Results (pages 5-11)

 

•

Generalized growth in more recurrent revenue in practically all geographic areas.

 

•

Operating expenses remain under control, leading to an improvement in the efficiency ratio.

 

•

Lower amount of impairment on financial assets not measured at fair value through profit or loss (hereinafter, “impairment losses on financial assets”).

 

•

As a result, the net attributable profit was €2,649m, 14.9% higher than the first half of 2017.

 

Balance sheet and business activity (pages 12-13)

 

•

Loans and advances to customers (gross) increase in emerging geographies and the United States, but decline in Spain.

 

•

Non-performing loans continue to improve.

 

•

Within the off-balance-sheet funds, mutual funds continue to perform positively.

Solvency (pages 14-15)

 

•

The capital position is above regulatory requirements.

 

•

BBVA has received a communication from the Bank of Spain regarding its minimum requirement for own funds and eligible liabilities (MREL requirement), as determined by the Single Resolution Board (SRB). The Group estimates that it currently meets this MREL requirement.

 

•

Issuance of the so-called green bonds for €1 billion (senior non-preferred debt).

 

Risk management (pages 16-19)

 

•

Good performance of the main credit-risk metrics over the first six months of the year: as of 30-June-2018, the NPL ratio closed at 4.4%, the NPL coverage ratio at 71% and the cumulative cost of risk at 0.82%.

 

Transformation

 

•

The Group’s digital and mobile customer base and digital sales continue to increase in all the geographic areas where BBVA operates.

 

Other matters of interest

 

•

On July 6, BBVA has completed the sale of approximately 68.2% of its stake in BBVA Chile. The impacts of this transaction will be reflected in the Group’s financial statements for the third quarter of 2018.

Impact of the initial implementation of IFRS 9

 

•

The figures corresponding to the first half of 2018 are prepared under International Financial Reporting Standard 9 (IFRS 9), which entered into force on January 1, 2018. This new accounting standard does not require the 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 in force at that time.

 

•

The impacts derived from the first application of IFRS 9, as of January 1, 2018, have been registered with a charge to reserves of approximately €900m 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.

 

•

With respect to the main risk metrics, the exposure to non-performing loans hardly changed, lending fell due to reclassification of portfolios and the NPL coverage ratio rose as a result of the increase in loan-loss provisions.

 

BBVA generated a net attributable profit of €2,649m in the first half of 2018, which represents a year-on-year increase of 14.9% (29.5% at constant exchange rates). Once more, it is important to highlight the good performance of recurring

revenue, containment of operating expenses and lower loan-loss impairments and provisions, which offset the lower contribution from net trading income (NTI) compared to the same period the previous year.

 

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

Gross income in the first half of 2018 grew by 4.8% year-on-year, once more strongly supported by the positive performance of the more recurring items.

Net interest income grew by 9.4% year-on-year. There was a general increase in all business areas, mainly in the United States, Mexico, Turkey and South America. This positive trend can once again be explained by growth of activity in emerging economies and in the United States, and good management of customer spreads. During the quarter, net interest income grew by 3.5%.

 

Cumulative net fees and commissions performed very well in all the Group’s areas (up 11.3% year-on-year), driven by good diversification. The quarterly figure was also good (up 3.3% in the last three months).

As a result, more recurring revenue items (net interest income plus net fees and commissions) increased by 9.8% year-on-year (up 3.5% over the second quarter).

NTI during the first half of 2018 moderated in comparison with the same period of 2017, when it was exceptionally high, largely due to the registration of the capital gains of €204m before tax from the sale on the market of 1.7% of China Citic Bank (CNCB) in the first quarter of 2017. There have also been lower sales of ALCO portfolios in Spain in the first half of 2018 compared to the same period of the previous year. By business areas, NTI had a good performance in Mexico and South America.

Other operating income and expenses totaled €133m; 17.8% less in year-on-year terms, mainly due to higher contribution to the Single Resolution Fund -SRF- (€124m in Spain, compared to €98m the same period of 2017), and lower insurance income from Mexico.

 

Operating expenses for the first half of 2018 increased 2.9%, year-on-year, affected by the exchange rates (down 5.8% at current exchange rates). Cost discipline has been maintained in all the Group’s areas through various efficiency plans. By business area the biggest reductions were in Spain and the Rest of Eurasia. In the other geographies, the growth of expenses was lower than the growth of gross income.

 

 

The efficiency ratio improved to 49.2% in the first half of 2018, compared to 49.6% in the same period the previous year. Operating income increased by 6.8% over the last twelve months.

 

Provisions and other

Impairment losses on financial assets in the first half of the year were 9.0% below the figure for the same period in 2017. By business area, they continued to fall in Spain, due to lower loan-loss provisioning requirements for large customers. They also fell in the United States, due to the lower provisioning requirements in the portfolios affected by the 2017 hurricanes. They also fell in Mexico and, to a lesser extent, in South America. In contrast, they increased in Turkey, concentrated in wholesale customer portfolios.

 

 

Provisions or reversal of provisions (hereinafter, provisions) fell by 48.3% compared to the figure for the same period of 2017 (which included a charge of €177m for restructuring costs). The line other gains (losses) showed a positive balance rather than the negative of the first half of 2017, and incorporated capital gains from the sale of certain portfolios in Mexico, Turkey and Non Core Real Estate. The first half of the previous year presented a negative balance due to certain operations with an unfavorable effect from the Non Core Real Estate area.

 

Results

As a result of the above, the Group’s net attributable profit for the first half of 2018 continued to be very positive (up 29.5% year-on-year at constant exchange rates, up 14.9% at current exchange rates).

 

By business area, Banking activity in Spain generated a profit of €793m, Non Core Real Estate a loss of only €36m, the United States contributed a profit of €387m, Mexico registered €1,208m, Turkey contributed a profit of €373m, South America €452m and the Rest of Eurasia €58m.

 

The Group’s balance sheets and activity data are presented below, from the opening balance sheet made after the first implementation of IFRS 9 until the end of the first half of 2018. These figures include the new categories included in the aforementioned standard.

Regarding the Group’s activity, the most significant aspects during this period are summarized below:

 

•

Loans and advances to customers (gross) increase in emerging geographies and the United States (at constant exchange rates), but decline in Spain.

•

Non-performing loans fell, above all thanks to an improvement in Spain and Mexico.

 

•

In deposits from customers, there was a fall in time deposits but an increase in demand deposits.

 

•

In off-balance-sheet funds, mutual funds continued to perform well.

 

Loans and advances to customers

(Million euros)

 

		IFRS 9 30-06-18				D %				IAS 39 31-12-17
Public sector			28,716				(4.0	)			29,921
Individuals			171,500				4.2				164,578
Mortgages			113,854				1.4				112,274
Consumer			26,141				(18.5	)			32,092
Credit cards			13,105				(3.9	)			13,630
Other loans			18,399				179.6				6,581
Business			171,818				(7.9	)			186,479
Non-performing loans			18,627				(3.9	)			19,390
Loans and advances to customers (gross)			390,661				(2.4	)			400,369
Loan-loss provisions			(13,486	)			5.8				(12,748	)
Loans and advances to customers			377,175				(2.7	)			387,621

 

Customer funds

(Million euros)

 

		IFRS 9 30-06-18				D %				IAS 39 31-12-17
Deposits from customers			367,312				(2.4	)			376,379
Of which current accounts			249,572				3.7				240,750
Of which time deposits			110,548				(4.5	)			115,761
Other customer funds			132,522				(1.8	)			134,906
Mutual funds and investment companies			64,687				6.2				60,939
Pension funds			33,890				(0.3	)			33,985
Other off-balance sheet funds			2,922				(5.2	)			3,081
Customer portfolios			31,022				(15.9	)			36,901
Total customer funds			499,834				(2.2	)			511,285

 

Solvency

Capital base

BBVA ended the first half of 2018 with a fully-loaded CET1 ratio of 10.8%, impacted by the turbulent market situation during the second quarter of 2018. The pro forma fully-loaded CET1 ratio would be 11.4%, taking into account the expected positive impact, of approximately 55 basis points, resulting from the announced corporate operations (sale of BBVA Chile completed in July, and of the real-estate assets to Cerberus, pending closure). Additionally, the Group has reiterated its goal of reaching a fully-loaded CET1 capital ratio of 11%.

Risk-weighted assets (RWAs) decreased slightly since the end of 2017, largely explained by the depreciation of currencies against the euro. Regarding securitizations, the Group carried out two in the first half of 2018: a traditional one in June, of an auto loan portfolio of consumer finance for €800m, which has had a positive impact on capital of €324m (due to the release of RWAs); and a synthetic one in March, on which the European Investment Fund (EIF, a subsidiary of the European Investment Bank), issued a financial guarantee on an intermediate tranche of a €1.95 billion portfolio of loans to SMEs. Thanks to this guarantee, BBVA released €443m of RWAs. During the second quarter, BBVA received authorization from the European Central Bank (ECB) to update the calculation of RWAs for structural exchange-rate risk under standard model.

 

According to the provisions of the SRB, the MREL requirement that BBVA must meet starting on January 1, 2020 will be 15.08% of the total eligible liabilities and shareholders’ funds of its resolution group (BBVA S.A. and its subsidiaries, which belong to the same European resolution group), with figures as of December 31, 2016 (28.04% expressed in RWA terms). The Group estimates that it currently meets this MREL requirement.

As regards shareholder remuneration, on April, 10 BBVA paid the final cash dividend against 2017 earnings, amounting to €0.15 gross per share.

As of 30-June-2018, the phased-in CET1 ratio stood at 11.1%, taking into account the impact of the initial implementation of IFRS 9. In this context the European Commission and Parliament have established temporary arrangements that are voluntary for the institutions, adapting the impact of IFRS 9 on capital ratios. BBVA has informed the supervisory body of its adherence to these arrangements. Tier 1 capital stood at 12.8% and Tier 2 at 2.7%, including Tier 2 private issuance of US$300m, resulting in a total capital ratio of 15.5%. 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 remains unchanged (CET1 of 9.25% and total ratio of 12.75%) compared with the previous year.

Finally, the Group maintained a sound leverage ratio: 6.4% under fully-loaded criteria (6.5% phased-in), which continues to be the highest in its peer group.

Ratings

During the first six months of the year, Moody’s, S&P and DBRS upgraded BBVA’s rating to A3, A- and A (high), respectively, all with a stable outlook, thus recognizing the strength and robustness of BBVA’s business model. Following these upgrades, all the agencies now assign BBVA a rating in the “A” category, something that had not occurred since mid-2012.

Ratings

 

Rating agency

Long term

Short term

Outlook

DBRS

A (high)

R-1 (middle)

Stable

Fitch

A-

F-2

Stable

Moody’s (1)

A3

P-2

Stable

Scope Ratings

A+

S-1+

Stable

Standard & Poor’s

A-

A-2

Stable

 

(1)	Additionally, Moody’s assigns an A2 rating to BBVA’s long term deposits.

 

Credit risk

At the close of the first half of 2018 BBVA Group’s risk metrics continued to perform well:

 

•

Growth of credit risk in the quarter (up 2.1% both, at current and constant exchange rates) in all areas, except Non Core Real Estate. Compared to the close of December 2017 the increase in credit risk stood at 0.3% at current exchange rates and 1.2% in constant terms.

 

•

The balance of non-performing loans increased slightly in the quarter (up 0.7% at current exchange rates and up 1.3% at constant exchange rates), although over the last six months they fell by 4.1% (down 2.9% in constant terms). Over the first six months of the year, Banking Activity in Spain, Non Core Real Estate and Mexico performed well. South America was negatively impacted by some retail portfolios and specific customers, and Turkey deteriorated to some extent, especially in the wholesale-customers segment. The balance of non-performing loans in the United States remained stable in the first half (up 0.3% at constant exchange rates).

 

•

As a result, the NPL ratio stood at 4.4% as of 30-June-2018, a reduction of six basis points with respect to March of 2018.

•

Provisions decreased by 1.6% over the quarter (down 0.5% at constant exchange rates) and grew by 4.8% over the last six months (up 6.8% at constant exchange rates), so the NPL coverage ratio closed at 71%.

 

•

Finally, the cumulative cost of risk through June 2018 was 0.82%, seven basis points lower than the figure for 2017.

 

 

 

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 financing, 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.

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 the first half of 2018, liquidity conditions remained comfortable across BBVA Group’s global footprint:

 

•

In the Eurozone, the liquidity situation is still comfortable and the credit gap stable.

 

•

In the United States, the liquidity situation is adequate. The credit gap increased over the first six months of the year due to the cost-containment strategy for deposits, in a context of competition in prices and rising rates.

 

•

In Mexico, the liquidity position is sound, despite the uncertainty derived from the electoral process. The credit gap has widened year-to-date due to deposits growing less than lending.

 

•

The liquidity situation in Turkey is comfortable and commercial dynamics are good. There was 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. There has not been any material change in the liquidity situation of Argentina, despite the volatility of the markets.

On the funding side, the long-term wholesale funding markets in the geographic areas where the Group operates continued to be stable. The performance of short-term funding remained positive, in a highly liquid environment.

During the first six months of 2018, the companies that form part of BBVA Group carried out the following operations:

 

•

BBVA S.A. completed 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 has 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. 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 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 Turkey, Garanti issued the first private bond in emerging markets for US$75m over six years, to support women’s entrepreneurship.

 

•

In South America, BBVA Chile issued senior debt on the local market for an equivalent of €288m, in a variety of issuances with maturities ranging from four to six years. Also in Chile, Forum issued an amount equivalent to €108m. And BBVA Peru issued a three-year senior debt in the local market for an aggregate amount of €53m.

The liquidity coverage ratio (LCR) in BBVA Group remained comfortably above 100% in the first half of 2018, without including any transfers between subsidiaries; in other words, no kind of excess liquidity levels in the subsidiaries abroad are considered in the calculation of the consolidated ratio. As of June 30, 2018, the LCR stood at 127%. Although this requirement is only established at Group level, the minimum level is easily exceeded in all the subsidiaries (Eurozone, 153%; Mexico, 136%; Turkey, 133%; and the United States, 142%).

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 half of 2018 was notable for the depreciation against the euro of the Turkish lira (down 14.8%) and the Argentine peso (down 30.3%). In contrast, the Mexican peso (up 3.4%) and the U.S. dollar (up 2.9%) appreciated over the first six months of the year. 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 (which is not naturally covered by the ratio itself). 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 ten basis points to a depreciation of 10% of the dollar against the euro, as a result of RWAs generated outside the United States. Given the geopolitical context, the coverage level of the expected earnings for 2018 has been maintained at around 70% for Mexico and 50% 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. In the first half of 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 without any relevant impact.

The uncertainty regarding the formation of the government in Italy in May generated tensions in the peripheral debt markets, with the consequent effect on the valuation of sovereign portfolios. As a result of the limited risk management of these positions and subsequent market performance, the effect of this event on the capital ratio has been limited to around a negative 2.9 basis points over the quarter.

In Turkey, the presidential and parliamentary elections, together with a higher than expected inflation, generated some volatility in the markets, leading the Turkish Central Bank (CBRT) to raise interest rates to contain the depreciation of the lira. Risk management, together with a portfolio mix with a high proportion of inflation-linked bonds, have contained the impact on the capital ratio to around a negative 1.9 basis points over the quarter.

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 and June left the rate at 2.0%.

 

•

In Mexico, Banxico made two interest rate hikes in 2018, leaving the monetary policy level at 7.75%.

 

•

In Turkey, following on from the rises in 2017, there were three further increases in the second quarter of 2018, of a total of five percentage points. As a result, the average funding rate of the CBRT now stands at 17.75%.

 

•

In South America, the monetary authorities continued their expansive policies, lowering rates in Peru (by 50 basis points) and Colombia (by 50 basis points). However, in Argentina, the Central Bank raised rates to curb the volatility of the exchange rate, increasing its reference rate to 40%.

 

The BBVA share

Global economic growth may have slowed slightly in the second quarter of 2018. Although the pace of expansion remains robust, it is geographically less uniforme, with acceleration in the United States contrasting with certain signs of moderation in China, some emerging economies, and even more strongly in Europe. For now, the economic situation remains positive. Despite the fact that both the Federal Reserve (Fed) and the ECB have taken steps toward the normalization of their monetary policy, their policies will continue to support activity. For this reason, the increase in financial tensions in the emerging economies due to the appreciation of the dollar seem to respond more to a revaluation of their vulnerabilities than to a significant risk in the short term. In fact, the main risk now is protectionism, since although the direct effect on global growth of the measures taken could be limited, the indirect impact of lower confidence and higher financial volatility could be felt in the second half of the year and increase uncertainty.

Most stock-market indices posted losses in the first half of the year. However, in Europe, the declines of the first quarter have eased: the Stoxx 50 and the Euro Stoxx 50 fell by 4.2% and 3.1%, respectively, year-to-date; while in Spain, the Ibex 35 lost 4.2% over the same period. In contrast, in the United States the S&P 500 index gained 1.7% in the last six months (up 2.9% in the second quarter).

In Europe, the banking sector indices were more negative between December 2017 and June 2018 than these general indices. The European Stoxx Banks index, which includes British banks, lost 12.4%, and the Eurozone bank index, the Euro Stoxx Banks, was down 15.4%. In contrast, in the United States the S&P Regional Banks index gained 3.6% on the close of 2017.

The BBVA share closed June at €6.07, a fall of 14.6% over the first half of the year.

 

 

The BBVA share and share performance ratios

 

		30-06-18				31-12-17
Number of shareholders			890,821				891,453
Number of shares issued			6,667,886,580				6,667,886,580
Daily average number of shares traded			35,234,367				35,820,623
Daily average trading (million euros)			231				252
Maximum price (euros)			7.73				7.93
Minimum price (euros)			5.78				5.92
Closing price (euros)			6.07				7.11
Book value per share (euros)			6.89				6.96
Tangible book value per share (euros)			5.63				5.69
Market capitalization (million euros)			40,501				47,422
Yield (dividend/price; %) (1)			4.0				4.2

 

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

Shareholder remuneration for 2018 is governed by the shareholder remuneration policy announced by publication of a Significant Event on February 1, 2017. Subject to the approval from the corresponding corporate bodies, BBVA plans to make a cash dividend payment in October 2018 and April 2019.

As of June 30, 2018, the number of BBVA shares remained at 6,668 million, and the number of shareholders was 890,821. By type of investor, residents in Spain held 42.9% of the share capital, while the remaining 57.1% was owned by non-resident shareholders.

Shareholder structure

(30-06-2018)

 

		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 150			181,652				20.4				12,897,780				0.2
151 to 450			180,481				20.3				49,399,626				0.7
451 to 1800			280,481				31.5				273,702,625				4.1
1,801 to 4,500			130,170				14.6				370,781,712				5.6
4,501 to 9,000			60,866				6.8				383,603,067				5.8
9,001 to 45,000			50,737				5.7				882,458,735				13.2
More than 45,001			6,434				0.7				4,695,043,035				70.4
Total			890,821				100.0				6,667,886,580				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 8.2%, 1.7% and 1.1% respectively. They also form part of several sector indices, including the Euro Stoxx Banks, with a weighting of 8.7%, and the Stoxx Banks, with a weighting of 4.2%.

 

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.

 

BBVA Group 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.

In February 2018, BBVA announced its strategy around climate change and sustainable development. The strategy will help the bank meet the United Nations Sustainable Development Goals and is in line with the Paris Agreement on Climate Change. The key elements of the strategy are:

 

•

On the financing side, a commitment to mobilize €100 billion in green financing, sustainable infrastructures, social entrepreneurship and financial inclusion.

 

•

In management, BBVA will work to mitigate environmental and social risks and thus minimize potentially negative impacts, both direct and indirect. From the point of view of mitigating direct impacts, BBVA has pledged that by 2025, 70% of energy bought by the Group will be renewable, thus reducing its CO2 emissions by 68% compared to 2015. The Group will mitigate indirect impacts by applying new industry standards for energy, infrastructure, mining and agribusiness. As part of its commitment to transparency in this area, BBVA is the first bank that has reported its total exposure to fossil fuels, at 3.4% of total assets.

 

•

Lastly, BBVA will involve its stakeholders in pushing for a greater collective contribution from the financial sector to sustainable development.

To foster this contribution, in April, BBVA presented the SDG-linked bond framework, under which it may issue what are called green bonds, social bonds or sustainable bonds. The existence of this framework is one of the characteristic elements of sustainable issues. It consists of a document in which the issuer has defined in advance the type of projects that could be financed with this type of instrument and is verified by an independent external advisor, in this case the quality assurance company DNV GL.

In May, BBVA issued a green bond for €1 billion, the largest amount ever by a financial institution in the Eurozone, as well as being the first Spanish bank to carry out this type of issue. Also of note is that the magazine The Banker granted BBVA the award for best green financing deal of 2018 in the Americas for a project to finance the construction of a power transmission line in Uruguay. In fact, it was the first green loan with a project finance structure in the world.

Other outstanding actions related to promotion of responsible and sustainable growth were:

 

•

BBVA’s Annual General Meeting, held on March 16 in Bilbao was awarded with the Sustainable Event certificate for its clear commitment to environmental, social and economic stability under the UNE-ISO 20121:2013

standard. The certification has been verified by AENOR audit.

 

•

In April, BBVA and some 30 multinational and medium-sized Spanish companies signed the manifesto “Spanish Companies in Favor of Opportunities for Energy Transition and the Fight Against Climate Change”. This is a pioneering initiative in Spain that highlights the need to address the process of energy transition in the country, and a further example of BBVA’s strong commitment to sustainable financing.

 

•

In May the first BBVA Sustainable Finance Forum was held in the Entity’s headquarters in Madrid. Those attending included investors, businesspeople, institutions in the public and private sectors and the media, who came to promote sustainable development and fight against climate change. BBVA is committed to these goals and has worked for some time to include the environmental factor in the decision-making process, as enshrined in a climate change and sustainable development strategy for 2025.

 

•

In 2018 BBVA also participated in the second SDG Summit in Brussels, designed to foster the SDGs. BBVA believes that banks should help customers boost sustainable development and transition toward a low-carbon economy.

 

•

Finally, in response to a proposal by the United Nations Environment Program Financial Initiative (UNEP-FI), 16 leading global banks, among them BBVA, published the first joint methodology to make the banking system more transparent and promote understanding of the management of climate- related risks and opportunities.

Regarding the implementation of responsible business policies, a reputational risk model, and a people-centric culture throughout the Organization, it should be noted that at the start of this year, BBVA published its Human Rights Commitment, an action plan that covers all the areas of the Group and its ecosystem. For the Bank, respect for the dignity of people and their rights is an essential condition for action and is very closely linked to the challenge that it has assumed of fostering and preserving the well-being of the communities in which it operates. This commitment is based on the UN Guiding Principles on Business and Human Rights.

Additionally, BBVA has been chosen to form part of the 2018 Bloomberg Gender Equality Index. The index is composed of 104 companies from ten sectors headquartered in 24 countries. It recognizes the achievements of companies with respect to gender-equality policies, both in relation to their employees and their support for social initiatives and products and services that prioritize this commitment. The aim is to provide managers and investors with information on the commitment and performance of companies in the area of gender equality. Garanti Bank, BBVA’s subsidiary in Turkey, was the first Turkish Bank included in the index.

 

Finally, in terms of investment in the community in 2017, BBVA Group’s allocation to social programs amounted to €103m, accounting for 2.9% of the its net attributable profit for the year. Of this total, 70% supported initiatives that drive

development and create opportunities for people, within the priority framework of knowledge, education and culture included in the Group’s Community Investment Plan for the period 2016-2018.

 

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 2018 the reporting structure of BBVA Group’s business areas remained basically the same as in 2017. It is worth noting that BBVA announced the signing of two agreements, one for the sale of BBVA Chile to The Bank of Nova Scotia (Scotiabank), which was completed on July 6, 2018, although its impact will be reflected in the Group’s financial statements for the third quarter 2018; and another for the creation of a joint venture to which BBVA’s real-estate business in Spain will be transferred for the subsequent sale of 80% of the company created to a subsidiary of Cerberus Capital Management, L.P. (Cerberus). For the purpose of the explanations given in this report, the figures for Non Core Real Estate and South America are shown on a comparable basis with previous periods, even though within the balance sheet of the consolidated Group, the operations underway that are mentioned above have been reclassified as non-current assets and liabilities held for sale. The Group’s business areas are summarized below:

 

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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 portfolios, funding 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 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. 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.

 

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Turkey includes the activity of the Garanti group.

 

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

 

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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.

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.

Finally, 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 main geographical area in which they carry out their activity.