Results (pages 4-9)

 

 

 

•

Year-on-year changes are affected by the incorporation of Catalunya Banc (CX) in April 2015 and by the effects of the purchase of an additional 14.89% stake in Garanti, which has been incorporated into the Group’s financial statements by the full consolidation method since the third quarter of 2015.

 

•

Lack of corporate operations in the quarter.

 

•

Very negative effect of exchange rates against the euro of the main currencies that influence the Group’s financial statements.

 

•

Taking into account the stake in Garanti on a comparable basis, i.e. including it as if it had been incorporated by the full integration method since January 1, 2015, if the impact of corporate operations in the first quarter of 2015 is excluded, and if the exchange-rate effect is isolated, the most relevant aspects of the Group’s income statement in the quarter are as follows:

 

•

Positive performance of the most recurring revenues, in a context of very low interest rates in developed countries.

 

•

Reduced contribution from NTI as a result of lower sales in ALCO portfolios, volatility and low market activity.

 

•

Growth of operating expenses strongly influenced by the incorporation of CX, the high inflation in some countries and the exchange rate effect.

 

•

Reduction in impairment losses on financial assets.

Balance sheet and business activity (pages 10-11)

 

 

 

•

Over the quarter, gross lending to customers (excluding non-performing balances) has fallen slightly in the domestic sector (down 0.4%), despite the positive performance of new production, and declined 1.4% in the non-domestic sector due to the negative impact of exchange rates.

 

•

The Group’s non-performing loans have continued to decline, particularly in Spain (banking and real-estate activity).

 

•

Customer deposits under management have performed very well across the Group’s global footprint.

 

•

Off-balance-sheet funds have fallen slightly as a consequence of a very complex environment in the markets and negative effect of exchange rates.

Solvency (page 12)

 

 

 

•

Comfortable capital position (phased-in CET1 ratio of 11.6% and fully-loaded ratio of 10.5% as of the close of March 2016), above regulatory requirements, and with good quality (the fully-loaded leverage ratio is 6.3%).

 

•

In April, there was an issue of instruments eligible as additional Level 1 capital for €1,000m.

Risk management (pages 13-14)

 

 

 

•

Favorable performance of the main asset quality indicators: lower NPL ratio, stable coverage ratio and reduced cost of risk.

The BBVA share (pages 15-16)

 

 

 

•

There was a new bonus share issue in April to implement the “dividend-option”. On this occasion, the holders of 82.13% of the free allocation rights chose to receive new shares, which once more demonstrates the success of this remuneration system.

Other matters of interest

 

 

 

•

Announcement on March 7 of the acquisition of Holvi, a Helsinki-based online banking service for companies. This operation is part of BBVA’s strategy to expand its portfolio of digital businesses in order to complete the Group’s digital transformation.

 

•

The number of digital and mobile customers continues to increase (up 4.4% and 7.6%, respectively, over the quarter).

 

•

Intra-group mergers: The integration of Catalunya Banc, S.A, Banco Depositario BBVA, S.A. and Uno-e Bank, S.A. has begun within the framework of a reorganization process of banking subsidiaries of BBVA in Spain.

 

 

BBVA Group’s earnings for the first quarter of 2016 were determined in general by a very negative impact of exchange rates against the euro of the main currencies that affect the Group’s financial statements, and by the lack of corporate operations. Unless expressly indicated otherwise, to better understand the changes in the Group’s earnings figures, the percentages given below refer to constant exchange rates.

In addition, it should be recalled that year-on-year changes are affected by the incorporation of CX in April 2015 and by the effects of the purchase of an additional

14.89% stake in Garanti, which has been incorporated into the Group’s financial statements by the full consolidation method since the third quarter of 2015. In order to make comparison against the same period of 2015 easier, the end of this section includes an income statement with rates of change that take into account the business area of Turkey on a comparable basis, i.e. including BBVA’s stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015.

The most significant aspects of the Group’s income statement are as follows.

 

Gross income

The Group’s gross income was €5,788m, 14.9% more than in the same period of 2015 (up 1.9% with Turkey on a comparable basis). Of particular note in this amount is the good

performance of more recurring revenue and the lower contribution from NTI.

Net interest income is up 27.9% over the last twelve months (or 9.7% with Turkey on a comparable basis), with a positive trend in the

 

United States, Turkey, Mexico and South America. There was a slight downturn in banking activity in Spain and the Rest of Eurasia as a result of an environment with interest rates at an all-time low. In these geographical areas, the lower yield on loans has not been offset by lower cost of funding. As a result, customer spreads have narrowed. Also worth mentioning is the deleveraging process still underway in Spain, although at a slower pace than in the past.

Positive performance of income from fees and commissions (up 17.7% year-on-year and up 4.2% with Turkey on a comparable basis). The negative effect of regulatory limitations and the complex situation of the markets have been offset by an increasingly diversified revenue base, thanks to the improvement plans being carried out in a number of geographical areas, particularly in Spain and Turkey.

As a result, more recurring revenue (net interest income plus fees and commissions) is still an extremely relevant element

of the income statement, with an increase of 25.5% over the last year (up 8.4% with Turkey on a comparable basis).

Lower contribution from NTI compared to the same period in 2015, with a negative contribution in all the geographical areas except South America and Turkey. This trend is explained by the complex situation of the financial markets over the quarter, combined with lower ALCO portfolio sales in Spain and the United States.

There are no changes in the rest of the items making up gross income (dividends, income by the equity method and other operating income and expenses), which have performed slightly better than twelve months ago.

Operating income

Operating expenses have grown 24.8% year-on-year (up 12.4% with Turkey on a comparable basis), affected basically by the

 

incorporation of CX and its associated integration costs, the high level of inflation in some geographical areas where BBVA operates, the negative effect that currency depreciation is having on cost items denominated in dollars and euros and the investment plans still underway in some geographical areas (mainly Turkey, Mexico and South America). As a result, the efficiency ratio stood at 54.8% in the quarter.

 

 

 

As a result, operating income totals €2,614m, up 4.9% on the first three months of 2015 (down 8.4% with Turkey on a comparable basis).

 

Provisions and others

Impairment losses on financial assets have been kept in check. In the first quarter of 2016 they amounted to €1,033m, a year-on-year rise of 0.7%. With Turkey included on a comparable basis, this item continues the declining trend that was observed in 2015, with a year-on-year decline of 6.9%. By areas, there was a decline in the Eurozone and a limited increase in the rest of the geographical areas, very much in line with the growth in activity. It is worth pointing out that in the United States, the reduction in oil prices, with the resulting downgrade in the ratings of some companies in the energy sector, has meant an increase in loan-loss provisioning in this portfolio. Despite the above, the Group’s cost of risk has fallen compared with that registered in 2015, from a cumulative 1.06% as of 31-Dec-2015 to 0.92% as of 31-Mar-2016.

Allocation to provisions (net) and other gains/losses, which includes provisions for contingent liabilities, contributions to pension funds and write-downs against buildings and foreclosed assets, were below the figure for the first quarter of 2015 (down 9.9% or 10.3% with Turkey on a comparable basis).

 

Profit

As a result of the above, net income after tax from ongoing operations grew by 10.4% in year-on-year terms, though it fell 11.7% with Turkey on a comparable basis.

The heading results from corporate operations does not include any transactions in this period. In the first quarter of 2015 it included the capital gains from the various sale transactions equivalent to 5.6% of BBVA Group’s stake in China Citic Bank (CNCB).

Overall, net attributable profit in the first quarter of 2016 was €709m, of which banking activity in Spain contributed €234m, real-estate activity in Spain generated a loss of €113m, the United States generated €49m, Turkey €133m, Mexico €489m, South America €182m, and the Rest of Eurasia €18m.

 

Evolution of the Group’s income statement with Turkey on a comparable basis

To ensure comparable figures, the Group’s income statement with year-on-year rates of change taking into account Turkey on a comparable basis is presented below (to isolate the effects of the purchase of an additional 14.89% stake in Garanti, as explained above).

 

The rates of change of BBVA Group’s balance-sheet and business activity balances from the end of December 2015 to the close of March 2016 have been negatively affected by the depreciation against the euro of the main currencies that have an impact on the Group’s financial statements and by the difficult situation in the markets during the period. The Group’s assets and liabilities have declined by 1.2%. The trends observed in the quarter are summed up below:

 

•

Slight reduction in gross lending to customers. The deleveraging process continues in the domestic sector,

although at an increasingly lower pace due to better performance in new loan production. There is an increase in the other loans heading, although the higher amount of mortgage repayments (this portfolio accounts for 55% of lending to the domestic sector) and in funding for public sector explains the slight decline in lending to the domestic sector. The decline in loans to the non-domestic sector is strongly influenced by the aforementioned negative impact of currencies. Not including the exchange-rate effect, there has been growth in practically all the portfolios across the Group’s global footprint (the United States, Turkey, Mexico, South America and Rest of Eurasia).

 

 

•

The Group’s non-performing loans have continued to decline, particularly in Spain (banking and real-estate activity). In the rest of the geographical areas, the increase is explained basically by the unfavorable impact of currencies and the increase in non-performing loans related to the energy sector in the United States.

 

•

Customer deposits continue to perform favorably in practically all the geographical areas.

 

•

Off-balance-sheet funds have declined in the quarter, strongly influenced, also, by the difficult situation in the markets. However, under this heading, customer portfolios have posted good figures, particularly outside Spain.

 

•

Lastly, certain debt securities have been reclassified from the available-for-sale heading to the held-to-maturity portfolio in the balance sheet as of 31-Mar-2016.

 

 

Loans and advances to customers

(Million euros)

 

		31-03-16				D%				31-12-15				31-03-15
Domestic sector			175,462				(0.4	)			176,090				161,008
Public sector			21,114				(1.7	)			21,471				23,106
Other domestic sectors			154,348				(0.2	)			154,620				137,902
Secured loans			96,720				(1.2	)			97,852				86,144
Other loans			57,628				1.5				56,768				51,758
Non-domestic sector			228,227				(1.4	)			231,432				191,078
Secured loans			104,598				1.5				103,007				79,500
Other loans			123,628				(3.7	)			128,425				111,578
Non-performing loans			24,826				(2.0	)			25,333				22,787
Domestic sector			18,538				(4.9	)			19,499				18,058
Non-domestic sector			6,288				7.8				5,834				4,729
Loans and advances to customers (gross)			428,515				(1.0	)			432,855				374,873
Loan-loss provisions			(18,057	)			(3.4	)			(18,691	)			(14,607	)
Loans and advances to customers			410,458				(0.9	)			414,165				360,265

 

 

Customer funds

(Million euros)

 

		31-03-16				D%				31-12-15				31-03-15
Deposits from customers			408,971				1.5				403,069				339,675
Domestic sector			179,091				2.3				175,142				150,512
Public sector			15,998				4.1				15,368				13,142
Other domestic sectors			163,093				2.1				159,774				137,370
Current and savings accounts			78,830				0.4				78,502				62,783
Time deposits			69,114				(0.3	)			69,326				56,571
Assets sold under repurchase agreement and other			15,150				26.8				11,947				18,016
Non-domestic sector			229,880				0.9				227,927				189,163
Current and savings accounts			122,986				(0.7	)			123,854				113,399
Time deposits			100,831				2.3				98,596				69,107
Assets sold under repurchase agreement and other			6,063				10.7				5,477				6,657
Other customer funds			131,076				(0.6	)			131,822				132,844
Spain			77,766				(1.8	)			79,181				76,079
Mutual funds			30,274				(3.9	)			31,490				30,583
Pension funds			22,697				(0.9	)			22,897				22,595
Other off-balance sheet funds			53				(56.9	)			123				180
Customer portfolios			24,742				0.3				24,671				22,721
Rest of the world			53,310				1.3				52,641				56,765
Mutual funds and investment companies			22,874				(0.2	)			22,930				25,723
Pension funds			8,713				0.8				8,645				6,349
Other off-balance sheet funds			3,558				(2.9	)			3,663				3,660
Customer portfolios			18,165				4.4				17,404				21,033
Total customer funds			540,047				1.0				534,891				472,519

 

Capital base

BBVA closed the first quarter of 2016 with a fully-loaded CET1 ratio of 10.5%⁽¹⁾, which compares with a 10.3% ratio at the close of 2015. The highlights so far are summarized below:

 

•

A new issue of contingent convertible bonds(2) in April classified as additional Tier 1 capital instruments under the solvency rules, for €1,000m and with an 8.875% coupon. This issue raises the level of additional Tier 1 to that recommended by the regulations (1.5% of risk-weighted assets - RWA).

 

•

The “dividend-option” program recently completed in April has once more been highly successful. Holders of 82.13% of free allocation rights have chosen to receive bonus BBVA shares, which resulted in a capital increase of €55,702,125.43 through the issue of 113,677,807 new ordinary shares.

 

•

Lastly, there was a slight reduction in RWA over the quarter (down 0.5% on a phased-in basis), partly due to the changes in currencies.

 

Due to these factors, combined with the other CET1 impacts, the phased-in ratio stands at 11.6%. As of January 1, 2016, the ratio is affected by what is set out in the European solvency regulations, i.e. the gradual transition in some items, the most relevant being the deductions for goodwill and intangible assets, which since 2014 have increased by 20% every January 1, and will be fully phased-in on January 1, 2018.

The phased-in Tier I and Tier II ratios are at similar levels to the close of December 2015. Under fully-loaded criteria, Tier I closed the quarter at 12.0% and Tier II at 2.9%, above the figure established by regulations (2.0%).

Lastly, BBVA Group continues to maintain a high leverage ratio: 6.3% ^{(1, 2)} under fully-loaded criteria (6.4% phased-in), which continues to compare very favorably with the rest of its peer group.

Ratings

In the first four months of 2016 there was no change in BBVA’s rating. On April 13, DBRS downgraded BBVA’s outlook from positive to stable, as a result of a similar change in outlook of Spain’s sovereign rating announced on April 8.

 

 

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

Stable

 

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

 

Credit risk

In the first quarter of 2016, the main variables related to the Group’s credit risk management continued to be positive, both in general terms and compared to the previous quarter.

 

•

Credit risk was affected during the last quarter by exchange rate variations. In current terms there has been a reduction of 0.8%, while at constant exchange rates there was an increase of 0.6%. Over the last twelve months, the rates of change are +15.7% and +22.7%, respectively.

 

•

Non-performing loans, which account for 5.3% of the Group’s total credit risk, have once more performed well over the last three months. Since 31-Dec-2015, their balance has declined by 2.0%. This positive performance is once more explained by Banking Activity in Spain (down 4.7%) and Real-estate Activity in Spain (down 5.3%). In the other geographical areas, the performance has been more uneven: Mexico was practically flat (up 0.5%), while South America registered an 8.4% increase. The United States posted the largest increase, 52.0%, due mainly to the additions to NPL from customers linked to the Energy sector.

 

•

Loan-loss provisions have fallen since the end of 2015 by 3.4% due to their decline in Spain, since in the rest of the geographical areas they are up in constant exchange-rate terms. In year-on-year terms, the increase was 24.9%, partly due to the incorporation of CX.

 

•

As a result, the downward trend in the Group’s NPL ratio continues, with a decline on the close of the previous quarter to 5.3%. The coverage ratio remains stable at 74%.

 

•

Lastly, the cost of risk continues to perform favorably, in both quarterly terms (down 14 basis points) and year-on-year (down 29 basis points), closing March at 0.92%.

Structural risks

Liquidity and funding

Management of liquidity and funding 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 the regulatory requirements in place at present.

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 price formation.

In the first quarter of 2016, liquidity and funding conditions have remained comfortable across BBVA Group’s global footprint. Specifically:

 

•

The European Central Bank (ECB) announced at its meeting on March 10 a further cut in interest rates, expansion of the monthly purchases and assets eligible under the asset purchase program, and further rounds of liquidity injection through targeted longer-term refinancing operations (TLTRO) with a maturity of 4 years, in June, September and December 2016 and March 2017.

 

•

BBVA S.A. has had recourse to the long-term wholesale funding markets, with two successful operations that have attracted the attention of the most important investors: senior debt in the European market for €1,000m at 5 years, and a mortgage-covered bond in the euro market for €1,250m with a maturity of 7 years.

 

•

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

 

•

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

 

•

In general, the financial soundness of the Group’s banks is based on the funding of lending activity basically through the use of customer funds.

 

•

With respect to the new LCR regulatory liquidity ratio, BBVA has levels that are clearly higher than demanded by regulations, 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 quarter of 2016 was characterized by some volatility in the currencies of emerging economies in January and February, which was corrected in March. They were affected by weak global growth and the fall in oil prices. In this context, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Colombia, Peru, Turkey and the dollar area. In addition to this corporate-level hedging, dollar positions are held at a local level by some of the subsidiary banks. The foreign-exchange risk of the earnings expected from abroad in 2016 has also been managed.

Interest rates

The aim of managing interest-rate risk is to maintain sustained growth of net interest income in the short and medium term, irrespective of interest-rate fluctuations.

In the first quarter of 2016, the results of this management have been satisfactory, with limited risk strategies in all the Group’s banks. The amount of NTI generated in Europe, the United States and Mexico is the result of prudent portfolio management strategies, particularly in terms of sovereign debt, in a context marked by low interest rates.

Economic capital

Economic risk capital (ERC) consumption in consolidated terms at the close of February 2016 stood at €40,205m, down 0.6% with respect to the close of December 2015(1). It was mainly as a result of the depreciation of the local currencies against the euro and the decline in ERC due to equity risk (fall in the share price of Telefónica and CNCB). The above has been offset partially by the expansion in the loan portfolios in local currency and the increase in ERC due to structural interest-rate and exchange-rate risk.

 

 

The global economy grew 2.6% in the first quarter of 2016, according to BBVA Research estimates, below the 3.1% on average registered in 2015. The main reason for the loss of momentum continues to be the slowdown in growth of the main emerging economies, which the developed world has been unable to compensate. The global economic scenario for 2016 will be set by the uncertainty surrounding the size of the downturn in China and its global impact through commodity prices, increased financial volatility, and the effect of the pace of interest-rate hikes announced by the Federal Reserve (Fed). Global GDP in 2016 is not expected to grow much above 3%.

In this context, the main stock market indices have started the year with significant corrections. In Europe, the Stoxx 50 index lost 10.0% from the closing levels in 2015. In the Eurozone, the Euro Stoxx 50 is down 8.0% and in a situation of political uncertainty in Spain the Ibex-35 is 8.6% down over the same period. In contrast, in the United States, the S&P 500 index closed the quarter with a 0.8% gain.

The banking sector is bearing the brunt, due mainly to its exposure to the economic cycle, the negative interest rates in developed countries and the increase in risk aversion. The European bank index, Stoxx Banks, and the Eurozone bank index have contracted 20.9% and 20.7% over the quarter, respectively, while in the United States the S&P Regional Banks banking sector index has lost 12.9% since

31-Dec-2015.

In the first quarter of 2016, the price of the BBVA share performed relatively better than the European banking sector. It has lost 13.3% since the close of 2015 to €5.84 per share.

 

 

The BBVA share and share performance ratios

 

		31-03-16				31-12-15
Number of shareholders			942,343				934,244
Number of shares issued			6,366,680,118				6,366,680,118
Daily average number of shares traded			64,299,971				46,641,017
Daily average trading (million euros)			389				393
Maximum price (euros)			6.88				9.77
Minimum price (euros)			5.24				6.70
Closing price (euros)			5.84				6.74
Book value per share (euros)			7.29	(1)			7.47
Tangible book value per share (euros)			5.76	(1)			5.85
Market capitalization (million euros)			37,194				42,905
Yield (dividend/price; %) (2)			6.3				5.5

 

(1)	Adjusted by the results of the dividend-option execution in April 2016 and April 2015 respectively.

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

As part of the shareholder remuneration policy, the Board of Directors of BBVA agreed at its meeting on March 31, 2016 to perform a capital increase against reserves under the terms agreed by the Annual General Meeting of Shareholders held on March 11, 2016. This capital increase is the instrument used to implement the shareholder remuneration system called “dividend-option”, which offers BBVA shareholders the chance to choose between receiving all or part of their remuneration in either new BBVA shares or in cash. The terms and conditions of this capital increase establish that the number of free allocation rights needed to receive one new share is 46. As an alternative, shareholders who wish to receive their remuneration in cash may sell to BBVA their free

 

 

allocation rights at a gross fixed price of €0.129 per right during the first ten calendar days of their trading period, or on the market during the full trading period. This system seeks to optimize and customize the remuneration scheme so that shareholders can benefit from greater flexibility, since they can adapt their remuneration to their preferences and personal circumstances. The holders of 82.13% of these rights chose to receive new shares, a high acceptance percentage that once more confirms the success of this remuneration system.

From the close of 2015 to the end of the first quarter of 2016, the number of BBVA shares has remained stable at 6,367 million. The number of BBVA shareholders is up 0.9% to 942,343 as of 31-Mar-2016. The granularity of the shareholders has continued in 2016 and there are no individual shareholders with a significant direct shareholding. Investors resident in Spain hold 45.3% of the share capital, while the percentage owned by non-resident shareholders stands at 54.7%.

 

 

Shareholder structure

(31-03-2016)

 

		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 150			215,941				22.9				15,406,644				0.2
151 to 450			196,703				20.9				53,497,502				0.8
451 to 1800			286,864				30.4				271,377,883				4.3
1,801 to 4,500			127,143				13.5				362,247,540				5.7
4,501 to 9,000			59,304				6.3				372,857,008				5.9
9,001 to 45,000			49,817				5.3				867,425,616				13.6
More than 45,001			6,571				0.7				4,423,867,925				69.5
Total			942,343				100.0				6,366,680,118				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 also on the Lima Stock Exchange (Peru) under an exchange agreement between these two markets. In addition, the shares of BBVA Banco Continental, S.A., Banco Provincial, S.A., BBVA Colombia, S.A., BBVA Chile, S.A. and BBVA Banco Francés, S.A. are traded on their respective local stock exchanges. BBVA Banco Francés, S.A. shares are also traded on the Latin American

market (Latibex) of the Madrid Stock Exchange and on the New York Stock Exchange.

Among the main stock-market indices, BBVA shares are included on the Ibex 35 and Euro Stoxx 50, with an 8.5% weighting in the former and 1.9% in the latter, as well as in several banking industry indices, most notably Stoxx Banks, with a weighting of 4.7%, and the Euro Stoxx Banks, with a weighting of 9.7%.

In addition, BBVA maintains a significant presence on the main international sustainability indices or ESG (Environmental, Social and Governance) indices, which evaluate the performance of companies in this area.

 

 

Sustainability indices on which BBVA is listed

 

		Listed on the DJSI World and DJSI Europe
		Listed on the MSCI Global Sustainability indices
(1)		AAA Rating
		Listed on the FTSE4Good Global, FTSE4Good Europe and FTSE4Good IBEX indices
		Industry leader according to the latest ESG 2015 rating
		Listed on the Euronext Vigeo Eurozone 120 and Euronext Vigeo Europe 120 indices
		Included on the Ethibel Excellence Investment Register
		Included on the STOXX Global and Europe ESG Leaders indices
		In 2015, BBVA received a score of 94 points for disclosure and a Band C rating for performance

 

(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.

 

In the first quarter of 2016, BBVA published a number of indicators that reveal the impact of the Group’s activity in 2015 on the societies where it operates. Of note in this respect are the following:

 

•

We have invested more than €103m in social programs, 3.9% of the Group’s net attributable profit.

 

•

We have supported 1,720,968 SMEs, micro-enterprises and self-employed workers, through more than €23,500m of finance.

 

•

We have financed 1.7 million homes.

 

•

Our total tax contribution worldwide was €8,157m.

In addition, worth noting are the steps taken toward integrating corporate information into the publication of the report BBVA in 2015, where all the Group’s non-financial information has been published together in the same document. In this way, we align our approach with the demands of our stakeholders and regulatory trends. This report has been prepared using the guidelines established by the International Integrated Reporting Council (IIRC).

TCR Communication

The Transparency Report on the Tax Responsibility of Ibex 35 Companies by the Commitment and Transparency Foundation (Fundación Compromiso y Transparencia) puts BBVA in second place in the ranking of companies that report best on their tax responsibility.

Products with a high social impact

The BBVA Microfinance Foundation has published its 2015 Social Impact Report: Measuring what Really Matters. It sums up its work in the seven Latin American countries where it operates, helping the most vulnerable people to create small businesses and thus emerge from poverty. Since its creation in 2007, the Foundation has delivered a volume of loans totaling US$ 7,200m to nearly five million entrepreneurs in a vulnerable situation.

The 8th Edition of the Integra Awards have been held to recognize the innovative initiatives that generate quality employment for people with disabilities in Spain. A total of €3m have been granted in the seven years of the awards so far, 700 jobs have been created for people with disabilities and a further 4,000 jobs have been maintained.

Society

The environment

BBVA has once more joined the Earth Hour campaign called by the World Wide Fund for Nature (WWF). On March 19, the lights were put out in 123 buildings and 342 branches in 154 cities in the countries where BBVA operates. This campaign is a symbolic gesture in the fight against climate change. As WWF explains on its website, it has become the biggest environmental mobilization campaign in history.

Science and Culture

The BBVA Foundation Frontiers of Knowledge Awards have recognized the economist Martin Ravallion in the category of Development Cooperation; the neuroscientists Edward Boyden, Karl Deisseroth and Gero Miesenböck in Biomedicine; Veerabhadran Ramanathan in Climate Change; and Ilkka Hanski in Ecology and Conservation Biology. For more information, consult the website www.fbbva.es.

The BBVA Foundation has launched a call for new aid for scientific research teams and cultural researchers and creators. The aim is to support the development of projects that are characterized by an innovative spirit in areas such as ecology and big data.

Innovation

BBVA Bancomer opens the first Innovation Center in the banking sector in Mexico as a meeting point for the country’s innovation ecosystem (entrepreneurs, developers and startups). The BBVA Innovation Centers were launched four years ago in Madrid, Colombia and the United States. Their success is reflected in three main figures: over 20,000 visits received, 200 events in BBVA CIB, Madrid, a website with more than a million visits and 100,000 followers on Facebook.

 

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 2016 the reporting structure of BBVA Group’s business areas remains basically the same as in 2015:

 

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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. Since April 2015 it also includes the activity, balance sheet and earnings of CX.

 

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Real-estate activity in Spain covers specialist management of real-estate assets in the country (excluding buildings for own use), including: foreclosed real-estate assets from residential mortgages and developers; as well as lending to developers. Since April 2015 it also includes these same assets and loans from CX.

 

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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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Turkey includes the activity of the Garanti Group. BBVA’s stake in Garanti (39.9% since the third quarter of 2015) has been incorporated into the Group’s financial statements since then by the full integration method. The above has had an impact on the year-on-year rates of change in the earnings, balance-sheet and activity of this area due to the change in the scope of consolidation. In order to make the comparison against 2015 easier, rates of change are shown by taking into account the stake in Garanti on a comparable basis, i.e. including the stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015 (Turkey on a comparable basis or Turkey proforma).

 

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Mexico includes all the banking, real-estate and insurance businesses in the country.

 

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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 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 basically 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. It also comprises the result from certain corporate operations carried out by the Group in 2015.

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 all 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.

Once the composition of each business area has been defined, certain management criteria are applied, of which the following are particularly important:

 

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Capital. Capital is allocated to each business according to economic risk capital (ERC) criteria. This is based on the concept of unexpected loss at a specific confidence level, depending on the Group’s capital adequacy targets. The calculation of the ERC combines credit risk, market risk, structural balance-sheet risk, equity positions, operational risk, fixed-asset risk and technical risks in the case of insurance companies. These calculations are carried out using internal models that have been defined following the guidelines and requirements established under the Basel III capital accord, with economic criteria taking precedence over regulatory ones.

ERC is risk-sensitive and thus linked to the management policies of the businesses themselves. It standardizes capital allocation among them in accordance with the risks incurred. In other words, it is calculated in a way that is standard for all kinds of risks and for each operation, balance or risk position, allowing its risk-adjusted return

 

to be assessed and an aggregate to be calculated for profitability by client, product, segment, unit or business area.

 

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Internal transfer prices. BBVA Group has a transfer prices system whose general principles apply in the Bank’s different entities, business areas and units. Within each geographical area, internal transfer rates are established to calculate the net interest income of its businesses, under both the asset and liability headings. These rates consist of a reference rate (an index whose use is generally accepted on the market) that is applied based on the transaction’s revision period or maturity, and a liquidity premium, i.e. a spread that is established based on the conditions and

outlook of the financial markets in this respect. There are also agreements for the allocation of earnings between the product-generating units and the distribution units.

 

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Allocation of operating expenses. Both direct and indirect costs are allocated to the business areas, except where there is no clearly defined relationship with the businesses, i.e. when they are of a clearly corporate or institutional nature for the Group as a whole.

 

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Cross-selling. In some cases, consolidation adjustments are required to eliminate shadow accounting entries that are registered in the earnings of two or more units as a result of cross-selling incentives.