For 2015

 

•

Earnings influenced by the incorporation of Catalunya Banc (CX) on April 24, and since the third quarter of 2015, the purchase of an additional 14.89% stake in Garanti.

 

•

Negative effect of the exchange rates of the main currencies against the euro.

 

•

Overall, without considering the impact of the Garanti deal (henceforward, Turkey on an ongoing basis), 2015 closed with good performance of the more recurring revenue, an increase in operating expenses in line with that accumulated in the first nine months of 2015 and impairment losses on financial assets below those for the previous year, with a very positive impact on the Group’s cost of risk.

For the quarter

 

•

Good performance of income from fees and commissions and net trading income.

 

•

Dividend received from Telefónica.

 

•

Booking of the whole contribution to the Deposit Guarantee Fund (FGD) in Spain and the National Resolution Fund, which has had a negative effect on the earnings from Banking Activity in Spain of some €291m before tax.

Balance sheet and business activity (pages 10-11)

 

 

 

•

Figures affected by changes in the scope of consolidation, as mentioned above.

 

•

Taking Turkey on an on-going basis, there has been continued growth in gross customer lending, with a positive performance in loan production and customer funds in all geographical areas.

 

•

The Group’s non-performing loans have maintained the downward trend of the last few quarters.

Solvency (page 12)

 

 

 

•

Comfortable capital position (phased-in CET1 ratio of 12.1% and fully-loaded ratio of 10.3% as of the close of December 2015), above regulatory requirements, and with good quality (the fully-loaded leverage ratio is 6.0% as of the same date).

Risk management (pages 13-14)

 

 

 

•

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

The BBVA share (pages 15-16)

 

 

 

•

Distribution in cash on 12-Jan-2016 of an interim amount against the dividend for 2015, at a gross €0.08 for each outstanding share.

Business areas (starting on page 18)

 

 

 

•

Reclassification from the Corporate Center to Banking Activity in Spain of some operating expenses related to Technology, as a result of the transfer of management, resources and responsibilities. As a result, BBVA has modified the 2014 and 2015 income statements for these two business areas in order to provide a basis for comparison. This reassignment of expenses also affects CIB, but it has a neutral effect on the Group’s consolidated income statement.

Other matters of interest

 

 

 

•

BBVA continues to make progress in its digital transformation. As of 30-Nov-2015 it had 14.6 million digital customers. Of these, over 8.3 million are mobile banking customers.

 

•

BBVA has formalized its bid for the British market with the 29.5% stake it acquired in the share capital of Atom Bank, the first exclusively mobile bank in the United Kingdom, for GBP 45m.

 

BBVA Group generated a net attributable profit of €2,642m in 2015. These earnings incorporate those generated by CX since April 24, and the effects of the purchase of an additional 14.89% stake in Garanti since the third quarter, with its resulting incorporation by the full consolidation method and the valuation at fair value of the 25.01% that it already owned.

Gross income

The Group’s gross income was €23,680m, 10.9% higher than in 2014 (up 15.7% at constant exchange rates). This amount was achieved thanks to:

 

•

Good performance of net interest income (up 8.7% year-on-year, 21.5% at constant exchange rates). Including

 

the stake in Turkey on an on-going basis (at 25.01% and integrated proportionally to this stake), this heading closed the year at a similar level to 2014. However, at constant exchange rates it increased by 11.5%. This trend is explained by: the increased activity in emerging countries and the

 

United States, the good performance of loan production in Spain, the incorporation of balances from CX, as well as the cheaper cost of deposits in Spain and the defense of customer spreads in the rest of the geographical areas.

 

•

Excellent performance of income from fees and commissions, which has gained momentum over the year. The negative effect of regulatory limits continues to be offset by an increasingly diversified revenue base. This is thanks to the improvement plans being carried out in a number of geographical areas (mainly in Spain and Turkey), the aforementioned increase in activity and an increase in higher added-value operations being delivered by the Group’s wholesale businesses.

 

•

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 8.5% (up 19.2% at constant exchange rates). With Turkey presented on an on-going basis and taking into account the effect of exchange rates, the figure shows a high resilience (up 0.1%). Moreover, at constant exchange rates there was an increase of 10.1%.

 

 

•

NTI performed very well in the fourth quarter compared to the third, thanks to the sale of ALCO portfolios in the United States and the positive trend in South America. Market turbulence, particularly starting in the third quarter of 2015 (basically due to uncertainty with respect to growth in China and the fall in oil prices), has led to the cumulative figure for the year declining by 5.9% (down 2.6% at constant exchange rates). With Turkey considered on an on-going basis, this heading increased by 3.0% (up 6.6% excluding the currency effect), even though the comparison basis of 2014 was high.

 

•

The dividends heading includes mainly those from the Group’s stake in Telefónica (second and fourth quarters) and China Citic Bank (CNCB). In 2015 the figure fell by 21.8% due to the lack of a dividend payment from CNCB.

 

•

Income by the equity method barely amounted to €8m. In 2014, this heading basically included income from the

Group’s stake in the Chinese entity CIFH until the month of November.

 

•

Lastly, other operating income and expenses for the fourth quarter includes the one-off contribution to the Spanish DGF, which in 2014 was paid over four quarters, and for the first time, a payment to the national Resolution Fund. In the cumulative total for the year, the good performance of income from insurance activities has offset the contributions to different guarantee funds in the countries where BBVA operates.

Operating income

Operating expenses increased by 12.5% on 2014 (up 15.8% at constant exchange rates). With figures from Turkey presented on an on-going basis, the year-on-year increase is reduced to

 

 

6.0% (9.1% at constant exchange rates), affected by the high inflation in some emerging countries. Banking Activity in Spain includes CX since April 24 and the related integration costs. Excluding the incorporation of CX, the rate of increase of expenses is still lower than that of gross income.

As a result, operating income has improved to €11,363m, up 9.2% on 2014 (up 15.6% at constant exchange rates, 2.0% with data from Turkey presented on an on-going basis, and 8.0% with data from Turkey presented on an on-going basis and at constant exchange rates).

Provisions and others

Impairment losses on financial assets continue the downward trend of previous quarters. In 2015, they fell by 3.3% on 2014 (up 1.6% at constant exchange rates). 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. The above explains why the cumulative cost of risk as of December 2015 (1.06%) is below the figure for the close of the first nine months of the year (1.10%) and for 2014 (1.25%).

 

 

Allocation to provisions, which include the cost of the transformation plans, provisions for contingent liabilities and other commitments, as well as contributions to pension funds, were below the 2014 figure (down 36.6% or 30.9% at constant exchange rates).

Good performance also of the other gains (losses) heading, strongly affected by lower impairment losses on real-estate activity in Spain from provisions on property and foreclosed or acquired assets.

Profit

Net income from ongoing operations in 2015 grew year-on-year by 44.0% (up 53.8% excluding the effect of currencies).

The line results from corporate operations heading includes capital gains of €705m net of tax originated by the various sale operations equivalent to 6.34% of BBVA Group’s stake in CNCB; the credit of €26m, also net of tax, for the badwill generated in the CX deal; the effect (practically neutral) of the close of the sale of BBVA’s entire stake in CIFH; and the impact of the valuation at fair value of the 25.01% stake held by BBVA in Garanti at the time when the acquisition of an additional

14.89% was completed (amounting to a negative €1,840m in the third quarter).

Lastly, attributable profit from ongoing operations in 2015, which consists of the Group’s net attributable profit excluding results from corporate operations totaled €3,752m, up 43.3% on 2014. Attributable economic profit from ongoing operations reached €619m.

 

To ensure comparable figures, the Group’s income statement not including Venezuela is shown below (due to the exchange-rate impact), with Turkey presented on an on-going basis (to isolate the effects of the purchase of an additional 14.89% stake in Garanti, as already mentioned).

    

 

BBVA Group’s year-on-year figures for its business activity and balance sheet as of 31-Dec-2015 are influenced by the incorporation of the balances from CX and by the integration of Garanti, after closing the purchase of an additional 14.89% of this Turkish bank. Considering Turkey on an ongoing basis, i.e. with the 25.01% initial stake and with its balances integrated in the proportion corresponding to this percentage stake, trends are summarized below:

 

•

Recovery in the last quarter of 2015 of part of the general depreciation accumulated by the exchange rates of the currencies of emerging countries against the euro. However, a comparison of the year-end exchange rates against the

euro on 31-Dec-2015 against those on the same date in 2014 shows that the effect on the year-on-year rates of change is negative.

 

•

Growth in gross lending to customers (not including repurchase agreements –repos–) picks up speed: up 7.5% since December 2014, up 11.4% at constant exchange rates. This better performance is due to the increase in loans across all geographical areas. In Spain, this rise is explained by the incorporation of the balances from CX (up 13.1%), but also by the excellent performance of the production of new loans in all the segments, which has resulted in the stock of these products registering positive year-on-year

 

rates of change (except for mortgages, which is a portfolio with a high degree of redemptions, and public sector lending).

 

•

Favorable performance of deposits from customers (excluding repurchase agreements –repos–: up 10.9% year-on-year at current exchange rates and 18.5% at constant rates).

 

•

Reduction in non-performing loans, thanks to lower additions to NPL and the good performance of recoveries. The increase in this figure compared to that registered twelve months earlier is explained by the aforementioned incorporation of the balances from CX.

 

•

Off-balance-sheet funds (mutual and pension funds and other off-balance-sheet funds) have also accelerated their year-on-year rate of growth compared to that in the first nine months of the year: up 6.6% taking into consideration the impact of currencies and up 8.1% at constant exchange rates.

 

Loans and advances to customers

(Million euros)

 

		31-12-15				D%				31-12-14				30-09-15
Domestic sector			176,093				8.3				162,652				177,935
Public sector			21,471				(8.1	)			23,362				22,596
Other domestic sectors			154,623				11.0				139,290				155,340
Secured loans			97,852				12.0				87,371				99,240
Other loans			56,771				9.3				51,920				56,100
Non-domestic sector			231,429				28.1				180,719				222,613
Secured loans			103,007				41.4				72,836				102,408
Other loans			128,422				19.0				107,883				120,204
Non-performing loans			25,333				9.4				23,164				25,747
Domestic sector			19,499				5.0				18,563				20,181
Non-domestic sector			5,834				26.8				4,601				5,566
Loans and advances to customers (gross)			432,855				18.1				366,536				426,295
Loan-loss provisions			(18,691	)			26.5				(14,781	)			(18,841	)
Loans and advances to customers			414,165				17.7				351,755				407,454

 

 

Customer funds

(Million euros)

 

		31-12-15				D%				31-12-14				30-09-15
Deposits from customers			403,069				21.9				330,686				388,856
Domestic sector			175,142				20.6				145,251				172,110
Public sector			15,368				44.3				10,651				12,843
Other domestic sectors			159,774				18.7				134,600				159,267
Current and savings accounts			78,502				31.9				59,509				74,044
Time deposits			69,326				14.1				60,783				71,807
Assets sold under repurchase agreement and other			11,947				(16.5	)			14,308				13,416
Non-domestic sector			227,927				22.9				185,435				216,746
Current and savings accounts			123,854				8.8				113,795				117,056
Time deposits			98,596				57.2				62,705				94,531
Assets sold under repurchase agreement and other			5,477				(38.7	)			8,935				5,159
Other customer funds			130,104				9.5				118,851				128,141
Spain			79,181				11.4				71,077				76,667
Mutual funds			33,676				13.6				29,656				32,434
Pension funds			22,897				4.7				21,879				22,397
Other off-balance sheet funds			123				(29.1	)			174				119
Customer portfolios			22,485				16.1				19,368				21,717
Rest of the world			50,923				6.6				47,773				51,474
Mutual funds and investment companies			22,930				(0.9	)			23,126				24,271
Pension funds			8,645				57.6				5,484				7,959
Other off-balance sheet funds			3,663				7.7				3,403				3,683
Customer portfolios			15,685				(0.5	)			15,761				15,561
Total customer funds			533,173				18.6				449,537				516,996

 

Capital base

BBVA ended 2015 with a CET1 fully-loaded capital ratio of 10.3% and a leverage ratio of 6.0%, also fully-loaded. This continues to compare very favorably with the rest of its peer group. It is worth noting that the Group has waived the use of the so-called “national filter”, anticipating the proposal contained in the European Central Bank’s (ECB) draft regulation on the exercise of the options and powers available in EU law (November 2015), which is due to come into effect in March 2016. Additionally, the highlights in the period are:

 

•

Distribution to shareholders on July 16, 2015 and January 12, 2016 of €0.08 gross per share in cash, which involved disbursements of €504.4m and €509.3m, respectively.

 

•

The “dividend-option” programs, implemented in April and October, have had an excellent uptake (90.31% and 89.65%, respectively).

 

•

Increase in risk-weighted assets –RWA– (up 14.5% in the year, 0.9% over the last three months).

 

•

As a result of the above, the phased-in core capital ratio stands at 12.1%.

 

•

BBVA Group continues to maintain a high leverage ratio: 6.3% under phased-in criteria.

 

 

The following is worth mentioning with respect to regulation:

 

•

BBVA has published its prudential capital requirements applicable to the Entity, following the supervisory review and evaluation process (SREP), which established that BBVA maintain a phased-in core capital ratio of 9.5%, at both individual and consolidated level. In addition to this, an additional requirement has been added in 2016 at consolidated level for BBVA, as a global systemically important bank, consisting of an additional capital buffer of 0.25%. As a result, the minimum phased-in core capital required in 2016 will be 9.75%.

 

•

This requirement as a global systemically important bank (G-SIB) will not be applicable from January 1, 2017, as the Financial Stability Board (FSB) has communicated its decision to exclude BBVA from the list of G-SIBs as of that date. However, instead of this, a 0.5% requirement covering “other systemically important banks” established by the Bank of Spain will be applicable by 2019, and implemented gradually over four years (0.25% in 2017).

Ratings

In 2015, BBVA’s rating has been positive, in line with that in 2014, as commented. The latest update has been that DBRS has upgraded BBVA’s rating (A) outlook from stable to positive.

 

 

Ratings

 

Rating agency

Long term

Short term

Outlook

DBRS

A

R-1 (low)

Positive

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 2015, the main variables related to the Group’s credit risk management have continued to be positive in general terms and compared to the previous year. The year-on-year changes are affected both by the incorporation of CX and by the effects resulting from the purchase of an additional 14.89% stake in Garanti.

 

•

The positive trend in activity in the quarter explains the 1.6% increase in the Group’s credit risk from 30-Sep-2015. It has increased by 19.5% over the last twelve months. Excluding the impact of exchange rates, there has been a quarterly increase of 0.7% and a year-on-year increase of 23.6%.

 

•

Non-performing loans, which account for 5.4% of total credit risk, maintain their downward trend. They are down 1.5% over the quarter, strongly affected by their performance in Banking Activity in Spain (down 1.5%) and Real-estate Activity in Spain (down 7.3%). In year-on-year terms, this heading has increased by 10.2%, basically as a result of the

incorporation of the balances from CX (excluding this effect, there has been a 4.6% decrease).

 

 

•

Loan-loss provisions remain at levels similar to those registered at the close of the third quarter (down 0.3%). Compared to the amount registered at the end of 2014, there has been a 28.0% increase, due partly to the aforementioned CX operation.

 

•

Consequently, further improvement in the Group’s NPL ratio which closed at 5.4% and continues to decline with respect to the close of the previous quarter. Stability in the coverage ratio, at 74%. In the year-on-year comparison, the incorporation of CX has increased the NPL ratio, but also the coverage ratio.

 

•

Lastly, there is a positive trend in the cost of risk compared to the cumulative figures to September 2015 and December 2014.

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.

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.

During 2015 the liquidity and funding conditions have remained comfortable across BBVA’s global footprint. Specifically, in the latter part of the year:

 

•

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 United States market for US$ 1,000m at 5 years; and a mortgage-covered bond in the euro market for €1,250m with a maturity of 5.5 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 regulatory LCR ratios, 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.

2015 was characterized by some volatility of the currencies of emerging economies, affected by weak global growth and the fall in oil prices, which was reversed to some extent in the fourth quarter. In this context, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Colombia, Turkey and the dollar area. In addition to these hedges done at corporate level, dollar positions are held at local level by some of the subsidiary banks. The currency risk of the earnings expected from abroad for the last 12 months 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.

During 2015, 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

Attributable economic risk capital (ERC) consumption at the end of December stood at €32,278m. Over the last twelve months, the decline in equity ERC is the result of the reduction in the stake in CNCB. The integration of CX (which mainly affects credit and fixed-asset risk) and the effect of the Garanti deal have resulted in an increase in ERC, which nevertheless has been partly offset by the depreciation against the euro of the main currencies of emerging markets in 2015. The year-on-year rate of change in ERC is therefore +5.7%.

 

 

In 2015, global economic growth lost momentum, mainly as a result of the slowdown in the main emerging economies. The recovery in the developed markets has been insufficient to offset this impact. The new downward correction of activity in China, the tightening of monetary policy in the United States and the fall in the price of commodities have resulted in a difficult scenario that has kept global growth in 2015 at around 3.2%.

In this global situation, the main stock-market indices, except for the European Stoxx 50, have closed 2015 at levels lower than those registered the previous year. In the United States, the general S&P 500 index closed with a year-on-year decline of 0.7%, while in Spain the Ibex 35 lost 7.2%, after the consecutive rises registered in the two previous years. In contrast, in Europe, the Stoxx 50 index gained 3.2%.

The performance of the banking sector in 2015 has to a certain extent proved a burden on these general indices. The S&P Regional Banks banking sector index in the United States closed 2015 with a year-on-year decline of 0.3%, while in Europe, the Stoxx Banks fell 3.3% and the Euro Stoxx Banks, which includes the banks in the Eurozone, lost 4.9%. The sector’s performance over the year has been affected by a number of factors, including market uncertainty about the potential impact of the regulatory changes currently being discussed and the downward revision of the expectations of growth over the year.

The price of the BBVA share increased by 19.8% in the first quarter of 2015 before starting a downward path that continued for the rest of the year. At the close of the year,

 

the price posted a year-on-year decline of 14.2%, with a price of €6.74 per share as of 31-Dec-2015. This amount represents a market capitalization of €42,905m, a price/book value ratio of 0.9 and a P/E of 13.2 (calculated on BBVA Group’s net attributable profit for 2015). At these levels, the value of the BBVA share compares favorably with the average for European banks.

 

 

The BBVA share and share performance ratios

 

		2015				2014
Number of shareholders			934,244				960,397
Number of shares issued			6,366,680,118				6,171,338,995
Daily average number of shares traded			46,641,017				48,760,861
Daily average trading (million euros)			393				437
Maximum price (euros)			9.77				9.99
Minimum price (euros)			6.70				7.45
Closing price (euros)			6.74				7.85
Book value per share (euros) (1)			7.47				8.01
Market capitalization (million euros)			42,905				48,470
Price/book value (times)			0.9				1.0
PER (Price/earnings; times)			13.2				17.3
Yield (Dividend/price; %) (2)			5.5				4.2

 

(1)	Numerator= equity plus valuation adjustments; denominator= number of shares outstanding minus treasury stock. All data refers to a specific date.

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

As regards shareholder remuneration, two dividends were paid out in cash at €0.08 gross per share each, amounting to disbursements of €504.4m on July 16, 2015 and €509.3m on January 12, 2016, against 2015 earnings. Additionally, at its meetings held on March 25 and September 30, 2015, the Board of Directors of BBVA agreed to complete two capital increases against reserves, under the terms agreed by the Annual General Meeting of Shareholders held on March 13, 2015. These increases have served as instruments for developing the share remuneration scheme called “dividend-option”, details of which have been widely reported in previous reports. In the case of the implementation of the first “dividend-option”, the holders of 90.31% of these rights chose to receive new shares. In the case of the second, the holders of 89.65% decided to receive new shares. The acceptance percentages are the highest obtained in the last two years, confirming the excellent level of support for this remuneration system among shareholders.