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
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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
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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”.
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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.
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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.
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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.
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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).
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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
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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).
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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.
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“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).
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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
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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.
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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).
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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.
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To determine whether there is a significant increase in credit risk that is not reflected in the published ratings,
the Group 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.
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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
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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
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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.
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Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed
periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider
whether a provision is required for them. The credit risk is determined by application of criteria similar to
those established for quantifying impairment 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
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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%
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At each reporting date, the Group entities analyze whether there are internal or external indicators that a
tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this
impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (as 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.
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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.
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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
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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.
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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.
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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
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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).
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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.
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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.
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Conversion of the foreign currency to the entity’s functional currency
Transactions denominated in foreign currencies carried out by the consolidated entities (or entities
accounted for using the equity method) are
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.
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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
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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.
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The assets leased out under operating lease contracts to other entities in the Group are treated in the
Consolidated Financial Statements as for own use, and thus rental expense and income is eliminated in
consolidation and the corresponding depreciation is recognized.
2.2.20 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:
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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).
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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
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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.
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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.
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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.
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Amended IAS 1 and IAS 8 – Definition of material
The amendments clarify the definition of material in the elaboration of the financial statements by aligning
the definition of the conceptual framework, IAS 1 and IAS 8 (which, before the amendments, included similar
but not identical definitions). The new definition of material is the following: “Information is material if
omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary
users of general purpose financial statements make on the basis of those financial statements, which provide
financial information about a specific reporting entity”.
The amendments will be applied to the accounting periods beginning on or after January 1, 2020, although
early application is permitted.
2.4 Transition to IFRS 9 and condensed consolidated opening balance
sheet as of January 1, 2018
2.4.1 Transition to IFRS 9
As mentioned in the Notes 1.3, 2.2.1 and 2.3, IFRS 9 replaced IAS 39 for financial 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.
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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
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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.
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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.
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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.
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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.
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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
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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.
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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).
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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).
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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
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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
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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
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5. Earnings per share
Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For
more information see Glossary of terms.
The calculation of earnings per share is as follows:
Basic and Diluted Earnings per Share
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
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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).
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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.
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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
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7.1 General risk management and control model
The BBVA Group has an overall risk management and control model (hereinafter 'the model') tailored to its
business model, its organization and the geographies in which it operates, This model allows BBVA Group to
develop its activity in accordance with the risk strategy and risk controls and management policies defined
by the governing bodies of the Bank and to adapt to a changing economic and regulatory environment,
tackling risk management globally and adapted to the circumstances at all times. The model establishes a
system of appropriate risk management regarding risk profile and strategy of the Group.
This model is applied comprehensively in the Group and consists of the basic elements listed below:
Governance and organization.
Risk Appetite Framework.
Decisions and processes.
Assessment, monitoring and reporting.
Infrastructure.
The Group promotes the development of a risk culture 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.
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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.
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• 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.
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Risk Models Management Committee: It ensures an appropriate decision-making process regarding
the planning, development, implementation, use, validation and monitoring of the models required
to achieve an appropriate management of the Model Risk in the BBVA Group.
Global Markets Risk Unit Global Committee: It is responsible for formalizing, supervising and
communicating the monitoring of trading desk risk in all the Global Markets business units, as well as
coordinating and approving GMRU key decisions activity, and developing and proposing to GRMC
the corporate regulation of the unit.
Operational Risk and Product Governance Corporate Admission Committee: It identifies, analyzes
and assesses the operational risks associated initiatives related with new business, products or
services, outsourcing, process transformation and new systems, prior to its launch. As well, it will
verify that Product Governance normative requirements are met and will decide about the insurance
scheme (global policies).
Retail Credit Risk Committee: It 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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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
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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:
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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
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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
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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
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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.).
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• 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
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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.
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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):
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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Level 3: Valuation of financial
instruments with valuation techniques that use significant
unobservable inputs in the market. As of December 31, 2018, 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.
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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
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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:
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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
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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.
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Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with 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
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Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with 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-
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Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with 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.
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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.
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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)
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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%
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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
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Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with 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).
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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.
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Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with 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.
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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
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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.
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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:
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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
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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
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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”.
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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.
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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).
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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.
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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.
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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:
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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:
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• 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
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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.
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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
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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:
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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.
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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.
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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
-
-
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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
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(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
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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
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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).
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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.
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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
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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.
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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.
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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.
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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.
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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:
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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:
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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
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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
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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,
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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.
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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
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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
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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.
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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
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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.
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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.
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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.
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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.
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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.
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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
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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:
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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.
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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.
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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.
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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
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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
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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.
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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.
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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
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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.
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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
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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