year

39

20

10

20

(14)

39

VaR min in the year

20

3

1

6

(39)

18

End of period VaR

32

12

2

11

(29)

28

2019

 

 

 

 

 

 

VaR average in the year

21

6

4

9

(20)

19

VaR max in the year

28

6

3

9

(21)

25

VaR min in the year

13

5

5

9

(18)

14

End of period VaR

24

5

5

8

(22)

20

2018

 

 

 

 

 

 

VaR average in the year

20

6

4

9

(20)

21

VaR max in the year

23

7

6

11

(21)

26

VaR min in the year

17

6

4

7

(18)

16

End of period VaR

19

5

3

7

(17)

17

(*)          The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

Validation of the internal market risk model

The internal market risk model is validated on a regular basis by backtesting in both, BBVA, S.A. and Global Markets Mexico (in BBVA Mexico). The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group's results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both, BBVA, S.A. and Global Markets Mexico is adequate and precise.

Two types of backtesting have been carried out in 2020, 2019 and 2018:

"Hypothetical" backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

"Real" backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at a risk factor or business type level, thus making a deeper comparison of the results with respect to risk measurements.

For the period between the year ended December 31, 2019 and the year ended December 31, 2020, the backtesting of the internal VaR calculation model was carried out, comparing the daily results obtained to the risk level estimated by the internal VaR calculation model. In that period, there were no negative exceptions in BBVA S.A., while in BBVA Mexico there were a total of 3 exceptions. The COVID-19 epidemic together with the fall in the oil price resulted in a sharp depreciation of the local currency, a considerable spike in stock market volatility, a breakdown of the correlation between different curves and an abrupt movement in local interest rate curves.

At the end of the year the comparison showed the internal VaR calculation model was working correctly, within the "green" zone (0-4 exceptions), thus validating the internal VaR calculation model, as has been the case each year since the internal market risk model was approved for the Group.

Stress testing

A number of stress tests are carried out on the BBVA Group's trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the "Tequilazo" crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions

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Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

·Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings. 

·Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

·Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on resampling methodology. This methodology is based on the use of dynamic scenarios that are recalculated periodically depending on the main risks affecting the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from January 1, 2008 until the date of the assessment), a simulation is performed by resampling of historic observations, generating a distribution of losses and gains that serve to analyze the most extreme of births in the selected historical window. The advantage of this methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a greater richness of information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) there is flexibility in the inclusion of new risk factors and c) it allows the introduction of a lot of variability in the simulations (desirable for considering extreme events).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio based on the expected shortfall (expected shortfall calculated at a 95% confidence level, 20 days) as of December 31, 2020 is as follows:

Impact of the stress test (Millions of Euros)

 

Europe

Mexico

Peru

Venezuela

Argentina

Colombia

Turkey

Expected shortfall

(121)

(69)

(8)

-

(8)

(4)

(8)

7.3.2. Financial Instruments offset

Financial assets and liabilities may be netted in certain cases. In particular, they are presented for a net amount on the consolidated balance sheet only when the Group's entities satisfy the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability.

In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling the net amount. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity.

In the current market context, derivatives are contracted under different framework contracts being the most widespread the ones developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”). Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as "Master Netting Agreement", greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, many of the transactions involving assets purchased or sold under a repurchase agreement are transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signing of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by the International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.

A summary of the effect of offsetting (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2020, 2019 and 2018:

December 2020 (Millions of Euros)

 

 

 

 

 

Gross amounts not offset in the consolidated balance sheets (D)

 

 

Notes

Gross amounts recognized (A)

Gross amounts offset in the consolidated balance sheets (B)

Net amount presented in the consolidated balance sheets (C=A-B)

Financial instruments

Cash collateral received/ pledged

Net amount (E=C-D)

Trading and hedging derivatives

10, 15

47,862

5,688

42,173

33,842

9,018

(686)

Reverse repurchase, securities borrowing and similar agreements

 

34,500

-

34,500

35,141

161

(802)

Total assets

 

82,362

5,688

76,674

68,983

9,178

(1,488)

Trading and hedging derivatives

10, 15

49,720

5,722

43,998

33,842

9,435

721

Repurchase, securities lending and similar agreements

 

43,950

-

43,950

44,677

1,619

(2,346)

Total liabilities

 

93,670

5,722

87,948

78,519

11,054

(1,624)

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December 2019 (Millions of Euros)

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets (D)

 

 

Notes

Gross amounts recognized (A)

Gross amounts offset in the consolidated balance sheets (B)

Net amount presented in the consolidated balance sheets (C=A-B)

Financial instruments

Cash collateral received/ pledged

Net amount (E=C-D)

Trading and hedging derivatives

10, 15

36,349

2,388

33,961

25,020

8,210

731

Reverse repurchase, securities borrowing and similar agreements

 

35,805

21

35,784

35,618

204

(39)

Total assets

 

72,154

2,409

69,744

60,637

8,415

692

Trading and hedging derivatives

10, 15

38,693

2,394

36,299

25,020

10,613

667

Repurchase, securities lending and similar agreements

 

45,977

21

45,956

45,239

420

297

Total liabilities

 

84,670

2,414

82,256

70,259

11,033

964

December 2018 (Millions of Euros)

 

 

 

 

 

Gross Amounts Not Offset in the Consolidated Balance Sheets (D)

 

 

Notes

Gross amounts recognized (A)

Gross amounts offset in the consolidated balance sheets (B)

Net amount presented in the consolidated balance sheets (C=A-B)

Financial instruments

Cash collateral received/ pledged

Net amount (E=C-D)

Trading and hedging derivatives

10, 15

48,895

16,480

32,415

24,011

7,790

613

Reverse repurchase, securities borrowing and similar agreements

 

28,074

42

28,032

28,022

169

(159)

Total assets

 

76,969

16,522

60,447

52,033

7,959

454

Trading and hedging derivatives

10, 15

50,583

17,101

33,481

24,011

6,788

2,682

Repurchase, securities lending and similar agreements

 

43,035

42

42,993

42,877

34

82

Total liabilities

 

93,618

17,143

76,474

66,888

6,822

2,765

The amount of recognized financial instruments within derivatives includes the effect in case of compensation with counterparties with which the Group holds netting agreements, while, for repos, it reflects the market value of the collateral associated with the transaction.

7.4. Structural risk

The structural risks are defined, in general terms, as the possibility of sustaining losses due to adverse movements in market risk factors as a result of mismatches in the financial structure of an entity´s balance sheet.

In the Group, the following types of structural risks are defined, according to the nature and the following market factors: interest rate, exchange rate and equity.

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The scope of structural risks in the Group is limited to the banking book, excluding market risks in the trading book that are clearly delimited and separated and make up the Market Risks.

The Assets and Liabilities Committee (ALCO) is the main responsible body for the management of structural risks regarding liquidity/ funding interest rate, currency, equity and solvency. Every month, with the participation of the CEO and representatives from the areas of Finance, Risks and Business Areas; this committee monitors the structural risks and is presented with proposals with regard to action plans related with its management for its approval. These management proposals are made by the Finance area with a forward-looking focus, maintaining the alignment with the risk appetite framework, trying to guarantee the recurrence of results and financial stability, as well as to preserve the solvency of the entity. All balance management units have a local ALCO, which is permanently attended by members of the corporate center, and there is a corporate ALCO where management strategies are monitored and presented in the Group's subsidiaries.

GRM area acts as an independent unit, enabling adequate separation between the management and risk control functions, and is responsible for assisting the structural risks in the Group are managed according to the strategy approved by the Board of Directors.

Consequently, GRM deals with the identification, measurement, monitoring and control of those risks and their reporting to the corresponding corporate bodies. Through the Global Risk Management Committee (GRMC), it performs the function of control and risk assessment and is responsible for developing the strategies, policies, procedures and infrastructure necessary to identify, evaluate, measure and manage the significant risks that the BBVA Group faces. To this end, GRM, through the corporate unit of Structural Risks, proposes a scheme of limits and alerts that defines the risk appetite set for each of the relevant structural risk types, both at Group level and by management units, which will be reviewed annually, reporting the situation periodically to the Group's corporate bodies as well as to the GRMC.

Within the three lines of defense scheme in which BBVA's internal control model is established according to the most advanced standards in terms of internal control, the first line of defense is composed by the Finance area, which is responsible for managing the structural risk.

While GRM, as a second line of defense, is in charge of identifying risks, and establishing policies and control models, periodically evaluating their effectiveness.

In the second line of defense, there are also the Internal Risk Control units, which independently review the Structural Risk control, and Internal Financial Control, which carry out a review on the design and effectiveness of the operational controls over structural risk management.

The third line of defense is represented by the Internal Audit area, which, with total independence, is responsible for reviewing specific controls and processes.

7.4.1. Structural interest rate risk

The structural interest-rate risk (“IRRBB”) is related to the potential impact that variations in market interest rates have on an entity's net interest income and equity. In order to properly measure IRRBB, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed with an integral vision, combining two complementary points of view: net interest income (short term) and economic value (long term).

The exposure of a financial entity to adverse interest rates movements is a risk inherent to the development of the banking business, which is also, in turn, an opportunity to create economic value. Therefore, interest rate risk must be effectively managed so that it is limited in accordance with the entity’s equity and in line with the expected economic result.

This function falls to the Global ALM (Asset & Liability Management) unit, within the Finance area, who, through ALCO, aims to support the recurrence of results and preserve the solvency of the entity, always adhering to the risk profile defined by the management bodies of the BBVA Group. The interest rate risk management of the balance sheet aims to promote the stability of the net interest income and book value with respect to changes in market interest rates, types of markets in the different balance-sheets, while respecting solvency and internal limits, as well as complying with current and future regulatory requirements. Likewise, a specific monitoring of the banking book instruments registered at market value (fair value) is developed, which due to their accounting treatment have an impact on results and / or equity.

In this regard, the BBVA Group maintains an exposure to fluctuations on interest rates according to its objective strategy and risk profile, being carried out in a decentralized and independent manner in each of the banking entities that compose its structural balance-sheet.

The management is carried out in accordance with the guidelines established by the European Banking Authority (EBA), with a monitoring of interest rate risk metrics, with the aim of analyzing the potential impact that could be derived from the range of scenarios in the different balance-sheets of the Group.

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Nature of Interest Rate Risk

Repricing risk arises due to the difference between the repricing or maturity terms of the assets and liabilities, and represents the most frequent interest rate risk faced by financial entities. However, other sources of risk as changes in the slope and shape of the yield curve, the reference to different indexes and the optionality risk embedded in certain banking transactions, are also taken into account by the risk control system.

BBVA's structural interest-rate risk management process is formed from a set of metrics and tools that enables the capture of additional sources to properly monitor the risk profile of the Group, backed-up by an assumptions set that aims to characterize the behavior of the balance sheet items with the maximum accuracy.

The IRRBB measurement is carried out on a monthly basis, and includes probabilistic measures based on methods of scenario simulation, which enables to capture additional sources of risk to the parallel shifts, as the changes in slope shape and the basis of yield curves. Additionally, sensitivity analysis to multiple parallel shocks of different magnitude are also assessed on a regular basis. The process is run separately for each currency to which the Group is exposed, considering, at a later stage, the diversification effect among currencies and business units.

The risk measurement model is complemented by the assessment of ad-hoc scenarios and stress tests. As stress testing has become more relevant during the recent years, the evaluation of extreme scenarios of rupture of historical interest rates levels, correlations and volatility has continued to be enhanced, while assessing, also, BBVA Research market scenarios, and incorporating the set of scenarios defined according to EBA guidelines.

During 2020, the Group worked to improve the control and management model in accordance with the guidelines established by the EBA on the management of interest rate risk in the banking book. It is worth highlighting, among other aspects, the reinforcement of the stress analysis, including the evaluation of the impacts on the main balance sheet accounts of the Group that could derive from the range of interest rate scenarios defined according to the EBA guidelines mentioned above.

Key assumptions of the model

In order to measure structural interest rate risk, the setting of assumptions on the evolution and behavior of certain balance sheet items is particularly relevant, especially those related to products without an explicit or contractual maturity.

The assumptions that characterize these balance sheet items must be understandable for the areas and bodies involved in risk management and control and remain duly justified and documented. The modeling of these assumptions must be conceptually reasonable and consistent with the evidence based on historical experience, reviewed at least once a year.

In view of the heterogeneity of the financial markets and the availability of historical data, each one of the entities of the Group is responsible for determining the behavior assumptions to be applied to the balance sheet items, always under the guidelines and the applicability of the corporate models existing in the Group.

Among the balance sheet assumptions stand out those established for the treatment of items without contractual maturity, mainly for demand customer deposits, and those related to the expectations on the exercise of interest rate options, especially those relating to loans and deposits subject to prepayment risk.

For the modeling of demand deposits, a segmentation of the accounts in several categories is previously carried out depending on the characteristics of the customer (retail / wholesale) and the product (type of account / transactionality / remuneration), in order to outline the specific behavior of each segment.

In order to establish the remuneration of each segment, the relationship between the evolution of market interest rates and the interest rates of managed accounts is analyzed, with the aim of determining the translation dynamic (percentages and lags) of interest rates variations to the remuneration of the accounts.

The behavior assigned to each category of accounts is determined by an analysis of the historical evolution of the balances and the probability of cancellation of the accounts. For this, the volatile part of the balance assigned to a short-term maturity is isolated, thus avoiding fluctuations in the level of risk caused by specific variations in the balances and promoting stability in the management of the balance. Once the stable part is identified, a medium / long term maturity model is applied through a decay distribution based on the average term of the accounts and the conditional cancellation probabilities throughout the life of the product.

Additionally, the relationship of the evolution of the balance of deposits with the levels of market interest rates is taken into account, where appropriate, including the potential migration between the different types of deposits (on demand / time deposits) in the different interest rate scenarios.

Equally relevant is the treatment of early cancelation options embedded in credit loans, mortgage portfolios and customer deposits. The evolution of market interest rates may condition, along with other variables, the incentive that customers have to prepay loans or deposits, modifying the future behavior of the balance amounts with respect to the forecasted contractual maturity schedule.

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The detailed analysis of the historical information related to prepayment data, both partial and total prepayment, combined with other variables such as interest rates, allows estimating future amortizations and, where appropriate, their behavior linked to the evolution of such variables.

The approval and updating of the risk behavior models of structural interest rate risk are subject to corporate governance under the scope of GRM-Analytics. In this way, the models must be properly inventoried and cataloged and comply with the requirements established in the internal procedures for their development, updating and management of the changes. The models are also subject to the corresponding internal validations based on their relevance and the established monitoring requirements.

The table below shows the profile of average interest rate risk in terms of sensitivities of the main currencies in the BBVA Group in 2020:

Sensitivity to interest-rate analysis - December 2020

Impact on net interest income (*)

Impact on economic value (**)

100 basis-point increase

100 basis-point decrease (***)

100 basis-point increase

100 basis-point decrease (***)

EUR

[1.5% , 3.5%]

[-1.5% , -0.5%]

[3.5% , 5.5%]

[-3.5% , -1.5%]

MXN

[0.5% , 1.5%]

[-1.5% , -0.5%]

[-1.5% , -0.5%]

[0.5% , 1.5%]

TRY

[-0.5% , 0.5%]

[-0.5% , 0.5%]

[-0.5% , 0.5%]

[-0.5% , 0.5%]

Other

[-0.5% , 0.5%]

[-0.5% , 0.5%]

[-0.5% , 0.5%]

[-0.5% , 0.5%]

BBVA Group

[3.5% , 5.5%]

[-3.5% , -1.5%]

[3.5% , 5.5%]

[-3.5% , -1.5%]

(*)         Percentage of "1 year" net interest income forecast for each unit.

(**)        Percentage of Core Capital for each unit.

(***)       In EUR and USD, negative interest rates scenarios are allowed up to plausible levels lower than current rates.

During 2020, central banks and governments have carried out monetary stimulus measures to mitigate the economic impact caused by the COVID-19 pandemic, which has significantly affected the global economy, spreading to most countries. In Europe, the monetary stimulus measures of the European Central Bank have continued, and the Euribor have fallen, reaching historical low records. In the United States, the reference rates (Libor) have maintained a downward trend, in line with the cuts made by the Federal Reserve in the first quarter of the year. Also in Mexico, the monetary policy rate has fallen significantly during the year. In Turkey, although it initially showed a downward trend in interest rates, aggressive increases have been registered since August, reversing the declines of previous quarters, ending the year with an increase of 500 basis points above December's level of 2019.

In South America, monetary policy has been expansionary, with a reduction in reference rates in the economies of Colombia and Peru, reaching historical low records, affected by the contraction in activity. On the other hand, in Argentina there is a strongly restrictive monetary policy, with a high increase in interest rates in the second half of the year, due to the strong volatility of the markets, affected by the devaluation of the exchange rate.

The BBVA Group, at an aggregate level, continues to maintain a moderate risk profile, in accordance with the established objective, showing a favorable position to a rise in interest rates on net interest income. Effective management of the balance sheet structural risk has mitigated the negative impact of the downward trend in interest rates and the volatility experienced as a result of the effects of COVID-19, and is reflected in the strength and recurrence of the margin of interests:

·In Europe and the United States, the downward trend in interest rates remains limited by current levels, preventing extremely adverse scenarios from occurring. Both balance sheets are characterized by a loan portfolio with a high proportion referenced to a variable interest rate (mainly mortgages in Spain and loans to companies in both countries) and a liability composed mainly of customer deposits. The COAP portfolios act as hedging of the bank balance, mitigating its sensitivity to interest rate movements. This profile has remained stable during 2020 on both balance sheets. In Spain, the sensitivity of the interest margin has increased in the year due to the maintenance of higher balances of sensitive liquid assets as a result of the generation of liquidity on the balance sheet and the additional financing of TLTRO III (see Note 22), and due to maturity of a part of the coverage of the mortgage portfolio. In the United States, the sensitivity has been reduced due to the balance sheet hedges carried out in late 2019 and early 2020.

·In Mexico, a balance has been maintained between balances referenced to fixed and variable interest rates. Among the assets most sensitive to interest rate movements, the wholesale portfolio stands out, while consumer and mortgages are mostly at a fixed rate. The COAP portfolio is used to balance the longer term of customer deposits. The sensitivity of the interest margin remains limited and stable during 2020, considering the new interest rate scenario that emerged in March, with a downward trend in rates benchmark throughout 2020.

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·In Turkey, the interest rate risk on the balance sheet increased during 2020, as a result of regulatory requirements (such as the Asset Ratio, applied by the Banking Regulation Supervision Agency (BRSA) and the Good Bank, established by the Central Bank of Turkey (CBRT)) that encourage loan growth. As a result of the establishment of these Regulations, the growth of loans, mostly at a fixed rate, together with the increase in the COAP portfolio, negatively affected sensitivity, being offset by inflation-linked bonds and floating bonds, as well as due to the increase in deposits in the liability side.

·In South America, the risk profile on interest rates continues to be low, as most of the countries in the area have a composition of fixed / variable and very similar maturities between assets and liabilities, showing a sensitivity of the margin interest rate limited and with slight variations throughout 2020. Likewise, in countries with balances in several currencies, interest rate risk is also managed for each of the currencies, showing a very low level of risk. The measures promoted by central banks and governments have contributed to raising deposits and excess liquidity in Colombia and Peru, as well as their positions in monetary assets, generating a slight positive variation in margin sensitivity.

7.4.2. Structural exchange-rate risk

Structural exchange rate risk, inherent to the business of international banking groups that develop their activities in different geographies and currencies, is defined as the possibility of impacts on solvency, equity value and results driven by fluctuations in the exchange rates due to exposures in foreign currencies.

In the BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint management of permanent foreign currency exposures, taking diversification into account.

The corporate Global ALM unit, through ALCO, designs and executes hedging strategies with the main purpose of preserving the stability of consolidated capital ratios and income flows generated in a currency other than the euro in the BBVA Group, keeping a value generation perspective to preserve the Group’s equity in the long term. To this end, a dynamic management strategy is carried out, considering hedge transactions according to market expectations and their costs.

The risk monitoring metrics included in the framework of limits, in line with the Risk Appetite Framework, are integrated into management and supplemented with additional assessment indicators. At the corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

The suitability of these risk assessment metrics is reviewed on a regular basis through back-testing exercises. The final element of structural exchange-rate risk control is the stress and scenario analysis aimed to assess the vulnerabilities of foreign currency structural exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

As of December 31, 2020, the main currencies of the geographies where the Group operates have depreciated against the euro during the year: Mexican peso (-13.1%), US Dollar (-8.5%), Turkish lira (-26.7%), Colombian peso (-12.6%), Peruvian sol (-16.3%) and Argentine peso (-34.8%).

The Group's structural exchange-rate risk exposure level has in some cases increased due to the restrictions related to dividend payments from the subsidiaries which have offset the reduction in risk due to the depreciation of the currencies. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging markets currencies against the euro. The risk mitigation level in the capital ratio due to the book value of the BBVA Group's holdings in foreign emerging markets currencies stood at around 65% and, as of the end of 2020, CET1 ratio sensitivity to the depreciation of 10% in the euro exchange rate for each currency is estimated: USD +9 bps; Mexican peso -5 bps; Turkish lira -2 bps; other currencies -1 bp (excluding hyperinflation economies). On the other hand, hedging of emerging markets currency denominated earnings in 2020 reached 65%, concentrated in Mexican peso, Turkish lira and the main Latin American currencies.

For the years 2020, 2019 and 2018, the estimated sensitivities of the result attributable to the parent company are shown below, taking into account the coverage against depreciations and appreciations of 1% of the average rate in the main currencies. To the extent that hedging positions are periodically modulated, the sensitivity estimate attempts to reflect an average (or effective) sensitivity in the year:

Sensitivity to 1% (Millions of Euros)

 

 

 

 

Currency

2020

2019

2018

Mexican peso

4.9

12.7

13.0

Turkish lira

4.5

3.1

3.0

Peruvian sol

0.4

1.9

1.3

Chilean peso

0.3

0.5

0.7

Colombian peso

1.4

2.6

1.9

Argentine peso

0.9

1.3

(0.3)

US Dollar

4.3

5.9

7.3

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7.4.3. Structural equity risk

Structural equity risk refers to the possibility of suffering losses in the value of positions in shares and other equity instruments held in the banking book with long or medium term investment horizons due to fluctuations in the value of equity indexes or shares.

BBVA Group's exposure to structural equity risk arises largely from minority shareholdings held on industrial and financial companies. This exposure is modulated in some portfolios with positions held on derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.

The management of structural equity portfolios is a responsibility of Global ALM and other Group's units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, complying with the defined management principles and Risk Appetite Framework.

The structural equity risk metrics, designed by GRM according to the corporate model, contribute to the effective monitoring of the risk by estimating the sensitivity and the capital necessary to cover the possible unexpected losses due to changes in the value of the shareholdings in the Group's investment portfolio, with a level of confidence that corresponds to the objective rating of the entity, taking into account the liquidity of the positions and the statistical behavior of the assets to be considered

In order to analyze the risk profile in depth, stress tests and scenario analysis of sensitivity to different simulated scenarios are carried out. They are based on both past crisis situations and forecasts made by BBVA Research. These analyses are carried out regularly to assess the vulnerabilities of structural equity exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions.

Backtesting is carried out on a regular basis on the risk measurement model used.

Global Equity markets have been severely affected by the outbreak of the coronavirus in the first quarter. The extraordinary fiscal and monetary response fostered their recovery although this has been uneven across different geographies and sectors. In this sense, the Spanish equity market has shown one of the worst performances as it fell 15% during 2020.

Structural equity risk, measured in terms of economic capital, has remained fairly stable in the period. The aggregate sensitivity of the BBVA Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio decreased to -€20 million as of December 31, 2020, compared to -€26 million as of December 31, 2019. This estimation takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area portfolios) and the net delta-equivalent positions in derivatives on the same underlyings

7.5. Liquidity and funding risk

Liquidity and funding risk is defined as the incapacity of a bank in meeting its payment commitments due to lack of funds or that, to face those commitments, should have to make use of funding under burdensome terms.

7.5.1. Liquidity and Funding Strategy and Planning

The BBVA Group is a multinational financial institution whose business is focused mainly on retail and commercial banking activities. In addition to the retail business model, which forms its core business, the Group engages in corporate and investment banking, through the global CIB (Corporate & Investment Banking) division.

Liquidity and funding risk management aims to maintain a solid balance sheet structure which allows a sustainable business model. The Group’s liquidity and funding strategy is based on the following pillars:

·The principle of the funding self-sufficiency of its subsidiaries, meaning that each of the Liquidity Management Units (LMUs) must cover its funding needs independently on the markets where it operates. This avoids possible contagion due to a crisis affecting one or more of the Group’s LMUs.

·Stable customer deposits as the main source of funding in all the LMUs, in accordance with the Group’s business model.

·Diversification of the sources of wholesale funding, in terms of maturity, market, instruments, counterparties and currencies, with recurring access to the markets.

·Compliance with regulatory requirements, enabling the availability of ample liquidity buffers, of high quality, as well as sufficient instruments as required by regulations with the capacity to absorb losses.

·Compliance with the internal Liquidity Risk and Funding metrics, while adhering to the Risk Appetite level established for each LMU at any time.

Liquidity and Financing Risk Management aims, in the short term, to prevent an entity from having difficulties in meeting its payment commitments in due time and form or that, to meet them, it has to resort to obtaining funds in burdensome conditions that deteriorate the image or reputation of the entity.

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In the medium term, its objective is to support the suitability of the Group's financial structure and its evolution, within the framework of the economic situation, the markets and regulatory changes.

This management of structural and liquidity funding is based on the principle of financial self-sufficiency of the entities that comprise it. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability during periods of high risk. This decentralized management prevents possible contagion from a crisis affecting only one or a few Group entities, which must act independently to meet their liquidity requirements in the markets where they operate.

Within this strategy, the BBVA Group is organized into eleven LMUs compose of the parent company and the bank subsidiaries in each geography, plus the branches that depend on them.

In addition, the policy for managing liquidity and funding risk is also based on the model’s robustness and on the planning and integration of risk management into the budgeting process of each LMU, according to the financing risk appetite that it decides to assume in its business.

Liquidity and funding planning is part of the strategic processes for the Group’s budgetary and business planning. This objective is to allow a recurrent growth of the banking business with suitable maturities and costs within the established risk tolerance levels by using a wide range of instruments which allow the diversification of the funding sources and the maintenance of a high volume of available liquid assets.

7.5.2. Governance and monitoring

The responsibility for liquidity and funding management in the development of normal business activity lies with the Finance area as a first line of defense in managing the risks inherent to this activity, in accordance with the principles established by the European Banking Authority (EBA) and in line with the most demanding standards, policies, procedures and controls in the framework established by the governing bodies. Finance, through the Balance-Sheet Management area, plans and executes the funding of the structural long-term gap of each LMU and proposes to the Assets and Liabilities Committee (ALCO) the actions to be taken on this matter, in accordance with the policies established by the Risk Committee in line with the metrics of the Risk Appetite Framework approved by the Board of Directors.

Finance is also responsible for preparing the regulatory reporting of liquidity, coordinating with the responsible areas in each LGU the necessary processes to cover the requirements at corporate and regulatory level, enabling the integrity of the information provided.

GRM is responsible for promoting the liquidity and financing risk in the Group is managed in accordance with the framework established by governing bodies. It also deals with the identification, measurement, monitoring and control of such risks and their communication to the relevant corporate bodies. In order to carry out this task properly, the risk function in the Group has been configured as a single, global function, independent of the management areas.

Additionally, the Group has, in its second line of defense, an Internal Risk Control unit, which performs an independent review of the control of Liquidity and Financing Risk, and a Financial Internal Control Unit that reviews the design and effectiveness of the controls operations on liquidity management and reporting.

As the third line of defense of the Group's internal control model, Internal Audit is in charge of reviewing specific controls and processes in accordance with a work plan that is drawn up annually.

The Group’s fundamental objectives regarding the liquidity and funding risk are determined through the Liquidity Coverage Ratio (LCR) and through the Loan-to-Stable Customer Deposits (LtSCD) ratio.

The LCR ratio is a regulatory metric that aims to enable the resilience of entities in a scenario of liquidity tension within a time horizon of 30 days. Within its risk appetite framework and system of limits and alerts, BBVA has established a required LCR compliance level for the entire Group and for each individual LMU. The internal levels required are aimed at efficiently meeting the regulatory requirement, at a widely level above 100%.

The LtSCD ratio measures the relationship between net lending and stable customer funds. The aim is to preserve a stable funding structure in the medium term for each of the LMUs which make up the BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile. In geographical areas with dual-currency balances, the indicator is also controlled by currency to manage the mismatches that might occur.

Stable customer funds are considered to be the financing obtained and managed from the LMUs among their target customers. Those funds are characterized by their low sensitivity to market changes and by their less volatile behavior at aggregated level per operation due to the loyalty of the customer to the entity. The stable resources are calculated by applying to each identified customer segment a haircut determined by the analysis of the stability if the balances by which different aspects are evaluated (concentration, stability, level of loyalty). The main source of stable resources arises from wholesale funding and retail customer funds.

In order to establish the target (maximum) levels of LtSCD in each LMU and provide an optimal funding structure reference in terms of risk appetite, the corporate Structural Risks unit of GRM identifies and assesses the economic and financial variables that condition the funding structures in the different geographical areas.

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Additionally, liquidity and funding risk management aims to achieve a proper diversification of the funding structure, avoiding excessive dependence on short-term funding by establishing a maximum level for the short-term funds raised, including both wholesale financing and the least stable proportion of customer funds In relation to long-term financing, the maturity profile does not present significant concentrations, which makes it possible to adapt the schedule of the planned issuance plan to the best financial conditions in the markets. Lastly, concentration risk is monitored at LMU level, with the aim of supporting a correct diversification of both the counterparty and type of instrument.

One of the fundamental metrics within the general management framework of the liquidity and funding risk is the maintenance of a liquidity buffer consisting of high quality assets free of charges which can be sold or offered as collateral to obtain funding, either under normal market conditions or in stress situations.

The Finance is responsible for the collateral management and determining the liquidity buffer within the BBVA Group. According to the principle of auto-sufficiency of the Group's subsidiaries, each LMU is responsible for maintaining a buffer of liquid assets which complies with the regulatory requirements applicable under each jurisdiction. In addition, the liquidity buffer of each LMU must be aligned with the liquidity and funding risk tolerance as well as the management limits set and approved for each case.

In this context, the short-term resistance of the liquidity risk profile is promoted, supporting that each LMU has sufficient collateral to deal with the risk of the closure of wholesale markets. Basic capacity is the internal metric for the management and control of short-term liquidity risk, which is defined as the relationship between the explicit assets available and the maturities of wholesale liabilities and volatile resources, at different time periods up to the year, with special relevance at 30 and 90 days, with the objective of preserving the survival period above 3 months with the available buffer, without considering the balance inflows.

As a fundamental element of the liquidity and financing risk monitoring scheme, stress tests are carried out. They enable to anticipate deviations from the liquidity targets and the limits set in the appetite, and to establish tolerance ranges in the different management areas. They also play a major role in the design of the Liquidity Contingency Plan and the definition of specific measures to be adopted to rectify the risk profile if necessary.

For each scenario, it is checked whether BBVA has a sufficient stock of liquid assets to assist its capacity to meet the liquidity commitments/outflows in the different periods analyzed. The analysis considers four scenarios: one central and three crisis-related (systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the entity’s clients; and a mixed scenario, as a combination of the two aforementioned scenarios). Each scenario considers the following factors: existing market liquidity, customer behavior and sources of funding, the impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the development of BBVA's credit quality.

The stress tests conducted on a regular basis by GRM reveal that BBVA maintains a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario resulting from the combination of a systemic crisis and an unexpected internal crisis, during a period of longer than 3 months in general for the different LMUs (with the exception of Turkey where despite closing the year above 3 months, the regulatory requirements have led to non-compliance during certain periods), including in the scenario of a significant downgrade of the Bank’s rating by up to three notches.

Together with the results of the stress tests and the risk metrics, the early warning indicators play an important role within the corporate model and the Liquidity Contingency Plan. They are mainly indicators of the funding structure, in relation to asset encumbrance, counterparty concentration, flights of customer deposits, unexpected use of credit facilities, and of the market, which help anticipate possible risks and capture market expectations.

Finance is the area responsible for the elaboration, monitoring, execution and update of the liquidity and funding plan and of the market access strategy to assist and improve the stability and diversification of the wholesale funding sources.

In order to implement and establish management in an anticipated manner, limits are set on an annual basis for the main management metrics that form part of the budgeting process for the liquidity and funding plan. This framework of limits contributes to the planning of the joint future performance of:

The loan book, considering the types of assets and their degree of liquidity, as well as their validity as collateral in collateralized funding.

Stable customer funds, based on the application of a methodology for establishing which segments and customer balances are considered to be stable or volatile funds based on the principle of sustainability and recurrence of these funds.

Projection of the credit gap, in order to require a degree of self-funding that is defined in terms of the difference between the loan-book and stable customer funds.

Incorporating the planning of securities portfolios into the banking book, which include both fixed-interest and equity securities, and are classified as financial assets at fair value through other comprehensive income and at amortized cost, and additionally on trading portfolios.

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The structural gap projection, as a result of assessing the funding needs generated both from the credit gap and by the securities portfolio in the banking book, together with the rest of on-balance-sheet wholesale funding needs, excluding trading portfolios. This gap therefore needs to be funded with customer funds that are not considered stable or on wholesale markets.

As a result of these funding needs, the BBVA Group plans the target wholesale funding structure according to the tolerance set in each LMU target.

Thus, once the structural gap has been identified and after resorting to wholesale markets, the amount and composition of wholesale structural funding is established in subsequent years, in order to maintain a diversified funding mix and guarantee that there is not a high reliance on short-term funding (short-term wholesale funding plus volatile customer funds).

In practice, the execution of the principles of planning and self-funding at the different LMUs results in the Group’s main source of funding being customer deposits, which consist mainly of demand deposits, savings deposits and time deposits.

As sources of funding, customer deposits are complemented by access to the interbank market and the domestic and international capital markets in order to address additional liquidity requirements, implementing domestic and international programs for the issuance of commercial paper and medium and long-term debt.

The process of analysis and assessment of the liquidity and funding situation and of the inherent risks is a process carried out on an ongoing basis in the BBVA Group, with the participation of all the Group areas involved in liquidity and funding risk management. This process is carried out at both local and corporate level. It is incorporated into the decision- making process for liquidity and funding management, with integration between the risk appetite strategy and establishment and the planning process, the funding plan and the limits scheme.

7.5.3. Liquidity and funding performance

During 2020, the BBVA Group has maintained a robust and dynamic funding structure with a predominantly retail nature, where customer resources represent the main source of funding.

During 2020, liquidity conditions have remained comfortable in all the countries where the BBVA Group operates. Since the beginning of March, the global crisis caused by COVID-19 has had a significant impact on financial markets. The effects of this crisis on the Group's balance sheets materialized fundamentally at first, through greater provision of credit lines by wholesale clients in view of the worsening financing conditions in the markets, with no significant effect on the retail world. These provisions were largely paid off over the following quarters. Dealing with this situation of initial uncertainty, the different central banks provided a joint response through specific measures and programs to facilitate the financing of the real economy and the provision of liquidity in financial markets, increasing liquidity buffers in almost all areas with BBVA presence.

Thus, the performance of the indicators show that the robustness of the funding structure remained steady during 2020, 2019 and 2018, in the sense that all LMUs held self-funding levels with stable customer resources above the requirements.

LtSCD by LMU

 

2020

2019

2018

Group (average)

95%

108%

106%

Eurozone

97%

108%

101%

BBVA USA

92%

111%

119%

BBVA Mexico

98%

116%

114%

Garanti BBVA

95%

99%

110%

Other LMUs

86%

103%

99%

With respect to LCR, the Group has maintained a liquidity buffer at both a consolidated and individual level in 2020. As a result, the ratio has remained comfortably above 100%, with the consolidated ratio as of December 31, 2020 standing at 149%.

Although this requirement is only established at a Group level, for banks in the Eurozone, the minimum level required is comfortably exceeded in all subsidiaries. It should be noted that the calculation of the Consolidated LCR does not allow the transfer of liquidity between subsidiaries, so no excess liquidity may be transferred from these entities for the purpose of calculating the consolidated ratio. If the impact of these highly liquid assets was considered, the LCR would be 185%, or +36 basis points above the required level.

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LCR main LMU

0

2020

2019

2018

Group

149%

129%

127%

Eurozone

173%

147%

145%

BBVA USA (*)

144%

145%

143%

BBVA Mexico

196%

147%

154%

Garanti BBVA

183%

206%

209%

(*) BBVA USA LCR calculated according to local regulation (Fed Modified LCR).

Each entity maintains an individual liquidity buffer, both BBVA, S.A. and each of its subsidiaries, including BBVA USA, BBVA Mexico, Garanti BBVA and the Latin American subsidiaries.

The table below shows the liquidity available by instrument as of December 31, 2020, 2019 and 2018 for the most significant entities based on prudential supervisor’s information (Commission Implementing Regulations (EU) 2017/2114 of November 9, 2017):

December 2020 (Millions of Euros)

 

BBVA Eurozone

BBVA Mexico

Garanti BBVA

Other

Cash and withdrawable central bank reserves

39,330

8,930

6,153

6,831

Level 1 tradable assets

48,858

9,205

7,019

6,237

Level 2A tradable assets

5,119

106

-

-

Level 2B tradable assets

6,080

11

-

-

Other tradable assets

20,174

421

701

745

Non tradable assets eligible for central banks

-

-

-

-

Cumulated counterbalancing capacity

119,560

18,672

13,873

13,814

December 2019 (Millions of Euros)

 

BBVA Eurozone

BBVA Mexico

BBVA USA

Garanti BBVA

Other

Cash and withdrawable central bank reserves

14,516

6,246

4,949

6,450

6,368

Level 1 tradable assets

41,961

7,295

11,337

7,953

3,593

Level 2A tradable assets

403

316

344

-

-

Level 2B tradable assets

5,196

219

-

-

12

Other tradable assets

22,213

1,269

952

669

586

Non tradable assets eligible for central banks

-

-

2,935

-

-

Cumulated counterbalancing capacity

84,288

15,344

20,516

15,072

10,559

December 2018 (Millions of Euros)

 

BBVA Eurozone

BBVA Mexico

BBVA USA

Garanti BBVA

Other

Cash and withdrawable central bank reserves

26,506

7,666

1,667

7,633

6,677

Level 1 tradable assets

29,938

4,995

10,490

6,502

3,652

Level 2A tradable assets

449

409

510

-

-

Level 2B tradable assets

4,040

33

-

-

-

Other tradable assets

8,772

1,372

1,043

499

617

Non tradable assets eligible for central banks

-

-

2,314

-

-

Cumulated counterbalancing capacity

69,705

14,475

16,024

14,634

10,946

The Net Stable Funding Ratio (NSFR), defined as the ratio between the amount of stable funding available and the amount of stable funding required, is one of the Basel Committee's essential reforms, and requires banks to maintain a stable funding profile in relation to the composition of their assets and off-balance-sheet activities. This ratio should be at least 100% at all times.

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The NSFR of BBVA Group and its main LMUs at December 31, 2020 and 2019, calculated based on the Basel requirements, was the following:

NSFR main LMU

 

2020

2019

Group

127%

120%

BBVA Eurozone

121%

113%

BBVA Mexico

138%

130%

BBVA USA

126%

116%

Garanti BBVA

154%

151%

Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2020, 2019 and 2018:

December 2020. Contractual maturities (Millions of Euros)

0

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

42,518

32,741

-

-

-

-

-

-

-

-

75,258

Deposits in credit entities

-

3,616

677

921

356

461

117

120

2

39

6,309

Deposits in other financial institutions

-

2,202

855

797

734

543

1,251

721

515

500

8,119

Reverse repo, securities borrowing and margin lending

-

20,033

4,757

1,351

364

368

3,320

1,849

891

1,089

34,021

Loans and advances

279

16,939

24,280

23,012

15,579

17,032

46,182

38,851

51,709

110,173

344,036

Securities' portfolio settlement

-

3,896

6,680

6,557

5,084

13,014

9,858

15,494

17,231

50,045

127,859

December 2020. Contractual maturities (Millions of Euros)

0

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

-

4,750

2,618

3,963

1,283

1,543

10,573

7,505

12,793

23,839

68,868

Deposits in financial institutions

8,838

7,859

254

741

152

726

825

189

166

371

20,120

Deposits in other financial institutions and international agencies

12,735

4,324

2,694

588

353

272

957

337

459

870

23,589

Customer deposits

308,360

39,978

13,416

6,808

4,526

4,366

3,361

1,213

869

799

383,694

Security pledge funding

-

41,239

5,301

1,643

1,192

368

11,304

28,510

3,740

1,516

94,812

Derivatives, net

-

(722)

15

(961)

(85)

134

(400)

(157)

(264)

(159)

(2,599)

December 2019. Contractual maturities (Millions of Euros)

 

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

20,954

20,654

-

-

-

-

-

-

-

-

41,608

Deposits in credit entities

-

3,591

283

488

585

503

189

24

120

432

6,216

Deposits in other financial institutions

-

1,336

1,120

796

589

991

1,420

1,072

672

2,089

10,084

Reverse repo, securities borrowing and margin lending

-

21,612

3,858

2,287

561

808

4,121

1,838

411

803

36,299

Loans and advances

157

22,015

25,056

24,994

15,777

16,404

42,165

35,917

54,772

122,098

359,354

Securities' portfolio settlement

-

1,622

3,873

6,620

2,017

7,292

21,334

6,115

13,240

46,022

108,136

December 2019. Contractual maturities (Millions of Euros)

 

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

1

1,393

1,714

4,208

1,645

4,386

8,328

10,608

10,803

27,840

70,927

Deposits in financial institutions

7,377

7,608

493

1,122

172

1,514

386

614

206

510

20,004

Deposits in other financial institutions and international agencies

10,177

3,859

867

381

367

257

982

503

499

952

18,843

Customer deposits

271,638

43,577

18,550

10,013

7,266

6,605

3,717

2,062

854

1,039

365,321

Security pledge funding

-

45,135

3,202

15,801

1,456

653

3,393

7,206

759

1,308

78,914

Derivatives, net

-

(66)

(25)

29

(11)

1,097

(830)

(278)

(333)

(420)

(838)

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December 2018. Contractual maturities (Millions of Euros)

 

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

ASSETS

 

 

 

 

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

9,550

40,599

-

-

-

-

-

-

-

-

50,149

Deposits in credit entities

801

3,211

216

141

83

152

133

178

27

1,269

6,211

Deposits in other financial institutions

1

1,408

750

664

647

375

1,724

896

1,286

2,764

10,515

Reverse repo, securities borrowing and margin lending

-

21,266

1,655

1,158

805

498

205

1,352

390

210

27,539

Loans and advances

132

19,825

25,939

23,265

15,347

16,433

42,100

32,336

53,386

120,571

349,334

Securities' portfolio settlement

-

1,875

4,379

5,990

2,148

6,823

8,592

12,423

11,533

42,738

96,501

December 2018. Contractual maturities (Millions of Euros)

 

Demand

Up to 1 month

1 to 3 months

3 to 6 months

6 to 9 months

9 to 12 months

1 to 2 years

2 to 3 years

3 to 5 years

Over 5 years

Total

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

Wholesale funding

1

2,678

1,652

2,160

2,425

2,736

7,225

8,578

16,040

26,363

69,858

Deposits in financial institutions

7,107

5,599

751

1,992

377

1,240

1,149

229

196

904

19,544

Deposits in other financial institutions and international agencies

10,680

4,327

1,580

458

302

309

781

304

825

1,692

21,258

Customer deposits

252,630

44,866

18,514

10,625

6,217

7,345

5,667

2,137

1,207

1,310

350,518

Security pledge funding

40

46,489

2,219

2,274

114

97

22,911

526

218

1,627

76,515

Derivatives, net

-

(75)

(523)

(68)

(5)

(117)

498

(91)

(67)

(392)

(840)

With regard to the financing structure, the loan portfolio is mostly financed by retail deposits. The “demand” maturity bucket mainly contains the retail customer sight accounts whose behavior historically showed a high level of stability and little concentration. According to a behavior analysis which is done every year in every entity, this type of account is considered to be stable and for liquidity risk purposes receive a better treatment.

The liquidity situation of the Group's main management units is detailed below:

In the Euro Liquidity Management Unit (UGL), the liquidity and financing situation remains solid and comfortable with a large high-quality liquidity buffer that has been increased during the year as a result of the growth in customer deposits and the actions taken by the European Central Bank, which have meant an injection of liquidity in the system. As a result of the COVID-19 crisis, there was initially a greater demand for credit through the increase in the use of credit lines by the Corporate & Investment Banking wholesale business, which was also accompanied by a growth in customer deposits. Subsequently, there were partial refunds of those lines while deposits have continued to grow. In addition, it is important to note the measures implemented by the ECB to deal with this crisis, which have included different actions such as: the expansion of asset purchase programs, especially through the PEPP (Pandemic Emergency Purchase Program) for 750,000 million of euros in a first tranche announced in March and expanded with a second tranche for an additional 600,000 million euros until June 2021 or until the ECB considers that the crisis has ended, the coordinated action of central banks for the provision of US dollars, a temporary package of measures to make flexible the collateral eligible for financing operations, the relaxation and improvement of the conditions of the TLTRO III program and the creation of the new program of long-term refinancing operations without specific emergency objective (PELTRO). In this regard, BBVA attended the TLTRO III program windows in March and June (with an amount drawn down at the end of December of 35,032 million euros) due to its favorable conditions in terms of cost and term, amortizing the corresponding part of the TLTRO II program (see Note 22).

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In the United States there is a comfortable liquidity situation with significant growth in deposits during the year, driven mainly by stimulus measures from the American government and the Federal Reserve. This has led to an increase in the liquidity buffer and the liquidity and financing indicators are comfortable. As in the euro zone, during the end of the first quarter of 2020 there was an increase in loans stemmed mainly from an increase in the use of credit lines by wholesale clients and the stimulus program of the American government aimed at SMEs and freelances (Paycheck Protection Program). Subsequently, there were repayments that bring the percentage of use of credit lines to levels prior to the pandemic.

In Mexico, the liquidity position has remained solid during the year due to the increase in deposits driven by the success of the commercial actions carried out by the entity, especially in the second semester, as well as by the stimulus measures implemented by Banxico throughout the year to provide liquidity to the financial system, which made it possible to offset the increase in the use of credit lines as a result of the COVID-19 crisis. This good performance in deposits, together with the normalization in credit growth, has reduced the credit gap, resulting in the entity being in a comfortable situation in liquidity and financing ratios.

At Garanti BBVA, the liquidity situation remained comfortable during 2020, with a contraction of loans and a growth of deposits in foreign currency, as well as a higher growth in loans than deposits in local currency. As a result of the COVID-19 crisis, the Turkish regulator established the so-called asset ratio to mainly increase loans and discourage the accumulation of deposits, causing an increase in the credit gap, which was covered with the excess liquidity that the entity had. Subsequently, the asset ratio requirement was reduced in the third quarter (from 100% to 90%) and was eliminated in December. All in all, Garanti BBVA has shown a solid liquidity buffer.

In South America, an adequate liquidity situation is maintained throughout the region, favored by the support of the different central banks and governments that, with the aim of mitigating the impact of the COVID-19 crisis, have implemented measures for stimulating economic activity and providing greater liquidity to financial systems. In Argentina, the outflow of deposits in US dollars in the banking system slowed down during 2020, and even showed some growth in the fourth quarter. BBVA Argentina continues to maintain a solid liquidity position BBVA Colombia, after the actions carried out to adjusting excess liquidity by reducing wholesale deposits, continues to show a comfortable liquidity position. BBVA Peru has seen its comfortable liquidity situation strengthened as a result of the continuous increase in the volume of deposits during the second semester, as well as the funds from the Central Bank's support programs.

The wholesale financing markets in which the Group operates, after the first two months of 2020 of great stability were followed by a strong correction derived from the COVID-19 crisis and limited access to the primary market. This situation has been stabilizing due to the evolution of the pandemic, the development of vaccines, various geopolitical events and the actions of the Central Banks. Secondary market volumes ended the year reaching the levels of January 2020, while primary market volumes have been reactivated, lowering the issue premiums.

The main transactions carried out by the companies that form part of the BBVA Group in 2020 were:

·During the first quarter of 2020 BBVA, S.A. made 2 senior non-preferred securities issues for a total of 1,400 million euros and another Tier 2 for 1,000 million euros. In the second quarter of 2020, an issuance of senior preferred securities for 1,000 million euros was executed as a social-COVID-19 bond, the first of its kind for a private financial entity in Europe. In the third quarter, three public issues were made: the first is the first green convertible bond of a financial institution world-wide for an amount of 1,000 million euros; the second is a Tier 2 subordinated securities issue denominated in pound sterling, for an amount of 300 million pounds; and the third is an issuance of preferred securities registered with the US SEC (Securities Exchange Commission) in two tranches with maturities of three and five years, for a total of 2,000 million dollars. On the other hand, in February 2020, BBVA exercised the call option of a convertible bond of 1,500 million euros, and in January 2021, the entity has early amortized three preferred issuances (for more information on these transactions see the section “Solvency” of this report).

·In 2020, BBVA México successfully carried out a local senior issuance of 15,000 million Mexican pesos (614 million euros) in three tranches (two tranches in Mexican pesos at 3 and 5 years and another tranche in US dollars at 3 years), in order to advance the refinancing of maturities in the year taking advantage of the good market moment. It also carried out an international issue of senior unsecured securities for an amount of 500 million US dollars of 5 years with a rate of 1.875%, which represents the lowest in history for a financial institution in Mexico and for any private financial institutions in Latin America. Furthermore, within the measures adopted by Banxico throughout the year, BBVA Mexico has participated in auctions of US dollars with credit institutions (swap line with the Fed) initially for an amount of 1,250 million US dollars, partially renewing that position from June to September, for an amount of US $ 700 million. Likewise, it has participated in the so-called Banxico facilities 7 and 8 (measures to transfer funds to micro, small and medium-sized companies, as well as to individuals affected by the pandemic).

·In Turkey, Garanti BBVA carried out a Tier 2 issuance for TRY 750 million in the first quarter of 2020. In the second quarter of 2020, Garanti BBVA renewed a syndicated loan by issuing the first green syndicated loan indexed to sustainability criteria, and in whose renovation the EBRD -European Bank for Reconstruction and Development- and the IFC -International Finance Corporation- have participated. And in the fourth quarter, Garanti BBVA partially renewed a syndicated loan for an amount of $636 million.

The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a solid liquidity position in all the jurisdictions in which the Group operates.

In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while enabling a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets.

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7.5.4. Asset encumbrance

As of December 31, 2020, 2019 and 2018, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:

December 2020 (Millions of Euros)

 

Encumbered assets

Non-encumbered assets

 

Book value

Market value

Book value

Market value

Assets

121,999

 

614,260

 

Equity instruments

2,134

2,134

14,556

14,556

Debt securities

29,379

26,112

100,108

100,108

Loans and advances and other assets

90,486

 

499,595

 

December 2019 (Millions of Euros)

 

Encumbered assets

Non-encumbered assets

 

Book value

Market value

Book value

Market value

Assets

101,792

 

596,898

 

Equity instruments

3,526

3,526

12,113

12,113

Debt Securities

29,630

29,567

95,611

95,611

Loans and Advances and other assets

68,636

 -      

489,174

 -      

December 2018 (Millions of Euros)

 

Encumbered assets

Non-encumbered assets

 

Book value

Market value

Book value

Market value

Assets

107,950

 

567,573

 

Equity instruments

1,864

1,864

6,485

6,485

Debt Securities

31,157

32,216

82,209

82,209

Loans and Advances and other assets

74,928

 

478,880

 

The committed value of "Loans and Advances and other assets" corresponds mainly to loans linked to the issue of covered bonds, territorial bonds or long-term securitized bonds (see Note 22.4) as well as those used as a guarantee to access certain funding transactions with central banks. Debt securities and equity instruments correspond to underlying that are delivered in repos with different types of counterparties, mainly clearing houses or credit institutions, and to a lesser extent central banks. Collateral provided to enable derivative transactions is also included as committed assets.

As of December 31, 2020, 2019 and 2018, collateral pledges received mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:

December 2020. Collateral received (Millions of Euros)

0

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

30,723

8,652

1,071

Equity instruments

239

204

-

Debt securities

30,484

8,448

1,071

Loans and advances and other assets

-

-

-

Own debt securities issued other than own covered bonds or ABSs

3

94

-

December 2019. Collateral received (Millions of Euros)

0

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

38,496

9,208

48

Equity instruments

65

70

-

Debt securities

38,431

9,130

38

Loans and advances and other assets

-

8

10

Own debt securities issued other than own covered bonds or ABSs

-

82

-

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December 2018. Collateral received (Millions of Euros)

 

Fair value of encumbered collateral received or own debt securities issued

Fair value of collateral received or own debt securities issued available for encumbrance

Nominal amount of collateral received or own debt securities issued not available for encumbrance

Collateral received

27,474

5,633

319

Equity instruments

89

82

-

Debt securities

27,385

5,542

300

Loans and Advances and other assets

-

8

19

Own debt securities issued other than own covered bonds or ABSs

78

87

-

The guarantees received in the form of reverse repurchase agreements or security lending transactions are committed by their use in repurchase agreements, as is the case with debt securities.

As of December 31, 2020, 2019 and 2018, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:

Sources of encumbrance (Millions of Euros)

 

2020

2019

2018

 

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Matching liabilities, contingent liabilities or securities lent

Assets, collateral received and own

debt securities issued other than covered bonds and ABSs encumbered

Book value of financial liabilities

131,352

147,523

124,252

135,500

113,498

131,172

Derivatives

16,611

16,348

19,066

20,004

8,972

11,036

Loans and advances

98,668

111,726

87,906

94,240

85,989

97,361

Outstanding subordinated debt

16,073

19,449

17,280

21,256

18,538

22,775

Other sources

653

5,202

449

4,788

3,972

4,330

8. Fair Valuevalue of financial instruments

Framework and processes control

As part of the process established in the Group for determining the fair value in order to ensuresupport that financial assets and liabilities are properly valued, following the IFRS 13 principles: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market, at the measurement date.

BBVA has established, at a geographic level, a structure of Risk Operational Admission and Product Governance Committees responsible for validating and approving new products or types of financial assets and liabilities before being contracted. Local management responsible for valuation, which are independent from the business (see Note 7) are members of these committees.

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These areas are required to ensure,support, prior to the approval stage, the existence of not only technical and human resources, but also adequate informational sources to measure the fair value of these financial assets and liabilities, in accordance with the rules established by the Groupvaluation global area and using models that have been validated and approved by the responsible areas.

Fair value hierarchy

The fair value of financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is therefore a market-based measurement and not specific to each entity.

All financial instruments, both assets and liabilities are initially recognized at fair value, which at that point is equivalent to the transaction price, unless there is evidence to the contrary in the market. Subsequently, depending on the type of financial instrument, it may continue to be recognized at amortized cost or fair value through adjustments in the consolidated income statement or equity.

When possible, the fair value is determined as the market price of a financial instrument. However, for many of the financial assets and liabilities of the Group, especially in the case of derivatives, there is no market price available, so its fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, by using mathematical measurement models that are sufficiently tried and trusted by the international financial community. The estimates of the fair value derived from the use of such models take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with thesuch asset or liability. However, the limitations inherent in the measurement models and possible inaccuracies in the assumptions and parameters required by these models may mean that the estimated fair value of an asset or liability does not exactly match the price for which the asset or liability could be exchanged or settled on the date of its measurement.

Additionally, for financial assets and liabilities that show significant uncertainty in inputs or model parameters used for valuation, criteria is established to measure said uncertainty and activity limits are set based on these. Finally, these measurements are compared, as much as possible, against other sources such as the measurements obtained by the business teams or those obtained by other market participants.

The process for determining the fair value requires the classification of the financial assets and liabilities according to the measurement processes used as set forth below:

·           Level 1: Valuation using directly the quotation of the instrument, observable and readily and regularly available from independent price sources and referenced to active markets that the entity can access at the measurement date. The instruments classified within this level are fixed-income securities, equity instruments and certain derivatives.

·           Level 2: Valuation of financial instruments with commonly accepted techniques that use inputs obtained from observable data in markets.

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·           Level 3: Valuation of financial instruments with valuation techniques that use significant unobservable inputs in the market. As of December 31, 2018,2020, the affected instruments at fair value accounted for approximately 0.56%0.55% of financial assets and 0.46%0.40% of the Group’s financial liabilities recorded at fair value.liabilities. Model selection and validation is undertaken by control areas outside the business areas.

8.18.1. Fair value of financial instrumentinstruments

Below is a comparison of the carrying amountThe fair value of the Group’s financial instruments in the accompanying consolidated balance sheets and their respective fair values.

Fair Value and Carrying Amount (Millions of euros)

 

 

2018

 

Notes

Carrying Amount

Fair Value

ASSETS

 

 

 

Cash, cash balances at central banks and other demand deposits

9

58,196

58,196

Financial assets held for trading

10

90,117

90,117

Non-trading financial assets mandatorily at fair value through profit or loss

11

5,135

5,135

Financial assets designated at fair value through profit or loss

12

1,313

1,313

Financial assets at fair value through other comprehensive income

13

56,337

56,337

Financial assets at amortized cost

14

419,660

419,857

Hedging derivatives

15

2,892

2,892

LIABILITIES

 

 

 

Financial liabilities held for trading

10

80,774

80,774

Financial liabilities designated at fair value through profit or loss

12

6,993

6,993

Financial liabilities at amortized cost

22

509,185

510,300

Hedging derivatives

15

2,680

2,680

Fair Value and Carrying Amount (Millions of euros)

 

 

2017

2016

 

Notes

Carrying Amount

Fair Value

Carrying Amount

Fair Value

ASSETS

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

9

42,680

42,680

40,039

40,039

Financial assets held for trading

10

64,695

64,695

74,950

74,950

Financial assets designated at fair value through profit or loss

12

2,709

2,709

2,062

2,062

Available-for-sale financial assets

 

69,476

69,476

79,221

79,221

Loans and receivables

 

431,521

438,991

465,977

468,844

Held-to-maturity investments

 

13,754

13,865

17,696

17,619

Derivatives – Hedge accounting

15

2,485

2,485

2,833

2,833

LIABILITIES

 

 

 

 

 

Financial liabilities held for trading

10

46,182

46,182

54,675

54,675

Financial liabilities designated at fair value through profit or loss

12

2,222

2,222

2,338

2,338

Financial liabilities at amortized cost

22

543,713

544,604

589,210

594,190

Derivatives – Hedge accounting

15

2,880

2,880

2,347

2,347

2017its corresponding carrying amounts, as of December 31, 2020, 2019 and 20162018 are presented separately due to the implementation of IFRS 9below:

Fair Value and carrying amount (Millions of euros)

 

 

2020

2019

2018

 

Notes

Carrying amount

Fair value

Carrying amount

Fair value

Carrying amount

Fair value

ASSETS

 

 

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

9

65,520

65,520

44,303

44,303

58,196

58,196

Financial assets held for trading

10

108,257

108,257

101,735

101,735

89,103

89,103

Non-trading financial assets mandatorily at fair value through profit or loss

11

5,198

5,198

5,557

5,557

5,135

5,135

Financial assets designated at fair value through profit or loss

12

1,117

1,117

1,214

1,214

1,313

1,313

Financial assets at fair value through other comprehensive income

13

69,440

69,440

61,183

61,183

56,337

56,337

Financial assets at amortized cost

14

367,668

374,267

439,162

442,788

419,660

419,857

Hedging derivatives

15

1,991

1,991

1,729

1,729

2,892

2,892

LIABILITIES

 

 

 

 

 

 

 

Financial liabilities held for trading

10

86,488

86,488

88,680

88,680

79,761

79,761

Financial liabilities designated at fair value through profit or loss

12

10,050

10,050

10,010

10,010

6,993

6,993

Financial liabilities at amortized cost

22

490,606

491,006

516,641

515,910

509,185

510,300

Hedging derivatives

15

2,318

2,318

2,233

2,233

2,680

2,680

Not all financial assets and liabilities are recorded at fair value, so below we provide the information on financial instruments recorded at fair value and subsequently the information of those recorded at amortized cost (including their fair value),value although this value is not used when accounting for these instruments.instruments).

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8.1.18.1.1. Fair value of financial instrumentinstruments recognized at fair value, according to valuation criteria

Below are the different elements used in the valuation technique of financial instruments.

Active Market

BBVA considers active market as “aa market that allows the observation of bid and offer prices representative of the levels to which the market participants are willing to negotiate an asset, with sufficient frequency and volume”.volume.

By default, BBVA would consider all internally approved “Organized Markets” as active markets, without considering this an unchangeable list.

Furthermore, BBVA would consider as traded in an “Organized Market” quotations for assets or liabilities from OTCOver The Counter (OTC) markets when they are obtained from independent sources, observable on a daily basis and fulfil certain conditions.

The following table shows the financial instruments carried at fair value in the accompanying consolidated balance sheets, broken down by the measurement techniquelevel used to determine their fair value:value as of December 31, 2020, 2019 and 2018:

Fair Value of financial Instruments by Levels (Millions of euros)

Fair value of financial instruments by levels (Millions of Euros)

Fair value of financial instruments by levels (Millions of Euros)

 

2018

2020

2019

2018

Notes

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

ASSETS-

 

 

ASSETS

 

 

Financial assets held for trading

10

26,730

62,983

404

32,555

73,856

1,847

31,135

69,092

1,508

26,730

61,969

404

Loans and advances to customers

 

47

28,642

60

Loans and advances

2,379

28,659

1,609

697

32,321

1,285

47

28,642

60

Debt securities

 

17,884

7,494

199

12,790

11,123

57

18,076

8,178

55

17,884

7,494

199

Equity instruments

 

5,194

-

60

11,367

31

60

8,832

-

59

5,194

-

60

Derivatives

 

3,605

26,846

85

6,019

34,043

121

3,530

28,593

109

3,605

25,833

85

Non-trading financial assets mandatorily at fair value through profit or loss

11

3,127

78

1,929

3,826

381

992

4,305

92

1,160

3,127

78

1,929

Loans and advances

 

25

-

1,778

210

-

499

82

-

1,038

25

-

1,778

Debt securities

 

90

71

76

4

324

28

-

91

19

90

71

76

Equity instruments

 

3,012

8

75

3,612

57

465

4,223

1

103

3,012

8

75

Financial assets designated at fair value through profit or loss

12

1,313

-

939

178

-

1,214

-

1,313

-

Loans and advances

 

-

-

-

Debt securities

 

1,313

-

939

178

-

1,214

-

1,313

-

Equity instruments

 

-

-

-

Financial assets at fair value through other comprehensive income

13

45,824

9,323

1,190

60,976

7,866

598

50,896

9,203

1,084

45,824

9,323

1,190

Loans and advances

 

33

-

33

-

33

-

33

-

Debt securities

 

43,788

9,211

711

59,982

7,832

493

49,070

9,057

604

43,788

9,211

711

Equity instruments

 

2,003

113

479

961

34

105

1,794

146

480

2,003

113

479

Hedging derivatives

15

7

2,882

3

Derivatives – Hedge accounting

120

1,862

8

44

1,685

-

7

2,882

3

LIABILITIES-

 

 

 

 

Financial liabilities held for trading

10

22,932

57,573

269

27,587

58,045

856

26,266

61,588

827

22,932

56,560

269

Deposits

 

7,989

29,945

-

8,381

23,495

621

9,595

32,121

649

7,989

29,945

-

Trading derivatives

 

3,919

27,628

267

7,402

34,046

232

4,425

29,466

175

3,919

26,615

267

Other financial liabilities

 

11,024

-

1

11,805

504

3

12,246

1

2

11,024

-

1

Financial liabilities designated at fair value through profit or loss

12

-

4,478

2,515

-

8,558

1,492

-

8,629

1,382

-

3,149

3,844

Customer deposits

 

-

976

-

-

902

-

-

944

-

976

-

Debt certificates

 

-

2,858

-

Debt certificates (*)

-

3,038

1,492

-

3,274

1,382

-

1,529

1,329

Other financial liabilities

 

-

643

2,515

-

4,617

-

-

4,410

-

643

2,515

Derivatives – Hedge accounting

15

223

2,454

3

53

2,250

15

30

2,192

11

223

2,454

3

(*) The information for the years 2019 and 2018 has been subject to certain modifications, related to some issuances of Garanti Group

 

 

F-142F-99  


Fair Value of financial Instruments by Levels  (Millions of euros)

 

 

2017

2016

 

Notes

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

ASSETS-

 

 

 

 

 

 

 

Financial assets held for trading

10

29,057

35,349

289

32,544

42,221

184

Loans and advances to customers

 

-

56

-

-

154

-

Debt securities

 

21,107

1,444

22

26,720

418

28

Equity instruments

 

6,688

33

80

4,570

9

96

Derivatives

 

1,262

33,815

187

1,254

41,640

60

Financial assets designated at fair value through profit or loss

11

2,061

648

-

2,062

-

-

Loans and advances to customers

 

-

648

-

-

-

-

Loans and advances to credit institutions

 

-

-

-

-

-

-

Debt securities

 

174

-

-

142

-

-

Equity instruments

 

1,888

-

-

1,920

-

-

Available-for-sale financial assets

 

57,381

11,082

544

62,125

15,894

637

Debt securities

 

54,850

10,948

454

58,372

15,779

429

Equity instruments

 

2,531

134

90

3,753

115

208

Hedging derivatives

15

-

2,483

2

41

2,792

-

LIABILITIES-

 

 

 

 

 

 

 

Financial liabilities held for trading

10

11,191

34,866

125

12,502

42,120

53

Derivatives

 

1,183

34,866

119

952

42,120

47

Short positions

 

10,008

-

6

11,550

-

6

Financial liabilities designated at fair value through profit or loss

12

-

2,222

-

-

2,338

-

Derivatives – Hedge accounting

15

274

2,606

-

94

2,189

64

The years 2017 and 2016 are presented separately due to the implementation of IFRS 9.

Financial instruments carried at fair value corresponding to the companies that belong to Banco Provincial Group in Venezuela whose balance is denominated in “bolivares fuertes” are classified under Level 3 in the above tables (see Note 2.2.20).

The following table sets forth the main valuation techniques, hypothesis and inputs used in the estimation of fair value of the financial instruments classified under Levels 2 and 3, based on the type of financial asset and liability and the corresponding balances as of December 31, 2020, 2019 and 2018:  

Fair value of financial Instruments by levels. December 2020 (Millions of euros)

 

2020

2019

2018

 

 

 

 

Level 2

Level 3

Level 2

Level 3

Level 2

Level 3

Valuation technique(s)

Observable inputs

Unobservable inputs

ASSETS

 

 

 

 

 

 

 

 

 

Financial assets held for trading

73,856

1,847

69,092

1,508

61,969

404

 

- Issuer´s credit risk

- Current market interest rates

- Funding interest rates observed in the market or in consensus services

- Exchange rates

- Prepayment rates

- Issuer´s credit risk

- Recovery rates

- Funding interest rates not observed in the market or in consensus services

Loans and advances

28,659

1,609

32,321

1,285

28,642

60

Present-value method

(Discounted future cash flows)

Debt securities

11,123

57

8,178

55

7,494

199

Present-value method

(Discounted future cash flows)

Observed prices in non active markets

- Issuer´s credit risk

- Current market interest rates

- Non active markets prices

- Prepayment rates

- Issuer´s credit risk

- Recovery rates

Equity instruments

31

60

-

59

-

60

Comparable pricing (Observable price in a similar market)

Net asset value

- Brokers quotes

- Market operations

- NAVs published

- NAV not published

Derivatives

34,043

121

28,593

109

25,833

85

 

 

 

Interest rate

 

 

 

 

 

 

Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows

Caps/Floors: Black, Hull-White and SABR

Bond options: Black

Swaptions: Black, Hull-White and LGM

Other Interest rate Options: Black, Hull-White and LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assets prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Implicit correlations between tenors

- interest rates volatility

Equity

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Momentum adjustment

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

- Implicit dividends and long term repos

Foreign exchange and gold

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local volatility, moments adjustment

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

Credit

 

 

 

 

 

 

Credit Derivatives: Default model and Gaussian copula

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

 

 

 

 

Commodities: Momentum adjustment and discounted cash flows

 

Non-trading financial assets mandatorily at fair value through profit or loss

381

992

92

1,160

78

1,929

 

 

 

Loans and advances

-

499

-

1,038

-

1,778

Specific liquidation criteria regarding losses of the EPA proceedings

PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings

Discounted future cash flows

 

- Prepayment rates

- Business plan of the underlying asset, WACC, macro scenario

- Property valuation

Debt securities

324

28

91

19

71

76

Present-value method

(Discounted future cash flows)

- Issuer credit risk

- Current market interest rates

- Prepayment rates

- Issuer credit risk

- Recovery rates

 

Equity instruments

57

465

1

103

8

75

Comparable pricing (Observable price in a similar market)

Net asset value

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Financial assets designated at fair value through profit or loss

178

-

-

-

-

-

Present-value method

(Discounted future cash flows)

- Issuer credit risk

- Current market interest rates

 

Debt securities

178

-

-

-

-

-

Financial assets at fair value through other comprehensive income

7,866

598

9,203

1,084

9,323

1,190

 

 

 

Debt securities

7,832

493

9,057

604

9,221

711

Present-value method

(Discounted future cash flows)

Observed prices in non active markets

- Issuer´s credit risk

- Current market interest rates

- Non active market prices

- Prepayment rates

- Issuer credit risk

- Recovery rates

Equity instruments

34

105

146

480

113

479

Comparable pricing (Observable price in a similar market)

Net asset value

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Hedging derivatives

1,862

8

1,685

-

2,882

3

 

 

 

Interest rate

 

 

 

 

 

 

Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows

Caps/Floors: Black, Hull-White and SABR

Bond options: Black

Swaptions: Black, Hull-White and LGM

Other Interest rate Options: Black, Hull-White and LGM

Constant maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assets prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

 

Equity

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local volatility, Momentum adjustment

 

Foreign exchange and gold

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local volatility, moments adjustment

 

Credit

 

 

 

 

 

 

Credit Derivatives: Default model and Gaussian copula

 

Commodities

 

 

 

 

 

 

Commodities: Momentum adjustment and Discounted cash flows

 

F-143F-100  


 

Fair Value of financial Instruments by Levels. December 2018 (Millions of euros)

 

Level 2

Level 3

Valuation technique(s)

Observable inputs

Unobservable inputs

ASSETS

 

 

 

 

 

Financial assets held for trading

62,983

404

 

 

 

Loans and advances

28,642

60

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Current market interest rates

- Prepayment rates

- Issuer´s credit risk

- Recovery rates

Debt securities

7,494

199

Present-value method

(Discounted future cash flows)

Observed prices in non active markets

- Issuer´s credit risk

- Current market interest rates

- Non active markets prices

- Prepayment rates

- Issuer´s credit risk

- Recovery rates

Equity instruments

-

60

Comparable pricing (Observable price in a similar market)

Present-value method

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Derivatives

26,846

85

 

 

 

Interest rate

 

 

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y  SABR

Bond options: Black

 Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Beta

- Implicit correlations between tenors

- interest rates volatility

Equity

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Momentum adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

- Implicit dividends and long term repos

Foreign exchange and gold

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

Credit

 

 

Credit Derivatives: Default model and Gaussian copula

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

Commodities: Momentum adjustment and Discounted cash flows

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Non-trading financial assets mandatorily at fair value through profit or loss

78

1,929

 

 

 

Loans and advances

-

1,778

Present-value method

(Discounted future cash flows)

Specific criteria for the liquidation of losses established by the EPA protocol

 

- Prepayment rates

- Issuer credit risk

- Recovery rates

- PD and LGD

Debt securities

71

76

Present-value method

(Discounted future cash flows)

- Issuer credit risk

- Current market interest rates

- Prepayment rates

- Issuer credit risk

- Recovery rates

 

Equity instruments

8

75

Present-value method

(Discounted future cash flows)

- Issuer credit risk

- Current market interest rates

- Prepayment rates

- Issuer credit risk

- Recovery rates

 

Financial assets at fair value through other comprehensive income

9,323

1,190

 

 

 

Debt securities

9,211

711

Present-value method

(Discounted future cash flows)

Observed prices in non active markets

- Issuer´s credit risk

- Current market interest rates

- Non active market prices

- Prepayment rates

- Issuer credit risk

- Recovery rates

Equity instruments

113

479

Comparable pricing (Observable price in a similar market)

Present-value method

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Hedging derivatives

2,882

3

 

 

 

Interest rate

 

 

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y  SABR

Bond options: Black

 Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Equity

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Momentum adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Foreign exchange and gold

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Credit

 

 

Credit Derivatives: Default model and Gaussian copula

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Commodities

 

 

Commodities: Momentum adjustment and Discounted cash flows

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

F-144


Fair Value of financial Instruments by Levels. December 2018 (Millions of euros)

 

 

 

Valuation technique(s)

Observable inputs

Unobservable inputs

 

LIABILITIES

 

 

 

 

 

Financial liabilities held for trading

57,573

269

 

 

 

Deposits

29,945

-

 

 

 

Derivatives

27,628

267

 

 

 

Interest rate

 

 

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y  SABR

Bond options: Black

 Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Beta

- Correlation between tenors

- interest rates volatility

Equity

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Momentum adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Assets correlation

Foreign exchange and gold

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Assets correlation

Credit

 

 

Credit Derivatives: Default model and Gaussian copula

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

Commodities: Momentum adjustment and Discounted cash flows

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

Short positions

-

1

Present-value method

(Discounted future cash flows)

 

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

Financial liabilities designated at fair value through profit or loss

4,478

2,515

Present-value method

(Discounted future cash flows)

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

Derivatives – Hedge accounting

2,454

3

 

 

 

Interest rate

 

 

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y  SABR

Bond options: Black

 Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Beta

- Implicit correlations between tenors

- interest rates volatility

Equity

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Momentum adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

- Implicit dividends and long term repos

Foreign exchange and gold

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments adjustment

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

Credit

 

 

Credit Derivatives: Default model and Gaussian copula

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

Commodities: Momentum adjustment and Discounted cash flows

-  Exchange rates

-  Market quoted future prices

-  Market interest rates

-  Underlying assets prices: shares, funds, commodities

-  Market observable volatilities 

-  Issuer credit spread levels

-  Quoted dividends

-  Market listed correlations

 

F-145


Fair Value of financial Instruments by Levels.(Millions of Euros)

 

 

 

 

 

 

 

 

 

 

 

2020

2019

2018

 

 

 

 

Level 2

Level 3

Level 2

Level 3

Level 2

Level 3

Valuation technique(s)

Observable inputs

Unobservable inputs

 

LIABILITIES

 

 

 

 

 

 

 

 

 

Financial liabilities held for trading

58,045

856

61,588

827

56,560

269

 

 

 

Deposits

23,495

621

32,121

649

29,945

-

Present-value method

(Discounted future cash flows)

- Interest rate yield

- Funding interest rates observed in the market or in consensus services

- Exchange rates

- Funding interest rates not observed in the market or in consensus services

Derivatives

34,046

232

29,466

175

26,615

267

 

 

 

Interest rate

 

 

 

 

 

 

Interest rate products (Interest rate Swaps, call money Swaps and FRA): Discounted cash flows

Caps/Floors: Black, Hull-White and SABR

Bond options: Black

Swaptions: Black, Hull-White and LGM

Other Interest rate Options: Black, Hull-White and LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assets prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Correlation between tenors

- Interest rates volatility

Equity

 

 

 

 

 

 

Future and Equity forward: Discounted future cash flows

Equity Options: Local volatility, momentum adjustment

- Volatility of volatility

- Assets correlation

Foreign exchange and gold

 

��

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local volatility, moments adjustment

- Volatility of volatility

- Assets correlation

Credit

 

 

 

 

 

 

Credit Derivatives: Default model and Gaussian copula

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

 

 

 

 

Commodities: Momentum adjustment and discounted cash flows

 

Short positions

504

3

1

2

-

1

Present-value method

(Discounted future cash flows)

 

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

Financial liabilities designated at fair value through profit or loss

8,558

1,492

8,629

1,382

3,149

3,844

Present-value method

(Discounted future cash flows)

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

Derivatives – Hedge accounting

2,250

15

2,192

11

2,454

3

 

 

 

Interest rate

 

 

 

 

 

 

Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows

Caps/Floors: Black, Hull-White and SABR

Bond options: Black

Swaptions: Black, Hull-White and LGM

Other Interest rate Options: Black, Hull-White and LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assets prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Implicit correlations between tenors

- interest rates volatility

Equity

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Equity Options: Local volatility, momentum adjustment

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

- Implicit dividends and long term repos

Foreign exchange and gold

 

 

 

 

 

 

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments adjustment

- Volatility of volatility

- Implicit assets correlations

- Long term implicit correlations

Credit

 

 

 

 

 

 

Credit Derivatives: Default model and Gaussian copula

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

 

 

 

 

 

 

Commodities: Momentum adjustment and discounted cash flows

 

Main valuation techniques

The main techniques used for the assessment of the majority of the financial instruments classified in Level 3, and its main unobservable inputs, are described below:

·           The net present value (net present value method): This technique uses the future cash flows of each debt security,financial instrument, which are established in the different contracts, and discounted to their present value. This technique often includes many observable inputs, but may also include unobservable inputs, as described below:

- ·Credit Spread: This input represents the difference in yield of a debt security and the reference rate, reflecting the additional return that a market participant would require to take the credit risk of that debt security. Therefore, the credit spread of the debt security is part of the discount rate used to calculate the present value of the future cash flows.

- ·Recovery rate: This input represents the percentage of principal and interest recovered from a debt instrument that has defaulted.

F-101


·           Comparable prices (similar asset prices): This input represents the prices of comparable financial instruments and benchmarks used to calculate a reference yield based on relative movements from the entry price or current market levels. Further adjustments to account for differences that may exist between financial instrument being valued and the comparable financial instrument may be added. It can also be assumed that the price of the financial instrument is equivalent to the comparable instrument.

·           Net asset value: This input representstechnique utilizes certain assumptions to use net asset value as representative of fair value, which is equal to the total value of the financial assets and liabilities of a fund and is published by the fund manager thereof.managing entity.

F-146


·           Gaussian copula: This model is used to integrate default probabilities of credit instruments referenced to more than one underlying CDS. The joint density function used to value the instrument is constructed by using a Gaussian copula that relates the marginal densities by a normal distribution, usually extracted from the correlation matrix of events approaching default by CDS issuers.

·           Black 76: variant of Black Scholes model, whose main application is the valuation of bond options, cap floors and swaptions where the behavior of the Forward and not the Spot itself, is directly modeled.

·           Black Scholes: The Black Scholes model postulates log-normal distribution for the prices of securities, so that the expected return under the risk neutral measure is the risk free interest rate. Under this assumption, the price of vanilla options can be obtained analytically, so that inverting the Black- Scholes formula, the implied volatility for process of the price can be calculated.

·           Heston: This model, typically applied to equity OTC options, assumes stochastic behavior of volatility. According to which, the volatility follows a process that reverts to a long-term level and is correlated with the underlying equity instrument. As opposed to local volatility models, in which the volatility evolves deterministically, the Heston model is more flexible, allowing it to be similar to that observed in the short term today.

·           Libor market model: This model assumes that the dynamics of the interest rate curve can be modeled based on the set of forward contracts that compose the underlying interest rate. The correlation matrix is parameterized on the assumption that the correlation between any two forward contracts decreases at a constant rate, beta, to the extent of the difference in their respective due dates. The input “Credit default volatility” is a volatility input of the credit factor dynamic.dynamic applied in rate/credit hybrid operative. The multifactorial frame of this model makes it ideal for the valuation of instruments sensitive to the slope or curve, including interest rate option.

·           Local Volatility: In the local volatility models of the volatility, instead of being static, evolves over time according to the level of moneyness of the underlying, capturing the existence of smiles. These models are appropriate for pricing path dependent options when use Monte Carlo simulation technique is used.

Adjustments to the valuation for risk of default

Under IFRS 13 the credit risk valuation adjustments must be considered in the classification of assets and liabilities within fair value hierarchy, because of the absence of observablesobservable data of probabilities of default and recoveries used in the calculation.

The credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”) are a part of derivative instrument valuations, both financial assets and liabilities, to reflect the impact in the fair value of the credit risk of the counterparty and BBVA, respectively.

These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, which are based on the recovery levels for all derivative products on any instrument, deposits and repos at the legal entity level (all counterparties under a same ISDA / CMOF)master agreement), in which BBVA has exposure.

Credit Valuation Adjustment (hereinafter “CVA”) and Debit Valuation Adjustments (hereinafter “DVA”) are included in the valuation of derivatives, both assets and liabilities, to reflect the impact on the fair value of the counterparty credit risk and its own, respectively. The Group incorporates in its valuation, for all exposures classified in any of the categories valued at fair value, both the counterparty credit risk and its own. In the trading portfolio, and in the specific case of derivatives, credit risk is recognized through such adjustments.

As a general rule, the calculation of CVA is done through simulationsthe sum of market and credit variables to calculate the expected positive exposure givenin time t, the Exposure at Defaultprobability of default between t-1 and multiplying the result byt, and the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the resultsum of the expected negative exposure givenin time t, the Exposure at Defaultprobability of default of BBVA between t-1 and multiplying the result byt, and the Loss Given Default of the counterparty.BBVA. Both calculations are performed throughout the entire period of potential exposure.

F-147The calculation of the expected positive and negative exposure is done through a Montecarlo simulation of the market variables involved in all trades’ valuation under the same legal netting set.


The information needed to calculate the exposure atprobability of default and the loss given default comeof a counterparty comes from the credit markets (Creditmarkets. The counterparty’s Credit Default Swaps or iTraxx Indexes), where rating isare used if liquid quotes are available. For those cases where the ratingIf a market price is not available, BBVA implementshas implemented a mapping process based on the sector, rating and geography of the counterparty to assign probabilities of both probability of default and loss given default calibrated directly to market or with an adjustment market factor for the probability of default and the historical expected loss.market.

F-102


The amounts recognized in the consolidated balance sheet as of December 31, 20182020, 2019 and 20172018 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) was €-163€-142 million, €-106 and €-153€-163 million respectively, and the valuation adjustments to the derivative liabilities as “Debit Valuation Adjustment” (DVA) was €214€124 million, €117 and €138€214 million, respectively .respectively. The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement as for the years endedof December 31, 2020, 2019 and 2018 and 2017 corresponding to the mentioned adjustments was a net impact of €-24€-29 million, €67 and €-23€-24 million respectively.

Additionally, as of December 31, 2020, 2019 and 2018, €-9, €-8 and €-12 million related to the “Funding Valuation Adjustments” (“FVA”) were recognized in the consolidated balance sheet.sheet, being the impact on results €-1 million, €4 and €-2 million, respectively.

Unobservable inputs

Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below as of December 31, 2020, 2019 and 2018:

Financial instrument

Valuation technique(s)

Significant unobservable inputs

Min

Average

Max

Units

 

 

 

 

 

 

 

Debt Securities

Net Present  Value

Credit Spread

37

152.22

385.00

b.p.

Recovery Rate

0.00%

32.06%

40.00%

%

Comparable pricing

 

1.00%

88.00%

275.00%

%

Equity instruments

Net  Asset Value

 

 

Comparable pricing

 

Credit Option

Gaussian Copula

Correlation Default

0.00%

37.98%

60.26%

%

Corporate Bond Option

Black 76

Price Volatility

-

-

-

vegas

Equity OTC Option

Heston

Forward Volatility Skew

47.05

47.05

47.05

Vegas

Local Volatility

Dividends

 

Volatility

13.79

27.24

65.02

vegas

FX OTC Options

Black Scholes/Local Vol

Volatility

5.05

7.73

9.71

vegas

Interest Rate Option

Libor Market Model

Beta

0.25

9.00

18.00

%

Correlation Rate/Credit

(100)

-

100

%

Credit Default Volatility

-

-

-

Vegas

Unobservable inputs. December 2020

Financial instrument

Valuation technique(s)

Significant unobservable inputs

Min

Average

Max

Units

Debt Securities

Present value method

Credit Spread

4.32

47.01

564.22

b.p.

Recovery Rate

0.00%

37.06%

40.00%

%

 

0.10%

99.92%

143.87%

%

Equity/Fund instruments (*)

Net Asset Value

 

 

Comparable Pricing

 

Security Finance

Present value method

Repo funding curve

(1.00%)

0.00%

1.00%

Abs Repo rate

Credit Derivatives

Gaussian Copula

Correlation Default

30.40%

44.87%

60.95%

%

Black 76

Price Volatility

-

Vegas

Equity Derivatives

Option models on equities, baskets of equity, funds

Dividends (**)

 

Correlations

(100%)

100%

100%

%

Volatility

6.52

29.90

141.77

Vegas

FX Derivatives

Option models on FX underlyings

Volatility

4.11

10.00

16.14

Vegas

IR Derivatives

Option models on IR underlyings

Beta

0.25

2.00

18.00

%

Correlation Rate/Credit

(100)

 

100

%

Credit Default Volatility

-

-

-

Vegas

(*) Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them. 

(**) The range of unobservable dividends is too wide range to be relevant.

 

 

F-148F-103  


Unobservable inputs. December 2019

Financial instrument

Valuation technique(s)

Significant unobservable inputs

Min

Average

Max

Units

Loans and advances

Present value method

Repo funding curve

(6)

16

100

b.p.

Debt securities

Comparable pricing

Credit spread

18

83

504

b.p.

Recovery rate

0.00%

28.38%

40.00%

%

 

0.01%

98.31%

135.94%

%

Equity instruments (*)

Comparable pricing

Net asset value

 

 

 

Credit option

Gaussian Copula

Correlation default

19.37%

44.33%

61.08%

%

Corporate Bond option

Black 76

Price volatility

-

-

-

Vegas

Equity OTC option

Heston

Forward volatility skew

35.12

35.12

35.12

Vegas

Local volatility

Dividends (**)

 

Volatility

2.49

23.21

60.90

Vegas

FX OTC options

Black Scholes/Local Vol

Volatility

3.70

6.30

10.05

Vegas

Interest rate options

Libor Market Model

Beta

0.25

2.00

18.00

%

Correlation rate/Credit

(100)

 

100

%

Credit default Volatility

-

-

-

Vegas

(*) Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them. 

(**) The range of unobservable dividends is too wide range to be relevant.

Unobservable inputs. December 2018

Financial instrument

Valuation technique(s)

Significant unobservable inputs

Min

Average

Max

Units

Debt securities

Comparable pricing

Credit spread

37

152

385

b.p.

Recovery rate

0.00%

32.06%

40.00%

%

 

1.00%

88.00%

275.00%

%

Equity instruments (*)

Comparable pricing

Net asset value

 

 

 

Credit option

Gaussian Copula

Correlation default

0.00%

37.98%

60.26%

%

Corporate Bond option

Black 76

Price volatility

-

-

-

Vegas

Equity OTC option

Heston

Forward volatility skew

47.05

47.05

47.05

Vegas

Local volatility

Dividends (**)

 

Volatility

13.79

27.24

65.02

Vegas

FX OTC options

Black Scholes/Local Vol

Volatility

5.05

7.73

9.71

Vegas

Interest rate options

Libor Market Model

Beta

0.25

9.00

18.00

%

Correlation rate/Credit

(100)

 

100

%

Credit default Volatility

-

-

-

Vegas

(*) Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them. 

(**) The range of unobservable dividends is too wide range to be relevant.

F-104


 

Financial assets and liabilities classified as Level 3

The changes in the balance of Level 3 financial assets and liabilities included in the accompanying consolidated balance sheets during 2018, 2017 and 2016, are as follows:

Financial Assets Level 3: Changes in the Period (Millions of euros)

Financial assets Level 3: Changes in the year (Millions of Euros)

Financial assets Level 3: Changes in the year (Millions of Euros)

2018

2017

2016

2020

2019

2018

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Balance at the beginning

835

125

822

116

463

182

3,754

2,220

3,527

4,115

835

1,386

Group incorporations

-

-

-

-

Changes in fair value recognized in profit and loss (*)

(167)

(95)

(24)

(21)

33

(86)

609

293

112

71

(167)

(28)

Changes in fair value not recognized in profit and loss

(4)

-

(45)

-

(81)

(3)

(89)

(4)

2

-

(4)

-

Acquisitions, disposals and liquidations (**)

2,102

2,710

32

320

438

(25)

(699)

(393)

5

595

2,102

2,710

Net transfers to Level 3

761

47

106

(39)

16

-

549

287

77

(2,751)

761

47

Exchange differences and others

-

-

(55)

(250)

(47)

49

(160)

(35)

31

189

-

Discontinued operations (***)

(518)

(5)

-

-

-

Balance at the end

3,527

2,787

835

125

822

116

3,446

2,363

3,754

2,219

3,527

4,115

(*)      Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of December 31, 2018, 20172020, 2019 and 2016.2018. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities net”(net)”.

(**)      Of which, in 2018,2020, the assets roll forward is comprised of 2,400€326 million of acquisitions, €254 millions€1,014 million of disposals and €44 millions€11 million of liquidations. The liabilities roll forward is comprised of €2,716€115 million of acquisitions, €449 million of sales and €5 millions€11 million of liquidations.

(***)      Amount in 2020 are mainly due to the stake in BBVA USA (see Notes 3 and 21).

During the 2020 financial year, the level of significance of the unobservable inputs used to determine the fair value hierarchy of loans and advances to customers at amortized cost has been reviewed, resulting in a greater exposure classified as Level 3. This review has been carried out in the context of availability of new information, more adjusted to the changes that have occurred both in market conditions and in the composition of the credit portfolio. The effect on the consolidated results and solvency ratios, resulting from this review, does not represent any change (see Note 8.2).

During 2019, certain interest rate yields were adapted to those observable in the market, which mainly affected the valuation of certain deposit classes recorded under “Financial liabilities at amortized cost” and certain insurance products recorded under “Financial liabilities designated at fair value through profit or loss - Other financial liabilities”, and, as a result thereof, their classification changed from Level 3 to Level 2. Additionally, €1,285 million in assets held for trading and €649 million in liabilities held for trading were classified in Level 3, mainly due to certain reverse repurchase and repurchase agreements, due to the non-observability and liquidity in the interest rate yield for the financing of assets applied in the calculation of their fair value.

As of December 31, 2020, 2019 and 2018, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material.

F-149


Transfers between levels

The Global Valuation Area, in collaboration with BBVAthe Group, has established the rules for a proper financialsan appropriate financial instruments held for trading classification according to the fair value hierarchy defined by international accounting standards.IFRS.

On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the accounting subsidiary.subsidiaries. Then, there is a quarterly review of the portfolio in order to analyze the need for a change in classification of any of these assets.

The financial instruments transferred between the different levels of measurement for the yearyears ended December 31, 2020, 2019 and 2018 are recorded at the following amounts in the accompanying consolidated balance sheets as of December 31, 2020, 2019 and 2018:

Transfer Between Levels. December 2018 (Millions of euros)

Transfer between Levels. December 2020 (Millions of Euros)

Transfer between Levels. December 2020 (Millions of Euros)

From:

Level 1

Level 2

Level 3

From:

Level 1

Level 2

Level 3

To:

Level 2

Level 3

Level 1

Level 3

Level 1

Level2

To:

Level 2

Level 3

Level 1

Level 3

Level 1

Level2

ASSETS

 

 

 

 

 

 

Financial assets held for trading

 

1,171

2

6

-

2

 

1,460

11

203

548

4

98

Non-trading financial assets mandatorily at fair value through profit or loss

 

-

9

67

-

24

 

9

11

4

-

17

Financial assets designated at fair value through profit or loss

 

143

-

-

Financial assets at fair value through other comprehensive income

 

134

72

-

515

-

-

 

484

-

135

96

-

6

Derivatives

 

-

52

118

49

Derivatives – Hedge accounting

 

-

-

8

-

Total

 

1,305

74

11

641

118

75

 

2,096

23

342

652

4

122

LIABILITIES-

 

 

 

LIABILITIES

 

 

 

Financial liabilities held for trading

 

-

138

-

37

 

8

3

-

268

-

13

Financial liabilities designated at fair value through profit or loss

 

-

-

56

-

27

Derivatives – Hedge accounting

 

-

-

Total

 

-

138

-

37

 

8

3

-

324

-

40

F-105


Transfer between levels (Millions of Euros).

 

 

2019

2018

 

From:

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

 

To:

Level 2

Level 3

Level 1

Level 3

Level 1

Level2

Level 2

Level 3

Level 1

Level 3

Level 1

Level2

ASSETS

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial assets held for trading

 

74

-

1,119

502

1

160

1,171

2

2

6

-

2

Non-trading financial assets mandatorily at fair value through profit or loss

 

-

-

23

2

-

44

-

-

9

67

-

24

Financial assets designated at fair value through profit or loss

 

-

-

-

-

1

-

-

-

-

-

-

-

Financial assets at fair value through other comprehensive income

 

6

6

4

209

-

454

134

72

-

515

-

-

Derivatives – Hedge accounting

 

-

-

-

26

-

10

-

-

-

52

118

49

Total

 

79

6

1,145

739

2

667

1,305

74

11

641

118

75

LIABILITIES

 

 

 

 

 

 

 

 

 

 

 

 

 

Financial liabilities held for trading

 

1

-

-

-

-

-

-

-

-

138

-

37

Financial liabilities designated at fair value through profit or loss

 

-

-

-

27

-

2,679

-

-

-

-

-

-

Derivatives – Hedge accounting

 

-

-

-

27

-

125

-

-

-

-

-

-

Total

 

1

-

-

54

-

2,804

-

-

-

138

-

37

The amount of financial instruments that were transferred between levels of valuation forduring the year ended December 31, 20182020, is not material relative to the total portfolios, and corresponds to the above changes in the classification between levels these financial instruments modified some of their features, specifically:

·           Transfers between Levels 1 and 2 represent mainly debt securities and equity instruments, which are either no longer listed on an active market (transfer from Level 1 to 2) or have just started to be listed (transfer from Level 2 to 1).

·           Transfers from Level 2 to Level 3 are mainly due to derivative transactions.transactions of financial assets held for trading, non-trading financial assets mandatorily valued at fair value, hedging derivatives, financial liabilities held for trading and financial liabilities designated at fair value through profit or loss.

·           Transfers from Level 3 to Level 2 generally affect derivative and debt instrumentssecurities transactions, for which inputs observable in the market have been obtained.obtained.

F-150Sensitivity analysis


Sensitivity Analysis

Sensitivity analysis is performed on financial instruments with significant unobservable inputs (financial instruments included in level 3), in order to obtain a reasonable range of possible alternative valuations. This analysis is carried out on a monthly basis, based on the criteria defined by the Global Valuation Area taking into account the nature of the methods used for the assessment and the reliability and availability of inputs and proxies used. In order to establish, with a sufficient degree of certainty, the valuatingvaluation risk that is incurred in such assets without applying diversification criteria between them.

As of December 31, 2018,2020, the effect on profit for the periodyear and total equity of changing the main unobservable inputs used for the measurement of Level 3 financial instruments for other reasonably possible unobservable inputs, taking the highest (most favorable input) or lowest (least favorable input) value of the range deemed probable, would be as follows:

Financial Assets Level 3: Sensitivity Analysis (Millions of euros)

Financial instruments Level 3: Sensitivity analysis (Millions of Euros)

Financial instruments Level 3: Sensitivity analysis (Millions of Euros)

Potential Impact on Consolidated

 Income Statement

Potential Impact on

 Total Equity

Potential impact on consolidated

 income statement

Potential impact on

other comprehensive income

Most Favorable Hypothesis

Least Favorable Hypothesis

Most Favorable Hypothesis

Least Favorable Hypothesis

Most favorable hypothesis

Least favorable hypothesis

Most favorable hypothesis

Least favorable hypothesis

ASSETS

 

 

 

Financial assets held for trading

6

(13)

-

10

(40)

-

Loans and Advances

-

1

(1)

-

Debt securities

2

(3)

-

5

(5)

-

Equity instruments

3

(9)

-

1

(31)

-

Derivatives

1

(1)

-

3

(3)

-

Non-trading financial assets mandatorily at fair value through profit or loss

291

(181)

-

229

(60)

-

Loans and Advances

285

(161)

-

Loans and advances

204

(29)

-

Debt securities

3

(12)

-

15

(15)

-

Equity instruments

3

(8)

-

9

(16)

-

Financial assets designated at fair value through profit or loss

-

-

-

Financial assets at fair value through other comprehensive income

-

1

(1)

-

22

(23)

LIABILITIES

 

Financial liabilities held for trading

1

(1)

1

(1)

Total

297

(194)

1

(1)

239

(101)

22

(23)

F-151F-106  


 

8.2 Fair value of financial instruments carried at cost, by valuation criteria

The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost as of December 31, 2018, are presented below:

Financial assets

·           Cash, balances at central banks and other demand deposits / loans to central banks / short-term loans to credit institutions /institutions/ Repurchase agreements: in general, their fair value is assimilated to their book value, due to the nature of the counterparty and because they are mainly short-term balances in which the book value is the most reasonable estimation of the value of the asset.

·        Loans to credit institutions which are not short-term and loans to customers: In general, the fair value of these financial assets is determined by the discount of expected future cash flows, using market interest rates at the time of valuation adjusted by the credit spread and taking all kind of behavior hypothesis if it is considered to be relevant (prepayment fees, optionality, etc.).

·           Debt securities: Fair value estimated based on the available market price or by using internal valuation methodologies.

Financial liabilities

·        Deposits from central banks: for recurrent liquidity auctions and other monetary policy instruments of central banks / short-term deposits, from credit institutions / repurchase agreements / short-termshort term customer deposits: their book value is considered to be the best estimation of their fair value.

·        Deposits of credit institutions which are not short-term and term customer deposits: these deposits will be valued by discounting future cash flows using the interest rate curve in effect at the time of the adjustment adjusted by the credit spread and incorporating any behavioral assumptions if this proves relevant (early repayments, , optionalities, etc.).

·           Debt certificate (Issuances): The fair value estimation of these liabilities depend on the availability of market prices or by using the present value method: discount of future cash flows, using market interest rates at valuation time and taking into account the credit spread.

The following table presents the fair value of key financial instruments carried at amortized cost in the accompanying consolidated balance sheets as of December 31, 2018, 20172020, 2019 and 2016,2018, broken down according to the method of valuation used for the estimation:

Fair Value of financial Instruments at amortized cost by Levels (Millions of euros)

Fair value of financial instruments at amortized cost by levels (Millions of euros)

Fair value of financial instruments at amortized cost by levels (Millions of euros)

 

2018

2020

2019

2018

Notes

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

Level 1

Level 2

Level 3

ASSETS

 

 

 

Cash, cash balances at central banks and other demand deposits

9

58,024

-

172

65,355

-

165

44,111

-

192

58,024

-

172

Financial assets at amortized cost

14

21,419

204,619

193,819

35,196

15,066

324,005

29,391

217,279

196,119

21,419

204,619

193,819

LIABILITIES

 

 

 

Financial liabilities at amortized cost

22

58,225

269,128

182,948

90,839

255,278

144,889

67,229

289,599

159,082

58,225

269,128

182,948

F-152


The main valuation techniques and inputs used to estimate the fair value of financial instruments accounted for at cost and classified in levels 2 and 3 is shown below. These are broken down by type of financial instrument and the balances correspond to those as of December 31, 2020, 2019 and 2018:

Fair Value of financial Instruments at amortized cost by valuation technique. December 2018 (Millions of euros)

Fair Value of financial Instruments at amortized cost by valuation technique. December 2020 (Millions of Euros)

Fair Value of financial Instruments at amortized cost by valuation technique. December 2020 (Millions of Euros)

Level 2

Level 3

Valuation technique(s)

Main inputs used

2020

2019

2018

Valuation technique(s)

Main inputs used

Level 2

Level 3

Level 2

Level 3

Level 2

Level 3

ASSETS

 

 

 

 

 

 

 

Financial assets at amortized cost

204,619

193,819

 

 

15,066

324,005

217,279

196,119

204,619

193,819

Present-value method

(Discounted future cash flows)

 

Central Banks

-

1

Present-value method

(Discounted future cash flows)

- Credit spread

- Prepayment rates

- Interest rate yield

Central banks

-

2

-

1

- Credit spread

- Prepayment rates

- Interest rate yield

Loans and advances to credit institutions

4,934

4,291

Present-value method

(Discounted future cash flows)

- Credit spread

- Prepayment rates

- Interest rate yield

1,883

12,641

9,049

4,628

4,934

4,291

- Credit spread

- Prepayment rates

- Interest rate yield

Loans and advances to customers

190,666

183,645

Present-value method

(Discounted future cash flows)

- Credit spread

- Prepayment rates

- Interest rate yield

3,904

310,924

194,897

190,144

190,666

183,645

- Credit spread

- Prepayment rates

- Interest rate yield

Debt securities

9,019

5,881

Present-value method

(Discounted future cash flows)

- Credit spread

- Interest rate yield

9,279

440

13,333

1,345

9,019

5,881

Present-value method

(Discounted future cash flows)

- Credit spread

- Interest rate yield

LIABILITIES

 

 

 

 

 

Financial liabilities at amortized cost

269,128

182,948

 

 

255,278

144,889

289,599

159,082

269,128

182,948

 

Central Banks

196

-

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

Loans and advances to credit institutions

22,281

9,852

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

Loans and advances to customers

240,547

135,270

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

Debt securities

6,104

25,096

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

Deposits from central banks

-

207

129

-

196

-

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

Deposits from credit institutions

22,914

4,633

21,575

6,831

22,281

9,852

Deposits from customers

210,097

129,525

245,720

135,514

240,547

135,270

Debt certificates

14,413

4,848

14,194

11,133

6,104

25,096

Other financial liabilities

-

12,730

Present-value method

(Discounted future cash flows)

- Issuer´s credit risk

- Prepayment rates

- Interest rate yield

7,854

5,676

7,981

5,604

-

12,730

F-107


Equity instruments at cost

Until 2017, there were equity instruments and discretionary profit-sharing arrangements in some entities which were recognized at cost in the Group’s consolidated balance sheets because their fair value could not be estimated in a sufficiently reliable manner for the amount of €469 and €565 million, as of December 31, 2017 and 2016, respectively.

9. Cash, cash balances at central banks and other demandsdemand deposits

The breakdown of the balance under the heading “Cash, cash balances at central banks and other demandsdemand deposits” in the accompanying consolidated balance sheets is as follows:

Cash, cash balances at central banks and other demand deposits (Millions of euros)

Cash, cash balances at central banks and other demand deposits (Millions of Euros)

Cash, cash balances at central banks and other demand deposits (Millions of Euros)

 

2018

2017

2016

Notes

2020

2019

2018

Cash on hand

 

6,346

6,220

7,413

 

6,447

7,060

6,346

Cash balances at central banks

 

43,880

31,718

28,671

Cash balances at central banks (*)

 

53,079

31,755

43,880

Other demand deposits

 

7,970

4,742

3,955

 

5,994

5,488

7,970

Total

 

58,196

42,680

40,039

8.1

65,520

44,303

58,196

F-153


(*)   The variation in 2020 is mainly due to an increase in balances of BBVA, S.A. at the Bank of Spain.

F-108


10. Financial assets and liabilities held for trading

10.110.1. Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial Assets and Liabilities Held-for-Trading (Millions of euros)

Financial assets and liabilities held for trading (Millions of Euros)

Financial assets and liabilities held for trading (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

ASSETS

 

 

 

 

Derivatives

 

30,536

35,265

42,955

Derivatives (*)

 

40,183

32,232

29,523

Equity instruments

7.2.2

11,458

8,892

5,254

Credit institutions

 

633

1,037

880

Other sectors

 

10,824

7,855

4,374

Debt securities

7.3.2

25,577

22,573

27,166

7.2.2

23,970

26,309

25,577

Issued by central banks

 

1,011

840

1,001

Issued by public administrations

 

19,942

23,918

22,950

Issued by financial institutions

 

1,479

679

790

Other debt securities

 

1,538

872

836

Loans and advances

7.3.2

28,750

56

154

7.2.2

32,647

34,303

28,750

Equity instruments

7.3.2

5,254

6,801

4,675

Total Assets

 

90,117

64,695

74,950

Loans and advances to central banks

 

53

535

2,163

Reverse repurchase agreement (**)

 

53

535

2,163

Loans and advances to credit institutions

 

20,499

21,286

14,566

Reverse repurchase agreement (**)

 

20,491

21,219

13,305

Loans and advances to customers

 

12,095

12,482

12,021

Reverse repurchase agreement (**)

 

11,493

12,187

11,794

Total assets

8.1

108,257

101,735

89,103

LIABILITIES

 

 

 

 

Derivatives

 

31,815

36,169

43,118

Derivatives (*)

 

41,680

34,066

30,801

Short positions

 

11,025

10,013

11,556

 

12,312

12,249

11,025

Deposits

 

37,934

 

 

32,496

42,365

37,934

Total Liabilities

 

80,774

46,182

54,675

Deposits from central banks

 

6,277

7,635

10,511

Repurchase agreement (**)

 

6,277

7,635

10,511

Deposits from credit institutions

 

16,558

24,969

15,687

Repurchase agreement (**)

 

16,217

24,578

14,839

Customer deposits

 

9,660

9,761

11,736

Repurchase agreement (**)

 

9,616

9,689

11,466

Total liabilities

8.1

86,488

88,680

79,761

 

(*)   The variation in 2020 is mainly due to the evolution of exchange rate derivatives at BBVA, S.A.The information for 2019 and 2018 has been subject to certain modifications related to the operation of non-significant cross currency swaps in order to improve comparability with the figures for 2020.

 (**) See Note 35.

As of December 31, 2020, 2019 and 2018 “Short positions” include €11,696, €11,649 and €10,255 million, respectively, held with Generalgeneral governments.

10.2   Debt securities

The breakdown by type of issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Debt securities by issuer (Millions of euros)

 

2018

2017

2016

Issued by Central Banks

1,001

1,371

544

Issued by public administrations

22,950

19,344

23,621

Issued by financial institutions

790

816

1,652

Other debt securities

836

1,041

1,349

Total

25,577

22,573

27,166

F-154


10.3   Loans and advances10.2. Derivatives

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Loans and advances (Millions of euros)

 

Notes

2018

2017

2016

Loans and advances to central banks

 

2,163

-

-

Reverse repurchase agreements

35

2,163

-

-

Loans and advances to credit institutions

 

14,566

-

-

Reverse repurchase agreements

35

13,305

-

-

Loans and advances to customers

 

12,021

56

154

Reverse repurchase agreements

35

11,794

-

-

Total

 

28,750

56

154

10.4   Equity instruments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Assets Held-for-Trading. Equity instruments by Issuer (Millions of euros)

 

2018

2017

2016

Shares of Spanish companies

 

 

 

Credit institutions

576

617

781

Other sectors

536

603

956

Subtotal

1,112

1,220

1,737

Shares of foreign companies

 

 

 

Credit institutions

304

345

220

Other sectors

3,838

5,236

2,718

Subtotal

4,142

5,581

2,939

Total

5,254

6,801

4,675

F-155


10.5   Deposits

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Financial Liabilities Held-for-Trading. Deposits (Millions of euros)

 

Notes

2018

2017

2016

Deposits from central banks (*)

 

10,511

 

 

Repurchase agreement

35

10,511

 

 

Deposits from credit institutions (*)

 

15,687

 

 

Repurchase agreement

35

14,839

 

 

Deposits from customers (*)

 

11,736

 

 

Repurchase agreement

35

11,466

 

 

Total

 

37,934

 

 

F-156


10.6   Derivatives

The derivatives portfolio arises from the Group’s need to manage the risks it is exposed to in the normal course of business and also to market products amongst the Group’s customers. As of December 31, 2018, 20172020, 2019 and 2016,2018, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties, consisting primarily of foreign credit institutions and other financial corporations, and are related to foreign-exchange, interest-rate and equity risk.

Below is a breakdown of the net positions by transaction type of the fair value and notional amounts of derivatives recognized in the accompanying consolidated balance sheets, divided into organized and OTC markets:

Derivatives by type of risk / by product or by type of market -  December 2018 (Millions of Euros)

 

Assets

Liabilities

Notional amount - Total

Interest rate

19,147

18,769

2,929,371

OTC options

1,940

2,413

207,107

OTC other

17,206

16,356

2,702,909

Organized market options

-

-

6,092

Organized market other

-

-

13,263

Equity

2,799

2,956

114,184

OTC options

400

341

32,906

OTC other

230

123

6,693

Organized market options

2,168

2,492

72,062

Organized market other

-

-

2,524

Foreign exchange and gold

8,355

9,693

432,283

OTC options

226

309

21,293

OTC other

8,118

9,329

405,659

Organized market options

-

1

45

Organized market other

11

54

5,286

Credit

232

393

25,452

Credit default swap

228

248

22,791

Credit spread option

2

-

500

Total return swap

2

145

2,161

Other

-

-

-

Commodities

3

3

67

Other

-

-

-

DERIVATIVES

30,536

31,815

3,501,358

of which: OTC - credit institutions

16,979

18,729

897,384

of which: OTC - other financial corporations

7,372

7,758

2,355,784

of which: OTC - other

4,005

2,780

148,917

Derivatives by type of risk and by product or by type of market (Millions of Euros)

 

2020

2019

2018

 

Assets

Liabilities

Notional amount - Total

Assets

Liabilities

Notional amount - Total

Assets

Liabilities

Notional amount - Total

Interest rate

26,451

26,028

3,252,066

21,004

20,378

3,024,794

18,546

18,169

2,929,371

OTC

26,447

26,020

3,233,718

21,004

20,377

2,997,443

18,546

18,169

2,910,016

Organized market

3

8

18,348

-

1

27,351

-

-

19,355

Equity instruments

2,626

4,143

72,176

2,263

3,499

84,140

2,799

2,956

114,184

OTC

584

1,836

42,351

353

1,435

40,507

631

463

39,599

Organized market

2,042

2,307

29,825

1,910

2,065

43,633

2,168

2,492

74,586

Foreign exchange and gold

10,952

11,216

461,898

8,608

9,788

472,194

7,942

9,280

432,283

OTC

10,942

11,216

457,180

8,571

9,782

463,662

7,931

9,225

426,952

Organized market

10

-

4,719

37

6

8,532

11

55

5,331

Credit

153

292

23,411

353

397

29,077

232

393

25,452

Credit default swap

146

156

21,529

338

283

26,702

228

248

22,791

Credit spread option

-

-

-

-

2

150

2

-

500

Total return swap

7

136

1,882

14

113

2,225

2

145

2,161

Other

-

-

-

-

-

-

-

-

-

Commodities

1

1

26

4

4

64

3

3

67

Other

-

-

-

-

-

-

-

-

-

DERIVATIVES

40,183

41,680

3,809,577

32,232

34,066

3,610,269

29,523

30,801

3,501,358

Of which: OTC - credit institutions

24,432

27,244

958,017

19,962

22,973

1,000,243

16,305

18,055

897,384

Of which: OTC - other financial corporations

8,211

8,493

2,663,978

6,028

6,089

2,370,988

7,136

7,522

2,355,784

Of which: OTC - other

5,484

3,627

134,690

4,294

2,932

159,521

3,902

2,677

148,917

F-157F-109  


Derivatives by type of risk / by product or by type of market -  December 2017 (Millions of Euros)

 

Assets

Liabilities

Notional amount - Total

Interest rate

22,606

22,546

2,152,490

OTC options

2,429

2,581

212,554

OTC other

20,177

19,965

1,916,920

Organized market options

-

-

600

Organized market other

-

-

22,416

Equity

1,778

2,336

95,573

OTC options

495

1,118

34,140

OTC other

83

90

8,158

Organized market options

1,200

1,129

48,644

Organized market other

-

-

4,631

Foreign exchange and gold

10,371

10,729

380,404

OTC options

245

258

24,447

OTC other

10,092

10,430

348,857

Organized market options

-

3

104

Organized market other

34

37

6,997

Credit

489

517

30,181

Credit default swap

480

507

27,942

Credit spread option

-

-

200

Total return swap

9

9

2,039

Other

-

-

-

Commodities

3

3

36

Other

18

38

561

DERIVATIVES

35,265

36,169

2,659,246

of which: OTC - credit institutions

21,016

22,804

898,209

of which: OTC - other financial corporations

8,695

9,207

1,548,919

of which: OTC - other

4,316

2,986

128,722

F-158


Derivatives by type of risk / by product or by type of market -  December 2016 (Millions of Euros)

 

Assets

Liabilities

Notional amount - Total

Interest rate

25,770

25,322

1,556,150

OTC options

3,331

3,428

217,958

OTC other

22,339

21,792

1,296,183

Organized market options

1

-

1,311

Organized market other

100

102

40,698

Equity

2,032

2,252

90,655

OTC options

718

1,224

44,837

OTC other

109

91

5,312

Organized market options

1,205

937

36,795

Organized market other

-

-

3,712

Foreign exchange and gold

14,872

15,179

425,506

OTC options

417

539

27,583

OTC other

14,436

14,624

392,240

Organized market options

3

-

175

Organized market other

16

16

5,508

Credit

261

338

19,399

Credit default swap

246

230

15,788

Credit spread option

-

-

150

Total return swap

2

108

1,895

Other

14

-

1,565

Commodities

6

6

169

Other

13

22

1,065

DERIVATIVES

42,955

43,118

2,092,945

of which: OTC - credit institutions

26,438

28,005

806,096

of which: OTC - other financial corporations

8,786

9,362

1,023,174

of which: OTC - other

6,404

4,694

175,473

F-159


11. Non-trading financial assets mandatorily at fair value through profit or loss

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros)

Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros)

Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros)

Notes

2018

Notes

2020

2019

2018

Equity instruments

7.3.2

3,095

7.2.2

4,133

4,327

3,095

Debt securities

7.3.2

237

7.2.2

356

110

237

Loans and advances

7.3.2

1,803

Loans and advances to customers

7.2.2

709

1,120

1,803

Total

 

5,135

8.1

5,198

5,557

5,135

 

This heading is included with the implementation of IFRS 9 on January 1, 2018. Previously, this category did not exist in IAS 39 (see Note 2.2.1 and 2.3).

12. Financial assets and liabilities designated at fair value through profit or loss

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial assets and liabilities designated at fair value through profit or loss (Millions of euros)

 

Notes

2018

2017

2016

ASSETS

 

 

 

 

Equity instruments

 

 

1,888

1,920

Unit-linked products

 

 

1,621

1,749

Other securities

 

 

266

171

Debt securities

 

1,313

174

142

Loans and advances

 

-

648

-

Total Assets

7.3.2

1,313

2,709

2,062

LIABILITIES

 

 

 

 

Deposits

 

976

-

-

Debt certificates

 

2,858

-

-

Other financial liabilities

 

3,159

2,222

2,338

Unit-linked products

 

3,159

2,222

2,338

Total Liabilities

 

6,993

2,222

2,338

Financial assets and liabilities designated at fair value through profit or loss (Millions of Euros)

 

Notes

2020

2019

2018

ASSETS

 

 

 

 

Debt securities

7.2.2

1,117

1,214

1,313

LIABILITIES

 

 

 

 

Customer deposits

 

902

944

976

Debt certificates

 

4,531

4,656

2,858

Other financial liabilities: Unit-linked products

 

4,617

4,410

3,159

Total liabilities

8.1

10,050

10,010

6,993

With the implementation of IFRS 9 on January 1, 2018, equity instruments under this heading have been reclassified to the heading: “Non-trading financial assets mandatorily at fair value through profit or loss” (see Note 11).

As of December 31, 2018, 2017 and 2016, the most significant balances within financialWithin “Financial liabilities designated at fair value through profit or loss related to assets andloss”, liabilities linked to insurance products where the policyholder bears the risk ("Unit-Link"Unit-Link"). This type of product is sold only in Spain, through BBVA Seguros S.A., insurance and reinsurance and in Mexico through Seguros Bancomer S.A. de CV.

F-160


are recorded. Since the liabilities linked to insurance products in which the policyholder assumes the risk are valued the same way as the assets associated to these insurance products, there is no credit risk component borne by the Group in relation to these liabilities.

In addition, the assets and liabilities are included in these headings to reduce inconsistencies (asymmetries) in the valuation of those operations and those used to manage their risk.

F-110


13. Financial assets at fair value through other comprehensive income

13.1  Balance details13.1. Breakdown of the balance

The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:

Financial assets designated at fair value through other comprehensive income (Millions of euros)

 

Notes

2018

2017

2016

Debt securities

7.3.2

53,737

66,273

74,739

Impairment losses

 

(28)

(21)

(159)

Subtotal

 

53,709

66,251

74,580

Equity instruments

7.3.2

2,595

4,488

4,814

Impairment losses

 

-

(1,264)

(174)

Subtotal

 

2,595

3,224

4,641

Loans and advances to credit entities

 

33

-

-

Total

 

56,337

69,476

79,221

F-161


Financial assets at fair value through other comprehensive income (Millions of Euros)

 

Notes

2020

2019

2018

Equity instruments

7.2.2

1,100

2,420

2,595

Debt securities (*)

 

68,308

58,731

53,709

Loans and advances to credit institutions

7.2.2

33

33

33

Total

8.1

69,440

61,183

56,337

Of which: loss allowances of debt securities

 

(97)

(110)

(28)

13.2  Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements, broken down by the nature of the financial instruments, is as follows:

Financial assets designated at fair value through other comprehensive income: Debt Securities. December 2018 (Millions of euros)

 

Amortized Cost (*)

Unrealized Gains

Unrealized Losses

Book Value

Domestic Debt Securities

 

 

 

 

Spanish Government and other general governments agencies debt securities

17,205

661

(9)

17,857

Other debt securities

1,597

100

(1)

1,696

Issued by Central Banks

-

-

-

-

Issued by credit institutions

793

63

-

855

Issued by other issuers

804

37

(1)

841

Subtotal

18,802

761

(10)

19,553

Foreign Debt Securities

 

 

 

 

Mexico

6,299

6

(142)

6,163

Mexican Government and other general governments agencies debt securities

5,286

4

(121)

5,169

Other debt securities

1,013

2

(21)

994

Issued by Central Banks

-

-

-

-

Issued by credit institutions

35

-

(1)

34

Issued by other issuers

978

2

(20)

961

The United States

14,507

47

(217)

14,338

Government securities

11,227

37

(135)

11,130

US Treasury and other US Government agencies

7,285

29

(56)

7,258

States and political subdivisions

3,942

8

(79)

3,872

Other debt securities

3,280

10

(82)

3,208

Issued by Central Banks

-

-

-

-

Issued by credit institutions

49

1

-

50

Issued by other issuers

3,231

9

(82)

3,158

Turkey

4,164

20

(269)

3,916

Turkey Government and other general governments agencies debt securities

4,007

20

(256)

3,771

Other debt securities

157

-

(13)

145

Issued by Central Banks

-

-

-

-

Issued by credit institutions

157

-

(13)

145

Issued by other issuers

-

-

-

-

Other countries

9,551

319

(130)

9,740

Other foreign governments and other general governments agencies debt securities

4,510

173

(82)

4,601

Other debt securities

5,041

146

(48)

5,139

Issued by Central Banks

987

2

(4)

986

Issued by credit institutions

1,856

111

(20)

1,947

Issued by other issuers

2,197

33

(25)

2,206

Subtotal

34,521

392

(758)

34,157

Total

53,323

1,153

(768)

53,709

(*) The amortized cost includes portfolio gains/losses linkedvariation corresponds mainly to insurance contractsthe increase in which the policyholder assumes the riskfinancial assets issued by governments in case of redemption.BBVA, S.A.

 

F-162


Available-for-sale financial assets: Debt Securities. December 2017 (Millions of euros)

 

Amortized Cost (*)

Unrealized Gains

Unrealized Losses

Book Value

Domestic Debt Securities

 

 

 

 

Spanish Government and other general governments agencies debt securities

22,765

791

(17)

23,539

Other debt securities

1,951

114

-

2,066

Issued by Central Banks

-

-

-

-

Issued by credit institutions

891

72

-

962

Issued by other issuers

1,061

43

-

1,103

Subtotal

24,716

906

(17)

25,605

Foreign Debt Securities

 

 

 

 

Mexico

9,755

45

(142)

9,658

Mexican Government and other general governments agencies debt securities

8,101

34

(120)

8,015

Other debt securities

1,654

11

(22)

1,643

Issued by Central Banks

-

-

-

-

Issued by credit institutions

212

1

(3)

209

Issued by other issuers

1,442

10

(19)

1,434

The United States

12,479

36

(198)

12,317

Government securities

8,625

8

(133)

8,500

US Treasury and other US Government agencies

3,052

-

(34)

3,018

States and political subdivisions

5,573

8

(99)

5,482

Other debt securities

3,854

28

(65)

3,817

Issued by Central Banks

-

-

-

-

Issued by credit institutions

56

1

-

57

Issued by other issuers

3,798

26

(65)

3,759

Turkey

5,052

48

(115)

4,985

Turkey Government and other general governments agencies debt securities

5,033

48

(114)

4,967

Other debt securities

19

1

(1)

19

Issued by Central Banks

-

-

-

-

Issued by credit institutions

19

-

(1)

19

Issued by other issuers

-

-

-

-

Other countries

13,271

533

(117)

13,687

Other foreign governments and other general governments agencies debt securities

6,774

325

(77)

7,022

Other debt securities

6,497

208

(40)

6,664

Issued by Central Banks

1,330

2

(1)

1,331

Issued by credit institutions

2,535

139

(19)

2,654

Issued by other issuers

2,632

66

(19)

2,679

Subtotal

40,557

661

(572)

40,647

Total

65,273

1,567

(589)

66,251

(*)  The amortized cost includes portfolio gains/losses linkedDuring financial years 2020 and 2019, there have been no significant reclassifications from “Financial assets at fair value through other comprehensive income” to insurance contracts in which the policyholder assumes the risk in case of redemption.other headings or from other headings to “Financial assets at fair value through other comprehensive income”.

F-163


Available-for-sale financial assets: Debt Securities. December 2016 (Millions of euros)

 

Amortized Cost (*)

Unrealized Gains

Unrealized Losses

Book Value

Domestic Debt Securities

 

 

 

 

Spanish Government and other general governments agencies debt securities

22,427

711

(18)

23,119

Other debt securities

2,305

117

(1)

2,421

Issued by Central Banks

-

-

-

-

Issued by credit institutions

986

82

-

1,067

Issued by other issuers

1,319

36

(1)

1,354

Subtotal

24,731

828

(19)

25,540

Foreign Debt Securities

 

 

 

 

Mexico

11,525

19

(343)

11,200

Mexican Government and other general governments agencies debt securities

9,728

11

(301)

9,438

Other debt securities

1,797

8

(42)

1,763

Issued by Central Banks

-

-

-

-

Issued by credit institutions

86

2

(1)

87

Issued by other issuers

1,710

6

(41)

1,675

The United States

14,256

48

(261)

14,043

Government securities

8,460

9

(131)

8,337

US Treasury and other US Government agencies

1,702

1

(19)

1,683

States and political subdivisions

6,758

8

(112)

6,654

Other debt securities

5,797

39

(130)

5,706

Issued by Central Banks

-

-

-

-

Issued by credit institutions

95

2

-

97

Issued by other issuers

5,702

37

(130)

5,609

Turkey

5,550

73

(180)

5,443

Turkey Government and other general governments agencies debt securities

5,055

70

(164)

4,961

Other debt securities

495

2

(16)

482

Issued by Central Banks

-

-

-

-

Issued by credit institutions

448

2

(15)

436

Issued by other issuers

47

-

(1)

46

Other countries

17,923

634

(203)

18,354

Other foreign governments and other general government agencies debt securities

7,882

373

(98)

8,156

Other debt securities

10,041

261

(105)

10,197

Issued by Central Banks

1,657

4

(2)

1,659

Issued by credit institutions

3,269

96

(54)

3,311

Issued by other issuers

5,115

161

(49)

5,227

Subtotal

49,253

773

(987)

49,040

Total

73,985

1,601

(1,006)

74,580

(*)  The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

The credit ratings of the issuers of debt securities as of December 31, 2018, 2017 and 2016, are as follows:

Debt Securities by Rating

 

December 2018

December 2017

December 2016

 

Fair Value

(Millions of Euros)

%

Fair Value

(Millions of Euros)

%

Fair Value

(Millions of Euros)

%

AAA

531

1.0%

687

1.0%

4,922

6.6%

AA+

13,100

24.4%

10,738

16.2%

11,172

15.0%

AA

222

0.4%

507

0.8%

594

0.8%

AA-

409

0.8%

291

0.4%

575

0.8%

A+

632

1.2%

664

1.0%

1,230

1.6%

A

687

1.3%

683

1.0%

7,442

10.0%

A-

18,426

34.3%

1,330

2.0%

1,719

2.3%

BBB+

9,195

17.1%

35,175

53.1%

29,569

39.6%

BBB

4,607

8.6%

7,958

12.0%

3,233

4.3%

BBB-

1,003

1.9%

5,583

8.4%

6,809

9.1%

BB+ or below

4,453

8.3%

1,564

2.4%

2,055

2.8%

Without rating

445

0.8%

1,071

1.6%

5,261

7.1%

Total

53,709

100%

66,251

100.0%

74,580

100.0%

F-164


13.313.2. Equity instruments

The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2020, 2019 and 2018 2017is as follows:

Financial assets at fair value through other comprehensive income. Equity instruments. (Millions of Euros)

 

2020

2019

2018

 

Amortized cost

Unrealized

gains

Unrealized

losses

Fair

 value  

Amortized cost

Unrealized

gains

Unrealized

losses

Fair

 value  

Amortized cost

Unrealized

gains

Unrealized

losses

Fair

 value  

Equity instruments

 

 

 

 

 

 

 

 

 

 

 

 

Spanish companies shares

2,182

-

(1,309)

873

2,181

-

(507)

1,674

2,172

-

(210)

1,962

Foreign companies shares

100

38

(17)

121

136

87

(11)

213

90

43

(12)

121

The United States

27

-

-

27

30

47

-

78

20

17

-

37

Mexico

1

33

-

34

1

33

-

34

1

25

-

26

Turkey

2

4

-

6

3

2

-

5

3

-

(1)

2

Other countries

70

1

(17)

54

102

5

(11)

96

66

1

(11)

56

Subtotal equity instruments listed

2,282

38

(1,326)

995

2,317

87

(518)

1,886

2,262

43

(222)

2,083

Equity instruments

 

 

 

 

 

 

 

 

 

 

 

 

Spanish companies shares

5

1

-

5

5

1

-

5

6

1

-

7

Foreign companies shares

58

43

(1)

100

450

79

(1)

528

453

54

(1)

506

The United States

-

-

-

-

387

32

-

419

388

23

-

411

Mexico

-

-

-

-

-

-

-

-

-

-

-

-

Turkey

5

-

-

5

5

4

-

9

6

4

-

10

Other countries

52

43

(1)

94

57

43

(1)

99

59

27

(1)

85

Subtotal unlisted equity instruments

62

44

(1)

105

454

80

(1)

533

459

55

(1)

513

Total

2,344

82

(1,327)

1,100

2,772

167

(519)

2,420

2,721

98

(223)

2,595

F-111


13.3. Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements as of December 31, 2020, 2019 and 2016,2018, broken down by issuers, is as follows:

Financial assets at fair value through other comprehensive income. Debt securities (Millions of Euros)

 

2020

2019

2018

 

Amortized      cost

Unrealized

gains

Unrealized

losses

Fair

value

Amortized      cost

Unrealized

gains

Unrealized

losses

Fair

value

Amortized       cost

Unrealized

gains

Unrealized

losses

Fair

value

Domestic debt securities

 

 

 

 

 

 

 

 

 

 

 

 

Government and other government agency debt securities

28,582

801

(16)

29,367

20,740

830

(20)

21,550

17,205

661

(9)

17,857

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

1,363

76

-

1,439

959

65

-

1,024

793

63

-

855

Other issuers

867

40

(1)

906

907

40

-

947

804

37

(1)

841

Subtotal

30,811

917

(17)

31,712

22,607

935

(21)

23,521

18,802

761

(10)

19,553

Foreign debt securities

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

9,107

291

(3)

9,395

7,790

22

(26)

7,786

6,299

6

(142)

6,163

Government and other government agency debt securities

8,309

271

(1)

8,579

6,869

18

(19)

6,868

5,286

4

(121)

5,169

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

113

5

-

118

77

2

-

78

35

-

(1)

34

Other issuers

685

15

(2)

698

843

2

(6)

840

978

2

(20)

961

The United States

4,642

52

(3)

4,691

11,376

68

(51)

11,393

14,507

47

(217)

14,338

Government securities

2,307

9

(1)

2,315

8,570

42

(12)

8,599

11,227

37

(135)

11,130

Treasury and other government agencies

2,307

9

(1)

2,315

5,595

32

(2)

5,624

7,285

29

(56)

7,258

States and political subdivisions

-

-

-

-

2,975

10

(10)

2,975

3,942

8

(79)

3,872

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

186

3

-

188

122

2

-

124

49

1

-

50

Other issuers

2,149

40

(2)

2,187

2,684

24

(39)

2,670

3,231

9

(82)

3,158

Turkey

3,456

90

(73)

3,473

3,752

38

(76)

3,713

4,164

20

(269)

3,916

Government and other government agency debt securities

3,456

90

(73)

3,473

3,752

38

(76)

3,713

4,007

20

(256)

3,771

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

-

-

-

-

-

-

-

-

157

-

(13)

145

Other issuers

-

-

-

-

-

-

-

-

-

-

-

-

Other countries

18,340

739

(42)

19,037

11,870

554

(106)

12,318

9,551

319

(130)

9,740

Other foreign governments and other government agency debt securities

10,458

502

(17)

10,943

6,963

383

(78)

7,269

4,510

173

(82)

4,601

Central banks

1,599

21

(8)

1,611

1,005

9

(4)

1,010

987

2

(4)

986

Credit institutions

2,521

116

(8)

2,629

1,795

109

(12)

1,892

1,856

111

(20)

1,947

Other issuers

3,762

100

(8)

3,854

2,106

53

(12)

2,147

2,197

33

(25)

2,206

Subtotal

35,545

1,172

(120)

36,596

34,788

681

(259)

35,210

34,521

392

(758)

34,157

Total

66,356

2,089

(137)

68,308

57,395

1,617

(280)

58,731

53,323

1,153

(768)

53,709

The credit ratings of the issuers of debt securities as of December 31, 2020, 2019 and 2018 are as follows:

Financial assets designated at fair value through other comprehensive income: Equity Instruments. December 2018 (Millions of euros)

 

Amortized Cost

Unrealized Gains

Unrealized Losses

Fair Value

Equity instruments listed

 

 

 

 

Listed Spanish company shares

2,172

-

(210)

1,962

Credit institutions

-

-

-

-

Other entities

2,172

-

(210)

1,962

Listed foreign company shares

90

43

(12)

121

United States

20

17

-

37

Mexico

1

25

-

26

Turkey

3

-

(1)

2

Other countries

66

1

(11)

56

Subtotal

2,262

43

(222)

2,083

Unlisted equity instruments

-

-

-

-

Unlisted Spanish company shares

6

1

-

7

Credit institutions

-

-

-

-

Other entities

6

1

-

7

Unlisted foreign companies shares

453

54

(1)

506

United States

388

23

-

411

Mexico

-

-

-

-

Turkey

6

4

-

10

Other countries

59

27

(1)

85

Subtotal

459

55

(1)

513

Total

2,721

98

(223)

2,595

Available-for-sale financial assets: Equity Securities. December 2017 (Millions of euros)

 

Amortized Cost

Unrealized Gains

Unrealized Losses

Fair Value

Equity instruments listed

 

 

 

 

Listed Spanish company shares

2,189

-

(1)

2,188

Credit institutions

-

-

-

-

Other entities

2,189

-

(1)

2,188

Listed foreign company shares

215

33

(7)

241

United States

11

-

-

11

Mexico

8

25

-

33

Turkey

4

1

-

5

Other countries

192

7

(7)

192

Subtotal

2,404

33

(8)

2,429

Unlisted equity instruments

 

 

 

 

Unlisted Spanish company shares

33

29

-

62

Credit institutions

4

-

-

4

Other entities

29

29

-

58

Unlisted foreign companies shares

665

77

(8)

734

United States

498

40

(6)

532

Mexico

1

-

-

1

Turkey

15

6

(2)

19

Other countries

151

31

-

182

Subtotal

698

106

(8)

796

Total

3,102

139

(16)

3,224

Debt securities by rating

 

2020

2019

2018

 

Fair value

(Millions of Euros)

%

Fair value

(Millions of Euros)

%

Fair value

(Millions of Euros)

%

AAA

4,345

6.4%

3,669

6.2%

531

1.0%

AA+

595

0.9%

7,279

12.4%

13,100

24.4%

AA

449

0.7%

317

0.5%

222

0.4%

AA-

406

0.6%

265

0.5%

409

0.8%

A+

5,912

8.7%

3,367

5.7%

632

1.2%

A

2,112

3.1%

12,895

22.0%

687

1.3%

A-

31,614

46.3%

10,947

18.6%

18,426

34.3%

BBB+

8,629

12.6%

9,946

16.9%

9,195

17.1%

BBB

4,054

5.9%

2,966

5.1%

4,607

8.6%

BBB-

5,116

7.5%

1,927

3.3%

1,003

1.9%

BB+ or below

4,731

6.9%

4,712

8.0%

4,453

8.3%

Unclassified

345

0.5%

441

0.8%

445

0.8%

Total

68,308

100.0%

58,731

100.0%

53,709

100.0%

F-165F-112  


Available-for-sale financial assets: Equity Securities. December 2016 (Millions of euros)

 

Amortized Cost

Unrealized Gains

Unrealized Losses

Fair Value

Equity instruments listed

 

 

 

 

Listed Spanish company shares

3,690

17

(944)

2,763

Credit institutions

-

-

-

-

Other entities

3,690

17

(944)

2,763

Listed foreign company shares

793

289

(15)

1,066

United States

16

22

-

38

Mexico

8

33

-

41

Turkey

5

1

-

6

Other countries

763

234

(15)

981

Subtotal

4,483

306

(960)

3,829

Unlisted equity instruments

 

 

 

 

Unlisted Spanish company shares

57

2

(1)

59

Credit institutions

4

-

-

4

Other entities

53

2

(1)

55

   Unlisted foreign companies shares

708

46

(2)

752

United States

537

13

-

550

Mexico

1

-

-

1

Turkey

18

7

(2)

24

Other countries

152

26

-

178

Subtotal

766

48

(3)

811

Total

5,248

355

(962)

4,641

13.413.4. Gains/losses

Debt securities

The changes in the gains/losses net(net of taxes,taxes) in December 31, 2020, 2019 and 2018 of debt securities recognized in 2018 under the equity heading “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss - Financial assets– Fair value changes of debt instruments measured at fair value through other comprehensive income��income” and equity instruments recognized under the equity heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss –Fair value changes of equity instruments measured at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income  (Millions of euros)

 

Notes

2018

Balance at the beginning

 

1,557

Effect of changes in accounting policies (IFRS 9)

 

(58)

Valuation gains and losses

 

(640)

Amounts transferred to income

 

(137)

Other reclassifications

 

-

Income tax

 

221

Balance at the end

30

943

F-166


Other comprehensive income - Changes in gains / losses (Millions of Euros)

 

 

Debt securities

Equity instruments

 

Notes

2020

2019

2018

2020

2019

2018

Balance at the beginning

 

1,760

943

1,557

(403)

(155)

84

Effect of changes in accounting policies (IFRS 9)

 

 

 

(58)

 

 

(40)

Valuation gains and losses

 

489

1,267

(640)

(876)

(238)

(174)

Amounts transferred to income

 

(72)

(119)

(137)

 

 

 

Amounts transferred to Reserves

 

 

 

 

-

-

-

Income tax and other

 

(107)

(331)

221

23

(10)

(25)

Balance at the end

30

2,069

1,760

943

(1,256)

(403)

(155)

In 2018,2020, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €19 million (see Note 47).

In 2019, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €82 million (see Note 47) as a result of the decrease in the rating of debt securities in Argentina during the last quarter of 2019.

In 2018, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €1 million. In 2017 the recovery recognized amounted €4 million; meanwhile, in 2016 the impairment recognized amounted €157 million (see Note 47).

Equity instruments

The changesIn 2020, equity securities presented a decrease of 876 million euros in the gains/heading “Gains and losses net of taxes, recognized under the equity heading “Accumulatedfrom valuation - Accumulated other comprehensive income - Items that will not be reclassified to profit orand loss - Fair value changes of equity instruments measured at fair value through other comprehensive income” in, mainly due to the accompanying consolidated balance sheets are as follows:Telefónica quotation.

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Financial assets at fair value through other comprehensive income  (Millions of euros)

 

Notes

2018

Balance at the beginning

 

84

Effect of changes in accounting policies (IFRS 9)

 

(40)

Valuation gains and losses

 

(174)

Amounts transferred to income

 

-

Other reclassifications

 

-

Income tax

 

(25)

Balance at the end

30

(155)

InDuring 2020, 2019 and 2018, there has been no significant impairment recognizedrecorded in equity instruments under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - or net gains by modification- Financial assets at fair value through other comprehensive incomein the accompanying consolidated income statement. In 2017 and 2016 the impairment recognized were €1,131 and €46 million, respectivelyincome” (see Note 47).

Years 2017 and 2016

2017 and 2016 are presented separately due to the implementation of IFRS 9:

Accumulated other comprehensive income-Items that may be reclassified to profit or loss - Available-for-Sale Financial Assets (Millions of euros)

 

Notes

2017

2016

Balance at the beginning

 

947

1,674

Valuation gains and losses

 

321

400

Amounts transferred to income

 

356

(1,181)

Other reclassifications

 

(10)

116

Income tax

 

27

(62)

Balance at the end

30

1,641

947

Of which:

 

-

-

Debt securities

 

1,557

1,629

Equity instruments

 

84

(682)

 

F-167F-113  


 

14. Financial assets at amortized cost

14.1  Balance details14.1. Breakdown of the balance

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:

Financial assets at amortized cost (Millions of Euros)

Financial assets at amortized cost (Millions of Euros)

Financial assets at amortized cost (Millions of Euros)

December     

2018

December

2017

December

2016

Notes

2020

2019

2018

Debt securities

32,530

24,093

28,905

 

35,737

38,877

32,530

Government

 

28,727

31,526

25,014

Credit institutions

 

783

719

644

Other financial corporations

 

5,027

5,254

5,421

Non-financial corporations

 

1,200

1,379

1,451

Loans and advances to central banks

3,941

7,300

8,894

 

6,209

4,275

3,941

Loans and advances to credit institutions

9,163

26,261

31,373

 

14,575

13,649

9,163

Loans and advances to customers

374,027

387,621

414,500

Reverse repurchase agreements (**)

 

1,914

1,817

478

Other loans and advances

 

12,661

11,832

8,685

Loans and advances to customers (***)

 

311,147

382,360

374,027

Government

28,114

31,645

 

 

19,391

28,222

28,114

Other financial corporations

9,468

18,173

 

 

9,817

11,207

9,468

Non-financial corporations

163,922

164,510

 

 

136,424

166,789

163,922

Other

172,522

173,293

 

 

145,515

176,142

172,522

Total

419,660

445,275

483,672

8.1

367,668

439,162

419,660

Of which: impaired assets of loans and advances to customers (*)

 

14,672

15,954

16,349

Of which: loss allowances of loans and advances (*)

 

(12,141)

(12,427)

(12,217)

Of which: loss allowances of debt securities

 

(48)

(52)

(51)

(*)        See Note 7.2

(**)       See Note 35.

(***)      Amount in 2020 is mainly due to the stake in BBVA USA (see Note 21).

During financial yearyears 2020, 2019 and 2018, there have been no significant reclassifications neither from “Financial assets at amortized cost” to other headings or from other headings to “Financial assets at amortized cost”.

14.2. Debt securities

The breakdown of the balance under the heading “Debt securities” in the accompanying consolidated balance sheets, according to the issuer of the debt securities, is as follows:

Financial assets at amortized cost: Debt securities. (Millions of Euros)

 

2020

2019

2018

 

Amortized      cost

Unrealized

gains

Unrealized

losses

Fair

 value  

Amortized      cost

Unrealized

gains

Unrealized

losses

Fair

 value 

Amortized      cost

Unrealized

gains

Unrealized

losses

Fair

 value 

Domestic debt securities

 

 

 

 

 

 

 

 

 

 

 

 

Government and other government agencies

13,656

1,212

-

14,868

12,755

630

(21)

13,363

10,953

458

(265)

11,146

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

-

-

-

-

26

-

-

26

53

-

-

53

Other issuers

4,835

59

(7)

4,887

4,903

38

(10)

4,931

5,014

41

(25)

5,030

Subtotal

18,492

1,271

(7)

19,756

17,684

668

(31)

18,320

16,019

499

(290)

16,228

Foreign debt securities

 

 

 

 

 

 

 

 

 

 

 

 

Mexico

7,771

534

(16)

8,289

6,374

168

(18)

6,525

5,148

10

-

5,157

Government and other government agencies debt securities

6,963

479

-

7,442

5,576

166

-

5,742

4,571

9

-

4,579

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

632

55

-

687

526

2

-

529

350

1

-

351

Other issuers

176

-

(16)

160

272

-

(18)

254

227

-

-

227

The United States

52

-

(26)

26

6,125

111

(20)

6,217

2,559

15

(3)

2,570

Government securities

14

-

-

14

5,690

111

(18)

5,783

2,070

-

-

2,070

Treasury and other government agencies

14

-

-

14

1,161

50

(17)

1,193

118

-

-

118

States and political subdivisions

-

-

-

-

4,530

61

(1)

4,590

1,952

-

-

1,952

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

23

-

(16)

7

25

-

(1)

25

23

9

(2)

30

Other issuers

15

-

(10)

5

410

-

(1)

409

466

6

(1)

470

Turkey

3,628

95

(25)

3,698

4,113

48

(65)

4,097

4,062

-

(261)

3,801

Government and other government agencies debt securities

3,621

95

(25)

3,691

4,105

47

(65)

4,088

4,054

-

(261)

3,793

Central banks

-

-

-

-

-

-

-

-

-

-

-

-

Credit institutions

6

-

-

6

7

1

-

8

7

-

-

7

Other issuers

1

-

-

1

1

-

-

1

1

-

-

1

Other countries

5,795

505

(1)

6,299

4,581

82

(26)

4,637

4,741

32

(152)

4,622

Other foreign governments and other government agency debt securities

4,473

467

(1)

4,939

3,400

82

(22)

3,459

3,366

27

(152)

3,242

Central banks

-

-

-

-

-

-

-

-

64

-

-

64

Credit institutions

122

-

-

122

135

-

-

135

147

-

-

147

Other issuers

1,200

38

-

1,238

1,047

-

(4)

1,043

1,164

5

-

1,169

Subtotal

17,245

1,134

(68)

18,311

21,194

409

(129)

21,476

16,510

57

(416)

16,150

Total

35,737

2,405

(75)

38,067

38,877

1,077

(160)

39,796

32,530

556

(706)

32,378

F-114


As of December 31, 2020, 2019 and 2018, the credit ratings of the issuers of debt securities classified as follows:

Debt securities by rating

 

2020

2019

2018

 

Carrying amount

(Millions of Euros)

%

Carrying amount

(Millions of Euros)

%

Carrying amount

(Millions of Euros)

%

AAA

151

0.4%

39

0.1%

49

0.2%

AA+

74

0.2%

6,481

16.7%

1,969

6.1%

AA

64

0.2%

14

-

62

0.2%

AA-

48

0.1%

713

1.8%

-

-

A+

42

-

-

-

607

1.9%

A

590

1.7%

16,806

43.2%

21

0.1%

A-

16,736

46.8%

607

1.6%

6,117

18.8%

BBB+

7,919

22.2%

3,715

9.6%

13,894

42.7%

BBB

942

2.6%

551

1.4%

1,623

5.0%

BBB-

4,499

12.6%

3,745

9.6%

2,694

8.3%

BB+ or below

3,928

11.0%

5,123

13.2%

4,371

13.4%

Unclassified

743

2.1%

1,083

2.8%

1,123

3.5%

Total

35,737

100.0%

38,877

100.0%

32,530

100.0%

14.214.3. Loans and advances to central banks and credit institutionscustomers

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Loans and Advances to Central Banks and Credit Institutions (Millions of euros)

 

Notes

2018

2017

2016

Loans and advances to central banks

7.3.2

3,941

7,300

8,894

Loans and advances to credit institutions

7.3.2

9,163

26,261

31,373

Reverse repurchase agreements

35

478

13,861

15,561

Other loans

 

8,685

12,400

15,812

Total 

 

13,104

33,561

40,267

Of which:

 

-

-

-

Impairment losses

7.3.5 / 7.3.2

(18)

(36)

(43)

14.3  Loans and advances to customers

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:

Loans and Advances to Customers (Millions of euros)

Loans and advances to customers (Millions of Euros)

Loans and advances to customers (Millions of Euros)

Notes

2018

2017

2016

2020

2019

2018

On demand and short notice

 

3,641

10,560

11,251

2,835

3,050

3,641

Credit card debt

 

15,445

15,835

16,596

13,093

16,354

15,445

Trade receivables

 

17,436

22,705

23,753

15,544

17,276

17,436

Finance leases

 

8,650

8,642

9,442

7,650

8,711

8,650

Reverse repurchase loans

35

294

11,554

7,291

Reverse repurchase agreements

71

26

294

Other term loans

 

324,767

313,336

339,862

267,031

332,160

324,767

Advances that are not loans

 

3,794

4,989

6,306

4,924

4,784

3,794

Total

7.3.2

374,027

387,621

414,500

311,147

382,360

374,027

Of which:

 

-

-

Impaired assets

7.3.5

16,349

19,390

22,915

Impairment losses

7.3.5 / 7.3.2

(12,199)

(12,748)

(15,974)

F-168F-115  


As of December 31, 2018, 2017 and 2016, 38%, 38% and 34%, respectively, of "Loans and advances to customers" with maturity greater than one year have fixed-interest rates and 62%, 62% and 66%, respectively, have variable interest rates.

The heading “Financial assets at amortized cost – Loans and advances to customers” in the accompanying consolidated balance sheets also includes certain secured loans that, as pursuant to the Mortgage Market Act, are linked to long-term mortgage-coveredmortgage covered bonds.

The following table sets forth a breakdown of the gross carrying amount "Loans and advances to customers" with maturity greater than one year by fixed and variable rate as of December 31, 2020:

Interest sensitivity of outstanding loans and advances maturing in more than one year (Millions of Euros)

 

2020

2019

 

Domestic

Foreign

Total

Domestic

Foreign

Total

Fixed rate

46,104

66,444

112,548

55,920

68,915

124,835

Variable rate

86,710

41,452

128,162

79,329

97,765

177,095

Total

132,814

107,895

240,710

135,249

166,680

301,929

As of December 31, 2020, 2019 and 2018, 47%, 41% and 38%, respectively, of "Loans and advances to customers" with maturity greater than one year have fixed-interest rates and 53%, 59% and 62%, respectively, have variable interest rates.

This heading also includes some loans that have been securitized. The balances recognized in the accompanying consolidated balance sheets corresponding to these securitized loans are as follows:

Securitized Loans (Millions of euros)

Securitized loans (Millions of Euros)

Securitized loans (Millions of Euros)

2018

2017

2016

2020

2019

2018

Securitized mortgage assets

26,556

28,950

29,512

23,953

26,169

26,556

Other securitized assets

3,221

4,143

3,731

6,144

4,249

3,221

Total

29,777

33,093

33,243

30,098

30,418

29,777

14.4  Debt securities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the issuer of the debt securities, is as follows:

Debt securities (Millions of euros)

 

Notes

2018

2017

2016

Government

 

25,014

17,030

20,736

Credit institutions

 

644

1,152

1,688

Other sectors

 

6,872

5,911

6,481

Total gross

7.3.2

32,530

24,093

28,905

Of which:

 

-

-

-

Impairment losses

 

(51)

(15)

(17)

As of December 31, 2018, 2017 and 2016, the credit ratings of the issuers of debt securities classified as follows:

Financial assets at amortized cost. Debt Securities by Rating

 

December 2018

 

December 2017

 

December 2016

 

 

Carrying amount

(Millions of Euros)

%

Carrying amount

(Millions of Euros)

%

Carrying amount

(Millions of Euros)

%

AAA

49

0.2%

-

-

-

-

AA+

1,969

6.1%

-

-

-

-

AA

62

0.2%

41

0.3%

43

0.2%

AA-

-

0.0%

-

-

134

0.8%

A+

607

1.9%

55

0.4%

-

-

A

21

0.1%

-

-

-

-

A-

6,117

18.8%

-

-

-

-

BBB+

13,894

42.7%

5,667

41.2%

10,472

59.2%

BBB

1,623

5.0%

2,412

17.5%

591

3.3%

BBB-

2,694

8.3%

2,818

20.5%

5,187

29.3%

BB+ or below

4,371

13.4%

1,696

12.3%

-

-

Without rating

1,123

3.5%

1,064

7.7%

1,270

7.2%

Total

32,530

100.0%

13,754

100.0%

17,696

100.0%

F-169


In 2016, according to the applicable accounting policy, some debt securities were reclassified between existing accounts from such policy (from “Available for sale financial assets” to “Loans and receivables” and “Held-to-maturity investments” of the consolidated balance sheet. As mentioned in Note 1.3, on January 1, 2018, IFRS 9 became effective, therefore, the debt securities previously reclassified are recorded under “Financial assets at amortized cost” in the consolidated balance sheet as of December 31, 2018. The following table shows the fair value and carrying amounts of these reclassified financial assets:

Debt Securities reclassified (Millions of euros)

 

As of Reclassification date

As of December 31, 2018

As of December 31, 2017

As of December 31, 2016

 

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

BBVA, S.A.

12,024

12,024

1,467

1,486

7,236

7,286

10,433

10,498

TURKIYE GARANTI BANKASI, A.S

6,488

6,488

2,859

2,668

5,381

5,392

6,230

6,083

Total

18,512

18,512

4,326

4,154

12,617

12,678

16,663

16,581

As of December 31, 2018, 2017 and 2016, the amount recognized in the income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, if the reclassification was not performed is included in the following table.

Effect on Income Statement and Other Comprehensive Income (Millions of euros)

 

2018

2017

2016

 

Recognized in

Effect of not Reclassifying in

Recognized in

Effect of not Reclassifying in

Recognized in

Effect of not Reclassifying in

 

Income Statement

Income Statement

Equity

"Accumulated other comprehensive income"

Income Statement

Income Statement

Equity

"Accumulated other comprehensive income"

Income Statement

Income Statement

Equity

"Accumulated other comprehensive income"

BBVA, S.A.

41

41

(2)

198

198

(14)

252

252

(91)

TURKIYE GARANTI BANKASI, A.S

414

414

(172)

545

545

(16)

326

326

(225)

Total

456

456

(173)

743

743

(30)

578

578

(316)

15. Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk

The balance of these headings in the accompanying consolidated balance sheets is as follows:

Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk (Millions of euros)

 

2018

2017

2016

ASSETS

 

 

 

Hedging Derivatives

2,892

2,485

2,833

Fair value changes of the hedged items in portfolio hedges of interest rate risk

(21)

(25)

17

LIABILITIES

 

 

 

Hedging Derivatives

2,680

2,880

2,347

Fair value changes of the hedged items in portfolio hedges of interest rate risk

-

(7)

-

F-170


Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk (Millions of Euros)

 

 

2020

2019

2018

ASSETS

 

 

 

 

Derivatives - Hedge accounting

 

1,991

1,729

2,892

Fair value changes of the hedged items in portfolio hedges of interest rate risk

 

51

28

(21)

LIABILITIES

 

 

 

 

Hedging derivatives

 

2,318

2,233

2,680

Fair value changes of the hedged items in portfolio hedges of interest rate risk

 

-

-

-

As of December 31, 2018, 20172020, 2019 and 2016,2018, the main positions hedged by the Group and the derivatives designated to hedge those positions were:

·           Fair value hedging:

- ·Fixed-interest debt securities at fair value through other comprehensive income and at amortized cost: The interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps) and forward sales.

-F-116


·             Long-term fixed-interest debt securities issued by the Bank: the interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps).

-·             Fixed-interest loans: The equity price risk of these instruments is hedged using interest rate derivatives (fixed-variable swaps).

-·             Fixed-interest and/or embedded derivative deposit portfolio hedges: it covers the interest rate risk through fixed-variable swaps. The valuation of the borrowed deposits corresponding to the interest rate risk is in the heading "Fair value changes of the hedged items in portfolio hedges of interest rate risk”.

·           Cash-flow hedges: Most of the hedged items are floating interest-rate loans and asset hedges linked to the inflation of the financial assets at fair value through other comprehensive income portfolio. This risk is hedged using foreign-exchange, interest-rate swaps, inflation and FRA’s (“Forward Rate Agreement”).

·           Net foreign-currency investment hedges: These hedged risks are foreign-currency investments in the Group’s foreign subsidiaries. This risk is hedged mainly with foreign-exchange options and forward currency sales and purchases.

Note 7 analyzes the Group’s main risks that are hedged using these derivatives.

The details of the net positions by hedged risk of the fair value of the hedging derivatives recognized in the accompanying consolidated balance sheets are as follows:

Hedging Derivatives Breakdown by type of risk and type of hedge (Millions of euros)

Derivatives - Hedge accounting breakdown by type of risk and type of hedge. (Millions of Euros)

Derivatives - Hedge accounting breakdown by type of risk and type of hedge. (Millions of Euros)

 

2018

2017

2016

2020

2019

2018

 

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Assets

Liabilities

Interest rate

 

982

513

1,141

850

1,154

974

989

525

920

488

982

513

OTC options

 

5

158

100

111

125

118

OTC other

 

978

355

1,041

739

1,029

856

Organized market options

 

-

-

-

Organized market other

 

-

-

-

OTC

989

525

920

488

982

513

Organized market

-

Equity

 

6

-

-

50

-

3

6

-

OTC options

 

6

-

-

50

OTC other

 

-

-

-

Organized market options

 

-

-

-

Organized market other

 

-

-

-

OTC

-

3

6

-

Organized market

-

Foreign exchange and gold

 

587

398

625

511

817

553

435

350

420

316

587

398

OTC options

 

-

-

-

OTC other

 

587

398

625

511

817

553

Organized market options

 

-

-

-

Organized market other

 

-

-

-

OTC

435

350

420

316

587

398

Organized market

-

Credit

 

-

-

-

-

Commodities

 

-

-

-

-

Other

 

-

-

-

-

FAIR VALUE HEDGES

 

1,575

912

1,766

1,362

1,970

1,577

1,424

874

1,341

808

1,575

912

Interest rate

 

221

562

244

533

194

358

154

1,055

224

850

221

562

OTC options

 

-

-

-

OTC other

 

219

562

242

533

186

358

Organized market options

 

-

-

-

Organized market other

 

2

-

2

-

8

-

OTC

154

1,041

224

839

219

562

Organized market

-

15

-

11

2

-

Equity

 

-

-

-

-

Foreign exchange and gold

 

955

873

119

714

248

118

225

55

115

18

955

873

OTC options

 

-

-

89

70

OTC other

 

955

873

119

714

160

48

Organized market options

 

-

-

-

Organized market other

 

-

-

-

OTC

225

50

115

18

955

873

Organized market

-

5

-

Credit

 

-

-

-

-

Commodities

 

-

-

-

-

Other

 

-

-

-

-

CASH FLOW HEDGES

 

1,176

1,435

363

1,247

442

476

379

1,111

339

868

1,176

1,435

HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION

 

92

231

301

15

362

79

166

139

12

242

92

231

PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK

 

33

90

46

256

55

214

18

170

37

216

33

90

PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK

 

15

12

9

-

4

-

3

23

1

99

15

12

DERIVATIVES-HEDGE ACCOUNTING

 

2,892

2,680

2,485

2,880

2,833

2,347

1,991

2,318

1,729

2,233

2,892

2,680

of which: OTC - credit institutions

 

2,534

2,462

1,829

2,527

2,381

2,103

1,718

1,965

1,423

1,787

2,534

2,462

of which: OTC - other financial corporations

 

355

216

651

234

435

165

273

333

306

426

355

216

of which: OTC - other

 

2

120

9

79

-

8

2

F-171F-117  


Below there is a breakdown of the items covered by fair value hedges:

Hedged items in fair value hedges. December 2020 (Millions of Euros)

 

Carrying amount

Hedge adjustments included in the carrying amount of assets/liabilities

Remaining adjustments for discontinued micro hedges including hedges of net positions

Hedged items in portfolio hedge of interest rate risk

ASSETS

 

 

 

 

Financial assets measured at fair value through other comprehensive income

28,091

(99)

12

-

Interest rate

28,059

 

 

 

Other

33

 

 

 

Financial assets measured at amortized cost

11,177

386

3

2,500

Interest rate

11,177

 

 

 

LIABILITIES

 

 

 

 

Financial liabilities measured at amortized costs

23,546

(576)

2

-

Interest rate

23,543

 

 

 

Equity

-

 

 

 

Foreign exchange and gold

3

 

 

 

The cash flows forecasts forfollowing is the coming years for cash flowcalendar of the notional maturities of the hedging recognized on the accompanying consolidated balance sheetinstruments as of December 31, 2018 are:2020:

Cash Flows of Hedging Instruments (Millions of euros)

 

3 Months or Less

From 3 Months to 1 Year

From 1 to 5 Years

More than 5 Years

Total

Receivable cash inflows

116

277

1,828

2,181

4,401

Payable cash outflows

139

517

2,215

2,221

5,092

Calendar of the notional maturities of the hedging instruments (Millions of Euros)

 

Up to 3 months

From 3 months to 1 year

From 1 to 5 years

More than 5 years

Total

FAIR VALUE HEDGES

3,581

10,945

28,487

18,656

61,668

Of which: Interest rate

3,569

10,879

26,946

18,609

60,003

CASH FLOW HEDGES

10,495

2,808

2,576

6,972

22,852

Of which: Interest rate

6,756

154

1,816

6,600

15,326

HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION

1,853

2,910

-

-

4,763

PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK

299

576

1,533

1,029

3,437

PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK

101

11

1,049

-

1,161

DERIVATIVES-HEDGE ACCOUNTING

15,933

17,340

33,984

26,623

93,881

The above cash flows will have an impact on the Group’s consolidated income statements until 2058.

In 2018, 20172020, 2019 and 2016,2018, there was no reclassification in the accompanying consolidated income statements of any amount corresponding to cash flow hedges that was previously recognized in equity (see Note 41).

The amount for derivatives designated as accounting hedges that did not pass the effectiveness test in December 31, 2018, 20172020, 2019 and 20162018 were not material.

16. 16. Investments in joint ventures and associates  

16.116.1. Joint venturesventures and associates

The breakdown of the balance of “Investments in joint ventures and associates” (see Note 2.1) in the accompanying consolidated balance sheets is as follows:  

Joint Ventures and Associates Entities. Breakdown by entities (Millions of euros)

 

2018

2017

2016

Joint ventures

 

 

 

Fideic F 403853 5 BBVA Bancom Ser.Zibata

-

27

33

Fideicomiso 1729 Invex Enajenacion de Cartera

55

53

57

PSA Finance Argentina Compañia Financier

10

14

21

Altura Markets, S.V., S.A.

69

64

19

RCI Colombia

32

19

17

Other joint ventures

7

79

82

Subtotal

173

256

229

Associates Entities

 

 

 

Metrovacesa Suelo y Promoción, S.A.

508

697

208

Testa Residencial SOCIMI, S.A.U.

-

444

91

Metrovacesa Promoción y Arrendamientos, S.A.

-

-

67

Atom Bank, PLC

138

66

43

Divarian Propiedad S.A.U.

591

-

-

Servired

9

9

11

Other associates

159

116

116

Subtotal

1,405

1,332

536

Total

1,578

1,588

765

Joint ventures and associates. Breakdown by entities (Millions of Euros)

 

2020

2019

2018

Joint ventures

 

 

 

Altura Markets, S.V., S.A.

77

73

69

RCI Colombia

36

37

32

Desarrollo Metropolitanos del Sur, S.L.

17

14

13

Other

19

30

59

Subtotal

149

154

173

Associates

 

 

 

Divarian Propiedad, S.A.U.

567

630

591

Metrovacesa, S.A.

285

443

508

BBVA Allianz Seguros y Reaseguros, S.A.

250

-

-

ATOM Bank PLC

64

136

138

Solarisbank AG

39

36

37

Cofides

25

23

22

Redsys servicios de procesamiento, S.L.

14

14

12

Servicios Electrónicos Globales S.A. de CV

11

11

9

Other

33

41

88

Subtotal

1,288

1,334

1,405

Total

1,437

1,488

1,578

F-172F-118  


 

 

Details of the joint ventures and associates as of December 31, 20182020 are shown in Appendix II.

The following is a summary of the changes in the in December 31, 2018, 20172020, 2019 and 20162018 under this heading in the accompanying consolidated balance sheets:

Joint Ventures and Associates Entities. Changes in the Year (Millions of euros)

Joint ventures and associates. Changes in the year (Millions of Euros)

Joint ventures and associates. Changes in the year (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Balance at the beginning

 

1,588

765

879

 

1,488

1,578

1,588

Acquisitions and capital increases

 

309

868

456

 

257

161

309

Disposals and capital reductions

 

(516)

(8)

(91)

 

(47)

(149)

(516)

Transfers and changes of consolidation method

 

211

-

(351)

 

(7)

(27)

211

Share of profit and loss

39

(7)

3

25

39

(39)

(42)

(7)

Exchange differences

 

2

(29)

(34)

 

(27)

10

2

Dividends, valuation adjustments and others

 

(8)

(12)

(118)

 

(188)

(43)

(8)

Balance at the end

 

1,578

1,588

765

 

1,437

1,488

1,578

During the year 2020, the most significant changes in the heading “Investments in joint ventures and associates” correspond to the valuation of Metrovacesa and BBVA Allianz Seguros y Reaseguros, S.A.

During the year 2019, there was no significant change in the heading “Investment in joint ventures and associates”.

The variation during the year 2018 iswas mainly explained by the decrease of BBVA Group stakes in Testa Residencial, S.A., Metrovacesa Suelo y Promoción, S.A. and the contribution of assets and subsequent sale to Cerberus of 80% of the capital stake in Divarian Propiedad, S.A.U., (see Note 3 and Appendix III).

The variation during the year 2017 is mainly explained by the increase of BBVA Group stakes in Testa Residencial, S.A. and Metrovacesa Suelo y Promoción, S.A. through its contribution to the capital increases carried out by both entities by contributing assets from the Bank’s real estate assets (see Note 21).

During the year 2016, two capital increases in Metrovacesa, S.A. were made through a debt swap and a contribution of real estate assets, which provided the Group 357 million euros, after this there was a partial Split of Metrovacesa, S.A. in favor of a beneficiary company from a new constitution denominated Metrovacesa Suelo y Promocion, S.A. In the fourth quarter of the year 2016, there was a total split of Metrovacesa, S.A. through its extinction and division of its patrimony in three parts, two of which merged with Merlin Properties, SOCIMI, S.A. and Testa Residencial, SOCIMI, S.A. As result of the previous mentioned splits, the Group received equity interests in the corresponding beneficiary companies, 6.41% of its capital was received, having been transferred to the heading "Available-for-sale” of the consolidated financial assets as of December 31, 2016.

Appendix III provides notifications on acquisitions and disposals of holdings in subsidiaries, joint ventures and associates, in compliance with Articlearticle 155 of the Corporations Act and Article 53article 125 of the Securities Market Act 24/1988.4/2015.

F-173


16.216.2. Other information about associates and joint ventures

If these entities had been consolidated rather than accounted for using the equity method, the change in each of the lines of balance sheet and the consolidated income statement would not be significant.

As of December 31, 2018, 20172020, 2019 and 20162018 there was no financial support agreement or other contractual commitment to associates and joint ventures entities from the holding or the subsidiaries that are not recognized in the financial statements (see Note 53.2).

As of December 31, 2018, 20172020, 2019 and 20162018 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2).

16.316.3. Impairment

As described in IAS 36, when there is indicator of impairment, the book value of the associates and joint venture entities should behas been compared with their recoverable amount, being the latter calculated as the higher between the value in use and the fair value minus the cost of sale. As ofFor the year ended December 31, 2018, 2017 and 2016, there2020, €158 million have been recorded in the Group’s consolidated income statement due to impairment. For the year ended December 31, 2019, €46 million were recorded due to impairment. There were no significant impairments recognized.recognized in 2018 (see Note 48).

F-119


17. Tangible assets

The breakdown and movement of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Tangible Assets: Breakdown by Type of Assets and Changes in the year 2018. (Millions of euros)

 

Tangible assets: Breakdown by type of assets and changes in the year 2020. (Millions of Euros)

Tangible assets: Breakdown by type of assets and changes in the year 2020. (Millions of Euros)

 

 

For Own Use

Total tangible asset of Own Use

Investment Properties

Assets Leased out under an Operating Lease

Total

 

 

 

Right to use asset

Investment properties

Assets leased out under an operating lease

Total

 

Notes

Land and Buildings

Work in Progress

Furniture, Fixtures and Vehicles

 

Notes

Land and buildings

Work in progress

Furniture, fixtures and vehicles

Own use

Investment properties

 

Total

Total

Cost

 

 

 

 

Balance at the beginning

 

5,490

234

6,628

12,352

228

492

13,072

 

6,001

56

6,351

3,516

101

216

337

16,578

Additions

 

445

78

404

927

11

-

938

 

 

157

54

255

183

-

2

-

651

 

Retirements

 

(98)

(17)

(492)

(607)

(149)

(1)

(757)

 

 

(10)

(23)

(294)

(157)

(3)

(11)

-

(498)

 

Acquisition of subsidiaries in the year

 

-

 

 

-

 

Disposal of entities in the year

 

-

 

Companies held for sale (*)

 

(925)

(31)

(366)

(294)

-

(1,616)

 

Transfers

 

64

(177)

(12)

(125)

(5)

-

(130)

 

 

(248)

(2)

(5)

(60)

25

18

-

(272)

 

Exchange difference and other

 

38

(48)

(214)

(224)

116

(105)

(213)

 

 

(595)

(2)

(426)

(127)

-

(24)

8

(1,166)

 

Balance at the end

 

5,939

70

6,314

12,323

201

386

12,910

 

 

4,380

52

5,515

3,061

123

201

345

13,677

 

 

 

 

 

 

 

Accrued depreciation

 

 

 

 

 

 

Balance at the beginning

 

1,076

-

4,380

5,456

13

77

5,546

 

 

1,253

-

4,344

370

11

15

74

6,067

 

Additions

45

120

-

469

589

5

-

594

 

45

83

-

370

312

12

3

1

781

 

Additions transfer to discontinued operations (*)

 

24

-

20

32

-

76

 

Retirements

 

(36)

-

(403)

(439)

(8)

-

(447)

 

 

(2)

-

(248)

(10)

-

(260)

 

Acquisition of subsidiaries in the year

 

-

 

 

-

 

Disposal of entities in the year

 

(3)

-

(3)

-

(3)

 

Companies held for sale (*)

 

(373)

-

(321)

(71)

-

(765)

 

Transfers

 

(31)

-

(22)

(53)

(2)

-

(55)

 

 

(42)

-

(12)

(9)

4

1

-

(58)

 

Exchange difference and other

 

12

-

(212)

(200)

3

(1)

(198)

 

 

(110)

-

(294)

(42)

-

(3)

(21)

(470)

 

Balance at the end

 

1,138

-

4,212

5,350

11

76

5,437

 

 

833

-

3,859

582

27

16

54

5,371

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

Balance at the beginning

 

315

-

315

20

-

335

 

 

212

-

191

14

26

-

443

 

Additions

48

30

-

30

(25)

-

5

 

49

18

-

26

68

12

1

-

125

 

Retirements

 

-

(27)

-

(27)

 

 

-

 

Acquisition of subsidiaries in the year

 

-

 

 

-

 

Disposal of entities in the year

 

-

 

Companies held for sale (*)

 

(8)

-

(8)

 

Transfers

 

(77)

-

(77)

(3)

-

(80)

 

 

(68)

-

10

-

7

-

(51)

 

Exchange difference and other

 

(51)

-

(51)

62

-

11

 

 

(5)

-

(26)

5

-

(26)

 

Balance at the end

 

217

-

217

27

-

244

 

 

149

-

274

26

34

-

483

 

 

 

 

 

 

 

Net tangible assets

 

 

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

4,099

234

2,248

6,581

195

415

7,191

 

 

4,536

56

2,007

2,955

76

175

263

10,068

 

Balance at the end

 

4,584

70

2,102

6,756

163

310

7,229

 

 

3,398

52

1,656

2,205

70

151

291

7,823

 

(*)     Amount is mainly due to the stake in BBVA USA (see Note 3).

F-174F-120  


Tangible assets. Breakdown by type of assets and changes in the year 2019 (Millions of Euros)

 

 

 

 

 

 

Right to use asset

 

 

 

 

 

 

 

 

 

Own use

Investment properties

Investment properties

Assets leased out under an operating lease

Total

 

 

Notes

Land and buildings

Work in progress

Furniture, fixtures and vehicles

 
 

Cost

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

5,939

70

6,314

-

-

201

386

12,910

 

Additions

 

90

63

335

3,574

101

12

-

4,175

 

Retirements

 

(44)

(20)

(302)

(57)

-

(10)

-

(433)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

-

 

Transfers

 

(41)

(51)

(8)

(1)

-

13

-

(88)

 

Exchange difference and other

 

57

(6)

12

-

-

-

(49)

14

 

Balance at the end

 

6,001

56

6,351

3,516

101

216

337

16,578

 

 

 

 

 

 

 

 

 

0

 

 

Accrued depreciation

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

1,138

-

4,212

-

-

11

76

5,437

 

Additions

45

92

-

431

338

11

4

-

876

 

Additions transfer to discontinued operations (*)

 

34

-

26

43

-

-

-

103

 

Retirements

 

(38)

-

(255)

(3)

-

-

-

(296)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

-

 

Transfers

 

(16)

-

(13)

(1)

-

-

-

(30)

 

Exchange difference and other

 

43

-

(57)

(7)

-

-

(2)

(23)

 

Balance at the end

 

1,253

-

4,344

370

11

15

74

6,067

 

 

 

 

 

 

 

 

 

0

 

 

Impairment

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

217

-

-

-

-

27

-

244

 

Additions

49

14

-

20

60

-

-

-

94

 

Retirements

 

(3)

-

-

-

-

-

-

(3)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

-

 

Transfers

 

(16)

-

-

127

14

(4)

-

121

 

Exchange difference and other

 

-

-

(20)

4

-

3

-

(13)

 

Balance at the end

 

212

-

-

191

14

26

-

443

 

 

 

-

-

-

-

-

-

-

-

 

Net tangible assets

 

-

-

-

-

-

-

-

-

 

 

 

-

-

-

-

-

-

-

-

 

Balance at the beginning

 

4,584

70

2,102

-

-

163

310

7,229

 

Balance at the end

 

4,536

56

2,007

2,955

76

175

263

10,068

 

Tangible Assets. Breakdown by Type of Assets and Changes in the year 2017 (Millions of euros)

 

 

 

For Own Use

Total tangible asset of Own Use

Investment Properties

Assets Leased out under an Operating Lease

Total

 

 

Notes

Land and Buildings

Work in Progress

Furniture, Fixtures and Vehicles

 
 

Cost

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

6,176

240

7,059

13,473

1,163

958

15,594

 

Additions

 

49

128

397

574

1

201

776

 

Retirements

 

(42)

(29)

(264)

(335)

(90)

(93)

(518)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

(552)

(552)

 

Transfers

 

(273)

(57)

(186)

(516)

(698)

-

(1,214)

 

Exchange difference and other

 

(420)

(48)

(378)

(844)

(148)

(22)

(1,014)

 

Balance at the end

 

5,490

234

6,628

12,352

228

492

13,072

 

 

 

 

 

 

 

 

 

 

 

Accrued depreciation

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

1,116

-

4,461

5,577

63

216

5,856

 

Additions

45

127

-

553

680

13

-

693

 

Retirements

 

(26)

-

(235)

(261)

(7)

(21)

(289)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

(134)

(134)

 

Transfers

 

(53)

-

(146)

(199)

(31)

-

(230)

 

Exchange difference and other

 

(88)

-

(253)

(341)

(25)

16

(350)

 

Balance at the end

 

1,076

-

4,380

5,456

13

77

5,546

 

 

 

 

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

379

-

-

379

409

10

798

 

Additions

48

5

-

-

5

37

-

42

 

Retirements

 

(2)

-

-

(2)

(10)

-

(12)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

(10)

(10)

 

Transfers

 

(58)

-

-

(58)

(276)

-

(334)

 

Exchange difference and other

 

(9)

-

-

(9)

(140)

-

(149)

 

Balance at the end

 

315

-

-

315

20

-

335

 

 

 

 

 

 

 

 

 

 

 

Net tangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

4,681

240

2,598

7,519

691

732

8,941

 

Balance at the end

 

4,099

234

2,248

6,581

195

415

7,191

 

(*)     Amount in 2019 is mainly due to the stake in BBVA USA (see Note 3).  

F-175F-121  


The right to use asset consists mainly of the rental of commercial real estate premises for central services and the network branches located in the countries where the Group operates whose average term is between 5 and 20 years. The clauses included in rental contracts correspond to a large extent to rental contracts under normal market conditions in the country where the property is rented.

Tangible assets. Breakdown by type of assets and changes in the year 2018 (Millions of Euros)

 

 

 

For own use

Total tangible asset of own use

Investment properties

Assets leased out under an operating lease

Total

 

 

Notes

Land and buildings

Work in progress

Furniture, fixtures and vehicles

 
 

Cost

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

5,490

234

6,628

12,352

228

492

13,072

 

Additions

 

445

78

404

927

11

-

938

 

Retirements

 

(98)

(17)

(492)

(607)

(149)

(1)

(757)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

 

Transfers

 

64

(177)

(12)

(125)

(5)

-

(130)

 

Exchange difference and other

 

38

(48)

(214)

(224)

116

(105)

(213)

 

Balance at the end

 

5,939

70

6,314

12,323

201

386

12,910

 

 

 

 

 

 

 

 

 

 

 

Accrued depreciation

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

1,076

-

4,380

5,456

13

77

5,546

 

Additions

45

86

-

442

528

5

-

533

 

Additions transfer to discontinued operations (*)

 

34

-

27

61

-

-

61

 

Retirements

 

(36)

-

(403)

(439)

(8)

-

(447)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

(3)

-

-

(3)

-

-

(3)

 

Transfers

 

(31)

-

(22)

(53)

(2)

-

(55)

 

Exchange difference and other

 

12

-

(212)

(200)

3

(1)

(198)

 

Balance at the end

 

1,138

-

4,212

5,350

11

76

5,437

 

 

 

 

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

315

-

-

315

20

-

335

 

Additions

49

29

-

-

29

(25)

-

4

 

Additions transfer to discontinued operations (*)

 

1

-

-

1

-

-

1

 

Retirements

 

-

-

-

-

(27)

-

(27)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

 

Transfers

 

(77)

-

-

(77)

(3)

-

(80)

 

Exchange difference and other

 

(51)

-

-

(51)

62

-

11

 

Balance at the end

 

217

-

-

217

27

-

244

 

 

 

-

-

-

-

-

-

-

 

Net tangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

4,099

234

2,248

6,581

195

415

7,191

 

Balance at the end

 

4,584

70

2,102

6,756

163

310

7,229

 

Tangible Assets. Breakdown by Type of Assets and Changes in the year 2016 (Millions of euros)

 

 

 

For Own Use

Total tangible asset of Own Use

Investment Properties

Assets Leased out under an Operating Lease

Total

 

 

Notes

Land and Buildings

Work in Progress

Furniture, Fixtures and Vehicles

 
 

Cost

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

5,858

545

7,628

14,029

2,391

668

17,088

 

Additions

 

30

320

563

913

62

337

1,312

 

Retirements

 

(85)

(29)

(468)

(582)

(117)

(97)

(796)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

(7)

-

(1)

(8)

(3)

-

(11)

 

Transfers

 

676

(544)

(386)

(254)

(986)

84

(1,156)

 

Exchange difference and other

 

(296)

(52)

(277)

(625)

(184)

(34)

(843)

 

Balance at the end

 

6,176

240

7,059

13,473

1,163

958

15,594

 

 

 

 

 

 

 

 

 

 

 

Accrued depreciation

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

1,103

-

4,551

5,654

116

202

5,972

 

Additions

45

106

-

561

667

23

-

690

 

Retirements

 

(72)

-

(461)

(533)

(10)

(17)

(560)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

 

Transfers

 

(1)

-

(37)

(38)

(55)

55

(38)

 

Exchange difference and other

 

(20)

-

(153)

(173)

(11)

(24)

(208)

 

Balance at the end

 

1,116

-

4,461

5,577

63

216

5,856

 

 

 

 

 

 

 

 

 

 

 

Impairment

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

354

-

-

354

808

10

1,172

 

Additions

48

48

-

5

53

90

-

143

 

Retirements

 

(2)

-

-

(2)

(9)

-

(11)

 

Acquisition of subsidiaries in the year

 

-

-

-

-

-

-

-

 

Disposal of entities in the year

 

-

-

-

-

-

-

-

 

Transfers

 

(1)

-

-

(1)

(380)

-

(381)

 

Exchange difference and other

 

(20)

-

(5)

(25)

(100)

-

(125)

 

Balance at the end

 

379

-

-

379

409

10

798

 

 

 

 

 

 

 

 

 

 

 

Net tangible assets

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

 

Balance at the beginning

 

4,401

545

3,077

8,021

1,467

456

9,944

 

Balance at the end

 

4,681

240

2,598

7,519

691

732

8,941

 

(*)     Amount is mainly due to the stake in BBVA USA (see Note 3).

As of December 31, 2018, 20172020, 2019 and 2016,2018, the cost of fully amortized tangible assets that remained in use were €2,624, €2,660€2,299, €2,658 and €2,313€2,624 million respectively while its recoverable residual value was not significant.

As of December 31, 2018, 2017 and 2016 the amount of tangible assets under financial lease schemes on which the purchase option is expected to be exercised was not material. The main activity of the Group is carried out through a network of bank branches located geographically as shown in the following table:

Branches by Geographical Location (Number of branches)

 

2018

2017

2016

Spain

2,840

3,019

3,303

Mexico

1,836

1,840

1,836

South America

1,543

1,631

1,667

The United States

646

651

676

Turkey

1,066

1,095

1,131

Rest of Eurasia

32

35

47

Total

7,963

8,271

8,660

F-176


The following table shows the detail of the net carrying amount of the tangible assets corresponding to Spanish and foreign subsidiaries as of December 31, 2018, 20172020, 2019 and 2016:2018:

Tangible Assets by Spanish and Foreign Subsidiaries. Net Assets Values (Millions of euros)

Tangible assets by Spanish and foreign subsidiaries. Net assets values (Millions of euros)

Tangible assets by Spanish and foreign subsidiaries. Net assets values (Millions of euros)

 

2018

2017

2016

 

2020

2019

2018

BBVA and Spanish subsidiaries

 

2,705

2,574

3,692

 

4,294

4,865

2,705

Foreign subsidiaries

 

4,524

4,617

5,249

 

3,529

5,203

4,524

Total

 

7,229

7,191

8,941

 

7,823

10,068

7,229

F-122  


18.

18. Intangible assets

18.1 Goodwill

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs),unit (hereinafter “CGU”) to which goodwill has been allocated, is as follows:  

Goodwill. Breakdown by CGU and Changes of the year (Millions of euros)

Goodwill. Breakdown by CGU and changes of the year (Millions of Euros)

Goodwill. Breakdown by CGU and changes of the year (Millions of Euros)

The United States

Turkey

Mexico

Colombia

Chile

Other

Total

The United States

Mexico

Turkey

Colombia

Chile

Other

Total

 

 

 

 

Balance as of December 31, 2015

5,328

727

602

176

62

20

6,915

Additions

-

8

Exchange difference

175

(101)

(79)

14

6

-

15

Impairment

-

-

Other

-

(1)

-

-

(1)

Balance as of December 31, 2016

5,503

624

523

191

68

28

6,937

Additions

-

24

-

-

24

Exchange difference

(666)

(115)

(44)

(22)

(3)

(1)

(851)

Impairment

-

(4)

Other

-

(10)

-

(33)

-

(43)

Balance as of December 31, 2017

4,837

509

493

168

32

23

6,062

4,837

493

509

168

32

23

6,062

Additions

-

-

-

-

Exchange difference

229

(127)

26

(7)

(3)

-

118

229

26

(127)

(7)

(3)

-

118

Impairment

-

-

-

-

Other

-

-

-

-

Balance as of December 31, 2018

5,066

382

519

161

29

23

6,180

5,066

519

382

161

29

23

6,180

Additions

-

-

Exchange difference

98

31

(36)

3

(2)

(1)

93

Impairment

(1,318)

-

-

(1,318)

Other

-

-

Balance as of December 31, 2019

3,846

550

346

164

27

22

4,955

Additions

-

-

Exchange difference

(22)

(72)

(92)

(21)

-

(1)

(208)

Impairment

(2,084)

-

-

(13)

(2,097)

Companies held for sale

(1,740)

-

-

(1,740)

Other

-

-

Balance as of December 31, 2020

-

478

254

143

27

8

910

In 2018, 2017As of December 31, 2020, the remaining goodwill of the United States CGU was reclassified to the heading “Non-current assets and 2016, theredisposal groups classified as held for sale” of the consolidated balance sheet, whereas the impairment was reclassified to the heading “Profit (loss) after tax from discontinued operations” of the consolidated income statements (see Notes 1.3, 3 and 21).

Goodwill in business combinations

There were no significant business combinations.combinations during 2020, 2019 and 2018.

F-177


Impairment Test

As mentioned in Note 2.2.8, of the consolidated financial statements for the year 2018, the cash-generating units (CGUs)CGUs to which goodwill has been allocated, are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment.

Both the CGU’s fair values and the fair values assigned to its assets and liabilities had been based on the estimates and assumptions that the Group’s Management has deemed most likely given the circumstances. However, some Furthermore, it is analyzed whether certain changes toin the valuation assumptions used could result ingive rise to differences in the result of the impairment test result.test.

Three key assumptions are used whenThe BBVA Group performs estimations on the recoverable amount of certain CGU´s by calculating the impairment test. These hypothesisvalue in use through the discounted value of future cash flows method.

The main hypotheses used for the value in use calculation are the ones to which the amount of the recoverable value is most sensitive:following:

·           The forecast cash flows, including net interest margin and cost of risk, estimated by the Group's management, and based on the latest available budgets for the next 4 to 5 years.years, considering the macroeconomic variables of each CGU, regarding the existing balance structure as well as macroeconomic variables such as the evolution of interest rates and the CPI of the geography where the CGU is located, among others.

F-123


·           The constant sustainable growth rate for extrapolating cash flows, starting in the fourth or fifth year, (2023), beyond the period covered by the budgets or forecasts.

·           The discount rate on future cash flows, which coincides with the cost of capital assigned to each CGU, and which consists of a risk-free rate plus a premium that reflects the inherent risk of each of the businesses evaluated.

The focus used by the Group's management to determine the values of the hypothesesassumptions is based both on its projections and past experience. These values are uniformverified and use external sources of information. Atinformation, wherever possible. Additionally, the same time, the valuationsvaluation of the most significant goodwill have in generalof the CGU of Turkey has been reviewed by independent experts (not the Group's external auditors) who apply different valuation methods according.

As of December 31, 2020, as a result of the CGU´s assessment, the Group concluded there is no evidence of further indicators of impairment losses that requires recognizing significant additional impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.

As of March 31, 2020, the Group identified an indicator of impairment of goodwill in the United States CGU and as a result of the goodwill impairment test, the Group estimated impairment in the United States CGU, of €2,084 million, which was mainly due to each typethe negative impact of asset and liability. The valuation methods used are: The method for calculating the discounted valueupdate of future cash flows, the market transaction methodmacroeconomic scenario following the COVID-19 pandemic (see Note 1.5) and the cost method.expected evolution of interest rates. This recognition did not affect the tangible book value nor the liquidity nor the solvency ratio of the BBVA Group.

As of December 31, 2019, the Group estimated impairment losses in the United States CGU of €1,318 million, which was mainly as a result of the negative evolution of interest rates, especially in the second half of the year, which accompanied by the slowdown of the economy caused the expected evolution of results below the previous estimation. This recognition did not affect the tangible book value nor the liquidity nor the solvency ratio of the BBVA Group.

 

As of December 31, 2018, 2017 and 2016, no indicators of impairment havehad been identified in any of the main CGUs.

F-178


Goodwill - the United States CGU

The Group’s most significantAs of December 31, 2020, the remaining goodwill correspondscorresponding to the CGU in the United States CGU has been reclassified to the mainheading "Non-current assets and disposal groups classified as held for sale" in the consolidated balance sheets (see Notes 1.3, 3 and 21). Pursuant to IFRS 5.15, the CGU must be measured at the lower of fair value less costs to sell and the carrying amount. Given the price agreed in the sale agreement, the fair value less costs to sell is higher than carrying amount of the assets and liabilities of the CGU, which means that as of December 31, 2020 these will remain valued at their carrying amount (included goodwill) on the reclassification date.

The most significant hypothesesassumptions used in the latest impairment testtests of this mentionedsuch CGU are:

Impairment test hypotheses CGU Goodwill in the United States

 

2018

2017

2016

Discount rate

10.5%

10.0%

10.0%

Sustainable growth rate

4.0%

4.0%

4.0%

Impairment test assumptions CGU goodwill - United States

 

March 2020

December 2019

December 2018

Discount rate (*)

10.3%

10.0%

10.5%

Growth rate

3.0%

3.5%

4.0%

Given the potential growth of the sector, in(*) Post-tax discount rates.

In accordance with paragraph 3333.c of IAS 36, as of DecemberMarch 31, 2018, 2017 and 20162020, the Group used a steadyconstant growth rate of 4.0%3.0%, based on the real GDP growth rate of the United States, the expected inflation and expected inflation. This 4.0% rate is less than the historical averagepotential growth of the past 30 yearsbanking sector in the United States.

The assumptions that carry the most weight and whose volatility could affect the most in determining the present value of cash flows from the fifth year on are the discount rate and the growth rate. The following shows the amount that would increase (or decrease) the recoverable value of the nominal GDPCGU, as a consequence of a reasonably possible variation (in basis points, “bp”) of each of the key assumptions as of March 31, 2020:

Sensitivity analysis for main assumptions - United States (Millions of Euros)

 

Increase of 50 basis points (*)

Decrease of 50 basis points (*)

Discount rate

(755)

869

Growth rate

270

(235)

(*) The use of very different discount or growth rates would be inconsistent with the macroeconomic assumptions under which the Unit builds its business plan, such as inflation assumptions or interest rate curves used to determine cash flows.

F-124


Goodwill - Mexico CGU

The Group’s most significant goodwill corresponds to the CGU in Mexico, the main significant assumptions used in the impairment test of this mentioned CGU as of December 31, 2020, 2019 and 2018:

Impairment test assumptions CGU goodwill in Mexico

 

2020

2019

2018

Discount rate (*)

15.3%

14.8%

14.8%

Growth rate

5.7%

5.9%

5.6%

(*) Post-tax discount rates.

In accordance with paragraph 33.c of IAS 36, as of December 31, 2020, the Group used a growth rate of the United States and lower than5.7% based on the real GDP growth forecasted byrate of Mexico, the IMF.expected inflation and the potential growth of the banking sector in Mexico.

The assumptions with a greater relative weight and whose volatility could affect morehave a greater impact in determining the present value of the cash flows starting on the fifthfourth year are the discount rate and the sustainable growth rate. Below, in a simplified way, is shown the increased (or decreased) amount of the CGU recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions:assumptions, considered in isolation as of December 31, 2020, where, in any case, the value in use would continue to exceed their book value:

Sensitivity analysis for main hypotheses - USA (Millions of euros)

 

Impact of an increase of 50 basis points (*)

Impact of a decrease of 50 basis points (*)

Discount rate

(1,009)

1,176

Sustainable growth rate

526

(451)

Sensitivity analysis for main assumptions - Mexico (Millions of Euros)

 

Impact of an increase of 50 basis points (*)

Impact of a decrease of 50 basis points (*)

Discount rate

(1,043)

1,156

Growth rate

688

(620)

(*)        Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.

Another assumption used, and with a high impact on the impairment test, is the budgets of the CGU and specifically the effect that changes in interest rates have on cash flows.

F-179


Goodwill - Turkey CGU

The Group’s most significant goodwill corresponds to the CGU in the Turkey, the main significant hypothesesassumptions used in the impairment test of this mentionedthe CGU of Turkey as of December 31, 2020, 2019 and 2018 are:

Impairment test assumptions CGU Goodwill in Turkey

 

2018

2017

2016

Discount rate

24.3%

18.0%

17.7%

Sustainable growth rate

7.0%

7.0%

7.0%

Impairment test assumptions CGU goodwill in Turkey

 

2020

2019

2018

Discount rate (*)

21.0%

17.4%

24.3%

Growth rate

7.0%

7.0%

7.0%

(*) Post-tax discount rates.

Given the potential growth of the sector in Turkey, in accordance with paragraph 3333.c of IAS 36, as of December 31, 2018, 20172020, 2019 and 20162018 the Group used a steady growth rate of 7.0% based on the real GDP growth rate of Turkey and expected inflation.

The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the sustainable growth rate. Below, in a simplified way, is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions:assumptions, considered in isolation as of December 31, 2020, where, in any case, the value in use would continue to exceed their book value:

Sensitivity analysis for main assumptions - Turkey (Millions of euros)

 

Impact of an increase of 50 basis points (*)

Impact of a decrease of 50 basis points (*)

Discount rate

(149)

158

Sustainable growth rate

40

(37)

Sensitivity analysis for main assumptions - Turkey (Millions of Euros)

 

Impact of an increase of 50 basis points (*)

Impact of a decrease of 50 basis points (*)

Discount rate

(164)

175

Growth rate

29

(26)

(*)        Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.

F-125


Considering the uncertainty caused by the current economic situation, the Group has carried out additional sensitivities on other variables such as the net interest income and the cost of risk forecasts, not having detected any modification on the result of the impairment test on the CGU.

As of March 31, 2020, a goodwill impairment test of the Turkey CGU was carried out due to the identification of indicators of impairment. As a result of such test, the Group determined that there was no impairment in this CGU.

Goodwill - Other CGUs

The sensitivity analysis on the main assumptions carried out for the rest of the CGUs of the Group indicate that their value in business combinationsuse would continue to exceed their book value.

There were no significant business combinations during 2018, 2017 and 2016.

18.218.2. Other intangible assets  

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:

Other intangible assets (Millions of euros)

Other intangible assets (Millions of Euros)

Other intangible assets (Millions of Euros)

 

2018

2017

2016

 

2020

2019

2018

Computer software acquisition expenses

 

1,605

1,682

1,877

Computer software acquisition expense

 

1,202

1,598

1,605

Other intangible assets with an infinite useful life

 

11

12

 

12

11

Other intangible assets with a definite useful life

 

518

708

960

 

221

401

518

Total

 

2,134

2,402

2,849

 

1,435

2,010

2,134

F-180


The changes of this heading in December 31, 2018, 20172020, 2019 and 2016,2018, are as follows:

Other Intangible Assets (Millions of euros)

Other intangible assets (Millions of Euros)

Other intangible assets (Millions of Euros)

 

2020

2019

2018

Notes

2018

2017

2016

Notes

Computer software

Other intangible

assets

Total of intangible assets

Computer software

Other intangible

assets

Total of intangible assets

Computer software

Other intangible

assets

Total of intangible assets

Balance at the beginning

 

2,402

2,849

3,137

 

1,598

412

2,010

1,605

529

2,134

1,682

721

2,402

Acquisition of subsidiaries in the year

 

-

Additions

 

552

564

645

 

452

8

460

525

8

533

540

12

552

Amortization in the year

45

(614)

(694)

(735)

45

(448)

(59)

(507)

(447)

(63)

(510)

(436)

(65)

(500)

Amortization transfer to discontinued operations (*)

 

(77)

(3)

(80)

(106)

(4)

(110)

(105)

(8)

(114)

Exchange differences and other

 

(123)

(305)

(196)

 

(38)

(91)

(129)

32

(58)

(25)

(74)

(49)

(123)

Impairment

 

(83)

(12)

(3)

 

(6)

-

(6)

(11)

(1)

(12)

(2)

(81)

(83)

Decreases by companies held for sale (*)

 

(279)

(34)

(313)

-

-

Balance at the end

 

2,134

2,402

2,849

 

1,202

233

1,435

1,598

412

2,010

1,605

529

2,134

(*)     Amount is mainly due to the stake in BBVA USA (see Note 3).

As of December 31, 2020, 2019 and 2018, 2017and 2016, the cost of fully amortized intangible assets that remained in use were €1,604€2,622 million, €1,380€2,702 million, and €1,501€2,412 million respectively, while their recoverable value was not significant.

19. 19. Tax assets and liabilities

19.119.1. Consolidated tax group

Pursuant to current legislation, the BBVA Consolidated Tax Groupconsolidated tax group in Spain includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups.

The Group’s non-Spanish other banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.

F-126


19.219.2. Years open for review by the tax authorities

The years open to review inAt 31 December 2020, the BBVA Consolidated Tax Group as of December 31, 2018 areconsolidated tax group in Spain is currently under inspection for the years 2014 and subsequent yearsto 2016 inclusive for the main taxes applicable.applicable to it.

The remainder of the Spanish consolidated entities in general have the last four years open for inspection by the tax authorities for the main taxes applicable, except for those in which there has been an interruption of the limitation period due to the start of an inspection.

InOn the year 2017 as a consequence ofother hand, in relation to the tax authorities examination reviews, inspections were initiated throughmain jurisdictions in which the year 2013 inclusive,Group is present and all such years closed with acceptance during the year 2017. Therefore, these inspections did not constitute any material amount to recordcarries out its activity, in the Consolidated Annual accounts as their impact was provisioned.case of Mexico, BBVA Bancomer S.A., is currently under inspection by the Mexican Tax Authorities for the years 2016 and 2017 corresponding to Corporate Income Tax and Value Added Tax.

In addition, in the case of Turkey, the head entity in this country, Garanti BBVA A.S., is currently under inspection by the Tax Authorities of that country for all the taxes applicable to it corresponding to the years 2017 and 2018.

In view of the varying interpretations that can be made of some applicable tax legislation, the outcome of the tax inspections of the open years that may be conducted by the tax authorities in the future may give rise to contingent tax liabilities which cannot be reasonably estimated at the present time. However, the Group considers that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefore would not materially affect the Group’s accompanying consolidated financial statements.

F-181


19.319.3. Reconciliation

The reconciliation of the Group’s corporate income tax expense resulting from the application of the Spanish corporation income tax rate and the income tax expense recognized in the accompanying consolidated income statements is as follows:

Reconciliation of Taxation at the Spanish Corporation Tax Rate to the Tax Expense Recorded for the Period (Millions of euros)

Reconciliation of taxation at the Spanish corporation tax rate to the tax expense recorded for the year (Millions of Euros)

Reconciliation of taxation at the Spanish corporation tax rate to the tax expense recorded for the year (Millions of Euros)

2018

2017

2016

2020

2019

2018

Amount

Effective Tax

%

Amount

Effective Tax

%

Amount

Effective Tax

%

Amount

Effective tax

%

Amount

Effective tax

%

Amount

Effective tax

%

Profit or (-) loss before tax

8,446

 

6,931

 

6,392

 

3,576

 

6,398

 

8,446

 

From continuing operations

8,446

 

6,931

 

6,392

 

5,248

 

7,046

 

7,565

 

From discontinued operations

-

 

-

 

-

 

(1,672)

 

(648)

 

881

 

Taxation at Spanish corporation tax rate 30%

2,534

 

2,079

 

1,918

 

1,073

 

1,920

 

2,534

 

Lower effective tax rate from foreign entities (*)

(234)

 

(307)

 

(298)

 

(181)

 

(381)

 

(234)

 

Mexico

(78)

28%

(100)

27%

(105)

26%

(32)

29%

(112)

27%

(78)

28%

Chile

(18)

21%

(29)

21%

(27)

17%

(2)

23%

(2)

27%

(18)

21%

Colombia

10

33%

(3)

29%

22

36%

3

31%

6

32%

10

33%

Peru

(12)

28%

(16)

27%

(18)

26%

(7)

28%

(12)

28%

(12)

28%

Turkey

(132)

20%

(182)

21%

(176)

21%

(73)

25%

(86)

23%

(132)

20%

USA

(75)

16%

(97)

17%

(97)

20%

Others

(4)

 

23

 

6

 

5

 

(78)

 

93

 

Revenues with lower tax rate (dividends/capital gains)

(57)

 

(53)

 

(69)

 

(49)

 

(49)

 

(57)

 

Equity accounted earnings

3

 

(2)

 

(11)

 

12

 

18

 

3

 

Other effects

49

 

452

 

159

 

Current income tax

2,295

 

2,169

 

1,699

 

Of which:

 

 

 

Continuing operations

2,295

 

2,169

 

1,699

 

Discontinued operations

-

 

-

 

-

 

Other effects (**)

661

 

545

 

(27)

 

Income tax

1,516

 

2,053

 

2,219

 

Of which: Continuing operations

1,459

 

1,943

 

2,042

 

Of which: Discontinued operations

57

 

110

 

177

 

(*)        Calculated by applying the difference between the tax rate in force in Spain and the one applied to the Group’s earnings in each jurisdiction.

(**)        This amount is generated in 2020 and 2019 mainly as a result of the impact of the goodwill impairment of The United States' CGU.

 

The effective income tax rate for the Group in the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:

Effective Tax Rate (Millions of euros)

 

 

2018

2017

2016

Income from:

 

 

 

 

Consolidated Tax Group

 

1,482

(678)

(483)

Other Spanish Entities

 

33

29

52

Foreign Entities

 

6,931

7,580

6,823

Total

 

8,446

6,931

6,392

Income tax and other taxes

 

2,295

2,169

1,699

Effective Tax Rate

 

27.17%

31.3%

26.6%

Effective tax rate (Millions of Euros)

 

 

2020

2019

2018

Income from:

 

 

 

 

Consolidated tax group in Spain

 

259

(718)

1,482

Other Spanish entities

 

7

7

33

Foreign entities

 

4,982

7,757

6,050

Gains (losses) before taxes from continuing operations

 

5,248

7,046

7,565

Tax expense or income related to profit or loss from continuing operations

 

1,459

1,943

2,042

Effective tax rate

 

27.8%

27.6%

27.0%

F-127  


In the year 2018,2020, in the main countries in which the Group has presence, there has been no changes in the nominal tax rate on corporate income tax in comparison with those existing inexcept for Colombia, where the previousapplicable tax rate is 36% compared to the tax rate applicable last year in the main countries in which the Group has a presence, have been in United States (federal tax from 35% to 21%), Turkey (from 20% to 22%), Argentina (from 35% to 30%), Chile (from 25.5% to 27%) and Colombia (from 40% to 37%)33%. In the year 2017, the2019, there has been no changes in the nominal tax rate on corporate income tax, in comparison with those existing inexcept for Colombia where the previous period, inapplicable tax rate has been 33% compared to the main countries in which the Group has a presence, have been in Chile (from 24.0% to 25.5%) and Peru (from 28.0% to 29.5%)initially forecasted 37%.

F-182


  

19.419.4. Income tax recognized in equity

In addition to the income tax expense recognized in the accompanying consolidated income statements, the Group has recognized the following income tax charges for these items in the consolidated total equity:

Tax recognized in total equity (Millions of euros)

Tax recognized in total equity (Millions of Euros)

Tax recognized in total equity (Millions of Euros)

 

2018

2017

2016

 

2020

2019

2018

Charges to total equity

 

 

 

Debt securities and others

 

(87)

(355)

(533)

 

(230)

(130)

(87)

Equity instruments

 

(56)

(74)

(2)

 

(43)

(40)

(56)

Subtotal

 

(143)

(429)

(535)

 

(273)

(170)

(143)

Total

 

(143)

(429)

(535)

 

(273)

(170)

(143)

19.519.5. Current and deferred taxes

The balance under the heading "Tax assets" in the accompanying consolidated balance sheets includes current and deferred tax assets. The balance under the “Tax liabilities” heading includes the Group’s various current and deferred tax liabilities. The details of the mentioned tax assets and liabilities are as follows:

Tax assets and liabilities (Millions of euros)

Tax assets and liabilities (Millions of Euros)

Tax assets and liabilities (Millions of Euros)

 

2018

2017

2016

2020

2019

2018

Tax assets

 

 

 

Current tax assets

 

2,784

2,163

1,853

1,199

1,765

2,784

Deferred tax assets

 

15,316

14,725

16,391

15,327

15,318

15,316

Pensions

 

405

395

1,190

439

456

405

Financial Instruments

 

1,401

1,453

1,371

1,292

1,386

1,401

Other assets (investments in subsidiaries)

 

302

357

662

Impairment losses

 

1,375

1,005

1,390

Loss allowances

1,683

1,636

1,375

Other

 

990

870

1,236

1,069

1,045

1,292

Secured tax assets (*)

 

9,363

9,433

9,431

Secured tax assets

9,361

9,363

Tax losses

 

1,480

1,212

1,111

1,483

1,432

1,480

Total

 

18,100

16,888

18,245

16,526

17,083

18,100

Tax Liabilities

 

 

Tax liabilities

 

Current tax liabilities

 

1,230

1,114

1,276

545

880

1,230

Deferred tax liabilities

 

2,046

2,184

3,392

1,809

1,928

2,046

Financial Instruments

 

1,136

1,427

1,794

908

1,014

1,136

Charge for income tax and other taxes

 

910

757

1,598

Other

901

914

910

Total

 

3,276

3,298

4,668

2,355

2,808

3,276

(*)  Law guaranteeing the deferred tax assets has been approved in Spain in 2013. In years 2016 and 2017 guaranteed deferred tax assets also existed in Portugal but in year 2018 they lost the guarantee due to the merge between BBVA Portugal S.A. and BBVA, S.A.

At the end of year 2018, a tax reform has taken place in Colombia, which is expected to hold a 37% tax rate for financial institutions in 2019 (prior to the reform, a 33% tax rate was planned).

The most significant variations of the deferred assets and liabilities in the years 2018, 20172020, 2019 and 20162018 derived from the followings causes:

Deferred tax assets and liabilities (Millions of euros)

 

 

2018

2017

2016

 

 

Deferred Assets

Deferred Liabilities

Deferred Assets

Deferred Liabilities

Deferred Assets

Deferred Liabilities

Balance at the beginning

 

14,725

2,184

16,391

3,392

15,878

3,418

Pensions

 

10

-

(795)

-

168

-

Financials Instruments

 

(52)

(291)

82

(367)

(103)

(113)

Other assets

 

(55)

-

(305)

-

108

-

Impairment losses

 

370

-

(385)

-

44

-

Others

 

120

153

(366)

(841)

255

-

Guaranteed Tax assets

 

(70)

-

2

-

(105)

-

Tax Losses

 

268

-

101

-

146

-

Charge for income tax and other taxes

 

-

-

-

-

-

87

Balance at the end

 

15,316

2,046

14,725

2,184

16,391

3,392

Deferred tax assets and liabilities. Annual variations (Millions of Euros)

 

 

2020

2019

2018

 

 

Deferred assets

Deferred liabilities

Deferred assets

Deferred liabilities

Deferred assets

Deferred liabilities

Balance at the beginning

 

15,318

1,928

15,316

2,046

14,725

2,184

Pensions

 

(17)

-

51

-

10

-

Financials instruments

 

(94)

(106)

(15)

(122)

(52)

(291)

Loss allowances

 

47

-

261

-

370

-

Others

 

24

(13)

(247)

4

65

153

Guaranteed tax assets

 

(2)

-

-

-

(70)

-

Tax losses

 

51

-

(48)

-

268

-

Balance at the end

 

15,327

1,809

15,318

1,928

15,316

2,046

F-183F-128  


With respect to the changes in assets and liabilities due to deferred tax in 2020 contained in the above table, the following should be pointed out:

·           The decrease in guaranteedSecured tax assets is motivated because those correspondingmaintain a very similar balance to Portugal are no longer considered as guaranteed.that of the previous year.

·           The increase in tax losses is mainlyassets due to the Corporate Income Tax (CIT) return 2017 that has generated differences with respect to the estimatetax loss arises as a result of Corporate Tax reflected in the financial statements, on the other hand, the increase in tax losses is also due to the generation of negative tax baseslosses and deductions during year 2018.in the year.

·           The evolution of deferred tax assets (other than those guaranteed and those linked to tax losses) net of deferred tax liabilities is due to the agreement to sell the US business unit (its deferred tax assets and liabilities (without taking into considerationin 2020 are shown under "Non-current assets or liabilities and disposal groups classified as held for sale"), the guaranteed deferred tax asset and the tax losses) in net terms is a decreaseeffect of €531 million mainly due to the first implementation of IFRS9, the variationsexchange rates, especially in the valuationcase of portfolio securitiesMexico and toTurkey, and the operation of the corporate income tax, in whichwhere the differences between accounting and taxation producegive rise to constant movements in the deferred taxes.

On the deferred tax assets and liabilities contained in the table above, those included in section 19.4 above have been recognized against the entity's equity, and the rest against earnings for the year or reserves.

As of December 31, 2018, 20172020, 2019 and 2016,2018, the estimated amount of temporary differences associated with investments in subsidiaries, joint ventures and associates, which were not recognized deferred tax liabilities in the accompanying consolidated balance sheets, amounted to 443106 million euros, 376473 million euros and 874443 million euros, respectively.

Of the deferred tax assets contained in the above table, the detail of the items and amounts guaranteed by the Spanish government, broken down by the items that originated those assets is as follows:

Secured tax assets (Millions of euros)

Secured tax assets (Millions of Euros)

Secured tax assets (Millions of Euros)

 

2018

2017 (*)

2016 (*)

 

2020

2019

2018

Pensions

 

1,874

1,897

1,901

 

1,924

Impairment losses

 

7,489

7,536

7,530

Loss allowances

 

7,437

7,439

Total

 

9,363

9,433

9,431

 

9,361

9,363

(*)  In 2017 and 2016 guaranteed deferred tax assets also existed in Portugal but in 2018 they lost the guarantee.

As of December 31, 2018,2020, non-guaranteed net deferred tax assets of the above table amounted to €3,907€4,156 million (€3,1084,027 and €3,568€3,907 million as of December 31, 20172019 and 20162018 respectively), which broken down by major geographies is as follows:

·           Spain: Net deferred tax assets recognized in Spain totaled €2,653€2,590 million as of December 31, 20182020 (€2,0522,447 and €2,007€2,653 million as of December 31, 20172019 and 2016,2018, respectively). €1,462€1,480 million of the figure recorded in the year ended December 31, 20182020 for net deferred tax assets related to tax credits and tax loss carry forwards and €1,191€1,110 million relate to temporary differences.

·           Mexico: Net deferred tax assets recognized in Mexico amounted to €826€1,036 million as of December 31, 20182020 (€6151,083 and €698€826 million as of December 31, 20172019 and 2016,2018, respectively). 99.97%Practically all of deferred tax assets as of December 31, 20182020 relate to temporary differences. The remainders are tax credits carry forwards.differences.

·           South America: Net deferred tax assets recognized in South America amounted to €383 thousand as of December 31, 2018 (€26 and €362€126 million as of December 31, 20172020 (€84 and 2016,€0.4 million as of December 31, 2019 and 2018, respectively). Practically all the deferred tax assets are related to temporary differences, only 1.03% are related to tax credits.differences.

F-184


·           The United States: Net deferred tax assets recognized in Thethe United States amounted to €164€2 million as of December 31, 20182020 (€180122 and €345 million€164 as of December 31, 20172019 and 2016,2018, respectively). All the deferred tax assets relate to temporary differencesdifferences.In this respect, it should be noted that the 2020 figure is affected by the sale agreement of the US business unit (the deferred tax assets and liabilities of the business subject to the sale agreement in 2020 are shown as "Non-current assets or liabilities and disposal groups that have been classified as held for sale").

·           Turkey: Net deferred tax assets recognized in Turkey amounted to €250€395 million as of December 31, 20182020 (€224278 and €135€250 million as of December 31, 20172019 and 20162018, respectively). As of December 31, 2018,Practically all the deferred tax assets correspond to €15 million of tax creditsare related to tax losses carry forwards and deductions and €235 million relate to temporary differences.differences.

Based on the information available as of December 31, 2018,2020, including historical levels of benefits and projected results available to the Group for the coming 15 years, itthe Group has carried out an analysis of its recovery of deferred tax assets and liabilities taking into account the impact of COVID-19 pandemic (see Note 1.5). It is considered that sufficient taxable income will be generated for the recovery of above mentioned unsecured deferred tax assets when they become deductible according to the tax laws.

On the other hand, the Group has not recognized certain deductible temporary differences, negative tax bases and deductions for which, in general, there is no legal period for offsetting, amounting to approximately € 2,2362,156 million, which are mainly originated by Catalunya Banc.

F-129


20. Other assets and liabilitiesLiabilities

The breakdowncomposition of the balance underof these headings incaptions of the accompanying consolidated balance sheets is as follows:is:

Other assets and liabilities: (Millions of euros)

Other assets and liabilities (Millions of Euros)

Other assets and liabilities (Millions of Euros)

 

2018

2017

2016

 

2020

2019

2018

ASSETS

 

 

 

 

 

 

Inventories

 

635

229

3,298

 

572

581

635

Real estate

 

633

226

3,268

Others

 

2

3

29

Transactions in progress

 

249

156

241

 

160

138

249

Accruals

 

702

768

723

 

756

804

702

Prepaid expenses

 

465

509

518

Other prepayments and accrued income

 

237

259

204

Other items

 

3,886

3,207

3,012

 

1,025

2,277

3,886

Total Other Assets

 

5,472

4,359

7,274

Total

 

2,513

3,800

5,472

LIABILITIES

 

 

 

 

 

 

Transactions in progress

 

39

165

127

 

75

39

39

Accruals

 

2,558

2,490

2,721

 

1,584

2,456

2,558

Accrued expenses

 

2,119

1,997

2,125

Other accrued expenses and deferred income

 

439

493

596

Other items

 

1,704

1,894

2,131

 

1,144

1,247

1,704

Total Other Liabilities

 

4,301

4,550

4,979

Total

 

2,802

3,742

4,301

 

"Inventories" includes the net book value of land and building purchases that the Group’s Real estate entities have available for sale or as part of their business. Balances under this heading include mainly real estate assets acquired by these entities from distressed customers (mostly in Spain), net of their corresponding losses. The roll-forward of our inventories from distressed customers is provided below:

Inventories from Distressed Customers (Millions of euros)

 

2018

2017

2016

Gross value

 

 

 

Balance at the beginning

91

8,499

9,318

Business combinations and disposals

-

-

-

Acquisitions

-

533

336

Disposals

(20)

(2,288)

(1,214)

Others

-

(6,653)

59

Balance at the end

71

91

8,499

Accumulated impairment losses

(21)

(26)

(5,385)

Carrying amount

49

65

3,114

F-185


As of December 31, 2017, the majority of the balance of real estate assets acquired from distressed customers was reclassified to the heading "Non-current assets and disposable groups of items that have been classified as held for sale" (see Note 21) due to the agreement with Cerberus to transfer the Real Estate business in Spain (see Note 3).

The impairment included under the heading “Impairment or reversal of impairment of non- financial assets” of the accompanying consolidated financial statements were €51, €306 and €375 million in 2018, 2017 and 2016, respectively (see Note 48).

As indicated in Note 2.2.6, “Inventories” are valued at the lower amount between its fair value less costs to sell and its book value. As of December 31, 2018, practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.

21. Non-current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale

The composition of the balancebalances under the headingheadings “Non-current assets and disposal groups classified as held for sale” and “liabilities included in disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:  

Non-current assets and disposal groups classified as held for sale Breakdown by items (Millions of euros)

 

 

2018

2017

2016

Foreclosures and recoveries

 

2,211

6,207

4,225

Foreclosures (*)

 

2,135

6,047

4,057

Recoveries from financial leases

 

76

160

168

Other assets from tangible assets

 

433

447

1,181

Property, plant and equipment

 

276

447

378

Operating leases

 

-

-

803

Investment properties (*)

 

158

-

-

Business sale - Assets (**)

 

29

18,623

40

Accrued amortization (***)

 

(44)

(77)

(116)

Impairment losses

 

(628)

(1,348)

(1,727)

Total Non-current assets and disposal groups classified as held for sale

 

2,001

23,853

3,603

Non-current assets and disposal groups classified as held for sale. Breakdown by items (Millions of Euros)

 

2020

2019

2018

Foreclosures and recoveries (*)

1,398

1,647

2,210

Assets from tangible assets

480

310

433

Companies held for sale (**)

84,792

1,716

29

Accrued amortization (***)

(89)

(51)

(44)

Impairment losses

(594)

(543)

(628)

Total non-current assets and disposal groups classified as held for sale

85,987

3,079

2,001

Companies held for sale (**)

75,446

1,554

-

Total liabilities included in disposal groups classified as held for sale

75,446

1,554

-

(*)        Corresponds2018 figures correspond mainly to the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

(**)      Corresponds2020 figures correspond mainly to the sale of BBVA´s stake in BBVA USA (see Note 3). 2019 figures correspond mainly to the BBVA´s stake in BBVA ChileParaguay (see Note 3).

(***)   AmortizationCorresponds to the accumulated until related asset reclassifieddepreciation of assets before their classification as “non-current"Non-current assets and disposal groups classified as held for sale".

Assets and liabilities from discontinued operations

As mentioned in Note 3, in 2020 the agreement for the sale of the BBVA subsidiary in the United States was announced. The assets and liabilities corresponding to the companies for sale were reclassified to the headings “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” of the consolidated balance sheet as of December 31, 2020; and the earnings of these companies for the years ended December 31, 2020, 2019 and 2018 were classified under the heading "Profit (loss) after tax from discontinued operations" of the accompanying consolidated income statements (see Note 1.3).

The condensed consolidated balance sheets, condensed consolidated income statements and condensed consolidated statements of cash flow of the companies for sale in the United States subsidiary for the years 2020, 2019 and 2018 are provided below:

Condensed balance sheets of companies held for sale in the United States subsidiary as of December 31, 2020, 2019 and 2018

CONDENSED ASSETS (Millions of Euros)

 

 

2020

2019

2018

Cash, cash balances at central banks and other demand deposits

 

11,368

5,678

2,326

Financial assets held for trading

 

821

513

228

Non-trading financial assets mandatorily at fair value through profit or loss

 

13

18

18

Financial assets at fair value through other comprehensive income

 

4,974

6,834

10,030

Financial assets at amortized cost

 

61,558

62,860

59,302

Derivatives - hedge accounting

 

9

10

23

Tangible assets

 

799

900

665

Intangible assets

 

1,949

4,183

5,438

Tax assets

 

360

263

446

Other assets

 

1,390

1,463

1,401

Non-current assets and disposal groups classified as held for sale

 

16

31

30

TOTAL ASSETS

 

83,257

82,751

79,908

 

 

 

 

 

CONDENSED LIABILITIES (Millions of Euros)

 

 

2020

2019

2018

Financial liabilities held for trading

 

98

94

114

Financial liabilities at amortized cost

 

73,132

70,438

66,635

Derivatives - hedge accounting

 

2

11

21

Provisions

 

157

186

172

Tax liabilities

 

201

87

249

Other liabilities

 

492

464

497

TOTAL LIABILITIES

 

74,082

71,279

67,688

 

 

 

 

 

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) (Millions of Euros)

 

 

2020

2019

2018

Actuarial gains (losses) on defined benefit pension plans

 

(66)

(80)

(69)

Hedge of net investments in foreign operations (effective portion)

 

(432)

(432)

(432)

Foreign currency translation

 

801

1,576

1,337

Hedging derivatives. Cash flow hedges (effective portion)

 

250

81

5

Fair value changes of debt instruments measured at fair value through other comprehensive income

 

70

(11)

(130)

ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)

 

622

1,134

710

F-186F-130


Condensed income statements of companies held for sale in the United States subsidiary for the years ended December 31, 2020, 2019 and 2018

CONDENSED INCOME STATEMENTS (Millions of Euros)

 

 

2020

2019

2018

Interest and other income

 

2,638

3,221

2,797

Interest expense

 

(429)

(887)

(570)

NET INTEREST INCOME

 

2,209

2,335

2,227

Dividend income

 

4

10

13

Fee and commission income

 

677

736

670

Fee and commission expense

 

(183)

(205)

(194)

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

 

19

54

25

Gains (losses) on financial assets and liabilities held for trading, net

 

90

30

66

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

 

8

-

-

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

 

5

3

3

Gains (losses) from hedge accounting, net

 

4

4

3

Exchange differences, net

 

19

5

(22)

Other operating income

 

19

32

20

Other operating expense

 

(63)

(64)

(79)

GROSS INCOME

 

2,808

2,941

2,731

Administration costs

 

(1,462)

(1,534)

(1,474)

Depreciation and amortization

 

(205)

(214)

(174)

Provisions or reversal of provisions

 

2

(3)

22

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

 

(729)

(521)

(221)

NET OPERATING INCOME

 

413

670

884

Impairment or reversal of impairment on non-financial assets

 

(2,084)

(1,318)

(1)

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

 

(3)

2

(2)

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations 

 

2

(2)

-

PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS

 

(1,671)

(648)

881

Tax expense or income related to profit or loss from continuing operations

 

(57)

(110)

(177)

PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS

 

(1,729)

(758)

704

Profit (loss) after tax from discontinued operations

 

-

-

-

PROFIT (LOSS) FOR THE PERIOD

 

(1,729)

(758)

704

ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTEREST)

 

-

-

-

ATTRIBUTABLE TO OWNERS OF THE PARENT

 

(1,729)

(758)

704

F-131  


 

Condensed statements of cash flows of companies held for sale in the United States subsidiary for the years ended December 31, 2020, 2019 and 2018

CONDENSED STATEMENTS OF CASH FLOWS (Millions of Euros)

 

 

2020

2019

2018

A) CASH FLOWS FROM OPERATING ACTIVITIES

 

6,874

3,888

(228)

B) CASH FLOWS FROM INVESTING ACTIVITIES

 

(145)

(133)

(123)

C) CASH FLOWS FROM FINANCING ACTIVITIES

 

(65)

(468)

(256)

D) EFFECT OF EXCHANGE RATE CHANGES

 

(974)

65

84

(INCREASE/DECREASE) NET CASH AND CASH EQUIVALENTS (A+B+C+D)

 

5,690

3,352

(522)

Non-current assets and disposal groups classified as held for sale

The changes in the balances of “Non-current assets and disposal groups classified as held for sale” in 2018, 20172020, 2019 and 20162018 are as follows:

Non-current assets and disposal groups classified as held for sale Changes in the year 2018 (Millions of euros)

 

Foreclosed Assets

From Own Use Assets

(*)

Other assets (**)

 

Total

Non-current assets and disposal groups classified as held for sale. Changes in the year 2020 (Millions of Euros)

Non-current assets and disposal groups classified as held for sale. Changes in the year 2020 (Millions of Euros)

Notes

Foreclosed Assets through Auction Proceeding

Recovered Assets from Finance Leases

From Own Use Assets

(*)

Other assets (**)

 

Total

Notes

Foreclosed assets

Property, Plant and Equipment (*)

Companies held for sale (**)

Total

Cost (1)

 

 

 

 

 

 

Balance at the beginning

 

6,047

160

371

18,623

25,201

 

1,648

258

1,716

3,622

Additions

 

637

55

4

-

696

 

285

-

83,266

83,551

Contributions from merger transactions

 

-

 

-

-

-

-

Retirements (sales and other decreases)

 

(4,354)

(135)

(227)

(18,594)

(23,310)

 

(288)

(45)

(190)

(523)

Transfers, other movements and exchange differences

 

(195)

(4)

241

-

42

Transfers, other movements and exchange differences (**)

 

(228)

180

-

(48)

Disposals by companies held for sale

 

(19)

(2)

-

(21)

Balance at the end

 

2,135

76

389

29

2,629

 

1,398

391

84,792

86,581

 

 

 

 

 

 

 

Impairment (2)

 

 

 

 

 

 

Balance at the beginning

 

1,102

52

194

-

1,348

 

411

132

-

543

Additions

50

195

11

2

-

208

50

74

29

-

103

Additions transfer to discontinued operations

 

-

-

-

-

Contributions from merger transactions

 

-

 

-

-

-

-

Retirements (sales and other decreases)

 

(793)

(37)

(101)

-

(931)

 

(56)

(13)

-

(69)

Other movements and exchange differences

 

(22)

(4)

29

-

3

 

(42)

60

-

18

Disposals by companies held for sale

 

(1)

-

-

(1)

Balance at the end

 

482

22

124

-

628

 

386

208

-

594

Balance at the end of Net carrying value (1)-(2)

 

1,653

54

265

29

2,001

Balance at the end of net carrying value (1)-(2)

 

1,012

183

84,792

85,987

(*)         Net of accumulated amortization accumulated until assets were reclassified as non-current“Non-current assets and disposal groups classified as held for salesale”

(** )       The variation corresponds mainly to the agreement for the sale of BBVA USA (see Note 3).

F-132


Non-current assets and disposal groups classified as held for sale. Changes in the year 2019 (Millions of Euros)

 

Notes

Foreclosed assets

Property, Plant and Equipment (*)

Companies held for sale (**)

Total

Cost (1)

 

 

 

 

 

Balance at the beginning

 

2,211

389

29

2,629

Additions

 

665

10

1,676

2,351

Contributions from merger transactions

 

2

-

-

2

Retirements (sales and other decreases)

 

(1,023)

(206)

-

(1,229)

Transfers, other movements and exchange differences (**)

 

(207)

65

11

(131)

Balance at the end

 

1,648

258

1,716

3,622

 

 

 

 

 

 

Impairment (2)

 

 

 

 

 

Balance at the beginning

 

504

124

-

628

Additions

50

67

5

-

72

Additions transfer to discontinued operations

 

5

-

-

5

Contributions from merger transactions

 

-

-

-

-

Retirements (sales and other decreases)

 

(164)

(22)

-

(186)

Other movements and exchange differences

 

(1)

25

-

24

Balance at the end

 

411

132

-

543

Balance at the end of net carrying value (1)-(2)

 

1,237

126

1,716

3,079

(*)         Net of accumulated amortization until assets were reclassified as “Non-current assets and disposal groups classified as held for sale”

(** )       The variation corresponds mainly to the BBVA’s stake in BBVA Paraguay (see Note 3).

F-133


Non-current assets and disposal groups classified as held for sale. Changes in the year 2018 (Millions of Euros)

 

Notes

Foreclosed assets

From own use assets

(*)

Companies held for sale (**)

Total

Cost (1)

 

 

 

 

 

Balance at the beginning

 

6,207

371

18,623

25,201

Additions

 

692

4

-

696

Contributions from merger transactions

 

-

-

-

-

Retirements (sales and other decreases)

 

(4,489)

(227)

(18,594)

(23,310)

Transfers, other movements and exchange differences (**)

 

(199)

241

-

42

Balance at the end

 

2,211

389

29

2,629

 

 

 

 

 

 

Impairment (2)

 

 

 

 

 

Balance at the beginning

 

1,154

194

-

1,348

Additions

50

204

2

-

206

Additions transfer to discontinued operations

 

2

-

-

2

Contributions from merger transactions

 

-

-

-

-

Retirements (sales and other decreases)

 

(830)

(101)

-

(931)

Other movements and exchange differences

 

(26)

29

-

3

Balance at the end

 

504

124

-

628

Balance at the end of net carrying value (1)-(2)

 

1,707

265

29

2,001

(*)         Net of accumulated amortization until assets were reclassified as “Non-current assets and disposal groups classified as held for sale”

(** )       The variation corresponds mainly to the BBVA’s stake in BBVA Chile and the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

F-187


Non-current assets and disposal groups classified as held for sale Changes in the year 2017 (Millions of euros)

 

 

Foreclosed Assets

From Own Use Assets

(*)

Other assets

 

Total

 

Notes

Foreclosed Assets through Auction Proceeding

Recovered Assets from Finance Leases

Cost  (1)

 

 

 

 

 

 

Balance at the beginning

 

4,057

168

1,065

40

5,330

Additions

 

791

45

1

-

837

Contributions from merger transactions

 

-

-

-

-

-

Retirements (sales and other decreases)

 

(1,037)

(49)

(131)

-

(1,217)

Transfers, other movements and exchange differences

 

2,236

(4)

(564)

18,583

20,251

Balance at the end

 

6,047

160

371

18,623

25,201

 

 

 

 

 

 

 

Impairment  (2)

 

 

 

 

 

 

Balance at the beginning

 

1,237

47

443

-

1,727

Additions

50

143

14

1

-

158

Contributions from merger transactions

 

-

-

-

-

-

Retirements (sales and other decreases)

 

(272)

(7)

(42)

-

(321)

Other movements and exchange differences

 

(6)

(2)

(208)

-

(216)

Balance at the end

 

1,102

52

194

-

1,348

Balance at the end of Net carrying value (1)-(2)

 

4,945

108

177

18,623

23,853

(*)   Net of amortization accumulated until assets were reclassified as non-current assets held for sale.

(**) The variation corresponds mainly to the BBVA’s stake in BBVA Chile and the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).

Non-current assets and disposal groups classified as held for sale Changes in the year 2016 (Millions of euros)

 

 

Foreclosed Assets

From Own Use Assets

(*)

Other assets

(**)

Total

 

Notes

Foreclosed Assets through Auction Proceeding

Recovered Assets from Finance Leases

Cost  (1)

 

 

 

 

 

 

Balance at the beginning

 

3,775

216

626

37

4,654

Additions

 

582

57

23

-

662

Contributions from merger transactions

 

-

-

-

-

-

Retirements (sales and other decreases)

 

(779)

(77)

(170)

3

(1,023)

Transfers, other movements and exchange differences

 

480

(28)

586

-

1,037

Balance at the end

 

4,057

168

1,065

40

5,330

 

 

 

 

 

 

 

Impairment  (2)

 

 

 

 

 

 

Balance at the beginning

 

994

52

240

-

1,285

Additions

50

129

3

5

-

136

Contributions from merger transactions

 

-

-

-

-

-

Retirements (sales and other decreases)

 

(153)

(6)

(33)

-

(192)

Other movements and exchange differences

 

268

(2)

232

-

499

Balance at the end

 

1,237

47

443

-

1,727

Balance at the end of Net carrying value (1)-(2)

 

2,820

121

621

40

3,603

(*)   Net of amortization accumulated until assets were reclassified as non-current assets held for sale.

As indicated in Note 2.2.4, “Non-current assets and disposal groups held for sale” and “liabilities“Liabilities included in disposal groups classified as held for sale” are valued at the lower amount between its fair value less costs to sell and its book value.carrying amount. As of December 31, 2020, 2019 and 2018 practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.

F-188


Assets from foreclosures or recoveries

As of December 31, 2018, 20172020, 2019 and 2016,2018, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €1,072, €1,924€747, €871 and €2,326€1,072 million in assets for residential use; €182, €491€215, €259 and €574€182 million in assets for tertiary use (industrial, commercial or office) and €19, €29€21, €28 and €41€19 million in assets for agricultural use, respectively.

In December 31, 2020, 2019 and 2018, 2017 and 2016, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years.

During the years 2018, 20172020, 2019 and 2016,2018, some of the sale transactions for these assets were financed by Group companies. The amount of loans granted to the buyers of these assets in those years amounted to €82, €207€78, €79 and €219€82 million, respectively; with an average financing of 50%28.3% of the sales price.price during 2020.

As of December 31, 2018, 20172020, 2019 and 2016,2018, the amount of the profits arising from the sale of assets financed by Group companies financed assets - and thereforethat are not recognized in the consolidated income statement - amounted to 1 in each financial year.€1 million.

F-134


22. Financial liabilities at amortized cost

22.122.1. Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Financial liabilities measured at amortized cost (Millions of euros)

Financial liabilities measured at amortized cost (Millions of Euros)

Financial liabilities measured at amortized cost (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Deposits

435,229

467,949

499,706

 

415,467

438,919

435,229

Deposits from Central Banks (*)

27,281

37,054

34,740

Deposits from Credit Institutions

31,978

54,516

63,501

Customer deposits

375,970

376,379

401,465

Deposits from central banks

 

45,177

25,950

27,281

Demand deposits

 

163

23

20

Time deposits and other

 

38,274

25,101

26,885

Repurchase agreements (*)

 

6,740

826

375

Deposits from credit institutions

 

27,629

28,751

31,978

Demand deposits

 

7,196

7,161

8,370

Time deposits and other

 

16,079

18,896

19,015

Repurchase agreements (*)

 

4,354

2,693

4,593

Customer deposits (**)

 

342,661

384,219

375,970

Demand deposits

 

266,250

280,391

260,573

Time deposits and other

 

75,666

103,293

114,188

Repurchase agreements (*)

 

746

535

1,209

Debt certificates

61,112

63,915

76,375

 

61,780

63,963

61,112

Other financial liabilities

12,844

11,850

13,129

 

13,358

13,758

12,844

Total

509,185

543,713

589,210

 

490,606

516,641

509,185

(*) See Note 35.

(**) Amount in 2020 is mainly due to the stake in BBVA USA (see Note 21).

The amount recorded in Deposits from central banks - Time deposits includes the provisions of the TLTRO III facilities of the European Central Bank, mainly BBVA S.A. amounting to €35,032 million as of December 31, 2020, that basically explains the change compared to the previous year (see Note 7.5).

On April 30, 2020, the European Central Bank modified some of the terms and conditions of the TLTRO III facilities in order to support the continued access of companies and households to bank credit in the face of interruptions and temporary shortages of funds associated with the COVID-19 pandemic. Entities whose eligible net lending exceeds 0% between March 1, 2020 and March 31, 2021 will pay an interest rate 0.5% lower than the average rate of the deposit facilities during the period that includes from June 24, 2020 to June 23, 2021. This means that the interest rate applicable to the facilities drawn down is -1%. Outside of this period, the average interest rate of the deposit facilities will be applied (currently -0.5%) provided that the financing objectives are met according to the conditions of the European Central Bank.

The Group is reasonably certain about the fulfillment of these financing objectives. Therefore, the effective interest rate of each facility is -0.5% and the accounting registration of the discount in the interest rate associated with the COVID-19 pandemic is recognized during the annual period from June 24, 2020 to June 23, 2021.

The positive remuneration currently being generated by the drawdowns of the TLTRO III facilities is recorded under the heading of "Interest income and other similar income – other income" in the consolidated income statements and amounts to €211 million as of December 31, 2020 (See Note 37.1).

(*)  As of December 31, 2018, balance relating to repurchase agreements in Central Banks is €375 million (see Note 35).F-135


22.222.2. Deposits from credit institutions

The breakdown of the balance under this heading in the consolidated balance sheets, according to the nature of the financial instruments, is as follows:

Deposits from credit institutions (Millions of euros)

 

Notes

2018

2017

2016

Term deposits

 

19,015

25,941

30,429

Demand deposits

 

8,370

3,731

4,651

Repurchase agreements

35

4,593

24,843

28,420

Total

 

31,978

54,516

63,501

The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:

Deposits from Credit Institutions. December 2018 (Millions of euros)

Deposits from credit institutions. December 2020 (Millions of Euros)

Deposits from credit institutions. December 2020 (Millions of Euros)

Demand Deposits & Reciprocal Accounts

Term Deposits

Repurchase Agreements

Total

Demand deposits

Time deposits and other (*)

Repurchase agreements

Total

Spain

1,981

2,527

55

4,563

345

1,405

1

1,751

The United States

1,701

2,677

-

4,379

Mexico

280

286

-

566

689

672

188

1,549

Turkey

651

669

4

1,323

8

580

28

617

South America

442

1,892

-

2,335

557

1,484

-

2,041

Rest of Europe

3,108

6,903

4,534

14,545

2,842

4,531

4,070

11,444

Rest of the world

207

4,061

-

4,268

2,755

7,406

67

10,228

Total

8,370

19,015

4,593

31,978

7,196

16,079

4,354

27,629

(*)      Subordinated deposits are included amounting €12 million.

Deposits from credit institutions. December 2019 (Millions of Euros)

 

Demand deposits

Time deposits and other (*)

Repurchase agreements

Total

Spain

2,104

1,113

1

3,218

The United States

2,082

4,295

-

6,377

Mexico

432

1,033

168

1,634

Turkey

302

617

4

924

South America

394

2,285

161

2,840

Rest of Europe

1,652

5,180

2,358

9,190

Rest of the world

194

4,374

-

4,568

Total

7,161

18,896

2,693

28,751

(*)      Subordinated deposits are included amounting €195 million.

Deposits from credit institutions. December 2018 (Millions of Euros)

 

Demand deposits

Time deposits and other (*)

Repurchase agreements

Total

Spain

1,981

2,527

55

4,563

The United States

1,701

2,677

-

4,379

Mexico

280

286

-

566

Turkey

651

669

4

1,323

South America

442

1,892

-

2,335

Rest of Europe

3,108

6,903

4,534

14,545

Rest of the world

207

4,061

-

4,268

Total

8,370

19,015

4,593

31,978

(*)      Subordinated deposits are included amounting €191 million.

F-189F-136  


Deposits from Credit Institutions. December 2017 (Millions of euros)

 

Demand Deposits & Reciprocal Accounts

Term Deposits

Repurchase Agreements

Total

Spain

762

3,879

878

5,518

The United States

1,563

2,398

-

3,961

Mexico

282

330

1,817

2,429

Turkey

73

836

44

953

South America

448

2,538

13

2,999

Rest of Europe

526

12,592

21,732

34,849

Rest of the world

77

3,369

360

3,806

Total

3,731

25,941

24,843

54,516

Deposits from Credit Institutions. December 2016 (Millions of euros)

 

Demand Deposits & Reciprocal Accounts

Term Deposits

Repurchase Agreements

Total

Spain

956

4,995

817

6,768

The United States

1,812

3,225

3

5,040

Mexico

306

426

2,931

3,663

Turkey

317

1,140

5

1,463

South America

275

3,294

465

4,035

Rest of Europe

896

13,751

23,691

38,338

Rest of the world

88

3,597

509

4,194

Total

4,651

30,429

28,420

63,501

22.322.3. Customer deposits

The breakdown of this heading in the accompanying consolidated balance sheets, by type of financial instrument, is as follows:

Customer deposits (Millions of euros)

 

 

2018

2017

2016

General Governments

 

26,459

23,210

21,396

Current accounts

 

238,907

223,497

212,604

Time deposits

 

105,257

116,538

153,388

Repurchase agreements

 

1,207

9,076

13,514

Subordinated deposits

 

220

194

233

Other accounts

 

3,920

3,864

330

Total

 

375,970

376,379

401,465

Of which:

 

 

 

 

  In Euros

 

184,934

184,150

189,438

  In foreign currency

 

191,036

192,229

212,027

F-190


The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:

Customer Deposits. December 2018 (Millions of euros)

Customer deposits. December 2020 (Millions of Euros)

Customer deposits. December 2020 (Millions of Euros)

Demand Deposits

Term Deposits

Repurchase Agreements

Total

Demand deposits

Time deposits and other

Repurchase agreements

Total

Spain

138,236

28,165

3

166,403

168,690

20,065

2

188,757

The United States

41,222

21,317

-

62,539

Mexico

38,383

11,837

770

50,991

43,768

10,514

117

54,398

Turkey

10,856

22,564

7

33,427

17,906

16,707

8

34,621

South America

23,811

14,159

-

37,970

25,730

11,259

-

36,989

Rest of Europe

7,233

14,415

429

22,077

8,435

12,373

619

21,427

Rest of the world

831

1,731

-

2,563

1,720

4,748

-

6,468

Total

260,573

114,188

1,209

375,970

266,250

75,666

746

342,661

 

Customer Deposits. December 2017 (Millions of euros)

Customer deposits. December 2019 (Millions of Euros)

Customer deposits. December 2019 (Millions of Euros)

Demand Deposits

Term Deposits

Repurchase Agreements

Total

Demand deposits

Time deposits and other (*)

Repurchase agreements

Total

Spain

123,382

39,513

2,664

165,559

146,651

24,958

2

171,611

The United States

36,728

21,436

-

58,164

46,372

19,810

-

66,181

Mexico

36,492

11,622

4,272

52,387

43,326

12,714

523

56,564

Turkey

12,427

24,237

152

36,815

13,775

22,257

10

36,042

South America

23,710

15,053

2

38,764

22,748

13,913

-

36,661

Rest of Europe

6,816

13,372

1,989

22,177

6,610

8,749

-

15,360

Rest of the world

1,028

1,484

-

2,511

909

892

-

1,801

Total

240,583

126,716

9,079

376,379

280,391

103,293

535

384,219

(*)      Subordinated deposits are included amounting to €189 million.

Customer Deposits. December 2016 (Millions of euros)

Customer deposits. December 2018 (Millions of Euros)

Customer deposits. December 2018 (Millions of Euros)

Demand Deposits

Term Deposits

Repurchase Agreements

Total

Demand deposits

Time deposits and other (*)

Repurchase agreements

Total

Spain

102,730

56,391

1,901

161,022

138,236

28,165

3

166,403

The United States

26,997

23,023

263

50,282

41,222

21,317

-

62,539

Mexico

36,468

10,647

7,002

54,117

38,383

11,837

770

50,991

Turkey

47,340

14,971

-

62,311

10,856

22,564

7

33,427

South America

9,862

28,328

21

38,211

23,811

14,159

-

37,970

Rest of Europe

6,959

19,683

4,306

30,949

7,233

14,415

429

22,077

Rest of the world

1,190

3,382

-

4,572

831

1,731

-

2,563

Total

231,547

156,425

13,493

401,465

260,573

114,188

1,209

375,970

(*)      Subordinated deposits are included amounting to €220 million.  

F-191F-137  


22.422.4. Debt certificates

The breakdown of the balance under this heading, by financial instruments and by currency, is as follows:

Debt certificates (Millions of euros)

Debt certificates (Millions of Euros)

Debt certificates (Millions of Euros)

2018

2017

2016

2020

2019

2018

In Euros

37,436

38,735

45,619

42,462

40,185

37,436

Promissory bills and notes

267

1,309

875

860

737

267

Non-convertible bonds and debentures

9,638

9,418

8,766

14,538

12,248

9,638

Covered bonds (*)

15,809

16,425

24,845

13,274

15,542

15,809

Hybrid financial instruments

814

807

468

Hybrid financial instruments (**)

355

518

814

Securitization bonds

1,630

2,295

3,693

2,538

1,354

1,630

Wholesale funding

142

-

2,331

1,817

142

Subordinated liabilities

9,136

8,481

6,972

8,566

7,968

9,136

Convertible

5,490

4,500

4,070

Convertible perpetual securities

5,490

4,500

4,070

Convertible perpetual certificates

4,500

5,000

5,490

Convertible subordinated debt

-

-

Non-convertible

3,647

3,981

2,902

Preferred Stock

107

359

Other subordinated liabilities

3,540

3,875

2,543

In Foreign Currencies

23,676

25,180

30,759

Non-convertible preferred stock

159

83

107

Other non-convertible subordinated liabilities

3,907

2,885

3,540

In foreign currencies

19,318

23,778

23,676

Promissory bills and notes

3,237

3,157

382

1,024

1,210

3,237

Non-convertible bonds and debentures

9,335

11,109

15,134

8,691

10,587

9,335

Covered bonds (*)

569

650

149

217

362

569

Hybrid financial instruments

1,455

1,809

2,059

Hybrid financial instruments (**)

455

1,156

1,455

Securitization bonds

38

47

3,019

4

17

38

Wholesale funding

544

-

1,016

780

544

Subordinated liabilities

8,499

8,407

10,016

7,911

9,666

8,499

Convertible

873

2,085

1,548

Convertible perpetual securities

873

2,085

1,548

Convertible perpetual certificates

1,633

1,782

873

Convertible subordinated debt

-

-

Non-convertible

7,626

6,323

8,467

Preferred Stock

74

55

620

Other subordinated liabilities

7,552

6,268

7,846

Non- convertible preferred stock

35

76

74

Other non-convertible subordinated liabilities

6,243

7,808

7,552

Total

61,112

63,915

76,375

61,780

63,963

61,112

(*) Including mortgage-covered bonds (see Appendix III).bonds.

As(**)  Corresponds to the issuance of December 31, 2018, 67%structured notes whose underlying risk differs from the underlying risk of “Debt certificates” have fixed-interest rates and 33% have variable interest rates.the derivative.

Most of the foreign currency issues are denominated in U.S. dollars.

22.4.122.4.1. Subordinated liabilities

The breakdown of this heading, is as follows:

Memorandum item: Subordinated liabilities at amortized cost

 

2020

2019

2018

Subordinated deposits

12

384

411

Subordinated certificates

16,476

17,635

17,635

Preferred stock

194

159

181

Compound convertible financial instruments

6,133

6,782

6,363

Other non-convertible subordinated liabilities (*)

10,149

10,693

11,092

Total

16,488

18,018

18,047

(*) Subordinated issues of BBVA Paraguay as of December 31, 2020 and 2019 are recorded in the consolidated balance sheet under the heading “Liabilities included in disposal groups classified as held for sale" amounting to €37 and €40 million, respectively. The subordinated issues of BBVA USA as of December 31, 2020 are recognized in the consolidated balance sheet under the heading “Liabilities included in disposal groups classified as held for sale" amounting to €735 million (see Note 21).

The issuances of BBVA International Preferred, S.A.U., BBVA Global Finance, Ltd., Caixa Terrassa Societat de Participacions Preferents, S.A.U. and CaixaSabadell Preferents, S.A.U., are jointly, severally and irrevocably guaranteed by the Bank.

The balance variances are mainly due to the following transactions:

F-138


Convertible perpetual liabilities

On September 24, 2018,The AGM held on March 17, 2017, resolved, under agenda item five, to confer authority to the Board of Directors to issue securities convertible into newly issued BBVA shares, on one or several occasions, within the maximum term of five years to be counted from the approval date of the authorization, up to a maximum overall amount of €8 billion or its equivalent in any other currency. Likewise, the AGM resolved to confer to the Board of Directors the authority to totally or partially exclude shareholders’ pre-emptive subscription rights within the framework of a specific issue of convertible securities, although this power was limited to enable the nominal amount of the capital increases resolved or effectively carried out the seventh issuancefor conversion of perpetual contingentmandatory convertible securities (additional tier 1 instrument)issuances made under this authority (without prejudice to anti-dilution adjustments), with exclusion of pre-emptive subscription rights and of shareholders, for a total nominal amount of €1,000 million. This issuance is listed in the AIAF Fixed Income Securities Market and in any case the issuance shall be offeredthose likewise resolved or sold to any retail clients. The issuance qualifies as additional tier 1 capital of the Bank and the Group in accordance with Regulation EU 575/2013.

F-192


The additional five issuances of perpetual contingent convertible securities (additional tier 1 instruments)carried out with exclusion of pre-emptive subscription rights in use of shareholders were carried out in February 2014 and February 2015 for anthe authority to increase the share capital conferred by the AGM held on March 17, 2017, under agenda item four, do not exceed the maximum nominal amount, overall, of €1.5 billion each one; in April 2016 for an amount20% of €1 billion; in May 2017 for an amountthe share capital of €500 million and in November 2017 for an amountBBVA at the time of USD1 billion. These issuances were targeted only at qualified investors and foreign private banking clientsthe authorization, this limit not being offeredapplicable to and not being subscribed for, in Spain or by Spanish residents. The first issuance is listed incontingent convertible issues.

Under that delegation, BBVA made the Singapore Exchange Securities Trading Limited and the otherfollowing issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these issuancesthat qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation UE(EU) 575/2013:

In May and November 2017, BBVA carried out two issues of perpetually convertible securities (additional Tier 1 capital instruments) excluding shareholders' pre-emptive rights, for a nominal amount of 500 million euros and 1,000 million U.S. dollars, respectively. These issues are listed on the Global Exchange Market of Euronext Dublin of the Irish Stock Exchange and were directed only to qualified investors and foreign private banking clients, and cannot be placed or subscribed in Spain or among investors resident in Spain.

·In September 2018 and March 2019, BBVA carried out both issuances of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €1 billion each. These issuances are listed in the AIAF Fixed Income Securities Market and were targeted only at professional clients and eligible counterparties, not being offered or sold to any retail clients.

·On September 5, 2019, BBVA carried out an issuance of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of $1 billion. This issuance is listed in the Global Exchange Market of Euronext Dublin and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents.

·On July 15, 2020, BBVA carried out an issuance of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €1 billion. This issuance is listed in the AIAF Fixed Income Securities Market and was targeted only at professional clients and eligible counterparties, not being offered or sold to any retail clients.

Additionally, an issue of perpetually convertible securities (additional Tier 1 capital instruments) is outstanding, which was carried out in April 2016, for an amount of 1,000 million euros, by virtue of previous delegations of the shareholders' meeting. This issue was directed only to qualified investors and foreign private banking clients, and cannot be placed or subscribed in Spain or among investors residing in Spain. This issue is listed on the Global Exchange Market of Euronext Dublin of the Irish Stock Exchange and is computed as additional Tier 1 capital of the Bank and the Group, in accordance with Regulation (EU) 575/2013.

These perpetual securities will be converted into newly issued ordinary shares of BBVA if the CET 1 ratio of the Bank or the Group is less than 5.125%, in accordance with their respective terms and conditions.

These issuesissuances may be fully redeemed at BBVA´sBBVA’s option only in the cases contemplated in their respective terms and conditions and, in any case, in accordance with the provisions of the applicable legislation. In particular:

In particular, on·On May 9, 2018, the Bank early redeemed the issuance of contingently convertible preferred securities contingently convertible (additional tier 1 instrument)instruments) carried out by the Bank on May 9, 2013, for an amount of USD1.5$1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator washad been obtained.

Additionally, on January 15, 2019, the Bank has notified its irrevocable decision to early redeem next·On February 19, 2019 the Bank early redeemed the issuance of contingently convertible preferred securities contingently convertible (additional tier 1 instrument)instruments), carried out by the Bank on February 19, 2014, for a total amount of €1,5€1.5 billion and once the prior consent from the Regulator hashad been obtained.

·On February 18, 2020, the Bank early redeemed the issuance of contingently convertible preferred securities (additional tier 1 instruments) carried out by the Bank on February 18, 2015, for an amount of €1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator had been obtained.

F-139


Preferred securities

The breakdown by issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Preferred Securities by Issuer (Millions of euros)

 

2018

2017

2016

BBVA International Preferred, S.A.U. (1)

35

36

855

Unnim Group (2)

98

98

100

Compass Group

19

19

22

BBVA Colombia, S.A.

19

1

1

Others

9

9

1

Total

181

163

979

Preferred securities by issuer (Millions of Euros)

 

2020

2019

2018

BBVA International Preferred, S.A.U. (1)

35

37

35

Unnim Group (2)

159

83

98

BBVA USA

-

19

19

BBVA Colombia

-

20

19

Other

-

-

9

Total

194

159

181

(1) Listed on the London and New York stock exchanges.Call exercised.

(2) Unnim Group: Issuances prior to the acquisition by BBVA.

These issuesissuances were fully subscribed at the moment of the issue by qualified/institutional investors outside the Group and are redeemable, totally or partially, at the issuer company’sissuer’s option after five years from the issue date, depending on the terms of each issueissuance and with the prior consent from the Bank of Spain.Spain or the relevant authority.

RedemptionIn connection with the above, once the necessary authorization from the European Central Bank was received and in conformity with its authority to redeem:

·The Extraordinary and Universal General Meeting of preferred securities

On March 20, 2017 BBVA International Preferred, S.A.U. carriedCaixasabadell Preferents, S.A. Unipersonal, at its meeting held on December 11, 2020, decided to delegate on the company’s Board of Directors the authority to agree on the total early redemption of its only live issuance, subject to the applicable legal provisions and having previously obtained all necessary authorisations. In use of such delegation, having satisfied all legal and contractual formalities required and having obtained all relevant authorizations, the company’s Board of Directors, on the same date, agreed to carry out the early redemption in full of its Series B preferred securities for an outstandingthe total nominal amount of €164,350,000.the issuance on January 14, 2021. As a result, once all necessary communications were released, on January 14, 2021 the total early redemption of the issuance took place.

Likewise, on March 22, 2017 ·The Extraordinary and Universal General Meeting of BBVA International Preferred, S.A.U. carriedS.A. Unipersonal, at its meeting held on December 11, 2020, decided to delegate on the company’s Board of Directors the authority to agree on the total early redemption of its only live issuance, subject to the applicable legal provisions and having previously obtained all necessary authorisations. In use of such delegation, having satisfied all legal and contractual formalities required and having obtained all relevant authorizations, the company’s Board of Directors, on the same date, agreed to carry out the early redemption in full of its Series A preferred securities for an outstandingthe total nominal amount of €85,550,000.the issuance on January 19, 2021. As a result, once all necessary communications were released, on January 19, 2021 the total early redemption of the issuance took place.

Finally,·The Extraordinary and Universal General Meeting of Caixa Terrassa Societat de Participacions Preferents, S.A. Unipersonal, at its meeting held on April 18, 2017 BBVA International Preferred, S.A.U. carried outDecember 11, 2020, decided to delegate on the company’s Board of Directors the implementation of all necessary actions in order to modify its only live issuance so as to include a new clause regarding the early redemption of the preferred securities. In use of the delegated authority and having obtained all necessary authorizations, the company’s Board of Directors, on the same date, agreed to modify the relevant issuance in fullorder to include a new clause for the total early redemption of its Series Cthe preferred securities for an outstanding amounton January 29, 2021, therefore convening the relevant meeting of USD 600,000,000.noteholders of the issuance to be held in Bilbao, on January 14, 2021, at first call, or on January 15, 2021, at second call. Having satisfied all applicable legal requirements, the noteholders’ meeting was held at first call and passed, with the necessary majority of votes, among other resolutions, the inclusion of a new total early redemption clause. As a result, on January 29, 2021 the total early redemption of the issuance took place.

F-193


22.522.5. Other financial liabilities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Other financial liabilities (Millions of euros)

Other financial liabilities (Millions of Euros)

Other financial liabilities (Millions of Euros)

Notes

2018

2017

2016

2020

2019

2018

Lease liabilities

2,674

3,335

 

Creditors for other financial liabilities

 

2,891

2,835

3,465

2,408

2,623

2,891

Collection accounts

 

4,305

3,452

2,768

3,275

3,306

4,305

Creditors for other payables

 

5,648

5,563

6,370

Dividend payable but pending payment

4

-

525

Creditors for other payment obligations

5,000

4,494

5,648

Total

 

12,844

11,850

13,129

13,358

13,758

12,844

F-140


A breakdown of the maturity of the lease liabilities, due after December 31, 2020 is provided below:

Maturity of future payment obligations (Millions of Euros)

 

 

Up to 1 year

1 to 3 years

3 to 5 years

Over 5 years

Total

Leases

 

244

430

397

1,602

2,674

23. Assets and liabilities under insurance and reinsurance contracts

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

The insurance business is affected by different risks, including those that are related to the BBVA Group such as credit risk, market risk, liquidity risk and operational risk and the methodology for risk measurement applied in the insurance activity is similar (see Note 7), although it has a differentiated management due to the particular characteristics of the insurance business, such as the coverage of contracted obligations and the long term of the commitments. Additionally, the insurance business generates certain specific risks, of a probabilistic nature:

·           Technical risk: arises from deviations in the estimation of the casualty rate of insurances, either in terms of numbers, the amount of such claims and the timing of its occurrence.

·           Biometric risk: depending on the deviations in the expected mortality behavior or the survival of the insured persons.

The insurance industry is highly regulated in each country. In this regard, it should be noted that the insurance industry is undergoing a gradual regulatory transformation through new risk-based capital regulations, which have already been published in several countries.

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of December 31, 2020, 2019 and 2018, the balance under this heading amounted to €306 million, €341 million and €366 million respectively.

The most significant provisions recognized by consolidated insurance subsidiaries with respect to insurance policies issued by them are under the heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets.

F-194


The breakdown of the balance under this heading is as follows:  

Technical Reserves by type of insurance product (Millions of euros)

Technical reserves (Millions of Euros)

Technical reserves (Millions of Euros)

2018

2017

2016

2020

2019

2018

Mathematical reserves

8,504

7,961

7,813

8,731

9,247

8,504

Individual life insurance (1)

6,201

5,359

4,791

6,268

6,731

6,201

Savings

5,180

4,391

3,943

5,431

5,906

5,180

Risk

1,021

967

848

836

825

1,021

Others

-

1

-

Group insurance (2)

2,303

2,601

3,022

2,463

2,517

2,303

Savings

2,210

2,455

2,801

2,298

2,334

2,210

Risk

93

147

221

165

182

93

Others

-

Provision for unpaid claims reported

662

631

691

672

641

662

Provisions for unexpired risks and other provisions

668

631

635

548

718

668

Total

9,834

9,223

9,139

9,951

10,606

9,834

(1)          Provides coverage in the event of death or disability.

(2)          The insurance policies purchased by employers (other than BBVA Group) on behalf of its employees.

The cash flows of those Liabilities“Liabilities under insurance and reinsurance contractscontracts” are shown below:  

Maturity (Millions of euros)

Liabilities under Insurance and Reinsurance Contracts

 

Up to 1 Year

1 to 3 Years

3 to 5 Years

Over 5 Years

Total

2018

1,686

1,041

1,822

5,285

9,834

2017

1,560

1,119

1,502

5,042

9,223

2016

1,705

1,214

1,482

4,738

9,139

Maturity (Millions of euros). Liabilities under insurance and reinsurance contracts

 

Up to 1 year

1 to 3 years

3 to 5 years

Over 5 years

Total

2020

1,227

950

1,616

6,158

9,951

2019

1,571

1,197

1,806

6,032

10,606

2018

1,686

1,041

1,822

5,285

9,834

F-141


The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the respective country’s insurance regulator or supervisor. The most important insurance entities are located in Spain and Mexico (which together account for approximately 85%96% of the insurance revenues), where the modeling methods and techniques are reviewed by the insurance regulator in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are compliant with IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensuresupport this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with the customers.

F-195


The table below shows the key assumptions as of December 31, 2018,2020, used in the calculation of the mathematical reserves for insurance products in Spain and Mexico, respectively:

Mathematical Reserves

Mortality table

Average technical interest type

Spain

Mexico

Spain

Mexico

Individual life insurance (1)

GRMF 80-2

GKM 80 / GKMF 95

PERMF 2000

PASEM

Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual

0.26%-3.27%

2.50%

Group insurance(2)

PERMF 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo

Depending on the related portfolio

5.50%

Mathematical reserves

 

2020

2019

2018

 

Mortality table

Average technical interest type

Mortality table

Average technical interest type

Mortality table

Average technical interest type

 

Spain

Mexico

Spain

Mexico

Spain

Mexico

Spain

Mexico

Spain

Mexico

Spain

Mexico

Individual life insurance (1)

GRMF 80-2,

GKM 80 / GKMF 95, PASEM,

GKMF 80/95,

PERFM 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual

0.25% -2.87%

2.5%

GRMF 80-2, GKMF 80/95. PASEM, PERMF 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual

0.25% -2.91%

2.50%

GRMF 80-2, GKM 80 / GKMF 95

PERMF 2000

PASEM

Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual

0.26%-3.27%

2.50%

Group insurance(2)

PERFM 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo

Depending on the related portfolio

5.5%

PERMF 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo

Depending on the related portfolio

5.50%

PERMF 2000

Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo

Depending on the related portfolio

5.50%

(1)          Provides coverage in the case of one or more of the following events: death and disability.

(2)         Insurance policies purchased by companies (other than BBVA Group BBVA entities) on behalf of their employees.

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of December 31, 2018, 2017 and 2016, the balance under this heading amounted to €366 million, €421 million and €447 million, respectively.

24. Provisions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:

Provisions. Breakdown by concepts (Millions of euros)

Provisions. Breakdown by concepts (Millions of Euros)

Provisions. Breakdown by concepts (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Provisions for pensions and similar obligations

25

4,787

5,407

6,025

25

4,272

4,631

4,787

Other long term employee benefits

25

62

67

69

25

49

61

62

Provisions for taxes and other legal contingencies

 

686

756

418

 

612

677

686

Provisions for contingent risks and commitments

 

636

578

950

 

728

711

636

Other provisions

 

601

669

1,609

Other provisions (*)

 

479

457

601

Total

 

6,772

7,477

9,071

 

6,141

6,538

6,772

(*) Individually insignificant provisions or contingencies, for various concepts in different geographies.

 

 

F-196F-142  


The change in provisions for pensions and similar obligations for the years ended December 31, 2018, 20172020, 2019 and 20162018 is as follows:

Provisions for pensions and similar obligations. Changes Over the Year (Millions of euros)

Provisions for pensions and similar obligations. Changes over the year (Millions of Euros)

Provisions for pensions and similar obligations. Changes over the year (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Balance at the beginning

 

5,407

6,025

6,299

 

4,631

4,787

5,407

Add

 

 

 

 

 

Charges to income for the year

 

126

391

402

 

298

327

125

Interest expenses and similar charges

 

78

71

96

Personnel expenses

44.1

58

62

67

Provision expenses

 

(10)

258

239

Interest expense and similar charges

 

44

63

77

Personnel expense

44.1

49

58

Provision expense

 

205

215

(10)

Charges to equity (1)

25

41

140

339

 

191

329

41

Transfers and other changes(2)

 

95

(264)

66

 

(71)

(29)

96

Less

 

 

 

 

 

Benefit payments

25

(779)

(861)

(926)

25

(654)

(718)

(779)

Employer contributions

25

(103)

(25)

(154)

25

(124)

(65)

(103)

Balance at the end

 

4,787

5,407

6,025

 

4,272

4,631

4,787

(1)Correspond to actuarial losses (gains) arising from certain post-employment defined-benefit post-employment pension commitments and other similar benefitsfor pensions recognized in “Equity” (see Note 2.2.12).

(2)It includes the amount of the sale of BBVA´s U.S. subsidiary (see Notes 1.3, 3 and 21).

 

Provisions for Taxes, Legal Contingents and Other Provisions. Changes Over the Year (Millions of euros)

Provisions for taxes, legal contingencies and other provisions. Changes over the year (Millions of Euros)

Provisions for taxes, legal contingencies and other provisions. Changes over the year (Millions of Euros)

2018

2017

2016

2020

2019

2018

Balance at beginning

1,425

2,028

1,771

1,134

1,286

1,425

Additions

455

868

1,109

555

396

455

Acquisition of subsidiaries

-

-

Unused amounts reversed during the period

(184)

(164)

(311)

Unused amounts reversed during the year

(215)

(96)

(184)

Amount used and other variations

(410)

(1,306)

(540)

(383)

(453)

(410)

Balance at the end

1,286

1,425

2,028

1,091

1,134

1,286

Ongoing legal proceedings and litigation

The financial sector faces an environment of increasingincreased regulatory pressure and litigious pressure.litigation. In this environment, the different Group’svarious Group entities are often parties tosued on lawsuits and are therefore involved in individual or collective legal proceedings and litigation arising from their activity and operations, including proceedings arising from their lending activity, from their labor relations and from other commercial, regulatory or tax issues, as well as in arbitration.

On the ordinary activity of their businesses. In accordance with the procedural status of these proceedings and according to the criteriabasis of the attorneys who manage them, BBVAinformation available, the Group considers that, noneas of them is material, individually or in aggregate, and that no significant impact will derive from them neither in the results of operations nor on liquidity, nor in the financial position at a consolidated level of the Group, as at the level of the individual Bank. The Group Management considers thatDecember 31, 2020, the provisions made in connectionrelation to judicial proceedings and arbitration, where so required, are adequate and reasonably cover the liabilities that might arise, if any, from such proceedings. Furthermore, on the basis of the information available and with these legal proceedings are adequate.

As mentionedthe exceptions indicated in Note 7.2 Risk factors,7.1 "Risk factors", BBVA considers that the Group is subject orliabilities that may be subject in the future toarise from such proceedings will not have, on a series of legal and regulatory investigations, procedures and actions which, in case ofcase-by-case basis, a negative result, could have ansignificant adverse impacteffect on the GroupGroup's business, financial situation or results of operations.

IRPH index.

In relation to consumer mortgage loan contracts linked to the interest rate index known as IRPH (average rate for mortgage loans over three years for the acquisition of free housing), the Spanish Supreme Court issued on 14 December 2017 its judgment 669/2017 confirming that it was not possible to determine the lack of transparency of the interest rate of the loan merely by reference to one or other of the official indexes nor, therefore, was it abuse according to Directive 93/13. In a separate legal proceeding, albeit concerning the same clause, the matter was referred to the Court of Justice of the European Union (the EU Court of Justice), raising a preliminary question in which the application of the above referred IRPH index and the decision of the Supreme Court on the matter was questioned again. On March 3, 2020, the EU Court of Justice resolved the referred question for a preliminary ruling.

 

F-197F-143  


In that resolution, the EU Court of Justice concluded that the fact that the main elements relating to the calculation of the saving banks IRPH index used by the bank to which the question referred (Bankia, S.A.) were provided in the Bank of Spain Regulation (Circular 8/1990), published in the Spanish Official Gazette, which allowed consumers to understand the calculation of such index. In addition, the EU Court of Justice indicated that the national court shall determine whether the bank that is party to this proceeding complied with the applicable information obligations under national legislation. In the event that the entity had not complied with the applicable transparency regulations, the EU Court of Justice decision does not declare the contract null and void but provides that the national court could replace the IRPH index applied in the case under trial for a substitute index. The resolution sets forth that, in the absence of an agreement to the contrary of the parties to the contract, the referred substitute index could be the IRPH index for credit entities in Spain (as established in the fifteenth additional provision of Law 14/2013, of September 27, 2013).

 

On November 13, 2020, the Supreme Court has issued new judgments on which it has again analyzed the legality of the above referred clause after the EU Court of Justice ruling which indicated that it was up to the national judge to rule on its transparency and possible abuse. In the particular cases analyzed, the Supreme Court has ruled that, even if the entity had not adequately complied with some regulatory requirement of transparency, such as reporting the evolution of the index in the past, this would not mean that the clause was abusive. In short, it considers that the control rules are different from transparency and abuse, so that if the clause is not abusive, the possible breach of any obligation of transparency cannot have legal consequences. Following these rulings, the Supreme Court is rejecting the appeals on the grounds of the existence of case law on the matter and lack of interest in the case. Therefore, BBVA considers that the ruling of the EU Court of Justice and these recent rulings of the Supreme Court should not have significant effects on the Group's business, financial situation or results of operations.

Revolving credit cards

There are also claims before the Spanish courts challenging the application of certain interest rates and other mandatory regulations to certain revolving credit card contracts. On March 4, 2020, the Supreme Court issued a ruling (number 149/2020) confirming the nullity of a revolving credit card agreement entered into by another entity (Wizink Bank) on the grounds that the interest applied to the card was usurious. In that ruling, the Supreme Court recognized that the reference to the "normal interest on money" to be used for this product must be the average interest applicable to credit transactions by means of credit and revolving cards published in the Bank of Spain's statistics, which is slightly higher than 20% annually. The Supreme Court also considered usurious a rate of 26.82% annually, when compared to such average rate. The Supreme Court concluded that for an interest rate to be usurious, it must be "manifestly disproportionate to the circumstances of the case", and therefore the ruling limits its effects to the case under analysis, and the marketing by credit entities of this product must be analyzed on a case-by-case basis.

BBVA considers that this ruling of the Supreme Court should not have a significant effect on the Group's business, financial situation or results of operations.

F-144


25. Post-employment and other employee benefit commitments

As stated in Note 2.2.12,2.2.11, the Group has assumed commitments with employees including short-term employee benefits (see Note 44.1), defined contribution and defined benefit plans (see Glossary), healthcare and other long-term employee benefits.

The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico the United States and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirees.

The breakdown of the balance sheet net defined benefit liability recorded on the balance sheet as of December 31, 2018, 20172020, 2019 and 20162018 is provided below:

Net Defined Benefit Liability (asset) on the Consolidated Balance Sheet (Millions of euros)

Net defined benefit liability (asset) on the consolidated balance sheet (Millions of Euros)

Net defined benefit liability (asset) on the consolidated balance sheet (Millions of Euros)

2018

2017

2016

Notes

2020

2019

2018

Pension commitments

4,678

4,969

5,277

 

4,539

5,050

4,678

Early retirement commitments

1,793

2,210

2,559

 

1,247

1,486

1,793

Medical benefits commitments

1,114

1,204

1,015

 

1,562

1,580

1,114

Other long term employee benefits

62

67

69

 

49

61

62

Total commitments

7,647

8,451

8,920

 

7,398

8,177

7,647

Pension plan assets

1,694

1,892

1,909

 

1,608

1,961

1,694

Medical benefit plan assets

1,146

1,114

1,113

 

1,484

1,532

1,146

Total plan assets (1)

2,840

3,006

3,022

 

3,092

3,493

2,840

 

 

 

 

Total net liability / asset

4,807

5,445

5,898

 

4,305

4,684

4,807

Of which:

 

Net asset on the consolidated balance sheet (2)

(41)

(27)

(194)

Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3)

4,787

5,407

6,025

Net liability on the consolidated balance sheet for other long term employee benefits (4)

62

67

69

Of which: Net asset on the consolidated balance sheet (2)

 

(16)

(8)

(41)

Of which: +Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3)

24

4,272

4,631

4,787

Of which: Net liability on the consolidated balance sheet for other long term employee benefits (4)

24

49

61

62

(1)           In Turkey, the foundation responsible for managing the benefit commitments holds an additional asset of 181€125 million as of December 31, 2020 which, in accordance with IFRS regarding the asset ceiling, has not been recognized in the Consolidated Financial Statements, because although it could be used to reduce future pension contributions it could not be immediately refunded to the employer.

(2)          Recorded under the heading “Other Assets - Other” of the consolidated balance sheet (see Note 20).

(3)          Recorded under the heading “Provisions - Provisions for pensions and similar obligations” of the consolidated balance sheet (see Note 24).sheet.

(4)          Recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet.

F-198F-145  


The amountsimpact relating to benefit commitments charged to consolidated income statement for the years 2020, 2019 and 2018 2017 and 2016 areis as follows:

Consolidated Income Statement Impact (Millions of euros)

Consolidated income statement impact (Millions of Euros)

Consolidated income statement impact (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Interest and similar expenses

 

78

71

96

Interest and other expense

 

44

63

77

Interest expense

 

295

294

303

 

265

293

282

Interest income

 

(217)

(223)

(207)

 

(220)

(230)

(206)

Personnel expenses

 

147

149

154

Personnel expense

 

121

143

130

Defined contribution plan expense

44.1

89

87

44.1

72

95

72

Defined benefit plan expense

44.1

58

62

67

44.1

49

58

Provisions (net)

46

125

343

332

Provisions or (reversal) of provisions

46

210

213

125

Early retirement expense

 

141

227

236

 

224

190

141

Past service cost expense

 

(33)

3

(2)

 

(8)

18

(33)

Remeasurements (*)

 

(10)

31

3

 

(11)

7

(10)

Other provision expenses

 

28

82

95

Total impact on Consolidated Income Statement: Debit (Credit)

 

350

563

582

Other provision expense

 

4

(1)

28

Total impact on consolidated income statement: debit (credit)

 

375

419

332

(*)       Actuarial losses (gains) on remeasurement of the net defined benefit liability relating to early retirements in Spain and other long-term employee benefits that are charged to the income statements (see Note 2.2.12).

The amounts relating to post-employment benefits charged to the consolidated balance sheet correspond to the actuarial gains (losses) on remeasurement of the net defined benefit liability relating to pension and medical commitments before income taxes. Astaxes as of December 31 2020, 2019 and 2018 2017 and 2016 are as follows:

Equity Impact (Millions of euros)

Equity impact (Millions of Euros)

Equity impact (Millions of Euros)

 

2018

2017

2016

2020

2019

2018

Defined benefit plans

 

81

(40)

237

161

254

81

Post-employment medical benefits

 

(47)

179

119

30

74

(47)

Total impact on equity: Debit (Credit)

 

34

140

356

Total impact on equity: debit (credit)

191

329

34

In 2020, the aggregate impact of this heading amounted to €191 million driven by, first of all, the variation in interest rates, €91 million losses on commitments in Mexico and €68 million in Spain, and secondly due to updating of the mortality tables in Spain (€49 million losses). These amounts are partially offset by the effect in other geographies and experience. In 2019, this heading amounted to €329 million mainly due to the variation in two geographies. Firstly, as a consequence of the €231 million increase in actuarial losses on commitments in Spain, due to the variation in discount rates from 1.75% to 1%. Secondly, driven by the €83 million increase in actuarial losses on commitments in Mexico, due to the decrease in discount rates from 10.45% to 9.04%.

F-199F-146  


25.125.1. Defined benefit plans

Defined benefit commitments relate mainly to employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. For the latter, the Group pays the required premiums to fully insure the related liability. The change in these pension commitments during the years ended December 31 2020, 2019 and 2018 2017 and 2016 is presented below:

Defined Benefits (Millions of euros)

Defined benefits (Millions of Euros)

Defined benefits (Millions of Euros)

 

2018

 

2017

 

2016

 

 

2020

 

2019

 

 

2018

 

Defined Benefit Obligation

Plan Assets

Net Liability (asset)

Defined Benefit Obligation

Plan Assets

Net Liability (asset)

Defined Benefit Obligation

Plan Assets

Net Liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Balance at the beginning

8,384

3,006

5,378

8,851

3,022

5,829

9,184

3,124

6,060

8,116

3,493

4,622

7,585

2,839

4,746

8,384

3,006

5,378

Current service cost

61

-

61

64

-

64

67

-

67

53

-

53

52

-

52

61

-

61

Interest income or expense

292

217

76

290

223

68

299

207

92

Interest income/expense

261

219

42

290

230

60

279

206

74

Contributions by plan participants

4

3

1

4

-

5

-

4

-

4

4

-

4

3

1

Employer contributions

-

103

(103)

-

25

(25)

-

154

(154)

-

124

(124)

-

65

(65)

-

103

(103)

Past service costs (1)

109

-

109

231

-

231

235

-

235

219

-

219

210

-

210

109

-

109

Remeasurements:

(263)

(286)

21

331

161

171

354

(5)

359

364

176

187

783

454

329

(263)

(286)

21

Return on plan assets (2)

-

(286)

286

-

161

(161)

-

(20)

20

-

176

(176)

-

454

(454)

-

(286)

286

From changes in demographic assumptions

14

-

14

100

-

100

107

-

107

57

-

57

(15)

-

(15)

14

-

14

From changes in financial assumptions

(274)

-

(274)

220

-

220

106

-

106

276

-

276

688

-

688

(274)

-

(274)

Other actuarial gain and losses

(3)

-

(5)

12

-

12

141

15

125

Other actuarial gains and losses

30

-

30

110

-

110

(3)

-

(3)

Benefit payments

(979)

(200)

(779)

(1,029)

(169)

(861)

(1,052)

(169)

(883)

(839)

(185)

(654)

(905)

(187)

(718)

(979)

(200)

(779)

Settlement payments

-

(43)

-

(43)

-

-

-

-

-

Business combinations and disposals

-

-

Business combinations and disposals (*)

(371)

(327)

(44)

15

12

3

13

11

2

Effect on changes in foreign exchange rates

(31)

(9)

(22)

(278)

(258)

(19)

(282)

(293)

11

(459)

(409)

(50)

63

69

(6)

(31)

(9)

(22)

Conversions to defined contributions

-

(82)

-

(82)

-

-

-

-

-

-

-

Other effects

10

6

4

(1)

-

84

-

84

1

(3)

4

19

6

13

10

6

4

Balance at the end

7,585

2,840

4,745

8,384

3,006

5,378

8,851

3,022

5,829

7,348

3,092

4,256

8,116

3,493

4,623

7,585

2,840

4,745

Of which

 

 

Spain

4,807

260

4,547

5,442

320

5,122

6,157

358

5,799

Mexico

1,615

1,587

28

1,661

1,602

60

1,456

1,627

(171)

The United States

326

287

39

360

309

51

385

339

46

Turkey

422

339

83

520

424

96

447

348

99

Of which: Spain

4,288

249

4,039

4,592

266

4,326

4,807

260

4,547

Of which: Mexico

2,219

2,122

97

2,231

2,124

107

1,615

1,587

28

Of which: The United States

-

375

323

52

326

287

39

Of which: Turkey

367

282

85

444

359

86

422

339

83

(*)        The amount in 2020 in mainly due to the stake in BBVA USA (see Note 3).

(1)        Including gains and losses arising from settlements.

(2)        Excluding interest, which is recorded under "Interest income or expense".

The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of December 31, 20182020 includes 332€356 million relating to post-employment benefit commitments to former members of the Board of Directors and the Bank’s Management (see Note 54).

The most significant commitments are those in Spain and Mexico and, to a lesser extent, in the United States and Turkey. The remaining commitments are located mostly in Portugal and South America. Unless otherwise required by local regulation, all defined benefit plans have been closed to new entrants, who instead are able to participate in the Group´s defined contribution plans.

Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

In order to guaranteeenable the good governance of these plans, the Group has established specific benefits committees. These benefit committees include members from the different areas of the business to ensureassist that all decisions are made taking into consideration all of the associated impacts.

The following table sets out the key actuarial assumptions used in the valuation of these commitments as of December 31, 2018, 20172020, 2019 and 2016:2018:

Actuarial Assumptions (Millions of euros)

Actuarial assumptions (%)

Actuarial assumptions (%)

 

2018

 

 

2017

 

 

2016

 

2020

2019

2018

Spain

Mexico

USA

Turkey

Spain

Mexico

USA

Turkey

Spain

Mexico

USA

Turkey

Spain

Mexico

Turkey

Spain

Mexico

The United States

Turkey

Spain

Mexico

The United States

Turkey

Discount rate

1.28%

10.45%

4.23%

16.30%

1.24%

9.48%

3.57%

11.60%

1.50%

9.95%

4.04%

11.50%

0.53%

8.37%

13.00%

0.68%

9.04%

3.24%

12.50%

1.28%

10.45%

4.23%

16.30%

Rate of salary increase

-

4.75%

-

14.00%

-

4.75%

-

9.90%

1.50%

4.75%

3.00%

9.30%

-

4.00%

11.20%

-

4.75%

-

9.70%

-

4.75%

-

14.00%

Rate of pension increase

-

2.51%

-

12.50%

-

2.13%

-

8.40%

-

2.13%

-

7.80%

-

1.94%

9.70%

-

2.47%

-

8.20%

-

2.51%

-

12.50%

Medical cost trend rate

-

7.00%

-

16.70%

-

7.00%

-

12.60%

-

6.75%

-

10.92%

-

7.00%

13.90%

-

7.00%

-

12.40%

-

7.00%

-

16.70%

Mortality tables

PERM/F 2000P

EMSSA09

RP 2014

CSO2001

PERM/F 2000P

EMSSA09

RP 2014

CSO2001

PERM/F 2000P

EMSSA97 (adjustment EMSSA09)

RP 2014

CSO2001

PER 2020

EMSSA09

CSO2001

PERM/F 2000P

EMSSA09

RP 2014

CSO2001

PERM/F 2000P

EMSSA09

RP 2014

CSO2001

F-200F-147  


In Spain, the discount rate shown as of December, 31, 2018,2020, corresponds to the weighted average rate, the actual discount rates used are 0.50%0% and 1.75%0.75% depending on the type of commitment.

In Mexico, the discount rate shown as of December 31, 2020, corresponds to the weighted average rate, with the discount rates between 6.84% and 8.76% depending on the plan.

Discount rates used to value future benefit cash flows have been determined by reference to high quality corporate bonds (Note 2.2.12) denominated in Euro in the case of Spain and Mexican peso for Mexico, and USD for the United States, and government bonds denominated in new Turkish Lira for Turkey.

The expected return on plan assets has been set in line with the adopted discount rate.

Assumed retirement ages have been set by reference to the earliest age at which employees are entitled to retire, the contractually agreed age in the case of early retirements in Spain or by using retirement rates.

Changes in the main actuarial assumptions may affect the valuation of the commitments. The table below shows the sensitivity of the benefit obligations to changes in the key assumptions:

Sensitivity Analysis (Millions of euros)

Sensitivity analysis (Millions of Euros)

Sensitivity analysis (Millions of Euros)

Basis points change

2018

2017

Basis points change

2020

2019

2018

Increase

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

Increase

Decrease

Discount rate

50

(298)

332

(352)

386

50

(354)

390

(367)

405

(298)

332

Rate of salary increase

50

3

(3)

5

(5)

50

4

(4)

3

(3)

3

(3)

Rate of pension increase

50

19

(18)

23

(22)

50

29

(27)

27

(26)

19

(18)

Medical cost trend rate

100

229

(181)

290

(225)

50

145

(129)

169

(133)

115

(91)

Change in obligation from each additional year of longevity

-

108

-

155

-

-

211

-

137

-

108

-

The sensitivities provided above have been determined at the date of these consolidated financial statements, and reflect solely the impact of changing one individual assumption at a time, keeping the rest of the assumptions unchanged, thereby excluding the effects which may result from combined assumption changes.

In addition to the commitments to employees shown above, the Group has other less material long-term employee benefits. These include long-service awards, which consist of either an established monetary award or some vacation days granted to certain groups of employees when they complete a given number of years of service. As of December 31, 2018, 20172020, 2019 and 2016,2018, the actuarial liabilities for the outstanding awards amounted to €62 million, €67€50, €61 million and €69€62 million, respectively. These commitments are recorded under the heading "Provisions - Other long-term employee benefits" of the accompanying consolidated balance sheet (see Note 24).

As described above, the Group maintains both pension and medical post-employment benefit commitments with their employees.

F-201


25.1.125.1.1. Post-employment commitments and similar obligations

These commitments relate mostly to pensions in payment,pension payments, and which have been determined based on salary and years of service. For most plans, pension payments are due on retirement, death and long term disability.

In addition, during the year 2018,2020, Group entities in Spain offered certain employees the option to take retirement or early retirement (that is, earlier than the age stipulated in the collective labor agreement in force). This offer was accepted by 489781 employees (731(616 and 613 employees489 during years 20172019 and 2016,2018, respectively). These commitments include the compensation and indemnities due as well as the contributions payable to external pension funds during the early retirement period.period. As of December 31, 2018, 20172020, 2019 and 2016,2018, the value of these commitments amounted to €1,793 million, €2,210€1,247, €1,486 million and €2,559€1,793 million, respectively.

F-148


The change in the benefit plan obligations and plan assets as ofduring the year ended December 31, 20182020 was as follows:

Post-employment commitments  2018 (Millions of euros)

 

Defined Benefit Obligation

 

Spain

Mexico

USA

Turkey

Rest of the world

Balance at the beginning

5,442

470

360

520

387

Current service cost

4

5

-

21

4

Interest income or expense

64

44

13

47

9

Contributions by plan participants

-

-

-

3

1

Employer contributions

-

-

-

-

-

Past service costs (1)

148

(1)

-

2

2

Remeasurements:

(32)

18

(28)

(18)

3

Return on plan assets (2)

-

-

-

-

-

From changes in demographic assumptions

-

-

(1)

-

15

From changes in financial assumptions

-

(9)

(28)

(45)

(12)

Other actuarial gain and losses

(32)

27

1

29

-

Benefit payments

(824)

(48)

(35)

(21)

(18)

Settlement payments

-

-

-

-

-

Business combinations and disposals

-

-

-

-

-

Effect on changes in foreign exchange rates

-

25

17

(134)

(2)

Conversions to defined contributions

-

-

-

-

-

Other  effects

5

(2)

(1)

-

17

Balance at the end

4,807

512

326

422

402

Of which:

 

 

 

 

 

Vested benefit obligation relating to current employees

111

 

 

 

 

Vested benefit obligation relating to retired employees

4,696

 

 

 

 

Post-employment commitments  2018 (Millions of euros)

 

Plan Assets

 

Spain

Mexico

USA

Turkey

Rest of the world

Balance at the beginning

320

488

309

424

351

Current service cost

-

-

-

-

-

Interest income or expense

5

46

11

39

7

Contributions by plan participants

-

-

-

3

1

Employer contributions

-

-

2

13

18

Past service costs (1)

-

-

-

-

-

Remeasurements:

(4)

(70)

(17)

(21)

(11)

Return on plan assets (2)

(4)

(70)

(17)

(21)

(11)

From changes in demographic assumptions

-

-

-

-

-

From changes in financial assumptions

-

-

-

-

-

Other actuarial gain and losses

-

-

-

-

-

Benefit payments

(61)

(47)

(33)

(10)

(15)

Settlement payments

-

-

-

-

-

Business combinations and disposals

-

-

-

-

-

Effect on changes in foreign exchange rates

-

26

15

(108)

(1)

Conversions to defined contributions

-

-

-

-

-

Other  effects

-

(1)

-

-

17

Balance at the end

260

441

287

339

366

F-202


Post-employment commitments 2018 (Millions of euros)

Post-employment commitments 2020 (Millions of Euros)

Post-employment commitments 2020 (Millions of Euros)

Net Liability (Asset)

Spain

Mexico

The United States

Turkey

Rest of the world

Spain

Mexico

USA

Turkey

Rest of the world

Defined benefit obligation

 

 

Balance at the beginning

5,122

(18)

51

96

36

4,592

664

375

444

460

Current service cost

4

5

-

21

4

5

1

18

3

Interest income or expense

59

(2)

2

8

2

30

50

12

45

7

Contributions by plan participants

-

-

1

-

4

-

Employer contributions

-

(2)

(13)

(18)

-

-

Past service costs (1)

148

(1)

-

2

224

(1)

-

2

3

Remeasurements:

(28)

88

(11)

3

14

136

93

31

(4)

12

Return on plan assets (2)

4

70

17

21

11

-

-

From changes in demographic assumptions

-

(1)

-

15

60

-

(3)

-

From changes in financial assumptions

-

(9)

(28)

(45)

(12)

79

(19)

34

54

17

Other actuarial gain and losses

(32)

27

1

29

-

Other actuarial gains and losses

(3)

112

-

(59)

(5)

Benefit payments

(763)

-

(2)

(11)

(3)

(703)

(58)

(15)

(15)

(12)

Settlement payments

-

-

-

-

Business combinations and disposals

-

-

-

(371)

-

Effect on changes in foreign exchange rates

-

(1)

2

(26)

(1)

-

(87)

(32)

(126)

(9)

Conversions to defined contributions

-

-

-

-

Other effects

5

-

(1)

-

3

-

(1)

-

(1)

Balance at the end

4,547

71

39

83

35

4,288

666

-

367

465

Of which: Vested benefit obligation relating to current employees

4,198

 

 

Of which: Vested benefit obligation relating to retired employees

90

 

 

 

 

Plan assets

 

 

Balance at the beginning

266

592

323

359

422

Current service cost

-

-

Interest income or expense

2

44

10

37

6

Contributions by plan participants

-

4

-

Employer contributions

-

86

-

14

1

Past service costs (1)

-

-

Remeasurements:

41

31

35

(23)

26

Return on plan assets (2)

41

31

35

(23)

26

From changes in demographic assumptions

-

-

From changes in financial assumptions

-

-

Other actuarial gains and losses

-

-

Benefit payments

(60)

(57)

(13)

(8)

(11)

Settlement payments

-

-

Business combinations and disposals

-

19

(327)

-

Effect on changes in foreign exchange rates

-

(77)

(27)

(100)

(5)

Conversions to defined contributions

-

-

Other effects

-

(1)

-

(1)

Balance at the end

249

638

-

282

439

 

 

Net liability (asset)

 

 

Balance at the beginning

4,326

72

52

86

38

Current service cost

5

1

18

3

Interest income or expense

28

6

2

8

1

Contributions by plan participants

-

-

Employer contributions

-

(86)

-

(14)

(1)

Past service costs (1)

224

(1)

-

2

3

Remeasurements:

95

62

(4)

18

(14)

Return on plan assets (2)

(41)

(31)

(35)

23

(26)

From changes in demographic assumptions

60

-

(3)

-

From changes in financial assumptions

79

(19)

34

54

17

Other actuarial gains and losses

(3)

112

-

(59)

(5)

Benefit payments

(643)

(1)

(2)

(6)

(1)

Settlement payments

-

-

Business combinations and disposals

-

(19)

(44)

-

Effect on changes in foreign exchange rates

-

(10)

(5)

(26)

(4)

Conversions to defined contributions

-

-

Other effects

3

-

-

Balance at the end

4,039

28

-

85

27

(1)        Including gains and losses arising from settlements.

(2)        Excluding interest, which is recorded under "Interest income or expense".

F-149


The change in net liabilities (assets) during the years ended 20172019 and 20162018 was as follows:

Post-employment commitments (Millions of euros)

Post-employment commitments (Millions of Euros)

Post-employment commitments (Millions of Euros)

2017: Net liability (asset)

2016: Net liability (asset)

2019: Net liability (asset)

2018: Net liability (asset)

Spain

Mexico

USA

Turkey

Rest of the world

Spain

Mexico

USA

Turkey

Rest of the world

Spain

Mexico

The United States

Turkey

Rest of the world

Spain

Mexico

The United States

Turkey

Rest of the world

Balance at the beginning

5,799

(59)

46

99

43

6,109

(79)

35

97

24

4,547

71

39

83

36

5,122

(18)

51

96

36

Current service cost

4

5

3

21

5

10

6

4

22

5

4

-

20

3

4

5

-

21

4

Interest income or expense

73

(6)

1

9

2

98

(7)

1

8

2

42

9

-

11

3

59

(2)

-

8

2

Contributions by plan participants

-

-

1

Employer contributions

-

(1)

-

(16)

(8)

-

(14)

(1)

(17)

(9)

-

(47)

(3)

(14)

(1)

-

(2)

(13)

(18)

Past service costs (1)

235

1

-

4

3

240

1

-

4

(4)

190

15

-

3

2

148

(1)

-

2

Remeasurements:

(67)

38

9

12

(1)

188

23

10

8

11

231

9

16

2

(1)

(28)

88

(11)

3

14

Return on plan assets (2)

(21)

(10)

(11)

(101)

2

(35)

23

3

(23)

(8)

(67)

(90)

(28)

5

(50)

4

70

17

21

11

From changes in demographic assumptions

-

22

(2)

-

(3)

-

2

(5)

-

(1)

-

(13)

(2)

-

(1)

-

15

From changes in financial assumptions

(33)

18

22

81

4

192

(22)

13

(23)

37

239

87

42

(41)

52

-

(9)

(28)

(45)

(12)

Other actuarial gain and losses

(13)

7

-

32

(4)

31

19

(1)

54

(17)

Other actuarial gains and losses

59

12

2

51

(1)

(32)

27

1

29

-

Benefit payments

(842)

(1)

(2)

(11)

(3)

(867)

-

(3)

(9)

(2)

(702)

(1)

(2)

(11)

(3)

(763)

-

(2)

(11)

(3)

Settlement payments

-

(43)

-

-

Business combinations and disposals

-

-

7

3

-

2

-

Effect on changes in foreign exchange rates

-

5

(5)

(21)

(5)

-

10

2

(15)

(4)

-

5

-

(9)

1

-

(1)

2

(26)

(1)

Conversions to defined contributions

(82)

-

-

Other effects

2

-

(1)

-

(1)

63

-

(3)

-

20

14

-

(1)

-

5

-

(1)

-

Balance at the end

5,122

(18)

51

96

36

5,799

(59)

46

99

42

4,326

72

52

86

38

4,547

71

39

83

36

(1)        Includes gains and losses from settlements.

(2)        Excludes interest which is reflected in the line item “Interest income and expenses”expense”.

In Spain, local regulation requires that pension and death benefit commitments must be funded, either through a qualified pension plan or an insurance contract.

F-203


In the Spanish entities these commitments are covered by insurance contracts which meet the requirements of the accounting standard regarding the non-recoverability of contributions. However, a significant number of the insurance contracts are with BBVA Seguros, S.A. – a consolidated subsidiary and related party – and consequently these policies cannot be considered plan assets under IAS 19. For this reason, the liabilities insured under these policies are fully recognized under the heading "Provisions – Pensions and other postemployment defined benefit obligations" of the accompanying consolidated balance sheet (see Note 24), while the related assets held by the insurance company are included within the Group´s consolidated assets (recorded according to the classification of the corresponding financial instruments). As of December 31, 20182020 the value of these separate assets was €2,572 million, (€2,620 and €2,543 million as of December 31, 2019 and 2018, respectively) representing direct rights of the insured employees held in the consolidated balance sheet, hence these benefits are effectively fully funded.

On the other hand, some pension commitments have been funded through insurance contracts with insurance companies not related to the Group, and can therefore be considered qualifying insurance policies and plan assets under IAS 19.Group. In this case the accompanying consolidated balance sheet reflects the value of the obligations net of the fair value of the qualifying insurance policies. As of December 31, 2018, 20172020, 2019 and 2016,2018, the fair value of the aforementioned insurance policies (€260, €320 million249, €266 and €358€260 million, respectively) exactly match the value of the corresponding obligations and therefore no amount for this item has been recorded in the accompanying consolidated balance sheet.

PensionsPension benefits are paid by the insurance companies with whom BBVA has insurance contracts and to whom all insurance premiums have been paid. The premiums are determined by the insurance companies using “cash flow matching” techniques to ensureassist that benefits can be met when due, guaranteeingenabling both the actuarial and interest rate risk.

In Mexico, there is a defined benefit plan for employees hired prior to 2001. Other employees participate in a defined contribution plan. External funds/trusts have been constituted locally to meet benefit payments as required by local regulation.

In the United States there are mainly two defined benefit plans, both closed to new employees, who instead are able to join a defined contribution plan. External funds/trusts have been constituted locally to fund the plans, as required by local regulation.

In 2008, the Turkish government passed a law to unify the different existing pension systems under a single umbrella Social Security system. Such system provides for the transfer of the various previously established funds.

The financial sector is in this stage at present, maintaining these pension commitments managed by external pension funds (foundations) established for that purpose.

The Foundationfoundation that maintains the assets and liabilities relating to employees of Garanti BBVA in Turkey, as per the local regulatory requirements, has recordedregistered an obligation amounting to €241€250 million as of December 31, 20182020 pending future transfer to the Social Security system.

F-150


Furthermore, Garanti BBVA has set up a defined benefit pension plan for employees, additional to the social security benefits, reflected in the consolidated balance sheet.

Until the year 2016, the Bank also had commitments to pay indemnities to certain employees and members of the Group’s Senior Management in the event that they cease to hold their positions for reasons other than their own will, retirement, disability or serious dereliction of duties. The amount will be calculated according to the salary and professional conditions of each employee, taking into consideration fixed elements of the remuneration and the length of office at the Bank. Under no circumstances indemnities will be paid in cases of disciplinary dismissal for misconduct upon decision of the employer on grounds of the employee's serious dereliction of duties.

F-204


25.1.225.1.2. Medical benefit commitments

The change in defined benefit obligations and plan assets during the years 2018, 20172020, 2019 and 20162018 was as follows:

Medical Benefits Commitments

Medical benefits commitments

Medical benefits commitments

2018

2017

2016

2020

2019

2018

Defined Benefit Obligation

Plan assets

Net liability (asset)

Defined Benefit Obligation

Plan assets

Net liability (asset)

Defined Benefit Obligation

Plan assets

Net liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Defined benefit obligation

Plan assets

Net liability (asset)

Balance at the beginning

1,204

1,114

91

1,015

1,113

(98)

1,022

1,149

(127)

1,580

1,532

48

1,114

1,146

(32)

1,204

1,114

91

Current service cost

27

-

27

26

-

26

24

-

24

21

-

21

-

21

27

-

27

Interest income or expense

116

109

8

101

112

(11)

86

97

(11)

117

120

(3)

119

123

(4)

116

109

8

Contributions by plan participants

-

-

-

-

Employer contributions

-

71

(71)

-

114

(114)

-

22

(22)

-

-

71

(71)

Past service costs (1)

(42)

-

(42)

(11)

-

(11)

(5)

-

(5)

(8)

-

(8)

-

(42)

-

(42)

Remeasurements:

(210)

(164)

(47)

200

21

179

59

(60)

119

95

66

30

298

224

74

(210)

(164)

(47)

Return on plan assets (2)

-

(164)

164

-

21

(21)

-

(60)

60

-

66

(66)

-

224

(224)

-

(164)

164

From changes in demographic assumptions

-

83

-

83

110

-

110

-

-

-

From changes in financial assumptions

(182)

-

(182)

128

-

128

(91)

-

(91)

110

-

110

311

-

311

(182)

-

(182)

Other actuarial gain and losses

(28)

-

(28)

(10)

-

(10)

39

-

39

(15)

-

(15)

(13)

-

(13)

(28)

-

(28)

Benefit payments

(34)

(33)

(1)

(35)

(33)

(2)

(33)

(30)

(2)

(37)

-

(39)

(1)

(34)

(33)

(1)

Settlement payments

-

-

-

-

Business combinations and disposals

-

-

(19)

19

-

7

(7)

-

-

Effect on changes in foreign exchange rates

62

59

3

(92)

(100)

8

(138)

(156)

18

(207)

(201)

(6)

68

71

(2)

62

59

3

Other effects

(9)

-

-

(1)

-

(1)

(9)

-

Balance at the end

1,114

1,146

(32)

1,204

1,114

91

1,015

1,113

(98)

1,562

1,484

77

1,580

1,532

48

1,114

1,146

(32)

(1)         Including gains and losses arising from settlements.

(2)        Excluding interest, which is recorded under "Interest income or expense".

In Mexico, there is a medical benefit plan for employees hired prior to 2007. New employees from 2007 are covered by a medical insurance policy. An external trust has been constituted locally to fund the plan, in accordance with local legislation and Group policy.

In Turkey, employees are currently provided with medical benefits through a foundation in collaboration with the Social Security system, although local legislation prescribes the future unification of this and similar systems into the general Social Security system itself.

The valuation of these benefits and their accounting treatment follow the same methodology as that employed in the valuation of pension commitments.

25.1.325.1.3. Estimated benefit payments

As of December 31, 2018,2020, the estimated benefit payments over the next ten years for all the entities in Spain, Mexico The United States and Turkey are as follows:

Estimated Benefit Payments (Millions of euros)

Estimated benefit payments (Millions of Euros)

Estimated benefit payments (Millions of Euros)

2019

2020

2021

2022

2023

2024-2028

2021

2022

2023

2024

2025

2026-2030

Commitments in Spain

684

611

518

419

333

965

556

474

388

313

257

856

Commitments in Mexico

91

92

99

106

112

680

111

110

114

121

129

774

Commitments in United States

16

17

18

19

103

Commitments in Turkey

24

14

18

20

25

231

16

18

16

18

22

180

Total

815

734

652

563

489

1,979

683

602

518

452

408

1,810

F-205F-151  


25.1.425.1.4. Plan assets

The majority of the Group´s defined benefit plans are funded by plan assets held in external funds/trusts legally separate from the Group sponsoring entity. However, in accordance with local regulation, some commitments are not externally funded and covered through internally held provisions, principally those relating to early retirements in Spain.retirements.

Plan assets are those assets which will be used to directly settle the assumed commitments and which meet the following conditions: they are not part of the Group sponsoring entities assets, they are available only to pay post-employment benefits and they cannot be returned to the Group sponsoring entity.

To manage the assets associated with defined benefit plans, BBVA Group has established investment policies designed according to criteria of prudence and minimizing the financial risks associated with plan assets.

The investment policy consists of investing in a low risk and diversified portfolio of assets with maturities consistent with the term of the benefit obligation and which, together with contributions made to the plan, will be sufficient to meet benefit payments when due, thus mitigating the plans‘ risks.

In those countries where plan assets are held in pension funds or trusts, the investment policy is developed consistently with local regulation. When selecting specific assets, current market conditions, the risk profile of the assets and their future market outlook are all taken into consideration. In all the cases, the selection of assets takes into consideration the term of the benefit obligations as well as short-term liquidity requirements.

The risks associated with these commitments are those which give rise to a deficit in the plan assets. A deficit could arise from factors such as a fall in the market value of plan assets, an increase in long-term interest rates leading to a decrease in the fair value of fixed income securities, or a deterioration of the economy resulting in more write-downs and credit rating downgrades.

The table below shows the allocation of plan assets of the main companies of the BBVA Group as of December 31, 2020, 2019 and 2018:

Plan Assets Breakdown (Millions of euros)

2018

Cash or cash equivalents

26

Debt securities (Government bonds)

2,080

Property

-

Mutual funds

2

Insurance contracts

132

Other investments

-

Total

2,241

Of which:

Bank account in BBVA

3

Debt securities issued by BBVA

-

Property occupied by BBVA

-

Plan assets breakdown (Millions of Euros)

 

2020

2019

2018

Cash or cash equivalents

38

56

26

Debt securities (government bonds)

2,707

2,668

2,080

Mutual funds

1

2

2

Insurance contracts

140

142

132

Total

2,887

2,869

2,241

Of which: Bank account in BBVA

4

4

3

Of which: Debt securities issued by BBVA

-

-

-

Of which: Property occupied by BBVA

-

-

-

In addition to the above there are plan assets relating to the previously mentioned insurance contracts in Spain and the foundation in Turkey.

The following table provides details of investments in listed securities (Level 1) as of December 31, 2020, 2019 and 2018:

Investments in listed markets

Investments in listed markets

 

2020

2019

2018

Cash or cash equivalents

38

56

26

Debt securities (Government bonds)

2,707

2,668

2,080

Mutual funds

1

2

2

Total

2,747

2,727

2,109

Of which: Bank account in BBVA

4

4

3

Of which: Debt securities issued by BBVA

-

-

-

Of which: Property occupied by BBVA

-

-

-

2018

Cash or cash equivalents

26

Debt securities (Government bonds)

2,080

Mutual funds

2

Total

2,109

Of which:

Bank account in BBVA

3

Debt securities issued by BBVA

-

Property occupied by BBVA

-

F-206F-152  


The remainders of the assets are mainly invested in Level 2 assets in in accordance with the classification established under IFRS 13 (mainly insurance contracts). As of December 31, 2018,2020, almost all of the assets related to employee’semployee commitments corresponded to fixed income securities.

25.225.2. Defined contribution plans

Certain Group entities sponsor defined contribution plans. Some of these plans allow employees to make contributions which are then matched by the employer.

Contributions are recognized as and when they are accrued, with a charge to the consolidated income statement in the corresponding year. No liability is therefore recognized in the accompanying consolidated balance sheet (see Note 44.1).

26. Common stock

As of December 31, 2020, 2019 and 2018, BBVA’s common stock amounted to €3,267,264,424.20 divided into 6,667,886,580 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entries. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock.

The Bank’s shares are traded on the stock markets of Madrid, Barcelona, Bilbao and Valencia through the Sistema de Interconexión Bursátil Español (Mercado Continuo), as well as on the London and Mexico stock markets. BBVA American Depositary Shares (ADSs) traded on the New York Stock Exchange.Exchangeunder the ticker “BBVA”.

Additionally, as of December 31, 2018,2020, the shares of Banco BBVA Banco Continental,Peru, S.A.;, BBVA Banco Provincial, S.A.;, Banco BBVA Colombia, S.A.;, Banco BBVA Banco Francés,Argentina, S.A., and Turkiye Garanti BankasiBBVA A.S., were listed on their respective local stock markets. Banco BBVA Banco Francés,Argentina, S.A. was also quoted in the Latin American market (Latibex) of the Madrid Stock Exchange and the New York Stock Exchange. Also, the Depositary Receipts (“DR”) of Garanti BBVA, A.S. are listed in the London Stock Exchange. BBVA is also currently included, amongst other indexes, in the IBEX 35® Index, which is made up by the 35 most liquid securities traded on the Spanish Market and, technically, it is a price index that is weighted by capitalization and adjusted according to the free float of each company comprised in the index.

As of December 31, 2018,2020, State Street Bank and Trust Co., Chase Nominees Ltd and The Bank of New York Mellon SA NV and Chase Nominees Ltd in their capacity as international custodian/depositary banks, held 10.69%10.94%, 6.33%1.31%, and 2.31%8.36% of BBVA common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding.

On February 4, 2019,May 8, 2020, Norges Bank reported that it had voting power over 3.366% of BBVA’s common stock, of which 3.235% are voting rights attributed to shares, and 0.131%, voting rights through financial instruments.

On January 28, 2021, Blackrock, Inc. reported to the SEC that as of December 31, 2018, it beneficially owned 6.6%5.8% of BBVA’s common stock.

On February 8, 2021, GQG Partners LLC reported that it directly had voting power over 3.090% of BBVA’s common stock, all are voting rights attributed to shares.

On the other hand, BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. Furthermore, BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. No agreement is known that could give rise to changes in the control of the Bank.

BBVA banking subsidiaries, associates and joint ventures worldwide, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The changesobligation to satisfy such capital requirements may affect the ability of such entities to transfer funds in the heading “Paid up Capital”form of cash dividends, loans or advances. In addition, under the laws of the accompanying consolidated balance sheetsvarious jurisdictions where such entities are dueincorporated, dividends may only be paid out through funds legally available for such purpose. Even when the minimum capital requirements are met and funds are legally available, the relevant regulators or other public administrations could discourage or delay the transfer of funds to

the following common stock increases:Group in the form of cash, dividends, loans or advances for prudential reasons.

Capital Increase

 

Number of Shares

Common Stock

(Millions of Euros)

As of December 31, 2015

6,366,680,118

3,120

Dividend option - April 2016

113,677,807

56

Dividend option - October 2016

86,257,317

42

As of December 31, 2016

6,566,615,242

3,218

Dividend option . April 2017

101,271,338

50

As of December 31, 2017

6,667,886,580

3,267

As of December 31, 2018

6,667,886,580

3,267

F-207F-153  


“Dividend Option” Program in 2017:

The AGM of BBVA held on March 17, 2017Resolutions adopted under agenda item three, a capital increase to be charged to voluntary reserves to implement the shareholder remuneration system called the “Dividend Option” this year in similar conditions to those agreed in 2014, 2015 and 2016, conferring on the Board of Directors, in accordance with article 297.1.a) of the Spanish Companies Act, the authority to set the date on which the capital increase should be carried out, within one year of the date of approval of the AGM resolution.

By virtue of such resolution, the Board of Directors of BBVA resolved, on March 29, 2017, to execute the capital increase to be charged to voluntary reserves, in accordance with the terms and conditions approved by the AGM mentioned above. As a result, BBVA’s share capital was increased by an amount of 49,622,955.62 euros through the issuance of 101,271,338 newly-issued BBVA ordinary shares at 0.49 euros par value each (see Note 4).

“Dividend Option” Program in 2016:

The AGM held on March 11, 2016, under agenda item three, adopted four capital increase resolutions to be charged to voluntary reserves to once again implement the shareholder remuneration program called the “Dividend Option” (see Note 4), conferring on the Board of Directors, in accordance with article 297.1 a) of the Spanish Companies Act, the authority to set the date on which said capital increases should be carried out, within one year of the date of approval of the AGM resolution, including the power not to implement any of the resolutions, when deemed advisable.

On March 31, 2016, the Board of Directors of BBVA approved the execution of the first of the capital increases charged to voluntary reserves, in accordance with the terms and conditions agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €55,702,125.43 through the issuance of 113,677,807 ordinary shares at €0.49 par values each.

On September 28, 2016, BBVA’s Board of Directors approved the execution of the second of the capital increases charged to voluntary reserves in accordance with the terms and conditions agreed by the aforementioned AGM. As a result of this increase, the Bank’s capital increased by €42,266,085.33 through the issuance of 86,257,317 ordinary shares at €0.49 par value each.

F-208Annual General Meeting


Convertible and/or exchangeable securities:

The AGM held on March 17, 2017, resolved, under agenda item five, to confer authority to the Board of Directors to issue securities convertible into newly issued BBVA shares, on one or several occasions, within the maximum term of five years to be counted from the approval date of the authorization, up to a maximum overall amount of €8 billion or its equivalent in any other currency. Likewise, the AGM resolved to confer to the Board of Directors the authority to totally or partially exclude shareholders’ pre-emptive subscription rights within the framework of a specific issue of convertible securities, although this power was limited to ensure the nominal amount of the capital increases resolved or effectively carried out to cover the conversion of mandatory convertible issuances of this authority (without prejudice to anti-dilution adjustments), with exclusion of pre-emptive subscription rights and of those likewise resolved or carried out with exclusion of pre-emptive subscription rights in use of the authority to increase the share capital conferred by the AGM held on March 17, 2017, under agenda item four, do not exceed the maximum nominal amount, overall, of 20% of the share capital of BBVA at the time of the authorization, this limit not being applicable to contingent convertible issues.

In use of the authority mentioned above, BBVA carried out, on May 24, 2017 the fifth issuance of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €500 million. This issuance is listed in the Global Exchange Market of the Irish Stock Exchange and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents. The issuance qualifies as additional tier 1 capital of the Bank and the Group in accordance with Regulation EU 575/2013 (see Note 22.4).Capital increase

Likewise, in use of such authority, BBVA carried out, on November 14, 2017 the sixth issuance of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of $1,000 million. This issuance is listed in the Global Exchange Market of the Irish Stock Exchange and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents. The qualification of this issuance as additional tier 1 capital has been requested (see Note 22.4).

In past years, BBVA has carried out, in use of the authority to issue convertible securities conferred by the AGM held on March 16, 2012 (in effect until March 16, 2017), four additional issuances of perpetual contingent convertible securities (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders (in April 2013 for an amount of $1.5 billion, in February 2014 and February 2015 for an amount of €1.5 billion each one, and in April 2016 for an amount of €1 billion). These issuances were targeted only at qualified investors and foreign private banking clients not being offered to, and not being subscribed for, in Spain or by Spanish residents. The first two issuances are listed in the Singapore Exchange Securities Trading Limited and the last two issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these four issuances qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation UE 575/2013 (see Note 22.4).

F-209


Convertible and/or exchangeable securities:

BBVA’s AGM held on March 17, 2017 resolved, under agenda item four, to confer authority on the Board of Directors to increase Bank’s share capital, on one or several occasions, subject to provisions in the law and in the Company Bylaws that may be applicable at any time, within the legal term of five years of the approval date of the authorization, up to the maximum amount corresponding to 50% of Bank’s share capital at the time on which the resolution was adopted, likewise conferring authority to the Board of Directors to totally or partially exclude shareholders’ pre-emptive subscription rights over any specific issue that may be made under such authority; althoughauthority.

However, the power to exclude pre-emptive subscription rights was limited, such that the nominal amount of the capital increases resolved or effectively carried out with the exclusion of pre-emptive subscription rights in use of the referred authority and those that may be resolved or carried out to cover the conversion of mandatory convertible issues that may equallyalso be made with the exclusion of pre-emptive subscription rights in use of the authority to issue convertible securities conferred by the AGM held on March 17, 2017, under agenda item five (without prejudice to the anti-dilution adjustments)adjustments and this limit not being applicable to contingent convertible issues) shall not exceed the nominal maximum overall amount of 20% of the share capital of BBVA at the time of the authorization.

As of the date of this document, the Bank’s Board of Directors has not exercised the authority conferred by the AGM.

Convertible and/or exchangeable securities:

Note 22.4 introduces the details of the convertible and/or exchangeable securities.

27. Share premium

As of December 31 2018, 20172020, 2019 and 2016,2018, the balance under this heading in the accompanying consolidated balance sheets was €23,992 million.

The amended Spanish Corporation Act expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use (see Note 26).

28. Retained earnings, revaluation reserves and other reserves

28.1. Breakdown of the balance

The breakdown of the balance under this heading in the accompanying consolidated balance sheetsheets is as follows:

Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of euros)

Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of Euros)

Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Legal reserve

653

644

624

 

653

Restricted reserve

133

159

201

 

120

124

133

Reserves for regularizations and balance revaluations

3

12

20

 

-

3

Voluntary reserves

8,010

8,643

8,521

 

8,117

8,331

8,010

Total reserves holding company

8,799

9,458

9,366

 

8,890

9,108

8,799

Consolidation reserves attributed to the Bank and dependent consolidated companies.

14,164

14,132

12,439

Consolidation reserves attributed to the Bank and subsidiary consolidated companies.

 

21,454

20,161

18,018

Total

22,963

23,590

21,805

 

30,344

29,269

26,028

The impact of the first application of IFRS 9 and the change in accounting policies due to hyperinflation is recorded in the heading "Consolidation reserves attributed to the Bank and dependent consolidated companies" of the previous table (see Notes 1.3, 2.4 and 2.2.20). 

F-210


28.128.2. Legal reserve

Under the amended Spanish Corporations Act, 10% of any profit made each year must be transferred to the legal reserve. The transfer must be made until the legal reserve reaches 20% of the common stock.

The legal reserve can be used to increase the common stock provided that the remaining reserve balance does not fall below 10% of the increased capital. While it does not exceed 20% of the common stock, it can only be allocated to offset losses exclusively in the case that there are not sufficient reserves available.

F-154


28.228.3. Restricted reserves

As of December 31, 2018, 20172020, 2019 and 2016,2018, the Bank’s restricted reserves are as follows:

Restricted Reserves (Millions of euros)

Restricted reserves. Breakdown by concepts (Millions of Euros)

Restricted reserves. Breakdown by concepts (Millions of Euros)

2018

2017

2016

2020

2019

2018

Restricted reserve for retired capital

88

88

88

Restricted reserve for Parent Company shares and loans for those shares

44

69

111

Restricted reserve for parent company shares and loans for those shares

30

34

44

Restricted reserve for redenomination of capital in euros

2

2

2

Total

133

159

201

120

124

133

The restricted reserve for retired capital resulted from the reduction of the nominal par value of the BBVA shares made in April 2000.

The second heading corresponds to restricted reserves related to the amount of shares issued by the Bank in its possession at each date, as well as the amount of customer loans outstanding at those dates that were granted for the purchase of, or are secured by, the Parent Companyparent company shares.

Finally, pursuant to Law 46/1998 on the Introduction of the Euro, a restricted reserve is recognized as a result of the rounding effect of the redenomination of the Parent Companyparent company common stock in euros.

F-211


28.328.4. Retained earnings, revaluationRevaluation reserves and other reserves by entity

The breakdown, by company or corporate group, under the headings “Retained earnings, revaluation reservesearnings”, “Revaluation reserves” and other“other reserves” in the accompanying consolidated balance sheets is as follows:

Retained earnings, Revaluation reserves and Other reserves (Millions of euros)

Retained earnings, revaluation reserves and other reserves. Breakdown by company or corporate group (Millions of Euros)

Retained earnings, revaluation reserves and other reserves. Breakdown by company or corporate group (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Retained earnings and Revaluation reserves

 

Retained earnings (losses) and revaluation reserves

 

 

Holding Company

14,643

15,625

14,101

 

15,014

16,623

14,698

BBVA Bancomer Group

10,014

9,442

9,108

 

12,890

10,645

10,014

BBVA Seguros, S.A.

(127)

(215)

(62)

Corporacion General Financiera, S.A.

1,084

1,202

1,187

Garanti BBVA Group

 

2,509

1,985

1,415

BBVA Banco Provincial Group

(124)

(113)

(92)

 

1,731

1,736

1,745

BBVA Argentine Group

 

1,302

1,148

1,220

BBVA Colombia Group

 

1,287

1,130

998

Corporación General Financiera S.A.

 

920

932

1,084

BBVA Peru Group

 

984

848

756

BBVA Chile Group

552

951

1,264

 

619

597

168

BBVA Paraguay

119

108

98

 

160

130

119

Compañía de Cartera e Inversiones, S.A.

108

(20)

(27)

Anida Grupo Inmobiliario, S.L.

363

515

528

Pecri Inversión S.L.

 

114

(50)

(74)

Bilbao Vizcaya Holding, S.A.

 

77

62

49

Compañía de Cartera de Inversiones, S.A.

 

59

47

108

Gran Jorge Juan, S.A.

 

42

27

(33)

Banco Industrial de Bilbao, S.A.

 

(12)

(13)

-

BBVA Seguros, S.A.

 

(35)

(99)

(127)

BBVA Suiza, S.A.

(53)

(57)

(1)

 

(47)

(52)

(53)

BBVA Continental Group

756

681

611

BBVA Luxinvest, S.A.

(48)

25

16

BBVA Colombia Group

998

926

803

BBVA Banco Francés Group

103

999

827

Banco Industrial De Bilbao, S.A.

-

25

61

Uno-E Bank, S.A

-

Gran Jorge Juan, S.A.

(33)

(47)

(30)

BBVA Portugal Group

(66)

(436)

(477)

 

(52)

(59)

(66)

Participaciones Arenal, S.L.

(4)

(183)

(180)

BBVA Propiedad S.A.

-

(503)

(431)

Anida Operaciones Singulares, S.L.

(5,317)

(4,881)

(4,127)

Grupo BBVA USA Bancshares

(586)

(794)

(1,053)

Garanti Turkiye Bankasi Group

1,415

751

127

Unnim Real Estate

(587)

(576)

(477)

Bilbao Vizcaya Holding, S.A.

49

145

139

Pecri Inversión S.L.

(74)

(73)

(75)

Anida Grupo Inmobiliario

 

(594)

(587)

363

Sociedades inmobiliarias Unnim

 

(617)

(594)

(587)

BBVA USA Bancshares Group

 

(1,078)

(317)

(586)

Anida Operaciones Singulares, S.A.

 

(5,409)

(5,375)

(5,317)

Other

(164)

127

25

 

644

624

172

Subtotal

23,021

23,624

21,864

 

30,508

29,388

26,066

Other reserves or accumulated losses of investments in joint ventures and associates

-

 

 

ATOM Bank PLC

 

(91)

(56)

(28)

Metrovacesa, S.A.

-

 

(84)

(75)

(61)

Metrovacesa Suelo, S.A.

(61)

(53)

(52)

Other

2

18

(7)

 

11

12

51

Subtotal

(59)

(35)

(59)

 

(164)

(119)

(38)

Total

22,963

23,590

21,805

 

30,344

29,269

26,028

F-155  


For the purpose of allocating the reserves and accumulated losses to the consolidated entities and to the parent company, the transfers of reserves arising from the dividends paid and transactions between these entities are taken into account in the period in which they took place.  

F-212


29. Treasury shares

In the years ended December 31, 2020, 2019 and 2018 2017 and 2016 the Group entities performed the following transactions with shares issued by the Bank:

Treasury Shares (Millions of euros)

Treasury shares (Millions of euros)

Treasury shares (Millions of euros)

2018

2017

2016

2020

2019

2018

Number of Shares

Millions of Euros

Number of Shares

Millions of Euros

Number of Shares

Millions of Euros

Number of Shares

Millions of Euros

Number of Shares

Millions of Euros

Number of Shares

Millions of Euros

Balance at beginning

13,339,582

96

7,230,787

48

38,917,665

309

12,617,189

62

47,257,691

296

13,339,582

96

+ Purchases

279,903,844

1,683

238,065,297

1,674

379,850,939

2,004

234,691,887

807

214,925,699

1,088

279,903,844

1,683

- Sales and other changes

(245,985,735)

(1,505)

(231,956,502)

(1,622)

(411,537,817)

(2,263)

(232,956,244)

(830)

(249,566,201)

(1,298)

(245,985,735)

(1,505)

+/- Derivatives on BBVA shares

-

-

(4)

-

(1)

-

7

-

(23)

-

23

+/- Other changes

-

23

-

-

-

-

-

Balance at the end

47,257,691

296

13,339,582

96

7,230,787

48

14,352,832

46

12,617,189

62

47,257,691

296

Of which:

-

-

-

 

 

 

Held by BBVA, S.A.

-

-

2,789,894

22

592,832

9

-

-

Held by Corporación General Financiera, S.A.

47,257,691

296

13,339,582

96

4,440,893

26

13,760,000

37

12,617,189

62

47,257,691

296

Held by other subsidiaries

-

-

-

-

-

-

Average purchase price in Euros

6.11

-

7.03

-

5.27

-

3.44

-

5.06

-

6.11

-

Average selling price in Euros

6.25

-

6.99

-

5.50

-

3.63

-

5.20

-

6.25

-

Net gain or losses on transactions

(Shareholders' funds-Reserves)

 

(24)

 

1

 

(30)

Net gains or losses on transactions

(Shareholders' funds-Reserves)

 

-

 

13

 

(24)

The percentages of treasury shares held by the Group in the years ended December 31, 2020, 2019 and 2018 2017 and 2016 are as follows:  

Treasury Stock

Treasury Stock

Treasury Stock

2018

2017

2016

2020

2019

2018

Min

Max

Closing

Min

Max

Closing

Min

Max

Closing

Min

Max

Closing

Min

Max

Closing

Min

Max

Closing

% treasury stock

0.200%

0.850%

0.709%

0.004%

0.278%

0.200%

0.081%

0.756%

0.110%

0.008%

0.464%

0.215%

0.138%

0.746%

0.213%

0.200%

0.850%

0.709%

The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2020, 2019 and 2018 2017 and 2016 is as follows:

Shares of BBVA Accepted in Pledge

Shares of BBVA accepted in pledge

Shares of BBVA accepted in pledge

2018

2017

2016

 

2020

2019

2018

Number of shares in pledge

61,632,832

64,633,003

90,731,198

 

39,407,590

43,018,382

61,632,832

Nominal value

0.49

 

0.49

0.49

0.49

% of share capital

0.92%

0.97%

1.38%

 

0.59%

0.65%

0.92%

The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 2020, 2019 and 2018 2017 and 2016 is as follows:

Shares of BBVA Owned by Third Parties but Managed by the Group

 

2018

2017

2016

Number of shares owned by third parties

25,306,229

34,597,310

85,766,602

Nominal value

0.49

0.49

0.49

% of share capital

0.38%

0.52%

1.31%

F-213


Shares of BBVA owned by third parties but managed by the Group

 

 

2020

2019

2018

Number of shares owned by third parties

 

18,266,509

23,807,398

25,306,229

Nominal value

 

0.49

0.49

0.49

% of share capital

 

0.27%

0.36%

0.38%

 

F-156


30. Accumulated other comprehensive income (loss)

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Accumulated other comprehensive income (Millions of euros)

Accumulated other comprehensive income (loss) (Millions of Euros)

Accumulated other comprehensive income (loss) (Millions of Euros)

Notes

2018

2017(*)

2016(*)

Notes

2020

2019

2018

Items that will not be reclassified to profit or loss

 

(1,284)

(1,183)

(1,095)

 

(2,815)

(1,875)

(1,284)

Actuarial gains or losses on defined benefit pension plans

 

(1,245)

(1,183)

(1,095)

Actuarial gains (losses) on defined benefit pension plans

 

(1,474)

(1,498)

(1,245)

Non-current assets and disposal groups classified as held for sale

 

-

 

(65)

3

-

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

-

 

-

Fair value changes of equity instruments measured at fair value through other comprehensive income

13.4

(155)

 

13.4

(1,256)

(404)

(155)

Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income

 

-

 

 

-

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item)

 

-

 

Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument)

 

-

 

Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk

 

116

 

 

(21)

24

116

Items that may be reclassified to profit or loss

 

(5,932)

(5,755)

(2,527)

 

(11,541)

(8,351)

(8,939)

Hedge of net investments in foreign operations (effective portion)

 

(218)

1

(118)

 

(62)

(896)

(218)

Of which: US Dollar

 

-

(432)

Of which: Mexican peso

 

(362)

(588)

(78)

Of which: Turkish lira

 

317

163

322

Of which: other exchanges

 

(18)

(38)

(29)

Foreign currency translation

 

(6,643)

(7,297)

(3,349)

 

(14,185)

(9,147)

(9,630)

Of which: US Dollar

 

(16)

1,565

1,326

Of which: Mexican peso

 

(5,220)

(3,557)

(4,205)

Of which: Turkish lira

 

(4,960)

(3,750)

(3,326)

Of which: Argentine peso

 

(1,247)

(1,124)

(1,118)

Of which: Venezuelan Bolívar

 

(1,860)

(1,854)

(1,862)

Of which: other exchanges

 

(882)

(427)

(445)

Hedging derivatives. Cash flow hedges (effective portion)

 

(6)

(34)

16

 

10

(44)

(6)

Financial assets available for sale

13.4

 

1,641

947

Fair value changes of debt instruments measured at fair value through other comprehensive income

13.4

943

 

13.4

2,069

1,760

943

Hedging instruments (non-designated items)

 

-

 

-

Non-current assets and disposal groups classified as held for sale

 

1

(26)

-

Non-current assets and disposal groups classified as held for sale (*)

 

644

(18)

1

Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates

 

(9)

(40)

(31)

 

(17)

(5)

(29)

Total

 

(7,215)

(6,939)

(3,622)

 

(14,356)

(10,226)

(10,223)

(*)  See Note 1.3.The variation for the year 2020 corresponds, mainly, to the BBVA USA sale agreement (see Notes 21).

The balances recognized under these headings are presented net of tax.

The main changes in 2020 are explained as a result of the depreciation of the main currencies of the geographies where the Group operates against the euro. The main depreciations against the euro have been: US dollar (-8.5%), Mexican peso (-13.1%), Turkish lira (-26.7%), Peruvian sol (-16.3%), Colombian peso (-12.6%) and Argentine peso (-34.8%).

F-214


F-157


31. MinorityNon-controlling interest

The table below is a breakdown by groups of consolidated entities of the balance under the heading “Minority interests (non-controlling interest)” of total equity in the accompanying consolidated balance sheets is as follows:

Non-Controlling Interests (Millions of euros)

 

2018

2017

2016

BBVA Colombia Group

67

65

67

BBVA Chile Group (*)

-

399

377

BBVA Banco Continental Group

1,167

1,059

1,059

BBVA Banco Provincial Group

67

78

97

BBVA Banco Francés Group

352

420

243

Garanti Group

4,058

4,903

6,157

Other entities

53

55

64

Total

5,764

6,979

8,064

Non-controlling interests: breakdown by subgroups (Millions of Euros)

 

2020

2019

2018

Garanti BBVA

3,692

4,240

4,058

BBVA Peru

1,171

1,334

1,167

BBVA Argentina

416

422

352

BBVA Colombia

70

76

67

BBVA Venezuela

65

71

67

Other entities

56

57

53

Total

5,471

6,201

5,764

(*)  See Note 3.

These amounts are broken down by groups of consolidated entities under the heading “Attributable to minority interests (non-controlling interest)interests)” in the accompanying consolidated income statements:

Profit attributable to Non-Controlling Interests (Millions of euros)

 

2018

2017

2016

BBVA Colombia Group

9

7

9

BBVA Chile Group (*)

26

51

40

BBVA Banco Continental Group

227

208

193

BBVA Banco Provincial Group

(5)

(2)

(2)

BBVA Banco Francés Group

(18)

93

55

Garanti Group

585

883

917

Other entities

4

4

8

Total

827

1,244

1,218

Profit attributable to non-controlling interests (Millions of Euros)

 

2020

2019

2018

Garanti BBVA

579

524

585

BBVA Peru

126

236

227

BBVA Argentina

38

60

(18)

BBVA Colombia

6

11

9

BBVA Venezuela

2

(1)

(5)

Other entities

5

4

30

Total

756

833

827

(*)  See Note 3.

Dividends distributed to non-controlling interest of the Group during the year 20182020 are: Garanti Group €

233 million, BBVA Banco Continental Group €10879 million, BBVA ChileGaranti Group €1431 million, BBVA Banco FrancésColombia Group €13€4 million, and other SpanishGroup entities accounted for €10€ 4 million.

F-215


32.

F-158


32. Capital base and capital management  

32.132.1. Capital base

As of December 31, 2020, 2019 and 2018, 2017 and 2016, equityown funds is calculated in accordance to the applicable regulation of each periodyear on minimum capital base requirements for Spanish credit institutions –both as individual entities and as consolidated group– andthat establish how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market.

The minimumWith respect to the capital baserequirement the ECB, in its announcement on March 12, 2020, in reaction to COVID-19, has allowed the banks to use additional Tier 1 or Tier 2 capital instruments to meet partially the Pillar II (P2R) requirements establishedfor 2021, which is known as "Pillar 2 tiering." This measure has been reinforced by the current regulation are calculated accordingrelaxation of the Countercyclical Capital Buffer (CCyB) announced by various national macroprudential authorities and by other complementary measures published by the ECB. All of this has resulted in a reduction of 66 basis points in the CET1 requirement for BBVA, with that requirement standing at 8.59% and the requirement in terms of total capital at 12.75%, both requirements at consolidated level. The reduction in the requirement at the total ratio level is only around 2 basis points, as a result of the lower applicable countercyclical buffer.

From 2021 onwards, the BBVA Group has set the objective of maintaining a CET1 ratio at a consolidated level of between 11.5% -12.0%, increasing the target distance to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in said regulation and the internal corporate governance obligations.

minimum requirement (currently at 8.59 %) at 291-341 basis points. At the dateclosing of preparation of these consolidated financial statements, BBVA has not received an official communication of the ECB about the results of the SREP process which had been carried out during the financial year 2020, the CET1 ratio is within this target management range.

A reconciliation of the main figures between the accounting and regulatory own funds as of December 31, 2020, 2019 and 2018 and which will include requirements regarding the capital ratio (both at individual and consolidated level) applicable to BBVA and its Group as from the date indicated in that communication. As soon as this communication will be available, BBVA will disclose it to the markets by means of public relevant events.is shown below:

Eligible capital resources (Millions of Euros)

 

Notes

2020

2019

2018

Capital

26

3,267

3,267

3,267

Share premium

27

23,992

23,992

23,992

Retained earnings, revaluation reserves and other reserves

28

30,344

29,269

26,029

Other equity instruments, net

 

42

56

50

Treasury shares

29

(46)

(62)

(296)

Profit (loss) attributable to the parent company

6

1,305

3,512

5,400

Interim dividend

 

-

(1,084)

(1,109)

Total equity

 

58,904

58,950

57,333

Accumulated other comprehensive income (loss)

30

(14,356)

(10,226)

(10,223)

Non-controlling interest

31

5,472

6,201

5,764

Shareholders' equity

 

50,020

54,925

52,874

Goodwill and other intangible assets

 

(3,455)

(6,803)

(8,199)

Indirect and synthetic treasury shares

 

(320)

(422)

(135)

Deductions

 

(3,775)

(7,225)

(8,334)

Differences from solvency and accounting perimeter

 

(186)

(215)

(176)

Equity not eligible at solvency level

 

(186)

(215)

(176)

Other adjustments and deductions (1)

 

(3,128)

(3,832)

(4,049)

Common Equity Tier 1 (CET 1)

 

42,931

43,653

40,313

Additional Tier 1 before Regulatory Adjustments

 

6,666

6,048

5,634

Total Regulatory Adjustments to Additional Tier 1

 

-

-

-

Tier 1

 

49,597

49,701

45,947

Tier 2

 

8,548

8,304

8,756

Total Capital (Total Capital=Tier 1 + Tier 2)

 

58,145

58,005

54,703

 

 

 

 

 

Total Minimum equity required

 

45,042

46,540

41,576

Taking into account fully application (1) Other adjustments and deductions includes the amount of minority interest not eligible as capital, buffers since January 1, 2019amount of dividends not distributed and considering last capital requirement communicated from ECB, BBVA hasother deductions and filters set by the CRR.In addition it includes other remuneration to maintain since January 1, 2019  i) a CET1 ratio of shareholders (see Note 4)

9.26%F-159


at consolidated level and ii) a total capital ratio of 12.76% at consolidated level. This total consolidated capital ratio includes i) the minimum common equity tier 1 capital (CET1) requirement under Pillar 1 (4.5%); ii) the additional tier 1 capital (AT1) requirement under Pillar 1 (1.5%); iii) the tier 2 capital requirement under Pillar 1 (2%); iv) the CET1 capital requirement under Pillar 2 (1.5%); v) the capital conservation buffer (2.5% of CET1); vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and vii) the countercyclical capital buffer (0.01% of CET1).

The Group’s bank capitalown funds in accordance with the aforementioned applicable regulation considering entities scope required by the above regulation, as of December 31, 2020, 2019 and 2018 2017 and 2016 isare shown below:

Eligible capital resources (Millions of euros)

 

Notes

December 2018 (*)

December 2017

 December 2016

Capital

26

3,267

3,267

3,218

Share premium

27

23,992

23,992

23,992

Retained earnings, revaluation reserves and other reserves

28

22,963

23,590

21,805

Other equity instruments, net

28

50

54

54

Treasury shares

29

(296)

(96)

(48)

Attributable to the parent company

6

5,324

3,519

3,475

Attributable dividend

4

(975)

(1,043)

(1,510)

Total equity

 

54,325

53,283

50,985

Accumulated other comprehensive income

30

(7,215)

(6,939)

(3,622)

Non-controlling interest

31

5,764

6,979

8,064

Shareholders' equity

 

52,874

53,323

55,428

Intangible assets

 

(8,199)

(6,627)

(5,675)

Fin. treasury shares

 

(27)

(48)

(82)

Indirect treasury shares

 

(108)

(134)

(51)

Deductions

 

(8,334)

(6,809)

(5,808)

Temporary CET 1 adjustments

 

-

(273)

(129)

Capital gains from the Available-for-sale debt instruments portfolio

 

-

(256)

(402)

Capital gains from the Available-for-sale equity portfolio

 

-

(17)

273

Differences from solvency and accounting level

 

(176)

(189)

(120)

Equity not eligible at solvency level

 

(176)

(462)

(249)

Other adjustments and deductions

 

(4,053)

3,711

(2,001)

Common Equity Tier 1 (CET 1)

 

40,311

42,341

47,370

Additional Tier 1 before Regulatory Adjustments

 

5,634

6,296

6,114

Total Regulatory Adjustments of Additional Tier 1

 

-

(1,657)

(3,401)

Tier 1

 

45,945

46,980

50,083

Tier 2

 

8,754

8,798

8,810

Total Minimum equity required

 

41,607

40,370

37,923

Amount of capital CC1 (Millions of Euros)

 

 

 

 

 

2020

2019 (*)

2018 (*)

Capital and share premium

27,259

27,259

27,259

Retained earnings and equity instruments

29,974

29,127

25,896

Other accumulated income and other reserves

(14,023)

(10,133)

(10,130)

Minority interests

3,656

4,404

3,809

Net interim attributable profit

860

1,316

3,188

Common Equity Tier I (CET1) before other regulatory adjustments

47,726

51,974

50,022

Goodwill and intangible assets

(3,455)

(6,803)

(8,199)

Direct and indirect holdings in own Common Equity Tier I instruments

(366)

(484)

(432)

Deferred tax assets

(1,478)

(1,420)

(1,463)

Other deductions and filters (**)

504

386

386

Total common equity Tier 1 regulatory adjustments

(4,795)

(8,321)

(9,709)

Common equity TIER 1 (CET1)

42,931

43,653

40,313

Capital instruments and share premium accounts classified as liabilities and qualifying as Additional Tier I

6,130

5,400

5,005

Qualifying Tier 1 capital included in consolidated AT1 capital issued by subsidiaries and held by third parties

536

648

629

Additional Tier 1 (CET 1) before regulatory adjustments

6,666

6,048

5,634

Transitional CET 1 adjustments

-

-

-

Total regulatory adjustments to additional Tier 1

-

-

-

Additional Tier 1 (AT1)

6,666

6,048

5,634

Tier 1 (Common equity TIER 1+ additional TIER 1)

49,597

49,701

45,947

Capital instruments and share premium accounted as Tier 2

4,540

3,242

3,768

Qualifying Tier 2 capital included in consolidated T2 capital issued by subsidiaries and held by third parties

3,410

4,512

4,409

Credit risk adjustments

604

631

579

Tier 2 before regulatory adjustments

8,554

8,385

8,756

Tier 2 regulatory adjustments

(6)

(82)

-

Tier 2

8,548

8,304

8,756

Total capital (Total capital=Tier 1 + Tier 2)

58,145

58,005

54,703

Total RWA's

353,273

364,448

348,264

CET 1 (phased-in)

12.2%

12.0%

11.6%

Tier 1 (phased-in)

14.0%

13.6%

13.2%

Total capital (phased-in)

16.5%

15.9%

15.7%

(*) Provisional data.According to EBA Standards published in June 2020 (EBA / ITS / 2020/04), the table has been adapted according to the format established by the EBA in those rows that are applicable to the date of the report, between which is the transitory impact by IFRS 9 in CET1, which has been reclassified from the row "Common Equity Tier 1 before regulatory adjustments" as a regulatory adjustment of Common Equity Tier 1 capital, within the row "Other deductions and filters ".

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Capital Base

 

2018 (*)

2017

2016

Tier 1 (millions of euros) (a)

45,945

46,980

50,083

Exposure (millions of euros) (b)

705,406

700,443

747,216

Leverage ratio (a)/(b) (percentage)

6.51%

6.71%

6.70%

(**) Provisional dataAdditionally, it includes other shareholder remuneration (see Note 4).

As of December 31, 20182020 Common Equity Tier 1 (CET1) phased-in ratio stood at 11.6% (in12.15% which represented and in increase of +17 basis points with respect to 2019. In terms of CET1 fully loaded, CET1the consolidated ratio stood at 11.3%)11.73% (which represents a reduction of 1 basis point compared to 2019). Excluding the effect of the phased-in calendar in minority interest and deductions that goes from 80% in 2017 to 100% in 2018, and including the positive impact of the sale of the stake in BBVA Chile (+50 bps), the CETI phased-in ratio has increased by +48 bps. This increaseThe difference is mainly explained by the generationeffect of profit, netthe transitory adjustments for the treatment in the solvency ratios of dividend paymentsthe impacts of IFRS 9 and remunerations of AT1 instruments and dividends receivedsubsequent modifications in response to the COVID-19 pandemic.

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This evolution had been affected by the Bank, andpositive BBVA´s organic profit generation which has it made possible to cover the stability in the levelgrowth of risk weighted assets (RWA) and the relative stabilization of the financial markets during the second half of the year, largely motivated by the measures to stimulate the economy and the announced guaranteed programs by the different national and supranational authorities and the approval by the Parliament and the European Council of regulation 2020/873 (known as CRR quick fix).

This CET1 phased-in ratio includesRegarding the shareholder remuneration proposal in relation to the Group's 2020 result, explained in Note 4, this amount has been anticipated as a prudential buffer in the Group's capital ratios, with an impact of 11 basis points.

Phased-in additional Tier 1 capital (AT1) stood at 1, 89% at the initial implementationend of IFRS9.December 2020, an improvement of +23 basis points compared to the previous year. In this context,respect, in July 2020, the European Commissionfirst green CoCo from a financial institution worldwide was issued for an amount of €1,000 million, with a coupon of 6% and Parliament have established temporary arrangements that are voluntaryan option for early amortization in five and a half years. Moreover, a CoCo of €1,500 million (coupon of 6.75%) was amortized in February, on the institutions, adapting the impact of IFRS9 on capital ratios. BBVA has informed the supervisory board its adherence to these arrangements.

In addition, transferfirst date of the real estate businessearly amortization option; in January 2021, the early amortization options were implemented for two preferential issuances, issued by BBVA International Preferred and Caixa Sabadell Preferents for 31 million pounds sterling and €90m respectively; and finally, for a third preferential issuance issued by Caixa Terrassa Societat de Participacions Preferents, the bondholders' meeting has approved its early amortization on January 29, 2021 (versus the amortization option date of BBVA in Spain to Cerberus has no material impact onAugust 10, 2021). As of December 31, 2020, these issuances do not form part of the ratios (see Note 3).Group's capital adequacy ratios.

TIER1The phased-in Tier 2 ratio stood at 13.2% as2.42%, an increase of December 31, 2018. During+14 basis points over the year the Group has computed two newprevious years. Two Tier 2 issuances of contingent convertible bonds (CoCos) as TIER1 instruments for US$1,000 million and €1,000 million, respectively. In addition, the Group has no longer includes a US$1,500 million issuance which was early redeemedwere issued in May 2018 and announced in January 2019 its intention to exercise the early redemption of2020: an issuance of €1,500 million. The net effect on TIER1 phased-in ratio was -15 bps.

Regarding TIER2 ratio,€1,000 million in the third quarter the Group has received authorizationJanuary, with a maturity of 10 years and an amortization option from the supervisor to includefifth year, with a subordinatedcoupon of 1%; and another issuance of US$300 million pounds sterling in July, with a maturity of 11 years and no longer includes BBVA Chile subordinated instruments. As resultwith an early amortization option from the sixth year, with a coupon of the above mentioned effects, the total capital phased-in ratio stood at 15.7%3.104%.

In addition, the Group has continued its program to meetRegarding the MREL requirements by carrying two public senior non-preferred instruments by a total amount of €2.5 billion. In terms of MREL (which stands for Minimum(Minimum Requirement for own funds and Eligible Liabilities), requirements, BBVA has continued its issuance plan during 2020 by closing two public issuances of non-preferred senior debt, one in January 2020 for €1,250m with a maturity of seven years and a coupon of 0.5%, and another in February 2020 for CHF 160m with a maturity of six and a half years and a coupon of 0.125%. In May 2020, the first issuance of a COVID-19 social bond by a private financial institution in Europe was completed. This is a five-year senior preferred bond, for €1,000 million and a coupon of 0.75%. Finally, in order to reach, by Januaryoptimize the MREL requirement, in September BBVA issued preferred senior debt of USD 2,000 million in two tranches, with maturities of three and five years, for USD 1,200 million and USD 800 million and coupons of 0.875% and 1.125% respectively.

The Group estimates that, following the entry into force of Regulation (EU) No. 2019/877 of the European Parliament and of the Council of May 20 (which, among other matters, establishes the MREL in terms of RWAs and new periods for said requirement's transition and implementation), the current structure of shareholders’ funds and admissible liabilities enables compliance with the MREL.

32.2. Leverage ratio

The leverage ratio (LR) is a regulatory measure complementing capital designed to enable the soundness and financial strength of institutions in terms of indebtedness. This measurement can be used to estimate the percentage of the assets and off-balance sheet arrangements financed with Tier 1 2020, ancapital, being the carrying amount of the assets used in this ratio adjusted to reflect the bank’s current or potential leverage of a given balance-sheet position (Leverage ratio exposure).

Breakdown of leverage ratio as of December 31, 2020, 2019 and 2018, calculated according to CCR, is as follows:

Leverage ratio

 

 

2020

2019

2018

Tier 1 (millions of euros) (a)

 

49,597

49,701

45,947

Exposure (millions of euros) (b)

 

741,095

731,087

705,299

Leverage ratio (a)/(b) (percentage)

 

6.69%

6.80%

6.51%

32.3. Capital management

The aim of capital management within BBVA and the Group is to assist that both BBVA and the Group have the necessary capital at any given time to develop the corporate strategy reflected in the Strategic Plan, in line with the risk profile set out in the Group Risk Appetite Framework (RAF).

In this regard, BBVA's capital management is also part of the most relevant forward-looking strategic decisions in the Group's management and monitoring, which include the Annual Budget and the Liquidity and Funding Plan, with which it is coordinated — all with the aim of achieving the Group's overall strategy.

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Capital must be allocated optimally in order to meet the need to preserve the solvency of BBVA and the Group at all times. Together with the Group's solvency risk profile included in the RAF, this optimal allocation serves as a guide for the Group's capital management and means a continuous need for a solid capital position that makes it possible to:

·Anticipate ordinary and extraordinary consumption that may occur, even under stress;

·Promote the development of the Group's business and align it with capital and profitability objectives by allocating resources appropriately and efficiently;

·(Cover all risks—including potential risks—to which it is exposed¬;

·Comply with regulatory and internal management requirements at all times; and

·Remunerate BBVA shareholders in accordance with the Shareholder Remuneration Policy in force at any given time.

The areas involved in capital management in the Group shall follow and respect the following principles in their respective areas of responsibility:

·Supporting that capital management is integrated and consistent with the Group's Strategic Plan, RAF, Annual Budget and other strategic-prospective processes, to help achieve the Group's long-term sustainability.

·Taking into account both the applicable regulatory and supervisory requirements and the risks to which the Group is—or may be—exposed when conducting its business (economic vision), when establishing a target capital level, all while adopting a forward-looking vision that takes adverse scenarios into consideration.

·Carrying out efficient capital allocation that promotes good business development, supporting that expectations for the evolution of activity meet the strategic objectives of the Group and anticipating the ordinary and extraordinary consumption that may occur.

·Enabling compliance with the solvency levels, including the minimum requirement for own funds and eligible liabilities equal to 15.08% of the total liabilities and own funds of its resolution group (BBVA, S.A. and its subsidiaries from the same European resolution group) as of December 31, 2016. This MREL requirement would be equal to 28.04% in terms of risk-weighted assets of the resolution group as of December 31, 2016. The Group believes that it is currently in line with this requirement.

Risk-weighted assets (RWA) have decreased during the year, largely due to the sale of BBVA Chile and the depreciation of currencies against euro. The Group has performed three securitizations during the year: a traditional one in June of an automobile loan portfolio of consumer finance amounting to €800 million, and two synthetic ones in March and December, on which the European Investment Fund (EIF, a subsidiary of the European Investment Bank) provided a financial guarantee. These three securitizations have produced a positive impact on capital of €971 million via RWA release. Additionally, during the first half of the year, BBVA has received an authorization from the ECB to update the calculation of RWA on structural FX risk under the standard model.

F-217


A reconciliation of the consolidated accounting and regulatory perimeters as of December 31st 2018 is presented below (provisional data):

Public balance sheet headings (Millions of euros)

 

Public balance sheet

Insurance companies and real estate companies (1)

Jointly-controlled entities and other adjustments (2)

Regulatory balance sheet

Cash, cash balances at central banks and other demand deposits

58,196

(3)

103

58,296

Financial assets held for trading

90,117

1,277

-

91,394

Non- trading financial assets mandatorily at fair value through profit or loss

5,135

(2,768)

-

2,367

Financial assets designated at fair value through profit or loss

1,313

(1,313)

-

-

Financial assets designated at fair value through other comprehensive income

56,337

(14,318)

-

42,019

Financial assets at amortized cost

419,660

(6,279)

593

413,974

Hedging derivatives

2,892

(87)

-

2,805

Fair value changes of the hedged items in portfolio hedges of interest rate risk

(21)

-

-

(21)

Investments in entities accounted for using the equity method

1,578

2,587

(80)

4,085

Non- current assets and disposal groups held for sale

2,001

(2)

2

2,001

Other

39,481

715

3

40,199

Total assets

676,689

(20,191)

621

657,119

(1)  Correspond to balances of entities fully consolidated in the public balance sheet but consolidated by the equity method in the regulatory balance sheet.

(2)  Correspond to intragroup adjustments and other consolidation adjustments.

32.2  Capital management

Capital management in the BBVA Group has a twofold aim:(MREL), required at any given time.

·           Maintain a level of capitalization according to the business objectivesCompensating BBVA shareholders in all countries in which it operatesan adequate and simultaneously,sustainable manner.

·           MaximizeOptimizing the returncost of all instruments used for the purpose of meeting the target capital level at any given time

To achieve the aforementioned principles, capital management will be based on shareholders’ funds through the efficient allocationfollowing essential elements:

·An adequate governance and management scheme, both at the corporate body level and at the executive level.

·Planning, managing and monitoring capital properly, using the measurement systems, tools, structures, resources and quality data necessary to do so.

·A set of metrics, which is duly updated, to facilitate the tracking of the capital situation and to identify any relevant deviations from the target capital level.

·A transparent, correct, consistent and timely communication and dissemination of capital toinformation outside the different units, a good management ofGroup.

·An internal regulatory body, which is duly updated, including the balance sheetregulations and appropriate use of the various instruments forming the basis of the Group’s equity: shares, preferred securities and subordinate debt.

Thisprocedures that, support adequate capital management is carried out determining the capital base and the solvency ratios established by the prudential and minimum capital requirements also have to be met for the entities subject to prudential supervision in each country.

The current regulation allows each entity to apply its own internal ratings-based (IRB) approach to risk assessment and capital management, subject to Bank of Spain approval. The BBVA Group carries out an integrated management of these risks in accordance with its internal policies and its internal capital estimation model has received the Bank of Spain’s approval for certain portfolios (see Note 7).management.

F-218F-162  


33. Commitments and guarantees given

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:

Loan commitments, financial guarantees and other commitments (Millions of euros)

Commitments and guarantees given (Millions of Euros)

Commitments and guarantees given (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Loan commitments given

7.3.2

118,959

94,268

107,254

7.2.2

132,584

130,923

118,959

of which: defaulted

 

247

537

411

Of which: defaulted

 

265

270

247

Central banks

 

-

1

 

-

General governments

 

2,318

2,198

4,354

 

2,919

3,117

2,318

Credit institutions

 

9,635

946

1,209

 

11,426

11,742

9,635

Other financial corporations

 

5,664

3,795

4,155

 

5,862

4,578

5,664

Non-financial corporations

 

58,405

58,133

71,710

 

71,011

65,475

58,405

Households

 

42,936

29,195

25,824

 

41,366

46,011

42,936

Financial guarantees given (*)

7.3.2

16,454

16,545

18,267

of which: defaulted

 

332

278

Financial guarantees given

7.2.2

10,665

10,984

16,454

Of which: defaulted (*)

 

290

224

332

Central banks

 

2

-

 

1

-

2

General governments

 

159

248

103

 

132

125

159

Credit institutions

 

1,274

1,158

1,553

 

339

995

1,274

Other financial corporations

 

730

3,105

722

 

587

583

730

Non-financial corporations

 

13,970

11,518

15,354

 

9,376

8,986

13,970

Households

 

319

516

534

 

231

295

319

Other commitments and guarantees given

7.3.2

35,098

45,738

42,592

of which: defaulted

 

408

461

402

Other commitments given

7.2.2

36,190

39,209

35,098

Of which: defaulted (*)

 

477

506

408

Central banks

 

1

7

12

 

124

1

General governments

 

248

227

372

 

199

521

248

Credit institutions

 

5,875

15,330

9,880

 

5,285

5,952

5,875

Other financial corporations

 

2,990

3,820

4,892

 

2,902

2,990

Non-financial corporations

 

25,723

25,992

27,297

 

27,496

29,682

25,723

Households

 

261

362

138

 

182

151

261

Total Loan commitments and financial guarantees

 

170,511

156,551

168,113

Total

7.2.2

179,440

181,116

170,511

(*)  Non performing Non-performing financial guarantees given amounted to 740, €739€767, €731 and €680€740 million, respectively, as of December 31, 2018, December 31, 2017,2020, 2019 and December 31, 2016, respectively.2018.

As of December 31, 2018,2020, the provisions for loan commitments given, financial guarantees given and other commitments and guarantees given, recorded in the consolidated balance sheet amounted 338€280 million, €252€182 million and €45266€ million, respectively.respectively (see Note 24).

Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered to be the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

In the years 2018, 20172020, 2019 and 2016,2018, no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed.guaranteed.

34. Other contingent assets and liabilities

As of December 31,2020, 2019 and 2018 2017 and 2016 there were no material contingent assets or liabilities other than those disclosed in the accompanying notesNotes to the consolidated financial statements.statements

F-219.


35. Purchase and sale commitments and future payment obligations

The breakdown of purchase and sale commitments of the BBVA Group as of December 31, 2018, 2017are disclosed in Notes 10, 14 and 2016 is as follows:22.

Purchase and Sale Commitments (Millions of euros)

 

Notes

2018

2017

2016

Financial instruments sold with repurchase commitments

 

42,993

40,077

46,562

Financial liabilities held for trading

10

36,815

-

-

Central Banks

 

10,511

-

-

Credit Institutions

 

14,839

-

-

General governments

 

11,466

-

-

Financial liabilities at amortized cost

22

6,178

40,077

46,562

Central Banks

 

375

6,155

4,649

Credit Institutions

 

4,593

24,843

28,421

Customer deposits

 

1,209

9,079

13,491

Financial instruments purchased with resale commitments

 

28,034

26,368

22,921

Financial assets held for trading

10

27,262

-

-

Central Banks

 

2,163

-

-

Credit Institutions

 

13,305

-

-

General governments

 

11,794

-

-

Financial assets at amortized cost

14

772

26,368

22,921

Central Banks

 

-

305

81

Credit Institutions

 

478

13,861

15,561

General governments

 

294

12,202

7,279

A breakdown of the maturity of otherFuture payment obligations not includedmainly correspond to leases payable derived from operating lease contracts, as detailed in previous notes, due after December 31, 2018 is provided below:Note 22.5, and estimated employee benefit payments, as detailed in Note 25.1.3.

Maturity of Future Payment Obligations (Millions of euros)

 

Up to 1 Year

1 to 3 Years

3 to 5 Years

Over 5 Years

Total

Finance leases

-

-

-

-

-

Operating leases

251

253

554

1,879

2,937

Purchase commitments

28

-

-

-

28

Technology and systems projects

7

-

-

-

7

Other projects

20

-

-

-

20

Total

279

253

554

1,879

2,965

F-220


F-163


36. Transactions on behalf of third parties

As of December 31, 2018, 20172020, 2019 and 20162018 the details of the mostrelevant transactions on behalf of third parties are as follows:

Transactions on Behalf of Third Parties (Millions of euros)

Transactions on behalf of third parties. Breakdown by concepts (Millions of Euros)

Transactions on behalf of third parties. Breakdown by concepts (Millions of Euros)

2018

2017

2016

2020

2019

2018

Financial instruments entrusted to BBVA by third parties

628,417

624,822

637,761

357,022

693,497

689,157

Conditional bills and other securities received for collection

13,484

14,775

16,054

10,459

13,133

13,484

Securities lending

4,866

5,485

3,968

5,285

7,129

4,866

Total

646,768

645,081

657,783

372,766

713,759

707,508

As of December 31, 2018, 2017 and 2016 the customer funds managed by the BBVA Group are as follows:

Customer Funds by Type (Millions of euros)

 

2018

2017

2016

Asset management by type of customer (*):

 

 

 

Collective investment

61,393

60,939

55,037

Pension funds

33,807

33,985

33,418

Customer portfolios managed

29,953

36,901

40,805

Of which:

 

 

 

Portfolios managed on a discretionary basis

23,657

19,628

18,165

Other resources

2,949

3,081

2,831

Customer resources distributed but not managed by type of product:

 

 

 

Collective investment

3,468

3,407

3,695

Insurance products

32

35

39

Other

-

-

-

Total

131,603

138,347

135,824

(*)  Excludes balances from securitization funds.

F-221


37.   Net interest income

37.1  Interest income37. Net interest income

37.1. Interest and other income

The breakdown of the interest income and other income recognized in the accompanying consolidated income statement is as follows:

Interest income and other income. Breakdown by Origin (Millions of euros)

 

Notes

2018

2017

2016

Central Banks

 

482

406

229

Loans and advances to credit institutions

 

458

410

217

Loans and advances to customers

 

22,831

22,699

21,608

Debt securities

 

4,395

3,809

4,128

Held for trading

 

1,552

1,263

1,014

Other portfolios

 

2,843

2,546

3,114

Adjustments of income as a result of hedging transactions

 

(201)

427

(385)

Cash flow hedges (effective portion)

 

(3)

15

12

Fair value hedges

 

(198)

412

(397)

Insurance activity

 

1,142

1,058

1,219

Other income

 

722

487

692

Total

55.2

29,831

29,296

27,708

Of which:

 

 

 

 

Financial assets at fair value through other comprehensive income

 

2,306

1,962

-

Financial assets at amortized cost

 

24,668

23,803

24,578

Other

 

2,856

3,531

3,130

Interest and other income. Breakdown by origin (Millions of Euros)

 

2020

2019

2018

Financial assets held for trading

1,189

2,037

2,055

Financial assets designated at fair value through profit or loss

8

5

4

Financial assets at fair value through other comprehensive income

1,392

1,629

1,620

Financial assets at amortized cost

18,357

22,741

22,029

Insurance activity

1,021

1,079

1,141

Adjustments of income as a result of hedging transactions

(112)

(72)

(162)

Other income (*)

534

343

268

Total

22,389

27,762

26,954

(*) Includes accrued interest following TLTRO III transactions in 2020 and 2019 (see Note 22).

The amounts recognized in consolidated equity in connection with hedging derivatives for the years ended December 31, 2020, 2019 and 2018 and the amounts derecognized from the consolidated equity and taken to the consolidated income statementstatements during thethose years are givenincluded in the accompanying “Consolidated statements of recognized income and expenses”.

 

37.237.2. Interest expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Interest Expenses. Breakdown by Origin (Millions of euros)

 

2018

2017

2016

Central banks

80

123

192

Deposits from credit institutions

2,023

1,880

1,367

Customers deposits

6,523

5,814

5,766

Debt certificates

1,936

1,930

2,323

Adjustments of expenses as a result of hedging transactions

(323)

665

(574)

Cash flow hedges (effective portion)

46

38

42

Fair value hedges

(368)

627

(616)

Cost attributable to pension funds

119

125

96

Insurance activity

607

682

846

Other expenses

1,274

316

634

Total

12,239

11,537

10,648

Interest expense. Breakdown by origin (Millions of Euros)

 

2020

2019

2018

Financial liabilities held for trading

742

1,229

1,210

Financial liabilities designated at fair value through profit or loss

61

6

41

Financial liabilities at amortized cost

6,346

9,953

9,757

Adjustments of expense as a result of hedging transactions

(413)

(250)

(351)

Insurance activity

721

753

832

Cost attributable to pension funds

57

85

71

Other expense

284

196

108

Total

7,797

11,972

11,669

 

F-222F-164  


37.3  Average return on investments and average borrowing cost

The detail of the average return on investments in the years ended December 31, 2018, 2017 and 2016 is as follows:

Assets (Millions of euros)

 

 

2018

 

 

2017

 

 

2016

 

 

Average Balances

Interest income

Average Interest Rates (%)

Average Balances

Interest income

Average Interest Rates (%)

Average Balances

Interest income

Average Interest Rates (%)

Cash and balances with central banks and other demand deposits

42,730

135

0.32

33,917

83

0.25

26,209

10

0.04

Securities portfolio and derivatives

179,672

5,707

3.18

177,164

4,724

2.67

202,388

5,072

2.51

Loans and advances to central banks

5,518

258

4.67

10,945

258

2.36

15,326

229

1.50

Loans and advances to credit institutions

25,634

657

2.56

26,420

485

1.83

28,078

218

0.78

Loans and advances to customers

378,996

22,804

6.02

407,153

23,261

5.71

410,895

21,853

5.32

Euros

181,668

3,381

1.86

196,893

3,449

1.75

201,967

3,750

1.86

Foreign currency

197,328

19,423

9.84

210,261

19,812

9.42

208,928

18,104

8.67

Other assets

46,343

270

0.58

48,872

485

0.99

52,748

325

0.62

Total

678,893

29,831

4.39

704,471

29,296

4.16

735,645

27,708

3.77

The average borrowing cost in the years ended December 31, 2018, 2017 and 2016 is as follows:

Liabilities (Millions of euros)

 

 

2018

 

 

2017

 

 

2016

 

 

Average Balances

Interest expenses

Average Interest Rates (%)

Average Balances

Interest expenses

Average Interest Rates (%)

Average Balances

Interest expenses

Average Interest Rates (%)

Deposits from central banks and credit institutions

65,044

2,192

3.37

90,619

2,212

2.44

101,975

1,866

1.83

Customer deposits

370,078

6,559

1.77

392,057

7,007

1.79

398,851

5,944

1.49

  Euros

178,370

337

0.19

186,261

461

0.25

195,310

766

0.39

  Foreign currency

191,709

6,222

3.25

205,796

6,546

3.18

203,541

5,178

2.54

Debt certificates

75,927

1,753

2.31

84,221

1,631

1.94

89,876

1,738

1.93

Other liabilities

115,638

1,735

1.50

82,699

687

0.83

89,328

1,101

1.23

Equity

52,206

-

-

54,874

-

-

55,616

-

-

Total

678,893

12,239

1.80

704,471

11,537

1.64

735,645

10,648

1.45

F-223


The change in the balance under the headings “Interest income and other income” and “Interest expense” in the accompanying consolidated income statements is the result of exchange rate effect, changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:

Interest Income and Expenses : Change in the Balance (Millions of euros)

 

2018 / 2017

2017 / 2016

 

Volume Effect (1)

Price

Effect  (2)

Total Effect

Volume Effect (1)

Price

Effect  (2)

Total Effect

Cash and balances with central banks and other demand deposits

22

30

51

3

71

74

Securities portfolio and derivatives

67

916

983

(632)

285

(347)

Loans and advances to Central Banks

(128)

128

-

(66)

94

29

Loans and advances to credit institutions

(14)

187

172

(13)

279

266

Loans and advances to customers

(1,609)

1,152

(456)

(199)

1,606

1,408

 Euros 

(267)

199

(68)

(94)

(206)

(301)

 Foreign currencies

(1,219)

830

(389)

115

1,593

1,708

Other assets

(25)

(190)

(215)

(24)

184

160

Interest income

-

-

535

-

-

1,588

Deposits from central banks and credit institutions

(624)

604

(20)

(208)

554

346

Customer deposits

(393)

(55)

(448)

(101)

1,164

1,063

 Euros 

(20)

(104)

(124)

(35)

(269)

(305)

 Foreign currencies

(448)

124

(324)

57

1,311

1,368

Debt securities issued

(161)

282

122

(109)

3

(106)

Other liabilities

274

774

1,048

(82)

(332)

(414)

Interest expenses

-

-

702

-

-

889

Net Interest Income

-

-

(167)

-

-

699

(1)  The volume effect is calculated as the result of the interest rate of the initial period multiplied by the difference between the average balances of both periods.

(2)  The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the interest rates of both periods.

38. Dividend income

The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 39)39), as can be seen in the breakdown below:

Dividend Income (Millions of euros)

 

2018

2017

2016

Dividends from:

 

 

 

Financial assets held for trading and financial assets at fair value through profit or loss

19

145

161

Financial assets at fair value through other comprehensive income

138

188

307

Total

157

334

467

Dividend income (Millions of Euros)

 

 

2020

2019

2018

Non-trading financial assets mandatorily at fair value through profit or loss

 

15

26

19

Financial assets at fair value through other comprehensive income

 

122

126

126

Total

 

137

153

145

39. Share of profit or loss of entities accounted for using the equity method

Net incomeResults from “Investments in Entities Accounted“Share of profit or loss of entities accounted for Usingusing the Equity Method”equity method” resulted in a negative impact of €7€39 million as of December 31, 2018,2020, compared with the positivenegative impact of €4€42 and €25the negative impact of €7 million recorded as of December 31, 20172019 and 2016,2018, respectively.

 

F-224


40. Fee and commission income and expense

The breakdown of the balance under these headingheadings in the accompanying consolidated income statements is as follows:

Fee and Commission Income (Millions of euros)

Fee and commission income. Breakdown by origin (Millions of Euros)

Fee and commission income. Breakdown by origin (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Bills receivables

39

46

52

 

27

39

Demand accounts

451

507

469

 

322

301

249

Credit and debit cards

2,900

2,834

2,679

Credit and debit cards and ATMs

 

2,089

2,862

2,690

Checks

194

212

207

 

136

198

188

Transfers and other payment orders

605

601

578

 

555

623

595

Insurance product commissions

171

192

178

 

159

158

169

Commitment fees

223

231

237

Contingent risks

390

396

406

Asset Management

1,023

923

839

Loan commitments given

 

185

187

183

Other commitments and financial guarantees given

 

349

377

374

Asset management

 

1,100

1,026

986

Securities fees

325

385

335

 

367

294

301

Custody securities

122

 

135

123

Other fees and commissions

689

700

701

 

556

599

564

Total

7,132

7,150

6,804

 

5,980

6,786

6,462

 

 

The breakdown of fee and commission expense under these heading in the accompanying consolidated income statements is as follows:

Fee and Commission Expense (Millions of euros)

Fee and commission expense. Breakdown by origin (Millions of Euros)

Fee and commission expense. Breakdown by origin (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Demand accounts

 

5

6

11

Credit and debit cards

1,502

1,458

1,334

 

1,130

1,566

1,403

Transfers and other payment orders

96

102

 

97

81

36

Commissions for selling insurance

48

60

63

 

54

54

48

Custody securities

 

52

30

29

Other fees and commissions

607

610

587

 

519

548

531

Total

2,253

2,229

2,086

 

1,857

2,284

2,059

F-225F-165  


 

41. Gains (losses) on financial assets and liabilities net and Exchange differences, hedge accounting and exchange differences, net

The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statement is as follows:

Gains (losses) on financial assets and liabilities and exchange differences: Breakdown by Heading of the Consolidated Income Statements (Millions of euros)

 

2018

2017

2016

Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

216

985

1,375

Financial assets at amortized cost

51

133

95

Other financial assets and liabilities

164

852

1,281

Gains or losses on financial assets and liabilities held for trading, net

707

218

248

Reclassification of financial assets from fair value through other comprehensive income

-

 

 

Reclassification of financial assets from amortized cost

-

 

 

Other gains or (-) losses

707

 

 

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

96

 

 

Reclassification of financial assets from fair value through other comprehensive income

-

 

 

Reclassification of financial assets from amortized cost

-

 

 

Other gains or (-) losses

96

 

 

Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net

143

(56)

114

Gains or losses from hedge accounting, net

72

(209)

(76)

Subtotal Gains or (losses) on financial assets and liabilities

1,234

938

1,661

Exchange Differences

(9)

1,030

472

Total

1,223

1,968

2,133

Gains (losses) on financial assets and liabilities, hedge accounting and exchange differences, net. Breakdown by heading (Millions of Euros)

 

 

2020

2019

2018

Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net

 

139

186

191

Financial assets at amortized cost

 

106

44

37

Other financial assets and liabilities

 

33

141

155

Gains (losses) on financial assets and liabilities held for trading, net

 

777

419

640

Reclassification of financial assets from fair value through other comprehensive income

 

-

-

-

Reclassification of financial assets from amortized cost

 

-

-

-

Other gains (losses)

 

777

419

640

Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net

 

208

143

96

Reclassification of financial assets from fair value through other comprehensive income

 

-

-

-

Reclassification of financial assets from amortized cost

 

-

-

-

Other gains (losses)

 

208

143

96

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net

 

56

(98)

139

Gains (losses) from hedge accounting, net

 

7

55

69

Subtotal gains (losses) on financial assets and liabilities

 

1,187

705

1,136

Exchange differences, net

 

359

581

13

Total

 

1,546

1,286

1,148

F-226


The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:

Gains (losses) on financial assets and liabilities: Breakdown by nature of the Financial Instrument (Millions of euros)

Gains (losses) on financial assets and liabilities. Breakdown by nature of the financial instrument (Millions of Euros)

Gains (losses) on financial assets and liabilities. Breakdown by nature of the financial instrument (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Debt instruments

354

545

906

 

848

945

354

Equity instruments

(253)

845

459

 

(28)

1,336

(253)

Trading derivatives and hedge accounting

 

277

(1,133)

858

Loans and advances to customers

(172)

97

65

 

128

78

(190)

Trading derivatives and hedge accounting

927

(470)

109

Customer deposits

240

(96)

87

 

(79)

(26)

239

Other

137

18

35

 

42

(497)

127

Total

1,233

938

1,661

 

1,187

705

1,136


The breakdown of the balance of the impact of the derivatives (trading and hedging) under this heading in the accompanying consolidated income statements is as follows:

Derivatives - Hedge accounting (Millions of euros)

Derivatives - Hedge accounting (Millions of Euros)

Derivatives - Hedge accounting (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Derivatives

 

 

-

-

Interest rate agreements

90

165

431

 

269

(85)

61

Securities agreements

294

(139)

86

 

(36)

(1,072)

298

Commodity agreements

(2)

99

(29)

 

1

5

(2)

Credit derivative agreements

(109)

(564)

(118)

 

(89)

74

(109)

Foreign-exchange agreements

606

315

186

 

88

(75)

565

Other agreements

(24)

(137)

(371)

 

37

(35)

(24)

Subtotal

856

(261)

185

 

270

(1,187)

790

Hedging Derivatives Ineffectiveness

 

Hedging derivatives ineffectiveness

 

-

-

Fair value hedges

87

(177)

(76)

 

5

55

68

Hedging derivative

(150)

(236)

(330)

 

(151)

(36)

(135)

Hedged item

237

59

254

 

156

91

203

Cash flow hedges

(15)

(32)

-

 

2

-

1

Subtotal

72

(209)

(76)

 

7

55

69

Total

927

(470)

109

 

277

(1,133)

858

F-166


In addition, in the years ended December 31, 2018, 20172020, 2019 and 2016,2018, under the heading “Gains or losses on financial assets and liabilities held for trading, net” of“Exchange differences, net" in the accompanying consolidated income statement, netstatements negative amounts of negative €113€57 million, positive €235€225 million and positive €151€113 million, respectively, were recognized for transactions with foreign exchange trading derivatives.

 

F-227


42. Other operating income and expense  

The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:

Other operating income (Millions of Euros)

 

2020

2019

2018

Gains from sales of non-financial services

244

258

458

Hyperinflation adjustment (*)

94

146

120

Other operating income

154

235

351

Total

492

639

929

(*) See Note 2.2.19.

Other operating income (Millions of euros)

 

2018

2017

2016

Gains from sales of non-financial services

458

1,109

882

Of which: Real estate

283

884

588

Other

491

330

390

Of which: net profit from building leases

21

61

76

Total

949

1,439

1,272

The breakdown of the balance under the heading “Other operating expense” in the accompanying consolidated income statements is as follows:

Other operating expense (Millions of euros)

 

2018

2017

2016

Change in inventories

292

886

617

Of Which: Real estate

248

816

511

Other

1,808

1,337

1,511

Total

2,101

2,223

2,128

Other operating expense (Millions of Euros)

 

 

2020

2019

2018

Change in inventories

 

124

107

292

Contributions to guaranteed banks deposits funds

 

800

746

670

Hyperinflation adjustment (*)

 

348

538

494

Other operating expense

 

390

551

565

Total

 

1,662

1,943

2,021

(*) See Note 2.2.19.

 

F-228


43. Income and expense from insurance and reinsurance contracts

The detail of the headings “Income and expense from insurance and reinsurance contracts” in the accompanying consolidated income statements is as follows:

Income and expense from insurance and reinsurance contracts (Millions of Euros)

 

 

2020

2019

2018

Income from insurance and reinsurance contracts

 

2,497

2,890

2,949

Expense from insurance and reinsurance contracts

 

(1,520)

(1,751)

(1,894)

Total

 

977

1,138

1,055

Other operating income and expense on insurance and reinsurance contracts (Millions of euros)

 

2018

2017

2016

Income on insurance and reinsurance contracts

2,949

3,342

3,652

Expenses on insurance and reinsurance contracts

(1,894)

(2,272)

(2,545)

Total

1,055

1,069

1,107

F-167


The table below shows the contribution of each insurance product to the Group´s income for the years ended December 31, 2018, 20172020, 2019 and 2016:2018:

Income by type of insurance product (Millions of euros)

Income by type of insurance product (Millions of Euros)

Income by type of insurance product (Millions of Euros)

2018

2017

2016

2020

2019

2018

Life insurance

682

604

634

497

631

682

Individual

486

346

268

439

477

486

Savings

56

38

30

92

116

56

Risk

430

308

238

346

361

430

Group insurance

196

258

366

59

154

196

Savings

39

(4)

8

5

26

39

Risk

157

263

357

54

127

157

Non-Life insurance

373

464

474

480

508

373

Home insurance

110

118

131

91

90

110

Other non-life insurance products

263

346

342

389

418

263

Total

1,055

1,069

1,107

977

1,138

1,055

 

F-229


44. Administration costs

44.1  44.1. Personnel expensePersonnel expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:  

Personnel Expenses (Millions of euros)

Personnel expense (Millions of Euros)

Personnel expense (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Wages and salaries

 

4,786

5,163

5,267

 

3,610

4,103

4,031

Social security costs

 

722

761

784

 

671

725

670

Defined contribution plan expense

25

89

87

25

72

95

72

Defined benefit plan expense

25

58

62

67

25

49

58

Other personnel expenses

 

465

497

516

Other personnel expense

 

293

379

373

Total

 

6,120

6,571

6,722

 

4,695

5,351

5,205

The breakdown of the average number of employees in the BBVA Group in the year ended December 31, 2018, 2017 and 2016 by professional categories and geographical areas is as follows:

Average Number of Employees

 

2018

2017

2016

Spanish banks

 

 

 

Management Team

1,047

1,026

1,044

Other line personnel

21,840

22,180

23,211

Clerical staff

2,818

3,060

3,730

Branches abroad

589

603

718

Subtotal

26,294

26,869

28,703

Companies abroad

 

 

 

Mexico

31,655

30,664

30,378

United States

9,786

9,532

9,710

Turkey

22,322

23,154

23,900

Venezuela

3,631

4,379

5,097

Argentina

6,074

6,173

6,041

Colombia

5,185

5,374

5,714

Peru

5,879

5,571

5,455

Other

3,767

5,501

5,037

Subtotal

88,299

90,348

91,332

Pension fund managers

395

362

335

Other non-banking companies

14,349

14,925

16,307

Total

129,336

132,504

136,677

Of which:

 

 

 

  Men

59,547

60,730

62,738

 Women 

69,790

71,774

73,939

Of which:

 

 

 

 BBVA, S.A.

26,294

26,869

25,979

The breakdown of the number of employees in the BBVA Group as of December 31, 2018, 2017 and 2016 by category and gender is as follows:

Number of Employees at the period end. Professional Category and Gender

 

2018

2017

2016

 

Male

Female

Male

Female

Male

Female

Management Team

1,197

339

1,244

342

1,331

350

Other line personnel

37,461

38,918

38,670

39,191

38,514

39,213

Clerical staff

19,315

28,397

20,639

31,770

22,066

33,318

Total

57,973

67,654

60,553

71,303

61,911

72,881

F-230


44.1.144.1.1. Share-based employee remuneration

The amounts recognized under the heading “Administration costs - Personnel expensesexpense - Other personnel expenses”expense” in the consolidated income statements for the year ended December 31, 2018, 20172020, 2019 and 2016,2018, corresponding to the remuneration plans based on equity instruments in each year, amounted to 29€16 million, €38€31 million and €57€29 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity instruments” in the accompanying consolidated balance sheets, net of tax effect.

The characteristics of the Group's remuneration plans based on equity instruments are described below.

System of Variable Remuneration in Shares

In BBVA the annual variablehas a specific remuneration applying generally to all employees consists of one incentive, to be paid in cash, awarded once a year and linked to the achievement of predetermined objectives and to a sound risk management (hereinafter, the “Annual Variable Remuneration”).

According to the remuneration policy for BBVA Group, in force since 2017, the specific settlement and payment system for the Annual Variable Remuneration applicable to those employees and senior managers whose professional activities may have a significantmaterial impact on the Group’s risk profile includingof the executive directorsGroup (hereinafter “Identified Staff”), designed within the framework of applicable regulations to credit institutions and members of considering best practices and recommendations at the local and international levels in this matter.

In 2020, this remuneration scheme is reflected in the following remuneration policies:

·BBVA Senior Management (hereinafter, the "Identified Staff")Group Remuneration Policy, which includes, among others, the payment in shares of part of their Annual Variable Remuneration.

This remuneration policy was approved with respect to BBVA directors, by the Board of Directors held on February 9,November 29, 2017, that applies in general to all employees of BBVA and of its subsidiaries that form part of the consolidated group. This policy includes in a specific chapter the remuneration system applicable to the members of BBVA Group Identified Staff, including Senior Management.

·BBVA Directors’ Remuneration Policy, approved by the Board of Directors and by the Annual General Shareholders’ Meeting held on March 17, 2017.

This15, 2019, that it’s applicable to BBVA Directors. The remuneration policy includes a specific settlement and payment system offor executive directors corresponds, generally, with the Annual Variable Remuneration applicable system to the Identified Staff, including directors and senior management, underto which they belong, incorporating some particularities of their own, derived from their condition of directors.

F-168


The Annual Variable Remuneration for the following rules, among others:

·A significant percentage of variable remuneration – 60% in the case of executive directors, Senior Management and those Identified Staff members with particularly high variableis subject to specific rules for settlement and payment established in their corresponding remuneration and 40% for the rest of the Identified Staff– shall be deferred over a five-year period, in the case of executive directors and Senior Management, and over a three-year period, for the remaining Identified Staff.policies, specifically:

·           50% of the variableVariable remuneration offor Identified Staff members for each financial year (including both upfront and deferred portions), shall be established in BBVA shares, albeit a larger proportion (60%) in shares shall be deferred in the case of executive directors and Senior Management.

·The variable remuneration will be subject to ex ante adjustments, so that it will not be accrued, or will be accrued in a reduced amount, should a certain level of profit or capital ratio not be obtained. Likewise, the Annual Variable Remuneration willshall be reduced uponat the time of the performance assessment in the event of negative evolutionperformance of the Bank’sGroup’s results or other parameters such as the level of achievement of budgeted targets.targets, and it shall not accrue or it will accrue in a reduced amount, should certain level of profits and capital ratios not be achieved.

F-231


·           The deferred component60% of the Annual Variable Remuneration will be paid, if conditions are met, in the year following that to which it corresponds (the “Upfront Portion”). For executive directors, members of the Senior Management and Identified Staff members with particularly high variable remuneration, (inthe Upfront Portion will be 40% of the Annual Variable Remuneration. The remaining portion will be deferred in time (hereinafter, the “Deferred Component”) for a 5 year-period for executive directors and members of the Senior Management, and 3 years for the remaining Identified Staff.

·50% of the Annual Variable Remuneration, both the Upfront Portion and the Deferred Component, shall be established in BBVA shares. As regards executive directors and Senior Management, 60% of the Deferred Component shall be established in shares.

·Shares received as Annual Variable Remuneration shall be withheld for a one-year period after delivery, except for the transfer of those shares and in cash)required to honor the payment taxes.

·The Deferred Component of the Annual Variable Remuneration may be reduced in its entirety, yet notbut never increased, based on the result of multi-year performance indicators aligned with the Bank’s fundamentalGroup’s core risk management and control metrics related to the solvency, capital, liquidity, funding or profitability or to the share performance and the recurring results of the Group.

·           DuringResulting cash portions of the Deferred Component of Annual Variable Remuneration and subject to the multi-year performance indicators, finally delivered, shall be updated following the Consumer Price Index (CPI), measured as the year-on-year change prices, as agreed by the Board of Directors.

·The entire deferral period (5 or 3 years, as applicable) and retention period, variable remunerationAnnual Variable Remuneration shall be subject to malus and clawback arrangements during the whole deferral and withholding period, both linked to a downturn in the financial performance of the Bank as a whole, of a specific unit or area, or individual, under certain circumstances.of exposure generated by an Identified Staff member, when such a downturn in financial performance arises from any of the circumstances expressly named in the remuneration policies.

·All shares shall be withheld for a period of one year after delivery, except for those shares required to honor the payment of taxes.

·           No personal hedging strategies or insurance mayinsurances shall be used in connection with remuneration and responsibilityor liability that may undermine the effects of alignment with sound risk management.

·The deferred amounts in cash subject to multi-year performance indicators that are finally paid shall be subject to updating, in the terms determined by the Bank’s Board of Directors, upon proposal of the Remunerations Committee, whereas deferred amounts in shares shall not be updated.

·           Finally, theThe variable component of the remuneration of the Identified Staff membersfor a financial year shall be limited to a maximum amount of 100% of the fixed component of the total remuneration, unless the General Meeting resolves to increase this percentage up to a maximum of 200%.

In this regard, the General Meeting held on March, 16, 201813, 2020 resolved to increase thethis limit to a maximum level of variable remuneration to 200% of the fixed component of the total remuneration for a given number of the Identified Staff members, in the terms indicated in the Report of Recommendationsreport issued for this purpose by the Board of Directors dated February 12, 2018.10, 2020.

In accordance with the new remuneration policy applicable to the Identified Staff, malus and clawback arrangements will be applicable to the Annual Variable Remuneration awarded as of the year 2016, inclusive, for each member of the Identified Staff.

According to the settlement and payment scheme indicated, during 2018, members of the Identified Staff received2020, a total amount of 3,932,2685,754,101 BBVA shares corresponding to the initial payment corresponding to 2017Upfront Portion of 2019 Annual Variable Remuneration has been delivered to be delivered in shares.the Identified Staff.

Additionally, according to the remuneration policy prevailing until 2014 provided forRemuneration Policy applicable in 2016, during 2020 a specific settlement and payment scheme for the variable remunerationtotal amount of the Identified Staff that established a three-year deferral period for the Annual Variable Remuneration, being the deferred amount paid in thirds over this period in equal parts, in cash and in4,220,900 BBVA shares.

According to this prior scheme, during 2018, the members of the Identified Staff received the shares corresponding to the Deferred Component of 2016 Variable Remuneration has been delivered to the Identifies Staff. This amount has been subject to a downward adjustment due to multi-year performance indicators evaluation.

Likewise, the aforesaid policy established that the deferred partsamounts in shares of the Annual Variable Remuneration from previous years, and their corresponding adjustmentsfinally vested, subject to multi-year performance indicators, will be updated in cash, deliverybased on the terms established by the Board of which corresponded in 2018, were delivered to the beneficiary members of the Identified Staff, resulting inDirectors. In this regard, during 2020 a total amount of 941,366  shares corresponding3,085,476 euros has been delivered to the last deferred third of the 2014 Annual Variable Remuneration and €903,711Identified Staff as adjustments for updates of the corresponding shares granted.of the Deferred Component of 2016 Annual Variable Remuneration.

TheDetailed information on the delivery of shares to executive Directorsdirectors and senior management corresponding to the deferred parts of the Annual Variable Remuneration from previous years and their corresponding adjustments in cash, are detailedSenior Management is included in Note 54.

Additionally,Lastly, in line with specific regulation applicable in Portugal and Brazil, BBVA identifies those employees that, according to local regulators,IFIC and BBVA Brazil Banco de Investimento have identified respectively the staff in these countries whose Annual Variable Remuneration should be subject to a specific settlement and payment scheme, of the Annual Variable Remuneration.

F-232


According to this regulation, during 2018 a number of 39,555 shares corresponding to the initial payment of 2017 Annual Variable Remuneration were delivered to these beneficiaries.more specifically:

Additionally, during 2018 the shares corresponding to the deferred parts·A percentage of the Annual Variable Remuneration is subject to a three years deferral that shall be paid yearly over the mentioned period.

·50% of the Annual Variable Remuneration, both the Upfront Portion and their correspondingDeferred Component, shall be established in BBVA Shares.

·In BBVA IFIC, resulting cash portions of the Deferred Component of Annual Variable Remuneration and subject to multi-year performance indicators, finally delivered, shall be updated following the Consumer Price Index (CPI) measured as year-on-year price variation.

F-169


·In BBVA Brasil Banco de Investimento, both the cash amounts and share amounts of the Deferred Component may be subject to update adjustments in cash, were deliveredcash.

According to these beneficiaries, giving rise in 2018, ofthis remuneration scheme, during financial year 2020 a total of 12,12018,879 BBVA shares corresponding to the Upfront Portion of 2019 Annual Variable Remuneration have been delivered to this staff in Portugal and Brazil.

Additionally, during 2020 there have been delivered to this staff in Portugal and Brazil a total of 5,083 BBVA shares corresponding to the first deferred third of the 2016Deferred Component of 2018 Annual Variable Remuneration, and €2,679as well as 1,323 euros as adjustments for updates of the shares granted; aupdates. A total of 10,4859,558 BBVA shares corresponding to the second third of the 2015Deferred Component of 2017 Annual Variable Remuneration and €6,1864,873 euros as adjustments for updates of the shares granted;updates; and a total of 7,15812,142 BBVA shares corresponding to the finallast third of the 2014Deferred Component of 2016 Annual Variable Remuneration and €6,8728,873 euros as adjustments for updates of the shares granted.updates.  

44.244.2. Other administrative expensesexpense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Other Administrative Expenses (Millions of euros)

Other administrative expense (Millions of Euros)

Other administrative expense (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Technology and systems

1,133

692

673

 

1,088

1,060

1,000

Communications

235

269

294

 

172

181

193

Advertising

336

352

398

 

186

250

265

Property, fixtures and materials

982

1,033

1,080

 

404

477

865

Of which: Rent expenses (*)

552

581

616

Taxes other than income tax

417

456

433

 

344

378

395

Other expenses

1,271

1,738

1,766

Surveillance and cash courier services

 

161

188

177

Other expense

 

749

885

921

Total

4,374

4,541

4,644

 

3,105

3,418

3,816

(*)  The consolidated companies do not expect to terminate the lease contracts early.

45. Depreciation and Amortizationamortization

The breakdown of the balance under this heading in the accompanying consolidated income statements for the years ended December 2020, 2019 and 2018 is as follows:  

Depreciation and amortization (Millions of euros)

 

Notes

2018

2017

2016

Tangible assets

17

594

694

690

For own use

 

589

680

667

Investment properties

 

5

13

23

Assets leased out under operating lease

 

-

-

-

Other Intangible assets

 

613

694

735

Total

 

1,208

1,387

1,426

Depreciation and amortization (Millions of Euros)

 

Notes

2020

2019

2018

Tangible assets

17

781

876

533

For own use

 

453

523

529

Right-of-use assets

 

324

349

 

Investment properties and other

 

3

3

5

Intangible assets

18.2

507

510

500

Total

 

1,288

1,386

1,034

46. Provisions or (reversal)reversal of provisions

InFor the years ended December 31, 2018, 20172020, 2019 and 20162018, the net provisions recognized in this income statement line item were as follows:

Provisions or (reversal) of provisions (Millions of euros)

Provisions or reversal of provisions (Millions of Euros)

Provisions or reversal of provisions (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Pensions and other post employment defined benefit obligations

25

125

343

332

25

210

213

125

Commitments and guarantees given

 

(48)

(313)

56

Commitments and guarantees given (*)

 

192

96

(27)

Pending legal issues and tax litigation

 

133

318

76

 

208

171

135

Other Provisions

 

163

397

722

Other provisions

 

136

133

162

Total

 

373

745

1,186

 

746

614

395

F-233


(*)       In 2020, the amount of commitments and guarantees given includes the negative impact of the update of the macroeconomic scenario following the COVID-19 pandemic (see Notes 1.5 and 7.2).

F-170


47.   Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss

The breakdown of Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification

The breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification by the nature of those assets in the accompanying consolidated income statements is as follows:

Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss (Millions of euros)

 

Notes

2018

2017

2016

Financial assets at fair value through other comprehensive income

13.4

1

1,127

202

Debt securities

 

1

(4)

157

Equity instruments

 

-

1,131

46

Financial assets at amortized cost

 

3,980

3,677

3,597

Of which: Recovery of written-off assets

7.3.5

589

558

541

Held to maturity investments

 

 

(1)

1

Total

 

3,981

4,803

3,801

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification (Millions of Euros)

 

Notes

2020

2019 (*)

2018 (*)

Financial assets at fair value through other comprehensive income - Debt securities

 

19

82

1

Financial assets at amortized cost (*)

 

5,160

3,470

3,680

Of which: recovery of written-off assets

7.2.5

(339)

(919)

(589)

Total

 

5,179

3,552

3,681

 (*)        In 2020, the amount includes the negative impact of the update of the macroeconomic scenario following the COVID-19 pandemic (see Notes 1.5 and 7.2).

48. Impairment or reversal of impairment of investments in joint ventures and associates

The heading “Impairment or reversal of the impairment of investments in joint ventures or associates" resulted in a loss of 190 and 46 million euros for the years ended December 31, 2020 and 2019. There was no impairment recorded for the year ended December 31, 2018 (see Note 16.3).

48.49. Impairment or (reversal)reversal of impairment on non-financial assets  

The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:

Impairment or (reversal) of impairment on non-financial assets (Millions of euros)

Impairment or reversal of impairment on non-financial assets (Millions of Euros)

Impairment or reversal of impairment on non-financial assets (Millions of Euros)

Notes

2018

2017

2016

Notes

2020

2019

2018

Tangible assets

17

5

42

143

17

125

94

4

Intangible assets

18.2

83

16

3

 

19

12

83

Others

20

51

306

375

 

9

23

50

Total

 

138

363

521

 

153

128

137

49.   Gains (losses) on derecognition of non - financial assets and subsidiaries, net

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:

Gains (losses) on derecognition of non-financial assets and subsidiaries, net (Millions of euros)

 

2018

2017

2016

Gains

 

 

 

Disposal of investments in non-consolidated subsidiaries

55

38

111

Disposal of tangible assets and other

81

69

64

Losses:

 

 

 

Disposal of investments in non-consolidated subsidiaries

(13)

(27)

(58)

Disposal of tangible assets and other

(45)

(33)

(47)

Total

78

47

70

F-234F-171  


50. Profit (loss)Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:

Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of euros)

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of Euros)

Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of Euros)

Notes

2018

2017

2016

 

Notes

2020

2019

2018

Gains on sale of real estate

 

129

102

66

 

 

116

86

126

Impairment of non-current assets held for sale

21

(208)

(158)

(136)

 

21

(103)

(72)

(206)

Gains on sale of investments classified as non-current assets held for sale (*)

 

894

82

39

Gains (losses) on sale of investments classified as non-current assets held for sale (*)

 

 

431

10

894

Gains on sale of equity instruments classified as non-current assets held for sale

 

-

 

 

-

Total

 

815

26

(31)

 

 

444

23

815

 

(*)        The changevariation in year 2020 is mainly as a resultdue to the transfer of half plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3). The variation in year 2018 is mainly due to the sale of the BBVA stake in BBVA Chile (see Note 3).

F-235


51. Consolidated statements of cash flows

InThe mapping of the heading cash and equivalents in the consolidated statementsstatement of cash flows the balance of “Cash equivalent in central banks” includes short-term deposits at central banks under the heading "Financial assets at amortized cost" in the accompanying consolidated balance sheetshas been modified, and doesthis modification is not include demand deposits with credit institutions recorded in the heading "Cash, balances in cash at Central Bank and other demand deposits".

Cash flows from operating activities increased in the year ended December 31, 2018 by €6,609 million (compared with a decrease of €4,568 million in December 31, 2017), mainly duerelevant to the change in “Financial assets heldconsolidated condensed interim financial statements as a whole. In order for trading”.

Cash flows from investing activities increased in the year ended December 31,information to be comparable, the information for the 2019 and 2018 by €4,614 million (compared with an increase of €3,462 million in December 31, 2017), mainly due to the change in “Joint Ventures and Associates”.

Cash flows from financing activities decreased in the year ended December 31, 2018 by €4,994 million (compared with an increase of €1,015 million in December 31, 2017), mainly due to the change in “Subordinated Liabilities”.financial years has been restated.

The variation between 20182020, 2019 and 20172018 of the financial liabilities from financing activities is the following:

Liabilities from financing activities (Millions of Euros)

 

December 31, 2017

Cash flows

Non-cash changes

December 31, 2018

 

Acquisition

Disposal

Foreign exchange movement

Fair value changes

Debt certificates

50,635

(1,621)

-

(1,900)

(779)

-

46,335

Subordinated debt certificates

17,443

857

-

(694)

29

-

17,635

Short-term debt

10,013

931

-

-

81

-

11,025

Other financial liabilities

8,891

1,574

-

(643)

(1,328)

-

8,495

Total

86,982

1,741

-

(3,237)

(1,997)

-

83,490

Liabilities from financing activities (Millions of Euros)

 

December 31, 2016

Cash flows

Non-cash changes

December 31, 2017

 

Acquisition

Disposal

Foreign exchange movement

Fair value changes

Debt certificates

59,388

(5,958)

-

-

(2,796)

-

50,635

Subordinated debt certificates

16,987

1,679

-

-

(1,223)

-

17,443

Short-term debt

11,556

(1,319)

-

-

(224)

-

10,013

Other financial liabilities

10,179

(378)

-

-

(910)

-

8,891

Total

98,111

(5,976)

-

-

(5,153)

-

86,982

Liabilities from financing activities. December 2020 (Millions of Euros)

 

December 31, 2019

Cash flows

Non-cash changes

December 31, 2020

 

Acquisition

Disposal

Disposals by companies held for sale (**)

Foreign exchange movement

Fair value changes

Liabilities at amortized cost: Debt certificates

63,963

3,003

-

-

(3,160)

(2,026)

-

61,780

Of which: Issuances of subordinated liabilities (*)

17,675

(8)

-

-

-

(419)

-

17,248

(*)       Additionally, there are €12 million of issuances of subordinated liabilities as of December 2020 (see Note 22 and Appendix VI). The subordinated issuances of BBVA Paraguay and of the BBVA USA sale perimeter as of December 31, 2020 are recorded in the heading "Liabilities included in disposal groups classified as held for sale" of the consolidated balance which amount to €37 and €735 million, respectively.

(**)        The amount is mainly due to the sale of the stake in BBVA USA (see Note 3).

Liabilities from financing activities. December 2019 (Millions of Euros)

 

December 31, 2018

Cash flows

Non-cash changes

December 31, 2019

 

Acquisition

Disposal

Foreign exchange movement

Fair value changes

Liabilities at amortized cost: Debt certificates

61,112

2,643

-

-

209

-

63,963

Of which: Issuances of subordinated liabilities (*)

17,635

(190)

-

-

229

-

17,675

(*)        Additionally, there are €384 million of issuances of subordinated liabilities as of December 2019 (see Note 22 and Appendix VI). Subordinated liabilities corresponding to BBVA Paraguay as of December 2019 were recorded in the heading "Liabilities included in disposal groups classified as held for sale" amounting to €40 million.  

F-236F-172  


Liabilities from financing activities. December 2018 (Millions of Euros)

 

December 31, 2017

Cash flows

Non-cash changes

December 31, 2018

 

Acquisition

Disposal

Foreign exchange movement

Fair value changes

Liabilities at amortized cost: Debt certificates

61,649

2,152

-

(1,828)

(862)

-

61,112

Of which: Issuances of subordinated liabilities (*)

17,443

857

-

(694)

29

-

17,635

(*)       Additionally, there are subordinated deposits for 411 million euros as of December 31, 2018 (see Note 22 and Annex VI). The subordinated issues of BBVA Chile as of December 31, 2017 are recorded under the line "Liabilities included in disposal groups of items that have been classified as held for sale" on the consolidated balance sheet with a balance of 574 million euros.

52. Accountant fees and services

The details of the fees for the services contracted by entities of the BBVA Group for the years ended December 31, 2020, 2019 and 2018 and 2017 with their respective auditors and other audit entities are as follows:

Fees for Audits Conducted and Other Related Services (Millions of euros) (**)

Fees for Audits conducted and other related services (Millions of euros) (**)

Fees for Audits conducted and other related services (Millions of euros) (**)

2018

2017

2020

2019

2018

Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*)

26.1

27.2

27.7

28.1

26.1

Other reports required pursuant to applicable legislation and tax regulations issued by the national supervisory bodies of the countries in which the Group operates, reviewed by firms belonging to the KPMG worldwide organization

1.5

1.9

1.3

1.5

1.5

Fees for audits conducted by other firms

0.1

0.2

-

0.1

(*)         Including fees pertaining to annual legal audits (€22.423.6, €24.1 and 22.6€22.4 million as of December 31, 20182020, 2019 and December 31, 2017,2018, respectively).

(**)        Regardless of the billed period.year.

In the yearyears ended December 31, 2020, 2019 and 2018 other, certain entities in the BBVA Group contracted other services (other than audits) as follows:

Other Services rendered (Millions of euros)

Other services rendered (Millions of Euros)

Other services rendered (Millions of Euros)

2018

2017

2020

2019

2018

Firms belonging to the KPMG worldwide organization

0.3

0.5

0.4

0.3

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This total of contracted services includes the detail of the services provided by KPMG Auditores, S.L. to BBVA, S.A. or its controlled companies at the date of preparation of these consolidated financial statements as follows:

Fees for Audits Conducted (*) (Millions of euros)

Fees for audits conducted (*) (Millions of Euros)

Fees for audits conducted (*) (Millions of Euros)

2018

2017

2020

2019

2018

Legal audit of BBVA,S.A. or its companies under control

6.7

6.8

6.5

6.7

Other audit services of BBVA, S.A. or its companies under control

5.9

5.0

5.4

5.5

5.9

Limited Review of BBVA, S.A. or its companies under control

1.1

0.9

0.9

1.1

Reports related to issuances

0.3

0.4

0.3

Assurance jobs and other required by the regulator

0.9

0.6

Assurance services and other required by the regulator

0.9

0.8

0.9

Other

-

-

(*)    Services provided by KPMG Auditores, S.L. to companies located in Spain, to the branch of BBVA in New York and to the branch of BBVA in London.

The services provided by the auditors meet the independence requirements of the external auditor established under Audit of Accounts Law (Law 22/2015) and under the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC).

F-237


53. Related-party transactions

As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. All of theseThese transactions are not materialrelevant and are carried out under normal market conditions. As of December 31, 2020, 2019 and 2018 2017 and 2016, the following are the transactions with related parties:

53.153.1. Transactions with significant shareholders

As of December 31, 2018, 20172020, 2019 and 2016,2018, there were no shareholders considered significant (see Note 26).

53.2 Transactions with BBVA Group entities

The balances of the main aggregatescaptions in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:

Balances arising from transactions with Entities of the Group (Millions of euros)

Balances arising from transactions with entities of the Group (Millions of Euros)

Balances arising from transactions with entities of the Group (Millions of Euros)

2018

2017

2016

 

2020

2019

2018

Assets:

 

Assets

 

 

Loans and advances to credit institutions

132

91

69

 

148

26

132

Loans and advances to customers

1,866

510

442

 

1,743

1,682

1,866

Liabilities:

 

Liabilities

 

 

Deposits from credit institutions

2

5

1

 

-

3

2

Customer deposits

521

428

533

 

791

453

521

Debt certificates

-

 

-

Memorandum accounts:

-

 

Memorandum accounts

 

 

Financial guarantees given

78

42

 

132

166

152

Contingent commitments

1,358

114

121

Other

152

1,175

1,466

Other contingent commitments given

 

1,400

1,042

1,358

Loan commitments given

 

11

106

78

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The balances of the main aggregates in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:

Balances of Income Statement arising from transactions with Entities of the Group (Millions of euros)

 

2018

2017

2016

Income statement:

 

 

 

Financial incomes

55

26

26

Financial costs

2

1

1

Fee and Commission Income

5

5

5

Fee and Commission Expenses

48

49

58

Balances of consolidated income statement arising from transactions with entities of the Group (Millions of Euros)

 

 

2020

2019

2018

Income statement

 

 

 

 

Interest and other income

 

20

19

55

Interest expense

 

1

1

2

Fee and commission income

 

5

4

5

Fee and commission expense

 

34

53

48

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There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar commitments (see Note 25) commitments and the futuresderivatives transactions arranged by BBVA Group with these entities, associates and joint ventures.

In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying consolidated financial statements.

53.353.3. Transactions with members of the Board of Directors and Senior Management

The amount and nature of the transactions carried out with members of the Board of Directors and Senior Management of BBVA, as well as their respective related parties is given below. All of these transactions belong to the Bank's normal course of business, are not material and have being carried out under normal market conditions.

As of December 31, 2020, there were no loans or credits granted by the Group’s entities to the members of the Board of Directors. As of December 2019 and 2018, the amount availed against the loans and credits granted by the Group’s entities to the members of the Board of Directors amounted to €607 and €611 thousand, respectively. On those same dates, there were no loans or credits granted to parties related to the members of the Board of Directors.

As of December 31, 2020, 2019 and 2018, the amount availed against the loans granted by the Group’s entities to the members of Senior Management (excluding executive directors) amounted to €5,349, €4,414 and €3,783 thousand, respectively. On those same dates, the amount availed against the loans granted by the Group’s entities to parties related to members of Senior Management amounted to €580, €57 and €69 thousand, respectively.

As of December 31, 2020, 2019 and 2018 no guarantees had been granted to any member of the Board of Directors or their related parties.

The amount availed against guarantees arranged with members of Senior Management as of December 31, 2020, 2019 and 2018 amounted to €10, €10, and €38 thousand, respectively.

As of December 31, 2020 and 2019, the amount availed against guarantees and commercial loans arranged with parties related to the members of the Bank’s Board of Directors and Senior Management amounted to €25 thousand, on both dates. As of December 31, 2018, no guarantees and commercial loans have been granted to parties related to the members of Senior Management.

The information on the remuneration of the members of the BBVA Board of Directors and Senior Management is included in Note 54.

As of December 31, 2018, the amount availed against the loans granted by the Group’s entities to the members of the Board of Directors amounted to €611 thousand. As of December 31, 2017 and 2016, there were no loans granted by the Group’s entities to the members of the Board of Directors. The amount availed against the loans granted by the Group’s entities to the members of Senior Management on those same dates (excluding the executive directors) amounted to €3,783, €4,049 and €5,573 thousand, respectively.

As of December 31, 2018, 2017 and 2016, there were no loans granted to parties related to the members of the Board of Directors. As of December 31, 2018, 2017 and 2016 the amount availed against the loans granted to parties related to members of the Senior Management amounted to €69, €85 and €98 thousand, respectively.

As of December 31, 2018, 2017 and 2016 no guarantees had been granted to any member of the Board of Directors.

As of December 31, 2018, 2017 and 2016, the amount availed against guarantees arranged with members of the Senior Management amounted to €38, €28 and €28 thousand, respectively.

As of December 31, 2018, no commercial loans and guarantees has been granted to parties related to the members of the Bank’s Board of Directors and the Senior Management. As of December 31, 2017 and 2016 the amount availed against commercial loans and guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management totaled €8 thousand.

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53.453.4. Transactions with other related parties

As of December 31, 2018, 20172020, 2019 and 2016,2018, the Group didhas not conduct any transactionscarried out operations with other related parties that aredo not inbelong to the line of business or ordinary coursetraffic of its business, which wereactivity, that are not carried out at arm's-lengthunder normal market conditions and that are not of marginallow relevance; understanding by such those whose information is not necessary to give athe true pictureimage of the assets, the financial situation and the results, consolidated, of the BBVA Group’s consolidated net equity, net earnings and financial situation.Group.

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54. Remuneration and other benefits tofor the Board of Directors and to the members of the Bank’sBank's Senior Management

·Remuneration received by non-executive directors during the 2018 financial yearin 2020

The remunerationsremuneration paid to non-executive members of the Board of Directors during the 20182020 financial year areis indicated below, individuallyindividualized and itemized:

Remuneration for non-executive directors (thousands of euro)

Remuneration for non-executive directors (thousands of euro)

Remuneration for non-executive directors (thousands of euro)

Board of Directors

Executive Committee

Audit and Compliance Committee

Risk Committee

Remunerations Committee 

Appointments Committee

Technology and  Cybersecurity Committee

Total

Board of Directors

Executive Committee

Audit Committee

Risk and Compliance Committee

Remunerations Committee

Appointments and Corporate Governance Committee

Technology and Cybersecurity Committee

Other positions (1)

Total

Tomás Alfaro Drake

129

-

18

-

43

25

43

258

José Miguel Andrés Torrecillas

129

-

179

107

-

71

-

485

129

111

66

36

 

115

 

50

507

Jaime Félix Caruana Lacorte (1)

75

83

-

53

-

25

237

Jaime Caruana Lacorte

129

167

165

107

 

567

Raúl Galamba de Oliveira (2)

107

 

71

 

32

 

211

Belén Garijo López

129

-

71

-

107

20

-

328

129

 

66

 

107

46

 

349

Sunir Kumar Kapoor

129

-

-

43

172

129

 

43

 

172

Carlos Loring Martínez de Irujo

129

167

-

107

43

-

445

Lourdes Máiz Carro

129

-

71

-

43

41

-

284

129

 

66

 

43

 

238

José Maldonado Ramos

129

167

-

53

-

41

-

390

129

167

 

46

 

342

Ana Peralta Moreno (1)

86

-

36

-

21

-

143

Ana Peralta Moreno

129

 

66

 

43

 

238

Juan Pi Llorens

129

-

71

214

-

43

457

129

 

214

 

46

43

80

512

Ana Revenga Shanklin (2)

97

 

71

 

168

Susana Rodríguez Vidarte

129

167

-

107

-

41

-

443

129

167

 

107

 

46

 

449

Jan Verplancke (1)

107

-

-

25

132

Total (2)

1,427

584

446

642

257

239

179

3,773

Carlos Salazar Lomelín (2)

97

 

29

 

125

Jan Verplancke

129

 

29

 

43

 

200

Total (3)

1,588

611

431

606

250

301

161

130

4,078

(1)Amounts received during the 2020 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Director.

(1)  (2)Directors appointed by the General Shareholders’ Meeting held on 1613 March 2018.2020. Remunerations paid based on the date on which the position was accepted.

(3)       This includes the remunerationsIncludes remuneration paid for membership ofon the Board and its various Board Committees throughoutcommittees during the 20182020 financial year.The composition of these Committeescommittees was modified on 27 June 2018.Remunerations paid in accordance with the date of acceptance of said appointment.

(2)  In addition, José Antonio Fernández Rivero, who stepped down as director on 16 March 2018, received a total of €95 thousand in 2018, for his membershipamended by resolution of the Board and of a number of Board Committees.Directors dated 29 April 2020.

Also, during the 20182020 financial year, €107€95 thousand has beenwas paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors.

In addition, Tomás Alfaro Drake and Carlos Loring Martínez de Irujo, who left their roles as directors on 13 March 2020, received a total of €54 thousand and €111 thousand, respectively, for their membership of the Board and of the various Board Committees during the first quarter of the financial year. The Bank has also paid out a total of €18 thousand in casualty and healthcare insurance premiums.

F-240·          


Remuneration received by executive directors during the 2018 financial yearin 2020

OverDuring the course of2020 financial year, 2018, the executive directors have received the amount of the Annual Fixed Remuneration corresponding to saidsuch financial year, established for each director in the Remuneration Policy for BBVA Directors, applicable in 2018, which was approved by the General Shareholders’ Meeting held on 1715 March 2017.2019.

In addition, the executive directors have received thetheir Annual Variable Remuneration (“AVR”) for 2017the 2019 financial year, which, in accordance with the settlement and payment system set out in said Policy,the remuneration policy applicable to such year, was due to be paid to them during the first quarter of2020 financial year 2018.year.

F-176


In application of this settlement and payment system:

·           40% of the 20172019 Annual Variable Remuneration corresponding to executive directors has beenwas paid having the conditions been met, in the first quarter of2020 financial year 2018 (hereinafter, the "Upfront Portion"),(the Upfront Portion); in equal parts in cash and inBBVA shares.

·           The remaining 60% of the Annual Variable Remuneration bothhas been deferred (40% in cash and 60% in shares, has been deferred in its entiretyshares) for a period of five years (the Deferred Portion), and its accrual and payment will be subject to compliance with a series of multi-year indicators (hereinafter, the "Deferred Portion").indicators. The application of these indicators, calculated over the first three years of deferral, may lead to athe reduction or even forfeit of the Deferred Portion, even in its entirety, but in no event may it be increased. Provided that the relevant conditions have beenare met, the resulting amount will then be paid, (40% in cash and 60% in shares),BBVA shares, according to the following payment schedule: 60% in 2021,2023, 20% in 20222024 and the remaining 20% in 2023.2025.

·           All of the shares delivered to the executive directors as Annual Variable Remuneration,AVR, including both as part of the Upfront Portion and the Deferred Portion, will be withheld for a period of one year lock-up period after their delivery; this will not apply to thosedelivery, except for the shares transferred to honor the payment of taxes arising therefrom.accruing on the shares received.

·           The Deferred Portion of the Annual Variable Remuneration payable in cash will be subject to updating under the terms established by the Board of Directors.

·           Executive directors may not use personal hedging strategies or insurance in connection with the remuneration and responsibility that may undermine the effects of alignment with prudent risk management.

·           Over the entire deferral and withholding period, the Annual Variable Remuneration for the executive directors will be subject to variable remuneration reduction and recovery arrangements ("malus" and "clawback").

·The variable component of the remuneration for executive directors corresponding to the 2019 financial year 2017 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the General Meeting.Shareholders’ Meeting held during such financial year.

·Over the entire deferral and withholding period, the entire Annual Variable Remuneration for the executive directors will be subject to reduction and recovery ("malus" and "clawback") arrangements.

F-241


Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent to twice their Annual Fixed Remuneration (AFR) for at least three years after their delivery.

Similarly, in applicationIn 2020, the Group Executive Chairman and the Chief Executive Officer likewise received the deferred portion of their Annual Variable Remuneration due that year for the 2016 financial year (50% of the settlement and payment systemAnnual Variable Remuneration), after being adjusted downwards following the results of the annual variablemulti-year performance indicators. This remuneration for 2014 financial year,was paid in accordanceequal parts in cash and in shares, together with the remuneration policy applicable at that time,corresponding update in cash, thus concluding the payment of the Annual Variable Remuneration to the executive directors have received in 2018for the last third of the deferred annual variable remuneration for 20142016 financial year, delivery of which corresponded in 2018, thus concluding payment of the deferred variable remuneration for 2014.year.

In accordance with the above, the remunerations paid to executive directors during the 2020 financial year 2018 are indicated below, individuallyindividualized and itemized:

Annual Fixed Remuneration for 2020 (thousands of euro), received in 2018

 

 

Carlos Torres VilaGroup Executive Chairman

1,9652,453

José Manuel González-Páramo Martínez-MurilloChief Executive Officer

8342,179

Total

2,7994,632

In addition, in accordance with the current Remuneration Policy for BBVA Directors, during the 2020 financial year, the Chief Executive Officer has received €654 thousand for the cash in lieu of pension item (equivalent to 30% of his Annual Fixed Remuneration)—given that he does not have a retirement pension (see the Pension commitments section of this Note)—and €600 thousand for the mobility allowance item.

Variable remuneration for financial year 2017, received in 2018

 

In cash (1)

(thousands of euro)

In shares (1)

Carlos Torres Vila

562

77,493

José Manuel González-Páramo Martínez-Murillo

87

12,029

Total

649

89,522

2019 Annual Variable Remuneration (Upfront payment)

 

In cash (1)

In shares (1)

(thousands of euro)

Group Executive Chairman

636

126,470

Chief Executive Officer

571

113,492

Total

1,207

239,962

(1)  RemunerationsRemuneration corresponding to the Upfront Portion (40%) of the Annual Variable RemunerationAVR for the 2019 financial year 2017, 50%(50% in cash and 50% in shares.BBVA shares).

Deferred variable remuneration for financial year 2014, received in 2018

 

In cash (1)

(thousands of euro)

In shares (1)

Carlos Torres Vila

105

11,766

José Manuel González-Páramo Martínez-Murillo

33

3,678

Total

137

15,444

2016 Deferred Annual Variable Remuneration (Deferred Portion)

 

In cash (1)

In shares (1)  

(thousands of euro)

Group Executive Chairman

656

89,158

Chief Executive Officer

204

31,086

Total

861

120,244

(1)Remunerations corresponding to deferred AVR for the last third2016 financial year (50% of the deferred annual variable remunerationAVR for financial year 2014, 50%2016, in equal parts in cash and 50%shares), payment of which was due in shares, along2020, together with its corresponding update in cash.cash, and after a downwards adjustment following the results of the multi-year performance indicators. In the case of both the Chairman and Chief Executive Officer, this remuneration is associated with their previous positions.

F-177


In addition, the executive directors received remuneration in kind throughoutduring the 2020 financial year, 2018, including insurance premiums and others,other premiums, amounting to a total of 236€360 thousand of which €154€228 thousand correspondcorresponds to Carlos Torres Vilathe Group Executive Chairman and €82€132 thousand to the Chief Executive Officer.

As Head of Global Economics & Public Affairs (Head of GE&PA), former executive director José Manuel González-Páramo Martínez-Murillo.

Former Group Executive Chairman, Francisco González Rodríguez,nez-Murillo, who stepped down from this position with effectleft his role of director on 21 December 2018,13 March 2020, received during 2018, €2,475€168 thousand as Annual Fixed Remuneration; €660fixed remuneration; €174 thousand and 90,93328,353 BBVA shares corresponding to the Upfront Portion (40%) of the AVR for the 2019 financial year and to the Deferred Portion of the AVR for the 2016 financial year, payment of which was due in the 2020 financial year, including the corresponding cash update; as well as €33 thousand as remuneration in kind.

·Remuneration received by Senior Management in 2020

During the 2020 financial year, the members of Senior Management, excluding executive directors, received the amount of the Annual Fixed Remuneration corresponding to such financial year.

In addition, they received the Annual Variable Remuneration for the 2019 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable for such financial year, was due to be paid to them during the 2020 financial year.

Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among other things: 40% of the Annual Variable Remuneration, forin equal parts cash and in BBVA shares, will be paid in the financial year 2017;following the year to which it corresponds (the Upfront Portion), and €332 thousandthe remaining 60% will be deferred (40% in cash and 37,390 BBVA60% in shares) for a five-year period, with its accrual and payment being subject to compliance with a series of multi-year indicators (the Deferred Portion), applying the same payment schedule established for executive directors. The shares as settlementreceived will be withheld for a one year lock-up period (this will not apply to those shares transferred to honor the payment of taxes arising therefrom). Likewise, senior management may not use personal hedging strategies or insurance in connection with the remuneration; the variable component of the last thirdremuneration for senior management corresponding to the 2019 financial year will be limited to a maximum amount of 200% of the deferred variable remuneration for financial year 2014, paymentfixed component of which corresponded in first quarter of financial year 2018, including the corresponding update; as well as €20 thousand as remuneration in kind.

F-242


Ontotal remuneration; and over the other hand, it is indicated that in 2018, CEO Onur Genç—who was appointed by resolution of BBVA's Board of Directors on 20 December 2018— has not received any remuneration for said role in 2018, having received fixedentire deferral and variable remunerationwithholding period, the Annual Variable Remuneration will be subject to reduction and recovery (malus and clawback) arrangements.

Similarly, in accordance with his previous position as Chairmanthe remuneration policy for this group applicable in 2016 and CEOin application of BBVA Compass, this remuneration being subject to the settlement and payment system applicable to said position. Thus, over the course of the financial year 2018, he has received €2,240(*) thousand as Annual Fixed Remuneration; €191(*) thousand and 26,531 BBVA ADSs corresponding to 40% of the Annual Variable Remuneration for said financial year, 2017;the members of Senior Management who were beneficiaries of such remuneration received in 2020 the deferred portion of the Annual Variable Remuneration for the 2016 financial year, after being adjusted downwards following the results of the multi-year performance indicators. This remuneration has been paid in equal parts in cash and €376 thousandin shares, along with its update in cash, concluding the payment of this remuneration to the members of Senior Management for the 2016 financial year.

In accordance with the above, the remuneration paid during the 2020 financial year to all members of Senior Management as a whole, who held that position as of 31 December, 2020 (15 members, excluding executive directors), is indicated and itemized below:

Annual Fixed Remuneration for 2020 (thousands of euro)

Senior Management total

14,101

2019 Annual Variable Remuneration (Upfront Portion)

 

In cash

In shares

(thousands of euro)

Senior Management total

1,402

280,055

(1)   Remuneration corresponding to the Upfront Portion (40%) of the AVR for the 2019 financial year (paid 50% in cash and 50% in BBVA shares), as well as the upfront portion of the retention plans for two members of Senior Management.

2016 Annual Variable Remuneration (Deferred Portion)

 

In cash

In shares

(thousands of euro)

Senior Management total

1,380

182,461

(1)   Remuneration corresponding to deferred AVR for the 2016 financial year (50% of the AVR for 2016, in equal parts in cash and in shares), payment of which was due in 2020, together with its corresponding update in cash, and after being adjusted downwards following the results of the multi-year performance indicators.

F-178


In addition, all members of Senior Management, excluding executive directors, have received remuneration in kind which includes benefits for his expatriate statusduring the 2020 financial year, including insurance and other premiums, amounting to a total of €1,086 thousand.

Remuneration of executive directors due in the United States.2021 and subsequent financial years

(*)  Amounts paid in US Dollars. Euro details are for information purposes.

·        Annual Variable Remuneration for executive directors for the 2020 financial year2018  

Following year-end 2018,In view of the Annual Variable Remuneration forexceptional circumstances arising from the COVID-19 crisis, the two executive directors corresponding to said period has been determined, applyinghave voluntarily waived the conditions established at the beginninggeneration of the year, as established in the Remuneration Policy for BBVA Directors approved by the General Meeting on 17 March 2017 with the following settlement and payment system:

·The Upfront Portion (40%)whole of the Annual Variable Remuneration ofcorresponding to the executive directors for 2018 will be paid, if conditions are met, in equal parts in cash and shares, during the first quarter of 2019, which amounts to €479 thousand and 100,436 BBVA shares in the case of Carlos Torres Vila; and €79 thousand and 16,641 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo.

·The Deferred Portion (60%) remaining will be deferred for a five-year period, subject to compliance with the multi-year performance indicators determined by the Board of Directors at the start of2020 financial year, 2018, calculated over the first three-year deferral period. Provided that the conditions are met, the resulting amountso they will vest (40%not accrue any remuneration in cash and 60% in shares), under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and the remaining 20% after the fifth year of deferral. All the above is subject to the settlement and payment system conditions set out in the Remuneration Policy for BBVA Directors, which includes malus and clawback arrangements and retention periods for shares.

As regards former Group Executive Chairman, Francisco González Rodríguez,his Annual Variable Remuneration for 2018 has been determined. This Annual Variable Remuneration for 2018 will be received, provided that conditions are met, in accordance with the same settlement and payment system applicable to executive directors which includes deferral rules, malus and clawback arrangements and retention periods for shares.Thus,the Upfront Portion (40%) has been determined in: €528 thousand and 110,814 BBVA shares. Accrual and payment of the Deferred Portion (remaining 60%), 40% in cash and 60% in shares, will be subject to compliance with multi-year performance indicators approved by the Board of Directors. All the above is subject to the conditions of the settlement and payment system established in the Remuneration Policy for BBVA Directors, which includes malus and clawback arrangements and withholding periods for shares.

As regards CEO Onur Genç and as aforementioned, his Annual Variable Remuneration for financial year 2018 is linked to his previous position as Chairman and CEO of BBVA Compass and has been determined in accordance with the settlement and payment system applicable for such position.Thus, providing that applicable conditions are met, 40% of Annual Variable Remuneration for 2018 will be paid in the first quarter of 2019, amounting to a total of €196 thousand(*) and 41,267 BBVA shares.Accrual and payment of the remaining 60% of the Annual Variable Remuneration for financial year 2018, 50% in cash and 50% in shares, will be deferred for a three-year period and will be subject to compliance with multi-year performance indicators set by the Board of Directors for the whole Identified Staff at the beginning of 2018 and measured over the course of the three-year period.

(*)  Euro details are for information purposes. Year-end 2018 exchange rate applied: EUR/USD 1,145001.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

F-243


The amounts corresponding to deferred shares is detailed in the section "Remuneration based on Capital/Equity Instruments" and the cash part in "Other Liabilities/Other Accruals" in the consolidated balance sheet at 31 December 2018.this respect.

·        Deferred Annual Variable Remuneration offor executive directors for the 2017 financial year2015 

Following year-end 2018,the end of 2020 financial year, the amount corresponding to the deferred Annual Variable Remuneration of executive directors for the 2017 financial year 2015 has been determined, withdelivery in 2021, if conditions are met corresponding duringin accordance with the first quarter ofconditions set out in the remuneration policies applicable to the 2017 financial year 2019, subjectand applicable to the conditions established for this purpose in the Remuneration Policy for BBVA Directors approved by the General Meeting on 13 March 2015.each of them.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 20152017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the Annual Variable Remuneration for financial year 2015 has been adjusted downwards as a consequence of result of the TSR indicator, which scale has determined a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the Annual Variable Remuneration for the 2017 financial year 2015, afterhas been determined.

As a result, the corresponding adjustment in light of the result of the TSR indicator,remuneration has been determined in an amount of €612€411 thousand and 79,15783,692 BBVA shares, in the case of Carlos Torres Vila,the Group Executive Chairman and €113€307 thousand and 14,66739,796 BBVA shares, in the case of José Manuel González-Páramo Martínez-Murillo,the Chief Executive Officer, which includes in both cases the corresponding updating.updates.

As regards the former Group Executive Chairman, Francisco González Rodríguez, his·Outstanding deferred Annual Variable Remuneration for financial year 2015 has been determined, to be received, providing that conditions are met, in accordance with the same settlement and payment system applicable to executive directors amounting to a total of €1,035 thousand and 133,947 BBVA shares, which includes the corresponding updating.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.

Lastly, as at year-end 2018 and2020, in accordance with the conditions established in the remuneration policies applicable in previous years, in addition to 40% of the corresponding years, 50% and2017 deferred AVR of the Group Executive Chairman, 60% of the annual variable remunerationAnnual Variable Remuneration corresponding to financial years 2018 and 2019 of theboth executive directors, correspondingremains deferred and is pending payment to 2016them, and 2017 financial years, respectively, has been deferred, towill be received in future years if the applicable conditions are met, in accordance with the terms established in the remuneration policy applicable for each of such financial years.met.

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Remuneration received by the membersRemunerations of Senior Management in the 2018 financial year

The members of Senior Management, excluding executive directors, who held that position as at 20 December 2018(*) (15 members) have, over the course of the 2018 financial year, received the amount of the fixed remuneration corresponding to that financial year and the Annual Variable Remuneration for the 2017 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to Senior Management in this financial year, was due to be paid to them during the first quarter of 2018.

In application of this settlement and payment system:

·40% of the Annual Variable Remuneration due to members of the Senior Management for the 2017 financial year, 40% has been paid, as the conditions have been met, in the first quarter of the 2018 financial year (the "Upfront Portion"), in equal parts in cash and in shares.

·The remaining 60% of the Annual Variable Remuneration, in both cash and shares, has been deferred in its entirety for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (the "Deferred Portion"). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the Deferred Portion, even in its entirety, but in no event may be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid (40% in cash and 60% in shares), according to the following payment schedule: 60% in 2021 20% in 2022 and the remaining 20% in 2023.

·The shares received as Annual Variable Remuneration will be withheld for a period of one year after their delivery, with the exception of those transferred to honor the payment of taxes arising from their delivery.

·The deferred portion of the Annual Variable Remuneration in cash will be subject to updating under the terms established by the Board of Directors.

·No personal hedging strategies or insurance may be used in connection with the remuneration and the responsibility that may undermine the effects of alignment with prudent risk management.

·The variable component of the remuneration corresponding to thesubsequent financial year 2017 will be limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the General Meeting.years

·Over the entire deferral and withholding period, the total Annual Variable Remuneration will be subject to variable "malus" and "clawback" arrangements.

Similarly, in application of the settlement and payment system of the annual variable remuneration for 2014 financial year, in accordance with the remuneration policy applicable at that time, the Senior Management who were beneficiaries of such remuneration, have received the deferred last third of the annual variable remuneration for that financial year, which delivery corresponded to the first quarter of 2018, thus concluding payment of the deferred variable remuneration for the 2014 financial year.

(*) Date of the Board of Directors’ resolution by which organizational changes were approved in the Group.

F-245


In accordance with the above, the remuneration paid to members of the Senior Management as a whole, who held that position as at 20 December 2018, excluding executive directors, during the 2018 financial year is indicated below (itemized):

Annual Fixed Remuneration (thousands of euro) received in 2018

Senior Management total

16,129

Annual Variable Remuneration for the 2017 financial year, received in 2018

 

In cash

(thousands of euro)

In shares

Senior Management total

1,489

205,104

Deferred variable remuneration for the 2014 financial year, received in 2018

 

In cash

(thousands of euro)

In shares

Senior Management total

573

64,853

In addition, all members of Senior Management who held that position as at 20 December 2018, excluding executive directors, received remuneration in kind throughout the 2018 financial year, including insurance premiums and others, amounting to a total of €875 thousand.

At the year-end 2018 and subject to the conditions established in the remuneration policies applicable to the corresponding year for, components of the annual variable remuneration of members of the Senior Management who were beneficiaries of remunerations for the 2016 and 2017 financial years, are deferred to be received in future years, if conditions are met, in accordance with the policy applicable for each of such financial years.

As regards of those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members) have not received any remuneration for such condition, having received fixed and variable remuneration in line with their former positions and functions amounting in aggregate €1,757 thousand as Annual Fixed Remuneration; €337 thousand and 24,293 BBVA shares for Upfront Portion of the Annual Variable Remuneration for the 2017 financial year; and €33 thousand and 3,684 BBVA shares as settlement of the deferred last third of the Annual Variable Remuneration for the 2014 financial year to the Senior Management who were beneficiaries of such remuneration, including the corresponding update, as well as remuneration in kind and others for an amount of €158 thousand, all in application of the remuneration policy to which they were entitled in their condition as risk taker.

F-246


·        Annual Variable Remuneration for Senior Management for the 2020 financial year 2018

Following year-end 2018,In view of the Annual Variable Remunerationexceptional circumstances arising from the COVID-19 crisis, the members of Senior Management corresponding to said period has been determined, excludinghave, like the executive directors, who held that position as at 20 December 2018 (15 members).

Therefore,voluntarily waived the 2018 Annual Variable Remuneration to allgeneration of the Senior Management, excluding executive directors, has been determined in a total amount of €7,074 thousand, in application of the settlement and payment system for this group. The 40%whole of the Annual Variable Remuneration corresponding to each ofthe 2020 financial year, so they will be paid, providing the conditions are met,not accrue any remuneration in equal parts in cash and in shares, during the first quarter of 2019. The remaining 60% of the Annual Variable Remuneration (40% in cash and 60% in shares) will be subject to compliance with a series of multi-year indicators and to the rest of the settlement and payment system conditions set out in the remuneration policy applicable to Senior Management, which includes malus and clawback arrangements and retention periods for shares.

As regards those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members), their Annual Variable Remuneration for the 2018 year-end has been calculated in line with their former positions and functions, amounting in aggregate €633 thousand, being subject to the conditions set out in the remuneration policy to which they were entitled in their condition as risk taker.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.this respect.

·        Deferred Annual Variable Remuneration offor Senior Management for the 2017 financial year2015 

Following year-end 2018,the end of the 2020 financial year, the amount corresponding to the deferred Annual Variable Remuneration of members of Senior Management (15 members as at 31 December, 2020, excluding executive directors) for the 2017 financial year 2015 has been determined,, excluding executive directors, who held that position as at 20 December 2018 (15 members). with delivery in 2021, if conditions are met, in accordance with the payment schedule set out in the remuneration policies applicable to the 2017 financial year and applicable to each of them.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 20152017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, likewise approved by the Board, the deferred portion of the Annual Variable Remuneration for financial year 2015 has been adjusted downwards as a consequence of result of the TSR indicator, which scale has determined a 10% reduction in the deferred amount associated to this indicator. The final amount of the deferred portion of the 2017 Annual Variable Remuneration for financial year 2015 to be paid tomembers of Senior Management, beneficiaries of such remuneration, if applicable conditions are met, after the corresponding adjustmentwith delivery in light of the result of the TSR indicator,2021, has been determined in anthe aggregate total amount, excluding executive directors, of €2,936€610 thousand and 382,407107,740 BBVA shares, which includesincluding the corresponding updating.

As regards those members of the Senior Management who were appointed by resolution of BBVA's Board of Directors on 20 December 2018 (5 members) that were entitled to such deferred remuneration, their Annual Variable Remuneration for financial year 2015 has been calculated in line with their former positions and functions, amounting in aggregate €110 thousand and 14,203 BBVA shares, which includes the corresponding updating and being subject to the conditions set out in the remuneration policy to which they were entitled in their condition as a Group'srisk takers.

At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid.updates.

F-247F-179  


·        Outstanding deferred Annual Variable Remuneration for the members of Senior Management

At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, in addition to 40% of the 2017 deferred AVR in the case of some members of Senior Management, 60% of the Annual Variable Remuneration corresponding to financial years 2018 and 2019 remains deferred and is pending payment to all members of Senior Management, and will be received in future years if the applicable conditions are met.

·Fixed remuneration system with deferred delivery of shares for non-executive directors

BBVA has a fixed remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the General Shareholders' Meeting held on 18 March 2006 and extended by resolutions of the General Shareholders' Meetings held on 11 March 2011 and 11 March 2016 for an additionala further five year period of five years in each case.

This system involvesis based on the annual allocation to non-executive directors of a number of "theoretical shares" of BBVA equivalent to 20% of the total remuneration received in cash received by each director in the previous financial year. This isyear, calculated according to the average closing prices of BBVA shares during the 60 trading sessions prior to the dates of the Annual General Shareholders' Meetings that approveapproving the corresponding financial statements for each financial year.

These shares will be delivered to each beneficiary, where applicable, after they leave their positions as directorsdirectorship for reasonsany reason other than serious breach of their duties.

The "theoretical shares"“theoretical shares” allocated in 2018 to each non-executive directordirectors who are beneficiaries of the remuneration system in shares with deferred delivery in the 2020 financial year, corresponding to 20% of the total remuneration received in cash received by each of them in 2017, arethe 2019 financial year, were as follows:

Theoretical shares allocated in 2018

Theoretical shares accumulated as at 31 December 2018

Theoretical shares allocated in 2020

Theoretical shares accumulated as at 31 December 2020

Tomás Alfaro Drake

10,367

83,449

José Miguel Andrés Torrecillas

12,755

36,565

20,252

75,912

Jaime Félix Caruana Lacorte

22,067

31,387

Raúl Galamba de Oliveira

-

Belén Garijo López

7,865

34,641

14,598

62,126

Sunir Kumar Kapoor

4,811

8,976

7,189

22,915

Carlos Loring Martínez de Irujo

11,985

98,876

Lourdes Máiz Carro

7,454

23,160

10,609

44,929

José Maldonado Ramos

11,176

78,995

14,245

108,568

Ana Peralta Moreno

10,041

15,665

Juan Pi Llorens

11,562

54,171

20,676

92,817

Ana Revenga Shanklin

-

Susana Rodríguez Vidarte

12,425

104,983

18,724

141,138

Carlos Salazar Lomelín

-

Jan Verplancke

7,189

12,392

Total (1)

90,400

523,816

145,590

607,849

(1) In addition, in 2018, 10,188 "theoretical shares"Furthermore, 8,984 “theoretical shares” were allocatedassigned to José Antonio Fernández Rivero,Tomás Alfaro Drake and 18,655 “theoretical shares” were assigned Carlos Loring Martínez de Irujo, who stepped downleft their roles as directors on 13 March 2020. After leaving their roles, both directors received a director on 16 March 2018.number of BBVA shares equivalent to the total number of “theoretical shares” that each of them had accumulated until that date (102,571 and 135,046 BBVA shares, respectively) by application of the system.

F-248


·          Pension commitments with executive directors and Senior Management

At the end of the 2018 financial year, theThe Bank has not made pension commitments in favor ofwith non-executive directors.

With regard to the executive directors Carlos Torres Vila and José Manuel González-Páramo Martínez-Murillo to cover contingencies for retirement, disability and death, in accordance with the Bylaws,Group Executive Chairman, the Remuneration Policy for BBVA Directors and their respective contracts entered into with the Bank.

With regard to Carlos Torres Vila, the Remuneration Policy for BBVA Directors provides forestablishes a benefitspension framework according to whichwhereby he is entitled,eligible, provided that he does not leave his position as Chief Executive Officer due toa result of a serious breach of his duties, to receive a retirement pension, paid as a lump sum or in instalments, when he reaches the legally established retirement age, in the form of capital or income.age. The amount of this pension shall result from the funds accumulatedwill be determined by the Bank up to December 2016 to cover the commitments under his previous benefits scheme, plus the sum of the annual contributions made by the Bank, from 1 January 2017together with their corresponding accumulated yields at that date.

The annual contribution to cover said pension,the retirement contingency for the Group Executive Chairman's defined-contribution system, as well as the corresponding accumulated yields.

The amount set outestablished in the Remuneration Policy for BBVA Directors approved by the General Shareholders’ Meeting in 2019, was determined as a result of the conversion of his previous defined-benefit rights into a defined-contribution system, in the annual contribution to cover retirement benefitamount of €1,642 thousand. The Board of Directors may update this amount during the term of the Policy, in the same way and under the defined-contribution scheme for Carlos Torres Vila is €1,642 thousand.same terms as it may update the Annual Fixed Remuneration.

F-180


15% of the aforementioned agreed annual contribution will be based on variable components and considered "discretionary“discretionary pension benefits"benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with this Policy.regulations.

ShouldIn the contractual relationship be terminatedevent the Group Executive Chairman’s contract terminates before he reaches thereaching retirement age for reasons other than serious breach of duties, the retirement pension due to Carlos Torres Vilathe Group Executive Chairman upon reaching the legally established retirement age will be calculated based on the totalfunds accumulated through the contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event from the time of termination.

With respect to the commitments to cover the contingencies for death and disability benefits for Carlos Torres Vila,the Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage the death and disability contingencies of his benefits system.these contingencies.

In line with the above, during the 20182020 financial year, €1,896 thousand hasthe following amounts have been recorded to meet the benefitspension commitments for Carlos Torres Vila,the Group Executive Chairman: an amount which includes the contributionof €1,642 thousand with regard to the retirement contingency (€1,642 thousand) and toan amount of €377 thousand for the payment of premiums for the death and disability (€212 thousand),contingencies, as well as 42an upwards adjustment of €15 thousand corresponding tofor “discretionary pension benefits” for the adjustments made to the amount of "discretionary pension benefits" from 2017, as2019 financial year, which were declared at 2017such financial year-end and which had to be recordedregistered in the accumulated fund in 2018. 2020.

As a result,of 31 December, 2020, the total accumulated amount of the fund to meet the retirement commitments with Carlos Torres Vilafor the Group Executive Chairman amounts to €18,581 thousand as at 31 December 2018.€23,057 thousand.

15% ofWith regard to the agreed annual contribution to the retirement contingency corresponding to the 2020 financial year, 15% (€246 thousand) has been recognizedwas registered in 2018this financial year as "discretionary“discretionary pension benefits"benefits”. Following year-end, 2018, thisthe amount has beenwas adjusted according toapplying the same criteria establishedused to determine Carlos Torres Vila'sthe Annual Variable Remuneration for 2018. Accordingly, the "discretionaryrest of the Bank's staff. Thus, the “discretionary pension benefits"benefits” for the 2020 financial year have beenwere determined in an amount of €245€148 thousand, whichfollowing a downwards adjustment of €98 thousand. These “discretionary pension benefits” will be included in the accumulated fund for 2019,in the 2021 financial year and will be subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

InWith regard to the caseChief Executive Officer, in accordance with the provisions of José Manuel González-Páramo Martínez-Murillo, the pension system provided for in thecurrent Remuneration Policy for BBVA Directors establishesapproved by the General Shareholders’ Meeting and his contract, the Bank is not required to make any contributions to a retirement pension, although he is entitled to an annual contributioncash sum instead of a retirement pension equal to 30% of his Annual Fixed Remuneration,Remuneration. However, the Bank does have pension commitments to cover the contingencydeath and disability contingencies, for which purpose the corresponding annual insurance premiums are paid.

In accordance with the above, in the 2020 financial year, the Bank paid the Chief Executive Officer the fixed-remuneration amount set out for cash in lieu of his retirement, as well aspension in the 'Remuneration received by executive directors in 2020' section of this Note and furthermore, €253 thousand was recorded for the payment of the correspondingannual insurance premiums in order to top upcover the coverage of death and disability.disability contingencies.

F-249


15%In the case of the aforementioned agreedformer executive director, the Head of GE&PA, €89 thousand were registered as contributions to fulfil the pension commitments undertaken in proportion to the time he spent in office during the 2020 financial year. This corresponds to: the sum of the annual contribution will be based on variable componentsmade to cover the retirement pension and considered "discretionary pension benefits", therefore subjectthe adjustment made to the conditions regarding delivery in shares, retention and clawback established“discretionary pension benefits`” for the 2019 financial year that fell due in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with this Policy.2020 financial year once the AVR for the year 2019 had been determined (€52 thousand); and to the death and disability premiums (€37 thousand).

José Manuel González-Páramo Martínez-Murillo, upon reaching retirement age, will be entitled to receive, inAs of the form of capital or income, the benefits arising from contributions made by the Bank to cover pension commitments, plus the corresponding yield accumulated up to that date providedon which he does not leaveleft his position, duethe total accumulated fund to serious breachmeet the retirement commitments for the former executive director Head of duties. In the event of voluntary termination of contractual relationship by the director before retirement, the benefits will be limitedGE&PA amounted to 50% of the contributions made by the Bank up to that date, as well as the corresponding accumulated yield,€1,404 thousand, with no additional contributions to be made by the Bank upon termination.from that point on.

With respectIn accordance with the same criteria used in the case of the Group Executive Chairman, the “discretionary pension benefits” for the 2020 financial year of the former executive director Head of GE&PA (calculated in proportion to the commitments to covertime he remained in office in 2020) were determined in an amount of €5 thousand, following a downwards adjustment of €3 thousand, and will be included in the contingencies for death and disability benefits for José Manuel González-Páramo Martínez-Murillo,accumulated fund in the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage the death and disability contingencies of his benefits system.

In line with the above, during the 20182021 financial year, €405 thousand has been recordedsubject to the conditions established in the Remuneration Policy for BBVA Directors.

Furthermore, in the 2020 financial year, to meet the benefitspension commitments for José Manuel González-Páramo Martínez-Murillo,members of Senior Management (15 members holding that position as at 31 December, 2020, excluding executive directors) it was recorded an amount which includesof €2,739 thousand corresponding to the contribution to the retirement contingency (€250 thousand) and of €978 thousand corresponding to premiums to cover the death and disability (€147 thousand),contingencies, as well as €8an upwards adjustment of €12 thousand corresponding tofor “discretionary pension benefits” for the adjustments made to the amount of "discretionary pension benefits" from 2017, as2019 financial year, which were declared at 20172019 year-end and which had to be recordedregistered in the accumulated fund in 2018. 2020.

As a result,at 31 December, 2020, the total accumulated amount of the fund to meet the retirement commitments with José Manuel González-Páramo amounts to €1,067 thousand as at 31 December 2018.

15% of the agreed annual contribution to retirement (€38 thousand) has been recognized in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine José Manuel González-Páramo Martínez-Murillo’s Annual Variable Remuneration for 2018. Accordingly, the "discretionary pension benefits" for the financial year have been determined in an amount of €42 thousand, which will be included in the accumulated fund for 2019, subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the Remuneration Policy for BBVA Directors.

As of 31 December 2018 there are no other pension commitments undertaken in favor of other executive directors.

Likewise, during the 2018 financial year, €4,754 thousand has been recorded to meet the benefits commitments undertaken with members of the Senior Management, excluding executive directors, who held said position as at 20 December 2018 (15 members), amount which includes the contribution to the retirement contingency (€3,883 thousand) and to death and disability (€831 thousand), as well as €40 thousand corresponding to the adjustments made to the amount of "discretionary pension benefits" from 2017, as declared at 2017 year-end and which had to be recorded in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet retirement commitments with Senior Management amounts to €57,429 thousand as at 31 December 2018.€22,156 thousand.

As for the executive directors, 15% of the agreed annual contributions for members of Senior Management who held that position as at 20 December 2018to cover retirement contingencies will be based on variable components and considered "discretionary“discretionary pension benefits"benefits”, and are therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of Senior Management.

F-250F-181  


ToFor this purpose, with regard to the annual contribution for the retirement contingency registered in the 2020 financial year, an amount of €405 thousand was registered in the 2020 financial year as “discretionary pension benefits” and, following the end of the agreed annual contribution to retirement, an amount of €571 thousand has been recognized in 20182020 financial year, as "discretionary pension benefits". Following year-end 2018,for the Group Executive Chairman, this amount has beenwas adjusted according toapplying the same criteria establishedused to determine the Annual Variable Remuneration for the rest of the Senior Management for 2018.Bank's staff, taking into account as well the area and individual results of each senior manager established to this effects by the executive area. Accordingly, the "discretionary“discretionary pension benefits"benefits” for thesuch financial year, corresponding to all members of the Senior Management, who held that position as at 20 December 2018, have beenwere determined in anto amount to a total of €555€255 thousand, whichfollowing a downwards adjustment of €150 thousand. These “discretionary pension benefits” will be included in the accumulated fund for 2019,in the 2021 financial year, and will be subject to the same conditions as the Deferred Component of Annual Variable Remuneration for 2018, as well as the remaining conditions established for these benefits in the remuneration policy applicable to members of the Senior Management.

During the 2018 financial year, €146 thousand has been recorded to meet the benefits commitments undertakenManagement, in accordance with the members ofregulations applicable to BBVA on this matter.

·Payments for the Senior Management, excluding executive directors, who were appointed by BBVA's Board of Directors on 20 December 2018 (five members), pursuant to the commitments made by the Bank with each of them in relation to their previous positions and functions, with such amount including both the contribution to retirement contingency(€97 thousand) as well as to death and disability (€49 thousand), with the fund accumulated to meet retirement commitments for this group amounting to a total of €1,713 thousand.

Terminationextinction of the contractual relationship

In accordance with the Remuneration Policy for BBVA Directors, the Bank has no commitments to pay severance paymentsbenefits to executive directors.

The contractual framework defined in the aforementioned Policy for Carlos Torres Vila and for the executive director José Manuel González-Páramo Martínez-Murillo, includesdirectors, in accordance with the Remuneration Policy for BBVA Directors, establishes a post-contractual non-compete agreementclause for executive directors, effective for a period of two (2) years after they ceaseleave their role as BBVA executive directors, in accordanceprovided that they do not leave due to which they will receive remuneration fromretirement, disability or serious breach of duties. In compensation for this agreement, the Bank forshall award them remuneration of an amount equivalent to onetheir Annual Fixed Remuneration for each year of duration of the non-compete arrangement ,agreement, which shallwill be paid periodicallyawarded monthly over the course of the two years,years.

Accordingly, the former executive director Head of GE&PA, who left his role on 13 March 2020, received for this concept, €625 thousand during the 2020 financial year.

With regard to Senior Management, excluding executive directors, during the 2020 financial year, the Bank paid out a total of €2,185 thousand resulting from the extinction of the contractual relationship with one member of Senior Management and in fulfilment of the provisions of the member’s contract (for the payment of legal severance benefits and notice). This contract includes the right to receive the corresponding legal severance pay, provided that theythe member of Senior Management does not leave their positionsof his own will, for retirement, disability or due to a serious breach of duties, which will be calculated in accordance with the provisions of applicable labor regulations, and a notice clause. In addition, the contract establishes a non-compete clause, effective for a period of one (1) year after the member leaves the role as executive directors for reasons other thana senior manager of BBVA, provided that the member does not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the member of Senior Management received a total of €898 thousand during 2020.

These payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which members of Senior Management belong.

F-251


55. 55. Other information

55.1  Environmental impact

Given the activities BBVA Group entities engage in, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation and profits. Consequently, as of December 31, 2018,2020, there is no item in the Group’s accompanying consolidated financial statementsincluded that requires disclosure in an environmental information report pursuant to Ministry JUS/318/2018, of Justice Order JUS/471/2017, of May 19, and consequently no specific disclosure of information on environmental matters is included in these financial statements.

55.2  Reporting requirements ofMarch 21, by which the Spanish National Securities Market Commission (CNMV)

Dividends paidnew model for the presentation in the year

The table below presents the dividends per share paid in cash during 2018, 2017 and 2016 (cash basis dividend, regardless of the year in which they were accrued), but without including other shareholder remuneration, such as the “Dividend Option”. See Notes 4 and 26 for a complete analysis of all remuneration awarded to the shareholders.

Dividends Paid ("Dividend Option" not included)

 

 

2018

 

 

2017

 

 

2016

 

 

% Over Nominal

Euros per Share

Amount (Millions of Euros)

% Over Nominal

Euros per Share

Amount (Millions of Euros)

% Over Nominal

Euros per Share

Amount (Millions of Euros)

Ordinary shares

51.02%

0.25

1,667

34.69%

0.17

1,125

32.65%

0.16

1,028

Rest of shares

-

-

-

-

-

-

-

-

-

Total dividends paid in cash

51.02%

0.25

1,667

34.69%

0.17

1,125

32.65%

0.16

1,028

Dividends with charge to income

51.02%

0.25

1,667

34.69%

0.17

1,125

32.65%

0.16

1,028

Dividends with charge to reserve or share premium

-

-

-

-

-

-

-

-

-

Dividends in kind

-

-

-

-

-

-

-

-

-

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Ordinary earnings and ordinary income by operating segment

The detailCommercial Register of the consolidated profit for each operating segmentannual accounts of the subjects obliged to its publication is as follows as of December 31 2018, 2017 and 2016:

Profit Attributable by Operating Segments

 

Notes

2018

2017

2016

Banking Activity in Spain

 

1,522

1,374

912

Non-Core Real Estate

 

(78)

(490)

(595)

United States

 

735

486

459

Mexico

 

2,384

2,187

1,980

Turkey

 

569

826

599

South America

 

591

861

771

Rest of Eurasia

 

93

125

151

Subtotal operating segments

 

5,818

5,368

4,276

Corporate Center

 

(494)

(1,848)

(801)

Profit attributable to parent company

6

5,324

3,519

3,475

Non-assigned income

 

-

-

-

Elimination of interim income (between segments)

 

-

-

-

Other gains (losses) (*)

 

827

1,243

1,218

Income tax and/or profit from discontinued operations

 

2,295

2,169

1,699

Operating profit before tax

6

8,446

6,931

6,392

(*)  Profit attributable to non-controlling interests.

Interest income by geographical areaapproved.

The breakdown of the balance of “Interest income and other income” in the accompanying consolidated income statements by geographical area is as follows:

Interest Income. Breakdown by geographical area (Millions of euros)

 

Notes

2018

2017

2016

Domestic

 

4,952

5,093

5,962

Foreign

 

24,879

24,203

21,745

European Union

 

509

422

291

Eurozone

 

391

239

291

No eurozone

 

117

183

-

Other countries

 

24,370

23,781

21,455

Total

37.1

29,831

29,296

27,708

F-253


56. Subsequent events

On January 15, 2019,22, 2021 and after obtaining all required authorizations, BBVA announcedhas completed the sale to Banco GNB Paraguay, S.A., an affiliate of Grupo Gilinski, of its irrevocable decision100% direct and indirect stake share capital in Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”).

The amount received by BBVA amounts to early redeem,approximately USD250 million (€210 million). The transaction results in a capital loss of approximately €9 million net of taxes. A positive impact on February 19, 2019,BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points is estimated to be recognized during the issuance first half of preferred securities contingently convertible (additional tier 1 instrument) carried out by the Bank on February 19, 2014, for an amount of €1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator was obtained2021 (see Note 22.4)3).

The Board of Directors, in their meeting on January 31, 2019, agreed on carrying out an issuance of bonds convertible into ordinary shares of BBVA with exclusion of pre-emptive subscription rights, under the power delegated by the General Shareholders' Meeting of the Company held on March 17, 2017 under the fifth item on the agenda which is pending to be executed.

On February 1, 2019January 29, 2021, it was announced that it was foreseen to submita cash distribution in the amount of €0.059 gross per share as shareholder remuneration in relation to the consideration ofGroup’s result in the corresponding government bodies the proposal of cash payment in a gross amount of euro 0.16 per share2020 financial year was expected to be paid in April as final dividendsubmitted to the relevant governing bodies of BBVA for 2018consideration (see Note 4).

On February 14, 2019, the results of the supervisory review and evaluation process (SREP) were announced.

On 19 February, BBVA announced the irrevocable decision to early redeem, on April 11, the issuance of subordinated bonds (Subordinated Notes) that has been computed as Tier 2 capital for an amount of €1.5 billion, coinciding with the Optional Amortization date of said issue, and once the prior consent from the Regulator has been obtained.

From January 1, 20192021 to the date of preparation of these Consolidated Financial Statements,consolidated financial statements, no other subsequent events not mentioned above in these financial statements have taken place that could significantly affect the Group’s earnings or its equity positionposition..

F-254F-182  


 

 

 

BBVA Group RGB+

 

Appendices

 

 

 

 

 

 

 

F-255F-183  


APPENDIX II. Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group

Additional as of December 31, 2020

 

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

ACTIVOS MACORP SL

SPAIN

REAL ESTATE

50.63

49.37

100.00

21

22

-

ADQUIRA MEXICO SA DE CV

MEXICO                             

COMMERCIAL

-

100.00

100.00

3

3

-

ALCALA 120 PROMOC. Y GEST.IMMOB. S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

15

19

(3)

ANIDA GRUPO INMOBILIARIO SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

1,464

1,552

(101)

ANIDA INMOBILIARIA, S.A. DE C.V.

MEXICO                             

INVESTMENT COMPANY

-

100.00

100.00

71

41

5

ANIDA OPERACIONES SINGULARES, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

1,341

1,443

(102)

ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V.

MEXICO                             

REAL ESTATE

-

100.00

100.00

27

23

4

ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA

PORTUGAL                           

REAL ESTATE

-

100.00

100.00

27

7

10

ANTHEMIS BBVA VENTURE PARTNERSHIP LLP

UNITED KINGDOM

INVESTMENT COMPANY

-

100.00

100.00

4

4

-

APLICA NEXTGEN OPERADORA S.A. DE C.V.

MEXICO                             

SERVICES

-

100.00

100.00

-

-

-

APLICA NEXTGEN SERVICIOS S.A. DE C.V

MEXICO                             

SERVICES

-

100.00

100.00

1

-

-

APLICA TECNOLOGIA AVANZADA SA DE CV

MEXICO                             

SERVICES

100.00

-

100.00

203

199

10

ARIZONA FINANCIAL PRODUCTS, INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

799

798

-

ARRAHONA AMBIT, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

12

21

-

ARRAHONA IMMO, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

53

114

-

ARRAHONA NEXUS, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

58

67

-

ARRELS CT FINSOL, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

64

79

-

ARRELS CT LLOGUER, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

5

6

-

ARRELS CT PATRIMONI I PROJECTES, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

22

23

(1)

ARRELS CT PROMOU SA

SPAIN

REAL ESTATE

-

100.00

100.00

28

32

(2)

AZLO BUSINESS, INC

UNITED STATES

SERVICES

-

100.00

100.00

-

23

(23)

BAHIA SUR RESORT S.C.

SPAIN

INACTIVE

99.95

-

99.95

-

1

-

BANCO BBVA ARGENTINA S.A.

ARGENTINA

BANKING

39.97

26.59

66.55

157

488

333

BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA

URUGUAY                            

BANKING

100.00

-

100.00

110

164

28

BANCO INDUSTRIAL DE BILBAO SA

SPAIN

BANKING

-

99.93

99.93

48

47

-

BANCO OCCIDENTAL SA

SPAIN

BANKING

49.43

50.57

100.00

17

18

-

BANCO PROVINCIAL OVERSEAS NV

CURAÇAO

BANKING

-

100.00

100.00

49

47

2

BANCO PROVINCIAL SA - BANCO UNIVERSAL

VENEZUELA

BANKING

1.46

53.75

55.21

33

143

(9)

BBV AMERICA SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

79

627

12

BBVA (SUIZA) SA

SWITZERLAND

BANKING

100.00

-

100.00

98

122

9

BBVA AGENCIA DE SEGUROS COLOMBIA LTDA

COLOMBIA                           

INSURANCES SERVICES

-

100.00

100.00

-

-

-

BBVA ASSET MANAGEMENT SA SAF

PERU                               

FINANCIAL SERVICES

-

100.00

100.00

9

5

4

BBVA ASSET MANAGEMENT SA SGIIC

SPAIN

OTHER INVESTMENT COMPANIES

100.00

-

100.00

43

(66)

113

BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA)

COLOMBIA                           

FINANCIAL SERVICES

-

100.00

100.00

28

19

9

BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA.

PORTUGAL                           

FINANCIAL SERVICES

100.00

-

100.00

6

6

-

BBVA BANCO CONTINENTAL SA (1)

PERU                               

BANKING

-

46.12

46.12

972

1,944

164

BBVA BANCOMER GESTION, S.A. DE C.V.

MEXICO                              

FINANCIAL SERVICES

-

100.00

100.00

19

11

8

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on Consolidated Subsidiaries and consolidated structured entities composingforeign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the BBVA Groupstate, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1)Full consolidation method is used according to accounting rules (see Glossary) 

 

 

 

% Legal share of participation

Millions of Euros (*)

 

 

 

Affiliate Entity Data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

ACTIVOS MACORP SL

SPAIN

REAL ESTATE

50.63

49.37

100.00

21

24

3

20

1

ALCALA 120 PROMOC. Y GEST.IMMOB. S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

17

26

8

16

2

ANIDA GERMANIA IMMOBILIEN ONE, GMBH

GERMANY

IN LIQUIDATION

-

100.00

100.00

-

-

-

-

-

ANIDA GRUPO INMOBILIARIO SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

1,569

1,642

38

1,863

(259)

ANIDA INMOBILIARIA, S.A. DE C.V.

MEXICO

INVESTMENT COMPANY

-

100.00

100.00

113

80

-

59

21

ANIDA OPERACIONES SINGULARES, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

1,485

2,381

893

1,678

(190)

ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V.

MEXICO

REAL ESTATE

-

100.00

100.00

53

57

4

32

21

ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA

PORTUGAL

REAL ESTATE

-

100.00

100.00

23

62

53

6

2

APLICA NEXTGEN OPERADORA S.A. DE C.V.

MEXICO

SERVICES

-

100.00

100.00

1

10

9

1

-

APLICA NEXTGEN SERVICIOS S.A. DE C.V

MEXICO

SERVICES

-

100.00

100.00

-

3

3

-

-

APLICA TECNOLOGIA AVANZADA SA DE CV

MEXICO

SERVICES

100.00

-

100.00

203

232

21

214

(3)

ARIZONA FINANCIAL PRODUCTS, INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

855

855

-

855

1

ARRAHONA AMBIT, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

12

34

10

14

9

ARRAHONA IMMO, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

53

118

4

105

9

ARRAHONA NEXUS, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

58

131

67

58

6

ARRAHONA RENT, S.L.U.

SPAIN

REAL ESTATE

-

100.00

100.00

9

12

1

10

-

ARRELS CT FINSOL, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

64

114

35

64

15

ARRELS CT LLOGUER, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

5

27

21

5

1

ARRELS CT PATRIMONI I PROJECTES, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

22

52

28

22

2

ARRELS CT PROMOU SA

SPAIN

REAL ESTATE

-

100.00

100.00

28

60

23

28

9

AZLO BUSINESS, INC

UNITED STATES

SERVICES

-

100.00

100.00

11

12

1

18

(8)

BAHIA SUR RESORT S.C.

SPAIN

INACTIVE

99.95

-

99.95

1

1

-

1

-

BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA

URUGUAY

BANKING

100.00

-

100.00

110

2,850

2,652

168

30

BANCO INDUSTRIAL DE BILBAO SA

SPAIN

BANKING

-

99.93

99.93

46

45

-

60

(15)

BANCO OCCIDENTAL SA

SPAIN

BANKING

49.43

50.57

100.00

17

18

-

18

-

BANCO PROVINCIAL OVERSEAS NV

CURAÇAO

BANKING

-

100.00

100.00

48

403

355

44

5

BANCO PROVINCIAL SA - BANCO UNIVERSAL

VENEZUELA

BANKING

1.46

53.75

55.21

52

296

174

140

(18)

BANCOMER FOREIGN EXCHANGE INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

21

21

-

16

5

BANCOMER PAYMENT SERVICES INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

1

2

1

1

-

BBV AMERICA SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

79

614

-

604

10

BBVA AGENCIA DE SEGUROS COLOMBIA LTDA

COLOMBIA

INSURANCES SERVICES

-

100.00

100.00

-

-

-

-

-

BBVA ASSET MANAGEMENT CONTINENTAL SA SAF

PERU

FINANCIAL SERVICES

-

100.00

100.00

15

18

3

11

4

BBVA ASSET MANAGEMENT SA SGIIC

SPAIN

OTHER INVESTMENT COMPANIES

17.00

83.00

100.00

38

111

55

(41)

98

BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA)

COLOMBIA

FINANCIAL SERVICES

-

100.00

100.00

29

32

4

19

10

BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA.

PORTUGAL

FINANCIAL SERVICES

100.00

-

100.00

4

26

21

4

-

BBVA BANCO CONTINENTAL SA

PERU

BANKING

-

46.12

46.12

998

19,382

17,212

1,747

423

BBVA BANCO FRANCES SA

ARGENTINA

BANKING

39.97

26.58

66.55

157

8,189

7,166

1,047

(23)

BBVA BANCOMER GESTION, S.A. DE C.V.

MEXICO

FINANCIAL SERVICES

-

100.00

100.00

14

31

17

9

5

BBVA BANCOMER OPERADORA, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

100.00

69

269

199

60

9

BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER

MEXICO

BANKING

-

100.00

100.00

8,633

87,919

79,560

6,374

1,985

(*)  Information on foreign companies at exchange rate on December 31, 2018

F-256F-184  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)

 

 

% Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

BBVA BANCOMER OPERADORA SA DE CV

MEXICO                             

SERVICES

-

100.00

20

17

3

BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER

MEXICO                             

BANKING

-

100.00

9,920

8,443

1,474

BBVA BANCOMER SEGUROS SALUD SA DE CV

MEXICO

INSURANCES SERVICES

-

100.00

13

23

10

12

2

MEXICO                             

INSURANCES SERVICES

-

100.00

8

1

BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

38

197

159

27

11

MEXICO                             

SERVICES

-

100.00

49

40

9

BBVA BOLSA SOCIEDAD AGENTE DE BOLSA S.A.

PERU                               

SECURITIES DEALER

-

100.00

4

3

1

BBVA BRASIL BANCO DE INVESTIMENTO SA

BRASIL

BANKING

100.00

-

100.00

16

28

3

25

-

BRAZIL

BANKING

100.00

-

100.00

16

19

-

BBVA BROKER ARGENTINA SA

ARGENTINA

INSURANCES SERVICES

-

99.96

-

3

4

BBVA BROKER CORREDURIA DE SEGUROS Y REASEGUROS SA

SPAIN

INSURANCES SERVICES

99.94

0.06

100.00

-

15

3

8

4

SPAIN

FINANCIAL SERVICES

99.94

0.06

100.00

-

1

5

BBVA BROKER SA

ARGENTINA

INSURANCES SERVICES

-

99.99

-

9

2

5

BBVA COLOMBIA SA

COLOMBIA

BANKING

77.41

18.06

95.47

355

16,793

15,572

1,035

186

COLOMBIA                           

BANKING

77.41

18.06

95.47

355

1,155

112

BBVA COMPASS BANCSHARES INC

UNITED STATES

INVESTMENT COMPANY

100.00

-

100.00

11,703

11,817

41

11,131

645

BBVA COMPASS FINANCIAL CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

230

432

210

217

5

BBVA COMPASS INSURANCE AGENCY, INC

UNITED STATES

INSURANCES SERVICES

-

100.00

38

40

2

29

9

BBVA COMPASS PAYMENTS INC

UNITED STATES

INVESTMENT COMPANY

-

100.00

88

88

-

73

15

BBVA CONSOLIDAR SEGUROS SA

ARGENTINA

INSURANCES SERVICES

87.78

12.22

100.00

8

82

55

22

4

ARGENTINA

INSURANCES SERVICES

87.78

12.22

100.00

9

18

17

BBVA CONSULTING ( BEIJING) LIMITED

CHINA

FINANCIAL SERVICES

-

100.00

2

2

-

2

-

BBVA CONSULTORIA, S.A.

SPAIN

SERVICES

-

100.00

2

5

3

2

-

BBVA CONSUMER FINANCE ENTIDAD DE DESARROLLO A LA PEQUEÑA Y MICRO EMPRESA EDPYME SA (BBVA CONSUMER FINANCE - EDPYME)

PERU

FINANCIAL SERVICES

-

100.00

21

135

115

17

3

PERU                               

FINANCIAL SERVICES

-

100.00

24

20

3

BBVA DATA & ANALYTICS SL

SPAIN

SERVICES

-

100.00

6

5

2

3

1

SPAIN

SERVICES

-

100.00

6

4

-

BBVA DISTRIBUIDORA DE SEGUROS S.R.L.

URUGUAY

INSURANCES SERVICES

-

100.00

5

5

-

3

2

URUGUAY                            

FINANCIAL SERVICES

-

100.00

4

2

BBVA FINANCIAL CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

210

212

(2)

BBVA FINANZIA SPA

ITALY

IN LIQUIDATION

100.00

-

100.00

4

13

10

4

-

ITALY

IN LIQUIDATION

100.00

-

100.00

3

-

BBVA FOREIGN EXCHANGE INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

26

20

7

BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN.

ARGENTINA

FINANCIAL SERVICES

-

100.00

11

15

5

11

-

ARGENTINA

FINANCIAL SERVICES

-

100.00

14

9

5

BBVA FRANCES VALORES, S.A.

ARGENTINA

SECURITIES DEALER

-

100.00

4

5

1

5

(1)

BBVA FUNDOS S.GESTORA FUNDOS PENSOES SA

PORTUGAL

PENSION FUNDS MANAGEMENT

100.00

-

100.00

10

10

-

8

2

PORTUGAL                           

PENSION FUND MANAGEMENT

100.00

-

100.00

8

2

BBVA GLOBAL FINANCE LTD

CAYMAN ISLANDS

FINANCIAL SERVICES

100.00

-

100.00

-

179

175

4

-

CAYMAN ISLANDS

PENSION FUNDS MANAGEMENT

100.00

-

100.00

-

4

-

BBVA GLOBAL MARKETS BV

NETHERLANDS

FINANCIAL SERVICES

100.00

-

100.00

-

2,562

2,561

-

NETHERLANDS

FINANCIAL SERVICES

100.00

-

100.00

-

BBVA GLOBAL SECURITIES, B.V.

NETHERLANDS

OTHER ISSUERS COMPANIES

100.00

-

100.00

-

BBVA HOLDING CHILE SA

CHILE

INVESTMENT COMPANY

61.22

38.78

100.00

139

348

-

273

75

CHILE

INVESTMENT COMPANY

61.22

38.78

100.00

139

315

26

BBVA INFORMATION TECHNOLOGY ESPAÑA SL

SPAIN

SERVICES

76.00

-

76.00

1

6

5

1

-

SPAIN

SERVICES

76.00

-

76.00

1

2

1

BBVA INSTITUIÇAO FINANCEIRA DE CREDITO SA

PORTUGAL

FINANCIAL SERVICES

49.90

50.10

100.00

39

422

369

50

3

PORTUGAL                           

FINANCIAL SERVICES

49.90

50.10

100.00

39

54

4

BBVA INSURANCE AGENCY, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

48

43

5

BBVA INTERNATIONAL PREFERRED SOCIEDAD ANONIMA

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

-

36

35

-

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

-

BBVA IRELAND PLC

IRELAND

FINANCIAL SERVICES

100.00

-

100.00

2

52

48

2

1

BBVA IRELAND PLC ( IN LIQUIDATION)

IRELAND

FINANCIAL SERVICES

100.00

-

100.00

2

3

-

BBVA LEASING MEXICO SA DE CV

MEXICO

FINANCIAL SERVICES

-

100.00

51

888

751

127

10

MEXICO                              

FINANCIAL SERVICES

-

100.00

51

126

8

BBVA LUXINVEST SA

LUXEMBOURG

PENSION FUNDS MANAGEMENT

36.00

64.00

100.00

-

2

1

(1)

1

BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A.

SPAIN

INSURANCES SERVICES

-

100.00

10

96

69

10

17

SPAIN

FINANCIAL SERVICES

-

100.00

10

(8)

17

BBVA MORTGAGE CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

2,799

2,730

68

BBVA NEXT TECHNOLOGIES OPERADORA, S.A. DE C.V.

MEXICO                             

SERVICES

-

100.00

-

1

-

BBVA NEXT TECHNOLOGIES SLU

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

19

41

18

20

3

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

37

27

5

BBVA NOMINEES LIMITED

UNITED KINGDOM

IN LIQUIDATION

100.00

-

100.00

-

-

BBVA NEXT TECHNOLOGIES, S.A. DE C.V.

MEXICO                             

SERVICES

-

100.00

1

2

1

BBVA OP3N S.L.

SPAIN

SERVICES

-

100.00

-

3

4

(1)

SPAIN

SERVICES

-

100.00

-

3

-

BBVA OPEN PLATFORM INC

UNITED STATES

SERVICES

-

100.00

1

2

1

8

(7)

UNITED STATES

SERVICES

-

100.00

2

10

(8)

BBVA PARAGUAY SA

PARAGUAY

BANKING

100.00

-

100.00

23

1,923

1,741

150

32

PARAGUAY                           

BANKING

100.00

-

100.00

23

144

23

BBVA PENSIONES SA ENTIDAD GESTORA DE FONDOS DE PENSIONES

SPAIN

PENSION FUNDS MANAGEMENT

100.00

-

100.00

13

40

13

16

11

SPAIN

PENSION FUNDS MANAGEMENT

100.00

-

100.00

13

17

8

BBVA PLANIFICACION PATRIMONIAL SL

SPAIN

FINANCIAL SERVICES

80.00

20.00

100.00

-

1

-

1

-

BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES

BOLIVIA

PENSION FUNDS MANAGEMENT

75.00

5.00

80.00

1

26

15

5

7

BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA

CHILE

SERVICES

-

100.00

6

8

1

6

1

BBVA RE DAC

IRELAND

INSURANCES SERVICES

-

100.00

39

68

25

48

(6)

(*) Information on foreign companies at exchange rate on December 31, 2018

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-257F-185  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)

 

 

%  Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

BBVA PERU HOLDING SAC

PERU                               

INVESTMENT COMPANY

100.00

-

100.00

124

902

76

BBVA PLANIFICACION PATRIMONIAL SL

SPAIN

FINANCIAL SERVICES

80.00

20.00

100.00

-

1

-

BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES

BOLIVIA                             

PENSION FUNDS MANAGEMENT

75.00

5.00

80.00

1

4

9

BBVA PROCESSING SERVICES INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

1

1

-

BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA, IN LIQUIDATION

CHILE

IN LIQUIDATION

-

100.00

4

6

(1)

BBVA RE INHOUSE COMPAÑIA DE REASEGUROS, S.E.

SPAIN

INSURANCES SERVICES

-

100.00

39

47

12

BBVA REAL ESTATE MEXICO, S.A. DE C.V.

MEXICO

FINANCIAL SERVICES

-

100.00

-

-

-

MEXICO                             

IN LIQUIDATION

-

100.00

-

-

-

BBVA SECURITIES INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

192

398

205

187

6

UNITED STATES

FINANCIAL SERVICES

-

100.00

223

186

37

BBVA SEGUROS COLOMBIA SA

COLOMBIA

INSURANCES SERVICES

94.00

6.00

100.00

10

90

68

13

9

COLOMBIA                           

INSURANCES SERVICES

94.00

6.00

100.00

10

13

10

BBVA SEGUROS DE VIDA COLOMBIA SA

COLOMBIA

INSURANCES SERVICES

94.00

6.00

100.00

14

402

282

86

33

COLOMBIA                           

INSURANCES SERVICES

94.00

6.00

100.00

14

104

26

BBVA SEGUROS SA DE SEGUROS Y REASEGUROS

SPAIN

INSURANCES SERVICES

99.96

-

99.96

713

17,303

16,509

484

309

SPAIN

INSURANCES SERVICES

99.96

-

99.96

713

462

594

BBVA SERVICIOS, S.A.

SPAIN

COMMERCIAL

-

100.00

-

8

-

7

-

SPAIN

COMMERCIAL

-

100.00

-

-

-

BBVA SUIZA SA (BBVA SWITZERLAND)

SWITZERLAND

BANKING

100.00

-

100.00

98

832

719

108

4

BBVA TRADE, S.A. (**)

SPAIN

INVESTMENT COMPANY

-

100.00

4

42

37

5

-

BBVA SOCIEDAD TITULIZADORA S.A.

PERU                               

FINANCIAL SERVICES

-

100.00

1

1

-

BBVA TRADE, S.A.

SPAIN

INVESTMENT COMPANY

-

100.00

13

13

-

BBVA TRANSFER HOLDING INC

UNITED STATES

INVESTMENT COMPANY

-

100.00

104

87

18

BBVA TRANSFER SERVICES INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

66

118

51

57

9

UNITED STATES

FINANCIAL SERVICES

-

100.00

77

66

11

BBVA USA

UNITED STATES

BANKING

-

100.00

8,687

10,394

(1,707)

BBVA USA BANCSHARES, INC.

UNITED STATES

INVESTMENT COMPANY

100.00

-

100.00

9,018

11,136

(1,632)

BBVA VALORES COLOMBIA SA COMISIONISTA DE BOLSA

COLOMBIA

SECURITIES DEALER

-

100.00

5

6

1

4

1

COLOMBIA                           

SECURITIES DEALER

-

100.00

10

9

-

BBVA WEALTH SOLUTIONS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

8

8

-

6

2

UNITED STATES

FINANCIAL SERVICES

-

100.00

15

10

4

BEEVA TEC OPERADORA, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

-

2

2

-

BEEVA TEC SA DE CV

MEXICO

SERVICES

-

100.00

1

6

3

2

1

BILBAO VIZCAYA HOLDING SA

SPAIN

INVESTMENT COMPANY

89.00

11.00

100.00

51

234

141

90

3

SPAIN

INVESTMENT COMPANY

89.00

11.00

100.00

67

132

(77)

CAIXA MANRESA IMMOBILIARIA ON CASA SL

SPAIN

REAL ESTATE

100.00

-

100.00

2

2

-

2

-

SPAIN

REAL ESTATE

100.00

-

100.00

2

2

-

CAIXA MANRESA IMMOBILIARIA SOCIAL SL

SPAIN

REAL ESTATE

100.00

-

100.00

4

3

-

3

-

CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

1

76

74

2

-

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

-

1

(1)

CAIXASABADELL PREFERENTS SA

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

-

91

90

1

-

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

-

1

-

CARTERA E INVERSIONES SA CIA DE

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

92

224

120

(83)

186

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

92

127

(3)

CASA DE BOLSA BBVA BANCOMER SA DE CV

MEXICO

SECURITIES DEALER

-

100.00

48

57

8

21

27

MEXICO                             

SECURITIES DEALER

-

100.00

39

20

19

CATALONIA GEBIRA, S.L.

SPAIN

REAL ESTATE

-

100.00

-

1

1

-

CATALONIA GEBIRA, S.L. (IN LIQUIDATION)

SPAIN

REAL ESTATE

-

100.00

-

-

-

CATALONIA PROMODIS 4, S.A.

SPAIN

REAL ESTATE

-

100.00

1

4

2

-

SPAIN

REAL ESTATE

-

100.00

1

1

-

CATALUNYACAIXA CAPITAL SA

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

79

88

7

76

5

CATALUNYACAIXA IMMOBILIARIA SA

SPAIN

REAL ESTATE

100.00

-

100.00

328

324

8

303

14

SPAIN

REAL ESTATE

100.00

-

100.00

315

314

-

CATALUNYACAIXA SERVEIS SA

SPAIN

SERVICES

100.00

-

100.00

2

8

6

3

-

SPAIN

SERVICES

100.00

-

100.00

2

2

-

CDD GESTIONI S.R.L.

ITALY

REAL ESTATE

100.00

-

100.00

5

12

2

6

4

ITALY

REAL ESTATE

100.00

-

100.00

-

-

-

CETACTIUS SL

SPAIN

REAL ESTATE

100.00

-

100.00

1

1

-

1

-

SPAIN

REAL ESTATE

100.00

-

100.00

1

1

-

CIDESSA DOS, S.L.

SPAIN

INVESTMENT COMPANY

-

100.00

15

15

1

15

-

SPAIN

INVESTMENT COMPANY

-

100.00

15

15

-

CIDESSA UNO SL

SPAIN

INVESTMENT COMPANY

-

100.00

5

283

251

(50)

83

CIERVANA SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

53

60

6

54

-

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

53

54

(2)

CLUB GOLF HACIENDA EL ALAMO, S.L.

SPAIN

IN LIQUIDATION

-

97.87

1

2

1

-

1

COMERCIALIZADORA CORPORATIVA SAC

PERU

FINANCIAL SERVICES

-

50.00

-

1

1

-

PERU                               

FINANCIAL SERVICES

-

50.00

-

-

-

COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A.

COLOMBIA

SERVICES

-

100.00

4

9

5

3

1

COLOMBIA                           

SERVICES

-

100.00

5

4

2

COMPAÑIA CHILENA DE INVERSIONES SL

SPAIN

INVESTMENT COMPANY

99.97

0.03

100.00

221

719

280

(59)

498

SPAIN

INVESTMENT COMPANY

99.97

0.03

100.00

221

249

10

COMPASS BANK

UNITED STATES

BANKING

-

100.00

10,950

84,383

73,398

10,267

718

COMPASS CAPITAL MARKETS, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

7,203

7,203

-

7,116

88

COMPASS GP, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

43

54

10

43

-

COMPASS INSURANCE TRUST

UNITED STATES

INSURANCES SERVICES

-

100.00

-

-

-

COMPASS LIMITED PARTNER, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

6,305

6,305

-

6,218

87

COMPASS LOAN HOLDINGS TRS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

72

72

-

71

1

(*) Information on foreign companies at exchange rate on December 31, 2018

(**) This company has an equity loan from CARTERA E INVERSIONES S.A., CIA DE.

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-258F-186  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)

 

 

%  Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

COMPASS MORTGAGE CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

2,857

2,950

98

2,783

69

COMPASS CAPITAL MARKETS, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

6,866

6,799

67

COMPASS GP, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

41

-

COMPASS INSURANCE TRUST

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

COMPASS LIMITED PARTNER, INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

6,027

5,960

66

COMPASS LOAN HOLDINGS TRS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

68

-

COMPASS MORTGAGE FINANCING, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

-

-

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

COMPASS SOUTHWEST, LP

UNITED STATES

FINANCIAL SERVICES

-

100.00

5,213

5,229

5

5,151

73

UNITED STATES

FINANCIAL SERVICES

-

100.00

4,973

4,925

48

COMPASS TEXAS MORTGAGE FINANCING, INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

-

-

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

CONSOLIDAR A.F.J.P SA

ARGENTINA

IN LIQUIDATION

46.00

53.89

100.00

1

2

1

2

-

ARGENTINA

IN LIQUIDATION

46.11

53.89

100.00

1

-

CONTENTS AREA, S.L.

SPAIN

SERVICES

-

100.00

6

8

1

6

1

SPAIN

SERVICES

-

100.00

4

-

CONTINENTAL BOLSA SDAD. AGENTE DE BOLSA SA

PERU                                

SECURITIES DEALER

-

100.00

6

103

98

4

2

CONTINENTAL DPR FINANCE COMPANY

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

-

52

52

-

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

-

CONTINENTAL SOCIEDAD TITULIZADORA SA

PERU                               

FINANCIAL SERVICES

-

100.00

1

1

-

1

-

CONTRATACION DE PERSONAL, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

6

11

5

1

MEXICO                             

SERVICES

-

100.00

8

7

1

COPROMED SA DE CV

MEXICO

SERVICES

-

100.00

-

-

-

CORPORACION GENERAL FINANCIERA SA

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

510

1,577

-

1,642

(65)

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

510

1,453

9

COVAULT, INC

UNITED STATES

SERVICES

-

100.00

1

1

1

2

(2)

UNITED STATES

SERVICES

-

100.00

-

3

(2)

DALLAS CREATION CENTER, INC

UNITED STATES

SERVICES

-

100.00

4

8

4

-

3

UNITED STATES

SERVICES

-

100.00

2

-

DATA ARCHITECTURE AND TECHNOLOGY MEXICO SA DE CV

MEXICO                             

SERVICES

-

100.00

1

-

DATA ARCHITECTURE AND TECHNOLOGY S.L.

SPAIN

SERVICES

-

51.00

-

4

1

2

-

SPAIN

SERVICES

-

51.00

-

3

-

DATA ARQUITECTURE AND TECHNOLOGY OPERADORA SA DE CV

MEXICO                             

SERVICES

-

100.00

-

DENIZEN FINANCIAL, INC

UNITED STATES

SERVICES

-

100.00

-

-

1

3

(3)

UNITED STATES

SERVICES

-

100.00

1

-

DENIZEN GLOBAL FINANCIAL SAU

SPAIN

PAYMENT ENTITIE

100.00

-

100.00

2

4

1

4

(1)

DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859

MEXICO

FINANCIAL SERVICES

-

100.00

-

-

-

MEXICO                             

FINANCIAL SERVICES

-

100.00

-

DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860

MEXICO

FINANCIAL SERVICES

-

100.00

-

-

-

MEXICO                             

FINANCIAL SERVICES

-

100.00

-

DISTRITO CASTELLANA NORTE, S.A.

SPAIN

REAL ESTATE

-

75.54

98

147

20

133

(5)

SPAIN

REAL ESTATE

-

75.54

107

153

(4)

ECASA, S.A.

CHILE

FINANCIAL SERVICES

-

100.00

25

30

4

14

11

CHILE

FINANCIAL SERVICES

-

100.00

30

24

6

EL ENCINAR METROPOLITANO, S.A.

SPAIN

REAL ESTATE

-

99.05

6

6

-

6

-

EL MILANILLO, S.A.

SPAIN

REAL ESTATE

-

100.00

7

13

6

9

(3)

EMPRENDIMIENTOS DE VALOR S.A.

URUGUAY                            

FINANCIAL SERVICES

-

100.00

3

6

3

-

URUGUAY                            

PAYMENT ENTITIES

-

100.00

2

-

ENTIDAD DE PROMOCION DE NEGOCIOS SA

SPAIN

HOLDING

-

99.88

15

17

-

17

-

ENTRE2 SERVICIOS FINANCIEROS E.F.C SA

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

9

9

-

9

-

SPAIN

FINANCIAL SERVICES

100.00

-

100.00

9

-

ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A.

SPAIN

REAL ESTATE

-

100.00

6

8

-

8

-

EUROPEA DE TITULIZACION SA SGFT .

SPAIN

FINANCIAL SERVICES

88.24

-

88.24

2

34

2

28

4

EXPANSION INTERCOMARCAL SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

16

17

-

16

-

F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION

MEXICO

REAL ESTATE

-

42.40

-

1

-

1

-

EUROPEA DE TITULIZACION SA SGFT

SPAIN

FINANCIAL SERVICES

88.24

-

88.24

2

17

3

F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION(1)

MEXICO                             

REAL ESTATE

-

42.40

-

1

-

F/253863 EL DESEO RESIDENCIAL

MEXICO

REAL ESTATE

-

65.00

-

1

-

1

-

MEXICO                             

REAL ESTATE

-

65.00

-

1

-

F/403035-9 BBVA HORIZONTES RESIDENCIAL

MEXICO                             

REAL ESTATE

-

65.00

-

-

-

FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS

MEXICO                              

FINANCIAL SERVICES

-

100.00

2

2

-

2

-

MEXICO                             

FINANCIAL SERVICES

-

100.00

3

2

-

FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS

MEXICO

FINANCIAL SERVICES

-

100.00

46

46

-

41

6

MEXICO                             

FINANCIAL SERVICES

-

100.00

48

45

4

FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS

MEXICO

REAL ESTATE

-

100.00

-

-

-

MEXICO                             

REAL ESTATE

-

100.00

-

FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2

MEXICO

REAL ESTATE

-

100.00

4

8

5

4

-

MEXICO                             

REAL ESTATE

-

100.00

4

1

3

FIDEICOMISO INMUEBLES CONJUNTO RESIDENCIAL HORIZONTES DE VILLA CAMPESTRE

COLOMBIA                           

REAL ESTATE

-

100.00

-

1

-

FIDEICOMISO LOTE 6.1 ZARAGOZA

COLOMBIA                           

REAL ESTATE

-

59.99

-

2

-

2

-

COLOMBIA                           

REAL ESTATE

-

59.99

-

2

-

FIDEICOMISO N.989 EN THE BANK OF NEW YORK MELLON SA INSTITUCION DE BANCA MULTIPLE FIDUCIARIO (FIDEIC.00989 6 EMISION)

MEXICO

FINANCIAL SERVICES

-

100.00

-

79

79

(3)

3

(*) Information on foreign companies at exchange rate on December 31, 2018

FIDEICOMISO SCOTIABANK INVERLAT S A F100322908

MEXICO                             

REAL ESTATE

-

100.00

2

-

FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER

MEXICO                             

IN LIQUIDATION

-

100.00

5

4

-

FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. IN LIQUIDATION

SPAIN

IN LIQUIDATION

-

60.00

-

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1)Full consolidation method is used according to accounting rules (see Glossary) 

F-259F-187  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)

 

 

%  Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

FIDEICOMISO Nº 711 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 1ª EMISION)

MEXICO

FINANCIAL SERVICES

-

100.00

-

13

14

(1)

-

FIDEICOMISO Nº 752 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 2ª EMISION)

MEXICO

FINANCIAL SERVICES

-

100.00

-

7

7

-

FIDEICOMISO Nº 847 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 4ª EMISION)

MEXICO

FINANCIAL SERVICES

-

100.00

-

39

38

-

1

FIDEICOMISO SCOTIABANK INVERLAT S A F100322908

MEXICO

REAL ESTATE

-

100.00

7

13

6

1

FINANCEIRA DO COMERCIO EXTERIOR SAR.

PORTUGAL

INACTIVE

100.00

-

100.00

-

-

-

FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER

MEXICO

FINANCIAL SERVICES

-

100.00

11

12

1

16

(6)

FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L.

SPAIN

IN LIQUIDATION

-

60.00

-

-

-

FORUM COMERCIALIZADORA DEL PERU SA

PERU

SERVICES

-

100.00

2

1

-

1

-

PERU                               

SERVICES

-

100.00

-

FORUM DISTRIBUIDORA DEL PERU SA

PERU

FINANCIAL SERVICES

-

100.00

5

46

41

5

-

PERU                               

FINANCIAL SERVICES

-

100.00

6

5

-

FORUM DISTRIBUIDORA, S.A.

CHILE

FINANCIAL SERVICES

-

100.00

39

373

336

32

5

CHILE

FINANCIAL SERVICES

-

100.00

43

39

1

FORUM SERVICIOS FINANCIEROS, S.A.

CHILE

FINANCIAL SERVICES

-

100.00

244

3,014

2,785

161

68

CHILE

FINANCIAL SERVICES

-

100.00

244

208

25

FUTURO FAMILIAR, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

1

4

3

1

-

MEXICO                             

IN LIQUIDATION

-

100.00

1

-

G NETHERLANDS BV

NETHERLANDS

INVESTMENT COMPANY

-

100.00

340

348

50

299

(1)

NETHERLANDS

INVESTMENT COMPANY

-

100.00

340

282

(3)

GARANTI BANK SA

ROMANIA

BANKING

-

100.00

269

2,216

1,930

258

28

ROMANIA

BANKING

-

100.00

258

316

17

GARANTI BBVA AS(1)

TURKEY

BANKING

49.85

-

49.85

4,679

6,228

775

GARANTI BBVA EMEKLILIK AS

TURKEY

INSURANCES SERVICES

-

84.91

105

63

59

GARANTI BBVA FACTORING AS

TURKEY

FINANCIAL SERVICES

-

81.84

19

17

6

GARANTI BBVA FILO AS

TURKEY

SERVICES

-

100.00

1

3

39

GARANTI BBVA LEASING AS

TURKEY

FINANCIAL SERVICES

-

100.00

126

108

18

GARANTI BBVA PORTFOY AS

TURKEY

FINANCIAL SERVICES

-

100.00

22

14

8

GARANTI BBVA YATIRIM AS

TURKEY

FINANCIAL SERVICES

-

100.00

89

28

61

GARANTI BILISIM TEKNOLOJISI VE TIC TAS

TURKEY

SERVICES

-

100.00

13

17

4

12

2

TURKEY

SERVICES

-

100.00

11

12

1

GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

-

3,316

3,321

(3)

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

-

(16)

(17)

GARANTI EMEKLILIK VE HAYAT AS

TURKEY

INSURANCES SERVICES

-

84.91

126

266

120

67

79

GARANTI FACTORING HIZMETLERI AS

TURKEY

FINANCIAL SERVICES

-

81.84

19

399

376

29

(6)

GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S.

TURKEY

INSURANCES SERVICES

-

100.00

-

1

-

TURKEY

FINANCIAL SERVICES

-

100.00

-

GARANTI FILO YONETIM HIZMETLERI A.S.

TURKEY

OTHER HOLDING

-

100.00

2

302

301

-

1

GARANTI FINANSAL KIRALAMA AS

TURKEY

FINANCIAL SERVICES

-

100.00

149

995

846

133

16

GARANTI HIZMET YONETIMI AS

TURKEY

FINANCIAL SERVICES

-

100.00

-

1

-

1

-

GARANTI HOLDING BV

NETHERLANDS

INVESTMENT COMPANY

-

100.00

228

340

-

340

-

NETHERLANDS

INVESTMENT COMPANY

-

100.00

280

340

-

GARANTI KONUT FINANSMANI DANISMANLIK HIZMETLERI AS (GARANTI MORTGAGE)

TURKEY

SERVICES

-

100.00

-

1

-

TURKEY

SERVICES

-

100.00

-

GARANTI KULTUR AS

TURKEY

SERVICES

-

100.00

-

-

-

TURKEY

SERVICES

-

100.00

-

GARANTI ODEME SISTEMLERI AS (GOSAS)

TURKEY

FINANCIAL SERVICES

-

100.00

-

6

3

1

TURKEY

FINANCIAL SERVICES

-

100.00

-

2

-

GARANTI PORTFOY YONETIMI AS

TURKEY

FINANCIAL SERVICES

-

100.00

16

19

2

11

5

GARANTI YATIRIM MENKUL KIYMETLER AS

TURKEY

FINANCIAL SERVICES

-

100.00

29

56

27

19

11

GARANTI YATIRIM ORTAKLIGI AS

TURKEY

INVESTMENT COMPANY

-

3.61

95.49

-

6

-

6

-

GARANTIBANK INTERNATIONAL NV

NETHERLANDS

BANKING

-

100.00

578

4,278

3,703

560

14

GARANTI YATIRIM ORTAKLIGI AS(1)(2)

TURKEY

INVESTMENT COMPANY

-

3.61

-

4

-

GARANTIBANK BBVA INTERNATIONAL N.V.

NETHERLANDS

BANKING

-

100.00

595

585

7

GARRAF MEDITERRANIA, S.A.

SPAIN

REAL ESTATE

-

100.00

2

2

1

2

-

SPAIN

REAL ESTATE

-

100.00

2

-

GESCAT GESTIO DE SOL SL

SPAIN

REAL ESTATE

100.00

-

100.00

8

20

8

14

(2)

SPAIN

REAL ESTATE

100.00

-

100.00

11

-

GESCAT LLEVANT, S.L.

SPAIN

REAL ESTATE

-

100.00

3

5

2

1

SPAIN

REAL ESTATE

-

100.00

5

3

GESCAT LLOGUERS SL

SPAIN

REAL ESTATE

100.00

-

100.00

3

4

-

3

-

SPAIN

REAL ESTATE

100.00

-

100.00

3

4

-

GESCAT POLSKA SP ZOO

POLAND

REAL ESTATE

100.00

-

100.00

10

10

-

9

1

GESCAT SINEVA, S.L.

SPAIN

REAL ESTATE

-

100.00

6

6

-

6

-

GESCAT VIVENDES EN COMERCIALITZACIO SL

SPAIN

REAL ESTATE

100.00

-

100.00

93

107

14

98

(6)

SPAIN

REAL ESTATE

100.00

-

100.00

89

-

GESTION DE PREVISION Y PENSIONES SA

SPAIN

PENSION FUNDS MANAGEMENT

60.00

-

60.00

9

28

1

21

6

SPAIN

PENSION FUND MANAGEMENT

60.00

-

60.00

9

15

7

GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA

SPAIN

SERVICES

-

100.00

1

2

-

2

-

SPAIN

SERVICES

-

100.00

1

-

GRAN JORGE JUAN SA

SPAIN

REAL ESTATE

100.00

-

100.00

409

966

558

395

14

SPAIN

REAL ESTATE

100.00

-

100.00

424

423

14

(*) Information on foreign companies at exchange rate on December 31, 2018

GRUPO FINANCIERO BBVA BANCOMER SA DE CV

MEXICO                             

FINANCIAL SERVICES

99.98

-

99.98

6,678

9,374

1,747

GUARANTY BUSINESS CREDIT CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

30

-

GUARANTY PLUS HOLDING COMPANY

UNITED STATES

INVESTMENT COMPANY

-

100.00

-

HOLVI PAYMENT SERVICE OY

FINLAND

FINANCIAL SERVICES

-

100.00

-

27

(17)

HUMAN RESOURCES PROVIDER, INC

UNITED STATES

SERVICES

-

100.00

302

299

3

HUMAN RESOURCES SUPPORT, INC

UNITED STATES

SERVICES

-

100.00

296

294

2

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1)Full consolidation method is used according to accounting rules (see Glossary) 

(2)The percentage of voting rights owned by the Group entities in this company is 99.97%

F-260F-188  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 31, 2020(Continued)

 

%  Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

GRUPO FINANCIERO BBVA BANCOMER SA DE CV

MEXICO

FINANCIAL SERVICES

99.98

-

99.98

6,678

9,642

-

7,323

2,318

GUARANTY BUSINESS CREDIT CORPORATION

UNITED STATES

FINANCIAL SERVICES

-

100.00

32

-

32

-

GUARANTY PLUS HOLDING COMPANY

UNITED STATES

INVESTMENT COMPANY

-

100.00

-

-

HABITATGES FINVER, S.L.

SPAIN

REAL ESTATE

-

100.00

1

2

-

1

-

HABITATGES JUVIPRO, S.L.

SPAIN

REAL ESTATE

-

100.00

1

-

1

-

HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U.(**)

SPAIN

INSURANCES SERVICES

-

100.00

-

2

4

(1)

(2)

HOLVI DEUTSCHLAND SERVICE GMBH

GERMANY

SERVICES

-

100.00

-

-

HOLVI PAYMENT SERVICE OY

FINLAND

FINANCIAL SERVICES

-

100.00

32

5

2

12

(9)

HUMAN RESOURCES PROVIDER, INC

UNITED STATES

SERVICES

-

100.00

404

-

398

6

HUMAN RESOURCES SUPPORT, INC

UNITED STATES

SERVICES

-

100.00

399

-

393

6

INMESP DESARROLLADORA, S.A. DE C.V.

MEXICO

REAL ESTATE

-

100.00

26

34

9

25

-

MEXICO                             

REAL ESTATE

-

100.00

17

16

1

INMUEBLES Y RECUPERACIONES CONTINENTAL SA

PERU

REAL ESTATE

-

100.00

40

41

1

39

1

PERU                               

REAL ESTATE

-

100.00

39

37

2

INPAU, S.A.

SPAIN

REAL ESTATE

-

100.00

25

-

25

-

SPAIN

REAL ESTATE

-

100.00

25

-

INVERAHORRO SL

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

101

103

-

105

(3)

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

100

107

(7)

INVERPRO DESENVOLUPAMENT, S.L.

SPAIN

INVESTMENT COMPANY

-

100.00

4

10

2

4

3

SPAIN

INVESTMENT COMPANY

-

100.00

4

9

1

INVERSIONES ALDAMA, C.A.

VENEZUELA

IN LIQUIDATION

-

100.00

-

-

VENEZUELA

PENSION FUNDS MANAGEMENT

-

100.00

-

INVERSIONES BANPRO INTERNATIONAL INC NV

CURAÇAO

INVESTMENT COMPANY

48.00

-

48.01

16

52

2

45

5

INVERSIONES BANPRO INTERNATIONAL INC NV(1)

CURAÇAO

INVESTMENT COMPANY

48.00

-

48.01

16

43

2

INVERSIONES BAPROBA CA

VENEZUELA

FINANCIAL SERVICES

100

-

100.00

1

-

1

VENEZUELA

FINANCIAL SERVICES

100.00

-

100.00

-

INVERSIONES DE INNOVACION EN SERVICIOS FINANCIEROS, S.L.

SPAIN

INVESTMENT COMPANY

-

100.00

40

41

1

40

-

INVERSIONES P.H.R.4, C.A.

VENEZUELA

INACTIVE

-

60.46

-

-

VENEZUELA

INACTIVE

-

60.46

-

IRIDION SOLUCIONS IMMOBILIARIES SL

SPAIN

REAL ESTATE

100.00

-

100.00

2

3

1

2

-

SPAIN

REAL ESTATE

100.00

-

100.00

2

-

JALE PROCAM, S.L.

SPAIN

IN LIQUIDATION

-

50.00

-

3

56

(49)

(4)

L'EIX IMMOBLES, S.L.

SPAIN

REAL ESTATE

-

100.00

2

9

7

2

-

JALE PROCAM, S.L. (IN LIQUIDATION)

SPAIN

IN LIQUIDATION

-

50.00

-

(57)

(4)

LIQUIDITY ADVISORS LP

UNITED STATES

FINANCIAL SERVICES

-

100.00

1,116

1,124

2

1,108

14

UNITED STATES

FINANCIAL SERVICES

-

100.00

1,071

1,055

16

MADIVA SOLUCIONES, S.L.

SPAIN

SERVICES

-

100.00

9

3

1

2

1

SPAIN

SERVICES

-

100.00

9

2

-

MICRO SPINAL LLC

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

-

MISAPRE, S.A. DE C.V.

MEXICO

FINANCIAL SERVICES

-

100.00

2

-

2

-

MEXICO                             

FINANCIAL SERVICES

-

100.00

-

MOMENTUM SOCIAL INVESTMENT HOLDING, S.L.

SPAIN

INVESTMENT COMPANY

-

100.00

7

-

7

-

SPAIN

INVESTMENT COMPANY

-

100.00

7

1

MOTORACTIVE IFN SA

ROMANIA

FINANCIAL SERVICES

-

100.00

37

185

158

23

3

ROMANIA

FINANCIAL SERVICES

-

100.00

35

27

3

MOTORACTIVE MULTISERVICES SRL

ROMANIA

SERVICES

-

100.00

-

16

14

1

ROMANIA

SERVICES

-

100.00

-

2

-

MULTIASISTENCIA OPERADORA S.A. DE C.V.

MEXICO

INSURANCES SERVICES

-

100.00

-

1

1

-

MEXICO                             

INSURANCES SERVICES

-

100.00

-

MULTIASISTENCIA SERVICIOS S.A. DE C.V.

MEXICO

INSURANCES SERVICES

-

100.00

-

1

-

MEXICO                             

INSURANCES SERVICES

-

100.00

-

MULTIASISTENCIA, S.A. DE C.V.

MEXICO

INSURANCES SERVICES

-

100.00

22

35

13

15

6

MEXICO                             

INSURANCES SERVICES

-

100.00

32

24

8

NEWCO PERU SAC

PERU

INVESTMENT COMPANY

100.00

-

100.00

124

1,005

-

829

176

NOIDIRI SL

SPAIN

REAL ESTATE

100.00

-

100.00

-

-

NOVA TERRASSA 3, S.L.

SPAIN

REAL ESTATE

-

100.00

6

-

6

-

SPAIN

REAL ESTATE

-

100.00

6

-

OPCION VOLCAN, S.A.

MEXICO

REAL ESTATE

-

100.00

19

23

4

20

-

MEXICO                             

REAL ESTATE

-

100.00

2

-

OPENPAY S.A.P.I DE C.V.

MEXICO

PAYMENT ENTITIES

-

100.00

15

2

1

-

OPENPAY COLOMBIA SAS

COLOMBIA                           

PAYMENT ENTITIES

-

100.00

1

-

OPENPAY S.A. DE C.V.

MEXICO                             

PAYMENT ENTITIES

-

100.00

18

2

OPENPAY SERVICIOS S.A. DE C.V.

MEXICO

SERVICES

-

100.00

-

-

MEXICO                             

SERVICES

-

100.00

-

OPERADORA DOS LAGOS S.A. DE C.V.

MEXICO

SERVICES

-

100.00

1

2

1

-

MEXICO                              

SERVICES

-

100.00

1

-

(*) Information on foreign companies at exchange rate on December 31, 2018

(**) These companies have an equity loan from BILBAO VIZCAYA HOLDING, S.A.

OPPLUS OPERACIONES Y SERVICIOS SA

SPAIN

SERVICES

100.00

-

100.00

1

2

17

OPPLUS SAC (IN LIQUIDATION)

PERU                               

IN LIQUIDATION

-

100.00

1

-

P.I. HOLDINGS NO. 3, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

1

-

PARCSUD PLANNER, S.L.

SPAIN

REAL ESTATE

-

100.00

1

-

PECRI INVERSION SL

SPAIN

OTHER INVESTMENT COMPANIES

100.00

-

100.00

264

260

5

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO                             

INSURANCES SERVICES

-

100.00

281

213

68

PHOENIX LOAN HOLDINGS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

258

256

2

PI HOLDINGS NO. 1, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

77

-

PORTICO PROCAM, S.L.

SPAIN

REAL ESTATE

-

100.00

26

-

PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U.

SPAIN

REAL ESTATE

-

100.00

8

-

PROMOTORA DEL VALLES, S.L.

SPAIN

REAL ESTATE

-

100.00

51

36

16

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

(**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

(1)Full consolidation method is used according to accounting rules (see Glossary) 

F-261F-189  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 2020 (Continued)

 

 

%  Legal share of participation

Millions of Euros (*)

 

 

% share of participation (**)  

Millions of Euros (*)

 

 

Affiliate Entity Data

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

OPPLUS OPERACIONES Y SERVICIOS SA

SPAIN

SERVICES

100.00

-

100.00

1

41

11

24

6

OPPLUS SAC

PERU

IN LIQUIDATION

-

100.00

100.00

1

1

-

1

-

P.I. HOLDINGS NO. 3, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

1

1

-

1

-

PARCSUD PLANNER, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

1

4

2

1

-

PECRI INVERSION SA

SPAIN

OTHER INVESTMENT COMPANIES

100.00

-

100.00

163

164

-

148

15

PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER

MEXICO

INSURANCES SERVICES

-

100.00

100.00

185

4,629

4,449

140

41

PERSONAL DATA BANK SLU

SPAIN

SERVICES

-

100.00

100.00

-

-

-

PHOENIX LOAN HOLDINGS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

339

361

20

336

5

PI HOLDINGS NO. 1, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

83

83

-

83

-

PORTICO PROCAM, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

26

26

-

25

-

PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U.

SPAIN

REAL ESTATE

-

100.00

100.00

8

8

-

8

-

PROMOTORA DEL VALLES, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

39

101

65

49

(13)

PROMOU CT 3AG DELTA, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

1

10

9

1

-

SPAIN

REAL ESTATE

-

100.00

1

-

PROMOU CT EIX MACIA, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

4

5

-

5

-

SPAIN

REAL ESTATE

-

100.00

4

-

PROMOU CT GEBIRA, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

2

8

6

1

SPAIN

REAL ESTATE

-

100.00

2

-

PROMOU CT OPENSEGRE, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

5

29

22

6

1

SPAIN

REAL ESTATE

-

100.00

5

1

PROMOU CT VALLES, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

2

8

6

2

-

SPAIN

REAL ESTATE

-

100.00

2

-

PROMOU GLOBAL, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

18

45

28

7

11

SPAIN

REAL ESTATE

-

100.00

17

18

-

PRONORTE UNO PROCAM, S.A.

SPAIN

REAL ESTATE

-

100.00

100.00

-

5

4

-

SPAIN

PAYMENT ENTITIES

-

100.00

-

PROPEL VENTURE PARTNERS BRAZIL S.L.

SPAIN

PAYMENT ENTITIES

-

99.80

10

11

(1)

PROPEL VENTURE PARTNERS GLOBAL, S.L

SPAIN

FINANCIAL SERVICES

-

99.50

99.50

31

64

20

33

10

SPAIN

FINANCIAL SERVICES

-

99.50

59

87

-

PROPEL VENTURE PARTNERS US FUND I, L.P.

UNITED STATES

VENTURE CAPITAL

-

100.00

100.00

71

71

-

70

-

UNITED STATES

VENTURE CAPITAL

-

100.00

144

122

22

PRO-SALUD, C.A.

VENEZUELA

INACTIVE

-

58.86

58.86

-

-

-

VENEZUELA

INACTIVE

-

58.86

-

PROVINCIAL DE VALORES CASA DE BOLSA CA

VENEZUELA

SECURITIES DEALER

-

90.00

90.00

1

2

1

-

1

VENEZUELA

SECURITIES DEALER

-

90.00

1

-

PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA CA

VENEZUELA

FINANCIAL SERVICES

-

100.00

100.00

-

-

-

VENEZUELA

FINANCIAL SERVICES

-

100.00

1

-

PROV-INFI-ARRAHONA, S.L.

SPAIN

REAL ESTATE

-

100.00

100.00

6

9

3

4

2

SPAIN

REAL ESTATE

-

100.00

6

-

PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A.

BOLIVIA

PENSION FUNDS MANAGEMENT

-

100.00

100.00

2

8

7

2

-

BOLIVIA                            

PENSION FUND MANAGEMENT

-

100.00

2

-

PUERTO CIUDAD LAS PALMAS, S.A. (**)

SPAIN

REAL ESTATE

-

96.64

96.64

-

21

45

(18)

(6)

PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

-

50.00

8

11

4

PUERTO CIUDAD LAS PALMAS, S.A.

SPAIN

REAL ESTATE

-

96.64

-

(26)

(1)

QIPRO SOLUCIONES S.L.

SPAIN

SERVICES

-

100.00

100.00

5

15

3

10

2

SPAIN

SERVICES

-

100.00

3

2

RALFI IFN SA

ROMANIA

FINANCIAL SERVICES

-

100.00

100.00

39

126

109

15

2

ROMANIA

FINANCIAL SERVICES

-

100.00

37

17

2

RENTRUCKS ALQUILER Y SERVICIOS DE TRANSPORTE SA

SPAIN

INACTIVE

100.00

-

100.00

1

1

-

2

(1)

RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V.

MEXICO

REAL ESTATE

-

100.00

100.00

3

3

-

2

-

RPV COMPANY

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

100.00

-

1,324

1,324

-

CAYMAN ISLANDS

FINANCIAL SERVICES

-

100.00

-

(1)

-

RWHC, INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

742

739

-

725

14

UNITED STATES

FINANCIAL SERVICES

-

100.00

719

706

13

SAGE OG I, INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

-

-

-

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

SAGE OG2, LLC

UNITED STATES

FINANCIAL SERVICES

-

100.00

-

SATICEM GESTIO SL

SPAIN

REAL ESTATE

100.00

-

100.00

4

4

-

4

-

SPAIN

REAL ESTATE

100.00

-

100.00

4

-

SATICEM HOLDING SL

SPAIN

REAL ESTATE

100.00

-

100.00

5

6

-

5

-

SPAIN

REAL ESTATE

100.00

-

100.00

5

-

SATICEM IMMOBILIARIA SL

SPAIN

REAL ESTATE

100.00

-

100.00

15

15

-

15

-

SPAIN

REAL ESTATE

100.00

-

100.00

16

-

SATICEM IMMOBLES EN ARRENDAMENT SL

SPAIN

REAL ESTATE

100.00

-

100.00

2

2

-

2

-

SPAIN

REAL ESTATE

100.00

-

100.00

2

-

SEGUROS BBVA BANCOMER SA DE CV GRUPO FINANCIERO BBVA BANCOMER

MEXICO

INSURANCES SERVICES

-

100.00

100.00

335

4,199

3,865

124

210

MEXICO                             

INSURANCES SERVICES

-

100.00

373

177

196

SEGUROS PROVINCIAL CA

VENEZUELA

INSURANCES SERVICES

-

100.00

100.00

7

7

7

-

VENEZUELA

INSURANCES SERVICES

-

100.00

9

11

(1)

(*) Information on foreign companies at exchange rate on December 31, 2018

(**) These companies have an equity loan from CATALUNYA CAIXA INMOBILIARIA, S.A

SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V.

MEXICO                              

SERVICES

-

100.00

5

-

SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V.

MEXICO                             

SERVICES

-

100.00

3

2

1

SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V.

MEXICO                             

SERVICES

-

100.00

15

14

2

SIMPLE FINANCE TECHNOLOGY CORP.

UNITED STATES

FINANCIAL SERVICES

-

100.00

40

67

(26)

SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA

SPAIN

SERVICES

100.00

-

100.00

63

71

(8)

SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA

SPAIN

PENSION FUNDS MANAGEMENT

77.20

-

77.20

-

SPORT CLUB 18 SA

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

9

10

(1)

TEXAS LOAN SERVICES LP

UNITED STATES

FINANCIAL SERVICES

-

100.00

1,089

1,070

19

(*)  Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2019. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

 (**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

F-262F-190  


Additional Informationinformation on Consolidated Subsidiariessubsidiaries and structured entities composing the BBVA Group as of December 2020 (Continued)

 

 

 

%  Legal share of participation

Millions of Euros (*)

 

 

 

Affiliate Entity Data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

100.00

5

6

2

5

-

SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V.

MEXICO

SERVICES

-

100.00

100.00

3

17

14

2

-

SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V.

MEXICO

SERVICES

-

100.00

100.00

10

26

15

8

2

SERVICIOS TECNOLOGICOS SINGULARES, S.A.

SPAIN

SERVICES

-

100.00

100.00

-

1

1

-

-

SIMPLE FINANCE TECHNOLOGY CORP.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

50

59

9

80

(30)

SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA

SPAIN

SERVICES

100.00

-

100.00

79

83

8

81

(5)

SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA

SPAIN

PAYMENT INSTITUIONS

77.20

-

77.20

-

-

-

-

-

SPORT CLUB 18 SA (**)

SPAIN

INVESTMENT COMPANY

100.00

-

100.00

10

13

1

13

(1)

TEXAS LOAN SERVICES LP

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

1,129

1,130

-

1,112

17

TMF HOLDING INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

100.00

15

22

8

14

1

TRIFOI REAL ESTATE SRL

ROMANIA

REAL ESTATE

-

100.00

100.00

1

1

-

1

-

TUCSON LOAN HOLDINGS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

33

35

-

34

1

TURKIYE GARANTI BANKASI AS

TURKEY

BANKING

49.85

-

49.85

5,509

59,390

51,556

6,670

1,163

UNIVERSALIDAD TIPS PESOS E-9

COLOMBIA                           

FINANCIAL SERVICES

-

100.00

100.00

-

49

20

27

2

UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA

SPAIN

REAL ESTATE

100.00

-

100.00

359

1,038

496

500

42

UPTURN FINANCIAL INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

1

1

-

2

(1)

URBANIZADORA SANT LLORENC SA

SPAIN

INACTIVE

60.60

-

60.60

-

-

-

-

-

VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.

SPAIN

SERVICES

-

51.00

51.00

-

3

2

-

-

(*)   Information on foreign companies at exchange rate on December 31, 2018

(**) This company has an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

 

 

 

% Legal share of participation (**)

Millions of Euros (*)

 

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net carrying amount

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

TMF HOLDING INC.

UNITED STATES

INVESTMENT COMPANY

-

100.00

100.00

15

15

1

TRIFOI REAL ESTATE SRL

ROMANIA

REAL ESTATE

-

100.00

100.00

1

1

-

TUCSON LOAN HOLDINGS, INC.

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

16

15

1

UNIVERSALIDAD TIPS PESOS E-9

COLOMBIA                           

FINANCIAL SERVICES

-

100.00

100.00

-

26

-

UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA

SPAIN

REAL ESTATE

100.00

-

100.00

623

523

(3)

UPTURN FINANCIAL INC

UNITED STATES

FINANCIAL SERVICES

-

100.00

100.00

2

6

(4)

URBANIZADORA SANT LLORENC SA

SPAIN

INACTIVE

60.60

-

60.60

-

-

-

VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.

SPAIN

SERVICES

-

51.00

51.00

1

3

1

VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

-

51.00

51.00

13

19

7

(*)   Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.

 (**)  In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.

This Appendix is an integral part of Note 3 of the consolidated financial statements for the year ended December 31, 2020.

F-263F-191  


APPENDIX II II. Additional information on investments joint ventures and associates in the BBVA Group as of December 31, 2020

Acquisitions or increases of interest ownership in consolidated subsidiaries

Most significant companies are included, which together represent 99% of the total investment in this group.

 

 

 

% Legal share of participation

Millions of Euros (*)

 

 

 

Affiliate entity data

Company

Location

Activity

Direct

Indirect

Total

Net carrying amount

Assets 31.12.20

Liabilities 31.12.20

Equity excluding profit (loss)

31.12.20

Profit (loss)

31.12.20

ASSOCIATES

 

 

 

 

 

 

 

 

 

 

ADQUIRA ESPAÑA, S.A.

SPAIN

COMMERCIAL

 -    

 44.44  

 44.44  

4

19

11

8

1

ATOM BANK PLC

UNITED KINGDOM

BANKING

 39.02  

 -    

 39.02  

64

3,253

3,089

239

(75)

AUREA, S.A. (CUBA)

CUBA

REAL ESTATE

 -    

 49.00  

 49.00  

4

9

1

8

-

BBVA ALLIANZ SEGUROS Y REASEGUROS, S.A.

SPAIN

INSURANCES SERVICES

 -    

 50.00  

 50.00  

250

753

204

548

-

COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA

SPAIN

PUBLIC ENTITIES AND INSTITUTIONS

 16.67  

 -    

 16.67  

25

155

6

140

10

DIVARIAN PROPIEDAD, S.A.U.

SPAIN

REAL ESTATE

 20.00  

 -    

 20.00  

567

2,976

143

2,922

(89)

FIDEICOMISO F/00185 FIMPE - FIDEICOMISO F/00185 PARA EXTENDER A LA SOCIEDAD LOS BENEFICIOS DEL ACCESO A LA INFRAESTRUCTURA DE LOS MEDIOS DE PAGO ELECTRONICOS

MEXICO

FINANCIAL SERVICES

 -    

 28.50  

 28.50  

1

5

-

7

(2)

METROVACESA SA

SPAIN

REAL ESTATE

 9.44  

 11.41  

 20.85  

285

2,910

652

2,341

(82)

REDSYS SERVICIOS DE PROCESAMIENTO SL

SPAIN

FINANCIAL SERVICES

 20.00  

 -    

 20.00  

14

103

32

69

2

ROMBO COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

 -    

 40.00  

 40.00  

7

91

72

16

2

SERVICIOS ELECTRONICOS GLOBALES SA DE CV

MEXICO

SERVICES

 -    

 46.14  

 46.14  

11

23

-

20

3

SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA

ESPAÑA

FINANCIAL SERVICES

 28.72  

 -    

 28.72  

8

45

19

27

(1)

SOLARISBANK AG (2)

GERMANY

BANKING

 -    

 17.59  

 17.59  

39

1,434

1,368

90

(24)

TELEFONICA FACTORING ESPAÑA SA

SPAIN

FINANCIAL SERVICES

 30.00  

 -    

 30.00  

4

81

67

7

8

TF PERU SAC

PERU

FINANCIAL SERVICES

 -    

 24.30  

 24.30  

1

5

1

3

1

JOINT VENTURES

 

 

 

 

 

 

 

 

 

 

ALTURA MARKETS SOCIEDAD DE VALORES SA

SPAIN

SECURITY DEALER

 50.00  

 -    

 50.00  

77

3,122

2,969

143

10

COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV

MEXICO

SERVICES

 -    

 50.00  

 50.00  

8

16

-

15

1

CORPORACION IBV PARTICIPACIONES EMPRESARIALES, (1)

SPAIN

INVESTMENT COMPANY

 -    

 50.00  

 50.00  

29

63

5

58

-

DESARROLLOS METROPOLITANOS DEL SUR, S.L.

SPAIN

REAL ESTATE

 -    

 50.00  

 50.00  

17

81

47

30

4

FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA (1)

MEXICO

REAL ESTATE

 -    

 44.09  

 44.09  

15

158

-

158

-

FIDEICOMISO F/402770-2 ALAMAR

MEXICO

REAL ESTATE

 -    

 42.40  

 42.40  

7

16

-

16

-

PROMOCIONS TERRES CAVADES, S.A.

SPAIN

REAL ESTATE

 -    

 39.11  

 39.11  

4

15

-

15

-

RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO

COLOMBIA

FINANCIAL SERVICES

 -    

 49.00  

 49.00  

36

571

499

65

7

VITAMEDICA ADMINISTRADORA, S.A. DE C.V (1)

MEXICO

SERVICES

 -    

 51.00  

 51.00  

5

18

9

8

1

 (*)  In foreign companies the exchange rate of December 31, 2020 is applied.

 (1) Classified as Non-current asset in seld.

(2) The percentage of voting rights owned by the Group entities in this company is 22.22%

This Appendix is an integral part of Notes 3 and 16.1 of the consolidated financial statements for the year ended December 31, 2020.

F-192


APPENDIX III. Changes and notifications of participations in the BBVA Group in 2020

Acquisitions or increases of interest ownership in consolidated subsidiaries

 

 

 

%  Legal share of participation

Millions of Euros (**)

 

 

 

Affiliate Entity Data

Company

Location

Activity

Direct

Indirect

Total

Net Carrying Amount

Assets

31.12.18

Liabilities

31.12.18

Equity

31.12.18

Profit (Loss)

31.12.18

ASSOCIATES

 

 

 

 

 

 

 

 

 

 

ADQUIRA ESPAÑA, S.A.

SPAIN

COMMERCIAL

-

40.00

40.00

3

18

11

7

1

ATOM BANK PLC

UNITED KINGDOM

BANKING

39.06

-

39.06

138

3,078

2,796

330

(48)

AUREA, S.A. (CUBA)

CUBA

REAL ESTATE

-

49.00

49.00

5

10

1

9

1

BANK OF HANGZHOU CONSUMER FINANCE CO LTD

CHINA

BANKING

30.00

-

30.00

18

753

693

58

3

CANCUN SUN & GOLF COUNTRY CLUB, S.A.P.I. DE C.V.

MEXICO

REAL ESTATE

-

33.33

33.33

27

75

22

52

1

COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA

SPAIN

PUBLIC INSTITUTIONS

16.67

-

16.67

22

138

6

124

9

COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU)

PERU

ELECTRONIC MONEY ENTITIES

-

20.96

20.96

2

49

37

4

8

DIVARIAN PROPIEDAD, S.A.U.

SPAIN

REAL ESTATE

-

-

20.00

591

3,014

57

2,936

20

FIDEICOMISO F/00185 FIMPE - FIDEICOMISO F/00185 PARA EXTENDER A LA SOCIEDAD LOS BENEFICIOS DEL ACCESO A LA INFRAESTRUCTURA DE LOS MEDIOS DE PAGO ELECTRONICOS

MEXICO

FINANCIAL SERVICES

-

28.50

28.50

3

12

-

12

-

METROVACESA SA

SPAIN

REAL ESTATE

9.44

11.41

20.85

508

2,577

184

2,402

(9)

REDSYS SERVICIOS DE PROCESAMIENTO SL

SPAIN

FINANCIAL SERVICES

20.00

-

20.00

12

121

60

51

11

ROMBO COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

-

40.00

40.00

12

209

179

31

(2)

SERVICIOS ELECTRONICOS GLOBALES SA DE CV

MEXICO

SERVICES

-

46.14

46.14

9

18

-

17

1

SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA

SPAIN

FINANCIAL SERVICES

28.72

-

28.72

9

38

8

27

3

SOLARISBANK AG

GERMANY

BANKING

-

18.76

18.76

37

212

158

56

(2)

TELEFONICA FACTORING ESPAÑA SA

SPAIN

FINANCIAL ASSETS

30.00

-

30.00

4

59

46

7

6

TF PERU SAC

PERU

FINANCIAL ASSETS

-

24.30

24.30

1

5

1

3

2

JOINT VENTURES (*)

 

 

 

 

 

 

 

 

 

 

ADQUIRA MEXICO SA DE CV

MEXICO

COMMERCIAL

-

50.00

50.00

2

5

2

3

-

ALTURA MARKETS SOCIEDAD DE VALORES SA

SPAIN

SECURITIES DEALER

50.00

-

50.00

69

2,711

2,574

127

10

COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV

MEXICO

SERVICES

-

50.00

50.00

7

15

-

14

1

CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A.

SPAIN

INVESTMENT COMPANY

-

50.00

50.00

29

63

5

58

-

DESARROLLOS METROPOLITANOS DEL SUR, S.L.

SPAIN

REAL ESTATE

-

50.00

50.00

13

77

52

25

1

FIDEICOMISO F/402770-2 ALAMAR

MEXICO

REAL ESTATE

-

42.40

42.40

7

17

-

17

-

FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA

MEXICO

REAL ESTATE

-

32.25

32.25

55

171

-

171

-

INVERSIONES PLATCO CA

VENEZUELA

FINANCIAL SERVICES

-

50.00

50.00

1

2

-

4

(2)

PROMOCIONS TERRES CAVADES, S.A.

SPAIN

REAL ESTATE

-

39.11

39.11

4

15

-

15

-

PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

-

50.00

50.00

10

96

76

22

(2)

RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO

COLOMBIA

FINANCIAL SERVICES

-

49.00

49.00

32

379

314

61

5

REAL ESTATE DEAL II SA

SPAIN

IN LIQUIDATION

20.06

-

20.06

4

20

-

18

2

VITAMEDICA ADMINISTRADORA, S.A. DE C.V

MEXICO

SERVICES

-

51.00

51.00

5

16

8

6

2

VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA

ARGENTINA

BANKING

-

51.00

51.00

15

195

166

34

(5)

(*)  Joint ventures incorporated by the equity method.

(**) In foreign companies the exchange rate of December 31, 2018 is applied.

Company (*)

Type of transaction

Total voting rights

controlled after the

disposal

Effective Date for the Transaction (or Notification Date)

ADQUIRA MEXICO SA DE CV

ACQUISITION

100.00

30-Sep-20

PROPEL VENTURE PARTNERS BRAZIL S.L.

CONSTITUTION

99.80

28-May-20

BBVA GLOBAL SECURITIES, B.V.

CONSTITUTION

100.00

07-Dec-20

(*)Variations of less than 0.1% have not been considered due to immateriality

F-264F-193  


APPENDIX III Changes and notificationnotifications of participations in the BBVA Group in 20182020 (continued)

AcquisitionsDisposals or Increasesreduction of Interest Ownershipinterest ownership in Consolidated Subsidiariesconsolidated subsidiaries

 

 

 

Millions of Euros

% of Voting Rights

 

 

Company

Type of Transaction

Activity

Price Paid in the

Transactions +

Expenses directly

attributable to the

Transactions

Fair Value of Equity

Instruments

issued for the

Transactions

% Participation (net)

Acquired

in the Year

Total Voting Rights

Controlled after the

Transactions

Effective Date for the Transaction (or Notification Date)

Category

ENTIDAD DE PROMOCION DE NEGOCIOS SA

ACQUISITION

RENT HOLDING

-

-

0.02%

99.88%

10-May-18

SUBSIDIARY

BBVA BROKER SA

ACQUISITION

INSURANCES SERVICES

-

-

4.99%

99.99%

01-Oct-18

SUBSIDIARY

BBVA HOLDING CHILE SA

FOUNDING AND SPLIT

INVESTMENT COMPANY

-

-

100.00%

100.00%

23-Jan-18

SUBSIDIARY

HOLVI DEUTSCHLAND SERVICE GMBH

FOUNDING

SERVICES

-

-

100.00%

100.00%

01-May-18

SUBSIDIARY

PERSONAL DATA BANK SLU

FOUNDING

SERVICES

-

-

100.00%

100.00%

01-Jun-18

SUBSIDIARY

DOMICILIA TREBOLBLUE SA

FOUNDING

HOLDING ENT.

-

-

100.00%

100.00%

03-Jul-18

SUBSIDIARY

ONUTPEN 2018 SL

FOUNDING

INVESTMENT COMPANY

-

-

100.00%

100.00%

21-Aug-18

SUBSIDIARY

GARANTI YATIRIM ORTAKLIGI AS

CAPITAL INCREASE

INVESTMENT COMPANY

-

-

0.31%

95.49%

01-Dec-18

SUBSIDIARY

Company (*)

Type of transaction

Total voting rights

controlled after the

disposal

Effective date for the transaction (or notification date)

CIDESSA UNO SL

MERGER

-

24-Nov-20

EL ENCINAR METROPOLITANO, S.A.

LIQUIDATION

-

1-Aug-20

DENIZEN GLOBAL FINANCIAL SAU

LIQUIDATION

-

25-Nov-20

FIDEICOMISO N.989 EN THE BANK OF NEW YORK MELLON SA INSTITUCION DE BANCA MULTIPLE FIDUCIARIO (FIDEIC.00989 6 EMISION)

MERGER

-

30-Sep-20

FIDEICOMISO Nº 847 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 4ª EMISION)

MERGER

-

30-Jun-20

BBVA CONSULTING ( BEIJING) LIMITED

LIQUIDATION

-

2-Dec-20

EL MILANILLO, S.A.

LIQUIDATION

-

27-Oct-20

F/403035-9 BBVA HORIZONTES RESIDENCIAL

DISPOSAL

-

31-Oct-20

HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U. IN LIQUIDATION

LIQUIDATION

-

14-Feb-20

HOLVI DEUTSCHLAND SERVICE GMBH (IN LIQUIDATION)

LIQUIDATION

-

14-Feb-20

ARRAHONA RENT, S.L.U.

LIQUIDATION

-

27-Jul-20

L'EIX IMMOBLES, S.L.

LIQUIDATION

-

27-Jul-20

ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A.

LIQUIDATION

-

28-Jul-20

HABITATGES FINVER, S.L.

LIQUIDATION

-

28-Jul-20

HABITATGES JUVIPRO, S.L.

LIQUIDATION

-

28-Jul-20

CATALUNYACAIXA CAPITAL SA

MERGER

-

21-Sep-20

CLUB GOLF HACIENDA EL ALAMO, S.L.(IN LIQUIDATION)

LIQUIDATION

-

12-Aug-20

GESCAT SINEVA, S.L.

LIQUIDATION

-

29-Jul-20

GESCAT POLSKA SP ZOO

LIQUIDATION

-

12-Feb-20

EXPANSION INTERCOMARCAL SL

LIQUIDATION

-

28-Jul-20

NOIDIRI SL

LIQUIDATION

-

28-Jul-20

CAIXA MANRESA IMMOBILIARIA SOCIAL SL

LIQUIDATION

-

27-Jul-20

(*)Variations of less than 0.1% have not been considered due to immateriality

F-194


Changes and notificationnotifications of participations in the BBVA Group in 20182020 (continued)

DisposalsBusiness combinations and other acquisitions or Reductionincreases of Interest Ownershipinterest ownership in Consolidated Subsidiariesassociates and joint-ventures accounted for under the equity method

 

 

 

Millions of Euros

% of Voting Rights

��

 

Company

Type of Transaction

Activity

Profit (Loss)

in the Transaction

Changes in the Equity due to the transaction

% Participation

Sold

in the Year

Total Voting Rights

Controlled after the

Disposal

Effective Date for the Transaction (or Notification Date)

Category

BANCO BILBAO VIZCAYA ARGENTARIA (PORTUGAL) SA

MERGER

BANKING

-

-

100.00%

-

1-Oct-18

SUBSIDIARY

PROMOCION EMPRESARIAL XX SA

MERGER

INVESTMENT COMPANY

-

-

100.00%

-

17-Dec-18

SUBSIDIARY

BBVA RENTING, S.A.

MERGER

FINANCIAL SERVICES

-

-

100.00%

-

2-Jul-18

SUBSIDIARY

BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A.

DISPOSAL

BANKING

-

-

68.19%

-

6-Jul-18

SUBSIDIARY

BBVA CORREDORES DE BOLSA LIMITADA

DISPOSAL

SECURITIES DEALER

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

BBVA SOCIEDAD DE LEASING INMOBILIARIO, S.A.

DISPOSAL

FINANCIAL SERVICES

-

-

97.49%

-

6-Jul-18

SUBSIDIARY

BBVA ASESORIAS FINANCIERAS, S.A.

DISPOSAL

FINANCIAL SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

BBVA ASSET MANAGEMENT ADMINISTRADORA GENERAL DE FONDOS S.A.

DISPOSAL

FINANCIAL SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

BBVA FACTORING LIMITADA (CHILE)

DISPOSAL

FINANCIAL SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

BBVA CORREDORA TECNICA DE SEGUROS LIMITADA

DISPOSAL

INSURANCES SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

BANCOMER FINANCIAL SERVICES INC.

MERGER

FINANCIAL SERVICES

-

-

100.00%

-

6-Dec-18

SUBSIDIARY

APLICA TECNOLOGIA AVANZADA OPERADORA, S.A. DE C.V.

DISPOSAL

SERVICES

(8)

-

100.00%

-

18-Jul-18

SUBSIDIARY

APLICA TECNOLOGIA AVANZADA SERVICIOS, S.A. DE C.V.

DISPOSAL

SERVICES

-

-

100.00%

-

18-Jul-18

SUBSIDIARY

BBVA SUBORDINATED CAPITAL SOCIEDAD ANONIMA

LIQUIDATION

FINANCIAL SERVICES

-

-

100.00%

-

18-Dec-18

SUBSIDIARY

BBVA SENIOR FINANCE SAU

LIQUIDATION

FINANCIAL SERVICES

-

-

100.00%

-

18-Dec-18

SUBSIDIARY

BBVA INMOBILIARIA E INVERSIONES, S.A.

DISPOSAL

REAL ESTATE

3

-

68.11%

-

6-Jul-18

SUBSIDIARY

HOMEOWNERS LOAN CORPORATION

LIQUIDATION

FINANCIAL SERVICES

-

-

100.00%

-

1-Dec-18

SUBSIDIARY

BBVA RENTAS E INVERSIONES LIMITADA

MERGER

INVESTMENT COMPANY

-

-

100.00%

-

30-Apr-18

SUBSIDIARY

BBVA SERVICIOS CORPORATIVOS LIMITADA

DISPOSAL

SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

DIVARIAN DESARROLLOS INMOBILIARIOS, S.L.U

DISPOSAL

REAL ESTATE

-

-

100.00%

-

10-Oct-18

SUBSIDIARY

BBVA INVERSIONES CHILE, S.A.

DISPOSAL

INVESTMENT COMPANY

863

-

100.00%

-

6-Jul-18

SUBSIDIARY

BBVA SEGUROS DE VIDA, S.A.

DISPOSAL

SERVICES

-

-

100.00%

-

6-Jul-18

SUBSIDIARY

GUARANTY PLUS PROPERTIES, INC-1

MERGER

FINANCIAL SERVICES

-

-

100.00%

-

31-Dec-18

SUBSIDIARY

GUARANTY PLUS PROPERTIES LLC-2

LIQUIDATION

FINANCIAL SERVICES

(1)

-

100.00%

-

1-Aug-18

SUBSIDIARY

4D INTERNET SOLUTIONS, INC

LIQUIDATION

FINANCIAL SERVICES

-

-

100.00%

-

18-Dec-18

SUBSIDIARY

Company (*)

Type of transaction

Total voting rights

controlled after the

disposal

Effective date for the transaction (or notification date)

ADQUIRA ESPAÑA, S.A.

CAPITAL REDUCTION

44.44

31-Mar-20

FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA

ACQUISITION

44.09

18-Aug-20

BBVA ALLIANZ SEGUROS Y REASEGUROS, S.A.

CONSTITUTION

50.00

05-May-20

PLAY DIGITAL SA

CONSTITUTION

33.33

27-May-20

F-265(*)Variations of less than 0.1% have not been considered due to immateriality


Changes and notificationnotifications of participations in the BBVA Group in 20182020 (continued)

DisposalsDisposal or Reductionreduction of Interest Ownershipinterest ownership in Consolidated Subsidiariesassociates and joint-ventures companies accounted for under the equity method

 

 

 

Millions of Euros

% of Voting Rights

 

 

Company

Type of Transaction

Activity

Profit (Loss)

in the Transaction

Changes in the Equity due to the transaction

% Participation

Sold

in the Year

Total Voting Rights

Controlled after the

Disposal

Effective Date for the Transaction (or Notification Date)

Category

PARTICIPACIONES ARENAL, S.L.

LIQUIDATION

INVESTMENT COMPANY

-

-

100.00%

0.00%

7-Aug-18

SUBSIDIARY

CAIXASABADELL TINELIA, S.L.

MERGER

INVESTMENT COMPANY

-

-

100.00%

0.00%

18-Jul-18

SUBSIDIARY

HABITATGES INVERVIC, S.L.

LIQUIDATION

REAL ESTATE

-

-

35.00%

0.00%

22-Feb-18

SUBSIDIARY

PROCAMVASA, S.A.

LIQUIDATION

REAL ESTATE

-

-

51.00%

0.00%

4-May-18

SUBSIDIARY

CATALUNYACAIXA ASSEGURANCES GENERALS, S.A.

MERGER

INSURANCES SERVICES

-

-

100.00%

0.00%

23-Jan-18

SUBSIDIARY

VOLJA LUX, SARL

LIQUIDATION

INVESTMENT COMPANY

-

-

71.78%

0.00%

29-Jan-19

SUBSIDIARY

CX PROPIETAT, FII

LIQUIDATION

REAL ESTATE INVESTMENT

-

-

94.96%

0.00%

30-Jun-18

SUBSIDIARY

VOLJA PLUS SL

LIQUIDATION

INVESTMENT COMPANY

-

-

75.40%

0.00%

1-Oct-18

SUBSIDIARY

UNITARIA GESTION DE PATRIMONIOS INMOBILIARIOS SA

LIQUIDATION

REAL ESTATE

-

-

100.00%

0.00%

20-Dec-18

SUBSIDIARY

SCALDIS FINANCE, S.A.

LIQUIDATION

INVESTMENT COMPANY

-

-

100.00%

0.00%

1-Apr-18

SUBSIDIARY

ONUTPEN 2018 SL

DISPOSAL

INVESTMENT COMPANY

-

-

100.00%

0.00%

31-Oct-18

SUBSIDIARY

DOMICILIA TREBOLBLUE SA

MERGER

OTHER HOLDING

-

-

100.00%

0.00%

19-Dec-18

SUBSIDIARY

Company (*)

Type of transaction

Total voting rights

controlled after the

disposal

Effective date for the transaction (or notification date)

CAJA DE EMI. CON GAR. DE ANUALIDADES DEBIDA POR EL ESTADO SA

LIQUIDATION

-

13-Oct-20

BATEC MOBILITY, S.L.

DISPOSAL

-

28-Jan-20

CAPIPOTA PRODUCTIONS S.L.

DISPOSAL

-

10-Dec-20

FIDEICOMISO DE ADMINISTRACION REDETRANS

DISPOSAL

-

18-Sep-20

SOCIEDADE ALTITUDE SOFTWARE-SISTEMA E SERVIÇOS SA

DISPOSAL

-

30-Dec-20

SOLARISBANK AG(1)

CAPITAL INCREASE

17.59

30-Sep-20

PLAY DIGITAL SA

DILUTION   

13.00

15-Dec-20

NOVA LLAR SANT JOAN, S.A. IN LIQUIDATION

LIQUIDATION

-

03-Apr-20

(*)Variations of less than 0.1% have not been considered due to immateriality

(1)      The percentage of voting rights owned by the Group entities in this company is 22.22%

This Appendix is an integral part of Notes 3 and 16.1 of the consolidated financial statements for the year ended December 31, 2020.

F-266F-195  


Changes and notification of participations in the BBVA Group in 2018 (continued)

Business Combinations and Other Acquisitions or Increases of Interest Ownership in Associates and Joint-Ventures Accounted for Under the Equity Method

 

 

 

Millions of Euros

% of Voting Rights

 

 

Company

Type of Transaction

Activity

Price Paid in the

Transactions +

Expenses Directly

Attributable to the

Transactions

Fair Value of Equity

Instruments

Issued for the

Transactions

% Participation (Net)

Acquired

in the Year

Total Voting Rights

Controlled After the

Transactions

Effective Date for the Transaction (or Notification Date)

Category

LEVENT YAPILANDIRMA YONETIMI AS

FOUNDING

SERVICES

-

-

22.13%

22.13%

14-Dec-18

ASSOCIATED

ATOM BANK PLC

INCREASE TO WHICH OTHER MEMERS DO NOT ASSIST

BANKING

99

-

9.16%

39.06%

01-May-18

ASSOCIATED

SR2 SOCIEDAD DE MEDIOS DE PAGO S.A.

FOUNDING AND SPLIT

PAYMENT ENTITIES

1

-

28.72%

28.72%

01-Jan-18

ASSOCIATED

SOCIEDADE ALTITUDE SOFTWARE-SISTEMA E SERCIÇOS SA

FOUNDING

SERVICES

-

-

31.55%

31.55%

02-Apr-18

JOINT VENTURE

SISTEMAS DE TARJETAS Y MEDIOS DE PAGO SA

FOUNDING

PAYMENT ENTITIES

-

-

18.11%

18.11%

30-Apr-18

ASSOCIATED

SOLARISBANK AG

ACQUISITION

BANKING

38

-

18.76%

18.76%

01-Oct-18

ASSOCIATED

ANTHEMIS BBVA VENTURE PARTNERSHIP LLP

FOUNDING

INVESTMENT COMPANY

-

-

75.00%

75.00%

01-Dec-18

JOINT VENTURE

COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU)

CAPITAL INCREASE

ELECTRONIC MONEY ENTITIES

-

-

0.68%

20.96%

01-Aug-18

ASSOCIATED

Changes and notification of participations in the BBVA Group in 2018 (continued)

Disposal or Reduction of Interest Ownership in Associates and Joint-Ventures Companies Accounted for Under the Equity Method

 

 

 

Millions of Euros

% of Voting Rights

 

 

Company

Type of Transaction

Activity

Profit (Loss)

in the Transaction

% Participation

Sold

in the Year

Total Voting Rights

Controlled after the

Disposal

Effective Date for the Transaction (or Notification Date)

Category

FIDEICOMISO F/404180-2 BBVA BANCOMER SERVICIOS GOLF ZIBATA

DISPOSAL

REAL ESTATE

-

30.00%

-

15-Feb-18

JOINT VENTURE

SISTARBANC S.R.L.

DISPOSAL

FINANCIAL SERVICES

-

26.66%

-

13-Sep-18

ASSOCIATE

FIDEICOMISO F 403853- 5 BBVA BANCOMER SERVICIOS ZIBATA

DISPOSAL

REAL ESTATE

22

30.00%

-

15-Feb-18

JOINT VENTURE

OPERADORA ZIBATA S. DE R.L. DE C.V.

DISPOSAL

SERVICES

-

30.00%

-

15-Feb-18

ASSOCIATE

FERROMOVIL 3000, S.L.

DISPOSAL

SERVICES

12

20.00%

-

29-May-18

JOINT VENTURE

FERROMOVIL 9000, S.L.

DISPOSAL

SERVICES

8

20.00%

-

29-May-18

JOINT VENTURE

DIVARIAN PROPIEDAD, S.A.U.

DISPOSAL

REAL ESTATE

-

80.00%

20.00%

10-Oct-18

ASSOCIATE

TELEFONICA FACTORING CHILE, S.A.

DISPOSAL

FINANCIAL SERVICES

-

24.30%

-

06-Jul-18

ASSOCIATE

ALTITUDE SOFTWARE SGPS, S.A.

MERGER

SERVICES

-

31.55%

-

01-Apr-18

JOINT VENTURE

METROVACESA SA

DISPOSAL

REAL ESTATE

2

7.66%

20.85%

06-Feb-18

ASSOCIATE

TESTA RESIDENCIAL SOCIMI SAU

DISPOSAL

REAL ESTATE INVESTMENT TRUST

28

26.87%

-

21-Dec-18

ASSOCIATE

PARQUE RIO RESIDENCIAL, S.L.

DISPOSAL

REAL ESTATE

8

50.00%

-

27-Apr-18

JOINT VENTURE

AVANTESPACIA INMOBILIARIA, S.L.

DISPOSAL

REAL ESTATE

3

30.01%

-

28-Dec-18

JOINT VENTURE

BATEC ORTO DISTRIBUCION S.L.

LIQUIDATION

COMMERCIAL

-

100.00%

-

07-Jun-18

JOINT VENTURE

HABITATGES CIMIPRO, S.L.

LIQUIDATION

REAL ESTATE

-

50.00%

-

12-Mar-18

JOINT VENTURE

SOLARVOLAR, S.L.

LIQUIDATION

REAL ESTATE

-

45.00%

-

08-Feb-18

JOINT VENTURE

PROMOCIONES MIES DEL VALLE, S.L.

DILUTION EFFECT

REAL ESTATE

-

51.00%

-

01-Oct-18

JOINT VENTURE

TEIN CENTRO TECNOLOGICO DEL PLASTICO, S.L.

DILUTION EFFECT

SERVICES

-

40.00%

-

01-Sep-18

JOINT VENTURE

HABITATGES SOCIALS DE CALAF S.L

DISPOSAL

REAL ESTATE

-

40.00%

-

04-Apr-18

JOINT VENTURE

SR2 SOCIEDAD DE MEDIOS DE PAGO S.A.

MERGER

PAYMENT ENTITIES

-

28.72%

-

01-Apr-18

ASSOCIATE

F-267


APPENDIX IVIV. Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 20182020

 

% of Voting Rights Controlled by the Bank

 

% of voting rights controlled by the Bank

Company

Activity

Direct

Indirect

Total

Activity

Direct

Indirect

Total

BBVA BANCO CONTINENTAL SA

BANKING

-

46.12

BANKING

-

46.12

BANCO PROVINCIAL SA - BANCO UNIVERSAL

BANKING

1.46

53.75

55.21

BANKING

1.46

53.75

55.21

INVERSIONES BANPRO INTERNATIONAL INC NV

INVESTMENT COMPANY

48.00

-

48.00

INVESTMENT COMPANY

48.00

-

48.01

PRO-SALUD, C.A.

NO ACTIVITY

-

58.86

NO ACTIVITY

-

58.86

INVERSIONES P.H.R.4, C.A.

NO ACTIVITY

-

60.46

NO ACTIVITY

-

60.46

BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES

PENSION FUND MANAGEMENT

75.00

5.00

80.00

COMERCIALIZADORA CORPORATIVA SAC

FINANCIAL SERVICES

-

50.00

FINANCIAL SERVICES

-

50.00

DISTRITO CASTELLANA NORTE, S.A.

REAL ESTATE

-

75.54

REAL ESTATE

-

75.54

GESTION DE PREVISION Y PENSIONES SA

PENSION FUND MANAGEMENT

60.00

-

60.00

PENSION FUND MANAGEMENT

60.00

-

60.00

URBANIZADORA SANT LLORENC SA

NO ACTIVITY

60.60

-

60.60

F/403035-9 BBVA HORIZONTES RESIDENCIAL

REAL ESTATE

-

65.00

F/253863 EL DESEO RESIDENCIAL

REAL ESTATE

-

65.00

REAL ESTATE

-

65.00

DATA ARCHITECTURE AND TECHNOLOGY S.L.

SERVICES

-

51.00

SERVICES

-

51.00

VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA

BANKING

-

51.00

FIDEICOMISO LOTE 6.1 ZARAGOZA

REAL ESTATE

-

59.99

REAL ESTATE

-

59.99

F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION

REAL ESTATE

-

42.40

REAL ESTATE

-

42.40

VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.

SERVICES

-

51.00

SERVICES

-

51.00

GARANTI EMEKLILIK VE HAYAT AS

INSURANCES

-

84.91

FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L.

IN LIQUIDATION

-

60.00

GARANTI BBVA EMEKLILIK AS

SERVICES

-

84.91

FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. IN LIQUIDATION

IN LIQUIDATION

-

60.00

BBVA INFORMATION TECHNOLOGY ESPAÑA SL

SERVICES

76.00

-

76.00

SERVICES

76.00

-

76.00

JALE PROCAM, S.L.

IN LIQUIDATION

-

50.00

JALE PROCAM, S.L. (IN LIQUIDATION)

IN LIQUIDATION

-

50.00

PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA

BANKING

-

50.00

This Appendix is an integral part of Note 3 of the consolidated financial statements for the year ended December 31, 2020.

 

F-268F-196  


APPENDIX VV. BBVA Group’s structured entities.entities in 2020. Securitization funds

 

Millions of Euros

 

Millions of Euros

Securitization Fund (consolidated)

Company

Origination

Date

Total Securitized

Exposures at the

Origination Date

Total Securitized

Exposures as of December 31, 2018 (*)

AYT CAIXA SABADELL HIPOTECARIO I, FTA

BBVA SA

07/2008

300

80

Securitization fund (consolidated)

Company

Origination

date

Total securitized

exposures at the

origination date

Total securitized

exposures as of December 31, 2020 (*)

TDA 27 MIXTO, FTA

BBVA, S.A.

Dec-06

275

71

BBVA RMBS 16 FT

BBVA, S.A.

May-16

1,600

1,151

HIPOCAT 9 FTA

BBVA, S.A.

Nov-05

1,016

150

TDA TARRAGONA 1 FTA

BBVA, S.A.

Nov-07

397

85

BBVA RMBS15 FT

BBVA, S.A.

May-15

4,000

2,725

BBVA RMBS 5 FTA

BBVA, S.A.

May-08

5,000

2,043

TDA 22 MIXTO, FTA (UNNIM)

BBVA, S.A.

Dec-04

592

19

HIPOCAT 10 FTA

BBVA, S.A.

Jul-06

1,526

220

BBVA VELA SME 2020-1

BBVA, S.A.

Jun-20

1,245

957

TDA 19 MIXTO, FTA

BBVA, S.A.

Feb-04

600

18

BBVA CONSUMER AUTO 2020-1

BBVA, S.A.

Jun-20

1,100

BBVA RMBS 10 FTA

BBVA, S.A.

Jun-11

1,600

993

HIPOCAT 8 FTA

BBVA, S.A.

May-05

1,500

196

AYT HIP MIXTO V

BBVA, S.A.

Jul-06

120

26

BBVA RMBS 2 FTA

BBVA, S.A.

Mar-07

5,000

1,485

BBVA RMBS 18 FT

BBVA, S.A.

Nov-17

1,800

1,475

TDA 20 MIXTO, FTA

BBVA, S.A.

Jun-04

100

10

TDA 23 MIXTO, FTA

BBVA, S.A.

Mar-05

860

34

BBVA CONSUMO 9 FT

BBVA, S.A.

Mar-17

1,375

582

BBVA RMBS 14 FTA

BBVA, S.A.

Nov-14

700

406

AYT HIPOTECARIO MIXTO IV, FTA

BBVA SA

06/2005

100

18

BBVA, S.A.

Jun-05

100

13

AYT HIPOTECARIO MIXTO, FTA

BBVA SA

03/2004

100

13

BBVA RMBS 9 FTA

BBVA, S.A.

Apr-10

1,295

725

BBVA LEASING 2 FT

BBVA, S.A.

Jul-20

2,100

1,941

BBVA EMPRESAS 4 FTA

BBVA, S.A.

Jul-10

1,700

20

TDA 28 MIXTO, FTA

BBVA, S.A.

Jul-07

250

71

HIPOCAT 6 FTA

BBVA, S.A.

Sep-03

850

81

TDA 18 MIXTO, FTA

BBVA, S.A.

Nov-03

91

9

BBVA RMBS 3 FTA

BBVA, S.A.

Jul-07

3,000

1,222

BBVA CONSUMO 10 FT

BBVA, S.A.

Jul-19

2,000

1,945

BBVA LEASING 1 FTA

BBVA, S.A.

Jun-07

2,500

14

BBVA RMBS 11 FTA

BBVA, S.A.

Jun-12

1,400

875

BBVA RMBS 13 FTA

BBVA, S.A.

Jul-14

4,100

2,707

BBVA CONSUMO 8 FT

BBVA, S.A.

Jul-16

700

222

BBVA RMBS 12 FTA

BBVA, S.A.

Dec-13

4,350

2,735

BBVA CONSUMER AUTO 2018-1

BBVA SA

06/2018

800

746

BBVA, S.A.

Jun-18

800

557

BBVA CONSUMO 6 FTA

BBVA SA

10/2014

299

54

BBVA CONSUMO 7 FTA

BBVA SA

07/2015

1,450

572

BBVA CONSUMO 8 FT

BBVA SA

07/2016

700

502

BBVA CONSUMO 9 FT

BBVA SA

03/2017

1,375

1,229

BBVA EMPRESAS 4 FTA

BBVA SA

07/2010

1,700

37

BBVA LEASING 1 FTA

BBVA SA

06/2007

2,500

43

BBVA PYME 10 FT

BBVA SA

12/2015

780

201

BBVA RMBS 1 FTA

BBVA SA

02/2007

2,500

1,000

BBVA, S.A.

Feb-07

2,500

799

BBVA RMBS 10 FTA

BBVA SA

06/2011

1,600

1,150

BBVA RMBS 11 FTA

BBVA SA

06/2012

1,400

1,006

BBVA RMBS 12 FTA

BBVA SA

12/2013

4,350

3,197

BBVA RMBS 13 FTA

BBVA SA

07/2014

4,100

3,138

BBVA RMBS 14 FTA

BBVA SA

11/2014

700

488

BBVA RMBS 15 FTA

BBVA SA

05/2015

4,000

3,185

BBVA RMBS 16 FT

BBVA SA

05/2016

1,600

1,345

BBVA RMBS 19 FT

BBVA, S.A.

Nov-19

2,000

1,852

BBVA-6 FTPYME FTA

BBVA, S.A.

Jun-07

1,500

5

GAT VPO (UNNIM)

BBVA, S.A.

Jun-09

780

48

HIPOCAT 11 FTA

BBVA, S.A.

Mar-07

1,628

237

BBVA RMBS 17 FT

BBVA SA

11/2016

1,800

1,576

BBVA, S.A.

Nov-16

1,800

1,340

BBVA RMBS 18 FT

BBVA SA

11/2017

1,800

1,686

BBVA RMBS 2 FTA

BBVA SA

03/2007

5,000

1,858

BBVA RMBS 3 FTA

BBVA SA

07/2007

3,000

1,414

BBVA RMBS 5 FTA

BBVA SA

05/2008

5,000

2,350

BBVA RMBS 9 FTA

BBVA SA

04/2010

1,295

844

BBVA VELA SME 2017-1

BBVA SA

06/2017

3,000

1,321

BBVA VELA SME 2018

BBVA SA

03/2018

1,950

1,387

BBVA-5 FTPYME FTA

BBVA SA

11/2006

1,900

11

BBVA-6 FTPYME FTA

BBVA SA

06/2007

1,500

13

FTA TDA-22 MIXTO

BBVA SA

12/2004

112

24

FTA TDA-27

BBVA SA

12/2006

275

87

FTA TDA-28

BBVA SA

07/2007

250

88

GAT ICO FTVPO 1, F.T.H

BBVA SA

jun.-09

358

84

GC FTGENCAT TARRAGONA 1 FTA

BBVA SA

06/2008

283

23

HIPOCAT 10 FTA

BBVA SA

07/2006

1,500

291

HIPOCAT 11 FTA

BBVA SA

03/2007

1,600

299

HIPOCAT 7 FTA

BBVA SA

06/2004

1,400

221

BBVA, S.A.

Jun-04

1,400

165

HIPOCAT 8 FTA

BBVA SA

05/2005

1,500

261

HIPOCAT 9 FTA

BBVA SA

11/2005

1,000

201

TDA 19 FTA

BBVA SA

03/2004

200

25

TDA 20-MIXTO, FTA

BBVA SA

06/2004

100

15

TDA 23 FTA

BBVA SA

03/2005

300

53

TDA TARRAGONA 1 FTA

BBVA SA

12/2007

397

116

VELA CORPORATE 2018-1

BBVA SA

12/2018

1,000

916

(*) Solvency scope.

F-269F-197  


 

 

 

Millions of Euros

Securitization Fund (not consolidated)

Company

Origination

Date

Total Securitized

Exposures at the

Origination Date

Total Securitized

Exposures as of December 31, 2018 (*)

FTA TDA-18 MIXTO

BBVA, S.A.

nov.-03

91

12

HIPOCAT 6 FTA

BBVA, S.A.

jul.-03

850

108

(*)  Solvency scope.

F-270


APPENDIX VIVI. Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2018, 20172020, 2019 and 20168

Outstanding as of December 31, 2018, 2017,2020, 2019 and 20162018 of subordinated issues

 

Millions of Euros

 

 

Millions of Euros

 

 

Issuer Entity and Issued Date(*)

Currency

December 2018

December

2017

December 2016

Prevailing Interest Rate

as of December 31, 2018

Maturity

Date

Issuer entity and issued date

Currency

December 2020

December

2019

December 2018

Prevailing Interest Rate

as of December 31, 2020

Maturity

Date

Issues in Euros

 

 

 

 

 

 

 

BBVA, S.A

 

 

February-07

EUR

-

255

255

0.47%

16-Feb-22

BANCO BILBAO VIZCAYA ARGENTARIA S.A.

 

 

 

 

 

March-08

EUR

125

125

6.03%

3-Mar-33

EUR

125

6.03%

03-Mar-33

July-08

EUR

100

100

6.20%

4-Jul-23

EUR

100

6.20%

04-Jul-23

February-14

EUR

1,500

1,500

7.00%

Perpetual

EUR

-

1,500

7.00%

Perpetual

April-14

EUR

1,494

-

3.50%

11-Apr-24

EUR

-

1,494

3.50%

11-Apr-24

February-15

EUR

1,500

1,500

6.75%

Perpetual

EUR

-

1,500

6.75%

Perpetual

April-16

EUR

1,000

1,000

8.88%

Perpetual

EUR

1,000

8.88%

Perpetual

February-17

EUR

1,000

997

-

3.50%

10-Feb-27

EUR

1,000

3.50%

10-Feb-27

February-17

EUR

165

-

4.00%

24-Feb-32

EUR

165

4.00%

24-Feb-32

May-17

EUR

150

-

2.54%

24-May-27

EUR

150

2.54%

24-May-27

May-17

EUR

500

-

5.88%

Perpetual

EUR

500

5.88%

Perpetual

September-18

EUR

990

-

-

5.87%

Perpetual

EUR

1,000

990

5.88%

Perpetual

Various

EUR

384

386

277

 

February-19

EUR

750

-

2.58%

22-Feb-29

March-19

EUR

1,000

-

6.00%

Perpetual

January-20

EUR

994

-

1.00%

16-Jan-30

July-20

EUR

1,000

-

6.00%

Perpetual

Different issues

EUR

330

379

384

 

 

Subtotal

EUR

8,906

8,171

4,756

 

EUR

8,113

7,668

8,906

 

 

BBVA SUBORDINATED CAPITAL, S.A.U. (*)

 

 

October-05

EUR

-

99

99

0.47%

13-Oct-20

April-07

EUR

-

68

0.57%

4-Apr-22

May-08

EUR

-

50

3.00%

19-May-23

July-08

EUR

-

20

20

6.11%

22-Jul-18

April-14

EUR

-

1,500

3.50%

11-Apr-24

Subtotal

EUR

-

119

1,737

 

Others

EUR

-

-

 

Total issued in Euros

EUR

8,906

8,290

6,493

 

EUR

8,113

7,668

8,906

 

 

(*) The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank.

(*)   The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank.

F-271F-198  


Outstanding as of December 31, 2018, 2017,2020, 2019 and 20162018 of subordinated issues (continued)

 

Millions of Euros

 

 

 

Millions of Euros

Prevailing Interest Rate

as of December 31, 2020

 

Issuer Entity and Issued Date

Currency

December 2018

December

2017

December 2016

Prevailing Interest Rate

as of December 31, 2018

Maturity

Date

Issuer entity and issued date

Currency

December 2020

December

2019

December 2018

Prevailing Interest Rate

as of December 31, 2020

Maturity

Date

Issues in foreign currency

 

 

 

 

BBVA, S.A

 

 

May-13

USD

-

1,251

1,423

9.00%

Perpetual

BANCO BILBAO VIZCAYA ARGENTARIA S.A.

 

 

March-17

USD

105

100

-

5.70%

31-Mar-32

USD

98

107

105

5.70%

31-Mar-32

November-17

USD

873

834

-

6.13%

Perpetual

USD

815

890

873

6.13%

Perpetual

May-18

USD

260

-

5.25%

29-May-33

USD

243

265

260

5.25%

29-May-33

September-19

USD

815

890

-

6.50%

Perpetual

Subtotal

USD

1,238

2,185

1,423

 

 

USD

1,970

2,152

1,238

 

May-17

CHF

18

17

-

1.60%

24-May-27

CHF

19

18

18

1.60%

24-May-27

Subtotal

CHF

18

17

-

 

 

CHF

19

18

18

 

BBVA GLOBAL FINANCE, LTD. (*)

 

 

July-20

GBP

334

-

-

3.10%

15-Jul-31

Subtotal

GBP

334

-

-

 

BBVA GLOBAL FINANCE LTD

 

 

 

December-95

USD

169

162

189

7.00%

1-Dec-25

USD

162

177

169

7.00%

01-Dec-25

Subtotal

USD

169

162

189

 

 

USD

162

177

169

 

BANCO BILBAO VIZCAYA ARGENTARIA, CHILE

 

 

Different issues

CLP

-

574

609

 

Various

Subtotal

CLP

-

574

609

 

 

BBVA BANCOMER, S.A. de C.V.

 

 

May-07

USD

-

474

6,01%

17-May-22

BBVA BANCOMER S.A. INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER

 

 

 

April-10

USD

874

831

947

7.25%

22-Apr-20

USD

-

667

874

7.25%

22-Apr-20

March-11

USD

1,092

1,039

1,184

6.50%

10-Mar-21

USD

612

667

1,092

6.50%

10-Mar-21

July-12

USD

1,311

1,247

1,421

6.75%

30-Sep-22

USD

1,223

1,333

1,311

6.75%

30-Sep-22

November-14

USD

175

166

189

5.35%

12-Nov-29

USD

163

178

175

5.35%

12-Nov-29

Jan-18

USD

874

-

5.13%

18-Jan-33

January-18

USD

815

889

874

5.13%

18-Jan-33

September-19

USD

612

667

-

5.88%

13-Sep-34

Subtotal

USD

4,325

3,283

4,214

 

 

USD

3,425

4,401

4,325

 

BBVA PARAGUAY

 

 

BBVA URUGUAY

 

 

 

Different issues

USD

-

2

-

 

Subtotal

USD

-

2

-

 

BBVA PARAGUAY S.A. (**)

-

-

-

0.00%

 

November-14

USD

19

17

19

6.75%

05-Nov-21

USD

16

18

19

6.75%

05-Nov-21

November-15

USD

23

21

24

6.70%

22-Nov-22

USD

20

22

23

6.70%

18-Nov-22

Subtotal

USD

42

38

43

 

 

USD

37

40

42

 

TEXAS REGIONAL STATUTORY TRUST I

 

 

February-04

USD

-

47

3.13%

17-Mar-34

BBVA USA (**)

 

 

 

March-05

USD

-

203

199

5.50%

01-Apr-20

March-06

USD

58

63

62

5.90%

01-Apr-26

April-15

USD

570

623

611

3.88%

10-Apr-25

Subtotal

USD

-

47

 

 

USD

628

889

872

 

(*) The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank

(*)   The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank.

 (**) The amount of 2020 is recorded under the heading “Liabilities included in disposal groups classified as held for sale”.

F-272F-199  


Outstanding as of December 31, 2020, 2019 and 2018 2017, and 2016 of subordinated issues

 

Millions of Euros

 

 

 

 

 

Issuer Entity and Issued Date (continued)

Currency

December 2018

December 2017

December 2016

Prevailing Interest Rate

as of December 31, 2018

Maturity

Date

STATE NATIONAL CAPITAL TRUST I

 

July-03

USD

-

14

3.32%

30-Sep-33

Subtotal

USD

-

14

 

STATE NATIONAL STATUTORY TRUST II

 

March-04

USD

-

9

3.07%

17-Mar-34

Subtotal

USD

-

9

 

TEXASBANC CAPITAL TRUST I

 

June-04

USD

-

24

2.88%

23-Jul-34

Subtotal

USD

-

24

 

COMPASS BANK

 

March-05

USD

199

190

212

5.50%

1-Apr-20

March-06

USD

62

59

65

5.90%

1-Apr-26

September-07

USD

-

332

6.40%

1-Oct-17

April-15

USD

611

584

655

3.88%

10-Apr-25

Subtotal

-

872

833

1,264

 

BBVA COLOMBIA, S.A.

 

September-11

COP

-

28

32

8.31%

19-Sep-18

 

Millions of Euros

 

 

Issuer entity and issued date (continued)

Currency

December 2020

December

2019

December 2018

Prevailing Interest Rate

as of December 31, 2020

Maturity

Date

BBVA COLOMBIA S.A.

 

 

 

 

September-11

COP

28

30

33

8.48%

19-Sep-21

COP

25

29

28

4.45%

19-Sep-21

September-11

COP

42

44

49

8.72%

19-Sep-26

COP

37

42

4.70%

19-Sep-26

February-13

COP

53

56

63

7.65%

19-Feb-23

COP

47

54

53

3.60%

19-Feb-23

February-13

COP

44

46

52

7.93%

19-Feb-28

COP

39

45

44

3.89%

19-Feb-28

November-14

COP

24

25

28

8.53%

26-Nov-26

COP

21

24

4.38%

26-Nov-29

November-14

COP

43

45

51

8.41%

26-Nov-34

COP

30

34

43

4.50%

26-Nov-34

January-00

COP

(9)

-

 

December-15

COP

(9)

-

 

Subtotal

COP

215

273

308

 

COP

200

229

234

 

 

April-15

USD

332

313

379

4.88%

21-Apr-25

USD

324

333

332

4.88%

21-Apr-25

Subtotal

USD

332

313

379

 

USD

324

333

332

 

 

BANCO CONTINENTAL, S.A.

 

September-07

USD

-

19

2.16%

24-Sep-17

Subtotal

USD

-

19

 

May-07

PEN

-

11

5.85%

7-May-22

May-07

PEN

17

19

6.00%

14-May-27

BBVA BANCO CONTINENTAL S.A.

 

 

 

 

June-07

PEN

20

21

3.47%

18-Jun-32

PEN

18

22

20

3.47%

18-Jun-32

November-07

PEN

18

19

3.56%

19-Nov-32

PEN

16

19

18

3.56%

19-Nov-32

February-08

PEN

18

17

19

6.47%

28-Feb-28

July-08

PEN

16

17

3.06%

8-Jul-23

PEN

15

17

16

3.06%

08-Jul-23

September-08

PEN

17

18

3.09%

9-Sep-23

PEN

16

18

17

3.09%

09-Sep-23

December-08

PEN

10

11

4.19%

15-Dec-33

PEN

9

11

10

4.19%

15-Dec-33

Subtotal

PEN

74

87

82

 

 

May-07

USD

16

18

17

6.00%

14-May-27

February-08

USD

17

18

6.47%

28-Feb-28

October-13

PEN

40

38

43

6.53%

2-oct.-28

USD

37

41

40

6.53%

02-Oct-28

September-14

PEN

252

244

273

5.25%

22-sep.-29

USD

257

269

252

5.25%

22-Sep-29

Subtotal

PEN

410

395

451

 

USD

327

346

328

 

 

TURKIYE GARANTI BANKASI A.S

 

GARANTI BBVA AS

 

 

 

 

May-17

USD

652

623

-

6.13%

24-May-27

USD

607

664

652

6.13%

24-May-27

Subtotal

USD

652

623

-

 

USD

607

664

652

 

 

Total issues in foreign currencies(Millions of Euros)

 

8,274

8,695

8,994

 

October-19

TRY

28

38

-

16.00%

07-Oct-29

February-20

TRY

82

-

17.95%

14-Feb-30

Subtotal

TRY

110

38

-

 

 

Total issues in other currencies (millions of Euros)

 

8,217

9,376

8,292

 

 

F-273F-200  


Outstanding as of December 31, 2018, 2017,2020, 2019 and 20162018 of subordinated issues (Millions of euros)

 

December 2020

December 2019

December 2018

Issuer entity and issued date

Currency

Amount Issued

Currency

Amount Issued

Currency

Amount Issued

BBVA COLOMBIA S.A.

 

 

 

 

 

 

December-93

COP

-

COP

20

COP

19

BBVA International Preferred, S.A.U.

 

 

 

 

 

 

July-07

GBP

35

GBP

37

GBP

35

PHOENIX LOAN HOLDINGS INC.

 

 

 

 

 

 

November-00

USD

17

USD

19

USD

18

CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU

 

 

 

 

 

 

August-05

EUR

74

EUR

28

EUR

52

CAIXASABADELL PREFERENTS S.A.

 

 

 

 

 

 

July-06

EUR

85

EUR

56

EUR

56

 

 

December 2018

December 2017

December 2016

Issuer Entity and Issued Date

Currency

Amount Issued

Currency

Amount Issued

Currency

Amount Issued

BBVA S.A

 

 

 

 

 

 

December 2007

EUR

-

EUR

-

EUR

14

BBVA COLOMBIA SA

-

-

-

-

-

-

December 1993

COP

19

PESO COL

-

PESO COL

-

BBVA PARAGUAY, S.A.

-

-

-

-

-

-

September 2005

-

-

EUR

-

EUR

86

September 2006

-

-

EUR

-

EUR

164

April 2007

-

-

USD

-

USD

569

BBVA International Preferred, S.A.U.

-

-

-

-

-

-

July 2007

GBP

35

GBP

35

GBP

36

Phoenix Loan Holdings Inc.

-

-

-

-

-

-

 December 2000

USD

18

USD

18

USD

22

Caixa Terrasa Societat de Participacion

-

-

-

-

-

-

August 2005

EUR

52

EUR

51

EUR

51

Caixasabadell Preferents, S.A.

-

-

-

-

-

-

December 2004

-

-

-

-

EUR

-

July 2006

EUR

56

EUR

56

EUR

53

Others

-

-

-

1

-

1

F-274F-201  


APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2018, 20172020, 2019 and 2016.2018

December 2018 (Millions of euros)

December 2020 (Millions of Euros)

December 2020 (Millions of Euros)

USD

Mexican

Pesos

Turkish Lira

Other Foreign

Currencies

Total Foreign

Currencies

USD

Mexican

pesos

Turkish lira

Other foreign

currencies

Total foreign

currencies

Assets

 

 

 

 

Cash, cash balances at central banks and other demand deposits

15,184

6,869

476

5,547

28,076

16,615

4,847

772

4,130

26,365

Financial assets held for trading

3,133

15,500

366

3,614

22,614

5,114

22,154

359

6,112

33,740

Non- Trading financial assets mandatorily at fair value through profit or loss

650

2,303

3

58

3,014

Non- trading financial assets mandatorily at fair value through profit or loss

883

3,369

7

291

4,549

Financial assets at fair value through comprehensive income

16,566

4,704

3,031

2,931

27,232

7,073

7,723

2,489

8,087

25,373

Financial assets at amortized cost

101,366

47,550

28,094

34,075

211,085

39,841

53,184

26,810

38,036

157,871

Joint ventures and associates

5

54

-

267

326

5

14

-

246

265

Tangible assets

670

1,964

1,007

850

4,490

15

1,819

858

852

3,544

Other assets

3,444

2,911

1,361

2,879

10,595

83,406

2,053

1,191

2,009

88,658

Total

141,019

81,856

34,336

50,221

307,433

152,953

95,163

32,486

59,764

340,366

Liabilities

 

 

 

Financial liabilities held for trading

2,372

13,626

360

1,507

17,864

4,562

18,489

471

772

24,295

Financial liabilities at amortized cost

136,307

48,169

20,878

37,342

242,696

67,165

54,429

18,930

43,468

183,993

Other liabilities

3,874

6,081

750

7,200

17,904

78,724

6,662

687

7,393

93,466

Total

142,552

67,876

21,987

46,049

278,464

150,452

79,580

20,088

51,633

301,753

December 2019 (Millions of Euros)

 

USD

Mexican

pesos

Turkish lira

Other foreign

currencies

Total foreign

currencies

Assets

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

16,930

4,414

499

5,330

27,173

Financial assets held for trading

5,549

18,543

242

5,257

29,591

Non- trading financial assets mandatorily at fair value through profit or loss

900

3,509

4

116

4,529

Financial assets at fair value through comprehensive income

14,269

6,178

2,748

5,541

28,735

Financial assets at amortized cost

107,865

56,963

29,125

35,906

229,859

Joint-ventures and associates

5

20

-

252

277

Tangible assets

921

2,214

1,050

1,026

5,211

Other assets

1,946

2,147

1,174

5,508

10,775

Total

148,384

93,989

34,842

58,934

336,149

Liabilities

 

 

 

 

 

Financial liabilities held for trading

4,063

16,064

170

2,465

22,762

Financial liabilities at amortized cost

136,661

54,733

20,681

36,758

248,834

Other liabilities

5,555

6,757

881

8,172

21,365

Total

146,280

77,555

21,732

47,394

292,961

F-275F-202  


December 2018 (Millions of Euros)

 

USD

Mexican

Pesos

Turkish Lira

Other Foreign

Currencies

Total Foreign

Currencies

Assets

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

15,184

6,869

476

5,547

28,076

Financial assets held for trading

3,133

15,500

366

3,614

22,614

Non- trading financial assets mandatorily at fair value through profit or loss

650

2,303

3

58

3,014

Financial assets at fair value through comprehensive income

16,566

4,704

3,031

2,931

27,232

Financial assets at amortized cost

101,366

47,550

28,094

34,075

211,085

Joint-ventures and associates

5

54

-

267

326

Tangible assets

670

1,964

1,007

850

4,490

Other assets

3,444

2,911

1,361

2,879

10,595

Total

141,019

81,856

34,336

50,221

307,433

 

 

 

 

 

 

Liabilities

-

-

-

-

-

Financial liabilities held for trading

2,372

13,626

360

1,507

17,864

Financial liabilities at amortized cost

136,307

48,169

20,878

37,342

242,696

Other liabilities

3,874

6,081

750

7,200

17,904

Total

142,552

67,876

21,987

46,049

278,464

This Appendix is an integral part of Notes 2.2.15 of the consolidated financial statements for the year ended December 31, 2020.

December 2017 (Millions of euros)

 

USD

Mexican

Pesos

Turkish Lira

Other Foreign

Currencies

Total Foreign

Currencies

Assets

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

17,111

4,699

827

4,264

26,902

Financial assets held for trading

2,085

14,961

484

4,583

22,113

Available-for-sale financial assets

14,218

8,051

4,904

3,010

30,183

Loans and receivables

93,069

39,717

32,808

34,488

200,081

Investments in entities accounted for using the equity method

5

124

-

147

276

Tangible assets

659

1,953

1,289

673

4,573

Other assets

7,309

5,041

4,426

18,662

35,438

Total

134,456

74,546

44,738

65,826

319,566

Liabilities

 

 

 

 

 

Financial liabilities held for trading

935

5,714

506

533

7,688

Financial liabilities at amortized cost

135,546

51,492

27,079

39,062

253,178

Other liabilities

3,907

8,720

1,039

16,593

30,259

Total

140,387

65,926

28,623

56,188

291,124

 

F-276


December 2016 (Millions of euros)

 

USD

Mexican

Pesos

Turkish Lira

Other Foreign

Currencies

Total Foreign

Currencies

Assets

 

 

 

 

 

Cash, cash balances at central banks and other demand deposits

15,436

4,947

426

4,547

25,357

Financial assets held for trading

5,048

15,541

732

2,695

24,016

Available-for-sale financial assets

18,525

9,458

4,889

5,658

38,530

Loans and receivables

109,167

41,344

34,425

46,629

231,565

Investments in entities accounted for using the equity method

5

135

-

106

247

Tangible assets

788

2,200

1,376

844

5,207

Other assets

4,482

5,214

5,219

4,358

19,273

Total

153,451

78,839

47,066

64,839

344,194

Liabilities

 

 

 

 

 

Financial liabilities held for trading

3,908

5,957

693

1,426

11,983

Financial liabilities at amortized cost

150,035

53,185

28,467

53,858

285,546

Other liabilities

1,812

8,774

1,418

1,957

123,961

Total

155,755

67,916

30,578

57,241

311,490

F-277F-203  


APPENDIX VIII.     Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012

a) Quantitative information on refinancing and restructuring operations

The breakdown of refinancing and restructuring operations as of December 31, 2018, 20172020, 2019 and 20162018 is as follows:

DECEMBER 2018 BALANCE OF FORBEARANCE

    (Millions of Euros)

DECEMBER 2020 BALANCE OF FORBEARANCE

    (Millions of Euros)

TOTAL

TOTAL

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

Maximum amount of secured loans that can be considered

 

 

 

Maximum amount of secured loans that can be considered

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

-

-

General Governments

75

111

46

64

52

-

15

67

77

69

62

45

-

15

Other financial corporations and individual entrepreneurs (financial business)

252

13

29,360

5

3

-

6

519

10

22

2

2

-

4

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

44,271

4,483

15,493

4,177

2,200

221

3,148

111.648

5,592

11.343

3,182

1,911

33

3,128

Of which: financing the construction and property (including land)

734

258

1,627

962

501

12

517

624

500

1,081

622

370

8

420

Rest homes (*)

193,061

1,326

355,466

6,990

5,083

150

1,716

Other households (*)

261,097

1,782

86,643

5,992

4,379

27

1,712

Total

237,659

5,933

400,365

11,236

7,338

371

4,885

373,331

7,460

98,077

9,239

6,337

60

4,859

 

 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

46

65

12

16

8

-

10

Other financial corporations and individual entrepreneurs (financial business)

133

4

29,320

4

2

-

5

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

25,420

2,723

9,922

2,777

1,192

100

2,773

Of which: financing the construction and property (including land)

631

200

1,145

656

254

1

477

Rest homes (*)

116,916

741

42,403

3,673

2,435

26

1,414

Total

142,515

3,533

81,657

6,470

3,636

126

4,202

F-204


 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

39

36

29

20

14

-

12

Other financial corporations and individual entrepreneurs (financial business)

283

5

11

1

1

-

3

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

67.588

3,470

6.880

1,939

916

21

2,727

Of which: financing the construction and property (including land)

469

216

674

408

197

8

311

Other households (*)

113,013

765

37,063

2,805

1,820

8

1,358

Total

180,923

4,274

43,983

4,765

2,750

30

4,100

(*)  Number of operations does not include Garanti Bank.BBVA.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €682 million of collective impairment losses and €4,202 million of specific impairment losses.

F-278F-205  


 

DECEMBER 2019 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

73

93

64

64

49

-

11

Other financial corporations and individual entrepreneurs (financial business)

387

8

62

4

3

-

6

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

68,121

5,085

18,283

3,646

1,810

178

3,252

Of which: financing the construction and property (including land)

1.131

400

1,314

688

393

32

428

Other households (*)

173,403

1,510

67,513

5,827

4,414

33

1,519

Total

241,984

6,696

85,922

9,541

6,276

211

4,788

 

DECEMBER 2017 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

69

105

135

430

112

302

18

Other financial corporations and individual entrepreneurs (financial business)

4,727

36

93

8

1

-

21

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

113,464

4,672

17,890

6,258

3,182

251

3,579

Of which: financing the construction and property (including land)

1,812

398

3,495

2,345

1,995

-

1,327

Rest homes (*)

163,101

1,325

109,776

8,477

6,891

18

1,373

Total

281,361

6,138

127,894

15,173

10,186

571

4,991

 

 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

50

72

45

29

22

-

16

Other financial corporations and individual entrepreneurs (financial business)

126

5

16

2

+

-

5

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

95,427

2,791

10,994

4,144

1,983

66

3,361

Of which: financing the construction and property (including land)

1,538

208

2,779

1,961

1,273

-

1,282

Rest homes (*)

105,468

747

47,612

4,330

3,270

6

1,231

Total

201,071

3,615

58,667

8,506

5,275

72

4,612

F-206


 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

45

41

30

21

16

-

7

Other financial corporations and individual entrepreneurs (financial business)

241

6

30

2

1

-

6

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

39.380

3,148

11.706

2,466

1,020

50

2,923

Of which: financing the construction and property (including land)

819

321

790

445

210

4

392

Other households (*)

96,429

758

34,463

2,908

2,096

17

1,229

Total

136,095

3,954

46,229

5,396

3,044

67

4,164

(*)  Number of operations does not include Garanti Bank.BBVA.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €378 million of collective impairment losses and €4,612 million of specific impairment losses.

F-279F-207  


 

DECEMBER 2018 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

75

111

46

64

52

-

15

Other financial corporations and individual entrepreneurs (financial business)

252

13

29.360

5

3

-

6

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

44.271

4,483

15,493

4,177

2,200

221

3,148

Of which: financing the construction and property (including land)

734

258

1,627

962

501

12

517

Other households (*)

193.061

1,326

355.466

6,990

5,083

150

1,716

Total

237.659

5,933

400,365

11,236

7,338

371

4,885

 

DECEMBER 2016 BALANCE OF FORBEARANCE

    (Millions of Euros)

 

TOTAL

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

24

8

112

711

98

584

6

Other financial corporations and individual entrepreneurs (financial business)

3,349

59

71

18

5

-

8

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

125,328

5,057

25,327

9,643

4,844

124

5,310

Of which: financing the construction and property (including land)

1,519

496

5,102

4,395

694

-

2,552

Rest homes (*)

116,961

1,550

103,868

9,243

7,628

18

1,474

Total

245,662

6,674

129,378

19,615

12,576

726

6,798

 

 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

12

8

53

33

27

-

4

Other financial corporations and individual entrepreneurs (financial business)

131

8

22

2

-

-

5

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

103,310

2,857

16,327

6,924

3,002

53

4,986

Of which: financing the construction and property (including land)

1,191

304

4,188

3,848

494

-

2,499

Rest homes (*)

72,199

672

47,767

4,366

3,271

3

1,285

Total

175,652

3,545

64,169

11,325

6,300

57

6,281

F-208


 

Of  which:  IMPAIRED

 

Unsecured loans

Secured loans

Accumulated impairment or accumulated losses in fair value due to credit risk

 

 

 

 

 

Maximum amount of secured loans that can be considered

 

Number of operations

Gross carrying amount

Number of operations

Gross carrying amount

Real estate mortgage secured

Rest of secured loans

Credit institutions

-

-

-

-

-

-

-

General Governments

46

65

12

16

8

-

10

Other financial corporations and individual entrepreneurs (financial business)

133

4

29.320

4

2

-

5

Non-financial corporations and individual entrepreneurs (corporate non-financial activities)

25.420

2,723

9,922

2,777

1,192

100

2,773

Of which: financing the construction and property (including land)

631

200

1,145

656

254

1

477

Other households (*)

116.916

741

42.403

3,673

2,435

26

1,414

Total

142.515

3,533

81,657

6,470

3,636

126

4,202

(*)  Number of operations does not include Garanti Bank.BBVA.

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €517 million of collective impairment losses and €6,281 million of specific impairment losses.

F-280F-209  


In addition to the restructuring and refinancing transactions mentioned in this section, loans that were not considered impaired or renegotiated have been modified based on the criteria set out in the accounting regulation that applies. These loans have not been classified as renegotiated or impaired, since they were modified for commercial or competitive reasons (for instance, to improve relationships with clients) rather than for economic or legal reasons relating to the borrower's financial situation.

The table below provides a roll forward of refinanced assets during 2018 and 2017:

Refinanced assets Roll forward. December 2018 (Millions of euros)

 

Stages 1&2

Stage 3

TOTAL

 

Risk

Coverage

Risk

Coverage

Risk

Coverage

Balance at the beginning

9,191

378

12,120

4,612

21,311

4,991

(+) Additions

1,599

397

1,417

767

3,017

1,164

(-) Decreases (payments or repayments)

(1,098)

(47)

(2,280)

(1,282)

(3,378)

(1,330)

(-) Foreclosures

 - 

 - 

(339)

(216)

(339)

(216)

(-) Write-offs

(2)

(1)

(857)

(606)

(859)

(607)

(+)/(-) Other

(2,524)

(45)

(58)

927

(2,582)

882

Ending Balance

7,166

682

10,003

4,202

17,169

4,885

Refinanced assets Roll forward. December 2017 (*) (Millions of euros)

 

Normal

Impaired

TOTAL

 

Risk

Coverage

Risk

Coverage

Risk

Coverage

Balance at the beginning

11,418

517

14,869

6,281

26,288

6,798

(+) Additions

3,095

182

1,614

599

4,709

781

(-) Decreases (payments or repayments)

(2,462)

(145)

(2,754)

(1,180)

(5,216)

(1,325)

(-) Foreclosures

(2)

-

(463)

(267)

(465)

(267)

(-) Write-offs

(63)

(2)

(1,667)

(1,413)

(1,730)

(1,415)

(+)/(-) Other

(2,795)

(174)

521

593

(2,275)

419

Ending Balance

9,191

378

12,120

4,612

21,311

4,991

(*)  Data presenting under the accounting regulation that applied in 2017.

The table below provides a breakdown by segments of the forbearance operations (net of provisions) as of December 31, 20182020, 2019 and 2017:2018:

Forbearance operations. Breakdown by segments (Millions of euros)

Forbearance operations. Breakdown by segments (Millions of Euros)

Forbearance operations. Breakdown by segments (Millions of Euros)

 

December 2018

December 2017

December 2016

December 2020

December 2019

December 2018

Credit institutions

-

-

-

-

Central governments

160

518

713

124

147

160

Other financial corporations and individual entrepreneurs (financial activity)

13

24

69

8

6

13

Non-financial corporations and individual entrepreneurs (non-financial activity)

5,512

7,351

9,390

5,645

5,479

5,512

Of which: Financing the construction and property development (including land)

702

1,416

2,339

701

660

702

Households

6,600

8,428

9,319

6,062

5,818

6,600

Total carrying amount

12,284

16,321

19,491

11,840

11,450

12,284

Financing classified as non-current assets and disposal groups held for sale

-

-

858

42

-

 

 

F-281F-210  


NPL ratio by type of renegotiated loan

The non performingnon-performing ratio of the renegotiated portfolio is defined as the impaired balance of renegotiated loans that shows signs of difficulties as of the closing of the reporting period, divided by the total payment outstanding in that portfolio.

As of December 31, 2018,2020 and December 31, 2019, the non performingnon-performing ratio for each of the portfolios of renegotiated loans is as follows:

December 2018.2020. NPL ratio renegotiated loan portfolio

 

Ratio of Impairedimpaired loans - Pastpast due

General governments

47%40%

Commercial

64%62%

Of which: Construction and developer

70%56%

Other consumer

53%46%

December 2017.2019. NPL ratio renegotiated loan portfolio

 

Ratio of Impairedimpaired loans - Pastpast due

General governments

19%39%

Commercial

63%64%

Of which: Construction and developer

79%70%

Other consumer

52%50%

 

F-282F-211  


b) Qualitative information on the concentration of risk by activity and guarantees

Loans and advances to customers by activity (carrying amount)

December 2018 (Millions OF Euros)

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

30,488

1,056

7,750

1,729

1,856

1,119

3,514

588

2 Other financial institutions

20,802

233

12,549

1,167

221

93

11,209

92

3 Non-financial institutions and individual entrepreneurs

173,493

29,001

32,371

25,211

11,121

9,793

5,087

10,160

3.1 Construction and property development

14,323

5,226

2,539

1,979

2,556

2,140

486

605

3.2 Construction of civil works

7,775

1,082

620

703

285

195

200

319

3.3 Other purposes

151,394

22,694

29,212

22,529

8,281

7,459

4,401

9,235

3.3.1 Large companies

97,132

9,912

19,069

13,918

3,979

4,019

2,245

4,820

3.3.2 SMEs (**) and individual entrepreneurs

54,262

12,782

10,143

8,611

4,302

3,440

2,156

4,416

4 Rest of households and NPISHs (***)

163,068

109,578

5,854

21,974

27,860

33,200

21,490

10,908

4.1 Housing

111,007

105,817

2,419

19,981

26,384

32,122

19,345

10,404

4.2 Consumption

40,124

522

2,600

489

587

306

1,597

142

4.3 Other purposes

11,938

3,239

835

1,505

888

772

547

362

6    TOTAL

387,850

139,868

58,524

50,082

41,058

44,206

41,300

21,747

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

12,284

8,325

523

1,508

1,421

1,769

1,527

2,623

December 2020 (Millions of Euros)

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

19,718

372

1,451

390

546

135

714

39

Other financial institutions and individual entrepreneurs

17,662

200

9,596

166

1,585

2,610

5,146

289

Non-financial institutions and individual entrepreneurs

143,693

23,686

4,082

8,294

7,162

4,467

3,200

4,646

Construction and property development

4,379

3,244

82

1,048

1,015

678

263

321

Construction of civil works

6,810

641

279

274

194

97

48

306

Other purposes

132,504

19,801

3,721

6,972

5,953

3,691

2,888

4,019

Large companies

79,595

6,648

1,920

2,561

1,811

1,242

1,012

1,943

SMEs (**) and individual entrepreneurs

52,909

13,154

1,801

4,411

4,142

2,449

1,877

2,076

Rest of households and NPISHs (***)

137,870

92,555

1,836

19,606

24,126

27,130

15,463

8,066

Housing

94,098

90,756

131

18,743

23,719

26,817

13,960

7,648

Consumption

39,442

418

1,521

246

190

139

1,245

118

Other purposes

4,331

1,381

184

617

216

174

257

301

TOTAL

318,943

116,813

16,966

28,456

33,419

34,343

24,522

13,039

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

11,840

7,271

74

1,350

1,408

1,587

1,165

1,834

(*)       The amounts included in this table are net of impairment losses.

(**)   Small and medium enterprises

(***)  Nonprofit institutions serving households.

(****) Net of provisions

F-283


December 2017 (Millions of euros)

 

 

 

 

Collateralized Credit Risk. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

32,294

998

7,167

1,540

179

475

532

5,440

2 Other financial institutions

18,669

319

12,910

314

277

106

11,349

1,183

3 Non-financial institutions and individual entrepreneurs

172,338

39,722

24,793

11,697

5,878

5,183

9,167

32,591

3.1 Construction and property development

14,599

10,664

1,066

1,518

876

1,049

1,313

6,974

3.2 Construction of civil works

7,733

1,404

521

449

358

289

162

667

3.3 Other purposes

150,006

27,654

23,206

9,729

4,644

3,845

7,692

24,950

3.3.1 Large companies

93,604

10,513

16,868

2,769

1,252

1,023

3,631

18,706

3.3.2 SMEs (**) and individual entrepreneurs

56,402

17,142

6,338

6,960

3,392

2,823

4,061

6,244

4 Rest of households and NPISHs (***)

165,024

114,558

8,395

19,762

22,807

25,595

22,122

32,667

4.1 Housing

114,709

111,604

128

18,251

22,222

25,029

21,154

25,076

4.2 Consumption

40,705

670

4,784

1,058

256

192

316

3,632

4.3 Other purposes

9,609

2,284

3,483

452

330

374

652

3,959

6    TOTAL

388,325

155,597

53,266

33,312

29,142

31,359

43,170

71,882

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

16,321

6,584

5,117

1,485

1,315

1,871

1,580

5,451

(*)    The amounts included in this table are net of impairment losses.loss allowances.

(**)       Small and medium enterprises.

(***)      Nonprofit institutions serving households.

(****)     Net of provisions.

F-284F-212  


December 2016 (Millions of euros)

 

 

 

 

Collateralized Credit Risk. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

34,820

4,722

3,700

380

715

1,266

2,740

3,320

2 Other financial institutions

17,181

800

8,168

650

464

319

6,846

690

3 Non-financial institutions and individual entrepreneurs

183,871

47,105

22,663

17,000

13,122

11,667

14,445

13,533

3.1 Construction and property development

19,283

12,888

1,736

3,074

4,173

3,843

2,217

1,316

3.2 Construction of civil works

8,884

1,920

478

508

547

469

379

494

3.3 Other purposes

155,704

32,297

20,449

13,417

8,402

7,356

11,850

11,722

3.3.1 Large companies

107,550

16,041

16,349

7,311

5,149

4,777

7,160

7,993

3.3.2 SMEs (**) and individual entrepreneurs

48,154

16,257

4,100

6,106

3,253

2,579

4,689

3,729

4 Rest of households and NPISHs (***)

178,781

129,590

5,257

21,906

24,764

34,434

34,254

19,489

4.1 Housing

127,606

124,427

477

18,802

23,120

32,713

32,148

18,122

4.2 Consumption

44,504

3,181

3,732

2,535

1,278

1,230

1,322

547

4.3 Other purposes

6,671

1,982

1,048

569

366

491

784

820

6    TOTAL

414,654

182,216

39,789

39,936

39,065

47,687

58,286

37,032

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

19,491

8,031

6,504

3,703

1,845

2,316

2,091

4,580

December 2019 (Millions of Euros)

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

29,257

1,067

10,886

4,914

1,510

1,077

3,651

801

 Other financial institutions and individual entrepreneurs

23,114

281

13,699

1,856

219

103

11,688

115

 Non-financial institutions and individual entrepreneurs

176,474

26,608

30,313

22,901

10,082

8,478

5,270

10,190

 Construction and property development

15,171

4,497

2,114

2,313

1,765

1,476

457

600

 Construction of civil works

7,146

756

468

499

248

152

106

219

 Other purposes

154,157

21,355

27,731

20,089

8,069

6,850

4,707

9,371

 Large companies

104,661

8,665

19,058

12,647

3,620

3,828

2,727

4,901

 SMEs (**) and individual entrepreneurs

49,496

12,690

8,673

7,442

4,449

3,022

1,980

4,470

Rest of households and NPISHs (***)

167,117

108,031

5,582

23,057

27,714

32,625

20,529

9,688

 Housing  

110,178

104,796

2,332

20,831

26,639

31,707

18,701

9,250

 Consumption  

46,356

507

2,075

450

316

174

1,502

140

 Other purposes

10,583

2,728

1,175

1,776

759

744

326

298

 TOTAL 

395,962

135,987

60,480

52,728

39,525

42,283

41,138

20,794

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

11,450

7,396

256

1,547

1,427

1,572

1,247

1,859

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)       Small and medium enterprises.

(***)      Nonprofit institutions serving households.

(****)     Net of provisions.

F-285F-213  


The information of the main geographic areas is as follows:

December 2018 (Millions Of Euros) BBVA, S.A.

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

17,828

390

572

68

209

94

575

15

2 Other financial institutions

16,079

103

11,161

70

19

4

11,159

12

3 Non-financial institutions and individual entrepreneurs

74,558

12,614

1,592

4,674

3,935

2,622

1,282

1,692

3.1 Construction and property development

2,206

2,069

22

544

705

493

199

150

3.2 Construction of civil works

4,877

991

70

327

247

178

63

246

3.3 Other purposes

67,475

9,554

1,500

3,803

2,984

1,952

1,019

1,296

3.3.1 Large companies

44,529

2,843

318

1,086

789

497

272

517

3.3.2 SMEs (**) and individual entrepreneurs

22,947

6,711

1,182

2,717

2,195

1,455

747

779

4 Rest of households and NPISHs (***)

94,129

79,755

413

15,476

19,737

22,511

13,128

9,315

4.1 Housing

79,054

77,061

136

14,623

18,946

21,768

12,803

9,056

4.2 Consumption

10,321

131

147

66

58

77

43

34

4.3 Other purposes

4,754

2,563

130

786

733

667

282

225

6    TOTAL

202,594

92,861

13,738

20,289

23,901

25,231

26,143

11,035

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

9,143

7,308

85

1,173

1,189

1,365

1,225

2,441

December 2018 (Millions of Euros)

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

 General governments

30,488

1,056

7,750

1,729

1,856

1,119

3,514

588

 Other financial institutions and individual entrepreneurs

20,802

233

12,549

1,167

221

93

11,209

92

Non-financial institutions and individual entrepreneurs

173,493

29,001

32,371

25,211

11,121

9,793

5,087

10,160

Construction and property development

14,323

5,226

2,539

1,979

2,556

2,140

486

605

 Construction of civil works

7,775

1,082

620

703

285

195

200

319

Other purposes

151,394

22,694

29,212

22,529

8,281

7,459

4,401

9,235

 Large companies

97,132

9,912

19,069

13,918

3,979

4,019

2,245

4,820

SMEs (**) and individual entrepreneurs

54,262

12,782

10,143

8,611

4,302

3,440

2,156

4,416

Rest of households and NPISHs (***)

163,068

109,578

5,854

21,974

27,860

33,200

21,490

10,908

Housing

111,007

105,817

2,419

19,981

26,384

32,122

19,345

10,404

Consumption

40,124

522

2,600

489

587

306

1,597

142

Other purposes

11,938

3,239

835

1,505

888

772

547

362

 TOTAL 

387,850

139,868

58,524

50,082

41,058

44,206

41,300

21,747

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

12,284

8,325

523

1,508

1,421

1,769

1,527

2,623

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)       Small and medium enterprises.

(***)      Nonprofit institutions serving households.

(****)     Net of provisions.

F-286F-214  


The information on the main geographic area is as follows:

December 2018 (Millions Of Euros) Bancomer

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

5,725

-

2,612

762

730

88

720

312

2 Other financial institutions

1,279

4

788

714

12

39

17

9

3 Non-financial institutions and individual entrepreneurs

22,608

85

17,107

12,662

833

878

815

2,004

3.1 Construction and property development

883

4

547

220

148

91

63

29

3.2 Construction of civil works

354

3

257

208

5

7

25

14

3.3 Other purposes

21,371

78

16,303

12,233

680

781

726

1,961

3.3.1 Large companies

11,762

0

9,918

8,294

265

571

311

476

3.3.2 SMEs (**) and individual entrepreneurs

9,609

78

6,385

3,939

415

209

415

1,485

4 Rest of households and NPISHs (***)

20,198

8,714

5

901

1,833

3,874

1,847

264

4.1 Housing

8,714

8,714

-

900

1,833

3,874

1,847

261

4.2 Consumption

10,897

-

-

-

-

-

-

-

4.3 Other purposes

587

-

5

2

0

0

0

3

6    TOTAL

49,810

8,804

20,511

15,038

3,409

4,880

3,399

2,589

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

486

236

148

128

51

82

89

34

December 2020 (Millions of Euros) BBVA, S.A.

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

13,621

318

500

75

176

50

511

6

Other financial institutions and individual entrepreneurs

13,650

162

9,301

34

1,418

2,600

5,138

274

Non-financial institutions and individual entrepreneurs

79,490

10,561

1,965

4,479

3,766

1,961

1,001

1,318

Construction and property development

2,007

1,831

18

789

628

290

90

52

Construction of civil works

4,575

586

264

258

189

88

41

274

Other purposes

72,907

8,144

1,682

3,431

2,950

1,583

870

992

Large companies

47,373

2,473

692

1,011

895

530

221

509

SMEs (**) and individual entrepreneurs

25,534

5,671

990

2,421

2,055

1,053

649

484

Rest of households and NPISHs (***)

90,376

74,201

372

16,173

19,714

21,424

10,489

6,773

Housing

75,166

73,087

112

15,859

19,433

21,181

10,260

6,466

Consumption

12,149

88

163

62

71

77

12

29

Other purposes

3,061

1,026

96

252

210

166

217

278

TOTAL

197,137

85,243

12,137

20,761

25,074

26,036

17,139

8,371

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

7,818

5,663

40

991

982

1,186

860

1,683

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)      Small and medium enterprises.enterprises

(***)    Nonprofit institutions serving households.

(****)   Net of provisions.

F-287F-215  


December 2018 (Millions Of Euros) Compass Bank

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

908

129

693

161

179

163

267

52

2 Other financial institutions

1,867

35

263

253

7

17

6

15

3 Non-financial institutions and individual entrepreneurs

27,998

5,277

11,827

5,035

4,185

3,563

1,337

2,984

3.1 Construction and property development

8,002

1,731

1,852

924

1,300

1,154

81

124

3.2 Construction of civil works

297

6

265

150

18

5

98

-

3.3 Other purposes

19,699

3,540

9,711

3,961

2,866

2,405

1,158

2,860

3.3.1 Large companies

16,293

2,790

8,074

3,317

2,331

1,876

903

2,438

3.3.2 SMEs (**) and individual entrepreneurs

3,406

750

1,637

645

536

529

255

422

4 Rest of households and NPISHs (***)

20,971

11,184

3,475

2,934

2,576

5,501

3,609

38

4.1 Housing

13,364

10,989

2,255

2,198

2,146

5,317

3,559

23

4.2 Consumption

4,051

0

664

169

337

124

31

3

4.3 Other purposes

3,556

195

555

566

93

60

19

12

6    TOTAL

51,744

16,625

16,259

8,384

6,947

9,244

5,219

3,090

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

625

241

237

55

97

213

109

5

December 2020 (Millions of Euros) BBVA Mexico

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

4,668

53

938

315

369

85

203

19

Other financial institutions and individual entrepreneurs

2,480

18

8

7

5

4

2

7

Non-financial institutions and individual entrepreneurs

21,609

5,459

539

2,087

1,492

933

768

718

Construction and property development

850

746

18

152

225

237

98

53

Construction of civil works

103

17

2

10

3

3

1

1

Other purposes

20,657

4,697

519

1,926

1,264

693

669

664

Large companies

11,611

1,469

190

652

425

160

130

292

SMEs (**) and individual entrepreneurs

9,045

3,228

329

1,273

839

533

539

372

Rest of households and NPISHs (***)

21,699

10,364

2

1,096

2,142

4,357

2,546

224

Housing

10,065

10,060

-

792

2,140

4,357

2,546

224

Consumption

11,320

-

2

-

2

-

-

-

Other purposes

313

304

-

304

-

-

-

-

TOTAL

50,456

15,894

1,487

3,505

4,008

5,379

3,519

969

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

817

669

-

72

96

244

192

64

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)     Small and medium enterprises.enterprises

(***)    Nonprofit institutions serving households.

(****)   Net of provisions.

F-288F-216  


December 2018 (Millions Of Euros) Garanti Bank

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

94

-

-

-

-

-

-

-

2 Other financial institutions

529

63

29

1

21

31

20

18

3 Non-financial institutions and individual entrepreneurs

24,485

5,812

427

1,724

1,381

1,901

521

712

3.1 Construction and property development

2,184

921

53

238

287

306

83

60

3.2 Construction of civil works

1,912

-

-

-

-

-

-

-

3.3 Other purposes

20,390

4,891

374

1,487

1,094

1,595

437

652

3.3.1 Large companies

10,900

2,261

102

877

293

735

182

275

3.3.2 SMEs (**) and individual entrepreneurs

9,490

2,630

272

610

800

860

255

377

4 Rest of households and NPISHs (***)

11,030

3,404

28

958

2,367

71

32

3

4.1 Housing

3,597

3,234

0

902

2,295

35

2

1

4.2 Consumption

7,151

62

26

35

38

13

1

1

4.3 Other purposes

281

107

2

20

34

24

29

1

6    TOTAL

36,138

9,279

483

2,683

3,769

2,003

573

733

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

1,372

149

1

0

0

56

65

29

December 2020 (Millions of Euros) Garanti BBVA

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

176

1

-

-

1

-

-

-

Other financial institutions and individual entrepreneurs

743

18

2

15

1

3

2

-

Non-financial institutions and individual entrepreneurs

21,559

4,162

466

847

1,453

1,140

454

734

Construction and property development

897

334

36

62

113

110

36

49

Construction of civil works

1,810

-

-

-

-

-

-

-

Other purposes

18,852

3,828

429

785

1,340

1,030

417

685

Large companies

10,345

1,447

109

401

375

425

100

254

SMEs (**) and individual entrepreneurs

8,506

2,380

321

384

965

604

317

431

Rest of households and NPISHs (***)

9,895

2,036

24

873

1,034

129

23

1

Housing

2,358

1,987

-

857

1,016

104

9

1

Consumption

7,335

31

24

13

15

21

7

-

Other purposes

202

18

-

4

3

4

7

-

TOTAL

32,372

6,217

492

1,734

2,489

1,271

478

735

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

1,911

417

2

121

174

73

23

27

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)     Small and medium enterprises.enterprises

(***)    Nonprofit institutions serving households.

(****)   Net of provisions.

F-289F-217  


December 2018 (Millions Of Euros) Other Entities

 

 

 

 

Collateralized loans and receivables -Loans and advances to customers. Loan to value

 

Total (*)

Of which: Mortgage loans

Of which: Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

1 General governments

5,932

538

3,873

738

737

774

1,952

209

2 Other financial institutions

1,048

28

307

129

161

3

7

36

3 Non-financial institutions and individual entrepreneurs

23,844

5,214

1,418

1,116

787

829

1,133

2,767

3.1 Construction and property development

1,049

500

65

53

115

96

60

242

3.2 Construction of civil works

336

82

29

18

15

5

13

59

3.3 Other purposes

22,459

4,632

1,324

1,045

658

727

1,060

2,466

3.3.1 Large companies

13,648

2,018

656

344

301

340

576

1,113

3.3.2 SMEs (**) and individual entrepreneurs

8,811

2,613

667

701

356

387

484

1,353

4 Rest of households and NPISHs (***)

16,740

6,521

1,934

1,705

1,346

1,242

2,874

1,287

4.1 Housing

6,277

5,818

28

1,357

1,165

1,128

1,134

1,062

4.2 Consumption

7,704

328

1,763

218

154

93

1,522

104

4.3 Other purposes

2,759

375

143

130

27

21

218

121

6    TOTAL

47,564

12,300

7,533

3,688

3,032

2,847

5,966

4,300

MEMORANDUM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

658

391

52

152

84

53

40

113

December 2020 (Millions of Euros) Other Entities

 

 

 

 

Loans to customers. Loan to value

 

Total (*)

Mortgage loans

Secured loans

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

General governments

1,253

-

14

-

-

-

-

14

Other financial institutions and individual entrepreneurs

789

2

285

110

162

3

4

7

Non-financial institutions and individual entrepreneurs

21,036

3,504

1,113

882

451

433

977

1,875

Construction and property development

625

333

10

46

50

41

40

167

Construction of civil works

322

38

12

6

2

6

5

31

Other purposes

20,089

3,133

1,091

830

399

386

932

1,677

Large companies

10,266

1,258

930

497

116

127

560

888

SMEs (**) and individual entrepreneurs

9,823

1,875

161

333

283

259

372

789

Rest of households and NPISHs (***)

15,900

5,954

1,438

1,464

1,236

1,220

2,405

1,068

Housing

6,507

5,622

19

1,235

1,130

1,175

1,145

957

Consumption

8,638

298

1,332

171

102

41

1,227

89

Other purposes

754

33

87

58

3

5

32

23

TOTAL

38,978

9,460

2,851

2,456

1,848

1,657

3,386

2,964

MEMORANDUM ITEM:

 

 

 

 

 

 

 

 

Forbearance operations (****)

1,293

522

32

166

156

84

90

60

(*)       The amounts included in this table are net of impairment losses.loss allowances.

(**)     Small and medium enterprises.enterprises

(***)    Nonprofit institutions serving households.

(****)   Net of provisions.

F-290F-218  


c) Information on the concentration of risk by activity and geographical areas.areas

December 2018 (Millions of euros)

December 2020 (Millions of Euros)

December 2020 (Millions of Euros)

TOTAL(*)

Spain

European Union Other

America

Other

TOTAL(*)

Spain

European Union Other

America

Other

Credit institutions

113,978

35,728

33,440

31,234

13,575

142,475

44,287

31,005

39,897

27,286

General governments

123,382

53,686

11,081

50,092

8,523

125,311

61,944

12,660

37,756

12,951

Central Administration

87,611

35,691

10,756

32,735

8,428

103,104

46,614

12,324

31,477

12,689

Other

35,771

17,995

325

17,357

95

22,207

15,330

336

6,279

262

Other financial institutions

49,166

13,784

17,977

15,345

2,061

48,434

14,727

11,773

15,640

6,294

Non-financial institutions and individual entrepreneurs

226,487

70,536

24,565

87,419

43,967

202,708

74,560

23,783

60,245

44,120

Construction and property development

17,697

3,497

244

10,113

3,843

8,182

3,384

202

1,899

2,697

Construction of civil works

11,430

5,789

1,535

1,762

2,343

10,385

5,275

1,349

1,183

2,578

Other purposes

197,361

61,250

22,786

75,543

37,781

184,141

65,901

22,232

57,163

38,845

Large companies

137,150

36,964

22,114

53,423

24,649

125,847

39,272

21,610

37,904

27,061

SMEs and individual entrepreneurs

60,211

24,286

672

22,120

13,132

58,294

26,629

622

19,259

11,784

Other households and NPISHs

163,443

91,977

3,383

56,777

11,306

138,544

88,633

2,882

36,690

10,339

Housing

111,007

78,414

765

28,034

3,794

94,098

73,383

1,747

16,262

2,706

Consumer

40,124

10,303

629

22,036

7,155

39,442

12,117

719

19,264

7,342

Other purposes

12,312

3,259

1,989

6,707

357

5,004

3,133

416

1,164

291

TOTAL

676,456

265,710

90,447

240,867

79,432

657,472

284,151

82,103

190,228

100,990

(*)  The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans“Loans and advances to credit institutions, Loansinstitutions”, “Loans and advances, Debt securities, Equity instruments, Otheradvances”, “Debt securities”, “Equity instruments”, “Other equity securities, Derivativessecurities”, “Derivatives and hedging derivatives, Investmentsderivatives”, “Investments in subsidiaries, joint ventures and associatesassociates” and guarantees“Guarantees given and Contingent risks.contingent risks”. The amounts included in this table are net of impairment lossesloss allowances

F-291F-219  


December 2017 (Millions of euros)

December 2019 (Millions of Euros)

December 2019 (Millions of Euros)

TOTAL(*)

Spain

European Union Other

America

Other

TOTAL (*)

Spain

European Union Other

America

Other

Credit institutions

70,141

10,606

34,623

13,490

11,422

108,728

23,045

40,204

31,717

13,762

General governments

121,863

55,391

11,940

44,191

10,341

134,915

56,464

9,861

57,174

11,416

Central Administration

83,673

35,597

11,625

26,211

10,240

96,639

39,573

9,505

36,287

11,274

Other

38,190

19,794

316

17,980

101

38,276

16,891

356

20,887

142

Other financial institutions

48,000

19,175

14,283

12,469

2,074

52,281

13,822

19,763

15,736

2,960

Non-financial institutions and individual entrepreneurs

228,227

78,507

20,485

80,777

48,458

231,964

70,753

25,932

92,178

43,101

Construction and property development

18,619

4,623

339

8,834

4,822

18,915

3,538

361

11,688

3,328

Construction of civil works

12,348

6,936

1,302

2,267

1,843

10,607

5,403

1,303

1,431

2,470

Other purposes

197,260

66,948

18,843

69,676

41,793

202,442

61,812

24,268

79,059

37,303

Large companies

134,454

43,286

17,470

48,016

25,681

147,573

37,393

23,279

61,838

25,063

SMEs and individual entrepreneurs

62,807

23,662

1,373

21,660

16,112

54,869

24,419

989

17,221

12,240

Other households and NPISHs

165,667

93,774

3,609

53,615

14,669

167,379

90,829

3,180

62,098

11,272

Housing

114,710

81,815

2,720

24,815

5,361

110,178

75,754

725

30,557

3,142

Consumer

40,705

8,711

649

22,759

8,587

46,358

11,954

675

25,897

7,832

Other purposes

10,251

3,248

241

6,041

721

10,843

3,121

1,780

5,644

298

TOTAL

633,899

257,453

84,940

204,542

86,964

695,267

254,913

98,940

258,903

82,511

(*)  The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans“Loans and advances to credit institutions, Loansinstitutions”, “Loans and advances, Debt securities, Equity instruments, Otheradvances”, “Debt securities”, “Equity instruments”, “Other equity securities, Derivativessecurities”, “Derivatives and hedging derivatives, Investmentsderivatives”, “Investments in subsidiaries, joint ventures and associatesassociates” and guarantees“Guarantees given and Contingent risks.contingent risks”. The amounts included in this table are net of impairment lossesloss allowances..  

F-292F-220  


December 2016 (Millions of euros)

December 2018 (Millions of Euros)

December 2018 (Millions of Euros)

TOTAL(*)

Spain

European Union Other

America

Other

TOTAL(*)

Spain

European Union Other

America

Other

Credit institutions

84,381

12,198

40,552

17,498

14,133

113,306

35,719

33,355

31,085

13,147

General governments

134,261

61,495

14,865

47,072

10,829

123,340

53,664

11,061

50,092

8,523

Central Administration

92,155

39,080

14,550

27,758

10,768

87,610

35,691

10,756

32,735

8,428

Other

42,105

22,415

315

19,314

61

35,730

17,973

305

17,357

95

Other financial institutions

47,029

16,942

14,881

12,631

2,576

48,931

13,776

17,887

15,335

1,933

Non-financial institutions and individual entrepreneurs

249,322

69,833

26,335

98,797

54,357

226,422

70,523

24,534

87,417

43,948

Construction and property development

23,141

5,572

371

11,988

5,209

17,697

3,497

244

10,113

3,843

Construction of civil works

14,185

6,180

2,493

3,803

1,709

11,429

5,789

1,535

1,762

2,343

Other purposes

211,996

58,080

23,471

83,005

47,439

197,296

61,237

22,755

75,542

37,762

Large companies

158,356

35,514

22,074

64,940

35,828

137,086

36,951

22,083

53,422

24,630

SMEs and individual entrepreneurs

53,640

22,566

1,397

18,065

11,611

60,210

24,286

672

22,120

13,132

Other households and NPISHs

179,051

96,345

3,796

62,836

16,073

163,442

91,976

3,383

56,777

11,306

Housing

127,607

85,763

3,025

32,775

6,044

111,007

78,414

765

28,034

3,794

Consumer

44,504

7,230

642

27,398

9,234

40,123

10,303

629

22,036

7,155

Other purposes

6,939

3,352

129

2,663

795

12,312

3,259

1,989

6,707

357

TOTAL

694,044

256,813

100,428

238,834

97,968

675,441

265,658

90,220

240,706

78,857

(*)  The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans“Loans and advances to credit institutions, Loansinstitutions”, “Loans and advances, Debt securities, Equity instruments, Otheradvances”, “Debt securities”, “Equity instruments”, “Other equity securities, Derivativessecurities”, “Derivatives and hedging derivatives, Investmentsderivatives”, “Investments in subsidiaries, joint ventures and associatesassociates” and guarantees“Guarantees given and Contingent risks.contingent risks”. The amounts included in this table are net of impairment lossesloss allowances.

This Appendix is an integral part of Note 7.2.7 of the consolidated financial statements for the year ended December 31, 2020.

 

F-293F-221  


APPENDIX IX. Additional information on Risk Concentrationrisk concentration

a)Sovereign risk exposure

The table below provides a breakdown of exposure to financial assets (excluding derivatives and equity instruments), as of December 31, 2018, 20172020, 2019 and 20162018 by type of counterparty and the country of residence of such counterparty. The below figures do not take into account accumulated other comprehensive income, impairment lossesloss allowances or loan-loss provisions:

Risk Exposure by Countries (Millions of euros)

Risk exposure by countries (Millions of Euros)

Risk exposure by countries (Millions of Euros)

Sovereign Risk

Sovereign risk

December 2018

December 2017

December 2016

December 2020

December 2019

December 2018

Spain

52,970

54,625

60,434

60,916

55,575

52,970

Italy

10,270

7,810

9,249

Turkey

7,998

9,825

10,478

7,578

7,999

7,998

Italy

9,249

9,827

12,206

France

122

383

518

Portugal

529

722

586

1,067

924

529

Germany

362

259

521

342

224

362

United Kingdom

51

41

17

Ireland

-

-

Greece

-

-

France

108

93

122

Netherlands

-

1

9

Romania

459

480

493

Rest of Europe

699

662

940

244

185

248

Subtotal Europe

71,981

76,343

85,699

80,984

73,291

71,981

Mexico

26,562

25,114

26,942

31,237

32,630

26,562

The United States

18,645

14,059

16,039

14,217

19,802

18,645

Colombia

1,466

1,828

2,577

Argentina

1,539

1,557

628

Peru

706

582

750

Venezuela

1

137

179

21

7

1

Rest of countries

4,910

5,809

3,814

5,559

3,726

955

Subtotal Rest of Countries

50,118

45,119

46,974

Total Exposure to Financial Instruments

122,099

121,462

132,674

Subtotal rest of countries

54,746

60,131

50,118

Total exposure to financial instruments

135,729

133,421

122,099

The exposure to sovereign risk set out in the above table includes positions held in government debt securities in countries where the Group operates. They are used for ALCO’s management of the interest-rate risk on the balance sheets of the Group’s entities in these countries, as well as for hedging of pension and insurance commitments by insurance entities within the BBVA Group.

F-294


Sovereign risk exposure in Europe

The table below provides a breakdown of the exposure of the Group’s credit institutions to European sovereign risk as of December 31, 2018 and 2017 2020 by type of financial instrument and the country of residence of the counterparty, under EBA (European Banking Authority) requirements:

Exposure to Sovereign Risk by European Union Countries. December 2018 (Millions of euros)

Exposure to Sovereign Risk by European Union Countries. December 2020 (Millions of Euros)

Exposure to Sovereign Risk by European Union Countries. December 2020 (Millions of Euros)

 

Debt securities

Loans and advances

Derivatives

Total

%

 

Debt securities

Loans and advances

Derivatives

Total

%

 

Direct exposure

Indirect exposure

 

Direct exposure

Indirect exposure

 

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

 

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

 

5,237

43,236

1,264

57

(15)

(3,224)

1,130

(1,117)

46,568

79%

 

33,689

12,712

419

19

(10)

(1,030)

37

(21)

45,814

41%

Italy

 

1,726

8,270

-

(795)

210

(298)

9,112

15%

 

7,612

112

-

(1,550)

15

(32)

6,155

6%

Portugal

 

(230)

130

-

(53)

211

3

(2)

59

0%

Germany

 

159

-

295

3

(1)

456

0%

France

 

591

77

-

150

1

(32)

787

1%

 

(747)

26

-

773

6

(3)

55

0%

Germany

 

310

334

-

182

74

(87)

813

1%

Portugal

 

265

430

277

57

(57)

67

37

(26)

1,050

2%

United Kingdom

 

-

45

-

45

0%

Greece

 

-

0%

Hungary

 

-

0%

Ireland

 

-

548

-

548

1%

Netherlands

 

-

0%

Romania

 

459

-

459

0%

Rest of European Union

 

300

31

-

(36)

3

(3)

295

0%

 

(573)

35

285

1

(5)

197

4

(1)

(57)

0%

Total Exposure to Sovereign Counterparties (European Union)

 

8,428

52,971

1,541

113

(71)

(3,656)

1,454

(1,563)

59,218

100%

 

40,369

13,014

704

20

(68)

(1,105)

67

(59)

52,942

48%

Mexico

 

19,215

4,671

2,798

3

(148)

(3)

-

26,535

24%

The United States

 

14,133

-

25

2

-

42

(42)

14,161

13%

Turkey

 

7,366

181

-

7,547

7%

Rest of other countries

 

6,974

2,161

-

11

-

416

40

(4)

9,597

9%

Total other countries

 

47,688

7,012

2,823

16

(148)

413

82

(46)

57,840

52%

Total

 

88,057

20,026

3,527

36

(216)

(693)

149

(104)

110,782

100%

F-222


This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of European countries of the Group’s insurance companies (€10,88310,917 million as of December 31, 2018)2020) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

Exposure to Sovereign Risk by European Union Countries. December 2017 (Millions of euros)

 

Debt securities

Loans and receivables

Derivatives

Total

%

 

Direct exposure

Indirect exposure

 

Financial Assets Held-for-Trading

Available-for-Sale Financial Assets

Held -to-maturity investment

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

7,065

14,029

5,754

22,101

1,513

62

(15)

591

1,082

(773)

51,410

75.3%

Italy

4,606

4,292

2,349

55

-

-

-

(57)

648

(237)

11,657

17.1%

France

622

8

-

27

-

-

-

329

15

(19)

983

1.4%

Germany

517

-

-

-

-

-

-

826

26

(17)

1,352

2.0%

Portugal

832

1

-

202

1,019

1

(44)

176

87

(53)

2,221

3.3%

United Kingdom

-

-

-

37

-

-

-

(2)

-

-

35

0.1%

Greece

-

-

-

-

-

-

-

-

-

-

-

-

Hungary

-

-

-

-

-

-

-

-

-

-

-

-

Ireland

-

-

-

-

-

-

-

-

-

-

-

-

Rest of European Union

38

505

-

32

-

-

-

31

5

(5)

607

0.9%

Total Exposure to Sovereign Counterparties (European Union)

13,681

18,835

8,103

22,453

2,533

64

(59)

1,896

1,863

(1,104)

68,265

100.0%

F-295


This table shows sovereign risk balances with EBA criteria. Therefore, sovereign riskAnnex forms an integral part of Note 7.2.8 of the Group’s insurance companies (€10,474 million as of December 31, 2017) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

Exposure to Sovereign Risk by European Union Countries. December 2016 (Millions of euros)

 

Debt securities

Loans and receivables

Derivatives (2)

Total

%

 

Direct exposure

Indirect exposure

 

Financial Assets Held-for-Trading

Available-for-Sale Financial Assets

Held -to-maturity investment

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

927

13,385

8,063

24,835

1,786

88

(27)

(744)

993

(1,569)

47,737

81.4%

Italy

1,973

4,806

2,719

60

-

-

-

(1,321)

1,271

(866)

8,641

14.7%

France

250

-

-

28

-

-

-

(13)

46

(63)

248

0.4%

Germany

82

-

-

-

-

-

-

(5)

203

(249)

30

0.1%

Portugal

54

1

-

285

1,150

-

(215)

10

1

(6)

1,280

2.2%

United Kingdom

-

-

-

16

-

-

-

(9)

1

-

8

0.0%

Greece

-

-

-

-

-

-

-

-

-

-

-

0.0%

Hungary

-

-

-

-

-

-

-

-

-

-

-

0.0%

Ireland

-

-

-

-

-

-

-

-

-

-

-

0.0%

Rest of European Union

195

469

-

36

-

-

-

30

13

(6)

736

1.3%

Total Exposure to Sovereign Counterparties (European Union)

3,482

18,660

10,783

25,259

2,936

88

(242)

(2,053)

2,527

(2,759)

58,680

100.0%

F-296


This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk ofconsolidated Annual Accounts for the Group’s insurance companies (€10,443 million as of December 31, 2016) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.year 2020.

As of December 31, 2018, 2017 and 2016 the breakdown of total exposure faced by the Group’s credit institutions to Spain and other countries, by maturity of the financial instruments, is as follows:

Maturities of Sovereign Risks European Union. December 2018 (Millions of euros)

 

 

Debt securities

Loans and advances

Derivatives

Total

%

 

 

Direct exposure

Indirect exposure

 

 

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

 

5,237

43,236

1,264

57

(15)

(3,224)

1,130

(1,117)

46,568

79%

Up to 1 Year

 

2,821

13,381

383

1

-

(3,224)

1,130

(1,117)

13,375

23%

1 to 5 Years

 

761

7,904

640

42

(8)

-

-

-

9,340

16%

Over 5 Years

 

1,654

21,950

242

13

(7)

-

-

-

23,853

40%

Rest of European Union

 

3,192

9,735

277

57

(57)

(431)

324

(446)

12,651

21%

Up to 1 Year

 

1,155

2,328

220

-

(5)

(865)

297

(355)

2,776

5%

1 to 5 Years

 

250

1,184

57

57

-

10

16

(24)

1,548

3%

Over 5 Years

 

1,787

6,224

-

-

(52)

423

12

(67)

8,327

14%

Total Exposure to European Union Sovereign Counterparties

 

8,428

52,971

1,541

113

(71)

(3,656)

1,454

(1,563)

59,218

100%

Maturities of Sovereign Risks European Union. December 2017 (Millions of euros)

 

Debt securities

Loans and receivables

Derivatives

Total

%

 

Direct exposure

Indirect exposure

 

Financial Assets Held-for-Trading

Available-for-Sale Financial Assets

Held -to-maturity investment

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

7,065

14,029

5,754

22,101

1,513

62

(15)

591

1,082

(773)

51,410

75%

Up to 1 Year

1,675

3,363

2,900

7,852

69

1

-

591

1,082

(773)

12,312

25%

1 to 5 Years

2,196

1,335

106

7,978

1,131

44

(1)

-

0

-

16,883

19%

Over 5 Years

3,195

9,332

2,747

6,271

314

17

(14)

-

-

-

22,215

32%

Rest of European Union

6,616

4,806

2,349

352

1,019

1

(44)

1,305

781

(331)

16,856

25%

Up to 1 Year

2,212

1,663

1,895

54

466

1

(6)

744

756

(252)

3,614

11%

1 to 5 Years

2,932

192

-

162

3

0

-

243

17

(21)

7,313

5%

Over 5 Years

1,473

2,951

454

137

550

-

(38)

318

8

(58)

5,928

8%

Total Exposure to European Union Sovereign Counterparties

13,681

18,835

8,103

22,453

2,533

64

(59)

1,896

1,863

(1,104)

68,265

100%

F-297


Maturities of Sovereign Risks European Union. December 2016 (Millions of euros)

 

Debt securities

Loans and receivables

Derivatives

Total

%

 

Direct exposure

Indirect exposure

 

Financial Assets Held-for-Trading

Available-for-Sale Financial Assets

Held -to-maturity investment

Notional value

Fair value +

Fair value -

Notional value

Fair value +

Fair value -

Spain

927

13,385

8,063

24,835

1,786

88

(27)

(744)

993

(1,569)

47,737

81%

Up to 1 Year

913

889

1,989

9,087

-

-

-

(736)

993

(1,564)

11,571

20%

1 to 5 Years

1,272

3,116

3,319

7,059

1,209

32

(1)

(3)

-

-

16,004

27%

Over 5 Years

(1,259)

9,380

2,755

4,595

577

56

(27)

(6)

-

(4)

16,068

27%

Rest of European Union

2,554

5,275

2,719

424

1,150

-

(215)

(1,309)

1,534

(1,191)

10,943

19%

Up to 1 Year

(395)

38

-

2

-

-

-

(1,721)

1,507

(1,054)

(1,623)

-3%

1 to 5 Years

1,535

2,050

1,958

247

381

-

(12)

194

19

(50)

6,322

11%

Over 5 Years

1,414

3,186

761

175

770

-

(203)

218

8

(86)

6,243

11%

Total Exposure to European Union Sovereign Counterparties

3,482

18,660

10,783

25,259

2,936

88

(242)

(2,053)

2,527

(2,759)

58,680

100%

F-298


b)Concentration of risk on activities in the real-estate market in Spain

Quantitative information on activities in the real-estate market in Spain

The following quantitative information on real-estate activities in Spain has been prepared using the reporting models required by Bank of Spain Circular 5/2011, of November 30.

As of December 31, 2018, 2017 and 2016, exposure to the construction sector and real-estate activities in Spain stood at €11,045, €11,981 and €15,285 million, respectively. Of that amount, risk from loans to construction and real-estate development activities accounted for €3,183, €5,224 and €7,930 million, respectively, representing 1.7%, 2.9% and 5.0% of loans and advances to customers of the balance of business in Spain (excluding the general governments) and 0.5%, 0.8% and 1.1% of the total assets of the Consolidated Group.

Lending for real estate development of the loans as of December 31, 2018, 20172020, 2019 and 20162018 is shown below:

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)

December 2020. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase (Millions of Euros)

December 2020. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase (Millions of Euros)

Gross Amount

Drawn Over the Guarantee Value

Accumulated impairment

Gross amount

Drawn over the guarantee value

Accumulated impairment

Financing to construction and real estate development (including land) (Business in Spain)

3,183

941

(537)

2,565

650

(281)

Of which: Impaired assets

875

440

(463)

473

213

(230)

Memorandum item:

 

 

 

Write-offs

2,619

 

2,288

 

Memorandum item:

 

 

 

Total loans and advances to customers, excluding the General Governments (Business in Spain)

183,196

 

Total consolidated assets (total business)

676,689

 

Total loans and advances to customers, excluding the General Governments (Business in Spain) (book value)

162,600

 

Total consolidated assets (total business) (book value)

736,176

 

Impairment and provisions for normal exposures

4,938

 

(4,909)

 

 

December 2017. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)

December 2019. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase (Millions of Euros)

December 2019. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase (Millions of Euros)

Gross Amount

Drawn Over the Guarantee Value

Accumulated impairment

Gross amount

Drawn over the guarantee value

Accumulated impairment

Financing to construction and real estate development (including land) (Business in Spain)

5,224

2,132

(1,500)

2,649

688

(286)

Of which: Impaired assets

2,660

1,529

(1,461)

567

271

(252)

Memorandum item:

 

 

 

 

Write-offs

2,289

 

2,265

 

 

Memorandum item:

 

 

 

 

Total loans and advances to customers, excluding the General Governments (Business in Spain)

174,014

 

Total consolidated assets (total business)

690,059

 

Total loans and advances to customers, excluding the General Governments (Business in Spain) (book value)

185,893

 

 

Total consolidated assets (total business) (book value)

697,737

 

 

Impairment and provisions for normal exposures

(5,843)

 

(4,934)

 

 

 

December 2016. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of Euros)

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of Euros)

Gross Amount

Drawn Over the Guarantee Value

Accumulated impairment

Gross amount

Drawn over the guarantee value

Accumulated impairment

Financing to construction and real estate development (including land) (Business in Spain)

7,930

3,449

(2,944)

3,183

941

(537)

Of which: Impaired assets

5,095

2,680

(2,888)

875

440

(463)

Memorandum item:

 

 

 

Write-offs

2,061

 

2,619

 

Memorandum item:

 

 

 

Total loans and advances to customers, excluding the General Governments (Business in Spain)

159,492

 

Total consolidated assets (total business)

731,856

 

Total loans and advances to customers, excluding the General Governments (Business in Spain) (book Value)

183,196

 

Total consolidated assets (total business) (book value)

675,675

 

Impairment and provisions for normal exposures

(5,830)

 

(4,938)

 

F-299F-223  


The following is a description of the real estate credit risk based on the types of associated guarantees:

Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase (Millions of euros)

Financing allocated by credit institutions to construction and real estate development and lending for house purchase (Millions of Euros)

Financing allocated by credit institutions to construction and real estate development and lending for house purchase (Millions of Euros)

2018

2017

2016

2020

2019

2018

Without secured loan

324

552

801

372

298

324

With secured loan

2,859

4,672

7,129

2,193

2,351

2,859

Terminated buildings

1,861

2,904

3,875

1,307

1,461

1,861

Homes

1,382

2,027

2,954

991

1,088

1,382

Other

479

877

921

316

373

479

Buildings under construction

432

462

760

614

545

432

Homes

408

439

633

430

348

408

Other

24

23

127

184

197

24

Land

566

1,306

2,494

272

345

566

Urbanized land

364

704

1,196

143

240

364

Rest of land

202

602

1,298

129

105

202

Total

3,183

5,224

7,930

2,565

2,649

3,183

As of December 31, 2020, 2019 and 2018, 201751.0%, 55.2% and 2016, 58.5%, 55.6%, and 48.9% of loans to developers were guaranteed with buildings (74.3%(75.8%, 69.8%74.5% and 76.2%,74.3% are homes), and only 17.8%10.6%, 25.0%13.0%, and 31.5%17.8% by land, of which 64.3%52.6%, 53.9%69.6% and 48.0%64.3% are in urban locations, respectively.

The table below provides the breakdown of the financial guarantees given as of December 31, 2018, 2017December 31, 2020, 2019 and 2016:2018:

Financial guarantees given (Millions of euros)

 

December 2018

December 2017

December 2016

Houses purchase loans

48

64

62

Without mortgage

24

12

18

F-300


Financial guarantees given (Millions of Euros)

 

2020

2019

2018

Houses purchase loans

58

44

48

Without mortgage

5

5

24

The information on the retail mortgage portfolio risk (housing mortgage) as of December 31, 2018, 2017December 31, 2020, 2019 and 20162018 is as follows:

December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)

Gross amount

Of which: impaired loans

Houses purchase loans

80,159

3,852

Without mortgage

1,611

30

With mortgage

78,548

3,822

December 2020. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of euros)

 

Gross amount

Of which: impaired loans

Houses purchase loans

74,689

2,841

Without mortgage

1,693

20

With mortgage

72,996

2,821

 

December 2017. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)

Gross amount

Of which: impaired loans

Houses purchase loans

83,505

4,821

Without mortgage

1,578

51

With mortgage

81,927

4,770

December 2019. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of Euros)

 

Gross amount

Of which: impaired loans

Houses purchase loans

76,961

2,943

Without mortgage

1,672

22

With mortgage

75,289

2,921

 

December 2016. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros)

December 2018. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of Euros)

 

Gross amount

Of which: impaired loans

Houses purchase loans

80,159

3,852

Without mortgage

1,611

30

With mortgage

78,548

3,822

F-224


Gross amount

Of which: impaired loans

Houses purchase loans

87,874

4,938

Without mortgage

1,935

93

With mortgage

85,939

4,845

The loan to value (LTV) ratio of the above portfolio is as follows:

LTV Breakdown of mortgage to households for the purchase of a home (Business in Spain) (Millions of euros)"

 

Total risk over the amount of the last valuation available (Loan To Value-LTV)

 

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

Total

Gross amount 2018

14,491

18,822

21,657

13,070

10,508

78,548

of which: Impaired loans

204

323

507

610

2,178

3,822

Gross amount 2017

14,485

18,197

20,778

14,240

14,227

81,927

of which: Impaired loans

293

444

715

897

2,421

4,770

Gross amount 2016

13,780

18,223

20,705

15,967

17,264

85,939

of which: Impaired loans

306

447

747

962

2,383

4,845

LTV breakdown of mortgage to households for the purchase of a home (business in Spain) (Millions of Euros)

 

Total risk over the amount of the last valuation available (Loan to value-LTV)

 

Less than or equal to 40%

Over 40% but less than or equal to 60%

Over 60% but less than or equal to 80%

Over 80% but less than or equal to 100%

Over 100%

Total

Gross amount 2020

15,197

18,891

20,716

10,624

7,568

72,996

Of which: Impaired loans

170

294

426

470

1,461

2,821

Gross amount 2019

15,105

19,453

20,424

11,827

8,480

75,289

Of which: Impaired loans

182

313

506

544

1,376

2,921

Gross amount 2018

14,491

18,822

21,657

13,070

10,508

78,548

Of which: Impaired loans

204

323

507

610

2,178

3,822

Outstanding home mortgage loans as of December 31, 2018, 20172020, 2019 and 20162018 had an average LTV of 49%, 51%,46% 47% and 47%49% respectively.

The breakdown of foreclosed, acquired, purchased or exchanged assets from debt from loans relating to business in Spain, as well as the holdings and financing to non-consolidated entities holding such assets is as follows:

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

 

 

 

 

 

December 2020

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

913

(486)

(234)

427

Terminated buildings

363

(144)

(60)

219

Homes

212

(75)

(33)

137

Other

151

(69)

(27)

82

Buildings under construction

30

(21)

(10)

9

Homes

29

(20)

(10)

9

Other

1

(1)

-

-

Land

520

(321)

(164)

199

Urbanized land

485

(303)

(150)

182

Rest of land

35

(18)

(14)

17

Real estate assets from mortgage financing for households for the purchase of a home

1,128

(593)

(163)

535

Rest of foreclosed real estate assets

481

(259)

(48)

222

Equity instruments, investments and financing to non-consolidated companies holding said assets

1,310

(450)

(412)

860

Total

3,832

(1,788)

(857)

2,044

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

 

December 2019

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

1,048

(555)

(266)

493

Terminated buildings

378

(150)

(58)

228

Homes

221

(81)

(33)

140

Other

157

(69)

(25)

88

Buildings under construction

79

(44)

(24)

35

Homes

78

(43)

(24)

35

Other

1

(1)

-

-

Land

591

(361)

(184)

230

Urbanized land

547

(338)

(167)

209

Rest of land

44

(23)

(17)

21

Real estate assets from mortgage financing for households for the purchase of a home

1,192

(612)

(153)

580

Rest of foreclosed real estate assets

451

(233)

(37)

218

Equity instruments, investments and financing to non-consolidated companies holding said assets

1,380

(293)

(255)

1,087

Total

4,071

(1,693)

(711)

2,378

F-301F-225  


 

Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

Information about assets received in payment of debts (Business in Spain) (Millions of Euros)

December 2018

December 2018

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying Amount

Gross

value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

2,165

1,252

828

913

2,165

(1,252)

(828)

913

Terminated buildings

991

445

274

546

Finished buildings

991

(445)

(274)

546

Homes

588

245

144

343

588

(245)

(144)

343

Other

403

200

130

203

403

(200)

(130)

203

Buildings under construction

209

131

96

78

209

(131)

(96)

78

Homes

194

117

85

77

194

(117)

(85)

77

Other

15

14

11

1

15

(14)

(11)

1

Land

965

676

458

289

965

(676)

(458)

289

Urbanized land

892

633

421

259

892

(633)

(421)

259

Rest of land

73

43

37

30

73

(43)

(37)

30

Real estate assets from mortgage financing for households for the purchase of a home

1,797

932

331

865

1,797

(932)

(331)

865

Rest of foreclosed real estate assets

348

192

40

156

348

(192)

(40)

156

Equity instruments, investments and financing to non-consolidated companies holding said assets

1,345

234

234

1,111

Foreclosed equity instruments

1,345

(234)

(234)

1,111

Total

5,655

2,610

1,433

3,045

5,655

(2,610)

(1,433)

3,045

Additionally, in December 2018, there was an increase of BBVA, S.A.’s stake in Garanti Yatirim Ortakligi AS through its contribution to the capital increase carried out by the latter entity.

Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)

 

December 2017

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

6,429

4,350

2,542

2,079

Terminated buildings

2,191

1,184

606

1,007

Homes

1,368

742

366

626

Other

823

442

240

381

Buildings under construction

541

359

192

182

Homes

521

347

188

174

Other

20

12

4

8

Land

3,697

2,807

1,744

890

Urbanized land

1,932

1,458

1,031

474

Rest of land

1,765

1,349

713

416

Real estate assets from mortgage financing for households for the purchase of a home

3,592

2,104

953

1,488

Rest of foreclosed real estate assets

1,665

905

268

760

Equity instruments, investments and financing to non-consolidated companies holding said assets

1,135

325

273

810

Total

12,821

7,684

4,036

5,137

Additionally, in March 2017, there was an increase of BBVA, S.A.’s stake in Testa Residencial through its contribution to the capital increase carried out by the latter entity by contributing assets from the Bank’s real estate assets.

F-302


Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros)

 

December 2016

 

Gross

Value

Provisions

Of which: Valuation adjustments on impaired assets, from the time of foreclosure

Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.

8,017

5,290

2,790

2,727

Finished buildings

2,602

1,346

688

1,256

Homes

1,586

801

408

785

Other

1,016

545

280

471

Buildings under construction

665

429

203

236

Homes

642

414

195

228

Other

23

15

8

8

Land

4,750

3,515

1,899

1,235

Urbanized land

3,240

2,382

1,364

858

Rest of land

1,510

1,133

535

377

Real estate assets from mortgage financing for households for the purchase of a home

4,332

2,588

1,069

1,744

Rest of foreclosed real estate assets

1,856

1,006

225

850

Foreclosed equity instruments

1,240

549

451

691

Total

15,445

9,433

4,535

6,012

As of December 31, 2018, 20172020, 2019 and 2016,2018, the gross book value of the Group’s real-estate assets from corporate financing of real-estate construction and development was €2,165, €6,429€913, €1,048 and €8,017€2,165 million, respectively, with an average coverage ratio of 57.8%53.2%, 67.7%53.0%, and 66.0%,57.8% respectively.

The gross book value of real-estate assets from mortgage lending to households for home purchase as of December 31, 2018, 20172020, 2019 and 2016,2018, amounted to €1,797, €3,592€1,128, €1,192 and €4,332€1,797 million, respectively, with an average coverage ratio of 51.9%52.6%, 58.6%51.3%, and 59.7%51.9%.

As of December 31, 2018, 20172020, 2019 and 2016,2018, the gross book value of the BBVA Group’s total real-estate assets (business in Spain), including other real-estate assets received as debt payment, was €4,310, €11,686€2,522, €2,691 and €14,205€4,310 million, respectively. The coverage ratio was 55.1%53.1%, 63.0%52.0% and 62.5%55.1%, respectively.

This Appendix is an integral part of Note 7 of the consolidated financial statements for the year ended December 31, 2020.

F-303F-226  


c)Concentration of risk by geography

Below is a breakdown of the balances of financial instruments recordedregistered in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. ItAs of December 31, 2020, 2019 and 2018 it does not take into account impairment lossesloss allowances or loan-loss provisions:

Risks by Geographical Areas. December 2018 (millions of euros)

Risks by geographical areas. December 2020 (Millions of Euros)

Risks by geographical areas. December 2020 (Millions of Euros)

Spain

Europe, Excluding Spain

Mexico

USA

Turkey

South America

Other

Total

Spain

Europe, excluding Spain

Mexico

The United States

Turkey

South America

Other

Total

Derivatives

3,979

16,055

1,550

7,057

161

1,150

583

30,536

8,419

17,811

2,292

8,350

349

2,162

800

40,183

Equity instruments (*)

3,228

3,669

2,459

1,139

29

212

207

10,944

2,196

9,627

3,197

925

65

260

420

16,690

Debt securities

43,777

14,908

23,134

16,991

8,048

5,274

1,312

113,445

56,552

18,932

29,392

5,097

7,466

5,907

6,287

129,632

Central banks

-

-

-

1,982

71

2,052

-

-

2,535

100

2,635

General governments

36,553

10,675

20,891

13,276

7,887

2,431

164

91,877

48,765

12,320

26,567

2,412

7,449

2,547

4,641

104,701

Credit institutions

1,130

1,821

573

74

155

297

463

4,514

1,680

2,383

1,542

214

14

205

681

6,718

Other financial corporations

5,769

1,048

227

2,595

5

432

114

10,190

5,466

1,804

404

897

2

439

163

9,175

Non-financial corporations

325

1,364

1,443

1,046

1

132

500

4,812

641

2,426

879

1,574

-

180

702

6,402

Loans and advances

177,077

43,034

55,248

62,193

45,285

40,007

7,089

429,933

168,849

53,038

57,787

8,335

40,373

39,081

9,996

377,459

Central banks

294

-

3,688

342

1,674

6,110

1,301

37

235

204

3,408

1,060

37

6,282

General governments

16,671

329

5,727

5,369

99

1,923

453

30,572

12,712

328

4,671

-

181

1,401

732

20,026

Credit institutions

5,422

13,600

1,476

696

956

984

639

23,774

644

25,273

2,888

1,477

217

830

3,794

35,122

Other financial corporations

4,616

10,893

1,303

2,255

766

637

304

20,773

3,742

11,024

2,489

946

1,165

756

723

20,845

Non-financial corporations

51,942

14,317

22,426

32,480

26,813

18,518

3,852

170,349

55,314

13,078

22,878

5,670

23,963

18,215

4,573

143,691

Households

98,131

3,783

24,316

21,393

12,963

17,602

168

178,355

95,136

3,298

24,626

38

11,439

16,819

137

151,493

Total Risk in Financial Assets

228,061

77,666

82,392

87,381

53,523

46,644

9,191

584,858

Total risk in financial assets

236,016

99,408

92,667

22,706

48,253

47,410

17,503

563,964

Loan commitments given

32,582

21,983

14,503

32,136

7,914

8,590

1,252

118,959

35,096

32,327

15,748

33,644

7,691

6,530

1,548

132,584

Financial guarantees given

3,242

1,708

1,528

796

6,900

989

1,291

16,454

850

3,302

24

714

4,415

1,013

348

10,665

Other Commitments given

15,995

9,229

532

2,118

2,230

2,782

2,213

35,098

Other commitments given

15,474

8,224

1,618

1,922

3,403

2,883

2,666

36,190

Off-balance sheet exposures

51,819

32,920

16,563

35,050

17,043

12,360

4,756

170,511

51,419

43,853

17,391

36,280

15,508

10,425

4,563

179,440

 

 

 

 

-

-

Total Risks in Financial Instruments

279,880

110,586

98,955

122,430

70,567

59,004

13,947

755,369

Total risks in financial instruments

287,436

143,261

110,058

58,986

63,761

57,836

22,065

743,404

(*)          Equity instruments are shown net of valuation adjustment.

F-227


Risks by geographical areas. December 2019 (Millions of Euros)

 

Spain

Europe, excluding Spain

Mexico

The United States

Turkey

South America

Other

Total

Derivatives

5,241

16,603

1,328

6,354

189

1,788

729

32,232

Equity instruments (*)

3,745

6,184

3,829

1,311

55

268

247

15,639

Debt securities

48,806

13,283

28,053

17,733

7,934

5,383

4,210

125,403

Central banks

-

-

-

-

-

1,785

70

1,855

General governments

41,510

9,403

25,852

14,465

7,921

2,732

2,846

104,728

Credit institutions

1,237

1,672

658

150

9

263

611

4,600

Other financial corporations

5,643

1,001

317

2,085

3

433

136

9,619

Non-financial corporations

416

1,207

1,226

1,034

1

170

548

4,602

Loans and advances

171,668

52,027

63,505

65,044

45,874

40,787

9,264

448,166

Central banks

14

-

-

-

3,647

684

475

4,820

General governments

14,477

394

6,820

5,342

111

1,536

637

29,316

Credit institutions

6,621

20,544

2,050

648

1,996

1,012

2,112

34,982

Other financial corporations

3,103

13,351

1,611

2,313

1,248

704

752

23,082

Non-financial corporations

50,718

14,215

24,823

34,960

26,099

17,963

5,130

173,907

Households

96,735

3,523

28,201

21,781

12,773

18,888

158

182,059

Total risk in financial assets

229,460

88,097

96,715

90,442

54,052

48,226

14,450

621,440

Loan commitments given

33,146

26,687

17,361

35,185

8,665

8,060

1,819

130,923

Financial guarantees given

3,182

1,605

656

754

3,170

911

705

10,984

Other commitments given

16,204

9,125

1,534

2,075

5,065

2,808

2,397

39,209

Off-balance sheet exposures

52,532

37,417

19,551

38,014

16,900

11,779

4,922

181,116

 

 

 

 

 

 

 

 

 

Total risks in financial instruments

281,992

125,514

116,266

128,456

70,952

60,005

19,372

802,556

(*)         Equity instruments are shown net of valuation adjustment.

F-304F-228  


Risks by Geographical Areas. December 2017 (Millions of euros)

Risks by geographical areas. December 2018 (Millions of Euros)

Risks by geographical areas. December 2018 (Millions of Euros)

Spain

Europe, Excluding Spain

Mexico

USA

Turkey

South America

Other

Total

Spain

Europe, excluding Spain

Mexico

The United States

Turkey

South America

Other

Total

Derivatives

6,336

20,506

1,847

4,573

113

977

921

35,273

3,927

15,277

1,473

6,993

161

1,142

549

29,522

Equity instruments (*)

3,539

4,888

2,050

991

36

333

71

11,908

3,228

3,669

2,459

1,139

29

212

207

10,944

Debt securities

44,773

15,582

21,594

13,280

10,601

5,861

1,450

113,141

43,777

14,908

23,134

16,991

8,048

5,274

1,312

113,445

Central banks

49

-

2,734

-

2,685

-

5,468

-

-

-

1,982

71

2,052

General governments

36,658

11,475

19,323

8,894

9,668

2,246

221

88,485

36,553

10,675

20,891

13,276

7,887

2,431

164

91,877

Credit institutions

1,364

2,095

289

98

884

387

752

5,869

1,130

1,821

573

74

155

297

463

4,514

Other financial corporations

6,492

994

337

3,026

7

315

194

11,365

5,769

1,048

227

2,595

5

432

114

10,190

Non-financial corporations

259

1,018

1,645

1,262

42

228

234

4,688

325

1,364

1,443

1,046

1

132

500

4,812

Loans and advances

185,597

41,426

50,352

54,315

56,062

42,334

4,585

434,670

177,077

43,034

55,248

62,193

45,285

40,007

7,089

429,933

Central banks

-

626

-

5,299

1,375

-

7,300

294

112

-

3,688

342

1,674

6,110

General governments

18,116

352

5,868

5,165

152

2,354

398

32,405

16,671

329

5,727

5,369

99

1,923

453

30,572

Credit institutions

5,564

15,493

1,889

789

1,073

1,145

345

26,297

5,422

13,600

1,476

696

956

984

639

23,774

Other financial corporations

7,769

6,231

588

1,732

1,297

664

270

18,551

4,616

10,893

1,303

2,255

766

637

304

20,773

Non-financial corporations

54,369

14,615

19,737

29,396

31,691

19,023

3,345

172,175

51,942

14,317

22,426

32,480

26,813

18,518

3,852

170,349

Households

99,780

4,110

22,269

17,233

16,550

17,773

227

177,942

98,131

3,783

24,316

21,393

12,963

17,602

168

178,355

Total Risk in Financial Assets

240,245

82,401

75,842

73,159

66,812

49,504

7,027

594,990

Total risk in financial assets

228,009

76,888

82,314

87,316

53,523

46,635

9,157

583,844

Loan commitments given

31,100

16,203

1,691

29,539

2,944

11,664

1,126

94,268

32,582

21,983

14,503

32,136

7,914

8,590

1,252

118,959

Financial guarantees given

4,635

1,427

82

717

7,993

1,174

519

16,546

3,242

1,708

1,528

796

6,900

989

1,291

16,454

Other Commitments given

25,279

9,854

1,582

1,879

1,591

3,750

1,804

45,738

Other commitments given

15,995

9,229

532

2,118

2,230

2,782

2,213

35,098

Off-balance sheet exposures

61,014

27,484

3,356

32,134

12,527

16,588

3,450

156,552

51,819

32,920

16,563

35,050

17,043

12,360

4,756

170,511

 

 

 

 

 

 

Total Risks in Financial Instruments

301,259

109,885

79,198

105,293

79,339

66,092

10,477

751,542

Total risks in financial instruments

279,828

109,808

98,877

122,366

70,566

58,995

13,913

754,355

(*)         Equity instruments are shown net of valuation adjustment.

F-305


Risks by Geographical Areas. December 2016 (Millions of euros)

 

Spain

Europe, Excluding Spain

Mexico

USA

Turkey

South America

Other

Total

Derivatives

7,143

26,176

2,719

4,045

175

1,359

1,339

42,955

Equity instruments (*)

4,641

2,303

2,383

831

57

316

706

11,236

Debt securities

49,355

20,325

22,380

18,043

11,695

7,262

1,923

130,983

Central banks

-

-

-

-

-

2,237

16

2,253

General governments

40,172

14,282

19,771

11,446

10,258

2,257

240

98,426

Credit institutions

1,781

2,465

257

112

1,331

1,459

869

8,275

Other financial corporations

6,959

1,181

352

4,142

15

347

379

13,376

Non-financial corporations

443

2,397

2,000

2,343

90

961

418

8,653

Loans and advances

187,717

45,075

52,230

61,739

61,090

58,020

5,067

470,938

Central banks

-

158

21

-

5,722

2,994

-

8,894

General governments

20,741

424

7,262

4,593

217

1,380

256

34,873

Credit institutions

5,225

19,154

1,967

1,351

1,194

1,515

1,011

31,416

Other financial corporations

5,339

6,213

1,171

1,648

1,620

886

214

17,091

Non-financial corporations

54,112

14,818

19,256

34,330

34,471

26,024

3,371

186,384

Households

102,299

4,308

22,552

19,818

17,866

25,221

216

192,281

Total Risk in Financial Assets

248,856

93,880

79,712

84,657

73,016

66,956

9,036

656,112

Loan commitments given

31,477

19,219

13,060

34,449

2,912

5,161

976

107,254

Financial guarantees given

1,853

3,504

121

819

9,184

2,072

714

18,267

Other Commitments given

16,610

14,154

1,364

2,911

2,002

3,779

1,771

42,592

Off-balance sheet exposures

49,940

36,878

14,545

38,179

14,098

11,012

3,461

168,113

 

 

 

 

 

 

 

 

 

Total Risks in Financial Instruments

298,796

130,757

94,257

122,836

87,114

77,968

12,497

824,225

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix VII.

F-306


The breakdown of loans and advances in the heading of Loans“Loans and receivables,advances”, impaired by geographical area as of December 31, 2018, 20172020, 2019 and 20162018 is as follows:

Impaired Financial Assets by geographic area (Millions of euros)

Impaired financial assets by geographic area (Millions of Euros)

Impaired financial assets by geographic area (Millions of Euros)

December 2018

December 2017

December 2016

2020

2019

2018

Spain

10,025

13,318

16,812

8,199

8,616

10,025

Rest of Europe

225

549

704

118

175

225

Mexico

1,138

1,124

1,152

1,767

1,478

1,138

South America

1,715

1,468

1,589

1,703

1,769

1,715

The United States

733

631

975

-

632

733

Turkey

2,520

2,311

1,693

2,889

3,289

2,520

Rest of the world

2

-

-

2

2

IMPAIRED RISKS

16,359

19,401

22,925

14,678

15,959

16,359

This Appendix is an integral part of Note 7.2.8 of the consolidated financial statements for the year ended December 31, 2020.

F-307F-229  


Glossary

Additional Tier 1 Capital

Includes: Preferred stock and convertible perpetual securities and deductions.

Adjusted acquisition cost

The acquisition cost of the securities less accumulated amortizations, plus interest accrued, but not net of any other valuation adjustments.

Amortized cost

The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus, the cumulative amortization using the effective interest rate method of any difference between the initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.

Associates

Companies in which the Group has a significant influence, without having control. Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly.

Available-for-sale financial assets

Available-for-sale (AFS) financial assets are debt securities that are not classified as held-to-maturity investments or as financial assets designated at fair value through profit or loss (FVTPL) and equity instruments that are not subsidiaries, associates or jointly controlled entities and have not been designated as at FVTPL. The AFS category belongs to IAS 39 standard, replaced by “Financial Assets at fair value through other comprehensive income” under IFRS 9.

Baseline macroeconomic scenarios

IFRS 9 requires that an entity must evaluate a range of possible outcomes when estimating provisions and measuring expected credit losses, through macroeconomic scenarios. The baseline macroeconomic scenario presents the situation of the particular economic cycle.

Basic earnings per share

Calculated by dividing “Profit attributable to Parent Company” corresponding to ordinary shareholders of the entity by the weighted average number of shares outstanding throughout the year (i.e., excluding the average number of treasury shares held over the year).

Basis risk

Risk arising from hedging exposure to one interest rate with exposure to a rate that reprices under slightly different conditions.

Business combination

A business combination is a transaction, or any other event, through which a single entity obtains the control of one or more businesses.

Business Model

The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). Financial assets are classified on the basis of its business model for managing the financial assets. The Group’s business models shall be determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective and generate cash flows.

Cash flow hedges

Those that hedge the exposure to variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.

Commissions

Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:


·
Fees and commissions relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected.


·
Fees and commissions arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services.


·
Fees and commissions generated by a single act are accrued upon execution of that act.

F-308F-230  


Consolidated statements of cash flows

The indirect method has been used for the preparation of the consolidated statement of cash flows. This method starts from the entity’s consolidated profit and adjusts its amount for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with cash flows classified as investment or finance. As well as cash, short-term, highly liquid investments subject to a low risk of changes in value, such as cash and deposits in central banks, are classified as cash and equivalents.


When preparing these financial statements the following definitions have been used:

·Cash flows: Inflows and outflows of cash and equivalents.

·Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investment or financing activities.

·Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents or in operating activities.

·Financing activities: Activities that result in changes in the size and composition of the Group’s equity and of liabilities that do not form part of operating activities.

Consolidated statements of changes in equity

The consolidated statements of changes in equity reflect all the movements generated in each year in each of the headings of the consolidated equity, including those from transactions undertaken with shareholders when they act as such, and those due to changes in accounting criteria or corrections of errors, if any.

The applicable regulations establish that certain categories of assets and liabilities are recognized at their fair value with a charge to equity. These charges, known as “Valuation adjustments” (see Note 31), are included in the Group’s total consolidated equity net of tax effect, which has been recognized as deferred tax assets or liabilities, as appropriate.

Consolidated statements of recognized income and expenses

The consolidated statements of recognized income and expenses reflect the income and expenses generated each year. Such statement distinguishes between income and expenses recognized in the consolidated income statements and “Other recognized income (expenses)” recognized directly in consolidated equity. “Other recognized income (expenses)” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item.


The sum of the changes to the heading “Other comprehensive income ”income” of the consolidated total equity and the consolidated profit for the year comprise the “Total recognized income/expenses of the year”.

Consolidation method

Method used for the consolidation of the accounts of the Group’s subsidiaries. The assets and liabilities of the Group entities are incorporated line-by-line on the consolidate balance sheets, after conciliation and the elimination in full of intragroup balances, including amounts payable and receivable.


Group entity income statement income and expense headings are similarly combined line by line into the consolidated income statement, having made the following consolidation eliminations:


a)
income and expenses in respect of intragroup transactions are eliminated in full.

b)profits and losses resulting from intragroup transactions are similarly eliminated.

The carrying amount of the parent's investment and the parent's share of equity in each subsidiary are eliminated.

Contingencies

Current obligations of the entity arising as a result of past events whose existence depends on the occurrence or non-occurrence of one or more future events independent of the will of the entity.

Contingent 

commitments

Possible obligations of the entity that arise from past events and whose existence depends on the occurrence or non-occurrence of one or more future events independent of the entity’s will and that could lead to the recognition of financial assets.

F-309F-231  


Control

An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An investor controls an investee if and only if the investor has all the following:


a)
Power; An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns.


b)
Returns; An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative.


c)
Link between power and returns; An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.

Correlation risk

Correlation risk is related to derivatives whose final value depends on the performance of more than one underlying asset (primarily, stock baskets) and indicates the existing variability in the correlations between each pair of assets.

Countercyclical Capital Buffer (CCyB)

The countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counter pro-cyclicality in the financial system. Capital should be accumulated when cyclical systemic risk is judged to be increasing, creating buffers that increase the resilience of the banking sector during periods of stress when losses materialize. This will help maintain the supply of credit and dampen the downswing of the financial cycle. The CCyB can also help dampen excessive credit growth during the upswing of the financial cycle

CRR (Capital Requirements Regulation)

Solvency regulation on prudential requirements of credit institutions and investment firms (EU Regulation 575/2013).

Credit Valuation Adjustment (CVA)

An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties.

Current service cost

Current service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the current period.

Current tax assets

Taxes recoverable over the next twelve months.

Current tax liabilities

Corporate income tax payable on taxable profit for the year and other taxes payable in the next twelve months.

Debit Valuation Adjustment (DVA)

An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s own credit risk.

Debt certificates

Obligations and other interest-bearing securities that create or evidence a debt on the part of their issuer, including debt securities issued for trading among an open group of investors, that accrue interest, implied or explicit, whose rate, fixed or benchmarked to other rates, is established contractually, and take the form of securities or book-entries, irrespective of the issuer.

Default

An asset will be considered as defaulted whenever it is more than 90 days past due.

Deferred tax assets

Taxes recoverable in future years, including loss carry forwards or tax credits for deductions and tax rebates pending application.

Deferred tax liabilities

Income taxes payable in subsequent years.

F-232


Defined benefit plans

Post-employment obligation under which the entity, directly or indirectly via the plan, retains the contractual or implicit obligation to pay remuneration directly to employees when required or to pay additional amounts if the insurer, or other entity required to pay, does not cover all the benefits relating to the services rendered by the employees when insurance policies do not cover all of the corresponding post-employees benefits.

Defined contribution plans

Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon. The employer's obligations in respect of its employees current and prior years' employment service are discharged by contributions to the fund.

F-310


Deposits from central banks

Deposits of all classes, including loans and money market operations, received from the Bank of Spain and other central banks.

Deposits from credit institutions

Deposits of all classes, including loans and money market operations received, from credit entities.

Deposits from customers

Redeemable cash balances received by the entity, with the exception of debt certificates, money market operations through counterparties and subordinated liabilities, which are not received from either central banks or credit entities. This category also includes cash deposits and consignments received that can be readily withdrawn.

Derivatives

The fair value in favor (assets) or again (liabilities) of the entity of derivatives not designated as accounting hedges.

Derivatives - Hedging derivatives

Derivatives designated as hedging instruments in an accounting hedge. The fair value or future cash flows of those derivatives is expected to offset the differences in the fair value or cash flows of the items hedged.

Diluted earnings per share

Calculated by using a method similar to that used to calculate basic earnings per share; the weighted average number of shares outstanding, and the profit attributable to the parent company corresponding to ordinary shareholders of the entity, if appropriate, is adjusted to take into account the potential dilutive effect of certain financial instruments that could generate the issue of new Bank shares (share option commitments with employees, warrants on parent company shares, convertible debt instruments, etc.).

Dividends and retributions

Dividend income collected announced during the year, corresponding to profits generated by investees after the acquisition of the stake.

Domestic activity

Domestic balances are those of BBVA´s Group entities domiciled in Spain, which reflect BBVA´s domestic activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for.

Early retirements

Employees that no longer render their services to the entity but which, without being legally retired, remain entitled to make economic claims on the entity until they formally retire.

Economic capital

Methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities.

Effective interest rate (EIR)

Discount rate that exactly equals the value of a financial instrument with the cash flows estimated over the expected life of the instrument based on its contractual period as well as its anticipated amortization, but without taking the future losses of credit risk into consideration.

F-233


Employee expenses

All compensation accrued during the year in respect of personnel on the payroll, under permanent or temporary contracts, irrespective of their jobs or functions, irrespective of the concept, including the current costs of servicing pension plans, own share based compensation schemes and capitalized personnel expenses. Amounts reimbursed by the state Social Security or other welfare entities in respect of employee illness are deducted from personnel expenses.

Equity

The residual interest in an entity's assets after deducting its liabilities. It includes owner or venturer contributions to the entity, at incorporation and subsequently, unless they meet the definition of liabilities, and accumulated net profits or losses, fair value adjustments affecting equity and, if warranted, non-controlling interests.

Equity instruments

An equity instrument that evidences a residual interest in the assets of an entity, that is after deducting all of its liabilities.

Equity instruments issued other than capital

Includes equity instruments that are financial instruments other than “Capital” and “Equity component of compound financial instruments”.

Equity Method

Is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.

F-311


Exchange/translation differences

Exchange differences (P&L): Includes the earnings obtained in currency trading and the differences arising on translating monetary items denominated in foreign currency to the functional currency. Exchange differences (valuation adjustments): those recorded due to the translation of the financial statements in foreign currency to the functional currency of the Group and others recorded against equity.

Expected Credit Loss (ECL)

Expected credit losses are a probability-weighted estimate of credit losses over the expected life of the financial instrument. Hence, credit losses are the present value of expected cash shortfalls. The measurement and estimate of these expected credit losses should reflect:

 

1. An unbiased and probability-weighted amount.

2. The time value of money by discounting this amount to the reporting date using a rate that approximates the EIR of the asset, and

3. Reasonable and supportable information that is available without undue cost or effort.

 

The expected credit losses must be measured as the difference between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate or an approximation thereof (forward looking).

Exposure at default

EAD is the amount of risk exposure at the date of default by the counterparty.

Fair value

The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.

Fair value hedges

Derivatives that hedge the exposure to changes in the fair value of assets and liabilities or firm commitments that have not be recognized, or of an identified portion of said assets, liabilities or firm commitments, attributable to a specific risk, provided it could affect the income statement.

Financial Assets at Amortized Cost

Financial assets that do not meet the definition of financial assets designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity.

F-234


Financial Assets at fair value through other comprehensive income

Financial instruments with determined or determinable cash flows and in which the entire payment made by the entity will be recovered, except for reasons attributable to the solvency of the debtor. This category includes both the investments from the typical lending activity as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors.

Financial guarantees

Contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs when a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of deposits, technical or financial guarantees, insurance contracts or credit derivatives.

Financial guarantees given

Transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts.

Financial instrument

A financial instrument is any contract that gives rise to a financial asset of one entity and to a financial liability or equity instrument of another entity.

Financial liabilities at amortized cost

Financial liabilities that do not meet the definition of financial liabilities designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity.

Foreign activity

International balances are those of BBVA´s Group entities domiciled outside of Spain, which reflect our foreign activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for.

Goodwill

Goodwill acquired in a business combination represents a payment made by the acquirer in anticipation of future economic benefits from assets that are not able to be individually identified and separately recognized.

F-312


Gross income

Sum of net interest income, dividend income, share of profit or loss entities accounted for using the equity method, net fee and commission income, net gains and losses on financial assets and liabilities, net exchange differences and net other operating income.

Hedges of net investments in foreign operations

Foreign currency hedge of a net investment in a foreign operation.

Held for trading (assets and liabilities)

Financial assets and liabilities acquired or incurred primarily for the purpose of profiting from variations in their prices in the short term.


This category also includes financial derivatives not qualifying for hedge accounting, and in the case of borrowed securities, financial liabilities originated by the firm sale of financial assets acquired under repurchase agreements or received on loan (“short positions”).

Held-to-maturity investments

Held-to-maturity investments are financial assets traded on an active market, with fixed maturity and fixed or determinable payments and cash flows that an entity has the positive intention and financial ability to hold to maturity. The Held-to-maturity category belongs to IAS 39 standard, replaced by IFRS 9.

Impaired financial assets

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

a)      significant financial difficulty of the issuer or the borrower,

b)      a breach of contract (e.g. a default or past due event),

c)      a lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider,

d)      it becoming probable that the borrower will enter bankruptcy or other financial reorganization,

e)      the disappearance of an active market for that financial asset because of financial difficulties, or

f)       the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

Income from equity instruments

Dividends and income on equity instruments collected or announced during the year corresponding to profits generated by investees after the ownership interest is acquired. Income is recognized gross, i.e., without deducting any withholdings made, if any.

Insurance contracts linked to pensions

The fair value of insurance contracts written to cover pension commitments.

F-235


Inventories

Assets, other than financial instruments, under production, construction or development, held for sale during the normal course of business, or to be consumed in the production process or during the rendering of services. Inventories include land and other properties held for sale at the real estate development business.

Investment properties

Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for own use or sale in the ordinary course of business.

Joint arrangement

An arrangement of which two or more parties have joint control.

Joint control

The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.

F-313


Joint operation

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets of the arrangement and obligations for the liabilities. A joint venturer shall recognize the following for its participation in a joint operation:

a)      its assets, including any share of the assets of joint ownership;

b)      its liabilities, including any share of the liabilities incurred jointly;

c)      income from the sale of its share of production from the joint venture;

d)      its share of the proceeds from the sale of production from the joint venturer; and

e)      its expenses, including any share of the joint expenses.


A joint venturer shall account for the assets, liabilities, income and expenses related to its participation in a joint operation in accordance with IFRS applicable to the assets, liabilities, income and expenses specific question.


Joint venture

A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.

Leases

A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time, a stream of cash flows that is essentially equivalent to the combination of principal and interest payments under a loan agreement.


a)
A lease is classified as a finance lease when it substantially transfers all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract.

b)A lease will be classified as operating lease when it is not a financial lease.

Lease liability

Lease that represents the lessee’s obligation to make lease payments during the lease term.

Liabilities included in disposal groups classified as held for sale

The balance of liabilities directly associated with assets classified as non-current assets held for sale, including those recognized under liabilities in the entity's balance sheet at the balance sheet date corresponding to discontinued operations.

Liabilities under insurance contracts

The technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at period-end.

F-236


Loans and advances to customers

Loans and receivables, irrespective of their type, granted to third parties that are not credit entities.

Loans and receivablesLoan-to-Value ratio (LtV ratio)

Financial instruments with determined or determinable cash flows and in whichThe ratio of the entire payment made by the entity will be recovered, except for reasons attributableamount borrowed to the solvencyappraised value or market value of the debtor. This category includes both the investments from the typical lending activity (amounts of cash available and pending maturity by customers as a loan or deposits lentunderlying collateral, usually taken into consideration in relation to other entities, and unlisted debt certificates), as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors. The Loans and receivables category belongs to IAS 39 standard, replaced by “Financial Assets at Amortized Cost” under IFRS 9.loans for real estate financing.

Loss given default (LGD)

It is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.

Mortgage-covered bonds

Financial asset or security created from mortgage loans and backed by the guarantee of the mortgage loan portfolio of the entity.

Net operating incomeMREL (Minimum Required Elegible Liabilities)

Gross income less administrative costsMinimum requirement of own funds and amortization.eligible liabilities. New requirement faced by European banks, which aims to create a buffer of solvency that absorbs the losses of a financial entity in the event of resolution without jeopardizing taxpayers' money. The level of this buffer is determined individually for each banking group based on their level of risk and other particular characteristics.

Non performing financial guarantees given

The balance of non performing risks, whether for reasons of default by customers or for other reasons, for financial guarantees given. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.

F-314


Non Performing Loans (NPL)

The balance of non performing risks, whether for reasons of default by customers or for other reasons, for exposures on balance loans to customers. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.

Non-controlling interests

The net amount of the profit or loss and net assets of a subsidiary attributable to associates outside the group (that is, the amount that is not owned, directly or indirectly, by the parent), including that amount in the corresponding part of the consolidated earnings for the period.

Non-current assets and disposal groups held for sale

A non-current asset or disposal group, whose carrying amount is expected to be realized through a sale transaction, rather than through continuing use, and which meets the following requirements:

a)      it is immediately available for sale in its present condition at the balance sheet date, i.e. only normal procedures are required for the sale of the asset.

b)      the sale is considered highly probable.

Non-monetary assets

Assets and liabilities that do not provide any right to receive or deliver a determined or determinable amount of monetary units, such as tangible and intangible assets, goodwill and ordinary shares subordinate to all other classes of capital instruments.

Option risk

Risks arising from options, including embedded options.

F-237


Other financial assets/liabilities at fair value through profit or loss

Instruments designated by the entity from the inception at fair value with changes in profit or loss.


An entity may only designate a financial instrument at fair value through profit or loss, if doing so more relevant information is obtained, because:

a)      It eliminates or significantly reduces a measurement or recognition inconsistency (sometimes called "accounting mismatch") that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. It might be acceptable to designate only some of a number of similar financial assets or financial liabilities if doing so a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency is achieved.

b)      The performance of a group of financial assets or financial liabilities is managed and evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity´s key management personnel.

These are financial assets managed jointly with “Liabilities under insurance and reinsurance contracts” measured at fair value, in combination with derivatives written with a view to significantly mitigating exposure to changes in these contracts' fair value, or in combination with financial liabilities and derivatives designed to significantly reduce global exposure to interest rate risk.

These headings include customer loans and deposits effected via so-called unit-linked life insurance contracts, in which the policyholder assumes the investment risk.

Other Reserves

This heading is broken down as follows:



i)
Reserves or accumulated losses of investments in subsidiaries, joint ventures and associate: include the accumulated amount of income and expenses generated by the aforementioned investments through profit or loss in past years.


ii)
Other: includes reserves different from those separately disclosed in other items and may include legal reserve and statutory reserve.

Other retributions to employees long term

Includes the amount of compensation plans to employeesemployee’s long term.

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Own/treasury shares

The amount of own equity instruments held by the entity.

Past service cost

It is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits.

Post-employment benefits

Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service.

Probability of default (PD)

It is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.

Property, plant and equipment/tangible assets

Buildings, land, fixtures, vehicles, computer equipment and other facilities owned by the entity or acquired under finance leases.

Provisions

Provisions include amounts recognized to cover the Group’s current obligations arising as a result of past events, certain in terms of nature but uncertain in terms of amount and/or cancellation date.

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Provisions for contingent liabilities and commitments

Provisions recorded to cover exposures arising as a result of transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts, and provisions for contingent commitments, i.e., irrevocable commitments which may arise upon recognition of financial assets.

Provisions for pensions and similar obligation

Constitutes all provisions recognized to cover retirement benefits, including commitments assumed vis-à-vis beneficiaries of early retirement and analogous schemes.

Provisions or (-) reversal of provisions

Provisions recognized during the year, net of recoveries on amounts provisioned in prior years, with the exception of provisions for pensions and contributions to pension funds which constitute current or interest expense.

Refinanced Operation

An operation which is totally or partially brought up to date with its payments as a result of a refinancing operation made by the entity itself or by another company in its group.

Refinancing Operation

An operation which, irrespective of the holder or guarantees involved, is granted or used for financial or legal reasons related to current or foreseeable financial difficulties that the holder(s) may have in settling one or more operations granted by the entity itself or by other companies in its group to the holder(s) or to another company or companies of its group, or through which such operations are totally or partially brought up to date with their payments, in order to enable the holders of the settled or refinanced operations to pay off their loans (principal and interest) because they are unable, or are expected to be unable, to meet the conditions in a timely and appropriate manner.

Renegotiated Operation

An operation whose financial conditions are modified when the borrower is not experiencing financial difficulties, and is not expected to experience them in the future, i.e. the conditions are modified for reasons other than restructuring. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.

Repricing risk

Risks related to the timing mismatch in the maturity and repricing of assets and liabilities and off-balance sheet short and long-term positions.

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Restructured Operation

An operation whose financial conditions are modified for economic or legal reasons related to the holder's (or holders') current or foreseeable financial difficulties, in order to enable payment of the loan (principal and interest), because the holder is unable, or is expected to be unable, to meet those conditions in a timely and appropriate manner, even if such modification is provided for in the contract. In any event, the following are considered restructured operations: operations in which a haircut is made or assets are received in order to reduce the loan, or in which their conditions are modified in order to extend their maturity, change the amortization table in order to reduce the amount of the installments in the short term or reduce their frequency, or to establish or extend the grace period for the principal, the interest or both; except when it can be proved that the conditions are modified for reasons other than the financial difficulties of the holders and, are similar to those applied on the market on the modification date for operations granted to customers with a similar risk profile. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.

Retained earnings

Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution.

Right of use asset

Asset that represents the lessee’s right to use an underlying asset during the lease term.

Risk-Weighted Assets (RWA’s)

Risk exposure of the entity weighted by a percentage derived from the applicable standard (standardized approach) or internal models

Securitization fund

A fund that is configured as a separate equity and administered by a management company. An entity that would like funding sells certain assets to the securitization fund, which, in turn, issues securities backed by said assets.

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Share premium

The amount paid in by owners for issued equity at a premium to the shares' nominal value.

Shareholders' funds

Contributions by stockholders, accumulated earnings recognized in the income statement and the equity components of compound financial instruments.

Short positions

Financial liabilities arising as a result of the final sale of financial assets acquired under repurchase agreements or received on loan.

Significant increase in credit risk

In order to determine whether there has been a significant increase in credit risk for lifetime expected losses recognition, the Group has develop a two-prong approach:

a)      Quantitative criterion: based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios.

b)      Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so quantitative analysis covers the majority of circumstances. The Group will use additional qualitative criteria when it considers it necessary to include circumstances that are not reflected in the rating/score systems or macroeconomic scenarios used.

Significant influence

Is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. If an entity holds, directly or indirectly (i.e. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (i.e. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence.

The existence of significant influence by an entity is usually evidenced in one or more of the following ways:

a)        representation on the board of directors or equivalent governing body of the investee;

b)        participation in policy-making processes, including participation in decisions about dividends or other distributions;

c)        material transactions between the entity and its investee;

d)        interchange of managerial personnel; or

e)        provision Provision of essential technical information.

Single Resolution Board (SRB)

The Single Resolution Board (SRB) is the new European Banking Union's resolution authority. It is a key element of the Banking Union and its Single Resolution Mechanism. Its mission is to ensure the orderly resolution of failing banks, with as little impact as possible on the real economy and public finances of the participating EU countries and others.

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Solely Payments of Principle and Interest (SPPI)

The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). To determine whether a financial asset shall be classified as measured at amortized cost or FVOCI, a

Group assesses (apart from the business model) whether the cash flows from the financial asset represent, on specified dates, solely payments of principal and interest on the principal amount outstanding (SPPI).

Stages

IFRS 9 classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized - without significant increase in credit risk (Stage 1); the second comprises the operations for which a significant increase in credit risk has been identified since its initial recognition - significant increase in credit risk (Stage 2) and the third one, the impaired operations Impaired (Stage 3).

The transfer logic is defined in a symmetrical way, whenever the condition that

triggered a transfer to Stage 2 is no longer met, the exposure will be transferred to

Stage 1. In the case of forbearances transferred to stage 2, as long as the loan is flagged as forbearance it will keep its status as Stage 2. However, when the loan is not flagged as forbearance it will be transferred back to Stage 1.

Structured credit products

Special financial instrument backed by other instruments building a subordination structure.

Structured Entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes:

a)restricted activities.

b)a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors yand passing on risks and rewards associated with the assets of the structured entity to investors.

c)insufficient equity to permit the structured entity to finance its activities without subordinated financial support.

d)financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

Subordinated liabilities

Financing received, regardless of its instrumentation, which ranks after the common creditors in the event of a liquidation.

Subsidiaries

Companies over which the Group exercises control. An entity is presumed to have control over another when it possesses the right to oversee its financial and operational policies, through a legal, statutory or contractual procedure, in order to obtain benefits from its economic activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one half of an entity's voting power, unless, exceptionally, it can be clearly demonstrated that ownership of more than one half of an entity's voting rights does not constitute control of it. Control also exists when the parent owns half or less of the voting power of an entity when there is:

a)      an agreement that gives the parent the right to control the votes of other shareholders;

b)      power to govern the financial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body;

c)      power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

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Tangible book value

Tangible Book Value represents the tangible equity's value for the shareholders as it does not include the intangible assets and the minority interests (non-controlling interests).

It is calculated by discounting intangible assets, that is, goodwill and the rest of consolidated intangibles recorded under the public balance sheet (goodwill and intangible assets of companies accounted for by the equity method or companies classified as non-current assets for sale are not subtracted). It is also shown as ex-dividends

Tax liabilities

All tax related liabilities except for provisions for taxes.

Territorial bonds

Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity.

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Tier 1 Capital

Mainly includes: Common stock, parent company reserves, reserves in consolidated companies, non-controlling interests, deductions and others and attributed net income.

Tier 2 Capital

Mainly includes: Subordinated, preferred shares and non- controlling interest.

Unit-link

This is life insurance in which the policyholder assumes the risk. In these policies, the funds for the technical insurance provisions are invested in the name of and on behalf of the policyholder in shares of Collective Investment Institutions and other financial assets chosen by the policyholder, who bears the investment risk.

Write- off

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

Value at Risk (VaR)

Value at Risk (VaR) is the basic variable for measuring and controlling the Group’s market risk. This risk metric estimates the maximum loss that may occur in a portfolio’s market positions for a particular time horizon and given confidence level

VaR figures are estimated following two methodologies:

a)      VaR without smoothing, which awards equal weight to the daily information for the immediately preceding last two years. This is currently the official methodology for measuring market risks vis-à-vis limits compliance of the risk.

b)      VaR with smoothing, which weighs more recent market information more heavily. This is a metric which supplements the previous one.

VaR with smoothing adapts itself more swiftly to the changes in financial market conditions, whereas VaR without smoothing is, in general, a more stable metric that will tend to exceed VaR with smoothing when the markets show less volatile trends, while it will tend to be lower when they present upturns in uncertainty.

Yield curve risk

Risks arising from changes in the slope and the shape of the yield curve.

 

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