Banco Bilbao Vizcaya Argentaria
Annual Report 2018

Plain-text annual report

Consolidated Financial Statements, Management Report and Auditors' Report for the year 2018 P.1 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Contents CONSOLIDATED FINANCIAL STATEMENTS Consolidated balance sheets ..................................................................................................................................... 4 Consolidated income statements .............................................................................................................................. 7 Consolidated statements of recognized income and expenses ............................................................................. 8 Consolidated statements of changes in equity......................................................................................................... 9 Consolidated statements of cash flows .................................................................................................................. 12 NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS 1. 2. Introduction, basis for the presentation of the Consolidated Financial Statements, internal control over financial information and other information ................................................................................................... 13 Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements ............................................................................................................................................... 17 3. BBVA Group .......................................................................................................................................................61 4. Shareholder remuneration system ................................................................................................................. 64 5. Earnings per share ............................................................................................................................................ 67 6. Operating segment reporting .......................................................................................................................... 67 7. Risk management ............................................................................................................................................ 70 8. Fair Value of financial instruments ................................................................................................................ 136 9. Cash, cash balances at central banks and other demands deposits ......................................................... 148 10. Financial assets and liabilities held for trading ............................................................................................. 149 11. Non-trading financial assets mandatorily at fair value through profit or loss ........................................... 153 12. Financial assets and liabilities designated at fair value through profit or loss ........................................... 154 13. Financial assets at fair value through other comprehensive income ........................................................ 155 14. Financial assets at amortized cost ............................................................................................................... 163 15. Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest ................. rate risk .......................................................................................................................................................... 166 16. Investments in joint ventures, associates .................................................................................................... 169 17. Tangible assets ............................................................................................................................................... 171 18. Intangible assets ............................................................................................................................................ 174 19. Tax assets and liabilities ................................................................................................................................. 177 20. Other assets and liabilities............................................................................................................................. 182 21. Non-current assets and disposal groups held for sale................................................................................ 183 22. Financial liabilities at amortized cost .............................................................................................................. 186 23. Assets and Liabilities under insurance and reinsurance contracts ............................................................ 191 P.2 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 24. Provisions ....................................................................................................................................................... 193 25. Post-employment and other employee benefit commitments .................................................................. 195 26. Common stock ............................................................................................................................................... 205 27. Share premium ..............................................................................................................................................208 28. Retained earnings, revaluation reserves and other reserves .....................................................................208 29. Treasury shares .............................................................................................................................................. 211 30. Accumulated other comprehensive income (loss) ..................................................................................... 212 31. Minority interest ............................................................................................................................................. 212 32. Capital base and capital management ........................................................................................................ 213 33. Commitments and guarantees given .......................................................................................................... 216 34. Other contingent assets and liabilities ..........................................................................................................217 35. Purchase and sale commitments and future payment obligations ............................................................217 36. Transactions on behalf of third parties ........................................................................................................ 218 37. Net interest income ....................................................................................................................................... 219 38. Dividend income ............................................................................................................................................. 221 39. Share of profit or loss of entities accounted for using the equity method................................................. 221 40. Fee and commission income and expense .................................................................................................. 222 41. Gains (losses) on financial assets and liabilities, net and Exchange differences ...................................... 223 42. Other operating income and expense .......................................................................................................... 224 43. Income and expense from insurance and reinsurance contracts.............................................................. 225 44. Administration costs ...................................................................................................................................... 226 45. Depreciation and Amortization ..................................................................................................................... 229 46. Provisions or (reversal) of provisions ........................................................................................................... 229 47. Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss .................................................................................................................................................................. 231 48. Impairment or (reversal) of impairment on non-financial assets .............................................................. 231 49. Gains (losses) on derecognition of non - financial assets and subsidiaries, net ....................................... 232 50. Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations ................................................................................................................................ 232 51. Consolidated statements of cash flows ....................................................................................................... 232 52. Accountant fees and services ....................................................................................................................... 233 53. Related-party transactions ............................................................................................................................ 234 54. Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management .................................................................................................................................................. 236 55. Other information ........................................................................................................................................... 246 56. Subsequent events ........................................................................................................................................ 248 57. Explanation added for translation into English ............................................................................................ 248 APPENDIX I Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group ......................................................................................................................... 250 P.3 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group ....... 258 APPENDIX III Changes and notification of participations in the BBVA Group in 2018 ..................................... 259 APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2018 ........................................................................................................................................ 264 APPENDIX V BBVA Group’s structured entities. Securitization funds .............................................................. 265 APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2018, 2017 and 2016 ........................................... 266 APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2018, 2017 and 2016. ............................................................................................................................................................... 270 APPENDIX VIII Consolidated income statements for the first and second half of 2018 and 2017 .................. 272 APPENDIX IX. Financial Statements of Banco Bilbao Vizcaya Argentaria, S.A. ............................................... 273 APPENDIX X Information on data derived from the special accounting registry ............................................. 282 APPENDIX XI. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012 ........................................................................................................... 291 APPENDIX XII Additional information on Risk Concentration ............................................................................ 302 APPENDIX XIII. Information in accordance with Article 89 of Directive 2013/36/EU of the European Parliament and its application to Spanish Law through Law 10/2014 .......................................................317 P.4 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 FINANCIAL ASSETS HELD FOR TRADING Derivatives Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers 9 10 NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS 11 Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers FINANCIAL ASSETS AT AMORTIZED COST Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers HEDGING DERIVATIVES FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK JOINT VENTURES AND ASSOCIATES Joint ventures Associates INSURANCE AND REINSURANCE ASSETS TANGIBLE ASSETS Property, plants and equipment For own use Other assets leased out under an operating lease Investment properties INTANGIBLE ASSETS Goodwill Other intangible assets TAX ASSETS Current Deferred OTHER ASSETS Insurance contracts linked to pensions Inventories Other NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE 12 13 14 15 16 23 17 18 19 20 21 58,196 90,117 30,536 5,254 25,577 2,163 14,566 12,021 5,135 3,095 237 - - 1,803 1,313 - 1,313 - - - 56,337 2,595 53,709 - 33 - 419,660 32,530 3,941 9,163 374,027 2,892 (21) 1,578 173 1,405 366 7,229 7,066 6,756 310 163 8,314 6,180 2,134 18,100 2,784 15,316 5,472 - 635 4,837 2,001 42,680 64,695 35,265 6,801 22,573 - - 56 2,709 1,888 174 - - 648 69,476 3,224 66,251 - - - 445,275 24,093 7,300 26,261 387,621 2,485 (25) 1,588 256 1,332 421 7,191 6,996 6,581 415 195 8,464 6,062 2,402 16,888 2,163 14,725 4,359 - 229 4,130 23,853 40,039 74,950 42,955 4,675 27,166 - - 154 2,062 1,920 142 - - - 79,221 4,641 74,580 - - - 483,672 28,905 8,894 31,373 414,500 2,833 17 765 229 536 447 8,941 8,250 7,519 732 691 9,786 6,937 2,849 18,245 1,853 16,391 7,274 - 3,298 3,976 3,603 TOTAL ASSETS 676,689 690,059 731,856 (*) Presented for comparison purposes only (Note 1.3). The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.5 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Consolidated balance sheets as of December 31, 2018, 2017 and 2016 LIABILITIES AND EQUITY (Millions of Euros) FINANCIAL LIABILITIES HELD FOR TRADING Trading derivatives Short positions Deposits from central banks Deposits from credit institutions Customer deposits Debt certificates Other financial liabilities FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Deposits from central banks Deposits from credit institutions Customer deposits Debt certificates Other financial liabilities Of which: Subordinated liabilities FINANCIAL LIABILITIES AT AMORTIZED COST Deposits from central banks Deposits from credit institutions Customer Deposits Debt certificates Other financial liabilities Of which: Subordinated liabilities HEDGING DERIVATIVES FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS PROVISIONS Provisions for pensions and similar obligations Other long term employee benefits Provisions for taxes and other legal contingencies Provisions for contingent risks and commitments Other provisions TAX LIABILITIES Current Deferred OTHER LIABILITIES Notes 10 12 22 15 23 24 19 20 2018 2017 (*) 2016 (*) 80,774 31,815 11,025 10,511 15,687 11,736 - - 6,993 - - 976 2,858 3,159 - 509,185 27,281 31,978 375,970 61,112 12,844 18,047 2,680 - 9,834 6,772 4,787 62 686 636 601 3,276 1,230 2,046 4,301 46,182 36,169 10,013 - - - - - 2,222 - - - - 2,222 - 543,713 37,054 54,516 376,379 63,915 11,850 17,316 2,880 (7) 9,223 7,477 5,407 67 756 578 669 3,298 1,114 2,184 4,550 54,675 43,118 11,556 - - - - - 2,338 - - - - 2,338 - 589,210 34,740 63,501 401,465 76,375 13,129 17,230 2,347 - 9,139 9,071 6,025 69 418 950 1,609 4,668 1,276 3,392 4,979 - LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE - 17,197 TOTAL LIABILITIES 623,814 636,736 676,428 (*) Presented for comparison purposes only (Note 1.3). The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.6 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Consolidated balance sheets as of December 31, 2018, 2017 and 2016 LIABILITIES AND EQUITY (Continued) (Millions of Euros) SHAREHOLDERS’ FUNDS Capital Paid up capital Unpaid capital which has been called up Share premium Equity instruments issued other than capital Other equity instruments Retained earnings Revaluation reserves Other reserves Reserves or accumulated losses of investments in subsidiaries, joint ventures and associates Other Less: Treasury shares Profit or loss attributable to owners of the parent Less: Interim dividends ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) Items that will not be reclassified to profit or loss Actuarial gains or losses on defined benefit pension plans 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 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 Items that may be reclassified to profit or loss Hedge of net investments in foreign operations (effective portion) Foreign currency translation Hedging derivatives. Cash flow hedges (effective portion) Financial assets available for sale Fair value changes of debt instruments measured at fair value through other comprehensive income Hedging instruments (non-designated items) 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 MINORITY INTERESTS (NON-CONTROLLING INTEREST) Accumulated other comprehensive income (loss) Other TOTAL EQUITY TOTAL EQUITY AND TOTAL LIABILITIES MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES) (Millions of Euros) Loan commitments given Financial guarantees given Other commitments given (*) Presented for comparison purposes only (Note 1.3). 0 0 Notes 2018 2017 (*) 2016 (*) 26 27 28 28 28 29 30 31 0 54,326 3,267 3,267 - 23,992 - 50 23,018 3 (58) (58) - (296) 5,324 (975) (7,215) (1,284) (1,245) - - (155) - - - 116 (5,932) (218) (6,643) (6) 943 - 1 (9) 5,764 (3,236) 9,000 52,874 676,689 0 53,283 3,267 3,267 - 23,992 - 54 23,612 12 (35) (35) - (96) 3,519 (1,043) (6,939) (1,183) (1,183) - - - 50,985 3,218 3,218 - 23,992 - 54 21,844 20 (59) (59) - (48) 3,475 (1,510) (3,622) (1,095) (1,095) - - - (5,755) 1 (7,297) (34) 1,641 (2,527) (118) (3,341) 16 947 (26) (40) 6,979 (2,550) 9,530 53,323 690,059 0 - (31) 8,064 (1,430) 9,494 55,428 731,856 0 2016 (*) 107,254 18,267 42,592 Notes 2018 2017 (*) 33 33 33 118,959 16,454 35,098 94,268 16,545 45,738 The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.7 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Consolidated income statements for the years ended December 31, 2018, 2017 and 2016 Notes 2018 2017 (*) 2016 (*) 37.1 37.2 38 39 40 40 41 41 41 41 41 41 42 42 43 43 44.1 44.2 45 46 47 48 49 50 55.2 CONSOLIDATED INCOME STATEMENTS (Millions of Euros) Interest and other income Interest expense NET INTEREST INCOME Dividend income Share of profit or loss of entities accounted for using the equity method Fee and commission income Fee and commission expense 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 Exchange differences, net Other operating income Other operating expense Income from insurance and reinsurance contracts Expense from insurance and reinsurance contracts GROSS INCOME Administration costs Personnel expenses Other administrative expenses Depreciation and amortization Provisions or reversal of provisions 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 Financial assets at fair value through other comprehensive income NET OPERATING INCOME Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates Impairment or reversal of impairment on non-financial assets Tangible assets Intangible assets Other assets Gains (losses) on derecognition of non - financial assets and subsidiaries, net 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 PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS Tax expense or income related to profit or loss from continuing operations PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS Profit or loss after tax from discontinued operations, net PROFIT FOR THE YEAR Attributable to minority interest [non-controlling interest] Attributable to owners of the parent EARNINGS PER SHARE (Euros) Basic earnings per share from continued operations Diluted earnings per share from continued operations Basic earnings per share from discontinued operations Diluted earnings per share from discontinued operations (*) Presented for comparison purposes only (Note 1.3). 31 55.2 0 0 0 0 29,831 (12,239) 17,591 157 (7) 7,132 (2,253) 216 707 96 143 72 (9) 949 (2,101) 2,949 (1,894) 23,747 (10,494) (6,120) (4,374) (1,208) (373) (3,981) (3,980) (1) 7,691 - (138) (5) (83) (51) 78 - 815 8,446 (2,295) 6,151 - 6,151 827 5,324 0 2018 0.76 0.76 0.76 - - 29,296 (11,537) 17,758 334 4 7,150 (2,229) 985 218 (56) (209) 1,030 1,439 (2,223) 3,342 (2,272) 25,270 (11,112) (6,571) (4,541) (1,387) (745) (4,803) (3,676) (1,127) 7,222 - (364) (42) (16) (306) 47 - 26 6,931 (2,169) 4,762 - 4,762 1,243 3,519 0 27,708 (10,648) 17,059 467 25 6,804 (2,086) 1,375 248 114 (76) 472 1,272 (2,128) 3,652 (2,545) 24,653 (11,366) (6,722) (4,644) (1,426) (1,186) (3,801) (3,598) (202) 6,874 - (521) (143) (3) (375) 70 - (31) 6,392 (1,699) 4,693 - 4,693 1,218 3,475 0 2017 (*) 2016 (*) 0.48 0.48 0.48 - - 0.49 0.49 0.49 - - The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.8 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Consolidated statements of recognized income and expenses for the years ended December 31, 2018, 2017 and 2016 CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (MILLIONS OF EUROS) PROFIT RECOGNIZED IN INCOME STATEMENT OTHER RECOGNIZED INCOME (EXPENSES) ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT Actuarial gains and losses from defined benefit pension plans Non-current assets and disposal groups held for sale Fair value changes of equity instruments measured at fair value through other comprehensive income Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk Income tax related to items not subject to reclassification to income statement ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT Hedge of net investments in foreign operations (effective portion) Valuation gains or losses taken to equity Transferred to profit or loss Other reclassifications Foreign currency translation Valuation gains or losses taken to equity Transferred to profit or loss Other reclassifications Cash flow hedges (effective portion) Valuation gains or losses taken to equity Transferred to profit or loss Transferred to initial carrying amount of hedged items Other reclassifications Available-for-sale financial assets Valuation gains or losses taken to equity Transferred to profit or loss Other reclassifications Debt securities at fair value through other comprehensive income Valuation gains or losses taken to equity Transferred to profit or loss Other reclassifications Non-current assets and disposal groups held for sale Valuation gains or losses taken to equity Transferred to profit or loss Other reclassifications Entities accounted for using the equity method Income tax relating to items subject to reclassification to income statements TOTAL RECOGNIZED INCOME/EXPENSES Attributable to minority interest (non-controlling interests) Attributable to the parent company (*) Presented for comparison purposes only (Note 1.3). 2018 2017 (*) 2016 (*) 6,151 (2,523) (141) (79) - (172) 166 (56) (2,382) (244) (244) - - (1,537) (1,542) 5 - 27 (32) 58 - - (901) (766) (135) - 20 - 20 - 9 244 3,628 (420) 4,048 4,762 (4,439) (91) (96) - 5 (4,348) 80 112 - (32) (5,080) (5,089) (22) 31 (67) (122) 55 - - 719 384 347 (12) (20) - - (20) (14) 35 323 127 196 4,693 (3,012) (240) (303) - 63 (2,772) 166 166 - - (2,157) (2,110) (47) - 80 134 (54) - - (694) 438 (1,248) 116 - - - - (89) (78) 1,681 305 1,376 The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.9 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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) 0 Non-controlling interest 2018 Capital (Note 26) Share Premium Equity instruments issued other than capital Other Equity Retained earnings (Note 28) Revaluatio n reserves (Note 28) Other reserves (Note 28) (-) Treasury shares Profit or loss attributable to owners of the parent (-) Interim dividends (Note 4) Accumulated other comprehensi ve income (Note 30) Valuation adjustments (Note 31) Other (Note 31) Total Balances as of January 1, 2018 Effect of changes in accounting policies ( Note 1.3) Adjusted initial balance Total income/expense recognized Other changes in equity 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 Purchase of treasury shares Sale or cancellation of treasury shares 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) Increase/Reduction of equity due to business combinations Share based payments Other increases or (-) decreases in equity Balances as of December 31, 2018 3,267 - 3,267 - - - - - - - - - - - - - - - - - 3,267 23,992 - 23,992 - - - - - - - - - - - - - - - - - 23,992 - - - - - - - - - - - - - - - - - - - - - 54 - 54 - (4) - - - - - - - - - - - - - (19) 15 50 25,474 (2,713) 22,761 - 256 - - - - - - (992) - (24) - - 1,408 - - (135) 23,018 12 - 12 - (10) - - - - - - - - - - - (10) - - - 3 (44) 9 (34) - (23) - - - - - - (4) - - - - (19) - - - (58) (96) - (96) - (199) - - - - - - - (1,684) 1,484 - - - - - - (296) 3,519 - 3,519 5,324 (3,519) - - - - - - - - - - - (3,519) - - - 5,324 (1,043) - (1,043) - 68 - - - - - - (975) - - - - 1,043 - - - (975) (8,792) 1,756 (7,036) (1,276) 1,096 - - - - - - - - - - - 1,096 - - - (7,215) (3,378) 850 (2,528) (1,247) 540 - - - - - - - - - - - 540 - - - (3,236) 10,358 (822) 9,536 827 (1,364) - - - - - - (378) - - - - (540) - - (446) 9,000 53,323 (919) 52,404 3,628 (3,158) - - - - - - (2,349) (1,684) 1,460 - - - - (19) (566) 52,874 The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.10 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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) 0 Non-controlling interest 2017 (*) Capital (Note 26) Share Premium Equity instruments issued other than capital Other Equity Retained earnings (Note 28) Revaluatio n reserves (Note 28) Other reserves (Note 28) (-) Treasury shares Profit or loss attributable to owners of the parent (-) Interim dividends (Note 4) Accumulated other comprehensi ve income (Note 30) Valuation adjustments (Note 31) Other (Note 31) Total Balances as of January 1, 2017 Effect of changes in accounting policies ( Note 1.3) Adjusted initial balance Total income/expense recognized Other changes in equity 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 Purchase of treasury shares Sale or cancellation of treasury shares Reclassification of other equity instruments to financial liabilities Reclassification of financial liabilities to other equity instruments Transfers within total equity Increase/Reduction of equity due to business combinations Share based payments Other increases or (-) decreases in equity Balances as of December 31, 2017 3,218 - 3,218 - 50 50 - - - - - - - - - - - - - - 3,267 23,992 - 23,992 - - - - - - - - - - - - - - - - - 23,992 (*) Presented for comparison purposes only (Note 1.3). - - - - - - - - - - - - - - - - - - - - - 54 - 54 - - - - - - - - - - - - - - - (22) 22 54 23,688 (1,843) 21,845 - 1,768 (50) - - - - - 9 - 1 - - 1,932 - - (125) 23,612 20 - 20 - (8) - - - - - - - - - - - (8) - - - 12 (67) 7 (60) - 25 - - - - - - (9) - - - - 41 - - (6) (34) (48) - (48) - (48) - - - - - - - (1,674) 1,626 - - - - - - (96) 3,475 - 3,475 3,519 (3,475) - - - - - - - - - - - (3,475) - - - 3,519 (1,510) - (1,510) - 467 - - - - - - (900) - - - - 1,510 - - (144) (1,043) (5,458) 1,836 (3,622) (3,317) - - - - - - - - - - - - - - - - (6,939) (2,246) 817 (1,429) (1,122) - - - - - - - - - - - - - - - - (2,551) 10,310 (817) 9,493 1,243 (1,207) - - - - - - (290) - - - - - - - (917) 9,529 55,428 - 55,428 323 (2,428) - - - - - - (1,189) (1,674) 1,627 - - (0) - (22) (1,169) 53,323 The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.11 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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) 0 Non-controlling interest Total 2016 (*) Capital (Note 26) Share Premium Equity instruments issued other than capital Other Equity Retained earnings (Note 28) Revaluatio n reserves (Note 28) Other reserves (Note 28) (-) Treasury shares Profit or loss attributable to owners of the parent (-) Interim dividends (Note 4) Accumulated other comprehensi ve income (Note 30) Valuation adjustments (Note 31) Other (Note 31) Balances as of January 1, 2016 Effect of changes in accounting policies ( Note 1.3) Adjusted initial balance Total income/expense recognized Other changes in equity 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 Purchase of treasury shares Sale or cancellation of treasury shares Reclassification of other equity instruments to financial liabilities Reclassification of financial liabilities to other equity instruments Transfers within total equity Increase/Reduction of equity due to business combinations Share based payments Other increases or (-) decreases in equity Balances as of December 31, 2016 3,120 - 3,120 - 98 98 - - - - - - - - - - - - - - 3,218 23,992 - 23,992 - - - - - - - - - - - - - - - - - 23,992 (*) Presented for comparison purposes only (Note 1.3). - - - - - - - - - - - - - - - - - - - - - 35 - 35 - 19 - - - - - - - - - - - - - (16) 35 54 22,588 (1,834) 20,754 - 1,090 (98) - - - - - 93 - (30) - - 1,166 - 3 (44) 21,845 22 - 22 - (2) - - - - - - - - - - - (2) - - - 20 (98) 7 (91) - 31 - - - - - - (93) - - - - 126 - - (2) (60) (309) - (309) - 260 - - - - - - - (2,004) 2,264 - - - - - - (48) 2,642 - 2,642 3,475 (2,642) - - - - - - - - - - - (2,642) - - - 3,475 (1,352) - (1,352) - (158) - - - - - - (1,301) - - - - 1,352 - - (210) (1,510) (3,349) 1,826 (1,523) (2,099) - - - - - - - - - - - - - - - - (3,622) (1,333) 816 (517) (913) - - - - - - - - - - - - - - - (0) (1,429) 9,325 (816) 8,509 1,218 (233) - - - - - - (234) - - - - - - - 2 9,494 55,281 - 55,282 1,681 (1,535) - - - - - - (1,535) (2,004) 2,234 - - - - (12) (219) 55,428 The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.12 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Consolidated statements of cash flows for the years ended December 31, 2018, 2017 and 2016 CONSOLIDATED FINANCIAL STATEMENTS OF CASH FLOWS (MILLIONS OF EUROS) Notes 51 51 A) CASH FLOWS FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5) 1. Profit for the year 2. Adjustments to obtain the cash flow from operating activities: Depreciation and amortization Other adjustments 3. Net increase/decrease in operating assets Financial assets held for trading Non-trading financial assets mandatorily at fair value through profit or loss Other financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Loans and receivables Other operating assets 4. Net increase/decrease in operating liabilities Financial liabilities held for trading Other financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Other operating liabilities 5. Collection/Payments for income tax B) CASH FLOWS FROM INVESTING ACTIVITIES (1 + 2) 1. Investment Tangible assets Intangible assets Investments in joint ventures and associates Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other settlements related to investing activities 2. Divestments Tangible assets Intangible assets Investments in joint ventures and associates Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other collections related to investing activities C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2) 51 1. Payments Dividends Subordinated liabilities Treasury stock amortization Treasury stock acquisition Other items relating to financing activities 2. Collections Subordinated liabilities Treasury shares increase Treasury shares disposal Other items relating to financing activities D) EFFECT OF EXCHANGE RATE CHANGES E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D) F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (E+F) 51 COMPONENTS OF CASH AND EQUIVALENT AT END OF THE YEAR (Millions of Euros) Cash Balance of cash equivalent in central banks Other financial assets Less: Bank overdraft refundable on demand 2018 2017 (*) 2016 (*) 8,664 6,151 7,695 1,208 6,487 (12,679) 1,379 (643) 349 (206) (12,652) (906) 10,286 (466) 1,338 10,481 (1,067) (2,789) 7,516 (2,154) (943) (552) (150) (20) (489) - 9,670 731 - 558 4,268 3,917 196 (5,092) (8,995) (2,107) (4,825) - (1,686) (377) 3,903 2,451 - 1,452 - (2,498) 8,590 45,549 54,138 2018 6,346 47,792 - - 2,055 4,762 8,526 1,387 7,139 (4,894) 5,662 (783) 5,032 (14,503) (302) (3,916) (6,057) 19 2,111 11 (2,423) 2,902 (2,339) (777) (564) (101) (897) - - - 5,241 518 47 18 936 1,002 2,711 9 (98) (5,763) (1,698) (2,098) - (1,674) (293) 5,665 4,038 - 1,627 - (4,266) 594 44,955 45,549 6,623 4,693 6,784 1,426 5,358 (4,428) 1,289 (2) 14,445 (21,075) 915 1,273 361 (53) (7) 972 (1,699) (560) (3,978) (1,312) (645) (76) (95) - (1,850) - 3,418 795 20 322 73 900 1,215 93 (1,113) (4,335) (1,599) (502) - (2,004) (230) 3,222 1,000 - 2,222 - (3,463) 1,489 43,466 44,955 2017 (*) 2016 (*) 6,416 39,132 - - 7,413 37,542 - - TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR 51 54,138 45,549 44,955 (*) Presented for comparison purposes only (Note 1.3). The accompanying Notes 1 to 57 and Appendices I to XIII are an integral part of the consolidated financial statements as of December 31, 2018. P.13 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Notes to the Consolidated Financial Statements 1. Introduction, basis for the presentation of the Consolidated Financial Statements, internal control over financial information and other information 1.1 Introduction Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank” or “BBVA") is 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. The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 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, “the Group” or “the BBVA Group”). In addition to its own separate Financial Statements, the Bank is required to prepare Consolidated Financial Statements comprising all consolidated subsidiaries of the Group. As of December 31, 2018, the BBVA Group had 297 consolidated entities and 66 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, 2017 were approved by the shareholders at the Annual General Meetings (“AGM”) on March 16, 2018. BBVA Group’s Consolidated Financial Statements and the Financial Statements for the Bank and the majority of the remaining entities within the Group have been prepared as of December 31, 2018, and are pending approval by their respective AGMs. Notwithstanding, the Board of Directors of the Bank understands that said financial statements will be approved without changes. 1.2 Basis for the presentation of the Consolidated Financial Statements The BBVA Group’s Consolidated Financial Statements are presented in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of December 31, 2018, considering the Bank of Spain Circular Circular 4/2017, and with any other legislation governing financial reporting applicable to the Group in Spain (see Note 1.3). The BBVA Group’s accompanying Consolidated Financial Statements for the year ended December 31, 2018 were prepared by the Group’s Directors (through the Board of Directors meeting held on February 11, 2019) 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, together with the consolidated results of its operations and cash flows generated during the year ended December 31, 2018. These Consolidated Financial Statements were prepared on the basis of the accounting records kept by the include the adjustments and Bank and each of the other entities in the Group. Moreover, they P.14 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. 1.3 Comparative information The information included in the accompanying consolidated financial statements relating to the years ended December 31, 2017 and December 31, 2016, in accordance to the applicable regulation, is presented for the purpose of comparison with the information for December, 31 2018. 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 changes in the requirements for the classification 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 9 is presented in Note 2.4. As a consequence of the application of IFRS 9, the comparative information for the financial years 2017 and 2016 included in these Consolidated Financial Statements has been subject to some non-significant modifications in order to improve the comparability with the figures of the financial year 2018. Hyperinflationary economies The Group experience applying IAS 29 "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 2018 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 to the accounting policy change were recorded in the item “Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign 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. In order to make the information comparable, we have restated the information of the previous years, in such a way that €1,853, €1,836 and €1,826 million have been reclassified from "Accumulated other comprehensive income – items that may be reclassified to profit or loss – foreign currency translation" to P.15 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. "Shareholders’ funds – retained earnings" as of December 31, 2017, December 31, 2016 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 reclassfied 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, respectively. The reclassification corresponding to January 1, 2018, 2017 and 2016 is recorded as "Effects of changes in accounting policies" in the Consolidated Statement of Changes in Equity corresponding to the years ended December 31, 2018, 2017 and 2016. In the consolidated balance sheet as of December 31, 2018, 2017 and 2016, the heading " Sh areholders’ funds – retained earnings”includes both the translation differences and the effects of restatement for inflation for the years 2018, 2017 and 2016. Operating segments During 2018, there were no significant changes to the existing structure of the BBVA Group’s operating segments in comparison to 2017 (see Note 6). Certain prior year balances have been reclassified to conform to current year presentation. 1.4 Seasonal nature of income and expenses 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, which are not significantly affected by seasonal factors within the same year. 1.5 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 St atements in order to calculate the recorded or disclosed amount of some assets, liabilities, income, expenses and commitments. These estimates relate mainly to the following: Impairment on certain financial assets (see Notes 7, 13, 14 and 16). The assumptions used to quantify certain provisions (see Note 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 Note 19). Although these estimates were made on the basis of the best information available as of December 31, 2018, future events may make it necessary to modify them (either up or down) over the coming years. This would be done prospectively in accordance with applicable standards, recognizing the effects of changes in the estimates in the corresponding consolidated income statement. During 2018 there were no significant changes to the assumptions and estimations made as of December 31, 2017, except as indicated in these Consolidated Financial Statements. 1.6 BBVA Group’s Internal Control over Financial Reporting P.16 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. BBVA Group’s Financial Statements is prepared under an Internal Control over Financial Reporting Model (hereinafter “ICFR"). It provides reasonable assurance with respect to the reliability and the integrity of the consolidated financial statements. It is also aimed to ensure that the transactions are processed in accordance with the applicable laws and regulations. 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 ensure 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 which is based in two pillars: A control system organized into three lines of defense: • • • The first line is located within the business and support units, which are responsible for identifying risks associated with their processes and to execute the controls established to mitigate them. The second line comprises the specialized control units (Compliance, Internal Financial Control, Internal Risk Control, Engineering Risk, Fraud & Security, and Operations Control among others). This second line defines the models and controls under their areas of responsibility and monitors the design, correct implementation and effectiveness of the controls The third line is the Internal Audit unit, which conducts an independent review of the model, verifying the compliance and effectiveness of the model. A set of committees called Corporate Assurance that helps to escalate the 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 comply with a common and standard methodology established at Group level, as set out in the following diagram: BBVA’s INTERNAL CONTROL OVER FINANCIAL REPORTING Companies Processes Risk Controls 01 Selection of evaluation Scope 02 Documentation of process models 03 Risk identification evaluation and prioritization 04 Documentation of control models 05 Identification and management of residual risk 06 Evaluation of the effectiveness of the ICFR Selection of companies and relevant information to be covered Definition and documentation of the processes´ map that is directly and indirectly involved in the preparation of financial information. Identification of risks linked to processes that can trigger errors in the financial information. Criticality assesment of risks. Identification of key mitigating controls Identification and management of the degree of risk mitigation with the controls identified. Periodic review, certification and communication of ICFR effectiveness P.17 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 also complies with the requirements of 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 ensure the quality and accuracy of the financial information. The description of the ICFR included in the Corporate Governance Annual Report within the Management Report attached to the consolidated financial statements for the year ended December 31, 2018. 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. 2.1 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. 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, 2018. Appendix I includes other significant information on these entities. Joint ventures Joint ventures are those entities over 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. 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 assets at fair value through other comprehensive income”. P.18 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, these entities are not significant in 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). 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, assesses whether the Group has all power over the relevant elements, exposure, or rights, to variable returns from involvement with the investee and the ability to use power 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 are 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, 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 registered as liabilities within the Group’s consolidated balance sheet. P.19 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 “IFRS 10 - 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, there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities. 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). 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 carry 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 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, except for the case of the consolidated financial statements of two subsidiaries and six associates and joint-ventures deemed non-significant for which financial statements as of November 30, 2018 were used, the December 31, 2018 financial statements for of all Group entities were utilized. 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 funds in the form of cash dividends, loans or advances. In addition, under the laws of 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 met 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. Separate financial statements The separate financial statements of the parent company of the Group (Banco Bilbao Vizcaya Argentaria, S.A.) are prepared under Spanish regulations (Circular 4/2017 of the Bank of Spain) and following other regulatory requirements of financial information applicable to the Bank. The Bank uses the cost method to account in its separate financial statements for its investments in subsidiaries, associates and joint venture entities, which are consistent with the requirements of Bank of Spain Circular 4/2017 and IAS 27. P.20 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. As of January 1, 2018, Circular 4/2017 issued by the Bank of Spain on public and reserved financial information standards, and financial statement models entered into force for credit institutions. The purpose of this circular is to adapt the Spanish credit institutions accounting system to changes in the European accounting system resulting from the adoption of two new International Financial Reporting Standards (IFRS), specifically "IFRS 15 - Revenue from contracts with customers "and" IFRS 9 - Financial instruments ". Appendix IX shows BBVA’s financial statements as of and for the years ended December 31, 2018 and 2017. 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 EU-IFRS. The accounting standards and policies and valuation criteria used in preparing the accompanying Consolidated Financial Statements are as follows: 2.2.1 Financial instruments As mentioned before 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 to the financial years 2017 and 2016 which are presented for the purpose of comparability, are based on the accounting policies and valuation criteria applicable under IAS 39. 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 in through other comprehensive income, and measured at fair value through profit or loss. The classification of financial assets measured at amortized cost or fair value 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 (hereinafter, the SPPI). 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 receive contractual cash flows; and 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. 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. P.21 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 comprehensive 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. 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. 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 accompanying consolidated income statement in the period in which the change occurred (see Note 37). 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. “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit and loss” and “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 and 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. 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 sheets are measured upon acquisition at fair value 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 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, 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 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. 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 sheets (see Note 30). P.22 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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 – Financial assets at fair value through other comprehensive income” (see Note 47) in the consolidated income statements for that period. 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, at the time of the initial recognition, may elect to present 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. 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” 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. Net impairment losses 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 – financial assets measured at cost” (see Note 47) in the consolidated income statement for that period. 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 initial 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 P.23 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 accompanying consolidated income statement in the period in which the change occurred (see Note 37). 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. “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 heading “Gains (losses) on financial assets and liabilities, net” in the accompanying consolidated income statements (see Note 41), except for 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 which 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 in “Interest and other income” or “Interest expense” (Note 37), 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 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 interest rate method. Measurement of 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 of a financial asset or financial liability not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition or issue of the financial asset or 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 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). P.24 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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 headings of the consolidated balance sheets are measured upon acquisition at fair value 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 result of the hedging instrument. 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 accompanying consolidated income statements (Note 41). “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 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 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 through profit or loss – financial assets measured at cost” (see Note 47) in the consolidated income statement for that year. P.25 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. “Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk” applicable in the financial years 2018, 2017 and 2016 Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets 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 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, 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 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 other comprehensive income - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges” 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 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 - Items that may be reclassified to profit or loss – Hedging of net investments in foreign transactions" 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). P.26 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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). 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 with changes in accumulated 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. 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 P.27 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 transactions are, at the time implementation of the standard, some simplification were 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 the 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. P.28 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Additionally, instruments under one of the following circumstances are considered Stage 2: o 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 higher than 30 days for any of the significant portfolios. o 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. o 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 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. 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). P.29 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. 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 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. In the case of debt securities, the Group supervises the changes in credit risk through monitoring the external published credit ratings. P.30 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. To determine whether there is a significant increase in credit risk that is not reflected in the published ratings, the Group also revises 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 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 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 Gross Domestic Product (GDP), tax rates, unemployment rate and loan to value (LTV). Method for calculating the impairment on financial assets under IAS 39 applicable in the financial years 2017 and 2016 The impairment on financial assets is determined by type of instrument and other circumstances that could affect it, taking into account 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. P.31 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 (unemployment rate, falling property prices, etc.). local economic conditions that are linked to "defaults" in the financial assets 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 exception 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 rating/scoring of each counterparty/transaction. is associated with the P.32 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 sheets (see Note 2.2.4). 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 registered 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 P.33 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. may be reclassified to profit or loss - financial assets available for sale" in the consolidated balance sheet (see Note 30). 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. 2.2.2 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. 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 expenses of the new financial liability continue to be recognized. 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 recognize 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. P.34 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 losses 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; 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). 2.2.4 Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale and Liabilities included in disposal groups classified as held for sale The headings “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets 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 of items (“disposal groups”) and disposal groups that form part of a major operating segment and are being held for sale as part of a disposal plan (“discontinued operations”). 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 sheets reflects the balances payable arising from disposal groups and discontinued operations. 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. 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 asset is obtained 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. 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 P.35 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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 expenses 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 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. This heading includes the earnings from their sale or other disposal. 2.2.5 Tangible assets Property, plant and equipment for own use This heading includes the assets under ownership or acquired under finance lease, 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 assets expected to be held for continuing use. 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 this net carrying amount of each item with its corresponding recoverable amount (see Note 17). Depreciation is calculated using the straight-line method, 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. 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 Rates for Tangible Assets 0 Type of Assets Buildings for own use Furniture Fixtures Office supplies and hardware 0 Annual Percentage 1% - 4% 8% - 10% 6% - 12% 8% - 25% P.36 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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. Similarly, if there is any indication that the value of a 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 registered 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 analysis are performed for these CGUs to check whether sufficient cash flows are generated to support the value of the assets comprised within. Running and maintenance expenses 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 expenses - Property, fixtures and equipment" (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 this date. This fair value will be determined taking as references the valuations performed by independent experts. 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. P.37 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 registered 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 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. 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. In a business combination achieved in stages, the acquirer shall remeasure 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. P.38 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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”. 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. 2.2.8 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 units that expect to be the beneficiaries of the synergies derived from the business combinations. The cash-generating units 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-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. 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 P.39 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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). 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 depreciation 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 loss on the carrying amount of these assets with charge to the heading “Impairment or reversal of impairment on non - financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 48). 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 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. 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). The income or expenses 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 registered by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23. P.40 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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: includes the amount of the bonuses accruing to policyholders, insurees or This provision 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. 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. P.41 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 2.2.10 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 forwards (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 sufficient taxable profits in the future against which the deferred tax assets can be utilized and are not from the initial recognition (except in the case of a business combination) of other assets or liabilities in a transaction that does not affect the fiscal outcome or the accounting result. 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. 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 expenses directly recognized in consolidated equity that do not increase or decrease taxable income are accounted for as temporary differences. 2.2.11 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 P.42 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 (mentioned in Note 2.2.12), 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. 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) 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 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). 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. Costs are charged and recognized under the heading “Administration costs – Personnel expenses – Other personnel expenses” 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 – Defined-contribution plan expense” of the consolidated income statement (see Note 44.1). P.43 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1). Interest credits/charges relating to these commitments are charged and recognized under the headings “Interest and other income” and “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. 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). 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. P.44 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The BBVA Group recognizes actuarial gains/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/losses relating to pension and medical benefits are directly charged and recognized under the heading "Accumulated other comprehensive income – Items that will not be reclassified to profit or loss – Actuarial gains or losses on defined benefit pension plans" of equity in the consolidated balance sheet (see Note 30). 2.2.13 Equity-settled share-based payment transactions Provided they constitute the delivery of such equity instruments following the completion of a specific period of services, equity-settled share-based payment transactions 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 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. 2.2.15 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 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. P.45 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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, initially accounted for 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. Income and expenses 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 consolidated equity under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets (see Note 30). 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 expenses 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. 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 – Items that may be reclassified to profit or loss - Exchange differences” 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 other comprehensive income - Items that may be reclassified to profit or loss - Entities accounted for using the equity method" (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). 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. The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII. P.46 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Venezuela Local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the consolidated financial statements, since Venezuela is a country with strong exchange restrictions and has different rates officially published. Since December 31, 2015, the Board of Directors considers that the use of the Venezuelan official 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. 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, 2017 and 2016, 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. 2.2.17 Recognition of income and expenses The most significant policies used by the BBVA Group to recognize its income and expenses are as follows. Interest income and expenses and similar items: As a general rule, interest income and expenses and similar items are recognized on the basis of their period of accrual using the effective interest rate method. They 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: • 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. 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 P.47 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. of the equity instrument because it represents a partly 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. Commissions, fees and similar items: • Income and expenses 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: 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 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). 2.2.19 Leases 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” 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 expenses" (see Note 42). If a fair value sale and leaseback results in an operating lease, the profit or loss generated from the sale is recognized in the consolidated income statement at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are accrued over the lease period. P.48 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Entities and branches located in countries with hyperinflationary economies In accordance with the IFRS-EU 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 save 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. Argentina In 2018, the Argentinian economy was considered to be hyperinflationary as defined by the aforementioned criteria. Accordingly, as of December 31, 2018, it was necessary to adjust the financial statements of the Group's subsidiaries based in Argentina to correct for the effect of inflation. Pursuant to the requirements of IAS 29, the monetary headings (mainly loans and credits) 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. 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 million in accordance to IAS 29 and to the accounting policy approved by the Group in relation to the hyperinflation (see Note 1.3). During the financial year 2018, the increase in the reserves of Group entities located in Argentina derived from the re-expression for hyperinflation (IAS 29) amounts to €703 million, of which €463 million have been registered within “Shareholders’ funds - Retained earnings” and €240 million within “Minority interests – Other”. Furthermore, during the financial year 2018 the decrease in the reserves of Group entities located in Argentina derived from conversion (IAS 21) amounts to €-773 million, of which €-515 million have been registered within “Shareholders’ funds - Retained earnings”, and €-258 million within “Minority interests – Other”. The net impact of both effects is presented under the caption “Other increases or (-) decreases in equity” in the consolidated Statement of Changes in Equity for the financial year ended December 31, 2018. The net loss in the profit attributable to the dominating entity of the Group in 2018 derived from the application of IAS 29 amounted to €209 million. In addition, there is a net loss in the profit attributable to the dominating entity of the Group in 2018 derived from the application of IAS 21 which amounted to €57 million. The breakdown of the General Price Index (“GPI”) and the inflation index used as of December 31, 2018 for the inflation restatement of the financial statements of the Group companies located in Argentina is as follows: P.49 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. General Price Index 0 GPI Average GPI Inflation of the period Venezuela 2018 184 152 48% Since 2009, the economy of Venezuela can be 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 Reporting in Hyperinflationary Economies“. As stated in Note 1.3, BBVA has restated prior year information. 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 and €28 million in 2018, 2017 and 2016 respectively (see Note 2.2.16). 2.3 Recent IFRS pronouncements Changes introduced in 2018 The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective on or after January 1, 2018. IFRS 9 - “Financial instruments” IFRS 9 replaced IAS 39 for financial statements from January 1, 2018 onwards and includes new impairment classification and measurement requirements for financial assets and requirements for financial assets (see Note 2.2.1). liabilities and Regarding the hedge accounting, the Group 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 a significant impact on the Group´s financial statements. Amended IFRS 7 - “Financial instruments: Disclosures” The IASB modified IFRS 7 in December 2011 to include new disclosures on financial instruments that entities will have to provide in the period that they apply IFRS 9 for the first time. IFRS 15 - “Revenue from contracts with customers” IFRS 15 contains the principles that an entity shall apply to account for revenue and cash flows arising from a contract with a customer (see Note 2.2.17). P.50 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The core principle of IFRS 15 is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services, in accordance with contractual agreements (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 Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC 31 – Revenue-Transactions Involving Advertising Services. This standard has not had a significant impact on the Group's Consolidated Financial Statements. 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 P.51 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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, 2018 The following new International Financial Reporting Standards together with their interpretations had been published at the date of preparation of the accompanying consolidated financial statements, but are not mandatory as of December 31, 2018. Although in some cases the 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” and IAS 28 amended The amendments to IFRS 10 and IAS 28 establish that when an entity sells or transfers assets which are considered a business (including its consolidated subsidiaries) to an associate or joint venture of the entity, the latter will have to recognize any gains or losses derived from such transaction in its entirety. Notwithstanding, if the assets sold or transferred are not considered a business, the entity will have to recognize the gains or losses derived only to the extent of the interests in the associate or joint venture with unrelated investors. These changes will be applicable to accounting periods beginning on the effective date, still to be determined, although early adoption is allowed. P.52 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 introduces 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 16 with the participation of all affected areas. The standard will mainly affect the accounting of operating leases of the Group. With regard to the estimated impact on the Consolidated Financial Statements, at 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. The estimated impact in terms of capital (CET1) for the Group amounts to -12 basis points. The final impact of adopting the standard as of January 1, 2019 may change because: the Group has not concluded the tests; the new accounting policies, methodologies and parameters may be subject to changes until the Group presents 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. 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. P.53 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. IFRIC 23 - Uncertainty over Income Tax Treatments IFRIC 23 provides guidance on how to apply 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 accept 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 consistently with the tax treatment used or planned to be used in its income tax filings. If the entity considers that it is not probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to use the most likely amount or the expected value (sum 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 interpretation 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. P.54 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 statements 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. A financial instrument will be classified in the amortized cost portfolio when 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. P.55 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 P.56 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. P.57 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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: o 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. o 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. o 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. P.58 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 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. P.59 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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 it 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. P.60 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 2.4.2 Condensed consolidated opening balance sheet as of January 1, 2018 Condensed Consolidated balance sheets (Millions of Euros) ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Derivatives Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers Non-trading financial assets mandatorily at fair value through profit or loss Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Equity instruments Debt securities Loans and advances Available for sale financial assets Financial assets at amortized cost Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers Held to maturity investments 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 Non-current assets and disposal groups held for sale December 2017 IAS 39 Classification and measurement of financial instruments Impairment 42,680 64,695 35,265 6,801 22,573 - - 56 2,709 69,476 431,521 10,339 7,300 26,261 387,621 13,754 2,485 (25) 1,588 421 7,191 8,464 16,888 4,359 23,853 - 27,159 - 48 - 245 14,895 11,970 4,451 (1,690) 62,107 2,761 59,293 140 (69,476) (8,680) 19,623 (245) (15,622) (12,435) (13,754) - - 1 - - - 8 - (1) - - - - - - - - - - 8 - 8 - - (1,158) (3) - 22 (1,177) - - - - - - - 400 - (21) Opening balance sheet 2018 42,680 91,854 35,265 6,849 22,573 245 14,895 12,026 4,451 1,019 62,115 2,761 59,301 140 421,685 29,959 7,055 10,661 374,009 2,485 (25) 1,589 421 7,191 8,464 17,296 4,359 23,832 TOTAL ASSETS 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". 690,059 689,414 (770) 125 The change registered reclassification to the new heading "Financial assets at fair value through other comprehensive income". in the heading "Available for sale financial assets" are mainly due to the The change registered reclassification to the item "Financial assets held for trading". in the heading “Financial assets at amortized cost” is mainly due to the P.61 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. LIABILITIES AND EQUITY Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Deposits from central banks Deposits from credit institutions Customer Deposits Debt certificates Other financial liabilities 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 Share capital repayable on demand Other liabilities Liabilities included in disposal groups classified as held for sale TOTAL LIABILITIES SHAREHOLDERS’ FUNDS Capital Share premium Equity instruments issued other than capital Other equity Retained earnings Revaluation reserves Other reserves Less: Treasury shares Profit or loss attributable to owners of the parent Less: Interim dividends ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) MINORITY INTERESTS (NON-CONTROLLING INTEREST) TOTAL EQUITY TOTAL EQUITY AND TOTAL LIABILITIES December 2017 IAS 39 Classification and measurement of financial instruments Impairment 46,182 2,222 543,713 37,054 54,516 376,379 63,915 11,850 2,880 (7) 9,223 7,477 3,298 - 4,550 17,197 636,736 53,283 3,267 23,992 - 54 23,612 12 (35) (96) 3,519 (1,043) (6,939) 6,979 53,323 690,059 34,601 3,273 (37,595) (3,261) (19,381) (12,690) (2,266) 1 (112) - - - (24) - - 1 142 71 - - - - 71 - - - - - (109) 21 (17) 125 - - - - - - - - - - - 125 17 - - (10) 132 (923) - - - - (923) - - - - - 13 8 (902) (770) Opening balance sheet 2018 80,783 5,495 506,118 33,793 35,135 363,689 61,649 11,851 2,768 (7) 9,223 7,602 3,291 - 4,550 17,188 637,010 52,432 3,267 23,992 - 54 22,760 12 (35) (96) 3,519 (1,043) (7,036) 7,008 52,404 689,414 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". 3. BBVA Group The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking, asset management and private banking. The Group also operates in other sectors such as insurance, real estate, operational leasing, etc. The following information is detailed in the Appendices of the Consolidated Financial Statements of the Group: 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. P.62 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The following table sets forth information related to the Group’s total assets as of December 31, 2018, 2017 and 2016, broken down by the Group’s entities according to their activity: Contribution to Consolidated Group Total Assets. Entities by Main Activities (Millions of euros) Banks and other financial services Insurance and pension fund managing companies Other non-financial services Total 2018 2017 2016 647,164 659,414 699,592 26,732 2,793 26,134 4,511 26,831 5,433 676,689 690,059 731,856 The total assets and results of operations broken down by the geographical areas, in which the BBVA Group operates, are included in Note 6. 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 through Banco Bilbao Vizcaya Argentaria, S.A., which is the parent company of the BBVA Group. The Group also has other entities that operate in Spain’s banking sector, insurance sector, real estate sector, services and as operational leasing entities. México The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through Grupo Financiero Bancomer. 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. 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, 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 with BBVA Compass Bancshares, Inc. at their head, as well as, the New York BBVA branch and a representative office in Silicon Valley (California). Turkey The Group’s activity in Turkey is mainly carried out through the Garanti Group. Rest of Europe The Group’s activity in Europe is carried out through banks and financial institutions in Ireland, Switzerland, Italy, Netherlands, Finland and Romania, branches in Germany, Belgium, France, Italy Portugal and the United Kingdom, and a representative office in Moscow. Asia-Pacific The Group’s activity in this region is carried out through branches (in Taipei, Tokyo, Hong Kong Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta). P.63 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Main 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. 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 amounts to, approximately, USD 2,200 million. The transaction results in a capital gain, net of taxes, of €633 million, which was recognized in 2018. Agreement for the creation of a joint-venture and transfer of the Real - 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 is transferred (the “Business”). 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. Divarian is the company to which the BBVA Group has previously contributed the Business provided that the effective transfer of several real estate assets (REO´s) remains subject to the fulfilment of certain conditions precedent, as stated in the referred relevant event. The final price payable by Cerberus will be adjusted depending on the volume of REO´s effectively contributed. As of December 31, 2018, the transaction did not have a significant impact on BBVA Group’s attributable profit 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). P.64 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 P.65 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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). 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, 2017 and 2018, 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’’ 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 €996 million and is recognized under heading “Total Equity- Final Dividends” 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%) per BBVA share, as gross interim dividend based on 2018 results. The total amount paid to shareholders on October 10, 2018, after deducting treasury shares held by the Group´s companies, amounted €663 million and is recognized under P.66 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. heading “Total Equity- Interim Dividends” of the consolidated balance sheet as of December 31, 2018. 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) 0 August 31, 2018 Profit of BBVA, S.A. after the provision for income tax Additional Tier I capital instruments remuneration Maximum amount distributable Amount of proposed interim dividend BBVA cash balance available to the date Proposal on allocation of earnings for 2018 2,462 236 2,226 667 4,577 The allocation of earnings for 2018 subject to the approval of the Board of Directors at the Annual Shareholders Meeting is presented below: Allocation of Earnings (Millions of euros) 0 Profit for year (*) Distribution: Interim dividends Final dividend Additional Tier 1 securities Voluntary reserves (*) Net Income of BBVA, S.A. (see Appendix IX). December 2018 2,316 667 1,067 313 269 P.67 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 0 2018 2017 0 Numerator for basic and diluted earnings per share (millions of euros) Profit attributable to parent company Adjustment: Additional Tier 1 securities (1) Profit adjusted (millions of euros) (A) Profit from discontinued operations (net of non-controlling interest) (B) Denominator for basic earnings per share (number of shares outstanding) Weighted average number of shares outstanding (2) Weighted average number of shares outstanding x corrective factor (3) Adjusted number of shares - Basic earning per share (C) Adjusted number of shares - diluted earning per share (D) Earnings per share (*) Basic earnings per share from continued operations (Euros per share)A-B/C Diluted earnings per share from continued operations (Euros per share)A-B/D Basic earnings per share from discontinued operations (Euros per share)B/C Diluted earnings per share from discontinued operations (Euros per share)B/D (1) Remuneration in the year related to contingent convertible securities, recognized in equity (see Note 22.4). 5,324 (313) 5,011 - - 6,668 6,668 6,636 6,636 0.76 0.76 0.76 - - 0 3,519 (301) 3,218 - - 6,642 6,642 6,642 6,642 0.48 0.48 0.48 - - 2016 0 3,475 (260) 3,215 - - 6,468 6,592 6,592 6,592 0.49 0.49 0.49 - - (2) Weighted average number of shares outstanding (millions of euros), excluding weighted average of treasury shares during the period. (3) Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years. (*) As of December 31, 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 million (€301 and €260 million as of December 31, 2017 and 2016, respectively). As of December 31, 2018, 2017 and 2016, 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. 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 in the reporting structure of the operating segments of the BBVA Group, although its composition is different from the close of 2017, as a result of the agreement of the sale of BBVA Chile (see Note 3). This transaction, which has affected South America´s area composition, is presented as follows, as well as the other operating segments within the BBVA Group: Banking activity in Spain Includes, as in previous years, the Retail Network in Spain, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management units in Spain. It also includes 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 positions 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, the BBVA Group signed a sale agreement with Cerberus for the subsequent sale of 80% of the company created to P.68 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. a subsidiary of Cerberus (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 in the country through the BBVA Compass Group and the BBVA New York branch. Mexico Basically includes all the banking and insurance businesses carried out by the Group 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 reworked to incorporate this change and show comparable series. Turkey Includes the activity of the BBVA Group business in Turkey through Garanti Group. South America Includes BBVA’s banking and insurance businesses in the region. On July 6, 2018, the sale of BBVA Chile to The Bank of Nova Scotia (Scotiabank) (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 business activity in the rest of Europe and Asia, i.e. the Group´s retail and wholesale businesses in the area. 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: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of capital instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with 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). The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2018, 2017 and 2016, is as follows: Total Assets by Operating Segments (Millions of euros) Banking Activity in Spain Non Core Real Estate United States Mexico Turkey South America Rest of Eurasia Subtotal Assets by Operating Segments Corporate Center Total Assets BBVA Group 2018 2017 (1) 2016 (1) 335,294 4,163 82,057 96,455 66,250 52,385 18,000 654,605 22,084 676,689 319,417 9,714 75,775 94,061 78,694 74,636 17,265 669,562 20,497 690,059 335,847 13,713 88,902 93,318 84,866 77,918 19,106 713,670 18,186 731,856 (1) The figures corresponding to 2017 and 2016 have been restated (see Note 1.3). P.69 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The attributable profit and main earning figures in the consolidated income statements for the years ended December 31, 2018, 2017 and 2016 by operating segments are as follows: Main Margins and Profits by Operating Segments (Millions of euros) Operating Segments BBVA Group Spain Non Core Real Estate United States Mexico Turkey South America Rest of Eurasia Corporate Center 2018 Notes Net interest income Gross income 17,591 3,672 23,747 5,943 Operating profit /(loss) before tax 7,580 2,017 Profit 2017 (1) 55.2 5,324 1,522 Net interest income Gross income Operating profit /(loss) before tax Profit 17,758 25,270 6,931 3,519 3,738 6,180 1,854 1,374 55.2 2016 (1) Net interest income Gross income 17,059 3,877 24,653 6,416 Operating profit /(loss) before tax 6,392 1,268 Profit 55.2 3,475 905 32 38 (129) (78) 71 (17) (656) (490) 60 (6) (743) (595) 2,276 5,568 3,135 3,009 2,989 7,193 3,901 3,701 919 735 3,294 2,384 1,448 1,307 569 591 2,119 2,876 748 486 5,476 7,122 2,984 2,187 3,331 4,115 2,147 826 3,200 4,451 1,691 861 1,953 5,126 3,404 2,930 2,706 6,766 4,257 4,054 612 459 2,678 1,980 1,906 1,552 599 771 175 415 144 93 180 468 177 125 166 491 203 151 (276) (432) (1,420) (494) (357) 73 (2,013) (1,848) (455) (31) (1,084) (794) (1) The figures corresponding to 2017 and 2016 have been restated (see Note 1.3). The accompanying Consolidated Management Report presents the consolidated income statements and the balance sheets by operating segments. P.70 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 7. Risk management 7.1 General risk management and control model ........................................................................................ 71 7.1.1 Governance and organization......................................................................................................... 71 7.1.2 Risk Appetite Framework .............................................................................................................. 75 7.1.3 Decisions and processes ............................................................................................................... 77 7.1.4 Assessment, monitoring and reporting......................................................................................... 78 7.1.5 Infrastructure ................................................................................................................................... 79 7.1.6 Risk culture ...................................................................................................................................... 80 7.2 7.3 Risk factors .............................................................................................................................................. 80 Credit risk ................................................................................................................................................. 82 7.3.1 Measurement Expected Credit Loss (ECL) .................................................................................. 83 7.3.2 Credit risk exposure ........................................................................................................................ 85 7.3.3 Mitigation of credit risk, collateralized credit risk and other credit enhancements ................... 90 7.3.4 Credit quality of financial assets that are neither past due nor impaired ....................................91 7.3.5 Past due but not impaired and impaired secured loans risks ..................................................... 93 7.3.6 Impairment losses.......................................................................................................................... 101 7.3.7 Refinancing and restructuring operations .................................................................................. 107 7.4 Market risk ............................................................................................................................................. 109 7.4.1 Market risk trading portfolios ....................................................................................................... 109 7.4.2 Structural risk ................................................................................................................................. 114 7.4.3 Financial Instruments offset ......................................................................................................... 117 7.5 Liquidity risk ........................................................................................................................................... 120 7.5.1 Liquidity risk management ........................................................................................................... 120 7.5.2 Asset encumbrance ...................................................................................................................... 128 7.6 7.7 Operational Risk .................................................................................................................................... 130 Risk concentration ................................................................................................................................ 133 P.71 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 that ensures consistent application of the risk management and control model in the Group, and that guarantees 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. P.72 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. With the aim of ensuring integration of 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 to ensure 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 ensure 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. • Risk planning aligned with the risk appetite framework principles defined by the Group. P.73 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. • 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 ensure 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. P.74 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 ensures 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 guarantee 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 ensures 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 ensure 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 ensuring integration of the risk strategy into the Group's management. In this regard, the Internal Risk Control unit 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. 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. P.75 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 the maximum 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, ensures 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. 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 P.76 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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: Solvency Liquidity and Funding Profitability and Income Recurrence Métrica Economic Solvency Regulatory Solvency: CET1 Fully Loaded Loan to Stable Customer Deposits (LtSCD) Liquidity Coverage Ratio (LCR) Operating Income / Average Total Assets Cost of Risk Return on Equity (ROE) 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. 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. P.77 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. P.78 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 ensures 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. 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 ensure 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. P.79 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 ensure 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. With regards to technology, the Group risk function ensures 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. P.80 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. 7.2 Risk factors As mentioned earlier, BBVA has processes in place for identifying risks and analyzing scenarios that enable the Group to manage risks in a dynamic and proactive way. The risk identification processes are forward looking to ensure 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. Risks are captured 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. P.81 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. To this extent, there are a number of emerging risks that could affect the Group’s business trends. These risks are described in the following main sections: Macroeconomic and geopolitical risks Global economic growth maintained robust in 2018 even if it slowed down more than expected during the second half of the year as a result of the worse development of the trade and the industrial sector as well as the strong increase in financial tensions, especially in developed economies due to the rise of uncertainties. To the worse economic development in Europe and in China, it has to be added the downturn in Asian countries and the deterioration in the expansive cycle 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 activities in the United States and China in the following quarters have to be added as well as the increased political uncertainty in Europe. In summary, the uncertainty related to the economic perspectives continues to be elevated due to the fear of a protectionist escalation and a higher perception of the risk related to the global economic growth. 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. 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, internal control Model, the Code of Conduct, tax strategy 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…) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels...). 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 exposed to increasing litigation, so the financial institutions face a large number of proceedings of every kind, civil, criminal, administrative, litigation, as well as P.82 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. investigations from the supervisor, along several jurisdictions, which consequences are difficult to determine (including those procedures in which an undetermined number of applicants is involved, in which damages claimed are not easy to estimate, in which an exorbitant amount is claimed, in which new jurisdictional issues are introduced under creative non – contrasted legal arguments and those which are at a very initial stage). In Spain, in many of the existing procedures, applicants claim, both at Spanish courts and through prejudicial issues towards the European Union Court of Justice that various clauses usually included under a mortgage loan with credit institutions are stated abusive (mortgage fees clauses, early redemption right clause, referenced interest rate type, opening fee, etc.). Resolutions for these types of procedures against the Group or other banking entities might directly or indirectly affect the Group. The BBVA Group is involved in several competition investigations in various countries which may give raise to penalties and claims by third parties. As explained in section Other Non-Financial Risks of the Non-Financial Information Report within the Management Report, the Group might be equally subject to investigations by the judicial authorities, without the Bank having received any formal notice for the moment, in relation with the engagement of allegedly irregular activities, which might have a negative impact, both reputational and economic for the Bank. The Bank is carrying out a forensic investigation led by PwC which has been engaged through the Bank’s external legal counsel Garrigues, together with Uría. The Bank cannot predict at this moment the scope or the duration of those investigations or any other investigations carried out by the judicial authorities, or its possible outcome or implications for the Group. The BBVA Group manages and constantly monitors judicial and regulatory investigations, procedures and actions for the defense of its interests, charging (taking into account the number of outstanding litigation and the status of the relevant procedures or actions) the corresponding provisions for its coverage if necessary. However, the result of the referred judicial or regulatory actions and procedures, both in which the Bank is already part of, as well as those that may raise in the future or those involving other banking entities, is difficult to predict, so in case of modification of the jurisprudential criteria or unexpected results of any of such litigation, charged provisions may be not sufficient. 7.3 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 principles underpinning credit risk management in BBVA are as follows: Availability of basic information for the study and proposal of risk, and supporting documentation for approval, which sets out the conditions required by the internal relevant body. Sufficient generation of funds and asset solvency of the customer to assume principal and interest repayments of loans owed. Establishment of adequate and sufficient guarantees that allow effective recovery of the transaction, this being considered a secondary and exceptional method of recovery when the first has failed. 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. P.83 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. At Group level: frameworks for action and standard rules of conduct are defined for handling risk, specifically, the circuits, 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: • 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 7.3.1 Measurement Expected Credit Loss (ECL) IFRS 9 requires determining the expected credit loss of a financial instrument in a way that reflects an unbiased estimation removing any conservatism or optimism, the time value of money and a forward looking perspective (including the economic forecast). 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. 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 uses the classical credit risk parameters PD, LGD and EAD in order to calculate the ECL for the credit portfolios. BBVA´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. How economic scenarios are reflected in calculation of ECL The forward looking component is added 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. Based on economic theory and analysis, the macroeconomic variables most directly relevant for explaining and forecasting the selected risk parameters (PD, LGD) are: a) The net income of families, corporates or public administrations. b) The payment amounts on the principal and interest on the outstanding loans. c) The value of the collateral assets pledge to the loan. P.84 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 core macroeconomic indicators should be chosen as first choice: for a) using Real GDP Growth for the purpose of conditional forecasting can be seen as the single sufficient “factor” required for capturing the influence of all potentially relevant macro-financial scenario on internal PDs and LGD ; for b) using the most representative short term interest rate (typically the policy rate or the most liquid sovereign yield or interbank rate or EMBI) or exchange rates expressed in real terms and for c) using a comprehensive index of the price of real estate properties also expressed in real terms in the case of mortgage loans and a representative index of the price of the relevant commodity (in real terms) for corporate loan portfolios concentrated in exporters or producer of such commodity. 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 IFRS9 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, 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. 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 approach in BBVA 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. It is important to note that in 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. P.85 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 7.3.2 Credit risk exposure In accordance with IFRS 7 “Financial Instruments: Disclosures”, the BBVA Group’s maximum credit risk exposure (see definition below) by headings in the balance sheets as of December 31, 2018 is provided below. It does not consider the availability of collateral or other credit enhancements to guarantee instruments and compliance with payment obligations. The details are broken down by financial counterparties. Maximum Credit Risk Exposure (Millions of euros) Notes 2018 Financial assets held for trading Debt securities Equity instruments Loans and advances Non-trading financial assets mandatorily at fair value through profit or loss Loans and advances Debt securities Equity instruments Financial assets designated at fair value through profit or loss Derivatives (trading and hedging) Financial assets at fair value through other comprehensive income Debt securities Equity instruments Financial assets at amortized cost Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers Debt securities Total financial assets risk 10 10 10 11 11 11 12 13.1 13.1 59,581 25,577 5,254 28,750 5,135 1,803 237 3,095 1,313 38,249 56,332 53,737 2,595 431,927 3,947 9,175 386,225 32,580 592,538 Stage 1 Stage 2 Stage 3 56,329 53,734 2,595 384,632 3,947 9,131 339,204 32,350 440,960 3 3 - 30,902 - 34 30,673 195 30,905 8,120 - - - 16,394 - 10 16,348 35 16,394 987 Total loan commitments and financial guarantees Total maximum credit exposure There was no similar breakdown before the implementation of IFRS 9 on January 1, 2018 (see Note 2.1). 170,511 763,049 161,404 33 The maximum credit exposure presented in the table above is determined by type of financial asset as explained below: In the case of financial assets recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including impairment losses), with the sole exception of derivatives and hedging derivatives. The maximum credit risk exposure on financial guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, and that is their amount. 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 commitments and fair values on the reporting date (mark-to-market). The second factor, potential risk (‘add-on’), is an estimate of the maximum increase to be expected on risk exposure over a derivative fair value (at a given statistical confidence level) as a result of future changes in the fair value over the remaining term of the derivatives. The consideration of the potential risk ("add-on") relates 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 time 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 P.86 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. potential changes in exposure during the life of the contract. This is especially important for derivatives, whose valuation changes substantially throughout their terms, depending on the fluctuation of market prices. The breakdown by counterparty and product of loans and advances, net of impairment losses, as well as the gross carrying amount by type of product, classified in the different headings of the assets, as of December 31, 2018, 2017 and 2016 is shown below: P.87 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2018 (Millions of Euros) By product On demand and short notice Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans Loans and advances By secured loans of which: mortgage loans collateralized by immovable property of which: other collateralized loans By purpose of the loan of which: credit for consumption of which: lending for house purchase By subordination of which: project finance loans Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total Provisions Gross carrying amount - - - - 3,911 29 3,941 - 10 8 948 226 293 26,839 1,592 29,917 1,056 7,179 - 1 - - 477 2,947 5,771 9,196 15 285 151 2 195 3 - 7,030 2,088 9,468 219 1,389 2,833 2,328 16,190 8,014 - 133,573 984 163,922 26,784 31,393 13,973 648 13,108 103 406 - 157,760 498 172,522 111,809 6,835 40,124 111,007 3,641 15,446 17,436 8,650 770 332,060 10,962 388,966 139,883 47,081 40,124 111,007 (193) (1,048) (280) (427) (1) (10,204) (63) (12,217) (4,122) (774) (2,613) (1,945) 3,834 16,495 17,716 9,077 772 342,264 11,025 401,183 144,005 47,855 42,736 112,952 13,973 (312) 14,286 P.88 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2017 (Millions of euros) Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total On demand and short notice Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans Loans and advances of which: mortgage loans (Loans collateralized by immovable property) of which: other collateralized loans of which: credit for consumption of which: lending for house purchase of which: project finance loans - - - 305 6,993 2 7,301 222 6 1,624 205 1,290 26,983 1,964 32,294 998 7,167 - - - - 13,793 4,463 8,005 26,261 - 13,501 270 3 497 36 10,912 5,763 1,044 18,525 308 12,907 7,663 1,862 20,385 8,040 - 125,228 1,459 164,637 37,353 24,100 16,412 2,405 13,964 198 361 - 155,418 522 172,868 116,938 9,092 40,705 114,709 10,560 15,835 22,705 8,642 26,300 324,848 12,995 421,886 155,597 66,767 40,705 114,709 16,412 P.89 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2016 (Millions of euros) Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total On demand and short notice Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans Loans and advances of which: mortgage loans [Loans collateralized by immovable property] of which: other collateralized loans of which: credit for consumption of which: lending for house purchase of which: project finance loans - - - 81 8,814 - 8,894 373 1 2,091 261 544 29,140 2,410 34,820 4,722 3,700 - - - - 15,597 7,694 8,083 31,373 112 15,191 246 1 998 57 6,746 6,878 2,082 17,009 690 8,164 8,125 1,875 20,246 8,647 - 136,105 1,194 176,192 44,406 21,863 19,269 2,507 14,719 418 477 - 167,892 620 186,633 132,398 6,061 44,504 127,606 11,251 16,596 23,753 9,442 22,968 356,524 14,389 454,921 182,328 54,979 44,504 127,606 19,269 P.90 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 7.3.3 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. 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. The procedures for the management and valuation of collateral are set out in the Corporate Policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers. 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 following is a description of the main types of collateral for each financial instrument class: Financial instruments held for trading: The guarantees or credit enhancements obtained directly from the issuer or counterparty are implicit in the clauses of the instrument. 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. The summary of the compensation effect (via netting and collateral) for derivatives and securities operations is presented in Note 7.4.3. 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. At December 31, 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). Financial assets at amortized cost: • • Loans and advances to credit institutions: These usually only have the counterparty’s personal guarantee. 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.). P.91 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. • 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) Impaired financial assets at amortized cost Total Maximum exposure to credit risk 16,394 16,394 Of which secured by collateral Residential properties Commercial properties Cash Others Financial 3,484 3,484 1,255 1,255 13 13 317 317 502 502 Financial guarantees, other contingent risks and drawable by third parties: These have the counterparty’s personal guarantee. The maximum credit risk exposure of impaired financial guarantees and other commitments at December 31, 2018 amounts to €987 million (see Note 7.3.2). 7.3.4 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. 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-approved 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 P.92 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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: External rating Internal rating Standard&Poor's List Reduced List (22 groups) Average Probability of default (basic points) Minimum from >= Maximum AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC+ CC CC- AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ BB BB- B+ B B- CCC+ CCC CCC- CC+ CC CC- 1 2 3 4 5 8 10 14 20 31 51 88 150 255 441 785 1,191 1,500 1,890 2,381 3,000 3,780 - 2 3 4 5 6 9 11 17 24 39 67 116 194 335 581 1,061 1,336 1,684 2,121 2,673 3,367 2 3 4 5 6 9 11 17 24 39 67 116 194 335 581 1,061 1,336 1,684 2,121 2,673 3,367 4,243 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. P.93 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 of BBVA Group as of December 31, 2018 is shown below: Probability of default (basic points) 0 to 2 2 to 5 5 to 11 11 to 39 39 to 194 194 to 1,061 1,061 to 2,121 > 2,021 Total December 2018 Subject to 12 month ECL (Stage 1) Subject to lifetime ECL (Stage 2) % 9.6 10.8 6.3 20.9 30.1 12.2 1.6 0.2 91,7 % - 0.1 - 0.4 1.8 3.6 1.2 1.2 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): P.94 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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) Debt securities Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households TOTAL Loans and advances by product, by collateral and by subordination On demand (call) and short notice (current account) Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans of which: mortgage loans collateralized by immovable property of which: other collateralized loans of which: credit for consumption of which: lending for house purchase of which: project finance loans <= 30 days > 30 days <= 90 days > 90 days <= 30 days > 30 days <= 90 days > 90 days <= 30 days > 30 days <= 90 days > 90 days - 4,191 - 95 3 117 1,140 2,835 4,191 127 182 46 307 - 3,421 108 1,681 255 910 1,365 1 - 454 - 7 - 224 158 64 454 - 10 12 16 - 325 89 38 14 27 24 - - - - - - - - - - - - - - - - - - - - - - - - 4,261 3,228 - 5 - 2 1,282 2,971 4,261 25 598 20 43 - 3,575 - 1,598 742 1,278 1,394 - - 1 - - 1,180 2,047 3,228 47 102 106 102 - 2,869 1 1,745 99 424 1,404 382 - - - - - - - - - - - - - - - - - - - - - - 407 - 5 - - 149 254 407 3 24 2 10 - 369 - 251 22 49 170 - - 900 - 5 - - 276 618 900 4 25 11 20 - 840 - 712 21 49 507 - 5 2,769 - 26 - 5 1,333 1,404 2,774 52 120 50 110 - 2,433 4 1,365 103 281 839 71 P.95 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2017 (Millions of euros) (*) Debt securities Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households TOTAL Loans and advances by product, by collateral and by subordination On demand (call) and short notice (current account) Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans of which: mortgage loans (Loans collateralized by immovable property) of which: other collateralized loans of which: credit for consumption of which: lending for house purchase of which: project finance loans Past due but not impaired ≤ 30 days > 30 days ≤ 60 days > 60 days ≤ 90 days 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 - 3,432 - 75 - 2 843 2,512 3,432 77 397 115 138 - 2,705 1 1,345 592 1,260 1,034 - 759 - 3 - - 153 603 759 12 66 8 66 - 606 - 360 137 248 307 - 503 - 13 - - 170 319 503 11 118 9 47 - 317 1 164 43 207 107 13 - 25 66 38 (28) (21) - 19,401 10,726 (8,675) (4,109) (29,938) - (69) (30) (19) (1,939) (2,052) (4,130) - (27) (5) (5) (18,988) (10,913) (29,938) - 171 11 12 10,791 8,417 19,467 389 629 515 431 - - 129 5 6 5,192 5,395 10,764 151 190 179 155 - 17,417 10,047 20 11,388 803 1,551 5,730 1,165 3 7,630 493 457 4,444 895 - (42) (6) (7) (5,599) (3,022) (8,703) (238) (439) (336) (276) - (7,370) (16) (3,757) (310) (1,093) (1,286) (271) (*) Figures originally reported in the year 2017 in accordance to the applicable regulation, without restatements. P.96 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2016 (Millions of euros) (*) Debt securities Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households TOTAL Loans and advances by product, by collateral and by subordination On demand (call) and short notice (current account) Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans of which: mortgage loans (Loans collateralized by immovable property) of which: other collateralized loans of which: credit for consumption of which: lending for house purchase of which: project finance loans Past due but not impaired <= 30 days > 30 days <= 60 days > 60 days <= 90 days 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 (46) (5,224) - (13) (36) (57) (2,789) (2,329) (5,270) (1) (29,346) - (13) (5) (6) (18,020) (11,303) (29,347) - 3,384 - 66 3 4 968 2,343 3,384 79 377 51 188 - 2,685 5 1,202 593 1,186 883 138 - 696 - - - 7 209 479 696 15 88 15 107 - 469 - 265 124 227 194 - - 735 - 2 82 21 204 426 735 29 124 13 59 82 407 21 254 47 269 105 - 272 22,925 - 295 10 34 13,786 8,801 23,197 562 643 424 516 1 20,765 14 16,526 1,129 1,622 6,094 253 128 12,133 - 256 3 8 6,383 5,483 12,261 249 114 87 252 - 11,429 2 9,008 656 455 4,546 105 (144) (10,793) - (39) (7) (25) (7,402) (3,319) (10,937) (313) (529) (337) (264) (1) (9,336) (12) (5,850) (275) (1,168) (1,548) (147) (*) Figures originally reported in the year 2016 in accordance to the applicable regulation, without restatements. P.97 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The breakdown of loans and advances, within financial assets at amortized cost, impaired and accumulated impairment by sectors as of December 31, 2018, 2017 and 2016 is as follows: December 2018 (Millions of euros) Non-performing loans and advances Accumulated impairment Non-performing loans and advances as a % of the total General governments Credit institutions Other financial corporations Non-financial corporations Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply Construction Wholesale and retail trade Transport and storage Accommodation and food service activities Information and communication Financial and insurance activities Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defense, compulsory social security Education Human health services and social work activities Arts, entertainment and recreation Other services Households LOANS AND ADVANCES 128 10 11 8,372 122 96 1,695 585 19 1,488 1,624 459 315 113 147 834 204 128 5 31 63 59 386 7,838 16,359 (84) (12) (22) (6,260) (107) (70) (1,134) (446) (15) (1,007) (1,259) (374) (204) (72) (128) (624) (171) (125) (7) (31) (63) (41) (382) (5,833) (12,211) 0.4% 0.1% 0.1% 4.9% 3.3% 1.9% 4.6% 4.2% 1.8% 12.5% 6.3% 4.7% 4.0% 2.1% 2.1% 4.8% 4.0% 4.0% 1.6% 3.4% 1.4% 4.5% 3.9% 4.4% 4.1% P.98 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2017 (Millions of euros) General governments Credit institutions Other financial corporations Non-financial corporations Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply Construction Wholesale and retail trade Transport and storage Accommodation and food service activities Information and communication Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defense, compulsory social security Education Human health services and social work activities Arts, entertainment and recreation Other services Households LOANS AND ADVANCES 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 171 11 12 10,791 166 177 1,239 213 29 2,993 1,706 441 362 984 1,171 252 188 4 31 75 69 690 8,417 19,401 (111) (36) (26) (7,538) (123) (123) (955) (289) (11) (1,708) (1,230) (353) (222) (256) (1,100) (183) (130) (6) (25) (68) (38) (716) (5,073) (12,784) 0.5% 0.3% 0.1% 6.3% 4.3% 3.7% 3.6% 1.8% 4.5% 20.1% 5.9% 4.2% 4.3% 17.0% 7.9% 3.8% 6.3% 1.9% 3.4% 1.7% 4.6% 4.3% 4.7% 4.5% P.99 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2016 (Millions of euros) General governments Credit institutions Other financial corporations Non-financial corporations Agriculture, forestry and fishing Mining and quarrying Manufacturing Electricity, gas, steam and air conditioning supply Water supply Construction Wholesale and retail trade Transport and storage Accommodation and food service activities Information and communication Real estate activities Professional, scientific and technical activities Administrative and support service activities Public administration and defense, compulsory social security Education Human health services and social work activities Arts, entertainment and recreation Other services Households LOANS AND ADVANCES Non-performing Accumulated impairment or Accumulated changes in fair value due to credit risk Non- performing loans and advances as a % of the total 295 10 34 (52) (42) (82) 13,786 (10,192) 221 126 1,569 569 29 5,358 1,857 442 499 112 1,441 442 182 18 58 89 84 691 8,801 22,925 (188) (83) (1,201) (402) (10) (3,162) (1,418) (501) (273) (110) (1,074) (380) (107) (25) (31) (88) (51) (1,088) (5,648) (16,016) 0.8% - 0.2% 7.4% 5.1% 3.3% 4.5% 3.2% 3.5% 26.3% 6.2% 4.5% 5.9% 2.2% 8.7% 6.0% 7.3% 3.0% 5.4% 1.8% 5.1% 4.2% 4.6% 5.0% P.100 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The changes during the years 2018, 2017 and 2016 of impaired financial assets and contingent risks are as follow: Changes in Impaired Financial Assets and Contingent Risks (Millions of euros) Balance at the beginning Additions Decreases (*) Net additions Amounts written-off Exchange differences and other Balance at the end 2018 2017 2016 20,590 9,792 (6,909) 2,883 (5,076) (1,264) 17,134 23,877 10,856 (7,771) 3,085 (5,758) (615) 20,590 26,103 11,133 (7,633) 3,500 (5,592) (134) 23,877 (*) 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). The changes during the years 2018, 2017 and 2016 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely (hereinafter "write-offs"), is shown below: Changes in Impaired Financial Assets Written-Off from the Balance Sheet (Millions of Euros) Balance at the beginning Acquisition of subsidiaries in the year Increase: Decrease: Re-financing or restructuring Cash recovery Foreclosed assets Sales of written-off Debt forgiveness Time-barred debt and other causes Net exchange differences Balance at the end Notes 2018 2017 2016 30,139 29,347 26,143 47 - 6,164 (4,210) (10) (589) (625) (1,805) (889) (292) 250 32,343 - 5,986 (4,442) (9) (558) (149) (2,284) (1,121) (321) (752) 30,139 - 5,699 (2,384) (32) (541) (210) (45) (864) (692) (111) 29,347 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 time-barred financial asset, the financial asset is condoned, or other reasons. P.101 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 7.3.6 Impairment losses Below are the changes in the years ended December 31, 2018, 2017 and 2016, in the provisions recognized on the accompanying consolidated balance sheets to cover estimated impairment losses 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: P.102 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Financial assets at amortized cost. December 2018 (Millions of Euros) Opening balance (under IFRS 9) 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 New financial assets originated Purchased Disposals Repayments Write-offs Changes in model/ methodology Foreign exchange Modifications that result in derecognition Modifications that do not result in derecognition Other Closing balance Not credit-impaired Credit-impaired Stage 1 Stage 2 Credit-impaired (Stage 3) Purchased/originated credit-impaired (Stage 3) Total Loss allowances Loss allowances (collectively assessed) Loss allowances (individually assessed) Loss allowances Loss allowances Loss allowances (2,237) - 208 (125) 55 (7) 358 (1,072) - 2 641 13 - (84) 5 3 135 (2,106) (1,827) - (930) 619 282 (126) (53) (375) - 3 432 14 - 72 10 (8) 133 (1,753) (525) - (218) 50 564 (68) (260) (244) - - 118 2 - (93) 25 1 20 (628) (9,371) - - - (2,127) 333 (3,775) - - 110 1,432 4,433 - 343 98 (362) 1,111 (7,777) - - - - - - - - - - - - - - - - - - (13,960) - (940) 544 (1,226) 132 (3,730) (1,692) - 115 2,623 4,461 - 239 138 (366) 1,399 (12,264) P.103 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Financial assets at fair value through other comprehensive income. December 2018 (Millions of Euros) Opening balance (under IFRS 9) 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 New financial assets originated Purchased Disposals Repayments Write-offs Changes in model/ methodology Foreign exchange Modifications that result in derecognition Modifications that do not result in derecognition Other Closing balance Not credit-impaired Credit-impaired Stage 1 Stage 2 Credit-impaired (Stage 3) Purchased/originate d credit-impaired (Stage 3) Total Loss allowances Loss allowances (collectively assessed) Loss allowances (individually assessed) Loss allowances Loss allowances Loss allowances (20) - - - - - (7) (3) - - 5 - - 2 - - (5) (28) (1) - - - - - - - - - - - - - - - 1 - - - - - - - - - - - - - - - - - - - (14) - - - - - 16 - - - - - - - - (11) 8 - - - - - - - - - - - - - - - - - - - (35) - - - - - 9 (3) - - 5 - - 2 - (11) 4 (28) P.104 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Loan commitments and financial guarantees. December 2018 (Millions of Euros) Opening balance (under IFRS 9) 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 New financial assets originated Purchased Disposals Repayments Write-offs Changes in model/ methodology Foreign exchange Modifications that result in derecognition Modifications that do not result in derecognition Other Closing balance Not credit-impaired Credit-impaired Stage 1 Stage 2 Credit-impaired (Stage 3) Purchased/originate d credit-impaired (Stage 3) Total Loss allowances Loss allowances (collectively assessed) Loss allowances (individually assessed) Loss allowances Loss allowances Loss allowances (200) - 14 (8) 1 (3) 14 (102) - - 47 - - 11 - - (6) (232) (135) - (84) 65 4 (3) 12 (32) - - 58 - - 1 - - (13) (127) (84) - (11) 1 16 - 6 (20) - - 24 - - (2) - - 10 (60) (285) - - - (48) 20 35 - - 1 73 - - 6 - (32) 13 (217) - - - - - - - - - - - - - - - - - - (704) - (81) 58 (27) 14 67 (154) - 1 202 - - 16 - (32) 4 (636) P.105 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2017 (Millions of euros) (*) Equity instruments Specific allowances for financial assets, individually and collectively estimated Debt securities Central banks General governments Credit institutions Other financial corporations Non-financial corporations Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Collective allowances for incurred but not reported losses on financial assets Debt securities Loans and advances Total 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 (10,937) (144) - - (15) (26) (103) (10,793) - (39) (7) (25) (7,402) (3,319) (5,270) (46) (5,224) (16,206) (7,484) (26) - - (5) (4) (17) (7,458) - (70) (2) (287) (3,627) (3,472) (1,783) (8) (1,776) (9,267) 2,878 4,503 6 - - 4 2 - - - - - - - 1,810 123 - - 16 - 107 2,872 4,503 1,687 - 37 2 3 1,993 837 2,159 30 2,128 5,037 - 14 - 38 3,029 1,422 1,537 1 1,536 6,038 - 1 - 227 (228) 1,687 (1,328) - (1,328) 482 526 13 - - - 13 - 513 - 15 1 38 636 (177) 557 3 554 1,083 (8,703) (28) - - - (16) (12) (8,675) - (42) (6) (7) (5,599) (3,022) (4,130) (21) (4,109) (12,833) 558 - - - - - - 558 - 1 - - 345 212 - - - 558 (*) Figures originally reported in the year 2017 in accordance to the applicable regulation, without restatements. P.106 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2016 (Millions of euros) Equity instruments Specific allowances for financial assets, individually and collectively estimated Debt securities Central banks General governments Credit institutions Other financial corporations Non-financial corporations Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Collective allowances for incurred but not reported losses on financial assets Debt securities 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 2,708 5,673 (12,866) (35) - - (20) (15) - (12,831) - (37) (17) (38) (9,225) (3,514) (6,024) (113) (6,912) (167) - - - (29) (138) (6,745) - (2) (2) (34) (3,705) (3,002) (1,558) (11) 6 - - - 3 3 2,702 - 20 3 9 2,158 511 1,463 15 64 - - 5 26 33 5,610 - 6 - 22 3,257 2,325 88 1 87 (123) (10) - - - (10) - (113) - (27) 10 10 (278) 172 775 64 711 583 (2) - - - (1) (1) 585 - 2 (3) 6 391 189 (15) - (15) (10,937) (144) - - (15) (26) (103) (10,793) - (39) (7) (25) (7,402) (3,319) (5,270) (46) (5,224) 540 - - - - - - 540 - 1 - - 335 205 1 - - Loans and advances Total (*) Figures originally reported in the year 2016 in accordance to the applicable regulation, without restatements. (18,890) (8,470) (1,546) (5,911) 4,172 1,449 5,762 652 568 (16,206) 541 P.107 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 7.3.7 Refinancing and restructuring operations Group policies and principles with respect to refinancing and restructuring operations Refinancing and restructuring transactions (see definition in the Glossary) are carried out with customers who have requested such an operation 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 operation 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, 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 operations do not in general increase the amount of the customer’s loan, except for the expenses inherent to the operation itself. The capacity to refinance and restructure 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 loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of 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 operations 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 operation in all cases. No arrangements may be concluded that involve a grace period for both principal and interest. Refinancing and restructuring of operations is only allowed on those loans in which the BBVA Group originally entered into. Customers subject to refinancing and restructuring operations are excluded from marketing campaigns of any kind. the In refinancing/restructuring is authorized according to an economic and financial viability plan based on: case of non-retail companies, enterprises customers (mainly and corporates), P.108 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 operation does not meet the loan is reclassified from "impaired" or "significant increase in credit risk" to outstanding 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). 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; and 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; 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 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 to non- restructured and 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). rating assigned the average renegotiated internal loans than For quantitative information on refinancing and restructuring operations see Appendix XII. P.109 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. P.110 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Most of the headings on the Group's balance sheet subject to market risk are positions whose main 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 2016 in which there is a market risk in trading activity subject to this measurement: Headings of the balance sheet under market risk (Millions of euros) Assets subject to market risk Financial assets held for trading Financial assets at fair value through other comprehensive income Of which: Equity instruments Derivatives - Hedging accounting Liabilities subject to market risk Financial liabilities held for trading Derivatives - Hedging accounting 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 (*) - - - 57,486 28,459 59,008 - 441 - 64,623 - 1,480 5,652 19,125 5,661 24,083 7,119 28,771 - 688 38,844 550 2,046 1,061 40,026 910 - 829 42,468 1,157 2,404 1,397 2,526 638 - 1,041 47,491 1,305 3,559 1,415 2,223 689 (*) 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. 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. P.111 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. P.112 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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. P.113 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. As of December 31, 2018, 2017 and 2016 the balance of VaR was €21 million, €27 million and €29 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 VaR max in the year VaR min in the year End of period VaR December 2017 VaR average in the year VaR max in the year VaR min in the year End of period VaR December 2016 VaR average in the year VaR max in the year VaR min in the year End of period VaR - 20 23 17 19 - 25 27 23 23 - 28 30 21 29 - 6 7 6 5 - 10 11 7 7 - 10 16 10 7 - 4 6 4 3 - 3 2 4 4 - 4 4 1 2 - 9 11 7 7 - 13 12 14 14 - 11 11 11 12 - (20) (21) (18) (17) - (23) (19) (26) (26) - (23) (23) (20) (24) - 21 26 16 17 - 27 34 22 22 - 29 38 23 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 in the portfolio positions. This validates the account the appropriateness of the market risk metrics for the end-of-day position. intraday results or the changes "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. P.114 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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: Expected Shortfall (99) (33) (11) - (5) (6) (6) (1) 0 Europe Mexico Peru Venezuela Argentina Colombia Turkey Compass Millions of Euros 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 P.115 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. P.116 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 0 Europe (***) Mexico USA Turkey South America BBVA Group Impact on Net Interest Income (*) Impact on Economic Value (**) 0 100 Basis-Point Increase 100 Basis-Point Decrease 100 Basis-Point Increase 100 Basis-Point Decrease + (5% - 10%) + (0% - 5%) + (5% - 10%) + (0% - 5%) + (0% - 5%) + (0% - 5%) - (5% - 10%) - (0% - 5%) - (5% - 10%) - (0% - 5%) - (0% - 5%) - (0% - 5%) + (0% - 5%) + (0% - 5%) - (5% - 10%) - (0% - 5%) - (0% - 5%) - (0% - 5%) - (0% - 5%) - (0% - 5%) + (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. 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. P.117 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 a 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. 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. P.118 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. P.119 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Reverse repurchase, securities borrowing and similar agreements Total Assets Trading and hedging derivatives Repurchase, securities lending and similar agreements Total liabilities 10, 15 December 2017 (Millions of euros) 10, 15 49,908 16,480 33,428 25,024 28,074 77,982 51,596 43,035 94,631 42 16,522 17,101 42 17,143 28,032 61,460 34,494 42,993 77,487 28,022 53,046 25,024 42,877 67,901 7,790 169 7,959 6,788 34 6,822 613 (159) 454 2,682 82 2,765 Gross Amounts Not Offset in the Consolidated Balance Sheets (D) 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) 49,333 11,584 37,749 27,106 26,426 75,759 56 11,641 26,369 64,118 26,612 53,717 50,693 40,134 90,827 11,644 56 11,701 39,049 40,078 79,126 27,106 40,158 67,264 7,442 141 7,583 8,328 21 8,349 3,202 (384) 2,818 3,615 (101) 3,514 Gross Amounts Not Offset in the Consolidated Balance Sheets (D) 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) 59,374 13,587 45,788 32,146 25,833 85,208 2,912 16,499 22,921 68,709 23,080 55,226 59,545 49,474 109,019 14,080 2,912 16,991 45,465 46,562 92,027 32,146 47,915 80,061 6,571 174 6,745 7,272 176 7,448 7,070 (333) 6,738 6,047 (1,529) 4,518 Note s 10, 15 10, 15 Note s 10, 15 10, 15 Trading and hedging derivatives Reverse repurchase, securities borrowing and similar agreements Total Assets Trading and hedging derivatives Repurchase, securities lending and similar agreements Total liabilities December 2016 (Millions of euros) Trading and hedging derivatives Reverse repurchase, securities borrowing and similar agreements Total Assets Trading and hedging derivatives Repurchase, securities lending and similar agreements Total liabilities P.120 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Group Eurozone Bancomer Compass(*) Garanti 0 December 2018 December 2017 127% 145% 154% 143% 209% 128% 151% 148% 144% 134% (*) Compass LCR calculated according to local regulation (Fed Modified LCR). 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 P.121 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Group (average) Eurozone Bancomer Compass Garanti Other LMUs 0 December 2018 December 2017 December 2016 106% 101% 114% 119% 110% 99% 110% 108% 109% 109% 122% 108% 113% 113% 113% 108% 124% 107% 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. P.122 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Cash and withdrawable central bank reserves Level 1 tradable assets Level 2A tradable assets Level 2B tradable assets Other tradable assets Non tradable assets eligible for central banks Cumulated Counterbalancing Capacity December 2017 (Millions of euros) Cash and withdrawable central bank reserves Level 1 tradable assets Level 2A tradable assets Level 2B tradable assets Other tradable assets Non tradable assets eligible for central banks Cumulated Counterbalancing Capacity BBVA Eurozone BBVA Bancomer BBVA Compass Garanti Bank Other 26,506 29,938 449 4,040 5,661 - 7,666 4,995 409 33 1,372 - 1,667 10,490 510 - 1,043 2,314 7,633 6,502 - - 499 - 6,677 3,652 - - 617 - 66,594 14,475 16,024 14,634 10,946 BBVA Eurozone (1) 15,634 38,954 386 4,995 6,734 - 66,703 BBVA Bancomer BBVA Compass Garanti Bank Other 8,649 3,805 418 69 1,703 - 2,150 9,028 753 - 1,252 2,800 6,692 5,705 - - 962 - 6,083 6,141 10 21 1,573 - 14,644 15,983 13,359 13,828 (1) It 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. P.123 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2018, 2017 and 2016: P.124 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. December 2018. 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 Deposits in credit entities Deposits in other financial institutions Reverse repo, securities borrowing and margin lending Loans and Advances Securities' portfolio settlement 9,550 801 1 - 40,599 3,211 1,408 - 216 750 - 141 664 21,266 1,655 1,158 - 83 647 805 - 152 375 498 - 133 1,724 - 178 896 - 27 1,286 - 1,269 2,764 50,149 6,211 10,515 205 1,352 390 210 27,539 132 19,825 25,939 23,265 15,347 16,433 42,100 32,336 53,386 120,571 349,334 - 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) 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 Deposits in financial institutions Deposits in other financial institutions and international agencies Customer deposits Security pledge funding Derivatives, net - 1 7,107 - 2,678 5,599 - 1,652 751 - 2,160 1,992 - 2,425 377 - 2,736 1,240 - 7,225 1,149 10,680 4,327 1,580 458 302 309 781 - - - 8,578 16,040 26,363 - 69,858 19,544 904 229 304 196 825 1,692 21,258 252,630 44,866 18,514 10,625 6,217 7,345 5,667 2,137 1,207 1,310 350,518 40 - 46,489 (75) 2,219 (523) 2,274 (68) 114 (5) 97 22,911 (117) 498 526 (91) 218 (67) 1,627 76,515 (392) (840) P.125 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 Deposits in credit entities Deposits in other financial institutions Reverse repo, securities borrowing and margin lending 8,179 31,029 252 4,391 1 939 - 181 758 18,979 2,689 1,921 - 169 796 541 - 120 628 426 - 122 447 815 - 116 1,029 30 - 112 681 727 - 157 806 226 - 39,208 1,868 7,488 1,975 8,060 - 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 Deposits in financial institutions Deposits in other financial institutions and international agencies Customer deposits Security pledge funding Derivatives, net - 6,831 3,648 5,863 4,209 1,082 4,238 2,335 10,700 4,827 3,290 1,959 1,227 392 554 2,456 1,714 1,328 5,772 6,432 18,391 30,162 76,535 930 963 765 286 171 355 1,429 21,512 1,045 25,307 233,068 45,171 18,616 11,428 8,711 10,368 7,607 2,612 1,833 2,034 341,448 - - 35,502 2,284 1,405 (18) (110) (116) 396 (135) 973 (117) 64 23,009 338 1,697 65,668 (336) (91) (106) (419) (1,448) P.126 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 Deposits in credit entities Deposits in other financial institutions Reverse repo, securities borrowing and margin lending 23,191 13,825 991 1 - 4,068 1,192 20,232 - 254 967 544 - 155 675 523 - 48 714 - - 72 532 428 - 117 1,330 500 - 87 918 286 - 122 942 124 - 37,016 4,087 10,002 336 7,608 189 22,826 Loans and Advances Securities' portfolio settlement 591 20,272 25,990 22,318 16,212 15,613 - 708 3,566 3,688 2,301 4,312 44,956 19,320 35,093 10,010 55,561 133,589 370,195 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 Deposits in financial institutions Deposits in other financial institutions and international agencies Customer deposits Security pledge funding Derivatives, net 419 6,762 7,380 5,365 2,943 1,181 5,547 2,104 3,463 800 5,967 2,176 15,375 6,542 8,624 3,382 2,566 1,897 206,140 49,053 25,522 15,736 11,863 11,343 - - 38,153 3,561 1,403 1,004 (2,123) (95) (190) (111) 912 (326) 7,825 5,963 14,016 31,875 85,397 746 1,156 1,340 8,619 1,281 (132) 686 5,060 640 (82) 859 875 781 3,714 24,862 2,825 44,114 936 335,052 23,959 1,712 72,626 (105) (47) (3,210) P.127 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 an 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. P.128 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) 0-dic.-1900 0 Assets Equity instruments Debt Securities Loans and Advances and other assets December 2017 (Millions of euros) Assets Equity instruments Debt Securities Loans and Advances and other assets December 2016 (Millions of euros) Assets Equity instruments Debt Securities Loans and Advances and other assets 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 1,864 31,157 74,928 1,864 32,216 6,485 82,209 478,880 6,485 82,209 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 - 2,297 28,700 79,604 - 2,297 29,798 - - 9,616 84,391 485,451 - 9,616 84,391 - 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 2,214 40,114 94,718 2,214 39,972 9,022 90,679 495,109 9,022 90,679 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. P.129 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) 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 Equity instruments Debt securities Loans and Advances and other assets Own debt securities issued other than own covered bonds or ABSs December 2017. Collateral received (Millions of euros) 27,474 89 27,385 - 78 5,633 82 5,542 8 87 319 - 300 19 - 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 Equity instruments Debt securities Loans and Advances and other assets Own debt securities issued other than own covered bonds or ABSs 23,881 103 23,715 63 3 9,630 5 9,619 6 161 201 - 121 80 - 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 Equity instruments Debt securities Loans and Advances and other assets Own debt securities issued other than own covered bonds or ABSs 19,921 58 19,863 - 5 10,039 59 8,230 1,750 - 173 - 28 144 - 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. P.130 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) 0 Book value of financial liabilities Derivatives Loans and Advances Outstanding subordinated debt Other sources December 2017. Sources of encumbrance (Millions of euros) 0 Book value of financial liabilities Derivatives Loans and Advances Outstanding subordinated debt Other sources December 2016. Sources of encumbrance (Millions of euros) Book value of financial liabilities Derivatives Loans and Advances Outstanding subordinated debt Other sources 7.6 Operational Risk Matching liabilities, contingent liabilities or securities lent Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered 113,498 8,972 85,989 18,538 3,972 131,172 11,036 97,361 22,775 4,330 Matching liabilities, contingent liabilities or securities lent Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered 118,704 11,843 87,484 19,377 305 133,312 11,103 98,478 23,732 1,028 Matching liabilities, contingent liabilities or securities lent Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered 134,387 9,304 96,137 28,946 - 153,632 9,794 108,268 35,569 2,594 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. P.131 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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. P.132 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 frameworks. initiatives and their control and monitoring 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. P.133 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 7.7 Risk concentration Policies for preventing excessive risk concentration In order to prevent the build-up of excessive risk concentrations at the individual, sector and portfolio 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 XII. P.134 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 XII. 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. 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. 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. 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 has teams specializing in the management of the Real-Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in the Risk-Acceptance 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 cyclic. Specific policies for analysis and admission of new developer risk transactions In the analysis of new operations, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant. P.135 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The monitoring of the work, the sales and the legal situation of the project are essential aspects for the admission and follow-up of new real estate operations. 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 implemented with customers in the developer sector: avoidance of large corporate transactions, which ha d 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 con trast analysis in the pre - commercialization phase, with an appropriate funding cycle and in locations with low commercialization risk. Risk monitoring policies The base information for analyzing the real estate portfolios is updated monthly. The tools used include the so-called “ watch-list”, which is updated monthly with the progress of each client under watch, and the different strategic plans for management of special groups. There are plans that involve an intensification of the review of the portfolio fo r 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. 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. Policies applied in the management of real estate assets in Spain Regarding the financing of real estate, a new regulation has been updated in 2018 in which recommendations for the promotion of residential real estate are established. 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 mor e 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 XII. P.136 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 8. Fair Value of financial instruments Framework and processes control As part of the process established in the Group for determining the fair value in order to ensure that financial assets and liabilities are properly valued, 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. These areas are required to ensure, 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 Group 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 the 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. P.137 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Level 3: Valuation of financial instruments with valuation techniques that use significant unobservable inputs in the market. As of December 31, 2018, the affected instruments at fair value accounted for approximately 0.56% of financial assets and 0.46% of the Group’s financial liabilities registered at fair value. Model selection and validation is undertaken by control areas outside the business areas. 8.1 Fair value of financial instrument Below is a comparison of the carrying amount 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 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 Financial assets at fair value through other comprehensive income Financial assets at amortized cost Hedging derivatives LIABILITIES Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Hedging derivatives Fair Value and Carrying Amount (Millions of euros) 9 10 11 12 13 14 15 10 12 22 15 58,196 90,117 5,135 1,313 56,337 419,660 2,892 80,774 6,993 509,185 2,680 ASSETS Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets designated at fair value through profit or loss Available-for-sale financial assets Loans and receivables Held-to-maturity investments Derivatives – Hedge accounting LIABILITIES Financial liabilities held for trading Financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Derivatives – Hedge accounting Notes 9 10 12 15 10 12 22 15 2017 2016 Carrying Amount 42,680 64,695 2,709 69,476 431,521 13,754 2,485 46,182 2,222 543,713 2,880 Fair Value 42,680 64,695 2,709 69,476 438,991 13,865 2,485 46,182 2,222 544,604 2,880 Carrying Amount 40,039 74,950 2,062 79,221 465,977 17,696 2,833 54,675 2,338 589,210 2,347 58,196 90,117 5,135 1,313 56,337 419,857 2,892 80,774 6,993 510,300 2,680 Fair Value 40,039 74,950 2,062 79,221 468,844 17,619 2,833 54,675 2,338 594,190 2,347 The years 2017 and 2016 are presented for comparison purpose separately due to the implementation of IFRS 9. 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), although this value is not used when accounting for these instruments. P.138 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 8.1.1 Fair value of financial instrument 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 “a 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”. 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 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 technique used to determine their fair value: Fair Value of financial Instruments by Levels (Millions of euros) ASSETS- Financial assets held for trading Loans and advances to customers Debt securities Equity instruments Derivatives Non-trading financial assets mandatorily at fair value through profit or loss Loans and advances Debt securities Equity instruments Financial assets designated at fair value through profit or loss Loans and advances Debt securities Equity instruments Financial assets at fair value through other comprehensive income Debt securities Debt securities Equity instruments Hedging derivatives LIABILITIES- Financial liabilities held for trading Deposits Trading derivatives Other financial liabilities Financial liabilities designated at fair value through profit or loss Customer deposits Debt certificates Other financial liabilities Derivatives – Hedge accounting 2018 Notes Level 1 Level 2 Level 3 10 11 12 13 15 10 12 15 26,730 47 17,884 5,194 3,605 3,127 25 90 3,012 1,313 - 1,313 - 45,824 33 43,788 2,003 7 22,932 7,989 3,919 11,024 - - - - 223 62,983 28,642 7,494 - 26,846 404 60 199 60 85 78 1,929 - 71 8 - - - - 9,323 - 9,211 113 2,882 57,573 29,945 27,628 - 4,478 976 2,858 643 2,454 1,778 76 75 - - - - 1,190 - 711 479 3 269 0 267 1 2,515 - - 2,515 3 P.139 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Fair Value of financial Instruments by Levels (Millions of euros) ASSETS- Financial assets held for trading Loans and advances to customers Debt securities Equity instruments Derivatives Financial assets designated at fair value through profit or loss Loans and advances to customers Loans and advances to credit institutions Debt securities Equity instruments Available-for-sale financial assets Debt securities Equity instruments Hedging derivatives LIABILITIES- Financial liabilities held for trading Derivatives Short positions Financial liabilities designated at fair value through profit or loss Derivatives – Hedge accounting 2017 2016 Notes Level 1 Level 2 Level 3 Level 1 Level 2 Level 3 10 11 15 10 12 15 29,057 - 21,107 6,688 1,262 2,061 - - 174 1,888 57,381 54,850 2,531 - 11,191 1,183 10,008 - 274 35,349 56 1,444 33 33,815 648 648 - - - 11,082 10,948 134 2,483 34,866 34,866 - 2,222 2,606 289 - 22 80 187 - - - - - 544 454 90 2 125 119 6 - - 32,544 - 26,720 4,570 1,254 2,062 - - 142 1,920 62,125 58,372 3,753 41 12,502 952 11,550 - 94 42,221 154 418 9 41,640 - - - - - 15,894 15,779 115 2,792 42,120 42,120 - 2,338 2,189 184 - 28 96 60 - - - - - 637 429 208 - 53 47 6 - 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, 2018: P.140 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 Loans and advances Debt securities Equity instruments Derivatives Interest rate Equity 62,983 28,642 404 60 Present-value method (Discounted future cash flows) 7,494 199 Present-value method (Discounted future cash flows) Observed prices in non active markets - 60 Comparable pricing (Observable price in a similar market) Present-value method 26,846 85 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 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 Commodities Credit Derivatives: Default model and Gaussian copula Commodities: Momentum adjustment and Discounted cash flows Non-trading financial assets mandatorily at fair value through profit or loss 78 1,929 Loans and advances Debt securities Equity instruments - 1,778 Present-value method (Discounted future cash flows) Specific criteria for the liquidation of losses established by the EPA protocol 71 8 76 Present-value method (Discounted future cash flows) 75 Present-value method (Discounted future cash flows) Financial assets at fair value through other comprehensive income 9,323 1,190 Debt securities Equity instruments Hedging derivatives Interest rate Equity Foreign exchange and gold Credit Commodities 9,211 711 Present-value method (Discounted future cash flows) Observed prices in non active markets 113 2,882 479 Comparable pricing (Observable price in a similar market) Present-value method 3 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 Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment Credit Derivatives: Default model and Gaussian copula Commodities: Momentum adjustment and Discounted cash flows - Issuer´s credit risk - Current market interest rates - Issuer´s credit risk - Current market interest rates - Non active markets prices - Brokers quotes - Market operations - NAVs published - Prepayment rates - Issuer´s credit risk - Recovery rates - Prepayment rates - Issuer´s credit risk - Recovery rates - NAV provided by the administrator of the fund - Beta - Implicit correlations between tenors - interest rates volatility - 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 - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility - Prepayment rates - Issuer credit risk - Recovery rates - PD and LGD - Prepayment rates - Issuer credit risk - Recovery rates - Prepayment rates - Issuer credit risk - Recovery rates - Prepayment rates - Issuer credit risk - Recovery rates - NAV provided by the administrator of the fund - - - - - - Issuer credit risk - Current market interest rates - Issuer credit risk - Current market interest rates - Issuer´s credit risk - Current market interest rates - Non active market prices - Brokers quotes - Market operations - NAVs published - 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 P.141 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Fair Value of financial Instruments by Levels. December 2018 (Millions of euros) LIABILITIES Financial liabilities held for trading 57,573 269 Valuation technique(s) Observable inputs Unobservable inputs Deposits Derivatives Interest rate Equity Foreign exchange and gold Credit Commodities 29,945 - 27,628 267 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 Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local Volatility, moments adjustment Credit Derivatives: Default model and Gaussian copula Commodities: Momentum adjustment and Discounted cash flows Short positions - 1 Present-value method (Discounted future 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 - Beta - Correlation between tenors - interest rates volatility - Volatility of volatility - Assets correlation - Volatility of volatility - Assets correlation - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility - - - 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 Equity 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 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 Commodities Credit Derivatives: Default model and Gaussian copula Commodities: Momentum adjustment and Discounted cash flows - Beta - Implicit correlations between tenors - interest rates volatility - 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 - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility - P.142 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, 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. 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 represents the total value of the financial assets and liabilities of a fund and is published by the fund manager thereof. 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. The multifactorial frame of this model makes it ideal for the valuation of instruments sensitive to the slope or curve, including interest rate option. P.143 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 observables data of probabilities of default 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, for all derivative products on any instrument at the legal entity level (all counterparties under a same ISDA / CMOF) in which BBVA has exposure. As a general rule, the calculation of CVA is done through simulations of market and credit variables to calculate the expected positive exposure, given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the result of the expected negative exposure given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Both calculations are performed throughout the entire period of potential exposure. The information needed to calculate the exposure at default and the loss given default come from the credit markets (Credit Default Swaps or iTraxx Indexes), where rating is available. For those cases where the rating is not available, BBVA implements a mapping process based on the sector, rating and geography 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. The amounts recognized in the consolidated balance sheet as of December 31, 2018 and 2017 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) was €-163 million and €-153 million respectively, and the valuation adjustments to the derivative liabilities as “Debit Valuation Adjustment” (DVA) was €214 million and €138 million 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 ended 2018 and 2017 corresponding to the mentioned adjustments was a net impact of €-24 million and €-23 million respectively. Additionally, as of December 31, 2018, €-12 million related to the “Funding Valuation Adjustments” (“FVA”) were recognized in the consolidated balance sheet. P.144 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Unobservable inputs Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below as of December 31, 2018: Financial instrument Valuation technique(s) Significant unobservable inputs Min Average Max Units Debt Securities Equity instruments Credit Option Corporate Bond Option Equity OTC Option Net Present Value Comparable pricing Net Asset Value Comparable pricing Gaussian Copula Black 76 Heston Local Volatility Credit Spread Recovery Rate 37 152.22 385.00 b.p. 0.00% 32.06% 40.00% 1.00% 88.00% 275.00% % % Correlation Default 0.00% 37.98% 60.26% % Price Volatility - - - vegas Forward Volatility Skew 47.05 47.05 47.05 Vegas Dividends Volatility 13.79 27.24 65.02 vegas FX OTC Options Black Scholes/Local Vol Volatility Interest Rate Option Libor Market Model Beta Correlation Rate/Credit Credit Default Volatility 5.05 0.25 (100) - Financial assets and liabilities classified as Level 3 7.73 9.71 vegas 9.00 18.00 - - 100 - Vegas % % 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) Balance at the beginning Group incorporations Changes in fair value recognized in profit and loss (*) Changes in fair value not recognized in profit and loss Acquisitions, disposals and liquidations (**) Net transfers to Level 3 Exchange differences and others Balance at the end 2018 2017 2016 Assets Liabilities Assets Liabilities Assets Liabilities 835 125 822 116 463 182 - (167) (4) - (95) - 2,102 2,710 761 - 3,527 47 - 2,787 - - - - (24) (45) 32 106 (55) 835 (21) - 320 (39) (250) 125 33 (81) 438 16 (47) 822 (86) (3) (25) - 49 116 (*) Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of December 31, 2018, 2017 and 2016. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities, net”. (**) Of which, in 2018, the assets roll forward is comprised of €2,400 million of acquisitions, €254 millions of disposals and €44 millions of liquidations. The liabilities roll forward is comprised of €2,716 million of acquisitions and €5 millions of liquidations. As of December 31, 2018, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material. P.145 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Transfers between levels The Global Valuation Area, in collaboration with the Group, has established the rules for a proper financials instruments held for trading classification according to the fair value hierarchy defined by international accounting standards. On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the accounting subsidiary. 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 year ended December 31, 2018 are recorded at the following amounts in the accompanying consolidated balance sheets as of December 31, 2018: Transfer Between Levels. December 2018 (Millions of euros) ASSETS Financial assets held for trading Non-trading financial assets mandatorily at fair value through profit or loss Financial assets at fair value through other comprehensive income Derivatives Total LIABILITIES- Financial liabilities held for trading Total From: Level 1 Level 2 Level 3 To: Level 2 Level 3 Level 1 Level 3 Level 1 Level2 1,171 - 134 - 1,305 - - 2 - 72 - 74 - - 2 9 - - 11 - - 6 67 515 52 641 138 138 - - - 118 118 - - 2 24 - 49 75 37 37 The amount of financial instruments that were transferred between levels of valuation for the year ended December 31, 2018 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 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 Level 3 are mainly due to derivative transactions. Transfers from Level 3 to Level 2 generally affect derivative and debt instruments transactions, for which inputs observable in the market have been obtained. 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 valuating risk that is incurred in such assets without applying diversification criteria between them. P.146 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. As of December 31, 2018, the effect on profit for the period 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) Potential Impact on Consolidated Income Statement Potential Impact on Total Equity Most Favorable Hypothesis Least Favorable Hypothesis Most Favorable Hypothesis Least Favorable Hypothesis ASSETS Financial assets held for trading Loans and Advances Debt securities Equity instruments Derivatives Non-trading financial assets mandatorily at fair value through profit or loss Loans and Advances Debt securities Equity instruments Financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income LIABILITIES Financial liabilities held for trading Total 6 - 2 3 1 291 285 3 3 - - 1 297 (13) - (3) (9) (1) (181) (161) (12) (8) - - (1) (194) - - - - - - - - - - 1 1 1 - - - - - - - - - - (1) (1) (1) 8.2 Fair value of financial instruments carried at cost 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 / 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- term customer deposits: their book value is considered to be the best estimation of their fair value. P.147 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, 2017 and 2016, 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) 2018 Notes Level 1 Level 2 Level 3 ASSETS Cash, cash balances at central banks and other demand deposits 9 58,024 - 172 Financial assets at amortized cost 14 21,419 204,619 193,819 LIABILITIES Financial liabilities at amortized cost 22 58,225 269,128 182,948 P.148 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, 2018: Fair Value of financial Instruments at amortized cost by valuation technique. December 2018 (Millions of euros) Level 2 Level 3 Valuation technique(s) Main inputs used ASSETS Financial assets at amortized cost 204,619 193,819 Central Banks - 1 Loans and advances to credit institutions 4,934 4,291 Present-value method (Discounted future cash flows) - Credit spread - Prepayment rates - Interest rate yield - Credit spread - Prepayment rates - Interest rate yield - Credit spread - Prepayment rates - Interest rate yield - Credit spread - Interest rate yield Loans and advances to customers 190,666 183,645 Debt securities LIABILITIES 9,019 5,881 Financial liabilities at amortized cost 269,128 182,948 Central Banks Loans and advances to credit institutions Loans and advances to customers Debt securities Other financial liabilities 196 - 22,281 9,852 240,547 135,270 6,104 25,096 - 12,730 Equity instruments at cost Present-value method (Discounted future cash flows) - Issuer´s credit risk - Prepayment rates - Interest rate yield 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 demands deposits The breakdown of the balance under the heading “Cash, cash balances at central banks and other demands deposits” in the accompanying consolidated balance sheets is as follows: Cash, cash balances at central banks and other demand deposits (Millions of euros) Cash on hand Cash balances at central banks Other demand deposits Total 2018 6,346 43,880 7,970 58,196 2017 6,220 31,718 4,742 42,680 2016 7,413 28,671 3,955 40,039 P.149 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 10. Financial assets and liabilities held for trading 10.1 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) ASSETS Derivatives Debt securities Loans and advances Equity instruments Total Assets LIABILITIES Derivatives Short positions Deposits Total Liabilities Notes 2018 2017 2016 7.3.2 7.3.2 7.3.2 30,536 25,577 28,750 5,254 90,117 31,815 11,025 37,934 80,774 35,265 22,573 56 6,801 64,695 42,955 27,166 154 4,675 74,950 36,169 10,013 43,118 11,556 46,182 54,675 As of December 31, 2018 “Short positions” include €10,255 million held with General 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) Issued by Central Banks Issued by public administrations Issued by financial institutions Other debt securities Total 2018 1,001 22,950 790 836 25,577 2017 1,371 19,344 816 1,041 22,573 2016 544 23,621 1,652 1,349 27,166 P.150 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 10.3 Loans and advances 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) Loans and advances to central banks Reverse repurchase agreements Loans and advances to credit institutions Reverse repurchase agreements Loans and advances to customers Reverse repurchase agreements Total 10.4 Equity instruments Notes 35 35 35 2018 2,163 2,163 14,566 13,305 12,021 11,794 28,750 2017 2016 - - - - 56 - 56 - - - - 154 - 154 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) Shares of Spanish companies Credit institutions Other sectors Subtotal Shares of foreign companies Credit institutions Other sectors Subtotal Total 10.5 Deposits 2018 - 576 536 1,112 304 3,838 4,142 5,254 2017 - 617 603 1,220 345 5,236 5,581 6,801 2016 - 781 956 1,737 220 2,718 2,939 4,675 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) Deposits from central banks (*) Repurchase agreement Deposits from credit institutions (*) Repurchase agreement Deposits from customers (*) Repurchase agreement Total 2017 2016 Notes 35 35 35 2018 10,511 10,511 15,687 14,839 11,736 11,466 37,934 P.151 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, 2017 and 2016, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties, consisting primarily of foreign credit institutions, 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) Interest rate OTC options OTC other Organized market options Organized market other Equity OTC options OTC other Organized market options Organized market other Foreign exchange and gold OTC options OTC other Organized market options Organized market other Credit Credit default swap Credit spread option Total return swap Other Commodities Other DERIVATIVES of which: OTC - credit institutions of which: OTC - other financial corporations of which: OTC - other Assets 19,147 1,940 17,206 - - 2,799 400 230 2,168 - 8,355 226 8,118 - 11 232 228 2 2 - 3 - 30,536 16,979 7,372 4,005 Liabilities Notional amount - Total 18,769 2,413 16,356 - - 2,956 341 123 2,492 - 9,693 309 9,329 1 54 393 248 - 145 - 3 - 31,815 18,729 7,758 2,780 2,929,371 207,107 2,702,909 6,092 13,263 114,184 32,906 6,693 72,062 2,524 432,283 21,293 405,659 45 5,286 25,452 22,791 500 2,161 - 67 - 3,501,358 897,384 2,355,784 148,917 P.152 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Derivatives by type of risk / by product or by type of market - December 2017 (Millions of Euros) Assets Liabilities Notional amount - Total Interest rate OTC options OTC other Organized market options Organized market other Equity OTC options OTC other Organized market options Organized market other Foreign exchange and gold OTC options OTC other Organized market options Organized market other Credit Credit default swap Credit spread option Total return swap Other Commodities Other DERIVATIVES of which: OTC - credit institutions of which: OTC - other financial corporations of which: OTC - other 22,606 2,429 20,177 - - 1,778 495 83 1,200 - 10,371 245 10,092 - 34 489 480 - 9 - 3 18 35,265 21,016 8,695 4,316 22,546 2,581 19,965 - - 2,336 1,118 90 1,129 - 10,729 258 10,430 3 37 517 507 - 9 - 3 38 36,169 22,804 9,207 2,986 2,152,490 212,554 1,916,920 600 22,416 95,573 34,140 8,158 48,644 4,631 380,404 24,447 348,857 104 6,997 30,181 27,942 200 2,039 - 36 561 2,659,246 898,209 1,548,919 128,722 P.153 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Derivatives by type of risk / by product or by type of market - December 2016 (Millions of Euros) Assets Liabilities Notional amount - Total Interest rate OTC options OTC other Organized market options Organized market other Equity OTC options OTC other Organized market options Organized market other Foreign exchange and gold OTC options OTC other Organized market options Organized market other Credit Credit default swap Credit spread option Total return swap Other Commodities Other DERIVATIVES of which: OTC - credit institutions of which: OTC - other financial corporations of which: OTC - other 25,770 3,331 22,339 1 100 2,032 718 109 1,205 - 14,872 417 14,436 3 16 261 246 - 2 14 6 13 42,955 26,438 8,786 6,404 25,322 3,428 21,792 - 102 2,252 1,224 91 937 - 15,179 539 14,624 - 16 338 230 - 108 - 6 22 43,118 28,005 9,362 4,694 1,556,150 217,958 1,296,183 1,311 40,698 90,655 44,837 5,312 36,795 3,712 425,506 27,583 392,240 175 5,508 19,399 15,788 150 1,895 1,565 169 1,065 2,092,945 806,096 1,023,174 175,473 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) Equity instruments Debt securities Loans and advances Total Notes 7.3.2 7.3.2 7.3.2 2018 3,095 237 1,803 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). P.154 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Unit-linked products Other securities Debt securities Loans and advances Total Assets LIABILITIES Deposits Debt certificates Other financial liabilities Unit-linked products Total Liabilities 7.3.2 1,888 1,621 266 174 648 1,920 1,749 171 142 - 2,709 2,062 - - 2,222 2,222 2,222 - - 2,338 2,338 2,338 1,313 - 1,313 976 2,858 3,159 3,159 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 financial liabilities designated at fair value through profit or loss related to assets and liabilities linked to insurance products where the policyholder bears the risk ("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. 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. P.155 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 13. Financial assets at fair value through other comprehensive income 13.1 Balance details 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) Debt securities Impairment losses Subtotal Equity instruments Impairment losses Subtotal Loans and advances to credit entities Total Notes 7.3.2 7.3.2 2018 2017 2016 53,737 (28) 53,709 2,595 - 2,595 33 66,273 (21) 66,251 4,488 (1,264) 3,224 - 74,739 (159) 74,580 4,814 (174) 4,641 - 56,337 69,476 79,221 P.156 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Domestic Debt Securities Spanish Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Foreign Debt Securities Mexico Mexican Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers The United States Government securities US Treasury and other US Government agencies States and political subdivisions Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Turkey Turkey Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Other countries Other foreign governments and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Total Amortized Cost (*) Unrealized Gains Unrealized Losses - 17,205 1,597 - 793 804 18,802 6,299 5,286 1,013 - 35 978 14,507 11,227 7,285 3,942 3,280 - 49 3,231 4,164 4,007 157 - 157 - 9,551 4,510 5,041 987 1,856 2,197 34,521 53,323 - 661 100 - 63 37 761 6 4 2 - - 2 47 37 29 8 10 - 1 9 20 20 - - - - 319 173 146 2 111 33 392 1,153 - (9) (1) - - (1) (10) (142) (121) (21) - (1) (20) (217) (135) (56) (79) (82) - - (82) (269) (256) (13) - (13) - (130) (82) (48) (4) (20) (25) (758) (768) Book Value - 17,857 1,696 - 855 841 19,553 6,163 5,169 994 - 34 961 14,338 11,130 7,258 3,872 3,208 - 50 3,158 3,916 3,771 145 - 145 - 9,740 4,601 5,139 986 1,947 2,206 34,157 53,709 (*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption. P.157 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Available-for-sale financial assets: Debt Securities. December 2017 (Millions of euros) Amortized Cost (*) Unrealized Gains Unrealized Losses Domestic Debt Securities Spanish Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Foreign Debt Securities Mexico Mexican Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers The United States Government securities US Treasury and other US Government agencies States and political subdivisions Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Turkey Turkey Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Other countries Other foreign governments and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Total - 22,765 1,951 - 891 1,061 24,716 - 9,755 8,101 1,654 - 212 1,442 12,479 8,625 3,052 5,573 3,854 - 56 3,798 5,052 5,033 19 - 19 - 13,271 6,774 6,497 1,330 2,535 2,632 40,557 65,273 - 791 114 - 72 43 906 - 45 34 11 - 1 10 36 8 - 8 28 - 1 26 48 48 1 - - - 533 325 208 2 139 66 661 1,567 Book Value - - (17) 23,539 - - - - (17) - (142) (120) (22) - (3) (19) (198) (133) (34) (99) (65) - - (65) (115) (114) (1) - (1) - 2,066 - 962 1,103 25,605 - 9,658 8,015 1,643 - 209 1,434 12,317 8,500 3,018 5,482 3,817 - 57 3,759 4,985 4,967 19 - 19 - (117) 13,687 (77) (40) (1) (19) (19) (572) (589) 7,022 6,664 1,331 2,654 2,679 40,647 66,251 (*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption. P.158 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Available-for-sale financial assets: Debt Securities. December 2016 (Millions of euros) Amortized Cost (*) Unrealized Gains Unrealized Losses Domestic Debt Securities Spanish Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Foreign Debt Securities Mexico Mexican Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers The United States Government securities US Treasury and other US Government agencies States and political subdivisions Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Turkey Turkey Government and other general governments agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Other countries Other foreign governments and other general government agencies debt securities Other debt securities Issued by Central Banks Issued by credit institutions Issued by other issuers Subtotal Total - 22,427 2,305 - 986 1,319 24,731 - 11,525 9,728 1,797 - 86 1,710 14,256 8,460 1,702 6,758 5,797 - 95 5,702 5,550 5,055 495 - 448 47 17,923 7,882 10,041 1,657 3,269 5,115 49,253 73,985 - 711 117 - 82 36 828 - 19 11 8 - 2 6 48 9 1 8 39 - 2 37 73 70 2 - 2 - 634 373 261 4 96 161 773 1,601 - (18) (1) - - (1) (19) - (343) (301) (42) - (1) (41) (261) (131) (19) (112) (130) - - (130) (180) (164) (16) - (15) (1) (203) (98) (105) (2) (54) (49) (987) (1,006) Book Value - 23,119 2,421 - 1,067 1,354 25,540 - 11,200 9,438 1,763 - 87 1,675 14,043 8,337 1,683 6,654 5,706 - 97 5,609 5,443 4,961 482 - 436 46 18,354 8,156 10,197 1,659 3,311 5,227 49,040 74,580 (*) The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption. P.159 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The credit ratings of the issuers of debt securities as of December 31, 2018, 2017 and 2016, are as follows: Debt Securities by Rating AAA AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ or below Without rating Total December 2018 December 2017 December 2016 Fair Value (Millions of Euros) 531 % 1.0% Fair Value (Millions of Euros) 687 % 1.0% Fair Value (Millions of Euros) 4,922 % 6.6% 13,100 24.4% 10,738 16.2% 11,172 15.0% 222 409 632 687 0.4% 0.8% 1.2% 1.3% 507 291 664 683 18,426 34.3% 1,330 0.8% 0.4% 1.0% 1.0% 2.0% 594 575 1,230 0.8% 0.8% 1.6% 7,442 10.0% 1,719 2.3% 9,195 17.1% 35,175 53.1% 29,569 39.6% 4,607 1,003 4,453 445 8.6% 1.9% 8.3% 0.8% 7,958 12.0% 5,583 1,564 1,071 8.4% 2.4% 1.6% 3,233 6,809 2,055 5,261 4.3% 9.1% 2.8% 7.1% 53,709 100% 66,251 100.0% 74,580 100.0% 13.3 Equity instruments The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2018, 2017 and 2016, 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 Credit institutions Other entities Listed foreign company shares United States Mexico Turkey Other countries Subtotal Unlisted equity instruments Unlisted Spanish company shares Credit institutions Other entities Unlisted foreign companies shares United States Mexico Turkey Other countries Subtotal Total 2,172 - 2,172 90 20 1 3 66 2,262 6 - 6 453 388 - 6 59 459 2,721 - - - 43 17 25 - 1 43 1 - 1 54 23 - 4 27 55 98 (210) 1,962 - (210) (12) - - (1) (11) - 1,962 121 37 26 2 56 (222) 2,083 - - - (1) - - - (1) (1) (223) 7 - 7 506 411 - 10 85 513 2,595 P.160 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Available-for-sale financial assets: Equity Securities. December 2017 (Millions of euros) Amortized Cost Unrealized Gains Unrealized Losses Equity instruments listed Listed Spanish company shares Credit institutions Other entities Listed foreign company shares United States Mexico Turkey Other countries Subtotal Unlisted equity instruments Unlisted Spanish company shares Credit institutions Other entities Unlisted foreign companies shares United States Mexico Turkey Other countries Subtotal Total - 2,189 - 2,189 215 11 8 4 192 2,404 - 33 4 29 665 498 1 15 151 698 3,102 - - - - 33 - 25 1 7 33 - 29 - 29 77 40 - 6 31 106 139 Fair Value - 2,188 - 2,188 241 11 33 5 192 2,429 - 62 4 58 734 532 1 19 182 796 - (1) - (1) (7) - - - (7) (8) - - - - (8) (6) - (2) - (8) (16) 3,224 P.161 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Available-for-sale financial assets: Equity Securities. December 2016 (Millions of euros) Equity instruments listed Listed Spanish company shares Credit institutions Other entities Listed foreign company shares United States Mexico Turkey Other countries Subtotal Unlisted equity instruments Unlisted Spanish company shares Credit institutions Other entities Unlisted foreign companies shares United States Mexico Turkey Other countries Subtotal Total Amortized Cost Unrealized Gains Unrealized Losses - 3,690 - 3,690 793 16 8 5 763 4,483 - 57 4 53 708 537 1 18 152 766 - 17 - 17 289 22 33 1 234 306 - 2 - 2 46 13 - 7 26 48 - (944) - (944) (15) - - - (15) (960) - (1) - (1) (2) - - (2) - (3) Fair Value - 2,763 - 2,763 1,066 38 41 6 981 3,829 - 59 4 55 752 550 1 24 178 811 5,248 355 (962) 4,641 P.162 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 13.4 Gains/losses Debt securities The changes in the gains/losses, net of taxes, recognized in 2018 under the equity 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 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) Balance at the beginning Effect of changes in accounting policies (IFRS 9) Valuation gains and losses Amounts transferred to income Other reclassifications Income tax Balance at the end Notes 30 2018 1,557 (58) (640) (137) - 221 943 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 - Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €1 million. In 2017 the recovery registered amounted €4 million; meanwhile, in 2016 the impairment registered amounted €157 million (see Note 47). Equity instruments The changes in the gains/losses, net of taxes, recognized under the equity heading “Accumulated other comprehensive income – 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) Balance at the beginning Effect of changes in accounting policies (IFRS 9) Valuation gains and losses Amounts transferred to income Other reclassifications Income tax Balance at the end Notes 30 2018 84 (40) (174) - - (25) (155) P.163 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. In 2018, there has been no impairment registered under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss - Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement. In 2017 and 2016 the impairment registered were €1,131 and €46 million, respectively (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) Balance at the beginning Valuation gains and losses Amounts transferred to income Other reclassifications Income tax Balance at the end Of which: Debt securities Equity instruments Notes 2017 30 947 321 356 (10) 27 1,641 - 1,557 84 2016 1,674 400 (1,181) 116 (62) 947 - 1,629 (682) 14. Financial assets at amortized cost 14.1 Balance details 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) Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers Government Other financial corporations Non-financial corporations Other Total December 2018 December 2017 December 2016 32,530 3,941 9,163 374,027 28,114 9,468 163,922 172,522 419,660 24,093 7,300 26,261 28,905 8,894 31,373 387,621 414,500 31,645 18,173 164,510 173,293 445,275 483,672 During financial year 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”. P.164 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 14.2 Loans and advances to central banks and credit institutions 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) Loans and advances to central banks Loans and advances to credit institutions Reverse repurchase agreements Other loans Total Of which: Notes 7.3.2 7.3.2 35 Impairment losses 7.3.5 / 7.3.2 14.3 Loans and advances to customers 2018 3,941 9,163 478 8,685 13,104 - (18) 2017 2016 7,300 26,261 13,861 12,400 33,561 - (36) 8,894 31,373 15,561 15,812 40,267 - (43) 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) On demand and short notice Credit card debt Trade receivables Finance leases Reverse repurchase loans Other term loans Advances that are not loans Total Of which: Impaired assets Impairment losses Notes 2018 2017 2016 3,641 15,445 17,436 8,650 294 10,560 15,835 22,705 8,642 11,554 11,251 16,596 23,753 9,442 7,291 324,767 313,336 339,862 3,794 4,989 6,306 35 7.3.2 374,027 387,621 414,500 7.3.5 7.3.5 / 7.3.2 - 16,349 (12,199) - 19,390 (12,748) - 22,915 (15,974) 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 mentioned in Appendix X and pursuant to the Mortgage Market Act, are linked to long-term mortgage-covered bonds. 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 mortgage assets Other securitized assets Total 2018 26,556 3,221 29,777 2017 28,950 4,143 33,093 2016 29,512 3,731 33,243 P.165 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Government Credit institutions Other sectors Total gross Of which: Impairment losses Notes 7.3.2 2018 25,014 644 6,872 32,530 - (51) 2017 17,030 1,152 5,911 24,093 - (15) 2016 20,736 1,688 6,481 28,905 - (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 AA+ AA AA- A+ A A- BBB+ BBB BBB- BB+ or below Without rating Total 49 1,969 62 - 607 21 6,117 13,894 1,623 2,694 4,371 1,123 32,530 0.2% 6.1% 0.2% 0.0% 1.9% 0.1% 18.8% 42.7% 5.0% 8.3% 13.4% 3.5% 100% - - 41 - 55 - - 5,667 2,412 2,818 1,696 1,064 13,754 - - 0.3% - 0.4% - - 41.2% 17.5% 20.5% 12.3% 7.7% 100.0% - - 43 134 - - - 10,472 591 5,187 - 1,270 17,696 % - - 0.2% 0.8% - - - 59.2% 3.3% 29.3% - 7.2% 100.0% P.166 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 TURKIYE GARANTI BANKASI, A.S 6,488 6,488 Total 18,512 18,512 1,467 2,859 4,326 1,486 2,668 7,236 5,381 7,286 5,392 10,433 6,230 4,154 12,617 12,678 16,663 10,498 6,083 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 comprehensiv e income" Income Statement Income Statement Equity "Accumulated other comprehensiv e income" BBVA, S.A. TURKIYE GARANTI BANKASI, A.S Total 41 414 456 41 414 456 (2) (172) (173) 198 545 743 198 545 743 (14) (16) (30) 252 326 578 252 326 578 (91) (225) (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) ASSETS Hedging Derivatives Fair value changes of the hedged items in portfolio hedges of interest rate risk LIABILITIES Hedging Derivatives Fair value changes of the hedged items in portfolio hedges of interest rate risk 2018 0 2,892 (21) 0 2,680 - 2017 0 2,485 (25) 0 2,880 (7) 2016 0 2,833 17 0 2,347 - P.167 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. As of December 31, 2018, 2017 and 2016, 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. 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: P.168 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Hedging Derivatives Breakdown by type of risk and type of hedge (Millions of euros) 2018 2017 2016 Assets Liabilities Assets Liabilities Assets Liabilities Interest rate OTC options OTC other Organized market options Organized market other Equity OTC options OTC other Organized market options Organized market other Foreign exchange and gold OTC options OTC other Organized market options Organized market other Credit Commodities Other FAIR VALUE HEDGES Interest rate OTC options OTC other Organized market options Organized market other Equity Foreign exchange and gold OTC options OTC other Organized market options Organized market other Credit Commodities Other CASH FLOW HEDGES HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK DERIVATIVES-HEDGE ACCOUNTING of which: OTC - credit institutions of which: OTC - other financial corporations of which: OTC - other 982 5 978 - - 6 6 - - - 587 - 587 - - - - - 1,575 221 - 219 - 2 - 955 - 955 - - - - - 1,176 92 33 15 2,892 2,534 355 2 513 158 355 - - - - - - - 398 - 398 - - - - - 912 562 - 562 - - - 873 - 873 - - - - - 1,435 231 90 12 2,680 2,462 216 2 1,141 100 1,041 - - - - - - - 625 - 625 - - - - - 1,766 244 - 242 - 2 - 119 - 119 - - - - - 363 301 46 9 2,485 1,829 651 2 850 111 739 - - - - - - - 511 - 511 - - - - - 1,362 533 - 533 - - - 714 - 714 - - - - - 1,247 15 256 - 2,880 2,527 234 120 1,154 125 1,029 - - - - - - - 817 - 817 - - - - - 1,970 194 - 186 - 8 - 248 89 160 - - - - - 442 362 55 4 2,833 2,381 435 9 974 118 856 - - 50 50 - - - 553 - 553 - - - - - 1,577 358 - 358 - - - 118 70 48 - - - - - 476 79 214 - 2,347 2,103 165 79 P.169 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The cash flows forecasts for the coming years for cash flow hedging recognized on the accompanying consolidated balance sheet as of December 31, 2018 are: Cash Flows of Hedging Instruments (Millions of euros) Receivable cash inflows Payable cash outflows 3 Months or Less From 3 Months to 1 Year From 1 to 5 Years More than 5 Years 116 139 277 517 1,828 2,215 2,181 2,221 Total 4,401 5,092 The above cash flows will have an impact on the Group’s consolidated income statements until 2058. In 2018, 2017 and 2016, 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, 2017 and 2016 were not material. 16. Investments in joint ventures, associates 16.1 Joint ventures 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 Fideicomiso 1729 Invex Enajenacion de Cartera PSA Finance Argentina Compañia Financier Altura Markets, S.V., S.A. RCI Colombia Other joint ventures Subtotal Associates Entities Metrovacesa Suelo y Promoción, S.A. Testa Residencial SOCIMI, S.A.U. Metrovacesa Promoción y Arrendamientos, S.A. Atom Bank, PLC Divarian Propiedad S.A.U. Servired Other associates Subtotal Total - 55 10 69 32 7 173 - 508 - - 138 591 9 159 27 53 14 64 19 79 256 697 444 - 66 - 9 116 1,405 1,578 1,332 1,588 33 57 21 19 17 82 229 208 91 67 43 - 11 116 536 765 Details of the joint ventures and associates as of December 31, 2018 are shown in Appendix II. P.170 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The following is a summary of the changes in the in December 31, 2018, 2017 and 2016 under this heading in the accompanying consolidated balance sheets: Joint Ventures and Associates Entities. Changes in the Year (Millions of euros) Balance at the beginning Acquisitions and capital increases Disposals and capital reductions Transfers and changes of consolidation method Share of profit and loss Exchange differences Dividends, valuation adjustments and others Balance at the end Notes 39 2018 1,588 309 (516) 211 (7) 2 (8) 2017 765 868 (8) - 3 (29) (12) 1,578 1,588 2016 879 456 (91) (351) 25 (34) (118) 765 The variation during the year 2018 is mainly explained by the decrease of BBVA Group stakes in Testa Residencial, S.A., Metrovacesa Suelo y Promoción, S.A. and 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 Article 155 of the Corporations Act and Article 53 of the Securities Market Act 24/1988. 16.2 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, 2017 and 2016 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, 2017 and 2016 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2). 16.3 Impairment As described in IAS 36, when there is indicator of impairment, the book value of the associates and joint venture entities should be 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 of December 31, 2018, 2017 and 2016, there were no significant impairments recognized. P.171 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Cost Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Accrued depreciation Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Impairment Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Net tangible assets Balance at the beginning Balance at the end For Own Use Notes Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total tangible asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total 5,490 445 (98) - - 64 38 5,939 1,076 120 (36) - (3) (31) 12 1,138 315 30 - - - (77) (51) 217 234 78 (17) - - (177) (48) 70 - - - - - - - - - - - - - - - - 6,628 404 (492) - - (12) (214) 6,314 4,380 469 (403) - - (22) (212) 4,212 - - - - - - - - 12,352 927 (607) - - (125) (224) 12,323 5,456 589 (439) - (3) (53) (200) 5,350 315 30 - - - (77) (51) 217 228 11 (149) - - (5) 116 201 13 5 (8) - - (2) 3 11 20 (25) (27) - - (3) 62 27 492 - (1) - - - (105) 386 13,072 938 (757) - - (130) (213) 12,910 77 - - - - - (1) 76 - - - - - - - - 5,546 594 (447) - (3) (55) (198) 5,437 335 5 (27) - - (80) 11 244 45 48 4,099 4,584 234 70 2,248 2,102 6,581 6,756 195 163 415 310 7,191 7,229 P.172 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Tangible Assets. Breakdown by Type of Assets and Changes in the year 2017 (Millions of euros) For Own Use Notes Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total tangible asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total Cost Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Accrued depreciation Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Impairment Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Net tangible assets Balance at the beginning Balance at the end 0 0 0 0 0 7,059 13,473 1,163 958 15,594 0 6,176 49 (42) - - (273) (420) 5,490 0 0 1,116 127 (26) - - (53) (88) 1,076 0 0 379 5 (2) - - (58) (9) 315 - - - 0 240 128 (29) - - (57) (48) 234 0 0 - - - - - - - - 0 0 - - - - - - - - - - - 45 48 397 (264) - - (186) (378) 574 (335) - - (516) (844) 6,628 12,352 0 0 0 0 4,461 5,577 553 (235) - - (146) (253) 680 (261) - - (199) (341) 4,380 5,456 0 0 - - - - - - - - - - - 0 0 379 5 (2) - - (58) (9) 315 - - - 4,681 4,099 240 234 2,598 2,248 7,519 6,581 1 (90) - - (698) (148) 228 0 0 63 13 (7) - - (31) (25) 13 0 0 409 37 (10) - - (276) (140) 20 - - - 691 195 201 (93) - (552) - (22) 776 (518) - (552) (1,214) (1,014) 492 13,072 0 0 216 - (21) - (134) - 16 0 0 5,856 693 (289) - (134) (230) (350) 77 5,546 0 0 10 - - - (10) - - - - - - 0 0 798 42 (12) - (10) (334) (149) 335 - - - 732 415 8,941 7,191 P.173 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Tangible Assets. Breakdown by Type of Assets and Changes in the year 2016 (Millions of euros) For Own Use Notes Land and Buildings Work in Progress Furniture, Fixtures and Vehicles Total tangible asset of Own Use Investment Properties Assets Leased out under an Operating Lease Total Cost Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Accrued depreciation Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Impairment Balance at the beginning Additions Retirements Acquisition of subsidiaries in the year Disposal of entities in the year Transfers Exchange difference and other Balance at the end Net tangible assets Balance at the beginning Balance at the end 45 48 0 5,858 30 (85) - (7) 676 (296) 6,176 0 0 1,103 106 (72) - - (1) (20) 1,116 0 0 354 48 (2) - - (1) (20) 379 - - - 0 545 320 (29) - - (544) (52) 240 0 0 - - - - - - - - 0 0 - - - - - - - - - - - 0 7,628 563 (468) - (1) (386) (277) 7,059 0 0 4,551 561 (461) - - (37) (153) 4,461 0 0 - 5 - - - - (5) - - - - 0 14,029 913 (582) - (8) (254) (625) 13,473 0 0 5,654 667 (533) - - (38) (173) 5,577 0 0 354 53 (2) - - (1) (25) 379 - - - 0 2,391 62 (117) - (3) (986) (184) 1,163 0 0 116 23 (10) - - (55) (11) 63 0 0 808 90 (9) - - (380) (100) 409 - - - 0 668 337 (97) - - 84 (34) 958 0 0 202 - (17) - - 55 (24) 216 0 0 10 - - - - - - 10 - - - 0 17,088 1,312 (796) - (11) (1,156) (843) 15,594 0 0 5,972 690 (560) - - (38) (208) 5,856 0 0 1,172 143 (11) - - (381) (125) 798 - - - 4,401 4,681 545 240 3,077 2,598 8,021 7,519 1,467 691 456 732 9,944 8,941 As of December 31, 2018, 2017 and 2016, the cost of fully amortized tangible assets that remained in use were €2,624, €2,660 and €2,313 million respectively while its recoverable residual value was not significant. P.174 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Spain Mexico South America The United States Turkey Rest of Eurasia Total 2018 2,840 1,836 1,543 646 1,066 32 7,963 2017 3,019 1,840 1,631 651 1,095 35 8,271 2016 3,303 1,836 1,667 676 1,131 47 8,660 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, 2017 and 2016: Tangible Assets by Spanish and Foreign Subsidiaries. Net Assets Values (Millions of euros) BBVA and Spanish subsidiaries Foreign subsidiaries Total 18. Intangible assets 18.1 Goodwill 2018 2,705 4,524 7,229 2017 2,574 4,617 7,191 2016 3,692 5,249 8,941 The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs), is as follows: Goodwill. Breakdown by CGU and Changes of the year (Millions of euros) The United States Turkey Mexico Colombia Chile Other Total Balance as of December 31, 2015 Additions Exchange difference Impairment Other Balance as of December 31, 2016 Additions Exchange difference Impairment Other Balance as of December 31, 2017 Additions Exchange difference Impairment Other 5,328 - 175 - - 5,503 - 727 - (101) - (1) 624 - (666) (115) - - 4,837 - 229 - - - - 509 - (127) - - 602 - (79) - - 523 24 (44) - (10) 493 - 26 - - 176 - 14 - - 191 - (22) - - 168 - (7) - - Balance as of December 31, 2018 5,066 382 519 161 In 2018, 2017 and 2016, there were no significant business combinations. 62 - 6 - - 68 - (3) - (33) 32 - (3) - - 29 20 6,915 8 - - - 8 15 - (1) 28 6,937 - (1) (4) - 24 (851) (4) (43) 23 6,062 - - - - - 118 - - 23 6,180 P.175 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Impairment Test As mentioned in Note 2.2.8 of the consolidated financial statements for the year 2018, the cash-generating units (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 changes to the valuation assumptions used could result in differences in the impairment test result. Three key assumptions are used when calculating the impairment test. These hypothesis are the ones to which the amount of the recoverable value is most sensitive: The forecast cash flows estimated by the Group's management, and based on the latest available budgets for the next 5 years. The constant sustainable growth rate for extrapolating cash flows, starting in the 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 hypotheses is based both on its projections and past experience. These values are uniform and use external sources of information. At the same time, the valuations of the most significant goodwill have in general been reviewed by independent experts (not the Group's external auditors) who apply different valuation methods according to each type of asset and liability. The valuation methods used are: The method for calculating the discounted value of future cash flows, the market transaction method and the cost method. As of December 31, 2018, 2017 and 2016, no indicators of impairment have been identified in any of the main CGUs. Goodwill - United States CGU The Group’s most significant goodwill corresponds to the CGU in the United States, the main significant hypotheses used in the impairment test of this mentioned CGU are: Impairment test hypotheses CGU Goodwill in the United States Discount rate Sustainable growth rate 2018 2017 2016 10,5% 4,0% 10.0% 4.0% 10.0% 4.0% Given the potential growth of the sector, in accordance with paragraph 33 of IAS 36, as of December 31, 2018, 2017 and 2016 the Group used a steady growth rate of 4.0% based on the real GDP growth rate of the United States and expected inflation. This 4.0% rate is less than the historical average of the past 30 years of the nominal GDP rate of the United States and lower than the real GDP growth forecasted by the IMF. P.176 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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: 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 Sustainable growth rate (1,009) 526 1,176 (451) (*) 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. Goodwill - Turkey CGU The Group’s most significant goodwill corresponds to the CGU in the Turkey, the main significant hypotheses used in the impairment test of this mentioned CGU are: Impairment test assumptions CGU Goodwill in Turkey Discount rate Sustainable growth rate 2018 2017 2016 24.3% 7.0% 18.0% 7.0% 17.7% 7.0% Given the potential growth of the sector, in accordance with paragraph 33 of IAS 36, as of December 31, 2018, 2017 and 2016 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 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: Sensitivity analysis for main assumptions - Turkey (Millions of euros) Discount rate Sustainable growth rate Impact of an increase of 50 basis points (*) Impact of a decrease of 50 basis points (*) (149) 40 158 (37) (*) 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. Goodwill in business combinations There were no significant business combinations during 2018, 2017 and 2016. P.177 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 18.2 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) Computer software acquisition expenses Other intangible assets with an infinite useful life Other intangible assets with a definite useful life Total 2018 1,605 11 518 2,134 2017 1,682 12 708 2,402 2016 1,877 12 960 2,849 The changes of this heading in December 31, 2018, 2017 and 2016, are as follows: Other Intangible Assets (Millions of euros) Balance at the beginning Acquisition of subsidiaries in the year Additions Amortization in the year Exchange differences and other Impairment Balance at the end Notes 2018 2017 2016 45 2,402 2,849 3,137 - 552 (614) (123) (83) - 564 (694) (305) (12) - 645 (735) (196) (3) 2,134 2,402 2,849 As of December 31, 2018, 2017and 2016, the cost of fully amortized intangible assets that remained in use were €1,604 million, €1,380 million and €1,501 million respectively, while their recoverable value was not significant. 19. Tax assets and liabilities 19.1 Consolidated tax group Pursuant to current legislation, the BBVA Consolidated Tax Group 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. 19.2 Years open for review by the tax authorities The years open to review in the BBVA Consolidated Tax Group as of December 31, 2018 are 2014 and subsequent years for the main taxes applicable. 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. P.178 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. In the year 2017 as a consequence of the tax authorities examination reviews, inspections were initiated through the year 2013 inclusive, and all such years closed with acceptance during the year 2017. Therefore, these inspections did not constitute any material amount to record in the Consolidated Annual accounts as their impact was provisioned. 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. 19.3 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) 2018 2017 2016 Profit or (-) loss before tax From continuing operations From discontinued operations Taxation at Spanish corporation tax rate 30% Lower effective tax rate from foreign entities (*) Mexico Chile Colombia Peru Turkey Others Revenues with lower tax rate (dividends/capital gains) Equity accounted earnings Other effects Current income tax Of which: Continuing operations Discontinued operations Amount 8,446 8,446 - 2,534 (234) (78) (18) 10 (12) (132) (4) (57) 3 49 2,295 - 2,295 - Effective Tax % 0 0% 0% Amount 6,931 6,931 - 0% 2,079 28% 21% 33% 28% 20% 0% 0% 0% (307) (100) (29) (3) (16) (182) 23 (53) (2) 452 2,169 2,169 - Effective Tax % Amount Effective Tax % 27% 21% 29% 27% 21% 6,392 6,392 - 1,918 (298) (105) (27) 22 (18) (176) 6 (69) (11) 159 1,699 1,699 - 26% 17% 36% 26% 21% (*) 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. P.179 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The effective income tax rate for the Group in the years ended December 31, 2018, 2017 and 2016 is as follows: Effective Tax Rate (Millions of euros) Income from: Consolidated Tax Group Other Spanish Entities Foreign Entities Total Income tax and other taxes Effective Tax Rate 2018 2017 2016 1,482 33 6,931 8,446 2,295 27.17% (678) 29 7,580 6,931 2,169 31.3% (483) 52 6,823 6,392 1,699 26.6% In the year 2018, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous 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%). In the year 2017, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous period, in the main countries in which the Group has a presence, have been in Chile (from 24,00% to 25,5%) and Peru (from 28,0% to 29,5%). 19.4 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) Charges to total equity Debt securities and others Equity instruments Subtotal Total 2018 2017 2016 (87) (56) (143) (143) (355) (74) (429) (429) (533) (2) (535) (535) P.180 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 19.5 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 Current tax assets Deferred tax assets Pensions Financial Instruments Other assets (investments in subsidiaries) Impairment losses Other Secured tax assets (*) Tax losses Total Tax Liabilities Current tax liabilities Deferred tax liabilities Financial Instruments Charge for income tax and other taxes Total (*) 2018 2017 2016 2,784 15,316 405 1,401 302 1,375 990 9,363 1,480 18,100 1,230 2,046 1,136 910 3,276 2,163 14,725 395 1,453 357 1,005 870 9,433 1,212 16,888 1,114 2,184 1,427 757 3,298 1,853 16,391 1,190 1,371 662 1,390 1,236 9,431 1,111 18,245 1,276 3,392 1,794 1,598 4,668 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, 2017 and 2016 derived from the followings causes: Deferred tax assets and liabilities (Millions of euros) Balance at the beginning Pensions Financials Instruments Other assets Impairment losses Others Guaranteed Tax assets Tax Losses Charge for income tax and other taxes Balance at the end 2018 2017 2016 Deferred Assets Deferred Liabilities Deferred Assets Deferred Liabilities Deferred Assets Deferred Liabilities 14,725 10 (52) (55) 370 120 (70) 268 - 15,316 2,184 - (291) - - 153 - - - 2,046 16,391 (795) 82 (305) (385) (366) 2 101 - 14,725 3,392 - (367) - - (841) - - - 2,184 15,878 168 (103) 108 44 255 (105) 146 - 16,391 3,418 - (113) - - - - - 87 3,392 With respect to the changes in assets and liabilities due to deferred tax contained in the above table, the following should be pointed out: The decrease in guaranteed tax assets is motivated because those corresponding to Portugal are no longer considered as guaranteed. The increase in tax losses is mainly due to the Corporate Income Tax (CIT) return 2017 that has generated differences with respect to the estimate of Corporate Tax reflected in the financial P.181 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. statements, on the other hand, the increase in tax losses is also due to the generation of negative tax bases and deductions during year 2018. The evolution of the deferred tax assets and liabilities (without taking into consideration the guaranteed deferred tax asset and the tax losses) in net terms is a decrease of €531 million mainly due to the first implementation of IFRS9, the variations in the valuation of portfolio securities and to the operation of the corporate income tax in which differences between accounting and taxation produce 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, 2017 and 2016, 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 443 million euros, 376 million euros and 874 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) Pensions Impairment losses Total 2018 1,874 7,489 9,363 2017 (*) 2016 (*) 1,897 7,536 9,433 1,901 7,530 9,431 (*) In 2017 and 2016 guaranteed deferred tax assets also existed in Portugal but in 2018 they lost the guarantee. As of December 31, 2018, non-guaranteed net deferred tax assets of the above table amounted to €3,907 million (€3,108 and €3,568 million as of December 31, 2017 and 2016 respectively), which broken down by major geographies is as follows: Spain: Net deferred tax assets recognized in Spain totaled €2,653 million as of December 31, 2018 (€2,052 and €2,007 million as of December 31, 2017 and 2016, respectively). €1,462 million of the figure recorded in the year ended December 31, 2018 for net deferred tax assets related to tax credits and tax loss carry forwards and €1,191 million relate to temporary differences. Mexico: Net deferred tax assets recognized in Mexico amounted to €826 million as of December 31, 2018 (€615 and €698 million as of December 31, 2017 and 2016, respectively). 99,97% of deferred tax assets as of December 31, 2018 relate to temporary differences. The remainders are tax credits carry forwards. South America: Net deferred tax assets recognized in South America amounted to €383 thousand as of December 31, 2018 (€26 and €362 million as of December 31, 2017 and 2016, respectively). Practically all the deferred tax assets are related to temporary differences, only 1,03% are related to tax credits. The United States: Net deferred tax assets recognized in The United States amounted to €164 million as of December 31, 2018 (€180 and €345 million as of December 31, 2017 and 2016, respectively). All the deferred tax assets relate to temporary differences. Turkey: Net deferred tax assets recognized in Turkey amounted to €250 million as of December 31, 2018 (€224 and €135 million as of December 31, 2017 and 2016 respectively). As of December 31, 2018, all the deferred tax assets correspond to €15 million of tax credits related to tax losses carry forwards and deductions and €235 million relate to temporary differences. P.182 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Based on the information available as of December 31, 201 8, including historical levels of benefits and projected results available to the Group for the coming years, 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, n egative tax bases and deductions for which, legal period for offsetting, amounting to approximately € 2,236 million, which are mainly originated by Catalunya Banc. in general, there is no 20. Other assets and liabilities The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows: Other assets and liabilities: (Millions of euros) ASSETS Inventories Real estate Others Transactions in progress Accruals Prepaid expenses Other prepayments and accrued income Other items Total Other Assets LIABILITIES Transactions in progress Accruals Accrued expenses Other accrued expenses and deferred income Other items Total Other Liabilities 2018 0 635 633 2 249 702 465 237 3,886 5,472 0 39 2,558 2,119 439 1,704 4,301 2017 0 229 226 3 156 768 509 259 3,207 4,359 0 165 2,490 1,997 493 1,894 4,550 2016 0 3,298 3,268 29 241 723 518 204 3,012 7,274 0 127 2,721 2,125 596 2,131 4,979 "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) Gross value Balance at the beginning Business combinations and disposals Acquisitions Disposals Others Balance at the end 2018 2017 2016 91 - - (20) - 71 8,499 - 533 (2,288) (6,653) 91 9,318 - 336 (1,214) 59 8,499 Accumulated impairment losses (5,385) Carrying amount 3,114 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). (21) 49 (26) 65 P.183 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 held for sale The composition of the balance under the heading “Non-current assets and 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) Foreclosures and recoveries Foreclosures (*) Recoveries from financial leases Other assets from tangible assets Property, plant and equipment Operating leases Investment properties (*) Business sale - Assets (**) Accrued amortization (***) Impairment losses Total Non-current assets and disposal groups classified as held for sale 2018 2,211 2,135 76 433 276 - 158 29 (44) (628) 2,001 2017 6,207 6,047 160 447 447 - - 18,623 (77) (1,348) 23,853 2016 4,225 4,057 168 1,181 378 803 - 40 (116) (1,727) 3,603 (*) Corresponds mainly to the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3). (**) Corresponds mainly to the BBVA´s stake in BBVA Chile (see Note 3). (***) Amortization accumulated until related asset reclassified as “non-current assets and disposal groups held for sale” P.184 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The changes in the balances of “Non-current assets and disposal groups classified as held for sale” in 2018, 2017 and 2016 are as follows: Non-current assets and disposal groups classified as held for sale Changes in the year 2018 (Millions of euros) Cost (1) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Transfers, other movements and exchange differences Balance at the end Impairment (2) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Other movements and exchange differences Balance at the end Balance at the end of Net carrying value (1)-(2) Foreclosed Assets Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets (**) Total 6,047 637 - (4,354) (195) 2,135 - 1,102 195 - (793) (22) 482 1,653 160 55 - (135) (4) 76 - 52 11 - (37) (4) 22 54 371 4 - (227) 241 389 - 194 2 - (101) 29 124 265 18,623 25,201 - - (18,594) - 29 - - - - - - - 29 696 - (23,310) 42 2,629 - 1,348 208 - (931) 3 628 2,001 50 (*) 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 Estate" business in Spain (see Note 3) "Real Non-current assets and disposal groups classified as held for sale Changes in the year 2017 (Millions of euros) Cost (1) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Transfers, other movements and exchange differences Balance at the end Impairment (2) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Other movements and exchange differences Balance at the end Balance at the end of Net carrying value (1)-(2) Foreclosed Assets Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets Total 0 4,057 791 - (1,037) 2,236 6,047 - 0 1,237 143 - (272) (6) 1,102 4,945 0 168 45 - (49) (4) 160 - 0 47 14 - (7) (2) 52 108 0 1,065 1 - (131) (564) 371 - 0 443 - 1 - (42) (208) 194 - 177 0 40 - - - 18,583 18,623 - 0 - - - - 18,623 0 5,330 837 - (1,217) 20,251 25,201 - 0 1,727 158 - (321) (216) 1,348 23,853 50 (*) 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 Estate" business in Spain (see Note 3) "Real P.185 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Non-current assets and disposal groups classified as held for sale Changes in the year 2016 (Millions of euros) Foreclosed Assets Notes Foreclosed Assets through Auction Proceeding Recovered Assets from Finance Leases From Own Use Assets (*) Other assets (**) Total Cost (1) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Transfers, other movements and exchange differences Balance at the end Impairment (2) Balance at the beginning Additions Contributions from merger transactions Retirements (sales and other decreases) Other movements and exchange differences Balance at the end Balance at the end of Net carrying value (1)-(2) 50 0 3,775 582 - (779) 480 4,057 - 0 994 129 - (153) 268 1,237 2,820 0 216 57 - (77) (28) 168 - 0 52 3 - (6) (2) 47 121 0 626 23 - (170) 586 1,065 - 0 240 5 - (33) 232 443 621 0 37 - - 3 - 40 - 0 - - - - - - 40 0 4,654 662 - (1,023) 1,037 5,330 - 0 1,285 136 - (192) 499 1,727 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 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. 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. Assets from foreclosures or recoveries As of December 31, 2018, 2017 and 2016, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €1,072, €1,924 and €2,326 million in assets for residential use; €182, €491 and €574 million in assets for tertiary use (industrial, commercial or office) and €19, €29 and €41 million in assets for agricultural use, respectively. In December 31, 2018, 2017 and 2016, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years. During the years 2018, 2017 and 2016, some of the sale transactions for these assets were financed by Group companies. The amount of loans to buyers of these assets in those years amounted to €82, €207 and €219 million, respectively; with an average financing of 50% of the sales price. As of December 31, 2018, 2017 and 2016, the amount of the profits arising from the sale of Group companies financed assets - and therefore not recognized in the consolidated income statement - amounted to €1 in each financial year. P.186 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 22. Financial liabilities at amortized cost 22.1 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) 2018 2017 2016 Deposits Deposits from Central Banks (*) Deposits from Credit Institutions Customer deposits 435,229 27,281 31,978 375,970 467,949 37,054 54,516 376,379 Debt certificates Other financial liabilities Total (*) As of December 31, 2018, balance relating to repurchase agreements in Central Banks is €375 million (see Note 35). 63,915 11,850 543,713 61,112 12,844 509,185 499,706 34,740 63,501 401,465 76,375 13,129 589,210 22.2 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) Term deposits Demand deposits Repurchase agreements Total Notes 2018 2017 2016 35 19,015 8,370 4,593 31,978 25,941 3,731 24,843 54,516 30,429 4,651 28,420 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) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits & Reciprocal Accounts Term Deposits Repurchase Agreements 1,981 1,701 280 651 442 3,108 207 8,370 2,527 2,677 286 669 1,892 6,903 4,061 19,015 55 - - 4 - 4,534 - 4,593 Total 4,563 4,379 566 1,323 2,335 14,545 4,268 31,978 P.187 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Deposits from Credit Institutions. December 2017 (Millions of euros) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits & Reciprocal Accounts Term Deposits Repurchase Agreements 762 1,563 282 73 448 526 77 3,731 3,879 2,398 330 836 2,538 12,592 3,369 25,941 878 - 1,817 44 13 21,732 360 24,843 Deposits from Credit Institutions. December 2016 (Millions of euros) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits & Reciprocal Accounts Term Deposits Repurchase Agreements 956 1,812 306 317 275 896 88 4,651 4,995 3,225 426 1,140 3,294 13,751 3,597 30,429 817 3 2,931 5 465 23,691 509 28,420 Total 5,518 3,961 2,429 953 2,999 34,849 3,806 54,516 Total 6,768 5,040 3,663 1,463 4,035 38,338 4,194 63,501 22.3 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) General Governments Current accounts Time deposits Repurchase agreements Subordinated deposits Other accounts Total Of which: In Euros In foreign currency 2018 2017 2016 26,459 238,907 105,257 1,207 220 3,920 375,970 184,934 191,036 23,210 223,497 116,538 9,076 194 3,864 376,379 184,150 192,229 21,396 212,604 153,388 13,514 233 330 401,465 189,438 212,027 P.188 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits Term Deposits Repurchase Agreements 138,236 41,222 38,383 10,856 23,811 7,233 831 260,573 28,165 21,317 11,837 22,564 14,159 14,415 1,731 3 - 770 7 - 429 - 114,188 1,209 Customer Deposits. December 2017 (Millions of euros) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits Term Deposits Repurchase Agreements 123,382 36,728 36,492 12,427 23,710 6,816 1,028 240,583 39,513 21,436 11,622 24,237 15,053 13,372 1,484 126,716 2,664 - 4,272 152 2 1,989 - 9,079 Customer Deposits. December 2016 (Millions of euros) Spain The United States Mexico Turkey South America Rest of Europe Rest of the world Total Demand Deposits Term Deposits Repurchase Agreements 102,730 26,997 36,468 47,340 9,862 6,959 1,190 231,547 56,391 23,023 10,647 14,971 28,328 19,683 3,382 1,901 263 7,002 - 21 4,306 - 156,425 13,493 Total 166,403 62,539 50,991 33,427 37,970 22,077 2,563 375,970 Total 165,559 58,164 52,387 36,815 38,764 22,177 2,511 376,379 Total 161,022 50,282 54,117 62,311 38,211 30,949 4,572 401,465 P.189 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 22.4 Debt certificates The breakdown of the balance under this heading, by currency, is as follows: Debt certificates (Millions of euros) In Euros Promissory bills and notes Non-convertible bonds and debentures Covered bonds (*) Hybrid financial instruments Securitization bonds Wholesale funding Subordinated liabilities Convertible Convertible perpetual securities Convertible subordinated debt Non-convertible Preferred Stock Other subordinated liabilities In Foreign Currencies Promissory bills and notes Non-convertible bonds and debentures Covered bonds (*) Hybrid financial instruments Securitization bonds Wholesale funding Subordinated liabilities Convertible Convertible perpetual securities Convertible subordinated debt Non-convertible Preferred Stock Other subordinated liabilities Total (*) Including mortgage-covered bonds (see Appendix III). 2018 2017 2016 37,436 267 9,638 15,809 814 1,630 142 9,136 5,490 5,490 - 3,647 107 3,540 38,735 1,309 9,418 16,425 807 2,295 - 8,481 4,500 4,500 - 3,981 107 3,875 45,619 875 8,766 24,845 468 3,693 - 6,972 4,070 4,070 - 2,902 359 2,543 23,676 3,237 25,180 3,157 30,759 382 9,335 569 1,455 38 544 8,499 873 873 - 7,626 74 7,552 61,112 11,109 650 1,809 47 - 8,407 2,085 2,085 - 6,323 55 6,268 63,915 15,134 149 2,059 3,019 - 10,016 1,548 1,548 - 8,467 620 7,846 76,375 As of December 31, 2018, 67% of “Debt certificates” have fixed-interest rates and 33% have variable interest rates. Most of the foreign currency issues are denominated in U.S. dollars. 22.4.1 Subordinated liabilities 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: Convertible perpetual liabilities On September 24, 2018, BBVA carried out the seventh 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 AIAF Fixed Income Securities Market and in any case the issuance shall be offered 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. P.190 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The additional five issuances of perpetual contingent convertible securities (additional tier 1 instruments) with exclusion of pre-emptive subscription rights of shareholders were carried out in February 2014 and February 2015 for an amount of €1.5 billion each one; in April 2016 for an amount of €1 billion; in May 2017 for an amount of €500 million and in November 2017 for an amount of USD1 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 issuance is listed in the Singapore Exchange Securities Trading Limited and the other issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these issuances qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation UE 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 issues may be fully redeemed at BBVA´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, on May 9, 2018, the Bank early redeemed the issuance of preferred securities contingently convertible (additional tier 1 instrument) carried out by the Bank on May 9, 2013, for an amount of USD1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator was obtained. Additionally, on January 15, 2019, the Bank has notified its irrevocable decision to early redeem next February 19, 2019 the issuance of preferred securities contingently convertible (additional tier 1 instrument), carried out by the Bank on February 19, 2014, for a total amount of €1,5 billion and once the prior consent from the Regulator has been obtained. 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) BBVA International Preferred, S.A.U. (1) Unnim Group (2) Compass Group BBVA Colombia, S.A. Others Total (1) Listed on the London and New York stock exchanges. (2) Unnim Group: Issuances prior to the acquisition by BBVA. 2018 2017 2016 35 98 19 19 9 181 36 98 19 1 9 163 855 100 22 1 1 979 These issues were fully subscribed at the moment of the issue by qualified/institutional investors outside the Group and are redeemable at the issuer company’s option after five years from the issue date, depending on the terms of each issue and with prior consent from the Bank of Spain. Redemption of preferred securities On March 20, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series B preferred securities for an outstanding amount of €164,350,000. Likewise, on March 22, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series A preferred securities for an outstanding amount of €85,550,000. Finally, on April 18, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series C preferred securities for an outstanding amount of USD 600,000,000. P.191 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 22.5 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) Creditors for other financial liabilities Collection accounts Creditors for other payables Dividend payable but pending payment Total Notes 4 2018 2,891 4,305 5,648 - 2017 2,835 3,452 5,563 - 2016 3,465 2,768 6,370 525 12,844 11,850 13,129 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 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. P.192 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The breakdown of the balance under this heading is as follows: Technical Reserves by type of insurance product (Millions of euros) 2016 7,813 4,791 3,943 848 - 3,022 2,801 221 - 691 635 9,139 Total 9,834 9,223 9,139 Mathematical reserves Individual life insurance (1) Savings Risk Others Group insurance (2) Savings Risk Others Provision for unpaid claims reported Provisions for unexpired risks and other provisions 2018 8,504 6,201 5,180 1,021 - 2,303 2,210 93 - 662 668 9,834 2017 7,961 5,359 4,391 967 1 2,601 2,455 147 - 631 631 9,223 Total (1) (2) Provides coverage in the event of death or disability. The insurance policies purchased by employers (other than BBVA Group) on behalf of its employees The cash flows of those Liabilities under insurance and reinsurance contracts are shown below: Maturity (Millions of euros) Liabilities under Insurance and Reinsurance Contracts 2018 2017 2016 Up to 1 Year 1 to 3 Years 3 to 5 Years Over 5 Years 1,686 1,560 1,705 1,041 1,119 1,214 1,822 1,502 1,482 5,285 5,042 4,738 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% 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 ensure 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. P.193 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The table below shows the key assumptions as of December 31, 2018, 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 Group insurance(2) PERMF 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000-individual Tables of the Comisión Nacional de Seguros y Fianzas 2000-grupo 0.26%-3.27% 2.50% Depending on the related portfolio 5.50% (1) (2) Provides coverage in the case of one or more of the following events: death and disability. Insurance policies purchased by companies (other than 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 for pensions and similar obligations Other long term employee benefits Provisions for taxes and other legal contingencies Provisions for contingent risks and commitments Other provisions Total Notes 2018 2017 2016 25 25 4,787 5,407 6,025 62 686 636 601 67 756 578 669 6,772 7,477 69 418 950 1,609 9,071 P.194 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The change in provisions for pensions and similar obligations for the years ended December 31, 2018, 2017 and 2016 is as follows: Provisions for pensions and similar obligations. Changes Over the Year (Millions of euros) Balance at the beginning Add Charges to income for the year Interest expenses and similar charges Personnel expenses Provision expenses Charges to equity (1) Transfers and other changes Less Benefit payments Employer contributions Balance at the end Notes 2018 2017 2016 5,407 6,025 6,299 44.1 25 25 25 126 78 58 (10) 41 95 (779) (103) 4,787 391 71 62 258 140 (264) (861) (25) 5,407 402 96 67 239 339 66 (926) (154) 6,025 (1) Correspond to actuarial losses (gains) arising from certain defined-benefit post-employment pension commitments and other similar benefits recognized in ‘‘Equity’’ (see Note 2.2.12). Provisions for Taxes, Legal Contingents and Other Provisions. Changes Over the Year (Millions of euros) Balance at beginning Additions Acquisition of subsidiaries Unused amounts reversed during the period Amount used and other variations Balance at the end Ongoing legal proceedings and litigation 2018 1,425 455 - (184) (410) 1,286 2017 2,028 868 - (164) (1,306) 1,425 2016 1,771 1,109 - (311) (540) 2,028 The financial sector faces an environment of increasing regulatory and litigious pressure. In this environment, different Group’s entities are often a party to individual or collective judicial proceedings arising from the ordinary activity of their businesses. In accordance with the procedural status of these proceedings and according to the criteria of the attorneys who manage them, BBVA considers that none 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, nor at the level of the individual bank. The Group Management considers that the provisions made in connection with these judicial proceedings are adequate. As mentioned in Note 7.2 Risk factors, the Group is subject or may be subject in the future to a series of judicial and regulatory investigations, procedures and actions which, in case of a negative result, could have an adverse impact on the Group. P.195 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 25. Post-employment commitments and other employee benefit As stated in Note 2.2.12, 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 as of December 31, 2018, 2017 and 2016 is provided below: Net Defined Benefit Liability (asset) on the Consolidated Balance Sheet (Millions of euros) Pension commitments Early retirement commitments Medical benefits commitments Other long term employee benefits Total commitments Pension plan assets Medical benefit plan assets Total plan assets (1) Total net liability / asset Of which: Net asset on the consolidated balance sheet (2) Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3) Net liability on the consolidated balance sheet for other long term employee benefits (4) 2018 2017 2016 4,678 1,793 1,114 62 7,647 1,694 1,146 2,840 4,969 2,210 1,204 67 8,451 1,892 1,114 3,006 5,277 2,559 1,015 69 8,920 1,909 1,113 3,022 4,807 5,445 5,898 0 (41) 0 (27) 0 (194) 4,787 5,407 6,025 62 67 69 (1) (2) (3) (4) In Turkey, the foundation responsible for managing the benefit commitments holds an additional asset of 181€ million 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. Recorded under the heading “Other Assets - Other” of the consolidated balance sheet (see Note 20). Recorded under the heading “Provisions - Provisions for pensions and similar obligations” of the consolidated balance sheet (see Note 24). Recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet. P.196 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The amounts relating to benefit commitments charged to consolidated income statement for the years 2018, 2017 and 2016 are as follows: Consolidated Income Statement Impact (Millions of euros) Interest and similar expenses Interest expense Interest income Personnel expenses Defined contribution plan expense Defined benefit plan expense Provisions (net) Early retirement expense Past service cost expense Remeasurements (*) Other provision expenses Total impact on Consolidated Income Statement: Debit (Credit) Notes 2018 2017 2016 44.1 44.1 46 78 295 (217) 147 89 58 125 141 (33) (10) 28 350 71 294 (223) 149 87 62 343 227 3 31 82 563 96 303 (207) 154 87 67 332 236 (2) 3 95 582 (*) 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. As of December 31, 2018, 2017 and 2016 are as follows: Equity Impact (Millions of euros) Defined benefit plans Post-employment medical benefits Total impact on equity: Debit (Credit) 2018 2017 2016 81 (47) 34 (40) 179 140 237 119 356 P.197 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 25.1 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, 2018, 2017 and 2016 is presented below: Defined Benefits (Millions of euros) 2018 2017 2016 Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Conversions to defined contributions Other effects Balance at the end Defined Benefit Obligation Plan Assets Net Liability (asset) 8,384 61 292 4 - 109 (263) - 14 (274) (3) (979) - - (31) - 10 7,585 3,006 - 217 3 103 - (286) (286) - - - (200) - - (9) - 6 2,840 5,378 61 76 1 (103) 109 21 286 14 (274) (5) (779) - - (22) - 4 4,745 Defined Benefit Obligation 8,851 64 290 4 - 231 331 - 100 220 12 (1,029) - - (278) (82) (1) 8,384 Of which Spain Mexico The United States Turkey Including gains and losses arising from settlements. Excluding interest, which is recorded under "Interest income or expense". 4,547 28 39 83 260 1,587 287 339 4,807 1,615 326 422 5,442 1,661 360 520 (1) (2) Plan Assets Net Liability (asset) 3,022 - 223 4 25 - 161 161 - - - (169) - - (258) - (1) 3,006 320 1,602 309 424 5,829 64 68 - (25) 231 171 (161) 100 220 12 (861) - - (19) (82) - 5,378 5,122 60 51 96 Defined Benefit Obligation 9,184 67 299 5 - 235 354 - 107 106 141 (1,052) (43) - (282) - 84 8,851 6,157 1,456 385 447 Plan Assets Net Liability (asset) 3,124 - 207 5 154 - (5) (20) - - 15 (169) - - (293) - - 3,022 358 1,627 339 348 6,060 67 92 - (154) 235 359 20 107 106 125 (883) (43) - 11 - 84 5,829 5,799 (171) 46 99 The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of December 31, 2018 includes €332 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 guarantee 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 ensure that all decisions are made taking into consideration all of the associated impacts. P.198 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The following table sets out the key actuarial assumptions used in the valuation of these commitments as of December 31, 2018, 2017 and 2016: Actuarial Assumptions (Millions of euros) Discount rate Rate of salary increase Rate of pension increase Medical cost trend rate Mortality tables 2018 2017 2016 Spain Mexico USA Turkey Spain Mexico USA Turkey Spain Mexico USA Turkey 1.28% 10.45% 4.23% - - - 4.75% 2.51% 7.00% - - - 16.30% 14.00% 12.50% 16.70% PERM/F 2000P EMSSA09 RP 2014 CSO2001 1.24% - - - PERM/F 2000P 9.48% 4.75% 2.13% 7.00% 3.57% 11.60% - - - 9.90% 8.40% 12.60% 1.50% 1.50% 0.00% 0.00% 9.95% 4.75% 2.13% 6.75% 4.04% 3.00% 0.00% 0.00% 11.50% 9.30% 7.80% 10.92% EMSSA09 RP 2014 CSO2001 PERM/F 2000P EMSSA97 (adjustment EMSSA09) RP 2014 CSO2001 In Spain, the discount rate shown as of December, 31, 2018, corresponds to the weighted average rate, the actual discount rates used are 0.50% and 1.75% depending on the type of commitment. 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, 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) Discount rate Rate of salary increase Rate of pension increase Medical cost trend rate Change in obligation from each additional year of longevity Basis points change 50 50 50 100 - 2018 2017 Increase Decrease Increase Decrease (298) 3 19 229 108 332 (3) (18) (181) - (352) 5 23 290 155 386 (5) (22) (225) - 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, 2017 and 2016, the actuarial liabilities for the outstanding awards amounted to €62 million, €67 million, and €69 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. P.199 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 25.1.1 Post-employment commitments and similar obligations These commitments relate mostly to pensions in payment, 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, 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 489 employees (731 and 613 employees during years 2017 and 2016, indemnities due as well as the include the compensation and respectively). These commitments contributions payable to external pension funds during the early retirement period. As of December 31, 2018, 2017 and 2016, the value of these commitments amounted to €1,793 million, €2,210 million and €2,559 million, respectively. The change in the benefit plan obligations and plan assets as of December 31, 2018 was as follows: Post-employment commitments 2018 (Millions of euros) Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Conversions to defined contributions Other effects Balance at the end Of which: Vested benefit obligation relating to current employees Vested benefit obligation relating to retired employees Defined Benefit Obligation Spain Mexico USA Turkey 5,442 4 64 - - 148 (32) - - - (32) (824) - - - - 5 0 4,807 111 4,696 470 5 44 - - (1) 18 - - (9) 27 (48) - - 25 - (2) 512 - - - 360 - 13 - - - (28) - (1) (28) 1 (35) - - 17 - (1) 326 - - - 520 21 47 3 - 2 (18) - - (45) 29 (21) - - (134) - - 422 - - - Rest of the world 387 4 9 1 - 2 3 - 15 (12) - (18) - - (2) - 17 402 - - - P.200 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Post-employment commitments 2018 (Millions of euros) Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Conversions to defined contributions Other effects Balance at the end Post-employment commitments 2018 (Millions of euros) Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Conversions to defined contributions Other effects Balance at the end (1) Including gains and losses arising from settlements. Excluding interest, which is recorded under "Interest income or expense". (2) Plan Assets Spain Mexico USA Turkey Rest of the world 320 - 5 - - - (4) (4) - - - 488 - 46 - - - (70) (70) - - - 309 - 11 - 2 - (17) (17) - - - 424 351 - 39 3 13 - (21) (21) - - - - 7 1 18 - (11) (11) - - - (61) (47) (33) (10) (15) - - - - - - - 26 - (1) - - 15 - - - - (108) - - - - (1) - 17 260 441 287 339 366 Net Liability (Asset) Spain Mexico USA Turkey Rest of the world 5,122 4 59 - - 148 (28) 4 - - (32) (763) - - - - 5 4,547 (18) 5 (2) - - (1) 88 70 20 (29) 27 - - - (1) - - 71 51 - 2 - (2) - (11) 17 (1) (28) 1 (2) - - 2 - (1) 39 96 21 8 - (13) 2 3 21 - (45) 29 (11) - - (26) - - 83 36 4 2 1 (18) 2 14 11 15 (12) - (3) - - (1) - - 35 P.201 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The change in net liabilities (assets) during the years ended 2017 and 2016 was as follows: Post-employment commitments (Millions of euros) Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Conversions to defined contributions Other effects 2017: Net liability (asset) 2016: Net liability (asset) Spain Mexico USA Turkey Rest of the world Spain Mexico USA Turkey Rest of the world 5,799 (59) 46 4 73 - - 235 (67) (21) - (33) (13) (842) - - - (82) 2 5 (6) - (1) 1 38 3 1 - - - 9 99 21 9 - (16) 4 12 (10) (11) (101) 22 18 7 (1) - - 5 - - (2) 22 - (2) - - (5) - (1) - 81 32 (11) - - (21) - - 43 6,109 (79) 5 2 - (8) 3 (1) 2 (3) 4 (4) (3) - - (5) - (1) 36 10 98 - - 240 188 (35) - 192 31 (867) (43) - - - 63 5,799 6 (7) - (14) 1 23 23 2 (22) 19 - - - 10 - - (59) 35 4 1 - (1) - 10 3 (5) 13 (1) (3) - - 2 - (3) 46 97 22 8 - (17) 4 8 (23) - (23) 54 (9) - - (15) - - 99 24 5 2 - (9) (4) 11 (8) (1) 37 (17) (2) - - (4) - 20 42 Balance at the end (1) (2) Excludes interest which is reflected in the line item ‘‘Interest income and expenses’’. Includes gains and losses from settlements. 5,122 (18) 96 51 In Spain, local regulation requires that pension and death benefit commitments must be funded, either through a qualified pension plan or an insurance contract. 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, 2018 the value of these separate assets was €2,543 million, 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. 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, 2017 and 2016, the fair value of the aforementioned insurance policies (€260, €320 million and €358 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. Pensions 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 ensure that benefits can be met when due, guaranteeing 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. P.202 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Foundation that maintains the assets and liabilities relating to employees of Garanti in Turkey, as per the local regulatory requirements, has registered an obligation amounting to €241 million as of December 31, 2018 pending future transfer to the Social Security system. Furthermore, Garanti 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. 25.1.2 Medical benefit commitments The change in defined benefit obligations and plan assets during the years 2018, 2017 and 2016 was as follows: Medical Benefits Commitments Balance at the beginning Current service cost Interest income or expense Contributions by plan participants Employer contributions Past service costs (1) Remeasurements: Return on plan assets (2) From changes in demographic assumptions From changes in financial assumptions Other actuarial gain and losses Benefit payments Settlement payments Business combinations and disposals Effect on changes in foreign exchange rates Other effects Balance at the end 2018 2017 2016 Defined Benefit Obligation Plan assets Net liability (asset) Defined Benefit Obligation Plan assets Net liability (asset) Defined Benefit Obligation Plan assets Net liability (asset) 1,204 1,114 27 116 - - (42) (210) - - (182) (28) (34) - - 62 (9) - 109 - 71 - (164) (164) - - - (33) - - 59 (9) 1,114 1,146 91 27 8 - (71) (42) (47) 164 - (182) (28) (1) - - 3 (0) (32) 1,015 1,113 26 101 - - (11) 200 - 83 128 (10) (35) - - (92) - - 112 - - - 21 21 - - - (33) - - (100) - (98) 26 (11) - - (11) 179 (21) 83 128 (10) (2) - - 8 - 1,022 1,149 (127) 24 86 - - (5) 59 - 110 (91) 39 (33) - - - 97 - 114 - (60) (60) - - - (30) - - (138) (156) - - 24 (11) - (114) (5) 119 60 110 (91) 39 (2) - - 18 - (98) 1,204 1,114 91 1,015 1,113 (1) (2) Including gains and losses arising from settlements. 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. P.203 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 25.1.3 Estimated benefit payments As of December 31, 2018, 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) Commitments in Spain Commitments in Mexico Commitments in United States Commitments in Turkey Total 25.1.4 Plan assets 2019 2020 2021 2022 2023 2024-2028 684 91 16 24 815 611 92 17 14 734 518 99 17 18 652 419 106 18 20 563 333 112 19 25 489 965 680 103 231 1,979 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. 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. P.204 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The table below shows the allocation of plan assets of the main companies of the BBVA Group as of December 31, 2018: Plan Assets Breakdown (Millions of euros) Cash or cash equivalents Debt securities (Government bonds) Property Mutual funds Insurance contracts Other investments Total Of which: Bank account in BBVA Debt securities issued by BBVA Property occupied by BBVA 2018 26 2,080 - 2 132 - 2,241 - 3 - - 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, 2018: Investments in listed markets Cash or cash equivalents Debt securities (Government bonds) Mutual funds Total Of which: Bank account in BBVA Debt securities issued by BBVA Property occupied by BBVA 2018 26 2,080 2 2,109 - 3 - - 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, almost all of the assets related to employee’s commitments corresponded to fixed income securities. 25.2 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). P.205 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 26. Common stock As of December 31, 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. Additionally, as of December 31, 2018, the shares of BBVA Banco Continental, S.A.; Banco Provincial, S.A.; BBVA Colombia, S.A.; BBVA Banco Francés, S.A. and Turkiye Garanti Bankasi A.S., were listed on their respective local stock markets. BBVA Banco Francés, S.A. was also quoted in the Latin American market (Latibex) of the Madrid Stock Exchange and the New York Stock Exchange. As of December 31, 2018, State Street Bank and Trust Co., Chase Nominees Ltd and The Bank of New York Mellon SA NV in their capacity as international custodian/depositary banks, held 10.69%, 6.33%, and 2.31% 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 October 18, 2017, Blackrock, Inc. reported to the Spanish Securities and Exchange Commission (CNMV) that, it now has an indirect holding of BBVA common stock totaling 5.939%, of which 5.708% are voting rights attributed to shares and 0,231% are voting rights through financial instruments. BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. 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. The changes in the heading “Paid up Capital” of the accompanying consolidated balance sheets are due to the following common stock increases: P.206 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Capital Increase As of December 31, 2015 Dividend option - April 2016 Dividend option - October 2016 As of December 31, 2016 Dividend option . April 2017 As of December 31, 2017 As of December 31, 2018 Number of Shares Common Stock (Millions of Euros) 6,366,680,118 113,677,807 86,257,317 6,566,615,242 101,271,338 6,667,886,580 6,667,886,580 3,120 56 42 3,218 50 3,267 3,267 “Dividend Option” Program in 2017: The AGM of BBVA held on March 17, 2017 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. P.207 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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). 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). 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; although 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 equally be made with the exclusion of pre- P.208 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) 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. 27. Share premium As of December 31, 2018, 2017 and 2016, 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 The breakdown of the balance under this heading in the accompanying consolidated balance sheet is as follows: Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of euros) Legal reserve Restricted reserve Reserves for regularizations and balance revaluations Voluntary reserves Total reserves holding company (*) Consolidation reserves attributed to the Bank and dependent consolidated companies. Total (*) Total reserves of BBVA, S.A. (See Appendix IX). 2018 2017 2016 653 133 3 8,010 8,799 644 159 12 8,643 9,458 624 201 20 8,521 9,366 14,164 14,132 12,439 22,963 23,590 21,805 The impact of the first application of IFRS 9 and the change in accounting policies due to hyperinflation is registered 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). 28.1 Legal reserve Under the amended 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. P.209 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 28.2 Restricted reserves As of December 31, 2018, 2017 and 2016, the Bank’s restricted reserves are as follows: Restricted Reserves (Millions of euros) Restricted reserve for retired capital Restricted reserve for Parent Company shares and loans for those shares Restricted reserve for redenomination of capital in euros Total 2018 2017 2016 88 44 2 133 88 69 2 159 88 111 2 201 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 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 Company common stock in euros. P.210 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 28.3 Retained earnings, revaluation reserves and other reserves by entity The breakdown, by company or corporate group, under the headings “Retained earnings, revaluation reserves and other reserves” in the accompanying consolidated balance sheets is as follows: Retained earnings, Revaluation reserves and Other reserves (Millions of euros) 2018 2017 2016 15,625 14,101 Retained earnings and Revaluation reserves Holding Company BBVA Bancomer Group BBVA Seguros, S.A. Corporacion General Financiera, S.A. BBVA Banco Provincial Group BBVA Chile Group BBVA Paraguay Compañía de Cartera e Inversiones, S.A. Anida Grupo Inmobiliario, S.L. BBVA Suiza, S.A. BBVA Continental Group BBVA Luxinvest, S.A. BBVA Colombia Group BBVA Banco Francés Group Banco Industrial De Bilbao, S.A. Uno-E Bank, S.A Gran Jorge Juan, S.A. BBVA Portugal Group Participaciones Arenal, S.L. BBVA Propiedad S.A. 14,643 10,014 (127) 1,084 (124) 552 119 108 363 (53) 756 (48) 998 103 - - (33) (66) (4) - 9,442 (215) 1,202 (113) 951 108 (20) 515 (57) 681 25 926 999 25 - (47) (436) (183) (503) Anida Operaciones Singulares, S.L. (5,317) (4,881) Grupo BBVA USA Bancshares Garanti Turkiye Bankasi Group Unnim Real Estate Bilbao Vizcaya Holding, S.A. Pecri Inversión S.L. Other Subtotal Other reserves or accumulated losses of investments in joint ventures and associates Metrovacesa, S.A. Metrovacesa Suelo, S.A. Other Subtotal Total (586) 1,415 (587) 49 (74) (164) 23,021 - - (61) 2 (59) (794) 751 (576) 145 (73) 127 23,624 - - (53) 18 (35) 22,963 23,590 21,805 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. 9,108 (62) 1,187 (92) 1,264 98 (27) 528 (1) 611 16 803 827 61 - (30) (477) (180) (431) (4,127) (1,053) 127 (477) 139 (75) 25 21,864 - - (52) (7) (59) P.211 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 29. Treasury shares In the years ended December 31, 2018, 2017 and 2016 the Group entities performed the following transactions with shares issued by the Bank: Treasury Shares (Millions of euros) Balance at beginning + Purchases - Sales and other changes +/- Derivatives on BBVA shares +/- Other changes Balance at the end Of which: Held by BBVA, S.A. Held by Corporación General Financiera, S.A. Held by other subsidiaries Average purchase price in Euros Average selling price in Euros Net gain or losses on transactions (Shareholders' funds-Reserves) 2018 2017 2016 Number of Shares Millions of Euros Number of Shares Millions of Euros Number of Shares Millions of Euros 13,339,582 279,903,844 (245,985,735) - - 47,257,691 - - 47,257,691 - 6.11 6.25 96 7,230,787 48 38,917,665 1,683 (1,505) - 23 296 238,065,297 (231,956,502) - - 13,339,582 1,674 (1,622) (4) - 96 379,850,939 (411,537,817) - - 7,230,787 - - 13,339,582 - 7.03 6.99 - - 296 - - - (24) - 2,789,894 4,440,893 - 5.27 5.50 - - 96 - - - 1 309 2,004 (2,263) (1) - 48 - 22 26 - - - (30) The percentages of treasury shares held by the Group in the years ended December 31, 2018, 2017 and 2016 are as follows: Treasury Stock 2018 2017 2016 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% The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2018, 2017 and 2016 is as follows: Shares of BBVA Accepted in Pledge Number of shares in pledge Nominal value % of share capital 2018 2017 2016 61,632,832 64,633,003 90,731,198 0.49 0.92% 0.49 0.97% 0.49 1.38% The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 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 % of share capital 0.49 0.38% 0.49 0.52% 0.49 1.31% P.212 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Items that will not be reclassified to profit or loss Actuarial gains or losses on defined benefit pension plans 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 Notes 2018 2017(*) 2016(*) (1,284) (1,183) (1,095) (1,245) (1,183) (1,095) - - - - - - Fair value changes of equity instruments measured at fair value through other comprehensive income 13.4 (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 Hedge of net investments in foreign operations (effective portion) Foreign currency translation Hedging derivatives. Cash flow hedges (effective portion) Financial assets available for sale Fair value changes of debt instruments measured at fair value through other comprehensive income Hedging instruments (non-designated items) 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 Total (*) See Note 1.3. The balances recognized under these headings are presented net of tax. 31. Minority interest 13.4 13.4 (5,932) (5,755) (2,527) (218) 1 (118) (6,643) (7,297) (3,349) (6) (34) 1,641 943 - 1 (9) - (26) (40) 16 947 - - (31) (7,215) (6,939) (3,622) The 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) BBVA Colombia Group BBVA Chile Group (*) BBVA Banco Continental Group BBVA Banco Provincial Group BBVA Banco Francés Group Garanti Group Other entities Total (*) See Note 3. 2018 67 - 1,167 67 352 4,058 53 5,764 2017 65 399 1,059 78 420 4,903 55 6,979 2016 67 377 1,059 97 243 6,157 64 8,064 P.213 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. These amounts are broken down by groups of consolidated entities under the heading “Attributable to minority interests (non-controlling interest)” in the accompanying consolidated income statements: Profit attributable to Non-Controlling Interests (Millions of euros) BBVA Colombia Group BBVA Chile Group (*) BBVA Banco Continental Group BBVA Banco Provincial Group BBVA Banco Francés Group Garanti Group Other entities Total (*) See Note 3. 2018 2017 2016 9 26 227 (5) (18) 585 4 827 7 51 208 (2) 93 883 4 1,244 9 40 193 (2) 55 917 8 1,218 Dividends distributed to non-controlling interest of the Group during the year 2018 are: Garanti Group €233 million, BBVA Banco Continental Group €108 million, BBVA Chile Group €14 million, BBVA Banco Francés Group €13 million and other Spanish entities accounted for €10 million. 32. Capital base and capital management 32.1 Capital base As of December 31, 2018, 2017 and 2016, equity is calculated in accordance to the applicable regulation of each period on minimum capital base requirements for Spanish credit institutions –both as individual entities and as consolidated group – and 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 minimum capital base requireme nts established by the current regulation are calculated acc ording 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. At the date 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 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. Taking into account fully application of capital buffers since January 1, 2019 and considering last capital requirement communicated from ECB, BBVA has to maintain since January 1, 2019 i) a CET1 ratio of 9.26% 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). P.214 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The Group’s bank capital in accordance with the aforementioned applicable regulation, considering entities scope required by the above regulation, as of December 31, 2018, 2017 and 2016 is shown below: Eligible capital resources (Millions of euros) Capital Share premium Retained earnings, revaluation reserves and other reserves Other equity instruments, net Treasury shares Attributable to the parent company Attributable dividend Total equity Accumulated other comprehensive income Non-controlling interest Shareholders' equity Intangible assets Fin. treasury shares Indirect treasury shares Deductions Temporary CET 1 adjustments Capital gains from the Available-for-sale debt instruments portfolio Capital gains from the Available-for-sale equity portfolio Differences from solvency and accounting level Equity not eligible at solvency level Other adjustments and deductions Common Equity Tier 1 (CET 1) Additional Tier 1 before Regulatory Adjustments Total Regulatory Adjustments of Additional Tier 1 Tier 1 Tier 2 Total Capital (Total Capital=Tier 1 + Tier 2) Total Minimum equity required (*) Provisional data. Capital Base Tier 1 (millions of euros) (a) Exposure (millions of euros) (b) Leverage ratio (a)/(b) (percentage) (*) Provisional data Notes December 2018 (*) December 2017 December 2016 26 27 28 28 29 6 4 30 31 3,267 23,992 22,963 50 (296) 5,324 (975) 54,325 (7,215) 5,764 52,874 (8,199) (27) (108) (8,334) - - - (176) (176) (4,053) 40,311 5,634 - 45,945 8,754 54,699 - 41,607 3,267 23,992 23,590 54 (96) 3,519 (1,043) 53,283 (6,939) 6,979 53,323 (6,627) (48) (134) (6,809) (273) (256) (17) (189) (462) 3,711 42,341 6,296 (1,657) 46,980 8,798 55,778 - 40,370 3,218 23,992 21,805 54 (48) 3,475 (1,510) 50,985 (3,622) 8,064 55,428 (5,675) (82) (51) (5,808) (129) (402) 273 (120) (249) (2,001) 47,370 6,114 (3,401) 50,083 8,810 58,893 - 37,923 2018 (*) 2017 2016 45,945 705,406 6.51% 46,980 700,443 6.71% 50,083 747,216 6.70% As of December 31, 2018 Common Equity Tier 1 (CET1) phased-in ratio stood at 11.6% (in terms of fully loaded, CET1 stood at 11.3%). 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 increase is mainly explained by the generation of profit, net of dividend payments and remunerations of AT1 instruments and dividends received by the Bank, and the stability in the level of risk weighted assets (RWA). This CET1 phased-in ratio includes the impact of the initial implementation of IFRS9. In this context, the European Commission and Parliament have established temporary arrangements that are voluntary for the institutions, adapting the impact of IFRS9 on capital ratios. BBVA has informed the supervisory board its adherence to these arrangements. In addition, transfer of the real estate business of BBVA in Spain to Cerberus has no material impact on the ratios (see Note 3). TIER1 phased-in ratio stood at 13.2% as of December 31, 2018. During the year the Group has computed two new 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 redeemed in May 2018 and announced in January 2019 its intention to exercise the early redemption of an issuance of €1,500 million. The net effect on TIER1 phased-in ratio was -15 bps. P.215 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Regarding TIER2 ratio, in the third quarter the Group has received authorization from the supervisor to include a subordinated issuance of US$300 million and no longer includes BBVA Chile subordinated instruments. As result of the above mentioned effects, the total capital phased-in ratio stood at 15.7%. In addition, the Group has continued its program to meet 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 Requirement for own funds and Eligible Liabilities), BBVA has to reach, by January 1, 2020, an amount of 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. 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 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 Financial assets designated at fair value through other comprehensive income Financial assets at amortized cost Hedging derivatives Fair value changes of the hedged items in portfolio hedges of interest rate risk Investments in entities accounted for using the equity method Non- current assets and disposal groups held for sale Other Total assets 58,196 90,117 (3) 1,277 5,135 (2,768) 1,313 (1,313) 56,337 419,660 2,892 (14,318) (6,279) (87) (21) - 1,578 2,001 39,481 676,689 2,587 (2) 715 (20,191) 103 - - - - 593 - - (80) 2 3 621 58,296 91,394 2,367 - 42,019 413,974 2,805 (21) 4,085 2,001 40,199 657,119 (1) (2) Correspond to balances of entities fully consolidated in the public balance sheet but consolidated by the equity method in the regulatory balance sheet. Correspond to intragroup adjustments and other consolidation adjustments. P.216 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 32.2 Capital management Capital management in the BBVA Group has a twofold aim: Maintain a level of capitalization according to the business objectives in all countries in which it operates and, simultaneously, Maximize the return on shareholders’ funds through the efficient allocation of capital to the different units, a good management of the balance sheet and appropriate use of the various instruments forming the basis of the Group’s equity: shares, preferred securities and subordinate debt. This 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). 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) Notes 2018 2017 2016 Loan commitments given of which: defaulted Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Financial guarantees given (*) of which: defaulted Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households 7.3.2 7.3.2 Other commitments and guarantees given 7.3.2 of which: defaulted Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households 118,959 247 - 2,318 9,635 5,664 58,405 42,936 16,454 332 2 159 1,274 730 13,970 319 35,098 408 1 248 5,875 2,990 25,723 261 94,268 537 1 2,198 946 3,795 58,133 29,195 16,545 278 - 248 1,158 3,105 11,518 516 45,738 461 7 227 15,330 3,820 25,992 362 107,254 411 1 4,354 1,209 4,155 71,710 25,824 18,267 278 - 103 1,553 722 15,354 534 42,592 402 12 372 9,880 4,892 27,297 138 Total Loan commitments and financial guarantees 170,511 156,551 168,113 (*) Non performing financial guarantees given amounted to €740, €739 and €680 million, respectively, as of December 31, 2018, December 31, 2017, and December 31, 2016, respectively. P.217 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. As of December 31, 2018, the provisions for loan commitments given, financial guarantees given and other commitments and guarantees given, recorded in the consolidated balance sheet amounted €338 million, €252 million and €45 million, respectively. 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 the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties. In the years 2018, 2017 and 2016, no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed. 34. Other contingent assets and liabilities As of December 31, 2018, 2017 and 2016 there were no material contingent assets or liabilities other than those disclosed in the accompanying notes to the consolidated financial statements. 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, 2017 and 2016 is as follows: Purchase and Sale Commitments (Millions of euros) Financial instruments sold with repurchase commitments 42,993 40,077 46,562 Notes 2018 2017 2016 Financial liabilities held for trading Central Banks Credit Institutions General governments Financial liabilities at amortized cost Central Banks Credit Institutions Customer deposits Financial instruments purchased with resale commitments Financial assets held for trading Central Banks Credit Institutions General governments Financial assets at amortized cost Central Banks Credit Institutions General governments 10 22 10 14 36,815 10,511 14,839 11,466 6,178 375 4,593 1,209 28,034 27,262 2,163 13,305 11,794 772 - 478 294 - - - - 40,077 6,155 24,843 9,079 26,368 - - - - - - - - 46,562 4,649 28,421 13,491 22,921 - - - - 26,368 22,921 305 13,861 12,202 81 15,561 7,279 P.218 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. A breakdown of the maturity of other payment obligations, not included in previous notes, due after December 31, 2018 is provided below: Maturity of Future Payment Obligations (Millions of euros) Finance leases Operating leases Purchase commitments Technology and systems projects Other projects Total Up to 1 Year 1 to 3 Years 3 to 5 Years Over 5 Years - 251 28 7 20 279 - 253 - - - 253 - 554 - - - 554 - 1,879 - - - 1,879 Total - 2,937 28 7 20 2,965 36. Transactions on behalf of third parties As of December 31, 2018, 2017 and 2016 the details of the most transactions on behalf of third parties are as follows: Transactions on Behalf of Third Parties (Millions of euros) Financial instruments entrusted to BBVA by third parties Conditional bills and other securities received for collection Securities lending Total 2018 2017 2016 628,417 13,484 4,866 646,768 624,822 14,775 5,485 645,081 637,761 16,054 3,968 657,783 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) Asset management by type of customer (*): Collective investment Pension funds Customer portfolios managed Of which: Portfolios managed on a discretionary basis Other resources Customer resources distributed but not managed by type of product: Collective investment Insurance products Other Total (*) Excludes balances from securitization funds. 2018 2017 2016 - 61,393 33,807 29,953 - 23,657 2,949 - 3,468 32 - 131,603 - 60,939 33,985 36,901 - 19,628 3,081 - 3,407 35 - 138,347 - 55,037 33,418 40,805 0 18,165 2,831 - 3,695 39 - 135,824 P.219 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 37. Net interest income 37.1 Interest income 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) Central Banks Loans and advances to credit institutions Loans and advances to customers Debt securities Held for trading Other portfolios Adjustments of income as a result of hedging transactions Cash flow hedges (effective portion) Fair value hedges Insurance activity Other income Total Of which: Notes 2018 482 458 2017 406 410 2016 229 217 22,831 22,699 21,608 4,395 1,552 2,843 (201) (3) (198) 1,142 722 3,809 1,263 2,546 427 15 412 1,058 487 4,128 1,014 3,114 (385) 12 (397) 1,219 692 55.2 29,831 29,296 27,708 Financial assets at fair value through other comprehensive income Financial assets at amortized cost Other 2,306 24,668 2,856 1,962 23,803 3,531 - 24,578 3,130 The amounts recognized in consolidated equity in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during the years are given in the accompanying “Consolidated statements of recognized income and expenses”. 37.2 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) Central banks Deposits from credit institutions Customers deposits Debt certificates Adjustments of expenses as a result of hedging transactions Cash flow hedges (effective portion) Fair value hedges Cost attributable to pension funds Insurance activity Other expenses Total 2018 2017 2016 80 2,023 6,523 1,936 (323) 46 (368) 119 607 1,274 123 1,880 5,814 1,930 665 38 627 125 682 316 192 1,367 5,766 2,323 (574) 42 (616) 96 846 634 12,239 11,537 10,648 P.220 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Securities portfolio and derivatives 179,672 5,707 3.18 177,164 4,724 2.67 202,388 5,072 Loans and advances to central banks 5,518 258 4.67 10,945 258 2.36 15,326 229 Loans and advances to credit institutions 25,634 657 2.56 26,420 485 1.83 28,078 218 Loans and advances to customers 378,996 22,804 6.02 407,153 23,261 5.71 410,895 21,853 Euros Foreign currency 181,668 3,381 1.86 196,893 3,449 1.75 201,967 3,750 197,328 19,423 9.84 210,261 19,812 9.42 208,928 18,104 Other assets Total The average borrowing cost in the years ended December 31, 2018, 2017 and 2016 is as follows: 48,872 704,471 52,748 735,645 46,343 678,893 270 29,831 485 29,296 0.99 4.16 0.58 4.39 325 27,708 0.04 2.51 1.50 0.78 5.32 1.86 8.67 0.62 3.77 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 Customer deposits Euros Foreign currency Debt certificates Other liabilities 65,044 370,078 2,192 6,559 3.37 90,619 1.77 392,057 2,212 7,007 2.44 101,975 1,866 1.79 398,851 5,944 178,370 337 0.19 186,261 461 0.25 195,310 766 191,709 6,222 3.25 205,796 6,546 3.18 203,541 5,178 75,927 115,638 1,753 1,735 2.31 84,221 1,631 1.94 89,876 1.50 82,699 687 0.83 89,328 1,738 1,101 1.83 1.49 0.39 2.54 1.93 1.23 Equity Total 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: 54,874 1.80 704,471 55,616 1.64 735,645 52,206 678,893 - 12,239 - 10,648 - 11,537 - 1.45 - - P.221 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Interest Income and Expenses : Change in the Balance (Millions of euros) Cash and balances with central banks and other demand deposits Securities portfolio and derivatives Loans and advances to Central Banks Loans and advances to credit institutions Loans and advances to customers Euros Foreign currencies Other assets Interest income Deposits from central banks and credit institutions Customer deposits Euros Foreign currencies Debt securities issued Other liabilities Interest expenses Net Interest Income 2018 / 2017 2017 / 2016 Volume Effect (1) Price Effect (2) Total Effect Volume Effect (1) Price Effect (2) Total Effect 22 67 (128) (14) (1,609) (267) (1,219) (25) - (624) (393) (20) (448) (161) 274 - - 30 916 128 187 1,152 199 830 (190) - 604 (55) (104) 124 282 774 - - 51 983 (0) 172 (456) (68) (389) (215) 535 (20) (448) (124) (324) 122 1,048 702 (167) 3 (632) (66) (13) (199) (94) 115 (24) - (208) (101) (35) 57 (109) (82) - - 71 285 94 279 1,606 (206) 1,593 184 - 554 1,164 (269) 1,311 3 (332) - - 74 (347) 29 266 1,408 (301) 1,708 160 1,588 346 1,063 (305) 1,368 (106) (414) 889 699 (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), as can be seen in the breakdown below: Dividend Income (Millions of euros) Dividends from: Financial assets held for trading and financial assets at fair value through profit or loss Financial assets at fair value through other comprehensive income Total 2018 2017 2016 19 138 157 145 188 334 161 307 467 39. Share of profit or loss of entities accounted for using the equity method Net income from “Investments in Entities Accounted for Using the Equity Method” resulted in a negative impact of €7 million as of December 31, 2018, compared with the positive impact of €4 and €25 million recorded as of December 31, 2017 and 2016, respectively. P.222 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 40. Fee and commission income and expense The breakdown of the balance under these heading in the accompanying consolidated income statements is as follows: Fee and Commission Income (Millions of euros) Bills receivables Demand accounts Credit and debit cards Checks Transfers and other payment orders Insurance product commissions Commitment fees Contingent risks Asset Management Securities fees Custody securities Other fees and commissions Total 2018 39 451 2,900 194 605 171 223 390 1,023 325 122 689 7,132 2017 46 507 2,834 212 601 192 231 396 923 385 122 2016 52 469 2,679 207 578 178 237 406 839 335 122 700 7,150 701 6,804 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) Credit and debit cards Transfers and other payment orders Commissions for selling insurance Other fees and commissions Total 2018 1,502 96 48 607 2,253 2017 1,458 102 60 610 2,229 2016 1,334 102 63 587 2,086 P.223 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 41. Gains (losses) on financial assets and liabilities, net and Exchange differences 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 Financial assets at amortized cost Other financial assets and liabilities Gains or losses on financial assets and liabilities held for trading, net Reclassification of financial assets from fair value through other comprehensive income Reclassification of financial assets from amortized cost Other gains or (-) losses Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net Reclassification of financial assets from fair value through other comprehensive income Reclassification of financial assets from amortized cost Other gains or (-) losses Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net Gains or losses from hedge accounting, net Subtotal Gains or (losses) on financial assets and liabilities Exchange Differences Total 216 51 164 707 - - 707 96 - - 96 143 72 1,234 (9) 1,223 985 133 852 218 1,375 95 1,281 248 (56) (209) 938 1,030 1,968 114 (76) 1,661 472 2,133 The breakdown of the balance (excluding exchange rate differences) under this heading accompanying income statements by the nature of financial instruments is as follows: in the Gains (losses) on financial assets and liabilities: Breakdown by nature of the Financial Instrument (Millions of euros) Debt instruments Equity instruments Loans and advances to customers Trading derivatives and hedge accounting Customer deposits Other Total 2018 354 (253) (172) 927 240 137 1,233 2017 545 845 97 (470) (96) 18 938 2016 906 459 65 109 87 35 1,661 P.224 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Interest rate agreements Securities agreements Commodity agreements Credit derivative agreements Foreign-exchange agreements Other agreements Subtotal Hedging Derivatives Ineffectiveness Fair value hedges Hedging derivative Hedged item Cash flow hedges Subtotal Total - - 2018 2017 2016 - - 90 294 (2) (109) 606 (24) 856 87 (150) 237 (15) 72 927 - - 165 (139) 99 (564) 315 (137) (261) (177) (236) 59 (32) (209) (470) 431 86 (29) (118) 186 (371) 185 (76) (330) 254 - (76) 109 In addition, in the years ended December 31, 2018, 2017 and 2016, under the heading “Gains or losses on financial assets and liabilities held for trading, net” of the consolidated income statement, net amounts of negative €113 million, positive €235 million and positive €151 million, respectively, were recognized for transactions with foreign exchange trading derivatives. 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) Gains from sales of non-financial services Of which: Real estate Other Of which: net profit from building leases Total 2018 2017 2016 458 283 491 21 949 1,109 884 330 61 1,439 882 588 390 76 1,272 P.225 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Change in inventories Of Which: Real estate Other Total 2018 292 248 1,808 2,101 2017 886 816 1,337 2,223 2016 617 511 1,511 2,128 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: Other operating income and expense on insurance and reinsurance contracts (Millions of euros) Income on insurance and reinsurance contracts Expenses on insurance and reinsurance contracts Total 2018 2017 2016 2,949 (1,894) 1,055 3,342 (2,272) 1,069 3,652 (2,545) 1,107 The table below shows the contribution of each insurance product to the Group´s income for the years ended December 31, 2018, 2017 and 2016: Income by type of insurance product (Millions of euros) 2018 2017 2016 Life insurance Individual Savings Risk Group insurance Savings Risk Non-Life insurance Home insurance Other non-life insurance products Total 682 486 56 430 196 39 157 373 110 263 604 346 38 308 258 (4) 263 464 118 346 634 268 30 238 366 8 357 474 131 342 1,055 1,069 1,107 P.226 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 44. Administration costs 44.1 Personnel expenses The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows: Personnel Expenses (Millions of euros) Wages and salaries Social security costs Defined contribution plan expense Defined benefit plan expense Other personnel expenses Total Notes 25 25 2018 4,786 722 89 58 465 2017 5,163 761 87 62 497 2016 5,267 784 87 67 516 6,120 6,571 6,722 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 Spanish banks Management Team Other line personnel Clerical staff Branches abroad Subtotal Companies abroad Mexico United States Turkey Venezuela Argentina Colombia Peru Other Subtotal Pension fund managers Other non-banking companies Total Of which: Men Women Of which: BBVA, S.A. 2018 2017 2016 1,047 21,840 2,818 589 26,294 31,655 9,786 22,322 3,631 6,074 5,185 5,879 3,767 88,299 395 14,349 129,336 59,547 69,790 0 0 1,026 22,180 3,060 603 26,869 30,664 9,532 23,154 4,379 6,173 5,374 5,571 5,501 90,348 362 14,925 132,504 60,730 71,774 0 0 1,044 23,211 3,730 718 28,703 30,378 9,710 23,900 5,097 6,041 5,714 5,455 5,037 91,332 335 16,307 136,677 62,738 73,939 26,294 26,869 25,979 0 0 P.227 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 Management Team Other line personnel Clerical staff Total 2018 2017 2016 Male Female Male Female Male Female 1,197 37,461 19,315 57,973 339 38,918 28,397 67,654 1,244 38,670 20,639 60,553 342 39,191 31,770 71,303 1,331 38,514 22,066 61,911 350 39,213 33,318 72,881 44.1.1 Share-based employee remuneration The amounts recognized under the heading “Administration costs - Personnel expenses - Other personnel expenses” in the consolidated income statements for the year ended December 31, 2018, 2017 and 2016, corresponding to the remuneration plans based on equity instruments in each year, amounted to €29 million, €38 million and €57 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity in the accompanying consolidated balance sheets, net of tax effect. instruments” 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 variable 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 have a significant impact on the Group’s risk profile including the executive directors and members of BBVA Senior Management (hereinafter, the "Identified Staff"), 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, 2017, and by the Annual General Shareholders’ Meeting held on March 17, 2017. This remuneration policy includes a specific settlement and payment system of the Annual Variable Remuneration applicable to the Identified Staff, including directors and senior management, under 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 variable 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. 50% of the variable remuneration of each 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 will be reduced upon performance P.228 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. assessment in the event of negative evolution of the Bank’s results or other parameters such as the level of achievement of budgeted targets. The deferred component of the variable remuneration (in shares and in cash) may be reduced in its entirety, yet not increased, based on the result of multi-year performance indicators aligned with the Bank’s fundamental 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. During the entire deferral period (5 or 3 years, as applicable) and retention period, variable remuneration shall be subject to malus and clawback arrangements, both linked to a downturn in financial performance of the Bank, specific unit or area, or individual, under certain circumstances. 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 may be used in connection with remuneration and responsibility 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, the variable component of the remuneration of the Identified Staff members shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the General Meeting resolves to increase this percentage up to 200%. In this regard, the General Meeting held on March 16, 2018 resolved to increase the maximum level of variable remuneration to 200% of the fixed component for a number of the Identified Staff, in the terms indicated in the Report of Recommendations issued for this purpose by the Board of Directors dated February 12, 2018. 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 received a total amount of 3,932,268 shares corresponding to the initial payment corresponding to 2017 Annual Variable Remuneration to be delivered in shares. Additionally, the remuneration policy prevailing until 2014 provided for a specific settlement and payment scheme for the variable remuneration 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 in BBVA shares. According to this prior scheme, during 2018, the members of the Identified Staff received the shares corresponding to the deferred parts of the Annual Variable Remuneration from previous years, and their corresponding adjustments in cash, delivery of which corresponded in 2018, were delivered to the beneficiary members of the Identified Staff, resulting in a total amount of 941,366 shares corresponding to the last deferred third of the 2014 Annual Variable Remuneration and €903,711 as adjustments for updates of the shares granted. The information on the delivery of shares to executive Directors and senior management corresponding to the deferred parts of the Annual Variable Remuneration from previous years and their corresponding adjustments in cash, are detailed in Note 54. P.229 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Additionally, in line with specific regulation applicable in Portugal and Brazil, BBVA identifies those employees that, according to local regulators, should be subject to a specific settlement and payment scheme of the Annual Variable Remuneration. 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. Additionally, during 2018 the shares corresponding to the deferred parts of the Annual Variable Remuneration and their corresponding adjustments in cash, were delivered to these beneficiaries, giving rise in 2018, of a total of 12,120 shares corresponding to the first deferred third of the 2016 Annual Variable Remuneration, and €2,679 as adjustments for updates of the shares granted; a total of 10,485 shares corresponding to the second third of the 2015 Annual Variable Remuneration, and €6,186 as adjustments for updates of the shares granted; and a total of 7,158 shares corresponding to the final third of the 2014 Annual Variable Remuneration, and €6,872 as adjustments for updates of the shares granted. 44.2 Other administrative expenses The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows: Other Administrative Expenses (Millions of euros) Technology and systems Communications Advertising Property, fixtures and materials Of which: Rent expenses (*) Taxes other than income tax Other expenses Total 2018 2017 2016 1,133 235 336 982 552 417 1,271 4,374 692 269 352 1,033 581 456 1,738 4,541 673 294 398 1,080 616 433 1,766 4,644 (*) The consolidated companies do not expect to terminate the lease contracts early. 45. Depreciation and Amortization The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows: Depreciation and amortization (Millions of euros) Tangible assets For own use Investment properties Assets leased out under operating lease Other Intangible assets Total Notes 2018 2017 2016 17 594 589 5 - 613 1,208 694 680 13 - 694 1,387 690 667 23 - 735 1,426 46. Provisions or (reversal) of provisions In the years ended December 31, 2018, 2017 and 2016 the net provisions registered in this income statement line item were as follows: P.230 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Provisions or (reversal) of provisions (Millions of euros) Pensions and other post employment defined benefit obligations Commitments and guarantees given Pending legal issues and tax litigation Other Provisions Total Notes 25 2018 125 (48) 133 163 373 2017 343 (313) 318 397 745 2016 332 56 76 722 1,186 P.231 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 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) Financial assets at fair value through other comprehensive income Debt securities Equity instruments Financial assets at amortized cost Of which: Recovery of written-off assets Held to maturity investments Total Notes 13.4 7.3.5 2018 1 1 - 3,980 589 3,981 2017 1,127 (4) 1,131 3,677 558 (1) 4,803 2016 202 157 46 3,597 541 1 3,801 48. Impairment or (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) Tangible assets Intangible assets Others Total Notes 2018 2017 2016 17 18.2 20 5 83 51 138 42 16 306 363 143 3 375 521 P.232 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Gains Disposal of investments in non-consolidated subsidiaries Disposal of tangible assets and other Losses: Disposal of investments in non-consolidated subsidiaries Disposal of tangible assets and other Total 2018 2017 2016 - 55 81 - (13) (45) 78 - 38 69 - (27) (33) 47 - 111 64 - (58) (47) 70 50. Profit (loss) 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) Notes 2018 2017 2016 Gains on sale of real estate Impairment of non-current assets held for sale 21 Gains on sale of investments classified as non-current assets held for sale (*) Gains on sale of equity instruments classified as non-current assets held for sale Total (*) The change is mainly as a result of the sale of the BBVA stake in BBVA Chile (see Note 3). 129 (208) 894 - 815 102 (158) 82 - 26 66 (136) 39 - (31) 51. Consolidated statements of cash flows In the consolidated statements of cash flows, 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 sheets and does not include demand deposits with credit institutions registered in the chapter "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 due to the change in “Financial assets held for trading”. P.233 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Cash flows from investing activities increased in the year ended December 31, 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”. The variation between 2018 and 2017 of the financial liabilities from financing activities is the following: Liabilities from financing activities (Millions of Euros) Non-cash changes December 31, 2017 Cash flows Acquisition Disposal Debt certificates Subordinated debt certificates Short-term debt Other financial liabilities Total 50,635 17,443 10,013 8,891 86,982 (1,621) 857 931 1,574 1,741 - - - - - (1,900) (694) - (643) (3,237) Foreign exchange movement (779) 29 81 (1,328) (1,997) Fair value changes December 31, 2018 - - - - - 46,335 17,635 11,025 8,495 83,490 Liabilities from financing activities (Millions of Euros) December 31, 2016 Cash flows Acquisition Disposal Foreign exchange movement Fair value changes December 31, 2017 Non-cash changes Debt certificates 59,388 (5,958) Subordinated debt certificates Short-term debt Other financial liabilities Total 16,987 11,556 10,179 98,111 1,679 (1,319) (378) (5,976) - - - - - - - - - - (2,796) (1,223) (224) (910) (5,153) - - - - - 50,635 17,443 10,013 8,891 86,982 52. Accountant fees and services The details of the fees for the services contracted by entities of the BBVA Group for the year ended December 31, 2018 with their respective auditors and other audit entities are as follows: Fees for Audits Conducted and Other Related Services (Millions of euros) (**) Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*) 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 Fees for audits conducted by other firms 2018 26.1 1.5 0.1 2017 27.2 1.9 0.1 (*) Including fees pertaining to annual legal audits (€22.4 and 22.6 million as of December 31, 2018 and December 31, 2017, respectively). (**) Regardless of the billed period. P.234 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. In the year ended December 31, 2018, other entities in the BBVA Group contracted other services (other than audits) as follows: Other Services rendered (Millions of euros) Firms belonging to the KPMG worldwide organization 2018 0.3 2017 0.5 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) Legal audit of BBVA,S.A. or its companies under control Other audit services of BBVA, S.A. or its companies under control Limited Review of BBVA, S.A. or its companies under control Reports related to issuances Assurance jobs and other required by the regulator Other 2018 2017 6.7 5.9 1.1 0.3 0.9 - 6.8 5.0 0.9 0.4 0.6 - (*) 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). 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 these transactions are not material and are carried out under normal market conditions. As of December 31, 2018, 2017 and 2016, the following are the transactions with related parties: 53.1 Transactions with significant shareholders As of December 31, 2018, 2017 and 2016, there were no shareholders considered significant (see Note 26). P.235 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 53.2 Transactions with BBVA Group entities The balances of the main aggregates 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) Assets: Loans and advances to credit institutions Loans and advances to customers Liabilities: Deposits from credit institutions Customer deposits Debt certificates Memorandum accounts: Financial guarantees given Contingent commitments Other 2018 2017 2016 132 1,866 2 521 - 78 1,358 152 91 510 5 428 - 78 114 69 442 1 533 - 42 121 1,175 1,466 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) Income statement: Financial incomes Financial costs Fee and Commission Income Fee and Commission Expenses 2018 2017 2016 55 2 5 48 26 1 5 49 26 1 5 58 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 (see Note 25) commitments and the futures 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. 53.3 Transactions with members of the Board of Directors and 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, t h e a m o u n t a v a i l e d a g a i nst t h e 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 loans granted by the Group’s entities to the members of the Board of 2016, there were no 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. Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. P.236 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 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 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. 53.4 Transactions with other related parties As of December 31, 2018, 2017 and 2016, the Group did not conduct any transactions with other related parties that are not in the ordinary course of its business, which were not carried out at arm's-length market conditions and of marginal relevance; whose information is not necessary to give a true picture of the BBVA Group’s consolidated net equity, net earnings and financial situation. 54. Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management Remuneration received by non-executive directors during the 2018 financial year The remunerations paid to non-executive members of the Board of Directors during the 2018 financial year are indicated below, individually and itemized: 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 Tomás Alfaro Drake José Miguel Andrés Torrecillas Jaime Félix Caruana Lacorte (1) Belén Garijo López Sunir Kumar Kapoor Carlos Loring Martínez de Irujo Lourdes Máiz Carro José Maldonado Ramos Ana Peralta Moreno (1) Juan Pi Llorens Susana Rodríguez Vidarte Jan Verplancke (1) Total (2) 129 129 75 129 129 129 129 129 86 129 129 107 1.427 - - 83 - - 167 - 167 - - 167 - 584 18 179 - 71 - - 71 - 36 71 - - 446 - 107 53 - - 107 - 53 - 214 107 - 642 43 - - 107 - 43 43 - 21 - - - 257 25 71 - 20 - - 41 41 - - 41 - 239 43 - 25 - 43 - - - - 43 - 25 179 Total 258 485 237 328 172 445 284 390 143 457 443 132 3.773 (1) Directors appointed by the General Meeting held on 16 March 2018. This includes the remunerations paid for membership of the various Board Committees throughout the 2018 financial year. The composition of these Committees 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 membership of the Board and of a number of Board Committees. P.237 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Also, during the 2018 financial year, €107 thousand has been paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors. Remuneration received by executive directors during the 2018 financial year Over the course of financial year 2018, the executive directors have received the amount of the Annual Fixed Remuneration corresponding to said financial year, established in the Remuneration Policy for BBVA Directors applicable in 2018, which was approved by the General Meeting held on 17 March 2017. In addition, the executive directors have received the Annual Variable Remuneration for 2017 financial year, which, in accordance with the settlement and payment system set out in said Policy, was due to be paid to them during the first quarter of financial year 2018. In application of this settlement and payment system: • • • • • • 40% of the 2017 Annual Variable Remuneration corresponding to executive directors has been paid, having the conditions been met, in the first quarter of financial year 2018 (hereinafter, the "Upfront Portion"), in equal parts in cash and in shares. The remaining 60% of the Annual Variable Remuneration, both in cash and in 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 (hereinafter, 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 schedule: 60% in 2021, 20% in 2022 and the remaining 20% in 2023. All the shares delivered to the executive directors as Annual Variable Remuneration, both of the Upfront Portion and the Deferred Portion will be withheld for a period of one year after their delivery; this will not apply to those shares transferred to honor the payment of taxes arising therefrom. The Deferred Portion of the Annual Variable Remuneration 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. The variable component of the remuneration for executive directors corresponding 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. • 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. 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 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 executive directors have received in 2018 the last third of the deferred annual variable remuneration for 2014 financial year, delivery of which corresponded in 2018, thus concluding payment of the deferred variable remuneration for 2014. In accordance with the above, the remunerations paid to executive directors during financial year 2018 are indicated below, individually and itemized: P.238 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Annual Fixed Remuneration (thousands of euro), received in 2018 Carlos Torres Vila José Manuel González-Páramo Martínez-Murillo Total 1,965 834 2,799 Variable remuneration for financial year 2017, received in 2018 Carlos Torres Vila José Manuel González-Páramo Martínez-Murillo Total* In cash (1) (thousands of euro) 562 87 649 In shares (1) 77,493 12,029 89,522 (1) Remunerations corresponding to the Upfront Portion (40%) of the Annual Variable Remuneration for financial year 2017, 50% in cash and 50% in shares. Deferred variable remuneration for financial year 2014, received in 2018 Carlos Torres Vila José Manuel González-Páramo Martínez-Murillo Total In cash (1) (thousands of euro) 105 33 137 In shares (1) 11,766 3,678 15,444 (1) Remunerations corresponding to the last third of the deferred annual variable remuneration for financial year 2014, 50% in cash and 50% in shares, along with its update in cash. In addition, the executive directors received remuneration in kind throughout financial year 2018, including insurance premiums and others, amounting to a total of €236 thousand, of which €154 thousand correspond to Carlos Torres Vila and €82 thousand to José Manuel González-Páramo Martínez-Murillo. Former Group Executive Chairman, Francisco González Rodríguez, who stepped down from this position with effect on 21 December 2018, received, during 2018, €2,475 thousand as Annual Fixed Remuneration; €660 thousand and 90,933 BBVA shares corresponding to 40% of the Annual Variable Remuneration for financial year 2017; and €332 thousand and 37,390 BBVA shares as settlement of the last third of the deferred variable remuneration for financial year 2014, payment of which corresponded in first quarter of financial year 2018, including the corresponding update; as well as €20 thousand as remuneration in kind. On 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 fixed and variable remuneration in accordance with his previous position as Chairman and CEO 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 financial year 2017; and €376 thousand as remuneration in kind, which includes benefits for his expatriate status in the United States. (*) Amounts paid in US Dollars. Euro details are for information purposes. • Annual Variable Remuneration for executive directors for financial year 2018 Following year-end 2018, the Annual Variable Remuneration for executive directors corresponding to said period has been determined, applying the conditions established at the beginning 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: P.239 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. • The Upfront Portion (40%) of the Annual Variable Remuneration of 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 of financial year 2018, calculated over the first three-year deferral period. Provided that the 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. 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. 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. • Deferred Annual Variable Remuneration of executive directors for financial year 2015 Following year-end 2018, the deferred Annual Variable Remuneration of executive directors for financial year 2015 has been determined, with delivery, if conditions are met, corresponding during the first quarter of financial year 2019, subject to the conditions established for this purpose in the Remuneration Policy for BBVA Directors approved by the General Meeting on 13 March 2015. Thus, based on the result of each of the multi-year performance indicators set by the Board in 2015 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 financial year 2015, after the corresponding adjustment in light of the result of the TSR indicator, has been determined in an amount of €612 thousand and 79,157 BBVA shares, in the case of P.240 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Carlos Torres Vila, and €113 thousand and 14,667 BBVA shares in the case of José Manuel González-Páramo Martínez-Murillo, which includes the corresponding updating. As regards the former Group Executive Chairman, Francisco González Rodríguez, his 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 and in accordance with the conditions established in the remuneration policies applicable in the corresponding years, 50% and 60% of the annual variable remuneration of the executive directors corresponding to 2016 and 2017 financial years, respectively, has been deferred, to be received in future years, if applicable conditions are met, in accordance with the terms established in the remuneration policy applicable for each of such financial years. Remuneration received by the members 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 the 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. − 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 (*) Date of the Board of Directors' resolution by which organizational changes were approved in the Group. P.241 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. 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 Senior Management total In cash (thousands of euro) In shares 1,489 205,104 Deferred variable remuneration for the 2014 financial year, received in 2018 Senior Management total In cash (thousands of euro) 573 In shares 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. • Annual Variable Remuneration for Senior Management for financial year 2018 Following year-end 2018, the Annual Variable Remuneration of Senior Management corresponding to said period has been determined, excluding executive directors, who held that position as at 20 December 2018 (15 members). Therefore, the 2018 Annual Variable Remuneration to all 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% of the Annual Variable Remuneration corresponding to each of will be paid, providing the conditions are met, 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 P.242 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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. • Deferred Annual Variable Remuneration of Senior Management for financial year 2015 Following year-end 2018, the deferred Annual Variable Remuneration of Senior Management for financial year 2015 has been determined, excluding executive directors, who held that position as at 20 December 2018 (15 members). Thus, based on the result of each of the multi-year performance indicators set by the Board in 2015 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 financial year 2015 to be paid to Senior Management beneficiaries of such remuneration, if applicable conditions are met, after the corresponding adjustment in light of the result of the TSR indicator, has been determined in an amount of €2,936 thousand and 382,407 BBVA shares, which includes 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 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's risk takers. in aggregate €110 thousand and 14,203 BBVA shares, which At the time of drafting of these consolidated Annual Accounts none of these remunerations have been paid. • Remuneration system with deferred delivery of shares for non-executive directors BBVA has a 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 additional period of five years in each case. This system involves 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 is 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 approve the corresponding financial statements for each financial year. These shares will be delivered to each beneficiary, where applicable, after they leave their positions as directors for reasons other than serious breach of their duties. The "theoretical shares" allocated in 2018 to each non-executive director beneficiaries of the remuneration system in shares with deferred delivery, corresponding to 20% of the total remuneration in cash received by each of them in 2017, are as follows: P.243 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Tomás Alfaro Drake José Miguel Andrés Torrecillas Belén Garijo López Sunir Kumar Kapoor Carlos Loring Martínez de Irujo Lourdes Máiz Carro José Maldonado Ramos Juan Pi Llorens Susana Rodríguez Vidarte Total (1) Theoretical shares allocated in 2018 Theoretical shares accumulated as at 31 December 2018 10,367 12,755 7,865 4,811 11,985 7,454 11,176 11,562 12,425 90,400 83,449 36,565 34,641 8,976 98,876 23,160 78,995 54,171 104,983 523,816 (1) In addition, in 2018, 10,188 "theoretical shares" were allocated to José Antonio Fernández Rivero, who stepped down as a director on 16 March 2018. • Pension commitments At the end of the 2018 financial year, the Bank has pension commitments in favor of 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, 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 for a benefits framework according to which he is entitled, provided that he does not leave his position as Chief Executive Officer due to serious breach of duties, to receive a retirement pension when he reaches the legally established retirement age, in the form of capital or income. The amount of this pension shall result from the funds accumulated 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 2017 to cover said pension, as well as the corresponding accumulated yields. The amount set out in the Remuneration Policy for BBVA Directors as annual contribution to cover retirement benefit under the defined-contribution scheme for Carlos Torres Vila is €1,642 thousand. 15% of the aforementioned agreed annual contribution will be based on variable components and considered "discretionary pension benefits", 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. Should the contractual relationship be terminated before he reaches the retirement age for reasons other than serious breach of duties, the retirement pension due to Carlos Torres Vila upon reaching the legally established retirement age will be calculated based on the total 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 from the time of termination. With respect to the commitments to cover the contingencies for death and disability benefits for Carlos Torres Vila, 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 2018 financial year, €1,896 thousand has been recorded to meet the benefits commitments for Carlos Torres Vila, amount which includes the contribution to the retirement contingency (€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" from 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 amounts to €18,581 thousand as at 31 December 2018. Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 15% of the agreed annual contribution to retirement (€246 thousand) has been registered in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria es tablished to determine Carlos Torres Vila's Annual Variable Remuneration for 2018. Accordingly, the "discretionary pension benefits" for the financ ial year have been determined in an amount of €245 t housand, which will be included in the accumulated fund for 2019, subject t same conditions as t he 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. o the P.244 In the case of José Manuel González-P the Remuneration Policy for BBVA Directors 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 death and disability. áramo Martínez -Murillo, the pension s ystem provided for in 15% of the aforementioned agreed annual contribution will be based on variable components and considered "discretionary pension benefits", therefore subject to the condit ions regarding delivery in shares, retention and c lawback established in the applicable regulations, as well as any ot her conditions concerning variable remuneration that may be applicable in accordance with this Policy. José Manuel González-Páramo Martínez-Murillo, upon reaching retirement age, will be entitled to receive, in the form of capital or income, the benefits arising from contributions made by the Bank to cover pension hat dat e, provided he does not leave commitments, plus the corresponding yield accumulated up to t his position due t o serious breach of dut ies. In the event of voluntary termination of contract ual relationship by the director 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 benefits for José Manuel González-Páramo Martínez-M urillo, 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 2018 financial year, €405 thousand has been recorded to meet the benefits commitments for José Manuel González-Páramo Martínez-Murillo, amount which includes the contribution to the retirement contingency (€250 thousand) and to death and disability (€147 thousand), as well as €8 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 registered in the accumulated fund in 2018. As a result, the total accumulated amount of the fund to meet 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 registered in 201 8 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine José Manuel González-P áramo Martínez-M urillo’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 registered 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. P.245 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 15% of the agreed annual contributions for members of Senior Management who held that position as at 20 December 2018 will be based on variable components and considered "discretionary pension benefits", 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. To this end, of the agreed annual contribution to retirement, an amount of €571 thousand has been registered in 2018 as "discretionary pension benefits". Following year-end 2018, this amount has been adjusted according to the criteria established to determine the Annual Variable Remuneration of the Senior Management for 2018. Accordingly, the "discretionary pension benefits" for the financial year, corresponding to members of the Senior Management who held that position as at 20 December 2018, have been determined in an amount of €555 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 applicable to members of the Senior Management. During the 2018 financial year, €146 thousand has been recorded to meet the benefits commitments undertaken with the members of 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. Termination of the contractual relationship In accordance with the Remuneration Policy for BBVA Directors, the Bank has no commitments to pay severance payments 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, includes a post-contractual non-compete agreement for a period of two years after they cease as BBVA executive directors, in accordance to which they will receive remuneration from the Bank for an amount equivalent to one Annual Fixed Remuneration for each year of duration of the non-compete arrangement , which shall be paid periodically over the course of the two years, provided that they leave their positions as executive directors for reasons other than retirement, disability or serious breach of duties. P.246 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, there is no item in the Group’s accompanying consolidated financial statements that requires disclosure in an environmental information report pursuant to Ministry 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 of the Spanish National Securities Market Commission (CNMV) Dividends paid in the year The table below presents the dividends per share paid in cash during 2016, 2017 and 2018 (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) 51.02% 0.25 1,667 34.69% 0.17 1,125 32.65% 0.16 1,028 - 0.25 0.25 - - - 1,667 1,667 - 34.69% 34.69% - - - - - 0.17 0.17 - - - - 1,125 32.65% 1,125 32.65% - - - - - 0.16 0.16 - - - 1,028 1,028 - - Ordinary shares Rest of shares - Total dividends paid in cash 51.02% Dividends with charge to income 51.02% Dividends with charge to reserve or share premium Dividends in kind - - P.247 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Ordinary earnings and ordinary income by operating segment The detail of the consolidated profit for each operating segment is as follows as of December 31 2018, 2017 and 2016: Profit Attributable by Operating Segments Banking Activity in Spain Non-Core Real Estate United States Mexico Turkey South America Rest of Eurasia Subtotal operating segments Corporate Center Profit attributable to parent company Non-assigned income Elimination of interim income (between segments) Other gains (losses) (*) Income tax and/or profit from discontinued operations Operating profit before tax (*) Profit attributable to non-controlling interests. Interest income by geographical area Notes 2018 2017 2016 1,522 (78) 735 2,384 569 591 93 5,818 (494) 5,324 - - 827 2,295 8,446 1,374 (490) 486 2,187 826 861 125 5,368 (1,848) 3,519 - - 1,243 2,169 6,931 912 (595) 459 1,980 599 771 151 4,276 (801) 3,475 - - 1,218 1,699 6,392 6 6 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) Domestic Foreign European Union Eurozone No eurozone Other countries Total Notes 2018 2017 2016 4,952 24,879 509 391 117 24,370 29,831 5,093 24,203 422 239 183 23,781 29,296 5,962 21,745 291 291 - 21,455 27,708 37.1 55.3 Mortgage market policies and procedures The information on “Mortgage market policies and procedures” (for the granting of mortgage loans and for debt issues secured by such mortgage loans) required by Bank of Spain Circular 5/2011, applying Royal Decree 716/2009, dated April 24 (which developed certain aspects of Act 2/1981, dated March 25, on the regulation of the mortgage market and other mortgage and financial market regulations), can be found in Appendix III. P.248 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 56. Subsequent events On January 15, 2019, BBVA announced its irrevocable decision to early redeem, on February 19, 2019, the issuance 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 obtained (see Note 22.4). 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, 2019 it was announced that it was foreseen to submit to the consideration of the corresponding government bodies the proposal of cash payment in a gross amount of euro 0.16 per share to be paid in April as final dividend for 2018 (see Note 4). From January 1, 2019 to the date of preparation of these 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 position. 57. Explanation added for translation into English These accompanying consolidated financial statements are presented on the basis of IFRS, as adopted by the European Union. Certain accounting practices applied by the Group that conform to EU-IFRS may not conform to other generally accepted accounting principles. P.249 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Appendices P.250 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. APPENDIX I Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group Additional Information on Consolidated Subsidiaries and consolidated structured entities composing the BBVA Group 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data ACTIVOS MACORP SL ALCALA 120 PROMOC. Y GEST.IMMOB. S.L. ANIDA GERMANIA IMMOBILIEN ONE, GMBH ANIDA GRUPO INMOBILIARIO SL ANIDA INMOBILIARIA, S.A. DE C.V. ANIDA OPERACIONES SINGULARES, S.A. ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA APLICA NEXTGEN OPERADORA S.A. DE C.V. APLICA NEXTGEN SERVICIOS S.A. DE C.V APLICA TECNOLOGIA AVANZADA SA DE CV ARIZONA FINANCIAL PRODUCTS, INC ARRAHONA AMBIT, S.L. ARRAHONA IMMO, S.L. ARRAHONA NEXUS, S.L. ARRAHONA RENT, S.L.U. ARRELS CT FINSOL, S.A. ARRELS CT LLOGUER, S.A. ARRELS CT PATRIMONI I PROJECTES, S.A. ARRELS CT PROMOU SA AZLO BUSINESS, INC BAHIA SUR RESORT S.C. BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA BANCO INDUSTRIAL DE BILBAO SA BANCO OCCIDENTAL SA BANCO PROVINCIAL OVERSEAS NV BANCO PROVINCIAL SA - BANCO UNIVERSAL BANCOMER FOREIGN EXCHANGE INC. BANCOMER PAYMENT SERVICES INC. BBV AMERICA SL BBVA AGENCIA DE SEGUROS COLOMBIA LTDA BBVA ASSET MANAGEMENT CONTINENTAL SA SAF BBVA ASSET MANAGEMENT SA SGIIC BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA) BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA. BBVA BANCO CONTINENTAL SA BBVA BANCO FRANCES SA BBVA BANCOMER GESTION, S.A. DE C.V. BBVA BANCOMER OPERADORA, S.A. DE C.V. BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO BBVA BANCOMER (*) Information on foreign companies at exchange rate on December 31, 2018 SPAIN SPAIN GERMANY SPAIN MEXICO SPAIN MEXICO PORTUGAL MEXICO MEXICO MEXICO UNITED STATES SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN UNITED STATES SPAIN URUGUAY SPAIN SPAIN CURAÇAO VENEZUELA UNITED STATES UNITED STATES SPAIN COLOMBIA PERU SPAIN COLOMBIA PORTUGAL PERU ARGENTINA MEXICO MEXICO REAL ESTATE REAL ESTATE IN LIQUIDATION INVESTMENT COMPANY INVESTMENT COMPANY REAL ESTATE REAL ESTATE REAL ESTATE SERVICES SERVICES SERVICES FINANCIAL SERVICES REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE SERVICES INACTIVE BANKING BANKING BANKING BANKING BANKING FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY INSURANCES SERVICES FINANCIAL SERVICES OTHER INVESTMENT COMPANIES FINANCIAL SERVICES FINANCIAL SERVICES BANKING BANKING FINANCIAL SERVICES SERVICES 50.63 - - 100.00 - - - - - - 100.00 - - - - - - - - - - 99.95 100.00 - 49.43 - 1.46 - - 100.00 - - 17.00 - 100.00 - 39.97 - - 49.37 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - - 99.93 50.57 100.00 53.75 100.00 100.00 - 100.00 100.00 83.00 100.00 - 46.12 26.58 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.95 100.00 99.93 100.00 100.00 55.21 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 46.12 66.55 100.00 100.00 21 17 - 1,569 113 1,485 53 23 1 - 203 855 12 53 58 9 64 5 22 28 11 1 110 46 17 48 52 21 1 79 - 15 38 29 4 998 157 14 69 MEXICO BANKING - 100.00 100.00 8,633 24 26 - 1,642 80 2,381 57 62 10 3 232 855 34 118 131 12 114 27 52 60 12 1 2,850 45 18 403 296 21 2 614 - 18 111 32 26 19,382 8,189 31 269 87,919 3 8 - 38 - 893 4 53 9 3 21 - 10 4 67 1 35 21 28 23 1 - 2,652 - - 355 174 - 1 - - 3 55 4 21 17,212 7,166 17 199 79,560 20 16 - 1,863 59 1,678 32 6 1 - 214 855 14 105 58 10 64 5 22 28 18 1 168 60 18 44 140 16 1 604 - 11 (41) 19 4 1,747 1,047 9 60 6,374 1 2 - (259) 21 (190) 21 2 - - (3) 1 9 9 6 - 15 1 2 9 (8) - 30 (15) - 5 (18) 5 - 10 - 4 98 10 - 423 (23) 5 9 1,985 P.251 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data BBVA BANCOMER SEGUROS SALUD SA DE CV BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. BBVA BRASIL BANCO DE INVESTIMENTO SA BBVA BROKER CORREDURIA DE SEGUROS Y REASEGUROS SA BBVA BROKER SA BBVA COLOMBIA SA BBVA COMPASS BANCSHARES INC BBVA COMPASS FINANCIAL CORPORATION BBVA COMPASS INSURANCE AGENCY, INC BBVA COMPASS PAYMENTS INC BBVA CONSOLIDAR SEGUROS SA BBVA CONSULTING ( BEIJING) LIMITED BBVA CONSULTORIA, S.A. BBVA CONSUMER FINANCE ENTIDAD DE DESARROLLO A LA PEQUEÑA Y MICRO EMPRESA EDPYME SA (BBVA CONSUMER FINANCE - EDPYME) BBVA DATA & ANALYTICS SL BBVA DISTRIBUIDORA DE SEGUROS S.R.L. BBVA FINANZIA SPA MEXICO MEXICO MEXICO SPAIN ARGENTINA COLOMBIA UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES CHINA SPAIN PERU SPAIN URUGUAY ITALY INSURANCES SERVICES SERVICES BANKING INSURANCES SERVICES INSURANCES SERVICES BANKING INVESTMENT COMPANY FINANCIAL SERVICES INSURANCES SERVICES INVESTMENT COMPANY INSURANCES SERVICES FINANCIAL SERVICES SERVICES - - 100.00 99.94 - 77.41 100.00 - - - 87.78 - - 100.00 100.00 - 0.06 99.99 18.06 - 100.00 100.00 100.00 12.22 100.00 100.00 100.00 100.00 100.00 100.00 99.99 95.47 100.00 100.00 100.00 100.00 100.00 100.00 100.00 13 38 16 - - 355 11,703 230 38 88 8 2 2 FINANCIAL SERVICES - 100.00 100.00 SERVICES INSURANCES SERVICES IN LIQUIDATION - - 100.00 100.00 100.00 - 100.00 100.00 100.00 BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN. ARGENTINA FINANCIAL SERVICES BBVA FRANCES VALORES, S.A. BBVA FUNDOS S.GESTORA FUNDOS PENSOES SA BBVA GLOBAL FINANCE LTD BBVA GLOBAL MARKETS BV BBVA HOLDING CHILE SA BBVA INFORMATION TECHNOLOGY ESPAÑA SL BBVA INSTITUIÇAO FINANCEIRA DE CREDITO SA BBVA INTERNATIONAL PREFERRED SOCIEDAD ANONIMA BBVA IRELAND PLC BBVA LEASING MEXICO SA DE CV BBVA LUXINVEST SA BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A. BBVA NEXT TECHNOLOGIES SLU BBVA NOMINEES LIMITED BBVA OP3N S.L. BBVA OPEN PLATFORM INC BBVA PARAGUAY SA BBVA PENSIONES SA ENTIDAD GESTORA DE FONDOS DE PENSIONES BBVA PLANIFICACION PATRIMONIAL SL BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA BBVA RE DAC (*) Information on foreign companies at exchange rate on December 31, 2018 ARGENTINA PORTUGAL CAYMAN ISLANDS NETHERLANDS CHILE SPAIN PORTUGAL SPAIN IRELAND MEXICO LUXEMBOURG SPAIN SPAIN UNITED KINGDOM SPAIN UNITED STATES PARAGUAY SPAIN SPAIN BOLIVIA CHILE IRELAND SECURITIES DEALER PENSION FUNDS MANAGEMENT FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY SERVICES FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES PENSION FUNDS MANAGEMENT INSURANCES SERVICES INVESTMENT COMPANY IN LIQUIDATION SERVICES SERVICES BANKING PENSION FUNDS MANAGEMENT FINANCIAL SERVICES PENSION FUNDS MANAGEMENT SERVICES INSURANCES SERVICES - - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 61.22 76.00 49.90 100.00 100.00 - - - - 38.78 - 50.10 - - 100.00 100.00 100.00 100.00 100.00 76.00 100.00 100.00 100.00 100.00 36.00 64.00 100.00 - 100.00 100.00 - - 100.00 100.00 80.00 75.00 100.00 - - 100.00 100.00 - - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 20.00 100.00 5.00 80.00 - - 100.00 100.00 100.00 100.00 23 197 28 15 9 16,793 11,817 432 40 88 82 2 5 135 5 5 13 15 5 10 179 2,562 348 6 422 36 52 888 2 96 41 - 3 2 1,923 40 1 26 8 68 10 159 3 3 2 15,572 41 210 2 - 55 - 3 115 2 - 10 5 1 - 175 2,561 - 5 369 35 48 751 1 69 18 - 4 1 1,741 13 - 15 1 25 12 27 25 8 2 1,035 11,131 217 29 73 22 2 2 17 3 3 4 11 5 8 4 - 273 1 50 - 2 127 (1) 10 20 - (1) 8 150 16 1 5 6 48 2 11 - 4 5 186 645 5 9 15 4 - - 3 1 2 - - (1) 2 - - 75 - 3 - 1 10 1 17 3 - (1) (7) 32 11 - 7 1 (6) 21 6 5 4 11 4 10 - - 139 1 39 - 2 51 - 10 19 - - 1 23 13 - 1 6 39 P.252 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data BBVA REAL ESTATE MEXICO, S.A. DE C.V. BBVA SECURITIES INC BBVA SEGUROS COLOMBIA SA BBVA SEGUROS DE VIDA COLOMBIA SA BBVA SEGUROS SA DE SEGUROS Y REASEGUROS BBVA SERVICIOS, S.A. BBVA SUIZA SA (BBVA SWITZERLAND) BBVA TRADE, S.A. (**) BBVA TRANSFER SERVICES INC BBVA VALORES COLOMBIA SA COMISIONISTA DE BOLSA BBVA WEALTH SOLUTIONS, INC. BEEVA TEC OPERADORA, S.A. DE C.V. BEEVA TEC SA DE CV BILBAO VIZCAYA HOLDING SA CAIXA MANRESA IMMOBILIARIA ON CASA SL CAIXA MANRESA IMMOBILIARIA SOCIAL SL CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU CAIXASABADELL PREFERENTS SA CARTERA E INVERSIONES SA CIA DE CASA DE BOLSA BBVA BANCOMER SA DE CV CATALONIA GEBIRA, S.L. CATALONIA PROMODIS 4, S.A. CATALUNYACAIXA CAPITAL SA CATALUNYACAIXA IMMOBILIARIA SA CATALUNYACAIXA SERVEIS SA CDD GESTIONI S.R.L. CETACTIUS SL CIDESSA DOS, S.L. CIDESSA UNO SL CIERVANA SL CLUB GOLF HACIENDA EL ALAMO, S.L. COMERCIALIZADORA CORPORATIVA SAC COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A. COMPAÑIA CHILENA DE INVERSIONES SL COMPASS BANK COMPASS CAPITAL MARKETS, INC. COMPASS GP, INC. COMPASS INSURANCE TRUST COMPASS LIMITED PARTNER, INC. COMPASS LOAN HOLDINGS TRS, INC. (*) 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. MEXICO UNITED STATES COLOMBIA COLOMBIA SPAIN SPAIN SWITZERLAND SPAIN UNITED STATES COLOMBIA UNITED STATES MEXICO MEXICO SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN MEXICO SPAIN SPAIN SPAIN SPAIN SPAIN ITALY SPAIN SPAIN SPAIN SPAIN SPAIN PERU COLOMBIA SPAIN UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES UNITED STATES FINANCIAL SERVICES FINANCIAL SERVICES INSURANCES SERVICES INSURANCES SERVICES INSURANCES SERVICES COMMERCIAL BANKING INVESTMENT COMPANY FINANCIAL SERVICES SECURITIES DEALER FINANCIAL SERVICES SERVICES SERVICES INVESTMENT COMPANY REAL ESTATE REAL ESTATE FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY SECURITIES DEALER REAL ESTATE REAL ESTATE INVESTMENT COMPANY REAL ESTATE SERVICES REAL ESTATE REAL ESTATE INVESTMENT COMPANY INVESTMENT COMPANY INVESTMENT COMPANY IN LIQUIDATION FINANCIAL SERVICES SERVICES INVESTMENT COMPANY BANKING INVESTMENT COMPANY INVESTMENT COMPANY INSURANCES SERVICES INVESTMENT COMPANY FINANCIAL SERVICES - - 94.00 94.00 99.96 - 100.00 - - - - - - 89.00 100.00 100.00 100.00 100.00 100.00 - - - 100.00 100.00 100.00 100.00 100.00 - - 100.00 - - - 100.00 - - - - - - 100.00 100.00 6.00 6.00 - 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 11.00 - - - - - 100.00 100.00 100.00 - - - - - 100.00 100.00 - 97.87 50.00 100.00 0.03 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.96 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 97.87 50.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 192 10 14 713 - 98 4 66 5 8 - 1 51 2 4 1 - 92 48 - 1 79 328 2 5 1 15 5 53 1 - - 398 90 402 17,303 8 832 42 - 205 68 282 16,509 - 719 37 118 6 8 2 6 234 2 3 76 91 224 57 1 4 88 324 8 12 1 15 283 60 2 1 51 1 - 2 3 141 - - 74 90 120 8 1 2 7 8 6 2 - 1 251 6 1 1 - 187 13 86 484 7 108 5 57 4 6 - 2 90 2 3 2 1 (83) 21 - 2 76 303 3 6 1 15 (50) 54 - - 4 221 10,950 7,203 43 - 6,305 72 9 719 84,383 7,203 54 - 6,305 72 5 280 73,398 - 10 - - - 3 (59) 10,267 7,116 43 - 6,218 71 - 6 9 33 309 - 4 - 9 1 2 - 1 3 - - - - 186 27 - - 5 14 - 4 - - 83 - 1 - 1 498 718 88 - - 87 1 P.253 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data COMPASS MORTGAGE CORPORATION COMPASS MORTGAGE FINANCING, INC. COMPASS SOUTHWEST, LP COMPASS TEXAS MORTGAGE FINANCING, INC CONSOLIDAR A.F.J.P SA CONTENTS AREA, S.L. CONTINENTAL BOLSA SDAD. AGENTE DE BOLSA SA CONTINENTAL DPR FINANCE COMPANY CONTINENTAL SOCIEDAD TITULIZADORA SA CONTRATACION DE PERSONAL, S.A. DE C.V. COPROMED SA DE CV CORPORACION GENERAL FINANCIERA SA COVAULT, INC DALLAS CREATION CENTER, INC DATA ARCHITECTURE AND TECHNOLOGY S.L. DENIZEN FINANCIAL, INC DENIZEN GLOBAL FINANCIAL SAU DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859 DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860 DISTRITO CASTELLANA NORTE, S.A. ECASA, S.A. EL ENCINAR METROPOLITANO, S.A. EL MILANILLO, S.A. EMPRENDIMIENTOS DE VALOR S.A. ENTIDAD DE PROMOCION DE NEGOCIOS SA ENTRE2 SERVICIOS FINANCIEROS E.F.C SA ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A. EUROPEA DE TITULIZACION SA SGFT . EXPANSION INTERCOMARCAL SL F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION F/253863 EL DESEO RESIDENCIAL F/403035-9 BBVA HORIZONTES RESIDENCIAL FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS MEXICO UNITED STATES FINANCIAL SERVICES FINANCIAL SERVICES UNITED STATES UNITED STATES ARGENTINA SPAIN PERU CAYMAN ISLANDS PERU MEXICO MEXICO SPAIN UNITED STATES UNITED STATES SPAIN UNITED STATES SPAIN MEXICO MEXICO SPAIN CHILE SPAIN SPAIN URUGUAY SPAIN SPAIN SPAIN SPAIN SPAIN MEXICO MEXICO MEXICO MEXICO MEXICO FINANCIAL SERVICES FINANCIAL SERVICES IN LIQUIDATION SERVICES SECURITIES DEALER FINANCIAL SERVICES FINANCIAL SERVICES SERVICES SERVICES INVESTMENT COMPANY SERVICES SERVICES SERVICES SERVICES PAYMENT ENTITIE FINANCIAL SERVICES FINANCIAL SERVICES REAL ESTATE FINANCIAL SERVICES REAL ESTATE REAL ESTATE FINANCIAL SERVICES HOLDING FINANCIAL SERVICES REAL ESTATE FINANCIAL SERVICES INVESTMENT COMPANY REAL ESTATE REAL ESTATE REAL ESTATE FINANCIAL SERVICES FINANCIAL SERVICES FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2 FIDEICOMISO LOTE 6.1 ZARAGOZA FIDEICOMISO N.989 EN THE BANK OF NEW YORK MELLON SA INSTITUCION DE BANCA MULTIPLE FIDUCIARIO (FIDEIC.00989 6 EMISION) MEXICO MEXICO COLOMBIA REAL ESTATE REAL ESTATE REAL ESTATE MEXICO FINANCIAL SERVICES (*) Information on foreign companies at exchange rate on December 31, 2018 - - - - 46.00 - - - - - - 100.00 - - - - 100.00 - - - - - - - - 100.00 - 88.24 100.00 - - - - - - - - - 100.00 100.00 100.00 100.00 53.89 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 51.00 100.00 - 100.00 100.00 75.54 100.00 99.05 100.00 100.00 99.88 - 100.00 - - 42.40 65.00 65.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 51.00 100.00 100.00 100.00 100.00 75.54 100.00 99.05 100.00 100.00 99.88 100.00 100.00 88.24 100.00 42.40 65.00 65.00 100.00 2,857 - 5,213 - 1 6 6 - 1 6 - 510 1 4 - - 2 - - 98 25 6 7 3 15 9 6 2 16 - - - 2 100.00 100.00 46 100.00 100.00 59.99 100.00 100.00 59.99 100.00 100.00 - 4 - - 2,950 - 5,229 - 2 8 103 52 1 11 - 1,577 1 8 4 - 4 - - 147 30 6 13 6 17 9 8 34 17 1 1 - 2 46 - 8 2 79 98 - 5 - 1 1 98 52 - 5 - - 1 4 1 1 1 - - 20 4 - 6 3 - - - 2 - - - - - - - 5 - 79 2,783 - 5,151 - 2 6 4 - 1 5 - 1,642 2 - 2 3 4 - - 133 14 6 9 3 17 9 8 28 16 1 1 - 2 41 - 4 2 (3) 69 - 73 - - 1 2 - - 1 - (65) (2) 3 - (3) (1) - - (5) 11 - (3) - - - - 4 - - - - - 6 - - - 3 P.254 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data FIDEICOMISO Nº 711 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 1ª EMISION) FIDEICOMISO Nº 752 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 2ª EMISION) FIDEICOMISO Nº 847 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 4ª EMISION) FIDEICOMISO SCOTIABANK INVERLAT S A F100322908 FINANCEIRA DO COMERCIO EXTERIOR SAR. FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. FORUM COMERCIALIZADORA DEL PERU SA FORUM DISTRIBUIDORA DEL PERU SA FORUM DISTRIBUIDORA, S.A. FORUM SERVICIOS FINANCIEROS, S.A. FUTURO FAMILIAR, S.A. DE C.V. G NETHERLANDS BV GARANTI BANK SA GARANTI BILISIM TEKNOLOJISI VE TIC TAS GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY GARANTI EMEKLILIK VE HAYAT AS GARANTI FACTORING HIZMETLERI AS GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S. GARANTI FILO YONETIM HIZMETLERI A.S. GARANTI FINANSAL KIRALAMA AS GARANTI HIZMET YONETIMI AS GARANTI HOLDING BV GARANTI KONUT FINANSMANI DANISMANLIK HIZMETLERI AS (GARANTI MORTGAGE) GARANTI KULTUR AS GARANTI ODEME SISTEMLERI AS (GOSAS) GARANTI PORTFOY YONETIMI AS GARANTI YATIRIM MENKUL KIYMETLER AS GARANTI YATIRIM ORTAKLIGI AS GARANTIBANK INTERNATIONAL NV GARRAF MEDITERRANIA, S.A. GESCAT GESTIO DE SOL SL GESCAT LLEVANT, S.L. GESCAT LLOGUERS SL GESCAT POLSKA SP ZOO GESCAT SINEVA, S.L. GESCAT VIVENDES EN COMERCIALITZACIO SL GESTION DE PREVISION Y PENSIONES SA GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA GRAN JORGE JUAN SA (*) Information on foreign companies at exchange rate on December 31, 2018 MEXICO FINANCIAL SERVICES MEXICO FINANCIAL SERVICES MEXICO FINANCIAL SERVICES MEXICO PORTUGAL MEXICO SPAIN PERU PERU CHILE CHILE MEXICO NETHERLANDS ROMANIA TURKEY CAIMAN ISLANDS TURKEY TURKEY TURKEY TURKEY TURKEY TURKEY NETHERLANDS TURKEY TURKEY TURKEY TURKEY TURKEY TURKEY NETHERLANDS SPAIN SPAIN SPAIN SPAIN POLAND SPAIN SPAIN SPAIN SPAIN SPAIN REAL ESTATE INACTIVE FINANCIAL SERVICES IN LIQUIDATION SERVICES FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES SERVICES INVESTMENT COMPANY BANKING SERVICES FINANCIAL SERVICES INSURANCES SERVICES FINANCIAL SERVICES INSURANCES SERVICES OTHER HOLDING FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY SERVICES SERVICES FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY BANKING REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE PENSION FUNDS MANAGEMENT SERVICES REAL ESTATE - - - - 100.00 - - - - - - - - - - - - - - - - - - - - - - - - - - 100.00 - 100.00 100.00 - 100.00 60.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 60.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 84.91 81.84 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 3.61 100.00 100.00 - 100.00 - - 100.00 - - 100.00 - 100.00 100.00 100.00 60.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 84.91 81.84 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 95.49 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 60.00 100.00 100.00 - - - 7 - 11 - 2 5 39 244 1 340 269 13 - 126 19 - 2 149 - 228 - - - 16 29 - 578 2 8 3 3 10 6 93 9 1 409 13 7 39 13 - 12 - 1 46 373 3,014 4 348 2,216 17 3,316 266 399 1 302 995 1 340 1 - 6 19 56 6 4,278 2 20 5 4 10 6 107 28 2 966 14 7 38 6 - 1 - - 41 336 2,785 3 50 1,930 4 3,321 120 376 - 301 846 - - - - 3 2 27 - 3,703 1 8 2 - - - 14 1 - 558 (1) - - 6 - 16 - 1 5 32 161 1 299 258 12 (3) 67 29 - - 133 1 340 - - 3 11 19 6 560 2 14 2 3 9 6 98 21 2 395 - - 1 1 - (6) - - - 5 68 - (1) 28 2 (3) 79 (6) - 1 16 - - - - 1 5 11 - 14 - (2) 1 - 1 - (6) 6 - 14 P.255 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data GRUPO FINANCIERO BBVA BANCOMER SA DE CV GUARANTY BUSINESS CREDIT CORPORATION GUARANTY PLUS HOLDING COMPANY HABITATGES FINVER, S.L. HABITATGES JUVIPRO, S.L. HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U.(**) HOLVI DEUTSCHLAND SERVICE GMBH HOLVI PAYMENT SERVICE OY HUMAN RESOURCES PROVIDER, INC HUMAN RESOURCES SUPPORT, INC INMESP DESARROLLADORA, S.A. DE C.V. INMUEBLES Y RECUPERACIONES CONTINENTAL SA INPAU, S.A. INVERAHORRO SL INVERPRO DESENVOLUPAMENT, S.L. INVERSIONES ALDAMA, C.A. INVERSIONES BANPRO INTERNATIONAL INC NV INVERSIONES BAPROBA CA INVERSIONES DE INNOVACION EN SERVICIOS FINANCIEROS, S.L. INVERSIONES P.H.R.4, C.A. IRIDION SOLUCIONS IMMOBILIARIES SL JALE PROCAM, S.L. L'EIX IMMOBLES, S.L. LIQUIDITY ADVISORS LP MADIVA SOLUCIONES, S.L. MICRO SPINAL LLC MISAPRE, S.A. DE C.V. MOMENTUM SOCIAL INVESTMENT HOLDING, S.L. MOTORACTIVE IFN SA MOTORACTIVE MULTISERVICES SRL MULTIASISTENCIA OPERADORA S.A. DE C.V. MULTIASISTENCIA SERVICIOS S.A. DE C.V. MULTIASISTENCIA, S.A. DE C.V. NEWCO PERU SAC NOIDIRI SL NOVA TERRASSA 3, S.L. OPCION VOLCAN, S.A. OPENPAY S.A.P.I DE C.V. OPENPAY SERVICIOS S.A. DE C.V. OPERADORA DOS LAGOS S.A. DE C.V. (*) Information on foreign companies at exchange rate on December 31, 2018 (**) These companies have an equity loan from BILBAO VIZCAYA HOLDING, S.A. MEXICO UNITED STATES UNITED STATES SPAIN SPAIN SPAIN GERMANY FINLAND UNITED STATES UNITED STATES MEXICO PERU SPAIN SPAIN SPAIN VENEZUELA CURAÇAO VENEZUELA SPAIN VENEZUELA SPAIN SPAIN SPAIN UNITED STATES SPAIN UNITED STATES MEXICO SPAIN ROMANIA ROMANIA #N/A MEXICO MEXICO PERU SPAIN SPAIN MEXICO MEXICO MEXICO MEXICO FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY REAL ESTATE REAL ESTATE INSURANCES SERVICES SERVICES FINANCIAL SERVICES SERVICES SERVICES REAL ESTATE REAL ESTATE REAL ESTATE INVESTMENT COMPANY INVESTMENT COMPANY IN LIQUIDATION INVESTMENT COMPANY FINANCIAL SERVICES INVESTMENT COMPANY INACTIVE REAL ESTATE IN LIQUIDATION REAL ESTATE FINANCIAL SERVICES SERVICES FINANCIAL SERVICES FINANCIAL SERVICES INVESTMENT COMPANY FINANCIAL SERVICES SERVICES INSURANCES SERVICES INSURANCES SERVICES INSURANCES SERVICES INVESTMENT COMPANY REAL ESTATE REAL ESTATE REAL ESTATE PAYMENT ENTITIES SERVICES SERVICES 99.98 - - - - - - - - - - - - 100.00 - - 48.00 100.00 - - 100.00 - - - - - - - - - - - - 100.00 100.00 - - - - - - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - 100.00 100.00 - - 100.00 60.46 - 50.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 - - 100.00 100.00 100.00 100.00 100.00 99.98 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 48.01 100.00 100.00 60.46 100.00 50.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 6,678 32 - 1 1 - - 32 404 399 26 40 25 101 4 - 16 1 40 - 2 - 2 1,116 9 - 2 7 37 - - - 22 124 - 6 19 15 - 1 9,642 32 - 2 1 2 - 5 404 399 34 41 25 103 10 - 52 1 41 - 3 3 9 1,124 3 - 2 7 185 16 1 1 35 1,005 - 6 23 2 - 2 - - - - - 4 - 2 - - 9 1 - - 2 - 2 - 1 - 1 56 7 2 1 - - - 158 14 1 - 13 - - - 4 1 - 1 7,323 32 - 1 1 (1) - 12 398 393 25 39 25 105 4 - 45 - 40 - 2 (49) 2 1,108 2 - 2 7 23 1 - - 15 829 - 6 20 1 - 1 2,318 - - - - (2) - (9) 6 6 - 1 - (3) 3 - 5 1 - - - (4) - 14 1 - - - 3 1 - - 6 176 - - - - - - P.256 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data OPPLUS OPERACIONES Y SERVICIOS SA OPPLUS SAC P.I. HOLDINGS NO. 3, INC. PARCSUD PLANNER, S.L. PECRI INVERSION SA PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER PERSONAL DATA BANK SLU PHOENIX LOAN HOLDINGS, INC. PI HOLDINGS NO. 1, INC. PORTICO PROCAM, S.L. PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U. PROMOTORA DEL VALLES, S.L. PROMOU CT 3AG DELTA, S.L. PROMOU CT EIX MACIA, S.L. PROMOU CT GEBIRA, S.L. PROMOU CT OPENSEGRE, S.L. PROMOU CT VALLES, S.L. PROMOU GLOBAL, S.L. PRONORTE UNO PROCAM, S.A. PROPEL VENTURE PARTNERS GLOBAL, S.L PROPEL VENTURE PARTNERS US FUND I, L.P. PRO-SALUD, C.A. PROVINCIAL DE VALORES CASA DE BOLSA CA PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA CA PROV-INFI-ARRAHONA, S.L. PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. PUERTO CIUDAD LAS PALMAS, S.A. (**) QIPRO SOLUCIONES S.L. RALFI IFN SA RENTRUCKS ALQUILER Y SERVICIOS DE TRANSPORTE SA RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V. RPV COMPANY RWHC, INC SAGE OG I, INC SATICEM GESTIO SL SATICEM HOLDING SL SATICEM IMMOBILIARIA SL SATICEM IMMOBLES EN ARRENDAMENT SL SEGUROS BBVA BANCOMER SA DE CV GRUPO FINANCIERO BBVA BANCOMER SPAIN PERU UNITED STATES SPAIN SPAIN MEXICO SPAIN UNITED STATES UNITED STATES SPAIN SPAIN SERVICES IN LIQUIDATION FINANCIAL SERVICES REAL ESTATE OTHER INVESTMENT COMPANIES INSURANCES SERVICES SERVICES FINANCIAL SERVICES FINANCIAL SERVICES REAL ESTATE REAL ESTATE SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN SPAIN REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE SPAIN UNITED STATES VENEZUELA VENEZUELA VENEZUELA SPAIN BOLIVIA SPAIN SPAIN ROMANIA SPAIN MEXICO CAYMAN ISLANDS UNITED STATES UNITED STATES SPAIN SPAIN SPAIN SPAIN MEXICO FINANCIAL SERVICES VENTURE CAPITAL INACTIVE SECURITIES DEALER FINANCIAL SERVICES REAL ESTATE PENSION FUNDS MANAGEMENT REAL ESTATE SERVICES FINANCIAL SERVICES INACTIVE REAL ESTATE FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES REAL ESTATE REAL ESTATE REAL ESTATE REAL ESTATE INSURANCES SERVICES SEGUROS PROVINCIAL CA VENEZUELA INSURANCES SERVICES (*) Information on foreign companies at exchange rate on December 31, 2018 (**) These companies have an equity loan from CATALUNYA CAIXA INMOBILIARIA, S.A 100.00 - - - 100.00 - - - - - - - - - - - - - - - - - - - - - - - - 100.00 - - - - 100.00 100.00 100.00 100.00 - - - 100.00 100.00 100.00 - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.50 100.00 58.86 90.00 100.00 100.00 100.00 96.64 100.00 100.00 - 100.00 100.00 100.00 100.00 - - - - 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 99.50 100.00 58.86 90.00 100.00 100.00 100.00 96.64 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 100.00 1 1 1 1 163 185 - 339 83 26 8 39 1 4 2 5 2 18 - 31 71 - 1 - 6 2 - 5 39 1 3 - 742 - 4 5 15 2 335 7 41 1 1 4 164 4,629 - 361 83 26 8 101 10 5 8 29 8 45 5 64 71 - 2 - 9 8 21 15 126 1 3 1,324 739 - 4 6 15 2 4,199 7 11 - - 2 - 4,449 - 20 - - - 65 9 - 6 22 6 28 4 20 - - 1 - 3 7 45 3 109 - - 1,324 - - - - - - 3,865 7 24 1 1 1 148 140 - 336 83 25 8 49 1 5 1 6 2 7 - 33 70 - - - 4 2 (18) 10 15 2 2 - 725 - 4 5 15 2 124 - 6 - - - 15 41 - 5 - - - (13) - - 1 1 - 11 - 10 - - 1 - 2 - (6) 2 2 (1) - - 14 - - - - - 210 - P.257 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued) 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 % Legal share of participation Millions of Euros (*) Affiliate Entity Data SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V. SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V. SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. SERVICIOS TECNOLOGICOS SINGULARES, S.A. SIMPLE FINANCE TECHNOLOGY CORP. SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA MEXICO MEXICO MEXICO SPAIN UNITED STATES SPAIN SERVICES SERVICES SERVICES SERVICES FINANCIAL SERVICES SERVICES SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA SPAIN PAYMENT INSTITUIONS SPORT CLUB 18 SA (**) TEXAS LOAN SERVICES LP TMF HOLDING INC. TRIFOI REAL ESTATE SRL TUCSON LOAN HOLDINGS, INC. TURKIYE GARANTI BANKASI AS UNIVERSALIDAD TIPS PESOS E-9 UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA UPTURN FINANCIAL INC URBANIZADORA SANT LLORENC SA VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. (*) Information on foreign companies at exchange rate on December 31, 2018 (**) This company has an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A. SPAIN UNITED STATES UNITED STATES ROMANIA INVESTMENT COMPANY FINANCIAL SERVICES INVESTMENT COMPANY REAL ESTATE FINANCIAL SERVICES BANKING UNITED STATES TURKEY COLOMBIA FINANCIAL SERVICES SPAIN UNITED STATES SPAIN SPAIN REAL ESTATE FINANCIAL SERVICES INACTIVE SERVICES - - - - - 100.00 77.20 100.00 - - - - 49.85 - 100.00 - 60.60 - 100.00 100.00 100.00 100.00 100.00 - - - 100.00 100.00 100.00 100.00 - 100.00 - 100.00 - 51.00 100.00 100.00 100.00 100.00 100.00 100.00 77.20 100.00 100.00 100.00 100.00 100.00 49.85 100.00 100.00 100.00 60.60 51.00 5 3 10 - 50 79 - 10 1,129 15 1 33 5,509 - 359 1 - - 6 17 26 1 59 83 - 13 1,130 22 1 35 59,390 49 1,038 1 - 3 2 14 15 1 9 8 - 1 - 8 - - 51,556 20 496 - - 2 5 2 8 - 80 81 - 13 1,112 14 1 34 6,670 27 500 2 - - - - 2 - (30) (5) - (1) 17 1 - 1 1,163 2 42 (1) - - P.258 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group Acquisitions or increases of interest ownership in consolidated subsidiaries 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 % Legal share of participation Millions of Euros (**) Affiliate Entity Data 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 ASSOCIATES ADQUIRA ESPAÑA, S.A. ATOM BANK PLC AUREA, S.A. (CUBA) BANK OF HANGZHOU CONSUMER FINANCE CO LTD CANCUN SUN & GOLF COUNTRY CLUB, S.A.P.I. DE C.V. COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU) DIVARIAN PROPIEDAD, S.A.U. METROVACESA SA REDSYS SERVICIOS DE PROCESAMIENTO SL ROMBO COMPAÑIA FINANCIERA SA SERVICIOS ELECTRONICOS GLOBALES SA DE CV SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA SOLARISBANK AG TELEFONICA FACTORING ESPAÑA SA TF PERU SAC JOINT VENTURES (*) ADQUIRA MEXICO SA DE CV ALTURA MARKETS SOCIEDAD DE VALORES SA COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A. DESARROLLOS METROPOLITANOS DEL SUR, S.L. FIDEICOMISO F/402770-2 ALAMAR FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA INVERSIONES PLATCO CA PROMOCIONS TERRES CAVADES, S.A. PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA SPAIN COMMERCIAL UNITED KINGDOM BANKING CUBA CHINA MEXICO SPAIN PERU SPAIN SPAIN SPAIN ARGENTINA MEXICO SPAIN SPAIN PERU MEXICO SPAIN MEXICO SPAIN SPAIN MEXICO MEXICO - 39.06 - 30.00 - REAL ESTATE BANKING REAL ESTATE PUBLIC INSTITUTIONS 16.67 ELECTRONIC MONEY ENTITIES REAL ESTATE FINANCIAL SERVICES REAL ESTATE FINANCIAL SERVICES BANKING SERVICES - - - 9.44 20.00 - - FINANCIAL SERVICES 28.72 FINANCIAL ASSETS 30.00 FINANCIAL ASSETS COMMERCIAL - - SECURITIES DEALER 50.00 SERVICES INVESTMENT COMPANY REAL ESTATE REAL ESTATE REAL ESTATE - - - - - - - - - GERMANY BANKING - 40.00 - 49.00 - 33.33 - 20.96 - 40.00 39.06 49.00 30.00 33.33 16.67 20.96 20.00 28.50 28.50 11.41 - 40.00 46.14 - 18.76 - 24.30 50.00 - 50.00 50.00 50.00 42.40 32.25 50.00 39.11 50.00 49.00 - 51.00 51.00 20.85 20.00 40.00 46.14 28.72 18.76 30.00 24.30 50.00 50.00 50.00 50.00 50.00 42.40 32.25 50.00 39.11 50.00 49.00 20.06 51.00 51.00 3 138 5 18 27 22 2 591 3 508 12 12 9 9 37 4 1 2 69 7 29 13 7 55 1 4 10 32 4 5 15 18 11 3,078 2,796 10 753 75 138 49 3,014 12 2,577 121 209 18 38 212 59 5 1 693 22 6 37 57 - 184 60 179 - 8 158 46 1 5 2 7 330 9 58 52 124 4 2,936 12 2,402 51 31 17 27 56 7 3 3 2,711 2,574 127 15 63 77 17 171 2 15 96 379 20 16 195 - 5 52 - - - - 76 314 - 8 166 14 58 25 17 171 4 15 22 61 18 6 34 1 (48) 1 3 1 9 8 20 - (9) 11 (2) 1 3 (2) 6 2 - 10 1 - 1 - - (2) - (2) 5 2 2 (5) VENEZUELA FINANCIAL SERVICES SPAIN REAL ESTATE ARGENTINA BANKING RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO COLOMBIA FINANCIAL SERVICES REAL ESTATE DEAL II SA VITAMEDICA ADMINISTRADORA, S.A. DE C.V VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA SPAIN MEXICO ARGENTINA IN LIQUIDATION 20.06 SERVICES BANKING - - (*) Joint ventures incorporated by the equity method. (**) In foreign companies the exchange rate of December 31, 2018 is applied. P.259 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. APPENDIX III Changes and notification of participations in the BBVA Group in 2018 Acquisitions or Increases of Interest Ownership in Consolidated Subsidiaries Company Type of Transaction Activity ENTIDAD DE PROMOCION DE NEGOCIOS SA ACQUISITION RENT HOLDING BBVA BROKER SA BBVA HOLDING CHILE SA HOLVI DEUTSCHLAND SERVICE GMBH PERSONAL DATA BANK SLU DOMICILIA TREBOLBLUE SA ONUTPEN 2018 SL GARANTI YATIRIM ORTAKLIGI AS ACQUISITION FOUNDING AND SPLIT FOUNDING FOUNDING FOUNDING FOUNDING INSURANCES SERVICES INVESTMENT COMPANY SERVICES SERVICES HOLDING ENT. INVESTMENT COMPANY CAPITAL INCREASE INVESTMENT COMPANY Millions of Euros % of Voting Rights 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 - - - - - - - - - - - - - - - - 0.02% 4.99% 100.00% 100.00% 100.00% 100.00% 100.00% 0.31% 99.88% 99.99% 100.00% 100.00% 100.00% 100.00% 100.00% 95.49% 10-May-18 01-Oct-18 23-Jan-18 01-May-18 01-Jun-18 03-Jul-18 21-Aug-18 01-Dec-18 SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY P.260 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Changes and notification of participations in the BBVA Group in 2018 (continued) Disposals or Reduction of Interest Ownership in Consolidated Subsidiaries 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 PROMOCION EMPRESARIAL XX SA BBVA RENTING, S.A. BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A. BBVA CORREDORES DE BOLSA LIMITADA BBVA SOCIEDAD DE LEASING INMOBILIARIO, S.A. BBVA ASESORIAS FINANCIERAS, S.A. MERGER MERGER MERGER DISPOSAL DISPOSAL DISPOSAL DISPOSAL BANKING INVESTMENT COMPANY FINANCIAL SERVICES BANKING SECURITIES DEALER FINANCIAL SERVICES FINANCIAL SERVICES BBVA ASSET MANAGEMENT ADMINISTRADORA GENERAL DE FONDOS S.A. DISPOSAL FINANCIAL SERVICES BBVA FACTORING LIMITADA (CHILE) BBVA CORREDORA TECNICA DE SEGUROS LIMITADA BANCOMER FINANCIAL SERVICES INC. APLICA TECNOLOGIA AVANZADA OPERADORA, S.A. DE C.V. APLICA TECNOLOGIA AVANZADA SERVICIOS, S.A. DE C.V. BBVA SUBORDINATED CAPITAL SOCIEDAD ANONIMA BBVA SENIOR FINANCE SAU BBVA INMOBILIARIA E INVERSIONES, S.A. HOMEOWNERS LOAN CORPORATION BBVA RENTAS E INVERSIONES LIMITADA BBVA SERVICIOS CORPORATIVOS LIMITADA DIVARIAN DESARROLLOS INMOBILIARIOS, S.L.U BBVA INVERSIONES CHILE, S.A. BBVA SEGUROS DE VIDA, S.A. GUARANTY PLUS PROPERTIES, INC-1 GUARANTY PLUS PROPERTIES LLC-2 4D INTERNET SOLUTIONS, INC DISPOSAL DISPOSAL MERGER DISPOSAL DISPOSAL LIQUIDATION LIQUIDATION DISPOSAL FINANCIAL SERVICES INSURANCES SERVICES FINANCIAL SERVICES SERVICES SERVICES FINANCIAL SERVICES FINANCIAL SERVICES REAL ESTATE LIQUIDATION FINANCIAL SERVICES MERGER DISPOSAL DISPOSAL DISPOSAL DISPOSAL MERGER LIQUIDATION LIQUIDATION INVESTMENT COMPANY SERVICES REAL ESTATE INVESTMENT COMPANY SERVICES FINANCIAL SERVICES FINANCIAL SERVICES FINANCIAL SERVICES - - - - - - - - - - - (8) - - - 3 - - - - 863 - - (1) - - - - - - - - - - - - - - - - - - - - - - - - - - 100.00% 100.00% 100.00% 68.19% 100.00% 97.49% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 68.11% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% 100.00% - - - - - - - - - - - - - - - - - - - - - - - - - 1-Oct-18 17-Dec-18 2-Jul-18 6-Jul-18 6-Jul-18 6-Jul-18 6-Jul-18 6-Jul-18 6-Jul-18 6-Jul-18 6-Dec-18 18-Jul-18 18-Jul-18 18-Dec-18 18-Dec-18 6-Jul-18 1-Dec-18 30-Apr-18 6-Jul-18 10-Oct-18 6-Jul-18 6-Jul-18 31-Dec-18 1-Aug-18 18-Dec-18 SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY P.261 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Changes and notification of participations in the BBVA Group in 2018 (continued) Disposals or Reduction of Interest Ownership in Consolidated Subsidiaries 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. CAIXASABADELL TINELIA, S.L. HABITATGES INVERVIC, S.L. PROCAMVASA, S.A. CATALUNYACAIXA ASSEGURANCES GENERALS, S.A. VOLJA LUX, SARL CX PROPIETAT, FII VOLJA PLUS SL UNITARIA GESTION DE PATRIMONIOS INMOBILIARIOS SA SCALDIS FINANCE, S.A. ONUTPEN 2018 SL DOMICILIA TREBOLBLUE SA LIQUIDATION INVESTMENT COMPANY MERGER LIQUIDATION LIQUIDATION MERGER LIQUIDATION LIQUIDATION LIQUIDATION LIQUIDATION LIQUIDATION DISPOSAL MERGER INVESTMENT COMPANY REAL ESTATE REAL ESTATE INSURANCES SERVICES INVESTMENT COMPANY REAL ESTATE INVESTMENT INVESTMENT COMPANY REAL ESTATE INVESTMENT COMPANY INVESTMENT COMPANY OTHER HOLDING - - - - - - - - - - - - - - - - - - - - - - - - 100.00% 100.00% 35.00% 51.00% 100.00% 71.78% 94.96% 75.40% 100.00% 100.00% 100.00% 100.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 0.00% 7-Aug-18 18-Jul-18 22-Feb-18 4-May-18 23-Jan-18 29-Jan-19 30-Jun-18 1-Oct-18 20-Dec-18 1-Apr-18 31-Oct-18 19-Dec-18 SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY SUBSIDIARY P.262 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 ATOM BANK PLC SR2 SOCIEDAD DE MEDIOS DE PAGO S.A. FOUNDING INCREASE TO WHICH OTHER MEMERS DO NOT ASSIST FOUNDING AND SPLIT SERVICES BANKING PAYMENT ENTITIES SOCIEDADE ALTITUDE SOFTWARE-SISTEMA E SERCIÇOS SA FOUNDING SERVICES SISTEMAS DE TARJETAS Y MEDIOS DE PAGO SA SOLARISBANK AG ANTHEMIS BBVA VENTURE PARTNERSHIP LLP FOUNDING ACQUISITION FOUNDING COMPAÑIA PERUANA DE MEDIOS DE PAGO SAC (VISANET PERU) CAPITAL INCREASE PAYMENT ENTITIES BANKING INVESTMENT COMPANY ELECTRONIC MONEY ENTITIES - 99 1 - - 38 - - - - - - - - - - 22.13% 9.16% 28.72% 31.55% 18.11% 18.76% 75.00% 22.13% 39.06% 28.72% 31.55% 18.11% 18.76% 75.00% 14-Dec-18 01-May-18 01-Jan-18 ASSOCIATED ASSOCIATED ASSOCIATED 02-Apr-18 JOINT VENTURE 30-Apr-18 01-Oct-18 01-Dec-18 ASSOCIATED ASSOCIATED JOINT VENTURE ASSOCIATED 0.68% 20.96% 01-Aug-18 P.263 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 SISTARBANC S.R.L. FIDEICOMISO F 403853- 5 BBVA BANCOMER SERVICIOS ZIBATA OPERADORA ZIBATA S. DE R.L. DE C.V. FERROMOVIL 3000, S.L. FERROMOVIL 9000, S.L. DIVARIAN PROPIEDAD, S.A.U. TELEFONICA FACTORING CHILE, S.A. ALTITUDE SOFTWARE SGPS, S.A. METROVACESA SA TESTA RESIDENCIAL SOCIMI SAU PARQUE RIO RESIDENCIAL, S.L. AVANTESPACIA INMOBILIARIA, S.L. BATEC ORTO DISTRIBUCION S.L. HABITATGES CIMIPRO, S.L. SOLARVOLAR, S.L. PROMOCIONES MIES DEL VALLE, S.L. TEIN CENTRO TECNOLOGICO DEL PLASTICO, S.L. HABITATGES SOCIALS DE CALAF S.L SR2 SOCIEDAD DE MEDIOS DE PAGO S.A. DISPOSAL DISPOSAL DISPOSAL DISPOSAL DISPOSAL DISPOSAL DISPOSAL DISPOSAL MERGER DISPOSAL DISPOSAL DISPOSAL DISPOSAL LIQUIDATION LIQUIDATION LIQUIDATION DILUTION EFFECT DILUTION EFFECT DISPOSAL MERGER REAL ESTATE FINANCIAL SERVICES REAL ESTATE SERVICES SERVICES SERVICES REAL ESTATE FINANCIAL SERVICES SERVICES REAL ESTATE REAL ESTATE INVESTMENT TRUST REAL ESTATE REAL ESTATE COMMERCIAL REAL ESTATE REAL ESTATE REAL ESTATE SERVICES REAL ESTATE PAYMENT ENTITIES - - 22 - 12 8 - - - 2 28 8 3 - - - - - - - 30.00% 26.66% 30.00% 30.00% 20.00% 20.00% 80.00% 24.30% 31.55% 7.66% 26.87% 50.00% 30.01% 100.00% 50.00% 45.00% 51.00% 40.00% 40.00% 28.72% - - - - - - 20.00% - - 20.85% - - - - - - - - - - 15-Feb-18 13-Sep-18 15-Feb-18 15-Feb-18 29-May-18 29-May-18 10-Oct-18 06-Jul-18 01-Apr-18 06-Feb-18 21-Dec-18 27-Apr-18 28-Dec-18 07-Jun-18 12-Mar-18 08-Feb-18 01-Oct-18 01-Sep-18 04-Apr-18 01-Apr-18 JOINT VENTURE ASSOCIATE JOINT VENTURE ASSOCIATE JOINT VENTURE JOINT VENTURE ASSOCIATE ASSOCIATE JOINT VENTURE ASSOCIATE ASSOCIATE JOINT VENTURE JOINT VENTURE JOINT VENTURE JOINT VENTURE JOINT VENTURE JOINT VENTURE JOINT VENTURE JOINT VENTURE ASSOCIATE P.264 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2018 Company Activity BBVA BANCO CONTINENTAL SA BANCO PROVINCIAL SA - BANCO UNIVERSAL INVERSIONES BANPRO INTERNATIONAL INC NV PRO-SALUD, C.A. INVERSIONES P.H.R.4, C.A. COMERCIALIZADORA CORPORATIVA SAC DISTRITO CASTELLANA NORTE, S.A. GESTION DE PREVISION Y PENSIONES SA URBANIZADORA SANT LLORENC SA F/403035-9 BBVA HORIZONTES RESIDENCIAL F/253863 EL DESEO RESIDENCIAL DATA ARCHITECTURE AND TECHNOLOGY S.L. FIDEICOMISO LOTE 6.1 ZARAGOZA F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. GARANTI EMEKLILIK VE HAYAT AS FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. BBVA INFORMATION TECHNOLOGY ESPAÑA SL JALE PROCAM, S.L. BANKING BANKING INVESTMENT COMPANY NO ACTIVITY NO ACTIVITY FINANCIAL SERVICES REAL ESTATE PENSION FUND MANAGEMENT NO ACTIVITY REAL ESTATE REAL ESTATE SERVICES REAL ESTATE REAL ESTATE SERVICES INSURANCES IN LIQUIDATION SERVICES IN LIQUIDATION . % of Voting Rights Controlled by the Bank Direct - 1.46 48.00 - - - - 60.00 60.60 - - - - - - - - 76.00 - Indirect 46.12 53.75 - 58.86 60.46 50.00 75.54 - - 65.00 65.00 51.00 59.99 42.40 51.00 84.91 60.00 - 50.00 Total 46.12 55.21 48.00 58.86 60.46 50.00 75.54 60.00 60.60 65.00 65.00 51.00 59.99 42.40 51.00 84.91 60.00 76.00 50.00 P.265 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX V BBVA Group’s structured entities. Securitization funds Securitization Fund (consolidated) Company Millions of Euros Origination Date Total Securitized Exposures at the Origination Date Total Securitized Exposures as of December 31, 2018 (*) AYT CAIXA SABADELL HIPOTECARIO I, FTA AYT HIPOTECARIO MIXTO IV, FTA AYT HIPOTECARIO MIXTO, FTA BBVA CONSUMER AUTO 2018-1 BBVA CONSUMO 6 FTA BBVA CONSUMO 7 FTA BBVA CONSUMO 8 FT BBVA CONSUMO 9 FT BBVA EMPRESAS 4 FTA BBVA LEASING 1 FTA BBVA PYME 10 FT BBVA RMBS 1 FTA BBVA RMBS 10 FTA BBVA RMBS 11 FTA BBVA RMBS 12 FTA BBVA RMBS 13 FTA BBVA RMBS 14 FTA BBVA RMBS 15 FTA BBVA RMBS 16 FT BBVA RMBS 17 FT BBVA RMBS 18 FT BBVA RMBS 2 FTA BBVA RMBS 3 FTA BBVA RMBS 5 FTA BBVA RMBS 9 FTA BBVA VELA SME 2017-1 BBVA VELA SME 2018 BBVA-5 FTPYME FTA BBVA-6 FTPYME FTA FTA TDA-22 MIXTO FTA TDA-27 FTA TDA-28 GAT ICO FTVPO 1, F.T.H GC FTGENCAT TARRAGONA 1 FTA HIPOCAT 10 FTA HIPOCAT 11 FTA HIPOCAT 7 FTA HIPOCAT 8 FTA HIPOCAT 9 FTA TDA 19 FTA TDA 20-MIXTO, FTA TDA 23 FTA TDA TARRAGONA 1 FTA VELA CORPORATE 2018-1 BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA BBVA SA 07/2008 06/2005 03/2004 06/2018 10/2014 07/2015 07/2016 03/2017 07/2010 06/2007 12/2015 02/2007 06/2011 06/2012 12/2013 07/2014 11/2014 05/2015 05/2016 11/2016 11/2017 03/2007 07/2007 05/2008 04/2010 06/2017 03/2018 11/2006 06/2007 12/2004 12/2006 07/2007 jun.-09 06/2008 07/2006 03/2007 06/2004 05/2005 11/2005 03/2004 06/2004 03/2005 12/2007 12/2018 300 100 100 800 299 1,450 700 1,375 1,700 2,500 780 2,500 1,600 1,400 4,350 4,100 700 4,000 1,600 1,800 1,800 5,000 3,000 5,000 1,295 3,000 1,950 1,900 1,500 112 275 250 358 283 1,500 1,600 1,400 1,500 1,000 200 100 300 397 1,000 80 18 13 746 54 572 502 1,229 37 43 201 1,000 1,150 1,006 3,197 3,138 488 3,185 1,345 1,576 1,686 1,858 1,414 2,350 844 1,321 1,387 11 13 24 87 88 84 23 291 299 221 261 201 25 15 53 116 916 Securitization Fund (not consolidated) Company FTA TDA-18 MIXTO HIPOCAT 6 FTA BBVA, S.A. BBVA, S.A. (*) Solvency scope. Origination Date nov.-03 jul.-03 Millions of Euros Total Securitized Exposures at the Origination Date Total Securitized Exposures as of December 31, 2018 (*) 91 850 12 108 P.266 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2018, 2017 and 2016 Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues 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 Issues in Euros BBVA, S.A February-07 March-08 July-08 February-14 April-14 February-15 April-16 February-17 February-17 May-17 May-17 September-18 Various Subtotal BBVA SUBORDINATED CAPITAL, S.A.U. (*) October-05 April-07 May-08 July-08 April-14 Subtotal Others Total issued in Euros EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR EUR - 125 100 1,500 1,494 1,500 1,000 1,000 165 150 500 990 384 8,906 - - - - - - - 255 125 100 1,500 1,494 1,500 1,000 997 165 150 500 - 255 125 100 1,500 - 1,500 1,000 - - - - - 386 8,171 277 4,756 99 - - 20 - 119 - 99 68 50 20 1,500 1,737 - 8,906 8,290 6,493 0.47% 6.03% 6.20% 7.00% 3.50% 6.75% 8.88% 3.50% 4.00% 2.54% 5.88% 5.87% 0.47% 0.57% 3.00% 6.11% 3.50% 16-Feb-22 3-Mar-33 4-Jul-23 Perpetual 11-Apr-24 Perpetual Perpetual 10-Feb-27 24-Feb-32 24-May-27 Perpetual Perpetual 13-Oct-20 4-Apr-22 19-May-23 22-Jul-18 11-Apr-24 (*) The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank. P.267 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues (continued) Issuer Entity and Issued Date Currency December 2018 December 2017 December 2016 Prevailing Interest Rate as of December 31, 2018 Maturity Date Millions of Euros Issues in foreign currency BBVA, S.A May-13 March-17 November-17 May-18 Subtotal May-17 Subtotal BBVA GLOBAL FINANCE, LTD. (*) December-95 Subtotal BANCO BILBAO VIZCAYA ARGENTARIA, CHILE Different issues Subtotal BBVA BANCOMER, S.A. de C.V. May-07 April-10 March-11 July-12 November-14 Jan-18 Subtotal BBVA PARAGUAY November-14 November-15 Subtotal TEXAS REGIONAL STATUTORY TRUST I February-04 Subtotal USD USD USD USD USD CHF CHF USD USD CLP CLP USD USD USD USD USD USD USD USD USD USD USD USD - 1,251 1,423 9.00% Perpetual 105 873 260 100 834 - - - - 1,238 2,185 1,423 18 18 169 169 - - - 874 1,092 1,311 175 874 17 17 162 162 574 574 - 831 1,039 1,247 166 - - - 189 189 609 609 474 947 1,184 1,421 189 - 4,325 3,283 4,214 19 23 42 - - 17 21 38 - - 19 24 43 47 47 5.70% 31-Mar-32 6.13% Perpetual 5.25% 29-May-33 1.60% 24-may-27 7.00% 01-Dec--25 Various 6,01% 17-May-22 7.25% 22-Apr-20 6.50% 10-Mar-21 6.75% 30-Sep-22 5.35% 12-Nov-29 5.13% 18-Jan-33 6.75% 05-Nov-21 6.70% 22-Nov-22 3.13% 49,020 (*) The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank P.268 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Outstanding as of December 31, 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 Subtotal STATE NATIONAL STATUTORY TRUST II March-04 Subtotal TEXASBANC CAPITAL TRUST I June-04 Subtotal COMPASS BANK March-05 March-06 September-07 April-15 Subtotal BBVA COLOMBIA, S.A. September-11 September-11 September-11 February-13 February-13 November-14 November-14 January-00 December-15 Subtotal April-15 Subtotal BANCO CONTINENTAL, S.A. September-07 Subtotal May-07 May-07 June-07 November-07 July-08 September-08 December-08 October-13 September-14 Subtotal TURKIYE GARANTI BANKASI A.S May-17 Subtotal Total issues in foreign currencies(Millions of Euros) USD USD USD USD USD USD USD USD USD USD - COP COP COP COP COP COP COP COP COP COP USD USD USD USD PEN PEN PEN PEN PEN PEN PEN PEN PEN PEN USD USD - - - - - - 199 62 - 611 872 - 28 42 53 44 24 43 (9) (9) 215 332 332 - - - 17 20 18 16 17 10 40 252 410 652 652 8,274 - - - - - - 190 59 - 584 833 28 30 44 56 46 25 45 - - 273 313 313 - - - 17 20 18 16 17 10 38 244 395 623 623 14 14 9 9 24 24 212 65 332 655 1,264 32 33 49 63 52 28 51 - - 308 379 379 19 19 11 19 21 19 17 18 11 43 273 451 - - 8,695 8,994 3.32% 30-Sep-33 3.07% 17-Mar-34 2.88% 23-Jul-34 5.50% 5.90% 6.40% 3.88% 8.31% 8.48% 8.72% 7.65% 7.93% 8.53% 8.41% 1-Apr-20 1-Apr-26 1-Oct-17 10-Apr-25 19-Sep-18 19-Sep-21 19-Sep-26 19-Feb-23 19-Feb-28 26-Nov-26 26-Nov-34 4.88% 21-Apr-25 2.16% 24-Sep-17 5.85% 6.00% 3.47% 3.56% 3.06% 3.09% 4.19% 6.53% 5.25% 7-May-22 14-May-27 18-Jun-32 19-Nov-32 8-Jul-23 9-Sep-23 15-Dec-33 2-oct.-28 22-sep.-29 6.13% 24-May-27 - P.269 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Outstanding as of December 31, 2018, 2017, and 2016 of subordinated issues (Millions of euros) Issuer Entity and Issued Date BBVA S.A December 2007 BBVA COLOMBIA SA December 1993 BBVA PARAGUAY, S.A. September 2005 September 2006 April 2007 BBVA International Preferred, S.A.U. July 2007 Phoenix Loan Holdings Inc. December 2000 Caixa Terrasa Societat de Participacion August 2005 Caixasabadell Preferents, S.A. December 2004 July 2006 Others December 2018 December 2017 December 2016 Currency Amount Issued Currency Amount Issued Currency Amount Issued EUR - COP - - - - - GBP - USD - EUR - - EUR - - - EUR - 19 PESO COL - - - - - 35 - 18 - 52 - - 56 - - EUR EUR USD - GBP - USD - EUR - - EUR - - - - - - - - - 35 - 18 - 51 - - 56 1 EUR - PESO COL - EUR EUR USD - GBP - USD - EUR - EUR EUR - 14 - - - 86 164 569 - 36 - 22 - 51 - - 53 1 P.270 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2018, 2017 and 2016. December 2018 (Millions of euros) Assets Cash, cash balances at central banks and other demand deposits Financial assets held for trading Financial assets Non- Trading financial assets mandatorily at fair value through profit or loss Loans and receivables Financial assets at amortized cost Investments in entities accounted for using the equity method Tangible assets Other assets Total Liabilities Financial liabilities held for trading Financial liabilities at amortized cost Other liabilities Total December 2017 (Millions of euros) Assets Cash, cash balances at central banks and other demand deposits Financial assets held for trading Available-for-sale financial assets Loans and receivables Investments in entities accounted for using the equity method Tangible assets Other assets Total Liabilities Financial liabilities held for trading Financial liabilities at amortized cost Other liabilities Total USD Mexican Pesos Turkish Lira Other Foreign Currencies Total Foreign Currencies 15,184 3,133 650 16,566 101,366 5 670 3,444 141,019 2,372 136,307 3,874 142,552 6,869 15,500 2,303 4,704 47,550 54 1,964 2,911 81,856 13,626 48,169 6,081 67,876 476 366 3 5,547 3,614 58 28,076 22,614 3,014 3,031 2,931 27,232 28,094 34,075 211,085 - 1,007 1,361 34,336 360 20,878 750 21,987 267 850 326 4,490 2,879 50,221 10,595 307,433 1,507 17,864 37,342 242,696 7,200 46,049 17,904 278,464 USD Mexican Pesos Turkish Lira Other Foreign Currencies Total Foreign Currencies 17,111 2,085 14,218 93,069 5 659 7,309 134,456 935 135,546 3,907 140,387 4,699 14,961 8,051 39,717 124 1,953 5,041 74,546 5,714 51,492 8,720 65,926 827 484 4,904 32,808 - 1,289 4,426 44,738 506 27,079 1,039 28,623 4,264 4,583 3,010 26,902 22,113 30,183 34,488 200,081 147 673 18,662 65,826 533 39,062 16,593 56,188 276 4,573 35,438 319,566 7,688 253,178 30,259 291,124 P.271 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2016 (Millions of euros) Assets Cash, cash balances at central banks and other demand deposits Financial assets held for trading Available-for-sale financial assets Loans and receivables Investments in entities accounted for using the equity method Tangible assets Other assets Total Liabilities Financial liabilities held for trading Financial liabilities at amortized cost Other liabilities Total USD Mexican Pesos Turkish Lira Other Foreign Currencies Total Foreign Currencies 15,436 5,048 18,525 109,167 5 788 4,482 153,451 3,908 150,035 1,812 155,755 4,947 15,541 9,458 41,344 135 2,200 5,214 78,839 5,957 53,185 8,774 67,916 426 732 4,889 34,425 - 1,376 5,219 47,066 693 28,467 1,418 30,578 4,547 2,695 5,658 25,357 24,016 38,530 46,629 231,565 106 844 4,358 64,839 1,426 53,858 1,957 57,241 247 5,207 19,273 344,194 11,983 285,546 123,961 311,490 P.272 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX VIII Consolidated income statements for the first and second half of 2018 and 2017 Six months ended June 30, 2018 Six months ended December 31, 2018 Six months ended June 30, 2017 Six months ended December 31, 2017 Interest income and other income Interest expenses NET INTEREST INCOME Dividend income Share of profit or loss of entities accounted for using the equity method Fee and commission income Fee and commission expenses Net gains (losses) on financial assets and liabilities Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss. net Gains or (-) losses on financial assets and liabilities held for trading, net Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net Gains or (-) losses from hedge accounting, net Exchange differences, net Other operating income Other operating expenses Income on insurance and reinsurance contracts Expenses on insurance and reinsurance contracts GROSS INCOME Administration costs Personnel expenses Other administrative expenses Depreciation Provisions or (-) reversal of provisions Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss NET OPERATING INCOME Impairment or (-) reversal of impairment of investments in subsidiaries, joint ventures and associates Impairment or (-) reversal of impairment on non-financial assets Gains (losses) on derecognized of non financial assets and subsidiaries, net Negative goodwill recognized in profit or loss Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations OPERATING PROFIT BEFORE TAX Tax expense or (-) income related to profit or loss from continuing operation PROFIT FROM CONTINUING OPERATIONS Profit from discontinued operations, net PROFIT Attributable to minority interest [non-controlling interests] Attributable to owners of the parent Euros EARNINGS PER SHARE Basic earnings per share from continued operations Diluted earnings per share from continued operations Basic earnings per share from discontinued operations Diluted earnings per share from discontinued operations 14,418 (5,828) 8,590 83 14 3,553 (1,073) 130 329 3 107 51 74 554 (1,062) 1,601 (1,091) 11,865 (5,297) (3,103) (2,195) (599) (184) (1,606) 4,179 - (0) 80 - 29 4,286 (1,222) 3,063 - 3,063 528 2,536 15,413 (6,411) 9,001 74 (21) 3,579 (1,180) 86 378 93 36 21 (83) 395 (1,039) 1,348 (803) 11,882 (5,197) (3,017) (2,179) (609) (189) (2,375) 3,512 - (138) - - 786 4,160 (1,073) 3,088 - 3,088 299 2,788 14,305 (5,502) 8,803 212 (8) 3,551 (1,095) 683 139 - (88) (193) 528 562 (945) 1,863 (1,295) 12,718 (5,599) (3,324) (2,275) (712) (364) (1,941) 4,102 - (80) 30 - (18) 4,033 (1,120) 2,914 - 2,914 607 2,306 14,991 (6,035) 8,955 122 12 3,599 (1,134) 302 79 - 32 (16) 502 877 (1,278) 1,479 (977) 12,552 (5,513) (3,247) (2,266) (675) (381) (2,862) 3,120 - (284) 17 - 44 2,898 (1,049) 1,848 - 1,848 636 1,213 Six months ended June 30, 2018 Six months ended December 30, 2018 Six months ended June 30, 2017 Six months ended December 30, 2017 - 0.37 0.37 - - - 0.39 0.39 - - - 0.33 0.33 - - - 0.16 0.16 - - P.273 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX IX. Financial Statements of Banco Bilbao Vizcaya Argentaria, S.A. ASSETS (Millions of euros) December 2018 December 2017(*) CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS FINANCIAL ASSETS HELD FOR TRADING Derivatives Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers OTHER FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Equity instruments Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers FINANCIAL ASSETS AT FAIR VALUE THROUGH COMPREHENSIVE INCOME Equity instruments Debt securities FINANCIAL ASSETS AT AMORTIZED COST Debt securities Loans and advances to central banks Loans and advances to credit institutions Loans and advances to customers HEDGING DERIVATIVES FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES Subsidiaries Joint ventures Associates TANGIBLE ASSETS Property, plants and equipment For own use Other assets leased out under an operating lease Investment properties INTANGIBLE ASSETS Goodwill Other intangible assets TAX ASSETS Current Deferred OTHER ASSETS Insurance contracts linked to pensions Inventories Other NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE 30,922 75,210 30,217 4,850 11,453 2,073 14,588 12,029 1,726 200 150 - - 1,376 - - - - - - 19,273 2,020 17,253 219,127 19,842 5 5,271 194,009 1,090 (21) 30,734 29,634 58 1,042 1,739 1,737 1,737 - 2 898 - 898 13,990 1,410 12,580 4,187 2,032 - 2,155 1,065 18,503 50,424 36,536 6,202 7,686 - - - 648 - - - - - 24,205 2,378 21,827 252,586 18,856 28 22,105 211,597 1,561 (25) 30,795 30,304 58 433 1,599 1,587 1,587 - 12 882 - 882 12,911 1,030 11,881 3,768 2,142 - 1,626 2,226 TOTAL ASSETS 399,940 400,083 (*) Presented for comparison purposes only. P.274 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. LIABILITIES AND EQUITY (Millions of euros) FINANCIAL LIABILITIES HELD FOR TRADING Trading derivatives Short positions Deposits from central banks Deposits from credit institutions Customer deposits Debt certificates Other financial liabilities OTHER FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS Deposits from central banks Deposits from credit institutions Customer deposits Debt certificates Other financial liabilities Of which: Subordinated liabilities FINANCIAL LIABILITIES AT AMORTIZED COST Deposits from central banks Deposits from credit institutions Customer deposits Debt certificates Other financial liabilities Of which: Subordinated liabilities HEDGING DERIVATIVES FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK PROVISIONS Provisions for pensions and similar obligations Other long term employee benefits Provisions for taxes and other legal contingencies Provisions for contingent risks and commitments Other provisions TAX LIABILITIES Current Deferred OTHER LIABILITIES LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE December 2018 68,242 29,748 9,235 5,149 15,642 8,468 - - 1,746 - - 1,746 - - - 283,157 26,605 20,539 192,419 35,769 7,825 10,588 1,068 - 5,125 4,043 29 348 238 467 1,197 126 1,071 1,996 - December 2017(*) 43,703 36,097 7,606 - - - - - - - - - - - - 305,797 28,132 40,599 194,645 34,166 8,255 10,887 1,327 (7) 7,605 4,594 31 329 272 2,379 1,240 124 1,116 2,207 - TOTAL LIABILITIES 362,531 361,872 (*) Presented for comparison purposes only. P.275 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. LIABILITIES AND EQUITY (Continued) (Millions of euros) SHAREHOLDERS’ FUNDS Capital Paid up capital Unpaid capital which has been called up Share premium Equity instruments issued other than capital Equity component of compound financial instruments Other equity instruments issued Other equity Retained earnings Revaluation reserves Other reserves Less: Treasury shares Profit or loss of the year Less: Interim dividends ACCUMULATED OTHER COMPREHENSIVE INCOME Items that will not be reclassified to profit or loss Actuarial gains or (-) losses on defined benefit pension plans 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 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 Items that may be reclassified to profit or loss Hedge of net investments in foreign operations (effective portion) Foreign currency translation Hedging derivatives. Cash flow hedges (effective portion) Available for sale financial assets Available for sale financial assets Fair value changes of debt instruments measured at fair value through other comprehensive income Hedging instruments (non-designated items) Non-current assets and disposal groups classified as held for sale TOTAL EQUITY TOTAL EQUITY AND TOTAL LIABILITIES MEMORANDUM ITEM - OFF BALANCE SHEET EXPOSURES (Millions of euros) Loan commitments given Financial guarantees given Contingent commitments given (*) Presented for comparison purposes only. December 2018 December 2017(*) 37,417 3,267 3,267 - 23,992 46 - 46 - - 3 8,796 (23) 2,316 (980) (8) (152) (78) - - (190) - - - 116 144 - - (116) 260 - - 37,409 399,940 37,802 3,267 3,267 - 23,992 47 - 47 - - 12 9,445 - 2,083 (1,044) 409 (38) (38) - - - 447 - - (136) 583 - 38,211 400,083 December 2018 December 2017(*) 69,513 9,197 27,202 54,631 11,336 36,503 P.276 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. INCOME STATEMENTS (Millions of euros) December 2018 December 2017(*) Interest income and other incomes Finanancial assets and liabilities at fair value through other comprehensive income Finanacial assets at amortized cost Other interest incomes Interest expenses NET INTEREST INCOME Dividend income Fee and comission income Fee and comission expenses Gains (losses) on decognition of financial assets and liabilities not measured at fair value through profit or loss, net Financial assets at amortized cost Other financial assets and liabilities Gains or (-) losses from hedge accounting, net Reclasification of financial assets from fair value through other comprehensive income Reclasification of financial assets from amortized cost Other gains or losses Gains (losses) on on-trading financial assets mandatorily at fair value through profit or loss Reclasification of financial assets from fair value through other comprehensive income Reclasification of financial assets from amortized cost Other gains or losses Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net Gains (losses) from hedge accounting, net Exchange differences, Other operating income Other operating expenses GROSS INCOME Administration costs Personnel expenses Other administrative expenses Depreciation and amortization Provisions or (-) reversal of provisions Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss Financial asssets at amortized cost Financial assets at fair value through other comprehensive income NET OPERATING INCOME Impairment or reversal of impairment of investments in joint ventures and associates Impairment or reversal of impairment on non-financial assets Tangible assets Intangible assets Other assets Gains or losses on derecognized assets not classified as non-current assets held for sale Negative goodwill recognized in profit or loss Profit or loss froma non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations PROFIT OR LOSS BEFORE TAX FROM CONTINUING OPERATIONS Tax expense or income related to profit or loss from continuing operations PROFIT OR LOSS AFTER TAX FROM CONTINUING OPERATIONS Profit or loss after tax from discontinued operations PROFIT FOR THE PERIOD (*) Presented for comparison purposes only. 4,877 394 4,293 190 (1,386) 3,491 3,115 2,083 (407) 109 3 106 364 - - 364 78 - - 78 (41) 46 (60) 108 (474) 8,412 (4,077) (2,328) (1,749) (452) (566) (267) (278) 11 3,050 (1,537) (27) (23) - (4) (16) - 1,004 2,474 (159) 2,316 - 2,316 4,860 393 4,343 124 (1,397) 3,463 3,555 2,003 (386) 634 565 69 32 - - - - 18 (227) 435 159 (466) 9,220 (4,038) (2,382) (1,656) (540) (802) (1,585) (451) (1,134) 2,256 207 (8) (8) - - (1) - (14) 2,440 (357) 2,083 - 2,083 P.277 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. STATEMENTS OF RECOGNIZED INCOME AND EXPENSES (MILLIONS OF EUROS) PROFIT RECOGNIZED IN INCOME STATEMENT OTHER RECOGNIZED INCOME (EXPENSES) ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT Actuarial gains and losses from defined benefit pension plans Non-current assets available for sale Fair value changes of equity instruments measured at fair value through other comprehensive income Gains or 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 Other valuation adjustments Income tax related to items not subject to reclassification to income statement ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT Hedge of net investments in foreign operations [effective portion] Foreign currency translation Translation gains or (-) losses taken to equity Transferred to profit or loss Other reclassifications Cash flow hedges [effective portion] Valuation gains or (-) losses taken to equity Transferred to profit or loss Transferred to initial carrying amount of hedged items Other reclassifications Available for sale financial assets Valuation gains or (losses) taken to equity Transferred to profit or loss Other reclassifications Debt securities at fair value through other comprehensive income Valuation gains/(losses) Amounts reclassified to income statement Reclassifications (other) Non-current assets held for sale and disposal groups held for sale Income tax related to items subject to reclassification to income statement TOTAL RECOGNIZED INCOME/EXPENSES (*) Presented for comparison purposes only. 2018 2,316 (382) (125) (47) - (199) - 166 - (45) (257) - - - - - 29 29 - - - (396) (292) (104) - - 110 1,934 2017 2,083 771 4 6 - - - - - (2) 767 - (18) - (18) - (12) (9) (3) - - 751 142 609 - - 46 2,854 P.278 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Statement of changes in equity for the year ended December 31, 2018 of BBVA, S.A. December 2018 Capital Share Premium Equity instruments issued other than capital Other Equity Retained earnings Revaluation reserves Other reserves (-) Treasury shares Millions of Euros Profit or loss attributable to owners of the parent Interim dividends Accumulated other comprehensive income Total 2,083 (1,045) 409 38,210 Balances as of January 1, 2018 3,267 23,992 Effect of correction of errors Adjusted initial balance Total income/expense recognized Other changes in equity Issuances of common shares Issuances of preferred shares Issuance of other equity instruments Period or maturity of other issued equity instruments Conversion of debt on equity Common Stock reduction Dividend distribution Purchase of treasury shares Sale or cancellation of treasury shares Reclassification of financial liabilities to other equity instruments Reclassification of other equity instruments to financial liabilities Transfers between total equity entries Increase/Reduction of equity due to business combinations Share based payments Other increases or (-) decreases in equity Balance as of December 31, 2018 - - 3,267 23,992 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,267 23,992 47 - 47 - (1) - - - - - - - - - - - (1) - - - 46 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 12 - 12 - (9) - - - - - - - - - - - 9,445 (666) 8,779 - 17 - - - - - - (1,000) - (5) - - (9) 1,048 - - - 3 (25) - (1) - - - - - - - - - - - (1,288) 1,265 - - - - - - - - 2,083 (1,045) 2,316 (23) (2,083) - 65 - - - - - - (980) - - - - - - - - - - - - - - - (2,083) 1,045 - - - - - - (35) 374 (701) 37,509 (382) 1,934 - - - - - - - - - - - - - - - - (2,034) - - - - - - (1,980) (1,288) 1,260 - - - (25) - (1) 8,796 (23) 2,316 (980) (8) 37,409 P.279 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Statement of changes in equity for the year ended December 31, 2017 of BBVA, S.A. December 2017(*) Capital Share Premium Equity instruments issued other than capital Other Equity Retained earnings Revaluation reserves Other reserves (-) Treasury shares Profit or loss attributable to owners of the parent Interim dividends Accumulated other comprehensive income Total Millions of Euros Balances as of January 1, 2017 3,218 23,992 Total income/expense recognized Other changes in equity Issuances of common shares Issuances of preferred shares Issuance of other equity instruments Period or maturity of other issued equity instruments Conversion of debt on equity Common Stock reduction Dividend distribution Purchase of treasury shares Sale or cancellation of treasury shares Reclassification of financial liabilities to other equity instruments Reclassification of other equity instruments to financial liabilities Transfers between total equity entries Increase/Reduction of equity due to business combinations Share based payments Other increases or (-) decreases in equity Balance as of December 31, 2017 - 49 49 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 3,267 23,992 (*) Presented for comparison purposes only. 46 - 1 - - - - - - - - - - - (1) - - 2 47 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 20 - (8) - - - - - - - - - - - (8) - - - 12 9,346 (23) 1,662 (1,513) (362) 36,386 - 99 (49) - - - - - - - 4 - - 158 - - (14) 9,445 - 23 2,083 (1,662) - 469 - - - - - - - (1,354) 1,377 - - - - - - - - - - - - - - - - - - - - - - - - (901) - - - - (1,662) 1,513 - - - 2,083 - - (143) (1,044) 771 2,854 - - - - - - - - - - - - - - - - 409 (1,029) - - - - - - (901) (1,354) 1,381 - - - - - (155) 38,211 P.280 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. CASH FLOWS STATEMENTS (Millions of euros) December 2018 December 2017(*) CASH FLOW FROM OPERATING ACTIVITIES (1) Profit for the period Adjustments to obtain the cash flow from operating activities: Depreciation and amortization Other adjustments Net increase/decrease in operating assets Financial assets held for trading Non-trading financial assets mandatorily at fair value throught profit or loss Other financial assets designated at fair value through profit or loss Financial assets at fair value through other comprehensive income Loans and receivables Other operating assets Net increase/decrease in operating liabilities Financial liabilities held for trading Other financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Other operating liabilities Collection/Payments for income tax CASH FLOWS FROM INVESTING ACTIVITIES (2) Investment Tangible assets Intangible assets Investments Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other settlements related to investing activities Divestments Tangible assets Intangible assets Investments Subsidiaries and other business units Non-current assets held for sale and associated liabilities Held-to-maturity investments Other collections related to investing activities (*) Presented for comparison purposes only. 16,944 2,316 1,227 452 775 10,926 2,178 3,087 - 3,409 3,081 (829) 2,317 (2,718) 754 5,735 (1,454) 158 (2,049) (7,081) (372) (314) (6,083) - (312) - 5,032 50 - 1,678 - 3,304 - (20) 2,083 2,261 540 1,721 17,516 7,016 (648) 4,799 7,255 (906) (22,237) (4,562) - (15,228) (2,447) 357 1,995 (2,118) (100) (276) (1,117) - (625) - - 4,113 21 - 508 - 815 2,576 193 P.281 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. CASH FLOWS STATEMENTS (Continued) (Millions of euros) CASH FLOWS FROM FINANCING ACTIVITIES (3) Investment Dividends Subordinated liabilities Common stock amortization Treasury stock acquisition Other items relating to financing activities Divestments Subordinated liabilities Common stock increase Treasury stock disposal Other items relating to financing activities EFFECT OF EXCHANGE RATE CHANGES (4) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (1+2+3+4) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR CASH AND CASH EQUIVALENTS AT END OF THE YEAR COMPONENTS OF CASH AND EQUIVALENTS AT END OF THE YEAR (Millions of euros) Cash Balance of cash equivalent in central banks Other financial assets Less: Bank overdraft refundable on demand December 2018 December 2017(*) (2,334) (4,872) (1,980) (1,627) - 106 (4,090) (1,570) (919) - (1,265) (1,354) - 2,538 1,262 - 1,260 16 (143) 12,418 18,503 30,921 (247) 4,196 2,819 - 1,377 - 566 2,647 15,856 18,503 December 2018 December 2017 975 27,290 2,656 - 906 15,858 1,739 - TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR 30,921 18,503 (*) Presented for comparison purposes only. P.282 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX X Information on data derived from the special accounting registry and other information about bonds The Bank counts with explicit policies and procedures for its activities in the mortgage market and in the financing of exportation of goods and services or the process of internationalization of companies, which allow ensuring compliance with the applicable regulations of the mortgage market and for the issuance of bonds. Mortgage market policies and procedures Information required pursuant to Circular 5/2011 of the Bank of Spain is indicated as follows. The mortgage origination policy is based in principles focused on assessing the adequate ratio between the amount of the loan, and the payments, and the income of the applicant. Applicants must in all cases prove sufficient repayment ability (present and future) to meet their repayment obligations, for both the mortgage debt and for other debts detected in the financial system. Therefore, the applicant’s repayment ability is a key aspect within the credit decision-making tools and retail risk acceptance manuals, and has a high weighting in the final decision. During the mortgage risk transaction analysis process, documentation supporting the applicant’s income (payroll, etc.) is required, and the applicant’s position in the financial system is checked through automated database queries (internal and external). This information is used for calculation purposes in order to determine the level of indebtedness/compliance with the remainder of the system. This documentation is kept in the transaction’s file. In addition, the mortgage origination policy assesses the adequate ratio between the amount of the loan and the appraisal value of the mortgaged asset. The policy also establishes that the property to be mortgaged be appraised by an independent appraisal company as established by Circular 3/2010 and Circular 4/2016. BBVA selects those companies whose reputation, standing in the market and independence ensure that their appraisals adapt to the market reality in each region. Each appraisal is reviewed and checked before the loan is granted and, in those cases where the loan is finally granted, it is kept in the transaction’s file. As for issues related to the mortgage market, the Finance area annually defines the strategy for wholesale finance issues, and more specifically mortgage bond issues, such as mortgage covered bonds or mortgage securitization. The Assets and Liabilities Committee tracks the budget monthly. The volume and type of assets in these transactions is determined in accordance with the wholesale finance plan, the trend of the Bank’s “Loans and receivables” outstanding balances and the conditions in the market. The Board of Directors of the Bank authorizes each of the issues of Mortgage Transfer Certificates and/or Mortgage Participations issued by BBVA to securitize the credit rights derived from loans and mortgage loans. Likewise, the Board of Directors authorizes the establishment of a Base Prospectus for the issuance of fixed- income securities through which the mortgage-covered bonds are implemented. As established in article 24 of Royal Decree 716/2009, of April, 24, by virtue of which certain aspects of Law 2/1981, of 25 March, of regulation of the mortgage market and other rules of the mortgage and financial system are developed, “the volume of outstanding mortgage-covered bonds issued by a bank may not exceed 80% of a calculation base determined by adding the outstanding principal of all the loans and mortgage loans in the bank’s portfolio that are eligible” and which are not covered by the issue of Mortgage Bonds, Mortgage Participations or Mortgage Transfer Certificates. For these purposes, in accordance with the aforementioned Royal Decree 716/2009, in order to be eligible, loans and mortgage loans, on a general basis: (i) must be secured by a first P.283 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. mortgage on the freehold; (ii) the loan’s amount may not exceed 80% of the appraisal value for residential mortgages, and 60% for other mortgage lending; (iii) must be established on assets exclusively and wholly owned by the mortgagor; (iv) must have been appraised by an independent appraisal company unrelated to the Group and authorized by the Bank of Spain; and (v) the mortgaged property must be covered at least by a current damage insurance policy. The Bank has set up a series of controls for mortgage covered bonds, which regularly control the total volume of issued mortgage covered bonds issued and the remaining eligible collateral, to avoid exceeding the maximum limit set by Royal Decree 716/2009, and outlined in the preceding paragraph. In the case of securitizations, the preliminary portfolio of loans and mortgage loans to be securitized is checked according to an agreed procedures engagement, by the Bank’s external auditor as required by the Spanish Securities and Exchange Commission. There is also a series of filters through which some mortgage loans and credits are excluded in accordance with legal, commercial and risk concentration criteria. P.284 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. b) Quantitative information on activities in the mortgage market The quantitative information on activities in the mortgage market required by Bank of Spain Circular 5/2011 as of December 31, 2018 and 2017 is shown below. b.1) Ongoing operations Mortgage loans. Eligibility for the purpose of the mortgage market (Millions of euros) Nominal value of outstanding loans and mortgage loans Minus: Nominal value of all outstanding loans and mortgage loans that form part of the portfolio, but have been mobilized through mortgage bond holdings or mortgage transfer certificates. Nominal value of outstanding loans and mortgage loans, excluding securitized loans Of which: Loans and mortgage loans which would be eligible if the calculation limits set forth in Article 12 of Spanish Royal Decree 716/2009 were not applied. Minus: Loans and mortgage loans which would be eligible but, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, cannot be used to collateralize any issuance of mortgage bonds. Eligible loans and mortgage loans that, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, can be used as collateral for the issuance of mortgage bonds Issuance limit: 80% of eligible loans and mortgage loans that can be used as collateral Issued Mortgage-covered bonds Outstanding Mortgage-covered bonds Capacity to issue mortgage-covered bonds Memorandum items: Percentage of overcollateralization across the portfolio Percentage of overcollateralization across the eligible used portfolio Nominal value of available sums (committed and unused) from all loans and mortgage loans. Of which: Potentially eligible Ineligible December 2018 December 2017 (A) 97,519 105,539 (B) (A)- (B) (C) (D) (C)- (D) (E) (F) (E)- (F) (29,781) (32,774) 67,738 72,765 45,664 48,003 (1,240) (1,697) 44,424 46,306 35,539 24,301 15,207 11,238 279% 183% 5,267 4,517 750 37,045 20,153 16,065 16,892 361% 230% 3,084 2,471 613 Nominal value of all loans and mortgage loans that are not eligible, as they do not meet the thresholds set in Article 5.1 of Spanish Royal Decree 716/2009, but do meet the rest of the eligibility requirements indicated in Article 4 of the Royal Decree. Nominal value of the replacement assets subject to the issue of mortgage-covered bonds. 12,827 16,272 - - P.285 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Mortgage loans. Eligibility for the purpose of the mortgage market (Millions of euros) Total loans Issued mortgage participations Of which: recognized on the balance sheet Issued mortgage transfer certificates Of which: recognized on the balance sheet Mortgage loans as collateral of mortgages bonds (1) (2) (3) (4) Loans supporting the issuance of mortgage-covered bonds 1-2-3-4 Non elegible loans Comply requirements to be eligible except the limit provided for under the article 5.1 of the Spanish Royal Decree 716/2009 Other Elegible loans That cannot be used as collateral for issuances That can be used as collateral for issuances Loans used to collateralize mortgage bonds Loans used to collateralize mortgage-covered bonds Mortgage loans. Classification of the nominal values according to different characteristics (Millions of euros) December 2018 December 2017 97,519 105,539 4,360 2,927 25,422 23,590 67,738 22,074 12,827 9,247 45,664 1,240 44,424 - 1,809 - 30,965 28,954 72,765 24,762 16,272 8,490 48,003 1,697 46,306 - 44,424 46,306 TOTAL By source of the operations Originated by the bank Subrogated by other institutions Rest By Currency In euros In foreign currency By payment situation Normal payment Other situations By residual maturity Up to 10 years 10 to 20 years 20 to 30 years Over 30 years By Interest Rate Fixed rate Floating rate Mixed rate By Target of Operations For business activity From which: public housing For households By type of guarantee Secured by completed assets/buildings Residential use From which: public housing Commercial Other Secured by assets/buildings under construction Residential use From which: public housing Commercial Other Secured by land Urban Non-urban December 2018 December 2017 Total mortgage loans Eligible Loans(*) Eligible that can be used as collateral for issuances (**) Total mortgage loans Eligible Loans(*) Eligible that can be used as collateral for issuances (**) 67,738 45,664 44,424 72,765 48,003 46,306 62,170 797 4,771 67,255 483 56,621 11,117 15,169 28,317 18,195 6,057 10,760 56,978 - 13,308 2,770 54,430 65,535 56,880 4,464 8,618 37 1,014 721 18 293 - 1,189 478 711 40,962 664 4,038 45,362 302 41,688 3,976 11,226 22,907 9,973 1,558 5,545 40,119 - 7,107 1,455 38,557 44,912 40,098 3,423 4,803 11 369 234 1 135 - 383 134 249 39,799 660 3,965 44,122 302 41,057 3,367 10,808 22,344 9,752 1,520 5,467 38,957 - 6,196 682 38,228 43,884 39,276 3,278 4,597 11 261 150 1 111 - 279 47 232 67,134 795 4,836 72,070 695 61,013 11,752 15,482 29,131 18,470 9,682 5,578 67,187 - 17,111 4,520 55,654 70,922 53,543 4,124 4,610 12,769 1,433 522 8 174 737 410 8 402 43,315 692 3,996 47,623 380 43,578 4,425 10,268 23,344 11,565 2,826 2,697 45,306 - 7,788 1,670 40,215 47,619 39,050 3,029 2,535 6,034 245 61 1 48 136 139 5 134 41,694 686 3,926 45,945 361 43,187 3,119 9,659 22,748 11,153 2,746 2,614 43,692 - 6,569 726 39,737 45,989 38,499 2,981 2,414 5,076 191 61 1 48 82 126 2 124 (*) Not taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009 (**) Taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009 P.286 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2018. Nominal value of the total mortgage loans (Millions of euros) Home mortgages Other mortgages Total Loan to Value (Last available appraisal risk) 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% Total 13,792 2,506 16,298 15,459 2,203 17,662 11,704 11,704 - - 40,955 4,709 45,664 December 2017. Nominal value of the total mortgage loans (Millions of euros) Home mortgages Other mortgages Total Loan to Value (Last available appraisal risk) Less than or equal to 40% 14,535 1,827 16,362 Over 40% but less than or equal to 60% 17,225 1,749 18,974 Over 60% Over 60% but less than or equal to 80% 12,667 - 12,667 Over 80% Total - - 44,427 3,576 48,003 Eligible and non eligible mortgage loans. Changes of the nominal values in the period (Millions of euros) Balance at the beginning Retirements Held-to-maturity cancellations Anticipated cancellations Subrogations to other institutions Rest Additions Originated by the bank Subrogations to other institutions Rest Balance at the end 2018 2017 Eligible (*) Non eligible Eligible (*) Non eligible 48,003 24,762 46,987 33,313 7,994 4,425 2,227 25 1,317 5,655 2,875 15 7,483 1,883 2,625 13 2,962 4,795 3,376 7 2,765 45,664 1,412 22,074 9,820 4,614 2,008 33 3,165 10,835 2,645 15 8,176 48,003 15,015 2,562 2,582 23 9,848 6,464 3,392 5 3,067 24,762 2017 2,471 613 3,084 (*) Not taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009 Mortgage loans supporting the issuance of mortgage-covered bonds. Nominal value (Millions of euros) Potentially eligible Ineligible Total 2018 4,517 750 5,267 P.287 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. b.2) Liabilities operations Issued Mortgage Bonds (Millions of euros) 2018 2017 Nominal value Average residual maturity Nominal value Average residual maturity Mortgage bonds Mortgage-covered bonds Of which: Not recognized as liabilities on balance Of Which: Outstanding Debt securities issued through public offer Residual maturity up to 1 year Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years Debt securities issued without public offer Residual maturity up to 1 year Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years Deposits Residual maturity up to 1 year Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years Mortgage participations Issued through public offer Issued without public offer Mortgage transfer certificates Issued through public offer Issued without public offer - 24,301 9,093 15,207 12,501 - 2,051 2,750 3,500 4,000 200 9,161 - 50 1,500 2,500 5,111 - 2,640 380 246 425 468 471 650 2,927 2,927 - 23,590 23,590 - - 20,153 4,088 16,065 12,501 - - 2,051 4,000 6,250 200 4,162 - - 50 1,500 2,612 - 3,491 791 380 246 793 571 710 - - - 269 269 - 28,954 28,954 - 279 279 - Given the characteristics of the type of covered bonds issued by the Bank, there is no substituting collateral related to these issues. The Bank does not hold any derivative financial instruments relating to mortgage bond issues, as defined in the aforementioned Royal Decree. c) Quantitative information on internationalization covered bonds Below is the quantitative information of BBVA, S.A. internationalization covered bonds required by Bank of Spain Circular 4/2015 as of December 31, 2018 and 2017. P.288 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. c.1) Assets operations Principal outstanding payment of loans (Millions of euros) Eligible loans according to article 34.6 y 7 of the Law 14/2013 Minus: Loans that support the issuance of internationalization bonds Minus: NPL to be deducted in the calculation of the issuance limit, according to Article 13 del Royal Decree 579/2014 Total Loans included in the base of all issuance limit c.2) Liabilities operations Internationalization covered bonds (Millions of euros) (1) Debt securities issued through public offer (a) of which: Treasury shares Residual maturity up to 1 year Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years (2) Debt securities issued without public offer (a) (3) Deposits (b) TOTAL: (1) + (2) + (3) Coverage ratio of internationalization covered bonds on loans (c) Nominal value 2018 3,369 - Nominal value 2017 3,075 - 4 3,365 74 3,001 Nominal value 2018 Nominal value 2017 1,500 1,500 - 1,500 1,500 - 1,500 1,500 - - - - - - - - - - - 1,500 - 1,500 Percentage Percentage 45% 50% (a) Balance that includes all internationalization covered bonds issued by the entity pending amortization, although they are not recognized in the liability (because they have not been placed to third parties or have been repurchased). (b) Nominative bonds. (c) Percentage that results from the value of the quotient between the nominal value of the issued and non-overdue bonds, even if they are not recognized in the liability, and the nominal value balance pending collection of the loans that serve as guarantee Given the characteristics of the Bank's internationalization covered bonds, there are no substitute assets assigned to these issuances. P.289 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. d) Territorial bonds d.1) Assets operations Decemeber 2018. Loans that serves as collateral for the territorial bonds Nominal Value(a) Total Spanish Residents Residents in other countries of the European Economic Area Central Governments Regional Governments Local Governments Total loans (a) Principal pending payment of loans. 1,637 8,363 5,145 15,145 1,592 8,333 5,145 15,070 December 2017. Loans that serves as collateral for the territorial bonds (Millions of euros) Nominal Value (a) 45 30 - 75 Total Spanish Residents Residents in other countries of the European Economic Area Central Governments Regional Governments Local Governments Total loans (a) Principal pending payment of loans. 473 8,882 7,040 16,395 420 8,851 7,040 16,311 53 31 - 84 d.2) Liabilities operations Territorial bonds (Millions of euros) Territorial bonds issued (a) Issued through a public offering Of which: Treasury stock Residual maturity up to 1 year Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years Other issuances Of which: Treasury stock Residual maturity over 1 year and less than 2 years Residual maturity over 2 years and less than 3 years Residual maturity over 3 years and less than 5 years Residual maturity over 5 years and less than 10 years Residual maturity over 10 years Nominal value2018 Nominal value 2017 - 7,540 7,540 7,040 - 4,500 2,000 1,040 - - - - - - - - 9,690 9,540 9,040 - - 6,500 2,840 200 - 150 - 150 - - - - P.290 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Coverage ratio of the territorial bonds on loans (b) Percentage Percentage 50% 59% (a) Includes the nominal value of all loans that serve as collateral for the territorial bonds, regardless of the item in which they are included in the balance sheet. Principal pending payment of loans. The territorial bonds include all the instruments issued by the entity pending amortization, although they are not recognized in the liability (because they have not been placed to third parties or have been repurchased). (b) Percentage that results from the value of the quotient between the nominal value of the issued and non-overdue bonds, even if they are not recognized in the liability, and the nominal value balance pending collection of the loans that serve as guarantee P.291 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX XI. 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, 2017 and 2016 is as follows: DECEMBER 2018 BALANCE OF FORBEARANCE (Millions of Euros) TOTAL Unsecured loans Secured loans Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk - 75 252 - 111 13 - 46 29,360 - 64 5 - 52 3 - - 0 - 15 6 44,271 4,483 15,493 4,177 2,200 221 3,148 Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total 193,061 1,326 355,466 6,990 5,083 237,659 5,933 400,365 11,236 7,338 150 371 734 258 1,627 962 501 12 517 1,716 4,885 Unsecured loans Secured loans Of which: IMPAIRED Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total - 46 133 - 65 4 - 12 29,320 - 16 4 - 8 2 - - 0 - 10 5 25,420 2,723 9,922 2,777 1,192 100 2,773 631 116,916 200 741 1,145 656 254 42,403 3,673 2,435 1 26 142,515 3,533 81,657 6,470 3,636 126 477 1,414 4,202 (*) Number of operations does not include Garanti Bank. 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. P.292 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. DECEMBER 2017 BALANCE OF FORBEARANCE (Millions of Euros) TOTAL Unsecured loans Secured loans Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total - 69 4,727 - 105 36 - 135 93 - 430 8 - - 112 302 1 - - 18 21 113,464 4,672 17,890 6,258 3,182 251 3,579 1,812 398 3,495 163,101 1,325 109,776 2,345 8,477 1,995 6,891 281,361 6,138 127,894 15,173 10,186 - 18 571 1,327 1,373 4,991 Unsecured loans Secured loans Of which: IMPAIRED Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total - 50 126 - 72 5 - 45 16 - 29 2 - 22 + - - - - 16 5 95,427 2,791 10,994 4,144 1,983 66 3,361 1,538 105,468 208 747 2,779 1,961 1,273 47,612 4,330 3,270 201,071 3,615 58,667 8,506 5,275 - 6 72 1,282 1,231 4,612 (*) Number of operations does not include Garanti Bank. 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. P.293 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. DECEMBER 2016 BALANCE OF FORBEARANCE (Millions of Euros) TOTAL Unsecured loans Secured loans Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total - 24 3,349 - 8 59 - 112 71 - 711 18 - 98 5 - 584 - - 6 8 125,328 5,057 25,327 9,643 4,844 124 5,310 1,519 496 5,102 116,961 1,550 103,868 4,395 9,243 694 7,628 245,662 6,674 129,378 19,615 12,576 - 18 726 2,552 1,474 6,798 Unsecured loans Secured loans Of which: IMPAIRED Number of operations Gross carrying amount Number of operations Gross carrying amount Maximum amount of secured loans that can be considered Real estate mortgage secured Rest of secured loans Accumulated impairment or accumulated losses in fair value due to credit risk Credit institutions General Governments Other financial corporations and individual entrepreneurs (financial business) Non-financial corporations and individual entrepreneurs (corporate non-financial activities) Of which: financing the construction and property (including land) Rest homes (*) Total - 12 131 - 8 8 - 53 22 - 33 2 - 27 - - - - 103,310 2,857 16,327 6,924 3,002 53 1,191 72,199 304 672 4,188 3,848 494 47,767 4,366 3,271 175,652 3,545 64,169 11,325 6,300 - 3 57 - 4 5 4,986 2,499 1,285 6,281 (*) Number of operations does not include Garanti Bank. 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. P.294 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Balance at the beginning (+) Additions (-) Decreases (payments or repayments) (-) Foreclosures (-) Write-offs (+)/(-) Other Ending Balance Stages 1&2 Stage 3 TOTAL Risk Coverage Risk Coverage Risk Coverage 9,191 1,599 (1,098) - (2) (2,524) 7,166 378 397 (47) - (1) (45) 682 12,120 4,612 21,311 4,991 1,417 767 3,017 (2,280) (339) (857) (58) 10,003 (1,282) (3,378) (216) (606) 927 4,202 (339) (859) (2,582) 17,169 1,164 (1,330) (216) (607) 882 4,885 Refinanced assets Roll forward. December 2017 (*) (Millions of euros) Balance at the beginning (+) Additions (-) Decreases (payments or repayments) (-) Foreclosures (-) Write-offs (+)/(-) Other Ending Balance Normal Impaired TOTAL Risk Coverage Risk Coverage Risk Coverage 11,418 3,095 (2,462) (2) (63) (2,795) 9,191 517 182 (145) - (2) (174) 378 14,869 6,281 26,288 6,798 1,614 599 4,709 (2,754) (463) (1,667) 521 12,120 (1,180) (267) (1,413) 593 4,612 (5,216) (465) (1,730) (2,275) 21,311 781 (1,325) (267) (1,415) 419 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, 2018 and 2017: Forbearance operations. Breakdown by segments (Millions of euros) December 2018 December 2017 December 2016 Credit institutions Central governments Other financial corporations and individual entrepreneurs (financial activity) Non-financial corporations and individual entrepreneurs (non-financial activity) Of which: Financing the construction and property development (including land) Households Total carrying amount Financing classified as non-current assets and disposal groups held for sale - 160 13 5,512 702 6,600 12,284 - - 518 24 7,351 1,416 8,428 16,321 - - 713 69 9,390 2,339 9,319 19,491 - P.295 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. NPL ratio by type of renegotiated loan The non 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, the non performing ratio for each of the portfolios of renegotiated loans is as follows: December 2018. NPL ratio renegotiated loan portfolio General governments Commercial Of which: Construction and developer Other consumer December 2017. NPL ratio renegotiated loan portfolio General governments Commercial Of which: Construction and developer Other consumer Ratio of Impaired loans - Past due 47% 64% 70% 53% Ratio of Impaired loans - Past due 19% 63% 79% 52% P.296 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) 1 General governments 2 Other financial institutions 3 Non-financial institutions and individual entrepreneurs 3.1 Construction and property development 3.2 Construction of civil works 3.3 Other purposes 3.3.1 Large companies 3.3.2 SMEs (**) and individual entrepreneurs 4 Rest of households and NPISHs (***) 4.1 Housing 4.2 Consumption 4.3 Other purposes 6 TOTAL MEMORANDUM: 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% 30,488 20,802 173,493 14,323 7,775 151,394 97,132 54,262 163,068 111,007 40,124 11,938 1,056 233 29,001 5,226 1,082 22,694 9,912 12,782 109,578 105,817 522 3,239 7,750 12,549 32,371 2,539 620 29,212 19,069 10,143 5,854 2,419 2,600 835 1,729 1,167 1,856 221 25,211 11,121 1,979 703 22,529 13,918 8,611 21,974 19,981 489 1,505 2,556 285 8,281 3,979 4,302 27,860 26,384 587 888 1,119 93 9,793 2,140 195 7,459 4,019 3,440 33,200 32,122 306 772 3,514 11,209 5,087 486 200 4,401 2,245 2,156 21,490 19,345 1,597 547 588 92 10,160 605 319 9,235 4,820 4,416 10,908 10,404 142 362 387,850 139,868 58,524 50,082 41,058 44,206 41,300 21,747 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. (**) Small and medium enterprises (***) Nonprofit institutions serving households. (****) Net of provisions P.297 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2017 (Millions of euros) 1 General governments 2 Other financial institutions 3 Non-financial institutions and individual entrepreneurs 3.1 Construction and property development 3.2 Construction of civil works 3.3 Other purposes 3.3.1 Large companies 3.3.2 SMEs (**) and individual entrepreneurs 4 Rest of households and NPISHs (***) 4.1 Housing 4.2 Consumption 4.3 Other purposes 6 TOTAL MEMORANDUM: 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% 32,294 18,669 172,338 14,599 7,733 150,006 93,604 56,402 165,024 114,709 40,705 9,609 998 319 39,722 10,664 1,404 27,654 10,513 17,142 114,558 111,604 670 2,284 7,167 12,910 24,793 1,066 521 23,206 16,868 6,338 8,395 128 4,784 3,483 388,325 155,597 53,266 1,540 314 11,697 1,518 449 9,729 2,769 6,960 19,762 18,251 1,058 452 33,312 179 277 5,878 876 358 4,644 1,252 3,392 22,807 22,222 256 330 475 106 5,183 1,049 289 3,845 1,023 2,823 25,595 25,029 192 374 532 11,349 9,167 1,313 162 7,692 3,631 4,061 22,122 21,154 316 652 5,440 1,183 32,591 6,974 667 24,950 18,706 6,244 32,667 25,076 3,632 3,959 29,142 31,359 43,170 71,882 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. (**) Small and medium enterprises (***) Nonprofit institutions serving households. (****) Net of provisions P.298 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2016 (Millions of euros) 1 General governments 2 Other financial institutions 3 Non-financial institutions and individual entrepreneurs 3.1 Construction and property development 3.2 Construction of civil works 3.3 Other purposes 3.3.1 Large companies 3.3.2 SMEs (**) and individual entrepreneurs 4 Rest of households and NPISHs (***) 4.1 Housing 4.2 Consumption 4.3 Other purposes 6 TOTAL MEMORANDUM: 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% Collateralized Credit Risk. Loan to value 34,820 17,181 183,871 19,283 8,884 155,704 107,550 48,154 178,781 127,606 44,504 6,671 4,722 800 47,105 12,888 1,920 32,297 16,041 16,257 129,590 124,427 3,181 1,982 3,700 8,168 380 650 715 464 22,663 17,000 13,122 1,736 478 20,449 16,349 4,100 5,257 477 3,732 1,048 3,074 508 13,417 7,311 6,106 21,906 18,802 2,535 569 4,173 547 8,402 5,149 3,253 24,764 23,120 1,278 366 39,065 414,654 182,216 39,789 39,936 1,266 319 11,667 3,843 469 7,356 4,777 2,579 34,434 32,713 1,230 491 47,687 2,740 6,846 3,320 690 14,445 13,533 2,217 379 1,316 494 11,850 11,722 7,160 4,689 34,254 32,148 1,322 784 7,993 3,729 19,489 18,122 547 820 58,286 37,032 Forbearance operations (****) 19,491 8,031 6,504 3,703 1,845 2,316 2,091 4,580 (*) The amounts included in this table are net of impairment losses. (**) Small and medium enterprises (***) Nonprofit institutions serving households. (****) Net of provisions. P.299 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. c) Information on the concentration of risk by activity and geographical areas. December 2018 (Millions of euros) Credit institutions General governments Central Administration Other Other financial institutions Non-financial institutions and individual entrepreneurs Construction and property development Construction of civil works Other purposes Large companies SMEs and individual entrepreneurs Other households and NPISHs Housing Consumer Other purposes TOTAL TOTAL(*) Spain European Union Other America Other 113,978 123,382 87,611 35,771 49,166 226,487 17,697 11,430 197,361 137,150 60,211 163,443 111,007 40,124 12,312 676,456 35,728 53,686 35,691 17,995 13,784 70,536 3,497 5,789 61,250 36,964 24,286 91,977 78,414 10,303 3,259 265,710 33,440 11,081 10,756 325 17,977 24,565 244 1,535 22,786 22,114 672 3,383 765 629 1,989 90,447 31,234 50,092 32,735 17,357 15,345 87,419 10,113 1,762 75,543 53,423 22,120 56,777 28,034 22,036 6,707 13,575 8,523 8,428 95 2,061 43,967 3,843 2,343 37,781 24,649 13,132 11,306 3,794 7,155 357 240,867 79,432 (*)The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses. P.300 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2017 (Millions of euros) Credit institutions General governments Central Administration Other Other financial institutions Non-financial institutions and individual entrepreneurs Construction and property development Construction of civil works Other purposes Large companies SMEs and individual entrepreneurs Other households and NPISHs Housing Consumer Other purposes TOTAL TOTAL(*) 70,141 121,863 83,673 38,190 48,000 228,227 18,619 12,348 197,260 134,454 62,807 165,667 114,710 40,705 10,251 633,899 Spain European Union Other America Other 10,606 55,391 35,597 19,794 19,175 78,507 4,623 6,936 66,948 43,286 23,662 93,774 81,815 8,711 3,248 34,623 11,940 11,625 316 14,283 20,485 339 1,302 18,843 17,470 1,373 3,609 2,720 649 241 13,490 44,191 26,211 17,980 12,469 80,777 8,834 2,267 69,676 48,016 21,660 53,615 24,815 22,759 6,041 257,453 84,940 204,542 11,422 10,341 10,240 101 2,074 48,458 4,822 1,843 41,793 25,681 16,112 14,669 5,361 8,587 721 86,964 (*)The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses. P.301 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2016 (Millions of euros) Credit institutions General governments Central Administration Other Other financial institutions Non-financial institutions and individual entrepreneurs Construction and property development Construction of civil works Other purposes Large companies SMEs and individual entrepreneurs Other households and NPISHs Housing Consumer Other purposes TOTAL TOTAL(*) Spain European Union Other America Other 84,381 134,261 92,155 42,105 47,029 249,322 23,141 14,185 211,996 158,356 53,640 179,051 127,607 44,504 6,939 694,044 12,198 61,495 39,080 22,415 16,942 69,833 5,572 6,180 58,080 35,514 22,566 96,345 85,763 7,230 3,352 40,552 14,865 14,550 315 14,881 26,335 371 2,493 23,471 22,074 1,397 3,796 3,025 642 129 17,498 47,072 27,758 19,314 12,631 98,797 11,988 3,803 83,005 64,940 18,065 62,836 32,775 27,398 2,663 14,133 10,829 10,768 61 2,576 54,357 5,209 1,709 47,439 35,828 11,611 16,073 6,044 9,234 795 256,813 100,428 238,834 97,968 (*)The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances, Debt securities, Equity instruments, Other equity securities, Derivatives and hedging derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses. P.302 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX XII Additional information on Risk 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, 2017 and 2016 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 losses or loan-loss provisions: Risk Exposure by Countries (Millions of euros) Spain Turkey Italy France Portugal Germany United Kingdom Ireland Greece Rest of Europe Subtotal Europe Mexico The United States Venezuela Rest of countries Subtotal Rest of Countries Sovereign Risk December 2018 December 2017 December 2016 52,970 7,998 9,249 122 529 362 51 - - 699 71,981 26,562 18,645 1 4,910 50,118 54,625 9,825 9,827 383 722 259 41 - - 662 76,343 25,114 14,059 137 5,809 45,119 60,434 10,478 12,206 518 586 521 17 - - 940 85,699 26,942 16,039 179 3,814 46,974 Total Exposure to Financial Instruments 122,099 121,462 132,674 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. 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 December 2017 by type of financial instrument and the country of residence of the counterparty, under EBA (European Banking Authority) requirements: P.303 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Exposure to Sovereign Risk by European Union Countries. December 2018 (Millions of euros) Spain Italy France Germany Portugal United Kingdom Greece Hungary Ireland Rest of European Union Total Exposure to Sovereign Counterparties (European Union) 5,237 1,726 591 310 265 - - - - 300 8,428 Debt securities Loans and advances Direct exposure Indirect exposure Derivatives Notional value Fair value + Fair value - 43,236 8,270 77 334 430 45 - - 548 31 1,264 57 (15) - - - - - - - - - 277 57 (57) - - - - - - - - - - - - - - - Notional value (3,224) (795) 150 182 67 - - - - (36) Fair value + Fair value - Total % 1,130 210 (1,117) 46,568 (298) 9,112 79% 15% 1 74 37 - - - - 3 (32) (87) (26) - - - - (3) 787 813 1,050 45 - - 548 295 1% 1% 2% 0% 0% 0% 1% 0% 52,971 1,541 113 (71) (3,656) 1,454 (1,563) 59,218 100% This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,883 million as of December 31, 2018) 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 Spain Italy France Germany Portugal United Kingdom Greece Hungary Ireland Rest of European Union Total Exposure to Sovereign Counterparties (European Union) Financial Assets Held- for-Trading 7,065 4,606 622 517 832 - - - - 38 13,681 - - - - - - - - - - - 8 - 1 - - - - 505 18,835 Available-for- Sale Financial Assets Held -to- maturity investment 14,029 4,292 5,754 2,349 Direct exposure Indirect exposure Derivatives Loans and receivables Notional value Fair value + Fair value - Notional value Fair value + Fair value - Total % 22,101 1,513 62 (15) 55 27 - 202 37 - - - 32 - - - 1,019 - - - - - - - - 1 - - - - - - - - (44) - - - - - 591 (57) 329 826 176 (2) - - - 31 1,082 648 15 26 87 - - - - 5 (773) (237) (19) (17) (53) - - - - 51,410 75.3% 11,657 17.1% 983 1.4% 1,352 2.0% 2,221 3.3% 35 0.1% - - - - - - (5) 607 0.9% - - - - - - - - 8,103 22,453 2,533 64 (59) 1,896 1,863 (1,104) 68,265 100% This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk 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. P.304 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Exposure to Sovereign Risk by European Union Countries. December 2016 (Millions of euros) Debt securities Derivatives (2) Direct exposure Indirect exposure Financial Assets Held- for-Trading Financial assets designated at fair value through profit or loss 927 1,973 250 82 54 - - - - 195 3,482 - - - - - - - - - - - Spain Italy France Germany Portugal United Kingdom Greece Hungary Ireland Rest of European Union Total Exposure to Sovereign Counterparties (European Union) Available- for-Sale Financial Assets Held -to- maturity investment 13,385 4,806 8,063 2,719 - - 1 - - - - 469 - - - - - - - - Loans and receivables Notional value Fair value + Fair value - Notional value Fair value + Fair value - Total % 24,835 1,786 88 (27) 60 28 - 285 16 - - - 36 - - - 1,150 - - - - - - - - - - - - - - - - - (215) - - - - - (744) (1,321) (13) (5) 10 (9) - - - 993 1,271 46 203 1 1 - - - (1,569) 47,737 81.4% (866) (63) (249) 8,641 14.7% 248 0.4% 30 0.1% (6) 1,280 2.2% - - - - 8 0.0% - - - - - 0.0% 30 13 (6) 736 1.3% 18,660 10,783 25,259 2,936 88 (242) (2,053) 2,527 (2,759) 58,680 100% This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of 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. P.305 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. 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 Direct exposure Indirect exposure Derivatives Spain Up to 1 Year 1 to 5 Years Over 5 Years Rest of European Union Up to 1 Year 1 to 5 Years Over 5 Years Total Exposure to European Union Sovereign Counterparties Notional value Fair value + Fair value - 5,237 2,821 761 1,654 3,192 1,155 250 1,787 8,428 43,236 13,381 7,904 21,950 9,735 2,328 1,184 6,224 1,264 383 640 242 277 220 57 - 57 1 42 13 57 0 57 - 52,971 1,541 113 (15) - (8) (7) (57) (5) - (52) (71) Notional value (3,224) (3,224) - - (431) (865) 10 423 Fair value + Fair value - 1,130 1,130 (1,117) (1,117) - - 324 297 16 12 - - (446) (355) (24) (67) Total % 46,568 13,375 9,340 23,853 12,651 2,776 1,548 8,327 79% 23% 16% 40% 21% 5% 3% 14% (3,656) 1,454 (1,563) 59,218 100% Maturities of Sovereign Risks European Union. December 2017 (Millions of euros) Debt securities Financial Assets Held- for-Trading Available-for- Sale Financial Assets Held -to- maturity investment Loans and receivables Direct exposure Indirect exposure Derivatives Notional value Fair value + Fair value - Notional value Fair value + Fair value - Total % Spain Up to 1 Year 1 to 5 Years Over 5 Years Rest of European Union Up to 1 Year 1 to 5 Years Over 5 Years Total Exposure to European Union Sovereign Counterparties 7,065 1,675 2,196 3,195 6,616 2,212 2,932 1,473 14,029 3,363 1,335 9,332 4,806 1,663 192 2,951 5,754 2,900 106 2,747 2,349 1,895 - 454 22,101 1,513 7,852 7,978 6,271 352 54 162 137 69 1,131 314 1,019 466 3 550 62 1 44 17 1 1 - - 13,681 18,835 8,103 22,453 2,533 64 (15) - (1) (14) (44) (6) - (38) (59) 591 591 - - 1,305 744 243 318 1,082 1,082 - - 781 756 17 8 (773) (773) - - (331) (252) (21) (58) 51,410 12,312 16,883 22,215 16,856 3,614 7,313 5,928 75% 25% 19% 32% 25% 11% 5% 8% 1,896 1,863 (1,104) 68,265 100% P.306 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Maturities of Sovereign Risks European Union. December 2016 (Millions of euros) Debt securities Financial Assets Held-for- Trading Available-for- Sale Financial Assets Held -to- maturity investment Loans and receivables Notional value Fair value + Fair value - Direct exposure Indirect exposure Derivatives Spain Up to 1 Year 1 to 5 Years Over 5 Years Rest of European Union Up to 1 Year 1 to 5 Years Over 5 Years Total Exposure to European Union Sovereign Counterparties 927 913 1,272 (1,259) 2,554 (395) 1,535 1,414 13,385 889 3,116 9,380 5,275 38 2,050 3,186 8,063 1,989 3,319 2,755 2,719 - 1,958 761 24,835 1,786 9,087 7,059 4,595 424 2 247 175 - 1,209 577 1,150 - 381 770 88 - 32 56 - - - - Notional value (744) (736) (3) (6) (27) - (1) (27) (215) (1,309) - (1,721) (12) (203) 194 218 Fair value + Fair value - Total % 993 993 - - 1,534 1,507 19 8 (1,569) 47,737 81% (1,564) 11,571 20% - (4) 16,004 27% 16,068 27% (1,191) 10,943 19% (1,054) (1,623) -3% (50) (86) 6,322 11% 6,243 11% 3,482 18,660 10,783 25,259 2,936 88 (242) (2,053) 2,527 (2,759) 58,680 100% P.307 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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, 2017 and 2016 is shown below: 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 Financing to construction and real estate development (including land) (Business in Spain) Of which: Impaired assets Memorandum item: Write-offs Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) Total consolidated assets (total business) Impairment and provisions for normal exposures 3,183 875 2,619 183,196 676,689 4,938 941 440 (537) (463) December 2017. 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 Financing to construction and real estate development (including land) (Business in Spain) Of which: Impaired assets Memorandum item: Write-offs Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) Total consolidated assets (total business) Impairment and provisions for normal exposures 5,224 2,660 2,289 174,014 690,059 (5,843) 2,132 1,529 (1,500) (1,461) P.308 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. December 2016. 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 Financing to construction and real estate development (including land) (Business in Spain) Of which: Impaired assets Memorandum item: Write-offs Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) Total consolidated assets (total business) Impairment and provisions for normal exposures 7,930 5,095 2,061 159,492 731,856 (5,830) 3,449 2,680 (2,944) (2,888) P.309 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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) Without secured loan With secured loan Terminated buildings Homes Other Buildings under construction Homes Other Land Urbanized land Rest of land Total 2018 324 2,859 1,861 1,382 479 432 408 24 566 364 202 3,183 2017 552 4,672 2,904 2,027 877 462 439 23 1,306 704 602 5,224 2016 801 7,129 3,875 2,954 921 760 633 127 2,494 1,196 1,298 7,930 As of December 31, 2018, 2017 and 2016, 58.5%, 55.6%, and 48.9% of loans to developers were guaranteed with buildings (74.3%, 69.8% and 76.2%, are homes), and only 17.8%, 25.0% and 31.5% by land, of which 64.3%, 53.9% and 48.0% % are in urban locations, respectively. The table below provides the breakdown of the financial guarantees given as of December 31, 2018, 2017 and 2016: Financial guarantees given (Millions of euros) Houses purchase loans Without mortgage December 2018 December 2017 December 2016 48 24 64 12 62 18 P.310 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. The information on the retail mortgage portfolio risk (housing mortgage) as of December 31, 2018, 2017 and 2016 is as follows: December 2018. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros) Houses purchase loans Without mortgage With mortgage Gross amount Of which: impaired loans 80,159 1,611 78,548 3,852 30 3,822 December 2017. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros) Houses purchase loans Without mortgage With mortgage Gross amount Of which: impaired loans 83,505 1,578 81,927 4,821 51 4,770 December 2016. Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase. (Millions of euros) Houses purchase loans Without mortgage With mortgage Gross amount Of which: impaired loans 87,874 1,935 85,939 4,938 93 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 of which: Impaired loans Gross amount 2017 of which: Impaired loans Gross amount 2016 of which: Impaired loans 14,491 204 14,485 293 13,780 306 18,822 323 18,197 444 18,223 447 21,657 507 20,778 715 20,705 747 13,070 610 14,240 897 15,967 962 10,508 2,178 14,227 2,421 17,264 2,383 78,548 3,822 81,927 4,770 85,939 4,845 Outstanding home mortgage loans as of December 31, 2018, 2017 and 2016 had an average LTV of 49%, 51%, and 47% 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: P.311 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros) December 2018 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 Terminated buildings Homes Other Buildings under construction Homes Other Land Urbanized land Rest of land Real estate assets from mortgage financing for households for the purchase of a home Rest of foreclosed real estate assets Equity instruments, investments and financing to non-consolidated companies holding said assets Total 991 588 403 209 194 15 965 892 73 1,797 348 1,345 5,655 445 245 200 131 117 14 676 633 43 932 192 828 274 144 130 96 85 11 458 421 37 331 40 913 546 343 203 78 77 1 289 259 30 865 156 234 2,610 234 1,433 1,111 3,045 Additionally, in December 18, 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) Real estate assets from loans to the construction and real estate development sectors in Spain. Terminated buildings Homes Other Buildings under construction Homes Other Land Urbanized land Rest of land Real estate assets from mortgage financing for households for the purchase of a home Rest of foreclosed real estate assets Equity instruments, investments and financing to non-consolidated companies holding said assets Total December 2017 Gross Value Provisions Of which: Valuation adjustments on impaired assets, from the time of foreclosure Carrying Amount 6,429 2,191 1,368 823 541 521 20 3,697 1,932 1,765 3,592 1,665 1,135 12,821 4,350 1,184 742 442 359 347 12 2,807 1,458 1,349 2,104 905 325 7,684 2,542 606 366 240 192 188 4 1,744 1,031 713 953 268 273 4,036 2,079 1,007 626 381 182 174 8 890 474 416 1,488 760 810 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. P.312 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Information about Assets Received in Payment of Debts (Business in Spain) (Millions of euros) Real estate assets from loans to the construction and real estate development sectors in Spain. Finished buildings Homes Other Buildings under construction Homes Other Land Urbanized land Rest of land Real estate assets from mortgage financing for households for the purchase of a home Rest of foreclosed real estate assets Foreclosed equity instruments Total December 2016 Gross Value Provisions Of which: Valuation adjustments on impaired assets, from the time of foreclosure Carrying Amount 8,017 2,602 1,586 1,016 665 642 23 4,750 3,240 1,510 4,332 1,856 1,240 15,445 5,290 1,346 801 545 429 414 15 3,515 2,382 1,133 2,588 1,006 549 9,433 2,790 688 408 280 203 195 8 1,899 1,364 535 1,069 225 451 4,535 2,727 1,256 785 471 236 228 8 1,235 858 377 1,744 850 691 6,012 As of December 31, 2018, 2017 and 2016, 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 and €8,017 million, respectively, with an average coverage ratio of 57.8%, 67.7% and 66.0%, respectively. The gross book value of real-estate assets from mortgage lending to households for home purchase as of December 31, 2018, 2017 and 2016, amounted to €1,797, €3,592 and €4,332 million, respectively, with an average coverage ratio of 51.9%, 58.6% and 59.7%. As of December 31, 2018, 2017 and 2016, 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 and €14,205 million, respectively. The coverage ratio was 55.1%, 63.0% and 62.5%, respectively. P.313 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. c) Concentration of risk by geography Below is a breakdown of the balances of financial instruments registered in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. It does not take into account impairment losses or loan-loss provisions: Risks by Geographical Areas. December 2018 (millions of euros) Derivatives Equity instruments (*) Debt securities Central banks General governments Credit institutions Other financial corporations Non-financial corporations Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total Risk in Financial Assets Loan commitments given Financial guarantees given Other Commitments given Off-balance sheet exposures Spain Europe, Excluding Spain Mexico USA Turkey South America Other Total 3,979 3,228 43,777 - 36,553 1,130 5,769 325 177,077 294 16,671 5,422 4,616 51,942 98,131 228,061 32,582 3,242 15,995 51,819 16,055 3,669 14,908 - 10,675 1,821 1,048 1,364 43,034 - 329 13,600 10,893 14,317 3,783 77,666 21,983 1,708 9,229 32,920 1,550 2,459 23,134 - 20,891 573 227 1,443 55,248 - 5,727 1,476 1,303 22,426 24,316 82,392 14,503 1,528 532 16,563 7,057 1,139 16,991 - 13,276 74 2,595 1,046 62,193 - 5,369 696 2,255 32,480 21,393 87,381 32,136 796 2,118 35,050 161 29 8,048 - 7,887 155 5 1 45,285 3,688 99 956 766 26,813 12,963 53,523 7,914 6,900 2,230 17,043 1,150 212 5,274 1,982 2,431 297 432 132 40,007 342 1,923 984 637 18,518 17,602 46,644 8,590 989 2,782 12,360 583 207 1,312 71 164 463 114 500 7,089 1,674 453 639 304 3,852 168 9,191 1,252 1,291 2,213 4,756 30,536 10,944 113,445 2,052 91,877 4,514 10,190 4,812 429,933 6,110 30,572 23,774 20,773 170,349 178,355 584,858 118,959 16,454 35,098 170,511 Total Risks in Financial Instruments 279,880 110,586 98,955 122,430 70,567 59,004 13,947 755,369 (*) Equity instruments are shown net of valuation adjustment. P.314 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Risks by Geographical Areas. December 2017 (Millions of euros) Spain Europe, Excluding Spain Mexico USA Turkey South America Other Total Derivatives Equity instruments (*) Debt securities Central banks General governments Credit institutions Other financial corporations Non-financial corporations Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total Risk in Financial Assets Loan commitments given Financial guarantees given Other Commitments given Off-balance sheet exposures 6,336 3,539 44,773 49 36,658 1,364 6,492 259 185,597 - 18,116 5,564 7,769 54,369 99,780 240,245 31,100 4,635 25,279 61,014 20,506 4,888 15,582 - 11,475 2,095 994 1,018 41,426 626 352 15,493 6,231 14,615 4,110 82,401 16,203 1,427 9,854 27,484 1,847 2,050 21,594 - 19,323 289 337 1,645 50,352 - 5,868 1,889 588 19,737 22,269 75,842 1,691 82 1,582 3,356 4,573 991 13,280 2,734 8,894 98 3,026 1,262 54,315 - 5,165 789 1,732 29,396 17,233 73,159 29,539 717 1,879 32,134 113 36 10,601 - 9,668 884 7 42 56,062 5,299 152 1,073 1,297 31,691 16,550 66,812 2,944 7,993 1,591 12,527 977 333 5,861 2,685 2,246 387 315 228 42,334 1,375 2,354 1,145 664 19,023 17,773 49,504 11,664 1,174 3,750 16,588 921 71 1,450 - 221 752 194 234 4,585 - 398 345 270 3,345 227 7,027 1,126 519 1,804 3,450 35,273 11,908 113,141 5,468 88,485 5,869 11,365 4,688 434,670 7,300 32,405 26,297 18,551 172,175 177,942 594,990 94,268 16,546 45,738 156,552 Total Risks in Financial Instruments 301,259 109,885 79,198 105,293 79,339 66,092 10,477 751,542 (*) Equity instruments are shown net of valuation adjustment. P.315 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. Risks by Geographical Areas. December 2016 (Millions of euros) Derivatives Equity instruments (*) Debt securities Central banks General governments Credit institutions Other financial corporations Non-financial corporations Loans and advances Central banks General governments Credit institutions Other financial corporations Non-financial corporations Households Total Risk in Financial Assets Loan commitments given Financial guarantees given Other Commitments given Off-balance sheet exposures Spain Europe, Excluding Spain Mexico USA Turkey South America Other Total 7,143 4,641 49,355 - 40,172 1,781 6,959 443 187,717 - 20,741 5,225 5,339 54,112 102,299 248,856 31,477 1,853 16,610 49,940 26,176 2,303 20,325 - 14,282 2,465 1,181 2,397 45,075 158 424 19,154 6,213 14,818 4,308 93,880 19,219 3,504 14,154 36,878 2,719 2,383 22,380 - 19,771 257 352 2,000 52,230 21 7,262 1,967 1,171 19,256 22,552 79,712 13,060 121 1,364 14,545 4,045 831 18,043 - 11,446 112 4,142 2,343 61,739 - 4,593 1,351 1,648 34,330 19,818 84,657 34,449 819 2,911 38,179 175 57 11,695 - 10,258 1,331 15 90 61,090 5,722 217 1,194 1,620 34,471 17,866 73,016 2,912 9,184 2,002 14,098 1,359 316 7,262 2,237 2,257 1,459 347 961 58,020 2,994 1,380 1,515 886 26,024 25,221 66,956 5,161 2,072 3,779 11,012 1,339 706 1,923 16 240 869 379 418 5,067 - 256 1,011 214 3,371 216 9,036 976 714 1,771 3,461 42,955 11,236 130,983 2,253 98,426 8,275 13,376 8,653 470,938 8,894 34,873 31,416 17,091 186,384 192,281 656,112 107,254 18,267 42,592 168,113 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. P.316 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish- language version prevails. The breakdown of loans and advances in the heading of Loans and receivables, impaired by geographical area as of December 31, 2018, 2017 and 2016 is as follows: Impaired Financial Assets by geographic area (Millions of euros) December 2018 December 2017 December 2016 Spain Rest of Europe Mexico South America The United States Turkey Rest of the world IMPAIRED RISKS 10,025 225 1,138 1,715 733 2,520 2 16,359 13,318 549 1,124 1,468 631 2,311 - 19,401 16,812 704 1,152 1,589 975 1,693 - 22,925 P.317 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. APPENDIX XIII. Information in accordance with Article 89 of Directive 2013/36/EU of the European Parliament and its application to Spanish Law through Law 10/2014 December 31, 2018 (Millions of euros) Country Mexico Spain Turkey United States Colombia Argentina Peru Venezuela Chile Romania Uruguay Paraguay Bolivia Netherlands Switzerland Finland Ireland Brasil Curaçao Portugal United Kingdom Hong Kong France Italy Germany Belgium China South Korea Singapore Japan Taiwan Luxembourg Cyprus Malta Poland Total CIT payments cash basis CIT expense consol PBT consol Turnover Nº Employees (*) Activity Main Entity 903 534 422 165 85 32 146 - 365 1 15 9 2 7 9 - - - - 6 3 - 14 8 17 - - - 1 - - - 3 6 - 902 383 269 188 117 116 163 20 43 4 6 3 2 5 1 - 2 - - 27 2 1 12 8 1 - - - 1 - - - 7 10 - 3,241 1,295 1,225 977 355 66 584 2 205 38 37 35 9 20 4 (12) 10 - 6 59 21 14 36 29 16 2 (1) - 7 - (2) - 30 136 2 7,070 5,649 3,511 2,991 1,013 661 1,140 102 502 118 162 87 25 84 36 - 8 2 8 109 65 44 52 55 44 7 2 - 10 1 2 - 33 153 1 36,118 29,375 20,305 10,682 6,633 5,740 6,262 3,371 923 1,313 578 430 396 256 122 83 4 6 13 468 126 89 72 52 41 24 22 - 8 3 9 - 107 13 - Finance, banking and insurance services and real estate Finance, banking and insurance services and real estate Finance, banking and insurance services Finance and banking services Finance, banking and insurance services Finance, banking and insurance services Finance and banking services Finance, banking and insurance services Financial services BBVA Bancomer SA BBVA SA Turkiye Garanti Bankasi Compass Bank, Inc. BBVA Colombia SA BBVA Banco Frances SA BBVA Banco Continental SA BBVA Banco Provincial SA Forum Servicios Financieros, S.A. Finance and banking services Garanti Bank SA Finance and banking services BBVA Uruguay SA Finance and banking services BBVA Paraguay SA Pensiones BBVA Previsión AFP SA Finance and banking services Garantibank International NV Finance and banking services BBVA -Switzerland SA Financial services Finance, banking and insurance services Financial services Holvi Payment Service OY BBVA Ireland PCL BBVA Brasil Banco de Investimento, S.A. Finance and banking services Banco Provincial Overseas NV Finance and banking services BBVA - Sucursal de Portugal Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Financial services Real estate BBVA -Sucursal de Londres BBVA -Sucursal de Hong-Kong BBVA -Sucursal de Paris BBVA -Sucursal de Roma BBVA -Sucursal de Frankfurt BBVA -Sucursal de Bruselas BBVA -Sucursal de Shanghai BBVA -Sucursal de Seúl BBVA -Sucursal de Singapur BBVA -Sucursal de Tokio BBVA -Sucursal de Taipei BBVA Luxinvest, S.A. Garanti -Sucursal de Nicosia Garanti -Sucursal de la Valeta Geskat Polska SP. ZOO 2,753 2,295 8,446 23,747 123,644 (*) Full time employees. The 15 employees of representative offices are not included in the total number. The results of this breakdown of the branches are integrated in the financial statements of the parent companies on which they depend. As of December 31, 2018, the return of the Group’s assets calculated by dividing the “Profit” between “Total Assets” is 0.91%. In 2018 (*), BBVA group has not received public aid for the financial sector which has the aim of promoting the carrying out of banking activities and which is significant. This statement is made for the purposes of article 89 of Directive 2013/36/UE of the European Parliament and of the Council of June 26 (on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms) and its transposition to Spanish legislation by means of Law 10/2014 on Monitoring, Supervision and Solvency of Credit Institutions of June 26. (*) BBVA disclosed by means of public relevant events: (i) on 07/27/2012 the closing of the acquisition of UNNIM Banc, S.A. and (ii) on 04/24/2015 the closing of the acquisition of Catalunya Banc, S.A. P.318 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Glossary Additional Tier 1 Capital Adjusted acquisition cost Amortized cost Associates Available-for-sale financial assets Baseline macroeconomic scenarios Basic earnings per share Basis risk Business combination Business Model Cash flow hedges Commissions Includes: Preferred stock and convertible perpetual securities and deductions. The acquisition cost of the securities less accumulated amortizations, plus interest accrued, but not net of any other valuation adjustments. 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. 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 (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. losses, IFRS 9 requires that an entity must evaluate a range of possible outcomes when estimating provisions and measuring expected credit through macroeconomic scenarios. The baseline macroeconomic scenario presents the situation of the particular economic cycle. 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). Risk arising from hedging exposure to one interest rate with exposure to a rate that reprices under slightly different conditions. A business combination is a transaction, or any other event, through which a single entity obtains the control of one or more businesses. 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. 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. 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 in this connection are: liabilities · Fees and commissions relating 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. linked to financial assets and income and expense items P.319 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. 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 equivalents. · Operating activities: The typical activities of credit institutions and other activities that 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. 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. investment classified financing outflows Inflows cannot cash and and be as or of included 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 in the Group’s total consolidated equity net of tax effect, which has been recognized as deferred tax assets or liabilities, as appropriate. 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 ” of the consolidated total equity and the consolidated profit for the year comprise the “Total recognized income/expenses of the year”. 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. 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. Consolidated statements of cash flows Consolidated statements of changes in equity Consolidated statements of recognized income and expenses Consolidation method Contingencies P.320 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Contingent commitments Control Correlation risk Credit Valuation Adjustment (CVA) Current service cost Current tax assets Current tax liabilities Debit Valuation Adjustment (DVA) Debt certificates 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. 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 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. An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties. Current service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the current period. Taxes recoverable over the next twelve months. Corporate income tax payable on taxable profit for the year and other taxes payable in the next twelve months. An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s own credit risk. 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. 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. P.321 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Defined contribution plans Deposits from central banks Deposits from credit institutions Deposits from customers Derivatives Derivatives - Hedging derivatives Diluted earnings per share Dividends and retributions Early retirements Economic capital Effective interest rate (EIR) Employee expenses Equity Equity instruments 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. Deposits of all classes, including loans and money market operations, received from the Bank of Spain and other central banks. Deposits of all classes, including loans and money market operations received, from credit entities. 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. The fair value in favor (assets) or again (liabilities) of the entity of derivatives not designated as accounting hedges. 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. 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.). Dividend income collected announced during the year, corresponding to profits generated by investees after the acquisition of the stake. 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. Methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities. 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. 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. 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. An equity instrument that evidences a residual interest in the assets of an entity, that is after deducting all of its liabilities. P.322 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Equity instruments issued other than capital Equity Method Exchange/translation differences Includes equity instruments that are financial instruments other than “Capital” and “Equity component of compound financial instruments”. 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. 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 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: Expected Credit Loss (ECL) 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. Exposure at default Fair value Fair value hedges 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). EAD is the amount of risk exposure at the date of default by the counterparty. 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. 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. Financial Assets at fair value through other comprehensive income Financial guarantees Financial guarantees given 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. 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. Transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts. P.323 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Financial instrument Financial liabilities at amortized cost Goodwill Hedges of net investments in foreign operations Held for trading (assets and liabilities) Held-to-maturity investments Impaired financial assets Income from equity instruments Insurance contracts linked to pensions Inventories Investment properties Joint arrangement 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 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. 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. Foreign currency hedge of a net investment in a foreign operation. 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 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. 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. 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. The fair value of insurance contracts written to cover pension commitments. 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 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. An arrangement of which two or more parties have joint control. P.324 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Joint control Joint operation Joint venture Leases Liabilities included in disposal groups classified as held for sale Liabilities under insurance contracts Loans and advances to customers Loans and receivables Loss given default (LGD) 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. 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. 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. 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. 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. 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. Loans and receivables, irrespective of their type, granted to third parties that are not credit entities. 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 (amounts of cash available and pending maturity by customers as a loan or deposits lent 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. 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. P.325 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Mortgage-covered bonds Non performing financial guarantees given Non Performing Loans (NPL) Non-controlling interests Non-current assets and disposal groups held for sale Non-monetary assets Option risk Other financial assets/liabilities at fair value through profit or loss Financial asset or security created from mortgage loans and backed by the guarantee of the mortgage loan portfolio of the entity. 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. 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. 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. 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. 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. Risks arising from options, including embedded options. 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. P.326 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. This heading is broken down as follows: Other Reserves 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 Own/treasury shares The amount of own equity instruments held by the entity. Includes the amount of compensation plans to employees long term. Past service cost Post-employment benefits Probability of default (PD) Property, plant and equipment/tangible assets Provisions Provisions for contingent liabilities and commitments Provisions for pensions and similar obligation Provisions or (-) reversal of provisions Refinanced Operation Refinancing Operation Renegotiated Operation 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. Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service. 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. Buildings, land, fixtures, vehicles, computer equipment and other facilities owned by the entity or acquired under finance leases. 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. 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. Constitutes all provisions recognized to cover retirement benefits, including commitments assumed vis-à-vis beneficiaries of early retirement and analogous schemes. 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. 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. 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. 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. P.327 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Repricing risk Restructured Operation Retained earnings Securitization fund Share premium Shareholders' funds Risks related to the timing mismatch in the maturity and repricing of assets and liabilities and off-balance sheet short and long-term positions. 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. Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution. 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. The amount paid in by owners for issued equity at a premium to the shares' nominal value. 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. P.328 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Significant influence Solely Payments of Principle and Interest (SPPI) Stages Structured credit products Structured Entities 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 of essential technical information. 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). 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. Special financial instrument backed by other instruments building a subordination structure. 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 y 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). P.329 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 and 56). In the event of a discrepancy, the Spanish-language version prevails. Subordinated liabilities Subsidiaries Tax liabilities Territorial bonds Tier 1 Capital Financing received, regardless of its instrumentation, which ranks after the common creditors in the event of a liquidation. 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. All tax related liabilities except for provisions for taxes. Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity. 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. 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: Value at Risk (VaR) 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. Risks arising from changes in the slope and the shape of the yield curve. Yield curve risk Management Report 2018 Contents About BBVA Group information Relevant events Results Balance sheet and business activity Solvency Risk management The BBVA share Business areas Banking activity in Spain Non Core Real Estate The United States Mexico Turkey South America Rest of Eurasia Corporate Center Other Non-financial Information Report Strategy and business model Customer relationship Staff information Ethical behaviour Sustainable Finance Contribution to society Other Non-financial risks GRI indicators Other information Alternative Performance Measures (APMs) Annual Corporate Governance Report 2  3  4 7 11 13 15 19 22  25 28 31 34 37 40 44 46 48  54 63 71 84 93 100 108 109 115  118  125  2 About BBVA BBVA is a customer-centric global financial services group founded in 1857. Its Purpose is to bring the age of opportunity to everyone. This motto reflects the Entity’s role as enabler, offering its customers the best banking solutions, helping them make the best financial decisions and making a true difference in their lives. We live in the era of opportunities, where technology offers universal access to education and offers many more people than ever before the possibility of embarking on projects and chasing their dreams. BBVA helps people make their dreams come true. The Group operates in more than 30 countries. The Group has a solid position in Spain, is the largest financial institution in Mexico and has leading franchises in South America and the Sunbelt Region of the United States. It is also Turkish bank Garanti’s leading shareholder. Its diversified business is based on high-growth markets and it relies on technology as a key sustainable competitive advantage. BBVA has a responsible banking model based on seeking out a return adjusted to principles, legal compliance, best practices and the creation of long-term value for all its stakeholders. This Management Report includes information on the Group's performance in 2018: the financial performance in the Group's Information chapter and the different countries and business areas in the corresponding Business Areas; and the rest of the activity more related to the stakeholders, in the chapters of the Other Non-financial Information Report. Group information BBVA Group highlights BBVA Group highlights (Consolidated figures) Balance sheet (millions of euros) Total assets Loans and advances to customers (gross) Deposits from customers Other customer funds Total customer funds Total equity Income statement (millions of euros) Net interest income Gross income Operating income Profit/(loss) before tax Net attributable profit The BBVA share and share performance ratios Number of shares (million) Share price (euros) Earning per share (euros) (1) Book value per share (euros) Tangible book value per share (euros) Market capitalization (millions of euros) Yield (dividend/price; %) Significant ratios (%) ROE (net attributable profit/average shareholders' funds +/- average accumulated other comprehensive income) (2) ROTE (net attributable profit/average shareholders' funds excluding average intangible assets +/- average accumulated other comprehensive income) (2) ROA (Profit or loss for the year/average total assets) RORWA (Profit or loss for the year/average risk-weighted assets - RWA) Efficiency ratio Cost of risk NPL ratio NPL coverage ratio Capital adequacy ratios (%) CET1 fully-loaded CET1 phased-in (3) Tier 1 phased-in (3) Total ratio phased-in (3) Other information Number of shareholders Number of employees Number of branches Number of ATMs General note: data as of 31-12-17 and 31-12-16 are presented for comparison purposes only. (1) Adjusted by additional Tier 1 instrument remuneration. 3 ∆ % 31-12-17 31-12-16 IAS 39 (1.9) (3.5) (0.1) (5.0) (1.4) (0.8) (0.9) (6.0) (5.7) 9.4 51.3 - (34.8) 55.9 2.2 2.9 (34.8) 690,059 400,369 376,379 134,906 511,285 53,323 17,758 25,270 12,770 6,931 3,519 6,668 7.11 0.48 6.96 5.69 47,422 4.2 7.4 9.1 0.68 1.27 49.5 0.89 4.6 65 11.1 11.7 13.0 15.5 731,856 430,474 401,465 132,092 533,557 55,428 17,059 24,653 11,862 6,392 3,475 6,567 6.41 0.49 7.22 5.73 42,118 5.8 7.3 9.2 0.64 1.19 51.9 0.85 5.0 70 10.9 12.2 12.9 15.1 IFRS 9 31-12-18 676,689 386,225 375,970 128,103 504,073 52,874 17,591 23,747 12,045 7,580 5,324 6,668 4.64 0.76 7.12 5.86 30,909 5.4 11.6 14.1 0.91 1.74 49.3 1.01 3.9 73 11.3 11.6 13.2 15.7 902,708 125,627 7,963 32,029 1.3 (4.7) (3.7) 1.1 891,453 131,856 8,271 31,688 935,284 134,792 8,660 31,120 (2) The ROE and ROTE ratios include, in the denominator, the Group’s average shareholders’ funds and take into account the item called “Accumulated other comprehensive income”, which forms part of the equity. Excluding this item, the ROE would stand at 10.1%, in 2018; 6.7%, in 2017; and 6.9%, in 2016; and the ROTE at 12.0%, 8.0% and 8.6%, respectively. (3) As of December,31 2018 phased-in ratios include the temporary treatment on the impact of IFRS 9, calculated in accordance with Article 473 bis of Capital Requirements Regulation (CRR). The capital ratios are calculated under CRD IV from Basel III regulation, in which a phase-in of 80% is applied for 2017 and a phase-in of 60% for 2016. 4 Relevant events Results  Generalized growth in the more recurring revenue items for almost all business areas.  Containment trend in operating expenses, whose performance is affected by exchange rates trends.  Lower amount of impairment on financial assets not measured at fair value through profit or loss (hereinafter, "impairment on financial assets") affected by the negative impact of the recognition in the fourth quarter of 2017 of impairment losses, amounting €1,123m from BBVA’s stake in Telefónica, S.A.  The financial statements of the Group for 2018 include, on one hand, the negative impact derived from the accounting for hyperinflation in Argentina (-€266m) in the net attributable profit, and on the other hand, the positive impact on equity of €129m.  The result of corporate operations amounted to €633m and includes the capital gains (net of taxes) arising from the sale of BBVA's equity stake in BBVA Chile.  The net attributable profit was €5,324m, 51.3% higher than in 2017.  Net attributable profit excluding results from corporate operations stood at €4,691m, up 33.3% higher than the result reached in 2017. Net attributable profit (Millions of Euros) Net attributable profit breakdown (1) (Percentage. 2018) (1) Excludes the Corporate Center. (2) Includes the areas Banking activity in Spain and Non Core Real Estate. Balance sheet and business activity  Lower volume of loans and advances to customers (gross); however, by business areas, in the United States, Mexico, South America (excluding BBVA Chile) and Rest of Eurasia volumes increased.  Non-performing loans continue to reduce in 2018.  Within off-balance-sheet funds, mutual funds continue to perform positively. Solvency  The capital position is above regulatory requirements.  BBVA has once again excelled in EU-wide bank stress tests thanks to its resilience in the face of potential economic shocks. According to the exercise results, under the adverse scenario, BBVA is the second bank among its European peers with lower negative impact in CET1 fully-loaded capital ratio and one of the few banks with the ability to generate an accumulated profit in the three-year period under analysis (2018, 2019, and 2020), under this scenario. Capital and leverage ratios (Percentage as of 31-12-18) Risk management  Solid indicators of the main credit-risk metrics: as of 31-December-2018, the NPL ratio closed at 3.9%, the NPL coverage ratio at 73% and the cumulative cost of risk at 1.01%. NPL and NPL coverage ratios (Percentage) 5 Transformation  The Group's digital and mobile customer base and digital sales continue to increase in all the geographic areas where BBVA operates with a positive impact in efficiency. Digital and mobile customers (Millions) Appointments  BBVA’s Board of Directors, in its meeting held on December 20, 2018, approved the succession plans for the Group Executive Chairman and for the Chief Executive Officer and appointed Carlos Torres Vila as Executive Chairman of BBVA, replacing Francisco González Rodríguez and Onur Genç as member of the Board of Directors and as Chief Executive Officer of BBVA. The Board of Directors also approved organisational changes, which involve changes at the senior management level of BBVA Group. On December, 21st, BBVA received the required administrative authorisations to give full effect to the resolutions approved. Other matters of interest   On December, 26th, BBVA reached an agreement with Voyager Investing UK Limited Partnership, an entity managed by Canada Pension Plan Investment Board (“CPPIB”) for the transfer of a credit portfolio mainly composed by non-performing and defaulted mortgage loans. The closing of the Transaction will be completed as soon as the relevant conditions are fulfilled, which is expected to occur within the second quarter of 2019. In addition, it is expected that the impact in the Group’s attributable profit, which is currently expected to be positive by €150m, net of taxes and other adjustments, and the impact in the Common Equity Tier 1 (fully- loaded), which is expected to be slightly positive. Impact of the initial implementation of IFRS 9: The figures corresponding to 2018 are prepared under International Financial Reporting Standard 9 (IFRS 9), which entered into force on January 1, 2018. This new accounting standard did not require the restatement of comparative information from prior periods, so the comparative figures shown for the year 2017 have been prepared in accordance with the IAS 39 (International Accounting Standard 39) regulation applicable at that time. The impacts derived from the first application of IFRS 9, as of January 1, 2018, were registered with a charge to reserves of approximately €900m (net of fiscal effect) mainly due to the allocation of provisions based on expected losses, compared to the model of losses incurred under the previous IAS 39. In capital, the impact derived from the first application of IFRS 9 has been a reduction of 31 basis points with respect to the fully-loaded CET1 ratio of December 2017. 6  IFRS 16 came into effect on January 1, 2019, a standard on leases introduces a single lessee accounting model and will require lessees to recognize assets and liabilities of all lease contracts. The main impact in the Group is the recognition of the right-of-use assets and lease liabilities in an approximate amount of €3,600m mainly coming from the Group’s activity in Spain and lease of premises of its branch network. The estimated impact in terms of capital for the Group amounts to approximately -12 basis points in terms of CET1.  Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA, S.A.”) stand-alone financial statements: BBVA has estimated that, mainly due to the depreciation of the Turkish lira, there is an impairment of its participation in Garanti Bank that only affects the stand-alone financial statements of BBVA, S.A. For this reason, a negative adjustment for a net amount of €1,517m has been registered in the income statement of BBVA, S.A. for the year 2018. Total equity for BBVA, S.A. as of December 31, 2018 has decreased by this same amount. The impact on the fully- loaded CET1 capital ratio of BBVA, S.A. is approximately -10 basis points. It is important to note that the recognition of this accounting impact in the stand-alone financial statements of BBVA, S.A. does not generate any impact on the Consolidated Group (neither on the attributed profit, total equity or capital ratios), it does not generate any additional cash outflow and will not affect the proposal of a dividend distribution to shareholders. 7 Results BBVA generated a net attributable profit of €5,324m in 2018, which represents a year-on-year increase of 51.3% (+78.2% at constant exchange rates) that includes the results from corporate operations originated by the capital gains (net of taxes) from the sale of BBVA Chile. Moreover, at constant exchange rates, it is worth mentioning the good performance of recurring revenue, lower loan-loss impairments (affected by the negative impact of the recognition in the fourth quarter of 2017 of impairment losses, amounting €1,123m from BBVA stake in Telefónica, S.A.) and provisions, which offsets the lower contribution from net trading income (NTI) compared to the same period the previous year. Consolidated income statement (Millions of euros) Net interest income Net fees and commissions Net trading income Dividend income Share of profit or loss of entities accounted for using the equity method Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions Other gains (losses) Profit/(loss) before tax Income tax Profit/(loss) after tax from ongoing operations Results from corporate operations (1) Profit/(loss) for the year Non-controlling interests Net attributable profit Net attributable profit excluding results from corporate operations Earning per share (euros) (2) (1) Includes net capital gains from the sale of BBVA Chile. (2) Adjusted by additional Tier 1 instrument remuneration. IFRS 9 2018 17,591 4,879 1,223 157 (7) (96) 23,747 (11,702) (6,120) (4,374) (1,208) 12,045 (3,981) (373) (110) 7,580 (2,062) 5,518 633 6,151 (827) 5,324 4,691 0.76 ∆ % (0.9) (0.8) (37.8) (52.9) n.s. n.s. (6.0) (6.4) (6.9) (3.7) (12.9) (5.7) (17.1) (49.9) (62.1) 9.4 (4.9) 15.9 - 29.2 (33.5) 51.3 33.3 ∆ % at constant exchange rates IAS 39 2017 17,758 4,921 1,968 334 4 285 25,270 (12,500) (6,571) (4,541) (1,387) 12,770 (4,803) (745) (292) 6,931 (2,169) 4,762 - 4,762 (1,243) 3,519 3,519 0.48 10.8 8.9 (33.9) (52.0) n.s. n.s. 4.3 2.5 2.0 6.1 (6.5) 6.2 (12.0) (47.1) (63.0) 30.4 9.2 40.6 - 56.7 (11.7) 78.2 57.0 Unless expressly indicated otherwise, to better understand the changes in the main headings of the Group's income statement, the year-on-year percentage changes provided below refer to constant exchange rates. Gross income Gross income accumulated in the period grew by 4.3% year-on-year, supported by the positive performance of the more recurring items. Net interest income grew by 10.8% year-on-year, leveraged mainly by higher contribution from inflation-linked bonds in Turkey. The other business areas, with the exception of Spain and Rest of Eurasia, also registered positive year-on-year changes, with Mexico, South America and the United States standing out, in this order, for its contribution. On the other hand, cumulative net fees and commissions (up 8.9% year-on-year) also registered a favorable evolution highly driven by their diversification. As a result, the more recurring revenue items (net interest income plus net fees and commissions) increased by 10.4% year-on-year. 8 NTI in 2018 moderated in comparison with the previous year, when it was exceptionally high, largely due to the registration of the capital gains of €228m before taxes, from market sales of the stake in China Citic Bank (CNCB): €204m in the first quarter, from the sale of 1.7% stake, and €24m in the third quarter from the sale of the remaining 0.34%. There have also been lower sales of ALCO portfolios in Spain in the first nine months of 2018 compared to the same period of the previous year. By business areas, NTI had a good performance in South America and Turkey. Other operating income and expenses closed at -€96m in 2018 compared to €285m in 2017, mainly due to negative impact of the hyperinflation in Argentina which meant -€323m in this line of the income statement. The change is also explained by the higher contribution, amounting to €44m, to the Single Resolution Fund (SRF) and Deposit Guarantee Fund (DGF) in Spain. The net contribution of the insurance business grew by 8.7% in cumulative terms. Operating income Operating expenses in 2018 registered an increase of 2.5%, year-on-year, well below the inflation rate recorded in the main countries where BBVA is present (down 6.4% at current exchange rates). Cost discipline has been maintained in all the Group's areas through various efficiency plans. By business area the biggest year-on-year reductions were in Banking activity in Spain and Non Core Real Estate. In the United States, Mexico and Turkey the growth of operating expenses was lower than the growth of gross income. Breakdown of operating expenses and efficiency calculation (Millions of euros) Personnel expenses Wages and salaries Employee welfare expenses Training expenses and other Other administrative expenses Property, fixtures and materials IT Communications Advertising and publicity Corporate expenses Other expenses Levies and taxes Administration costs Depreciation Operating expenses Gross income Efficiency ratio (operating expenses/gross income; %) 2018 6,120 4,786 869 465 4,374 982 1,133 235 336 109 1,162 417 10,494 1,208 11,702 23,747 49.3 ∆ % (6.9) (7.3) (4.6) (6.4) (3.7) (5.0) 11.2 (12.7) (4.5) (0.8) (10.7) (8.6) (5.6) (12.9) (6.4) (6.0) 2017 6,571 5,163 911 497 4,541 1,033 1,018 269 352 110 1,301 456 11,112 1,387 12,500 25,270 49.5 Number of employees Number of branches 9 Number of ATMs As a consequence of this evolution of operating expenses, the efficiency ratio stood at 49.3% and the operating income posted a year-on-year growth of 6.2% (+9.4% in the last quarter of 2018). Efficiency ratio (Percentage) 10 Provisions and other Impairment on financial assets in 2018 decreased by 12.0% in comparison with the figure for 2017, affected by the negative impact of the recognition in 2017 of impairment losses, amounting €1,123m from BBVA stake in Telefónica, S.A. as a result of the evolution of the price of the latter and in compliance with the requirements of the accounting standard IAS 39 which was in force at that point in time. By business area, they continued to fall in Spain, due to lower loan-loss provisioning requirements for large customers. In contrast, they increased, especially in Turkey, due to the deterioration of the macroeconomic scenario and some wholesale-customers and to a lesser extent in South America. On the other hand, Mexico stood in line with 2017. The heading provisions or reversal of provisions (hereinafter, provisions) was 47.1% lower than the figure of 2017, as a result of lower restructuring costs in 2018. The line other gains (losses) showed a negative balance, due mainly to certain operations with an unfavorable effect from the Non Core Real Estate area, recorded in the last quarter. The heading results from corporate operations amounted to €633m and registered the capital gains (net of taxes) originated by the sale of BBVA’S equity stake in BBVA Chile. Results As a result of the above, the Group's net attributable profit accumulated in 2018 reached an amount of €5,324m and continued to show a very positive year-on-year evolution (up 78.2% at constant exchange rates, up 51.3% at current exchange rates). The net attributable profit, excluding results from corporate operations, stood at €4,691m, or 33.3% higher than the amount recorded for the previous year, when operations of this kind were not carried out (up 57.0% at constant exchange rates). By business area, Banking activity in Spain generated a profit of €1,522m, Non Core Real Estate a loss of €78m, the United States contributed a profit of €735m, Mexico registered €2,384m, Turkey contributed a profit of €569m, South America €591m and the Rest of Eurasia €93m. ROE and ROTE (1) (Percentage) ROA and RORWA (Percentage) (1) The ROE and ROTE ratios include, in the denominator, the Group’s average shareholders’ funds and take into account the item called “Accumulated other comprehensive income”, which forms part of the equity. Excluding this item, the ROE would stand at 6.9% in 2016, 6.7% in 2017 and 10.1% in 2018; and the ROTE on 8.6%, 8.0% and 12.0%, respectively.   11 Balance sheet and business activity The year-on-year comparison of the Group´s balance sheet and business activity has been affected by the sale of BBVA Chile, completed in July 2018 and therefore as of December 31, 2018, was not included within BBVA’s perimeter. The evolution of the Group's balance sheet and activity are presented below, from the opening balance sheet after the first implementation of IFRS 9 until the end of December 2018. These figures include the new categories comprised in the aforementioned standard. Regarding the Group's activity, the most significant aspects during this period are summarized below:  Lower volume of loans and advances to customers (gross); however, by business area, in the United States, Mexico, South America (excluding BBVA Chile) and Rest of Eurasia volumes increased.  Non-performing loans fell mainly due to a favorable trend in Spain and, to a lesser extent, in South America and Rest of Eurasia.  The headings of other assets and other liabilities are affected by the sale of BBVA Chile completed in July 2018. Until then, these items included BBVA Chile's balance sheet reclassified in the category of non-current assets and liabilities held for sale. In deposits from customers, time deposits showed a decrease, offset by an increase in demand deposits, particularly in Spain. In off-balance-sheet funds, mutual funds continued to perform well.   Consolidated balance sheet (Millions of euros) Cash, cash balances at central banks and other demand deposits 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 Financial assets at fair value through accumulated other comprehensive income Financial assets at amortized cost 31-12-18 58,196 90,117 5,135 1,313 56,337 419,660 ∆ % 36.4 (1.9) 15.4 28.9 (9.3) (0.5) Loans and advances to central banks and credit institutions 13,103 (26.0) Loans and advances to customers Debt securities Investments in subsidiaries, joint ventures and associates Tangible assets Intangible assets Other assets Total assets Financial liabilities held for trading Other financial liabilities designated at fair value through profit or loss Financial liabilities at amortized cost Deposits from central banks and credit institutions Deposits from customers Debt certificates Other financial liabilities Liabilities under insurance and reinsurance contracts Other liabilities Total liabilities Non-controlling interests Accumulated other comprehensive income Shareholders’ funds Total equity Total liabilities and equity Memorandum item: Guarantees given 01-01-18 42,680 91,854 4,451 1,019 62,115 421,685 17,716 374,009 29,959 1,589 7,191 8,464 374,027 32,530 1,578 7,229 8,314 0.0 8.6 (0.7) 0.5 (1.8) 28,809 (40.4) 48,368 676,689 80,774 6,993 509,185 (1.8) (0.0) 27.3 0.6 59,259 (14.0) 689,414 80,783 5,495 506,118 68,928 375,970 3.4 363,689 61,112 12,844 9,834 17,029 623,814 5,764 (7,215) 54,326 52,874 (0.9) 61,649 8.4 6.6 (51.9) (2.1) (17.7) 2.6 3.6 0.9 11,851 9,223 35,392 637,010 7,008 (7,036) 52,432 52,404 676,689 (1.8) 689,414 47,574 5.2 47,668 Loans and advances to customers (Millions of euros) Public sector Individuals Mortgages Consumer Credit cards Other loans Business Non-performing loans Loans and advances to customers (gross) Loan-loss provisions Loans and advances to customers 12 IAS 39 31-12-17 29,921 164,578 112,274 32,092 13,630 6,581 186,479 19,390 400,369 (12,748) 387,621 ∆ % (4.7) 3.6 (0.7) 3.0 (0.9) 88.5 (8.4) (15.7) (3.5) (4.3) (3.5) IFRS 9 31-12-18 28,504 170,501 111,527 33,063 13,507 12,404 170,872 16,348 386,225 (12,199) 374,027 Loans and advances to customers (gross) (Billions of Euros) Customer funds (Billions of Euros) (1) At constant exchange rates: -0.2%. (1) At constant exchange rates: +0.6%. Customer funds (Millions of euros) Deposits from customers Of which current accounts Of which time deposits Other customer funds Mutual funds and investment companies Pension funds Other off-balance sheet funds Customer portfolios Total customer funds IFRS 9 31-12-18 375,970 260,573 108,313 128,103 61,393 33,807 2,949 29,953 504,073 ∆ % (0.1) 8.2 (6.4) (5.0) 0.7 (0.5) (4.3) (18.8) (1.4) IAS 39 31-12-17 376,379 240,750 115,761 134,906 60,939 33,985 3,081 36,901 511,285 13 Solvency Capital base The fully-loaded CET1 ratio stood at 11.3% for the period ended December 31, 2018. In the third quarter of 2018, the sale of the stake in BBVA Chile generated a positive impact on the fully-loaded CET1 ratio of 50 basis points. Additionally, the transfer of BBVA’s real estate business in Spain to Cerberus had a positive impact on the ratio, although it was not material. It is noted that this ratio includes the impact of -31 basis points for first application of IFRS 9, which came into force January 1, 2018. In this context, the Parliament and the European Commission have established transitional arrangements that are voluntary for the institutions, adapting the impact of IFRS 9 on capital adequacy ratios. The Group has informed the supervisory body of its adherence to these arrangements. Risk-weighted assets (RWA) have decreased in the year, mainly due to the sale of BBVA Chile and the depreciations of currencies against the euro. During 2018, the Group carried out three securitizations whose impact, through the release of risk weighted assets, was a positive in the amount of €971m. In addition, BBVA received European Central Bank (ECB) authorization to update the RWA calculation by structural exchange rate risk under the standard model. Capital base (Millions of euros) Common Equity Tier 1 (CET 1) Tier 1 Tier 2 Total Capital (Tier 1 + Tier 2) Risk-weighted assets CET1 (%) Tier 1 (%) Tier 2 (%) Total capital ratio (%) CRD IV phased-in CRD IV fully-loaded 31-12-18 (1) 31-12-17 31-12-18 (1) 31-12-17 40,311 45,945 8,754 54,699 348,254 11.6 13.2 2.5 15.7 42,341 46,980 9,134 56,114 39,569 45,044 8,859 53,903 40,061 46,316 8,891 55,207 361,686 348,795 361,686 11.7 13.0 2.5 15.5 11.3 12.9 2.5 15.5 11.1 12.8 2.5 15.3 General note: as of December 31 and September 30 of 2018, the main difference between the phased-in and fully loaded ratios arises from the temporary treatment of the impact of IFRS 9, to which the BBVA Group has adhered voluntarily (in accordance with Article 473bis of the CRR). (1) Preliminary data. Excludes the February 2014 issuance of 1,500 million euros from AT1 and which will be amortized in advance in February 2019. Regarding capital issues, during the first part of the year, the Group computed a new issuance in the amount of US$1,000m, carried out in November 2017, of contingent convertible bonds that may be converted into ordinary shares (CoCos) as an AT1 instrument. In May, another AT1 instrument for US$1,500m issued in 2013 was redeemed early. During the second part of the year, in September, the Group carried out a new issuance of contingent convertible bonds for €1,000m and more recently, in January 2019, announced that it would exercise the early redemption option for the AT1 instrument for €1,500m issued in February 2014. The Group has continued with its program to meet the MREL requirements, published in May 2018, by closing two public issuances of non-preferred senior debt for a total of €2,500m. The Group estimates that it is currently in line with this MREL requirement. Regarding shareholder remuneration, on October, 10th BBVA paid a cash dividend with a gross amount of €0.10 per share against the 2018 fiscal year account. In addition, on April 10, 2018, BBVA paid a final dividend against the 2017 fiscal year account for an amount of €0.15 gross per share, also in cash. Both distributions are consistent with the Group’s shareholder remuneration policy, which consists of maintaining a pay-out ratio of 35-40% of recurring profit. As of December 31, 2018, the phased-in CET1 ratio stood at 11.6%, taking into account the impact of the initial implementation of IFRS 9. Tier 1 capital stood at 13.2% and Tier 2 at 2.5% resulting in a total capital ratio of 15.7%. These levels are above the requirements established by the regulator in its SREP letter and the systemic buffers applicable in 2018 for BBVA Group. Since January 1, 2018, the requirement has been established at 8.438% for the phased-in CET1 ratio and 11.938% for the total capital ratio. The change with respect to 2017 is due to the steady implementation of the capital conservation buffers and the capital buffer applicable to other systemically important banks. The regulatory requirement for 2018 in fully-loaded terms remained unchanged (CET1 of 9.25% and total ratio of 12.75%) compared with the previous year. 14 Finally, the Group's leverage ratio maintained a solid position, at 6.4% fully-loaded (6.5% phased-in), which is still the highest of its peer group. Ratings During the first half of the year 2018, Moody's, S&P and DBRS upgraded one notch BBVA's rating to A3, A- and A (high), respectively. During the second half of 2018, the three leading agencies Moody´s, S&P and Fitch reaffirmed the rating given to BBVA (A3, A- and A-, respectively), although both S&P and Fitch placed its perspective in negative due to the evolution of the economy in Turkey (both agencies) and Mexico (Fitch). At present, all agencies assign to BBVA a category “A” rating, which did not occur since mid-2012, thus recognizing the strength and robustness of BBVA’s business model. Ratings Rating agency DBRS Fitch Moody's (1) Scope Ratings Long term A (high) A- A3 A+ Standard & Poor's (1) Additionally, Moody’s assigns an A2 rating to BBVA’s long term deposits. A- Short term R-1 (middle) F-2 P-2 S-1+ A-2 Outlook Stable Negative Stable Stable Negative Risk management Credit risk BBVA Group's risk metrics continued to perform well along 2018: 15   Credit risk decreased by 3.6% throughout 2018 or -0.4% isolating the impact of the sale of BBVA Chile (-1.8% and +1.3%, respectively, at constant exchange rates), mainly due to lower activity in Non Core Real Estate and contraction in Turkey and South America due to the exchange rates evolution. During the fourth quarter credit risk increased by +1.3% (+0.6% at constant exchange rates). The balance of non-performing loans decreased throughout 2018 by -16.6% (-11.1% in constant terms), highlighting the good performance of the Banking activity in Spain and Non Core Real Estate. Wholesale customers in Turkey and the United States deteriorated, having a negative impact in its balance of non- performing loans. In the last quarter of 2018 there was a decrease of 3.4% at current exchange rates (-0.5% at constant exchange rates). The NPL ratio stood at 3.9% as of December 31, 2018, a reduction of 19 basis points with respect to September 30, 2018 and of 61 basis points throughout the year. Loan-loss provisions decreased by 6.2% during the last 12 months (-0.3% at constant exchange rates) whereas the decrease over the quarter amounted to 3.1% (-2.5% at constant exchange rates).    NPL coverage ratio closed at 73% with an improvement of 812 basis points over the year and 26 basis points in  the last 3 months. The cumulative cost of risk (1) through December 2018 was 1.01%, +13 basis points higher than the figure for 2017. Non-performing loans and provisions (Millions of Euros) (1) The cumulative cost of risk, including provisions for real estate assets stood at 0.93% in 2016, 0.97% in 2017 and 1.03% in 2018. Credit risk (1) (Millions of euros) Credit risk Non-performing loans Provisions NPL ratio (%) NPL coverage ratio (%) (1) Include gross loans and advances to customers plus guarantees given. (2) Figures without considering the classification of non-current assets held for sale. 31-12-18 433,799 17,087 12,493 3.9 73 30-09-18 30-06-18 (2) 451,587 19,654 428,318 17,693 31-03-18 (2) 442,446 19,516 31-12-17 (2) 450,045 20,492 12,890 13,954 14,180 13,319 4.1 73 4.4 71 4.4 73 4.6 65 Non-performing loans evolution (Millions of euros) Beginning balance Entries Recoveries Net variation Write-offs Exchange rate differences and other Period-end balance Memorandum item: Non-performing loans Non performing guarantees given (1) Preliminary data. 4Q178 (1) 17,693 3,005 (1,548) 1,456 (1,681) (382) 17,087 16,348 739 3Q18 19,654 2,168 (1,946) 222 (1,606) (576) 17,693 17,045 649 2Q18 (2) 19,516 2,596 (1,655) 942 (863) 59 19,654 18,627 1,027 1Q18 (2) 20,492 2,065 (1,748) 317 (913) (380) 19,516 18,569 947 (2) Figures without considering the classification of non-current assets held for sale. Structural risks Liquidity and funding 16 4Q17 (2) 20,932 3,757 (2,142) 1,616 (1,980) (75) 20,492 19,753 739 Management of liquidity and funding in BBVA aims to finance the recurring 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 financing, always in compliance with current regulatory requirements. Due to its subsidiary-based management model, BBVA Group is one of the few large European banks that follows the MPE resolution strategy ("Multiple Point of Entry"): the parent company sets the liquidity and risk policies, but the subsidiaries are self-sufficient and responsible for the managing their liquidity (taking deposits or accessing the market with their own rating), without funds transfer or financing occurring between either the parent company and the subsidiaries or between different subsidiaries. This principle limits the spread of a liquidity crisis among the Group's different areas and ensures that the cost of liquidity and funding is correctly reflected in the price formation process. The financial soundness of the Group's banks continues to be based on the funding of lending activity, fundamentally through the use of stable customer funds. During 2018, liquidity conditions remained comfortable across BBVA Group's global footprint:      In the Eurozone, the liquidity situation is still comfortable, reducing the credit gap and growth in customer deposits. In the United States, the liquidity situation is adequate. The credit gap increased during the year due to the dynamism of consumer and commercial credit as well as to the cost-containment strategy for deposits, in an environment of competition in prices and rising rates. In Mexico, the liquidity position is sound as the environment has improved after the electoral process and the new commercial agreement with the United States. The credit gap has widened year-to-date due to deposits growing less than lending. The liquidity situation in Turkey is stable, showing a reduction in the credit gap as a result of deposits growing faster than lending. In South America, the liquidity situation remains comfortable in all geographies. In Argentina, despite the volatility of the markets which has been reducing at the end of the year, the liquidity situation is adequate. The wholesale funding markets in the geographic areas where the Group operates continued to be stable, with the exception of Turkey where the volatility increased during the third quarter, having stabilized in the fourth quarter with the renewal of the maturities of syndicated loans of different entities. The main operations carried out by the entities that form part of the BBVA Group during 2018 were:  BBVA, S.A. completed three operations: an issuance of senior non-preferred debt for €1.5 billion, with a floating coupon at 3-month Euribor plus 60 basis points and a maturity of five years. It also carried out the largest issuance made by a financial institution in the Eurozone of the so-called “green bonds" (€1 billion). It was a 7- year senior non-preferred debt issuance, which made BBVA the first Spanish bank to carry out this type of issuance. The high demand allowed the price to be lowered to mid-swap plus 80 basis points. Finally, BBVA carried out an issuance of preferred securities contingently convertible into newly issued ordinary shares of BBVA (CoCos). This transaction was, for the first time, available to Spanish institutional investors and it was 17 registered with the CNMV for an amount of €1 billion, an annual coupon of 5.875% for the first five years and amortization option from the fifth year. Additionally, it closed a private issuance of Tier 2 subordinated debt for US$300m, with a maturity of 15 years, with a coupon of 5.25%. In the United States, BBVA Compass issued in June a senior debt bond for US$1.15 billion in two tranches, both at three years: US$700m at a fixed rate with a reoffer yield of 3.605%, and US$450m at a floating rate of 3- month Libor plus 73 basis points. In Mexico, BBVA Bancomer completed an international issuance of subordinated Tier 2 debt of US$1 billion. The instrument was issued at a price equivalent to Treasury bonds plus 265 basis points at a maturity of 15 years, with a ten-year call (BBVA Bancomer 15NC10). In addition, two new Banking Securities Certificates were issued for 7 billion Mexican pesos in two tranches, one of them being the first green bond issued by a private bank in Mexico (3.5 billion Mexican pesos at three years at TIIE28 + 10 basis points). In Turkey, Garanti issued the first private bond in emerging markets for US$75m over six years, to support women's entrepreneurship, and renewed the financing of two syndicated loans. On the other hand, in South America, in Chile, Forum issued senior debt on the local market for an amount equivalent to €108m and BBVA Peru issued a three-year senior debt in the local market for an aggregate amount of €53m.     As of December 31, 2018, the liquidity coverage ratio (LCR) in BBVA Group remained comfortably above 100% in the period and stood at 127%. For the calculation of the ratio it is assumed that there is no transfer of liquidity among subsidiaries; i.e. no kind of excess liquidity levels in the subsidiaries abroad are considered in the calculation of the consolidated ratio. When considering this excess liquidity levels, the ratio would stand at 154% (27 percentage points above 127%). All the subsidiaries remained comfortably above 100% (Eurozone, 145%; Mexico, 154%; Turkey, 209%; and the United States, 143%). Foreign exchange Foreign-exchange risk management of BBVA’s long-term investments, basically stemming from its franchises abroad, aims to preserve the Group's capital adequacy ratios and ensure the stability of its income statement. The year 2018 was notable for the depreciation against the euro of the Turkish lira (down 25.0%) and the Argentine peso (down 47.8%), while the Mexican peso (+5.2%) and the U.S. Dollar (+4.7%) appreciated. BBVA has maintained its policy of actively hedging its main investments in emerging countries, covering on average between 30% and 50% of the earnings for the year and around 70% of the excess of CET1 capital ratio. In accordance with this policy, the sensitivity of the CET1 ratio to a depreciation of 10% of the main emerging currencies (Mexican peso or Turkish lira) against the euro remains at around a negative two basis points for each of these currencies. In the case of the dollar, the sensitivity is approximately a positive eleven basis points to a depreciation of 10% of the dollar against the euro, as a result of RWAs denominated in U.S. Dollar outside the United States. The coverage level of the expected earnings for 2019, at the closing of January, 2019 is, 85% for Mexico and 30% for Turkey. Interest rates The aim of managing interest-rate risk is to maintain a sustained growth of net interest income in the short and medium-term, irrespective of interest-rate fluctuations, while controlling the impact on capital through the valuation of the portfolio of financial assets at fair value with changes reflected in other accumulated comprehensive income. The Group's banks have fixed-income portfolios to manage their balance-sheet structure. During 2018, the results of this management were satisfactory, with limited risk strategies in all the Group's banks. Their capacity of resilience to market events has allowed them to face the cases of Italy and Turkey. After the formation of the new government in Italy, the reaction of the market to the budget negotiation process has contributed to the sustained pressure on the Italian debt, however without significant impact on the capital ratio. In Turkey, an excessive economic growth have given rise to inflationary tensions that, together with the level of current account deficits, have weakened the Turkish Lira. In this context, the Central Bank of Turkey (CBRT) has raised rates to contain the depreciation of the currency. Risk management and bond portfolio with a high component of inflation-linked bonds have stabilized the net interest income and limited impact on the capital ratio. Finally, it is worth noting the following monetary policies pursued by the different central banks in the main geographical areas where BBVA operates:    No relevant changes in the Eurozone, where interest rates remain at 0% and the deposit facility rate at -0.40%. In the United States the upward trend in interest rates continues. The increases of 25 basis points each in March, June, September and December, left the rate at 2.50%. In Mexico, after making two increases in the first half of the year, Banxico raised them again twice in the fourth quarter from 7.75% to 8.25%. 18   In Turkey, after the increases in the first three quarters of the year, the central bank maintained the average interest rate at 24.00% in the fourth quarter. In South America, the monetary authorities of Colombia and Peru have maintained their reference rates flat throughout the quarter, considering in its decision the behavior of inflation next to the established goals, as well as the dynamics of domestic demand. In Argentina, the adopted measures at the beginning of the quarter in terms of monetary policy (increase in reserve requirements and the reference rate) in order not to increase the monetary base and curb inflation which have delivered their results, with a certain deceleration in inflation. Economic capital Consumption of economic risk capital (ERC) at the close of December 2018, in consolidated terms, was €31,177m, equivalent to a decline of 0.8% compared to September 2018. Variation within exact time period and at constant exchange rates was down 2.1%, which is mainly explained by structural risk associated with the transfer of the real estate assets of BBVA in Spain to Cerberus Capital Management, L.P. (Cerberus). There were also less relevant decreases in credit risk and equity (goodwill). Consolidated economic (Percentage as of December 2018) risk capital breakdown 19 The BBVA share Global economic growth maintained a robust growth of approximately 3.6% in 2018, although slowed more than expected during the second half of 2018, due to both the poorer performance seen by retailers and the industrial sector along with a strong increase in financial tensions, especially in the developed economies, as a result of higher uncertainty. Poorer economic figures in Europe and China was accompanied by downwards trends in Asian countries and a cyclical deterioration in the United States. In this context, both the Federal Reserve (Fed) and the ECB have been more cautious and patient in the path towards monetary policy normalization and their decisions going forward will depend on the performance of the economy. The main short-term risk continues to be protectionism, not only because of the direct impact of the commercial channel, but also because its indirect effect on confidence and on financial volatility. Additionally, there are concerns about the intensity of the adjustment on economic activity during the following quarters, both in the United States and in China. Most stock-market indices showed a downward trend during 2018. In Europe, the Stoxx 50 and the Euro Stoxx 50 fell by 13.1% and 14.3%, respectively. On the other hand, in Spain, the Ibex 35 lost 15.0% over the same period. Finally, in the United States the S&P 500 index fell 6.2% in the last twelve months, mainly due to the decline in the last quarter (down 14.0%). In particular, the banking sector indices were notably more negative during 2018 than these general indices. The European Stoxx Banks index, which includes British banks, lost 28.0%, and the Eurozone bank index, the Euro Stoxx Banks, was down 33.3%, while in the United States the S&P Regional Banks index declined 20.5% in comparison at the close of 2017. The BBVA share closed 2018 at €4.64, a fall of 34.8% for this year. BBVA share evolution compared with European indices (Base indice 100=31-12-17) The BBVA share and share performance ratios Number of shareholders Number of shares issued Daily average number of shares traded Daily average trading (million euros) Maximum price (euros) Minimum price (euros) Closing price (euros) Book value per share (euros) Tangible book value per share (euros) Market capitalization (million euros) Yield (dividend/price; %) (1) (1) Calculated by dividing shareholder remuneration over the last twelve months by the closing price of the period. 31-12-18 902,708 6,667,886,580 35,909,997 31-12-17 891,453 6,667,886,580 35,820,623 213 7.73 4.48 4.64 7.12 5.86 30,909 5.4 252 7.93 5.92 7.11 6.96 5.69 47,422 4.2 Regarding shareholder remuneration, on October 10, BBVA paid in cash a gross amount of €0.10 per share on account of the 2018 fiscal year. This payment is consistent with the shareholder remuneration policy announced by Relevant Event of February 1, 2017, that envisages, subject to the pertinent approvals by the corresponding corporate bodies, the payment of two dividends in cash, foreseeably on October and April of each year. It is expected to be proposed for the consideration of the competent governing bodies a cash payment in a gross amount of euro 0.16 per share to be paid in April 2019 as final dividend for 2018. Shareholder remuneration (Euros gross/share) 20 As of December 31, 2018, the number of BBVA shares remained at 6,668 million, and the number of shareholders was 902,708. By type of investor, residents in Spain held 44.82% of the share capital, while the remaining 55.18% was owned by non-resident shareholders. .Shareholder structure (31-12-2018) Number of shares Up to 150 151 to 450 451 to 1800 1,801 to 4,500 4,501 to 9,000 9,001 to 45,000 More than 45,001 Total Shareholders Number 179,213 179,572 284,225 136,369 63,647 53,104 6,578 % 19.9 19.9 31.5 15.1 7.1 5.9 0.7 902,708 100.0 Shares Number 12,701,058 49,210,098 278,003,301 388,215,619 401,194,972 921,740,895 4,616,820,637 6,667,886,580 % 0.2 0.7 4.2 5.8 6.0 13.8 69.2 100.0 BBVA shares are included on the main stock-market indices, including the Ibex 35, Euro Stoxx 50 and Stoxx 50, with a weighting of 7.0%, 1.4% and 0.9% respectively. They also form part of several sector indices, including the Euro Stoxx Banks, with a weighting of 8.3%, and the Stoxx Banks, with a weighting of 3.8%. Finally, BBVA maintains a significant presence on a number of international sustainability indices or ESG (environmental, social and governance) indices, which evaluate the performance of companies in this area. In September 2018, BBVA joined the Dow Jones Sustainability Index (DJSI), benchmark in the market, which measures the performance of nearly 3,400 listed companies in environmental, social and corporate governance matters. Among the aspects most valued in BBVA's analysis are the fiscal strategy, the information security and cybersecurity policies, the management of environmental risks and opportunities, financial inclusion and, above all, Pledge 2025 announced this year (see responsible banking section). Main sustainability indices on which BBVA is listed as of 31-12-2018 21 Listed on the DJSI World and DJSI Europe indices (1) Listed on the MSCI ESG Leaders Indexes AAA Rating Listed on the FTSE4Good Global Index Series Listed on the Euronext Vigeo Eurozone 120 and Europe 120 indices Listed on the Ethibel Sustainability Excellence Europe and Eithebel Sustainability Excellence Global indices In 2018, BBVA obtained a “B” rating (1) The inclusion of BBVA in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein, do not constitute a sponsorship, endorsement or promotion of BBVA by MSCI or any of its affiliates. The MSCI indices are the exclusive property of MSCI. MSCI and the MSCI index names and logos are trademarks or service marks of MSCI or its affiliates. 22 Business areas This section presents and analyzes the most relevant aspects of the Group's different business areas. Specifically, it shows a summary of the income statement and balance sheet, the business activity figures and the most significant ratios in each of them. At the closing of 2018 the reporting structure of BBVA Group's business areas remained basically the same even if its composition differs from the one presented in 2017 due to the sale of BBVA Chile announced on November 28, 2017, and which was closed on July 6, 2018. This operation, which has affected the composition of the business area of South America, will be detailed in the following sections as well as the rest of the Group’s business areas:  Banking activity in Spain includes the Retail Network in Spain, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management units in Spain. It also includes the new loan production to developers or loans that are no longer in difficulties as well as the portfolios, funding and structural interest-rate positions of the euro balance sheet.  Non Core Real Estate covers the specialized management in Spain of loans to developers in difficulties and real-estate assets mainly coming from foreclosed assets, originated from both, residential mortgages, as well as loans to developers. On November 29, 2017, BBVA Group signed an agreement with Cerberus Capital Management, L.P. (Cerberus) for the creation of a joint venture in which the real-estate business area of BBVA in Spain would be transferred. At a later stage, 80% of this entity would be sold to a subsidiary of Cerberus (Divarian). On October 10, 2018, the stated operation was closed and, at the close of 2018, the participation in Divarian which BBVA maintains at 20%, is recorded in the Corporate Center.  The United States includes the Group's business activity in the country through the BBVA Compass group and the BBVA New York branch.  Mexico basically includes all the banking and insurance businesses carried out by the Group 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 reworked to incorporate this change and show comparable series.  Turkey includes the activity of the Garanti group.  South America basically includes BBVA's banking and insurance businesses in the region. On July 6, 2018, the sale of BBVA Chile to The Bank of Nova Scotia (Scotiabank) 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.  The Rest of Eurasia includes the Group's retail and wholesale business activity in the rest of Europe and Asia. In addition to the above, all the areas include a remainder made up basically of other businesses and a supplement that includes deletions and allocations not assigned to the units making up the above areas. Lastly, the Corporate Center is an aggregate that contains the rest of the items that have not been allocated to the business areas, as it corresponds to the Group's holding function. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of equity instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with employees; goodwill and other intangibles. At the close of 2018, the participation in Davarian, which BBVA maintains at 20%, is included in this unit. Finally, as usual, in the case of the Americas and Turkey areas, the results of applying constant exchange rates are given in addition to the year-on-year variations at current exchange rates. The information by areas is based on units at the lowest level and/or companies making up the Group, which are assigned to the different areas according to the main geographical area in which they carry out their activity. 23 Major income statement items by business area (Millions of euros) Business areas BBVA Group Banking activity in Spain Non Core Real Estate The United States Mexico Turkey South America Rest of Eurasia ∑ Business areas Corporate Center 2018 Net interest income Gross income Operating income 17,591 23,747 12,045 3,672 5,943 2,680 32 38 2,276 5,568 2,989 7,193 3,135 3,901 (28) 1,127 4,825 2,658 3,009 3,701 2,011 175 415 124 17,867 24,179 13,397 (276) (432) (1,352) Profit/(loss) before tax 7,580 2,017 (129) 919 3,294 1,448 1,307 144 9,000 (1,420) Net attributable profit 5,324 1,522 (78) 735 2,384 569 591 93 5,818 (494) 2017 Net interest income Gross income Operating income 17,758 25,270 12,770 3,738 6,180 2,790 71 2,119 5,476 (17) (116) 2,876 1,025 7,122 4,671 3,331 4,115 2,612 3,200 4,451 2,444 180 468 160 18,115 25,196 13,585 (357) 73 (815) Profit/(loss) before tax 6,931 1,854 (656) 748 2,984 2,147 1,691 177 8,944 (2,013) Net attributable profit 3,519 1,374 (490) 486 2,187 826 861 125 5,368 (1,848) Gross income(1), operating income(1) and net attributable profit(1) breakdown (Percentage. 2018) (1) Excludes the Corporate Center. (2) Includes the areas Banking activity in Spain and Non Core Real Estate. 24 Major balance-sheet items and risk-weighted assets by business area (Millions of euros) Business areas BBVA Group Banking activity in Spain Non Core Real Estate The United States Mexico Turkey South America Rest of Eurasia ∑ Business areas Corporate Center AyPNCV variation (1) 31-12-18 Loans and advances to customers 374,027 169,856 582 60,808 51,101 41,478 34,469 15,731 374,027 Deposits from customers 375,970 180,891 36 63,891 50,530 39,905 35,842 4,876 375,970 Off-balance sheet funds 98,150 62,557 2 - 20,647 2,894 11,662 388 98,150 - - - Total assets/liabilities and equity 676,689 335,294 4,163 82,057 96,455 66,250 52,385 18,000 654,605 22,084 Risk-weighted assets 348,254 100,950 3,022 64,146 53,359 56,486 42,736 15,449 336,149 12,105 31-12-17 Loans and advances to customers 387,621 183,172 3,521 53,718 45,768 51,378 48,272 14,864 400,693 Deposits from customers 376,379 177,763 13 60,806 49,964 44,691 45,666 6,700 385,604 Off-balance sheet funds 98,005 62,054 4 - 19,472 3,902 12,197 376 98,005 - - - Total assets/liabilities and equity 690,059 319,417 9,714 75,775 94,061 78,694 74,636 17,265 669,562 20,497 Risk-weighted assets 361,686 108,141 9,692 58,688 44,941 62,768 55,975 15,150 355,354 6,332 (1) Includes non-current assets and liabilities held for sale (AyPNCV for its acronym in Spanish) of the BBVA Chile and real estate operations. - - - - - (13,072) (9,225) - - - Interest rates (Quarterly averages. Percentage) Official ECB rate Euribor 3 months Euribor 1 year USA Federal rates TIIE (Mexico) CBRT (Turkey) 2018 4Q 3Q 2Q 0.00 (0.32) (0.14) 2.28 8.26 0.00 (0.32) (0.17) 2.01 8.11 24.00 19.29 0.00 (0.33) (0.19) 1.81 7.88 14.82 1Q 0.00 (0.33) (0.19) 1.58 7.84 12.75 4Q 0.00 (0.33) (0.19) 1.30 7.42 12.17 2017 3Q 0.00 (0.33) (0.16) 1.25 7.37 11.97 2Q 0.00 (0.33) (0.13) 1.05 7.04 11.80 1Q 0.00 (0.33) (0.10) 0.80 6.41 10.10 Exchange rates (Expressed in currency/euro) Mexican peso U.S. dollar Argentine peso Chilean peso Colombian peso Peruvian sol Turkish lira Year-end exchange rates Average exchange rates 31-12-18 22.4921 1.1450 43.2900 795.54 3,745.32 3.8621 6.0588 ∆ % on ∆ % on 31-12-17 5.2 4.7 (47.8) (7.2) (4.3) 0.5 (25.0) 30-09-18 (3.2) 1.1 5.7 (3.8) (7.6) (1.2) 15.0 2018 22.7046 1.1810 43.2900 757.00 3,484.32 3.8787 5.7058 ∆ % on 2017 (6.1) (4.3) (56.7) (3.2) (4.3) (5.1) (27.8) 25 Banking activity in Spain Highlights  Activity growth in high profitable segments.  Good performance of net fees and commissions.  Operating expenses decline during all quarters.  Solid asset-quality indicators: lower impairments and provisions. Business activity(1) (Year-on-year change. Data as of 31- 12-18) Net interest income/ATAs (Percentage) (1) Excluding repos. Operating income (Millions of Euros) Net attributable profit (Millions of Euros) Breakdown of performing loans under management (1) (31-12-18) Breakdown of customer funds under management(1) (31-12-18) (1) Excluding repos. (1) Excluding repos. Financial statements and relevant business indicators (Millions of euros and percentage) Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses of which Insurance activities (1) Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit (1) Includes premiums received net of estimated technical insurance reserves. Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Inter-area positions Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Inter-area positions Other liabilities Economic capital allocated Relevant business indicators Performing loans and advances to customers under management (1) Non-performing loans Customer deposits under management (1) Off-balance sheet funds (2) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Excluding repos. (2) Includes mutual funds, pension funds and other off-balance sheet funds. 26 IAS 39 2017 3,738 1,561 555 327 433 6,180 (3,390) (1,917) (1,154) (319) 2,790 (567) (369) 1,854 (477) 1,377 (3) 1,374 IFRS 9 2018 3,672 1,681 466 124 485 5,943 (3,262) (1,862) (1,113) (288) 2,680 (371) (292) 2,017 (492) 1,525 (3) 1,522 ∆ % (1.8) 7.7 (16.1) (62.0) 12.0 (3.8) (3.8) (2.9) (3.6) (9.8) (3.9) (34.6) (20.9) 8.8 3.1 10.8 7.1 10.8 IFRS 9 IAS 39 31-12-18 27,841 100,094 28,451 193,936 169,856 7,314 1,263 4,846 335,294 66,255 44,043 180,891 30,451 - 5,756 7,898 31-12-18 166,131 9,101 181,119 62,557 100,950 54.9 4.6 57 0.21 ∆ % 106.8 25.9 n.s. (12.4) (7.3) n.s. 44.1 103.6 5.0 31-12-17 13,463 79,501 1,312 221,391 183,172 1,806 877 2,380 319,417 80.0 36,817 (29.2) 1.8 (8.6) - n.s. (11.5) ∆ % (0.7) (16.0) 3.6 0.8 (6.6) 62,226 177,763 33,301 - 391 8,920 31-12-17 167,291 10,833 174,822 62,054 108,141 54.9 5.5 50 0.32 27 Macro and industry trends According to the latest information from the National Institute of Statistics (INE for its acronym in Spanish), the Spanish economy grew 0.6% on a quarterly basis during the the third quarter of 2018, consolidating a solid growth throughout the year but at a more moderate pace than the two previous years. The most recent indicators show that this progress of the GDP has continued in the last quarter of 2018, supported by robust domestic factors related to the improvement of the labor market and favorable financial conditions. Both monetary and fiscal policy continue to support growth, while the depreciation of the euro and demand in the euro zone must continue to support exports. All in all, the economy could have grown around 2.5% in 2018. Regarding the Spanish banking system and according to October 2018 data from the Bank of Spain (latest published data), the total volume of lending to the private sector (household and corporate) continued to decline year-on-year (down 3.0%). Non-performing loans in the sector decreased significantly (down 28.2% year-on-year as of October 2018) driven by the completion of several transactions of non-performing loans and real-estate assets during 2018. At the end of October, the sector’s NPL ratio was 6.08%, that is 26.0% below the figure registered in the previous year. Activity The most relevant aspects related to the area’s activity during 2018 were:   Lending (performing loans under management) closed in line with the figure at the end of December 2017 (down 0.7% year-on-year), mainly due to the reduction in the mortgage portfolio (down 3.6%) and other commercial portfolios (-11.2%). In contrast, consumer financing and credit cards maintained a very positive performance (during the course of the year up 21.9%), which, together with the good evolution of the SME portfolio (+6.5%), offset the reduction of mortgage loans. In the last three months of 2018 there has been a transfer of outstanding portfolio of performing loans from Non Core Real Estate to Banking Activity in Spain, amounting to €60m, which, in addition to the e one completed in the first semester amounts to a total of €260m in the year. In asset quality, the non-performing loans balance showed a downward trend over the year that positively affected the area’s NPL ratio, which reduced to 4.6% from the 5.5% as of 31-December-2017. The NPL coverage ratio closed at 57%, 660 basis points above the closing of 2017.  Customer deposits under management grew by 3.6% compared to the close of December 2017 (up 3.5% in the last quarter of 2018). By products, there was a decline in time deposits (down 20.4% year-on-date), that has by far offset by the increase in demand deposits (up 12.7%), which as of December represent approximately 80% of total liabilities. The off-balance-sheet funds showed a slight increase with respect to the figure registered twelve months before (+0.8%), despite of the unfavorable evolution of the markets, especially in the last quarter.  Results The net attributable profit generated by the Banking Activity in Spain in 2018 reached €1,522m, which represents a year- on-year increase of 10.8%, strongly supported by the favorable performance of commissions, a strict control of operating expenses and provisions. The highlights of the area’s income statement are:  Net interest income showed a decline of 1.8% year-on-year although it increased slightly in the fourth quarter of 2018 (+1.2%). The smaller contribution from targeted longer-term refinancing operations (TLTRO) explained most of this evolution. interest  Positive performance of net fees and commissions (up 7.7% year-on-year), which offset by far the decline in income. There was a significant contribution from asset management fees and banking net commissions. Lower contribution from NTI compared to the same period of previous year (down 16.1%), associated with lower ALCO portfolio sales in 2018.   Reduction in other income/expenses (down 62.0% year-on-year). One of the aspects explaining this is the greater contribution made to the DGF and SRF compared to 2017. Also, net earnings from the insurance business showed an increase of 12.0%.  Operating expenses declined by 3.8% and the efficiency ratio closed at 54.9%, in line with the figure registered at the close of 2017.  Decline in impairment losses on financial assets (down 34.6% year-on-year) explained by lower gross additions to NPLs and loan-loss provisions for large customers. As a result, the cumulative cost of risk stood at 0.21% as of December 31, 2018. Lastly, provisions (net) and other gains (losses) showed a year-on-year decline of 20.9%, mainly favoured by lower restructuring costs.  28 Non Core Real Estate Highlights  Continued positive trend in the Spanish real-estate market, although with a more moderate growth rate.  Minimum levels of the net real-estate exposure.  Closing of the sale agreement of the participation in Testa.  Significant reduction in net losses in the area. Industry trends The Spanish real estate market continues to show a growth trend, somewhat more moderated. The macroeconomic context continues to be favorable for residential demand: interest rates remain at minimum levels and the economy is still generating jobs. However, the uncertainty regarding economic policy could affect the decision of households and entrepreneurs of the sector.  Investment in housing accelerated its growth in the third quarter of 2018, after the slowdown registered in the previous quarter. According to data from the National Quarterly Accounting Office of the INE investment in housing grew by 1.6% between July and September, an evolution that, once again, exceeded the economy as a whole.  Between January and November, 526,840 homes were sold in Spain, a year-on-year increase of 8.5%, according to information from the General Council of Spanish Notaries (CIEN).  Housing prices accelerated in the third quarter of 2018 to 7.2% in year-on-year terms (INE figures), exceeding the figures registered in the two previous quarters.  The interest rate applied to new loan operations remains at 2.3% and the cost of mortgage financing remains  at relatively low levels. As a result, new home loans grew by 17.1% in the first eleven months of the year. Finally, the evolution of the construction activity continued to be robust, in response to the increase in residential demand. According to data from the Ministry of Public Works, nearly 84,000 new housing construction permits were approved in the first ten months of the year 2018, 23.2% more than in the same period of 2017. Activity The net real-estate exposure amounted to €2,498m as of 31-December-2018, which means a very significant reduction in year-on-year terms (-61.1%). With regards to the loans to developers, in the last three months of 2018 outstanding performing loans to developers for an amount of €60m were transferred from Non Core Real Estate to Banking Activity in Spain, that together with the transfer already made during the first half of 2018 stood at €260m in the year. In addition, the agreement with the Canada Pension Plan Investment Board (CPPIB) for the sale of non-performing and written-off loans to developers for a gross amount of approximately €1 billion was closed in July. Having received the regulatory authorizations, BBVA closed on October 10, 2018 the operation of the transfer of its real- estate business in Spain to Cerberus Capital Management, L.P. (Cerberus). The closing of this operation implies the sale of 80% of the share capital of Divarian, the joint venture to which the real-estate business had been transferred, however the effective transfer of some real estate owned assets (“REOs”) is subject to the fulfillment of certain conditions and in the meanwhile, BBVA will continue to manage those assets. As of December 31, 43,900 assets with a value 2,828 million euros would have been transferred to Divarian. 17,485 assets with a value of approximately €900m are pending transfer, subject to specific authorizations in process of obtaining them. As of December 31, 2018 the participation in Divarian which BBVA maintains at 20%, is recorded in Corporate Center. In addition, on December 21, 2018 BBVA reached an agreement with Blackstone for the sale of its participation of its 25.24% stake in Testa for €478m. Evolution of Net exposure to real estate (Millions of Euros) 29 (1) (2) Compared to Bank of Spain's Transparency scope (Circular 5/2011 dated November 30), real-estate developer loans do not include €2.1Bn (December 2018) mainly related performing loans to developers transferred to the Banking Activity in Spain area. Other real-estate assets not originated from foreclosures. Coverage of real-estate exposure (Millions of Euros as of 31-12-18) Gross Value Provisions Net exposure % Coverage Real-estate developer loans (1) Performing Finished properties Construction in progress Land Without collateral and other NPL Finished properties Construction in progress Land Without collateral and other Foreclosed assets Finished properties Construction in progress Land Other real-estate assets (2) Real-estate exposure 1,006 174 145 14 14 1 832 361 23 392 55 4,310 3,037 209 1,064 25 5,341 465 23 18 3 1 - 442 160 11 237 35 2,376 1,501 131 744 3 2,843 541 150 127 11 13 - 390 201 13 156 21 1,934 1,536 78 320 22 2,498 46% 13% 13% 23% 8% 46% 53% 44% 45% 60% 62% 55% 49% 63% 70% 11% 53% (1) Compared to Bank of Spain's Transparency scope (Circular 5/2011 dated November 30), real-estate developer loans do not include €2.1 Bn (December 2018) mainly related performing loans to developers transferred to the Banking activity in Spain area. (2) Other real-estate assets not originated from foreclosures. Total real-estate exposure, including loans to developers, foreclosures and other assets, had a coverage ratio of 53% at the close of December 2018. The coverage ratio of foreclosed assets stood at 55%. Non-performing loan balances showed a downward trend along the year, thanks to lower NPL entries and the recovery of activity over the quarter. The NPL coverage ratio was maintained at 53%. Results At the close of December 2018 this business area posted a cumulative loss in 2018 of €78m, which represents a positive evolution compared to a loss of €490m in the same period the previous year. 30 Financial statements (Millions of euros) Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheet Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Inter-area positions Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Inter-area positions Other liabilities Economic capital allocated Memorandum item: Risk-weighted assets IFRS 9 2018 32 1 64 (59) 38 (65) (39) (22) (5) (28) (12) (89) (129) 52 (78) (0) (78) IFRS 9 31-12-18 14 1,358 1,368 582 582 - 30 2,179 4,163 - 36 36 239 2,691 205 956 ∆ % (55.8) (56.7) n.s. (35.7) n.s. (33.9) (23.3) (28.1) (73.3) (76.1) (91.0) (77.8) (80.3) (68.8) (84.2) n.s. (84.2) ∆ % 19.8 n.s. n.s. (83.5) (83.5) - n.s. (64.7) (57.1) - n.s. 187.5 (69.6) (53.4) n.s. (69.6) IAS 39 2017 71 3 0 (91) (17) (99) (51) (30) (18) (116) (138) (403) (656) 166 (491) 1 (490) IAS 39 31-12-17 12 9 - 3,521 3,521 - 0 6,172 9,714 - 0 13 785 5,775 - 3,141 3,022 (68.8) 9,692 The United States Highlights 31 Lending growth supported by business financing and retail segments.   Good performance of net interest income and provisions.   Net attributable profit affected by the tax reform at the end of 2017. Improvement in efficiency. Business activity (1) (Year-on-year change at constant exchange rate. Data as of 31-12-18) Net interest income/ATAs (Percentage. Constant exchange rate) (1) Excluding repos. Operating income (Millions of Euros at constant exchange rate) Net attributable profit (Millions of Euros at constant exchange rate) (1) At current exchange rate: +10.0%. (1) At current exchange rate: +51.3%. Breakdown of performing loans under management (1) (31-12-18) Breakdown of customer funds under management (1) (31-12-18) (1) Excluding repos. (1) Excluding repos. Financial statements and relevant business indicators (Millions of euros and percentage) IFRS 9 IAS 39 32 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Inter-area positions Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Inter-area positions Other liabilities Economic capital allocated Relevant business indicators Performing loans and advances to customers under management (2) Non-performing loans Customer deposits under management (2) Off-balance sheet funds (3) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Figures at constant exchange rate. (2) Excluding repos. (3) Includes mutual funds, pension funds and other off-balance sheet funds. 2018 2,276 596 109 9 2,989 (1,862) (1,051) (633) (178) 1,127 (225) 16 919 (184) 735 - 735 ∆ % 7.4 (7.5) (1.9) n.s. 3.9 0.6 (1.6) 6.0 (4.6) 10.0 (6.8) n.s. 22.9 (29.8) 51.3 - 51.3 IFRS 9 31-12-18 ∆ % 4,835 (32.3) (5.3) 179.2 16.1 13.2 - 1.5 14.8 8.3 68.2 (5.9) 5.1 78.4 127.8 (0.7) 12.9 ∆ % 12.5 15.1 5.1 - 9.3 10,481 156 63,539 60,808 - 668 2,534 82,057 234 3,370 63,891 3,599 2,528 5,395 3,040 31-12-18 60,784 802 63,888 - 64,146 62.3 1.3 85 0.39 ∆ % (1) 12.1 (3.8) 0.9 256.4 8.3 4.9 2.7 10.5 (0.4) 14.5 (2.6) n.s. 27.6 (26.9) 56.9 - 56.9 ∆ % (1) (35.3) (9.6) n.s. 10.9 8.1 - (3.1) 9.6 3.4 60.6 (10.1) 0.3 70.3 117.5 (5.2) 7.8 2017 2,119 644 111 2 2,876 (1,851) (1,067) (598) (187) 1,025 (241) (36) 748 (262) 486 - 486 IAS 39 31-12-17 7,138 11,068 56 54,705 53,718 - 658 2,207 75,775 139 3,580 60,806 2,017 1,110 5,431 2,693 ∆ % (1) 31-12-17 7.4 9.9 0.3 - 4.4 54,036 696 60,806 - 58,688 64.4 1.2 104 0.43 33 Macro and industry trends According to the latest available information from the Bureau of Economic Analysis (BEA), in the third quarter of 2018, annualized US GDP growth moderated from 4.2% to 3.4% as a result of the moderation of non-residential investment and the drop in exports after the strong rebound in the previous quarter. Furthermore, private consumption remains robust, supported by the dynamism of the labor market and the growth in wages, as well as public spending, driven by a more expansive fiscal policy. According to the most recent indicators growth could reach approximately 2.9% during 2018. Despite the strength of domestic demand and an unemployment rate below 4% last year, core inflation (PCE) remained relatively stable at approximately 2% in 2018, while the fall of prices of energy products was reflected in a strong moderation of headline inflation to 1.9% in November from rates close to 3% in the middle of the year. The Fed continued with the normalization process, with four increases of 25 basis points each in 2018 (up to the 2.25%-2.50% range). The persistence of the expansive cycle in the country, together with the resurgence of uncertainty and financial volatility, associated with a combination of factors (among them, the fear of an escalating protectionism and a greater perception of risk on the vulnerability of emerging markets) have substantially revalued the dollar since the second quarter of 2018, which appreciated by around 7% during the year, with December closing data of the effective exchange rate weighted by the importance of its main trading partners. The general situation of the country's banking system continued to be favorable. According to the latest available data from the Fed through November 2018, the total volume of bank credit in the system increased by 5.0% over the same month of the previous year, with a particularly positive performance in commercial loans (up 17.0% year-on-year), while real estate loans (including the mortgage loans) stayed flattish in the last twelve months. On the other hand, deposits remained basically at the same level as the prior year (down 0.6%). Lastly, non-performing loans continued their downward trend, with an NPL ratio of 1.58% at the end of the third quarter of 2018. Activity Unless expressly stated otherwise, all the comments below on rates of change, for both activity and earnings, will be given at constant exchange rate. These rates, together with changes at current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators. The most relevant aspects related to the area’s activity in 2018 were:     Lending activity in the area (performing loans under management) showed an increase by 7.4% year-on-year. By portfolio, higher interest rates continued affecting negatively the mortgages and loans to developers (construction real estate). By contrast, the consumer and credit card loans, which have higher margins and are therefore more profitable, increased by 28.2% year-on-year. Both other commercial (up 7.0%) and corporates also performed well (up 12.3%). Regarding the risk indicators, slight rebound of the NPL ratio in the quarter, which stood at 1.3% from 1.1% registered as of 30-September-2018, due to the deterioration of certain singular clients. On the other hand, the NPL coverage ratio closed at 85%. Customer deposits under management closed in line with the figure of December 2017 (+0.3%), affected by the deposit-gathering campaigns, with an increase the time deposits (+2.2%) and a decrease in the demand deposits (-4.0%). Results The United States generated a cumulative net attributable profit of €735m during 2018, 56.9% higher than the one registered twelve months earlier, due mainly to the increase in net interest income, lower provisions and lower tax expenses. Also worth noting are the following:  Net interest income continued to perform positively, with the cumulative figure up by 12.1% year-on-year and 2.9% over the last quarter of 2018. This was due partly to the Fed's interest-rate hikes, but also the measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (improved deposit mix and wholesale funding).  Net fees and commissions declined by 3.8% year-on-year, due to a lower contribution from markets, investment banking and money transfers.   Operating expenses grew by 4.9% year-on-year, mainly due to greater activity related to the growth of consumer loans. This increase is lower than that shown by the gross margin (+8.3%), as a result, the efficiency ratio improved. Impairment losses on financial assets fell by 2.6% in the last twelve months, due to the lower provisioning requirements in those portfolios affected by the 2017 hurricanes. As a result, the cumulative cost of risk through 31-December-2018 declined to 0.39%. Lastly, income tax declined as a result of a reduction in the effective tax rate following the tax reform approved at the end of 2017, which in addition generated a one-off charge in the amount of €78m due to the valuation of deferred tax assets.  34 Mexico Highlights  Good performance of the activity, with growth in all segments. Expenses continue to grow below the rate of gross income.   Double-digit year-on-year growth in net attributable profit.  Good asset quality indicators. Business activity (1) (Year-on-year change at constant exchange rate. Data as of 31-12-18) Net interest income/ATAs (Percentage. Constant exchange rate) (1) Excluding repos. Operating income (Millions of Euros at constant exchange rate) Net attributable profit (Millions of Euros at constant exchange rate) (1) At current exchange rate: +3.3%. (1) At current exchange rate: +9.0%. Breakdown of performing loans under management (1) (31-12-18) Breakdown of customer funds under management (1) (31-12-18) (1) Excluding repos. (1) Excluding repos. Financial statements and relevant business indicators (Millions of euros and percentage) IFRS 9 IAS 39 35 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Other liabilities Economic capital allocated Relevant business indicators Performing loans and advances to customers under management (2) Non-performing loans Customer deposits under management (2) Off-balance sheet funds (3) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Figures at constant exchange rate. (2) Excluding repos. (3) Includes mutual funds, pension funds and other off-balance sheet funds. 2018 5,568 1,205 223 197 7,193 (2,368) (1,024) (1,091) (253) 4,825 (1,555) 24 3,294 (909) 2,385 (0) 2,384 IFRS 9 31-12-18 8,274 26,022 ∆ % 1.7 (1.2) (10.4) 11.2 1.0 (3.4) (2.6) (4.7) (1.3) 3.3 (5.8) n.s. 10.4 14.0 9.0 9.1 9.0 ∆ % (6.3) (9.1) 72 (95.4) 21.0 11.7 2.2 (62.8) 2.5 91.7 (88.3) 1.1 17.1 (17.7) 6.2 ∆ % 13.7 1.3 10.3 6.0 18.7 57,709 51,101 1,788 2,663 96,455 18,028 683 50,530 8,566 14,508 4,140 31-12-18 51,387 1,138 49,740 20,647 53,359 32.9 2.1 154 3.07 ∆ % (1) 8.2 5.1 (4.6) 18.3 7.5 2.8 3.7 1.5 5.1 10.0 0.2 n.s. 17.5 21.4 16.1 16.1 16.1 ∆ %(1) (11.0) (13.6) (95.6) 15.0 6.1 (2.8) (64.7) (2.5) 82.2 (88.9) (3.9) 11.4 (21.8) 0.9 2017 5,476 1,219 249 177 7,122 (2,452) (1,051) (1,145) (256) 4,671 (1,651) (35) 2,984 (797) 2,187 (0) 2,187 IAS 39 31-12-17 8,833 28,627 1,558 47,691 45,768 1,749 7,160 94,061 9,405 5,853 49,964 7,312 17,627 3,901 ∆ % (1) 31-12-17 8.1 (3.7) 4.9 0.8 12.9 45,196 1,124 45,093 19,472 44,941 34.4 2.3 123 3.24 36 Macro and industry trends The quarterly GDP growth in Mexico was 0.8% in the third quarter of 2018, measured in figures adjusted by seasonality. This expansion, after a growth by 1.1% in the first quarter and a slight contraction of 0.1% in the second quarter, is mainly explained by the expansion of services and the manufacturing sector. On the demand side, the main contribution to growth in the third quarter has been from consumption. While private investment has shown new signs of weakness. The trade agreement reached by Mexico, the United States and Canada, as well as the reduction in uncertainty regarding the economic policy of the administration of Andrés Manuel López Obrador, who assumed the presidency of the country on December 1, could help to maintain in the following periods the dynamism observed in the third quarter. With respect to inflation, the increase observed in recent months seems to be transitory, since it is mainly due to the increase in energy prices, while core inflation remains relatively stable. This, together with contained inflation pressures, suggests that additional interest rate hikes by Banxico might not be necessary for the remainder of the year. For yet another quarter, the Mexican banking system showed excellent levels of solvency and asset quality. According to the latest available information from the Mexican National Banking and Securities Commission (CNBV) in November 2018, activity remained as strong as in previous quarters, with year-on-year growth in the volume of lending and deposits (demand and time deposits) at 10.6% and 8.4%, respectively. Both the NPL ratio (2.2%) and NPL coverage ratio (150%) were stable. Finally, solvency in the system is at a comfortable level, with a capital adequacy ratio of 15.65% as of the end of October 2018. Activity Unless expressly stated otherwise, all the comments below on rates of change, for both activity and earnings, will be given at constant exchange rate. These rates, together with changes at current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators. The most relevant aspects related to the area’s activity year in 2018 were:  Year-on-year increase in lending (performing loans and advances to customers under management) of 8.1%. BBVA maintains its leading position in the country, with a market share of 22.6% in outstanding performing loans, according to local figures from the CNBV at the end of November 2018.  By portfolios: the wholesale portfolio, which represents 51.8% of total lending, increased by 9.4% in year-on- year terms, driven mainly by medium-sized companies and the corporates segment. As for the retail portfolio, it increased by 6.7% (including SMEs), which was heavily supported by consumer loans (payroll, personal and auto), which rose by 8.7%.  With respect to the asset quality indicators, the NPL ratio closed at 2.1% from the 2.3% registered twelve months earlier. The NPL coverage ratio closed at 154%.  Total customer funds (customer deposits under management, mutual funds and other off-balance sheet funds) showed a year-on-year increase of 3.6%, with remarkable growth in demand deposits (+7.6%), in time deposits (+4.0%) and mutual funds (+2.6%).  A profitable funding mix: low-cost accounts represent 77% of total customer deposits under management. Results BBVA in Mexico posted in 2018 a net attributable profit of €2,384m, a year-on-year increase of 16.1%. The main highlights in the evolution of income statement in Mexico is summarized below:  Positive performance of the net interest income, which showed a year-on-year growth of +8.2%, highly aligned with lending activity (+8.1%).  Good performance of net fees and commissions, which showed an increase of 5.1% 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. NTI registered a decrease (-4.6%) due to the unfavorable performance of the Global Markets unit during 2018.   The other income/expenses line registered year-on-year growth of 18.3%, mainly due to the positive   performance of the insurance activity. Operating expenses continued to grow at a very controlled pace (up +2.8% year-on-year) and below the area's gross income growth (+7.5%). As a result, the efficiency ratio has continued to improve and stood at 32.9% as of December 31, 2018. Adequate risk management has been reflected in the change in the impairment losses on financial assets line item, which remains at the same level as 2017 (+0.2% year-on-year), despite the loan growth during the year, mainly explained by a change in the mix of the loan portfolio. As a result, the cumulative cost of risk in the area closed at 3.07% versus 3.24% as of December 2017.  The positive evolution in the other gains (losses) line, that included the extraordinary income from the sale of BBVA Bancomer's stake in a real-estate development and the capital gain from the sale of a corporate building by Bancomer. 37 Turkey Highlights  Activity impacted by the evolution of exchange rates.  Good performance of recurring revenue items, as a result of the inflation-linked bonds performance.  Operating expenses growth below inflation.  Risk indicators affected by the update of the macroeconomic scenario and certain negative impacts of the portfolio of wholesale customers. Business activity (1) (Year-on-year change at constant exchange rate. Data as of 31-12-18) Net interest income/ATAs (Percentage. Constant exchange rate) (1) Excluding repos. Operating income (Millions of Euros at constant exchange rate) Net attributable profit (Millions of Euros at constant exchange rate) (1) At current exchange rate: +1.8%. (1) At current exchange rate: -31.0% Breakdown of performing loans under management (1) (31-12-18) Breakdown of customer funds under management (1) (31-12-18) (1) Excluding repos. (1) Excluding repos. 38 Financial statements and relevant business indicators (Millions of euros and percentage) IFRS 9 IAS 39 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Other liabilities Economic capital allocated 2018 3,135 686 11 70 3,901 (1,243) (656) (449) (138) 2,658 (1,202) (8) 1,448 (294) 1,154 (585) 569 IFRS 9 31-12-18 7,853 5,506 410 50,315 41,478 1,059 1,517 66,250 ∆ % (5.9) (2.4) (24.2) 3.4 (5.2) (17.3) (17.9) (14.6) (22.4) 1.8 165.3 (33.7) (32.5) (31.0) (32.9) (34.6) (31.0) ∆ % 94.6 (14.2) n.s. (22.7) (19.3) (21.2) (16.3) (15.8) ∆ %(1) 30.3 35.1 5.0 43.1 31.3 14.5 13.6 18.2 7.5 40.9 267.4 (8.2) (6.6) (4.5) (7.1) (9.5) (4.5) ∆ %(1) 159.3 14.3 n.s. 3.0 7.6 5.1 11.6 12.2 1,852 185.9 281.0 6,734 39,905 5,964 9,267 2,529 (39.8) (10.7) (28.5) (18.1) 1.4 (19.8) 19.0 (4.8) 9.1 35.2 2017 3,331 703 14 67 4,115 (1,503) (799) (526) (178) 2,612 (453) (12) 2,147 (426) 1,720 (895) 826 IAS 39 31-12-17 4,036 6,419 - 65,083 51,378 1,344 1,811 78,694 648 11,195 44,691 8,346 11,321 2,493 Relevant business indicators Performing loans and advances to customers under management (2) Non-performing loans Customer deposits under management (2) Off-balance sheet funds (3) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Figures at constant exchange rate. (2) Excluding repos. (3) Includes mutual funds, pension funds and other off-balance sheet funds. ∆ % (20.3) 12.7 (10.4) (25.8) (10.0) 31-12-18 40,996 2,876 39,897 2,894 56,486 31.9 5.3 81 2.44 ∆ %(1) 31-12-17 6.2 50.1 19.4 (1.2) 19.9 51,438 2,553 44,539 3,902 62,768 36.5 3.9 85 0.82 39 Macro and industry trends According to the most recent figures from the Turkish Statistical Institute, Turkey’s year-on-year economic growth was 1.6% in the third quarter of 2018, supported by the considerable positive external demand contribution, while domestic demand, including inventories, hindered growth. Year-on-year inflation experienced a rapid correction as it declined from 24.5% in September to 20.3% in December, as a result of tax reductions in certain items, price discount campaigns, the contraction in oil prices and the appreciation of the Turkish lira by around 20% in the last four months of 2018. Throughout the year, the Central Bank (CBRT) increased its funding interest rate by 1.125 basis points. However, in its December meeting the CBRT decided to keep it at 24.0%. With this decision, the CBRT strengthened its message against the easing expectations of the market, saying that risks on price stability continue to prevail despite the recent improvement in inflation outlook due to the developments in import prices and domestic demand conditions. Regarding fiscal policy stance, the government’s budget targets were met at the end of 2018 with the support of one-off revenues. Regarding the evolution of the Turkish financial sector, year-on-year credit growth has continued to decelerate during the last quarter of 2018, mainly due to business lending. By the last week of December 2018, the year-on-year total lending growth rate (adjusted for the depreciation of the lira effect) fell to 3.1%. On the other hand, customer deposits have also shown sign of a slowdown. The year-on-year total deposits growth rate fell to 6.2% (adjusted for the depreciation of the lira effect). Turkish-lira deposits grew by 10.6% and foreign-currency deposits (mainly in U.S. dollars) contracted by 7.6%. Lastly, the NPL ratio closed at 3.66% for December 28th (an increase of 59 basis points in the last quarter). Activity Unless expressly stated and communicated otherwise, rates of changes explained ahead, both for activity and for income will be presented at constant exchange rates. These rates, together with changes at current exchange rates, can be observed in the attached tables of the financial statements and relevant business indicators. The most relevant aspects related to the area’s activity year-to-date as of December 31, 2018 have been:      Lending activity (performing loans under management) grew by 6.2% in the year driven by the evolution of exchange rates (down 11.2% in the quarter). On the one hand, Garanti Bank continued to reduce its exposure in foreign-currency loans (in U.S. dollars) in all quarters of 2018 in line with its corporate strategy; while on the other hand, Turkish-lira loan growth decelerated in the third quarter and decreased significantly in the last quarter of 2018. By segments, contraction has accelerated in the fourth quarter in all types of loans except auto loans and credit cards, which grew above the sector. On the contrary, the contraction in consumer and mortgage loans accelerated in the quarter in line with the sector and there was a contraction in Turkish-lira business banking loans which is in line with the private banks. In terms of asset quality, the NPL ratio increased to 5.3% due to the macroeconomic conditions and the inflow of certain doubtful clients. The NPL coverage ratio stood at 81%. Customer deposits (60% of total liabilities in the area as of December 31, 2018) remained the main source of funding for the Turkish´s balance sheet and grew by 19.4% in 2018 mainly supported by the growth of Garanti Bank Turkish-lira deposits. On the other hand, shrinkage in foreign-currency customer deposits (in U.S. dollars) continued due to higher interest rates in Turkish-lira deposits. All funding and liquidity ratios remained within comfort levels, and Garanti maintained its solvency levels well above requirements. Results In 2018, Turkey generated a cumulative attributable profit of €569m, a year-on-year decline of 4.5%. The most significant aspects of the year-on-year evolution in the income statement were as follows:    Positive performance of net interest income (up to 30.3%) despite the pressure on customer spreads, mainly due to the significant income from inflation-linked bonds, whose contribution, compared to previous year, is more than double. Income from net fees and commissions grew by 35.1%. This significant increase was mainly driven by the positive performance in payment systems, advances, money transfers and other commissions. Increase in NTI (by 5.0%) where the high performance of global markets, asset and liabilities management and derivatives offsets the Turkish lira depreciation.  Gross income was up 31.3% in 2018 compared to 2017, thanks to the increase in core banking activities and the aforementioned higher inflation-linked bonds contribution.  Operating expenses increased by 14.5%, below the average inflation rate (16.2%) and well below the year-on- year growth rate in gross income. As a result of strict cost-control discipline, the efficiency ratio declined to 31.9%. Impairment on financial assets increased in year-on-year terms by 267.4%, mainly denominated by big ticket provisions coming from the wholesale-customer portfolio and also the macroeconomic scenario update. As a result, the cumulative cost of risk of the area increased to 2.44%.  40 South America Highlights  Activity affected by the sale of BBVA Chile.   Argentina hyperinflation adjustment impacts in every item of the income statement. In other countries, the activity evolves at a good pace. Business activity (1) (Year-on-year change at constant exchange rates. Data as of 31-12-18) Net interest income/ATAs (Percentage. Constant exchange rate) (1) Excluding repos. Breakdown of performing loans under management (1) (31-12-18) Breakdown of customer funds under management (1) (31-12-18) (1) Excluding repos. (1) Excluding repos. Financial statements and relevant business indicators (Millions of euros and percentage) IFRS 9 IAS 39 41 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Tangible assets Other assets Total assets/liabilities and equity 2018 3,009 631 405 (344) 3,701 (1,690) (846) (719) (125) 2,011 (638) (65) 1,307 (475) 833 (241) 591 IFRS 9 31-12-18 8,987 5,634 129 36,649 34,469 813 302 52,385 ∆ % (6.0) (11.4) (15.7) n.s. (16.9) (15.8) (18.3) (15.5) 3.2 (17.7) (1.9) (36.3) (22.7) (2.2) (30.9) (29.9) (31.3) ∆ % (0.6) (51.5) n.s. (28.4) (28.6) 12.1 (85.2) (29.8) Financial liabilities held for trading and designated at fair value through profit or loss 1,357 (51.9) Deposits from central banks and credit institutions Deposits from customers Debt certificates Other liabilities Economic capital allocated 3,076 35,842 3,206 6,551 2,355 (59.3) (21.5) (55.5) (23.0) (18.3) ∆ % (1) 12.8 10.9 5.2 n.s. 1.9 7.7 5.9 7.4 24.7 (2.5) 5.2 (15.5) (5.1) 23.9 (16.3) (15.9) (16.5) ∆ %(1) 11.0 (47.0) n.s. (21.3) (21.6) 33.3 (83.9) (22.7) (48.4) (57.9) (13.0) (53.0) (10.4) (7.5) Relevant business indicators Performing loans and advances to customers under management (2) Non-performing loans Customer deposits under management (3) Off-balance sheet funds (4) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Figures at constant exchange rates. (2) Excluding repos. (3) Excluding repos and including specific marketable debt securities. (4) Includes mutual funds, pension funds and other off-balance sheet funds. ∆ % (28.2) (7.3) (21.7) (4.4) (23.7) ∆ % (1) (21.2) (3.2) (13.2) (1.1) (14.4) 31-12-18 34,518 1,747 35,984 11,662 42,736 45.7 4.3 97 1.44 2017 3,200 713 480 59 4,451 (2,008) (1,035) (851) (121) 2,444 (650) (103) 1,691 (486) 1,205 (345) 861 IAS 39 31-12-17 9,039 11,627 3 51,207 48,272 725 2,038 74,636 2,823 7,552 45,666 7,209 8,505 2,881 31-12-17 48,068 1,884 45,970 12,197 55,975 45.1 3.4 89 1.32 South America. Data per country (Million of euros) IFRS 9 IAS 39 IFRS 9 IAS 39 Operating income Net attributable profit 42 Country Argentina Chile Colombia 2018 179 289 645 ∆ % (65.7) (31.2) 0.3 ∆ % (1) (20.6) (28.9) 4.8 2017 522 421 644 736 Peru Other countries (2) Total (1) Figures at constant exchange rates. (2) Venezuela, Paraguay, Uruguay and Bolivia. Additionally, it includes eliminations and other charges. (17.7) 2,011 (2.5) 23.0 29.7 161 6.7 1.3 131 2,444 726 2018 (29) 137 229 195 59 591 ∆ % n.s. (27.1) 11.6 8.4 (13.6) (31.3) ∆ % (1) n.s. (24.7) 16.6 14.3 (8.2) (16.5) 2017 219 188 206 180 68 861 South America. Relevant business indicators per country (Millions of euros) Performing loans and advances to customers under management (1)(2) Non-performing loans and guarantees given (1) Customer deposits under management (1)(3) Argentina Chile Colombia Peru 31-12-18 31-12-17 31-12-18 31-12-17 31-12-18 31-12-17 31-12-18 31-12-17 4,221 2,982 2,045 13,542 11,835 11,385 13,351 13,021 87 24 5,986 3,531 58 10 - 390 768 643 709 648 8,975 12,543 11,702 12,843 12,263 1,201 1,287 1,070 1,666 1,589 Off-balance sheet funds (1)(4) 783 654 Risk-weighted assets 8,036 9,364 2,243 14,398 12,672 12,299 15,760 14,879 Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) 73.0 2.0 111 1.60 56.1 0.8 198 0.61 42.1 45.2 2.8 93 2.6 60 0.81 0.76 36.3 6.0 100 2.16 36.0 35.4 35.6 5.3 88 4.0 93 2.59 0.98 3.8 100 1.14 (1) Figures at constant exchange rates. (2) Excluding repos. (3) Excluding repos and including specific marketable debt securities. (4) Includes mutual funds, pension funds and other off-balance sheet funds. Macro and industry trends The activity of the South American economies has exhibited, in general, a positive performance in the third quarter of 2018, mainly in the Andean countries, supported by a relatively expansive monetary policy. In contrast, economic activity in Argentina contracted once again, although significantly less than in the second quarter, in an environment in which stabilization signs are beginning to appear after the financial tensions that were previously present, and in which restrictive economic policies continue to be maintained. In the rest of the countries in the region, consumption continues to recover, supported by relatively low levels of inflation, and also investment, driven by the increase in domestic demand and the recovery of confidence. Inflation in the region remains generally under control, at levels close to the objectives of the respective central banks. In this sense, an end to the lax monetary policy phase could be coming, and gradual increases in interest rates by the monetary authorities could begin in the coming months. As with the case of economic activity, the situation in Argentina contrasts with that of the other countries in the region. Despite recent signs of moderation, inflation remains high, in a context in which the restrictive tone of monetary policy is implemented through the nominal stability of monetary aggregates. Regarding the banking systems within BBVA's regional footprint, the macroeconomic backdrop and low levels of banking penetration in these countries in aggregate terms (obviously with differences between countries) led to strong results in the main indicators of profitability and solvency, while non-performing loans remained under control. In addition, there has been sustained growth in lending and deposits. 43 Activity On 6-July-2018, after obtaining all required authorizations, BBVA completed the sale to The Bank of Nova Scotia of its direct and indirect stake in Banco Bilbao Vizcaya Argentaria, Chile (BBVA Chile) as well as in other companies of its group in Chile whose operations are complementary to the banking business (particularly, BBVA Seguros Vida, S.A.). The impacts of this transaction were reflected in the financial statements of the BBVA Group for the third quarter of 2018. In addition, as it was announced to the market through relevant event on December 19, 2018 BBVA has decided to initiate a strategic review of alternatives for its automobile financing business in Chile mainly carried out by the company Forum Servicios Financieros, S.A. (“Forum”). Despite Forum being a highly attractive business, BBVA´s sale of its banking business in Chile, advises the initiation of this review process. Unless expressly stated otherwise, all the comments below on rates of change, for both activity and earnings, will be provided at constant exchange rates, and will be impacted by the divestment in BBVA Chile. These rates, together with changes at current exchange rates, can be found in the attached tables of financial statements and relevant business indicators. The most relevant aspects related to the area’s activity in 2018 were:  Lending (performing loans under management) in South America was 21.2% below the same period the previous year. Excluding BBVA Chile from the comparison, loans to customers grew by 8.6% since 31-12-2017. By country, the most significant increase was in Argentina (up 41.6% year-on-year) together with the improvement in lending in Colombia and Peru. By portfolios, excluding BBVA Chile from the comparison, performance was especially positive in the mortgage, consumer and business banking segments.  Regarding asset quality of the portfolio, the NPL ratio, as of 31-December-2018 stood at 4.3%, in line with the previous quarter, while the NPL coverage ratio decreased to 97% (101% as of 30-September-2018).  Customer funds decreased by 13.2%, although on a comparable basis, i.e. excluding BBVA Chile from the comparison, they grew by 10.7%. Off-balance-sheet funds, on a comparable basis, increased by 10.1% year-on- year. By country there was a positive trend in Argentina, Colombia and to a lesser extent in Peru, with a total customer funds increase of +61.8, +8.3 and +4.7%, respectively. Results South America generated a net attributable profit of €591m, which represents year-on-year variation of -16.5% (-31.3% at current exchange rates). This evolution is affected by the negative impact of accounting for hyperinflation in Argentina in the net attributable profit of the area (€-266m) as well as by the change in the perimeter originated from the sale of BBVA Chile. Excluding these two impacts, the most recurrent income (net interest income and commissions) and NTI increased by 11.7% in year-on-year terms, which offsets the increase of the impairment losses on financial assets (up 5.2% compared to the close of 2017). As a result, the cumulative cost of risk at the close of December stood at 1.44%. By country, the trends in 2018 were as follows:    In Argentina, there was year-on-year growth in gross income of 29.2%. This increase was based both on the performance of recurring revenue (boosted by higher volumes of business) and the positive performance of NTI (mainly due to exchange rates). The aforementioned in combination with the increase in impairment losses on financial assets and the negative effect of hyperinflation adjustment posted a net attributable profit of -€29m. In Colombia, the increase in earnings was based on the good performance of net interest income (due to a positive performance in activity and customer spreads) and higher net fees and commissions, which boosted gross income (up 5.3%). The aforementioned, together with the reduction of impairment losses on financial assets, this led to a year-on-year increase of 16.6% in the net attributable profit. In Peru, net attributable profit increased by 14.3% year-on-year, leveraged by the good performance of net interest income (increase in lending), higher net fees and commissions and a good performance of the impairment losses on financial assets. 44 Rest of Eurasia Highlights     Positive trend in lending activity. Performance of deposits strongly influenced by the environment of negative interest rates. Despite de control costs, earnings affected by decrease in revenues. Improvement of the NPL and NPL coverage ratios. Financial statements and relevant business indicators (Millions of euros and percentage) IFRS 9 IAS 39 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) for the year Non-controlling interests Net attributable profit Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Inter-area positions Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Inter-area positions Other liabilities Economic capital allocated 2018 175 138 101 (0) 415 (291) (136) (149) (6) 124 24 (3) 144 (51) 93 - 93 IFRS 9 31-12-18 273 504 - 16,930 15,731 - 39 254 18,000 42 1,316 4,876 213 9,977 819 757 ∆ % (2.5) (15.9) (17.3) n.s. (11.4) (5.6) (12.8) 5.4 (44.2) (22.5) 4.0 (40.4) (18.5) (2.6) (25.2) - (25.2) ∆ % (68.9) (49.1) - 12.8 5.8 - 10.4 (27.8) 4.3 (6.3) (44.3) (27.2) (39.9) 76.8 (34.2) (17.1) 2017 180 164 123 1 468 (308) (156) (141) (11) 160 23 (6) 177 (52) 125 - 125 IAS 39 31-12-17 877 991 - 15,009 14,864 - 36 352 17,265 45 2,364 6,700 354 5,643 1,246 913 Relevant business indicators Performing loans and advances to customers under management (1) Non-performing loans Customer deposits under management (1) Off-balance sheet funds (2) Risk-weighted assets Efficiency ratio (%) NPL ratio (%) NPL coverage ratio (%) Cost of risk (%) (1) Excluding repos. (2) Includes mutual funds, pension funds and other off-balance sheet funds. ∆ % 7.7 (22.7) (27.2) 3.2 (0.3) 31-12-18 16,553 430 4,876 388 15,449 70.2 1.7 83 (0.11) 45 31-12-17 15,362 556 6,700 376 15,150 65.9 2.4 74 (0.16) Macroeconomic environment Growth in the Eurozone moderated in the third quarter of 2018 to 0.2% quarterly from 0.4% in the second quarter, according to the latest Eurostat information. This performance is mainly explained by a worse exports evolution, while the contribution of domestic demand remained stable despite the lower growth of private consumption. Domestic fundamentals remain solid, with an improvement in the labor market which, together with the moderation in prices, continues to support the growth of private spending, while favorable financial conditions and the absorption of the economy's idle capacity will continue to sustain the recovery of investment. For its part, the depreciation of the euro from the second quarter of 2018 will continue to support the competitiveness of exports. As a result, GDP growth could have been somewhat below 2% in 2018, after a total of 2.5% in 2017. Headline inflation moderated to 1.6% in December after the strong rebound since mid-year due to the significant deceleration in the prices of energy products, while core inflation remained relatively stable at low levels (1.1%). In this context, the ECB announced the completion of asset purchases in December of 2018, although it will continue to reinvest in those that reach their maturity term and will maintain interest rates at low levels until, at least, the summer of 2019. The recent increase in downside risks to growth will keep the ECB cautious. Activity and results This business area basically includes the Group's retail and wholesale business in Europe (excluding Spain) and Asia. The key aspects of the activity and results as of 31-December-2018 in this area were: Lending (performing loans under management) showed a year-on-year change of 7.7%.   Credit risk indicators improved in the last twelve months: the NPL ratio closed at 1.7% (2.4% as of the close of 2017) and the NPL coverage ratio closed at 83% (74% as of 31-December-2017).  Customer deposits under management were still strongly influenced by the negative interest rate environment in the region and showed a decline of 27.2%.  Regarding results, gross income declined (-11.4% year-on-year): Europe (excluding Spain) fell by 13.6% and Asia grew by 11.0%. On the other hand, operating expenses continued to fall (down 5.6%), due to tight control of personnel costs. Impairments on financial assets recorded a release of provisions that were 4.0% higher than the previous year, as a result of lower loan-loss provisions in Europe. As a result, the cumulative net attributable profit of 2018 stood at €93 million (down 25.2% year-on-year). 46 Corporate Center The Corporate Center basically includes the costs of the head offices that have a corporate function; management of structural exchange-rate positions; certain issuances of equity instruments to ensure adequate management of the Group's global solvency; portfolios and their corresponding earnings, whose management is not linked to customer relationships, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with employees; goodwill and other intangibles. As of the end of 2018, the area includes the 20% participation that BBVA maintains in Divarian. Financial statements (Millions of euros and percentage) IFRS 9 IAS 39 Income statement Net interest income Net fees and commissions Net trading income Other operating income and expenses Gross income Operating expenses Personnel expenses Other administrative expenses Depreciation Operating income Impairment on financial assets not measured at fair value through profit or loss Provisions or reversal of provisions and other results Profit/(loss) before tax Income tax Profit/(loss) after tax from ongoing operations Results from corporate operations (1) Profit/(loss) for the year Non-controlling interests Net attributable profit Net attributable profit excluding results from corporate operations (1) Includes net capital gains from the sale of BBVA Chile. Balance sheets Cash, cash balances at central banks and other demand deposits Financial assets designated at fair value of which loans and advances Financial assets at amortized cost of which loans and advances to customers Inter-area positions Tangible assets Other assets Total assets/liabilities and equity Financial liabilities held for trading and designated at fair value through profit or loss Deposits from central banks and credit institutions Deposits from customers Debt certificates Inter-area positions Other liabilities Economic capital allocated Shareholders' funds 2018 (276) (59) (155) 57 (432) (920) (507) (199) (214) (1,352) (2) (65) (1,420) 290 (1,130) 633 (497) 3 (494) (1,127) IFRS 9 31-12-18 119 3,304 - - - (7,314) 1,567 24,406 22,084 - - - 8,874 (15,195) 153 (21,674) 49,927 ∆ % (22.8) (32.1) n.s. (29.2) n.s. 3.6 2.4 106.3 (27.8) 65.9 (99.8) (10.8) (29.5) 75.0 (38.8) - (73.1) n.s. (73.3) (39.0) ∆ % n.s. 31.5 - - - n.s. (17.2) 38.8 7.7 - - - 1.2 (7.3) (65.5) (13.1) (5.1) 2017 (357) (86) 436 80 73 (888) (496) (96) (297) (815) (1,125) (73) (2,013) 166 (1,847) - (1,847) (1) (1,848) (1,848) IAS 39 31-12-17 5 2,514 - - - (1,501) 1,893 17,585 20,497 - - - 8,772 (16,384) 443 (24,941) 52,606 47 The Corporate Center registered a net attributable loss of €494m during 2018, which positively compares with a loss of €1,848m in 2017. By entries, the most relevant are the following:    Negative contribution from NTI, compared to the capital gains recorded, in the amount of €436m before taxes as of the end of 2017, from the market sales of the stakes in CNCB (€204m in the first quarter, for the sale of 1.7%, and €24m in the third quarter for the sale of the remaining 0.34%). Lower impairment on financial assets, as in 2017 this line registered the recognition of impairment losses of €1,123m from BBVA’s stake in Telefónica, S.A. The results from corporate operations includes the capital gains (net of taxes) originated by the sale of BBVA Chile, which amounts to €633m. Excluding this effect, the attributable profit without corporate operations, amounted to -€1,127m, representing a loss 39.0% lower than the amount registered twelve months earlier. 48 Other Non-financial Information Report Law 11/2018 of December 28 came into effect at the end of 2018, modifying the Commercial Code, the revised text of the Capital Companies Law approved by Royal Legislative Decree 1/2010 of July 2, and Law 22/2015 of July 20 on Accounts Auditing, regarding non-financial information and diversity (hereinafter, Law 11/2018); the latter replaces Royal Decree Law 18/2017 of November 24, by which Directive 2014/95/EU of the European Parliament and of the Council was transposed into Spanish law, as regards disclosure of non-financial information and diversity information. Pursuant to Law 11/2018, certain companies, such as BBVA, are required to prepare a non-financial information report. This must be included either in the management report or in a separate report for the same year that includes the same content and meets the all specified requirements, including, but not limited to: the information needed to understand the performance, results, and position of the Group, and the impact of its activity on environmental,social, respect for human rights, and the fight against corruption and bribery matters, as well as include any measures taken to promote the principle of equal treatment and employee matters, and should opportunities for women and men, non-discrimination and inclusion of people with disabilities and universal accessibility. In this context, BBVA prepares the consolidated non-financial information report in the Group's Management Report, which is attached to the Consolidated Financial Statements for the 2018 fiscal year. Calculation of the non-financial key performance indicators included (KPI) in this consolidated non-financial statement is performed using the GRI (Global Reporting Initiative) guide, an international reporting framework, and is covered in the new article 49.6.e) of the Commercial Code introduced by Law 11/2018. In addition, for the preparation of the non-financial information contained in this Management Report, the Group has considered the Communication from the Commission of July 5, 2017 on Guidelines on non-financial reporting (methodology for reporting non-financial information, 2017/C 215/01). The information included in the consolidated non-financial information report is verified by KPMG Asesores S.L., in its capacity as independent provider of verification services, in accordance with the new wording given by Law 11/2018 to article 49 of the Commercial Code. 49 The Group’s organizational chart At the end of 2018, the Board of Directors of BBVA approved a new organizational structure, aimed at fostering the Group’s transformation and businesses, while further specifying responsibilities for executive functions. The main aspects of the new organizational structure are as follows:  The Group Executive Chairman is responsible for the management and well-functioning of the Board of Directors, the supervision of the management of the Group, the institutional representation, and leading and boosting the Group’s strategy and its transformation process. The areas reporting directly to the executive chairman are those related to the transformation’s key levers: Engineering & Organization, Talent & Culture and Data; those related to the Group’s strategy: Global Economics & Public Affairs, Strategy & M&A, Communications and the new figure Senior Advisor to the Chairman; and the Legal- related and Board-related areas: Legal and General Secretary.  The Chief Executive Officer (CEO) is in charge of the daily management of the Group’s businesses, reporting directly to BBVA’s Board of Directors. The areas reporting to the CEO are the Business Units in the different countries and Corporate & Investment Banking, as well as the following global functions: Client Solutions, Finance & Accounting, that integrates the functions of accounting and tax, and Global Risk Management. Additionally, certain control areas strengthen their independence, establishing a direct reporting of their heads to the Board of Directors through the corresponding committees. These control areas are Internal Audit and the new Supervisors, Regulation & Compliance, area that is in charge of the relationship with regulators and supervisors, the monitoring and analysis of regulatory trends and the development of the Group’s regulatory agenda, and the management of compliance-related risks. 50 Environment Macroeconomic environment Global economic growth maintained robust throughout 2018 (approximately 3.6%), although it slowed more than expected in the second half of the year and the latest data on activity and confidence have generally given negative surprises. In particular, indicators linked to the industrial sector and international trade showed a clear deterioration, while those most closely linked to consumption and investment have resisted better. Poorer economic figures in Europe and China were accompanied by downwards trends in Asian countries and a certain cyclical deterioration in the United States that was new. The fear of a rapid global slowdown and the rise of protectionist risks also led to a sharp increase in the prices of refuge assets and capital outflows. Given this context of greater global uncertainty, and with inflation moderating as a result of lower oil prices, the main central banks, particularly the Federal Reserve (Fed), reacted with caution in their plans for normalization of monetary policy, which has been a key factor in the containment and partial reversal of tensions since the beginning of the year. Global GDP growth and inflation in 2018. (Real percentage growth) World Eurozone Spain The United States Mexico South America (1) Turkey China GDP Inflation 3.6 1.8 2.5 2.9 2.2 1.3 3.0 6.6 3.9 1.7 1.7 2.4 4.9 8.4 16.3 1.9 Source: BBVA Research estimates. (1) It includes Argentina, Brasil, Chile, Colombia, Paraguay, Peru and Uruguay. Digitalization and changing consumer behavior Digital activity is outpacing growth in overall economic activity. Society is changing in line with the exponential growth in technology (internet, mobile devices, social networks, cloud, etc.). As a result, digitalization is therefore revolutionizing financial services worldwide. Consumers are altering their purchasing habits through use of digital technologies, which increase their ability to access financial products and services at any time and from anywhere. Greater availability of information is creating more demanding customers, who expect swift, easy and immediate responses to their needs. And digitalization is what enables the financial industry to meet these new customer demands. Technology is the lever for change which allows the value proposition to be redefined to focus on customers' real needs. The use of mobile devices as the preferred and often only tool for customers' interactions with their financial institutions has changed the nature of this relationship and the way in which financial decisions are made. It is crucial to offer customers a simple, consistent and user-friendly experience, without jeopardizing security and making the most of technological resources. Artificial intelligence (AI) and big data are two of the technologies that are currently driving the transformation of the financial industry. Their adoption by various entities translates into new services for clients that more accessible and agile, and a transformation in internal processes. AI allows, among other things, offering personalized products and recommendations to customers and make decisions more intelligently. These technologies are not only in the hands of traditional companies but Fintech also makes use of them. Data are the cornerstone of the digital economy. Financial institutions must make the most of the opportunities offered by technology and innovation, analyzing customer behavior, needs and expectations in order to offer them personalized and value-added services, and help them in making decisions. The development of algorithms based on big data can lead to the development of new advisory tools for managing personal finances and access to products which until recently were only available to high-value segments. The digital transformation of the financial industry is boosting efficiency through automation of internal processes, with the use of new technologies to remain relevant in the new environment, such as blockchain and the cloud; data exploitation; and new business models (platforms). Participation in digital ecosystems through alliances and investments provides a way to learn and take advantage of the opportunities emerging in the digital world. 51 The financial services market is also evolving with the arrival of new players: companies offering financial services to a specific segment or focused on a part of the value chain (payment, finance, etc.). These companies are digital natives, rely on data use and offer a good customer experience, sometimes exploiting a laxer regulatory framework than that for the banking sector. Regulatory Environment 1. Banking package for the reduction and distribution of risks to finalize the banking union The most important focus in the European regulatory agenda in 2018 was the negotiation of the banking package that includes the measures proposed by the Commission intended to reduce and share risks in the banking industry. In recent years, the construction of the banking union project has made significant progress but there are still elements pending development, which regulators have been adjusting at the technical level throughout the year. a) Prudential measures The prudential measures proposed are intended to implement internationally agreed reforms between the years of 2014 and 2016 (which do not correspond to the standards known as Basel IV). Additional requirements include the requirement of a net stable financing ratio, or a leverage ratio, and the review of the capital requirements of the financial liabilities held for trading (fundamental review of the trading book - FRTB). At the same time, 2018 was the first year in which the Single Resolution Mechanism (SRM) communicated the Minimum Required Eligible Liabilities (MREL) for each European bank on the basis of the Bank Recovery and Resolution Directive 1 (BRRD 1). b) Non-Performing Loans In the advances made in the package of measures for the adequate recognition and valuation of non-performing loans, two provision backstops stand out: the addendum to the Guide on NPLs (Non-Performing Loans) of the ECB, within the supervisory dialog ensconced in Pillar II, already in force, and the proposal of the European Commission, for mandatory compliance contained within Pillar I, still under discussion. Minimum coverage levels are established for these loans based on the time they have been classified as non-performing and based on whether or not they have applicable guarantees in effect. Any lack of provisions must be deducted from the CET1 capital. c) Guarantee systems On the one hand, an agreement was reached to begin political negotiations involving the European deposit insurance scheme (EDIS). On the other hand, it was agreed at the June Euro Summit that the European Stability Mechanism (ESM) will evolve into the backstop for the Single Resolution Fund (SRF), with a maximum provision of €60.0 billion. d) Sovereign risk At the global level, the work performed by the Basel Committee establishes not to modify the regulatory treatment of sovereign exposures in the short term. At the European level, the discussion focused on the development of a new low-risk asset backed by a set of Eurozone sovereign bonds (sovereign bond-backed securities - SBBS). According to the European Commission, these assets could potentially contribute to the diversification of the sovereign portfolios of credit institutions, as well as to reduce financial fragmentation. These measures were encouraged in order to get all Banking Union elements operational in 2019, and thus to create greater integration and diversification in the European financial sector and to build a stronger and more resilient economic and monetary union. 2. Culmination of the Capital Markets Union (CMU) In 2018, the European Commission advanced a number of its pending action plans to complete the Capital Markets Union (CMU) in mid-2019. These include: i) review of the Directive and Regulation of mortgage-covered bonds and the Regulation of simple, transparent and standardized securitization (STS) to boost both markets with the goal of lowering the cost of financing for the real economy and SMEs; ii) measures to facilitate the cross-border distribution of mutual funds and securities and boost the growth of SME markets; iii) a pan-European venture capital fund program (VentureEU) intended to stimulate investment in emerging and expanding innovative companies throughout Europe; and iv) a sustainable finance action plan, consolidating the regulatory importance of integrating this type of finance into the EU financial system, as well as the inclusion of environmental, social and governance issues (ESG) in long-term investment decision-making.. 3. Reference indices: EONIA and Euribor 52 The revision of interbank offering rates (IBORs) continues in order to adapt them to international principles and European regulations on indexes in terms of methodology, transparency, governance and others. In 2018, the ECB formed a working group with representatives of the financial industry (ERFR) with the goal of identifying and recommending alternative risk-free indices to those existing in the eurozone today.   The ERFR recommended the Euro Short-Term Rate (ESTER) prepared by the ECB as the alternative index to EONIA. The transition from EONIA to ESTER will be carried out in 2019 according to the ERFR work plan. The hybrid methodology that combines real operations and expert judgment advances in accordance with the deadlines established and could be implemented in 2019. The Euribor supervisor, FSMA (Financial Services and Markets Authority), confirmed that the results of the parallel exercise, between the current methodology and the new hybrid methodology, carried out by its administrator, EMMI (European Money Markets Institute), would allow to approve the new methodology during the second quarter of 2019. 4. Global discussions focused on the implementation of capital and resolution measures Upon completion of the Basel III framework in December 2017, which is set to come into force in January 2022 (although some of its elements will not be fully operational until 2027), the European Commission began its preparation work in 2018 by publishing a Call for Advice (CfA) to the EBA on the implementation of Basel III in European legislation. For this reason, the EBA launched an ad-hoc quantitative impact study (QIS) in August. This exercise was based on the Basel QIS exercise, in which BBVA also participated. With regard to financial institutions' recovery and resolution framework, there are open discussions that revolve around the implementation of the bail-in tool and the need for liquidity in resolution. For this reason, the Financial Stability Board (FSB) published its final guidelines on resolution funding, as well as a review on the implementation of the total loss-absorbing capacity guidelines (TLAC), in addition to bank resolution plans. 5. Regulation in the field of the digital transformation of the financial sector In 2018, the digital transformation of the financial sector was specified as a priority for the authorities. In Europe, the Commission and the European Banking Authority published action plans, and in Mexico, a Law to Regulate Financial Technology Institutions was enacted. At the global level, the regulatory debate that began in 2017 intensified, and calls for greater international cooperation in the definition of the new regulatory framework for digital financial services increased. The authorities have agreed on their identification of priorities. They have highlighted: i) the identification of measures to favor the controlled development of new business models, and barriers to the adoption of innovative technologies in the financial sector; and ii) the implementation of schemes to facilitate innovation (regulatory sandboxes -scheme to enable firms to test, pursuant to a specific testing plan agreed and monitored by a dedicated function of the competent authority, innovative financial products, financial services or business models- and innovation hubs -point of contact for firms to raise enquiries with competent authorities on FinTech-related issues and to seek non-binding guidance on the conformity of innovative financial products, financial services or business models with licensing or registration requirements and regulatory and supervisory expectations-). A legislative proposal was presented in Spain in 2018 to create a regulatory sandbox, which will be operational in 2019. Cybersecurity also remained among the top priorities of the financial sector and authorities. Increases in the frequency and sophistication of cyberattacks explain why work continued to improve harmonization and international cooperation throughout 2018. Cybersecurity took center stage in the agenda of the European Commission and the European Central Bank in 2018. The new Payment Services Directive (PSD2) came into force in January 2018, and work continued on the process defining the technical details throughout the course of the year. This Directive seeks to encourage competition and strengthen the security of payments in Europe. To this end, it regulates access to customer payment accounts by third parties that may offer information-aggregation services and initiate payments. Digitization makes it possible to store, process and exchange large volumes of data. This trend facilitates the adoption of technologies, such as big data or artificial intelligence, but also raises concerns about how to ensure the privacy and integrity of customer data. In Europe, this has materialized in the form of two regulations: the General Regulation of Data Protection (GDPR), which came into force in May 2018, and the e-Privacy Regulation, which is still under debate. The recognition of data as a strategic asset in the digital economy increased in 2018, making it necessary to create attractive value propositions and strengthen customer confidence. In 2018, the approval of the new European regulation of free flow of non-personal data joined the open-banking regulations, such as the aforementioned PSD2 and GDPR, or the standards included under the Fintech law in Mexico, which regulate accessibility and the right to portability of data, was added in 2018. In addition, the public debate on the role of large technology companies in the digital economy and financial sector intensified throughout the course of the year. In Europe, the Commission presented a proposal for regulations to delimit 53 certain obligations in its role as a platform for the intermediation of online services, in the interest of transparency and equity. It is expected that this trend will continue throughout 2019. Economic outlook 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 further 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. The update of the BBVA Research scenario takes into account this new environment, and is based on the assumption that high financial volatility may continue during the first half of the year 2019, should some the uncertainties weighing on the global panorama not dissipate (an agreement between the United States and China to curb trade disputes and avoid a new tariff hike, a solution that avoids a no-deal Brexit, and confirmation of a more deliberate tone in the Fed's monetary policy). In consideration of this, BBVA Research's forecast is for a smooth deceleration of the global economy, from 3.6% in 2018 to 3.5% in 2019 and 3.4% in 2020. In terms of countries, the moderation of growth will be more evident in developed economies. In the United States, the moderation observed in the second half of last year, linked to the poorer performance of domestic demand and the recent appreciation of the dollar, is likely to continue. The aforementioned, linked to the gradual disappearance of the effects of the fiscal stimuli introduced last year and without private investment taking over as an economic engine, this will lead to a projected slowdown in growth from 2.9% in 2018 to 2.5% in 2019 and 2% in 2020. The recovery in the Eurozone has already suffered from lower global demand and more moderate growth is expected, around 1.4% in the 2019-20 period, after the 1.8% estimated in 2018. This growth is based on the strength of domestic fundamentals and the support of an accommodative monetary and fiscal policy. This dynamic will also have an impact on Spain's growth, although it will still remain above the Eurozone average, with a gradual slowdown from 2.5% in 2018 to 2% in 2020. Growth in the emerging economies will remain relatively stable, although it will hide a different pattern among countries. In general, a slowdown is expected in the Asian economies being negatively affected by lower growth in China, from 6.6% in 2018 to 6.0% in 2019 and 5.8% in 2020, while the recovery will gain traction in Latin American countries (1.6% in 2018, 2.1% in 2019 and 2.4% in 2020). Growth is set to remain relatively stable in Mexico and Peru in the 2018-20 period, while a gradual recovery is expected in Colombia and Brazil. In Argentina, the activity could contract again by around 1.0% in 2019 after the sharp decrease of 2.4% in 2018, due to the contractionary policies applied; however, these will be smoothed over time, which will allow growth of approximately 2.5% in 2020. In Turkey, the adjustment process of the economy continues after the tightening of monetary and fiscal policies to correct the imbalances generated in previous years, so that the slowdown in growth will persist in 2019 (1.0%) before starting to gain some degree of momentum in 2020 (2.5%). The scenario continues to be that of a mild slowdown of the global economy, but remains increasingly uncertain due to risks as protectionism; the adjustment of activity, both in the United States as well as China; and the increasing uncertainty in Europe, mainly linked to the Brexit and other political factors. 54 Strategy and business model BBVA made significant progress in its transformation process during 2018, based on its Purpose, the six Strategic Priorities, and its Values, all of which are fundamental pillars of the Organization's overall strategy. Vision and aspiration BBVA is a transformation process that is necessary for adapting to the new environment in the financial industry, characterized by trends that confirm the Group's strategic vision, that is, a reconfiguration of the entire financial services industry is taking place. These trends are the following:       A complex macroeconomic environment, characterized by strong regulatory pressure, low interest rates, high currency volatility, and geopolitical risks. A highly regulated banking industry, that is, traditional banking subject to a large number of legal regulations, both globally and locally. A shift in the needs and expectations of customers who demand higher value-added services that enable them to achieve their objectives, with a simple, transparent and immediate relationship model similar to the one they already enjoy with a number of other highly digitized industries. Certain data that is evolving into a strategic asset. Given the large amount of data stored within organizations, the ability to interpret and make value proposals to customers is considered to be critical, provided there is customer consent under all circumstances. Certain technological giants, with business models based on data that create ecosystems where the lines between different types of businesses are getting blurred. Greater competition as a result of the arrival of new players who focus on the most profitable aspects of the value chain. In this context, the main objective of the Group's transformation strategy its aspiration is to strengthen the relationship with its customers. 55 Progress in BBVA´s transformation journey BBVA advanced in fulfillment of its Purpose in 2018: To bring the age of opportunity to everyone, which is reflected in the tagline: Creating Opportunities. We want to help our customers make better financial decisions and attain their life goals; we want to be more than a bank, we want to be an engine of opportunities and have a positive impact on peoples’ lives and companies’ businesses. In this respect, important steps were taken in the development of the six Strategic Priorities of the Group throughout the year in order to continue its advances in the transformation process. These advances were reflected in the results of key performance indicators (KPIs). Strategic priorities 1. A new standard in customer experience BBVA Group's main focus is based on providing a new standard in customer experience that stands out for its simplicity, transparency and swiftness, further empowering its customers while offering them personalized advice. BBVA's business model is customer-oriented, with the goal of being a leader in customer satisfaction across its global footprint. In order to learn more about the degree of customer recommendation, and, in turn, their degree of satisfaction, the Group uses the Net Promoter Score (NPS) methodology, which recognizes BBVA as one of the most recommendable banking entities in every country where it operates. Likewise, progress in customer satisfaction is reflected in the positive performance of strategic indicators such as the target customers (segment of customers which the Group wishes to grow and retain), as well as its corresponding client attrition rate. The digital customers base are more satisfied and this translate into digital clients attrition rate reduction (-47% vs non digital clients). In short, BBVA is making progress in its strategy, and succeeding in attracting a greater number of customers, who are also more satisfied and more loyal. 2. Digital sales BBVA's relationship model is evolving to adapt to the growing multi-channel customer profile, which is why it is essential to foster digitalization. For this purpose, it is developing an important digital offering including products and services that let customers use the most convenient channel for them. The number of digital and mobile customers of the Group grew considerably in 2018, reaching the tipping point of 50% in digital customers at the Group level and in six countries where BBVA operates: Spain, The United States, Turkey, Argentina, Colombia and Venezuela. Digital and mobile customers (BBVA Group. Millions) 56 Furthermore, a significant boost to digital channel sales is being made, which is having a very positive evolution across the global footprint. In 2018, 41% of sales were made through the Group's digital channels compared to 28% in the previous year. 3. New business models Throughout 2018, BBVA continued to consolidate itself as one of the leading banks in terms of digital transformation and activity in the entrepreneurship ecosystem. The Group is actively participating in the disruption of the financial industry in order to incorporate key findings into the Bank's value proposition, both through the search for new digital business models as well as the leveraging of the FinTech ecosystem. This activity is being implemented in five key levers: i) exploring (Open Talent y Open Summit); ii) constructing (Upturn and Azlo); iii) partnering (Alipay); iv) acquiring and investing (Solaris and the increase of participation in Atom); and v) venture capital (Sinovation and Propel). 4. Optimize capital allocation The objective of this priority is to improve the profitability and sustainability of the business while simplifying and focusing it on the most relevant activities. Throughout 2018, efforts continued to promote the correct allocation of capital and this is allowing the Group to continue improving in terms of solvency. Thus, the fully-loaded CET1 capital ratio stood at 11,3% at the end of the year, up 26 basis points on the close of 2017. CET1 fully-loaded (Percentage) 5. Unrivaled efficiency In an environment of lower profitability for the financial industry, efficiency has become an essential priority in BBVA's transformation plan. This priority is based on building a new organizational model that is as agile, simple and automated as possible. In 2018, the Group's efficiency ratio stood at 49,3%, which is lower than the previous year (49,5%). Efficiency ratio (Percentage) 6. A first class workforce BBVA Group’s most important asset is its people; therefore, a first class workforce is one of the six Strategic Priorities, which entails attracting, selecting, training, developing and retaining top-class talent. BBVA Group has developed new people management models and new ways of working which have enabled the Bank to keep transforming its operational model, but have also promoted cultural transformation and have favored the ability to become a purpose-driven company, or, in other words, a company where staff guide their actions according to the Values, and are genuinely inspired and motivated by the same Purpose. 57 58 Our values BBVA is engaged in an open process to identify the Group's Values, which took on board the opinion of employees from across the global footprint and units of the Group. These Values define our identity and are the pillars for making our Purpose a reality: 1. Customer comes first BBVA has always been customer-focused, but the customer now comes first before everything else. The Bank aspires to take a holistic customer vision, not just financial. This means working in a way which is empathetic, agile and with integrity, among other things.  We are empathetic: we take the customer's viewpoint into account from the outset, putting ourselves in their shoes to better understand their needs.  We have integrity: everything we do is legal, publishable and morally acceptable to society. We always put customer interests' first.  We meet their needs: We are swift, agile and responsive in resolving the problems and needs of our customers, overcoming any difficulties we encounter. 2. We think big It is not about innovating for its own sake but instead to have a significant impact on the lives of people, enhancing their opportunities. BBVA Group is ambitious, constantly seeking to improve, not settling for doing things reasonably well, but instead seeking excellence as standard.  We are ambitious: we set ourselves ambitious and aspirational challenges to have a real impact on people's lives.  We break the mold: we question everything we do to discover new ways of doing things, innovating and testing new ideas which enables us to learn.  We amaze our customers: we seek excellence in everything we do in order to amaze our customers, creating unique experiences and solutions which exceed their expectations. 3. We are one team People are what matters most to the Group. All employees are owners and share responsibility in this endeavor. We tear down silos and trust in others as we do ourselves. We are BBVA.    I am committed: I am committed to my role and my objectives and I feel empowered and fully responsible for delivering them, working with passion and enthusiasm. I trust others: I trust others from the outset and work generously, collaborating and breaking down silos between areas and hierarchical barriers. I am BBVA: I feel ownership of BBVA. The Bank's objectives are my own and I do everything in my power to achieve them and make our Purpose a reality. The Values are reflected in the daily life of all BBVA Group employees, influencing every decision. 59 The implementation and adoption of these Values is supported by the entire Organization, including senior management, launching local and global initiatives which ensure these Values are adopted uniformly throughout the Group. Thus, in 2018 the core values were present in the various people management levers (recruitment, training, development, etc.), as well as in agile and budget management processes. Within the people management levers, a new people assessment model was launched, in which the cultural skills of 97% of employees were evaluated. In the global report it has been verified that the best rated value (4.66 out of 5) and, therefore, the most focused-on principle for the Entity is the concept of Customer comes first. In addition, in July 2018, BBVA held its first global Values Day, an event that took place across its global footprint, with the objective that employees reflect on the implications of values and propose actions for their effective implementation. The main activity at this global event was workshops organized to identify improvement projects and determine opportunities has for implementing its values in the Group. In these workshops:  more than 23,000 employees (nearly 20% of the total) from different countries and areas participated;  they took place both at corporate headquarters around the world, as well as through activities in the branch network;  Mexico was the country with the highest participation in the workshops, with a total of 11,475 participants (31%);   Customer comes first value was the most cited value at a global level, 47% of the participants focused on this value, and one in four employees focused on We meet their needs behavior; the online and individual version of the workshop that was made available to all employees through an ad-hoc web app for this event had participation levels of 63%. In short, Values Day helped to create listening mechanisms and transform employees' feedback into data through machine-learning algorithms; thus becoming an event specific to a data-driven organization. In addition, in 2018 BBVA shared Our Values with other stakeholders: with customers through the actions carried out in branches during the Values Day; with shareholders in the framework of the General Shareholders' Meeting; and with society in general, with the publication of articles specialized in media of different countries. More than 500 local initiatives have also been launched to consolidate the relationship with customers, promote the transforming vocation of teams and collaborative work schemes and encourage the feeling of belonging to BBVA. 60 Materiality BBVA performs a materiality analysis in order to become aware of and prioritize the most relevant issues, both for its key stakeholders and for its overall strategy. In other words, it is an analysis that contributes to the development of the business strategy in line with what is expected of the Group, as well as a way to determine what information should be reported. In 2018, in addition to the data-based analysis already in use in recent years, there has been participation from the Strategy & M&A area, and the collaboration of different stakeholder teams (Client Solutions, Talent & Culture, Investor Relations, Supervisory Relations, Legal Services, and Responsible Business). This has improved the process of identifying relevant issues and led to a deeper debate on the relationship between the priorities of the stakeholders and business strategies. The materiality analysis phases were as follows: 1. Identification of relevant issues for each of the stakeholders based on interviews with the teams they interact with. These, in turn, relied on information that was obtained from the usual listening and dialog tools. 2. Agregation into a single list, based on all issues identified for each of the stakeholders. BBVA made a list of twelve issues. 3. Prioritization of issues according to their importance to the stakeholders. BBVA carried out a series of surveys and interviews with various stakeholders, as well as an analysis of social media and networks. In order to complete the prioritization, an analysis on trends and sectoral data was made, based on data from Datamaran, from which the issues most relevant to their peers were obtained. 4. Subjects were prioritized according to their impact on BBVA's strategy. The strategy team assessed how each issue impacts the six Strategic Priorities. The most relevant issues for BBVA are those that help it achieve its strategy to a greater extent The result of this analysis is contained in the Group's materiality matrix. 61 Therefore, the five most relevant issues for BBVA's business strategy and its stakeholders are (in order of joint importance):      Easy, fast and DIY (do it yourself): stakeholders expect to operate in an agile and simple way with BBVA, at any time and from anywhere, leveraging in the use of new technologies. These new technologies will allow greater efficiency in the operation, generating value for the shareholders. Solvency and sustainable results: stakeholders expect BBVA to be a robust, solvent and sustainable bank, thus contributing to the stability of the system. They demand a business model that responds to changes in the context: disruptive technologies, new competitors, geopolitical issues, etc. Ethical behavior and consumer protection: stakeholders expect BBVA to behave in a comprehensive manner and to protect clients or depositors by acting transparently, offering products that are appropriate to their risk profile and managing the ethical challenges presented by certain new technologies with integrity. Adequate and timely advice to customers: stakeholders expect BBVA to provide appropriate solutions to clients' personal needs and circumstances. It is also expected that the Bank will help them in managing their finances, proactively and with proper handling. Cybersecurity and responsible use of data: stakeholders expect their data to be secure at BBVA and to used only for agreed purposes, always complying with current law. This is critical to maintaining trust. Information on the Group's performance in these relevant matters in 2018 is reflected in the different chapters of this Management Report. 62 Responsible banking model At BBVA we have a differential banking model that we refer to as responsible banking, based on seeking out a return adjusted to principles, strict legal compliance, best practices and the creation of long-term value for all stakeholders. It is reflected in the Bank's Corporate Social Responsibility or Responsible Banking Policy. The Policy's mission is to manage the responsibility for the Bank's impact on people and society, which is key to the delivery of BBVA's Purpose. All the Group’s business and support areas integrate this policy into their operational models. The Responsible Business Unit coordinates the implementation and basically operates as a second line for defining standards and offering support. The responsible banking model is supervised by the Board of Directors and its committees, as well as by the Bank's senior management. The four pillars of BBVA's responsible banking model are as follows:     Balanced relations with its customers, based on transparency, clarity and responsibility. Sustainable finance to combat climate change, respect human rights and achieve the UN Sustainable Development Goals (SDGs). Responsible practices with employees, suppliers and other stakeholders. Community investment to promote social change and create opportunities for all. In 2018, BBVA approved its climate change and sustainable development strategy to contribute to the achievement of the Sustainable Development Goals (SDGs) and aligned with the Paris Agreement. This strategy is described in the Sustainable finance chapter. 63 Customer relationship Customer experience One of the Group's Strategic Priorities is a new standard in customer experience, that is, to ensure that the customer experience is distinguished by its simplicity, transparency, and swiftness, to further the customers empowerment and to offer them personalized advice. In 2018, BBVA's value proposition with its clients evolved with focus on several value streams: DIY – Do it yourself, Open Market, Physical & Human touchpoints, Advice and Smart Interactions, for both retail and company projects. In this sense, the solutions were more aligned with the needs of the customers, which had a direct effect on the customer experience. In parallel, BBVA also wants to be prepared to face possible disruptive trends that can change the current paradigm, which is why we also work on projects that may have an impact over a time horizon of more than 5 years. Through new ways of doing things and organizing (working in agile and applying a new operating model) the development of solutions is prioritized, a greater alignment and coordination at the Group level is created and the development of global solutions is motivated. All this contributes to offer better solutions in less time for customers while improving internal efficiency. In addition, BBVA works with an open banking mentality, which means working with third parties to offer customers the best solutions available in the market and also to be able to offer these solutions to the clients of these third parties. Over the 2018, BBVA continued to build global products and capabilities. One example of this is GloMo (GLobal Mobile), a mobile banking platform developed globally by BBVA that is already available in Mexico and Uruguay, and is expected to be launched in Peru in 2019. This new BBVA application is the first one that has been built on a global development platform, which provides efficiency and optimizes resources, allowing for the reuse of components. This type of development allows for service modularity, making it possible to unify the customer experience in all countries with a unique design, but with a navigation logic adapted to the needs of the client in each country. Net Promoter Score In 2018, BBVA consolidated the quality and customer experience model that was launched in the previous year, year, placing the customer at the center of decisions, with a very clear and ambitious goal: to offer a differential service, regardless of the channel of communication they choose and to allow to be leaders in customer satisfaction in all the geographical areas in which it operates. The internationally recognized Net Promoter Score (NPS or Net Recommendation Index – (IReNe, for its acronym is Spanish)) methodology calculates the level of recommendation, and hence, the level of satisfaction of BBVA customers with its different products, channels and services. This index is based on a survey that measures on a scale of 0 to 10 whether a bank's customers are positive (score of 9 or 10), neutral (score of 7 or 8) or negative (score of 0 to 6) when asked if they would recommend their bank, a specific product or a channel to a friend or family member. This is vital information for identifying their needs and drawing up improvement plans, on multidisciplinary teams work to create unique and personal experiences. The Group's internalization and application of this methodology over the last eight years has led to a steady increase in the customers' level of trust, as they recognize BBVA to be one of the most secure and recommendable banking institutions in every country where it operates. In 2018, BBVA ranked first in the NPS indicator in six countries: Spain, Mexico, Turkey, Peru, Uruguay and Paraguay and second in Colombia. TCR Communication The Transparent, Clear and Responsible (TCR) Communication project promotes transparent, clear and responsible relations between BBVA and its customers.    T is for transparency: providing customers with all relevant information at the right time, maintaining a balance between benefits and costs. C is for clarity, meaning easy to understand. It is achieved by the Group through language, structure and design. R is for responsibility, and means looking after the customers' interests in the short, medium and long term. The objectives are to help customers make informed decisions, improve customer relations with the Bank, look out for their interests and make BBVA the most transparent and clearest bank in all the markets where it operates. It also means BBVA can attract new customers and encourage existing customers to recommend it. 64 In 2018, the project had three lines of work:    Implement the TCR principles as they pertain to new digital solutions, with the participation of TCR experts in the global design of the BBVA mobile application, whose development, adaptation and implementation was made for Mexico and Peru, and collaboration in the development of the new Public Web in Mexico, Colombia and Peru. Work continues on a large number of global digital projects, both for mobile and for the web. Incorporate the TCR principles in the key content intended for customers, with the performance of maintenance works of TCR materials (files deliverable to customers, contracts, sales scripts, and claim letter responses) and the objective of continuing with all applicable updates, putting focus on improving the customer experience. Spread TCR principles throughout the Group, by means of training provided in workshops directed principally to digital project teams in Spain, Mexico, Argentina, Colombia and Peru. In addition, two new editions of the Clear Language in BBVA program were launched, which earned a satisfaction rating of 4.8 out of 5; the online course TCR Apply was created to help apply these principles on a day-to-day basis; and the TCR training was extended to the legal departments in Spain, Argentina, Colombia. The project is coordinated by a global team working together with a network of local TCR owners located in the main countries in which the Group has a presence, and various Bank areas and individuals participate in its implementation. TCR Indicators BBVA uses an indicator, the Net TCR Score (NTCRS), which allows us to measure the degree to which customers perceive BBVA as a transparent and clear bank compared to its peers in the main localities. 65 Customer care Complaints and claims BBVA has an appropriate claims management and service model that positively transforms the customer experience. In this way, every interaction that the Group has with its customers is an opportunity to improve this model, thus ensuring that the business is customer-centric and transforming these interactions into positive experiences. This is important because one of the key moments determining customer experience is considered to be when a customer communicates dissatisfaction with a product or service, that is, when complaints and claims are received. Following the path of digital transformation, any type of opinion that the customer provides by any means (NPS, digital feedback, complaints, claims, etc.) is examined, with the objective of learning more about their opinions and of having the opportunity to help them resolve any problem by offering simple, clear, agile and personalized responses. Main indicators of claims (BBVA Group) Number of claims before the banking authority (for each 10,000 active customers) Average time for settling claims (normal days) Claims settled by First Contact Resolution (FCR) (% over total claims) 2018 9.40 7 26 2017 10.02 7 31 The various Group claims units are constantly evolving, optimizing processes and improving the management and care model, as a key aspect of differentiation in an increasingly competitive environment, thus reinforcing the objective of offering a unique experience to customers and the fulfillment of BBVA's aspiration: to strengthen the relationship with its customers. These claims units focus their efforts on:    reviewing and constantly monitoring claim metrics trends and the causes that generate these claims; implementing action plans focused on solving the root causes that generate these claims; and improving the execution of processes through their optimization or automation, finding a suitable balance of efficiency and improvement in the customer experience. All of the registered and available information regarding claims in the Group is reviewed periodically through a global online site, with customized queries generated depending on the indicator or variable that is to be analyzed. The Group's senior management has a direct involvement in the follow-up of customer claims and complaints. In short, BBVA’s claim management is an opportunity to offer greater value to customers and strengthen their loyalty to the Group, to achieve its aspiration to strengthen the relationship with its customers. In this respect, BBVA aims to promote greater agility and simplicity in the management of complaints and claims, through the implementation of optimal processes in this management, with the focus on the elimination of the main causes that generate the claims and with resolution of alternatives upon first contact. As a result of the improvements implemented in the claims management process in BBVA, these registered a significant decrease in 2018 (-39.0% with respect to the figure of the previous year), basically in Spain and Mexico. This last country, with the biggest active customer base of the Group, is also the country with the biggest number of claims. Number of claims before the banking authority by country (Number for each 10,000 active customers) (1) Spain The United States Mexico Turkey Argentina Chile Colombia Peru Venezuela Paraguay Uruguay Portugal Scope: BBVA Group 2018 3.54 4.56 17.94 4.03 1.11 - 21.56 1.19 0.47 1.19 0.68 21.92 66 2017 4.87 4.96 16.12 3.21 2.68 5.55 21.65 2.21 1.04 0.79 0.41 34.84 (1) The banking authority refers to the external body in which the customers can complain against BBVA. The average time for resolving claims in the Group is maintained in 7 days, improving in Spain (10 days compared to 25 the previous year) and in Peru. Average time for setting claims by countries (Normal days) Spain The United States Mexico Turkey Argentina Chile Colombia Peru Venezuela Paraguay Uruguay Portugal 2018 10 2017 25 4 5 2 7 - 5 9 13 6 7 4 3 4 2 7 5 4 12 13 6 8 5 The claims settled by the First Contact Resolution (FCR) model account for 26% of total claims, thanks to the management and handling of these claims aims to reduce resolution times and increase the service quality, thus improving the customer experience. Claims settled by First Contact Resolution (FCR. Percentage over total claims) Spain(1) The United States Mexico Turkey (2) Argentina Chile Colombia Peru Venezuela Paraguay Uruguay Portugal (3) n.a. = not applicable 67 2017 n.a. 63 38 44 27 6 73 4 1 28 12 n.a. 2018 n.a. 54 30 38 21 - 69 8 0 39 14 n.a. (1) In Spain, is applicable a FCR type called IRR (Immediate resolution response) to credit card incidents, but not claims. (2) In Turkey, the weighting is calculated by the total number of customers. (3) This kind of management does not apply in Portugal. Customer Care Service and Customer Ombudsman In 2018, the activities of the Customer Care Service and Customer Ombudsman were carried out in accordance with the stipulations of article 17 of the Ministerial Order (OM) ECO/734/2004, dated March 11, of the Ministry of Economy, regarding customer care and consumer ombudsman departments at financial institutions, and in line with BBVA Group's Regulation for Customer Protection in Spain, approved in 2015 by the Bank's Board of Directors, with regard to regulation of the activities and powers of the Customer Care Service and Customer Ombudsman. In accordance with the aforementioned regulation, the Customer Ombudsman has been made aware of and resolved, in the first instance, all complaints and claims submitted by the participants and beneficiaries of the pension plans, as well as those related to insurance and other financial products that BBVA Group Customer Care Service considered appropriate to escalate, based on the amount or particular complexity, as established under article 4 of the Regulation for Customer Protection. Likewise, the Customer Ombudsman has been made aware of and resolved, in the second instance, all complaints and claims that customers opted to submit for their consideration after having obtained a dismissal resolution from the Customer Care Service. Activity report on the Customer Care Service in Spain The activity of the Customer Care Service takes place within the scope of the O.M ECO / 734 and in compliance with the competences and procedures established in the Regulation for the Defense of Customers in Spain of the BBVA Group. As stipulated in the Regulations, the Customer Care Service is entrusted with the task of dealing with and resolving the complaints received from customers in relation to the products and services marketed and contracted in Spanish territory by the entities of the BBVA Group. The Customer Care Service in compliance with the European guidelines on claims established by the competent authorities ESMA (European Securities Market Authority) and EBA (European Banking Authority), works to detect the recurrent, systemic or potential problems of the Entity. Like previous years, 2018 has been characterized by a complex environment. The main types of claims have been related to mortgage loans. The Customer Care Service (SAC) continued the training plan that was launched in 2017 for the whole team. This plan has addressed, among other issues, regulations on transparency and protection of customers, as well as obligations arising from contracts for products and services. The objective of the plan is to guarantee adequate knowledge for managers in order to facilitate the continuous improvement in the claims management and the identification of the root causes thereof. Claims of customers admitted to BBVA's Customer Care Service in Spain amounted to 84,533 cases in 2018, 51% less than in 2017, of which 81,626 were resolved by the Customer Care Service and concluded in the same year, which represents 97% of the total. 2,907 claims remained pending analysis. On the other hand, 42,688 claims were not admitted for processing as they did not meet the requirements set out in OM ECO/734. Nearly 40% of the claims received corresponded to mortgage loans, mainly mortgage arrangement expenses. Complaints handled by Customer Care Service by complaint type (Percentage) 68 Type Resources Assets products/ loans Insurances Collection and payment services Financial counselling and quality service Credit cards Securities and equity portfolios Other Total Complaints handled by Customer Care Service according to resolution (Number) In favor of the person submitting the complaint Partially in favor of the person submitting the complaint In favor of the BBVA Group Total 2018 29 39 3 5 4 13 1 6 2017 9 79 1 2 2 4 1 2 100 100 2018 25,970 18,563 37,093 81,626 2017 29,041 90,047 52,058 171,146 Activity report of the BBVA Group´s customer ombudsman in Spain In 2018, the Customer Ombudsman, along with the BBVA Group, has maintained the objective of unifying criteria and fostering the protection and security of customers, making progress in compliance with transparency and customer protection regulations. In order to efficiently translate their observations and criteria on the matters submitted for their consideration, the Ombudsman promoted several meetings with the Group's areas and units: Insurance, Pension Plan Manager, Business, Legal Services, etc. In this sense, the Customer Ombudsman has been holding a Claims Follow-up Committee on a monthly basis, with the main objective of keeping a permanent dialog with the BBVA Group Services that contribute to positioning the Group in relation to its customers. The Directors of Quality, Legal Services and the Customer Care Service attend this committee. Likewise, the Customer Ombudsman participates in the Transparency and Good Practices Committee, in which the Bank's actions are analyzed, in order to adapt them to the regulations on transparency and good banking practices and standards. Customer claims managed in the Customer Ombudsman's Office for a decision during the year 2018 have amounted to 3,020 cases. Of these, 114 have not been finally admitted for processing as they did not meet the requirements of Ministerial Order (OM) ECO/734/2004, and 133 remained as pending as of 31-12-18. Complaints handled by the Customer Ombudsman office by complaint type (Number) Type Insurance and welfare products Assets operations Investment services Liabilities operations Other banking products (credit card, ATM, etc.) Collection and payment services Other Total 69 2017 600 367 133 257 140 69 95 2018 753 709 146 753 437 106 116 3,020 1,661 The categorization of the claims managed in the previous table follows the criteria established by the Claims Department of the Bank of Spain, in its requests for information. Complaints handled by Customer Ombudsman office according to resolution (Number) In favor of the person submitting the complaint Partially in favor of the person submitting the complaint In favor of the BBVA Group Processing suspended Total 2018 - 1,482 1,290 1 2,773 2017 - 797 622 8 1,427 51.3% of customers who brought claims before the Customer Ombudsman during the course of the year obtained some type of satisfaction, total or partial, by resolution of the Customer Ombudsman in 2018. Customers unsatisfied by the Customer Ombudsman's response may appear before the official supervisory bodies (Bank of Spain, CNMV and General Directorate of Insurance and Pension Funds). The number of claims submitted by customers to supervisory bodies was 260 in 2018. In 2018, the BBVA Group continued to make progress in the implementation of the different recommendations and suggestions of the Customer Ombudsman with regard to adapting products to the customer profiles and the need for transparent, clear and responsible information. All recommendations and suggestions of the Customer Ombudsman focus on raising the level of transparency and clarity of the information that BBVA Group provides for its customers, both in terms of commercial offers available to them for each product, and in compliance with the orders and instructions thereof, so that the following is guaranteed:    an understanding by customers of the nature and risks of the financial products offered to them, the suitability of the product for the customer profile, and the impartiality and clarity of the information that the Entity targets at customers, including advertising information. In addition, and with the advance in the digitalization of the products offered to customers and the increasing complexity thereof, a degree of special sensitivity is required with certain groups that, due to their profile, age or personal situation, present a certain degree of vulnerability. Operational risk management and customer protection The security measures at BBVA continued to be reinforced in 2018 through its monitoring and cyberprotection capabilities, for both employees and customers. In this respect, and alongside the strategy of using data as the main point of relationship with customers, analytical capabilities were developed that allow for the new threats associated with cybersecurity through data, and to combat them from a preventive viewpoint. Furthermore, a new program was created focusing on providing suitable protection of the Group's information, which is considered one of the main assets and which also allows it to adapt to any new regulations that may arise within the industry. During the year 2018, a series of process services and security services in the field of Engineering has been introduced and improved. All this has been a direct result of the teamwork of the different technical areas that collaborated in improving the user experience and security. It is worth mentioning the improvement of the process of digital onboarding in Spain, introduced in the financial market in a pioneering manner in 2016; the improvement in the time required to 70 become a customer through new validation techniques that guarantee customer identity; and the set-up of our own in- house developments allowing facial biometric payment, already underway with employees and planned for implementation with customers. Various initiatives have been taken in 2018 in the area of business continuity, i.e., for incidents with low probability of occurrence but very high impact, mainly with regard to the enhancement of the Continuity Plan management tools. To be specific, the business impact analysis was updated, and the technological dependences on which the critical processes are based were reviewed, informing the corresponding continuity committees of their results so that, when applicable, they are aware of them and are able to improve their responses in case of unavailability due to information system failures. Over the course of the year, various business continuity strategies were activated within the Group, including those related to torrential rains and hurricanes in the United States, and others pertaining to one-time social conflict events, problems with electrical/water supplies, and the extraordinary monitoring of the process of monetary reconversion in Venezuela. With regard to personal data protection, the project for the implementation of the General Data Protection Regulation (GDPR) was finalized in the Group companies and branches in 2018. It is a continuous and living process, which means that each new product or service must comply with privacy requirements from its design, requiring a firm commitment to ensure respect for the fundamental right to the personal data protection. In addition, the protection of personal data is being strengthened in other areas with regard to suppliers and employees, where new protocols have been adopted in accordance with aforementioned regulation. In addition, BBVA carried out a communication process with its customers on the new requirements imposed by the GDPR and the new range of rights that the data holders hold. For that, different communication channels were used: branches, postal mail, ATM and digital channels. Educational and awareness-raising actions were carried out in this regard, in the area of employee training, planned for all those who form part of the Group, by areas and departments, and which culminate in the incorporation of a specific course on data protection in the corporate training catalog. The position of the data protection delegate as a guarantor of the respect of the fundamental right to the personal data protection was reinforced and strengthened in 2018. Its team has progressively equipped itself with the resources and tools necessary to undertake all tasks entrusted to it in accordance with regulations, in order to guarantee the fulfillment of its duties and functions. Finally, work is being carried out on the internal adaptation required by the new Organic Law for the Personal Data Protection. 71 Staff information People management BBVA's most important asset is its team, the people who make up the Group. For this reason, one of the six Strategic Priorities is having a first-class workforce. In this context, BBVA accompanies its transformation strategy with different initiatives in questions involving employees, such as:  Development of a more transversal, transparent and effective model of people management, in such a way that each employee can occupy the most appropriate role for their profile in order to bring the greatest value to the Organization, with the greatest commitment; and, in turn, learn and grow professionally.  Evolution in the forms of working towards an agile organizational model, in which teams are directly responsible for what they do, building everything from customer feedback and which are focused on the delivery of solutions that best meet current and future needs of the clients.  Promoting a corporate culture of collaboration and entrepreneurship, which revolves around a set of values and behaviors that are shared by the individuals of the Group and which generate identity traits that differentiate it from other entities (see Our Values in the corresponding section of the Strategy and business model chapter).  Incorporation of talent in a range of capacities not usually found in the financial sector, but which are key in the new stage in which the Group finds itself (data specialists, customer experience, etc.). All this has enabled to become a purpose-driven company, that is, a company where staff guide their actions according to the Values, and are genuinely inspired and motivated by the same Purpose. As of December 31, 2018, the BBVA Group had 125,627 employees located in more than 30 countries, 54% of whom were women and 46% men. The average age of the staff was 37.6 years. The average length of service in the Organization was 10.3 years, with a turnover of 6.5% in the year. In 2018, the number of Group employees decreased (-6,229) due, to a large extent, to perimeter variations such as the sale of BBVA Chile (-4,005), completed in the third quarter of the year. 72 Professional development The new people management model was consolidated and rolled out in 2018, a process that culminated with the global launch of a new people assessment system. All Group employees were invited to participate in this system in a 360º review, while the group of around 1,400 people who work for projects did so through a model specially designed for them. The calibrated assessments resulting from this process are the basis for building the BBVA talent map, on which the segmentation of the workforce rests, as well as the differentiated management policies. The combination of the above with the identification and assessment of the existing roles in the Group makes it possible to get to know the professional possibilities of the employees even better, as well as to establish individual development plans, which promote functional mobility and professional growth. Recruitment and development In 2018, 18,656 professionals joined the Group, with one of the focuses being the attraction, recruitment and incorporation of new capacities profiles needed by BBVA in its transformation process. In this manner, in order to be a data-driven organization, in 2018 the first edition of the Young Data Professionals global program was launched. Through this program, 35 recent graduates from universities in Spain, Argentina or Colombia participated in real projects with empowered and multidisciplinary teams, receiving first-level training, both in their specialty as well as in transversal competencies, accompanied at all times by mentors to aid in their development. As a result of the initiatives involving brand positioning and promotion of the professional opportunities available at BBVA through various channels, 204,148 candidates were attracted. In 2018, BBVA eliminated gender and age as differential fields of the candidates, to avoid discrimination in the selection for both reasons, so the distribution by gender and age of the external candidates cannot be facilitated. For its part, BBVA reinforced its internal mobility model throughout the year, placing the employee at the center of the process as the protagonist of their own career. In this sense, a new in-house portal was set-up in the Group, where all employees can learn about the opportunities available in the different locations, register for those that they are interested in, and see their progress in the different recruitment processes in which they participate. New policies based on transparency, trust and flexibility are thus brought into existence. Training BBVA's training priority in 2018 was to develop a continuous learning culture, necessary to drive the Group's transformation strategy. The people management model positions the employee as the true protagonist of their own development, and for this, the necessary knowledge for the performance of their functions is made available to all employees, with quick access to the training catalog. During 2018, existing training resources were incorporated into the market from platforms, suppliers and speakers of recognized prestige, which made it possible to offer a global catalog of training which included more than 9,000 training actions. The training contents of 2018 focused on training involving the Group's core values, on regulatory requirements, on the necessary competencies linked to the people management model and, in particular, on the new required capacities: Agile, Design Thinking, Data or Behavioral Economics, among others. This training allowed BBVA to have more than 1,000 Design Ambassadors, more than 50 Agile Coaches and 250 Data Scientists. The legal requirements of the MiFID II Directive (Markets in Financial Instruments Directive) was another priority focus of training through the different programs designed, and which guarantee the knowledge that employees who distribute information or advise on financial products and services to clients at the European level must possess. In 2018, 14,021 professionals were officially certified in Spain, in the different forms of the European Financial Planner Advisor (DAF/EIP, EFA and EFP). Regarding training channels, online remains the priority channel and represents 71% of the total training provided in the Group. The main new development in online training in 2018 was the B-Token launch within the Group, a new model that allows access to training through a system of tokens that puts employees in charge of their own development, as they are the ones who choose which training to undertake, as well as how and when to undertake it. Basic training data (BBVA Group) Total investment in training (millions of euros) Investment in training per employee (euros) (1) Hours of training per employee (2) Employees who received training (%) Satisfaction with the training (rating out of 10) Amounts received from FORCEM for training in Spain (millions of euros) (1) Ratio calculated considering the Group´s workforce at the end of each year (125,627). (2) Ratio calculated considering the workforce of BBVA with access to the training. Training dara by professional category and gender (BBVA Group. 2018. Number) 73 2017 52.2 396 38.9 84 8,6 3.1 2018 49.5 394 47.3 88 9.3 3.3 Management team (1) Middle men Specialists Sales force Base positions Total Number of employees with training Training hours Total Male Female Total Male Female 2,501 6,599 26,831 35,794 37,004 1,773 3,947 13,231 16,665 14,069 728 2,652 118,099 80,542 37,557 265,789 160,147 105,643 13,600 1,102,703 570,189 532,514 19,129 2,198,559 1,020,344 1,178,215 22,935 1,462,670 544,211 918,458 108,729 49,685 59,044 5,147,820 2,375,433 2,772,387 (1) The management team includes the highest range of the Group´s management. Diversity and inclusion BBVA considers diversity in its workforce to be one of the key elements it uses to attract and retain the best talent and offer the best possible service to its customers. It is proven that teams made up of people with different ways of thinking, dealing with problems, and making decisions obtain better results. In terms of gender diversity, women make up 53.9% of the Group's workforce. Women hold 48% of management positions, 30.3% of technology and engineering positions, and 58.1% of business and profit generation positions. In 2018, initiatives were launched to break down barriers that prevent greater diversity, with a focus placed on facilitating access to positions of responsibility for women. The most important initiatives put in place are:    Implementation of the Rooney Rule, which requires that 50% of all candidates for management positions be women. Training in unconscious biases: various programs, both physical and online, so that team supervisors at BBVA become more aware of their unconscious biases, which mainly harm women and minorities, and learn to neutralize them. Improvement in the way in which job offers are drafted so as to make them more attractive for women and minorities.  Coaching programs for women with high potential to help them assume positions of maximum responsibility and, in turn, for them to support other women in their careers. BBVA's effort in favor of diversity has led to it being included in the Bloomberg Gender Equality Index, a ranking that includes the 100 best global companies in gender diversity, and in the Equileap Global Report on Gender Equality, which selects the 200 best global companies in terms of gender equality. BBVA is also a signatory of the Diversity Charter at European level and of the United Nations Women's Empowerment Principles. In Spain, in 2018, BBVA renewed its Company Equality Seal granted by the Ministry of the Presidency, Parliamentary Relations and Equality to companies that are a model for good practices in this area. Likewise, the Equal Treatment and Opportunities Plan signed with the workers' representation allowed for progress in women's access to positions of greater responsibility in the Organization. In addition, BBVA Spain won the good practices contest for companies in the network. This contest was created by the same Ministry to analyze indicators and evaluation tools, both through the semi-annual monitoring of metrics undertaken 74 by the Equal Treatment and Opportunities Commission and with the participation of the Trade Union Representation, and through the creation of the Diversity Dashboard. This board gives visibility to the metrics by gender, age, training, country of origin, etc. within the Bank itself, through which you can check the degree of diversity of the teams and areas for improvement. Additionally, BBVA renewed the Family-friendly Company certificate granted by the Más Familia Foundation for the practices and regulations in place at BBVA involving equal treatment and labor, work-family and personal life balance. It was also included in the Variable D2019 report that recognizes the 30 companies in Spain with best practices in diversity and inclusion. In the United States, BBVA Compass received the highest possible score (100%) in the 2018 Corporate Equality Index, an index that assesses corporate practices and policies for LGBT employees (Lesbian, Gay, Bisexual and Transgender). This index also functions as a national comparison between the main and most influential companies in the country. In Mexico, BBVA Bancomer conducted the Women Matter study at country level, in order to better understand opportunities for improvement in diversity issues. In line with this, the maternity and paternity program was continued as a supportive measure to help employees through this new stage and to have useful information to generate new initiatives. In Turkey, Garanti implemented its maternity program by redesigning the process before and after maternity leave. Among other policies to support women who suffer from domestic violence, the Bank maintains a direct helpline for its employees. Finally, at the end of 2018, all the banks of the Group’s footprint, have protocols for the prevention of sexual harassment, in Spain and the United States for several years, and prepared during the year in the rest of countries. In particular, in the Bank's protocol in Spain, the Entity and the trade union representatives signing the document expressly state their rejection of any behaviour with sexual nature or connotation that has the purpose or produces the effect of threatening the dignity of a person, particularly when an intimidating, degrading or offensive environment is created, and they commit themselves to the application of this agreement as a solution to prevent, detect, correct and sanction this type of conduct in the company. Employees by countries and gender (BBVA Group) 2018 2017 Number of employees Male Female Number of employees Male Female 75 Spain The United States Mexico Turkey South America Argentina Colombia Venezuela Peru Chile Paraguay Uruguay Bolivia Brazil Cuba Rest of Eurasia France United Kingdom Italy Germany Begium Portugal Switzerland Ireland Luxembourg Finland Hong Kong China Japan Singapore United Arab Emirates Russia India Indonesia South Korea Taiwan Total 30,338 14,930 15,408 30,584 15,097 10,984 36,123 21,994 25,050 6,262 6,803 3,384 6,267 923 430 578 396 6 1 4,566 16,843 9,505 11,492 3,372 2,819 1,148 3,027 436 219 314 154 2 1 1,138 637 72 126 52 41 24 469 122 4 - 83 89 25 3 8 2 3 2 2 2 9 46 87 29 24 15 235 77 3 - 54 46 9 2 1 1 2 1 1 1 3 6,418 19,280 12,489 13,558 2,890 3,984 2,236 3,240 487 211 264 242 4 - 501 26 39 23 17 9 234 45 1 - 29 43 16 1 7 1 1 1 1 1 6 10,928 37,207 22,615 29,423 6,264 6,769 4,159 5,955 4,852 446 592 379 6 1 1,099 72 125 56 44 27 472 121 4 3 39 85 20 3 8 2 3 2 2 2 9 4,470 17,271 9,719 13,385 3,389 2,765 1,400 2,873 2,244 228 330 153 2 1 611 44 87 31 27 17 234 76 3 2 29 42 7 2 1 1 2 1 1 1 3 15,487 6,458 19,936 12,896 16,038 2,875 4,004 2,759 3,082 2,608 218 262 226 4 - 488 28 38 25 17 10 238 45 1 1 10 43 13 1 7 1 1 1 1 1 6 125,627 57,973 67,654 131,856 60,553 71,303 76 Promoted employees by gender (BBVA Group) 2018 2017 Number of promoted employees 4,827 1,049 11,422 4,284 3,266 75 Male Female 2,172 461 3,844 1,749 1,243 36 2,655 588 7,578 2,535 2,023 39 Number of promoted employees 3,878 450 8,928 4,082 3,131 290 Male Female 2,066 292 4,391 1,822 1,318 186 1,812 158 4,537 2,260 1,813 104 24,923 9,505 15,418 20,759 10,075 10,684 Spain The United States Mexico Turkey South America Rest of Eurasia Total Employees average age and distribution by stages (BBVA Group. Years and percentage) 2018 <25 0.9 6.7 10.8 4.8 7.3 1.5 6.2 25-45 63.7 58.0 75.1 87.9 67.3 56.0 71.4 Average 42.8 41.1 33.8 34.3 37.8 43.1 37.6 >45 35.4 35.2 14.1 7.2 25.4 42.5 22.4 Average 42.5 40.9 34.2 33.7 37.8 43.1 37.5 2017 <25 0.8 6.4 10.3 5.3 6.7 0.5 6.0 25-45 65.6 58.8 74.6 88.7 68.7 57.7 72.2 Spain The United States Mexico Turkey South America Rest of Eurasia Total Average length of service by gender (BBVA Group. Years) 2018 2017 Spain The United States Mexico Turkey South America Rest of Eurasia Total Total 16.3 6.6 7.4 8.1 10.8 12.1 10.3 Male 17.0 5.3 7.4 8.2 11.4 11.4 10.7 Female 15.5 7.5 7.4 7.9 10.2 13.0 10.0 Total 16.1 7.2 7.9 7.6 10.1 12.2 10.2 Employee distribution by professional category and gender (BBVA Group. Percentage) Management team (1) Middle men Specialists Sales force Base positions Total 2018 Male 77.9 50.8 47.5 45.4 40.7 Female 22.1 49.2 52.5 54.6 59.3 Total 1.2 10.6 33.1 35.4 19.6 100.0 Total 1.2 9.4 31.9 37.0 20.6 100.0 (1) The management team includes the highest range of the Group´s management. Male 17.1 5.8 8.0 7.7 10.9 11.5 10.7 2017 Male 78.4 52.8 48.2 44.7 39.6 >45 33.6 34.8 15.1 6.0 24.6 41.8 21.8 Female 15.1 8.1 7.9 7.4 9.4 13.1 9.7 Female 21.6 47.2 51.8 55.3 60.4 Employee distribution by type of contract and gender (BBVA Group. Percentage) Permanent employee. Whole day Permanent employee. Part- time Temporary employee Total Total 93.1 1.5 5.4 100.0 2018 Male 46.7 18.3 44.1 Female 53.3 81.7 55.9 2017 Male 46.5 20.2 44.2 Total 92.8 1.7 5.5 100.0 77 Female 53.5 79.8 55.8 Employee distribution by type of contract and stages (BBVA Group. Percentage) 2018 2017 Permanent employee. Whole day Permanent employee. Part-time Temporary employee Total Total 93.1 1.5 5.4 100.0 <25 4.5 13.1 33.2 25-45 71.7 76.4 64.3 >45 23.7 10.5 2.5 Total 92.8 1.7 5.5 100.0 <25 4.3 17.9 32.4 25-45 72.6 72.6 65.0 >45 23.2 9.5 2.6 Employee distribution by professional category and gender (BBVA Group. Percentage) 2018 2017 Permanent employee. Whole day Permanent employee. Part- time Temporary employee Permanent employee. Whole day Permanent employee. Part- time Temporary employee Management team (1) Middle men Specialists Sales force Base positions Group average 99.6 99.5 95.6 95.0 81.4 93.1 0.4 0.3 1.2 1.5 3.0 1.5 - 0.2 3.1 3.6 15.6 5.4 99.5 99.4 94.9 94.6 82.9 92.8 0.5 0.4 0.6 1.4 4.3 1.7 - 0.2 4.4 3.9 12.7 5.5 (1) The management team includes the highest range of the Group´s management. Different capabilities BBVA manifests its commitment to the labor integration of people with different skills through the Integra Plan, which is born of the conviction that employment serves as a fundamental pillar in the promotion of equal opportunities for all people. The Integra Plan is developed through alliances with the main Spanish organizations in the disability sector and is a transversal plan that seeks to promote accessibility, labor integration and greater knowledge and awareness of the needs and potential of people with disabilities. As part of the Plan, the BBVA Integra Awards have been presented every year in Spain since 2009, recognizing the work of organizations that carry out labor integration projects and promote the development of initiatives and good practices in this field of activity. In Mexico, BBVA made agreements with the Ministry of Education and the Secretariat of Public Education so that students with intellectual disabilities could carry out their professional practices in the Bank, as well as a pilot test program for the inclusion of people with disabilities in the circuit de Bancomer races. As of December 31, 2018, BBVA had 727 people with different capabilities in the Group's staff, of which 215 are in Spain, 192 in the United States, 28 in Mexico, 279 in Turkey and 33 in South America. Additionally, progress is being made in the accessibility of the branches of the different banks that make up the Group. The corporate headquarters of BBVA in Madrid, BBVA Bancomer in Mexico and BBVA Francés in Argentina are all accessible. And in 2018, BBVA Spain launched a new mobile application aimed at facilitating cashier operations for blind people and those with a mild physical or intellectual disability. 78 Work environment BBVA carries out, on a general and biennial basis, a survey to measure its employees' commitment and discover their opinions. In 2017, the last survey performed, 87% of the employees that BBVA has worldwide participated. One of the highlights of the results is the average of the 12 main questions of the survey, which was 4.02 out of 5, representing an increase of 11 basis points. The level of commitment of BBVA employees was maintained at 4.40, out of 5, improving due to the more than 11,000 action plans that were agreed as a result of the previous survey. Freedom of association and representation In accordance with the different regulations in force in the countries in which BBVA is present, the working conditions and the rights of the employees, such as freedom of association and union representation, are included in the rules, conventions and agreements signed, in their case, with the corresponding representations of the workers. Dialog and negotiation are part of our way of dealing with any difference or conflict in the Group, for which there are specific procedures for consultation with union representatives. In BBVA Spain, the banking sector collective agreement is applied to the entire workforce, complemented by the company collective agreements which build upon and improve the provisions of sector agreement, and which are entered into on behalf of workers. Employee representatives are elected every four years by personal, free, direct and secret ballot, and are informed of the relevant changes that may occur in the organization of work in the Entity, under the terms provided in accordance with the legislation in force. In other countries, the employees of the Group are included in any collective agreement in such a way that in Mexico 35% of the workforce is covered by an agreement, reaching 100% in Argentina, Colombia, Venezuela and Paraguay, and 6% in Peru . As an example of this type of coverage, under Colombian legislation there are two forms of representation for employees, which has led to the existence of two agreements in the Bank: the Collective Pact, which covers 77% of the staff, with representation exercised directly by the employees, and the Collective Convention, which benefits 22% of the workforce and is agreed with the trade union organizations, whose representatives are the individuals chosen by each union. On its part, the regulations in force in the United States and Turkey do not require the same application of the agreement to its staff. Health and labor safety BBVA considers the promotion of health and safety as one of the basic principles and fundamental objectives, which is addressed through the continuous improvement of working conditions. In this sense, the work risk prevention model in BBVA Spain is legally regulated and is based on the right of workers to consult and participate in these areas, which they exercise and develop through the assistance of the employee representatives in the existing equality committees, where the consultations are discussed and matters of health and safety at work are dealt with, monitoring any and all activity related to prevention. The Occupational Risk Prevention Service is the unit responsible for defining and carrying out the preventive policy that affects 100% of the Bank’s workforce, and which is embodied in two lines of action: a) preventive-technical, including periodic workstation assessments, implementation of emergency and evacuation plans, and coordination of preventive initiatives; and b) occupational medicine, including medical examinations for employees, protection of specially sensitive employees, and the adaptation of workstations with specific ergonomic equipment, as well as carrying out preventive initiatives and campaigns to maintain and improve employee health and contribute to the development of a preventive culture and the promotion of healthy habits. Occupational health (BBVA Spain. Number) Number of technical preventive actions Number of preventive actions to improve working conditions Appointments for health checks Employees represented in health and safety committees (%) Absenteeism rate (%) 2018 3,078 3,854 15,590 100 2.8 2017 2,655 3,429 18,471 100 2.6 In other geographical areas in which the Group is present, there were also advances in 2018 in the field of occupational health and safety, many of them as a result of the activity of the health and safety committees in which the employees are 100% represented in most of the countries. That is: 79     In the United States, BBVA Compass' Wellthy for Life wellness program provides employees with a comprehensive wellness program that they can customize according to their needs and interests (physical, medical, and socioeconomic) no matter where they are. During the year, six technical-preventive actions were made and the absenteeism rate was 1.1%. In Mexico, whose workforce is 100% represented in health and safety committees, various campaigns were carried out to promote awareness and prevention in the area of health and safety at work, specifically the national campaign for the prevention of breast and prostate cancer, as well as the national campaign for the prevention and control of seasonal flu. During the year, 106 technical-preventive actions were carried out and the absenteeism rate was 2.0%. In Turkey, the Bank uses occupational health and safety (OHS) software to track various activities, including risk assessment, training programs, and corrective and preventive actions, etc. During the year, 174 technical- preventive actions were carried out, 816 preventive actions to improve working conditions, more than 40,000 appointments for health checks and an absenteeism rate of 1.1%. 100% of employees are represented on the health and safety committees. In South America, there is no uniform health and safety management model for the entire area. By country, during the year, 24 technical-preventive actions were carried out in Argentina, 2,256 in Colombia, 116 in Peru, 9 in Venezuela and 5 in Paraguay. Preventive actions to improve working conditions were 15, 5,621, 662, 6, and 10, respectively, and an absenteeism rate of 1.6%, 3.6%, 1.2%, 13.6% and 0,9%, was recorded respectively. Altogether, about 10,000 appointments for health checks were issued. 100% of employees in Colombia, Peru and Paraguay are represented in the health and safety committees, 3% in Argentina and 60% in Venezuela. Uruguay has a labor safety committees composed of union and bank representatives to oversee the working, health, and occupational safety conditions of its employees. Likewise, it offers a complete medical check-up of 100% of its staff as a benefit. Volume and absenteeism typology of employees (BBVA Group) 2018 2017 Number of employees Male Female Number of employees Male Female Number withdrawn 30,696 10,181 20,515 40,187 13,513 26,673 Total number of withdrawn hours by illness or accident during the year Number of accidents with medical withdrawn Frequency index Severity index Absenteeism rate (%) 4,027,728 1,335,408 2,692,320 4,826,776 1,597,272 3,229,504 437 2.58 2.24 1.2 147 1.84 1.62 0.9 290 3.23 2.79 1.5 473 2.93 2.30 1.5 132 2.09 1.38 1.1 341 3.66 3.09 1.9 In 2018, BBVA registered a total of 437 cases of work-related accidents with medical leave throughout the Group (only two out of every 100 casualties are due to accidents), most of them commuting accident which represent 7.6% less than the last year. In Spain, no case of occupational disease was registered, while the number of work accidents was 200 in the year, a figure that represents a very low severity. Thus, the Bank's severity index stands at 0.15 (0.11 men and 0.19 women), while the frequency index stands at 3.92 (2.68 men and 5.14 women). Organization of work In 2018, practical ideas have been promoted to favor work-life balance, such as setting a deadline for leaving work that serves as a reference for the whole team, and thus avoiding presenteeism and to respect the digital disconnection time with the initiative of not sending emails between 8 pm and 8 am or at weekends. Regarding the organization of working time, and with the aim of being more productive and more efficient, initiatives have been implemented such as making better use of meetings, reducing the number of meetings, their duration (by default 45 minutes) and the number of people called to attend, being more punctual and using more concise, clear and simple documentation. Voluntary resignations (turnover) (1) and breakdown by gender (BBVA Group. Percentage) 2018 2017 Total workforce turnover Male Female Total workforce turnover Male Female 80 Spain The United States Mexico Turkey South America Rest of Eurasia Total 1.3 13.0 13.3 3.9 7.7 4.5 7.6 62.6 41.2 50.7 41.2 42.7 46.0 47.1 37.4 58.8 49.3 58.8 57.3 54.0 52.9 1.0 14.0 12.9 3.4 7.6 5.4 7.3 66.3 39.1 51.3 36.8 45.6 63.1 47.5 (1) Turnover= [Resignations (excluding early retirement)/Number of employees at start of period] x 100 Recruitment of employees by gender (BBVA Group. Number) 2018 2017 Spain The United States Mexico Turkey South America Rest of Eurasia Total Of which new hires are (1): Spain The United States Mexico Turkey South America Rest of Eurasia Total (1) Including hires through consolidations. Total 3,242 2,657 8,133 2,223 3,386 155 19,796 1,252 2,650 5,951 2,186 2,521 142 14,702 Male 1,494 1,184 4,184 987 1,569 96 9,514 786 1,177 2,997 973 1,213 88 7,234 33.7 60.9 48.7 63.2 54.4 36.9 52.5 Female 1,539 1,614 3,640 1,104 2,079 32 10,008 410 1,601 3,154 1,028 1,338 25 7,556 Female 483 570 5,162 1,268 4,142 Female 1,748 1,473 3,949 1,236 1,817 59 Total 2,714 2,987 7,664 1,931 3,787 68 10,282 19,151 466 1,473 2,954 1,213 1,308 54 7,468 1,237 2,951 6,468 1,823 2,765 55 15,299 Total 1,397 1,125 9,826 2,629 7,110 Male 1,175 1,373 4,024 827 1,708 36 9,143 827 1,350 3,314 795 1,427 30 7,743 2017 Male 914 555 4,664 1,361 2,968 Discharge of employees by discharge type and gender (BBVA Group. Number) Retirement and early retirement Voluntary redundancies Resignations Dismissals Others (1) Total Total 1,116 714 9,963 3,156 11,076 2018 Male 643 385 4,696 1,469 4,902 Female 473 329 5,267 1,687 6,174 (1) Others include permanent termination and death. Including the sale of BBVA Chile in 2018. 26,025 12,095 13,930 22,087 10,462 11,625 Dismissals by category and age stages (BBVA Group. Number) 2018 2017 Total <25 25-45 >45 Total <25 25-45 Management team (1) Middle men Specialists Sales force Base positions Total 27 54 1,456 1,081 538 3,156 - - 44 53 77 3 19 969 786 409 174 2,186 24 35 443 242 52 796 28 146 1,504 279 672 - - 40 13 82 7 79 1,113 209 448 2,629 135 1,856 (1) The management team includes the highest range of the Group´s management. 81 >45 21 67 351 57 142 638 Volunteer work In the Corporate Volunteer Work Policy, BBVA expresses its commitment to this type of activity and facilitates the conditions for its employees to carry out corporate volunteer work actions that generate social impact. This policy is applied in all countries in which the Group is present. Corporate volunteer work activities empower the development of employees, channeling their spirit of solidarity, allowing them to make a personal contribution of their time and knowledge in order to help the people who need it most. This results in an improvement of self-esteem, increasing the sense of pride in belonging to the company, and, consequently, in the attraction and retention of talent. It also generates a positive impact in terms of the Group's level of social responsibility. In September 2018, BBVA celebrated its first Global Volunteer Work Week. More than 7,000 BBVA employees carried out around 325 volunteer and solidarity activities, organized by the Bank, by employees and by other non-governmental organizations in more than 15 countries, to contribute to the Agenda of the Sustainable Development Goals established by the United Nations for 2030. 82 Remuneration BBVA has a remuneration policy designed within the framework of the specific regulations applicable to credit institutions, and geared towards the recurring generation of value for the Group, seeking also the alignment of the interests of its employees and shareholders, with prudent risk management. This policy is adapted at all times to what is established under applicable legal standards at all times, and incorporates the standards and principles of national and international best practices. This policy is part of the elements designed by the Board of Directors as part of the BBVA corporate governance system to ensure proper management of the Group, and meets the following requirements:      it is compatible and promotes prudent and effective risk management, not offering incentives to assume risks that exceed the level tolerated by the Group; it is compatible with BBVA's business strategy, objectives, values and long-term interests, and will include measures intended to avoid conflicts of interest; clearly distinguishes the criteria for the establishment of fixed remuneration and variable remuneration; promotes equal treatment for all staff, not introducing differences due to gender or personal reasons of any kind; and ensures that remuneration is not based exclusively or primarily on quantitative criteria and takes into account adequate qualitative criteria that reflect compliance with the applicable standards. The remuneration model applicable in general to the entire staff of the BBVA Group contains two different elements:   Fixed remuneration, which takes into account the level of responsibility, the functions carried out and the professional career of each employee, the principles of internal equity, and the value of the function in the market, constituting a relevant part of the total compensation. The concession and the amount of the fixed remuneration are based on a predetermined objective and are non-discretionary criteria. Variable remuneration constituted by those payments or benefits additional to the fixed remuneration, whether monetary or not, that are based on variable parameters. This remuneration must be linked, in general, to the achievement of previously specified objectives, and will take current and future risks into account. The remuneration policy of the BBVA Group promotes equal treatment between men and women, which does not establish or encourage wage differentiation. The remuneration model rewards the level of responsibility and career pathway, ensuring internal equity and external competitiveness. The wage gap by homogeneous professional categories in the Group as a whole is -10.6%. The differences observed in the average remunerations of some groups are derived from factors such as seniority, and its wide composition, and are not representative of the wage gap. The aforementioned is due to the fact that these average remunerations include very diverse professional categories, and therefore are influenced by aspects such as the different distribution of men and women by professional category or the greater proportion of women in countries with lower average remunerations. In this sense, the Group has launched various initiatives to continue improving in a more balanced representation of all the groups in the different areas and levels of responsibility (see the Professional Development section). Wage gap (1) (Percentage) BBVA Grupo 2018 (10.6) 2017 (10.1) (1) Wage gap measured as a difference in average wages between women and men, expressed as a percentage of the average remuneration of men Total average remuneration by professional category (BBVA Group. Euros) Management team (1) Middle men Specialists Base Positions (1) The management team includes the highest range of the Group´s management. 2018 110,159 59,594 28,384 20,757 2017 106,651 59,866 28,194 19,510 Total average remuneration by stages and gender (BBVA Group. Euros) <25 years 25-45 years >45 years Female 8,880 23,651 44,755 2018 Male 10,829 31,884 66,114 Total 9,714 27,263 56,358 Female 8,333 23,413 42,487 2017 Male 9,722 32,317 63,952 Total 8,897 27,293 54,324 83 The remunerations of the members of the Board are disclosed at an individual level and by remunerative concept in the Note 54 to the Consolidated Financial Statements. With regards to the members of the senior management, the total remuneration amounted to €1,965 million in the case of men and to €1,759 million in the case of women. Pensions and other benefits BBVA has an employee welfare system which is ordered according to the geographical areas and coverage offered to different groups of employees. In general, the social security system has a defined contribution for the retirement provision. The Group's pension policy is compatible with the Entity's business strategy, objectives and long-term interests. Contributions to the social security systems of the Group's employees are made within the framework of applicable labor regulations and individual or collective agreements applicable in each entity, sector or geographical area. The bases of calculation on which the benefits revolve (commitments for retirement, death and disability) reflect fixed annual amounts, there being no temporary fluctuations derived from variable components or individual results. Regarding the other benefits, the Group provides for a local framework of application, according to which each entity, depending on its activity sector and the geographical area in which it operates, has a package of benefits for employees within the entity’s specific remuneration scheme. In 2018, the Bank in Spain made a payment of 23.5 million euros by way of savings contributions to pension plans and life and accident insurance premiums, of which 13.3 million euros corresponds to contributions to men and 10.2 million to women. This payment represents more than 95% of the expenditure on pensions in Spain, excluding single policies. On average, the contribution received by each employee is 964 euros during the year (1,105 euros men and 826 euros women). 84 Ethical behaviour Compliance system Mission and scope of action The Group's compliance system constitutes one of the bases on which BBVA consolidates the institutional commitment to conduct all its activities and businesses in strict compliance with current legislation at all times and in accordance with strict codes of ethical conduct. To achieve this, the cornerstone of the BBVA compliance system, the Code of Conduct, was available on the BBVA corporate website (bbva.com), the model for internal controls and Compliance requirements. The Code of Conduct establishes the behavior guidelines that, according to the principles of the BBVA Group, ensure that conduct adheres to the internal values of the organization. To this end, it establishes the duty of respect for applicable laws and regulations for all its members in an integral and transparent manner, with the prudence and professionalism that correspond to the social impact of the financial activity, and to the trust that shareholders and clients have placed in BBVA. The BBVA internal control model, built in accordance with the guidelines and recommendations of regulators and supervisors and with best international practices, on the existence of three different levels of control, which is commonly known as a three-lines model of defense, is intended to identify, prevent and correct the situations of risk inherent to the performances of their activity in the areas and locations in which it operates. Compliance is a global unit integrated within the second line of defense and is entrusted, by the Board of Directors, with the function of promoting and supervising, with independence and objectivity, measures to ensure that BBVA acts with integrity, particularly in areas such as the prevention of money laundering, conduct with customers, behavior in the securities market, prevention of corruption (compliance issues) and others that may represent a reputational risk for BBVA. Compliance functions include:   promoting a culture of compliance within BBVA, as well as the knowledge by its members of the rules and regulations applicable to the above matters, through advisory, dissemination, training and awareness actions; defining and promoting the implementation and total ascription of the organization to the risk management frameworks and measures related to compliance issues. For an adequate performance of its functions, Compliance maintains a configuration and systems of internal organization in accordance with the principles of internal governance established under the European guidelines for this matter and in its configuration and development of the activity is attached to the principles established by the Bank for International Settlements (BIS), as well as the reference regulations applicable to compliance issues. To reinforce these aspects and specifically, the independence of the control areas, on December 20, 2018, the Board of Directors held a meeting where they agreed to the creation of a new area, Supervisors, Regulation & Compliance, within the framework of a new organizational structure, in which the Compliance unit is integrated, and which will have a direct report to the Board of Directors through its corresponding Committees. Organization, internal government and management model The Compliance function is handled globally at BBVA, and is composed of a corporate unit, with a transversal scope for the entire Group, and local units that, sharing the mission entrusted, carry out the function in the countries where BBVA carries out its activities. For this purpose, it has a global compliance manager, as well as those who are responsible for requirements in the local units. The function carried out by the Chief Compliance Officers relies on a set of departments specialized in different activities, which, in turn, have their own designated officers. Thus, the function is addressed by individuals responsible for each discipline related to compliance issues, for the definition and articulation of the strategy, and for the management model of the function or for the execution and continuous improvement of the area’s internal operational processes, among others functions. Included among the main functions of the compliance units at BBVA are as follows:  Review and periodic analysis of the applicable norms and regulations.  Issue, promotion or updating of compliance-related policies and procedures.  Advice to the organization in the interpretation of the code of conduct or compliance policies. 85  Continuous supervision of activities with compliance risk.  Management of complaint channels.      Participation in committees that deal with issues related to compliance matters. Participation in independent review processes on the subject. Periodic reporting to the management and to governing bodies. Representation of the function before regulatory bodies and supervisors in matters of compliance. Representation of the function in national and international forums. In 2018, the structure of the compliance units in the different countries evolved to better align with these foundations. The scope and complexity of the activities, as well as the international presence of BBVA, give rise to a wide variety of regulatory requirements and expectations of the supervisory bodies that must be addressed in relation to risk management associated with compliance issues. This makes it necessary to have internal mechanisms that establish transversal mechanisms for managing this risk in a homogeneous and integral manner. For this purpose, Compliance has a global model for estimating and managing said risk, which, with an integral and preventive approach, has evolved over time to reinforce the elements and pillars on which it is based and to anticipate the developments and initiatives that may arise in this area. This model starts from periodic cycles of identification and assessment of compliance risk, upon which its management strategy is based. The aforementioned results in the revision and updating of the multi-year strategy and its corresponding annual action lines, both of which are aimed at strengthening the applicable mitigation and control measures, as well as improvement the model itself. The basic pillars of the model are the following elements:   A suitable organizational structure with a clear assignment of roles and responsibilities throughout the Organization. A set of policies and procedures that clearly define positions and requirements to be applied.  Mitigation processes and controls applied to enforce these policies and procedures.   An adequate organizational structure, with a clear assignment of roles and responsibilities throughout the Organization. Communication and training systems and policies implemented to raise employee awareness of the applicable requirements.  Metrics and indicators that allow for the supervision of the global model implementation.  Independent periodic review of effective model implementation. Throughout 2018, work continued on strengthening the documentation and management of this model. Thus, the Compliance Unit continued with the review and update of the global typologies of compliance risks, both at a general level as well as in different geographical areas. The effectiveness of the model and compliance risk management is subject to extensive and different annual verification processes, including the testing activity carried out by the compliance units, BBVA’s internal audit activities, the reviews carried out by prestigious auditing firms and the regular or specific inspection processes carried out by the supervisory bodies in each of the geographical areas. Additionally, during the year, the Compliance function reinforced the compliance testing framework, evolving the global methodology to adapt it to the applicable regulations and to the best industry practices regarding in compliance. On the other hand, in recent years, one of the most relevant axes of application of the compliance model focuses on the digital transformation of BBVA. For this reason, in 2018, the Compliance Unit continued reinforcing the governance, supervision and advisory mechanisms for the activities of the areas that promote and develop business initiatives and digital projects in the Group. Anti-money laundering and financing of terrorism Anti-money laundering and the financing of terrorism (AML) is a constant factor in the objectives that the BBVA Group associates with its commitment to improving the various social environments in which it carries out its activities, and a requirement that is indispensable in preserving corporate integrity and one of its main assets: the trust of the people and 86 institutions with which it works on a daily basis (customers, employees, shareholders, suppliers, etc.) in the different jurisdictions where it operates. In addition, the Group is exposed to the risk of violating the AML regulation and the restrictions imposed by national or international organizations to operate with certain jurisdictions and individuals or legal entities, which could entail sanctions and/or significant economic fines imposed by the competent authorities of the various geographical locations in which the Group operates. As a result of the above, as a global financial group with branches and subsidiaries operating in numerous countries, BBVA applies the compliance model described above for AML risk management in all the entities that make up the Group. This model takes into account all regulations of the jurisdictions in which BBVA is present, the best practices of the international financial industry regarding this matter, and recommendations issued by international bodies, such as the International Financial Action Group (FATF). This management model is constantly evolving. Thus, the risk analyses that are carried out annually allow us to tighten controls and to establish, where appropriate, additional mitigating measures to enhance it. In 2018, the regulated entities of the Group carried out this AML risk assessment exercise, under the supervision of the corporate AML area. The BBVA Code of Conduct, in Sections 4.1 and 4.2, establishes the basic guidelines for action in this area. In line with these guidelines, BBVA has established a series of corporate procedures that are applied in each geographical area, including the Corporate Procedure of Action for the Establishment of Business Relations with Politically Exposed Persons (PEPs), the Corporate Procedure of Action for the Prevention of Money Laundering and the Financing of Terrorist Activities in the Provision of Cross-Border Correspondent Services or the Standard that establishes the Operational Restrictions with Countries, Jurisdictions and Entities designated by National or International Organizations. All applicable standards are available for consultation by employees in each zone. During 2018, BBVA continued to roll out its monitoring tool in Turkey and Mexico, already implemented in Spain. Likewise, the Group continued with its strategy to apply new technologies to its AML processes (machine learning, artificial intelligence, etc.), in order to reinforce both the detection capabilities of suspicious activities of the different entities that make up the Group, as well as the efficiency of the said processes. For this reason it participated in the IIF Working Group Machine Learning Application to AML, among others. One result of the above has been the implementation, in several countries, of improvements in processes and/or systems that have allowed for increases in efficiency in AML equipment. In 2018, the BBVA Group handled 144,576 communications, which were then sent to the corresponding authorities in each country. investigation files that resulted in 66,636 suspicious transaction In terms of training related to AML, each of the BBVA Group entities offers an annual training plan for employees. In this plan, defined according to the training needs identified in each of the entities, training activities of different nature are established (face-to-face or e-learning courses, videos, brochures, etc.), both for new hires as well as for the employees on staff. Likewise, the content of each training action is adapted to the target group, including general concepts derived from the regulation of applicable AML standards, both internal and external, as well as specific issues that affect the functions developed by the target group for the training. In 2018, 69,572 attendees participated in AML training activities, of which 15,035 belonged to the most sensitive groups, from the perspective of AML. The AML risk management model is subject to continuous independent review. This review is complemented by internal and external audits carried out by local supervisory bodies, both in Spain as well as in other jurisdictions. In accordance with Spanish regulations, an external expert performs a yearly review of the Group's parent. In 2018, no material deficiencies were identified. In turn, the internal control body, which BBVA maintains at the corporate level, meets periodically, and oversees the implementation and effectiveness of the AML risk management model. This supervision scheme is replicated at the local level as well. It is important to mention BBVA's collaboration work with the different government agencies and international organizations in this field: attendance at the meetings of the AML & Financial Crime Committee of the European Banking Federation, member of the AML Working Group of the IIF, participation in initiatives and forums to increase and improve exchanges of information for AML purposes, as well as contributions to public consultations issued by national and international organizations (European Commission, FATF/GAFI, European Supervisory Authorities). Conduct with customers BBVA's Code of Conduct puts its customers at the center of its activities, with the aim of establishing lasting relations based on mutual confidence and the contribution of value. As mentioned in the chapter on customer relationship, BBVA's main focus is to satisfy the needs of its customers, simultaneously combining innovative solutions, experience and the highest standards of conduct. Providing the best possible customer experience is one of the Group's Strategic Priorities. In order achieve this objective, BBVA has implemented policies and procedures aimed at getting to know its customers better, with the purpose of being able to offer them products and services in line with their financial needs, as well as providing them with clear and accurate information, sufficiently in advance, on the risks of the products in which they invest. BBVA has also implemented processes geared towards prevention, or, when this has not been possible, management of the possible conflicts of interest that might arise in the marketing of its products. 87 is increasingly uniform at global In 2018, progress continued on a global customer compliance model, which aims to establish a minimum framework of standards of conduct to be respected in the relationship with customers, applicable in all jurisdictions of the Group aligned with the principles of the Code of Conduct. This model responds to a regulation governing customer protection that level, and contributes to a better customer experience at BBVA. With this in mind, the Compliance Unit focused its activity on the promotion of plans to adapt the Community regulations and internal processes to the obligations derived from new regulatory developments. Among them, the following stand out due to their importance to customer protection: the Directive on Markets in Financial Instruments (MiFID II); the Regulation on packaged products and based on insurance for the retail public (PRIIPs); and the Private Insurance Distribution Directive; and (iv) the European Union Directive on real-estate loans. During the year, BBVA continued with the deployment of the adaptation plan to MiFID II through the implementation of policies and procedures on different areas. Procedures that help to get to know its customers better, with the purpose of being able to offer them products and services in line with their financial needs, as well as providing them with clear and accurate information on the risks of the products in which they invest, sufficiently in advance. As part of this adaptation plan, regarding the knowledge and skills of the personnel that inform or advise, BBVA continued to develop a training program that concluded with the accreditation of practically all of the employees and agents affected. In the Group, the number of certified sales representatives, following the requirements of local regulations in each country, amounts to 39,157 employees as of 12/31/18. In addition, BBVA continues to develop processes aimed at prevention or, failing that, the management of possible conflicts of interest that may arise in the marketing of its products. In this regard, in 2018, internal communication channels and the transparency framework were strengthened in relation to the income obtained from the provision of services. Furthermore, something new for the 2018 fiscal year, the corporate policy of product governance was deployed in the different countries where the Group is present. This policy establishes the guiding principles that BBVA must follow when launching its products; and it introduces the variables to take into account when identifying the group of customers to whom to direct their products, according to their different needs and objectives. Other measures focused on customer protection during 2018 were the following:       Analysis of the characteristics, risks and costs of the new products, services and activities of BBVA, as well as its distribution channels, through the different Committees for new products implemented in the Group. Over the course of the year, 103 new products, services or activities in the Bank were approved within these committees. Close and continuous collaboration with wholesale and retail product and business development units, focusing on digital banking initiatives, with the aim of including the customers' point of view, and investor protection in its projects from the outset. The evolution of product classification tools, allowing a better adaptation of the same to the characteristics and needs of the customers. Promoting communication and training actions for the sales network and support departments, particularly on how to advise customers and how to sell products in the branch network. Enhancement of the compliance risk monitoring metrics and indicators to promote a proactive approach, with a particular focus on customer complaints. In this context, during 2018, BBVA, S.A. has focused on collaboration with the Customer Care Services. Evaluation of the internal measures in force, based on internal and external audit reviews and regulatory inspections and requirements. Conduct on securities markets The BBVA Code of Conduct includes the basic principles for action aimed at preserving the integrity of the markets, setting the standards to be followed aimed at preventing market abuse, and guaranteeing transparency and free competition in the professional activity carried out on the market by the BBVA collective. These basic principles are specifically developed in the Policy on Conduct in the Field of Securities Markets, which applies to all the individuals who form a part of the BBVA Group. Specifically, this policy establishes the minimum standards that are to be respected with the activity carried out in the securities markets in terms of privileged information, market manipulation, and conflicts of interest; furthermore, it is complemented in each jurisdiction with an internal code of conduct (ICC) addressed to the subject group with the greatest exposure in the markets. The ICC develops the contents established in the policy, adjusting them, where appropriate, to local legal requirements. 88 The BBVA's policy and ICC were updated in 2017, and in 2018 in the rest of the geographical areas in which the Group operates. The degree of adhesion to the new ICC approached 100% of the individuals in question. Furthermore, during 2018, training on Market Abuse has been reinforced for the groups affected by the ICC in order to keep them updated as to their obligations and all related new developments. Particularly noteworthy is the global and mandatory training course of the Internal Code of Conduct aimed at all persons subject to this Regulation, a collective that amounts to 6,849 people. In relation to the market abuse prevention program, the process of improving the detection tools of suspicious market abuse operations continued. Thus, the training of employees in this area continues to be a priority, to the extent that, in 2018, specific internal and external training actions were carried out, highlighting courses on privileged information and market manipulation in Spain and Latin America. In addition, in 2018, training actions have been carried out for teams dedicated to the sale of financial instruments, in light of the adhesion of BBVA in Spain and in Mexico to the Foreign Exchange (FX) global code of conduct; the swap dealer activity control program was reinforced in accordance with the American Dodd Frank regulation, both in its governance as well as in several of its elements, including the training of sales personnel (Associated Persons) who sell derivatives to customers considered as US. Persons; and the annual Volcker Rule training was given to a group of 2,417 employees in the Group, with essentially entirety being affected. Other standards of conduct One of the main mechanisms for managing conduct risk in the Group is its whistleblowing channels. As set out in the Code of Conduct, BBVA employees have the obligation not to tolerate any conduct that is contrary to the Code, or any conduct in the performance of their professional duties that may bring harm the reputation or good name of BBVA. This whistleblowing channel serves as a means for enabling employees to report any breaches they observe or are notified by their collaborators, customers, suppliers or colleagues. The channel is available 24/7, all year round, and is also open to the Group's suppliers. All reports are processed diligently and promptly. They are reviewed, and measures are taken to resolve any issues. The information is analyzed in an objective, impartial and confidential manner. BBVA has 16 complaints channels accessible to employees in all its main countries, which can be accessed through email and telephone. In 2018, 1,649 complaints were received in the Group, whose main complaint aspects refer to the categories of behavior with our colleagues (44%), and behavior with the company (36.5%). Approximately 44% of the complaints processed during the year ended with the imposition of disciplinary penalties. The work carried out in 2018 included ongoing advice on applying the Code of Conduct. Specifically, the Group formally received 510 different kinds of individual, written and telephone queries, such as the resolution of possible conflicts of interest, the management of personal assets, or the development of other professional activities. Over the year, BBVA continued with the work of communication and dissemination of the new Code of Conduct, as well as the training on its contents, whose online course has been carried out by a total of 115,085 employees. In addition, since the introduction in Spain of the new criminal liability regime of the legal entity, BBVA has developed a model of criminal risk management, framed within its general internal control model, with the aim of specifying measures directly aimed at preventing criminal acts through a government structure suited to this purpose. This model, which is periodically subjected to independent review processes, is intended to be a dynamic process in continuous evolution, so that the experience in its application, the changes in the activity and the structure of the Entity and, in particular in its control model, as well as the legal, economic, social and technological developments that occur will facilitate their adaptation and improvement. Among the possible crimes included in the crime prevention model are those related to corruption and bribery, as there are a number of risks that could arise in this respect in an entity of the nature of BBVA. Among such risks are those related to activities such as the offering, delivery and acceptance of gifts or personal benefits, promotional events, facilitation payments, donations and sponsorships, expenses, hiring of personnel, relationships with suppliers, agents, intermediaries and business partners, the processes of mergers, acquisitions and joint ventures or the accounting and recording of operations. In order to regulate the identification and management of risks, BBVA has a body of internal regulations made up of principles, policies and other internal arrangements, including: Principles:   Principles applicable to the disinvestment processes for BBVA Group goods or services in favor of Group employees. Principles to be applied to those involved in BBVA’s procurement process. 89 Policies:      Anti-corruption policy. Policy for the prevention and management of conflicts of interest within BBVA. Responsible procurement policy. Event policy and policy for the acceptance of gifts related to major sporting events. Corporate travel policy. Other internal developments:  Management model for corporate and travel expenses for personnel.  Management model for expenses and investment.          Code of ethics for the recruitment of personnel. Code of ethics for suppliers. Rules relating to the acquisition of goods and services. Rules relating to gifts for employees from persons/entities outside the bank. Rules for delivery of gifts and organization of promotional events. Rules for authorizing the hiring of consultancy services. Rules on dealing with individuals of public importance in matters of finance and guarantees. Rules for delegating credit risk. Requirements for establishing and maintaining business relations with politically exposed persons (PEP).  Manual for management of donations in the Responsible Business Department.    Procedural manual (treatment and registration of communications in the whistleblower channel). Corporate rules for managing the outsourcing life cycle. Disciplinary regime (internal procedural rules). The BBVA Group's anti-corruption policy develops the principles and guidelines contained, primarily, in section 4.3 of the Code of Conduct and conforms to the spirit of national and international standards on the subject, taking into consideration the recommendations of international organizations for the prevention of corruption and those established by the International Organization for Standardization (ISO). The BBVA anti-corruption framework is not only composed of the aforementioned regulatory body, but also, in compliance with the crime prevention model, has a program that includes the following elements: i) a risk map, ii) a set of mitigation measures aimed at reducing these risks, iii) action procedures in the face of the emergence of risk situations, iv) training and communication programs and plans, v) indicators aimed at understanding the situation of risks and their mitigation and control framework, vi) a whistleblower channel, vii) a disciplinary regime, and viii) a specific government model. In this context, it should be noted that the Entity takes into account the corruption risk present in the main jurisdictions in which it operates, based on the valuations published by the most relevant international organizations in this area. Additionally, BBVA has provided other specific instruments for the management of basic commitments in each functional area. The most salient of these are:   Basic risk management principles and the risk management policy manual. Rules on dealing with individuals and entities of public importance in matters of finances and guarantees. Other basic commitments taken Within the general training program in this area, there is an online course that describes matters such as the basic principles related to the Group's prevention framework on anti-corruption that reminds employees of BBVA's zero tolerance policy with respect to any form of corruption or bribery in its business activities. Finally, BBVA obtained AENOR certification, which certifies that its criminal compliance management system is in compliance with UNE 19601:2017 Standard in 2017; this certification was revised in 2018 with satisfactory results. Other basic commitments acquired by the Group are:     Rules of conduct in defense. Environmental policy. Responsible procurement policy. Commitment to human rights. 90 Commitment to human rights BBVA adheres to a Commitment to Human Rights that seeks to guarantee respect for the dignity of all people and the rights that are inherent to them. This is the perspective under which the bank has decided to identify the social and labor risks that derive from its activity in the different areas and countries in which it carries out its business. Once these risks have been identified, the Group manages its possible impacts through processes specifically designed for this purpose (for example, the due diligence processes in Project finance under the Equator Principles or through existing processes that integrate the Human Rights perspective such as the supplier approval process or the diversity policy). On the other hand, the methodology for the identification, evaluation and management of BBVA's reputational risk is an essential complement to this management, since the assessment of reputational risks highlights the fact that human rights issues have the potential to affect the bank's reputation. In order to reinforce this detection and evaluation of risks from a human rights perspective, in 2017, an external consultant carried out a due diligence process in all the countries and businesses in which the Group is present, mainly in order to comply with the United Nations Guiding Principles on Business and Human Rights and with the responsibility of preventing, mitigating, and remedying the potential impacts on human rights in all of its operating environments and in all its businesses. The procedure used to identify and evaluate these risks or impacts was based on the aforementioned Principles. In this manner, guidelines were followed that indicate that companies must activate due diligence processes through three fundamental steps:    Identify the potential impacts of their operations on human rights; Design mechanisms within the company to prevent and mitigate these; and, Provide channels and processes that ensure that, in case of violation, there are adequate mechanisms in place to ensure that victims are compensated. As a result of the process, the potential impacts of the operations on human rights were identified and mechanisms were designed within the Entity to prevent and mitigate them, making the adequate channels and procedures available to the affected party in order to ensure that, in case of any violation, the appropriate mechanisms remain in place to ensure all necessary repairs. In this process, certain key issues were identified that could potentially serve as levers for the improvement of the management system within the organization. These issues are grouped into four areas that serve as the basis and foundation of the Group's Action Plan on Human Rights 2018-2020, which is public and is updated every year. 1. Policy and structure The updating of the Human Rights Commitment, which was renewed in 2018, was recommended in the due diligence process. For this update, the Guiding Principles of Business and Human Rights guidelines, backed on June 16, 2011 by the United Nations Human Rights Council and, on the other hand, the results of the global process itself, were taken as reference markers for due diligence. This commitment is articulated around the stakeholders with which BBVA is related: employees, customers, suppliers and society; and it includes the three pillars on which the aforementioned Guiding Principles are based, which are:    state duty to protect, corporate responsibility to respect human rights, and the joint duty to implement mechanisms that ensure the remedy of possible human rights abuses. All the individuals employed in the Group are responsible for making this commitment a reality on a day-to-day basis. Each area and employee has the duty to be familiar with all matters that pertain to them that may imply a violation of human rights, and implement the measures of due diligence to avoid it. However, BBVA has a structured governance model following the internal control model, composed of three lines of defense:    The first line of defense consists of the Group's units directly responsible for the management of these risks. The second line of defense lies with the Responsible Business Department, which is also responsible for designing, implementing and improving commitment as well as acting as a second line of defense. The third line of defense is the Internal Audit Area. Likewise, the CEO, with the support of senior management, decides on its definition and updating within the framework of the CSR Policy approved by the Board of Directors. 2. Training and cultural transformation With regard to the due diligence process, it was advisable to integrate the human rights perspective into: 91    Internal and external communication plan. Plan on diversity and conciliation. General and specialized training plan for employees. Respect for the equality of people and their diversity is reflected in the corporate culture and management style, is a guiding principle of employee policies, especially those of selection, development and compensation, which guarantee non-discrimination based on gender, race, religion or age, and, as such, is included in the BBVA Code of Conduct. Thus, this Code, among other matters, includes the treatment of discrimination, harassment or intimidation in labor relations, objectivity in the selection, hiring and promotion that avoids discrimination or conflicts of interest, among other issues, as well as safety and health in the workplace, employees must communicate any situation they understand that poses a risk to safety or health at work. Within the framework of the diversity and inclusion plan for employees and with a focus on gender diversity, three lines of action have been strengthened during 2018: i) promoting transparency using new metrics, ii) promoting these issues in the corporate culture, iii) mitigate the glass ceiling, for example with the extension of the Rooney Rule to all Group vacancies. In addition, BBVA’s Commitment to Human Rights assumes the commitment to the application, for example, of the content of the fundamental conventions of the International Labor Organization (ILO) such as those related to the elimination of all forms of forced labor; the effective abolition of child labor (minimum age and worst forms of child labor); and the elimination of discrimination in employment and occupation, among other commitments. 3. Process improvement After the analysis, the importance of strengthening the process of approval and evaluation of suppliers, and the operation and scope of the repair mechanisms was concluded. From the point of view of suppliers, BBVA has a responsible purchasing policy and an ethical code of suppliers (more information on this can be found in the suppliers chapter) and, during 2018, reinforced compliance with the Commitment to Human Rights with the integration of the prism of human rights in the evaluation of suppliers in the approval process. BBVA works to establish remedy mechanisms in the role of corporate lender, employer or as a company that hires services to others. As such, it is open to managing any issue raised by any of its stakeholders regarding its credit activity and in relation to performance in the field of human rights through two channels: the official listening channels of the Bank, aimed at clients, and external channels. An example of an external channel is the OECD's national contact points, whose objective is to admit and resolve claims related to losses of the OECD Guidelines for Multinational Enterprises. In relation to employees, suppliers and society in general, the BBVA Code of Conduct includes an express mention of the commitment to human rights and provides a whistleblower channel to report possible breaches of the code itself. 4. Business and strategy alignment The analysis recommended the inclusion of human rights criteria in strategic projects of the Group, such as the due diligence process in the acquisition of companies (M&A and M&A Digital) or the social and environmental framework. A social and environmental framework was developed from the perspective of customers, launched in 2018, in which specific rules were developed for the financing of sensitive sectors (mining, energy, agro-industry and infrastructure). The Responsible Business Department function became part of the new products and business committees in Spain, Mexico, the United States, Colombia, Peru, Turkey and Venezuela. In addition, as signatories to Equator Principles, BBVA complies with the requirement to conduct a due diligence analysis of potential human rights impacts in project finance operations. In case of detecting potential risks, the operation must include an effective form of management of these risks, as well as operational mechanisms to support claims management. Also within the framework of the Equator Principles, BBVA actively promotes the inclusion of free prior informed consent (FPIC), not only in emerging countries, but also in projects in countries where a robust legislative system is presupposed as well, which guarantees the protection of the environment and the social rights of its inhabitants. BBVA is also a signatory of the United Nations Global Compact Principles, maintaining a constant dialog and exchange of experiences with other signatory entities (companies, SMEs, third sector entities, educational institutions and professional associations). Along the same lines, BBVA promotes a dialog with NGOs concerning its fiscal responsibility, and participates in various meetings with investors and stakeholders in which it follows up on issues related to human rights. 92 BBVA participates in different work groups related to human rights and is in constant dialog with its stakeholders. At a sectoral level, BBVA makes up part of the Thun Group, a group of global banks that works to understand how to better apply the United Nations Guiding Principles on Business and Human Rights in the practices and policies of financial institutions, and across various banking businesses. An important milestone in 2018 was the launching of the Responsible Banking Principles to which BBVA has adhered as one of the sponsors and founding banks for the initiative. Under the auspices of the United Nations, these Principles are put forth with the aim of providing a sustainable financing framework and supporting the sector in a manner that shows its contribution to society. In this sense, the implementation guidelines expressly mention the importance of integrating the Guiding Principles of Business and Human Rights, in the implementation of the six principles, which are: 1. Alignment, 2. Impact, 3. Clients and Customers, 4. Stakeholders, 5. Governance and target setting, and 6. Transparency and Accountability. Finally, in addition to these initiatives, and taking the relevance of the mortgage market in Spain into account, BBVA generated a social housing policy. Social Housing Policy in Spain Since the beginning of the crisis, BBVA seeks to explore all of the refinancing possibilities available based on the customer's ability to pay, with the main objective of maintaining their home. This is what BBVA has done with 76,538 customers in 2018. Any situation may be brought to the attention of the Protection Committee of the Mortgage Provider, which analyzes all cases that might occur with regard to customers or their families, any circumstances involving risk of exclusion that is not covered under the Law, offering individual solutions that depend on the particular circumstances of each family (refinancing, debt cancellation, payment in kind, rent in social housing available directly from the Bank, etc.). In this sense, BBVA has made more than 29,000 dations in payments to its customers. In February 2012, BBVA decided voluntarily to adhere to the Code of Good Practices which had the objective of granting benefits to certain families who had contracted a mortgage loan and who were at risk of exclusion. In light of the approval of Royal Decree-Law (RDL) 27/2012, of Law 1/2013 and, finally, of RDL 1/2015 and Law 9/2015, BBVA determined, in a proactive manner, to inform all of its customers currently involved in a foreclosure process of the existence of the aforementioned standards, and the extent of their effects, so that they might benefit from the benefits described therein. In 2018, BBVA transferred its real-estate business to Cerberus Capital Management. The scope of the Social Housing Policy in Spain has adapted to this new situation accordingly as a result and is now aimed at offering solutions that are adapted to the holders of mortgage loans who are experiencing difficulties in the payment of said loans. BBVA has signed collaboration agreements with public entities for approximately 2,500 homes. 93 Sustainable Finance Banks play a crucial role in the fight against climate change and in achieving the United Nations Sustainable Development Goals, due to their unique ability to mobilize capital through investments, loans, issues and advisory functions. There are very relevant ways to contribute to this challenge. On the one hand, providing innovative solutions to its customers to help them in the transition to a low-carbon economy and in promoting sustainable financing; and on the other, integrating environmental and social risks in decision-making in a systematic manner. BBVA's commitment to sustainable development is reflected in its Environmental Commitment, which is global in scope. Along these lines, in 2018, BBVA presented its climate change and sustainable development Strategy to contribute to the achievement of the United Nations Sustainable Development Goals and to addressing the challenges arising from the Paris Climate Agreement. This 2025 Pledge, which will help the Bank to align its activity with the goal of keeping global warming below 2ºC and achieve a balance between sustainable energy and investments in fossil fuels, is based on three lines of action: 1. Financing: BBVA is pledging to mobilize €100 billion in green and social financing, sustainable infrastructures and agriculture, social entrepreneurship and financial inclusion. 2. Manage the environmental and social risks associated with the Bank's activity, to minimize its potential direct and indirect negative impacts. 3. Engage with all stakeholders to collectively promote the contribution of the financial sector to sustainable development. Both the Group's Environmental Commitment and its climate change and sustainable development Strategy are approved by the CEO, with the support of senior management. As of December 31, 2018, the accompanying Consolidated Financial Statements of the BBVA Group do not present any material item that must be included in the informational document on the environment set forth in the Order of the Ministry of Justice JUS/471/2017, of May 19, which approves the new models for the presentation of the annual accounts of the subjects required to publish them in the Mercantile Registry. 94 Sustainable financing BBVA strives to contribute to mobilizing the necessary capital to stop climate change and achieve the Sustainable Development Goals. To this end, it has pledged to mobilize €100 billion in sustainable financing between 2018 and 2025, divided into three categories: 1. Transition to a low-carbon economy: includes green financing to companies and institutions; intermediation of green bonds; solutions for energy efficiency, water, and waste management; and investment funds and equity. 2. Sustainable infrastructures and agriculture: financing infrastructure in education, health, social housing and sustainable transport; intermediated rates subsidies; investment funds and equity; and financing to the agricultural industry under sustainability criteria. 3. Financial inclusion and entrepreneurship: loans to low-income communities, vulnerable micro-entrepreneurs and women entrepreneurs; new digital models and impact investments. Sustainable financing products are instruments that channel funds to finance customer transactions in sectors such as renewable energy, energy efficiency, waste management and water treatment, as well as access to social goods and services, such as housing, education, health and employment. BBVA has the capacity, knowledge and experience to provide its customers with thorough advice on sustainable financing solutions, and in 2018 it has once again led this market. Sustainable bonds and green loans BBVA is one of the Spanish entities with the greatest experience in providing advice on bonds for its customers, an activity that it launched in 2007 when it was part of the issuance of the first green bond by the European Investment Bank. Since then, BBVA has structured, advised and placed green bonds in Europe, the United States and Latin America for companies, financial entities and public sector entities. In 2018, BBVA became an issuer of these types of bonds, after the publication of its framework for the issuance of bonds linked to the Sustainable Development Goals. The existence of this framework is one of the characteristic elements of sustainable emissions, which will allow the Group to channel funds to finance projects in sectors aligned with its 2025 Pledge. In the year, BBVA made a green bond issue in Spain of €1 billion and BBVA Bancomer in Mexico for 7 billion Mexican pesos; while Garanti Bank in Turkey issued a social bond for women entrepreneurs, in collaboration with the International Finance Corporation, for US$75 million. On its part, in 2018 the Group continued to promote the green loans market and participated in various transactions in countries such as the United States, Mexico, Peru, Spain, Italy and Turkey, through syndicated, bilateral and project finance corporate loans. Advice and sustainable transactional banking BBVA has a Corporate Finance (M&A) team dedicated to renewable energy transactions, which provides advice to energy companies, for their disinvestment in coal plants and the capital increase to finance and develop renewable energy projects. Along these lines, BBVA worked in 2018 on a sustainable transactional product framework linked to the Sustainable Development Goals of the United Nations, by virtue of which the transactional banking operations of its customers may be classified as either green, social or sustainable. Sustainable project financing BBVA, in its commitment to the renewable energy sector, financed projects of this type in 2018, including the financing of a 950 MW offshore wind farm in the United Kingdom, a portfolio of 130 photovoltaic plants in Italy, and seven wind farms in Spain. It also financed social infrastructure projects. Socially responsible investment BBVA assumed its commitment to Socially Responsible Investment (SRI) in 2008 when it joined the United Nations Principles for Responsible Investment (PRI) through the employee pension plan and one of the Group's major asset managers, Gestión de Previsión y Pensiones. The goal then was to start building BBVA's own SRI model from the ground up, whose initial application would focus on employment pension funds. Ten years later, the Group continues to work on improving its model, making it more complete and sound every day. In 2018, BBVA Asset Management (BBVA AM) has continued to adapt to the market and changes in it, working to extend and improve the SRI solutions offered. In this vein, it maintains various training programs, such as holding events broadcast on streaming and preparing periodic newsletters related to SRI issues, available on the BBVA AM website; but, especially through personalized meetings with their customers to respond to the different concerns that may arise in this area. 95 The strategies implemented by the BBVA AM SRI model are the following:     Integration of ESG criteria in the investment process. Exclusion: Rules of conduct in defense. ESG analysis of third-party funds. Engagement and exercise of political rights. Retail solutions In Spain, green solutions and products for retail customers were explored in 2018, mainly consumption, mortgages, consumer finance and the online store BBVA de Compras. The goal is for customers to have a green offer throughout all of the main products. The plan for 2019 is to continue working on the development and implementation of this type of solution. Likewise, Garanti in Turkey continued to support the green mortgage market, under the agreement with IFC (International Finance Corporation) for the purchase of energy-efficient homes. In addition, since 2016, it has had a green loan for the purchase of hybrid and electric cars. Financial inclusion BBVA is aware that greater financial inclusion has a favorable impact on the welfare and sustained economic growth of countries. The fight against financial exclusion is therefore consistent with its ethical and social commitment, as well as its medium- and long-term business objectives. For this purpose, the Group has developed a financial inclusion (FI) business model to cover the low-income population in emerging countries within its global footprint. This model is based on the development of a responsible business model that is sustainable in the long term, shifting from a model that is intensive in human capital and of limited scalability to a scalable strategy that is intensive in alternative and digital channels with a multi-product focus. In short, this model is based on:    the use of new digital technologies; an increase in products and services offered through non-branch platforms; innovative low-cost financial solutions designed for this segment. At the close of 2018, BBVA had 8.4 million active customers in this segment. In turn, the BBVA Microfinance Foundation (FMBBVA) continues its work to promote the economic, social, sustainable and inclusive development of vulnerable people through productive finance. This model seeks to foster the development of its customers and offers entrepreneurs a customized service by bringing not only a full range of financial products and services to their homes or companies, but also advice and training related to the financial planning and management of their small businesses. Since the Foundation was set up, it has disbursed an aggregate volume of US$11,775 million to low-income entrepreneurs in Latin America for the development of their productive activities. It is now one of the largest private philanthropic initiatives in the region. During 2018, the FMBBVA and its more than 8,000 employees, served more than two million customers, 57% of whom were women, which contributed directly to reducing gender inequality and continued working to reach the geographic areas with the greatest needs. The activity of the FMBBVA is published annually in its social performance report, “Measuring what really matters,” available on its website. 96 Social and environmental impact management Social and environmental risks As a financial institution, BBVA has an impact on the environment and society directly, through the use of natural resources and the relationship with its stakeholders; and indirectly, through its credit activity and the projects it finances. Through its 2025 Pledge, the Group is committed to managing environmental and social risks to minimize these potential direct and indirect negative impacts linked to its activity. In terms of environmental and social risks, BBVA's strategy aims to gradually integrate its management into the Group's Risk Management Framework, in order to mitigate them based on the principle of prudence. In line with this, the Bank has equipped itself with instruments that reinforce its capacity to identify and evaluate this type of risk. New industry standards In 2018, BBVA published its new industry norms that address specific sustainability issues in four sectors with special environmental and social impact: mining, energy, infrastructure and agriculture. These standards provide clear guidance on the procedures to follow when managing customers and transactions in these sectors. Steps were taken this year to evaluate the alignment with these new norms of all customers in these four sectors, which will allow us to better understand their sustainability strategies. In line with the new sector standards, BBVA published its commitment to not finance controversial activities such as “exploration and production of oil sands” in the energy sector, for which the Bank does not support this kind of operation directly. Furthermore, BBVA highly appreciates the feedback from its stakeholders about these questions and will consider it at the moment of updating and reviewing the before-mentioned sector standards. Climate risk analysis Within the TCFD initiative, the Group seeks to assess how risks associated with climate change may affect its customer portfolio. After the signing of the Paris agreements, the importance of climate change came into focus on the international agenda. Governments and institutions committed themselves to the demands of this pact, and, little by little, we are seeing an increase in regulation (soft and hard) in this regard, which involves certain transitional risks and pushes companies to reduce their emissions to be in line with the 1.5 and 2 degree scenarios. Many sectors are affected by this trend, which limits their access to the use of certain commodities, taxes emissions, and requires the establishment of an ad-hoc strategy and the dissemination of information in this regard. There is also an opportunity as a result of the new business that will be generated around sustainable initiatives. On the other hand, physical risks derived from possible natural catastrophes must be taken into account. Banking plays a fundamental role in the section on transitional risks as a funder of all the sectors involved in this change. Determining this exposure requires the level of risk to which a lender is exposed to be taken into account. As such, BBVA developed a methodology based on the analysis of climate change scenarios in 2018. This methodology is based on the assumptions of models such as the WEO (World Energy Outlook) of the International Energy Agency and uses methodological tools developed in the pilot project carried out by the TCFD. This methodology incorporates the sectoral forecasts of the climate models and data involving BBVA's exposure into the tool. Supported by a calibration of the results, which is performed based on the Bank's knowledge of its main customers, the model provides forecasts of possible changes in the customers probability of default in the medium and long term. In this sense, BBVA analyzed the utilities, oil & gas and transport sectors, taking into consideration that they are the ones that have the greatest exposure to climate change in their portfolio. In terms of physical risks, the exercise focuses on how extreme climate change events (droughts, floods, storms, fires, etc.) can affect the assets of both BBVA and its customers. Accordingly, the exercise concentrated on studying the mortgage market in Mexico and the possible variations in the probability of default of mortgage loans. The Equator Principles Energy, transport and social services infrastructures, which promote economic development and create employment, can have impacts on the environment and society. BBVA's commitment is to manage the financing of these projects to reduce and avoid negative impacts and enhance their economic, social and environmental value. 97 All the decisions on project finance are based on the criterion of return adjusted to ethical principles. Placing people at the center of the business means meeting stakeholder expectations and dealing with the social demand to fight against climate change and respect human rights. In line with this commitment, in 2004 BBVA made a commitment to the Equator Principles (EP). Based on the International Finance Corporation's (IFC) Policy and Performance Standards on Social and Environmental Sustainability and the World Bank's General Environmental, Health and Safety guidelines, the Equator Principles are a set of standards for managing environmental and social risks in project finance. These principles have set the benchmark for responsible finance. In 2018, BBVA actively contributed to the development of the fourth version of the Equator Principles, initiated in the previous year. To this end, it participated in two working groups, urging a strengthening of requirements and actively contributing to their continuous development. With this new version, the Equator Principles Association recognizes the need to update the Principles in order to keep up with the changing landscape of sustainable finance, on four key issues: social impacts and human rights, climate change, international standards applicable to the projects and the scope of the applicability of the EPs. Eco-rating The Eco-rating tool is used to rate BBVA's risk portfolio in Spain from an environmental point of view. To this end, each customer is assigned a level of environmental risk based on the combination of several factors, such as their location, polluting emissions, consumption of resources, potential to affect their environment or applicable legislation. Eco-efficiency In its commitment to reduce the direct environmental impacts of its activity, in 2018 BBVA continued to work within the framework of the Global Eco-efficiency Plan (GEP), whose vision is to position the Bank among the leading eco- efficiency entities worldwide. The GEP establishes the following strategic vectors and global objectives for the 2016-2020 period: (*) updated objective after the incorporation of the data from Turkey. Objectives per person The results of monitoring compliance with the Plan in 2018 have been very positive, resulting in savings of 5% in electricity, 12% in CO2, 9% in water and 21% in paper (all of them per person). In addition, the percentage of consumption of renewable energy has increased to 37% and the percentage of people working in buildings built under sustainability standards reaches 43%. In addition to the objectives set out in the GEP, the climate change and sustainable development strategy approved in 2018 establishes new commitments by 2025, for the reduction of BBVA's carbon footprint. On the one hand, the Bank has established a reduction target of 68% of its scope 1 and 2 emissions at that date; and, on the other hand, it is committed that 70% of the energy it contracts will be renewable in 2025, and 100% in 2030. In line with this last goal, BBVA has joined the RE100 initiative this year, through which the most influential companies in the world commit themselves to having their energy at 100% renewable before 2050. It has also been the first Spanish bank to join the “Science Based Targets” initiative. The purpose of this initiative is for companies to establish greenhouse gas emission reduction targets that are aligned with the level of decarbonization necessary to maintain the global temperature rise below 2 degrees above pre-industrial levels, as established in the Paris Agreement. The evolution of the GEP indicators in the last year is reflected in the table below: Main indicators of the GEP People working in the certified buildings (%) (2) Electricity usage per person (MWh) Energy coming from renewable sources (%) CO2 emissions per person (T) (3) Water consumption per person (m3) People working in buildings with alternative sources of water supply (%) Paper consumption per person (T) People working in buildings with separate waste collection certificate (%) Note: indicators calculated based on employees and external staff. (1) Preliminary data. Calculated by pending estimate of receipt of invoices. Can change. (2) Including ISO 14001 and LEED certifications. (3) Emissions calculated according to the market-based method. (4) Data adjusted compared to the information released in 2017. 98 2017 42 5,9 27 2,2 21,6 (4) 11 0,1 41 2018 (1) 43 5.7 37 1.9 19.7 13 0.1 40 To achieve these targets, BBVA continued its efforts to minimize its environmental footprint through initiatives in all of the countries where the Group is present, most notably:      Power supply agreement through a PPA (Power Purchase Agreement): in Spain, the Bank's agreement for the purchase and sale of green energy that includes the construction of a wind farm that guarantees the production of 80 gigawatts, available from 2020; in Mexico, BBVA Bancomer has a PPA agreement that covers 80% of the energy consumed by the Bank. Establishment and monitoring of the implementation of energy savings measures in buildings in Spain. Implementation of various projects for the improvement of efficiency in air conditioning systems, system monitoring, adjustment of instructions for air conditioning and lighting. Operational improvements and remodeling of water consumption facilities in some locations. Renewal of environmental management system certifications under the ISO 14001:2015 standard, with an increase in the number of buildings that have this certification to the 1,067 branches and 86 buildings in use throughout the Group.  Measures to reduce paper consumption through digitalization processes of the documents used in offices.    Participation in the Earth Hour campaign in 179 cities around the world. Actions to raise awareness against plastic pollution. Celebration of sustainability week in the BBVA City in Madrid, during which employees participated in initiatives, workshops and visits aimed at promoting energy savings, sustainable mobility and overall environmental awareness. Given the characteristics of its activities, BBVA does not make direct provisions for environmental purposes. For the same reason, it neither counts with specific policies regarding resources, food waste nor records risks caused by impacts on protected areas. 99 Engagement with global initiatives BBVA plays a part of the main international sustainable development initiatives such as the United Nations Global Compact, the Equator Principles, the Principles for Responsible Investment, the United Nations Environment Program Financial Initiative (UNEP FI), CDP, the Thun Group on Banks and Human Rights, the Green Bond Principles, the Social Bonds Principles, the Green Loan Principles, the RE100 initiative and the Science Based Targets. In addition, it is firmly committed to the Sustainable Development Goals (SDG) of the United Nations and the Paris Climate Agreements and, since 2017, it has been a part of the pilot group of banks that have committed to implementing the recommendations on financing and climate change published by the Financial Stability Board within the framework of the G20. In 2018, BBVA joined the Principles for Responsible Banking, presented in Paris in November coinciding with the UNEP FI Global Roundtable; and signed a letter in December, along with other banks, addressed to world leaders and heads of state who attended the United Nations climate summit in Katowice (Poland), with a commitment to financing and designing the financial services needed to support the transition of its clients to a low-carbon economy. Sustainable Development Goals (SDG) On September 25, 2015, world leaders adopted 17 SDGs in order to protect the planet, fight against poverty and work to eradicate it, and achieve a prosperous world for the next generations. These goals are framed within the 2030 sustainable development Agenda. The aim was to involve everyone: governments, companies, civil society and individuals. Each goal, stated with a specific purpose, has, in turn, a number of targets set to achieve it. Furthermore, each target has its own indicators that serve to determine the degree of achievement of each goal. In this context, BBVA announced, in February 2018, its climate change and sustainable development strategy in order to contribute to the achievement of the SDGs (previously mentioned in the introduction of this chapter on Sustainable Finance), and assumes a special commitment regarding the SDG number 17 (Revitalize the Global Partnership for Sustainable Development), which assumes that alliances will be required to achieve the goals. For this reason, BBVA has pledged to engage all its stakeholders to boost the collective contribution of the financial sector to sustainable development. Due to the magnitude of this, the challenges derived from the Sustainable Development Goals and global warming can only be overcome with the determined commitment of all. This requires awareness, shared knowledge, call to action, dialog and alliances with all stakeholders, as well as participating in international and sectoral initiatives that join forces. Overall, BBVA contributes to all SDGs, given the Group's wide range of businesses, including the activity of the Microfinance Foundation, and its global presence. In this way, it aims to respond to the commitments of the 2030 Agenda, but at the same time to take advantage of the business opportunities derived from it´s compliance. Task Force on Climate-related Financial Disclosures (TCFD) As part of its commitment to mitigating the impacts of climate change and integrating these risks into its risk management model, BBVA has committed to follow the indications set out in the TCFD. In 2017, it joined the pilot group of banks that, guided by UNEP FI, are striving to implement the recommendations of the Task Force on Climate-related Financial Disclosures, created by the Financial Stability Board (FSB). As part of this group, during the first half of 2018, BBVA worked in creating a methodology that could help to incorporate environmental risks, both physical (directly derived from climate change) and transitional (regulatory risks to achieve the Paris Agreement goals), into BBVA´s risk management area. The result of this work were two documents, one focused on physical risks and the other on transitional risks, which were published during 2018. BBVA focused its analysis on the transport and energy sectors for transitional risks and in the mortgage market for physical risks. Principles for Responsible Banking BBVA is one of the 28 banks around the world that have worked on the preparation of the Principles for Responsible Banking since April 2018. This is an initiative coordinated by UNEP FI, the United Nations Environment Programme Finance Initiative, and aims to respond to the growing demand of our different stakeholders to have a comprehensive framework that covers all dimensions of sustainable banking. In this sense, BBVA believes that these Principles will help reaffirm its Purpose, enhance its contribution to both the United Nations Sustainable Development Goals and the commitments derived from the Paris Climate Agreements, and to align its business strategy with them. 100 Contribution to society Investment in social programs In 2018, the BBVA Group allocated €104.5 million to social initiatives that benefited more than 8 million people. This figure represented close to 2% of the Group’s net attributed profit. Through social programs, BBVA acts as an engine of opportunities for people, and seeks to have a positive impact on their lives, with regard to vulnerable people in particular. Investment in social programs by focus of actions (Percentage). 2018 Investment in social programs by geographical areas and foundations (Millions of euros) Spain and corporative areas The United States Mexico Turkey South America BBVA Foundation BBVA Microfinance Foundation TOTAL 2018 28.1 11.1 25.3 5.2 3.9 25.8 5.1 % 27 11 24 5 4 25 5 2017 24.7 9.0 26.8 5.2 6.0 25.9 5.4 % 24 9 26 5 6 25 5 104.5 100 103.1 100 BBVA's investment in social programs is channeled through its local banks that make up the Group and its corporate foundations, thus contributing to the development of communities in which the Group is present. Foundations play a fundamental role in channeling a significant part of social investment initiatives: the BBVA Foundation is focused promoting knowledge, culture, and dissemination of science while the BBVA Microfinance Foundation promotes a sustainable economic and social development of the most disadvantaged people, through Responsible Productive Finance. In 2018, BBVA continued to push forward the main focus of action of the Community Investment Plan for the 2016-2018 period, which include: 1. Financial education, aimed at promoting the acquisition of financial skills and competencies to enable people to make informed financial decisions. 2. Social entrepreneurship, designed to support the most vulnerable entrepreneurs and those whose companies have a positive social impact. 3. Knowledge, by supporting initiatives that promote development and that allow the creation of opportunities for people. Education for society is framed within this strategic line. It shares priority with other initiatives of the Group, such as the activities of the BBVA Foundation and the research work carried out by the BBVA Research Department. Since 2016, BBVA's community support activity has been focusing on these three strategic lines; however, at a local level, the Group's banks have maintained their investment commitments in the community to face local social challenges. In this sense, the Social Entities Support Program promotes the implementation of educational and 101 community development projects carried out by non-governmental organizations, social entities and other non-profit associations. Financial education Financial education is one of the lines of action of the Community Investment Plan. The global objective of BBVA's commitment to financial education is to promote a concept of financial education in the broad sense, through the Global Financial Education Plan, based on three lines of action:    Financial education for society: promoting the acquisition of knowledge, skills and attitudes in all countries where BBVA operates, through its own programs and in collaboration with third parties, in order to achieve greater knowledge of financial concepts and a change in behavior in financial decision-making. Promotion of financial education: promoting the importance of knowledge and financial capabilities, as a fundamental issue that has a direct impact on the well-being of people. Financial education in customer solutions: integrating financial capabilities in the customer's experience in order to facilitate informed decision-making, which will result in an improvement in their financial well-being and allow them to access greater opportunities. BBVA's commitment to financial education is long-term, with more than €80 million invested and more than 13.4 million beneficiaries in different programs since 2008. In 2018, investment in the development of the Global Financial Education Plan was €7.6 million and benefited almost 2 million people. Entrepreneurship In the 2016-2018 Community Investment Plan, entrepreneurship support programs were grouped into a single line of action that became more relevant. This has led to the development of programs and initiatives aimed at the most vulnerable entrepreneurs and those that generate a positive social impact through their companies. In 2018, BBVA allocated close to €9 million that benefited 2.2 million people. Likewise, BBVA promotes the ecosystem of social entrepreneurship through its participation in notable organizations. Knowledge, education and culture Knowledge, education and culture are three areas of activity that are grouped in the third line of action of the Community Investment Plan for the period 2016-2018 and that encompasses the activities carried out by the BBVA Foundation and local education and culture initiatives. In 2018, €75.5 million were invested, benefiting 3.8 million people. BBVA contributes to the dissemination of knowledge through the activities of BBVA Research, the BBVA Foundation and the Open Mind initiative.    BBVA Research studies the evolution of the economy and offers economic studies, reports and analyses to shareholders, investors and the general public. The BBVA Foundation focuses its activity on the generation of knowledge. Expanding the frontiers of inherited knowledge is one of the most effective ways to successfully address the problems that affect society today, such as the environment, sustainable development, health, demographic changes, globalization, social integration, and innovation with the goal of creation of opportunities for the whole of society. The direct impulse towards scientific research is one of the levers on which the BBVA Foundation is supported along with the dissemination of the knowledge generated and the recognition of talent. The Open Mind initiative aims to contribute to the generation and dissemination of knowledge concerning fundamental issues of our time, in an open and free way. The project has taken shape in an online community of disclosure. Education for society is an extremely important aspect of BBVA's social investment as it continues to support access to education, educational quality and the development of 21st century key competences as sources of opportunity. It shares space with other initiatives of the Group, such as the activities of the BBVA Foundation. The promotion of cultural creation of excellence is another lever of support of the BBVA Foundation to generate knowledge. It focuses its support on classical music, with an emphasis on contemporary music, visual arts, video art and digital art, as well as literature and theatre. Others BBVA's community support activity includes other lines of action, such as volunteering, support for social entities, and the promotion of corporate responsibility through its participation in the main working groups. In 2018, BBVA, in relation to contributions to foundations and non-profit entities, prepared a Donation Management Standard, which updates the existing procedure to align it with the anti-corruption policy (mentioned in the chapter on the Compliance System). This regulation will be approved in the first quarter of 2019 and, throughout next year, the technological solution for managing donations throughout the Group will be enabled in accordance with this procedure. 102 103 Fiscal transparency Fiscal strategy In 2015, the BBVA Board of Directors approved the Corporate Principles in BBVA's Tax and Fiscal Strategy. The strategy forms part of BBVA's corporate governance system and establishes the policies, principles and values that guide the way the Group behaves with respect to taxes. This strategy has a global scope and affects everyone who is part of the Bank. Compliance with the strategy is very important, given the scale and impact that the tax contributions of large multinationals such as BBVA have on the jurisdictions where they operate. Effective compliance with the tax strategy is duly monitored and supervised by BBVA's governing bodies. Accordingly, BBVA's fiscal strategy consists of the following basic points:     BBVA´s decisions concerning fiscal-related matters are determined by the payment of taxes, given that they contribute heavily to the economies of all the jurisdictions in which it operates. Tax payments are aligned with effective business practices and the generation of value in the different countries in which BBVA operates. Active adaptation to the new digital environment, also in terms of taxation, through the incorporation of virtual presence into the generation of value, and its consequent valuation. The establishment of reciprocal cooperative relations with tax authorities that are based on the principles of transparency, mutual trust, good faith and fairness. Promotion of a clear, transparent and responsible reporting strategy to stakeholders on its main fiscal-related matters. Total tax contribution BBVA is committed to providing full transparency in tax payments, which is why once more this year the Group has voluntarily disclosed all major tax payments in the countries where it has a significant presence, as it has done every year since 2011. BBVA Group's total tax contribution (TTC), which uses a method created by PwC, includes its own and third-party payments of corporate taxes, VAT, local taxes and fees, income tax withholdings, Social Security payments, and payments made during the year arising from tax litigation in relation to the aforementioned taxes. In other words, it includes both the taxes related to the BBVA Group companies (taxes which represent a cost to them and affect their results) and taxes collected on behalf of third parties. The TTC Report gives all the stakeholders an opportunity to understand BBVA's tax payments and represents a forward-looking approach and commitment to corporate social responsibility, by which it assumes a leading position in fiscal transparency. Global Tax contribution (BBVA Group. Millions of euros) Own taxes Third-party taxes Total tax contribution Offshore financial centers 2018 4,502 5,250 9,752 2017 4,106 5,775 9,881 BBVA maintains a policy on activities in entities permanently registered in offshore financial centers, which includes a plan for reducing the number of offshore financial centers. In this respect, in 2018 the Group closed the branch in the Cayman Islands so, as of December 31, 2018, BBVA's permanent establishments registered in offshore financial centers considered tax havens both from the perspective of the OCDE as of the Spanish regulations, are the issuers of securities: BBVA Global Finance, Ltd., Continental DPR Finance Company, Garanti Diversified Payment Rights Finance Company and RPV Company. Branch at offshore entities (BBVA Group. Millions of euros) Main figures of the balance sheets Loans and advances to customers Deposits from customers Issuers of securities 31-12-18 104 31-12-17 1,499 1,144 The BBVA Group has four issuers registered in Grand Cayman, two of them from the Garanti Group. Issuances outstanding at offshore entities (BBVA Group. Millions of euros) Issuing entities Subordinated debts (1) BBVA Global Finance LTD Other debt securities Continental DPR Finance Company (2) Garanti Diversified Payment Rights Finance Company RPV Company TOTAL (1) Securities issued before the enactment of Act 19/2003 dated 4 July 2003. (2) Securitization bond issuances in flows generated from export bills. 31-12-18 31-12-17 175 162 48 1,793 1,329 3,345 59 1,879 1,262 3,362 Supervision and control of the permanent establishments of the BBVA Group in offshore financial centers The BBVA Group applies risk management criteria and policies to all its permanent establishments in offshore financial centers that are identical to those for the rest of the companies making up the Group. During the reviews carried out annually on each and every one of the BBVA Group's permanent establishments in offshore financial centers, BBVA’s Internal Audit Department checks the following: i) that their activities match the definition of their corporate purpose, ii) that they comply with corporate policies and procedures in matters relating to knowledge of the customers and prevention of money laundering, iii) that the information submitted to the parent company is true, iv) and that they comply with tax obligations. In addition, every year a specific review of Spanish legislation applicable to the transfer of funds between the Group’s banks in Spain and its companies established in offshore centers is performed. In 2018, BBVA’s Compliance and Internal Audit Departments have supervised the action plans deriving from the audit reports on each one of these centers. For 2018, as far as external audits are concerned, all of the BBVA Group’s permanent establishments registered in offshore financial centers have the same external auditor (KPMG), except Continental DPR Finance Company. Other tax information by countries Tax information by countries (Millions of euros) CIT payments cash basis CIT expense consol 534 165 903 422 85 32 146 - 365 15 9 2 - - 1 6 7 9 - - 3 - 14 8 17 - - - 1 - - - 3 6 - 383 188 902 269 117 116 163 20 43 6 3 2 - - 4 27 5 1 - 2 2 1 12 8 1 - - - 1 - - - 7 10 - 2018 PBT consol 1,295 977 3,241 1,225 355 66 584 2 205 37 35 9 - 6 38 59 20 4 (12) 10 21 14 36 29 16 2 (1) - 7 - (2) - 30 136 2 2,753 2,295 8,446 Country Spain The United States Mexico Turkey Colombia Argentina Peru Venezuela Chile Uruguay Paraguay Bolivia Brasil Curaçao Romania Portugal Netherlands Switzwerland Finland Ireland United Kingdom Hong Kong France Italy Germany Belgium China South Korea Singapur Japan Taiwan Luxembourg Chipre Malta Poland Total Subsidies CIT payments cash basis CIT expense consol 454 154 795 354 101 51 151 3 99 25 6 2 - - 2 5 2 3 - 2 1 - 15 4 25 - - - 1 - - 2 2 2 - 137 274 798 426 86 89 142 20 66 10 4 2 1 - 2 31 13 2 - - 18 - 9 15 13 - - - 1 - (1) - 4 6 1 - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 105 Subsidies - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - 2017 PBT consol (856) 805 2,946 1,902 299 443 528 12 317 35 35 7 4 2 35 42 48 7 (8) 11 44 16 36 43 29 (1) (2) (1) 5 (4) (4) (1) 17 140 - Note: the results of this breakdown of the branches are integrated in the financial statements of the parent companies on which they depend. During 2018, BBVA Group has not received public aid for the financial sector which has the aim of promoting the carrying out of banking activities and which is significant, as mentioned in the Appendix XIII – Annual banking report of the Consolidated Financial Statements. 2,261 2,169 6,931 - 106 Suppliers BBVA understands that integrating ethical, social and environmental factors into its supply chain is part of its responsibility. Thus, in 2018, BBVA has reinforced the three basic pillars of the Group’s Procurement Model with the end of the transformation of the procurement function. These pillars include:    service orientation, maximizing the quality and experience of internal customers, limitation of reputational risk in contracting suppliers, and contribution to efficiency, through the active management of both costs and suppliers. Essential data about suppliers (BBVA Group) (1) Number of suppliers (2) Volume provided by suppliers (millions of euros) (2) Average payment term to suppliers (days) Suppliers satisfaction index (3) Number of approved suppliers n.av.= not avaiable. (1) Supplier´s data exclude the information about Turkey (2) Payments to third parties. Suppliers lower than 100,000 euros are not included (3) Bienal survey 2018 4,620 7,478 22 n.av. 5,819 2017 4,563 7,077 23 82 4,895 Within the procurement process, it is necessary to correctly manage all effects that a bank such as BBVA may cause, both real and potential. BBVA has a series of mechanisms and standards designed to manage these impacts: Responsible Procurement Policy, Approval Process, and the Corporate Standard for the Acquisition of Goods and the Contracting of Services. These impacts may be environmental, produced because of poor labor practices of suppliers, arising from the lack of association freedom, against human rights, and positive or negative on society. During 2018, the implementation of the Supplier Code of Ethics was consolidated in all purchasing units in all the countries where the Group is present, establishing minimum standards of behavior that suppliers are expected to follow in terms of ethical, social and environmental conduct when they provide products and services. Along with the ethical supplier code, BBVA maintains a responsible procurement policy. Responsible procurement policy The responsible procurement policy establishes, among other aspects, that it is necessary to ensure compliance with all applicable legal requirements throughout the provisioning process regarding human, labor, association and environmental rights by all parties involved in this process as well becoming involved in the Group's efforts aimed at preventing corruption. In the same way, it is ensured that the selection of suppliers remains in compliance with existing internal regulations at all times and, in particular, with the values of the Group's Code of Conduct, based on respect for legality, commitment to integrity, competition, objectivity, transparency, creation of value and confidentiality. The following are included among the clauses included in the specifications and in the contractual model:        Compliance with current legislation in each locality and, in particular, with the obligations imposed on it by its personnel, Social Security or alternative provision systems, hiring of foreign workers, the Public Treasury, public records, etc. Compliance with current legislation on the social integration of individuals with disabilities. Clauses that ensure that non-discrimination policies are established for reasons of gender, as well as measures to reconcile work and family life. Equality clause. Compliance with all labor, occupational health, and safety legislation. Anti-corruption statement. Adherence to the United Nations Global Compact. The Responsible Procurement Policy also establishes, as one of its principles, the “raising awareness, in terms of social responsibility, among staff and other interested parties involved in the procurement processes of the Group.” 107 Supplier management BBVA carries out an approval process for recurring suppliers with higher purchase volumes. The financial, legal, labor and reputational situation of the suppliers is assessed during this approval process, in order to determine whether they fulfill their legal responsibilities as well their basic technical capacities, which makes it possible to validate that they share the same values as the Group in terms of social responsibility. In this process, suppliers must comply with the following points:          Compliance with the social and environmental principles of the UN. Adoption of internal measures to guarantee diversity and equal opportunities in the management of human resources. Adoption of measures to promote occupational health and safety and the prevention of workplace accidents and incidents. Support for the freedom of affiliation and collective bargaining of its workers in all the countries in which it operates. Possession of a code of conduct or policy to avoid forced labor, child labor and other violations of human rights, both within the company itself as well as in its subcontractors. Possession of a code of conduct or policy designed to avoid corruption and bribery. Participation or collaboration in activities related to culture, scientific knowledge, sports, the environment or disadvantaged sectors, either through direct actions or by means of donations, in collaboration with other organizations or institutions. Policy for hiring of persons with disabilities. Existence of a corporate responsibility policy within the company. Approval is reviewed periodically and is subject to continuous monitoring. The percentage of approved suppliers is 29%, which account for 85% of the total awarded. Security companies, especially those critical to these matters, have established compliance with current legislation with regard to specifications and contracts, with special attention provided to labor legislation and the specific laws applicable to these types of companies, as well as compliance with human rights obligations, non-discrimination and equality policies, etc. With regard to local suppliers, these represent 97.7% of BBVA´s total providers in 2018 which represents 94.6% of the total turnover, which facilitates contributions to the economic and social development of the countries in which the Group is present (Uruguay is excluded from the scope, since the breakdown by local suppliers is not available). The local supplier, in this context, is one whose tax identification matches the country of the company receiving the goods or service. On the other hand, the turnover of special employment centers (CEE, for its acronym is Spanish) in Spain to the Bank is estimated at more than €3.2 million for the year. The hiring of CEEs favors inclusion and diversity. BBVA performs supplier audits in which the quality of the service provided by them is evaluated in accordance with the provisions of the contracts and the Bank's needs. Other Non-financial risks News related to the procurement by the Bank of services offered by companies related to the Grupo Cenyt have been recently released. Through mass media, the Bank has been aware that the aforementioned facts could be the object of an investigation by judicial authorities, without the Bank having received any formal notice for the moment. The Bank is carrying out a forensic investigation led by PwC through the Bank’s external legal counsel Garrigues, along with Uría, for the defense of its legitimate interests, collaborating with judicial authorities and supervisors within the framework of its defense. 108 is not possible to predict judicial It authorities´investigation nor their possible results or implications for the Group. We cannot exclude at the moment the opening of proceeding, legal or regulatory actions against the Bank that could have a negative reputational or economic impact for the Bank of the Group. in this moment neither the scope or duration of the Bank´s or the GRI indicators Code Information requested under the Law 11/2018 (Non-financial Information Report) Linking with GRI indicators (Guidance) 0. General information 0.1 Business model 109 BBVA Management Report page 0.1.a Brief description of the group’s business model (business environment and organization) 102-2 Activities, brands, products, and services    50‐53    0.1.b Geographical presence 0.1.c Objectives and strategies of the organization 102-7 Size of the organization 102-3 Location of headquarters 102-4 Location of operations 102-6 Markets served 102-14 Declaration of senior executives responsible for decision-making (vision and strategy related to the management of economic, social, and environmental impacts) 0.1.d Main factors and trends that may affect your future evolution 102-15 Main impacts, risks, and opportunities 0.2 General 0.2.1 0.2.2 Indicate the national, European or international reporting framework in the report that is used for the selection of key non-financial performance indicators included in each of the sections 102-54 Declaration of preparation of the report in accordance with GRI Standards If the company complies with the non-financial information law by issuing a separate report, it must be expressly stated that said information is part of the management report n.a.     2    54‐62    54     48  1. Environmental questions 1.1 General information 1.1.a 1.1.b 1.1.c A description of the policies applied by the group with respect to these issues, which will include due diligence procedures applied to the identification, evaluation, prevention and mitigation of significant risks and impacts, and to verification and control, including what measures have been adopted. The results of these policies, including key indicators of relevant non-financial results that allow the monitoring and evaluation of progress and that favor the comparability between societies and sectors, in accordance with the national, European or international reference frameworks used for each subject. The main risks related to these issues involving the activities of the group, including, where relevant and proportionate, their business relationships, products or services that may have negative effects in these areas, and how the group manages such risks, explaining the procedures used to detect and evaluate them in accordance with national, European or international reference frameworks for each matter. Information on the impacts that have been detected must be included and broken down, in particular on the main short-, medium-, and long-term risks. 1.1 Detailed information 1.1.1 General detailed information 103-2 The management approach and its components     84‐89  103-2 The management approach and its components 103-3 Evaluation of the management approach     84‐89/96‐98  102-15 Main impacts, risks and opportunities   96‐97  1.1.1.1 On current and foreseeable effects of the activities of the company on the environment and, where appropriate, health and safety 1.1.1.2 On environmental assessment or certification procedures 1.1.1.3 On the resources dedicated to the prevention of environmental risks - - - 1.1.4 On the application of the precautionary principle 102-11 Precautionary principle or approach 1.1.5 About the resources dedicated to the prevention of environmental risks - 1.1.2 Contamination     96      97      96      96      94  1.1.2.1 Measures to prevent, reduce or repair emissions that seriously affect the environment; taking into account any form of air pollution specific to an activity, including noise and light pollution. 1.1.3 Circular economy and waste prevention and management 1.1.3.1 Prevention, recycling, reuse, other forms of recovery and types of waste disposal; actions to combat food waste 1.1.4 Sustainable use of resources 1.1.4.1 Water consumption and water supply according to local constraints 110 305-5 Reduction of GHG emissions 305-6 Emissions of substances that deplete the ozone layer (ODS) 305-7 Nitrogen oxides (NOx), sulfur oxides (SOx) and other significant air emissions     96‐98  301-2 Recycled supplies 301-3 Reused products and packaging materials 303-3 Recycled and reused water 306-1 Water discharge according to quality and destination 306-2 Waste by type and disposal method 303-1 Water extraction by source 303-2 Water sources significantly affected by water withdrawal 1.1.4.2 Use of raw materials and measures taken to improve the efficiency of their utilization 301-1 Materials used by weight or volume 1.1.4.3 Energy use, direct and indirect 1.1.4.4 Measures taken to improve energy efficiency 302-1 Energy use within the organization 302-2 Energy use outside of the organization 302-4 Reduction of energy consumption 302-5 Reduction of the energy requirements for products and services 1.1.4.5 Use of renewable energies 302-1 Energy use within the organization 1.1.5 Climate change 1.1.5.1 The important elements of greenhouse gas emissions generated as a result of the company's activities, including the use of the goods and services it produces 1.1.5.2 Measures taken to adapt to the consequences of climate change 305-1 Direct GHG emissions (scope 1) 305-2 Indirect GHG emissions from energy generation (scope 2) 305-3 Other indirect GHG emissions (scope 3) 201-2 Financial implications and other risks and opportunities arising from climate change 1.1.5.3 Reduction goals established voluntarily in the medium and long term to reduce greenhouse gas emissions and measures implemented for that purpose 305-5 Reduction of GHG emissions 1.1.16 Protection of biodiversity 1.1.6.1 Measures taken to protect or restore biodiversity 304-3 Protected or restored habitats 1.1.6.2 Impacts caused by activities or operations in protected areas 304-2 Significant impacts of activities, products, and services on biodiversity 2. Social and personnel questions 2.1 General information 2.1.a 2.1.b 2.1.c A description of the policies applied by the group with respect to these issues, which shall include due diligence procedures applied to the identification, evaluation, prevention and mitigation of significant risks and impacts, and to verification and control, including which specific measures have been adopted. The results of these policies, including key indicators of relevant non-financial results that allow the monitoring and evaluation of progress and that favor the comparability between societies and sectors, in accordance with the national, European or international reference frameworks used for each subject. The main risks related to these issues involving the activities of the group, including, where relevant and proportionate, their business relationships, products or services that may have negative effects in these areas, and how the group manages such risks, explaining the procedures used to detect and evaluate them in accordance with national, European or international reference frameworks for each matter. Information on the impacts that have been detected must be included and broken down, in particular on the main short-, medium-, and long-term risks. 2. 2 Detailed information 2.2.1 Employees 103-2 The management approach and its components 103-2 The management approach and its components 103-3 Evaluation of the management approach 102-15 Main impacts, risks and opportunities   78‐81    96‐98    96‐98    96‐98    96‐98    96‐98     96‐98    96‐99     96‐99    96‐99      96‐98   96‐98      71      71  2.2.1.1 Total number and distribution of employees according to representative diversity criteria (gender, age, country, etc.) 102-8 Information on employees and other workers 405-1 Diversity in governing bodies and employees 2.2.1.2 Total number and distribution of work contract modalities, annual average of permanent contracts, temporary contracts and part-time contracts by sex, age, and professional classification 102-8 Information on employees and other workers 111    72‐77      72‐77  2.2.1.3 Number of dismissals by sex, age, and professional classification 401-1 New employee hiring and staff rotation     72‐77  2.2.1.4 The average remunerations and their evolution disaggregated by sex, age, and professional classification or equal value 102-38 Total annual compensation ratio 102-39 Percentage increase rate for the total annual compensation 2.2.1.5 2.2.1.6 2.2.1.7 Salary gap, remuneration paid for equal work or the average salary of the company 405-2 Ratio of basic salary and remuneration of women to men The average remuneration of directors and executives, including variable remuneration, allowances, and compensation - Payment to long-term forecast savings and any other perception broken down by gender 201-3 Obligations of the defined benefit plan and other retirement plans 2.2.1.8 Implementation of employment termination policies -   82‐83    82  ACGR/83    83    79  2.2.1.9 Employees with disabilities 405-1 Diversity in governing bodies and employees   77‐78  2.2.2 Work organization 2.2.2.1 Work schedule organization - 2.2.2.2 Number of hours of absenteeism 403-2 Types and frequency of accidents, occupational illnesses, days lost, absenteeism, and number of deaths due to work-related accidents or occupational illnesses 2.2.2.3 Measures designed to facilitate access to mediation resources and encourage the responsible use of these by both parents 401-3 Parental leave 2.2.3 Health and safety 2.2.3.1 Work health and safety conditions 2.2.3.2 Work accidents, in particular their frequency and severity, as well as occupational diseases; disaggregated by gender. 2.2.4 Social relationships 2.2.4.1 Organization of social dialog, including procedures to inform and consult staff and negotiate with them 403-3 Workers with high incidence or high risk of diseases related to their activity 403-2 Types and frequency of accidents, occupational illnesses, days lost, absenteeism, and number of deaths due to work-related accidents or occupational illnesses 102-43 Approach to interest group participation 402-1 Minimum notice periods for operational changes 403-1 Representation of workers in formal worker- company health and safety committees 2.2.4.2 Percentage of employees covered by collective agreement by country 102-41 Collective bargaining agreements 2.2.4.3 The balance of collective agreements, particularly in the field of health and safety at work 403-4 Health and safety issues addressed in formal agreements with unions 2.2.5 Training 2.2.5.1 Policies implemented for training activities 2.2.5.2 The total amount of training hours by professional category 2.2.6 Universal accessibility for people with disabilities 404-2 Programs to improve employee abilities and transition assistance programs 404-1 Average training hours per year per employee 2.2.6.1 Universal accessibility for people with disabilities - 2.2.7 Equality 2.2.7.1 Measures taken to promote equal treatment and opportunities between women and men 401-3 Parental leave   78    79    78‐80     78‐80      78‐80     78‐80     78‐80     78‐80     72‐73    73    73‐77    73‐74  2.2.7.2 Equality plans (Section III of Organic Law 3/2007, of March 22, for effective equality of women and men), measures adopted to promote employment, protocols against sexual and gender-based harassment, integration, and the universal accessibility of people with disabilities - 2.2.7.3 Policy against any type of discrimination and, where appropriate, diversity management 406-1 Cases of discrimination and corrective actions taken 112     72‐78      73‐77  3. Respect for human rights 3.1 General information 3.1.a 3.1.b 3.1.c A description of the policies applied by the group with respect to these issues, which shall include due diligence procedures applied to the identification, evaluation, prevention and mitigation of significant risks and impacts, and to verification and control, including which specific measures have been adopted. The results of these policies, including key indicators of relevant non-financial results that allow the monitoring and evaluation of progress and that favor the comparability between societies and sectors, in accordance with the national, European or international reference frameworks used for each subject. The main risks related to these issues involving the activities of the group, including, where relevant and proportionate, their business relationships, products or services that may have negative effects in these areas, and how the group manages such risks, explaining the procedures used to detect and evaluate them in accordance with national, European or international reference frameworks for each matter. Information on the impacts that have been detected must be included and broken down, in particular on the main short-, medium-, and long-term risks. 3.2 Detailed information 3.2.1 Application of due diligence procedures in the field of human rights; prevention of the risks of violation of human rights and, where appropriate, measures to mitigate, manage, and repair possible abuses committed 103-2 The management approach and its components     90‐92  103-2 The management approach and its components 103-3 Evaluation of the management approach   90‐92  102-15 Main impacts, risks and opportunities     90‐92  102-16 Values, principles, standards, and codes of conduct 102-17 Advisory mechanisms and ethical concerns 410-1 Security personnel trained in human rights policies or procedures 412-1 Operations subject to revisions or impact assessments on human rights 412-2 Training of employees in human rights policies or procedures 412-3 Significant investment agreements and contracts with clauses    90‐92  3.2.2 Claims regarding cases of human rights violations Non-compliance with laws and regulations pertaining to social and economic issues    90‐92  3.2.3 Promotion and compliance with the provisions contained in the related fundamental Conventions of the International Labor Organization with respect for freedom of association and the right to collective bargaining; the elimination of discrimination in employment and occupation; the elimination of forced or compulsory labor; and the effective abolition of child labor. 406-1 Cases of discrimination and corrective actions taken 407-1 Operations and suppliers whose right to freedom of association and collective bargaining may be at risk 408-1 Operations and suppliers with significant risk of child labor cases 409-1 Operations and suppliers with significant risk of forced or compulsory labor cases     90‐92  4. Anti-bribery and anti-corruption measures 4.1 General information 4.1.a 4.1.b A description of the policies applied by the group with respect to these issues, which shall include due diligence procedures applied to the identification, evaluation, prevention and mitigation of significant risks and impacts, and to verification and control, including which specific measures have been adopted. The results of these policies, including key indicators of relevant non-financial results that allow the monitoring and evaluation of progress and that favor the comparability between societies and sectors, in accordance with the national, European or international reference frameworks used for each subject. 103-2 The management approach and its components     84‐89  103-2 The management approach and its components 103-3 Evaluation of the management approach     84‐89  4.1.c The main risks related to these issues involving the activities of the group, including, where relevant and proportionate, their business relationships, products or services that may have negative effects in these areas, and how the group manages such risks, explaining the procedures used to detect and evaluate them in accordance with national, European or international reference frameworks for each matter. Information on the impacts that have been detected must be included and broken down, in particular on the main short-, medium-, and long-term risks. 4.2 Detailed information 4.2.1 Measures taken to prevent corruption and bribery 4.2.2 Anti-money laundering measurers 4.2.3 Contributions to foundations and non-profit entities 5. Information on the company 5.1 General information 5.1.a 5.1.b 5.1.c A description of the policies applied by the group with respect to these issues, which shall include due diligence procedures applied to the identification, evaluation, prevention and mitigation of significant risks and impacts, and to verification and control, including which specific measures have been adopted. The results of these policies, including key indicators of relevant non-financial results that allow the monitoring and evaluation of progress and that favor the comparability between societies and sectors, in accordance with the national, European or international reference frameworks used for each subject. The main risks related to these issues involving the activities of the group, including, where relevant and proportionate, their business relationships, products or services that may have negative effects in these areas, and how the group manages such risks, explaining the procedures used to detect and evaluate them in accordance with national, European or international reference frameworks for each matter. Information on the impacts that have been detected must be included and broken down, in particular on the main short-, medium-, and long-term risks. 5.2 Detailed information 5.2.1 Commitment by the company to sustainable development 5.2.1.1 Impact of the company’s activities on employment and local development 5.2.1.2 The impact of company activity on local populations and on the territory 113 102-15 Main impacts, risks, and opportunities   84‐89  102-16 Values, principles, standards and codes of conduct 102-17 Advisory mechanisms and ethical concerns 205-1 Operations evaluated for risks related to corruption 205-2 Communication and training on anti- corruption policies and procedures 205-3 Confirmed cases of corruption and measures taken 102-16 Values, principles, standards and codes of conduct 102-17 Advisory mechanisms and ethical concerns 201-1 Direct economic value generated and distributed   87‐89     85‐86    100‐102  103-2 The management approach and its components    100‐102  103-2 The management approach and its components 103-3 Evaluation of the management approach   100‐102  102-15 Main impacts, risks, and opportunities    100‐102  204-1 Proportion of spending on local suppliers 413-1 Operations with local community participation, impact evaluations and development programs 204-1 Proportion of spending on local suppliers 411-1 Cases of violations of the rights of indigenous peoples 413-1 Operations with local community participation, impact evaluations, and development programs 413-2 Operations with significant negative impacts in local communities, either real or potential   100‐102    100‐102  5.2.1.3 The relationships maintained with representatives of the local communities and the modalities of dialog with these 102-43 Approach to interest group participation   90‐92/100‐102  5.2.1.4 Actions of association or sponsorship -   100‐102  5.2.2 Subcontractors and suppliers 5.2.2.1 The inclusion of social, gender equality and environmental issues in the purchasing policy 5.2.2.2 Consideration of social and environmental responsibility in relations with suppliers and subcontractors 5.2.2.3 Supervision systems and audits, and their results 5.2.3 Consumers 5.2.3.1 Customer health and safety measures 5.2.3.2 Claims systems, complaints received and their resolution 5.2.4 Tax information 5.2.4.1 Benefits obtained by country 5.2.4.2 Taxes on paid benefits 5.2.4.3 Public subsidies received 114 308-1 New suppliers that have passed screening and selection filters according to environmental criteria 414-1 New suppliers that have passed screening and selection filters according to social criteria 308-1 New suppliers that have passed screening and selection filters according to environmental criteria 414-1 New suppliers that have passed screening and selection filters according to social criteria                106‐107                  106‐107  308-2 Negative environmental impacts in the supply chain and actions taken 414-2 Negative social impacts on the supply chain and actions taken                  106‐107  416-1 Evaluation of health and safety impacts of the categories of products or services                     69‐70  102-43 Approach to interest group participation 102-44 Key issues and concerns mentioned 418-1 Fundamental claims relating to violations of the customer's privacy and loss of customer data                     65‐69  201-1 Direct economic value generated and distributed                  103‐105  201-1 Direct economic value generated and distributed                   103‐105  201-4 Financial assistance received from the government                    103‐105  115 Other information Risk exposure The BBVA Group's risk management system and risk exposure are described in Note 7, Risk Management of the accompanying Consolidated Financial Statements. The evolution of the risk metrics appears in the Risk Management section while the non-financial risks, environmental and social, are shown in the corresponding section of Management of environmental and social impacts, both included in this Management Report. In addition, since 2016, BBVA has a methodology for the identification, assessment and management of reputational risk. Through this methodology, the Bank regularly defines and reviews a map in which it prioritizes the reputational risks it faces, as well as a set of action plans to mitigate them. The prioritization is made based on two variables: the impact on stakeholders' perceptions and the BBVA's strength against risk. This exercise is carried out annually in all the countries where the Group is present, as well as in the CIB EMEA Area. Following the result of the exercise, 32 mitigation action plans were carried out in 2018. New measures aimed at strengthening the most outstanding reputational risk management model of 2018 are:     Review of the risk factors subjected to analysis with the incorporation of feedback on areas of improvement carried out by Global Risk Management and Compliance areas, as well as the Responsible Business Department itself. Coordination of the annual review of the risk map by the reputational risk specialist at local level. Review of the catalog of reputational risk indicators in order to improve the handling of any potential events that may occur in any given location. Incorporation of local reputational risk specialists in the New Product Committees in Spain, Mexico, the United States, Colombia, Peru, Venezuela and Turkey. Contractual obligations and off-balance sheet operations Information on contingent risks and commitments can be found in Note 33 Commitments and guarantees given of the accompanying Consolidated Financial Statements. Information on purchase and sale commitments and future payment obligations can be found in Note 35 Purchase and sale commitments and future payment obligations of the accompanying Consolidated Financial Statements. 116 Innovation and technology BBVA is engaged in a process of digital transformation, the main aim of which is to achieve its aspiration of strengthening relationships with its customers and being the best possible bank for them. Engineering is an essential component of this transformation. Its mission has always been to enable a technology strategy that provides the foundation for this transformation, thus becoming more customer-centric and establishing a more global strategy, fast to implement, digital, flexible and leveraged on the Group's data. This must be done while continuing to provide support to the Bank's core business: catering to the demand for traditional business (multi-segment, multi-product, multi-channel, etc.); and b) contributing reliability, with the necessary tools to ensure adequate internal controls, based on consistent information and data. In addition, Engineering objective is provide the group with all the tools it needs to drive profitability, new productivity paradigms and new business processes. The area´s responsabilities in 2018 were focused on:    A technology stack (first release) to offer customers services that are more suited to their needs, in terms of speed and content and begin with its full deployment, in several geographical areas, in addition to the partial deployment of certain strategic pieces, in some other geographical areas. Alliances with strategic partners to harness cutting-edge technology, and the necessary collaboration to speed up the transformation process. Productivity and reliability, i.e. securing improved performance from technology, and doing so in a manner that is fully reliable and guarantees the highest quality and security standards. Technology stack: cloud paradigms With customers increasingly making use of digital channels, and therefore driving an exponential increase in transaction numbers, the Group is continuing to develop its IT model into a more uniform and scalable system, boosting cloud technology. During 2018, Engineering completed the construction and deployment of the building blocks of the global technological stack for the whole of BBVA. This stack shares the cloud attributes of flexibility and stability that are demanded by the digital world, while strictly complying with regulatory requirements. As of 2019, global projects are being implemented on the technological stack, that allows a very high degree of reuse, not only global, but also local, real-time access, different handling of the data and an optimization of processing costs, which will enable a service offer as close as possible to the needs of customers . Strategic alliances Engineering continues to encourage the creation of a network of strategic alliances, giving traction to BBVA's digital transformation and complement its technology stack. Establishing an ecosystem of strategic alliances with some of the leading businesses in the market ensures the adoption of innovative technologies, digitalization of the business, speed in activation, as well as global deployment of solutions. Furthermore, by building a network of technological alliances with strategic partners, BBVA will work in close cooperation with some of the foremost companies in their respective fields. In 2018 BBVA continued with its strategy of alliances with relevant companies that will be responsible, on the one hand, for operating and optimizing BBVA's current technology and, on the other hand, for managing the communications infrastructure in a global manner, of providing new technological capabilities and assist in the use of the most advanced technologies. Productivity and reliability Productivity is a key part of the transformation process. Greater productivity is needed to provide our customers with the best possible service while being profitable. The area is therefore working on the following:  Technological shift at the level of: o Hardware: creating lower-cost infrastructure components based on the cloud paradigm. Spain processes half of its volume with this technology in 2018, while Mexico made significant progress. Other countries are expected to join in 2019 and 2020. o Software: multiple global functionalities have been constructed, reused by various of the Group's geographic areas, and construction continues on the technological stack with a high level of automation. In 2018, Engineering has worked with the business areas to align their plans with the deployment of new technological capabilities that enables the Bank to begin to materialize the objectives of the strategy. 117  Transformation of operations: Engineering has continued with the operations optimization exercise in several geographical areas, with good results, applying the working methodology, created in a global way to implement it throughout the whole Group, and already including robotics activities in several geographical areas . Reliability remains another key factor for the Engineering function and digital transformation. It is crucial to obtain the best possible performance from infrastructures, architectures, operations and internal processes, and to do so in a way that is fully reliable. In this sense, BBVA continues to implement programs to strengthen security and control technological risk, in all areas, and keeps working on continuous improvement to guarantee service levels. Patents, licenses or similar At the time of preparing the accompanying Consolidated Financial Statements, 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. Subsequent events On January 15, 2019, BBVA announced its irrevocable decision to early redeem, on February 19, 2019, the issuance 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 obtained (see Note 22.4 of the accompanying Consolidated Financial Statements). 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, 2019 it was announced that it was foreseen to submit to the consideration of the corresponding government bodies the proposal of cash payment in a gross amount of euro 0.16 per share to be paid in April as final dividend for 2018 (see Note 4 of the accompanying Consolidated Financial Statements). From January 1, 2019 to the date of preparation of these 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 position. 118 Alternative Performance Measures (APMs) BBVA presents its results in accordance with the International Financial Reporting Standards (EU-IFRS). However, it also considers that some Alternative Performance Measures (APMs) provide useful additional financial information that should be taken into account when evaluating performance. These APMs are also used when making financial, operational and planning decisions within the Entity. The Group firmly believes that they give a true and fair view of its financial information. These APMs are generally used in the financial sector as indicators for monitoring the assets, liabilities and economic and financial situation of entities. BBVA Group's APMs are given below. They are presented in accordance with the European Securities and Markets Authority (ESMA) guidelines, published on October 5, 2015 (ESMA/2015/1415en). These guidelines are aimed at promoting the usefulness and transparency of APMs included in prospectuses or regulated information in order to protect investors in the European Union. In accordance with the indications given in the guidelines, BBVA Group's APMs: Include clear and readable definitions of the APMs (paragraphs 21-25).   Disclose the reconciliations to the most directly reconcilable line item, subtotal or total presented in the financial statements of the corresponding period, separately identifying and explaining the material reconciling items (paragraphs 26-32).  Are standard measures generally used in the financial industry, so their use provides comparability in the analysis of performance between issuers (paragraphs 33-34).  Do not have greater preponderance than measures directly stemming from financial statements (paragraphs 35-36).  Are accompanied by comparatives for previous periods (paragraphs 37-40).  Are consistent over time (paragraphs 41-44). Constant exchange rates When comparing two dates or periods in this management report, the impact of changes in the exchange rates against the euro of the currencies of the countries in which BBVA operates is sometimes excluded, assuming that exchange rates remain constant. This is done for the amounts in the income statement by using the average exchange rate against the euro in the most recent period for each currency of the geographies where the Group operates, and applying it to both periods; for amounts in the balance sheet and activity, the closing exchange rates in the most recent period are used. Book value per share The book value per share determines the value of a company on its books for each share held. It is calculated as follows: Shareholders′ funds (cid:3397) Accumulated other comprehensive income Number of shares outstanding (cid:3398) Treasury shares Explanation of the formula: The figures for both ‘’shareholders' funds’’ and ‘’accumulated other comprehensive income’’ are taken from the balance sheet. Shareholders' funds are adjusted to take into account the execution of the "dividend-option" at the closing dates on which it was agreed to deliver this type of dividend prior to the publication of the Group´s results. The denominator includes the final number of outstanding shares excluding own shares (treasury shares). The denominator is also adjusted to include the capital increase resulting from the execution of the "dividend options" explained above. Both the numerator and the denominator take into account period-end balances. Relevance of its use: It shows the company's book value for each share issued. It is a generally used ratio, not only in the banking sector but also in others. Book value per share Numerator (million euros) Denominator (million euros) = + + + + + - Shareholders' funds Dividend-option adjustment Dividend-option Treasury shares Book value per share (euros / share) 119 IFRS 9 IAS 39 31-12-18 01-01-18 31-12-17 31-12-16 54,326 52,432 53,283 50,986 - - - - (3,622) 6,567 - 7 - 47 - 13 - 13 7.12 6.82 6.96 7.22 Accumulated other comprehensive income (7,215) (7,036) (6,939) Number of shares outstanding 6,668 6,668 6,668 Tangible book value per share The tangible book value per share determines the value of the company on its books for each share held by shareholders in the event of liquidation. It is calculated as follows: Shareholders′ funds (cid:3397) Accumulated other comprehensive income (cid:3398) Intangible assets Number of shares outstanding (cid:3398) Treasury shares Explanation of the formula: The figures for ‘’shareholders' funds’’, ‘’accumulated other comprehensive income’’ and ‘’intangible assets’’ are all taken from the balance sheet. Shareholders' funds are adjusted to take into account the execution of the "dividend-option" at the closing dates on which it was agreed to deliver this type of dividend prior to the publication of the Group´s results. The denominator includes the final number of shares outstanding excluding own shares (treasury shares). The denominator is also adjusted to include the result of the capital increase resulting from the execution of the "dividend options" explained above. Both the numerator and the denominator take into account period- end balances. Relevance of its use: It shows the company's book value for each share issued, after deducting intangible assets. It is a generally used ratio, not only in the banking sector but also in others. Tangible book value per share Shareholders' funds Dividend-option adjustment IFRS 9 IAS 39 31-12-18 01-01-18 31-12-17 31-12-16 54,326 52,432 53,283 50,986 - - - - Accumulated other comprehensive income (7,215) (7,036) (6,939) (3,622) 8,314 6,668 - 47 8,464 6,668 - 13 8,464 6,668 - 13 9,786 6,567 - 7 5.86 5.55 5.69 5.73 Numerator (million euros) Denominator (million euros) + + + - + + - Intangible assets Number of shares outstanding Dividend-option Treasury shares = Tangible book value per share (euros / share) Dividend yield This is the remuneration given to the shareholders in the last twelve calendar months, divided by the closing price for the period. It is calculated as follows: ∑ Dividend per share over the last twelve months Closing price 120 Explanation of the formula: The remuneration per share takes into account the gross amounts per share paid out over the last twelve months, both in cash and through the flexible remuneration system called "dividend option". Relevance of its use: This ratio is generally used by analysts, shareholders and investors for companies that are traded on the stock market. It compares the dividend paid out by a company every year with its market price at a specific date. Dividend yield Numerator (euros) Denominator (euros) = ∑ Dividends Closing price Dividend yield 31-12-18 31-12-17 31-12-16 0.25 4.64 5.4% 0.30 7.11 4.2% 0.37 6.41 5.8% Non-performing loan (NPL) ratio This is the ratio between the risks classified for accounting purposes as non-performing loans and the total credit risk balance for customers and contingent risks. It is calculated as follows: Non (cid:3398) performing loans Total credit risk Explanation of the formula: ‘’Non-performing loans’’ include those related to loans and advances to customers (gross) and those related to contingent risk, excluding the non-performing loans of credit institutions and securities. ‘’Total credit risk’’ includes both pending and contingent risk. Their calculation is based on the headings in the first table on page 14 of this report. Relevance of its use: This is one of the main indicators used in the banking sector to monitor the current situation and changes in credit risk quality, and specifically the relationship between risks classified in the accounts as non-performing loans and the total balance of credit risk, with respect to customers and contingent liabilities. Change of criteria, due to IFRS 9, which entered into force on January 1, 2018, certain wholesale customer repos that until December 31, 2017 were presented in the total credit risk have not been taken into account in the calculation of this metric. Non-Performing Loans (NPLs) ratio Numerator (million euros) NPLs Denominator (million euros) Credit Risk 31-12-18 17,087 31-12-17 31-12-16 20,492 23,595 433,799 450,045 474,150 = Non-Performing Loans (NPLs) ratio 3.9% 4.6% 5.0% NPL coverage ratio This ratio reflects the degree to which the impairment of non-performing loans has been covered in the accounts via loan-loss provisions. It is calculated as follows:. Provisions Non (cid:3398) performing loans Explanation of the formula: ‘’Non-performing loans’’ include those related to lending activity and those related to contingent risk, excluding non-performing loans from credit institutions and securities. ‘’Provisions’’ are loan-loss provisions, for both customer loans and contingent risk. Their calculation is based on the headings in the first table on page 14 of this report.  Relevance of its use: This is one of the main indicators used in the banking sector to monitor the situation and changes in the quality of credit risk, reflecting the degree to which the impairment of non-performing loans has been covered in the accounts via loan-loss provisions. 121 NPL coverage ratio Numerator (million euros) Provisions Denominator (million euros) NPLs = NPL coverage ratio Cost of risk 31-12-18 12,493 17,087 73% 31-12-17 31-12-16 13,319 16,573 20,492 23,595 65% 70% This ratio indicates the current situation and changes in credit-risk quality through the annual cost in terms of impairment losses (accounting loan-loss provisions, included in the “impairment on financial assets not measured at fair value through profit or loss” line) of each unit of loans and advances to customers (gross). It is calculated as follows: Annualized loan (cid:3398) loss provisions Average loans and advances to customers (cid:4666)gross(cid:4667) Explanation of the formula: ‘’Annualized loan-loss provisions’’ are calculated by accumulating and annualizing the loan- loss provisions of each month of the period under analysis, to standardize the comparison between different periods. For example, loan-loss provisions for six months (180 days)are divided by 180 to obtain daily loan-loss provisions and multiplied by 365 to obtain the annualized figure. This calculation uses the calendar days of the period under consideration. ‘’Loans and advances to customers (gross)’’ refers to the portfolio of financial assets at amortized cost of the Group’s consolidated balance sheet. The average of loans and advances to customers (gross) is calculated by using the average of the period-end balances of each month of the period analyzed plus the previous month. Relevance of its use: This is one of the main indicators used in the banking sector to monitor the situation and changes in the quality of credit risk through the cost over the year. Cost of risk Numerator (million euros) Annualized loan-loss provisions Denominator (million euros) Average loans and advances to customers (gross) = Cost of risk Efficiency ratio 31-12-18 3,964 392,037 1.01% 31-12-17 31-12-16 3,674 3,585 414,448 423,306 0.89% 0.85% This measures the percentage of gross income consumed by an entity's operating expenses. It is calculated as follows: Operating expenses Gross income Explanation of the formula: Both ‘’operating expenses’’ and ‘’gross income’’ are taken from the Group’s consolidated income statement. Operating expenses are the sum of the administration costs (personnel expenses plus other administrative expenses) plus depreciation. Gross income is the sum of net interest income, net fees and commissions, net trading income dividend income, share of profit or loss of entities accounted for using the equity method, and other operating income and expenses. For a more detailed calculation of this ratio, the table on page 7 of this report should be consulted, whose figures are at current exchange rates, and also the graphs on page 8, one of them with calculations with figures at current exchange rates and another with the data at constant exchange rates. Relevance of its use: This ratio is generally used in the banking sector. It is also a ratio linked to one of the Group's six Strategic Priorities. 122 Efficiency ratio Numerator (million euros) Operating expenses Denominator (million euros) Gross income = Efficiency ratio ROE 2018 (11,702) 23,747 49.3% 2017 2016 (12,500) (12,791) 25,270 24,653 49.5% 51.9% The ROE (return on equity) ratio measures the return obtained on an entity's shareholders' funds plus accumulated other comprehensive income. It is calculated as follows: Annualized net attributable profit Average shareholders′funds (cid:3397) Average accumulated other comprehensive income Explanation of the formula: ‘’Annualized net attributable profit’’ is taken directly from the Group’s consolidated income statement. If the metric is presented on a date before the close of the fiscal year, the numerator must be annualized. If extraordinary items (results from corporate operations) are included in the net attributable profit for the months covered, they are eliminated from the figure before it is annualized, and then added to the metric once it has been annualized. ‘’Average shareholders' funds’’ are the weighted moving average of the shareholders' funds at the end of each month of the period analyzed, adjusted to take into account the execution of the "dividend-option" at the closing dates on which it was agreed to deliver this type of dividend prior to the publication of the Group´s results. ‘’Average accumulated other comprehensive is the moving weighted average of accumulated other comprehensive income, which is part of the equity on the Entity's balance sheet and is calculated in the same way as average shareholders’ funds (above). income’’ Relevance of its use: This ratio is very commonly used not only in the banking sector but also in other sectors to measure the return obtained on shareholders' funds. Change of criteria: As of 2018, accumulated other comprehensive income has been included in the denominator to align with the usual practice of the sector and to be more consistent with the calculation of the tangible book value per share explained above. ROE Numerator (million euros) Annualized net attributable profit 2018 5,324 2017 3,519 2016 3,475 + Average shareholder's funds 52,841 52,801 50,190 Denominator (million euros) + Average accumulated other comprehensive income = ROE (6,796) 11.6% (5,167) (2,735) 7.4% 7.3% 123 ROTE The ROTE (return on tangible equity) ratio measures the return on an entity's shareholders' funds, plus accumulated other comprehensive income, and excluding intangible assets. It is calculated as follows: Annualized net attributable profit Average shareholders′funds (cid:3397) Average accumulated other comprehensive income (cid:3398) Average intangible assets Explanation of the formula: The numerator (annualized net attributable profit) and the items in the denominator ‘’average intangible assets’’ and ‘’average accumulated other comprehensive income’’ are the same items and are calculated in the same way as explained for ROE. ‘’Average intangible assets’’ are the intangible assets on the balance sheet, including goodwill and other intangible assets. The average balance is calculated in the same way as explained for shareholders' funds in ROE. Relevance of its use: This metric is generally used not only in the banking sector but also in other sectors to measure the return obtained on shareholders' funds, not including intangible assets. Change of criteria: As of 2018, the accumulated other comprehensive income has been included in the denominator to align it with the usual practice of the sector and with the calculation of the tangible book value per share explained above. ROTE Numerator (million euros) Annualized net attributable profit + Average shareholder's funds Denominator (million euros) + Average accumulated other comprehensive income - Average intangible assets = ROTE ROA 2018 5,324 52,841 (6,796) 8,294 14.1% 2017 4,762 2016 3,475 52,801 50,190 (5,167) (2,735) 9,073 9.1% 9,819 9.2% The ROA (return on assets) ratio measures the return obtained on an entity's assets. It is calculated as follows: Annualized profit for the year Average total assets Explanation of the formula: ‘’Annualized profit for the year’’ is taken directly from the Group’s consolidated income statement. If the metric is presented on a date before the close of the fiscal year, the numerator must be annualized. If extraordinary items (results from corporate operations) are included in the net attributable profit for the months covered, they are eliminated from the figure before it is annualized and then added to the metric once it has been annualized. ‘’Average total assets’’ are taken from the Group’s consolidated balance sheet. The average balance is calculated in the same way as explained for shareholders' funds in ROE. Relevance of its use: This ratio is generally used not only in the banking sector but also in other sectors to measure the return obtained on assets. ROA Numerator (million euros) Annualized profit for the year Denominator (million euros) Average total assets = ROA RORWA 124 2018 6,151 678,865 0.91% 2017 4,762 2016 4,693 702,508 735,636 0.68% 0.64% The RORWA (return on risk-weighted assets) ratio measures the accounting return obtained on average risk-weighted assets. It is calculated as follows: Annualized profit for the year Average risk (cid:3398) weighted assets Explanation of the formula: ‘’Annualized profit for the year’’ is the same figure as explained for ROA. ‘’Average risk-weighted assets’’(RWA) is the moving weighted average of the risk-weighted assets at the end of each month of the period under analysis and is calculated in the same way as explained for shareholders' funds in ROE.. Relevance of its use: This ratio is generally used in the banking sector to measure the return obtained on RWA.  RORWA Numerator (million euros) Annualized profit for the year Denominator (million euros) Average RWA = RORWA Other customer funds 2018 6,151 353,188 1.74% 2017 4,762 2016 4,693 375,589 394,356 1.27% 1.19% This includes off-balance sheet funds (mutual funds, pension funds and other off-balance sheet funds) and customer portfolios. Explanation of the formula: It is the period-end sum on a given date of the mutual funds, pension funds, other off- balance sheet funds and customer portfolios; as displayed in the table on page 15 of this report. Relevance of its use: This metric is generally used in the banking sector, as apart from on-balance sheet funds, financial institutions manage other types of customer funds, such as mutual funds, pension funds, other off-balance sheet funds, customer portfolios, etc. Other customer funds Million euros + Mutual funds + + + Pension Funds Other off-balance sheet funds Customer portfolios Other customer funds = 31-12-18 61,393 33,807 2,949 29,953 128,103 31-12-17 31-12-16 60,939 33,985 3,081 36,901 134,906 55,037 33,418 2,831 40,805 132,092 125 Annual Corporate Governance Report In accordance with the provisions established by Article 540 of the Spanish Corporate Act, the BBVA Group prepared the Annual Corporate Governance Report for 2018 (which is an integral part of the Management Report for that year) following the content guidelines set down in Order ECC/461/2013, dated March 20, and in Circular 5/2013, dated June 12, of Comisión Nacional del Mercado de Valores (CNMV), in the wording provided by Circular 2/2018, dated June 12, of CNMV. It is also included a section detailing the degree to which the Bank is compliant with existing corporate governance recommendations in Spain. In addition, all the information required by Article 539 of the Spanish Corporate Act can be accessed on BBVA’s website www.bbva.com. ANNUAL CORPORATE GOVERNANCE REPORT OF LISTED COMPANIES ISSUER IDENTIFICATION YEAR-END DATE 31/12/2018 Tax Identification No. [C.I.F.] A48265169 Company Name: Banco Bilbao Vizcaya Argentaria, S.A. Registered Office: 4 Plaza de San Nicolás, 48005 Bilbao (Biscay) This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 126 ANNUAL CORPORATE GOVERNANCE REPORT OF LISTED COMPANIES A. OWNERSHIP STRUCTURE A.1 Fill in the following table on the company's share capital: Date of last modification Share capital (EUR) Number of shares Number of voting rights 24/04/2017 EUR 3,267,264,424.20 6,667,886,580 6,667,886,580 Indicate if there are different share classes with different rights associated with them: NO A.2 Detail the direct and indirect holders of significant shareholdings in your company at financial year-end, excluding directors: Name or corporate name of the shareholder % of voting rights attached to shares % of voting rights through financial instruments Total % of voting rights Blackrock Inc. 5.71% 0.23% 5.94% Direct Indirect Direct Indirect Details of indirect participation: Name or corporate name of indirect shareholder Name or corporate name of direct shareholder % of voting rights attached to shares % of voting rights through financial instruments Total % of voting rights Remarks State Street Bank and Trust Co., The Bank of New York Mellon S.A.N.V. and Chase Nominees Ltd., as international custodian/depositary banks, hold, as of 31 December 2018, 10.69%, 2.31% and 6.33% of BBVA's share capital, 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 the BBVA share capital. Communication of significant holdings to the CNMV (Spanish National Securities Market Commission): On 18 October 2017, Blackrock Inc. informed the CNMV that it now had an indirect holding of 5.708% of BBVA's share capital, through the company Blackrock Investment Management. Indicate the most significant changes in the shareholder structure during the financial year: Name or corporate name of the shareholder Date of transaction Description of transaction A.3 Fill in the following tables with the members of the company's Board of Directors with voting rights on company shares: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 127 Name or corporate name of the director % of voting rights attached to shares % of voting rights through financial instruments Total % of voting rights % of voting rights that can be transferred through financial instruments Carlos Torres Vila Direct Indirect Direct Indirect Direct Indirect 0.00 0.00 0.00 0.00 0.01 0.00 0.00 Onur Genç 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Tomás Alfaro Drake José Miguel Andrés Torrecillas Jaime Félix Caruana Lacorte Belén Garijo López José Manuel González-Páramo Martínez-Murillo Sunir Kumar Kapoor Carlos Loring Martínez de Irujo Lourdes Máiz Carro José Maldonado Ramos Ana Cristina Peralta Moreno 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Juan Pi Llorens 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Susana Rodríguez Vidarte Jan Paul Marie Francis Verplancke 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 Total % of voting rights held by the Board of Directors 0.02% Details of indirect participation: 128 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Name or corporate name of the director Name or corporate name of direct shareholder % of voting rights attached to shares % of voting rights through financial instruments Total % of voting rights % of voting rights that can be transferred through financial instruments A.4 Where applicable, indicate any family, commercial, contractual or corporate relationships between holders of significant shareholdings, insofar as the company is aware of them, unless they are of little relevance or due to ordinary trading or exchange activities, except those described in section A.6: Name of related person or company Type of relationship Brief description A.5 Where applicable, indicate any commercial, contractual or corporate relationships between holders of significant shareholdings and the company and/or its group, unless they are of little relevance or due to ordinary trading or exchange activities: Name of related person or company Type of relationship Brief description A.6 Describe the relationships, unless insignificant for the two parties, that exist between significant shareholders or shareholders represented on the Board and directors, or their representatives in the case of proprietary directors. Explain, as the case may be, how the significant shareholders are represented. Specifically, state those directors appointed to represent significant shareholders, those whose appointment was proposed by significant shareholders or who were linked to significant shareholders and/or their group companies, and specify the nature of the relationships. In particular, indicate, where applicable, the existence, identity and position of board members—or their representatives—of the listed company who are members—or representatives of members— of the management body of companies that hold significant shareholdings in the listed company or of companies of said significant shareholders' groups. Name or corporate name of linked director or representative Name or corporate name of linked holder of significant shareholdings Name of the company of the significant shareholder's group Description of relationship/ position A.7 Indicate whether the company has been informed of any shareholder agreements that may affect it, as set out under articles 530 and 531 of the Corporate Enterprises Act. Where applicable, briefly describe them and list the shareholders bound by such agreement: NO Indicate whether the company is aware of the existence of concerted actions by its shareholders. If so, describe them briefly: NO 129 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. If there has been any amendment or breaking-off of said pacts or agreements or concerted actions in the financial year, indicate this expressly: A.8 Indicate whether any legal or natural person exercises or may exercise control over the company pursuant to article 5 of the Securities Exchange Act. If so, identify them: A.9 Fill in the following tables regarding the company's treasury shares: At financial year-end: NO Number of direct shares Number of indirect shares (*) Total % of share capital 0 47,257,691 0.71% (*) Through: Name or corporate name of direct holder of shareholding Number of direct shares Corporación General Financiera, S.A. Total: 47,257,691 47,257,691 Give details of any significant changes that have occurred during the financial year: Explain the significant changes In 2018, four communications regarding treasury shares were sent, as the acquisitions had exceeded the threshold by 1%. The communications were as follows:  Communication date: 14/03/2018. A total of 3,277,798 direct shares and 17,977,118 indirect shares, representing a total of 0.319% of the share capital. This communication was made after acquisitions passed the 1% threshold.  Communication date: 14/06/2018. A total of 1,962,965 direct shares and 28,559,431 indirect shares, representing a total of 0.458% of the share capital. This communication was made after acquisitions passed the 1% threshold.  Communication date: 10/09/2018. The total number was 501,533 direct shares and 38,898,178 indirect shares acquired for a total of 0.591% of the share capital. This communication was made after acquisitions passed the 1% threshold.  Communication date: 05/11/2018. A total of 2,810,414 direct shares and 37,904,924 indirect shares, representing a total of 0.611% of the share capital. This communication was made after acquisitions passed the 1% threshold. A.10 Describe the conditions and term of the current mandate of the General Meeting for the Board of Directors to issue, buy back and transfer treasury shares. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 130  The Annual General Meeting of Shareholders of BBVA held on 17 March 2017, under item three of the agenda, passed a resolution to delegate to the Board of Directors the power to increase share capital for a period of five years up to a maximum amount corresponding to 50% of BBVA's share capital on the date of such authorisation. This can be done on one or several occasions, to the amount that the Board resolves, by issuing new shares of any kind allowed by law, with or without an issue premium, the counter-value of said shares comprising cash considerations. The authorisation includes the setting out of the terms and conditions of the share capital increase in any respect not provided for in the resolution, and delegation to the Board of a power to wholly or partly exclude pre-emptive subscription rights in relation to any share capital increase carried out by virtue of the resolution when so demanded by the corporate interest and in compliance with the applicable legal requirements. However, this power was limited insofar as the nominal amount of the capital increases resolved upon or actually carried out with an exclusion of the pre-emptive subscription right by virtue of the above delegation or resolved upon or executed to accommodate the conversion of ordinarily convertible issues that are also carried out with an exclusion of the pre-emptive subscription right in the exercise of the delegated power to issue convertible securities granted by the General Shareholders' Meeting itself, under item five of the agenda, may not exceed the maximum nominal amount, taken as a whole, of 20% of BBVA's share capital at the time of delegation. This limit does not apply to issues of contingently convertible securities. To date, BBVA has not adopted any resolution using this delegated power.  The BBVA Annual General Meeting of Shareholders of 17 March 2017, under the fifth item on the agenda, delegated to the Board of Directors the power to issue securities that are convertible into newly issued BBVA shares, on one or more occasions within a maximum term of five years, up to a total combined maximum amount of EUR 8,000,000,000 or its equivalent in any other currency; the Board may likewise resolve upon, set and determine each and every one of the terms and conditions of the issues carried out by virtue of that delegated power, determine the basis and mode of conversion, and resolve upon, set and determine the conversion ratio, which may be fixed or variable. Moreover, the General Meeting resolved to delegate to the Board the power to totally or partially exclude pre-emptive subscription rights over any issue of convertible securities that may be made hereunder, when the corporate interest so requires, in compliance with any legal requirements established to this end. However, this power was limited in so far as the normal amount of the capital increases resolved upon or actually carried out to accommodate the conversion of ordinarily convertible issues executed by virtue of that delegated power with an exclusion of the pre-emptive subscription right, and those resolved upon or executed also with an exclusion of the pre-emptive subscription right in the exercise of the delegated power to increase share capital granted by the General Meeting itself, under item four of the Agenda, may not exceed the maximum nominal amount, taken as a whole, of 20% of BBVA's share capital at the time of delegation. This limit does not apply to issues of contingently convertible securities. Through the aforementioned delegation, during the 2017 financial year, BBVA made two issuances of contingently convertible perpetual securities (Additional Tier 1 capital instruments), without pre- emptive subscription rights, for amounts of EUR 500 million and USD 1 billion, respectively, and, during the 2018 financial year, an issuance of contingently convertible perpetual securities (Additional Tier 1 capital instruments), without pre-emptive subscription rights, for an amount of EUR 1 billion.  Under the third item of the Agenda of the BBVA Ordinary General Shareholders' Meeting of 16 March 2018, it was resolved to grant BBVA the authority, whether directly or through any of its subsidiaries, and for a period of no more than five years, at any time and on as many occasions as it deems necessary, to derivatively acquire BBVA shares by any means permitted by law, including charging the acquisition to the profits for the financial year and/or to freely available reserves, as well as to later divest the acquired shares by any means permitted by law. The derivative acquisition of shares is to be carried out, in all cases, in accordance with the conditions established by the applicable legislation or by the competent authorities and, in particular, with the following conditions: (i) the 131 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. nominal value of the treasury stock acquired, whether directly or indirectly, by means of this authorisation, when added to that already held by BBVA and its subsidiaries, may not exceed 10% of the subscribed share capital of BBVA or, where appropriate, the maximum amount permitted under the applicable legislation; and (ii) the acquisition price per share may not be lower than the nominal value of the share, and must be under 10% higher than the share price or any other price associated with the shares at the time that they are acquired. The aforementioned General Shareholders' Meeting also expressly authorised that the shares acquired by BBVA or any of its subsidiaries may, through the foregoing authorisation, be partially or totally set aside for workers or directors of BBVA or its subsidiaries, either directly or as a result of them exercising any option rights that they may hold. A.11 Estimated floating capital: Estimated floating capital % 93.33% Remarks The BBVA's estimated floating capital, has been obtained by removing from the share capital, the capital held by the direct and indirect holders of significant shareholdings (Section A.2), the members of the Board of Directors (Section A.3) and the treasury shares (Section A.9), on December 31, 2018, in accordance with the provisions of the instructions established in order to complete the Annual Corporate Governance Report. A.12 Indicate whether there is any restriction (statutory, legislative or of any other kind) on the transferability of securities and/or any restriction on voting rights. In particular, report the existence of any restrictions that might hinder the takeover of the company through the purchase of its shares on the market, as well as any authorisation or prior communication regimes that are applicable to the purchase or transfer of the company's financial instruments in accordance with sector legislation. A.13 Indicate whether the General Meeting has agreed to adopt measures to neutralise a public takeover bid, pursuant to Act 6/2007. NO NO If so, explain the measures approved and the terms under which the restrictions would be rendered effective: A.14 Indicate whether the company has issued securities that are not traded on a regulated market in the EU. YES Where applicable, indicate the different share classes, and what rights and obligations each share class confers. Indicate the different share classes All the shares in BBVA's share capital have the same class and series, and confer the same voting and economic rights. There are no different voting rights for any shareholder. There are no shares that do not represent capital. The Bank's shares are admitted for trading on the Securities Exchanges in Madrid, Barcelona, Bilbao and Valencia, through the Spanish electronic trading platform (Continuous Market), and the stock markets in London and Mexico. BBVA American Depositary Shares (ADS) are traded on the New York Stock Exchange. Additionally, as of 31 December 2018, shares of BBVA Banco Continental, S.A., Banco Provincial S.A., BBVA Colombia, S.A. and BBVA Banco Francés, S.A. were traded on their respective local securities markets and, for the latter entity, on the New York Stock Exchange and in the Latin American securities exchange (LATIBEX) on the Stock Market of Madrid. 132 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. B GENERAL SHAREHOLDERS' MEETING B.1 Indicate, giving details where applicable, whether there are any deviations from the minimum standards established under the Corporate Enterprises Act (CEA) with respect to the quorum for holding the General Meeting. YES % required for quorum if different to that set out in art. 193 of the CEA for general circumstances % required for quorum if different to that set out in art. 194 of the CEA for special circumstances Quorum on first call 0.00% Quorum on second call 0.00% 66.66% 60.00% Description of the differences Article 194 of the Corporate Enterprises Act establishes that in order for a General Meeting (whether ordinary or extraordinary) to validly resolve to increase or reduce capital or make any other amendment to the Bylaws, bond issuance, the suppression or limitation of pre-emptive subscription rights over new shares, or the transformation, merger or spin-off of the company or global assignment of assets and liabilities or the offshoring of domicile, the shareholders present and represented on first calling must own at least fifty percent of the subscribed capital with voting rights. On second calling, twenty-five percent of said capital will be sufficient. Notwithstanding the foregoing, Article 25 of the BBVA Bylaws requires a super quorum of members representing two thirds of the subscribed capital with voting rights on first calling, and 60% of the subscribed capital on second calling, for the valid adoption of resolutions on the following matters: re-definition of the corporate purpose; the transformation, total spin-off or winding up of the Company; and the modification of the statutory article defining this super quorum. B.2 Indicate, giving details where applicable, whether there are any deviations from the minimum standards established under the Corporate Enterprises Act (CEA) for the adoption of corporate resolutions: NO B.3 Indicate the rules applicable to amendments to the company bylaws. In particular, report the majorities established to amend the bylaws, and the rules, if any, to safeguard shareholders' rights when amending the bylaws. Article 30 of the BBVA Company Bylaws establishes that the General Shareholders' Meeting is empowered to amend the Company Bylaws and to confirm or rectify the manner in which they are interpreted by the Board of Directors. To such end, the rules established under Articles 285 et seq. of the Corporate Enterprises Act shall apply. The above paragraph notwithstanding, Article 25 of the BBVA Bylaws establishes that in order to validly adopt resolutions regarding any change to the corporate purpose, transformation, total spin-off or winding up of the Company and amendment of the second paragraph of said Article 25, two-thirds of the subscribed capital with voting rights must attend the General Meeting on first calling, and 60% of said capital on second calling. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 133 As regards the procedure for amending the Bylaws, Article 4.2 c) of Spanish Act 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions, establishes that the Bank of Spain shall be responsible for authorising the amendments to the bylaws of credit institutions as set out by regulations. Hence, article 10 of Royal Decree 84/2015, of 13 February, implementing Act 10/2014, stipulates that the Bank of Spain shall have two months to make a decision following receipt of the request for amendment of the Bylaws and that the request must be accompanied by certified minutes recording the agreement, a report substantiating the proposal drawn up by the board of directors and draft new bylaws, identifying the cited amendments. Notwithstanding the foregoing, Article 10 of Royal Decree 84/2015 also establishes that no prior authorisation from the Bank of Spain is required, though the latter must be notified for the purposes of entry in the Registro de Entidades de Crédito (Spanish register of credit institutions), for amendments with the following purposes: - Change of the registered office within the national territory. - Share capital increase. - Verbatim incorporation into the bylaws of legal or regulatory precepts of a mandatory or prohibitive nature, or for the purpose of complying with legal or administrative decisions. - Those amendments for which the Bank of Spain, in response to a prior enquiry made by the affected bank, deems that authorisation is not required due to their little relevance. This communication must be made within fifteen working days following the adoption of the statute amendment resolution. Finally, to indicate that as a significant entity, BBVA is under the direct supervision of the European Central Bank (ECB) in co-operation with the Bank of Spain under the Single Supervisory Mechanism, so the authorisation of the Bank of Spain mentioned above will be submitted to the ECB, prior to its resolution by the Bank of Spain. B.4 Give details of attendance at General Shareholders' Meetings held during the financial year of this report and the previous two financial years: Attendance data Date of General Meeting % physically present % present by proxy % distance voting Electronic vote Other Total 16/03/2018 1.71% 40.47% 0.23% 22.13% 64.54% Of which is floating capital: 17/03/2017 Of which is floating capital: 11/03/2016 Of which is floating capital: 1.62% 34.53% 0.23% 22.13% 58.51% 1.89% 1.81% 1.83% 1.76% 38.68% 0.19% 22.95% 63.71% 33.07% 0.19% 22.95% 58.02% 38.34% 0.26% 22.08% 62.51% 33.31% 0.26% 22.08% 57.41% This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 134 B.5 Indicate whether there were any items on the agenda that were not approved by shareholders for any reason, for all general meetings that took place in the financial year. NO B.6 Indicate if there is any statutory restriction that sets out a minimum number of shares required to attend the General Meeting or vote remotely: YES Number of shares required to attend the General Meeting Number of shares required to vote remotely 500 1 Remarks Article 23 of the BBVA Bylaws establishes that holders of 500 shares or more may attend ordinary and extraordinary General Shareholders' Meetings, provided that their shares are registered, at least five days prior to such a meeting, in the corresponding Accounting Register in accordance with the Securities Exchange Act and other applicable provisions. Holders of fewer shares may group together until they have at least that number, and name a representative. However, there is no minimum number of shares required to vote remotely. Pursuant to the provisions of Article 8 of BBVA's Regulations of the General Shareholders' Meeting, shareholders may vote by proxy, by post, electronically or by any other means of remote communication, provided that the shareholder confirms the identity of the person exercising his or her right to vote. In terms of the constitution of the General Shareholders' Meeting, shareholders who vote remotely will be counted as present. B.7 Indicate whether it has been established that certain decisions, other than those set out by law, involving an acquisition, disposal, the allocation of essential assets to another company or a similar corporate transaction, must be submitted to the General Shareholders' Meeting for approval. NO B.8 Indicate the address and means of access through the company website to information on corporate governance and other information on the general meetings that must be made available to shareholders on the company's website. Information relating to corporate governance and to the most recent General Shareholders' Meetings can be accessed via the Banco Bilbao Vizcaya Argentaria, S.A. company website, www.bbva.com, in the Shareholders and Investors — Corporate Governance and Remuneration Policy section. C COMPANY MANAGEMENT STRUCTURE C.1 Board of directors C.1.1 Maximum and minimum number of directors established in the bylaws and the number set by the general meeting: Maximum number of directors Minimum number of directors Number of directors set by the general meeting 15 5 15 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 135 Remarks In accordance with the provisions of Article 34, Paragraph 2 of the Bylaws, the General Shareholders' Meeting, held on 16 March 2018, resolved to set the total number of directors on the Board of Directors of Banco Bilbao Vizcaya Argentaria, S.A. at 15. C.1.2 Fill in the following table on the board members: Representative Directorship type Position on the Board Date of first appointment Date of most recent appointment Election procedure Group Executive Chairman Chief Executive Officer 04/05/2015 11/03/2016 Resolution of the General Shareholders' Meeting 20/12/2018 - Co-option Director 18/03/2006 17/03/2017 Executive Executive Other external Independent Lead Director 13/03/2015 16/03/2018 Independent Director 16/03/2018 - Independent Director 16/03/2012 16/03/2018 Executive Director 03/06/2013 17/03/2017 Independent Director 11/03/2016 - Other external Director 28/02/2004 17/03/2017 Independent Director 14/03/2014 17/03/2017 Other external Director 28/01/2000 16/03/2018 136 Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Name or corporate name of the director Carlos Torres Vila Onur Genç Tomás Alfaro Drake José Miguel Andrés Torrecillas Jaime Félix Caruana Lacorte Belén Garijo López José Manuel González- Páramo Martínez- Murillo Sunir Kumar Kapoor Carlos Loring Martínez de Irujo Lourdes Máiz Carro José Maldonado Ramos - - - - - - - - - - - This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Ana Cristina Peralta Moreno Juan Pi Llorens Susana Rodríguez Vidarte Jan Paul Marie Francis Verplancke - - - - Independent Director 16/03/2018 - Independent Director 27/07/2011 16/03/2018 Other external Director 28/05/2002 17/03/2017 Independent Director 16/03/2018 - Total number of directors Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting Resolution of the General Shareholders' Meeting 15 Indicate any appointment terminations, as a result of resignation, dismissal or any other reason, that have occurred on the Board of Directors during the reporting period: Name or corporate name of the director Directorship type at the time of termination Date of most recent appointment Termination date Indicate whether the termination occurred before the end of the mandate No Specialist committees of which the director was a member Executive Committee, Remunerations Committee, Technology and Cybersecurity Committee Other external 13/03/2015 16/03/2018 José Antonio Fernández Rivero Francisco González Rodríguez Executive 11/03/2016 21/12/2018 Executive Committee Yes Cause of the termination and other remarks José Antonio Fernández Rivero stepped down from his position as member of the Board of Directors and from his membership of the Executive Committee and of the other Committees, following the General Shareholders' Meeting held on 16 March 2018, in which his mandate to serve as a director of the Bank expired. In implementation of the Succession Plan for the Chairman, as approved by the Board of Directors, Francisco González Rodríguez stepped down from his position as Chairman of the Board of Directors and of the Executive Committee on 21 December 2018, date on which the necessary administrative authorisations were received. C.1.3 Fill in the following tables on the board members and their directorship type: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 137 EXECUTIVE DIRECTORS Name or corporate name of the director Position within the company's organisation structure Profile Carlos Torres Vila Group Executive Chairman Onur Genç Chief Executive Officer José Manuel González-Páramo Martínez-Murillo Head of Global Economics and Public Affairs from May 2015 Chairman of the Board of Directors and the Executive Committee since December 2018 and Chairman of the BBVA Technology and Cybersecurity Committee. Chief Executive Officer of BBVA to December 2018. Head of Digital Banking from 2014 to 2015 and Head of Strategy and Corporate Development from 2008 to 2014. In addition, he previously held positions of responsibility in other companies, with his roles as Chief Financial Officer, Corporate Director of Strategy and member of the Executive Committee of Endesa, as well as his elected partnership at McKinsey & Company. He completed his studies in Electrical Engineering (Bachelor of Sciences) at the Massachusetts Institute of Technology (MIT), where he also received a degree in Business Administration. He holds Master's degree in Management (MSc) from the MIT Sloan School of Management and also a Law degree from the National Distance Education University (UNED). CEO of BBVA and member of the Bank's Executive Committee. Chairman and CEO of BBVA Compass, and BBVA's Country Manager in the USA, from 2017 to December 2018. He previously performed the roles of Deputy CEO and Executive Vice-President (EVP) of Garanti Bank (BBVA Group). He has also held positions of responsibility at McKinsey & Company (in the Turkey, Canada, Netherlands and United Kingdom offices), having held the positions of Senior Partner and Manager of its Turkish office. He holds a Bachelor of Sciences in Electrical Engineering from the University of Bogaziçi (Turkey) and a Master's degree in Business Administration (MSIA/MBA) at Carnegie Mellon University (USA). Executive Director and Head of Global Economics and Public Affairs of BBVA. Chairman for Europe of the Trans-Atlantic Business Council, Deputy Chairman of the Fundación Consejo España-EE.UU., Chairman of European DataWarehouse GmbH and Professor at IESE Business School. Has been a member of various organisations, including of particular note the Committee on the Global Financial System of the Bank for International Settlements; the Executive Board and Governing Council of the European Central Bank (ECB); and member of the Executive Committee and Governing Council of the Bank of Spain. He has a Ph.D., M.Phil. and M.A. in Economics from Columbia University in New York and a Ph.D. in Economics from Complutense University of Madrid. He is also a Professor of Public Finance and Tax System at Complutense University of Madrid. 138 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Total number of executive directors % of all directors 3 20% EXTERNAL PROPRIETARY DIRECTORS EXTERNAL INDEPENDENT DIRECTORS Name or corporate name of the director Profile José Miguel Andrés Torrecillas Jaime Félix Caruana Lacorte Belén Garijo López Sunir Kumar Kapoor Lourdes Máiz Carro Chairman of the Audit and Compliance Committee and of the Appointments Committee and Lead Director of BBVA. He has developed his professional career at Ernst & Young as General Managing Partner of Audit and Advisory Services and Chairman of Ernst & Young Spain until 2014. He has been a member of various organisations such as the ROAC (Registro Oficial de Auditores de Cuentas — official registry of auditors), the REA (Registro de Economistas Auditores — registry of accounting auditors), the ICJCE (Instituto de Censores Jurados de Cuentas de España — Spanish institute of chartered accountants) and the Advisory Board of the IIA (Institute of Internal Auditors). He is a graduate in Economic and Business Sciences from Complutense University of Madrid. He has been General Manager of the Bank of International Settlements (BIS); Director of the Monetary and Capital Markets Department and Financial Counsellor and General Manager of the International Monetary Fund (IMF); Chair of the Basel Committee on Banking Supervision; Governor of the Bank of Spain; and member of the Governing Council of the ECB. Member of the Group of Thirty (G30). He holds a degree in Telecommunications Engineering from the Escuela Técnica Superior de Ingenieros de Telecomunicación (ETSIT) of the Universidad Politécnica de Madrid and is a Commercial Technician and State Economist. Chair of the BBVA Remunerations Committee. Member of the Executive Board of the Merck Group and CEO of Merck Healthcare. Member of the Board of Directors of L'Oréal and Chair of the International Senior Executive Committee (ISEC) of Pharmaceutical Research and Manufacturers of America (PhRMA). She has also been President of Commercial Operations for Europe and Canada at Sanofi Aventis. She is a graduate in Medicine from the University of Alcalá de Henares in Madrid and a specialist in Clinical Pharmacology at Hospital de la Paz, Autonomous University of Madrid. Partner at Atlantic Bridge Capital, independent director at Stratio Big Data and consultant at MCloud. He has been Manager of Business Enterprise EMEA for Microsoft Europe and Director of Worldwide Business Strategy for the Microsoft Corporation. Was previously EVP and Chief Marketing Officer (CMO) of Cassatt Corporation and President and CEO of UBmatrix Incorporated. He holds a Bachelor's in Physics from the University of Birmingham and a Master's in Computer Systems from Cranfield Institute of Technology. She was Secretary of the Board of Directors and Director of Legal Services at Iberia, Líneas Aéreas de España until April 2016. She is a graduate and Doctor of Philosophy, and was a member of the Research Personnel at Complutense University of Madrid, where she taught classes in Metaphysics for five years. Graduated in Law, she 139 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. became an Attorney for the State and held various positions of responsibility in Public Administration, including General Director of Administrative Organisation, Job Positions and I.T. (Ministry of Public Administrations); General Director of Sociedad Estatal de Participaciones Patrimoniales (SEPPA) at the Ministry of Economy and Finance; and Technical General Secretary of the Ministry of Agriculture. She has also been a director at a number of companies, including Renfe, ADIF (previously GIF), ICO (Instituto de Crédito Oficial), Aldeasa and Banco Hipotecario. Independent Director at Grenergy Renovables and Chair of its Audit and Control Committee. She was previously Chief Risk Officer and member of the Management Committee of Bankinter and Chief Risk Officer and member of the Management Committee of Banco Pastor. She has also held various positions in a number of financial organisations, in particular serving as Independent Director of Deutsche Bank SAE, as well as Chair of the Audit and Risk Committee and of the Appointments Committee of that entity; Independent Director at Banco Etcheverría, Chair of the Risk Committee and member of the Audit and Regulatory Compliance Committee; and Senior Advisor at Oliver Wyman Financial Services. She is a graduate in Economic and Business Sciences from the Complutense University of Madrid. Master's degree in Economic- Financial Management at the Centro de Estudios Financieros (CEF); Program for Management Development (PMD) at Harvard Business School; and PADE (Programa de Alta Dirección de Empresas — senior management programme) at IESE. Chairman of the BBVA Risk Committee. He has had a professional career at IBM holding various senior positions at a national and international level, including Vice President of Sales at IBM Europe, Vice President of Technology & Systems at IBM Europe and Vice President of the Financial Services Sector in the Growth Markets Units (GMU) in China. He was also Executive Chairman of IBM Spain. He holds a degree in Industrial Engineering at the Universidad Politécnica de Barcelona and completed the PDG (Programa en Dirección General — general management programme) at IESE. His roles have included Chief Information Officer (CIO) and Group Head of Technology and Operations at Standard Chartered Bank; Vice President of Technology and CIO for EMEA at Dell; as well as Vice President and Chief of Architecture and Vice President of Information of the Youth Category at Levi Strauss. He holds a Bachelor's degree in Science, specialising in Computer Science, from the Programming Centre of the North Atlantic Treaty Organization (NATO) in Belgium. Total number of independent directors % of all directors 8 53.33% Ana Cristina Peralta Moreno Juan Pi Llorens Jan Paul Marie Francis Verplancke Indicate whether any director considered an independent director is receiving from the company or from its group any amount or benefit under any item that is not the remuneration for his/her directorship, or maintains or has maintained over the last financial year a business relationship with the company or any company in its group, whether in his/her own name or as a significant shareholder, director or senior manager of an entity that maintains or has maintained such a relationship. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 140 Where applicable, include a reasoned statement from the board with the reasons why it deems that this director can perform his/her duties as an independent director. Name or corporate name of the director Description of the relationship Reasoned statement OTHER EXTERNAL DIRECTORS Identify all other external directors and explain why these cannot be considered proprietary or independent directors, and detail their relationships with the company, its executives or shareholders: Name or corporate name of the director Reasons Company, executive or shareholder to which related Profile Tomás Alfaro Drake Tomás Alfaro Drake has been a director for a continuous period of more than 12 years. Banco Bilbao Vizcaya Argentaria, S.A. Carlos Loring Martínez de Irujo Carlos Loring Martínez de Irujo has been a director a continuous period of more than 12 years. for Banco Bilbao Vizcaya Argentaria, S.A. José Maldonado Ramos José Maldonado Ramos has been a director for a continuous period of more than 12 years. Banco Bilbao Vizcaya Argentaria, S.A. Susana Rodríguez Vidarte Susana Rodríguez Vidarte has been a a director continuous period of more than 12 years. for Banco Bilbao Vizcaya Argentaria, S.A. Director of Internal Development and Professor of the Finance Area at Universidad Francisco de Vitoria. He has been Director of the Bachelor's degree in Business Management and Administration, Director of the Diploma in Business Sciences and of the degrees in Marketing and in Business Management and Administration at the Universidad Francisco de Vitoria. He studied Engineering at the ICAI School of Engineering and received a Master's in Economics and Business Administration (MBA) at IESE. He has been a partner and member of the Management Committee of Garrigues law firm, where he successively performed the roles of Director of Mergers and Acquisitions and of Banking and Capital Markets, and was responsible for advising large listed companies. He holds a Law degree from Complutense University of Madrid. Over the course of his professional career, he has held the positions of Secretary of the Board of Directors at a number of companies, most notably as Corporate Secretary of Argentaria, before taking up the position of Corporate Secretary of BBVA. He took early retirement as a Bank executive in December 2009. He holds a Law degree from Complutense University of Madrid. In 1978, he passed State exams became an Attorney for the State. Professor of Strategy at the Faculty of Economics and Business Administration at the University of Deusto; non- practicing member of the Institute of Accounting and Accounts Auditing; Doctorate in Economics and Business Administration at the University of Deusto. She was Dean of the Faculty of Economics and Business Administration at the University of Deusto, Director of the Postgraduate Area and Director of Instituto Internacional de Dirección de Empresas (INSIDE). the This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 141 Total number of other external directors % of all directors 4 26.67% Indicate any changes that may have occurred during the period in the directorship type of each director: Name or corporate name of the director Date of change Previous type Current type Tomás Alfaro Drake 18/03/2018 Independent Other external Remarks Article 1 of the BBVA's Regulations of the Board of Directors and Article 529 duodecies of the Spanish Corporate Enterprises Act state that board members that have held their position for a continuous period of more than 12 years may not be considered as independent directors. Tomás Alfaro Drake was appointed as a member and independent director of the Bank's Board of Directors at the General Shareholders' Meeting held in 2006. Therefore, having performed the role of director for a continuous period of more than 12 years, the directorship type for Tomás Alfaro Drake has changed this financial year from independent director to external director. C.1.4 Fill in the following table with information regarding the number of female directors over the last four financial years and their directorship types: Number of female directors % of all directors of each type Financial year 2018 0 0 3 1 4 Financial year 2017 0 0 2 1 3 Financial year 2016 0 0 2 1 3 Financial year 2015 0 0 2 1 3 Financial year 2018 Financial year 2017 Financial year 2016 Financial year 2015 0.00% 0.00% 37.5% 25% 26.67% 0.00% 0.00% 33.33% 25% 23.08% 0.00% 0.00% 25% 25% 20% 0.00% 0.00% 25% 25% 20% Executive Proprietary Independent Other external Total: C.1.5 Indicate whether the company has diversity policies for the company's board of directors with regard to issues such as age, gender, disabilities, or professional training and experience. In accordance with the definition given in the Spanish Account Auditing Act, small and medium-sized companies will have to report, at a minimum, the policy that they have agreed in regard to gender diversity. YES If yes, please outline these diversity policies, their objectives, their measures, the way in which they have been applied and the results thereof in this financial year. Any specific measures adopted by the board of directors and the appointments committee to attain a balanced and diverse representation of directors must also be indicated. In case the company does not apply a diversity policy, explain the reasons for this Outline of the policies, their objectives, their measures, the way in which they have been applied and the results thereof The composition of the Board of Directors is a key element of BBVA's Corporate Governance System. As such, it must help the Corporate Bodies to adequately perform their management and supervisory functions, providing different viewpoints and opinions, fostering debate, analysis and critical review of the proposals 142 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. submitted for its consideration, and favouring the consensus required for decision-making. For this purpose, the BBVA's Regulations of the Board of Directors establishes as a general principle that directors must meet the suitability requirements to perform their role and they must therefore display a recognised business and professional reputation, have the adequate knowledge and experience to carry out their duties and be in a position to exercise good governance of the Company; that the number of non- executive directors on the Board is greater than the number of executive directors; and that the number of independent directors represents at least a third of the total number of board members. Similarly, as part of the provisions of the Regulations of the Board of Directors, BBVA has a Policy on the selection, appointment, rotation and diversity of its Board members (hereinafter, the "Policy"), which has been approved by the Board of Directors and details the principles and the specific procedure for selecting, appointing and rotating the Bank's directors and the requirements for performing the role of BBVA director. The Policy states that the selection, appointment and rotation procedures for the Board of Directors will aim to attain a composition of the Company's Corporate Bodies that enables the duties assigned by law, Company Bylaws and its own Regulations to be properly carried out in the Company's best interest. To this effect, the Policy establishes that the Board of Directors will ensure that these procedures allow the most suitable candidates to be identified at all times, based on the requirements of the Corporate Bodies, and that they favour diversity of experience, knowledge, skills and gender, and, in general, that they do not suffer from implicit biases that may involve any kind of discrimination. In particular, the Policy states that it will ensure that the selection procedures do not involve discrimination in selecting female directors and that the number of female directors in 2020 will represent at least 30% of the total number of members of the Board of Directors. Additionally, it sets out that the composition of the Board of Directors will seek to ensure a suitable balance between the different categories of directors, and that the number of non-executive directors is greater than the number of executive directors, and that the number of independent directors accounts for at least 50% of all directors. The candidates to be put forward as BBVA directors must have suitable skills, experience and qualifications, meet the suitability requirements needed to hold the position and possess the required availability and dedication to carry out their duties. They must also be able to comply with the requirements set out in the Regulations of the Board of Directors in terms of suitable performance of director duties, in particular those related to due diligence and loyalty, avoiding conflicts of interest and complying with the required rules for position incompatibility and limitations for BBVA directors. To ensure suitable composition of the Board at all times, in accordance with the provisions of the Regulations of the Board and the Policy, and in order to achieve the targets established in the Policy regarding the needs of the Corporate Bodies and the most suitable people for membership of such at all times, the Bank undertakes an ordered rotation process of its Corporate Bodies, based on suitable planning of member rotation. This process begins with a periodic analysis by the BBVA Appointments Committee of: (i) the structure, size and composition of the Board; (ii) its adaptation to the needs of the Corporate Bodies; and (iii) the existing knowledge, skills and experience. This allows the Committee to identify and assess possible changes deemed necessary or advisable to the composition of the Corporate Bodies and to begin, when it deems appropriate, the identification and selection processes of candidates to be proposed to the General Shareholders' Meeting as new members of the Bank's Board of Directors. During this rotation process of the Board composition, the Appointments Committee also ensures the promotion of diversity—both in gender (with the target of having 30% female directors in 2020) and experience, knowledge and skills—in the director selection process, in line with the Policy. Continue in section H of this Report. 143 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. C.1.6 Explain the measures, if any, agreed by the appointments committee to ensure that the selection procedures are not implicitly biased in such a way that hinders the selection of female directors, and that the company is making a conscious effort to include women who match the professional profile sought among potential candidates, in order to provide for a balanced representation of men and women: Explanation of the measures The General Shareholders' Meeting is responsible for appointing members of the Board of Directors, in accordance with Article 2 of the Regulations of the Board; however, if a seat falls vacant, the Board has the authority to co-opt members. Thus, the Appointments Committee's focus is to assist the Board of Directors in matters relating to the selection and appointment of directors and, in particular, to submit to the Board of Directors proposals for the appointment, re-appointment or removal of independent directors and to report on the proposals for the appointment, re-appointment or removal of all other directors. To this end, Article 33 of the Regulations of the Board of Directors establishes that the Appointments Committee will evaluate the balance of knowledge, skills and experience on the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, evaluating the dedication of time considered necessary so that they can adequately carry out their duties, based on the needs that the Company's governing bodies have at all times. The Committee will ensure that, in line with the principles set out in BBVA's Regulations of the Board of Directors, when filling new vacancies, the selection procedures are not implicitly biased in such a way that involves any kind of discrimination or, in particular, hinders the selection of female directors, trying to ensure that women who match the professional profile sought are included among potential candidates. Furthermore, BBVA has established a selection policy for directors that states that selection, appointment and rotation procedures for the Board of Directors will aim to attain a composition of the Company's Corporate Bodies that enables the duties assigned by law, Company Bylaws and its own Regulations to be properly carried out in the Company's best interest. To this effect, the Board of Directors will ensure that these procedures allow the most suitable candidates to be identified at all times, based on the requirements of the Corporate Bodies, and that they favour diversity of experience, knowledge, skills and gender, and, in general, that they do not suffer from implicit biases that may involve any kind of discrimination. In particular, it will ensure that the selection procedures do not involve discrimination in selecting female directors and that the number of female directors in 2020 will represent at least 30% of the total number of members of the Board of Directors. Additionally, it sets out that the composition of the Board will seek to ensure a suitable balance between the different categories of directors, and that the number of non-executive directors is greater than the number of executive directors. In order to ensure the suitable composition of the Board of Directors at all times, its structure, size and composition is periodically analysed, setting out the corresponding candidate identification and selection processes to be put forward, where applicable, as new members of the Board of Directors, where deemed necessary or advisable. This analysis process also considers the composition of the different Board Committees that assist this Corporate Body in the performance of its duties and which constitute an essential element of BBVA's corporate governance. In these selection processes carried out by the Appointments Committee, it has the support of prestigious consultants in selecting independent directors internationally, who carry out an independent search for potential candidates that meet the profile defined in each case by the Appointments Committee. During these processes, the external expert was expressly requested to include women with the suitable profile among the candidates to be presented, and the Committee analysed the personal and professional profiles of all candidates presented on the basis of the information provided by the consultancy firm used, based on the needs of the Bank's Corporate Bodies at all times. The skills, knowledge and expertise needed to be a Bank director were assessed and the rules on incompatibilities and conflicts of interest were taken into account, as well as the dedication deemed necessary to be able to carry out the duties. 144 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Thus, following the selection process undertaken by the Appointments Committee and the resolutions adopted by the 2018 General Shareholders' Meeting, a woman was appointed to the Board of Directors during the 2018 financial year, as an independent director. BBVA therefore currently has four women in its Board of Directors, accounting for 26.67% of its members. One of these is also a member of the Bank's Executive Committee. When, despite the measures, if any, that have been adopted, there are few or no female directors, explain the reasons: C.1.7 Explain the conclusions of the appointments committee regarding verification of compliance with the board member selection policy. In particular, explain how this policy is promoting the goal for 2020 of having at least 30% of total number of board places occupied by female directors. Over the course of the financial year, the Appointments Committee has continuously analysed the structure, size and composition of the Board of Directors and the principles and targets established by the Bank's director selection policy, which are set out in sections C.1.5 and C.1.6 above, all this in line with the needs of the Corporate Bodies at all times, as well as the reality of the Group's structure and businesses, regulatory requirements and market best practices. With regard to the suitability requirements needed to hold the position, specifically those for business and professional reputation, suitable knowledge and experience to perform the duties and ability to exercise good governance of the Company, all of which are set out in the selection policy, the Appointments Committee considered that the Board of Directors, as a whole, has a suitable balance in its composition and suitable knowledge of the Bank's and the Group's environment, activities, strategies and risks, helping it to better perform its functions. It also considered that Bank directors have the required reputation to fulfil the role, the skills required and the availability to dedicate the time required to perform the duties assigned to them. Regarding the selection, appointment and rotation procedures for the Board of Directors, which aim to attain a composition of the Company's Corporate Bodies that enables the duties assigned to them to be properly carried out in the Company's best interest, the Appointments Committee has deemed it appropriate, over the course of the financial year, to continue the continuous rotation process of the Board of Directors, aimed at achieving a composition that integrates directors with experience and knowledge of the financial and banking sector and of the Group's culture and businesses, thus gradually recruiting people with different professional profiles and experience to improve the diversity of its Corporate Bodies. The Committee therefore endeavours to ensure that the selection, appointment and rotation procedures allow the most suitable candidates to be identified at all times, based on the needs of the Corporate Bodies, that they favour diversity of experience, knowledge, skills and gender and that, in general, do not suffer from implicit biases that may involve any kind of discrimination, for which purpose it has had help selecting directors from a leading international independent consultancy firm. The Committee also encourages the recruitment of new members to the Board who are able to fulfil or maintain the targets set out in the selection policy, while ensuring that the selection processes are carried out to the highest degree of professionalism and independence. In addition, the Committee has analysed and considered, prior to the proposals for the appointment and re- appointment of directors, which were submitted to the 2018 General Shareholders' Meeting, the terms of the selection policy requiring that, by 2020, the number of female directors represents at least 30% of the total number of members of the Board of Directors, that the number of non-executive directors is greater than the number of executive directors, and also requiring that the number of independent directors accounts for at least 50% of all directors. 145 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Thus, following the resolutions approved by the 2018 General Shareholders' Meeting, the number of female directors has increased to a total of 4, which is 26.67% of all directors (15) and close to the target set by the selection policy for this number to reach at least 30% by 2020; the number of non-executive directors represents a majority on the Board (80%); and the number of independent directors remains at least 50% of the total, in line with the provisions set out in the aforementioned selection policy. Similarly, for the purposes of the proposals for the appointment and re-appointment of directors that will be submitted to the 2019 General Shareholders' Meeting, the Committee has again analysed the size, structure and composition of the Board, keeping in mind the succession plans approved by the Board, and the appointment of a new Group Executive Chairman and Chief Executive Officer, the provisions of the Regulations of the Board of Directors and the Bank's selection policy, to ensure that these are the most suitable at all times, considering the circumstances and changes that may arise within the Bank, its Corporate Bodies and its environment. The 2019 General Shareholders' Meeting is therefore expected to approve the corresponding proposals for the appointment and re-appointment of directors, which would ensure that the number of non-executive directors would continue to represent a majority on the Board (80%), the percentage of female directors—26% of the total Board members (15)—would remain close to the target of 30% for 2020 and the number of independent directors would remain at at least 50%, in line with the selection policy, as well as with the international profile of the Bank's Corporate Bodies. Thus, in accordance with the conclusions reached by the Appointments Committee, BBVA's Corporate Bodies maintain a structure, size and composition according to their needs and that enable optimal performance of the Bank's duties and, as in recent financial years, with a structure in which non-executive directors represent an ample majority on the Board and at least half of its directors are independent directors, in line with the Regulations of the Board of Directors and the Board of Directors' Policy on selection, appointment, rotation and diversity. C.1.8 Where applicable, explain why proprietary directors have been appointed at the behest of a shareholder whose holding is less than 3% of the capital: Name or corporate name of the shareholder Justification Indicate whether formal petitions have been ignored for presence on the board from shareholders whose holding is equal to or greater than that of others at whose behest proprietary directors were appointed. Where applicable, explain why these petitions were ignored: NO C.1.9 Where applicable, indicate the powers and faculties delegated by the board of directors to directors or to board committees: Name or corporate name of the director or committee Brief description Carlos Torres Vila Onur Genç Holds wide-ranging powers of representation and administration in line with his duties as Group Executive Chairman of the Company. Holds wide-ranging powers of representation and administration in line with his duties as Chief Executive Officer of the Company. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 146 José Manuel González-Páramo Martínez- Murillo Holds powers of representation and administration in line with his duties as Head of Global Economics & Public Affairs. Executive Committee Pursuant to Article 27 of BBVA's Regulations of the Board of Directors, the Executive Committee will be made aware of matters delegated by the Board of Directors, in accordance with the legislation currently in force, the Bylaws or the Regulations of the Board. C.1.10 Where applicable, identify any members of the board holding positions as directors, representatives of directors or executives in other companies that belong to the listed company's group: Name or corporate name of the director Corporate name of the group's entity Position Carlos Torres Vila Carlos Torres Vila Onur Genç BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer Grupo Financiero BBVA Bancomer, S.A. de C.V. BBVA Compass Bancshares Director Director Director Does the director have executive duties? No No No C.1.11 Where applicable, provide details of the directors (or of the representatives of juridical persons) of the company who are members of the board of directors (or representatives of juridical persons) of other entities that are publicly listed on the Spanish stock markets that are external to the company's group, of which the company has been informed: Name or corporate name of the director Corporate name of the listed entity Position José Miguel Andrés Torrecillas Zardoya Otis, S.A. Director Belén Garijo López L'Oréal Société Anonyme Director Ana Cristina Peralta Moreno Grenergy Renovables, S.A. Director Juan Pi Llorens Ecolumber, S.A. Chairman C.1.12 Indicate and, where applicable, explain whether the company has any agreed rules on the maximum number of company boards on which its directors may sit, detailing, where applicable, where such rules have been set out: YES Explanation of the rules and where they are set out Article 11 of the Regulations of the Board of Directors establishes that, in the performance of their duties, directors will be subject to the rules on limitations and incompatibilities established under the applicable regulations at any time, and in particular, to the provisions of Act 10/2014 on the regulation, supervision and solvency of credit institutions. Article 26 of Act 10/2014 stipulates that the directors of credit institutions may not simultaneously hold more positions than those provided for in the following combinations: (i) one executive position in addition 147 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. to two non-executive positions; or (ii) four non-executive positions. Executive positions are understood as those performing management duties irrespective of the legal bond attributed by those duties. The following will count as a single 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 system or (ii) trading companies in which the entity holds a significant shareholding. The positions held in non-profit organisations or entities, or those pursuing non-commercial purposes will not count when determining the maximum number of positions. Nevertheless, the Bank of Spain may authorise members of the Board of Directors to hold an additional non-executive position if it deems that this would not interfere with the correct performance of the activities thereof in the credit institution. In addition, pursuant to the provisions of Article 11 of BBVA's Regulations of the Board of Directors, directors may not:  Provide professional services to companies competing with the Bank or with any of its Group companies, or agree to be an employee, manager or director of such companies, unless they have received express prior authorisation from the Board of Directors or from the General Shareholders' Meeting, as appropriate, or unless these activities had been provided or conducted before they joined the Bank's Board, they pose no effective competition and they had informed the Bank of such at that time.  Have direct or indirect shareholdings in businesses or enterprises in which the Bank or its Group companies hold an interest, unless such shareholding was held prior to joining the Board of Directors or to the time when the Group acquired its holding in such businesses or enterprises, or unless such companies are listed on national or international securities markets, or unless authorised to do so by the Board of Directors.  Hold director roles in any companies in which the Bank holds an interest or in any company within its Group. As an exception and when proposed by the Bank, executive directors are able to hold positions in companies directly or indirectly controlled by the Bank with the approval of the Executive Committee, and in other companies in which the Bank holds an interest with the approval of the Board of Directors. In the event of removal of an executive director, that director is obliged to resign from any director position in subsidiary companies or companies in which the Bank holds an interest that is held due to that directorship. Non-executive directors may hold director positions in the companies in which the Bank or any of its Group companies hold an interest provided that the position is not related to the Group's holding in such companies and with prior approval from the Bank's Board of Directors. For these purposes, the shareholdings of the Bank or its Group of companies resulting from its ordinary activities of business management, asset management, treasury, derivative hedging and other transactions will not be taken into account.  Hold political positions or perform any other activities that might have a public significance or may affect the Company's image in any way, unless this is with prior authorisation from the Bank's Board of Directors. C.1.13 Indicate the amounts of the following headings relating to the total remuneration of the board of directors: Remuneration of the board of directors accrued during the financial year (thousands of euro) 15,664 Amount of accrued entitlements by current directors in regard to pensions (thousands of euro) 19,648 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 148 Amount of accrued entitlements by former directors in regard to pensions (thousands of euro) 79,009 Remarks The remuneration included under "Remuneration of the board of directors accrued during the financial year" includes, among others, the Initial Portion of the Annual Variable Remuneration for the year 2018, in cash and in shares, and the Deferred Part of the Annual Variable Remuneration for 2015, both in cash and in shares, together with its update, of the executive directors, whose amounts have been determined in 2019. As of the date of this report, none of these remunerations have been paid. C.1.14 Identify members of senior management who are not in turn executive directors, and indicate the total remuneration accrued to them throughout the financial year: Name or corporate name Position(s) Luisa Gómez Bravo Global Head of Corporate & Investment Banking Jorge Sáenz-Azcúnaga Carranza Country Monitoring Cristina De Parias Halcón Country Manager Spain Eduardo Osuna Osuna Country Manager Mexico Derek Jensen White Global Head of Client Solutions Jaime Sáenz de Tejada Pulido Global Head of Finance & Accounting Rafael Salinas Martínez De Lecea Head of Global Risk Management Ricardo Forcano García Global Head of Engineering & Organization Carlos Casas Moreno David Puente Vicente Global Head of Talent & Culture Global Head of Data Victoria del Castillo Marchese Global Head of Strategy & M&A María Jesús Arribas de Paz Global Head of Legal Domingo Armengol Calvo General Secretary Eduardo Arbizu Lostao Global Head of Supervisors, Regulation & Compliance Joaquín Manuel Gortari Díez Global Head of Internal Audit Total remuneration of senior management (thousands of euro) 25,305 C.1.15 Indicate whether there have been any amendments to the board regulations throughout the financial year: NO C.1.16 Indicate the procedures for the selection, appointment, re-appointment and removal of directors. Provide details of the competent bodies, the procedures to be followed and the criteria to be used in each procedure. Selection, appointment and re-appointment procedure: 149 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. BBVA has established a policy on the selection, appointment, rotation and diversity of its Board members, which was approved by the Board itself and which establishes the general principles applicable to the selection and appointment of directors, as previously set out in section C.1.5 of this report. Additionally, Articles 2 and 3 of the Regulations of the Board of Directors establish that the General Shareholders' Meeting is responsible for appointing members of the Board, notwithstanding the Board's capacity to co-opt members in the event of any vacancy. In any event, persons proposed to be appointed as directors must meet the requirements set out in current legislation, in the specific regulations applicable to credit institutions and in the Bylaws. In particular, directors must meet the suitability requirements needed to hold the position and must display a recognised business and professional reputation, have the adequate knowledge and experience to carry out their duties and be in a position to exercise good governance of the Company. The Board will ensure that the director selection procedures favour the diversity of experience, knowledge, skills and gender and, in general, do not suffer from implicit biases that may involve any kind of discrimination. The Board will also file its proposals with the General Shareholders' Meeting, ensuring that the number of non- executive directors is greater than the number of executive directors in its composition. The proposals for appointment or re-appointment of directors submitted by the Board of Directors to the General Shareholders' Meeting, as well as the appointments made directly to fill vacancies under its co-opting powers, will be approved at the proposal of the Appointments Committee for independent directors and subject to a report from this Committee for all other directors. In each case, the proposal must be accompanied by an explanatory report by the Board detailing the skills, experience and merits of the candidate proposed, which will be added to the minutes of the General Shareholders' Meeting or the Board of Directors meeting. The Board's resolutions and deliberations on these matters will take place in the absence of the director whose re-appointment is proposed. To this end, the Regulations of the Board establishes that the Appointments Committee will evaluate the balance of knowledge, skills and experience on the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, evaluating the dedication of time considered necessary so that they can adequately carry out their duties, based on the needs that the Company's governing bodies have at all times. The Committee will ensure that, when filling new vacancies, the selection procedures are not implicitly biased in such a way that involves any kind of discrimination or, in particular, hinders the selection of female directors, trying to ensure that women who match the professional profile sought are included among potential candidates. The directors will hold their position for the period of time set out in the Bylaws or, when they have been co- opted, until the first General Shareholders' Meeting. Duration of mandate and termination: Directors will resign from their post when the term for which they were appointed has expired, unless they are re-elected. Directors must also inform the Board of any circumstances that may affect them and harm the company's standing and reputation, and any circumstances that may have an impact on their suitability to perform their role. Directors must offer their resignation to the Board and accept the Board's decision regarding their continuity in office. Should the Board decide against their continuity, they are required to tender their resignation, in the circumstances listed in section C.1.19 below. In any event, directors will resign from their posts upon reaching 75 years of age, and must submit their resignation at the first meeting of the Bank's Board of Directors to be held after the General Shareholders' Meeting approving the accounts for the financial year in which they reach said age. C.1.17 Explain the extent to which the annual evaluation of the board has led to significant changes in its internal organisation and in the procedures applicable to its activities: Description of the amendments 150 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  Article 17 of the Regulations of the Board of Directors states that the Board will assess the quality and efficiency of operation of the Board of Directors, based on the report submitted by the Appointments Committee in 2018. Several changes (indicated below) were made as a result of this report, similar to in previous years, as part of the ongoing process of adapting BBVA's corporate governance system within the environment in which it carries on its activities to regulatory requirements and best practices. The Bank has therefore been analysing areas for improvement, and implemented various measures over the course of the 2018 financial year to continue developing its corporate governance system and practices, which include: (i) appointing three new directors, which directly contributed to achieving the targets established in the Board of Directors selection, appointment, rotation and diversity policy, whilst maintaining a number of independent directors to make up at least 50% of the total number of directors, as well as increasing the percentage of women on the Board, and increasing the number of directors who have knowledge and experience of matters relating to banking and regulation and supervision of the financial sector, knowledge of the technology field, and of the international profile of Corporate Bodies; (ii) the Board of Directors' approval of the succession plans for the Chairman of the Board of Directors and the Chief Executive Officer, thereby allowing an orderly and well-prepared transition in order to facilitate the Bank's transformation process, and the subsequent appointment of Carlos Torres Vila as Chairman of the Board of Directors and Onur Genç as Chief Executive Officer; (iii) reinforcing the separation of roles and responsibilities of the Chairman of the Board of Directors and the Chief Executive Officer, and the independence of some of the Group's control functions, in addition to the Board of Directors' approval of a new organisational structure as a result of such changes; (iv) evaluating the Bank's corporate governance system in greater depth, through a specific analysis conducted by a leading international independent expert; (v) improving the decision-making process of the Corporate Bodies, which examines the involvement of the Board's Committees and the interactions between the various Corporate Bodies, providing a process of analysis and review of relevant matters for consideration by the Corporate Bodies for the financial year, and an analysis and critical review by directors of the proposals submitted for their consideration; and (vi) continuously improving the Corporate Bodies' informational model, allowing decisions to be made on the basis of sufficient, complete, adequate and consistent information, whilst also facilitating adequate supervision by management. Describe the evaluation process and the evaluated areas conducted by the board of directors assisted, where applicable, by an external consultant, regarding the functioning and composition of the board, its committees and any other area or aspect that was evaluated. Description of the evaluation process and the areas evaluated In accordance with article 17 of the Regulations of the Board of Directors the Board assesses the quality and efficiency of operation of the Board of Directors, based on the report submitted by the Appointments Committee. Also, the Board assesses the operation of its Committees, based on the report submitted by them. During the evaluation process conducted for the 2018 financial year, the Board of Directors evaluated: (i) the quality and efficiency of operation of the Board of Directors and the Executive Committee; (ii) the performance of the different roles of the Board of Directors; and (iii) the operation of the Committees of the Board of Directors; as detailed below. The procedure for conducting these evaluations was as follows:  The Board of Directors carried out, as part of the succession plans for the Group Executive Chairman and the Chief Executive Officer, various actions to update and review the effectiveness of its corporate governance system. These actions were intended to ensure the Bank's continued adequate operation and effectiveness during significant changes to both its structure and organisation as well as to the environment in which it operates, thereby allowing the Bank to constantly evolve and adapt to the needs of the Corporate Bodies at all times. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 151 In addition, with regard to the 2018 financial year, the Appointments Committee deemed it appropriate that the evaluation process be aided by an independent expert of international prestige, complying with Recommendation 36 of the Good Governance Code of Listed Companies an in-depth analysis and evaluation of the Bank's corporate governance structures, thereby identifying potential areas for improvement to the Bank's corporate governance and, where appropriate, specific measures that may be implemented in order to better perform its functions. This task was entrusted to and performed by US firm, Promontory Financial Group, which presented its findings report to the Appointments Committee and the Board of Directors.  Furthermore, in 2018, the Bank's Appointments Committee conducted an ongoing analysis of the structure, size and composition of the Board, which included gender diversity as well as the knowledge, competency and experience required by its members; the results of the evaluation on the status of the directors, their independence and suitability, as well as the level of dedication of the Board members, particularly the Chairmen for each Committee, which are required by the Bank for the proper performance of the role of director and for the Corporate Bodies; all of this in accordance with the needs of Corporate Bodies at any time and taking into consideration the Board of Directors' Policy on selection, appointment, rotation and diversity, submitting its findings report to the Board of Directors.  Similarly, the activity and operation of the Executive Committee was also evaluated, considering its composition and operation, as well as its activity over the course of the financial year, including its duty to supervise and monitor activity and results, strategic planning information, and certain projects, operations and policies of the Group, among other matters.  Moreover, the operation of the Board’s Committees was evaluated, detailed in Section H of this Report, as well as the different roles of the Board of Directors. Continue in section H of this Report. C.1.18 Provide a breakdown of any business relations that the consultant or any company of the group still has with the company or any group company, for those financial years in which an external consultant provided assistance for the evaluation. The external consultant who has assisted in the evaluation process of the Board of Directors has intervened throughout the year in the provision of other consulting services for the Company, without any knowledge of significant business relationships between the Company and the external consultant or any other company of its group. C.1.19 Indicate the circumstances under which directors are obliged to resign. In addition to the circumstances established in applicable law, directors will resign from their post when the term for which they were appointed expires, unless they are re-appointed. Accordingly, as set forth in Article 12 of the Regulations of the Board of Directors, directors must offer their resignation to the Board of Directors and accept the Board's decision regarding their continuity in office. Should the Board decide against their continuity, they are required to tender their resignation, in the following circumstances:  When they are affected by circumstances incompatibility or prohibition as defined under current legislation, in the Bylaws or in the Regulations of the Board of Directors.  When significant changes occur in their personal or professional situation that may affect the status under which they were appointed to the Board.  When they are in serious dereliction of their duties as directors. 152 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  When, for reasons attributable to the directors in their condition as such, serious damage has been done to the Company's net worth, standing or reputation.  When they are no longer suitable to hold the status of director at the Bank. C.1.20 Are supermajorities, other than those provided for in law, required for any type of decision? Where applicable, describe the differences. NO C.1.21 Explain whether there are specific requirements, other than those relating to directors, to be appointed chair of the board of directors. NO C.1.22 Indicate whether the bylaws or the board regulations establish an age limit for directors: Age limit for the chair 0 YES Age limit for the chief executive officer 0 Age limit for the directors 75 Remarks As stipulated in BBVA's Regulations of the Board of Directors, directors will resign from their posts, in any event, upon reaching 75 years of age, and must submit their resignation at the first meeting of the Bank's Board of Directors to be held after the General Shareholders' Meeting approving the accounts for the year in which they reach said age. C.1.23 Indicate whether the bylaws or board regulations establish a limited mandate or other stricter requirements, in addition to those provided for in law, for independent directors: NO C.1.24 Indicate whether the bylaws or the regulations of the board of directors establish specific rules for proxy voting within the board of directors, how this is carried out and, in particular, the maximum number of proxies that a director may have and whether there are any limits on the types that may be delegated, beyond the limitations provided for in law. Where applicable, provide a brief description of these rules. Article 6 of the BBVA Regulations of the Board of Directors establishes that directors are required to attend meetings of the Corporate Bodies and meetings of the Board Committees on which they sit, except for a justifiable reason. Directors will participate in the deliberations, discussions and debates on matters submitted for their consideration. However, as set forth in Article 21 of the Regulations of the Board of Directors, should it not be possible for directors to attend any of the meetings of the Board of Directors, they may grant proxy to another director to represent and vote in their place. This may be done by a letter or email sent to the Company with the information required for the proxy director to be able to follow the absent director's instructions. Applicable legislation states, however, that non-executive directors may only grant proxy to another non-executive director. C.1.25 Indicate the number of meetings that the board of directors has held during the financial year. Where applicable, indicate how many times the board has met without the chair in attendance. In calculating this number, proxies granted with specific instructions will be counted as attendances. Number of board meetings 13 153 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Number of board meetings without the chair in attendance 0 Indicate how many meetings were held by the lead director with the other board members, without any executive director being in attendance or represented: Number of meetings 55 Remarks BBVA's Board of Directors has a Lead Director who performs the duties set forth in applicable legislation, as well as those stipulated by Article 5 ter of the Regulations of the Board of Directors. With regards to the assigned duties, over the course of the financial year, the Lead Director has maintained ongoing contact, meetings and conversations with other directors at the Bank in order to seek their opinions on corporate governance and operation of the Bank's Corporate Bodies, for the purpose of facilitating their evolution and the proper performance of their duties, for which he has maintained during the financial year 2018 a total of 12 meetings. Moreover, the Lead Director holds the role of Chairman of the Board's Audit and Compliance Committee and Appointments Committee, as well as is member of the Risk Committee, all of which are composed of non-executive directors and, in the case of the Audit and Compliance Committee, of independent directors. Thus, performing these roles allowed him, in compliance with the assigned duties, to maintain 43 periodic meetings with the Bank's non-executive directors on occasion of the meetings of these Committees. Indicate how many meetings of the board's different committees were held during the financial year: Number of meetings of the Executive Committee Number of meetings of the Audit and Compliance Committee Number of meetings of the Appointments Committee Number of meetings of the Remunerations Committee Number of meetings of the Risk Committee Number of meetings of the Technology and Cybersecurity Committee 19 12 10 5 21 7 C.1.26 Indicate how many meetings were held by the board of directors throughout the financial year and provide details on the attendance of its members: Number of meetings attended by at least 80% of the directors % of in-person attendance of the total number of votes cast during the financial year Number of meetings where all directors, or proxies granted with specific instructions, attended in person % of votes cast, with directors attending in person and with proxies granted with specific instructions, of the total number of votes cast throughout the financial year 13 98.90% 13 100% Remarks The Board of Directors holds monthly ordinary meetings in accordance with the annual meeting schedule drawn up before the beginning of the financial year, and extraordinary meetings as often as deemed necessary. The Board of Directors therefore held 13 meetings throughout the 2018 financial year. The directors either attended or were represented at all of the Board's meetings. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 154 C.1.27 Indicate whether the individual or consolidated annual financial statements that are presented to the board for approval are certified beforehand: NO Where appropriate, identify the person(s) who has/have certified the company's individual and consolidated annual financial statements for board approval: C.1.28 Explain the mechanisms, if any, established by the board of directors to prevent the individual and consolidated statements from being presented at the general meeting with a qualified auditors' report. Article 29 of BBVA's Regulations of the Board of Directors establishes that the Audit and Compliance Committee will exclusively comprise independent directors tasked with assisting the Board of Directors in overseeing the Group's financial information and discharge of its control function. Accordingly, the following duties are within its remit: to oversee the effectiveness of the Company's internal control system, internal audit area and risk management systems in the process of preparing and reporting financial information, including tax-related risks, and to discuss with the external auditor any significant weaknesses detected in the internal control system during the audit, without undermining its independence, and to oversee the process of preparing and reporting financial information. To this end, the Audit and Compliance Committee may submit recommendations or proposals to the Board of Directors. Moreover, Article 3 of the Audit and Compliance Committee Regulations establishes that the Committee will check at appropriate intervals that the external audit schedule is being conducted under the agreed conditions, and that it meets the requirements of the competent authorities and of the Bank's governing bodies. The Committee will also periodically—at least once a year—request from the external auditor an evaluation of the quality of the internal control procedures regarding the preparation and reporting of Group financial information. The Committee shall be apprised of any relevant infringements, situations requiring adjustments, or anomalies that may be detected during the course of the external audit. Relevant in this context signifies those issues that, in isolation or as a whole, may give rise to a significant and substantive impact or harm to assets, earnings or the reputation of the Group; discernment of such matters shall be at the discretion of the auditor who, if in doubt, must opt to report on them. In the performance of these duties, the Audit and Compliance Committee maintains direct and ongoing contact with the heads of the external auditor through monthly meetings it has attended without the presence of executives. At these meetings, the Committee provides detailed information on its activity and the corresponding results to the heads of the external auditor, which has enabled the Committee to continuously monitor its work, ensuring that this is performed under the best conditions and without interference from management. C.1.29 Is the secretary of the board a director? NO If the secretary is not a director, complete the following table: Name or corporate name of the secretary Domingo Armengol Calvo Representative - C.1.30 Indicate the specific mechanisms established by the company to preserve the independence of the external auditors, and, if any, the mechanisms to preserve the independence of financial analysts, investment banks and rating agencies, including how legal measures have been implemented in practice. As set forth in BBVA's Audit and Compliance Committee Regulations, one of the Committee's duties, described in section C.2.1, is to ensure the independence of the external auditor through a dual approach: 155 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  Ensuring that the external auditor's warnings, opinions or recommendations cannot be adversely influenced. To this end, the Committee must ensure that compensation for the external auditor's work does not compromise either its quality or independence, in compliance with the account auditing legislation in force at any given moment.  Establishing incompatibility between the provision of audit and consulting services, unless they are tasks required by supervisors or whose provision by the external 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 external auditor; in this case, approval by the Committee will be required, but this decision may be delegated in advance to its Chair. The external auditor will be prohibited from providing unauthorised services outside the scope of the audit, in compliance with the account auditing legislation in force at any given moment. This matter comes under particular focus at the Audit and Compliance Committee's monthly meetings with representatives of the external auditor. These meetings take place without the presence of Bank executives, to check the progress and quality of the external auditor's work in detail and confirm its independence in the performance of its tasks. The Committee also oversees the engagement of additional services to ensure compliance with the provisions of the Committee Regulations and applicable legislation and thus the independence of the auditor. Moreover, in accordance with the provisions of point f), section 4 of Article 529 quaterdecies of the Spanish Corporate Enterprises Act and Article 30 of the BBVA Regulations of the Board of Directors, the Audit and Compliance Committee must issue, each year, before the audit report is issued, a report expressing its opinion regarding the independence of the external auditor. This report must, under all circumstances, contain a reasoned assessment of any kind of additional services provided by the auditors to the Group's entities, considered individually and as a whole, over and above the legal audit and in relation to the regime of independence or the rules governing account auditing. Each year, the external auditor must issue a report confirming its independence via-à-vis BBVA or entities linked to BBVA, either directly or indirectly, with detailed and itemised information on any kind of additional services provided to these entities by the external auditor, or by the individuals or entities linked to it, as set out in the consolidated text of the Spanish Account Auditing Act. In compliance with the legislation in force, the relevant reports from the external auditor and the Audit and Compliance Committee confirming the external auditor's independence were issued in 2018. In addition, as BBVA's shares are listed on the New York Stock Exchange, it is subject to compliance with the Sarbanes Oxley Act and its implementing regulations. BBVA has in place a policy for communication and interaction with shareholders and investors that has been adopted by the Board of Directors. The policy is guided by the principle of equal treatment for all shareholders and investors, who are in the same position as to information, involvement and the exercise of their rights as shareholders and investors, inter alia. Moreover, the principles and channels set out in the policy for communication and interaction with shareholders and investors govern, where applicable, BBVA relations with other stakeholders, such as financial analysts, Bank share management firms and depository institutions, and proxy advisors, among others. C.1.31 Indicate whether the company has changed its external auditor during the financial year. If so, identify the incoming and outgoing auditors: NO If there were any disagreements with the outgoing auditor, explain these disagreements: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 156 C.1.32 Indicate whether the auditing firm does any other work for the company and/or its group other than the audit. If so, declare the amount of fees received for such work and the percentage that these fees represent of the total fees billed to the company and/or its group: NO YES Company Group companies Amount of non-audit work (thousands of euro) 121 207 Total 328 Amount of non-audit work/total amount billed by the auditing firm (%) 0.89% 1.44% 1.18% C.1.33 Indicate whether the audit report of the annual financial statements for the previous financial year contained reservations or qualifications. If so, indicate the reasons given by the chair of the audit committee to the shareholders at the general meeting to explain the content and scope of such reservations or qualifications. NO C.1.34 Indicate the number of consecutive financial years during which the current audit firm has been auditing the annual financial statements for the company and/or its group. Likewise, indicate the total number of financial years audited by the current audit firm as a percentage of the total number of years in which the annual financial statements have been audited: Number of consecutive financial years Individual Consolidated 2 2 Number of financial years audited by the current audit firm/number of years the company has been audited (%) 11.11% 11.11% C.1.35 Indicate and, where applicable, provide details of a procedure for directors to obtain the information they need to prepare meetings of the management bodies with sufficient time: YES Details of the procedure As set forth in Article 6 of the Regulations of the Board of Directors, directors will be provided in advance with the information needed to form an opinion with respect to the matters within the remit of the Bank's Corporate Bodies, and may ask for any additional information and advice required to perform their duties. They may also ask the Board of Directors for external expert help for any matters put to their consideration whose special complexity or importance so requires. These rights will be exercised through the Chairman or Secretary of the Board of Directors, who will attend to requests by providing the information directly or by establishing suitable arrangements within the organisation for this purpose, unless a specific procedure has been established in the regulations governing the Board Committees. Furthermore, as set forth in Article 24 of the Regulations of the Board of Directors, the directors will be provided with such information or clarifications as deemed necessary or appropriate with regard to the matters to be discussed at the meeting, either before or after the meetings are held. 157 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Similarly, BBVA has in place an informational model to allow decisions to be made on the basis of sufficient, complete and consistent information, and, also, to facilitate appropriate oversight of performance. Thus, the Bank's Corporate Bodies have a procedure for verifying the information that is submitted to them for consideration, co-ordinated by the Board Secretariat with the areas responsible for information, through the Governing Bodies' Information Department, in order to provide directors with sufficient, adequate and complete information in time for the meetings of the Bank's various Corporate Bodies in order to enable directors to best perform their duties. Prior to such meetings, information is made available to the Bank's Corporate Bodies via an online system, to which all members of the Board of Directors have access, thereby ensuring its availability. C.1.36 Indicate and, where applicable, provide details of whether the company has set out rules that require directors to inform and, where applicable, resign under circumstances that may prejudice the company's standing and reputation: YES Explanation of the rules As set forth in Article 12 of the Regulations of the Board of Directors, directors must also inform the Board of Directors of any circumstances that may affect them and harm the company's standing and reputation, and any circumstances that may have an impact on their suitability to perform their role. Directors must offer their resignation to the Board of Directors and accept its decision regarding their continuity in office. Should the Board decide against their continuity, they are required to tender their resignation when, for reasons attributable to the directors in their condition as such, serious damage has been done to the Company's net worth, standing or reputation or when they are no longer suitable to hold the status of director at the Bank. C.1.37 Indicate whether any member of the board of directors has informed the company that he/she has been accused or ordered to stand trial for any offences stated in Article 213 of the Spanish Corporate Enterprises Act: NO Indicate whether the board of directors has examined the case. If so, explain the grounds for the decision taken as to whether or not the director should retain his/her directorship or, where applicable, describe the actions taken or that are intended to be taken by the board of directors on the date of this report. C.1.38 Detail any significant agreements reached by the company that come into force, are amended or concluded in the event of a change in the control of the company stemming from a public takeover bid, and its effects. The company has not reached significant agreements that come into force, are amended or concluded in the event of a change in the control of the company stemming from a public takeover bid. C.1.39 Identify on an individual basis, when referring to directors, and in aggregate form for all other cases, and indicate in detail any agreements between the company and its directors, managers or employees that have guarantee or ring-fencing severance clauses for when such persons resign or are wrongfully dismissed or if the contractual relationship comes to an end owing to a public takeover bid or other kinds of transactions. Number of beneficiaries 78 Beneficiary type 78 managers and Description of the agreement The Bank has no commitments to provide severance pay to directors. 158 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. employees As at 31 December 2018, 78 managers and employees are entitled to receive severance pay in the event of dismissal on grounds other than their own will, retirement, disability or serious dereliction of duties. Its amount will be calculated by factoring in the fixed elements of the Bank employee's remuneration and length of service and which under no circumstances are paid in the event of lawful dismissal for misconduct at the employer's decision on grounds of the employee's serious dereliction of duties. Indicate whether, in addition to the circumstances provided for in law, the bodies of the company or of its group must be notified of and/or approve these contracts. If so, specify the procedures, the circumstances provided for and the nature of the bodies responsible for approval or notification: Board of directors General meeting Body that authorises the clauses Yes Is the general meeting informed of these clauses? No NO YES X Remarks The Board of Directors adopts the resolutions relating to the basic contractual conditions for members of Senior Management, pursuant to the provisions of Article 17 of the Regulations of the Board of Directors, hereby notified to the General Shareholders' Meeting through this Report and through the information contained in the Annual Financial Statements, but does not approve the conditions applicable to other employees. C.2 Committees of the board of directors C.2.1 Detail all of the committees of the Board of Directors, their members and the proportion of executive, proprietary, independent and other external directors sitting thereon: EXECUTIVE COMMITTEE Name Carlos Torres Vila Onur Genç Jaime Félix Caruana Lacorte Carlos Loring Martínez de Irujo José Maldonado Ramos Susana Rodríguez Vidarte Position Chairman Member Member Member Member Member Category Executive Executive Independent Other external Other external Other external % of executive directors % of proprietary directors % of independent directors % of other external directors 33.33% 0% 16.67% 50% 159 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Explain the duties that have been delegated or assigned to this committee, other than those that have already been described in section C.1.10, and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. Pursuant to Article 27 of BBVA's Regulations of the Board of Directors, the Executive Committee shall be made aware of matters delegated by the Board of Directors, in accordance with the legislation currently in force, the Bylaws or the Regulations of the Board. The functions of the Executive Committee include assisting the Board of Directors in its general supervisory role, in particular, in supervising the progress of the business and monitoring the risks to which the Bank is, or may be, exposed, as well as in decision-making on matters that fall within the scope of powers attributed to the Board of Directors, provided that they do not constitute non-delegable powers under current legislation, Bylaws or Regulations of the Board. Accordingly, prior to it being presented to the Board of Directors, the Committee was granted powers for monitoring the Group's activities and results; the strategic plan, budget, and investment policy and financing; general policies to be adopted by the Board; as well as analysing and monitoring the evolution of the Group's main risks, among other matters. Similarly, it has been granted decision-making powers for investments and divestments, except for their amount and strategic nature, which are within the Board's remit; powers to approve corporate policies and determine exposure limits for each type of risk; appoint and/or re-appoint administrators in investee companies, as well as the authority to grant powers. With respect to the Committee's most significant actions during the 2018 financial year, particularly noteworthy were: the analysis and monitoring of the annual, half-yearly and quarterly results of the Bank and its Group, the monthly performance of the Group's activities and results, as well as its business areas; the monitoring and analysis of the proposals submitted by the Bank's executive areas prior to their submission for the Board's consideration, in order for it to consider the various strategic and prospective documents prepared annually by the Group, including: the Risk Appetite Framework, annual budget, self- assessment reports on the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) and recovery plan, with due monitoring of any changes to these types of documents and to the Group's strategic plan and annual budget for the financial year. In the same vein, the Committee oversaw the management of the main risks affecting the Group, in particular, aspects related to changes in the macroeconomic environment and other factors that impacted the Group's management and activities over the course of the financial year; the results of main competitors, as well as any developments in BBVA share prices. It also analysed corporate transactions within its remit, as well as other matters or projects arising from the day-to-day management of the businesses; supervised and approved new corporate policies on various subjects and modifications to them, as applicable, mainly in relation to risks. Lastly, particularly noteworthy is the information received over the course of the financial year about the most salient aspects of the engagement policy that BBVA has in place in relation to corporate governance with institutional investors and its road show results over the course of the financial year; about the most relevant aspects of legislative and regulatory developments affecting financial institutions, as well as the Group's authorisation to appoint administrators in subsidiaries or investee companies, and the granting of powers vested in it. With regards to the Committee's rules of organisation and operation, Article 28 of the Regulations of the Board of Directors establishes that the Executive Committee will meet on the dates indicated in the annual meeting schedule and at the request of the Chair or acting Chair. All other aspects of its organisation and operation will be subject to the provisions established for the Board of Directors by the Regulations of the Board of Directors. Once the Executive Committee meeting minutes have been approved, they will be signed by the meeting's secretary and countersigned by whoever chaired the meeting. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 160 AUDIT AND COMPLIANCE COMMITTEE Name José Miguel Andrés Torrecillas Belén Garijo López Lourdes Máiz Carro Ana Cristina Peralta Moreno Juan Pi Llorens Position Chairman Member Member Member Member Category Independent Independent Independent Independent Independent % of proprietary directors % of independent directors % of other external directors 0% 100% 0% Explain the duties assigned to this committee, including, where appropriate, any that are in addition to those provided for by law, and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. As set forth in Article 30 of the Regulations of the Board of Directors, the duties entrusted to the Audit and Compliance Committee include the following:  To apprise the General Shareholders' Meeting on matters raised in relation to issues within the Committee's remit.  To oversee the effectiveness of the Company's internal control system, internal auditing and risk management systems in the process of preparing and reporting financial information, including tax- related risks, and to discuss with the external auditor any significant weaknesses detected in the internal control system during the audit, without undermining its independence.  To oversee the process of preparing and reporting financial information and to submit recommendations or proposals to the Board for safeguarding data integrity.  To submit to the Board of Directors proposals for the selection, appointment, re-appointment and replacement of the external auditor, taking responsibility for the selection process in accordance with applicable regulations, as well as the conditions for its engagement, and to obtain periodically from the external auditor information on the audit plan and its execution, in addition to preserving its independence in the discharge of its duties.  To establish appropriate relations with the external auditor in order to receive information on any matters that may jeopardise its independence, for examination by the Committee, and any other matters in connection with the account auditing process, as well as those other communications provided for by law and in auditing standards.  Each year, before the audit report is issued, to submit a report expressing an opinion on whether the external auditor's independence has been compromised. This report must contain a reasoned assessment of each of the additional services provided, regardless of nature, considered individually and as a whole, over and above the legal audit and in relation to the independence requirements or to the rules governing the account auditing process.  To report on all matters provided for in law, in the Bylaws and in the Regulations of the Board of Directors prior to any decisions that the Board may be required to adopt, and in particular on: (i) financial information that the Company is required to publish periodically; (ii) the creation or acquisition of shares in special purpose entities or in entities domiciled in tax havens or territories considered to be tax havens; and (iii) related-party transactions.  To oversee compliance with applicable national and international regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to competition, as well as to ensure that any requests for action or information made by official authorities on these matters are dealt with in due time and in an appropriate manner.  To ensure that the internal ethics and conduct codes and those relating to securities markets, applicable to the Group's personnel, are adequate and comply with regulatory requirements.  To enforce strict compliance with the provisions applicable to directors contained in the Regulations of the Board, and ensure that directors comply with applicable regulations regarding their conduct on securities markets. 161 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. With regards to organisational and operational rules, Article 31 of the Regulations of the Board of Directors states that the Audit and Compliance Committee will meet as often as required to fulfil its functions, although an annual meeting schedule will be drawn up in line with its duties. The meetings may also be attended by the executives to whom the Accounting, Internal Audit and Compliance departments report, and at the proposal of these executives, by such other employees in those areas with knowledge of or responsibility for the matters on the agenda. However, only the Committee members and the Secretary will be present when the results and conclusions of the meeting are assessed. The Committee may engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. The usual channel for a request of this nature will be through the reporting lines of the Company. However, in exceptional cases the request may be notified directly to the person in question. For all other matters, the system for convening meetings, setting quorums, passing resolutions, drafting minutes and other details of its operation will be in accordance with the provisions established in the Regulations of the Board of Directors for the Board of Directors insofar as they are applicable, and with that established in the specific Regulations of this Committee. The most important actions carried out by the Audit and Compliance Committee in the 2018 financial year are detailed in section H of this Report. Identify the directors who are members of the audit committee and have been appointed on the basis of knowledge and experience of accounting or auditing, or both, and give the appointment date of the chair of this committee to the post. Name of the directors with experience José Miguel Andrés Torrecillas Belén Garijo López Lourdes Máiz Carro Ana Cristina Peralta Moreno Juan Pi Llorens Date of appointment of the chair to the post 04 May 2015 APPOINTMENTS COMMITTEE Name José Miguel Andrés Torrecillas Belén Garijo López Lourdes Máiz Carro José Maldonado Ramos Susana Rodríguez Vidarte Position Chairman Member Member Member Member Category Independent Independent Independent Other external Other external % of proprietary directors % of independent directors % of other external directors 0% 60% 40% Explain the duties assigned to this committee, including, where appropriate, any that are in addition to those provided for by law, and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. Pursuant to the provisions of Article 33 of the Regulations of the Board of Directors, the Appointments Committee's primary focus is to assist the Board of Directors in matters relating to the selection and appointment of members of the Board of Directors, and also to perform the following duties: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 162  To submit proposals for the appointment, re-appointment or removal of independent directors to the Board of Directors and to report on proposals for the appointment, re-appointment or removal of the remaining directors. To this end, the Committee will evaluate the balance of knowledge, skills and experience on the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, evaluating the dedication of time considered necessary so that they can adequately carry out their duties, based on the needs that the Company's governing bodies have at all times. The Committee will ensure that, when filling new vacancies, the selection procedures are not implicitly biased in such a way that involves any kind of discrimination or, in particular, hinders the selection of female directors, trying to ensure that women who match the professional profile sought are included among potential candidates. Also, when formulating its proposals for the appointment of directors, the Committee will take into consideration, if it considers them to be suitable, any requests that may be made by any member of the Board of Directors of potential candidates to fill the vacancies that have arisen.  Propose to the Board of Directors the selection and diversity policies for members of the Board of Directors.  Establish a target for representation of the underrepresented gender on the Board of Directors and draw up guidelines on how to reach that target.  Analyse the structure, size and composition of the Board of Directors, at least once per year, when evaluating its operation.  Analyse the suitability of the various 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 the proposals for the appointment of the Chairman and Secretary and, if applicable, the Deputy Chairman and Deputy Secretary.  Report on the performance of the Chairman of the Board, such that the Board of Directors can make its periodic assessment under the terms established in the Regulations of the Board of Directors.  Examine and organise the succession of the Chairman in conjunction with the Lead Director and, where appropriate, file proposals with the Board of Directors so that such a succession takes place in an orderly and well-planned way.  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 the appointment and removal of senior managers. Article 34 of the Regulations of the Board of Directors regulates the organisational and operational rules of Appointments Committee, establishing that it will meet as often as necessary to fulfil its duties, convened by its Chairman or by whomever stands in therefor, pursuant to the provisions of Article 32 of the Regulations of the Board. The Committee may request that persons with tasks within the Group organisation that are related to the Committee's duties attend its sessions. It may also obtain advice as necessary to form opinions within its remit, which will be done through the Secretary of the Board. For all other matters, the system for calling meetings, setting quorums, passing resolutions, drafting minutes and other details of its operation will be in accordance with the provisions established in the Regulations of the Board of Directors for the Board of Directors insofar as they are applicable. The most important actions carried out by the Appointments Committee in the 2018 financial year are detailed in section H of this Report. 163 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. REMUNERATIONS COMMITTEE Name Belén Garijo López Tomás Alfaro Drake Carlos Loring Martínez de Irujo Lourdes Máiz Carro Ana Cristina Peralta Moreno Position Chair Member Member Member Member Category Independent Other external Other external Independent Independent % of proprietary directors % of independent directors % of other external directors 0% 60% 40% Explain the duties assigned to this committee, including, where appropriate, any that are in addition to those provided for by law, and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. The Remunerations Committee's focus is to assist the Board of Directors in matters relating to the remuneration policy for directors, senior managers and any employees whose professional activities have a significant impact on the Bank's risk profile (“Identified Staff”), ensuring that the established remuneration policy is observed. Thus, as provided for under Article 36 of the Regulations of the Board of Directors, it will perform the following functions:  Propose the Remuneration Policy for BBVA Directors to the Board of Directors, for submission to the General Shareholders' Meeting, regarding both its concepts and amounts, the parameters used to calculate the remuneration and the system through which the directors receive it, and submit the corresponding report, all in accordance with the terms established by the applicable law at any given time.  Determine the extent and amount of individual remunerations, rights and other economic rewards, as well as other contractual conditions for executive directors, so that they can be contractually agreed, by submitting the relevant proposals to the Board of Directors.  Present an annual report on the remuneration of the Bank's directors to the Board of Directors, which will be submitted to the Ordinary General Shareholders' Meeting, in accordance with the provisions of the applicable law.  Propose the remuneration policy to the Board of Directors for senior managers and any employees whose professional activities have a significant impact on the Company's risk profile.  Propose the basic contractual conditions for senior managers to the Board of Directors and directly oversee the remuneration of senior managers tasked with risk management and compliance functions within the Company.  Ensure observance of the remuneration policy established by the Company and periodically review the remuneration policy applied to directors, senior management and any employees whose professional activities may have a significant impact on the Company's risk profile.  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. Moreover, Article 37 of the Regulations of the Board of Directors establishes that the Remunerations Committee will meet as often as necessary to fulfil its duties, convened by its Chairman or by whomever stands in therefor, pursuant to the provisions of Article 35 of the Regulations of the Board. The Committee may request that persons with tasks within the Group organisation that are related to the Committee's duties attend its sessions. It may also obtain advice as necessary to form opinions within its remit, which will be done through the Secretary of the Board. For all other matters, the system for calling meetings, setting quorums, passing resolutions, drafting minutes and other details of its operation will be in accordance with the provisions established in the Regulations of the Board of Directors for the Board of Directors insofar as they are applicable. The most important actions carried out by the Remunerations Committee in the 2018 financial year are detailed in section H of this Report. 164 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. RISK COMMITTEE Name Juan Pi Llorens José Miguel Andrés Torrecillas Jaime Félix Caruana Lacorte Carlos Loring Martínez de Irujo Susana Rodríguez Vidarte Position Chairman Member Member Member Member Category Independent Independent Independent Other external Other external % of proprietary directors % of independent directors % of other external directors 0% 60% 40% Explain the duties assigned to this committee and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. The functions of the Risk Committee are listed below, along with an explanation of the actions taken by the Committee in the 2018 financial year to fulfil each one:  To analyse and assess proposals on the Group's risk management and control strategy, which will include, in particular: (i) the risk appetite statement; (ii) the core metrics; and (iii) the basic structure of limits. This function has been carried out by the Risk Committee with the necessary scope and detail for verifying their accuracy and appropriateness. This process took into account all of the necessary information, with the appropriate level of detail, and received support from the Head of Global Risk Management, Senior Management and the various areas of the Group participating in these processes, particularly the Risk area. In particular, the Committee conducted an in-depth analysis of the various proposals made by the Risk Area to establish a new Risk Appetite Framework for the Group. This entailed evaluating the statements, metrics and limits that the framework comprises, taking into account the behaviour of the current appetite framework, the macroeconomic prospects of the respective regions and many other factors. This analysis was conducted before being submitted for the consideration of the Executive Committee and, if applicable, the approval of the Board.  To analyse and assess proposals on specific corporate policies for each type of risk and on the establishment of maximum exposure limits for certain risks and transactions, with the level of detail established at any given moment. The Risk Committee analysed the corporate policies proposed by the Risk Area for each type of risk, prior to submitting them to the Executive Committee. In 2018, it played a role in the processes to modify the corporate policies for retail risk, wholesale risk, liquidity and funding risk, structural interest- rate risk, structural exchange-rate risk, structural equities risk, market risk in market and insurance activities, model risk and operational risk. Together, these form the strategy and allow the Group's risk culture to be strengthened. For this, it had the information necessary to adequately analyse the proposed modifications.  To analyse and assess the measures in place to mitigate the impact of the risks identified, should they materialise. When the Risk Committee was informed that the determined risk limits had been exceeded while it conducted its monitoring, supervision and control work, it specifically monitored the reasons for this and the proposals regarding the action plans made for their recovery. If these action plans approved by the Corporate Bodies were implemented, the Risk Committee monitored them until the limits exceeded had recovered. 165 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  To monitor the development of the risks faced by the Group and their compatibility with the strategies and policies defined by the Group, and with its risk appetite. Throughout the 2018 financial year, the Risk Committee monitored the evolution of the different risks to which the Group is exposed—both financial (credit risk, structural risks, market risk, insurance risk etc.) and non-financial (operational risks)—as part of the BBVA Group General Risk Management and Control Model and in accordance with the Risk Appetite Framework approved by the Corporate Bodies. The Committee therefore received and analysed information from the Risk Area suitably frequently, received the support of the Group's Head of Global Risk Management, those in charge of each type of risk in the corporate field and the risk directors of the Group's main entities, and spoke directly with each one to discuss this topic. All of this afforded the Committee direct knowledge of the Group's risks, both globally and locally, allowing it to perform its duty of monitoring the evaluation of the Group's risks, regardless of the type of risk, the business area in which it originates and even the sector or portfolio to which it belongs. As part of this important duty, the Risk Committee also regularly monitored compliance with the metrics and limits established for the 2018 financial year, with the necessary detail and frequency to ensure adequate control of said indicators. To complete its control of the Risk Appetite Framework, the Committee received information about the key internal and external variables that affect the compliance of the Risk Appetite Framework, even if they are not directly part of it. This was received prior to being monitored by the Executive Committee and the Board of Directors. In addition to the above, each month, the committees of the Corporate Risk Area informed the Risk Committee of the main credit risk operations in their respective areas of competency, enabling the Committee to monitor the Group's most significant cases of exposure. Each month, the Risk Committee also had access to information about the qualitative risk operations authorised by the Risk Area. Continue in section H of this Report. TECHNOLOGY AND CYBERSECURITY COMMITTEE Name Carlos Torres Vila Tomás Alfaro Drake Jaime Félix Caruana Lacorte Sunir Kumar Kapoor Juan Pi Llorens Jan Paul Marie Francis Verplancke Position Chairman Member Member Member Member Member Category Executive Other external Independent Independent Independent Independent % of executive directors % of proprietary directors % of independent directors % of other external directors 16.67% 0% 66.66% 16.67% Explain the duties assigned to this committee and describe both the procedures and organisational and operational rules of the committee. For each of these duties, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the duties attributed to it, whether in law, in the bylaws or in other corporate resolutions. The functions of the Board's Technology and Cybersecurity Committee, which fall into two categories, are listed below, along with an explanation of the actions taken by the Committee in the 2018 financial year to fulfil its relevant functions:  Duties relating to monitoring technological risk and managing cybersecurity, such as: 166 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. – Reviewing the Bank's main technological risks, including the risks related to information security and cybersecurity, as well as the procedures adopted by the executive area for monitoring and control of these exposures. – Reviewing the policies and systems for assessment, control and management of the Group's technological infrastructures and risks, including the response and recovery plans in the event of cyberattacks. – Being informed of business continuity plans regarding technology and technological infrastructure matters. – Being informed, as appropriate, about: (i) compliance risks associated with information technology; (ii) the procedures established for identifying, assessing, overseeing, managing and mitigating these risks. – Being informed about 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 net equity, results or reputation. To ensure compliance with these duties, the Technology and Cybersecurity Committee has performed the following actions: – Review of the Group's exposure to technological risk: The Committee has reviewed the Bank's and the Group's exposure to the main technological risks, including risks relating to information security and cybersecurity, ensuring that the executive area is equipped with procedures for monitoring and controlling said exposures. – Evaluation, control and management of risks: The Committee monitors the Group's technological infrastructures and risks, and is informed of the cyberattack response and recovery plans, as well as the business continuity plans that affect the Group's main technological infrastructures. Furthermore, the Committee has been informed of the compliance risks associated with information technology, such as those derived from managing data with regard to the regulation on personal data protection and the new regulation on payment services, as well as the procedures established to identify, manage, control and, if necessary, mitigate these types of risks. – Cybersecurity: The Committee has been informed of the Group's cybersecurity strategy and of the systems and tools that the Group possesses in this regard. Likewise, the Committee has been informed of any significant events that have occurred in relation to cybersecurity, including those that have directly affected the Bank or the Group's companies, as well as those that have affected important (national or international) entities or companies, in order that the Committee is aware of the threats to which the Group is exposed (or may be exposed) and of the technological defences BBVA possesses at any time to combat possible attacks.  Duties relating to the Technology Strategy, such as: – Being informed, as appropriate, of the technology strategy and trends that may affect the Bank's strategic plans, including through monitoring general trends in the sector. – Being informed, as appropriate, of the metrics established by the Group for management and control in the technological area, including the Group's developments and investments in this area. – Being informed, as appropriate, of issues related to new technologies, applications, information systems and best practices that may affect the Group's technological plans or strategy. – Being informed, as appropriate, of the main policies, strategic projects and plans defined by the Engineering Area. – Reporting to the Board of Directors and, where appropriate, to the Executive Committee, on matters related to information technologies falling within its remit. To ensure compliance with these duties, the Technology and Cybersecurity Committee has performed the following duties: – Technology strategy: The Committee has been informed by the Engineering & Organization area of the Group's and the state's technology strategy, as well as the evolution of the different projects, systems, tools and developments integrated with the strategy, and receives a periodic 167 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. report on the key performance indicators (KPIs) in this regard. The Committee has also been informed of the number of employees and level of investment required to effectively implement this strategy. – Development of new products and services: The Committee has been informed of the main projects that the Engineering area, together with the Group's business areas and the Client Solutions area, has implemented or is planning to implement, in developing new products and digital services targeted at the Group's wholesale and retail customers. – Trend information: The Committee has received information regarding the main technological trends in the industry, and even in other important sectors, especially with regard to trends that may affect the Bank's strategic plans. The rules and procedures on the organization and operation of the Technology and Cybersecurity Committee are detailed in section H of this Report. C.2.2 Fill in the following table with information on the number of female directors sitting on the committees of the board of directors at the close of the last four financial years: Number of female directors Financial year 2018 Financial year 2017 Financial year 2016 Financial year 2015 Number % Number % Number % Number % 1 3 3 3 1 - 16.66% 60% 60% 60% 20% - 1 2 2 2 1 - 16.66% 40% 40% 40% 20% - 1 2 2 1 1 - 16.66% 40% 40% 20% 20% - 1 2 1 - 1 - 20% 40% 20% - 16.66% - Executive Committee Audit and Compliance Committee Appointments Committee Remunerations Committee Risk Committee Technology and Cybersecurity Committee C.2.3 Indicate, where applicable, if there are regulations for the board committees, where they can be consulted and any amendments made to them during the financial year. Indicate whether an annual report on the activities of each committee has been prepared voluntarily. The Regulations of the Board of Directors, available on the Company's website, www.bbva.com, regulate the composition, duties and rules of the organisation and operation of all of the Board Committees that are regulatory in nature. The Regulations of the Board of Directors also regulate the composition, duties and rules of the organisation and operation of the Executive Committee. As part of the annual process to evaluate their operation, all of the Board Committees have prepared and submitted a report to the Board of Directors detailing the main activity and operation of performing their delegated duties over the course of the 2018 financial year. AUDIT AND COMPLIANCE COMMITTEE: The Audit and Compliance Committee also has specific Regulations approved by the Board, which are available on the Company's website, that govern its operation and powers, among other matters. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 168 Furthermore, as part of the self-assessment process, the Chairman of the Audit and Compliance Committee submitted a report to the Board of Directors regarding this Committee's activities over the course of the 2018 financial year, which is explained in greater detail in section C.1.17 above. APPOINTMENTS COMMITTEE: As part of the self-assessment process, the Chairman of the Appointments Committee presented a report to the Board of Directors regarding the activities conducted by this Committee over the course of the 2018 financial year, which is explained in greater detail in section C.1.17 above. REMUNERATIONS COMMITTEE: As part of the self-assessment process, the Chair of the Remunerations Committee presented a report to the Board of Directors regarding the activities conducted by this Committee over the course of the 2018 financial year, which is explained in greater detail in section C.1.17 above. RISK COMMITTEE: The Risk Committee also has specific Regulations approved by the Board, which are available on the Company's website, that govern its duties and procedural standards, among other matters. Furthermore, as part of the self-assessment process, the Chairman of the Risk Committee submitted a report to the Board of Directors regarding this Committee's activities over the course of the 2018 financial year, which is explained in greater detail in section C.1.17 above. TECHNOLOGY AND CYBERSECURITY COMMITTEE: The Technology and Cybersecurity Committee has specific Regulations approved by the Board, which are available on the Company's website, that govern its duties and organisational and operational standards, among other matters. Furthermore, as part of the self-assessment process, the Chairman of the Technology and Cybersecurity Committee submitted a report to the Board of Directors regarding this Committee's activities over the course of the 2018 financial year, which is explained in greater detail in section C.1.17 above. D RELATED-PARTY TRANSACTIONS AND INTRA-GROUP TRANSACTIONS D.1 Explain the procedure and competent bodies, if any, for approving related-party and intra-group transactions. Procedure for approving related-party transactions Article 17 v) of the Regulations of the Board of Directors establishes that the Board of Directors is responsible for approving, as applicable, the transactions that the Company, or its Group companies may make with Directors or with shareholders who, individually or in concert, hold a significant interest. This includes shareholders represented on the Company's Board of Directors or the boards of other Group companies, and parties related to them, with the exceptions established by law. Moreover, Article 8 of the Regulations of the Board of Directors establishes that approval of the transactions conducted by the Company or by Group companies with directors, the approval of which is the responsibility of the Board of Directors, will be granted subject to a prior report by the Audit and Compliance Committee where appropriate. The only exceptions to this approval will be transactions that simultaneously meet the three following specifications: (i) they are carried out under contracts with standard terms and are applied en masse to a large number of customers; (ii) they go through at market rates or prices set in general by the party acting as supplier of the goods or services; and (iii) they are worth less than 1% of the Company's annual revenues. D.2 Detail transactions deemed to be significant for their amount or content between the company or its group companies, and the company's significant shareholders: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 169 Name or corporate name of the significant shareholder Name or corporate name of the company or group company Nature of the relationship Type of transaction Amount (thousands of euro) D.3 Detail any transactions deemed to be significant for their amount or content between the company or its group companies, and the directors or executives of the company: Name or corporate name of the directors or executives Name or corporate name of the related party Relationship Nature of the transaction Amount (thousands of euro) D.4 Report any material transactions carried out by the company with other entities belonging to the same group, provided that these are not eliminated in the preparation of the consolidated financial statements and do not form part of the company's ordinary business activities in terms of their purpose and conditions. In any event, provide information on any intra-group transactions with companies established in countries or territories considered tax havens: Corporate name of the Group Company BBVA Global Finance LTD. BBVA Global Finance LTD. BBVA Global Finance LTD. Brief description of the transaction Current account deposits Term account deposits Amount (thousands of euro) 2,080 5,939 Issue-linked subordinated liabilities 173,597 D.5 Detail any significant transactions between the company or its group companies and other related parties, which have not been listed in the previous entries. Corporate name of the related party Brief description of the transaction Amount (thousands of euro) D.6 Detail the mechanisms established to detect, determine and resolve possible conflicts of interest between the company and/or its group, and its directors, executives or significant shareholders. Articles 7 and 8 of the Regulations of the Board of Directors regulate issues relating to possible conflicts of interest as follows: Article 7 Directors must adopt necessary measures to avoid finding themselves in situations where their interests, whether for their own account or for that of others, may enter into conflict with the corporate interest and with 170 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. their duties with respect to the Company, unless the Company has granted its consent under the terms established in applicable legislation and in these Regulations of the Board of Directors. Likewise, they must refrain from participating in deliberations and votes on resolutions or decisions in which they or a related party may have a direct or indirect conflict of interest, unless these are decisions relating to appointment to or severance from positions on the governing body. Directors must notify the Board of Directors of any situation of direct or indirect conflict that they or parties related to them may have with respect to the Company's interests. Article 8 The duty of avoiding situations of conflicts of interest referred to in the previous article obliges the directors to refrain from, in particular: - Carrying out transactions with the Company, unless these are ordinary business, performed under standard conditions for the customers and of insignificant quantity. Such transactions are deemed to be those whose information is not necessary to provide a true picture of the net worth, financial situation and performance of the Company. - Using the name of the Company or invoking their position as director to unduly influence the performance of private transactions. - Making use of corporate assets, including the Company's confidential information, for private ends. - Taking advantage of the Company's business opportunities. - Obtaining advantages or remuneration from third parties other than the Company and its Group, associated to the performance of their position, unless they are mere tokens of courtesy. - Engaging in activities for their own account or on behalf of third parties that involve effective actual or potential competition with the Company or that, in any other way, bring them into permanent conflict with the Company's interests. The above provisions will also apply should the beneficiary of the prohibited acts or activities described in the previous subsections be a related party to the director. However, the Company may dispense with the aforementioned prohibitions in specific cases, authorising a director or a related party to carry out a certain transaction with the Company, to use certain corporate assets, to take advantage of a specific business opportunity or to obtain an advantage or remuneration from a third party. When the authorisation is intended to dispense with the prohibition against obtaining an advantage or remuneration from third parties, or affects a transaction whose value is over 10% of the corporate assets, it must necessarily be agreed by a General Meeting resolution. The obligation not to compete with the Company may only be dispensed with when no damage is expected to the Company or when any damage that is expected is compensated by the benefits that are foreseen from the dispensation. The dispensation will be conferred under an express and separate resolution of the General Meeting. In other cases, the authorisation may also be resolved by the Board of Directors, provided that the independence of the members conferring it is guaranteed with respect to the director receiving the dispensation. Moreover, it will be necessary to ensure that the authorised transaction will not do harm to the corporate net worth or, where applicable, that it is carried out under market conditions and that the process is transparent. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 171 Approval of the transactions of the Company or its Group companies with directors, needing to be approved by the Board of Directors, will be granted after receiving a report from the Audit and Compliance Committee. The only exceptions to this approval will be transactions that simultaneously meet the three following specifications: 1) they are carried out under contracts with standard terms and are applied en masse to a large number of customers; 2) they go through at market rates or prices set in general by the party acting as supplier of the goods or services; and 3) they are worth less than 1% of the Company's annual revenues. Since BBVA is a credit institution, it is subject to the provisions of Spanish Act 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions, whereby the directors and general managers or similar may not obtain credits, bonds or guarantees from the Bank on whose board or management they work, above the limit and under the terms established in article 35 of Royal Decree 84/2015, implementing Act 10/2014, unless expressly authorised by the Bank of Spain. Furthermore, all members of the BBVA Board of Directors and Senior Management are subject to the Company's Internal Standards of Conduct in the Securities Markets. These Standards are intended to control possible Conflicts of Interest. It establishes that everyone subject to it must notify the head of their area or the Compliance Unit of situations that could potentially and under specific circumstances may entail Conflicts of Interest that might be vulnerable to compromising their impartiality, before they engage in any transaction or conclude any business in the securities market in which such may arise. D.7 Are more than one of the Group's companies listed in Spain? NO Identify the other companies listed in Spain and their relationship with the company: Identity and relationship with other listed Group companies Indicate whether the respective areas of business and any potential relations between them, as well as any potential business relations between the other listed company and other group companies, have been publicly defined: NO Define any potential business relations between the parent company and the listed subsidiary company, and between the listed subsidiary company and other group companies Identify the mechanisms established to resolve any potential conflicts of interest between the listed company and other group companies: Mechanisms to resolve potential conflicts of interest E RISK CONTROL AND MANAGEMENT SYSTEMS E.1 Explain the scope of the company's Risk Control and Management System, including risks of a tax-related nature. The BBVA Group has a general Risk Control and Management model (hereafter the "Model") adapted to its business model, its organisation and the geographical areas where it operates. This Model allows the BBVA Group to operate within the framework of the strategy and the risk control and management policy defined by the Bank's corporate bodies and to adapt to an ever-changing economic and regulatory environment, 172 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. addressing risk management on a global level adapted to the circumstances at any moment. The Model establishes a risk management system that is adapted to the Bank's risk profile and strategy. This Model is applied comprehensively in the Group and is made up of the basic elements set out below: I. Governance and organisation The risk governance model in BBVA is characterised by the strong involvement of its corporate bodies, both in establishing the risk strategy and in the continuous monitoring and supervision of its implementation. Thus, it is the corporate bodies that approve the risk strategy and the corporate policies for the different types of risks. The risk function is responsible within the scope of its management for implementing and developing the risk strategy, being accountable for it to the corporate bodies. The responsibility for the day-to-day management of risks corresponds to the businesses, which engage in their business following the policies, rules, procedures, infrastructures and controls that are based on the framework set by the Corporate Bodies and defined by the risk function. To carry out this work adequately, the risk function in the BBVA Group has been set up as a single, global function that is independent of the commercial areas. II. Risk Appetite Framework The Group's Risk Appetite Framework is approved by the BBVA’s Corporate Bodies and determines the risks and the associated risk levels that the Group is prepared to assume to achieve its objectives, considering the organic development pattern of the business. These are expressed in terms of solvency, liquidity and funding, profitability and recurrence of results, which are reviewed periodically or if there are any substantial changes in the Bank's business or relevant corporate operations. The determination of the Risk Appetite Framework has the following objectives: Set out the maximum risk levels that the Group is willing to accept.   Establish a set of guidelines for action and a management framework for the medium-long term that prevent actions that may compromise the future viability of the Group.  Establish a framework for relations with the geographical and/or business areas, that preserves their decision-making autonomy while ensuring their consistent performance.  Establish a common language across the whole organisation and develop a risk culture geared toward compliance with it.  Ensure alignment with the new regulatory requirements, facilitating communication with regulators, investors and other stakeholders. III. Decisions and processes The transfer of the Risk Appetite Framework to ordinary management is underpinned by three basic elements:  A standardised body of regulations  Risk planning which allow to ensure the integrity in the management of the Risk Appetite Framework  Integrated risk management throughout their life cycle IV. Evaluation, monitoring and reporting Risk’s evaluation, monitoring and reporting is a cross-cutting element that allows the Model to have a dynamic and anticipatory vision, enabling compliance with the Risk Appetite Framework approved by the corporate bodies, even under unfavourable scenarios. The realization of this process is integrated into the activity of the risk units, both corporate and geographical and/or business, and is developed in the following phases:  Identification of the risk factors that could compromise compliance with the defined risk appetite thresholds.  Assessment of the impact of the materialisation of the risk factors on the metrics that define the Risk Appetite Framework based on different scenarios, including stress scenarios.  Response to undesired situations and proposal of rechannelling measures to allow a dynamic management of the situation, even before it occurs.  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. 173 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  Reporting: Providing complete and reliable information on the risks to the corporate bodies and Senior Management, with a frequency and completeness appropriate to the nature, significance and complexity of the reported risks. The principle of transparency governs all risk information reporting. Continue in Section H of this Report. E.2 Identify the corporate bodies responsible for drawing up and enforcing the Risk Control and Management System, including tax-related risks. The Board of Directors (hereinafter referred to as the "Board") approves the risk strategy and oversees 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 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 budgets and management targets, 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 strategic and budgetary planning at Group level are co- ordinated by the executive area for submission to the Board. To ensure the integration of the Risk Appetite Framework into the management process, on the basis established by the Board of Directors, the Executive Committee approves the metrics for each type of risk relating to profitability, recurrence of results and the Group's basic limit structure for the different geographical areas, risk types, asset classes and portfolios. This Committee also approves specific corporate policies for each type of risk. Lastly, the Board of Directors has a committee specialising in risks, the Risk Committee, which assists the Board and the Executive Committee in determining the Group's risk strategy and the risk limits and policies, respectively, analysing and assessing the proposals submitted to those bodies in advance. The amendment of the Group's risk strategy and the elements composing it, including the Risk Appetite Framework metrics within its remit, is the exclusive power of the Board, 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 same aforementioned decision-making process is applicable to the amendments; amendment proposals are submitted by the executive area (specifically, by the Group's Chief Risk Officer) and are analysed by the Risk Committee and later submitted to the Board of Directors and/or to the Executive Committee, as appropriate. Moreover, the Risk Committee, the Executive Committee and the Board itself monitor, to the necessary degree, the implementation of the risk strategy and the Group's risk profile. For this, 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 their analysis by the Risk Committee, whose role in this monitoring and control work is particularly important. The head of the risk function in the executive line, the Group's Chief Risk Officer (CRO), carries out his/her work with the independence, authority, rank, experience, knowledge and resources required. This Officer is appointed by the Bank's Board of Directors, as a member of its Senior Management, and has direct access to the corporate bodies (Board of Directors, Executive Committee and Risk Committee), to which it reports on a regular basis on the situation of the risks in the Group. For optimal performance, the Chief Risk Officer is supported by a structure consisting of cross-cutting risk units in the corporate area and specific risk units in the Group's geographical areas and/or business areas. Each of these 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 control and management 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 business areas report both to the Group's Chief Risk Officer and to the head of their geographical and/or business area. This dual reporting system aims to ensure the independence of the local risk management function from the operating functions and enable its alignment with the Group's corporate policies and goals related to risks. The risk function has a decision-making process supported by a structure of committees. The Global Risk Management Committee (GRMC) is the highest-level body in the risk area and, among other duties, 174 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. proposes, examines and, where applicable, approves the internal regulatory risk framework and the procedures and infrastructures needed to identify, assess, measure and manage the risks that the Group faces in its business activity. The GRMC also approves portfolio risk limits. For tax-related risk, the Tax Department establishes the control mechanisms and internal rules necessary to ensure compliance with the tax laws in force and the tax strategy approved by the Board of Directors, which must inspire the Group's fiscal decisions and integrate the results of the BEPS project from OECD as well as the guidelines of Chapter XI, Part of the "OECD Guidelines for Multinational Enterprises". This function is subject to supervision by the Audit and Compliance Committee of the BBVA Group, and is evidenced by the appearances made before the same by the Head of the Tax Function of the BBVA Group. E.3 Indicate the primary risks, including tax-related risks and, where significant, risk derived from corruption (the latter can be understood to be within the scope of Royal Decree Law 18/2017) that could prevent business targets from being met. BBVA has processes to identify risks and analyse scenarios, enabling dynamic and advance risk management. These risk-identification processes are forward-looking to ensure the identification of emerging risks, and take into account the concerns of both the business and corporate areas as well as those of Senior Management. Risks are identified and measured in a consistent manner and in line with approved methodologies. Their measurement includes the design and application of scenario analyses and stress testing, and considers the controls to which the risks are subject. Likewise, a forward projection is performed for the Risk Appetite Framework variables in stress scenarios, with the aim of identifying possible deviations from the established thresholds. If such deviations are detected, the appropriate measures are adopted to keep those variables within the target risk profile. In this regard, there are a number of emerging risks that could impact the Group's business performance. These risks are organised into the following large blocks:  Macroeconomic and geopolitical risks World economic growth remained strong during the 2018 financial year, although it slowed more than was expected in the second half of the year, due to worse performance than anticipated in trade and in the industrial sector, and to significantly heightened financial tensions, particularly in developed economies, caused by increased uncertainty. The worsening economic performance in Europe and China was accompanied by a slowdown in Asian countries and the deceleration of the expansionary cycle in the United States. Given the situation, both the Federal Reserve (Fed) and the ECB have been more cautious and patient in terms of standardising monetary policy, and their decisions moving forwards will depend on the performance of the economy. Protectionism remains the main short-term risk, not only due to its direct impact on the commercial channel, but also due to its indirect impact on confidence and financial volatility. There are also concerns regarding the intensity of activity adjustment in the US and China in the coming quarters and increased political uncertainty in Europe. In summary, uncertainty surrounding the economic outlook remains high, mainly due to the fear of increased protectionism and the increased perception of risk in terms of global growth.  Regulatory and reputational risks Financial institutions are exposed to a complex regulatory environment that is changing at the hands of governments and regulators, which may impact their growth capacity and the performance of certain business activities due to higher liquidity and capital requirements and lower profitability ratios. The Group monitors changes in the regulatory framework on an ongoing basis to enable it to anticipate and adapt to those changes sufficiently in advance, adopt the best practices and the most efficient and rigorous criteria for their implementation. The financial sector is currently subject to a heightening level of scrutiny from regulators, governments and society itself. Negative news or inappropriate conduct can seriously damage an institution's reputation and affect its ability to conduct a sustainable business. The attitudes and conduct of the Group and of its members are governed by the principles of integrity, honesty, long-term vision and best practices, thanks to the Internal Control Model, the Code of Conduct, tax strategy and the Group's Responsible Business strategy, among others. 175 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Continue in Section H of this Report. E.4 Identify whether the company has a risk tolerance level, including tax-related risks. The BBVA Group's Risk Appetite Framework, approved by the Corporate Bodies, determines the risks and the associated risk levels that the Group is prepared to assume to achieve its objectives, considering the organic development pattern of the business. These are expressed in terms of solvency, liquidity and funding, profitability and recurrence of results, which are reviewed periodically or if there are any substantial changes in the Bank's business or relevant corporate operations. The Risk Appetite Framework is expressed through the following elements:  Risk Appetite Statement: This contains the general principles of the Group's risk strategy and the   target risk profile. Statements and core metrics: Derived from the Risk Appetite statement, these statements set out the general risk management principles in terms of solvency, liquidity, funding, profitability and results recurrence. Moreover, the core metrics reflect, in quantitative terms, the principles and the target risk profile set out in the Risk Appetite statement and are aligned with the Group's strategy. Statement and metrics by type of risk: Taking the core metrics as a basis, a corresponding statement is established for each type of risk, setting out the general principles for managing the risk in question. A series of metrics is also calibrated, adherence to which ensures compliance with the core metrics and the Group's Risk Appetite statement.  The core limits structure is designed to shape the Risk Appetite Framework by geographical area, risk type, asset type and portfolio, ensuring that management is within the metrics by type of risk. In addition to this Framework, there is a level of management limits that is defined and managed by the risks function when developing the basic structure of limits, with the aim of ensuring that advance management of risks by risk subcategory within each type or by sub-portfolio is in line with those core limits and in general with the established Risk Appetite Framework. The corporate risk area works with the various geographies and/or business areas to define their Risk Appetite Framework, so that it is co-ordinated with, and integrated into the Group's Risk Appetite, making sure that its profile is in line with the one defined. The Risk Appetite Framework is integrated within management, and the processes for defining the Risk Appetite Framework proposals are co-ordinated with strategic and budgetary planning at Group level. As stated previously, the core metrics in BBVA's Risk Appetite Framework measure the Group's performance in terms of solvency, liquidity, funding, profitability and results recurrence. Most of the core metrics are accounting and/or regulation-based; they are therefore disclosed to the market regularly in BBVA Group's annual and quarterly financial reports. The Group's risk profile evolved over the 2018 financial year in line with the metrics forming part of the approved Risk Appetite Framework. E.5 State what risks, including tax-related risks, have occurred during the financial year. Risk is inherent to financial activity, and the occurrence of minor and major risks is therefore an inseparable part of the Group's activities. BBVA thus provides detailed information in its annual financial statements (note 7 in the Report and note 19 in the consolidated accounts covering tax-related risks) regarding the developments of such risks, since their very nature can permanently affect the Group in undertaking its activities. E.6 Explain the response and supervision plans for the primary risks faced by the company, including tax- related risks, and the procedures followed by the company to ensure that the Board of Directors responds to any new challenges. The BBVA Group's internal control system takes its inspiration from the best practices developed both in the COSO (Committee of Sponsoring Organizations of the Treadway Commission) "Enterprise Risk Management — Integrated Framework" and in the "Framework for Internal Control Systems in Banking Organisations" drawn up by the Basel Bank for International Settlements (BIS). This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 176 The control model has a system comprising three lines of defence:  The Group's business units constitute the first line of defence. They are responsible for managing current and emerging risks and implementing control procedures. They are also responsible for reporting to their business/support unit.  The second line comprises specialist control units: Supervisors, Regulation & Compliance (in legal and compliance subject), Finance & Accounting (in financial subject), Global Risk Management (in risk subject) and Engineering & Organization (in operations subject and technology and cybersecurity systems). This line collaborates in identifying current and emerging risks, defines the control policies across areas, ensures that they are implemented correctly, and provides training and advice to the first line. In addition, one of its main functions is to monitor and question the control activity carried out by the first line of defence. The control activity of the first and second lines of defence for operational risks will be coordinated by the Non Financial Risks unit, which will also be responsible for providing these units with a common internal control methodology and global tools. The Group's Head of Non Financial Risks is responsible for the function and reports his/her activities to the CRO and to the Board's Risk Committee, assisting it in any matters where requested.  The third line of defence is made up of the Internal Audit unit, for which the Group assumes the guidelines of the Basel Committee on Banking Supervision and of the Institute of Internal Auditors. Its function is that of providing independent and objective assurance and consulting, designed to add value and improve the Organisation's operations. Furthermore, the Group has specific Internal Risk Control and Internal Validation units within the corporate risk area. These units are independent from the areas that develop models, manage processes and run controls. Its scope of action is global, in terms of both geography and type of risk, reaching all areas of the organization. The main function of Internal Risk Control is to ensure the existence of a sufficient 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, to control its application and operation, and to ensure that the risk strategy is integrated into the Group's management. In this sense, the Internal Risk Control unit contrasts the development of the functions of the units that develop the risk models, manage the processes and implement the controls. The Group's Head of Internal Risk Control is responsible for the function and reports its activities and work plans to CRO and to the Board's Risk Committee, assisting it in any matters where requested. To perform its duties, the area has a team structure at both the corporate level and in the most important geographies where the Group operates. As in the case of the corporate area, local units are independent of the business areas that execute the processes, and of the units that execute the controls. They report functionally to the Internal Risk Control unit. The unit's lines of action are established at Group level and it is then responsible for their local-level adaptation and implementation, and for reporting on the most relevant aspects. Internal Validation is responsible, among other duties, for the independent review and validation, internally, of the models used for the management and control of the Group's risks. With regard to tax risks, the Tax Department establishes the policies and control processes for guaranteeing compliance with the tax laws currently in force and the tax strategy approved by the Board of Directors. Lastly, and in order to face the new challenges of the industry, the BBVA Group has a governance system that allows the Board of Directors to be informed of the real and potential risks that affect or may affect the Group at any time. Thus, to the work carried out by the different control areas (risks, compliance and internal audit) and the corresponding committees of the Board (Risk Committee and Audit and Compliance Committee, respectively), it is necessary to add the prospective monitoring and supervision that performs the Technology and Cybersecurity Committee of the Board of Directors. The important work carried out by this Committee allows the Board of Directors to be permanently informed of the main technological risks to which the Group is exposed to (including those related to risks on information security and 177 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. cybersecurity), as well as to the strategies and current technological trends, and relevant events in cybersecurity subject that affect the Group or that may affect it in the future, among other functions. F INTERNAL CONTROL AND RISK MANAGEMENT SYSTEMS OVER FINANCIAL REPORTING (ICFR) Describe the mechanisms comprising the risk management and control systems for financial reporting (ICFR) in your entity. F.1 The entity's control environment Give information on the key features of at least: F.1.1. Which bodies and/or functions are responsible for: (i) the existence and maintenance of an adequate and effective ICFR; (ii) its implementation and (iii) its supervision. Pursuant to Article 17 of its Regulations, the Board of Directors approves the financial information that BBVA is required to publish periodically as a listed company. The Board of Directors has an Audit and Compliance Committee, whose mission is to help the Board to oversee financial information and exercise control over the BBVA Group. In this respect, the BBVA Audit and Compliance Committee Regulations establish that the Committee's duties include monitoring the sufficiency, suitability and effective operation of the internal control systems in the process of drawing up and preparing financial information, so as to rest assured of the correctness, accuracy, sufficiency and clarity of the financial information of the Bank and its consolidated Group. The BBVA Group complies with the requirements imposed by the Sarbanes Oxley Act ("SOX") for each financial year's consolidated annual accounts due to its status as a publicly traded company listed with the United States Securities Exchange Commission ("SEC"). The main Group executives are involved in the design, compliance and maintenance of an effective internal control model that guarantees the quality and veracity of the financial information. The Finance & Accounting ("F&A") area has been responsible during 2018 for producing the consolidated annual financial statements and maintaining the control model for financial information generation. Specifically, this function is performed by the Financial Internal Control area, which is integrated within the Group's general internal control model, which is outlined below. BBVA Group established an internal control model comprising two key elements. It has maintained this model throughout 2018. The first element is the control structure, organised into three lines of defence (3LD); the second is a governance scheme known as Corporate Assurance. In accordance with the most advanced standards of internal control, the three-lines-of-defence model is configured as follows:  The first line of defence rests with the various areas and/or business units of the Group. They are responsible for managing the risks relating to their operations and carrying out the controls required to mitigate them.  The second line of defence is formed of areas/units specialising in control, including: Compliance, Internal Financial Control, Internal Risk Control, Internal Operations Control and Internal Engineering Control. This second line of defence co-operates with the first line of defence to identify current and emerging risks in connection with operations, specifies control policies and models across areas, monitors progress, and regularly assesses the proper design and effectiveness of implemented controls.  The third line of defence is the Internal Audit area, for which the Group Executive Chairman is directly responsible. It is completely independent from the functions being audited and is not part of any other activity that may be subject to audit. Its remit is global, meaning it covers each and every one of BBVA Group activities and entities. 178 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Furthermore, to reinforce the internal control environment, the Group employs a governance scheme named Corporate Assurance, which establishes a framework for monitoring the internal control model and for escalating the main issues relating to internal control within the Group to Senior Management. The Corporate Assurance model (in which the business areas, support areas and the areas specialising in internal control participate) is organised into a system of committees that analyse the most relevant issues related to internal control in each geographical area, with the participation of the country's top managers. These committees report to the Group's Global Committee, chaired by the Chief Executive Officer with the assistance of the main global executives responsible for the business and control areas. The effectiveness of this internal control system is assessed periodically for those risks that may affect the correct compilation of the Group's financial statements. The assessment is co-ordinated by the Internal Financial Control area and involves control specialists from business and support areas. The Group's Internal Audit area also performs its own assessment of the internal control system with regard to the generation of financial information. In addition, the external auditor of the BBVA Group issues an opinion every year on the effectiveness of internal control over financial reporting based on criteria established by COSO (Committee of Sponsoring Organizations of the Treadway Commission) and in accordance with PCAOB (the US Public Company Accounting Oversight Board) standards. This opinion appears in Form 20-F, which is filed every year with the SEC. The result of the annual internal assessment of the System of Internal Control over Financial Reporting is reported to the Group's Audit and Compliance Committee by the heads of Internal Control and Internal Financial Control. F.1.2. Whether, especially in the process of drawing up financial information, the following elements exist: • Departments and/or mechanisms responsible for: (i) the design and review of the organisational structure; (ii) the clear definition of lines of responsibility and authority, with an adequate distribution of tasks and functions; and (iii) ensuring that sufficient procedures exist for their correct dissemination within the entity. The financial information is drafted by the local Financial Management areas for each country and the related consolidation work was done in 2018 by the F&A Area, which has overall responsibility for the drafting and reporting of accounting and regulatory information of the Group for 2018. BBVA's organisational structure clearly defines lines of action and responsibility for the areas involved in the generation of financial information, both at the individual entity level and consolidated group level, and also provides the channels and circuits necessary for the proper communication thereof. The units responsible for drawing up these financial statements have a suitable distribution of tasks and the necessary segregation of functions to draw up these statements in an appropriate operational and control framework. Additionally, there is an accountability model aimed at extending the culture of, and commitment to internal control. Those in charge of the design and operation of the processes that have an impact on financial reporting certify that all the controls associated with its operation under their responsibility are sufficient and have worked correctly. • Code of conduct, approval body, degree of dissemination and instruction, principles and values included (indicating whether there are specific mentions of recording transactions and drawing up financial information), body in charge of analysing non-compliance and proposing corrective measures and sanctions. BBVA has a Code of Conduct that is approved by the Board of Directors and reflects BBVA's concrete commitments with regard to one of the principles of its Corporate Culture: Integrity in the consideration and undertaking of its business. This Code likewise establishes the corresponding channel for whistleblowers regarding possible infringements of the Code. It is the subject of ongoing training and refresher programmes that include key personnel in the financial function. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 179 Following the update to the Code in 2015, communication campaigns to share its new content have been in place since 2016, making use of new formats and digital channels. In addition, a training plan has been developed at a global level, reaching the entire workforce of the Group. The Code of Conduct can be accessed on the Bank's website (www.bbva.com) and on the employees' website (Intranet). Additionally, Group members undertake personally and individually to observe its principles and rules in an express declaration of awareness and adhesion. The duties of the Audit and Compliance Committee include ensuring that internal codes of ethics and conduct, and those relating to conduct in securities markets, applicable to all Group personnel are compliant with regulatory requirements and are appropriate for the Bank. Additionally, BBVA has adopted a structure of Corporate Integrity Management Committees (with individual powers at jurisdiction or Group entity levels, as applicable). Their joint scope of action covers all the Group businesses and activities and their main duty is to ensure effective application of the Code of Conduct. There is also a Corporate Integrity Management Committee, whose scope of responsibility extends throughout BBVA. The main mission of this committee entails ensuring uniform application of the Code in BBVA. The Compliance Unit in turn independently and objectively promotes and supervises to ensure that BBVA acts with integrity, particularly in areas such as money-laundering prevention, conduct with clients, security market conduct, corruption prevention, and other areas that could entail a reputational risk for BBVA. The unit's duties include fostering the knowledge and application of the Code of Conduct, promoting the drafting and distribution of its implementing standards, assisting in the resolution of any concern that may arise regarding the interpretation of the Code, and managing the Whistleblowing Channel. • Whistleblowing channel, which allows financial and accounting irregularities to be communicated to the audit committee, as well as possible non-compliances with the code of conduct and irregular activities in the organisation, reporting where applicable if this is confidential in nature. Preservation of the Corporate Integrity of BBVA transcends merely personal accountability for individual actions, it calls for all employees to have zero tolerance for activities that do not comply with the Code of Conduct or that could harm the reputation or good name of BBVA. This attitude is reflected in everyone's commitment to whistle-blowing, by timely communication, of situations that, even when unrelated to their activity or area of responsibility, could be infringe regulations or contradict the values and guidelines of the Code. The Code of Conduct itself establishes the communication guidelines to follow and contemplates a Whistleblowing Channel, simultaneously guaranteeing the duty of discretion of reporting parties, the confidentiality of the investigations and the prohibition of retaliation or adverse consequences in light of communications made in good faith. Telephone lines and email inboxes have been set up in each jurisdiction for these communications. A list of these appears on the Group Intranet. As described in the previous section, BBVA has adopted a structure of Corporate Integrity Management Committees (with individual powers at jurisdiction or Group entity levels, as applicable), whose joint scope of action covers all the Group businesses and activities and whose functions and responsibilities (explained in greater detail in their corresponding regulations) include:  Driving and monitoring global initiatives to foster and promote a culture of ethics and integrity among members of the Group.  Ensuring the uniform application of the Code.  Promoting and monitoring the functioning and effectiveness of the Whistleblowing Channel. 180 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  In exceptional cases where they are not already included among the members of the Committee, informing Senior Management and/or the person responsible for preparing the financial statements of any events and circumstances from which significant risks might arise for BBVA. In addition, periodic reports are made to the Audit and Compliance Committee, which supervises and controls their proper functioning (independently managed by the Compliance area). • Periodic training and refresher courses for employees involved in preparing and revising financial information, and in ICFR assessment, covering at least accounting standards, audit, internal control and risk management. Specific training and periodic refresher courses are given on accounting and tax regulations, internal control and risk management for areas involved in preparing and reviewing the financial and tax-related information and in evaluating the internal control system, to help them perform their functions correctly. There is an annual training programme for all members of the F&A area on aspects related to the generation of financial information and to new regulations concerning accounting, financial and tax matters. This programme also includes other courses tailored to the needs of the area. These courses are taught by professionals from the area and renowned external providers. In addition to the area-specific training, general Group training is also provided, and includes courses on finance and technology, among other topics. Additionally, the BBVA Group has a personal development plan for all employees, which forms the basis of a personalised training programme to deal with the areas of knowledge necessary to perform their functions. F.2 Financial reporting risk assessment Give information on at least: F.2.1. The key features of the risk identification process, including error and fraud risks, with respect to: • Whether the process exists and is documented. The ICFR was developed by the Group Management in accordance with international standards set forth by the Committee of Sponsoring Organizations of the Treadway Commission ("COSO"), which establishes five components on which the effectiveness and efficiency of internal control systems must be based:  Establishing an adequate control environment for monitoring all these activities.  Assessing the risks that may be incurred by an entity in drawing up its financial information.  Designing the necessary controls to mitigate the most critical risks.  Establishing the adequate information circuits to detect and communicate the system's weaknesses or inefficiencies.  Monitoring such controls to ensure that they are operational and to guarantee their effectiveness over time. In order to identify the risks with a greater potential impact in the generation of financial information, the processes through which such information is generated are analysed and documented, and an analysis of the risk situation that may arise in each is later conducted. Based on the corporate internal control and operational risk methodology, the risks are categorised by type, including error and fraud (internal/external), and their probability of occurrence and possible impact are analysed. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 181 The process of identifying risks in the generation of Financial Statements, including risks of error, falsity and omission, is conducted by the parties responsible for each of the processes involved in the generation of financial information, in collaboration with the Internal Financial Control area which, in turn, manages mitigation plans. The scope of the annual/quarterly or monthly assessment of their controls is determined based on the significance of the risks, thus ensuring coverage of the risks considered critical for the financial statements. The assessment of the aforementioned risks and the design and effectiveness of their controls begins with the management's understanding of and insight into the business and the analysed operating process, considering criteria of quantitative materiality, likelihood of occurrence and economic impact, in addition to qualitative criteria associated with the type, complexity and nature of the risks or of the business structure itself. The system for identifying and assessing the risks of internal control over financial reporting is dynamic. It evolves continuously, always reflecting the reality of the Group's business, changes in operating processes, the risks affecting them and the controls that mitigate them. All this is documented in a corporate management tool developed and managed by Operational Risk (STORM). This tool documents all the risks and controls, by process, that are managed by the different control specialists, including the Financial Internal Control unit. • Whether the process covers all of the objectives of financial reporting (existence and occurrence; completeness; valuation; presentation, breakdown and comparability; and rights and obligations), whether the information is updated and how frequently. Each of the processes identified in the BBVA Group for drawing up financial information aim to record all financial transactions, value the assets and liabilities in accordance with applicable accounting regulations and provide a breakdown of the information in accordance with regulator requirements and market needs. The financial reporting control model analyses each of the aforementioned processes to ensure that identified risks are properly covered by efficient controls. The control model is updated when changes arise in the relevant processes for producing financial information. • The existence of a process for identifying the consolidation perimeter, taking into account aspects including the possible existence of complex corporate structures, or instrumental or special purpose vehicles. The F&A organisation includes a Consolidation department that carries out a monthly process of identification, analysis and updating of the Group's consolidation perimeter. In addition, the information from the consolidation department on new companies set up by the Group's different units and the changes made to existing companies is compared with the data analysed by two specific committees whose function is to analyse and document the changes in the composition of the corporate group (Holding Structure Committee and Investments in Non-Banking Companies Committee, both corporate). In addition, as part of special purpose vehicle control, the Internal Audit and Compliance areas of the Bank submit a periodic report of the Group's structure to the Audit and Compliance Committee. • Whether the process takes into account the effects of other types of risks (operational, technological, financial, legal, tax-related, reputational, environmental etc.) insofar as they impact the financial statements. The model of internal control over financial reporting applies to processes for directly drawing up such financial information and to all operational or technical processes that could have a relevant impact on the financial, accounting, tax-related or management information. As explained above, all the specialist control areas apply a standard methodology and use a common tool (STORM) to document the identification of the risks, of the controls that mitigate those risks and of the assessment of their effectiveness. 182 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. There are control specialists in all the operational or support areas, and therefore any type of risk that may affect the Group's operations is analysed under that methodology (market, credit, operational, technological, financial, legal, tax-related, reputational or any other type of risk) and is included in the ICFR insofar as it may have an impact on the financial information. • Which of the entity's governing bodies supervises the process. The process for identifying risks and assessing the design, effectiveness and suitability of the controls is documented at least once a year, and is overseen by the Internal Audit area. Moreover, the Group's Head of Internal Audit and head of Internal Financial Control report annually to the Audit and Compliance Committee on analysis work that has been carried out, on the conclusions of the assessment of the control model relating to the generation of financial information, and on the process for downstream certification of the effectiveness of the control model. This process is undertaken by the financial officers of the main entities and holding control specialists. This work follows the SOX methodology in compliance with the legal requirements, under the regulation, on systems of internal control over financial reporting, and is included in Form 20-F, submitted annually to the SEC, as indicated in first point of control environment. F.3 Control activities Give information on the main features, if at least the following exist: F.3.1. Procedures for review and authorisation of financial information and the description of the ICFR, to be published on the stock markets, indicating who is responsible for it, and the documentation describing the activity flows and controls (including those concerning risk of fraud) for the different types of transactions that may materially impact the financial statements, including the procedure for closing the accounts and the specific review of the relevant judgements, estimates, valuations and projections. All of the processes relating to the generation of financial information are documented, as is the corresponding control model, including potential risks associated with each process and the controls put in place to mitigate them. As explained in point F.2.1, the aforementioned risks and controls are recorded in the corporate tool STORM, which also includes the result of the assessment of the operation of the controls and the degree of risk mitigation. In particular, the main processes relating to the generation of financial information are: accounting, consolidation, financial reporting, financial planning and monitoring, and financial and tax management. The analysis of these processes, their risks and their controls is also supplemented by that of all other critical risks that may have a financial impact from business areas or other support areas. Likewise, there are review procedures for the areas responsible for generating the financial and tax-related information disseminated to the securities markets, including the specific review of relevant judgements, estimates and projections. As noted in the annual financial statements themselves, it is occasionally necessary to make estimates to determine the amount at which some assets, liabilities, income, expenses and commitments should be recorded. These estimates are mainly related to: Impairment losses on certain financial assets.   The assumptions used to quantify certain provisions and in the actuarial calculation of liabilities and commitments for post-employment and other obligations.  The useful life and impairment losses of tangible and intangible assets.  The appraisal of goodwill and price assignments in business combinations.  The fair value of certain unlisted assets and liabilities.  The recoverability of deferred tax assets. 183 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  The exchange rate and inflation index in certain countries. These estimates are made based on the best information available on the financial statement closing date and, together with the other relevant issues for the closing of the annual and six-monthly financial statements, are analysed and authorised by an F&A Technical Committee and submitted to the Audit and Compliance Committee before being filed by the Board of Directors. F.3.2. Internal control procedures and policies for information systems (among others, access security, change control, their operation, operational continuity and segregation of functions) that support the relevant processes in the entity with respect to drawing up and publishing financial information. The internal control models include procedures and controls regarding the operation of information and access security systems, the segregation of functions, and the development and modification of computer applications used to generate financial information. The existing internal control and operational risk methodology comprises a set of controls by category, which include, among others, two categories relating to this matter: access control and segregation of functions. Both categories of controls are identified in the model of internal control of financial information and are analysed and assessed periodically, in order to guarantee the integrity and reliability of the information drawn up. Furthermore, there is a corporate-level procedure for managing system access profiles. This procedure is overseen by the Group's Internal Engineering & Organization Control unit. This unit is also in charge of reviewing control processes in change management (development in test environments and putting changes into production), incident management, operation management, media and backup copy management, and management of business continuity, among other things. With all these mechanisms, the BBVA Group can confirm that adequate management of access control is maintained, the correct and necessary steps are taken to put applications into production as well as ensuring their subsequent support, the creation of backup copies, and assurance of continuity in the processing and recording of operations. In summary, the entire process of preparing and publishing financial information has established and documented the procedures and control models necessary to provide reasonable assurance of the correctness of the BBVA Group's public financial information. F.3.3. Internal control procedures and policies designed to supervise the management of activities subcontracted to third parties and those aspects of evaluation, calculation and assessment outsourced to independent experts which may materially impact the financial statements. The internal control model includes considers controls and procedures for the management of subcontracted activities or those aspects of evaluation, calculation and assessment of assets or liabilities outsourced to independent experts. There is a set of standards and an Outsourcing Committee that establishes and oversees the requirements that must be met at Group level with regard to the activities to be subcontracted. There are procedural manuals for the outsourced financial processes that identify the procedures to be followed and the controls to be applied by the service provider units and outsourcing units. The controls established in the outsourced processes concerning the generation of financial information are also tested by the Internal Financial Control area. The valuations from independent experts used for matters relevant for generating financial information are included within the standard circuit of review procedures executed by internal control, internal auditing and external auditing. F.4 Information and communication 184 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. Give information on the main features, if at least the following exist: F.4.1. A specific function in charge of defining and maintaining accounting policies (accounting policy department or area) and resolving queries or conflicts stemming from their interpretation, ensuring fluent communication with those in charge of operations in the organisation, and an up-to-date manual of accounting policies, communicated to the units through which the entity operates. The organisation has two Technical Committees for Accounting (the Accounting Working Group) and Solvency. The purpose of these committees is to analyse, study and issue standards that may affect the compilation of the Group's financial and regulatory information, to determine the accounting and solvency criteria required to ensure that transactions are booked correctly, and to calculate capital requirements within the framework of the applicable standards. The Group also has an accounting policies Manual, which is updated and made available to all Group units by means of the Intranet. This manual is the tool that guarantees that all the decisions related to accounting policies or specific accounting criteria to be applied in the Group are supported and are standardised. The Accounting Policies Manual is approved in the Accounting Working Group and is documented and updated for use and analysis by all the Group's entities. F.4.2. Mechanisms to capture and prepare financial reporting in standardised formats, for application and use by all of the units of the entity or the group, that support the main financial statements and the notes, and the detailed information on ICFR. The Group's F&A area and the countries' financial management units are responsible for the processes for preparing financial statements in accordance with the current accounting and consolidation manuals. There is also a consolidation computer application that collects the accounting information of the various companies within the Group and performs the consolidation processes, including the standardisation of accounting criteria, aggregation of balances and consolidation adjustments. Control measures have also been implemented in each of the aforementioned processes, both locally and at consolidated level, to ensure that all the data underpinning the financial information is collected in a comprehensive, exact and timely manner. There is also a single and standardised financial reporting system that is applicable to and used by all the Group units and supports the main financial statements and the explanatory notes. There are also control measures and procedures to ensure that the information disclosed to the markets includes a sufficient level of detail to enable investors and other users of the financial information to understand and interpret it. F.5 Supervision of the system's operation Give information on the key features of at least: F.5.1. The ICFR supervision activities carried out by the audit committee and whether the entity has an internal audit function with powers that include providing support to the audit committee in its task of supervising the internal control system, including the ICFR. Likewise, information will be given on the scope of the ICFR assessment carried out during the financial year and of the procedure by which the person in charge of performing the assessment communicates its results, whether the entity has an action plan listing the possible corrective measures, and whether its impact on financial reporting has been considered. The internal control units of the business areas and of the support areas conduct a preliminary assessment of the internal control model, assess the risks identified in the processes, the effectiveness of controls, and the degree of mitigation of the risks, as well as identifying weaknesses, and designing, implementing and monitoring the mitigation measures and action plans. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 185 BBVA also has an Internal Audit unit that supports the Audit and Compliance Committee with regard to the independent supervision of the internal financial information control system. The Internal Audit function is entirely independent of the units that draw up the financial information. All the weaknesses in controls, mitigation measures and specific action plans are documented in the corporate tool STORM and submitted to the internal control and operational risk committees of the areas, as well as to the local or global Corporate Assurance Committees, based on the significance of the detected issues. In summary: both the weaknesses identified by the internal control units and those detected by the internal or external auditor have an action plan in place to correct or mitigate the risks. During the 2018 financial year, internal control areas conducted a full assessment of the financial information internal control system, and, to date, no material or significant weakness have been revealed therein. The assessment was reported to the Audit and Compliance Committee. Additionally, in compliance with the SOX, the Group annually assesses the effectiveness of the model of internal control over financial reporting on a group of risks (within the perimeter of SOX companies and critical risks) that could affect the drawing up of financial statements at local and consolidated levels. This perimeter includes risks and controls of other specialties that are not directly financial (regulatory compliance, technology, risks, operational, human resources, procurement, legal, etc.). F.5.2. Whether there is a discussion procedure via which the auditor (in line with the auditing technical standards), the internal audit function and other experts can inform senior management and the audit committee or the entity's directors of significant weaknesses in the internal control encountered during the review processes for the annual financial statements or any others within their remit. Also provide information on whether there is an action plan to try to correct or mitigate the weaknesses observed. As mentioned in the preceding section (F.5.1) of this Annual Corporate Governance Report, the Group does have a procedure in place whereby the internal auditor, the external auditor and the heads of Internal Financial Control report to the Audit and Compliance Committee any significant internal control weaknesses detected in the course of their work. Any significant or material weaknesses, if present, will likewise be reported. Thus, a plan of action is prepared for all detected weaknesses, which is presented to the Audit and Compliance Committee. Since BBVA is listed with the SEC, the BBVA Group's auditor annually issues its opinion on the effectiveness of the internal control over financial reporting contained in the Group's consolidated annual financial statements on 31 December each year, under PCAOB (Public Company Accounting Oversight Board) standards, with a view to filing the financial information with the SEC on Form 20-F. The latest report issued on the financial information for the 2017 financial year is available on www.sec.gov. The internal control oversight carried out by the Audit and Compliance Committee, described in the Audit and Compliance Committee Regulations published on the Group website, includes the following activities:  Analyse, 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 all other required financial information, having also all the information necessary available with the level of aggregation deemed appropriate. For this purpose, the Committee will have the support it needs from the Group's Senior Management, especially that of the area responsible for Accounting functions, and from the Company and Group auditor.  Review the necessary consolidation perimeter, the correct application of accounting criteria, and all the relevant changes relating to the accounting principles used and the presentation of the financial statements. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 186  Oversee the effectiveness of the company's internal control, internal audit and risk management systems in the process of drawing up and reporting the mandatory financial information, including fiscal risks, as well as discuss with the auditor any significant weaknesses in the internal control systems detected during the audit, without undermining its independence. For such purposes, and where appropriate, recommendations or proposals may be submitted to the Board of Directors, along with the deadline for their follow-up.  Analyse, and approve where appropriate, the Annual Internal Audit Plan, monitoring it and being apprised of the degree to which the audited units are complying with the corrective measures recommended. The external auditor and the Head of Internal Audit regularly attend all meetings of the Audit and Compliance Committee and are properly informed of the matters addressed therein. F.6 Other relevant information F.7 External auditor report Report on: F.7.1. Whether the ICFR information disclosed to the markets has been submitted by the external auditor for review, in which case the entity must attach the corresponding report as an annex. Otherwise, explain the reasons why it was not. The information related to the BBVA Group's internal control over financial information described in this report is reviewed by the external auditor, which issues its opinion on the control system and on its effectiveness in relation to the statements published at the close of each financial year. On 5 April 2018, the BBVA Group, as a private foreign issuer in the United States, filed the Annual Report (Form 20-F) for the financial year ending on 31 December 2017, which was published on the SEC website on that same date. In accordance with the requirements set out in Section 404 of the Sarbanes-Oxley Act of 2002 by the Securities and Exchange Commission (SEC), the aforementioned Annual Report (Form 20-F) included certification of the Group's executive principles with regard to the establishment, maintenance and assessment of the Group's system of internal control over financial reporting. Form 20-F report also included the opinion of the external auditor regarding the effectiveness of the Bank's system of internal control over financial reporting at year-end 2017. G EXTENT OF COMPLIANCE WITH CORPORATE GOVERNANCE RECOMMENDATIONS Indicate the degree of monitoring carried out by the company with regard to the recommendations of the Good Governance Code of Listed Companies. If any recommendations are not being followed or are only being followed in part, a detailed explanation of the reasons for this should be given so that shareholders, investors and the market in general have sufficient information to assess the actions of the company. General explanations will not be acceptable. 1. The bylaws of listed companies should not place an upper limit on the votes that can be cast by a single shareholder, or impose other obstacles to the takeover of the company by means of share purchases on the market. COMPLIANT 2. When a dominant and subsidiary company are both listed, they should provide detailed disclosure on: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 187 a) The activity they engage in and any business dealings between them, as well as between the listed subsidiary and other group companies. b) The mechanisms in place to resolve possible conflicts of interest. NOT APPLICABLE 3. During the annual general meeting the chairman of the board should verbally inform shareholders in sufficient detail of the most relevant aspects of the company's corporate governance, supplementing the written information circulated in the annual corporate governance report. In particular: a) Changes taking place since the previous annual general meeting. b) The specific reasons for the company not following a given Good Governance Code recommendation, and any alternative procedures followed in its stead. COMPLIANT 4. The company should draw up and implement a policy of communication and contacts with shareholders, institutional investors and proxy advisors that complies in full with market abuse regulations and accords equitable treatment to shareholders in the same position. This policy should be disclosed on the company's website, complete with details of how it has been put into practice and the identities of the relevant interlocutors or those charged with its implementation. COMPLIANT 5. The board of directors should not make a proposal to the general meeting for the delegation of powers to issue shares or convertible securities without pre-emptive subscription rights for an amount exceeding 20% of capital at the time of such delegation. When a board approves the issuance of shares or convertible securities without pre-emptive subscription rights, the company should immediately post a report on its website explaining the exclusion as envisaged in company legislation. PARTIALLY COMPLIANT The General Shareholders' Meeting on 17 March 2017 delegated to the Board of Directors a power to increase share capital and issue convertible securities, along with the power to wholly or partially exclude pre-emptive subscription rights in respect of capital increases and issues of convertible securities carried out using such delegated power. The power to exclude pre-emptive subscription rights is limited, overall, to 20% of share capital as it stood at the time of the delegation, except for the issuance of contingently convertible securities, the conversion of which is intended to satisfy regulatory solvency requirements as to eligibility as capital instruments in accordance with applicable regulations, because such instruments are not dilutive for shareholders. 6. That listed companies which draft the reports listed below, whether under a legal obligation or voluntarily, publish them on their web page with sufficient time before the General Shareholders' Meeting, even when their publication is not mandatory: a) Report on auditor independence. b) Reviews of the operation of the audit committee and the nomination and remuneration committee. c) Audit committee report on third-party transactions. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 188 d) Report on corporate social responsibility policy. COMPLIANT 7. The company should broadcast its general meetings live on the corporate website. COMPLIANT 8. The audit committee should strive to ensure that the board of directors can present the company's accounts to the general meeting without limitations or qualifications in the auditor's report. In the exceptional case that qualifications exist, both the chairman of the audit committee and the auditors should give a clear account to shareholders of their scope and content. COMPLIANT 9. The company should disclose its conditions and procedures for admitting share ownership, the right to attend general meetings and the exercise or delegation of voting rights, and display them permanently on its website. Such conditions and procedures should encourage shareholders to attend and exercise their rights and be applied in a non-discriminatory manner. COMPLIANT 10. When an accredited shareholder exercises the right to supplement the agenda or submit new proposals prior to the general meeting, the company should: a) Immediately circulate the supplementary items and new proposals. b) Disclose the attendance card template and proxy or remote voting form, duly modified so that new agenda items and alternative proposals can be voted on in the same terms as those submitted by the board of directors. c) Put all these items or alternative proposals to the vote applying the same voting rules as for those submitted by the board of directors, with particular regard to presumptions or deductions about the direction of votes. d) After the general meeting, disclose the breakdown of votes on such supplementary items or alternative proposals. NOT APPLICABLE 11. In the event that a company plans to pay for attendance at the general meeting, it should first establish a general, long-term policy in this respect. NOT APPLICABLE 12. The Board of Directors should perform its duties with unity of purpose and independent judgement, according the same treatment to all shareholders in the same position. It should be guided at all times by the company's best interest, understood as the creation of a profitable business that promotes its sustainable success over time, while maximising its economic value. In pursuing the corporate interest, it should not only abide by laws and regulations and conduct itself according to principles of good faith, ethics and respect for commonly accepted customs and good practices, but also strive to reconcile its own interests with the legitimate interests of its employees, suppliers, clients and other stakeholders, as well as with the impact of its activities on the broader community and the natural environment. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 189 13. The board of directors should have an optimal size to promote its efficient functioning and maximise participation. The recommended range is accordingly between five and fifteen members. COMPLIANT COMPLIANT 14. The board of directors should approve a director selection policy that: a) Is concrete and verifiable; b) Ensures that appointment or re-election proposals are based on a prior analysis of the board's needs; and c) Favours a diversity of knowledge, experience and gender. That the resulting prior analysis of the needs of the Board of Directors is contained in the supporting report from the appointments committee published upon a call from the General Shareholders' Meeting submitted for ratification, appointment or re-appointment of each director. The director selection policy should pursue the goal of having at least 30% of total board places occupied by women directors before the year 2020. The appointments committee should run an annual check on compliance with the director selection policy and set out its findings in the annual corporate governance report. COMPLIANT 15. Proprietary and independent directors should constitute an ample majority on the board of directors, while the number of executive directors should be the minimum practical bearing in mind the complexity of the corporate group and the ownership interests they control. COMPLIANT 16. The percentage of proprietary directors out of all non-executive directors should be no greater than the proportion between the ownership stake of the shareholders they represent and the remainder of the company's capital. This criterion can be relaxed: a) In large cap companies where few or no equity stakes attain the legal threshold for significant shareholdings. b) In companies with a plurality of shareholders represented on the board but not otherwise related. 17. Independent directors should be at least half of all board members. COMPLIANT However, when the company does not have a large market capitalisation, or when a large cap company has shareholders individually or concertedly controlling over 30 percent of capital, independent directors should occupy, at least, a third of board places. COMPLIANT 190 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 18. Companies should disclose the following director particulars on their websites and keep them regularly updated: a) Background and professional experience. b) Directorships held in other companies, listed or otherwise, and other paid activities they engage in, of whatever nature. c) Statement of the director class to which they belong, in the case of proprietary directors indicating the shareholder they represent or have links with. d) Dates of their first appointment as a board member and subsequent re-elections. e) Shares held in the company, and any options on the same. COMPLIANT 19. Following verification by the appointments committee, the annual corporate governance report should disclose the reasons for the appointment of proprietary directors at the urging of shareholders controlling less than 3 percent of capital; and explain any rejection of a formal request for a board place from shareholders whose equity stake is equal to or greater than that of others applying successfully for a proprietary directorship NOT APPLICABLE 20. Proprietary directors should resign when the shareholders they represent dispose of their ownership interest in its entirety. If such shareholders reduce their stakes, thereby losing some of their entitlement to proprietary directors, the latters' number should be reduced accordingly. NOT APPLICABLE 21. The board of directors should not propose the removal of independent directors before the expiry of their tenure as mandated by the bylaws, except where they find just cause, based on a proposal from the appointments committee. In particular, just cause will be presumed when directors take up new posts or responsibilities that prevent them allocating sufficient time to the work of a board member, or are in breach of their fiduciary duties or come under one of the disqualifying grounds for classification as independent enumerated in the applicable legislation. The removal of independent directors may also be proposed when a takeover bid, merger or similar corporate transaction alters the company's capital structure, provided the changes in board membership ensue from the proportionality criterion set out in recommendation 16. COMPLIANT 22. Companies should establish rules obliging directors to disclose any circumstance that might harm the organisation's name or reputation, tendering their resignation as the case may be, and, in particular, to inform the board of any criminal charges brought against them and the progress of any subsequent trial. The moment a director is indicted or tried for any of the offences stated in company legislation, the board of directors should open an investigation and, in light of the particular circumstances, decide whether or not he or she should be called on to resign. The board should give a reasoned account of all such determinations in the annual corporate governance report. COMPLIANT 191 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 23. Directors should express their clear opposition when they feel a proposal submitted for the board's approval might damage the corporate interest. In particular, independents and other directors not subject to potential conflicts of interest should strenuously challenge any decision that could harm the interests of shareholders lacking board representation. When the board makes material or reiterated decisions about which a director has expressed serious reservations, then he or she must draw the pertinent conclusions. Directors resigning for such causes should set out their reasons in the letter referred to in the next recommendation. The terms of this recommendation also apply to the secretary of the board, even if he or she is not a director. COMPLIANT 24. Directors who give up their place before their tenure expires, through resignation or otherwise, should state their reasons in a letter to be sent to all members of the board. Whether or not such resignation is disclosed as a material event, the motivating factors should be explained in the annual corporate governance report. COMPLIANT 25. The appointments committee should ensure that non-executive directors have sufficient time available to fulfil their responsibilities effectively. The regulations of the board of directors should lay down the maximum number of company boards on which directors can serve. COMPLIANT 26. The board should meet with the necessary frequency to properly perform its functions, eight times a year at least, in accordance with a calendar and agendas set at the start of the year, to which each director may propose the addition of initially unscheduled items. COMPLIANT 27. Director absences should be kept to a strict minimum and quantified in the annual corporate governance report. In the event of absence, directors should delegate their powers of representation with the appropriate instructions. COMPLIANT 28. When directors or the secretary express concerns about some proposal or, in the case of directors, about the company's performance, and such concerns are not resolved at the meeting, they should be recorded in the minute book if the person expressing them so requests. 29. The company should provide suitable channels for directors to obtain the advice they need to carry out their duties, extending if necessary to external assistance at the company's expense. COMPLIANT 30. Regardless of the knowledge directors must possess to carry out their duties, they should also be offered refresher programmes when circumstances so advise. COMPLIANT COMPLIANT 192 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 31. The agendas of board meetings should clearly indicate on which points directors must arrive at a decision, so they can study the matter beforehand or gather together the material they need. For reasons of urgency, the chairman may wish to present decisions or resolutions for board approval that were not on the meeting agenda. In such exceptional circumstances, their inclusion will require the express prior consent, duly minuted, of the majority of directors present. COMPLIANT 32. Directors should be regularly informed of movements in share ownership and of the views of major shareholders, investors and rating agencies on the company and its group. COMPLIANT 33. The chairman, as the person charged with the efficient functioning of the board of directors, in addition to the functions assigned by law and the company's bylaws, should prepare and submit to the board a schedule of meeting dates and agendas; organise and co-ordinate regular evaluations of the board and, where appropriate, the company's first executive; exercise leadership of the board and be accountable for its proper functioning; ensure that sufficient time is given to the discussion of strategic issues, and approve and review refresher courses for each director, when circumstances so advise. COMPLIANT 34. When a lead independent director has been appointed, the Bylaws or Regulations of the Board of Directors should grant him or her the following powers over and above those conferred by law: chair the board of directors in the absence of the chairman or vice chairmen; give voice to the concerns of non-executive directors; maintain contacts with investors and shareholders to hear their views and develop a balanced understanding of their concerns, especially those to do with the company's corporate governance; and co- ordinate the chairman's succession plan. COMPLIANT 35. The board secretary should strive to ensure that the board's actions and decisions are informed by the governance recommendations of the Good Governance Code of relevance to the company. 36. The board in full should conduct an annual evaluation, adopting, where necessary, an action plan to correct weakness detected in: COMPLIANT a) The quality and efficiency of the board's operation. b) The performance and membership of its committees c) The diversity of board membership and competences. d) The performance of the chairman of the board of directors and the company's first executive. e) The performance and contribution of individual directors, with particular attention to the chairmen of board committees. The evaluation of board committees should start from the reports they send the board of directors, while that of the board itself should start from the report of the appointments committee. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 193 Every three years, the board of directors should engage an external consultant to aid in the evaluation process. This consultant's independence should be verified by the appointments committee. Any business dealings that the consultant or members of its corporate group maintain with the company or members of its corporate group should be detailed in the annual corporate governance report. The process followed and areas evaluated should be detailed in the annual corporate governance report. COMPLIANT 37. When an executive committee exists, its membership mix by director class should resemble that of the board. The secretary of the board should also act as secretary to the executive committee. PARTIALLY COMPLIANT The current composition of the Executive Committee of BBVA was agreed by the Board of Directors at its meeting on 27 June 2018, and it was considered that it had the most suitable composition for the performance of its functions. Thus, in accordance with Article 26 of the BBVA Regulations of the Board of Directors, which establishes that there should be a majority of non-executive directors over executive directors, the Executive Committee of the Board of Directors, as of 31 December 2018, partially reflects the participation of the different categories of director on the Board of Directors; the Chairman and Secretary of the Executive Committee hold the same positions on the Board of Directors, and it is composed of two executive directors and four non-executive directors, of whom one is an independent director and three are external directors, giving a majority of non- executive directors in accordance with the Regulations of the Board of Directors. 38. The board should be kept fully informed of the business transacted and decisions made by the executive committee, and all board members should receive a copy of the committee's minutes. COMPLIANT 39. All members of the audit committee, particularly its chairman, should be appointed with regard to their knowledge and experience in accounting, auditing and risk management matters. A majority of committee places should be held by independent directors. COMPLIANT 40. Listed companies should have a unit in charge of the internal audit function, under the supervision of the audit committee, to monitor the effectiveness of reporting and internal control systems. This unit should report functionally to the board's non-executive chairman or the chairman of the audit committee. COMPLIANT 41. The head of the unit handling the internal audit function should present an annual work programme to the audit committee, inform it directly of any incidents arising during its implementation and submit an activities report at the end of each year. COMPLIANT 42. The audit committee should have the following functions over and above those legally assigned: 1. With respect to internal control and reporting systems: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 194 a) Monitor the preparation and the integrity of the financial information prepared on the company and, where appropriate, the group, checking for compliance with legal provisions, the accurate demarcation of the consolidation perimeter, and the correct application of accounting principles. b) Monitor the independence of the unit handling the internal audit function; propose the selection, appointment, re-election and removal of the head of the internal audit service; propose the service's budget; approve its priorities and work programmes, ensuring that it focuses primarily on the main risks the company is exposed to; receive regular report-backs on its activities; and verify that senior management are acting on the findings and recommendations of its reports. c) Establish and supervise a mechanism whereby staff can report, confidentially and, if appropriate and feasible, anonymously, any potentially significant irregularities that they detect in the course of their duties, in particular financial or accounting irregularities. 2. With regard to the external auditor: a) Investigate the issues giving rise to the resignation of the external auditor, should this come about. b) Ensure that the remuneration of the external auditor does not compromise its quality or independence. c) Ensure that the company notifies any change of external auditor to the CNMV as a material event, accompanied by a statement of any disagreements arising with the outgoing auditor and the reasons for the same. d) Ensure that the external auditor has a yearly meeting with the board in full to inform it of the work undertaken and developments in the company's risk and accounting positions. e) Ensure that the company and the external auditor adhere to current regulations on the provision of non- audit services, limits on the concentration of the auditor's business and other requirements concerning auditor independence. COMPLIANT 43. The audit committee should be empowered to meet with any company employee or manager, even ordering their appearance without the presence of another senior officer. COMPLIANT 44. The audit committee should be informed of any structural or corporate changes the company is planning, so the committee can analyse the operation and report to the board beforehand on its economic conditions and accounting impact and, in particular and when applicable, the exchange ratio proposed. 45. Risk control and management policy should identify at least: COMPLIANT a) The different types of financial and non-financial risk the company is exposed to (including operational, technological, legal, social, environmental, political and reputational risks), with the inclusion under financial or economic risks of contingent liabilities and other off-balance-sheet risks. b) The determination of the risk level the company sees as acceptable. c) The measures in place to mitigate the impact of identified risk events should they occur. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 195 d) The internal control and reporting systems to be used to control and manage the above risks, including contingent liabilities and off-balance-sheet risks. COMPLIANT 46. Companies should establish an internal risk control and management function in the charge of one of the company's internal departments or units and under the direct supervision of the audit committee or some other dedicated board committee. This function should be expressly charged with the following responsibilities: a) Ensure that risk control and management systems are functioning correctly and, specifically, that major risks the company is exposed to are correctly identified, managed and quantified. b) Participate actively in the preparation of risk strategies and in key decisions about their management. c) Ensure that risk control and management systems are mitigating risks effectively in the frame of the policy drawn up by the board of directors. COMPLIANT 47. Appointees to the appointments and remuneration committee – or of the appointments committee and remuneration committee, if separately constituted – should have the right balance of knowledge, skills and experience for the functions they are called on to discharge. The majority of their members should be independent directors. 48. Large cap companies should operate separately constituted appointments and remuneration committees. COMPLIANT COMPLIANT 49. The appointments committee should consult with the company's chairman and first executive, especially on matters relating to executive directors. When there are vacancies on the board, any director may approach the appointments committee to propose candidates that it might consider suitable. 50. The remuneration committee should operate independently and have the following functions in addition to those assigned by law: COMPLIANT a) Propose to the board the standard conditions for senior officer contracts. b) Monitor compliance with the remuneration policy set by the company. c) Periodically review the remuneration policy for directors and senior officers, including share-based remuneration systems and their application, and ensure that their individual compensation is proportionate to the amounts paid to other directors and senior officers in the company. d) Ensure that potential conflicts of interest do not undermine the independence of any external advice the committee engages. e) Verify the information on director and senior officers' pay contained in corporate documents, including the annual directors' remuneration report. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 196 COMPLIANT 51. The remuneration committee should consult with the company's chairman and first executive, especially on matters relating to executive directors and senior officers. COMPLIANT 52. The rules of composition and operation of supervision and control committees should be set out in the board of directors’ regulations and aligned with those governing legally mandatory board committees as specified in the preceding sets of recommendations. They should include at least the following terms: a) Committees should be formed exclusively by non-executive directors, with a majority of independents. b) They should be chaired by independent directors. c) The board should appoint the members of such committees with regard to the knowledge, skills and experience of its directors and each committee's terms of reference; discuss their proposals and reports; and provide report-backs on their activities and work at the first board plenary following each committee meeting. d) They may engage external advice, when they feel it necessary for the discharge of their functions. e) Meeting proceedings should be minuted and a copy made available to all board members. COMPLIANT 53. The task of supervising compliance with corporate governance rules, internal codes of conduct and corporate social responsibility policy should be assigned to one board committee or split between several, which could be the audit committee, the appointments committee, the corporate social responsibility committee, where one exists, or a dedicated committee established ad hoc by the board under its powers of self-organisation, with at the least the following functions: a) Monitor compliance with the company's internal codes of conduct and corporate governance rules. b) Oversee the communication and relations strategy with shareholders and investors, including small and medium-sized shareholders. c) Periodically evaluate the effectiveness of the company's corporate governance system, to confirm that it is fulfilling its mission to promote the corporate interest and catering, as appropriate, to the legitimate interests of remaining stakeholders. d) Review the company's corporate social responsibility policy, ensuring that it is geared to value creation. e) Monitor corporate social responsibility strategy and practices and assess compliance in their respect. f) Monitor and evaluate the company's interaction with its stakeholder groups. g) Evaluate all aspects of the non-financial risks the company is exposed to, including operational, technological, legal, social, environmental, political and reputational risks. h) Coordinate non-financial and diversity reporting processes in accordance with applicable legislation and international benchmarks. COMPLIANT 197 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 54. The corporate social responsibility policy should state the principles or commitments the company will voluntarily adhere to in its dealings with stakeholder groups, specifying at least: a) The goals of its corporate social responsibility policy and the support instruments to be deployed. b) The corporate strategy with regard to sustainability, the environment and social issues. c) Concrete practices in matters relative to: shareholders, employees, clients, suppliers, social welfare issues, the environment, diversity, fiscal responsibility, respect for human rights and the prevention of illegal conducts. d) The methods or systems for monitoring the results of the practices referred to above, related risks and their management. e) The mechanisms for supervising non-financial risk, ethics and business conduct. f) Channels for stakeholder communication, participation and dialogue. g) Responsible communication practices that prevent the manipulation of information and protect the company's honour and integrity. COMPLIANT 55. The company should report on corporate social responsibility developments in its management's report or in a separate document, using an internationally accepted methodology. COMPLIANT 56. Director remuneration should be sufficient to attract and retain individuals with the desired profile and compensate the commitment, abilities and responsibility that the post demands, but not so high as to compromise the independent judgement of non-executive directors. COMPLIANT 57. Variable remuneration linked to the company and the director's performance, the award of shares, options or any other right to acquire shares or to be remunerated on the basis of share price movements, and membership of long-term savings schemes such as pension and retirement plans and other social insurance should be confined to executive directors. The company may consider the share-based remuneration of non-executive directors provided they retain such shares until the end of their mandate. The above condition will not apply to any shares that the director must dispose of to defray costs related to their acquisition. COMPLIANT 58. In the case of variable awards, remuneration policies should include limits and technical safeguards to ensure they reflect the professional performance of the beneficiaries and not simply the general progress of the markets or the company's sector, or circumstances of that kind. In particular, variable remuneration items should meet the following conditions: a) Be subject to predetermined and measurable performance criteria that factor the risk assumed to obtain a given outcome. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 198 b) Promote the long-term sustainability of the company and include non-financial criteria that are sufficient for long-term value creation, such as compliance with the company's internal rules and procedures and its risk control and management policies. c) Be focused on achieving a balance between the delivery of short, medium and long-term objectives, such that performance-related pay rewards ongoing achievement, maintained over sufficient time to appreciate its contribution to long-term value creation. This will ensure that performance measurement is not based solely on one-off, occasional or extraordinary events. 59. A major part of variable remuneration components should be deferred for a long enough period to ensure that predetermined performance criteria have effectively been met. COMPLIANT COMPLIANT 60. Remuneration linked to company earnings should bear in mind any qualifications stated in the external auditor's report that reduce their amount. 61. A relevant percentage of executive directors' variable remuneration should be linked to the award of shares or financial instruments whose value is linked to the share price. COMPLIANT COMPLIANT 62. Following the award of shares, share options or other rights on shares derived from the remuneration system, directors should not be allowed to transfer a number of shares equivalent to twice their annual fixed remuneration, or to exercise the share options or other rights on shares for at least three years after their award. The above condition will not apply to any shares that the director must dispose of to defray costs related to their acquisition. COMPLIANT 63. Contractual arrangements should include provisions that permit the company to reclaim variable components of remuneration when payment was out of step with the director's actual performance or based on data subsequently found to be misstated. COMPLIANT 64. Termination payments should not exceed a fixed amount equivalent to two years of the director's total annual remuneration and should not be paid until the company confirms that he or she has met the predetermined performance criteria. H OTHER INFORMATION OF INTEREST COMPLIANT 1. If there is any other aspect relevant to the corporate governance in the company or in the group entities that has not been addressed in the rest of the sections of this report, but is necessary to include to provide more comprehensive and well-grounded information on the corporate governance structure and practices in the entity or its group, give a brief description of them. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 199 2. This section may also include any other relevant information, clarification or detail related to previous sections of the report if they are relevant and not reiterative. In particular, indicate whether the company is subject to corporate governance legislation from a country other than Spain and, if so, include the mandatory information to be provided, if different from that required by this report. 3. The company may also indicate if it has voluntarily signed up to other international, industry-wide or any other codes of ethical principles or best practices. Where applicable, identify the code in question and the date of signing. In particular, indicate whether it has adhered to the Código de Buenas Prácticas Tributarias (Spanish code of best tax practices) of 20 July 2010. The data in this report refers to the financial year ending 31 December 2018, except in those cases when another reference date is specifically stated. As an explanation to section A.3, the percentage of direct voting rights held by non-executive directors through financial instruments corresponds to number of "theoretical shares" accumulated as a result of the remuneration system with deferred delivery of shares approved by resolution of the General Shareholders' Meeting. In application of this resolution and in accordance with the Remuneration Policy for BBVA Directors, the Board of Directors annually allocates a number of "theoretical shares" to each non-executive director, corresponding to 20% of the annual cash remuneration received the previous financial year. These will be delivered, where applicable, on the date on which they leave their positions as directors for reasons other than serious dereliction of their duties. Details of the annual allocation carried out by the Board can be found in Note 54 of the Annual Report on the Bank's consolidated annual financial statements for the 2018 financial year, regarding remuneration and other benefits received by the Board of Directors and members of the Bank's Senior Management. For executive directors, the percentage of direct voting rights through financial instruments corresponds to the number of Annual Variable Remuneration (AVR) shares received for previous financial years, which was deferred and is yet to be paid out as of the date of this report, provided that the conditions for such are met. Thus, this includes the percentage corresponding to the deferred 50% of the 2015 AVR, which will be received in 2019, the deferred 50% of the 2016 AVR, which will be received in 2020, and 60% of the deferred 2017 AVR, which will correspond to 60% delivered in 2021, 20% in 2022 and the remaining 20% in 2023. The final amount is subject to the applicable multi-year indicators, which may reduce the deferred amount, or even forfeit it, but never increase it. The final amount is also subject to the malus and clawback clauses set out in the remuneration policy applicable in each financial year. Further to Section A.9, relating to income from treasury-share trading, Rule 21 of Circular 4/2017 and IAS 32, Paragraph 33, expressly prohibit the recognition, in the profit and loss account, of gains or losses made through transactions carried out with its own capital instruments, including their issuance and redemption. Said profits and losses are directly booked against the company's net equity. In the table of significant variations, the date of entry of CNMV Model IV in the registries of that organism, model corresponding to the communications with treasury shares and the reason for such communication. Further to Section A.12, there are no legal or statutory restrictions on the exercise of voting rights. Thus, in accordance with article 31 of Company Bylaws, each voting share will confer the right to one vote on the holder present or represented at the General Meeting. Moreover, there are no statutory restrictions on the acquisition or transfer of share capital holdings. However, as for the legal restrictions on the acquisition or transfer of shares in the company's share capital, Spanish Act 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions establishes that the direct or indirect acquisition of a significant holding (as defined in article 16 of that Act) is subject to assessment by the Bank of Spain as set out in Articles 16 et seq. of that Act. Additionally, Article 25 of Royal Decree 84/2015, implementing Act 10/2014, establishes that the Bank of Spain shall evaluate proposals for 200 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. acquisitions of significant shares and submit a proposal to the European Central Bank regarding whether to oppose this acquisition or not. This same article establishes the criteria that should be considered during said evaluation and the applicable timelines. Further to Section C.1.5, the periodic analysis process carried out by the Appointments Committee, will also consider the composition of the different Board Committees that assist this Corporate Body in the performance of its duties and which constitute an essential element of BBVA's corporate governance. The Corporate Bodies will also be assessed to ensure they have a suitable and diverse composition, combining individuals who have experience and knowledge of the Group, its businesses and the financial sector in general with others who have training, skills, knowledge and experience in other areas and sectors that enable the right balance to be attained in the composition of Corporate Bodies to improve operation and performance of their duties. This allows the Board of Directors and its Committees to have suitable compositions that are always adapted to their needs, so they can therefore perform their functions effectively. In this sense, both the Board's composition and the rotation process are aligned with the Bank's strategy, which enables the Group to continue taking steps forward in its current digital transformation process. Within the framework of the continuous Board rotation process, the Appointments Committee, in performing its duties, has in recent financial years put in place different selection processes for directors; these are aimed at identifying the most suitable candidates at all times, based on the needs of the Corporate Bodies, which favour diversity in experience, knowledge, skills and gender, as well as a level of independence of the Board. In the last financial year, as part of the ordered rotation process for Corporate Bodies, the selection processes agreed upon by the Appointments Committee led to appointment proposals for three new directors, with the aim of selecting candidates that would (i) supplement the existing knowledge and experience of the Corporate Bodies, particularly in the financial (banking activity, risks, regulation and supervision of the financial sector) and technological fields, and (ii) increase diversity in terms of gender and international experience, while always considering the dedication of time deemed necessary for directors to perform their duties and respect for the rules on limitations and incompatibilities and on conflicts of interest, as established in the Regulations of the Board and applicable regulations. The appointment proposals for three new directors, which were approved at the General Shareholders' Meeting in 2018, directly contributed to achieving the targets established in the Policy, with at least 50% of the total number of directors being independent directors, increasing the proportion of women on the Board, to bring this closer to the target percentage included in the Policy; this also reinforced the knowledge of the Corporate Bodies regarding financial (in particular, relating to banking activity, risks, regulation and supervision of the financial sector) and technological fields, and adding to the international profile of the Corporate Bodies. In addition, the Bank's Corporate Bodies have made very important decisions regarding its executive directors, with a new Group Executive Chairman and a new Chief Executive Officer being appointed by the Board of Directors at the end of the financial year, following the Board's approval of the succession plans for these two positions proposed by the Appointments Committee. In this regard, and in relation to the Succession Plans for both the Group Executive Chairman and the Chief Executive Officer, in compliance with the principles established by the aforementioned Regulations of the Board and the Policy, the Appointments Committee analysed and determined the required profile and established the conditions for performing the role that the candidate must meet with regard to status of the director, expected dedication, knowledge, skills and experience, as well as business and professional reputation and other conditions deemed important by the Committee to ensure continuity of the decision-making process of the Corporate Bodies, in particular continuing to drive the transformation process that the Group is currently undergoing. The Board of Directors therefore has a diverse composition, combining people with extensive financial and banking experience and knowledge with profiles that have experience and knowledge in various areas that are of interest to the Bank and its Group, such as auditing, legal and academic fields, multinational business, digital 201 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. businesses and technology, both nationally and internationally. This enables the Board overall to have a suitable balance in its composition and suitable knowledge of the Bank's and the Group's environment, activities, strategies and risks, helping it to better perform its functions. Moreover, in accordance with the provisions of Article 540 of the Corporate Enterprises Act, which stipulates that a brief description of the diversity policy, with regard to directors and to members of management, must be provided, BBVA employs a selection and appointment policy for members of BBVA’s Senior Management. Said policy is designed to ensure that individuals in Senior Management positions at BBVA have the capacity to properly exercise the responsibilities conferred upon them. Thus, members of BBVA Senior Management must have top-level academic and technical qualifications, professional skills—underpinned by their professional careers to date—applicable to the responsibilities associated with the role to be fulfilled, a recognised honourable professional reputation, and commitment to BBVA's values. Thus, pursuant to the provisions of the Policy on the assessment of internal talent, performance is assessed in terms of the achievement of objectives, potential to assume greater responsibilities in the future, and individuals' professional capabilities and skills. These assessments may be supported by means of review sessions during which members of Senior Management analyse the profiles of certain employees and share their opinions on the achievements and strengths of each individual. Moreover, for the selection of external candidates for Senior Management positions, references and top-level executive search firms are used. The Talent & Culture area ensures that external candidates possess top-level academic and technical qualifications, that their professional careers to date adequately encompass the responsibilities associated with the roles to be fulfilled, that they have recognised professional reputations, and that, during their careers at other organisations, they have demonstrated a high level of alignment with BBVA's values. The candidates identified through the company's external selection process are considered alongside internal candidates, in order to select the individual that best fits the role to be fulfilled. Moreover, in accordance with the BBVA Board Regulations, the duties of the Board of Directors include appointing members of Senior Management, following a report from the Bank's Appointments Committee. Prior to the proposal and appointment of members of Senior Management, the Bank follows a selection process that is governed by the aforementioned principles and criteria, and that comprises the following stages: (i) review and analysis of the duties to be performed in the position, and the profiles of the candidates best suited to assume the position — this process ends with the selection of a final candidate to assume the position; (ii) assessment by the Suitability Committee of the suitability of the proposed candidate, in accordance with the specific procedure established by the Bank in that regard; (iii) presentation, if the candidate is considered suitable, of the proposed appointment to the Appointments Committee in order for the latter to prepare its report to the Board of Directors; and (iv) submission of the proposal to the Board of Directors for approval, with said proposal accompanied by the report of the Appointments Committee. Further to Section C.1.9, the supervision and control Board Committees, with regulatory nature, also have certain duties delegated by the Board of Directors, the most notable of which are as follows:  The duties delegated to the Audit and Compliance Committee include making proposals to the Board as regards the selection, appointment, re-appointment and replacement of the external auditor, in addition to the conditions of their recruitment; reporting, prior to decisions under consideration by the Board, on any matter provided for by Law or in the Bylaws, in particular those relating to financial information that the Company must periodically make public, to the creation or acquisition of shareholdings in special- purpose vehicles or entities domiciled in tax havens, or territories considered to be tax havens, and to operations with related parties; and assess the selection, appointment, separation and, where applicable, reelection initiatives of the head of the internal audit department.  The duties delegated to the Appointments Committee include making proposals to the Board as regards the appointment, re-appointment or removal of independent directors, and reporting on proposals for the appointment, re-appointment or removal of other directors; proposing policies to the Board with regard to the selection and diversity of directors; analysing the suitability of directors; and reporting on proposals for the appointment of the Chairman and Secretary, as well as for the appointment or removal of members of Senior Management. 202 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  The duties delegated to the Remunerations Committee include making proposals to the Board—for them to be subsequently proposed at the General Shareholders' Meeting—regarding the remuneration policy for directors, and presenting the annual report on directors' remuneration to the Board.  The duties delegated to the Risk Committee include analysing risk operations that will subsequently be submitted to the Board or Executive Committee for consideration. In order to complete the information included in Section C.1.13, it is indicated that: The amount indicated under the heading "Remuneration of the Board of Directors accrued during the financial year", corresponds, according to the instructions of this Report, with the amount declared as total remuneration accrued according to table c) "Summary of Remunerations" of the Section C.1. of the Annual Report on the Remuneration of BBVA's directors, which includes: fixed remuneration and remuneration in kind of executive and non-executive directors received in 2018; the Initial Portion (40%) of the Annual Variable Remuneration ("AVR") for the year 2018 of the executive directors, in cash and in monetized shares, which will be received in 2019, if conditions are met; as well as 50% of the deferred AVR for the year 2015, in cash and in shares, including its update, whose delivery corresponds in 2019 if conditions are met. Likewise, the same remuneration concepts are included for the directors who stepped down from their position during 2018. An individual breakdown of these amounts for each director can be found in Note 54 of the Bank’s consolidated Annual Report for the 2018 financial year. At the time of drafting this report, both the Initial Portion (40%) of the AVR for the 2018 financial year and the Deferred Portion of the 2015 deferred AVR have not been paid. In order to calculate the cash value of the shares corresponding to the Initial Portion of 2018 AVR for executive directors has been calculated based on the average closing price of BBVA shares according to the trading sessions that took place between 15 December 2018 and 15 January 2019, inclusive, which in accordance with the Remuneration Policy for BBVA Directors it is used to determine the portion in shares for the 2018 AVR. This price stood at €4.77 per share. Similarly, in order to calculate the cash value of the shares corresponding to the deferred part of 2015 AVR, the reference price used is based on the average closing price of BBVA shares according to the trading sessions that took place between 15 December 2015 and 15 December 2016, both inclusive, which in accordance with the Policy applicable in 2015 it was the criterion that served to determine the part in shares of the AVR 2015. This price stood at €6.63 per share The total amount indicated does not include the remuneration of BBVA Chief Executive Officer (CEO) Onur Genç, who was appointed by resolution of the Board of Directors on 20 December 2018, since no remuneration was accrued due to his condition as CEO or as member of the Board during 2018.Therefore, his remuneration linked to his previous position as Chairman and CEO of BBVA Compass can be found in Note 54 of the Annual Report on the Bank's consolidated Annual Report for the 2018 financial year. With regard to the "Amount of accrued entitlements by current directors in regard to pensions" indicated in Section C.1.13 of this Report, as at 31 December 2018, the Bank had undertaken pension commitments in favour of Carlos Torres Vila and José Manuel González-Páramo Martínez-Murillo to cover contingencies of retirement, disability and death in accordance with the provisions of the Bylaws, the Remuneration Policy for BBVA Directors and the directors' respective employment contracts with the Bank. The main characteristics of the pension systems are detailed in the Remuneration Policy for BBVA Directors and in Note 54 of the Annual Report for the financial year 2018, which includes the amounts of the rights accrued by said directors. The balance of the item "Provisions — Funds for pensions and similar obligations" on the Group's consolidated balance sheet at 31 December 2018 includes EUR 79 million as post-employment provision commitments maintained with former members of the Board of Directors. In order to complete the information included in Section C.1.14, it is indicated that: This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 203 The item "Total remuneration of Senior Management" includes the remuneration of members of Senior Management listed as such as at 20 December 2018 (15 members), comprising: fixed remuneration and remuneration in kind received during the 2018 financial year; the Initial Portion (40%) of the AVR for the year 2018, the portion in cash (50%) and in shares (50%), which will be received in 2019, if conditions are met; as well as 50% of the deferred AVR for the year 2015, in cash (50%) and in monetized shares (50%), including its update, whose delivery corresponds in 2019 if conditions are met. This concepts can be found in Note 54 of the Bank’s consolidated Annual Report for the 2018 financial year. At the time of drafting this Report, both the Initial Portion (40%) of the AVR for the 2018 financial year and the Deferred Part of the 2015 AVR have not been paid. In order to calculate the cash value of the shares corresponding to the deferred part of 2015 AVR, the reference price used is based on the average closing price of BBVA shares according to the trading sessions that took place between 15 December 2015 and 15 January 2016, both inclusive, which in accordance with the Policy applicable in 2015 it was the criterion that served to determine the part in shares of the AVR 2015. This price stood at €6.63 per share. The total amount indicated does not include the remuneration of the 5 members of Senior Management, who were appointed on December 20, 2018 by agreement of the Board since no remuneration was accrued due to the performance of their duties as senior manager during 2018. However, its remuneration associated with its previous positions is reported in Note 54 of the Bank’s consolidated Annual Report for the 2018 financial year. The main characteristics of the forecast systems are: defined contribution systems; the possibility of receiving the retirement pension in advance is not foreseen; and it has been established that 15% of the contributions agreed upon have the status of "discretionary pension benefits", in accordance with the requirements of the applicable regulations. These amounts are detailed in Note 54 of the Bank’s consolidated Annual Report for the financial year 2018. The balance of the item "Provisions - Funds for pensions and similar obligations" in the consolidated balance sheet of the Group as of December 31, 2018 includes EUR 253 million as post-employment provision commitments maintained with former members of Senior Management from the Bank. With regard Section C.1.17, regarding the evaluation process and the evaluated areas carried out by the Board of Directors, the quality and efficiency of operation of the Audit and Compliance, Risk, Appointments, Remunerations, and Technology and Cybersecurity Committees, has been realized based on the reports submitted by their respective Chairmen:  The Audit and Compliance Committee periodically submitted reports to the Board on a quarterly basis. These reports contained information on the Committee's various activities, including is role of overseeing the preparation of financial statements and the application of accounting criteria, of the sufficient, the adequate and effective operation of internal control systems in the preparation of financial data, or the planning, progression and depth of external auditor tasks. The evaluation was concluded at the Board of Directors' meeting held on 11 February 2019, in which the Chairman of the Committee presented the main activities undertaken throughout the financial year.  Moreover, during its meeting on 20 December 2018, the Board of Directors received the report by the Chairman of the Risk Committee on its activities throughout the 2018 financial year, reporting on the tasks executed by the Committee in its ongoing monitoring and oversight of changes in the risks faced by the Group and the extent to which consistency is maintained with certain strategies and policies.  Likewise, at its meeting held on 31 January 2019, the Committee received the report by the Chairman of the Appointments Committee on the activities undertaken by the Committee throughout the 2018 financial year in terms of its assigned duties, including its tasks relating to the appointment and re-appointment of directors, evaluation of the Board of Directors, or to the 204 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. succession plans for the Group Executive Chairman and the Chief Executive Officer, among other matters.  Furthermore, at its meeting held on 31 January 2019, the Board received the report by the Chair of the Remunerations Committee on the activities undertaken by the Committee throughout the 2018 financial year, reporting, among other matters, on the tasks performed by the Committee relating to the preparation and implementation of the proposed resolutions submitted to the Board regarding remuneration matters, particularly those relating to the remuneration of executive directors and Senior Management, as well as other tasks that were undertaken with regard to remuneration policies for directors, identified staff and the BBVA Group.  Lastly, at its meeting held on 28 November 2018, the Board received the report by the Chairman of the Technology and Cybersecurity Committee on its activity for the 2018 financial year in terms of the various areas within its remit, such as the technology and cybersecurity strategy, the plans, policies and management of cybersecurity, or the monitoring and control of technological risks, among other matters. All of the above has been reflected in the Reports for evaluation by the Board of Directors and the Executive Committee of Banco Bilbao Vizcaya Argentaria, S.A. for the 2018 financial year, prepared by the Appointments Committee and submitted to the Board of Directors for its consideration, where, in addition to that stipulated in preceding paragraphs, the composition of the Board and its Committees, the Bank's Corporate Governance System, the operation of the Corporate Bodies, the activity of the Board of Directors over the 2018 financial year, and the structure and organisation of the Committees, are taken into consideration. With regard to Section C.1.27, as BBVA shares are listed on the New York Stock Exchange, it is subject to the supervision of the Securities & Exchange Commission (SEC) and, thus, to compliance with the Sarbanes Oxley Act and its implementing regulations, and for this reason each year the Group Executive Chairman, the Chief Executive Officer and the executive tasked with preparing the Accounts sign and submit the certifications described in sections 302 and 906 of this Act, related to the content of the Annual Financial Statements. These certificates are contained in the annual registration statement (Form 20-F) which the Company files with this authority for the official record. Further to Section C.2.1, we provide brief indications regarding what the regulations establish about the composition of each of the Board Committees:  Executive Committee: Article 26 of the Regulations of the Board establishes that the Board of Directors may, in accordance with the Bylaws and with the favourable vote of two-thirds of its members, appoint an Executive Committee, ensuring that there is a majority of non-executive directors over executive directors. The Executive Committee will be chaired by the Chairman of the Board of Directors, or when this is not possible, by the person designated in the Bylaws. The Secretary of the Board of Directors will hold the same position on the Committee. If absent, the meeting attendees will appoint a person to assume this role.  Audit and Compliance Committee: Article 29 of the Regulations of the Board establishes that the Audit and Compliance Committee will exclusively comprise independent directors and will be tasked with assisting the Board of Directors in supervising the financial information and the activity of the Group's control function. When appointing members of the Audit and Compliance Committee, and particularly its Chair, their knowledge and background in accounting, auditing and risk management will be taken into account. It will be made up of four members appointed by the Board, one of whom will be appointed taking into account his/her knowledge of accounting, auditing or both. The Board will also appoint the Chair of this Committee, who must be replaced every four years and may be re-elected one year after the end of his/her term of office. When the Chair cannot be present, his/her duties will be performed by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Committee will appoint a Secretary who may or may not be a member of the Committee. 205 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail.  Appointments Committee: Article 32 of the Regulations of the Board establishes that the Appointments Committee will comprise a minimum of three members who will be appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non-executive directors, with its Chair and a majority of members being independent directors. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest.  Remunerations Committee: Article 35 of the Regulations of the Board establishes that the Remunerations Committee will comprise a minimum of three members who will be appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non- executive directors, with its Chair and a majority of members being independent directors. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest.  Risk Committee: Article 38 of the Regulations of the Board establishes that the Risk Committee will comprise a minimum of three members who will be appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non-executive directors and at least one third, and in any event the Chair, must be independent. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest.  Technology and Cybersecurity Committee: The Technology and Cybersecurity Committee Regulations establish that it will comprise a minimum of three members who will be Board members, appointed by the Board of Directors, which will also appoint its Chair. For these purposes, the Board of Directors will consider their knowledge and experience in technology, information systems and cybersecurity. When the Chair cannot be present, meetings will be chaired by the longest-serving director on the Committee, and, where multiple directors have equal length of service, by the eldest. Moreover, as a continuation of the most significant actions of the Board Committees and its organizational and operational rules included in Section C.2.1  Audit and Compliance Committee: in terms of the most significant actions carried out by the Committee during the 2018 financial year, it analysed and oversaw the process of preparing and reporting Bank and consolidated Group financial information from the annual, half-yearly and quarterly reports, in order to determine its accuracy, reliability, adequacy and clarity, prior to its submission to the Board. To this end, it focused particularly on the accounting policies and criteria used, and on any changes that may have been made to them (for example, those resulting from the entry into force of IFRS 9), as well as from accounting regulations and changes to the Group's scope of consolidation. In particular, prior to their approval by the Board, the Committee oversaw the preparation of the individual and consolidated annual financial statements for the financial year, the half-yearly and quarterly financial statements, as well as other relevant financial information, including the CNMV (Comisión Nacional del Mercado de Valores — Spanish National Securities Market Commission) Registration Document, US SEC Form 20-F, and the Prudential Relevance Report. In addition, within the financial information monitoring process, the Committee monitored the adequacy, appropriateness and effective operation of the internal control systems used in the preparation of financial information, including the tax systems, along with both internal reports and those of the external auditor on the effectiveness of the internal financial control. With regards to activities related to the external auditor, the Committee has maintained appropriate relationships with the heads of the external auditor, during each of the monthly meetings it has held, in order to ascertain the planning, stage and progress of the work in connection with the audit of the Bank and Group annual financial statements, of the interim financial statements, and of other financial 206 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. information subject to review during the account auditing. It has also received and analysed the opinion reports and communications required by account auditing legislation, from the auditor, among which the following are of note: the work carried out on the Group's financial information, the external auditor's additional report for the Audit and Compliance Committee, and the confirmations of its independence with regards to the Bank. Similarly, in relation to the independence of the external auditor, the Committee has ensured that internal procedures are implemented to safeguard against situations that may give rise to independence conflicts. It has also opposed declarations made by the external auditor concerning confirmation of its independence with regard to BBVA and its Group, and issued the corresponding reports in accordance with applicable legislation. With regards to Internal Audit tasks, the Committee approved the Internal Audit Annual Work Plan for the financial year, overseeing the organisational measures set out in the Area for the performance of its functions; provided ongoing monitoring and supervised the Area's activities and reports, ascertained the results of its most relevant work, identified any weaknesses and opportunities for improvement; and considered the recommendations proposed by the Internal Audit as a result of its review work. The Committee also resolved to carry out an external evaluation of the Internal Audit function, overseeing the conclusions of the work carried out by the external consultant in order to identify opportunities for improvement and best practices in the field. With regards to the Compliance Area, the Committee has repeatedly reviewed the Area's activities over the course of the financial year, overseeing the results of its examinations and the degree of progress in the implementation of planned measures, proposals for the approval and review of policies related to compliance, data protection or anti-corruption, monitoring of issues concerning MiFID regulations, and any other issues which may have arisen in this area of the Group's activities. Moreover, the Committee approved the Compliance Area activities’ Annual Plan, carrying out a repeated review of its degree of progress and achievement. The Committee also reviewed the changes to the structure of the Group companies, provided ongoing monitoring of the main issues relating to the Group's legal and tax risks, and supervised the Group's tax management along with the results of the inspection processes carried out on the matter. Similarly, the Committee was made aware of the major communications and inspections carried out by the Group's main supervisors, both domestic and foreign, in relation to matters within their remit. Lastly, during the Bank's General Shareholders' Meeting held in 2018, the Committee informed shareholders of the main issues related to the matters within its remit, including overseeing the process of preparing Bank and Group financial information, which had been provided to shareholders for their approval, the result of the account auditing and of the function that it had carried out in this matter, as well as the main issues related to the matters described in this section and other issues that were handled.  Appointments Committee: with respect to the Appointments Committee's most significant actions during the 2018 financial year, in performing the duties assigned to it, the following were particularly noteworthy: the Committee's continuous analysis of the structure, size and composition of the Board of Directors, ensuring that they are suitable for the Corporate Bodies to best perform their duties; the analysis of the directors' compliance with the independence and suitability criteria and the absence of any conflicts of interest for the performance of their duties; the review performed on the Board's selection, appointment, rotation and diversity policy, which, together with the analysis of structure, size and composition, led to corresponding proposals for the re-appointment, ratification and appointment of directors to be submitted to the Company's next General Shareholders' Meeting. It also conducted an assessment of how the Board, the Executive Committee and the different roles of the Board operate, counting in this exercise, within the framework of the self-evaluation process, with the help of an external expert of international prestige. 207 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. The Committee considered it advisable to perform succession planning for the Group Executive Chairman of the Bank. As a result, the Committee launched the succession plan for the Group Executive Chairman, analysing the Bank's Corporate Governance System, and also analysed the required profile of the candidate for Chairman. Following this, the Committee selected Carlos Torres Vila as the most suitable candidate for the role, and agreed to submit a favourable opinion to the Board of Directors regarding its approval of the succession plan and appointment of Carlos Torres Vila as successor to the former Group Executive Chairman when he resigns from his post. Also, given that the CEO of the Bank was selected to succeed the Chairman of the Board, the Committee considered a successor for the CEO role in preparation for the current CEO becoming Group Executive Chairman, in order for this succession to be carried out in an orderly manner. In connection with this, the Committee drafted and adopted the skills profile needed for the position, which would serve as the basis for analysing the candidates, after which the Committee selected Onur Genç as the most suitable candidate for the position of Chief Executive Officer. As a result of this, the Committee agreed to submit a favourable opinion to the Board of Directors regarding its approval of the succession plan for the Chief Executive Officer and the appointment of Onur Genç to this role. The Committee also analysed the proposed appointments and removals of senior managers as a result of the new organisational structure, in accordance with the provisions established at the selection and appointment Policy of senior managers. The Committee reviewed and verified the suitability of the proposed new senior managers, as reflected in its reports submitted to the Board.  Remunerations Committee: in regards to the most important activities carried out by the Remunerations Committee during the 2018 financial year, the Chair of the Remunerations Committee has submitted a report on these to the Board, giving an account of Committee projects related to the functions attributed to it by the Regulations of the Board, as well as the development of the framework established in the Remuneration Policy for BBVA Directors and the Remuneration Policy for the BBVA Group, which includes the Remuneration Policy for the Identified Staff. Firstly, in implementation of the remuneration policies adopted, the Committee has analysed the following matters and, where appropriate, submitted the corresponding proposals to the Board: With regard to non-executive directors, the Committee has analysed the remunerations established for performance of the role of director and for membership to the various Committees, and proposed to the Board that the amounts agreed by this body in previous sessions—which have not been updated since 2007—not be updated in 2018. With regard to executives directors, the Committee has submitted to the Board the necessary proposals for: settling and paying the Annual Variable Remuneration for 2017; updating the deferred last third of the variable remuneration for the 2014 financial year, which was paid in the first quarter of 2018; reviewing the remuneration conditions (target fixed and variable) of the executive directors for the 2018 financial year, proposing to the Board that the amounts not be updated; scales of achievement of the multi-year performance indicators regarding the Annual Variable Remuneration for the 2017 financial year, as well as the related peer group and Total Shareholder Return (TSR) indicator; determining the annual and multi-year indicators for calculating the Annual Variable Remuneration for 208 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. the 2018 financial year and their corresponding weightings; the targets and scales of achievement for calculating the 2018 Annual Variable Remuneration; and the minimum thresholds for Attributable Profit and Capital Ratio set for the generation of variable remuneration. With regard to those matters relating to the policy applicable to Senior Management, the Committee has revised the basic contractual conditions and received information on their annual performance indicators for the 2018 financial year and on the settlement of the Annual Variable Remuneration for the 2017 financial year for each member of Senior Management. In terms of matters relating to the remunerations policy applicable to the Identified Staff, including Senior Management, the Committee has determined that the multi-year performance indicators used to calculate the Annual Variable Remuneration for the 2018 financial year, and their achievement scales used to calculate the deferred Annual Variable Remuneration for the 2017 financial year, should be the same as those established for executive directors. As regards its function of ensuring compliance with the remuneration policy established by the Bank, the Committee has reviewed the implementation of such by the Group over the course of the 2017 financial year, including the Remuneration Policy for the Identified Staff and the procedure for identifying said group, and has also received information on the result of the process for identifying the Identified Staff within the BBVA Group during the 2018 financial year. Finally, among its other functions, the Committee has submitted the Annual Report on the Remuneration of Directors to the Board for its approval and subsequent submission to the General Shareholders' Meeting for a vote, and it has also proposed to the Board a resolution to increase the maximum variable remuneration level of up to 200% of the fixed component applicable to a specific number of members of the Identified Staff. Detailed information on the activities of the Remunerations Committee is available on the Company's website (www.bbva.com).  Risk Committee: as a continuation of what is indicated in section C.2.1, the rest of the functions of the Risk Committee are detailed, as well as the main activities carried out in 2018 for each one of them and their organization and operation regime: o To analyse the internal control and information systems and guarantee the adequate functioning of the risk management and control model and the suitability of the risk management structure and functionality throughout the Group, as well as the availability of sufficient information for adequate decision making and for detailed knowledge of risk exposure. The Committee confirmed that the Group's risk management and control model is adequate and that the Group has a structured Risk Area both at corporate level and in each geographical area and/or business area, adding that it functions correctly and that it provides the Committee with the information required to understand the Group's risk exposure at any time, which enables the Committee to fulfil its monitoring, supervision and control functions. o To conduct a preliminary analysis of risk operations that must be submitted for the consideration of the Board of Directors or the Executive Committee. The Risk Committee previously analysed the credit risk proposals that, due to the nature of the requestor (members of the BBVA Board of Directors or Senior Management), had been submitted to the Board of Directors for consideration. o To ensure that the pricing policy for the assets and liabilities offered to customers fully takes into account the Bank's business model and risk strategy and, if this is not the case, present a plan to the Board of Directors aimed at rectifying the situation. 209 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. In 2018, the Committee received recurring information on the evolution of metrics and analysis in terms of profitability and capital, which evaluate the resulting pricing alignment in financing and credit activity against the risk strategy and risk transfer in the Group. Additionally, the Committee monitored the profitability of portfolios and businesses and the performance of the profitability indicators incorporated into the Risk Appetite Framework. All of this enabled the Committee to confirm that the prices of the assets and liabilities offered to customers were aligned with the Bank's business model and risk strategy. o To participate in the process of establishing the remunerations policy, checking 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. The Committee checked that the variable remuneration proposed in line with the Group's Remuneration Policy 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 Group. o To check that the Company and the Group have means, systems, structures, organisation and resources that are consistent with best practices and enable them to implement their risk management strategy, ensuring that the Bank's management mechanisms are adequate in relation thereto. The Committee was informed of the Risk Area's structure, resources and incentive scheme as well as its means, systems and tools (including those in development stage), having verified that the Group has adequate resources for its strategy. o To analyse and assess the system for valuing assets and classifying and estimating the risks faced by the bank, as well as the use of external credit ratings. The Committee receives regular information about the asset valuation and risk classification systems from both the model development and validation perspectives. This information is accompanied by a recurring report of the status of the different tools and projects developed at corporate level and for each geographical area and/or business area, as well as their existing levels of classification. In addition, with regard to the asset valuation system, the Committee receives information about the cost of risk and the hedging cost, as well as the trends of the portfolios of risk in market activities. o To drive the development of the risk management process within the Group using an advanced model to achieve a risk profile that is in line with the established strategy. To that end, the Risk Committee will monitor the requirements and recommendations of the risk supervisors and regulators, as well as the implementation thereof in the Group's risk management and control model. The Committee received one-off information about issues relating to the risk models and to the supervisory activity performed as part of the process for reviewing the Group's internal models and the Internal Validation area. o Any other duties that have been assigned to it by decision of the Board or on the basis of applicable law. During the 2018 financial year, the Risk Committee reviewed the Internal Capital Adequacy Assessment Process (ICAAP) and Internal Liquidity Adequacy Assessment Process (ILAAP) Reports to monitor the drafting of the stress scenarios and confirm that they were aligned with the Risk Appetite Framework. To do so, the Committee received the help of the Risk and This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 210 Finance Areas among others, which enabled it to ensure that they accurately reflected the Group's situation in the analysed fields. In addition, the Risk Committee participated in the review of the Group's Recuperation Plan with the aim of evaluating its alignment with the Risk Appetite Framework, again with the help of the Risk and Finance Areas, among others. This was all done prior to being considered and, where applicable, approved by the Executive Committee and the Board of Directors. The previous functions are carried out by the Risk Committee within the context of a culture that maintains the consistency of the Group's General Risk Control and Management Model and ensures the implementation thereof at all levels of the organisation. During the 2018 financial year, the Committee verified the progress and effectiveness of the various actions drawn up by the Risk Area to strengthen the risk culture in the Group, to enable employees to perform their functions in a secure environment, and to encourage the mitigation of risks to which their activities are exposed. Finally, with regard to the Risk Committee's organisational and operational rules and procedures, and in accordance with the provisions of the Regulations of the Board of Directors and of its own Regulations, this Committee meets as often as necessary to fulfil its duties, establishing a meeting schedule in accordance with the tasks to be carried out. The Committee regularly receives help at its sessions from the Group's Head of Global Risk Management, those in charge of each type of risk in the corporate field and the risk directors of the Group's main entities, as well as the help of those people who, within the Group's organisation, carry out tasks related to the Committee's functions. It also conducts both internal and external assessments that it considers necessary to form opinions within its remit.  Technology and Cybersecurity Committee: with regard to the rules and procedures on the organisation and operation of the Technology and Cybersecurity Committee, this Committee meets as often as necessary to fulfil its duties, and is convened by its Chairman. The Committee may request that persons with tasks within the Group organisation that are related to the Committee's duties attend its meetings. In particular, the Committee maintains direct and ongoing contact with the executives responsible for the Group's Engineering and Cybersecurity areas, from which it receives the information required to perform its duties, which is analysed during the Committee's sessions. The Committee can also conduct external assessments deemed necessary to form opinions on matters within its remit. With respect to Section D (Related-party and Intragroup Transactions), see Note 53 of the BBVA Consolidated Annual Financial Statements for the 2018 financial year. Section D.4 details the transactions conducted by Banco Bilbao Vizcaya Argentaria, S.A. at the close of the financial year, with the company issuing securities on international markets, carried out as part of ordinary trading related to the management of outstanding issuances, guaranteed by BBVA. Moreover, with respect to Section D.4, please refer to the section entitled "Offshore financial centres" in the BBVA Consolidated Management Report for the 2018 financial year. Likewise, in relation to Section D.7, BBVA holds significant holdings in three listed companies, which are not considered as subsidiaries and are not part of the BBVA Group. Additionally, as part of its ordinary operations, BBVA holds stakes in other listed companies, the participation in them is insignificant and these companies cannot be considered as subsidiaries belonging to the BBVA Group. This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 211 As a complement to the provisions of Section E.1, the information related to the Infrastructure of the General Risk Control and Management Model is detailed below: the Group has the human and technological resources needed to effectively manage and monitor risks in order to carry out the functions set out in the Group's risk Model and achieve its goals. With respect to human resources, the Group's risk function has an adequate workforce in terms of number, skills, knowledge and experience. With respect to technology, the Group's risk function assures the integrity of the measurement techniques, management information systems and the provision of the infrastructure required to support risk management, using the tools appropriate to the needs derived from the different types of risks in their admission, management, valuation and monitoring. Likewise, the Group promotes the development of a risk culture that ensures consistent application of the Risk Control and Management model in the Group, and that guarantees that the risk function is understood and internalised at all levels of the organisation. Regarding taxation, BBVA has defined a tax-risk management policy based on a suitable control environment, a system for identifying risks and a monitoring process including continuous improvement of the effectiveness of the established controls. This management model was evaluated and approved by an independent expert. As a complement to the information indicated in Section E.3, the information related to business, operational and legal risks is detailed below:  New technologies and means of customer interaction: The development of the digital world and information technologies poses major challenges for financial institutions, and brings threats (new competitors, disintermediation etc.) but also opportunities (new customer-relations frameworks, greater ability to adapt to customers' needs, and new products and distribution channels etc.). In this regard, digital transformation is one of the priorities for the Group, which aims to lead the digital banking of the future.  Technology risks and security breaches: Financial institutions are exposed to new threats such as cyber-attacks, internal and customer database theft, payment system fraud, etc. that require major investments in security from both a technological and a human stand point. The Group attaches a great deal of importance to active management and control of operational and technological risk. One example is the early adoption of advanced models for managing these risks (AMA — Advanced Measurement Approach).  Litigation is becoming increasingly common in the financial sector, with institutions facing a large number of proceedings of all kinds—civil, criminal, administrative, judicial—as well as supervisory investigations, in many jurisdictions, the outcome of which is difficult to predict (including proceedings involving an indeterminate number of claimants, those for which damages claimed are difficult to estimate, those in which claims are made for exaggerated amounts, those involving unprecedented legal issues as a result of anecdotal and creative legal arguments, and those that are at a very early stage). Many current proceedings in Spain involve plaintiffs demanding, both in Spanish courts and through preliminary rulings at the Court of Justice of the European Union, that certain clauses commonly appearing in mortgage loan agreements with financial institutions be declared as unfair (clauses relating to mortgage expenses or early maturity, the use of certain benchmark interest rates, starting fees etc.). The resolutions from these types of proceedings brought against other banking institutions may affect the Group indirectly. The Group is involved in investigations by competition authorities in several countries which may result in sanctions and claims for damages by third parties. As explained in the Other Non-Financial Risks section of the Non-Financial Information State in the management report, the Group could be similarly immersed in investigations by the judicial authorities without, up to now, receiving any formal notification to that effect, in relation to the contracting of allegedly irregular activities that, if confirmed, could have a negative reputational impact for the Bank. The Bank is conducting an internal This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. 212 investigation, and it is not possible to predict at this time the scope or duration of such investigations or their possible outcome or implications for the Group. The Group manages and continuously monitors such proceedings in defence of its interests, and makes the necessary provisions to cover itself based on the amount of disputes and judicial pronouncements, and the stage that proceedings are at. However, is difficult to predict the outcome of the aforementioned actions and proceedings—both those that the Bank is currently involved in and those that may arise in the future—and of rulings involving other banking institutions. As such, in the event that jurisprudential criteria are amended or disputes have unexpected outcomes, the provisions in place may be rendered insufficient. The main risks derived from the corruption and bribery offenses are specified in the Compliance System section, section other behavioral standards of the Ethical Behavior Chapter of the Non-Financial Information State of the Management Report. As to adherence to codes of ethics or good practice, it is to be noted that during the 2011 financial year the BBVA Board of Directors approved the Bank's adhesion to the Code of Good Tax Practices approved by Large Corporations Forum according to the wording proposed by the Spanish Tax Agency (AEAT). During this financial year, it has been compliant with the contents of this Code. Moreover, BBVA is committed to applying the provisions of the Universal Declaration of Human Rights, the Principles of United Nations Global Compact (to which BBVA has formally adhered), the Equator Principles (to which BBVA has formally adhered since 2004), the United Nations Principles for Responsible Investment, the Green Bond Principles, the Green Loan Principles, those of the RE100, Science Based Targets and Grupo Español para el Crecimiento Verde (Spanish Green Growth Group) initiatives, and those of other conventions and treaties of international organisations such as the Organization for Economic Co-operation and Development and the International Labour Organization. In addition, BBVA is a member of the United Nations Environment Programme — Finance Initiative and the Thun Group of Banks on Human Rights, and follows the United Nations Principles for Responsible Banking. Moreover, BBVA is firmly committed to the United Nations Sustainable Development Goals and the Paris Agreement on Climate Change, and, since 2017, the Bank has been part of the pilot group of banks committed to implementing the recommendations regarding financing and climate change published in July by the Financial Stability Board of the G20. This annual corporate governance report was approved by the company's Board of Directors on 11 February 2019. List whether any directors voted against or abstained from voting on the approval of this report. NO 213 This English version is a translation of the original in Spanish for information purposes only. In case of a discrepancy, the Spanish original will prevail. KPMG Asesores, S.L. Pº de la Castellana, 259 C 28046 Madrid Independent Assurance Report on the Non-Financial Information Statement of Banco Bilbao Vizcaya Argentaria, S.A. and its subsidiaries for the year ended 31 December 2018 (Free translation from the original in Spanish. In case of discrepancy, the Spanish language version prevails.) To the Shareholders of Banco Bilbao Vizcaya Argentaria, S.A.: Pursuant to article 49 of the Spanish Code of Commerce, we have provided limited assurance on the Non-Financial Information Statement (hereinafter NFIS) for the year ended 31 December 2018, of Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter the “Bank”) and its subsidiaries (hereinafter the “Group”) which forms part of the Group's 2018 consolidated Directors’ Report. The contents of the consolidated Directors’ Report includes additional information to that required by prevailing mercantile legislation on non-financial information which it is not possible to provide assurance. In this regard, our assurance work was limited only to providing assurance on the information contained in table “GRI Indicators” of the accompanying NFIS. The Bank’s Directors’ responsibilities ______________________________________ The Bank’s Board of Directors is responsible for the preparation and presentation of the NFIS included in the Group’s Consolidated Directors’ Report. The NFIS has been prepared in accordance with prevailing mercantile legislation and selected Sustainability Reporting Standards of the Global Reporting Initiative (GRI Standards), in accordance with that mentioned for each subject area in table “GRI Indicators” of said Consolidated Directors’ Report. This responsibility also encompasses the design, implementation and maintenance of internal control deemed necessary to ensure that the NFIS is free from material misstatement, whether due to fraud or error. The Bank’s directors are also responsible for defining, implementing, adapting and maintaining the management systems from which the information necessary for preparing the NFIS was obtained. Our independence and quality control _____________________________________ We have complied with the independence and other ethical requirements of the Code of Ethics for Professional Accountants issued by the International Ethics Standards Board for Accountants (IESBA), which is founded on fundamental principles of integrity, objectivity, professional competence and due care, confidentiality and professional behaviour. KPMG Asesores S.L., sociedad española de responsabilidad limitada y firma miembro de la red KPMG de firmas independientes afiliadas a KPMG International Cooperative (“KPMG International”), sociedad suiza. Paseo de la Castellana, 259C – Torre de Cristal – 28046 Madrid Reg. Mer Madrid, T. 14.972, F. 53, Sec. 8 , H. M -249.480, Inscrip. 1.ª N.I.F. B-82498650 2 Our firm applies International Standard on Quality Control 1 (ISQC1) and accordingly maintains a comprehensive system of quality control including documented policies and procedures regarding compliance with ethical requirements, professional standards and applicable legal and regulatory requirements. The engagement team was comprised of professionals specialised in reviews of non-financial information and, specifically, in information on economic, social and environmental performance. Our responsibility ________________________________________________________ Our responsibility is to express our conclusions in an independent limited assurance report based on the work performed that refers exclusively to the year 2018. The data for previous years were not subject to the assurance foreseen in the mercantile legislation in force. We conducted our review engagement in accordance with International Standard on Assurance Engagements, “Assurance Engagements other than Audits or Reviews of Historical Financial Information” (ISAE 3000), issued by the International Auditing and Assurance Standards Board (IAASB) of the International Federation of Accountants (IFAC). The procedures performed in a limited assurance engagement vary in nature and timing from, and are less in extent than for, a reasonable assurance engagement, and consequently, the level of assurance provided is also lower. Our work consisted of making inquiries of management, as well as of the different units and responsible areas of the Group that participated in the preparation of the NFIS, in the review of the processes for compiling and validating the information presented in the NFIS and in the application of certain analytical procedures and sample review testing described below: – Meetings with the Group’s personnel to gain an understanding of the business model, policies and management approaches applied, the principal risks related to these questions and to obtain the information necessary for the external review. – Analysis of the scope, relevance and completeness of the content of the NFIS based on the materiality analysis performed by the Group and considering the content required in prevailing mercantile legislation. – Analysis of the processes for compiling and validating the data presented in the Non-Financial Information Statement for 2018. – Review of the information relative to the risks, policies and management approaches applied in relation to the material aspects presented in the NFIS. – Corroboration, through sample testing, of the information relative to the content of the NFIS for 2018 and whether it has been adequately compiled based on data provided by internal and external information sources or third party reports. – Procurement of a representation letter from the Bank’s Directors and management. 3 Conclusion _______________________________________________________________ Based on the assurance procedures performed and the evidence obtained, nothing has come to our attention that causes us to believe that the NFIS of Banco Bilbao Vizcaya Argentaria, S.A. and its subsidiaries for the year ended 31 December 2018 has not been prepared, in all material respects, in accordance with prevailing mercantile legislation and the content of the selected GRI Standards, in accordance with that mentioned for each subject area in the table “GRI Indicators” included in the Consolidated Directors’ Report. Use and distribution ______________________________________________________ This report has been prepared in response to the requirement established in prevailing mercantile legislation in Spain, and thus may not be suitable for other purposes and jurisdictions. KPMG Asesores, S.L. (Signed) Ramón Pueyo Viñuales 12 February 2019 

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