Results (pages 4-9)

 

•

Sustained general growth in more recurring revenue items in practically all geographic areas.

 

•

Operating expenses remain under control, leading to an improvement in the efficiency ratio in comparison with January- September of the previous year.

 

•

Impairment losses on financial assets down on the same period of 2016. Inclusion in the third quarter of provisions in the United States stemming from the estimated negative impact of recent natural disasters.

 

•

As a result, the accumulated net attributable profit is €3,449m, up 23.3% year-on-year.

Balance sheet and business activity (pages 10-11)

 

•

Loans and advances to customers (gross) continue to increase in emerging economies but decline in Spain and the United States, albeit with some signs of recovery in the latter.

 

•

Non-performing loans continue to improve in practically all areas, particularly in Spain.

 

•

Deposits from customers have performed well in all geographical areas, fueled by an increase in more liquid and lower-cost items.

 

•

In off-balance-sheet-customer funds, the trend in mutual funds continues to be positive.

Solvency (page 12-13)

 

•

The capital position is above regulatory requirements and the 11% target, with a fully-loaded CET1 ratio of 11.2% as of 30-Sep-2017. This is an increase of around 30 basis points since the end of 2016, primarily due to a reduction in risk-weighted assets (RWAs) and organic generation of earnings.

Risk management (pages 14-16)

 

•

Positive trend once again in the main credit risk metrics: as of 30-Sep-2017, the NPL ratio closed at 4.5%, the coverage ratio at 72% and the cumulative cost of risk at 0.93%.

Other matters of interest

 

•

Successful first issuance of €1,500m of senior non-preferred debt.

 

•

A cash dividend was paid to shareholders on October 10, 2017 against earnings for the 2017 financial year for a gross amount of €0.09 per share.

Transformation

 

•

BBVA’s global mobile customer base exceeds 15 million, up over 40% year-on-year. Customer smartphone interactions with the Bank are increasing significantly, in line with an expanding number of available services.

Net attributable profit (Million euros)

 

Net attributable profit breakdown ⁽¹⁾ (Percentage. January-September 2017)

 

 

(1)	Excludes the Corporate Center.

(2)	Includes the areas Banking activity in Spain and Non Core Real Estate.

 

Capital

and leverage ratios (Percentage as of 30-09-2017)

 

NPL an NPL coverage ratios (Percentage)

 

Digital and mobile costumers (Millions)

 

 

BBVA generated a net attributable profit of €3,449m in the first nine months of 2017, a year-on-year increase of 23.3%.

Once again, the key highlights are the good performance of more recurring revenue items, tight control of operating expenses and the reduction in impairment losses on financial assets, which offset a smaller contribution from net trading income (NTI).

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 given below refer to constant exchange rates.

 

Gross income

Cumulative gross income grew by 7.2% year-on-year, still strongly supported by the positive performance of the more recurring items.

Net interest income increased by 9.5% in year-on-year terms and 2.4% over the quarter. This positive trend was once again driven by activity growth in emerging economies and good management of customer spreads.

 

Gross income (Million euros)

 

Net interest income/ATAs (Percentage)

 

 

Cumulative net fees and commissions have also performed well (up 8.4% year-on-year and 5.0% over the quarter) in all of the Group’s areas, which reflects appropriate diversification.

As a result, more recurring revenue items (net interest income plus net fees and commissions) have increased by

9.3% year-on-year (3.0% over the last three months).

Net interest income plus fees and commissions (Million euros)

 

 

(1)	At constant exchange rates: +9.3%.

NTI slowed over January to September in comparison with the same period of 2016. This is primarily explained by fewer ALCO portfolio sales this year compared to the first nine months of 2016. BBVA Group sold its remaining 0.34% stake in China Citic Bank (CNCB) in the third quarter of 2017.

The dividend income heading mainly includes income from the Group’s stake in the Telefónica group. This figure declined by 26.2% in the first nine months of 2017 compared with the same period last year, due to a reduction in the dividend paid by Telefónica in the second quarter of 2017 from €0.4 to €0.2 per share, and the inclusion of dividends from CNCB in last year’s second quarter figures.

Finally, other operating income and expenses increased by 85.2% year-on-year, largely due to the positive contribution

from the insurance business (up 11.7% over the last twelve months). This line also includes the annual pre-tax contribution of €100m paid to the Single Resolution Fund (SRF) in the second quarter of 2017 (€122m in the same period of 2016).

Operating income

Growth in operating expenses continued to slow on a year-on-year basis, to 1.8%. This is due to the cost discipline implemented in all the areas of the Group through efficiency plans that are beginning to deliver results, and the materialization of some synergies (mainly those resulting from the integration of Catalunya Banc-CX-). The largest reductions took place in Spain. In the rest of the geographic areas (Mexico, Turkey, the United States and South America), the year-on-year rate of change in costs was below local inflation.

Operating expenses (Million euros)

 

 

(1)	At constant exchange rates: +1.8%.

As a result of the above, the efficiency ratio remained stable at 49.6% (in line with the first half of 2017 and below the 51.8% recorded during the same period of 2016), while cumulative operating income has risen by 13.1% over the last twelve months.

 

Number of ATMs

 

Provisions and other

Impairment losses on financial assets fell by 2.7% relative to the same period of 2016. The key highlights by business area are: a reduction in Spain, due to fewer loan-loss provisioning requirements; and a decline in the United States, due to the negative effect of the rating downgrades of certain companies in the energy, metals and mining sectors in the first quarter of 2016. This decline was despite setting aside €54m of provisions in the third quarter for estimated defaults arising from recent hurricanes. Impairment losses also declined in Turkey due to fewer gross additions to NPL. In contrast, Mexico and South America saw an increase, largely linked to the increase in lending activity, and to a lesser extent, to the impact of increased requirements for insolvency provisions associated with some wholesale customers in the case of South America.

Finally, there was also a decline in the allocation to provisions (net) and other gains (losses) (down 13.8% year-on-year), which include, among other, provisions for contingent

Impairment on financial assests (net) (Million euros)

 

 

(1)	At constant exchange rates: -2.7%.

liabilities, contributions to pension funds and provisions for property and foreclosed assets and restructuring costs. The latter primarily affect Banking activity in Spain, the area where improving efficiency is a priority focus.

Results

As a result of the above, the Group’s net attributable profit continues to be very positive (up 28.7% year-on-year). It is important to note that since March 2017 this figure includes the additional stake of 9.95% in the capital of Garanti, which has led to a positive impact of around €93m, due to a reduction in the non-controlling interests heading.

By business area, Banking activity in Spain generated a profit of €1,061m, Non Core Real Estate generated a loss of €281m, the United States contributed a profit of €422m, Mexico

€1,616m, Turkey €568m, South America €616m and the Rest of Eurasia €101m.

 

Net attributable profit (Million euros)

 

 

(1)	At constant exchange rates: +28,7%.

ROE and ROTE ⁽¹⁾ (Percentage)

 

 

(1)

The ROE and ROTE ratios include in the denominator the Group’s average shareholders’ funds, but do not take into account the caption within total equity named “Accumulated other comprehensive income” with an average balance of -€4,260m in January-September 2016, –€4,492m in 2016 and -€6,519m in January-September 2017.

Earning per share ⁽¹⁾ (Euros)

 

 

(1)	Adjusted by additional Tier 1 instrument remuneration.

ROA and RORWA (Percentage)

 

 

Balance sheet and business activity

BBVA Group’s activity is in line with the trends discussed in previous periods. The key developments so far this year are summarized below, with data as of September 30, 2017:

 

•

Geographic disparity of loans and advances to customers (gross) continued. Lending was increasing in emerging geographies but there has been deleveraging in Spain. In the United States, there has been a decline in lending activity this year, reflecting the area’s strategy for selective growth in the more profitable portfolios, though lending recovered slightly in the third quarter of 2017.

 

•

Non-performing loans have again declined, thanks to an improvement in nearly all areas, particularly in Spain.

 

•

In deposits from customers, there was another notable increase across the board in lower-cost products such as current and savings accounts, and a decline in time deposits.

 

•

Off-balance-sheet funds have continued to increase, mainly mutual and investment funds, as well as other off-balance-sheet funds.

 

Loans and advances to customers (gross) (Billion euros)

 

 

(1)	At constant exchange rates: +0.8%.

Customer funds (Billion euros)

 

 

(1)	At constant exchange rates: +3.4%.

Loans and advances to customers (Million euros)

 

		30-09-17				D%				31-12-16				30-09-16
Public sector			25,828				(6.1	)			27,506				29,313
Individuals			169,245				(1.9	)			172,476				171,213
Mortgages			117,273				(4.2	)			122,439				122,007
Consumer			37,556				6.7				35,195				34,652
Credit cards			14,416				(2.9	)			14,842				14,554
Business			184,199				(2.9	)			189,733				182,019
Business retail			20,185				(17.1	)			24,343				23,786
Other business			164,014				(0.8	)			165,391				158,234
Other loans			16,745				(6.2	)			17,844				16,710
Non-performing loans			20,222				(11.8	)			22,915				23,589
Loans and advances to customers (gross)			416,240				(3.3	)			430,474				422,844
Loan-loss provisions			(14,506	)			(9.2	)			(15,974	)			(16,720	)
Loans and advances to customers			401,734				(3.1	)			414,500				406,124
Memorandum item:
Secured loans			193,520				(4.1	)			201,772				200,031

Customer funds (Million euros)

 

		30-09-17				D%				31-12-16				30-09-16
Deposits from customers			392,865				(2.1	)			401,465				385,348
Demand deposits			242,566				4.7				231,638				214,816
Time deposits			127,897				(11.4	)			144,407				148,379
Assets sold under repurchase agreement			10,442				(5.6	)			11,056				8,609
Other deposits			11,959				(16.7	)			14,364				13,544
Other customer funds			137,724				4.3				132,092				130,833
Mutual funds and investment companies			60,868				10.6				55,037				54,555
Pension funds			33,615				0.6				33,418				32,628
Other off-balance-sheet funds			3,293				16.3				2,831				3,156
Customer portfolios			39,948				(2.1	)			40,805				40,494
Total customer funds			530,589				(0.6	)			533,557				516,181

 

Solvency

Capital base

BBVA Group’s fully-loaded CET1 ratio stood at 11.2% at the end of September 2017, above the target of 11%. This ratio has increased around 30 basis points so far this year, leveraged on organic earning generation and RWA reduction.

In 2017 the capital ratio has been affected by the acquisition of an additional 9.95% stake in Garanti and the sale of CNCB.

These transactions have had a combined negative impact on the ratio of 13 basis points.

As of 30 September, RWAs continued to decline relative to December 2016. This is largely the result of the depreciation of currencies against the euro (in particular, the Turkish lira and U.S. dollar), the improvement in the risk profile of the Group’s portfolio (primarily in Spain), and a €3,000m synthetic securitization in the second quarter, which freed up

€683m in RWAs.

In terms of capital issuances, in the second quarter BBVA S.A. issued €500m in additional tier 1 capital (contingent convertible), which contributed 13 basis points to the total capital ratio. In addition, BBVA Group has undertaken various subordinate capital issues over the year, worth a nominal amount of close to €1,500m. Meanwhile, Garanti in Turkey issued $750m in the second quarter. These transactions compute as Tier 2 capital and had an aggregate impact of some 50 basis points on the Group’s total capital ratio.

Finally, the last “dividend-option” program was completed in April, with holders of 83.28% of rights choosing to receive new shares. On October 10, an interim dividend for 2017 in the amount of €0.09 per share was distributed in line with the shareholder remuneration policy announced in February.

The phased-in CET1 ratio was 11.9% as of 30-Sep-2017, the Tier 1 ratio reached 13.1% and the Tier 2 ratio 2.5%, resulting in a total capital ratio of 15.7%. These levels are above the requirements established by the European Central Bank (ECB) in its SREP letter and the systemic buffers applicable to BBVA Group for 2017 (7.625% for the phased-in CET1 ratio and 11.125% for the total capital ratio).

Finally, the Group maintains a sound leverage ratio: 6.7% under fully-loaded criteria (6.9% phased-in), which continues to be the highest in its peer group.

Evolution of fully-loaded capital ratios (Percentage)

 

 

 

Ratings

Since July 2017, none of the credit rating agencies have modified BBVA’s rating. It therefore remains at the levels shown in the accompanying table.

Ratings

 

Rating agency		Long term		Short term		Outlook
DBRS		A		R-1 (low)		Stable
Fitch		A-		F-2		Stable
Moody’s (1)		Baa1		P-2		Stable
Scope Ratings		A+		S-1		Stable
Standard & Poor’s		BBB+		A-2		Positive

 

(1)	Additionally, Moody’s assigns an A3 rating to BBVA’s long term deposits.

 

Risk management

Credit risk

BBVA Group’s risk metrics have continued to perform positively throughout the year :

 

•

Credit risk fell by 2.1% in the last quarter, and by 3.9% since the end of 2016 (down 0.4% and up 0.1%, respectively, at constant exchange rates). The key factors are: ongoing deleveraging in Spain (partly explained by the decline in the Non Core Real Estate area), Turkey (mainly due to negative exchange rate effects) and, to a lesser degree, the United States (also due to the exchange rate, given that at constant exchange rates there was a slight increase in activity over the quarter). The rest of the geographical areas reported growth (also in constant exchange rate terms). South America posted a decline from the end of December 2016, which is also explained by the unfavorable effect of exchange rates.

 

•

Non-performing loans continue declining, falling by 6.6% over the quarter and 11.3% relative to December 2016. Almost the entire geographic footprint performed positively, especially Spain.

 

•

The Group’s NPL ratio continues to improve (down 22 basis points over the last three months and 37 basis points since December 2016) to 4.5% at the close of September 2017, driven by the decline in non-performing loans.

 

•

Coverage provisions also fell, albeit by less than non-performing loans: down 5.3% on June (down 3.8% excluding exchange-rate effects) and 9.2% lower than December 2016.

 

•

The NPL coverage ratio closed the first nine months at 72%, an improvement of 105 basis points over the last three months and 162 basis points since December 2016.

 

•

Finally, the cumulative cost of risk to September stood at 0.93%, in line with the first half of 2017 (0.92%) and 9 percentage points above the overall figure for 2016 (0.84%).

Non-performing loans (Million euros)

 

 

 

Structural risks

Liquidity and funding

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 finance, always in compliance with current regulatory requirements.

A core principle in BBVA’s management of the Group’s liquidity and funding is the financial independence of its banking subsidiaries abroad. This principle prevents the propagation of a liquidity crisis among the Group’s different areas and ensures that the cost of liquidity is correctly reflected in the price formation process.

In the first nine months of 2017, liquidity and funding conditions have remained comfortable across BBVA Group’s global footprint:

 

•

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.

 

•

Activity both on the euro balance sheet and in Mexico has continued to generate liquidity, as deposits have shown a positive trend that has led to a narrowing of the credit gap.

 

•

In the United States, the credit gap has widened in the first nine months of the year because of the area’s deliberate strategy to control the cost of deposits.

 

•

Comfortable liquidity situation in Turkey, due to the maintenance of good market conditions in the third quarter, with a stable credit gap.

 

•

In South America, the liquidity situation remains comfortable, allowing a reduction of the growth of wholesale deposits to match lending activity.

 

•

In addition, in the third quarter BBVA S.A. successfully completed its first issuance of €1.5 billion in senior non-preferred (SNP) debt. In total, over the first nine months of 2017, BBVA S.A. has accessed the wholesale funding markets for a total of €5 billion, using senior debt (€1 billion in the first quarter and €1.5 billion in the second), Tier 2 debt (€1 billion in the first quarter) and SNP debt (€1.5 billion). A number of private issuance transactions of Tier 2 securities have also been closed for around €500m, and one additional Tier 1 issue of €500m, all in the first half of the year.

 

•

The long-term wholesale funding markets have remained stable in the other geographical areas where the Group operates.

•

In Turkey, Garanti’s securities issues continue to strengthen its balance-sheet structure. Of note are the following: in the first quarter, senior debt for USD 500m; in the second quarter, subordinate debt for USD 750m, collateralized bonds for an equivalent of €126m, and renewal of the syndicated loan; and in the third quarter, collateralized bonds for an equivalent of €71m.

 

•

In the United States, BBVA Compass returned to the markets in the second quarter with a 5-year senior debt issue of USD 750m.

 

•

In Mexico, BBVA Bancomer has carried out two local senior debt issues for a total of €326m with maturities of 3 and 5 years.

 

•

In South America, BBVA Chile has also made a number of senior issues with maturities ranging from 4 to 10 years on the local market for an equivalent of €558m. In Peru, BBVA Continental has issued €52m on the market with a maturity of 3 years.

 

•

Short-term funding has continued to perform positively, in a context marked by a high level of liquidity.

 

•

BBVA’s LCR liquidity coverage ratio continues at levels of over 100%, clearly higher than demanded by regulations (over 80% in 2017), both at Group level and in all its banking subsidiaries.

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 first nine months of 2017 has been marked by:

 

•

The debate on the removal of negative rates by the ECB and a reduction in the asset purchasing program (QE) in view of the improvement in macroeconomic data.

 

•

The result of the French elections.

 

•

Activation of the process for the United Kingdom’s exit from the European Union (Brexit).

 

•

The gradual interest-rate hike by the Federal Reserve (Fed) and the announcement of a normalization of its balance sheet following positive macroeconomic data (pending inflation figures).

 

•

Uncertainty with respect to the fiscal and commercial policies of the new U.S. administration, which generated a high level of volatility in the case of the Mexican peso, above all in the first three months of 2017.

 

In this context, BBVA has maintained its policy of actively hedging its main investments in emerging countries, covering on average between 30% and 50% of earnings expected for 2017 and around 70% of the excess CET1 capital ratio (which is not naturally covered by the ratio itself). In accordance with this policy, at the close of September 2017, 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 limited to less than 2 basis points, and the coverage level of the expected earnings for 2017 in these two countries would be around 60% in Mexico and 50% in 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 the capital adequacy ratio through the valuation of the portfolio of available-for-sale assets.

The Group’s banks have fixed-income portfolios to manage the balance-sheet structure. In the first nine months of 2017, the results of this management have been satisfactory, with limited risk strategies in all the Group’s banks.

Finally, the following is worth noting with respect to the monetary policies pursued by the different central banks of the main geographic areas where BBVA operates between January and September 2017:

 

•

No relevant changes in the Eurozone, where rates remain at 0%.

 

•

In the United States the upward trend in interest rates continues, with a rise in March and another in June, to 1.25%.

 

•

In Mexico, Banxico has made four interest-rate hikes so far this year, so the monetary policy level at the close of September is 7%.

•

In Turkey, the period has been marked by the Central Bank’s (CBRT’s) interest-rate hikes, which have increased the average cost of funding to 11.99%.

 

•

In South America, the monetary authorities have continued their expansive policies, lowering rates in Peru (75 basis points), Colombia (225 basis points) and Chile (100 basis points). In Argentina, where inflation has resisted falling, there has been an increase of 150 basis points.

Economic capital

Consumption of economic risk capital (ERC) at the close of August 2017 stood at €35,334m in consolidated terms, which is equivalent to a decline of 2.0% with respect to the end of May this year (down 0.5% at constant exchange rates). This fall is mainly focused on goodwill (included in equity ERC and due to the depreciation of the dollar against the euro), trading risk (mainly in Spain and Turkey) and fixed assets (focused on asset withdrawals in the Anida Operaciones Singulares unit).

Attributable economic risk capital breakdown

(Percentage as of August 2017)

 

The BBVA share

Global growth has continued to give signs of improvement. The most recent figures suggest that the economy’s positive performance will extend into the second half of 2017, with relatively stable global GDP growth of around 1% per quarter. Increased trade, the upturn in investment and greater confidence are underpinning this positive performance. There are still no clear signs of inflationary pressure. In this context, the measures taken by the central banks continue to support economic activity, and the financial markets remain relatively calm. Performance in the developed countries continues to be positive, above all in Europe, and is now accompanied by an improved outlook for emerging economies. As a result of the above, global economic growth could be around 3.5% in 2017, according to the latest BBVA Research estimates.

With respect to the main stock-market indices, in Europe both the Stoxx 50 and the Euro Stoxx 50 closed the third quarter with gains of 5.4% and 9.2% respectively since December 2016. In Spain the Ibex 35 fell back slightly over the last three months, but its performance has remained positive since the close of 2016 (up 11.0%). In the United States, the S&P 500 index closed 4.0% up on the level at the close of June, an increase of 12.5% on the last nine months.

The banking sector in Europe has also performed positively over the third quarter. Thus the European bank index Stoxx

Banks, which includes British banks, gained 11.1% in the first nine months of 2017, while the Eurozone bank index, the Euro Stoxx Banks, was up 17.6% in the same period. In contrast, in the United States the S&P Regional Banks index lost 2.1% on the figure at the close of 2016.

The BBVA share has performed positively over the quarter, closing September at €7.56, a quarterly rise of 4.1%, with a cumulative gain of 17.9% since December 2016. This represents a relatively better performance than the European banking sector as a whole and than the Ibex 35.

BBVA share evolution compared with European indices

(Base indice 100=30-09-2016)

 

The BBVA share and share performance ratios

 

		30-09-17				31-12-16
Number of shareholders			900,807				935,284
Number of shares issued			6,667,886,580				6,566,615,242
Daily average number of shares traded			35,448,782				47,180,855
Daily average trading (million euros)			247				272
Maximum price (euros)			7.93				6.88
Minimum price (euros)			5.92				4.50
Closing price (euros)			7.56				6.41
Book value per share (euros)			7.11				7.22
Tangible book value per share (euros)			5.79				5.73
Market capitalization (million euros)			50,416				42,118
Yield (dividend/price; %) (1)			3.8				5.8

 

(1)	Calculated by dividing shareholder remuneration over the last twelve months over the closing price at the end of the period.

In the significant event published on February 1, 2017, BBVA announced its intention of modifying its shareholder remuneration policy to one of a fully cash payment of between 35% and 40% of the profits obtained each year. This policy will be formed each year of an interim dividend (which is expected to be paid in October) and a final dividend (which will be paid out upon completion of the final year and following approval of the application of the result, foreseeably in April). These payouts will be subject to appropriate approval by the corresponding governing bodies. An interim dividend against earnings for the year was paid for a gross amount of €0.09 per share on October 10, 2017.

Shareholder remuneration

(Euros-gross-/share)

As of September 30, 2017, the number of BBVA shares was still 6,668 million, and the number of shareholders was 900,807. Residents in Spain hold 42.8% of the share capital, while the percentage owned by non-resident shareholders stands at 57.2%.

 

Shareholder structure (30-09-2017)

 

		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 150			187,618				20.8				13,336,560				0.2
151 to 450			185,311				20.6				50,640,662				0.8
451 to 1,800			282,461				31.4				274,439,411				4.1
1,801 to 4,500			128,782				14.3				367,042,354				5.5
4,501 to 9,000			59,717				6.6				376,234,352				5.6
9,001 to 45,000			50,454				5.6				878,767,799				13.2
More than 45,001			6,464				0.7				4,707,425,442				70.6
Total			900,807				100.0				6,667,886,580				100.0

BBVA shares are traded on the Continuous Market of the Spanish stock exchanges and also on the stock exchanges in London and Mexico. BBVA American depositary shares (ADS) are traded on the New York Stock Exchange and on the Lima Stock Exchange (Peru), under an exchange agreement between these two markets. Among the main stock market indices, BBVA shares are included on the Ibex 35, Euro Stoxx 50 and Stoxx 50, with a weighting of 9.14%, 2.06% and 1.35% respectively. They are also listed on several sector indices, including the Euro Stoxx Banks, with a weighting of 8.71%, and the Stoxx Banks, with a weighting of 4.47%.

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, as summarized in the table below.

Sustainability indices on which BBVA is listed as of 30-09-2017 ⁽¹⁾

 

 

(1)

The inclusion of BBVA in any MSCI index, and the use of MSCI logos, trademarks, service marks or index names herein donot constitute a sponsorship, endorsement or romotion of BBVA by MSCI or any of its affiliates. The MSCI indices are the exclusive property of MSCI. MSCI and MSCI index names and logos are trademarks or service marks of MSCI or its affiliates.

 

BBVA has a differential banking model based on seeking out a return adjusted to principles, strict legal compliance, best practices and the creation of long-term value for all stakeholders.

BBVA forms part of the group of 14 banks that have adhered to commitment of the United Nations environmental program (UNEP-FI) to implement the recommendations on finance and climate change published in July by the Financial Stability Board for the G20. This process requires a more sustainable financial system in which investment and finance decisions involve a longer-term vision and incorporate environmental and social factors. BBVA has integrated environmental factors into its decision-making processes for some time; however, it wants to extend this commitment, so it is working on a new Environmental and Social Framework that extends its positive impact in society, strengthens the management of emerging risks and at the same time makes more consistent use of new business opportunities.

BBVA has been named by Actualidad Económica as the best bank and third best company to work for in 2017, based on an analysis of the human resources policies of a hundred companies from all sectors operating in Spain.

Below are other strategic initiatives for responsible banking on which the Group is working.

1. Creation of lasting and more balanced relationships with customers...

... through transparent, clear and responsible communication and financial education in the solutions that we offer. BBVA is developing and collaborating with numerous programs, many for young people.

 

•

Rescatadores de Talento (Talent Rescuers), which aims to find solutions to the lack of youth employment. In this case, the Group has made available 36 volunteer executives and professionals who are acting as mentors to young people. They are generating a positive social movement that is fostering an improvement in the labor market for them.

 

•

Valores de Futuro (Future Values), an initiative developed by BBVA in Spain to improve the financial education of young people and promote the values associated with the good use of money. This summer, students of colleges

 

that are finalists in the eighth edition have taken part in the Fundación Colegios del Mundo Unidos championship, a financial education program that has provided them with the skills and experience needed to tackle the environmental, economic and social issues that affect their lives.

2. Full integration of how we do business...

... through responsible business policies, a reputational risk model, and a people-centric culture throughout the Organization.

BBVA and the ONCE Foundation have concluded a collaboration agreement to boost the use of information and communication technologies as support tools for increasing the autonomy and improving of the quality of life of people with disabilities. Among the results is a mobile app designed to make ATM operations easier for people with impaired vision or minor physical or intellectual disabilities.

3. Promotion of responsible and sustainable growth...

... through financial inclusion, sustainable finance, support for SMEs and responsible investment.

BBVA continues to extend its offer of sustainable finance tools and to demonstrate its leadership in the area of green finance. In July it signed the first global green finance deal in project finance format. It also closed the first sustainable loan that the Bank has awarded to a Spanish autonomous region. Finally, it is worth highlighting the recent structuring of a green bond for a European non-Spanish client and the award of the first green project finance loan in Spain.

4. Investment in the community...

... with priority for financial education initiatives for society, entrepreneurship, knowledge and other social causes that are relevant from a local point of view.

In 2017, to celebrate the 10th anniversary of the BBVA Microfinance Foundation it organized the Forum for the

Development of Financial Inclusion, which dealt with the issue of financial inclusion, technological challenges and the role of women in the economy. Over these ten years it has granted more than USD 8.2 billion in loans to vulnerable entrepreneurs, and has become one of the philanthropic initiatives with the biggest social impacts in Latin America.

 

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.

In 2017 the reporting structure of BBVA Group’s business areas remains basically the same as in 2016:

 

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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 portfolios, finance and structural interest-rate positions of the euro balance sheet.

 

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Non Core Real Estate covers specialist 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. New loan production to developers or loans to those that are not in difficulties are managed by Banking activity in Spain.

 

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The United States includes the Group’s business activity in the country through the BBVA Compass group and the BBVA New York branch.

 

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Mexico basically includes all the banking and insurance businesses carried out by the Group in the country.

 

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Turkey includes the activity of the Garanti Group. On March 22nd 2017 BBVA completed the acquisition of a 9.95% additional stake in Garanti. Thus, BBVA’s total stake in the said entity at present amounts to 49.85%.

 

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South America basically includes BBVA’s banking and insurance businesses in the region.

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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.

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.

In addition to this geographical breakdown, supplementary information is provided for all the wholesale businesses carried out by BBVA, i.e. Corporate & Investment Banking

(CIB), in the geographical areas where it operates. This aggregate business is considered relevant to better understand the Group because of the characteristics of the customers served, the type of products offered and the risks assumed.

Lastly, as usual, in the case of the Americas, Turkey and CIB 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 geographical area in which they carry out their activity.