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.

 

•

Negative effect of exchange rates.

 

•

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 half of 2015 is excluded, and if the exchange-rate effect is isolated, the most relevant aspects of the Group’s income statement in the period are as follows:

 

•

The most recurring revenue has maintained its favorable trend, thanks to strong activity, mainly in emerging economies.

 

•

Good performance of NTI in the second quarter of 2016, basically as a result of increased sales in ALCO portfolios and the capital gains registered on the VISA Europe operation explained later.

 

•

Payment of the dividends from the stakes in Telefónica and China Citic Bank (CNCB) in the second quarter of 2016.

 

•

Also in the second quarter, the booking of the annual contribution to the new European Single Resolution Fund (SRF), which has aggregated all the national resolution funds. In 2015, the contribution was made to the FROB and booked in the fourth quarter.

 

•

Moderation in the year-on-year rate of growth of operating expenses, despite the fact that they are still strongly influenced by the incorporation of CX, high inflation in some countries and the exchange-rate effect.

 

•

Further decline of impairment losses on financial assets.

Balance sheet and business activity (pages 10-11)

 

 

 

•

In the first half, gross lending to customers (excluding non-performing balances) increased slightly in the domestic sector, as a result of the good performance of new production. In the non-domestic sector, the trend has been strongly influenced by the negative impact of exchange rates, since excluding this effect there has been notable growth in practically all the geographical areas.

 

•

Non-performing loans have continued to decline, particularly in the domestic sector.

 

•

Customer deposits under management continue to perform favorably.

 

•

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

Solvency (page 12)

 

 

 

•

Capital position above regulatory requirements. At the close of June 2016, the phased-in CET1 ratio stood at 12.0% and the fully-loaded CET1 ratio at 10.7%. The fully-loaded leverage ratio is 6.4%.

 

•

Placement of an issue of instruments eligible as additional Tier 1 capital for €1,000m.

Risk management (pages 13-14)

 

 

 

•

Improvement in the main asset quality indicators: At the close of June 2016, the NPL ratio and cost of risk are lower, while the coverage ratio is higher compared to the ratios reported as of 31-Dec-2015.

The BBVA share (pages 15-16)

 

 

 

•

A cash amount of €0.08 gross per share was distributed to shareholders on July 11, 2016.

Other matters of interest

 

 

 

•

The number of digital and mobile customers continues to increase (up 8% and 15% year-to-date, and up 21% and 45% year-on-year, respectively).

 

•

On June 21, 2016, VISA Inc. completed the acquisition of VISA Europe Ltd. This transaction has resulted in the recognition of a capital gain, net of tax, of €128m in BBVA Group’s financial statements.

 

 

BBVA Group’s earnings for the first half of 2016 continue to be influenced in general by the negative impact of exchange rates against the euro of the main currencies that affect the Group’s financial statements, the difficult market situation and lack of corporate operations. Unless expressly indicated otherwise, to better understand the changes in the figures, the percentages given below refer to constant exchange rates. It should be recalled that year-on-year changes are affected by the incorporation of CX in April 2015 and the effects of the acquisition 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 easier, the end of this section includes an income statement with rates of change that take into account the business area of Turkey in comparable terms, i.e. including BBVA’s stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015. The other factors that influence the Group’s half-yearly income statement are explained below.

 

Gross income

The Group’s gross income performance in the second quarter of the year improved on the first quarter. The cumulative figure through June 2016 was €12,233m, a rise of 18.2% on the same period

in 2015 (up 4.6% with Turkey in comparable terms). The good performance of the more recurring revenue continues to be of note.

Net interest income rose significantly in the second quarter of 2016 compared with

 

the first, so the cumulative figure in the half year increased by 26.1% in year-on-year terms (up 7.9% with Turkey in comparable terms). By business areas, the trend in Mexico, South America, Turkey and the United States was positive, thanks to the strength of activity (above all in the first three geographical areas) and the defense of customer spreads (above all in South America, Turkey and the United States). In banking activity in Spain, in an environment of all-time low interest rates, lower cost of finance has not offset the decline in the yield on loans.

Increase in cumulative income from net fees and commissions through June 2016 (up 16.2% year-on-year, or up 3.1% with Turkey in comparable terms), thanks to the good performance in Mexico, South America and Turkey. Certain regulatory limitations in some countries such as Turkey, and the complex market situation during the quarter, have been offset by the strength of activity in emerging geographical areas and an increasingly diversified revenue base.

 

 

As a result, more recurring revenue (net interest income plus fees and commissions) has increased over the half year: up 23.8% in the last twelve months, or 6.8% with Turkey in comparable terms.

Positive trend in NTI in the second part of the half-year, as a result of increased sales in ALCO portfolios, together with the booking of the capital gains from the VISA Europe operation (on June 21, 2016, VISA Inc. completed the process of acquisition of VISA Europe Ltd. This transaction has resulted in the recognition of capital gains, before tax and minority interests, of €225m). However, the difficult situation in the financial markets and lower ALCO portfolio sales compared with the figure from the first half of 2015 mean that as a cumulative total through June 2016 the heading is lower than for the same period in 2015.

The dividend income heading mainly includes those from the Group’s stake in Telefónica and CNCB.

Lastly, other operating income and expenses includes the annual contribution to the new SRF (the aggregate of the national resolution funds), a negative impact in the Group of €122m. In 2015, the contribution was made to the FROB and booked in the fourth quarter. With respect to the insurance business, it is worth of note that its net contribution included under this heading has increased by 18.3% in the last twelve months.

Operating income

The year-on-year increase in cumulative operating expenses for the half-year has slowed to 21.1% (up 9.1% with Turkey in comparable terms), although they are still strongly influenced 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 has had on cost items denominated in dollars and euros, and the investment plans still underway in some geographical areas.

 

As a result of these revenue and expenses figures, the cumulative efficiency ratio for the first half of 2016 has improved on the figure for the first quarter of this year (51.8% compared with 54.8% in the first quarter of 2016) and operating income amounted to €5,901m, a year-on-year increase of 15.2% (up 0.2% with Turkey in comparable terms).

 

 

 

 

 

 

 

 

Provisions and others

Impairment losses on financial assets for the quarter are closely in line with the previous quarter, which means that the cumulative figure for the half-year has increased year-on-year by 5.3%. With Turkey included in comparable terms, this heading continues to decline, with a year-on-year fall of 3.7%. By business areas, there was a fall in the Eurozone and South America and a limited increase in the rest of the geographical areas. In Turkey they have been negatively affected by an

 

increase in provisions, that has an impact on the subsidiary in Romania. In Mexico they have increased below the growth in lending. Lastly, in the United States this heading is higher than in the same period of the previous year, due particularly to the increase in provisions following the downgrade in the rating of some companies operating in the energy (exploration & production) and metals & mining (basic materials) sectors in the first quarter of 2016, as in the second quarter they have declined by 41.3% compared with the figures registered between January and March 2016. As a result of the above, the Group’s cost of risk in the first half of this year (0.92%) is well below the figure for the same period in 2015 (1.16%) and at the same level as of 31-Mar-2016.

 

 

Lastly, there was also a decline in the allocation to provisions (net) and other gains/losses (down 27.0% year-on-year, or 26.9% with Turkey in comparable terms), which include among other, the provisions for contingent liabilities, contributions to pension funds and write-downs against buildings and foreclosed assets. This is largely due to lower impairments in real-estate in Spain.

Profit

As a result of the above, net income from ongoing operations grew by 30.2% year-on-year, or 4.6% with Turkey in comparable terms.

 

 

The results from corporate operations heading does not include any transaction in this period. In the first half of 2015 it included the capital gains from the various sale transactions equivalent to 6.34% of BBVA Group’s stake in CNCB and the badwill generated from the CX operation.

Overall, the net attributable profit for the first half of 2016 stands at €1,832m, of which banking activity in Spain contributed €619m, real-estate activity in Spain generated a loss of €209m, the United States generated €178m, Turkey €324m, Mexico €968m, South America €394m and the Rest of Eurasia €75m.

 

The Group’s income statement with Turkey in comparable terms

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

    

 

Since June 2016, the consolidated financial statements of BBVA Group have been presented according to the models included in Circular 5/2015 of the Spanish Securities and Investment Board (CNMV), with the aim of adapting the content of public financial information of credit institutions to the terminology and formats of financial statements established by the European Union for credit institutions. The balance sheets presented below have been adapted to these models, not only for June 2016 but also for previous dates; in this latter case it is only for purposes of comparison.

The rates of change of BBVA Group’s balance-sheet and business activity balances from the end of December 2015 to

the close of June 2016 continue to be negatively affected by the depreciation of exchange rates against the euro and by the difficult situation in the markets. With respect to the rest of trends, the most notable aspects in the six-month period are summarized below:

 

•

Growth in gross lending to customers. In the domestic sector, a change in trend, as sound new production figures pushed the balance as of 30-Jun-2016 to show a slight increase on the balance reported on 31-Dec-2015. This performance was achieved despite the fact that repayments in the mortgage portfolio continue to be higher than new production. The trend in loans to the non-domestic sector is

 

strongly influenced by the aforementioned negative impact of currencies. Not including this effect, there has been growth in practically all the geographic areas across the Group’s global footprint, particularly in Mexico, South America and Turkey.

 

•

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

 

•

Deposits from customers continue to perform favorably in practically all the geographical areas, despite the reduction in balances from the public sector.

 

•

Off-balance-sheet funds have declined in the half year due largely to the difficult situation in the markets, although there was a positive performance over the quarter of net sales of mutual funds, above all in Spain, which points to a change in trend over previous periods.

 

 

 

Loans and advances to customers

(Million euros)

 

		30-06-16				D%				31-12-15				30-06-15
Domestic sector			177,350				0.7				176,090				181,411
Public sector			21,605				0.6				21,471				22,998
Other domestic sectors			155,744				0.7				154,620				158,413
Secured loans			95,488				(2.4	)			97,852				100,443
Other loans			60,256				6.1				56,768				57,970
Non-domestic sector			231,706				0.1				231,432				185,981
Secured loans			107,290				4.2				103,007				78,147
Other loans			124,416				(3.1	)			128,425				107,834
Non-performing loans			24,212				(4.4	)			25,333				25,766
Domestic sector			17,639				(9.5	)			19,499				21,142
Non-domestic sector			6,572				12.7				5,834				4,624
Loans and advances to customers (gross)			433,268				0.1				432,855				393,159
Loan-loss provisions			(17,396	)			(6.9	)			(18,691	)			(18,271	)
Loans and advances to customers			415,872				0.4				414,165				374,888

 

 

Customer funds

(Million euros)

 

		30-06-16				D%				31-12-15				30-06-15
Deposits from customers			406,284				0.7				403,362				363,639
Domestic sector			173,951				(0.7	)			175,142				178,581
Public sector			12,953				(15.7	)			15,368				17,851
Other domestic sectors			160,998				0.8				159,774				160,729
Current and savings accounts			83,941				6.9				78,502				73,247
Time deposits			64,029				(7.6	)			69,326				70,270
Assets sold under repurchase agreement and other			13,028				9.1				11,947				17,213
Non-domestic sector			232,097				1.8				227,927				184,792
Current and savings accounts			121,772				(1.7	)			123,854				108,784
Time deposits			102,845				4.3				98,596				68,197
Assets sold under repurchase agreement and other			7,480				36.6				5,477				7,811
Subordinated liabilities			236				(19.3	)			293				266
Other customer funds			130,116				(1.3	)			131,822				132,783
Spain			77,670				(1.9	)			79,181				78,985
Mutual funds			30,566				(2.9	)			31,490				32,208
Pension funds			22,773				(0.5	)			22,897				22,672
Other off-balance sheet funds			51				(58.6	)			123				129
Customer portfolios			24,280				(1.6	)			24,671				23,976
Rest of the world			52,446				(0.4	)			52,641				53,798
Mutual funds and investment companies			22,921				(0.0	)			22,930				24,942
Pension funds			9,289				7.4				8,645				6,283
Other off-balance sheet funds			3,319				(9.4	)			3,663				3,711
Customer portfolios			16,918				(2.8	)			17,404				18,861
Total customer funds			536,400				0.2				535,184				496,422

 

Capital base

BBVA closed the first half of 2016 with a fully-loaded CET1 ratio of 10.7%, which compares with a ratio of 10.5% at the close of March.

This represents the generation of 17 basis points of fully-loaded CET1. The increased ratio is the result of the Group’s generation of recurring earnings, despite the volatility of the markets during the period, together with a reduction of risk-weighted assets –RWA– (down 1.1% in the quarter under fully-loaded criteria), in line with the Group’s strategic goals of efficient management and allocation of capital. Other aspects related to the capital base are summarized below:

 

•

In April a new “dividend-option” program was completed, in which holders of 82.13% of free allocation rights chose to receive bonus BBVA shares.

 

•

In addition, on July 11, the Group paid an amount in cash of 0.08 euros gross per share, which has implied a disbursement of €518m.

In phased-in terms, the CET1 ratio was 12.0%, which includes the impact of the completed corporate reorganization in Peru.

 

 

The Tier 1 ratio ended the quarter at 12.7% and the Tier 2 at 3.0%, giving a total capital ratio of 15.7%.

With respect to fully-loaded Tier 1, the Group has completed the level of additional Tier 1 recommended by the solvency regulations (1.5% of RWA) in April, with the issue of contingent convertible bonds, classified as additional Tier 1 capital under the solvency regulations.

The Group maintains a high leverage ratio: 6.4% under fully-loaded criteria (6.6% phased-in), which compares very favorably with the rest of its peer group.

Lastly, it is worth noting the recent publication by the Federal Reserve (Fed) of the results of the comprehensive capital analysis and review (CCAR) for the main financial institutions in the United States. BBVA Compass is among the 30 banks (out of a total of 33) for which the Fed has approved its capital plan with no objections.

Ratings

In the first seven 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 the outlook of Spain’s sovereign rating.

 

 

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

At the close of the first half of 2016 the trend of the main variables related to the Group’s credit risk management continue to be positive.

 

•

Credit risk has increased by 1.0% on the close of the previous quarter and 0.1% on the close of 2015 (up 0.8% and 1.3%, respectively, at constant exchange rates).

 

•

Non-performing loans have reduced their proportion of total credit risk in the Group to 5.1% and maintain the good performance seen in the first quarter of the year. Since March 2016, the balance has fallen by 2.5% (down 2.6% at constant exchange rates). The positive performance of this item in the business areas of Banking Activity in Spain (down 5.1%), Real Estate Activity in Spain (down 3.8%) and Mexico (down 4.4%) explain this decline. In contrast, South America registered an increase of 12.6% as a result of strong activity in the region. The United States posted a 15.1% increase due to the additions to NPL from customers linked to the energy (exploration & production) and metals & mining (basic materials) sectors, although it should be noted that the rate of increase has slowed on the previous quarter. Lastly, in Turkey, non-performing loans increased by 1.8%.

 

•

Loan-loss provisions have registered a slight quarterly decline of 2.5% (dow 5.9% year-to-date). By business areas they declined in Spain and to a lesser extent in Mexico.

 

•

As a result, the Group’s NPL ratio continues to decline and reached 5.1% as of 30-Jun-2016. The coverage ratio remains stable at 74%.

 

•

Lastly, the cumulative cost of risk for the half year is practically the same as the levels observed in the first quarter (0.92%), and continues at much lower figures compared with the data for the first half of 2015.

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 current regulatory requirements.

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

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

 

•

The financial soundness of the Group’s banks is based on the funding of lending activity, basically through the use of customer funds. On the euro balance sheet, total deposits have remained stable, despite the current environment of low interest rates. Mexico, the United States and Turkey have also shown a positive trend.

 

•

It is thought that Brexit will have a limited impact on liquidity conditions in the Eurozone. No difficulties in short-term funding are expected, given the current large volume of excess liquidity in the system and the clear commitment of the European Central Bank (ECB).

 

•

On June 24, 2016, the ECB carried out the first of the four quarterly auctions under the new targeted longer-term refinancing operations (TLTRO II), with a 4-year maturity. BBVA has participated in the auction, increasing its net take-up by €10 billion. Overall, the Group’s total take-up in TLTRO is €23.7 billion.

 

•

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: an AT1 perpetual bond issue in the European market for €1 billion and securitization for €750m with an average maturity of 9 years, which has provided long-term funding under favorable price conditions.

 

•

The long-term wholesale funding markets have remained stable in the other geographical areas where the Group operates. There have been no international securities issues. Of particular note is Turkey, where access to stable funding has been demonstrated through the renewal of syndicated loans for €1 billion.

 

•

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

 

•

With respect to the new LCR regulatory liquidity ratio, BBVA Group has levels of over 100%, clearly higher than demanded by regulations (over 70% in 2016), 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 half of 2016 has been marked by the implementation of additional quantitative easing (QE) by the ECB, as well as a delay in the Fed interest-rate hikes in reaction to weaker job figures. Brexit has led to a global movement to assets considered lower risk; the effect eased at the close of June. Against this background, 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 local level by some of the subsidiary banks. The foreign-exchange risk of the earnings expected from abroad for the next 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.

In the first half 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, Mexico and Turkey is the result of prudent portfolio management strategies, particularly in terms of sovereign debt, in a context marked by low interest rates.

Lastly, Brexit has had a limited impact on the debt markets, with no major increases in sovereign or BBVA’s debt spreads. It has therefore had a limited impact in NTI and the valuation of ALCO portfolios.

Economic capital

Economic risk capital (ERC) consumption at the close of May stood at €38,141m in consolidated terms, which is equivalent to a quarterly decline of 5.1%, mainly due to the depreciation of local currencies against the euro (basically the Mexican peso, the U.S. dollar and the Turkish lira), and particularly the decline in ERC due to other risks: a reduction in the available-for-sale portfolio, affecting the ERC pertaining to fixed-income (spread), which is partially offset by the increase in ERC due to market and equity risk.

 

 

According to the latest information available, global growth remains stable at slightly above 3% year-on-year. The uncertainty of the global economic outlook has increased recently with the victory of the yes vote in the referendum for the United Kingdom to leave the European Union. In the most likely scenario, the impact of Brexit on the global economy would be temporary and of uncertain but limited strength: greatest in the United Kingdom, somewhat less so in the Eurozone and more limited in the rest of the world. In general, the growth of the developing economies has not been sufficient to offset the slowdown in emerging markets. The performance of the Chinese economy, with vulnerabilities derived from the high level of debt, will continue to determine global growth prospects, in particular for emerging economies. Geopolitical tension in some regions and the risk of a scenario of adjustment in the United States complete the outlook of global uncertainties in 2016 and 2017.

With respect to the performance of the main stock-market indices, in Europe the general Stoxx 50 closed up over the quarter (0.8%), while in the Eurozone the Euro Stoxx 50 and Ibex 35 moderated their downward trend, losing 4.7% and 6.4% respectively. In the United States, the S&P 500 closed at 1.9% above the level of the close of the first quarter of the year.

In the banking sector the European bank index Stoxx Banks and the Eurozone bank index Euro Stoxx fell over the quarter by 13.1% and 17.9% respectively, strongly impacted by the result of the Brexit referendum. In the United States the bank index S&P Regional Banks gained 2.6% on its level at the close of 31-Mar-2016.

 

 

 

The BBVA share and share performance ratios

 

		30-06-16				31-12-15
Number of shareholders			939,683				934,244
Number of shares issued			6,480,357,925				6,366,680,118
Daily average number of shares traded			58,526,721				46,641,017
Daily average trading (million euros)			343				393
Maximum price (euros)			6.88				9.77
Minimum price (euros)			4.50				6.70
Closing price (euros)			5.06				6.74
Book value per share (euros)			7.35				7.47
Tangible book value per share (euros)			5.81				5.85
Market capitalization (million euros)			32,817				42,905
Yield (dividend/price; %) (1)			7.3				5.5

 

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

The BBVA share has outperformed the Euro Stoxx Banks index for the second consecutive quarter. The price reached 5.06 euros per share as of 30-Jun-2016, 13.3% down on the close of the previous quarter.

As regards shareholder remuneration, the Board of Directors of BBVA agreed on June 22, 2016 to pay €0.08 gross per share in cash, payable on July 11. Before this, on April 19, 2016, a capital increase against voluntary reserves was completed to develop the “dividend option” approved by the BBVA Board of Directors at its meeting on March 31, 2016.

 

 

 

As a result, the number of ordinary BBVA shares increased by 113,677,807 following the execution of the “dividend option” in April, to a total of 6,480,357,925 shares as of 30-Jun-2016. The number of shareholders has remained practically unchanged (939,683). The shareholder base continues to be broad in the first half of the year, and there are no individual shareholders with a significant direct stake. Investors resident in Spain hold 44.9% of the share capital, while the percentage owned by non-resident shareholders stands at 55.1%.

 

 

Shareholder structure

(30-06-2016)

 

		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 150			200,924				21.4				14,653,966				0.2
151 to 450			195,254				20.8				53,242,530				0.8
451 to 1,800			290,878				31.0				277,373,511				4.3
1,801 to 4,500			132,290				14.1				377,073,768				5.8
4,501 to 9,000			61,607				6.6				388,104,645				6.0
9,001 to 45,000			51,924				5.5				904,966,384				14.0
More than 45,001			6,806				0.7				4,464,943,121				68.9
Total			939,683				100.0				6,480,357,925				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. Among the main stock-market indices, BBVA shares are included on the Ibex 35 and Euro Stoxx 50, with an 7.9% weighting in the former and 1.7% in the latter, as well as on several banking industry indices, most notably Stoxx Banks, with a weighting of 4.7%, and Euro Stoxx Banks, with a weighting of 10.2%.

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. In the second quarter of the year, the Bank renewed its place on the Ethibel Sustainability Index (ESI) Excellence Europe, Ethibel Sustainability Index (ESI) Excellence Global and Euronext Vigeo Eurozone 120.

 

 

 

(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.

 

BBVA’s responsible banking model seeks to boost financial inclusion and literacy and support scientific research and culture. The Group operates with the highest level of integrity, a long-term focus, and a balanced relationship with customers, contributing to the development of the communities in which it is present. All this is in line with the Bank’s purpose: “to bring the age of opportunity to everyone”.

In the second quarter of the year, BBVA Bancomer and Seguros Bancomer received from the Mexican Center for Philanthropy (Cemefi) the “Socially Responsible Company” recognition, which is awarded to all leading companies in the field of social responsibility that have certifiable standards in community involvement and support for the populations over which they have an influence. This recognition was awarded for the first time in 2000. BBVA Bancomer has been the only bank to receive this recognition for more than fifteen years.

Financial Literacy

The Institute for Financial Literacy, a non-governmental organization based in the United States, has awarded the recognition Excellence in Financial Literacy Education to BBVA Bancomer for the approach and the results of its financial literacy program “Adelante con tu futuro” (Forward with your future), in the “Organization of the Year” category.

Products with a high social impact

The UN Sustainable Development Goals Fund (SDG-F) has chosen the BBVA Microfinance Foundation for its contribution to economic, social and environmental development, along with another three Spanish organizations, as a case study in the guide it will draft on the company’s role in the achievement of those goals. Specifically, the BBVA Microfinance Foundation is focused on the goals of eradicating poverty and supporting decent work, economic growth and gender equality.

In addition, the BBVA Microfinance Foundation has presented its 2015 Social Performance Report “Measuring What Really Matters” at the Institute of International Finance in Washington. The report explains the social impact results obtained by the eight entities making up the Foundation in the seven countries in which it operates. Since its creation in 2007, the Foundation has granted US$7.2 billion in loans to nearly 5 million vulnerable entrepreneurs, improving the lives of around 7 million people.

With respect to BBVA’s support for individuals with special needs, BBVA Compass’ Community Reinvestment Act (CRA) performance has improved its rating to “satisfactory” in the latest examination conducted by the Federal Reserve of Atlanta, which measures how banks meet the need for credit in the communities in which they operate.

Society

Science and culture

The BBVA Foundation has held the 8th Frontiers of Knowledge Awards, which recognize people who have made particularly significant progress in a wide range of scientific, technological and artistic areas. A special concert by the Symphony Orchestra of Madrid paid tribute to the award-winners.

In its exhibition space, the BBVA Provincial Foundation has presented in their rooms the exhibition “Miguel de Cervantes. Retablo de las maravillas”, as part of the events celebrating the 4th centennial of the death of Miguel de Cervantes Saavedra.

The team

Great Place To Work^® (GPTW) has chosen Cristina de Parias as “Best Executive in 2016” and BBVA Spain as one of the best places to work in Spain. Cristina de Parias’s recognition and BBVA Spain’s presence in the different studies conducted by GPTW confirm one of the principles of the Group’s new strategy and vision: people are the key to our success and, for this reason, we strive every day to look after our professionals as well as the people we work for.

Additionally, BBVA Bancomer has been awarded, once again, the Great Place to Work^® logo as one of the best places to work in Mexico and has improved its position to seventh place in the category of companies with over 5,000 employees.

In Spain, the fifth year of the Territorios Solidarios project has begun. This initiative offers the Bank’s employees the chance to put forward non-profit organizations which are then voted by the rest of staff and can win up to 10,000 euros to fund a project within their area of activity. This year, 1,650,000 euros will be distributed among the most-voted initiatives, 1,560,000 euros in the general category and 90,000 euros in the volunteer work category.

 

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:

 

•

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.

 

•

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.

 

•

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

 

•

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 an equivalent basis, i.e. including the stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015 (Turkey in comparable terms).

 

•

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

•

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

 

•

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 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. 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.