6-K

UNITED STATES

SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 6-K

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the six months ended June 30, 2017

Commission file number: 1-10110

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

Calle Azul, 4

28050 Madrid

Spain

(Address of principal executive offices)

Ricardo Gómez Barredo

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

Fax number +34 91 537 6766

(Name, telephone, e-mail and /or facsimile number and address of Company contact person)

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F ☒ Form 40-F ☐

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes ☐ No ☒

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes ☐ No ☒

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS


Certain Terms and Conventions			1
Cautionary Statement Regarding Forward-Looking Statements			1
Presentations of Financial Information			3
Selected Interim Consolidated Financial Data			4
Business Overview			7
Selected Statistical Information			16
Operating and Financial Review and Prospects			35
Unaudited Interim Consolidated Financial Statements			F-1

This Form 6-K is incorporated by reference into BBVA’s Registration Statement on Form F-3 (File No. 333-212729) filed with the Securities and Exchange Commission.

CERTAIN TERMS AND CONVENTIONS

The terms below are used as follows throughout this report:

•

“BBVA”, the “Bank”, the “Company”, the “Group” or the “BBVA Group” means Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires.

•

“BBVA Bancomer” means Grupo Financiero BBVA Bancomer, S.A. de C.V. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

•

“BBVA Compass” means BBVA Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

•

“Garanti Bank” means Turkiye Garanti Bankasi, A.S, and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

•

“Unaudited Interim Consolidated Financial Statements” means our unaudited interim consolidated financial statements as of June 30, 2017 and for the six-month periods ended June 30, 2017 and June 30, 2016 prepared in accordance with the International Financial Reporting Standards adopted by the European Union (“EU-IFRS”) required to be applied under the Bank of Spain’s Circular 4/2004 and in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”).

•

“Latin America” refers to Mexico and the countries in which we operate in South America and Central America.

First person personal pronouns used in this report, such as “we”, “us”, or “our”, mean BBVA, unless otherwise indicated or the context otherwise requires.

In this report, “$”, “U.S. dollars”, and “dollars” refer to United States Dollars and “€” and “euro” refer to Euro.

CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”). Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the “Exchange Act”), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as “believe”, “expect”, “estimate”, “project”, “anticipate”, “should”, “intend”, “probability”, “risk”, “VaR”, “target”, “goal”, “objective” and similar expressions or variations on such expressions and includes statements regarding future growth rates. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this report on Form 6-K, including, without limitation, the information under the items listed below, identifies important factors that could cause such differences:

•

“Business Overview”;

•

“Selected Statistical Information” and

•

“Operating and Financial Review and Prospects”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include, among others:

•

political, economic and business conditions in Spain, the European Union (“EU”), Latin America, Turkey, the United States and other regions, countries or territories in which we operate;

•

changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;

•

the monetary, interest rate and other policies of central banks in the EU, Spain, the United States, Mexico, Turkey and elsewhere;

•

changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation;

•

ongoing market adjustments in the real estate sectors in Spain, Mexico and the United States;

•

the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation;

•

changes in consumer spending and savings habits, including changes in government policies which may influence spending, saving and investment decisions;

•

adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest rate caps and tax policies;

•

our ability to hedge certain risks economically;

•

downgrades in our credit ratings or in the Kingdom of Spain’s credit ratings;

•

the success of our acquisitions, divestitures, mergers and strategic alliances;

•

our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel;

•

the performance of our international operations and our ability to manage such operations;

•

weaknesses or failures in our Group’s internal processes, systems (including information technology systems) and security;

•

our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not captured by the statistical models we use; and

•

force majeure and other events beyond our control.

Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.

PRESENTATION OF FINANCIAL INFORMATION

Accounting Principles

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2004 of December 22, 2004 on Public and Confidential Financial Reporting Rules and Formats (as amended or supplemented from time to time, “Circular 4/2004”), which requires Spanish credit institutions to adapt their accounting system to the principles derived from the adoption by the European Union of EU-IFRS.

Differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and IFRS-IASB are not material for the six months ended June 30, 2017 and June 30, 2016. Accordingly, the Unaudited Interim Consolidated Financial Statements included in this report on Form 6-K have been prepared in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and in compliance with IFRS-IASB.

Statistical and Financial Information

The following principles should be noted in reviewing the statistical and financial information contained herein:

•

Average balances, when used, are based on the beginning and the month-end balances during each six-month period. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages.

•

Unless otherwise stated, any reference to loans refers to both loans and advances.

•

Financial information with respect to segments or subsidiaries may not reflect consolidation adjustments.

•

Certain numerical information in this report on Form 6-K may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

Venezuela

The local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan bolivar and converted into euros for purposes of preparing the Group’s consolidated financial statements. Venezuela has strict foreign exchange restrictions and different exchange rates in place.

In past years, we have used different exchange rates to prepare the Group’s consolidated financial statements:

•

Until January 1, 2014, we used the CADIVI exchange rate (named after the acronym, in Spanish, of the Foreign Exchange Administration Commission, currently the National Center for Foreign Trade or CENCOEX). As of December 31, 2013 the exchange rate was 8.68 Venezuelan bolivars per euro.

•

In 2014 the Venezuelan government approved a new exchange rate system referred to as the “foreign-currency system”, in which the exchange rate against the U.S. dollar was determined in an auction which was open to both individuals and companies, resulting in an exchange rate that fluctuated from auction to auction and was published on the website of the Complementary Currency Administration System (SICAD I). Subsequently, in July 2014, the Venezuelan government established a new type of auction called SICAD II only applicable to certain types of transactions and not applicable to credit institutions. As of December 31, 2014 the applicable exchange rate (SICAD I) was 14.71 Venezuelan bolivars per euro. For purposes of preparing our consolidated financial statements as of and for the year ended December 31, 2014 we used the SICAD I exchange rate.

•

On February 10, 2015, the Venezuelan government announced the cancellation of SICAD II and its combination with SICAD I in order to create a new SICAD and the creation of a new foreign-currency system called SIMADI. The Group used the SIMADI exchange rate starting in March 2015 for purpose of the Group’s interim financial statements. The SIMADI exchange rate increased rapidly to approximately 218 Venezuelan bolivars per euro and stabilized during the second half of 2015 to 216.3 Venezuelan bolivars per euro as of December 31, 2015.

•

In February 2016, the Venezuelan government approved a new exchange rate agreement which sets two new mechanisms (DICOM and SICOM) that regulate the purchase and sale of foreign currency and the suspension of the SIMADI exchange rate.

•

In May 2017, the Venezuelan Central Bank created the “Comité de Subastas de Divisas” (the Currency Auction Committee), whose object is to administer, regulate and manage the DICOM, with autonomy for the exercise of its functions.

•

From December 31, 2015, the Board of Directors considers that the use of the new DICOM and SICOM exchange rates and, the previously used the SIMADI exchange rates, for converting bolivars into euros in preparing the Consolidated Financial Statements do not reflect the true picture of the consolidated financial statements of the Group or the financial position of the Group’s subsidiaries in Venezuela.

•

Consequently, as of June 30, 2017 and December 31, 2016, the Group has used alternative conversion exchange rates in the conversion of the financial statements of the Group’s subsidiaries in Venezuela of 4,302 and 1,893 Venezuelan bolivars per euro, respectively. These exchanges rates have been calculated taking into account the evolution of inflation in Venezuela at those dates (122.2% and 300%, respectively as estimated by the Research Service of the Group) (see Note 2.2.20) to the Unaudited Interim Consolidated Financial Statements.

Changes in operating segments

There have been no significant changes to our operating segments during the first six months of 2017 (see Note 6 to the Unaudited Interim Consolidated Financial Statements).

SELECTED INTERIM CONSOLIDATED FINANCIAL DATA

The historical financial information set forth below for the six months ended June 30, 2017 and June 30, 2016 has been selected from, and should be read together with, the Unaudited Interim Consolidated Financial Statements included herein.

For information concerning the preparation and presentation of the financial information contained herein, see “Presentation of Financial Information”.


	Six Months Ended June 30,
	2017			2016			Change (%)
	(In Millions of Euros, Except Per Share/ADS (2) Data (In Euros))
Consolidated Statement of Income Data
Interest income		14,305			13,702			4.4
Interest expenses		(5,502	)		(5,338	)		3.1
Net interest income		8,803			8,365			5.2
Dividend income		212			301			(29.6	)
Share of profit or loss of entities accounted for using the equity method		(8	)		1			n.m.	(1)
Fee and commission income		3,551			3,313			7.2
Fee and commission expenses		(1,095	)		(963	)		13.7
Net gains (losses) on financial assets and liabilities (3)		541			642			(15.7	)
Exchange differences (net)		528			533			(0.9	)
Other operating income		562			715			(21.4	)
Other operating expense		(945	)		(1,186	)		(20.3	)
Income from insurance and reinsurance contracts		1,863			1,958			(4.9	)
Expenses from insurance and reinsurance contracts		(1,295	)		(1,446	)		(10.4	)
Gross income		12,718			12,233			4.0
Administration costs		(5,599	)		(5,644	)		(0.8	)
Depreciation and amortization		(712	)		(689	)		3.3
Provisions or (-) reversal of provisions		(364	)		(262	)		38.9
Impairment losses on financial assets (net)		(1,941	)		(2,110	)		(8.0	)
Net operating income		4,102			3,528			16.3
Impairment losses on non-financial assets (net)		(80	)		(99	)		(19.2	)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net		30			37			(18.9	)
Negative goodwill recognized in profit or loss		—			—			—
Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations		(18	)		(75	)		(76.0	)
Operating profit before tax		4,033			3,391			18.9
Tax expense or (-) income related to profit or loss from continuing operations		(1,120	)		(920	)		21.7
Profit from continuing operations		2,914			2,471			17.9
Profit from discontinued operations (net)		—			—			—
Profit		2,914			2,471			17.9
Profit attributable to parent company		2,306			1,832			25.9
Profit attributable to non-controlling interests		607			639			(5.0	)
Per share/ADS Data
Profit from continuing operations		0.44			0.38
Diluted profit attributable to parent company (4)		0.33			0.26
Basic profit attributable to parent company		0.33			0.26
Dividends declared (In Euros)		—			0.08
Dividends declared (In U.S. dollars)		—			0.09
Number of shares outstanding (at period end)		6,667,886,580			6,480,357,925

(1)	Not meaningful

(2)	Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

(3)

Comprises the following income statement line items contained in the Unaudited Interim Consolidated Financial Statements: “Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net”; “Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net”; “Gains or (-) losses on financial assets and liabilities held for trading, net” and “Gains or (-) losses from hedge accounting, net”.

(4)

Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period including the average number of estimated shares to be converted and, for comparative purposes, a correction factor to account for the capital increases carried out in April 2016, October 2016 and April 2017, and excluding the weighted average number of treasury shares during the period (6,626 million and 6,626 million shares for the six months ended June 30, 2017 and June 30, 2016, respectively). See Note 5 to the Unaudited Interim Consolidated Financial Statements.


	As of and for the Six Months Ended June 30,			As of and for the Year Ended December 31,			As of and for the Six Months Ended June 30,
	2017			2016			2016
	(In Millions of Euros, Except Percentages)
Consolidated Balance Sheet Data
Total assets		702,429			731,856			746,040
Net assets		54,727			55,428			55,962
Common stock		3,267			3,218			3,175
Loans and receivables (net)		458,494			465,977			470,543
Customer deposits		394,626			401,465			406,284
Debt certificates		69,513			76,375			75,498
Non-controlling interest		6,895			8,064			8,527
Total equity		54,727			55,428			55,962
Consolidated ratios
Profitability ratios:
Net interest margin (1)		2.45	%		2.32	%		2.25	%
Return on average total assets (2)		0.8	%		0.6	%		0.7	%
Return on average stockholders’ funds (3)		8.6	%		6.7	%		7.2	%
Credit quality data
Loan loss reserve (4)		15,346			16,016			17,439
Loan loss reserve as a percentage of total loans and receivables (net)		3.35	%		3.44	%		3.71	%
Non-performing asset ratio (NPA ratio) (5)		4.58	%		4.90	%		5.14	%
Impaired loans and advances to customers		21,730			22,915			24,212
Impaired contingent liabilities to customers (6)		691			680			622

		22,421			23,595			24,834

Loans and advances to customers		424,470			430,629			433,366
Contingent liabilities to customers		47,060			50,540			50,127

		474,597			481,169			483,493

(1)	Represents net interest income as a percentage of average total assets. In order to calculate “Net interest margin” for the six months ended June 30, 2017 and June 30, 2016, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(2)	Represents profit as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2017 and June 30, 2016, respectively, profit is annualized by multiplying the profit for the period by two.

(3)

Represents profit attributable to parent company as a percentage of average total equity, excluding “Non-controlling interest”. In order to calculate “Return on average equity” for the six months ended June 30, 2017 and June 30, 2016, respectively, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.

(4)	Represents impairment losses on loans and receivables to credit institutions and loans and advances to customers.

(5)	Represents the sum of impaired loans and advances to customers and impaired contingent liabilities to customers divided by the sum of loans and advances to customers and contingent liabilities to customers.

(6)

We include contingent liabilities in the numerator and the denominator in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired contingent liabilities should be included in the calculation of our NPA ratio where we have reason to know, as of the reporting date, that they are impaired. The credit risk associated with contingent liabilities (consisting mainly of financial guarantees provided to third-parties on behalf of our customers) is evaluated and provisioned according to the probability of default of our customers’ obligations. If impaired contingent liabilities were not included in the calculation of our NPA ratio, such ratio would generally be higher for the periods covered, amounting to approximately 5.1% as of June 30, 2017, 5.3% as of December 31, 2016 and 5.6% as of June 30, 2016.

Exchange Rates

Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this report on Form 6-K have been performed at the corresponding exchange rate published by the European Central Bank (“ECB”) at the end of each relevant period for purposes of the balance sheet, and the average exchange rate during the relevant period for purposes of the income statement.

For convenience in the analysis of the information, the following tables describe, for the periods and dates indicated, information concerning the noon buying rate for euro, expressed in dollars per €1.00. The term “noon buying rate” refers to the rate of exchange for euros, expressed in U.S. dollars per euro, in the City of New York for cable transfers payable in foreign currencies as certified by the Federal Reserve Bank of New York for customs purposes.


Year ended December 31,	Average(1)
2012		1.2908
2013		1.3303
2014		1.3210
2015		1.1032
2016		1.1029
2017 (through September 15, 2017)		1.1251

(1)	Calculated by using the average of the exchange rates on the last day of each month during the period.


Month ended	High		Low
March 31, 2017		1.0882		1.0514
April 30, 2017		1.0941		1.0606
May 31, 2017		1.1236		1.0869
June 30, 2017		1.1420		1.1124
July 31, 2017		1.1826		1.1336
August 31, 2017		1.2025		1.1703
September 15, 2017 (through September 15, 2017)		1.2041		1.1886

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in dollars per €1.00, on September 15, 2017, was $1.1959.

As of June 30, 2017, approximately 48% of our assets and approximately 47% of our liabilities were denominated in currencies other than euro. See Note 2.2.16 to our Unaudited Interim Consolidated Financial Statements.

For a discussion of our foreign currency exposure, please see Note 7.4.2 to our Unaudited Interim Consolidated Financial Statements.

B. Business Overview

BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have investments in some of Spain’s leading companies.

Operating Segments

Set forth below are the Group’s current seven operating segments:

•

Banking Activity in Spain

•

Non-Core Real Estate (until March 2017, this operating segment was referred to as Real Estate Activity in Spain)

•

The United States

•

Mexico

•

Turkey

•

South America

•

Rest of Eurasia

In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Group’s general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Group’s overall capital position; proprietary portfolios such as holdings in some of Spain’s leading companies and their corresponding results; certain tax assets and liabilities; provisions related to commitments with pensioners; and goodwill and other intangibles.

The breakdown of the Group’s total assets by operating segments and Corporate Center as of June 30, 2017 and December 31, 2016 is as follows:


	As of June 30, 2017		As of December 31, 2016(1)
	(In Millions of Euros)
Banking Activity in Spain		316,003		335,847
Non-Core Real Estate		12,491		13,713
The United States		80,015		88,902
Mexico		99,233		93,318
Turkey		83,895		84,866
South America		73,323		77,918
Rest of Eurasia		18,807		19,106

Subtotal Assets of Operating Segments		683,768		713,670

Corporate Center		18,662		18,186

Total Assets BBVA Group		702,429		731,856

(1)	The figures corresponding to December 31, 2016 have been restated due to changes in the scope of operating segments.

The following table sets forth information relating to the profit (loss) attributable to parent company by each of BBVA’s operating segments and Corporate Center for the six months ended June 30, 2017 and June 30, 2016:


	Profit/(Loss) Attributable to Parent Company						% of Profit/(Loss) Attributable to Parent Company
	Six months ended June 30,
	2017			2016			2017			2016
	(In Millions of Euros)						(In Percentage)
Banking Activity in Spain		670			621			24.8			26.4
Non-Core Real Estate		(191	)		(207	)		(7.1	)		(8.8	)
The United States		297			178			11.0			7.6
Mexico		1,080			968			39.9			41.2
Turkey		374			324			13.8			13.8
South America		404			394			14.9			16.7
Rest of Eurasia		73			75			2.7			3.2
Subtotal operating segments		2,707			2,352

Corporate Center		(401	)		(520	)

Profit attributable to parent company		2,306			1,832

The following table sets forth information relating to the income of each operating segment and Corporate Center for the six months ended June 30, 2017 and 2016.


	Operating Segments
	Banking Activity in Spain		Non- Core Real Estate			The United States		Mexico		Turkey		South America		Rest of Eurasia		Corporate Center			BBVA Group
	(In Millions of Euros)
June 2017
Net interest income		1,865		31			1,098		2,676		1,611		1,617		95		(190	)		8,803
Gross income		3,201		(6	)		1,468		3,507		1,998		2,252		256		42			12,718
Net margin before provisions(1)		1,492		(64	)		523		2,309		1,230		1,211		102		(397	)		6,407
Operating profit/(loss) before tax		943		(241	)		405		1,469		1,010		790		104		(447	)		4,033

Profit attributable to parent company		670		(191	)		297		1.080		374		404		73		(401	)		2.306

June 2016
Net interest income		1,941		42			938		2,556		1,606		1,441		86		(245	)		8,365
Gross income		3,282		11			1,330		3,309		2,154		1,999		278		(130	)		12,233
Net margin before provisions(1)		1,493		(56	)		425		2,112		1,321		1,078		110		(582	)		5,901
Operating profit/(loss) before tax		898		(287	)		240		1,300		1,022		804		103		(688	)		3,391

Profit attributable to parent company		621		(207	)		178		968		324		394		75		(520	)		1,832

(1)	“Net margin before provisions” is calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

The following table sets forth information relating to the balance sheet of the main operating segments (excluding non-core real estate) as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017
	Banking Activity in Spain		The United States		Mexico		Turkey		South America		Rest of Eurasia
	(In Millions of Euros)
Total Assets		316,003		80,015		99,233		83,895		73,323		18,807

Loans and advances to customers		185,777		56,739		52,019		57,527		47,446		16,816
Of which:
Residential mortgages		78,982		11,627		9,218		5,593		10,954		2,384
Consumer finance		7,773		6,844		12,172		16,286		10,025		245
Loans		6,066		6,344		7,321		11,363		7,423		233
Credit cards		1,707		500		4,851		4,923		2,602		12
Loans to enterprises		44,637		29,726		20,271		33,422		19,677		12,714
Loans to public sector		17,976		4,465		3,844		—		600		165

Total Liabilities		306,072		76,569		95,746		75,312		68,924		17,859

Customer deposits		181,812		59,145		54,826		46,780		44,518		7,304
Current and savings accounts		109,349		44,978		33,511		12,380		21,627		3,976
Time deposits		60,338		10,521		7,455		34,806		18,640		3,018
Other customer funds		5,095		30		6,873		10		4,724		243

Total Equity		9,931		3,446		3,487		8,583		4,400		948

	As of December 31, 2016
	Banking Activity in Spain		The United States		Mexico		Turkey		South America		Rest of Eurasia
	(In Millions of Euros)
Total Assets		335,847		88,902		93,318		84,866		77,918		19,106

Loans and advances to customers		187,201		62,000		47,938		57,941		50,333		15,835
Of which:
Residential mortgages		81,659		12,893		8,410		5,801		11,441		2,432
Consumer finance		7,141		7,413		11,286		15,819		10,527		231
Loans		5,374		6,838		6,630		10,734		7,781		217
Credit cards		1,767		575		4,656		5,085		2,745		15
Loans to enterprises		43,472		33,084		18,684		33,836		21,495		12,340
Loans to public sector		18,268		4,594		3,862		—		685		57

Total Liabilities		325,230		84,719		89,244		75,798		73,425		17,705

Customer deposits		180,544		65,760		50,571		47,244		47,684		9,396
Current and savings accounts		98,989		49,430		31,112		12,237		23,369		4,442
Time deposits		70,696		13,765		7,048		35,231		20,509		4,773
Other customer funds		5,124		—		5,324		21		4,456		107

Total Equity		10,617		4,183		4,074		9,068		4,493		1,401

Banking Activity in Spain

The Banking Activity in Spain operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center area and Non-Core Real Estate. The main business units included in this operating segment are:

•

Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market;

•

Corporate and Business Banking (CBB): which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

•

Corporate and Investment Banking (C&IB): responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

•

Other units: which include the insurance business unit in Spain (BBVA Seguros), and the Asset Management unit, which manages Spanish mutual funds and pension funds. Real Estate new loan production to developers or loans to developers that are not in difficulties are also included here.

In addition, Banking Activity in Spain includes certain loans and advances portfolios, finance and structural euro balance sheet positions.

The following table sets forth information relating to the activity of this operating segment as of June 30, 2017, and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		316,003		335,847
Loans and advances to customers		185,777		187,201
Customer deposits		181,812		180,544
Mutual funds		35,322		32,648
Pension funds		23,522		23,448
NPA ratio (%)		5.7		5.8

Loans and advances to customers in this operating segment as of June 30, 2017 amounted to €185,777 million, a 0.8% decrease from the €187, 201 million recorded as of December 31, 2016.

Customer deposits in this operating segment as of June 30, 2017 amounted to €181,812 million, a 0.7% increase from the €180,544 million recorded as of December 31, 2016.

Mutual funds in this operating segment as of June 30, 2017 amounted to €35,322 million, an 8.2 % increase from the €32,648 million recorded as of December 31, 2016 mainly due to new net contributions. Pension funds in this operating segment as of June 30, 2017 amounted to €23,522 million, a 0.3% increase from the €23,448 million recorded as of December 31, 2016.

This operating segment’s non-performing asset ratio decreased to 5.7% as of June 30, 2017, from 5.8% as of December 31, 2016. This operating segment’s non-performing assets coverage ratio decreased to 53% as of June 30, 2017, from 60% as of December 31, 2016.

Non-Core Real Estate

This operating segment was set up with the aim of providing specialized and structured management of the real estate assets accumulated by the Group as a result of the economic crisis in Spain. It includes primarily lending to developers in difficulties and real estate assets mainly coming from foreclosed assets, originated from both residential mortgages, as well as loans to developers.

The Group’s exposure in this operating segment to the real estate sector in Spain, including loans and advances to customers and foreclosed assets, has declined over recent years. As of June 30, 2017 the balance stood at €8,106 million, 11.9% lower than as of December 31, 2016. Non-performing assets of this segment were 254 basis points lower as of June 30, 2017 than at December 31, 2016. The coverage of non-performing and potential problem loans of this segment increased to 60.1% as of June 30, 2017, compared with 59.4% of the total amount of real estate assets in this operating segment as of December 31, 2016.

The number of real estate assets sold amounted to 14,563 units for the six months ended June 30, 2017.

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for approximately 96% of the operating segment’s balance sheet as of June 30, 2017. Given its size in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA office in New York, which specializes in transactions with large corporations.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		80,015		88,902
Loans and advances to customers		56,739		62,000
Customer deposits		59,145		65,760
NPA ratio (%)		1.3		1.5

The U.S. dollar depreciated 8.3% against the euro as of June 30, 2017 compared with December 31, 2016, negatively affecting the business activity of the United States operating segment as of June 30, 2017 expressed in euro. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition -Trends in Exchange Rates”.

Loans and advances to customers in this operating segment as of June 30, 2017 amounted to €56,739 million a 8.5% decrease from the €62,000 million recorded as of December 31, 2016, mainly due to the depreciation of the U.S. dollar against the euro and, to a lesser extent, due to decreased loans and advances to enterprises and, to a lesser extent, the public sector.

Customer deposits in this operating segment as of June 30, 2017 amounted to €59,145 million, a 10.1% decrease from the €65,760 million recorded as of December 31, 2016, mainly attributable to the depreciation of the U.S. dollar against the euro and, to a lesser extent, due to decrease in the balance of current and saving accounts and time deposits.

This operating segment’s non-performing asset ratio as of June 30, 2017 was 1.3% compared with 1.5% as of December 31, 2016. This operating segment non-performing assets coverage ratio increased to 104.6% as of June 30, 2017, from 93.9% as of December 31, 2016. Both changes are mainly as a result of a decrease in the amount of impaired loans, particularly related to some companies that operate in the energy, metal and mining sectors.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by the BBVA Bancomer financial group.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		99,233		93,318
Loans and advances to customers		52,019		47,938
Customer deposits		54,826		50,571
Mutual funds		17,871		16,331
Other placements		3,170		2,780
NPA ratio (%)		2.3		2.3

The Mexican peso appreciated 5.5% against the euro as of June 30, 2017 compared with December 31, 2016, positively affecting the business activity of the Mexico operating segment as of June 30, 2017 expressed in euro. See “Item 5. Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Loans and advances to customers in this operating segment as of June 30, 2017 amounted to €52,019 million, a 8.5% increase from the €47,938 million recorded as of December 31, 2016, primarily due to the appreciation of the Mexican peso against the euro, and to an increase in loans to enterprises and residential mortgages.

Customer deposits in this operating segment as of June 30, 2017 amounted to €54,826 million, an 8.4% increase from the €50,571 million recorded as of December 31, 2016, mainly as a result of an overall increase in most product lines and, to a lesser extent, due to the impact of the appreciation of the Mexican peso.

Mutual funds in this operating segment as of June 30, 2017 amounted to €17,871 million, a 9.4% increase from the €16,331 million recorded as of December 31, 2016, primarily due to the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing asset ratio was 2.3% as of June 30, 2017 and December 31, 2016. This operating segment’s non-performing assets coverage ratio decreased to 125.5% as of June 30, from 127.4% as of December 31, 2016.

Turkey

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		83,895		84,866
Loans and advances to customers		57,527		57,941
Customer deposits		46,780		47,244
Mutual funds		1,234		1,192
Pension funds		2,679		2,561
NPA ratio (%)		2.5		2.7

The Turkish lira depreciated 8.3% against the euro as of June 30, 2017 compared to December 31, 2016, negatively affecting the business activity of the Turkey operating segment as of June 30, 2017 expressed in euro. See “Item 5. Operating and Financial Review and Prospects— Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Loans and advances to customers in this operating segment as of June 30, 2017 decreased 0.7% to €57,527 million from the €57,941 million recorded as of December 31, 2016.

Customer deposits in this operating segment as of June 30, 2017 decreased 1.0% to €46,780 million from the €47,244 million recorded as of December 31, 2016.

Mutual funds in this operating segment as of June 30, 2017 increased 3.5% to €1,234 million from the €1,192 million recorded as of December 31, 2016.

Pension funds in this operating segment as of June 30, 2017 increased 4.6% to €2,679 million from the €2,561 million recorded as of December 31, 2016.

This operating segment’s non-performing asset ratio was 2.5% as of June 30, 2017 compared to 2.7% as of December 31, 2016. This operating segment’s non-performing assets coverage ratio increased to 135.0% as of June 30, from 123.8% as of December 31, 2016.

South America

The South America operating segment includes the BBVA Group’s banking and insurance businesses in the region.

The business units included in the South America operating segment are:

•

Retail and Corporate Banking: includes banks in Argentina, Chile, Colombia, Paraguay, Peru, Uruguay and Venezuela.

•

Insurance: includes insurance businesses in Argentina, Chile, Colombia and Venezuela.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		73,323		77,918
Loans and advances to customers		47,446		50,333
Customer deposits		44,518		47,684
Mutual funds		5,473		4,859
Pension funds		6,849		7,043
NPA ratio (%)		3.5		2.9

The Venezuelan bolivar depreciated significantly against the euro in the six months ended June 30, 2017. Similarly, all the currencies of the countries in which BBVA operates in South America depreciated against the euro during the same period. The effect of the devaluation of all these currencies negatively affected the business activity of the South America operating segment as of June 30, 2017 expressed in euro. See “Item 5.Operating and Financial Review and Prospects—Factors Affecting the Comparability of our Results of Operations and Financial Condition”.

Loans and advances to customers in this operating segment as of June 30, 2017 amounted to €47,446 million, a 5.7% decrease from the €50,333 million recorded as of December 31, 2016, as a result of the impact of the depreciation of the currencies of the region. Excluding this impact, there was a positive change in loans and advances to customers, mainly as a result of an increase in consumer loans, and, to a lesser extent, due to increase in residential mortgages. By country, the main variation (excluding the impact of the depreciation of the currencies) was the increase recorded in Argentina.

Customer deposits in this operating segment as of June 30, 2017 amounted to €44,518 million, a 6.6% decrease from the €47,684 million recorded as of December 31, 2016, mainly as a result of the impact of the depreciation of the currencies of the region, particularly the Venezuelan bolivar and Argentine Peso. Excluding this impact, there was a positive change in customer deposits, mainly as a result of an increase in other customer funds, and, to a lesser extent, due to an increase in current and savings accounts. By country, the main variation (excluding the impact of the depreciation of the currencies) was the increase recorded in Argentina..

Mutual funds in this operating segment as of June 30, 2017 amounted to €5,473 million, a 12.6% increase from the €4,859 million recorded as of December 31, 2016, mainly due to the positive performance in Argentina (27% increase) and Colombia (32% increase) which was partially offset by the depreciation of the currencies of the region.

Pension funds in this operating segment as of June 30, 2017 amounted to €6,849 million, a 2.8% decrease from the €7,043 million recorded as of December 31, 2016.

This operating segment’s non-performing asset ratio increased to 3.5% as of June 30, 2017, from 2.9% as of December 31, 2016, due to the weaker economic conditions in the region. This operating segment non-performing assets coverage ratio decreased to 94.4% as of June 30, 2017, from 103.3% as of December 31, 2016, mainly as a result of increased impaired assets, particularly in Colombia.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, excluding Spain and Turkey.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Total assets		18,807		19,106
Loans and advances to customers		16,816		15,835
Customer deposits		7,304		9,396
Pension funds		362		366
NPA ratio (%)		2.6		2.7

Loans and advances to customers in this operating segment as of June 30, 2017 amounted to €16,816 million, a 6.2% increase from the €15,835 million recorded as of December 31, 2016, mainly as a result of an increase in loans to foreign companies.

Customer deposits in this operating segment as of June 30, 2017 amounted to €7,304 million, a 22.3% decrease from the €9,396 million recorded as of December 31, 2016, mainly as a result of decreased current and saving accounts and time deposits, particularly by foreign customers and foreign currency creditors.

Pension funds in this operating segment as of June 30, 2017 amounted to €362 million, a 1.2% decrease from the €366 million recorded as of December 31, 2016, mainly as a result of higher contributions and the appreciation of pension funds.

This operating segment’s non-performing asset ratio decreased to 2.6% as of June 30, 2017 from 2.7% as of December 31, 2016. This operating segment’s non-performing assets coverage ratio decreased to 81.8% as of June 30, from 84.3% as of December 31, 2016.

Selected Statistical Information

The following is a presentation of selected statistical information for the periods indicated. Where required under Industry Guide 3, we have provided such selected statistical information separately for our domestic and foreign activities, pursuant to our calculation that our foreign operations are significant according to Rule 9-05 of Regulation S-X.

Average Balances and Rates

The tables below set forth selected statistical information on our average balance sheets, which are based on the beginning and month-end balances in each period. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages. Interest income figures, when used, include interest income on non-accruing loans to the extent that cash payments have been received. Loan fees are included in the computation of interest income.


	Average Balance Sheet - Assets and Interest Earning Assets
	Six Months ended June 30, 2017							Six Months ended June 30, 2016
	Average Balance		Interest		Average Yield (1)			Average Balance		Interest		Average Yield (1)
	(In Millions of Euros, Except Percentages)
Assets
Cash and balances with central banks and other demand deposits		33,009		6		0.04	%		25,003		5		0.04	%
Domestic		11,759		—		0.00	%		7,614		—		0.01	%
Foreign		21,250		6		0.06	%		17,389		5		0.06	%
Debt securities and derivatives		183,002		2,442		2.69	%		207,222		2,562		2.49	%
Domestic		113,680		692		1.23	%		137,790		921		1.34	%
Foreign		69,322		1,750		5.09	%		69,431		1,640		4.75	%
Loans and receivables		451,048		11,598		2.57	%		457,080		11,010		2.41	%
Loans and advances to central banks		12,443		148		2.41	%		17,215		99		1.15	%
Loans and advances to credit institutions		26,042		144		1.12	%		27,865		163		1.18	%
Loans and advances to customers		412,563		11,306		5.53	%		412,000		10,748		5.25	%
In euros		197,588		1,714		1.75	%		203,819		1,918		1.89	%
Domestic		187,764		1,678		1.80	%		194,185		1,888		1.96	%
Foreign		9,824		36		0.74	%		9,634		30		0.62	%
In other currency		214,974		9,591		9.00	%		208,182		8,830		8.53	%
Domestic		15,942		200		2.53	%		15,246		161		2.12	%
Foreign		199,032		9,391		9.51	%		192,936		8,669		9.04	%
Other assets		50,688		259		1.03	%		53,184		125		0.47	%

Total average assets (2)		717,747		14,305		4.02	%		742,489		13,702		3.71	%

(1)	Rates have been presented on a non-taxable equivalent basis.

(2)	Foreign activity represented 45.79% of the total average assets for the six months period ended June 30, 2017.


	Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities
	Six Months ended June 30, 2017							Six Months ended June 30, 2016
	Average Balance		Interest		Average Yield (1)			Average Balance		Interest		Average Yield (1)
	(In Millions of Euros, Except Percentages)
Liabilities
Deposits from central banks and credit institutions		93,471		938		*2.02*	%		102,555		952		1.87	%
Customer deposits		396,690		3,024		1.54	%		404,701		3,027		1.50	%
In euros		186,550		245		0.26	%		203,558		420		0.41	%
Domestic		176,172		238		0.27	%		193,451		404		0.42	%
Foreign		10,378		7		0.14	%		10,106		15		0.31	%
In other currency		210,140		2,779		2.67	%		201,143		2,607		2.61	%
Domestic		12,689		28		0.44	%		11,081		21		0.38	%
Foreign		197,451		2,752		2.81	%		190,063		2,586		2.74	%
Debt certificates and subordinated liabilities		86,208		865		*2.02*	%		89,982		876		*1.96*	%
Non-interest-bearing liabilities		86,003		675		*1.58*	%		90,117		483		*1.08*	%
Stockholders’ equity		55,374		—		—			55,135		—		—

Total average liabilities and equity (2)		717,747		5,502		1.55	%		742,489		5,338		1.45	%

(1)	Rates have been presented on a non-taxable equivalent basis.

(2)	Foreign activity represented the 56.09% of the total average liabilities for the six months period ended June 30, 2017.

Changes in Net Interest Income-Volume and Rate Analysis

The following tables allocate changes in our net interest income between changes in volume and changes in rate for the six months ended June 30, 2017 compared to the six months ended June 30, 2016. Volume and rate variance have been calculated based on movements in average balances over the period and changes in interest rates on average interest-earning assets and average interest-bearing liabilities. The only out-of-period items and adjustments excluded from the following table are interest payments on loans which are made in a period other than the period in which they are due. Loan fees were included in the computation of interest income.


	For the Six Months Ended June 30, 2017/June 30, 2016
	Increase (Decrease) Due to Changes in
	Volume (1)			Rate (2)			Net Change
	(In Millions of Euros)
Interest income
Cash and balances with central banks and other demand deposits		2			(1	)		1
Debt securities and derivatives		(306	)		185			(120	)
Loans and advances to central banks		(28	)		77			50
Loans and advances to credit institutions		(11	)		(7	)		(19	)
Loans and advances to customers
In euros		(64	)		(140	)		(204	)
Domestic		(67	)		(143	)		(210	)
Foreign		1			6			6
In other currencies		263			498			761
Domestic		7			32			39
Foreign		249			473			722
Other assets		(6	)		140			134

Total income								603

Interest expense
Deposits from central banks and credit institutions		(87	)		73			(14	)
Customer deposits
In euros		(36	)		(139	)		(175	)
Domestic		(37	)		(130	)		(167	)
Foreign		—			(9	)		(9	)
In other currencies		109			63			172
Domestic		3			4			7
Foreign		93			73			166
Debt certificates		(39	)		28			(11	)
Other liabilities		(23	)		215			192

Total expense								164

Net interest income								438

(1)	The volume effect is calculated as the result of the average interest rate of the earlier period multiplied by the difference between the average balances of both periods.

(2)	The rate effect is calculated as the result of the average balance of the earlier period multiplied by the difference between the average interest rates of both periods.

Interest Earning Assets—Margin and Spread

The following table analyzes the levels of our average earning assets and illustrates the comparative gross and net yields and spread obtained for each of the periods indicated.


	Six Months Ended June 30,
	*2017 ()**			*2016 ()**
	(In Millions of Euros, Except Percentages)
Average interest earning assets		667,059			689,307
Gross yield (1)		4.29	%		3.99	%
Net yield (2)		3.99	%		3.70	%
Net interest margin (3)		2.64	%		2.43	%
Average effective rate paid on all interest-bearing liabilities		1.91	%		1.79	%
Spread (4)		2.38	%		2.19	%

(*)	Ratios are annualized.

(1)	Gross yield represents total interest income divided by average interest earning assets.

(2)	Net yield represents total interest income divided by total average assets.

(3)	Net interest margin represents net interest income as percentage of average interest earning assets.

(4)	Spread is the difference between gross yield and the average cost of interest-bearing liabilities.

ASSETS

Interest-Bearing Deposits in Other Banks

As of June 30, 2017, interbank deposits (excluding deposits with central banks) represented 3.84% of our total assets. Of such interbank deposits, 28.6% were held outside of Spain and 71.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of June 30, 2017, our total securities portfolio (consisting of investment securities and loans and receivables) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €120,577 million, representing 17.2% of our total assets. €33,160 million, or 27.5%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield for the six months ended June 30, 2017 on the investment securities that BBVA held was 2.2%, compared with an average yield of approximately 2.57% earned on loans and advances for the six months ended June 30, 2016. See Notes 10 and 12 to the Unaudited Interim Consolidated Financial Statements. For a discussion of our investments in affiliates, see Note 16 to the Unaudited Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to the Unaudited Interim Consolidated Financial Statements.

The following tables analyze the carrying amount and fair value of debt securities as of June 30, 2017 and December 31, 2016, respectively. The trading portfolio is not included in the tables below because the amortized costs and fair values of these items are the same. See Note 10 to the Unaudited Interim Consolidated Financial Statements.


	As of June 30, 2017
	Amortized cost		Fair Value (1)		Unrealized Gains		Unrealized Losses
	(In Millions of Euros)
DEBT SECURITIES -
AVAILABLE FOR SALE PORTFOLIO

Domestic-		23,810		24,653		858		(16	)

Spanish Government and other government agencies debt securities		21,689		22,414		739		(15	)
Other debt securities		2,121		2,239		119		(1	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		951		1,028		77		—
Issued by other institutions		1,170		1,211		42		(1	)

Foreign-		45,535		45,861		920		(594	)

The United States		12,763		12,623		46		(186	)
U.S. Treasury and other U.S. Government agencies debt securities		2,553		2,547		8		(14	)
States and political subdivisions debt securities		5,936		5,873		7		(71	)
Other debt securities		4,273		4,203		31		(101	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		66		67		1		(0	)
Issued by other institutions		4,207		4,136		30		(101	)
Mexico		11,341		11,332		153		(161	)
Mexican Government and other government agencies debt securities		9,826		9,832		145		(139	)
Other debt securities		1,515		1,500		8		(23	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		115		116		1		(1	)
Issued by other institutions		1,400		1,384		6		(22	)
Turkey		4,982		5,020		109		(71	)
Turkey Government and other government agencies debt securities		4,869		4,906		107		(70	)
Other debt securities		113		114		2		(1	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		85		85		1		(1	)
Issued by other institutions		28		29		1		(0	)
Other countries		16,449		16,886		613		(176	)
Other foreign governments and other government agencies debt securities		8,059		8,322		370		(107	)
Other debt securities		8,390		8,564		243		(69	)
Issued by Central Banks		2,157		2,159		3		(1	)
Issued by credit institutions		3,005		3,101		140		(44	)
Issued by other institutions		3,228		3,304		100		(23	)

TOTAL AVAILABLE FOR SALE PORTFOLIO		69,345		70,514		1,779		(609	)

HELD TO MATURITY PORTFOLIO

Domestic-		6,401		6,456		55		—

Spanish Government and other government agencies debt securities		6,075		6,128		53		—
Other domestic debt securities		326		328		2		—
Issued by Central Banks		—		—		—		—
Issued by credit institutions		281		282		1		—
Issued by other institutions		45		46		1		—

Foreign-		8,130		8,209		111		(32	)

Government and other government agencies debt securities		7,186		7,247		93		(32	)
Other debt securities		944		962		18		—

TOTAL HELD TO MATURITY PORTFOLIO		14,531		14,628		166		(32	)

TOTAL DEBT SECURITIES		83,876		85,142		1,945		(643	)

(1)	Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values used for unlisted securities are based on our estimates and valuation techniques. See Note 8 to the Consolidated Financial Statements.


	As of December 31, 2016
	Amortized cost		Fair Value (1)		Unrealized Gains		Unrealized Losses
	(In Millions of Euros)
DEBT SECURITIES -
AVAILABLE FOR SALE PORTFOLIO

Domestic-		24,731		25,540		828		(19	)

Spanish Government and other government agencies debt securities		22,427		23,119		711		(18	)
Other debt securities		2,305		2,421		117		(1	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		986		1,067		82		—
Issued by other institutions		1,319		1,354		36		(1	)

Foreign-		49,253		49,040		773		(987	)

The United States		14,256		14,043		48		(261	)
U.S. Treasury and other U.S. Government agencies debt securities		1,702		1,683		1		(19	)
States and political subdivisions debt securities		6,758		6,654		8		(112	)
Other debt securities		5,797		5,706		39		(130	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		95		97		2		—
Issued by other institutions		5,702		5,609		37		(130	)
Mexico		11,525		11,200		19		(343	)
Mexican Government and other government agencies debt securities		9,728		9,438		11		(301	)
Other debt securities		1,797		1,763		8		(42	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		86		87		2		(1	)
Issued by other institutions		1,710		1,675		6		(41	)
Turkey		5,550		5,443		73		(180	)
Turkey Government and other government agencies debt securities		5,055		4,961		70		(164	)
Other debt securities		495		482		2		(16	)
Issued by Central Banks		—		—		—		—
Issued by credit institutions		448		436		2		(15	)
Issued by other institutions		47		46		—		(1	)
Other countries		17,923		18,354		634		(203	)
Other foreign governments and other government agencies debt securities		7,882		8,156		373		(98	)
Other debt securities		10,041		10,197		261		(105	)
Issued by Central Banks		1,657		1,659		4		(2	)
Issued by credit institutions		3,269		3,311		96		(54	)
Issued by other institutions		5,115		5,227		161		(49	)
		—		—		—		—

TOTAL AVAILABLE FOR SALE PORTFOLIO		73,985		74,580		1,601		(1,006	)

		—		—		—		—
HELD TO MATURITY PORTFOLIO		—		—		—		—

Domestic-		8,625		8,717		92		—

Spanish Government and other government agency debt securities		8,063		8,153		90		—
Other domestic debt securities		562		564		2		—
Issued by Central Banks		—		—		—		—
Issued by credit institutions		494		496		2		—
Issued by other institutions		68		68		—		—

Foreign-		9,071		8,902		16		(185	)

Government and other government agency debt securities		7,982		7,830		13		(165	)
Other debt securities		1,089		1,072		4		(21	)
		—		—		—		—

TOTAL HELD TO MATURITY PORTFOLIO		17,696		17,619		108		(185	)

		—		—		—		—

TOTAL DEBT SECURITIES		91,681		92,199		1,709		(1,192	)

(1)	Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values used for unlisted securities are based on our estimates and valuation techniques. See Note 8 to the Unaudited Interim Consolidated Financial Statements.

The following tables analyze the carrying amount and fair value of our ownership of equity securities as of June 30, 2017 and December 31, 2016, respectively. See Note 10 to the Unaudited Interim Consolidated Financial Statements:


	As of June 30, 2017
	Amortized cost		Fair Value (1)		Unrealized Gains		Unrealized Losses
	(In Millions of Euros)
EQUITY SECURITIES -

AVAILABLE FOR SALE PORTFOLIO
Domestic-		3,711		2,864		34		(881	)
Equity listed		3,667		2,820		33		(880	)
Equity unlisted		44		44		1		(1	)
Foreign-		1,126		1,288		181		(18	)
United States-		561		603		50		(7	)
Equity listed		24		48		24		—
Equity unlisted		537		555		26		(7	)
Other countries-		565		685		131		(11	)
Equity listed		404		481		86		(9	)
Equity unlisted		161		204		45		(2	)

TOTAL AVAILABLE FOR SALE PORTFOLIO		4,837		4,152		215		(899	)


TOTAL EQUITY SECURITIES		4,837		4,152		215		(899	)


TOTAL INVESTMENT SECURITIES		88,713		89,294		2,160		(1,542	)

(1)	Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values used for unlisted securities are based on our estimates or on unaudited financial statements, when available.


	As of December 31, 2016
	Amortized cost		Fair Value (1)		Unrealized Gains		Unrealized Losses
	(In Millions of Euros)
EQUITY SECURITIES -

AVAILABLE FOR SALE PORTFOLIO
Domestic-		3,748		2,822		19		(945	)
Equity listed		3,690		2,763		17		(944	)
Equity unlisted		57		59		2		(1	)
Foreign-		1,501		1,819		336		(17	)
The United States-		553		588		35		—
Equity listed		16		38		22		—
Equity unlisted		537		550		13		—
Other countries-		948		1,231		301		(17	)
Equity listed		777		1,028		268		(15	)
Equity unlisted		171		203		33		(2	)

TOTAL AVAILABLE FOR SALE PORTFOLIO		5,248		4,641		355		(962	)


TOTAL EQUITY SECURITIES		5,248		4,641		355		(962	)


TOTAL INVESTMENT SECURITIES		96,930		96,839		2,064		(2,154	)

(1)	Fair values for listed securities are determined on the basis of their quoted prices at the end of the year. Fair values used for unlisted securities are based on our estimates or on unaudited financial statements, when available.

The following table analyzes the maturities of our debt investment and fixed income securities, excluding trading portfolio, by type and geographical area as of June 30, 2017:


	Maturity at One Year or Less				Maturity After One Year to Five Years				Maturity after Five Years to 10 Years				Maturity after 10 Years				Total
	Amount		Yield % (1)		Amount		Yield % (1)		Amount		Yield % (1)		Amount		Yield % (1)		Amount
	(Millions of Euros, Except Percentages)
DEBT SECURITIES
AVAILABLE-FOR-SALE PORTFOLIO
Domestic
Spanish government and other government agencies debt securities		3,387		0.26		2,985		1.25		10,952		2.34		5,090		4.42		22,414
Other debt securities		444		2.05		1,141		2.12		19		3.36		636		7.11		2,239

Total Domestic		3,831		0.48		4,125		1.53		10,971		2.35		5,725		4.19		24,653

Foreign
The United States		867		0.68		1,875		2.10		1,423		2.32		8,458		2.01		12,623
U.S. Treasury and other government agencies debt securities		852		0.65		884		1.67		809		1.94		—		—		2,547
States and political subdivisions debt securities		2		6.64		2		1.55		52		2.59		5,818		1.92		5,873
Other debt securities		12		1.49		989		2.51		562		2.87		2,640		2.22		4,203
Mexico		456		2.45		6,679		3.78		4,022		1.20		177		4.78		11,332
Mexican Government and other government agencies debt securities		347		1.00		5,657		3.71		3,720		0.89		108		1.42		9,832
Other debt securities		109		6.10		1,022		4.13		302		4.29		69		5.88		1,500
Turkey		225		9.16		1,425		10.20		1,275		9.63		2,094		13.31		5,020
Turkey Government and other government agencies debt securities		221		9.17		1,391		10.28		1,240		9.63		2,052		13.31		4,906
Other debt securities		3		8.73		35		7.19		35		—		41		—		114
Other countries		4,018		6.72		6,444		1.67		2,911		3.09		3,514		3.61		16,886
Securities of other foreign governments (2)		912		1.46		3,163		1.07		1,649		2.00		2,598		3.56		8,322
Other debt securities of other countries		3,107		8.43		3,280		2.28		1,263		4.45		916		3.77		8,564

Total Foreign		5,565		5.69		16,422		3.80		9,632		3.97		14,243		2.51		45,861

TOTAL AVAILABLE-FOR-SALE		9,396		3.46		20,549		3.27		20,603		3.05		19,968		2.99		70,514

HELD-TO-MATURITY PORTFOLIO
Domestic
Spanish government		480		3.53		2,825		4.63		852		2.28		1,917		3.08		6,075
Other debt securities		243		3.99		83		2.93		—		—		—		—		326

Total Domestic		723		3.59		2,909		4.51		852		2.28		1,917		3.08		6,401

Total International		494		6.95		3,986		6.00		2,256		9.06		1,394		5.53		8,130

TOTAL HELD-TO-MATURITY		1,217		4.93		6,895		5.39		3,109		7.17		3,311		4.26		14,531

TOTAL DEBT SECURITIES		10,613		3.63		27,444		3.80		23,712		3.59		23,279		3.17		85,045

(1)	Rates have been presented on a non-taxable equivalent basis.

(2)	Securities of other foreign Governments mainly include investments made by our subsidiaries in securities issued by the Governments of the countries where they operate.

Loans and Advances to Credit Institutions and Central Banks

As of June 30, 2017, our total loans and advances to credit institutions including central banks amounted to €38,037 million, or 5.4% of total assets. Net of our valuation adjustments, loans and advances to credit institutions amounted to €38,079 million as of June 30, 2017, or 5.4% of our total assets.

Loans and Advances to Customers

As of June 30, 2017, our total loans and advances to customers amounted to €424,470 million, or 60.4% of total assets. Net of our valuation adjustments (impairment losses), loans and advances amounted to €409,152 million as of June 30, 2017, or 58.2% of our total assets. As of June 30, 2017 our loans and advances in Spain amounted to €180,175 million. Our foreign loans and advances amounted to €244,296 million as of June 30, 2017. For a discussion of certain mandatory ratios relating to our loan portfolio, see “—Business Overview—Supervision and Regulation—Capital Requirements” and “—Business Overview— Supervision and Regulation—Investment Ratio” in our annual report on Form 20-F for the year ended December 31, 2016 (the “2016 20-F”).

Loans by Geographic Area

The following table shows, by domicile of the customer, our net loans and advances as of the dates indicated:


	As of June 30, 2017			As of December 31, 2016			As of June 30, 2016
	(In Millions of Euros)
Domestic		180,175			182,492			190,690
Foreign
Europe		26,916			25,763			23,843
The United States		54,176			60,388			58,167
Mexico		54,514			50,242			50,320
Turkey		53,753			54,174			57,230
South America		50,162			53,512			49,408
Other		4,774			4,058			3,706
Total foreign		244,296			248,137			242,676

Total loans and advances		424,470			430,629			433,366
Impairment losses		(15,318	)		(15,974	)		(17,396	)

Total net lending (1)		409,152			414,655			415,970

(1)	Total net lending includes financial assets held for trading for loans and advances to customers.

Loans by Type of Customer

The following table shows, by domicile and type of customer, our net loans and advances at each of the dates indicated. The classification by type of customer is based principally on regulatory authority requirements in each country:


	As of June 30, 2017			As of December 31, 2016			As of June 30, 2016
	(In Millions of Euros)
Domestic
Government		20,416			20,741			23,767
Agriculture		1,146			1,076			1,070
Industrial		14,132			13,670			14,270
Real estate and construction		12,683			15,179			16,252
Commercial and financial		12,392			13,111			12,113
Loans to individuals (1)		101,519			102,299			105,094
Other		17,887			16,415			18,124

Total Domestic		180,175			182,492			190,690

Foreign					—
Government		13,767			14,132			14,487
Agriculture		3,356			3,236			3,093
Industrial		41,113			43,402			42,568
Real estate and construction		20,557			21,822			20,680
Commercial and financial		35,151			33,933			32,746
Loans to individuals		88,522			89,981			90,240
Other		41,830			41,630			38,862

Total Foreign		244,296			248,137			242,676

Total Loans and Advances		424,470			430,629			433,366

Impairment losses		(15,318	)		(15,974	)		(17,396	)

Total net lending (2)		409,152			414,655			415,970

(1)	Includes mortgage loans to households for the acquisition of housing.

(2)	Total net lending includes financial assets held for trading for loans and advances to customers.

The following table sets forth a breakdown, by currency, of our net loan portfolio as of June 30, 2017, December 31, 2016 and June 30, 2016:

As of June 30,
2017

As of December 31,
2016

As of June 30,
2016

(In Millions of Euros)

In euros

198,986

199,289

205,175

In other currencies

210,166

215,366

210,796

Total net lending (1)

409,152

414,655

415,971

(1)	Total net lending includes financial assets held for trading for loans and advances to customers.

As of June 30, 2017, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €547 million, compared with €442 million as of December 31, 2016. Loans outstanding to the Spanish government and its agencies amounted to €20,416 million, or 4.8% of our total loans and advances as of June 30, 2017, compared with €20,741 million, or 4.8% of our total loans and advances as of December 31, 2016. None of our loans to companies controlled by the Spanish government are guaranteed by the government and, accordingly, we apply normal credit criteria in extending credit to such entities. Moreover, we carefully monitor such loans because governmental policies necessarily affect such borrowers.

Diversification in our loan portfolio is our principal means of reducing the risk of loan losses. We also carefully monitor our loans to borrowers in sectors or countries experiencing liquidity problems. Our exposure to our five largest borrowers as of June 30, 2017, excluding government-related loans, amounted to €19,326 million or approximately 4.6% of our total outstanding loans and advances. As of June 30, 2017 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed in the table above.

Maturity and Interest Sensitivity

The following table sets forth an analysis by maturity of our total loans and advances to customers by domicile of the office that issued the loan and the type of customer as of June 30, 2017. The determination of maturities is based on contract terms.


	Maturity
	Due in One Year or Less		Due After One Year Through Five Years		Due After Five Years		Total
			(In Millions of Euros)
Domestic
Government		8,573		6,600		5,243		20,416
Agriculture		439		477		230		1,146
Industrial		5,885		5,118		3,129		14,132
Real estate and construction		2,394		4,509		5,780		12,683
Commercial and financial		6,296		3,381		2,715		12,392
Loans to individuals		12,203		23,457		65,860		101,519
Other		6,440		7,884		3,563		17,887

Total Domestic		42,230		51,425		86,520		180,175

Foreign
Government		807		2,223		10,737		13,767
Agriculture		1,852		1,027		477		3,356
Industrial		16,349		16,401		8,363		41,113
Real estate and construction		7,045		9,345		4,168		20,557
Commercial and financial		20,573		12,008		2,570		35,151
Loans to individuals		19,263		23,658		45,600		88,522
Other		12,962		19,298		9,570		41,830

Total Foreign		78,851		83,959		81,485		244,295

Total loans and advances (1)		121,080		135,384		168,005		424,470

(1)	Total loans and advances include financial assets held for trading for loans and advances to customers.

The following table sets forth a breakdown of our fixed and variable rate loans which had a maturity of one year or more as of June 30, 2017.

Interest Sensitivity of Outstanding Loans and Advances
Maturing in One Year or More

Domestic

Foreign

Total

(In Millions of Euros)

Fixed rate

13,238

90,843

104,082

Variable rate

124,706

74,601

199,308

Total loans and advances

137,945

165,444

303,389

Impairment Losses on Loans and Advances

For a discussion of loan loss reserves, see “Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment losses on financial assets” in the 2016 20-F and Note 2.2.1 to the Unaudited Interim Consolidated Financial Statements.

The following table provides information, by domicile of customer, regarding our loan loss reserve and movements of loan charge-offs and recoveries for periods indicated.


	As of and for the Six Months Ended June 30,			As of and for the Year Ended December 31,			As of and for the Six Months Ended June 30,
	2017			2016			2016
	(In Millions of Euros, Except Percentages)
Loan loss reserve at beginning of period:
Domestic		9,113			12,357			12,364
Foreign		6,903			6,385			6,378

Total loan loss reserve at beginning of period		16,016			18,742			18,742
Loans charged off:
Total domestic (1)		(976	)		(3,298	)		(1,853	)
Total foreign (2)		(1,114	)		(2,400	)		(1,178	)

Total Loans charged off:		(2,090	)		(5,698	)		(3,032	)
Provision for possible loan losses:
Domestic		573			1,095			641
Foreign		1,615			3,046			1,594

Total Provision for possible loan losses		2,188			4,141			2,235
Acquisition and disposition of subsidiaries					—
Effect of foreign currency translation		(306	)		(601	)		(132	)
Other		(462	)		(567	)		(374	)

Loan loss reserve at end of period:
Domestic		8,440			9,113			10,364
Foreign		6,906			6,903			7,075

Total Loan loss reserve at end of period		15,346			16,016			17,439

Loan loss reserve as a percentage of total loans and receivables at end of period		3.35	%		3.44	%		3.71	%
Net loan charge-offs as a percentage of total loans and receivables at end of period		0.46	%		1.22	%		0.65	%

(1)	Domestic loans charged off in the six months ended June 30, 2017 and 2016 were mainly related to the real estate sector.

(2)

Foreign loans charged off in the six months ended June 30, 2017 include €889 million related to real estate loans and loans to individuals and others and €207 million related to commercial and financial loans. Foreign loans charged off in 2016 include €2,012 million related to real estate loans and loans to individuals and others and €361 million related to commercial and financial loans.

When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.

The loans charged off amounted to €2,090 million during the six months ended June 30, 2017 compared with €3,032 million during the six months ended June 30, 2016.

Our loan loss reserves as a percentage of total loans and advances decreased to 3.3% as of June 30, 2017 from 3.4% as of December 31, 2016.

Impaired Loans

As described in Note 2.2.1 to the Unaudited Interim Consolidated Financial Statements, loans are considered to be impaired when there are reasonable doubts that the loans will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed upon, taking into account the guarantees received by the consolidated entities to ensure (in part or in full) the performance of the loans.

Amounts collected in relation to impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal. The approximate amount of interest income on our impaired loans which was included in profit attributable to parent company for the six months ended June 30,

2017 and 2016 was €118 million and €131 million, respectively.

The following table provides information regarding our impaired loans, by domicile and type of customer, as of the dates indicated:


	As of June 30, 2017			As of December 31, 2016
	(In Millions of Euros, Except Percentages)
Impaired loans
Domestic		15,308			16,360
Public sector		217			270
Other resident sector		15,091			16,090
Foreign		6,432			6,565
Public sector		8			42
Other non-resident sector		6,424			6,523
Total impaired loans		21,740			22,925
Total loan loss reserve		(15,346	)		(16,016	)
Impaired loans net of reserves		6,394			6,908

Our total impaired loans amounted to €21,740 million as of June 30, 2017, a 5.2% decrease compared with €22,925 million as of December 31, 2016. This decrease is mainly attributable to a decline in domestic impaired loans, particularly in the real estate and construction sectors.

As mentioned in Note 2.2.1 to the Unaudited Interim Consolidated Financial Statements, our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets but which present an inherent loss. As of June 30, 2017, the loan loss reserve amounted to €15,346 million, a 4.2% decrease compared with €16,016 million as of December 31, 2016. This decrease in our loan loss reserve is mainly due to the improved performance in Spain.

The following table provides information, by domicile and type of customer, regarding our impaired loans and the loan loss reserves to customers taken for each impaired loan category, as of June 30, 2017:


	Impaired Loans		Loan Loss Reserve			Impaired Loans as a Percentage of Loans by Category
	(In Millions of Euros)
Domestic:
Government		217		(48	)		1.06	%
Credit institutions		—		—			—
Other sectors		15,091		(6,890	)		9.45	%
Agriculture		102		(45	)		8.91	%
Industrial		1,061		(655	)		7.51	%
Real estate and construction		5,483		(3,192	)		43.23	%
Commercial and other Financial		1,179		(672	)		9.51	%
Loans to individuals		6,110		(1,762	)		6.02	%
Other		1,157		(564	)		6.47	%

Total Domestic		15,308		(6,939	)		8.50	%

Foreign:
Government		8		(6	)		0.06	%
Credit institutions		10		(5	)		0.00	%
Other sectors		6,414		(3,285	)		2.79	%
Agriculture		109		(58	)		3.25	%
Industrial		1,037		(452	)		2.52	%
Real estate and construction		508		(191	)		2.47	%
Commercial and other financial		588		(306	)		1.67	%
Loans to individuals		2,904		(1,543	)		3.28	%
Other		1,268		(735	)		3.03	%

Total Foreign		6,432		(3,297	)		2.63	%

Collective allowance for incurred but not reported losses				(5,112	)

Total impaired loans		21,740		(15,348	)		5.35	%

Troubled Debt Restructurings

As of June 30, 2017, “troubled debt restructurings”, as described in Appendix IX to our Unaudited Interim Consolidated Financial Statements, totaling €10,114 million were not considered impaired loans.

Potential Problem Loans

The identification of “Potential problem loans” is based on the analysis of historical non-performing asset ratio trends, categorized by products/clients and geographical locations. This analysis is focused on the identification of portfolios with non-performing asset ratio higher than our average non-performing asset ratio. Once these portfolios are identified, we segregate such portfolios into groups with similar characteristics based on the activities to which they are related, geographical location, type of collateral, solvency of the client and loan to value ratio.

The non-performing asset ratio in our domestic real estate and construction portfolio was 43.2% as of June 30, 2017 (compared with 41.2% as of December 31, 2016), substantially higher than the average non-performing asset ratio for all of our domestic activities (8.5%) and the average non-performing asset ratio for all of our consolidated activities (4.8%). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 23.6% as of such date (compared with 25.3% as of December 31, 2016). Given such non-performing asset ratio, we performed an analysis in order to define the level of loan provisions attributable to these loan portfolios (see Note 2.2.1 to our Unaudited Interim Consolidated Financial Statements).

Foreign Country Outstandings

The following table sets forth, as of the dates indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of June 30, 2017 and December 31, 2016. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico and United States or other regions which are not listed below.


	As of June 30, 2017					As of December 31, 2016
	Amount		% of Total Assets			Amount		% of Total Assets
	(In Millions of Euros, except %)
United Kingdom		9,875		1.4	%		5,854		0.8	%
Mexico		2,305		0.3	%		1,947		0.3	%
Turkey		4,092		0.6	%		1,665		0.2	%
Other OECD (Organization for Economic Co-operation and Development)		8,570		1.2	%		7,745		1.1	%

Total OECD		24,842		3.5	%		17,211		2.4	%
Central and South America		3,080		0.4	%		4,001		0.6	%
Other		3,874		0.6	%		4,056		0.6	%

Total		31,797		4.5	%		25,268		3.5	%

The Bank of Spain requires that minimum reserves be maintained for cross-border risk arising with respect to loans and other outstandings to countries, or residents of countries, falling into certain categories established by the Bank of Spain on the basis of the level of perceived transfer risk. The category that a country falls into is determined by us, subject to review by the Bank of Spain.

The following table shows the minimum required reserves with respect to each category of country for BBVA’s level of coverage as of June 30, 2017.


Categories(1)	Minimum Percentage of Coverage (Outstandings Within Category)
Countries belonging to the OECD whose currencies are listed in the Spanish foreign exchange market		0.0
Countries with transitory difficulties(2)		10.1
Doubtful countries(2)		22.8
Very doubtful countries(2)(3)		83.5
Bankrupt countries(4)		100.0

(1)	Any outstanding which is guaranteed may be treated, for the purposes of the foregoing, as if it were an obligation of the guarantor.

(2)	Coverage for the aggregate of these three categories (countries with transitory difficulties, doubtful countries and very doubtful countries) must equal at least 35% of outstanding loans within the three categories. The Bank of Spain has recommended up to 50% aggregate coverage.

(3)	Outstandings to very doubtful countries are treated as impaired under Bank of Spain regulations.

(4)

Outstandings to bankrupt countries must be charged off immediately. As a result, no such outstandings are reflected on our consolidated balance sheet. Notwithstanding the foregoing minimum required reserves, certain interbank outstandings with an original maturity of three months or less have minimum required reserves of 50%. We met or exceeded the minimum percentage of required coverage with respect to each of the foregoing categories.

Our exposure to borrowers in countries with difficulties (the last four categories in the foregoing table), excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €160 million and €104 million as of June 30, 2017 and December 31, 2016, respectively. These figures do not reflect loan loss reserves of 20.6% and 35.6% respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2017 did not in the aggregate exceed 0.02% of our total assets.

The country-risk exposures described in the preceding paragraph as of June 30, 2017 and December 31, 2016 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of June 30, 2017 and December 31, 2016 amounted to $123 million and $90 million, respectively (approximately €108 million and €85 million, respectively, based on a euro/dollar exchange rate on June 30, 2017 of $1.00 = €0.88 and on December 31, 2016 of $1.00 = €0.95).

LIABILITIES

Deposits

The principal components of our customer deposits are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits by principal geographic area for the dates indicated.


	As of June 30, 2017
	Customer Deposits		Bank of Spain and Other Central Banks		Other Credit Institutions		Total
	(In Millions of Euros)
Total Domestic		163,847		26,524		5,325		195,696
Foreign
Europe		28,379		101		28,501		56,981
The United States		55,361		121		3,961		59,443
Mexico		58,171		3,701		2,866		64,738
Turkey		38,742		3,873		2,164		44,778
South America		47,048		2,205		4,872		54,125
Other		3,078		—		4,789		7,868
Total Foreign		230,778		10,001		47,152		287,932

Total		394,626		36,525		52,477		483,628


	As of December 31, 2016
	Customer Deposits		Bank of Spain and Other Central Banks		Other Credit Institutions		Total
	(In Millions of Euros)
Total Domestic		161,022		26,602		6,768		194,393
Foreign
Europe		30,949		101		38,338		69,388
The United States		62,311		38		5,040		67,389
Mexico		54,117		2,400		3,663		60,181
Turkey		38,211		3,191		1,463		42,865
South America		50,282		2,407		4,035		56,725
Other		4,572		—		4,194		8,766
Total Foreign		240,442		8,138		56,733		305,313

Total		401,465		34,740		63,501		499,706

For an analysis of our deposits, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 22.1 to the Unaudited Interim Consolidated Financial Statements.

As of June 30, 2017 the maturity of our time deposits (excluding interbank deposits) in denominations of $100,000 or greater was as follows:


	As of June 30, 2017
	Domestic		Foreign		Total
	(In Millions of Euros)
3 months or under		5,263		38,128		43,390
Over 3 to 6 months		3,967		8,629		12,595
Over 6 to 12 months		7,258		5,576		12,834
Over 12 months		7,090		10,127		17,217
Total		23,578		62,459		86,037

Time deposits from Spanish and foreign financial institutions amounted to €28,745 million as of June 30, 2017, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by currency of customer deposits as of June 30, 2017, December 31, 2016 and June 30, 2016, see Note 22.2 to the Unaudited Interim Consolidated Financial Statements.

Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of June 30, 2017, December 31, 2016 and June 30, 2016.


	As of and for the Period Ended June 30, 2017					As of and for the Year Ended December 31, 2016					As of and for the Period Ended June 30, 2016
	Amount		Average rate			Amount		Average rate			Amount		Average rate
	(In Millions of Euros, except percentages)
Securities sold under agreements to repurchase (principally Spanish Treasury bills):
As of end of period		32,899		2.6	%		39,682		1.6	%		36,879		1.2	%
Average during period		33,381		2.5	%		39,589		1.4	%		38,638		1.3	%
Maximum quarter-end balance		33,863		—			41,399		—			40,396		—
Bank promissory notes:
As of end of period		805		0.6	%		1,033		0.2	%		1,092		1.5	%
Average during period		459		0.6	%		883		0.7	%		856		0.9	%
Maximum quarter-end balance		805		—			1,079		—			1,092		—
Bonds and Subordinated debt :
As of end of period		8,952		5.2	%		14,708		3.7	%		15,210		3.1	%
Average during period		9,920		4.3	%		15,092		3.5	%		14,844		3.2	%
Maximum quarter-end balance		10,888		—			16,016		—			15,210		—

Total short-term borrowings as of end of period		42,656		3.1	%		55,423		2.1	%		53,182		1.8	%

Return Ratios

The following table sets out our return ratios:


	As of and for the Six Months Ended June 30, 2017			As of and for the year ended December 31, 2016			As of and for the Six Months Ended June 30, 2016
	(In Percentages)
Return on stockholders’ funds (1)		8.6	%		6.7	%		7.2	%
Return on assets (2)		0.8	%		0.6	%		0.7	%
Equity to assets ratio (3)		7.7	%		7.6	%		7.4	%

(1)

Represents profit attributable to parent company for the period as a percentage of average stockholders’ funds for the period. For June 30, 2017 and June 30, 2016 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.

(2)	Represents profit attributable to parent company as a percentage of average total assets for the period. For June 30, 2017 and June 30, 2016 data, profit attributable to parent company is annualized by multiplying the profit attributable to parent company for the period by two.

(3)	Represents average stockholders´ funds over average total assets.

OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Factors Affecting the Comparability of our Results of Operations and Financial Condition

Trends in Exchange Rates

We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Chilean pesos, Colombian pesos, Venezuelan bolivar and Peruvian new soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.

The assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates for inclusion in our Unaudited Interim Consolidated Financial Statements. Income statement items have been converted at the average exchange rates for the period. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per €1.00 as of and for the six months ended June 30, 2017 and June 30, 2016 according to the European Central Bank (“ECB”).


	Average Exchange Rates				Period-End Exchange Rates
	For the Six Months Ended June 30, 2017		For the Six Months Ended June 30, 2016		As of June 30, 2017		As of December 31, 2016
Mexican peso		21.0340		20.1694		20.5838		21.7718
U.S. dollar		1.0829		1.1159		1.1412		1.0541
Argentine peso		17.0082		15.9880		18.8080		16.5846
Chilean peso		714.7963		769.2308		757.0023		703.2349
Colombian peso		3,164.5570		3,484.3206		3,472.2222		3,164.5570
Peruvian new sol		3.5447		3.7715		3.6974		3.5310
Venezuelan bolivar (*)		4,310.3448		1,170.9602		4,310.3448		1,893.9394
Turkish lira		3.9388		3.2589		4.0134		3.7072

(*)	With respect to 2017 and 2016, an alternative exchange rate (see “Presentation of Financial Information—Venezuela”) has been used as a reference.

During the six months ended June 30, 2017, the Mexican Peso, the Argentine Peso, the Venezuelan bolivar and the Turkish Lira depreciated against the euro in average terms, and the U.S Dollar, the Chilean peso, Colombian peso and Peruvian new sol, each appreciated against the euro. With respect to period-end exchange rates, there was a period-on-period depreciation of all of the above currencies against the euro, except for the Mexican Peso, which appreciated. The overall effect of changes in exchange rates was negative for the period-on-period comparisons of the Group’s income statement and balance sheet.

Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits but also intermediation of financial products such as sovereign or corporate debt) in the countries in which we operate. Demand for our products and services in those countries is affected by the overall performance of their respective economies regarding activity, employment, inflation and, particularly, interest rates. The demand for loans and saving products correlates positively with income, which correlates in turn with the Gross Domestic Product (GDP), as well as with employment and corporate profits evolution.

Interest rates have a direct impact on banking results given that our banking activity mainly relies on the generation of positive interest margins by paying lower interest on our interest-bearing liabilities, principally deposits, than the interest received on interest-bearing assets, principally loans. However, it should be noted that higher interest rates, all else being equal, also reduce the demand for banking loans and increase the cost of funding of our banking business.

In spite of recent improvement, world growth remains at historically low levels, 3.2% in 2016 and, according to BBVA Research estimates, 3.3% in 2017, below the long-term average of around 3.5%. This stable path at low growth rates is similar for the GDP of advanced economies, while emerging markets GDP growth rates remain slightly above 4%. Global GDP growth expectations for 2018 are currently 3.4% according to BBVA Research forecasts.

Regarding the evolution of key economic areas for the Group, after growing by 3.2% in 2016, the Spanish GDP continued to expand at an annualized rate slightly higher than 3.0% in the first half of 2017. According to BBVA Research’s current estimates, growth is expected to remain around an average of 3.3% for the full year 2017. Nevertheless, some of the tailwinds of the Spanish economy, which have had an expansionary effect on growth, are losing momentum and diminishing growth perspectives. For example, oil prices are no longer falling, the euro has gained in value, thereby deteriorating the zone’s relative competitiveness, and interest rates have ceased to decline. However, improvements in the credit market and the structural economic reforms implemented in Spain, including in the labor market, are expected to remain anchors for long-term growth of the Spanish economy.

Mexican GDP grew by 2.0% in 2016, with growth trending slower over the course of the year. As such, the current BBVA Research forecast for 2017 and 2018 GDP growth are 2.2% and 2.0%, respectively. External demand improvement is offsetting weakening domestic demand relying on better price competitiveness and demand for manufactured goods from the US. Higher inflation diminishes domestic disposable income improvement, offsetting formal employment sustained growth slightly above 4%. Mexico’s outlook is plagued with uncertainty which mainly stems from the final outcome of the renegotiation of the NAFTA trade agreement and also from potential changes in U.S. migration policy. Against this backdrop, sound fiscal policy and monetary policy focused on price stability are crucial for limiting the impact of uncertainties around the Mexican economy.

As regards Turkey, the recalculation of Turkey’s national accounts in accordance with the ESA 2010 (The European System of National and Regional Accounts 2010) methodology resulted in higher GDP levels for prior years. Under the new methodology, the annual GDP growth in the period 2011-15 was 7.1% on average compared to 4.4% according to the previous methodology. 2016 annual GDP growth is estimated to have decreased to 2.9% weighted by the tightening of foreign funding conditions, the end of the fall in oil prices, and the uncertainty stemming from a challenging geopolitical and domestic political background. Nevertheless, GDP growth has increased in the first half of 2017 relying on fiscal stimulus, the support of a public credit guarantee fund and heightened tourist demand, all of them against the backdrop of improved global funding conditions. Current BBVA Research forecasts for Turkish GDP growth are 5% in 2017 and 4.5% in 2018. It is worth noting uncertainties such as the complicated geopolitical scenario in the Middle East or the dependence on global risk appetite.

South America GDP growth (based on the weighted average of Argentina, Brazil, Chile, Colombia, Mexico, Paraguay, Peru, Mexico, Uruguay and Venezuela, calculated based on their proportional contribution to total GDP) was -1.3% in 2016 according to BBVA Research estimates, due to the combined effect of lower commodity prices, lower demand from China, tougher global financial conditions and domestic problems in some economies such as Brazil and Argentina. Following a positive first half of 2017, South America GDP growth is expected to be positive 1.0% in 2017 and 1.6% in 2018. GDP growth in 2017-2018 is expected to be driven by external demand, including higher commodity prices, supportive monetary policies and investment in countries such as Argentina and Colombia. Against the background of sustained global demand and supportive funding conditions, domestic vulnerabilities such as political noise or delays in investment are the most important domestic risks.

The U.S. economy slowed down in 2016 (GDP grew by 1.6% in 2016 and 2.6% in 2015) but continued to grow at approximately 2% in the first half of 2017 due to slowing consumption after above-average gains over the past two years. This year stronger global growth could support the recovery in exports while previous gains in oil prices are likely to continue to support increased investment in the oil & gas sector. Our baseline forecasts for U.S. GDP growth are 2.1% for 2017 and 2.2% in 2018. We believe the U.S. economic outlook rests on two key factors: whether the new administration’s ambitious pro-business agenda aimed at boosting investment and

employment spurs consumption and investment and whether the administration can uphold the institutions that have given the U.S. economy a comparative advantage. The main risks to U.S. outlook include a sharp adjustment in assets prices and expectations, weaker growth abroad, cyclical headwinds and a disorderly Federal Reserve balance sheet exit. Political uncertainty may also remain elevated.

BBVA Group Results of Operations for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016

The table below shows the Group’s unaudited interim consolidated income statements for the six months ended June 30, 2017 and June 30, 2016.


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Interest income		14,305			13,702			4.4
Interest expenses		(5,502	)		(5,338	)		3.1

Net interest income		8,803			8,365			5.2

Dividend income		212			301			(29.6	)
Share of profit or loss of entities accounted for using the equity method		(8	)		1			n.m.	(1)
Fee and commission income		3,551			3,313			7.2
Fee and commission expenses		(1,095	)		(963	)		13.7
Net gains (losses) on financial assets and liabilities (2)		541			642			(15.7	)
Exchange differences (net)		528			533			(0.9	)
Other operating income		562			715			(21.4	)
Other operating expense		(945	)		(1,186	)		(20.3	)
Income from insurance and reinsurance contracts		1,863			1,958			(4.9	)
Expenses from insurance and reinsurance contracts		(1,295	)		(1,446	)		(10.4	)

Gross income		12,718			12,233			4.0

Administration costs		(5,599	)		(5,644	)		(0.8	)
Personnel expenses		(3,324	)		(3,324	)		(0.2	)
Other administrative expenses		(2,275	)		(2,319	)		(1.9	)
Depreciation and amortization		(712	)		(689	)		3.3

Net margin before provisions		6,407			5,900			8.6

Provisions or (-) reversal of provisions		(364	)		(262	)		38.9
Impairment losses on financial assets (net)		(1,941	)		(2,110	)		(8.0	)
Impairment losses on other assets (net)		(80	)		(99	)		(19.2	)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net		30			37			(18.9	)
Negative goodwill recognized in profit or loss		—			—			—

Profit (-) or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations		(18	)		(75	)		(76.0	)

Operating profit before tax		4,033			3,391			18.9

Tax expense or (-) income related to profit or loss from continuing operations		(1,120	)		(920	)		21.7

Profit from continuing operations		2,914			2,471			17.9

Profit from discontinued operations (net)		—			—			—

Profit		2,914			2,471			17.9
Profit attributable to parent company		2,306			1,832			25.9
Profit attributable to non-controlling interests		607			639			(5.0	)

(1)	Not meaningful.

(2)

Net interest income

The following table summarizes the principal components of net interest income for the six months ended June 30, 2017 and June 30, 2016.


	For the Six Months Ended June 30,
	2017			2016			Change
	(In Millions of Euros)						(In %)
Interest income		14,305			13,702			4.4
Interest expenses		(5,502	)		(5,338	)		3.1

Total		8,803			8,365			5.2

Net interest income for the six months ended June 30, 2017 amounted to €8,803 million, a 5.2% increase compared with the €8,365 million recorded for the six months ended June 30, 2016, mainly as a result of the following factors:

•

in United States, mainly as a result of good customer spread management despite declining volumes due to a growth strategy focused on the most profitable portfolios and segments, as well as the impact of the Federal Reserve Board benchmark interest rate increases.

•

in Mexico, mainly as a result of higher interest rates applicable to loans and advances to customers continuing the positive trend;

•

in Turkey, as result of a higher volume and good price management, offset by the negative impact of the depreciation of the Turkish Lira; and

•

in South America, due to positive volume and rate effects in all the countries of this region where BBVA operates.

•

which was partially offset by the performance of the Banking Activity in Spain, operating segment, which was adversely affected by lower (volumes (mainly securities portfolio, derivatives, and loans) and the current environment of very low interest rates.

For further information regarding the contribution of our operating segments to our consolidated net interest income, see “—Results of Operations by Operating Segment for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016”.

Dividend income

Dividend income for the six months ended June 30, 2017 amounted to €212 million, a 29.6% decrease compared with the €301 million recorded for the six months ended June 30, 2016, mainly as a result of the absence of dividends from China CITIC Bank Corporation Limited (“CNCB”) in the more recent period as a result of its disposal by the Group and lower dividends from Telefónica, S.A.

Share of profit or loss of entities accounted for using the equity method

Share of profit or loss of entities accounted for using the equity method for the six months ended June 30, 2017 amounted to a €8 million loss, compared with the €1 million gain recorded for the six months ended June 30, 2016.

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2017 and June 30, 2016 is as follows:


	For the Six Months Ended June 30,
	2017		2016		Change (In %)
	(In Millions of Euros)				Change (In %)
Bills receivables		24		27		(11.1	)
Demand accounts		247		224		10.3
Credit and debit cards		1,386		1,293		7.2
Checks		104		100		4.0
Transfers and others payment orders		296		278		6.5
Insurance product commissions		97		88		10.2
Commitment fees		122		121		0.8
Contingent risks		198		201		(1.5	)
Asset management		444		415		7.0
Securities fees		216		171		26.3
Custody securities		62		60		3.3
Other		355		335		6.0

Total		3,551		3,313		7.2

Fee and commission income increased by 7.2% to €3,551 million for the six months ended June 30, 2017, from €3,313 million for the six months ended June 30, 2016, mainly as a result of an increase in transfers, fees and commissions from credit cards in South America, Mexico and the United States, and, to a lesser extent, an increase in securities fees and asset management in Spain.

Fee and commission expenses

The breakdown of fee and commission expenses for the six months ended June 30, 2017 and June 30, 2016 is as follows:


	For the Six Months Ended June 30,
	2017		2016		Change (In %)
	(In Millions of Euros)				Change (In %)
Credit and debit cards		717		613		17.0
Transfers and others payment orders		52		51		2.0
Commissions for selling insurance		29		30		(3.3	)
Other fees and commissions		297		269		10.4

Total		1,095		963		13.7

Fee and commission expenses increased by 13.7% to €1,095 million for the six months ended June 30, 2017, from €963 million for the six months ended June 30, 2016, primarily due to an increase in commissions for use of credit and debit cards in South America, Mexico and Spain.

Net gains (losses) on financial assets and liabilities

Net gains (losses) on financial assets and liabilities decreased by 15.8% to €541 million for the six months ended June 30, 2017, from €642 million for the six months ended June 30, 2016, primarily as result of the capital gain of €204 million before tax from the sale of CNCB and the gains of the VISA operation carried out in the same period of the previous year of €225 million.

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the six months ended June 30, 2017 and 2016:


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net		683			683			0.0
Available-for-sale financial assets		623			469			32.8
Loans and receivables		59			77			(23.7	)
Other		1			137			(99.3	)
Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net		139			106			30.6
Gains or losses on financial assets and liabilities held for trading, net		(88	)		24			n.m.	(1)
Gains or losses from hedge accounting, net		(193	)		(171	)		12.7

Net gains (losses) on financial assets and liabilities		541			642			(15.8	)

(1)	Not meaningful.

Exchange differences (net)

Exchange differences (net) decreased 0.9% from €533 million for the six months ended June 30, 2016 to €528 million for the six months ended June 30, 2017.

Other operating income and expense

Other operating income amounted to €562 million for the six months ended June 30, 2017, a 21.4% decrease compared to €715 million for the six months ended June 30, 2016, mainly as a result of lower income from non-financial services in Spain.

Other operating expense for the six months ended June 30, 2017 amounted to €945 million, a 20.3% decrease compared to the €1,186 million recorded for the six months ended June 30, 2016, mainly as a result of lower expenses from non-financial services in Spain, lower contribution to the Single Resolution Fund and the impact of the depreciation of the Venezuelan bolivar and Argentine peso.

Income and expenses from insurance and reinsurance contracts

Income from insurance and reinsurance contracts for the six months ended June 30, 2017 was €1,863 million, a 4.9% decrease compared with the €1,958 million of income recorded for the six months ended June 30, 2016, mainly as a result of lower insurance premiums in Spain.

Expenses from insurance and reinsurance contracts for the six months ended June 30, 2017 were €1,295 million, a 10.4% decrease compared with the €1,446 million gain recorded for the six months ended June 30, 2016 mainly as a result of the impact of the new method for calculating mathematical reserves in Mexico.

Administration costs

Administration costs for the six months ended June 30, 2017 amounted to €5,599 million, a 0.9% decrease compared with the €5,644 million recorded for the six months ended June 30, 2016, mainly due to lower costs in Spain, Turkey, rest of Eurasia and Mexico, partially offset by the higher costs in South America and the United States.

The table below provides a breakdown of personnel expenses for the six months ended June 30, 2017 and June 30, 2016:


	For the Six Months Ended June 30,
	2017		2016		Change (In %)
	(In Millions of Euros)				Change (In %)
Wages and salary		2,590		2,587		0.1
Social security costs		394		403		(2.2	)
Defined contribution plan expense		52		45		15.6
Defined benefit plan expense		32		34		(5.9	)
Other personnel expenses		256		255		0.4

Personnel expenses		3,324		3,324		—

The table below provides a breakdown of general and administrative expenses for the six months ended June 30, 2017 and June 30, 2016:


	For the Six Months Ended June 30,
	2017		2016		Change (In %)
	(In Millions of Euros)				Change (In %)
Technology and systems		342		333		2.7
Communications		149		151		(1.3	)
Advertising		186		205		(9.3	)
Property, fixtures and materials		528		547		(3.5	)
Of which:
Rent expenses		299		313		(4.5	)
Taxes other than income tax		237		228		3.9
Other expenses		833		855		(2.6	)

General and administrative expenses		2,275		2,319		(1.9	)

Property, fixtures and materials expenses decreased from €547 million for the six months ended June 30, 2016 to €528 million mainly due to a decrease in general expenses related to facilities and properties. Rent expenses decreased from €313 million to €299 million mainly as a result of the reduction in the number of branches. Advertising decreased from €205 million to €186 million due to lower sponsorships in Spain.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2017 was €712 million, a 3.3% increase compared with the €689 million recorded for the six months ended June 30, 2016, mainly due to the increase in South America, particularly in Argentina, due to the high inflation and to a lesser extent in Chile.

Provisions or (-) reversal of provisions

Provisions for the six months ended June 30, 2017 totaled €364 million, a 38.9% increase compared with the €262 million recorded for the six months ended June 30, 2016, largely as a result of an increase in the costs related to early retirements and contributions to pension funds in Spain.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) for the six months ended June 30, 2017 was a loss of €1,941 million, a 8.0% decrease compared with the €2,110 million loss recorded for the six months ended June 30, 2016 mainly as a result of the continued improvement of credit quality in Spain and lower provision requirements, and to a lesser extent, due to decreases registered in the United States and Turkey, offset in part by increases in Mexico and South America largely related to increases in lending activity. The Group’s non-performing asset ratio was 4.8% as of June 30, 2017, compared to 4.9% as of December 31, 2016 and 4.9% as of June 30, 2016.

Impairment losses on other assets (net)

Impairment losses on other assets (net) for the six months ended June 30, 2017 amounted to €80 million, a 19.2% decrease compared to the €99 million recorded for the six months ended June 30, 2016, due to lower impairments losses after portfolio sales.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net

Gains (losses) on derecognition of non-financial assets and subsidiaries, net for the six months ended June 30, 2017 amounted to €30 million, an 18.9% decrease compared to a gain of €37 million recognized for the six months ended June 30, 2016.

Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the six months ended June 30, 2017 amounted to a loss of €18 million, compared to a loss of €75 million for the six months ended June 30, 2016.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the six months ended June 30, 2017 was €4,033 million, an 18.9% increase from the €3,391 million recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations for the six months ended June 30, 2017 was an expense of €1,120 million, a 21.7% increase compared with an expense of €920 million recorded for the six months ended June 30, 2016, due mainly to the higher operating profit before tax.

Profit from continuing operations

As a result of the foregoing, profit from continuing operations for the six months ended June 30, 2017 was €2,914 million, a 17.9% increase from the €2,471 million recorded for the six months ended June 30, 2016.

Profit

As a result of the foregoing, profit for the six months ended June 30, 2017 was €2,914 million, a 17.9% increase from the €2,471 million recorded for the six months ended June 30, 2016.

Profit attributable to parent company

Profit attributable to parent company for the six months ended June 30, 2017 was €2,306 million, a 25.9% increase from the €1,832 million recorded for the six months ended June 30, 2016.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the six months ended June 30, 2017 was €607 million, a 5.0% decrease compared with the €639 million recorded for the six months ended June 30, 2016, mainly as a result of the acquisition of an additional 9.95% stake in Garanti partially offset by the stronger performance of our Peruvian and Argentinian operations where there are minority shareholders.

Results of Operations by Operating Segment

The information contained in this section is presented under management criteria.

The tables set forth below reconcile the income statement of our operating segments presented in this section to the consolidated income statement of the Group. The “Adjustments” column reflects the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria:


	For the Period Ended June 30, 2017
	Banking Activity in Spain			Non-Core Real Estate			The United States			Mexico			Turkey			South America			Rest of Eurasia			Corporate Center			Group Income
	(In Millions of Euros)
Net interest income		1,865			31			1,098			2,676			1,611			1,617			95			(190	)		8,803

Net fees and commissions		783			2			338			595			352			352			82			(47	)		2,456
Net gains (losses) on financial assets and liabilities and exchange differences (net) (1)		318			—			55			117			9			247			80			244			1,069
Other operating income and expenses (net) (2)		235			(40	)		(24	)		120			26			36			—			36			390

Gross income		3,201			(6	)		1,468			3,507			1,998			2,252			256			42			12,718

Administration costs		(1,549	)		(48	)		(848	)		(1,069	)		(675	)		(980	)		(148	)		(283	)		(5,593	)
Depreciation and amortization		(161	)		(10	)		(97	)		(129	)		(93	)		(60	)		(6	)		(156	)		(712	)

Net margin before provisions		1,492			(64	)		523			2,309			1,230			1,211			102			(397	)		6,407

Impairment losses on financial assets (net)		(302	)		(89	)		(113	)		(831	)		(239	)		(375	)		9			(1	)		(1,941	)
Provisions or (-) reversal of provisions		(247	)		(88	)		(5	)		(8	)		18			(46	)		(7	)		(49	)		(432	)

Operating profit/ (loss) before tax		943			(241	)		405			1,469			1,010			790			104			(447	)		4,033

Tax expense or (-) income related to profit or loss from continuing operation		(271	)		49			(108	)		(389	)		(201	)		(229	)		(31	)		61			(1,120	)

Profit from continuing operations		672			(192	)		297			1,081			809			560			73			(386	)		2,914

Profit from discontinued operations /Profit from corporate operations (net)		—			—			—			—			—			—			—			—			—

Profit		672			(192	)		297			1,081			809			560			73			(386	)		2,914

Profit attributable to non-controlling interests		(1	)		1			—			—			(436	)		(156	)		—			(15	)		607

Profit attributable to parent company		670			(191	)		297			1,080			374			404			73			(401	)		2,306

(1)

(2)	Includes “share of profit or loss of entities accounted for using the equity method”; “income from insurance and reinsurance contracts” and “expenses on insurance and reinsurance”.


	For the Period Ended June 30, 2016
	Banking Activity in Spain			Non-Core Real Estate			The United States			Mexico			Turkey			Rest of Eurasia			South America			Corporate Center			Group Income
	(In Millions of Euros)
Net interest income		1,941			42			938			2,556			1,606			86			1,441			(245	)		8,365

Net fees and commissions		760			2			306			556			392			90			299			(55	)		2,350
Net gains (losses) on financial assets and liabilities and exchange differences (net) (1)		390			—			93			97			128			59			319			89			1,175
Other operating income and expenses (net) (2)		191			(22	)		(8	)		101			28			42			(59	)		80			343

Gross income		3.282			11			1.330			3.309			2.154			278			1.999			(130	)		12,233

Administration costs		(1,628	)		(53	)		(811	)		(1,077	)		(745	)		(162	)		(874	)		(293	)		(5,644	)
Depreciation and amortization		(161	)		(14	)		(94	)		(121	)		(88	)		(6	)		(47	)		(158	)		(689	)

Net margin before provisions		1,493			(56	)		425			2,112			1,321			110			1,078			(582	)		5,900

Impairment losses on financial assets (net)		(509	)		(85	)		(149	)		(788	)		(301	)		(9	)		(245	)		(26	)		(2,110	)
Provisions or (-) reversal of provisions		(86	)		(146	)		(36	)		(24	)		1			2			(29	)		(81	)		(399	)

Operating profit/ (loss) before tax		898			(287	)		240			1.300			1.022			103			804			(688	)		3,391

Tax expense or (-) income related to profit or loss from continuing operation		(276	)		80			(62	)		(331	)		(203	)		(28	)		(271	)		172			(920	)

Profit from continuing operations		622			(207	)		178			968			819			75			533			(517	)		2,471

Profit from discontinued operations /Profit from corporate operations (net)		—			—			—			—			—			—			—			—			—

Profit		622			(207	)		178			968			819			75			533			(517	)		2,471

Profit attributable to non-controlling interests		(2	)		—			—			—			(495	)		—			(139	)		(3	)		(639	)

Profit attributable to parent company		621			(207	)		178			968			324			75			394			(520	)		1,832

(1)

(2)	Includes “share of profit or loss of entities accounted for using the equity method”; “income from insurance and reinsurance contracts” and “expenses on insurance and reinsurance”.

Results of Operations by Operating Segment for the Six Months Ended June 30, 2017 Compared to the Six Months Ended June 30, 2016

BANKING ACTIVITY IN SPAIN


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Net interest income		1,865			1,941			(3.9	)

Net fees and commissions		783			760			3.0
Net gains (losses) on financial assets and liabilities and exchange differences (net)		318			390			(18.5	)
Other operating income and expenses (net)		8			(18	)		n.m.	(1)
Income and expenses (net) from insurance and reinsurance contracts		227			209			8.5

Gross income		3,201			3,282			(2.5	)

Administration costs		(1,549	)		(1,628	)		(4.9	)
Depreciation and amortization		(161	)		(161	)		(0.3	)

Net margin before provisions		1,492			1,493			(0.1	)

Impairment losses on financial assets (net)		(302	)		(509	)		(40.6	)
Provisions or (-) reversal of provisions		(247	)		(86	)		185.5

Operating profit/(loss) before tax		943			898			5.0

Tax expense or (-) income related to profit or loss from continuing operation		(271	)		(276	)		(1.7	)

Profit from continuing operations		672			622			7.9

Profit from corporate operations (net)		—			—			—

Profit		672			622			7.9

Profit attributable to non-controlling interests		(1	)		(2	)		(28.1	)

Profit attributable to parent company		670			621			8.0

(1)	Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was €1,865 million, a 3.9% decrease compared with the €1,941 million recorded for the six months ended June 30, 2016, mainly as a result of a decrease in volume, particularly in the securities portfolio and derivatives, and to a lesser extent, the effect of the decreased activity in loans and advances to customers, partially offset by the price effect due to cheaper funding of interest expenses. Total domestic private-sector lending for Spanish banks is generally declining (it fell by 2.1% in year-on-year terms according to Bank of Spain data through March 2017), adversely affecting net interest income.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2017 amounted to €783 million, a 3.0% increase compared with the €760 million recorded for the six months ended June 30, 2016, mainly as a result of an increase in securities fees due to increased volume both in retail and wholesale businesses.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) in this operating segment for the six months ended June 30, 2017 was a net gain of €318 million, an 18.5% decrease compared with the €390 million net gain recorded for the six months ended June 30, 2016. The gain in the prior period was partially due to the gains from the sale of our stake in VISA Europe Ltd. recorded in the second quarter of 2016.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was a net expense of €8 million compared with the €18 million of net expenses recorded for the six months ended June 30, 2016, mainly as a result of a decrease in contribution to the Single Resolution Fund.

Income and expenses (net) from insurance and reinsurance contracts

Income and expenses (net) from insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2017 was net income of €227 million, an 8.5% increase compared with the €209 million of net income recorded for the six months ended June 30, 2016, mainly as a result of the increase in new policies in the period and the low claims ratio.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €1,549 million, a 4.9% decrease compared with the €1,628 million recorded for the six months ended June 30, 2016, mainly as a result of a decrease in salaries, lower rent expenses due to a reduction in the number of branches, lower expenses in sponsorships and a decrease in IT expenses. There has been a decrease in administration costs for four consecutive quarters due to the synergies related to the integration of Catalunya Banc and the implementation of efficiency plans.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a net loss of €302 million, a 40.6% decrease compared with the €509 million recorded for the six months ended June 30, 2016, mainly as a result of the continued improvement of credit quality in Spain and reduced provision requirements. There is a clear downward trend in the impairment losses on financial assets since the peak in 2012. The non-performing asset ratio of this operating segment as of June 30, 2017 was 5.7% compared with 5.8% as of December 31, 2016.

Provisions or (-) reversal of provisions

Provisions (net) and other gains (losses) of this operating segment for the six months ended June 30, 2017 totaled €247 million, compared with the €86 million recorded for the six months ended June 30, 2016, mainly attributable to a higher provisions related to early retirements and contributions to pension funds as we implement our restructuring plans in Spain to increase efficiency.

Operating profit before tax

As a result of the foregoing, operating profit/(loss) before tax of this operating segment for the six months ended June 30, 2017 amounted to operating profit of €943 million, a 5.0% increase compared with the €898 million recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was an expense of €271 million, a 1.6% decrease compared with the expense of €276 million recorded for the six months ended June 30, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was €672 million, a 7.9% increase from the €622 million recorded for the six months ended June 30, 2016.

NON-CORE REAL ESTATE


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Net interest income		31			42			(24.7	)

Net fees and commissions		2			2			(1.1	)
Net gains (losses) on financial assets and liabilities and exchange differences (net)		—			—			—
Other operating income and expenses (net)		(40	)		(33	)		21.1

Gross income		(6	)		11			n.m.	(1)

Administration costs		(48	)		(53	)		(9.9	)
Depreciation and amortization		(10	)		(14	)		(28.9	)

Net margin before provisions		(64	)		(56	)		13.9

Impairment losses on financial assets (net)		(89	)		(85	)		5.3
Provisions or (-) reversal of provisions		(88	)		(146	)		(39.5	)

Operating profit/(loss) before tax		(241	)		(287	)		(15.8	)

Tax expense or (-) income related to profit or loss from continuing operation		49			80			(38.2	)

Profit from continuing operations		(192	)		(207	)		(7.3	)

Profit from corporate operations (net)		—			—			—

Profit		(192	)		(207	)		(7.3	)

Profit attributable to non-controlling interests		1			—			n.m.	(1)

Profit attributable to parent company		(191	)		(207	)		(7.6	)

(1)	Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was €31 million, compared with €42 million of net interest expense recorded for the six months ended June 30, 2016, mainly due to lower financed volumes as a result of lower volumes of assets held.

Net fees and commissions

Net fees and commissions of this operating segment for the six months ended June 30, 2017 and for the six months ended June 30, 2016 amounted to €2 million.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was a net expense of €40 million, a 21.1% increase compared with the €33 million expense recorded for the six months ended June 30, 2016, mainly as a result of an increase of entities accounted for using the equity method due to the increase of our stake in Testa Residencial.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €48 million, a 9.9% decrease compared with the €53 million recorded for the six months ended June 30, 2016, primarily as a result of decreased general expenses due to decreases in both other expenses and taxes.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a net loss of €89 million, a 5.3% increase compared with the €85 million recorded for the six months ended June 30, 2016, mainly as a result of lower recovery of written-off assets. The non-performing asset ratio of this operating segment as of June 30, 2017 was 53.6% compared with 56.1% as of December 31, 2016.

Provisions (net) and other gains (losses)

Provisions (net) and other losses of this operating segment for the six months ended June 30, 2017 totaled €88 million, a 39.5% decrease compared with the €146 million recorded for the six months ended June 30, 2016, as a result of portfolio sales.

Operating profit / (loss) before tax

As a result of the foregoing, the operating loss before tax of this operating segment for the six months ended June 30, 2017 was €241 million, a 15.8% decrease compared with the €287 million loss recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 amounted to income of €49 million, a 38.2% decrease compared with the €80 million of income recorded for the six months ended June 30, 2016, primarily as a result of the tax effect of provisions.

Profit / (loss) attributable to parent company

As a result of the foregoing, loss attributable to parent company of this operating segment for the six months ended June 30, 2017 was a €191 million loss, a 7.6% decrease compared with the €207 million loss recorded for the six months ended June 30, 2016.

THE UNITED STATES


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Net interest income		1,098			938			17.0

Net fees and commissions		338			306			10.7
Net gains (losses) on financial assets and liabilities and exchange differences (net)		55			93			(40.7	)
Other operating income and expenses (net)		(24	)		(8	)		n.m.	(1)

Gross income		1,468			1,330			10.4

Administration costs		(848	)		(811	)		4.5
Depreciation and amortization		(97	)		(94	)		3.0

Net margin before provisions		523			425			23.3

Impairment losses on financial assets (net)		(113	)		(149	)		(23.8	)
Provisions or (-) reversal of provisions		(5	)		(36	)		(86.5	)

Operating profit/(loss) before tax		405			240			68.8

Tax expense or (-) income related to profit or loss from continuing operations		(108	)		(62	)		75.5

Profit from continuing operations		297			178			66.4

Profit from corporate operations (net)		—			—			—

Profit		297			178			66.4

Profit attributable to non-controlling interests		—			—			—

Profit attributable to parent company		297			178			66.4

(1)	Not meaningful.

In the six months ended June 30, 2017, the U.S. dollar appreciated against the euro in average terms, resulting in a positive exchange rate effect on our income statement for the six months ended June 30, 2017 and in the results of operations of the United States operating segment for such period expressed in euro. See “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was €1,098 million, a 17.0% increase compared to the €938 million recorded for the six months ended June 30, 2016, mainly as a result of higher interest rates, particularly related to loans and advances to customers, and, to a lesser extent, in securities portfolio and derivatives, partially offset by the effect of lower lending activity, in line with the area’s growth strategy focused on the most profitable portfolios and segments that represent more efficient capital consumption. Net interest income was positively impacted by higher interest rates due to the impact of the Federal Reserve Board benchmark interest rate increases. Net interest margin reached 3.03% for the six months ended June 30, 2017, compared to 2.58% for the six months ended June 30, 2016.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €338 million for the six months ended June 30, 2017, a 10.7% increase from the €306 million recorded for the six months ended June 30, 2016, mainly as a result of an increase in other commissions which generated an impact of €13 million, and, to a lesser extent, due to an increase in credit and debit card commissions which translated into an €8 million increase.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment for the six months ended June 30, 2017 was a net gain of €55 million, a 40.7% decrease compared to the €93 million gain recorded for the six months ended June 30, 2016, mainly as a result of lower sales of ALCO (Assets and Liabilities Committee) portfolios.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was a €24 million net expense, compared to the €8 million of net expenses recorded for the six months ended June 30, 2016, mainly as a result of the reclassification of interest on Federal Reserve deposits to net interest income, higher FDIC (Federal Deposit Insurance Corporation) costs, and lower dividends.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €848 million, a 4.5% increase from the €811 million recorded for the six months ended June 30, 2016, mainly as a result of a €25 million increase in general and administrative expenses, and, to a lesser extent, due to a €12 million increase in personnel expenses. Among the main variations, publicity and advertising expenses increased the costs by €8 million, and also fixed remuneration which increased the costs by €7 million.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a loss of €113 million, a 23.8% decrease from the €149 million recorded for the six months ended June 30, 2016, mainly as a result of decreased impaired assets compared with the six months ended June 30, 2016 when provisions were recorded in response to downgrades in certain companies in the energy and metal and mining sectors, and the decrease registered in the loan portfolio. The non-performing asset ratio of this operating segment as of June 30, 2017 was 1.3% compared with 1.5% as of December 31, 2016.

Operating profit/(loss) before tax

As a result of the foregoing, the operating profit/(loss) before tax of this operating segment for the six months ended June 30, 2017 was operating profit of €405 million, a 68.8% increase from the €240 million of operating profit recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was an expense of €108 million, a 74.1% increase compared with a €62 million expense recorded for the six months ended June 30, 2016, mainly due to the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was €298 million, a 66.9% increase from the €178 million recorded for the six months ended June 30, 2016.

MEXICO


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Net interest income		2,676			2,556			4.7

Net fees and commissions		595			556			7.1
Net gains (losses) on financial assets and liabilities and exchange differences (net)		117			97			20.1
Other operating income and expenses (net)		(118	)		(114	)		3.9
Income and expenses (net) from insurance and reinsurance contracts		238			214			11.1

Gross income		3,507			3,309			6.0

Administration costs		(1,069	)		(1,077	)		(0.7	)
Depreciation and amortization		(129	)		(121	)		6.7

Net margin before provisions		2,309			2,112			9.3

Impairment losses on financial assets (net)		(831	)		(788	)		5.5
Provisions or (-) reversal of provisions		(8	)		(24	)		(65.4	)

Operating profit/(loss) before tax		1,469			1,300			13.1

Tax expense or (-) income related to profit or loss from continuing operation		(389	)		(331	)		17.4

Profit from continuing operations		1,081			968			11.6

Profit from corporate operations (net)		—			—			—

Profit		1,081			968			11.6

Profit attributable to non-controlling interests		—			—			—

Profit attributable to parent company		1,080			968			11.6

In the six months ended June 30, 2017, the Mexican peso depreciated against the euro in average terms, resulting in a negative exchange rate effect on our income statement for the six months ended June 30, 2017 and in the results of operations of the Mexico operating segment for such period expressed in euro. See “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment in the six months ended June 30, 2017 was €2,676 million, a 4.7% increase compared to the €2,556 million recorded in the six months ended June 30, 2016, extending the positive trend to six consecutive quarters. The increase was mainly as a result of higher interest rates, particularly due to the effect of the higher interest rates in loans and advances to customers and the securities portfolio, and to a lesser extent, the effect of higher volumes of commercial activity.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €595 million for the six months ended June 30, 2017, a 7.1% increase from the €556 million recorded for the six months ended June 30, 2016, mainly as a result of an increase in credit and debit card commissions which generated an impact of €19 million due to a higher transaction volume, and, to a lesser extent, due to an increase in commissions for selling insurance and fees derived from investment funds.

Net gains (losses) on financial assets and liabilities and net exchange differences

Net gains (losses) on financial assets and liabilities and net exchange differences of this operating segment for the six months ended June 30, 2017, was a net gain of €117 million, a 20.1% increase compared to the €97 million gain recorded for the six months ended June 30, 2016, mainly as a result of portfolio sales.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was net operating expenses of €118 million, a 3.9% increase compared with net operating expenses of €114 million recorded for the six months ended June 30, 2016 mainly as a result of the contribution to the local deposit guarantee fund (IPAB).

Income and expenses (net) from insurance and reinsurance contracts

Income and expenses (net) from insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2017 was net income of €238 million, an 11.1% increase compared with the €214 million of net income recorded for the six months ended June 30, 2016, primarily as a result of the change introduced at the end of 2016 related to the method for calculating mathematical reserves.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €1,069 million, a 0.7% decrease from the €1,077 million recorded for the six months ended June 30, 2016, mainly as a result of the depreciation of the Mexican peso.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was €831 million, a 5.5% increase from the €788 million recorded for the six months ended June 30, 2016, mainly as a result of increased impaired assets, particularly in retail (consumer loans, SME and credit cards), which slightly exceeded the increase investment in the loan portfolio. The non-performing asset ratio of this operating segment as of June 30, 2017 was 2.3% compared with 2.3% as of December 31, 2016.

Operating profit before tax

As a result of the foregoing, the operating profit before tax of this operating segment for the six months ended June 30, 2017 was €1,469 million, a 13.1% increase from the €1,300 million recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was an expense of €389 million, a 17.4% increase compared with a €331 million expense recorded for the six months ended June 30, 2016, mainly as a result of the increased operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was €1,080 million, an 11.6% increase from the €968 million recorded for the six months ended June 30, 2016.

TURKEY

From July 2015 to March 2017, we held 39.90% of Garanti’s share capital and we have fully consolidated Garanti’s results in our consolidated financial statements. On March 22, 2017, we completed the acquisition of an additional 9.95% stake in Garanti. See “Item 4. Information on the Company—History and Development of the Company—Capital expenditures—2017” in our annual report on Form 20-F for the year ended December 31, 2016 (the “2016 20-F”). This 9.95% additional stake since March 22, 2017 has had a positive impact on profit attributable to non-controlling interests of approximately €54 million.


	For the Six Months Ended June 30,
	2017			2016			Change (In %)
	(In Millions of Euros)						Change (In %)
Net interest income		1,611			1,606			0.3

Net fees and commissions		352			392			(10.3	)
Net gains (losses) on financial assets and liabilities and exchange differences (net)		9			128			(93.0	)
Other operating income and expenses (net)		(6	)		(6	)		1.6
Income and expenses (net) from insurance and reinsurance contracts		32			34			(5.6	)

Gross income		1,998			2,154			(7.2	)

Administration costs		(675	)		(745	)		(9.4	)
Depreciation and amortization		(93	)		(88	)		5.5

Net margin before provisions		1,230			1,321			(6.9	)

Impairment losses on financial assets (net)		(239	)		(301	)		(20.7	)
Provisions or (-) reversal of provisions		18			1			n.m.	(1)

Operating profit/(loss) before tax		1,010			1,022			(1.1	)

Tax expense or (-) income related to profit or loss from continuing operation		(201	)		(203	)		(1.0	)

Profit from continuing operations		809			819			(1.2	)

Profit from corporate operations (net)		—			—			—

Profit		809			819			(1.2	)

Profit attributable to non-controlling interests		(436	)		(495	)		(11.9	)

Net interest income		374			324			15.3

(1)	Not meaningful.

During the six-month period ended June 30, 2017, the Turkish lira depreciated 20.8% against the Euro in average terms, resulting in a negative exchange rate effect on our income statement for the six months ended June 30, 2017 and in the results of operations of the Turkey operating segment for such period expressed in euro. See “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was €1,611 million, a 0.3% increase compared to the €1,606 million recorded for the six months ended June 30, 2016. The increase in activity and the positive effect of interest rates contributed to a 21.3% increase in net interest income, which was offset almost entirely by the negative impact of the depreciation of the Turkish Lira.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €352 million for the six months ended June 30, 2017, a 10.3% decrease from the €392 million recorded for the six months ended June 30, 2016, as a result of the negative impact of the depreciation of the Turkish Lira. Excluding this effect, there was an 8.4% increase mainly as a result of an increase in checks and bills receivables commissions which generated an impact of €16 million, and, to a lesser extent, due to an increase in contingent risk commissions which translated into a €9 million increase.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment for the six months ended June 30, 2017 was a net gain of €9 million compared to the €128 million net gain recorded for the six months ended June 30, 2016, when the VISA deal initially announced in the fourth quarter of 2015 was recorded in the financial statements during the six months ended June 30, 2016.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 and for the six months ended June 30, 2016 was a net expense of €6 million, respectively.

Income and expenses (net) from insurance and reinsurance contracts

Income and expenses (net) from insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2017 was a net income of €32 million, compared with the €34 million of net income recorded for the six months ended June 30, 2016, as a result of the impact of the depreciation of the Turkish lira.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €675 million, a 9.4% decrease from the €745 million recorded for the six months ended June 30, 2016, as a result of the impact of the depreciation of the Turkish lira. Excluding this impact, the change in Administration costs was a 9.5% increase, mainly as a result of the high level of inflation, which led to a €45 million increase in personnel expenses, and, a €14 million increase in general and administrative expenses.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a net loss of €239 million, compared to a €301 million net loss recorded for the six months ended June 30, 2016, due to the impact of the depreciation of the Turkish Lira. Excluding this impact, there was a 4.2% decrease mainly as a result of decreased impaired assets due to the improvement of credit quality, partially offset by the increased investment in the loan portfolio. The non-performing asset ratio of this operating segment as of June 30, 2017 was 2.5% compared with 2.7% as of December 31, 2016.

Operating profit/(loss) before tax

As a result of the foregoing, the operating profit before tax of this operating segment for the six months ended June 30, 2017 was €1,010 million, compared to €1,022 million recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was an expense of €201 million, compared with a €203 million expense recorded for the six months ended June 30, 2016, mainly as a result of the decrease in operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was €374 million, a 15.3% increase from the €324 million recorded for the six months ended June 30, 2016.

SOUTH AMERICA


	For the Six Months Ended June 30,
	2017			2016			Change
	(In Millions of Euros)						(In %)
Net interest income		1,617			1,441			12.3

Net fees and commissions		352			299			17.6
Net gains (losses) on financial assets and liabilities and exchange differences (net)		247			319			(22.7	)
Other operating income and expenses (net)		(50	)		(127	)		(60.6	)
Income and expenses (net) from insurance and reinsurance contracts		86			67			27.5

Gross income		2,252			1,999			12.6

Administration costs		(980	)		(874	)		12.1
Depreciation and amortization		(60	)		(47	)		28.6

Net margin before provisions		1,211			1,078			12.4

Impairment losses on financial assets (net)		(375	)		(245	)		53.0
Provisions or (-) reversal of provisions		(46	)		(29	)		61.2

Operating profit/(loss) before tax		790			804			(1.8	)

Tax expense or (-) income related to profit or loss from continuing operation		(229	)		(271	)		(15.3	)

Profit from continuing operations		560			533			5.1

Profit from corporate operations (net)		—			—			—

Profit		560			533			5.1

Profit attributable to non-controlling interests		(156	)		(139	)		11.9

Profit attributable to parent company		404			394			2.7

In the six months ended June 30, 2017 the Chilean peso, Colombian peso and Peruvian Sol appreciated in period-average terms against the euro compared to the six months ended June 30, 2016. On the other hand, the Venezuelan bolivar and the Argentine peso depreciated in period-average terms against the euro compared to the six months ended June 30, 2016. In the aggregate this resulted in a positive impact on the results of operations of the South America operating segment for the six months ended June 30, 2017 expressed in euro. See “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Trends in Exchange Rates”.

Net interest income

Net interest income of this operating segment in the six months ended June 30, 2017 was €1,617 million, a 12.3% increase compared to the €1,441 million recorded in the six months ended June 30, 2016. At constant exchange rate, there was an increase in all the countries of this region where BBVA operates, particularly in Colombia (€43 million increase), Argentina (€39 million increase) and Chile (€34 million increase). In Chile, Colombia and Venezuela the increase was mainly boosted by greater financial income whereas in Argentine and Peru the increase was as a result of lower financial expenses.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €352 million in the six months ended June 30, 2017, a 17.6% increase from the €299 million recorded in the six months ended June 30, 2016, mainly as a result of an increase in credit and debit card commissions which generated an impact of €41 million, and, to a lesser extent, due to an increase in checks and bills receivables commissions which translated into a €11 million increase, partially offset by a €13 million decrease in other commissions. By country, the main variation was recorded in Argentina with an increase of €29 million.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment in the six months ended June 30, 2017 was a net a gain of €247 million, a 22.7% decrease compared to the €319 million gain recorded in the six months ended June 30, 2016, mainly as a result of lower revenues from securities trading in Argentina, lower capital gains registered in Colombia and the impact of the depreciation of the Venezuelan bolivar and Argentine peso.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was a net expense of €50 million, compared with the €127 million net expense recorded for the six months ended June 30, 2016, mainly as a result of the impact of the depreciation of the Venezuelan bolivar and Argentine peso (which had an estimated impact of approximately €67 million).

Income and expenses (net) from insurance and reinsurance contracts

Income and expenses (net) from insurance and reinsurance contracts of this operating segment for the six months ended June 30, 2017 was net income of €86 million, a 27.5% increase compared with the €67 million of net income recorded for the six months ended June 30, 2016 mainly as a result of the performance in Argentina (€7 million increase), Colombia (€7 million increase) and Chile (€5 million increase).

Administration costs

Administration costs of this operating segment in the six months ended June 30, 2017 were €980 million, a 12.1% increase from the €874 million recorded in the six months ended June 30, 2016, mainly as a result of the impact of the high inflation in certain countries in the region. By country, the main variation was recorded in Argentina (an €80 million decrease) due to its high inflation.

Depreciation and amortization

Depreciation and amortization for the six months ended June 30, 2017 was €60 million, a 29.8% increase compared with the €47 million recorded for the six months ended June 30, 2016, mainly due to the €5 million increase in Argentina due to the high inflation, and to a lesser extent, the €3 million increase in Chile and €2 million increase in Peru.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment in the six months ended June 30, 2017 was a net loss of €375 million, a 53.0% increase from the €245 million recorded in the six months ended June 30, 2016, mainly as a result of increased impaired assets due to the deterioration of credit quality, particularly in Colombia. The non-performing asset ratio of this operating segment as of June 30, 2017 was 3.5% compared with 2.9% as of December 31, 2016.

Operating profit/(loss) before tax

As a result of the foregoing, the operating profit/(loss) before tax of this operating segment in the six months ended June 30, 2017 was operating profit of €790 million, a 1.8% decrease from the €804 million recorded in the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment in the six months ended June 30, 2017 was an expense of €229 million, a 15.3% decrease compared with a €271 million expense recorded in the six months ended June 30, 2016, mainly as a result of lower operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment in the six months ended June 30, 2017 was €404 million, a 2.7% increase from the €394 million recorded in the six months ended June 30, 2016.

REST OF EURASIA


	For the Six Months Ended June 30,
	2017			2016			Change
	(In Millions of Euros)						(In %)
Net interest income		95			86			10.8

Net fees and commissions		82			90			(9.2	)
Net gains (losses) on financial assets and liabilities and exchange differences (net)		80			59			34.0
Other operating income and expenses (net)		—			42			n.m.	(1)

Gross income		256			278			(7.8	)

Administration costs		(148	)		(162	)		(8.9	)
Depreciation and amortization		(6	)		(6	)		4.3

Net margin before provisions		102			110			(6.8	)

Impairment losses on financial assets (net)		9			(9	)		n.m.	(1)
Provisions or (-) reversal of provisions		(7	)		2			n.m.	(1)

Operating profit/(loss) before tax		104			103			1.8

Tax expense or (-) income related to profit or loss from continuing operation		(31	)		(28	)		12.2

Profit from continuing operations		73			75			(2.1	)

Profit from corporate operations (net)		—			—			—

Profit		73			75			(2.1	)

Profit attributable to non-controlling interests		—			—			—

Profit attributable to parent company		73			75			(2.1	)

(1)	Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was €95 million, a 10.8% increase compared to the €86 million recorded for the six months ended June 30, 2016.

Net fees and commissions

Net fees and commissions of this operating segment amounted to €82 million for the six months ended June 30, 2017, a 9.2% decrease from the €90 million recorded for the six months ended June 30, 2016 , mainly as a result of a decrease in securities fees which generated an impact of €5 million.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment for the six months ended June 30, 2017 was a net gain of €80 million, a 34.0% increase compared to the €59 million gain recorded for the six months ended June 30, 2016, mainly as a result of the increase in retail businesses, particularly in Portugal (€11 million increase) and the performance of the Global Markets unit in Europe.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was nil, compared to €42 million in net other operating income of this operating segment for the six months ended June 30, 2016, when dividends from CNCB were received.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €148 million, an 8.9% decrease from the €162 million recorded for the six months ended June 30, 2016, as a result of lower personnel expenses and other general and administrative expenses as result of the expense containment in CIB Asia and retail business in Europe.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a €9 million net gain, the same as for the six months ended June 30, 2016. The non-performing asset ratio of this operating segment as of June 30, 2017 was 2.6%, the same as of December 31, 2016.

Operating profit/(loss) before tax

As a result of the foregoing, the operating profit before tax of this operating segment for the six months ended June 30, 2017 was €104 million, a 1.8% increase from the €103 million recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was an expense of €31 million, a 12.2% increase compared with a €28 million expense recorded for the six months ended June 30, 2016.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was €73 million, a 2.1% decrease from the €75 million recorded for the six months ended June 30, 2016.

CORPORATE CENTER


	For the Six Months Ended June 30,
	2017			2016			Change
	(In Millions of Euros)						(In %)
Net interest income		(190	)		(245	)		(22.3	)

Net fees and commissions		(47	)		(55	)		(14.2	)
Net gains (losses) on financial assets and liabilities and exchange differences (net)		244			89			172.7
Other operating income and expenses (net)		51			93			(45.9	)
Income and expenses from insurance and reinsurance contracts		(15	)		(13	)		13.4

Gross income		42			(130	)		n.m.	(1)

Administration costs		(283	)		(293	)		(3.6	)
Depreciation and amortization		(156	)		(158	)		(1.0	)

Net margin before provisions		(397	)		(582	)		(31.7	)

Impairment losses on financial assets (net)		(1	)		(26	)		(97.5	)
Provisions or (-) reversal of provisions		(49	)		(81	)		(40.0	)

Operating profit/(loss) before tax		(447	)		(688	)		(35.1	)

Tax expense or (-) income related to profit or loss from continuing operations		61			171			(64.4	)

Profit from continuing operations		(386	)		(517	)		(25.4	)

Profit from corporate operations (net)		—			—			—

Profit		(386	)		(517	)		(25.4	)

Profit attributable to non-controlling interests		(15	)		(3	)		n.m.	(1)

Profit attributable to parent company		(401	)		(520	)		(22.9	)

(1)	Not meaningful.

Net interest income

Net interest income of this operating segment for the six months ended June 30, 2017 was an expense of €190 million, a 22.3% decrease compared to the €245 million expense recorded for the six months ended June 30, 2016 mainly as a result of the lower funding cost of the Group’s investments.

Net fees and commissions

Net fees and commissions of this operating segment amounted to an expense of €47 million for the six months ended June 30, 2017, a 14.2% decrease compared to an expense of €55 million recorded for the six months ended June 30, 2016, mainly as a result of the increase in other commission expenses.

Net gains (losses) on financial assets and liabilities and exchange differences (net)

Net gains (losses) on financial assets and liabilities and exchange differences (net) of this operating segment for the six months ended June 30, 2017 was a gain of €244 million compared to the €89 million gain recorded for the six months ended June 30, 2016, mainly as a result of the sale of a 1.7% stake in CNCB in the most recent period.

Other operating income and expenses (net)

Other operating income and expenses (net) of this operating segment for the six months ended June 30, 2017 was income of €51 million, a 45.9% decrease compared to the €93 million of income recorded for the six months ended June 30, 2016, as result of a lower income from dividends from Telefónica, S.A. as it lowered its dividend from €0.4 per share to €0.2 per share.

Administration costs

Administration costs of this operating segment for the six months ended June 30, 2017 were €284 million, a 3.3% decrease from the €293 million recorded for the six months ended June 30, 2016.

Impairment losses on financial assets (net)

Impairment losses on financial assets (net) of this operating segment for the six months ended June 30, 2017 was a loss of €1 million, compared to the loss of €26 million recorded for the six months ended June 30, 2016 when there was impairment of debt securities and higher country risk loan-loss provisions.

Provisions or (-) reversal of provisions

Provisions of this operating segment for the six months ended June 30, 2017 totaled €49 million, a decrease of 40.0% compared to the loss of €81 million recorded for the six months ended June 30, 2016, mainly due to lower provisions for early retirements.

Operating profit / (loss) before tax

As a result of the foregoing, the operating loss before tax of this operating segment for the six months ended June 30, 2017 was a loss of €447 million, a 35.1% decrease from the €688 million loss recorded for the six months ended June 30, 2016.

Tax expense or (-) income related to profit or loss from continuing operations

Tax expense or (-) income related to profit or loss from continuing operations of this operating segment for the six months ended June 30, 2017 was income of €61 million, a 64.4% decrease compared with a €171 million of income recorded for the six months ended June 30, 2016.

Profit / (loss) attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the six months ended June 30, 2017 was a loss of €401 million, compared to a loss of €520 million recorded for the six months ended June 30, 2016.

Liquidity and Capital Resources

Liquidity risk management and controls are explained in Note 7.5.1 to the Unaudited Interim Consolidated Financial Statements. In addition, information on encumbered assets is provided in Note 7.5.2 to the Unaudited Interim Consolidated Financial Statements and information on outstanding contractual maturities of assets and liabilities is provided in Note 7.7 to the Unaudited Interim Consolidated Financial Statements. For information concerning our short-term borrowing, see “Item 4. Information on the Company—Selected Statistical Information—Liabilities—Short-term Borrowings”.

Liquidity and finance management of the BBVA Group’s balance sheet seeks to fund the 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 the BBVA Group’s liquidity and finance management is the financial independence of its banking subsidiaries. This aims to ensure that the cost of liquidity is correctly reflected in price formation. Accordingly, we maintain a liquidity pool at an individual entity level at each of Banco Bilbao Vizcaya Argentaria, S.A. and our banking subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti and our Latin American subsidiaries.

The table below shows the composition of the liquidity pool of Banco Bilbao Vizcaya Argentaria, S.A. and each of our significant subsidiaries as of June 30, 2017:


	BBVA Eurozone (1)		BBVA Bancomer		BBVA Compass		Garanti Bank		Others
	(In Millions of Euros)
Cash and balances with central banks		13,081		5,968		1,529		6,936		6,442
Assets for credit operations with central banks		46,764		5,274		24,414		5,699		5,513
Central governments issues		25,589		2,749		1,953		5,699		5,433
Of Which: Spanish government securities		17,233		—		—		—		—
Other issues		21,175		2,526		7,799		—		80
Loans		—		—		14,662		—		—
Other non-eligible liquid assets		6,875		808		576		1,650		754

Accumulated available balance		66,720		12,051		26,519		14,285		12,710

Average balance (2)		65,882		12,778		28,424		13,575		14,003

(1)	Includes Banco Bilbao Vizcaya Argentaria, S.A. and Banco Bilbao Vizcaya Argentaria (Portugal), S.A.

(2)	Average balance for the six months ended June 30, 2017, based on the beginning and the day-end balances during each period.

Management of liquidity and structural finance within the BBVA Group is based on the principle of the financial autonomy of the entities that make it up. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability in periods of high risk. This decentralized management avoids possible contagion due to a crisis that could affect only one or several BBVA Group entities, which must cover their liquidity needs independently in the markets where they operate. Liquidity Management Units (LMUs) have been set up for this reason in the geographical areas where the main foreign subsidiaries operate, and also for the parent BBVA S.A., within the Euro currency scope, which includes BBVA Portugal.

The Finance Division, through Global Assets and Liabilities Management, manages the BBVA Group’s liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMU and proposes to ALCO the actions to adopt in this regard in accordance with the policies and limits established by the Executive Committee.

As first core element, the Bank’s target behavior in terms of liquidity and funding risk is characterized through the Liquidity Coverage Ratio (LCR) and the Loan-to-Stable-Customer-Deposits (LtSCD) ratio. LCR is a regulatory measurement aimed at ensuring entities’ resistance in a scenario of liquidity stress within a time horizon of 30 days. BBVA, within its risk appetite framework and its limits and alerts schemes, has established a level of requirement for compliance with the LCR ratio both for the Group as a whole and for each of the LMUs individually. The internal levels required are geared to comply sufficiently and efficiently in advance with the implementation of the regulatory requirement of 2018, at a level above 100%.

Throughout the first half of 2017 the level of the LCR for BBVA Group has remained above 100%. At the European level the LCR ratio was effective beginning October 1, 2015, with an initial required level of 60%, and a phased-in level of up to 100% in 2018.

The LtSCD measures the relation between the net credit investment and stable funds. The aim is to preserve a stable funding structure in the medium term for each of the LMUs making up the BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile.

Customer funds captured and managed by business units are defined as stable customer funds. These funds usually show little sensitivity to market changes and are largely non-volatile in terms of aggregate amounts per operation, thanks to customer linkage to the unit. Stable funds in each LMU are calculated by analyzing the behavior of the balance sheets of the different customer segments identified as likely to provide stability to the funding structure, and by prioritizing an established relationship and applying bigger haircuts to the funding lines of less stable customers. The main base of stable funds is composed of deposits by individual customers and small businesses.

The second core element in liquidity and funding risk management is to seek to achieve proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term borrowing comprising both wholesale funding as well as less stable funds from non-retail customers. Regarding long-term funding, the maturity profile does not show significant concentrations, which enables adaptation of the anticipated issuance schedule to the best financial conditions of the markets. Finally, concentration risk is monitored at the LMU level, with a view to ensuring the right diversification both per counterparty and per instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, making sure that each LMU has sufficient collateral to address the risk of wholesale markets closing. “Basic Capacity” is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets and the maturities of wholesale liabilities and volatile funds, at different terms, with special relevance being given to 30-day maturities.

Our principal source of funds is our customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on our customer deposits, we also access the interbank market (overnight and time deposits) and domestic and international capital markets for our additional liquidity requirements. To access the capital markets, we have in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. Another source of liquidity is our generation of cash flow from our operations. Finally, we supplement our funding requirements with borrowings from the Bank of Spain and from the European Central Bank or the respective central banks of the countries where our subsidiaries are located. See Note 9 to the Unaudited Interim Consolidated Financial Statements for information on our borrowings from central banks.

The following table shows the balances as of June 30, 2017 and December 31, 2016 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):


	As of June 30,		As of December 31,
	2017		2016
	(In Millions of Euros)
Deposits from central banks		36,525		34,740
Deposits from credit institutions		52,477		63,501
Customer deposits		394,626		401,465
Debt certificates		69,513		76,375
Other financial liabilities		12,880		13,129

Total		566,020		589,210

Customer deposits

Customer deposits amounted to €394,626 million as of June 30, 2017, compared to €401,465 million as of December 31, 2016.

Our customer deposits, excluding assets sold under repurchase agreements amounted to €380,311 million as of June 30, 2017 compared to €387,974 million as of December 31, 2016.

Amounts due to credit institutions

Amounts due to credit institutions, including central banks, amounted to €89,001 million as of June 30, 2017, compared to €98,241 million as of December 31, 2016. The decrease as of June 30, 2017 compared to December 31, 2016 was mainly related to the lower volume of deposits from credit institutions.


	As of June 30,		As of December 31,
	2017		2016
	(In Millions of Euros)
Deposits from credit institutions		52,477		63,501

Deposits from central banks		36,525		34,740

Total Deposits from credit institutions		89,001		98,241

Capital markets

We issue debt in the domestic and international capital markets in order to finance our activities and as of June 30, 2017, we had €52,003 million of senior debt outstanding, comprising €51,045 million in bonds and debentures and €958 million in promissory notes and other securities, compared to €59,390 million, €58,173 million and €1,217 million outstanding as of December 31, 2016, respectively. See Note 22.3 to the Unaudited Interim Consolidated Financial Statements.

In addition, we had a total of €17,135 million in subordinated debt and €169 million in preferred securities outstanding as of June 30, 2017, compared to €15,718 million and €987 million as of December 31, 2016, respectively.

The breakdown of the outstanding subordinated debt and preferred securities by entity issuer, maturity, interest rate and currency is disclosed in Appendix VI of the Unaudited Interim Consolidated Financial Statements.

The following is a breakdown as of June 30, 2017, of the maturities of our deposits from credit institutions and subordinated liabilities, disregarding any valuation adjustments and accrued interest (regulatory equity instruments have been classified according to their contractual maturity):


	Demand		Up to 1 Month		1 to 3 Months		3 to 12 Months		1 to 5 Years		Over 5 Years		Total
	(In Millions of Euros)
Debt certificates (including bonds)		182		1,080		1,989		7,152		23,540		17,521		51,463
Subordinated liabilities		107		—		19		1,091		4,279		11,818		17,312

Total		288		1,080		2,008		8,243		27,818		29,338		68,775

Generation of cash flow

We operate in Spain, Mexico, the United States and over 30 other countries, mainly in Europe, Latin America, and Asia. Our banking subsidiaries around the world, including BBVA Compass, are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of our banking subsidiaries, including BBVA Compass, to transfer funds to us in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where our subsidiaries, including BBVA Compass, are incorporated, dividends may only be paid out of funds legally available. For example, BBVA Compass is incorporated in Alabama and under Alabama law it is not able to pay any dividends without the prior approval of the Superintendent of Banking of Alabama if the dividend would exceed the total net earnings for the year combined with the bank’s retained net earnings of the preceding two years.

Even where minimum capital requirements are met and funds are legally available therefore, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise.

There is no assurance that in the future other similar restrictions will not be adopted or that, if adopted, they will not negatively affect our liquidity. The geographic diversification of our businesses, however, may help to limit the effect on the Group that any restrictions could have, which could be adopted in any given country.

We believe that our working capital is sufficient for our present requirements and to pursue our planned business strategies.

See Note 51 of the Unaudited Interim Consolidated Financial Statements for additional information on our Consolidated Statements of Cash Flows.

Capital

The capital data shown below as of June 30, 2017 and December 31, 2016 has been calculated in accordance with regulation applicable as of June 30, 2017 on the basis of minimum capital base requirements for Spanish credit institutions –, both as individual entities and as consolidated Group.

The minimum capital base requirements established by current regulation are calculated based on the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in said regulation and our internal policies and requirements.

The European Central Bank (ECB), following the Supervisory Review and Evaluation Process (SREP) conducted in 2016, has required that the BBVA Group maintain, on a consolidated basis, effective from the 1^st of January 2017, a phased-in total capital ratio of 11.125%.

This total capital requirement includes:

•

the minimum CET1 capital ratio required under Pillar 1 (4.5%); Pillar 1 Additional Tier 1 capital requirements (1.5%); Pillar 1 Tier 2 capital requirements (2%), which corresponds to the minimum capital ratios required by Article 92 of the CRR;

•

Pillar 2 CET1 capital requirements (1.5%), which corresponds to the CET1 ratio required in excess of the minimum CET1 ratio, in accordance with Article 16(2)(a) of Council Regulation No 1024/2013 of 15 October 2013;

•

the capital conservation buffer (CCB) (1.25% CET1)which has been required since January 1, 2016 by Article 44 of Law 10/2014 and its implementing regulations. The Capital Conservation Buffer (CCB) stands, in fully loaded terms, at 2.5% CET1. The amount to be applicable in 2017 will be 50% of that buffer (i.e. 1.25%); and

•

the Other Systemic Important Institution buffer (OSII or D-SIB)(0.375% CET1). The Other Systemic Important Institution buffer (OSII) stands, in fully loaded terms, at 0.75% CET1. The amount to be applicable in 2017 will be 50% of that buffer (i.e. 0.375%).

Since BBVA has been excluded from the list of global systemically important financial institutions in 2016 (which is updated every year by the Financial Stability Board (FSB)), the G-SIB buffer is not applicable to BBVA in 2017, (notwithstanding the possibility that the FSB or the supervisor may include BBVA on it in the future).

However, the FSB has informed BBVA that it is included on the list of other systemically important financial institutions, and a D-SIB buffer of 0.75% of the fully-loaded ratio applies at the consolidated level. It is implemented gradually from January 1, 2016 to January 1, 2019.

Our consolidated ratios as of June 30, 2017 and December 31, 2016 were as follows:


	As of June 30, 2017			As of December 31, 2016			% Change
	(In Millions of Euros)
Ordinary TIER 1 Capital		52,580			54,339			(3.2	)
Adjustments		(8,692	)		(6,969	)		24.72
Mandatory convertible bonds		—			—			—
CORE CAPITAL (a)		43,888			47,370			(7.4	)
Preferred securities		6,350			6,496			(2.2	)
Adjustments		(1,754	)		(3,783	)		(53.6	)
CAPITAL (TIER I) (b)		48,484			50,083			(3.2	)
OTHER ELIGIBLE CAPITAL (TIER II) (c)		9,351			8,810			6.14
CAPITAL BASE (TIER I + TIER II) (d)		57,835			58,893			(1.8	)
Minimum capital requirement (BIS III Regulations)		29,846			31,116			(4.1	)
CAPITAL SURPLUS		27,989			27,777			0.76
RISK WEIGHTED ASSETS (RWA) (e)		373,075			388,951			(4.1	)
BIS RATIO (d)/(e)		15.50	%		15.14	%
CORE CAPITAL (a)/(e)		11.76	%		12.18	%
TIER I (b)/(e)		13.00	%		12.88	%
TIER II (c)/(e)		2.51	%		2.27	%

The minimum capital requirements under CRD IV (8% RWA) decreased to €29,846 million as of June 30, 2017 from €31,116 million at December 31, 2016, largely explained by the depreciation of various currencies against the euro (especially the Turkish lira and the U.S. dollar) and an improvement in the risk profile of the Group’s portfolio, particularly the Spanish portfolio. We entered into a €3,000 million synthetic securitization on June 2, 2017 which covers potential losses on a portfolio of around 15,000 loans to Spanish SMEs. This was arranged through a mezzanine guarantee facility provided by the European Investment Fund, a subsidiary of the supranational European Investment Bank. This transaction enabled the Group to free up €683million in risk-weighted assets with a corresponding positive impact on the capital ratios.

Variations in the amount of core capital are, mainly, explained by the organic generation of results, net of dividend and remuneration payments in the first half of the year and the efficient management and allocation of capital in line with the strategic objectives of the Group. Additionally, there is a negative effect on regulatory adjustments (mainly on minority interests and deductions) due to the regulatory phased-in calendar of 80% in 2017 compared with 60% in 2016.

The variation of the core capital was also affected by transactions carried out during the first quarter of 2017, in particular the acquisition of an additional 9.95% stake in Garanti and the sale of 1.7% stake in CNCB. Both transactions had a combined negative impact on the ratio of 13 basis points.

The Tier 1 ratio increased to 13.00% as of June 30, 2017 from 12.88% as of December 31, 2016, mainly due to the issuance by BBVA, S.A. of €500million in preferred securities at a coupon of 5.875%. This is classified as additional Tier 1 capital (contingent convertible) under solvency regulation, capable of converting into ordinary BBVA shares.

In addition, BBVA, S.A. has undertaken various subordinated capital issues worth a nominal amount of close to €1,500million (of which €168million were issued in the second quarter). Meanwhile, Garanti in Turkey issued $750million in the second quarter. These issues compute as Tier 2 capital, having a 50 basis point impact on the total capital ratio during the first half of the year on a phased-basis.

As a result of the factors discussed above, the total capital ratio stood at 15.50% as of June 30, 2017.

Off-Balance Sheet Arrangements

In addition to loans, we had the following off-balance sheet arrangements outstanding as of the dates indicated:


	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Bank guarantees		37,845		39,722
Letters of credit		9,215		10,210

Total financial guarantees given		47,060		49,932

In addition to the off-balance sheet arrangements described above, the following tables set forth information regarding commitments to extend credit and assets under management as of June 30, 2017 and December 31, 2016:


	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Credit institutions		1,027		1,209
Government and other government agencies		2,898		4,355
Other resident sectors		26,898		29,980
Non-resident sector		61,361		71,710
Total contingent liabilities		92,184		107,254

Total contingent risks and contingent liabilities		139,244		157,185


	As of June 30, 2017		As of December 31, 2016
	(In Millions of Euros)
Mutual funds		59,905		55,037
Pension funds		33,412		33,418
Customer portfolios		40,510		40,805
Other resources		3,217		2,831

Total assets under management		137,044		132,091

See Notes 33 and 36 to the Unaudited Interim Consolidated Financial Statements for additional information with respect to our off-balance sheet arrangements.

LOGO

Contents


UNAUDITED INTERIM CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets		F-4

Consolidated income statements		F-7

Consolidated statements of recognized income and expenses		F-8

Consolidated statements of changes in equity		F-9

Consolidated statements of cash flows		F-11

NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS

1.	Introduction, basis for the presentation of the interim Consolidated Financial Statements, internal control of financial information and other information	F-12

2.	Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements	F-15

3.	BBVA Group	F-41

4.	Shareholder remuneration system	F-43

5.	Earnings per share	F-44

6.	Operating segment reporting	F-45

7.	Risk management	F-47

8.	Fair value	F-89

9.	Cash and cash balances at centrals and banks and other demands deposits and Financial liabilities measured at amortized cost	F-99

10.	Financial assets and liabilities held for trading	F-99

11.	Financial assets and liabilities designated at fair value through profit or loss	F-103

12.	Available-for-sale financial assets	F-103

13.	Loans and receivables	F-110

14.	Held-to-maturity investments	F-113

15.	Hedging derivatives and fair value changes of the hedged items in portfolio hedge of interest rate risk	F-115

16.	Investments in subsidiaries, joint ventures and associates	F-118

17.	Tangible assets	F-120

18.	Intangible assets	F-121

19.	Tax assets and liabilities	F-122

20.	Other assets and liabilities	F-126

21.	Non-current assets and disposal groups classified as held for sale	F-127

22.	Financial liabilities at amortized cost	F-128

23.	Liabilities under reinsurance and insurance contracts	F-132

24.	Provisions	F-134

25.	Post-employment and other employee benefit commitments	F-135

26.	Common stock	F-144

F-1


27.	Share premium	F-146

28.	Retained earnings, revaluation reserves and other reserves	F-146

29.	Treasury shares	F-148

30.	Accumulated other comprehensive income	F-149

31.	Non-controlling interests	F-149

32.	Capital base and capital management	F-150

33.	Commitments and guarantees given	F-153

34.	Other contingent assets and liabilities	F-153

35.	Purchase and sale commitments and future payment obligations	F-154

36.	Transactions on behalf of third parties	F-154

37.	Interest income and expense	F-155

38.	Dividend income	F-157

39.	Share of profit or loss of entities accounted for using the equity method	F-157

40.	Fee and commission income and expenses	F-158

41.	Gains (losses) on financial assets and liabilities (net) and Exchange Differences	F-159

42.	Other operating income and expenses	F-160

43.	Insurance and reinsurance contracts incomes and expenses	F-161

44.	Administration costs	F-161

45.	Depreciation	F-165

46.	Provisions or reversal of provisions	F-166

47.	Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	F-166

48.	Impairment or reversal of impairment on non-financial assets	F-166

49.	Gains (losses) on derecognized non financial assets and subsidiaries, net	F-167

50.	Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	F-167

51.	Consolidated statements of cash flows	F-167

52.	Accountant fees and services	F-168

53.	Related-party transactions	F-168

54.	Remuneration and other benefits received by the Board of Directors and members of the Bank’s Senior Management	F-170

55.	Other information	F-174

56.	Subsequent events	F-175

APPENDIX I	Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group	A-1

APPENDIX II	Additional information on investments in subsidiaries, joint ventures and associates in the BBVA Group	A-10

APPENDIX III	Changes and notification of investments and divestments in the BBVA Group in the six month ended June 30, 2017	A-11

APPENDIX IV	Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of June 30, 2017	A-15

F-2



APPENDIX V	BBVA Group’s structured entities. Securitization funds	A-16

APPENDIX VI	Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of June 30, 2017 and December 31, 2016(*)	A-17

APPENDIX VII	Consolidated balance sheets held in foreign currency as of June 30, 2017 and December 31, 2016	A-21

APPENDIX VIII	Information on data derived from the special accounting registry	A-22

APPENDIX IX	Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012	A-28

APPENDIX X	Additional information on Risk Concentration	A-36

Glossary

F-3

LOGO

Unaudited Consolidated balance sheets as of June 30, 2017 and December 31, 2016


		Millions of Euros
ASSETS	Notes		June 2017	December 2016
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS	9		34,720	40,039
FINANCIAL ASSETS HELD FOR TRADING	10		68,885	74,950
Derivatives			37,505	42,955
Equity instruments			4,201	4,675
Debt securities			27,114	27,166
Loans and advances to central banks			-	-
Loans and advances to credit institutions			-	-
Loans and advances to customers			65	154
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	11		2,230	2,062
Equity instruments			2,023	1,920
Debt securities			203	142
Loans and advances to central banks			-	-
Loans and advances to credit institutions			3	-
Loans and advances to customers			-	-
AVAILABLE-FOR-SALE FINANCIAL ASSETS	12		74,666	79,221
Equity instruments			4,151	4,641
Debt securities			70,514	74,580
LOANS AND RECEIVABLES	13		458,494	465,977
Debt securities			11,328	11,209
Loans and advances to central banks			11,142	8,894
Loans and advances to credit institutions			26,937	31,373
Loans and advances to customers			409,087	414,500
HELD-TO-MATURITY INVESTMENTS	14		14,531	17,696
HEDGING DERIVATIVES	15		2,223	2,833
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK	15		14	17
JOINT VENTURES, ASSOCIATES AND UNCONSOLIDATED SUBSIDIARIES	16		1,142	765
Joint ventures			267	229
Associates			875	536
INSURANCE AND REINSURANCE ASSETS	23		432	447
TANGIBLE ASSETS	17		8,211	8,941
Property, plants and equipment			7,648	8,250
For own use			7,274	7,519
Other assets leased out under an operating lease			374	732
Investment properties			563	691
INTANGIBLE ASSETS	18		9,047	9,786
Goodwill			6,487	6,937
Other intangible assets			2,560	2,849
TAX ASSETS	19		17,314	18,245
Current			1,666	1,853
Deferred			15,649	16,391
OTHER ASSETS	20		7,177	7,274
Insurance contracts linked to pensions			-	-
Inventories			3,125	3,298
Rest			4,051	3,976

NON-CURRENT ASSETS AND DISPOSAL GROUPS HELD FOR SALE	21		3,344	3,603

TOTAL ASSETS			702,429	731,856

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

F-4

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Unaudited Consolidated balance sheets as of June 30, 2017 and December 31, 2016


		Millions of Euros
LIABILITIES AND EQUITY	Notes		June 2017	December 2016
FINANCIAL LIABILITIES HELD FOR TRADING	10		49,532	54,675
Trading derivatives			38,528	43,118
Short positions			11,004	11,556
Deposits from central banks			-	-
Deposits from credit institutions			-	-
Customer deposits			-	-
Debt certificates			-	-
Other financial liabilities			-	-
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	11		2,437	2,338
Deposits from central banks			-	-
Deposits from credit institutions			-	-
Customer deposits			2	-
Debt certificates			-	-
Other financial liabilities			2,434	2,338
FINANCIAL LIABILITIES AT AMORTIZED COST	22		566,021	589,210
Deposits from central banks			36,525	34,740
Deposits from credit institutions			52,477	63,501
Customer deposits			394,626	401,465
Debt certificates			69,513	76,375
Other financial liabilities			12,880	13,129
HEDGING DERIVATIVES	15		2,780	2,347
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK	15		11	-
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS	23		9,846	9,139
PROVISIONS	24		8,184	9,071
Provisions for pensions and similar obligations	25		5,648	6,025
Other long term employee benefits			64	69
Provisions for taxes and other legal contingencies			718	418
Provisions for contingent risks and commitments			850	950
Other provisions			904	1,609
TAX LIABILITIES	19		3,851	4,668
Current			1,003	1,276
Deferred			2,848	3,392
OTHER LIABILITIES	20		5,026	4,979
LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE			14	-
TOTAL LIABILITIES			647,702	676,428

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

F-5

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Unaudited Consolidated balance sheets as of June 30, 2017 and December 31, 2016


		Millions of Euros
LIABILITIES AND EQUITY (Continued)	Notes	June 2017	December 2016
SHAREHOLDERS’ FUNDS		54,823	52,821
Capital	26	3,267	3,218
Paid up capital		3,267	3,218
Unpaid capital which has been called up		-	-
Share premium	27	23,992	23,992
Equity instruments issued other than capital		-	-
Other equity	44.1.1	43	54
Retained earnings	28	25,580	23,688
Revaluation reserves	28	15	20
Other reserves	28	(37)	(67)
Reserves or accumulated losses of investments in subsidiaries, joint ventures and associates		(37)	(67)
Other		-	-
Less: Treasury shares	29	(54)	(48)
Profit or loss attributable to owners of the parent		2,306	3,475
Less: Interim dividends	4	(291)	(1,510)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	30	(6,991)	(5,458)
Items that will not be reclassified to profit or loss		(1,058)	(1,095)
Actuarial gains or (-) losses on defined benefit pension plans		(1,058)	(1,095)
Non-current assets and disposal groups classified as held for sale		-	-
Share of other recognised income and expense of investments in subsidiaries, joint ventures and associates		-	-
Other adjustments		-	-
Items that may be reclassified to profit or loss		(5,933)	(4,363)
Hedge of net investments in foreign operations [effective portion]		(412)	(118)
Foreign currency translation		(6,451)	(5,185)
Hedging derivatives. Cash flow hedges [effective portion]		(25)	16
Available-for-sale financial assets		984	947
Non-current assets and disposal groups classified as held for sale		-	-
Share of other recognised income and expense of investments in subsidiaries, joint ventures and associates		(29)	(23)
MINORITY INTERESTS (NON-CONTROLLING INTEREST)	31	6,895	8,064
Valuation adjustments		(2,505)	(2,246)
Rest		9,400	10,310
TOTAL EQUITY		54,727	55,428
TOTAL EQUITY AND TOTAL LIABILITIES		702,429	731,856
		Millions of Euros
MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES)	Notes	June 2017	December 2016
Guarantees given	33	47,060	50,540
Contingent commitments	33	104,277	117,573

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Unaudited Consolidated income statements for the six months ended June 30, 2017 and 2016.


		Millions of Euros
Consolidated income statements	Notes		June 2017		June 2016
Interest income	37		14,305		13,702
Interest expense	37		(5,502)		(5,338)
NET INTEREST INCOME			8,803		8,365
Dividend income	38		212		301
Share of profit or loss of entities accounted for using the equity method	39		(8)		1
Fee and commission income	40		3,551		3,313
Fee and commission expense	40		(1,095)		(963)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net	41		683		683
Gains (losses) on financial assets and liabilities held for trading, net	41		139		106
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net	41		(88)		24
Gains (losses) from hedge accounting, net	41		(193)		(171)
Exchange differences (net)	41		528		533
Other operating income	42		562		715
Other operating expense	42		(945)		(1,186)
Income from insurance and reinsurance contracts	43		1,863		1,958
Expense from insurance and reinsurance contracts	43		(1,295)		(1,446)
GROSS INCOME			12,718		12,233
Administration costs	44		(5,599)		(5,644)
Personnel expenses			(3,324)		(3,324)
Other administrative expenses			(2,275)		(2,319)
Depreciation and amortization	45		(712)		(689)
Provisions or reversal of provisions	46		(364)		(262)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	47		(1,941)		(2,110)
Financial assets measured at cost			-		-
Available- for-sale financial assets			8		(133)
Loans and receivables			(1,950)		(1,977)
Held to maturity investments			1		-
NET OPERATING INCOME			4,102		3,528
Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates			-		-
Impairment or reversal of impairment on non-financial assets	48		(80)		(99)
Tangible assets			(17)		(19)
Intangible assets			(10)		-
Other assets			(53)		(80)
Gains (losses) on derecognition of non financial assets and subsidiaries, net	49		30		37
Negative goodwill recognised in profit or loss	18		-		-
Profit (Loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	50		(18)		(75)
OPERATING PROFIT BEFORE TAX			4,033		3,391
Tax expense or income related to profit or loss from continuing operations	19		(1,120)		(920)
PROFIT FROM CONTINUING OPERATIONS			2,914		2,471
Profit from discontinued operations (net)			-		-
PROFIT			2,914		2,471
Attributable to minority interest [non-controlling interests]	31		607		639
Attributable to owners of the parent			2,306		1,832

		Euros
	Notes	June 2017		June 2016
EARNINGS PER SHARE	5		0.33		0.26
Basic earnings per share from continued operations			0.33		0.26
Diluted earnings per share from continued operations			0.33		0.26
Basic earnings per share from discontinued operations			-		-
Diluted earnings per share from discontinued operations			-		-

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Unaudited Consolidated statements of recognized income and expenses for the six months ended June 30, 2017 and 2016


	Millions of Euros
	June 2017	June 2016
PROFIT RECOGNIZED IN INCOME STATEMENT	2,914	2,471
OTHER RECOGNIZED INCOME (EXPENSES)	(1,792)	(1,003)
ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT	38	(84)
Actuarial gains and losses from defined benefit pension plans	59	(117)
Non-current assets available for sale	-	-
Entities under the equity method of accounting	-	-
Income tax related to items not subject to reclassification to income statement	(20)	33
ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT	(1,831)	(919)
Hedge of net investments in foreign operations [effective portion]	(319)	(53)
Valuation gains or (-) losses taken to equity	(287)	(53)
Transferred to profit or loss	-	-
Other reclassifications	(32)	-
Foreign currency translation	(1,586)	(932)
Valuation gains or (-) losses taken to equity	(1,586)	(932)
Transferred to profit or loss	-	-
Other reclassifications	-	-
Cash flow hedges [effective portion]	(64)	138
Valuation gains or (-) losses taken to equity	(75)	129
Transferred to profit or loss	11	9
Transferred to initial carrying amount of hedged items	-	-
Other reclassifications	-	-
Available-for-sale financial assets	143	82
Valuation gains or (-) losses taken to equity	766	551
Transferred to profit or loss	(623)	(469)
Other reclassifications	-	-
Non-current assets held for sale	-	-
Valuation gains or (-) losses taken to equity	-	-
Transferred to profit or loss	-	-
Other reclassifications	-	-
Entities accounted for using the equity method	(6)	(82)
Income tax	1	(72)

TOTAL RECOGNIZED INCOME/EXPENSES	1,121	1,468
Attributable to minority interest [non-controlling interests]	348	614
Attributable to the parent company	773	854

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Unaudited Consolidated statements of changes in equity for the six months ended June 30, 2017 and 2016


	Millions of euros
	Capital (Note 26)		Share Premium (Note 27)		Equity instruments issued other than capital		Other Equity (Note 44.1.1)		Retained earnings (Note 28)		Revaluation reserves (Note 28)		Other (Note 28)		(-) Treasury shares (Note 29)		Profit or loss attributable to owners of the parent		Interim dividends (Note 4)		Accumulated other comprehensive income (Note 30)		Non-controlling interest				Total
JUNE 2017	Capital (Note 26)		Share Premium (Note 27)		Equity instruments issued other than capital		Other Equity (Note 44.1.1)		Retained earnings (Note 28)		Revaluation reserves (Note 28)		Other (Note 28)		(-) Treasury shares (Note 29)		Profit or loss attributable to owners of the parent		Interim dividends (Note 4)		Accumulated other comprehensive income (Note 30)		Valuation adjustments (Note 31)		Rest (Note 31)		Total
Balances as of January 1, 2017		3,218		23,992		-		54		23,688		20		(67)		(48)		3,475		(1,510)		(5,458)		(2,246)		10,310		55,428
Total income/expense recognized		-		-		-		-		-		-		-		-		2,306		-		(1,533)		(259)		607		1,121
Other changes in equity		50		-		-		(11)		1,892		(5)		31		(6)		(3,475)		1,220		-		-		(1,517)		(1,822)
Issuances of common shares		50		-		-		-		(50)		-		-		-		-		-		-		-		-		-
Issuances of preferred shares		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Issuance of other equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Period or maturity of other issued equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Conversion of debt on equity		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Common Stock reduction		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Dividend distribution		-		-		-		-		9		-		(9)		-		-		(147)		-		-		(292)		(439)
Purchase of treasury shares		-		-		-		-		-		-		-		(1,025)		-		-		-		-		-		(1,025)
Sale or cancellation of treasury shares		-		-		-		-		1		-		-		1,020		-		-		-		-		-		1,021
Reclassification of financial liabilities to other equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Reclassification of other equity instruments to financial liabilities		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Transfers between total equity entries		-		-		-		-		1,929		(5)		41		-		(3,475)		1,510		-		-		-		-
Increase/Reduction of equity due to business combinations		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Share based payments		-		-		-		(22)		-		-		-		-		-		-		-		-		-		(22)
Other increases or (-) decreases in equity		-		-		-		11		2		-		(1)		-		-		(144)		-		-		(1,225)		(1,357)
Balances as of June 30, 2017		3,267		23,992		-		43		25,580		15		(37)		(54)		2,306		(291)		(6,991)		(2,505)		9,400		54,727

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Unaudited Consolidated statements of changes in equity for the six months ended June 30, 2017 and 2016 (continued)


	Millions of euros
	Capital (Note 26)		Share Premium (Note 27)		Equity instruments issued other than capital		Other Equity (Note 44.1.1)		Retained earnings (Note 28)		Revaluation reserves (Note 28)		Other (Note 28)		(-) Treasury shares (Note 29)		Profit or loss attributable to owners of the parent		Interim dividends (Note 4)		Accumulated other comprehensive income (Note 30)		Non-controlling interest				Total
JUNE 2016	Capital (Note 26)		Share Premium (Note 27)		Equity instruments issued other than capital		Other Equity (Note 44.1.1)		Retained earnings (Note 28)		Revaluation reserves (Note 28)		Other (Note 28)		(-) Treasury shares (Note 29)		Profit or loss attributable to owners of the parent		Interim dividends (Note 4)		Accumulated other comprehensive income (Note 30)		Valuation adjustments (Note 31)		Rest (Note 31)		Total
Balances as of January 1, 2016		3,120		23,992		-		35		22,588		22		(98)		(309)		2,642		(1,352)		(3,349)		(1,346)		9,495		55,439
Total income/expense recognized		-		-		-		-		-		-		-		-		1,832		-		(978)		(25)		639		1,468
Other changes in equity		56		-		-		(14)		1,209		(2)		(35)		142		(2,642)		576		-		-		(236)		(946)
Issuances of common shares		56		-		-		-		(56)		-		-		-		-		-		-		-		-		-
Issuances of preferred shares		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Issuance of other equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Period or maturity of other issued equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Conversion of debt on equity		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Common Stock reduction		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Dividend distribution		-		-		-		-		19		-		(19)		-		-		(630)		-		-		(232)		(862)
Purchase of treasury shares		-		-		-		-		-		-		-		(1,012)		-		-		-		-		-		(1,012)
Sale or cancellation of treasury shares		-		-		-		-		(34)		-		-		1,154		-		-		-		-		-		1,120
Reclassification of financial liabilities to other equity instruments		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Reclassification of other equity instruments to financial liabilities		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Transfers between total equity entries		-		-		-		-		1,305		(2)		(13)		-		(2,642)		1,352		-		-		-		-
Increase/Reduction of equity due to business combinations		-		-		-		-		-		-		-		-		-		-		-		-		-		-
Share based payments		-		-		-		(25)		5		-		-		-		-		-		-		-		-		(20)
Other increases or (-) decreases in equity		-		-		-		11		(30)		-		(2)		-		-		(147)		-		-		(4)		(172)
Balances as of June 30, 2016		3,175		23,992		-		21		23,797		21		(133)		(166)		1,832		(777)		(4,327)		(1,371)		9,898		55,962

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Unaudited Consolidated statements of cash flows for the six months ended June 30, 2017 and 2016


		Millions of Euros
Consolidated statements of cash flow	Notes	June 2017		June 2016
A) CASH FLOW FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5)	51		(4,732)		(1,387)
1. Profit for the year			2,914		2,471
2. Adjustments to obtain the cash flow from operating activities:			3,978		2,576
Depreciation and amortization			712		689
Other adjustments			3,267		1,887
3. Net increase/decrease in operating assets			6,063		(9,522)
Financial assets held for trading			6,440		(7,853)
Other financial assets designated at fair value through profit or loss			(71)		(1)
Available-for-sale financial assets			4,032		4,787
Loans and receivables			(4,798)		(6,217)
Other operating assets			460		(238)
4. Net increase/decrease in operating liabilities			(16,664)		4,008
Financial liabilities held for trading			(5,130)		4,110
Other financial liabilities designated at fair value through profit or loss			2		16
Financial liabilities at amortized cost			(11,960)		(1,195)
Other operating liabilities			424		1,077
5. Collection/Payments for income tax			(1,023)		(920)
B) CASH FLOWS FROM INVESTING ACTIVITIES (1 + 2)	51		1,444		(1,703)
1. Investment			(1,262)		(2,189)
Tangible assets			(168)		(178)
Intangible assets			(168)		(182)
Investments in joint ventures and associates			(63)		-
Subsidiaries and other business units			(863)		(77)
Non-current assets held for sale and associated liabilities			-		-
Held-to-maturity investments			-		(1,752)
Other settlements related to investing activities			-		-
2. Divestments			2,706		486
Tangible assets			-		57
Intangible assets			-		-
Investments in joint ventures and associates			17		69
Subsidiaries and other business units			17		-
Non-current assets held for sale and associated liabilities			224		360
Held-to-maturity investments			2,439		-
Other collections related to investing activities			9		-
C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2)	51		(1,173)		53
1. Investment			(4,850)		(2,052)
Dividends			(879)		(812)
Subordinated liabilities			(2,649)		-
Treasury stock amortization			-		-
Treasury stock acquisition			(1,025)		(1,012)
Other items relating to financing activities			(297)		(228)
2. Divestments			3,677		2,105
Subordinated liabilities			2,655		1,000
Treasury stock increase			-		-
Treasury stock disposal			1,022		1,105
Other items relating to financing activities			-		-
D) EFFECT OF EXCHANGE RATE CHANGES			(860)		(1,119)
E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D)			(5,320)		(4,156)
F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR			40,039		29,282
G) CASH AND CASH EQUIVALENTS AT END OF THE PERIOD (E+F)			34,720		25,127

		Millions of Euros
COMPONENTS OF CASH AND EQUIVALENT AT END OF THE YEAR	Notes	June 2017		June 2016
Cash			5,999		6,261
Balance of cash equivalent in central banks			24,716		14,692
Other financial assets			4,005		4,173
Less: Bank overdraft refundable on demand			-		-
TOTAL CASH AND CASH EQUIVALENTS AT END OF THE PERIOD	9		34,720		25,127

The accompanying Notes 1 to 56 and Appendix I to X are an integral part of the Consolidated Financial Statements as of June 30, 2017.

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Notes to the interim Consolidated Financial Statements

1.	Introduction, basis for the presentation of the interim Consolidated Financial Statements, internal control of financial information and other information

1.1	Introduction

Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank” or “BBVA”) is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad.

The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as on its web site (www.bbva.com).

In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint ventures and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, “the Group” or “the BBVA Group”). In addition to its own separate financial statements, the Bank is therefore required to prepare Consolidated Financial Statements comprising all consolidated subsidiaries of the Group.

As of June 30, 2017, the BBVA Group had 358 consolidated entities and 85 entities accounted for using the equity method (see Notes 3 and 16 and Appendix I to V).

The Consolidated Financial Statements of the BBVA Group for the year ended December 31, 2016 were approved by the shareholders at the Annual General Meetings (“AGM”) on March 17, 2017.

1.2	Basis for the presentation of the interim Consolidated Financial Statements

The BBVA Group’s interim Consolidated Financial Statements are presented in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of June 30, 2017, considering the Bank of Spain Circular 4/2004, of December, 22 (and as amended thereafter), and with any other legislation governing financial reporting applicable to the Group and in compliance with IFRS-IASB.

The BBVA Group’s accompanying interim Consolidated Financial Statements for the six months ended June 30, 2017 were prepared by the Group’s Directors (through the Board of Directors held on July 27, 2017) by applying the principles of consolidation, accounting policies and valuation criteria described in Note 2, so that they present fairly the Group’s total consolidated equity and financial position as of June 30, 2017, together with the consolidated results of its operations and cash flows generated during the six months ended June 30, 2017.

These interim Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. Moreover, they include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the Group (see Note 2.2).

All effective accounting standards and valuation criteria with a significant effect in the interim Consolidated Financial Statements were applied in their preparation.

The amounts reflected in the accompanying interim Consolidated Financial Statements are presented in millions of euros, unless it is more appropriate to use smaller units. Some items that appear without a balance in these interim Consolidated Financial Statements are due to how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures.

The percentage changes in amounts have been calculated using figures expressed in thousands of euros.

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1.3	Comparative information

During the first semester of 2017, there were no significant changes to the existing structure of the BBVA Group’s operating segments in comparison to 2016 (Note 6). Certain prior year balances have been reclassified to conform to current period presentation.

1.4	Seasonal nature of income and expenses

The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to typical activities carried out by financial institutions, which are not significantly affected by seasonal factors within the same year.

1.5	Responsibility for the information and for the estimates made

The information contained in the BBVA Group’s interim Consolidated Financial Statements is the responsibility of the Group’s Directors.

Estimates have to be made at times when preparing these interim Consolidated Financial Statements in order to calculate the recorded amount of some assets, liabilities, income, expenses and commitments. These estimates relate mainly to the following:

●

Impairment on certain financial assets (see Notes 7, 12, 13, 14 and 16).

●

The assumptions used to quantify certain provisions (see Notes 24 and 25) and for the actuarial calculation of post-employment benefit liabilities and commitments (see Note 25).

●

The useful life and impairment losses of tangible and intangible assets (see Notes 17, 18, 20 and 21).

●

The valuation of goodwill and price allocation of business combinations (see Note 18).

●

The fair value of certain unlisted financial assets and liabilities (see Notes 7, 8, 10, 11 and 12).

●

The recoverability of deferred tax assets (See Note 19).

●

The Exchange rate and the inflation rate of Venezuela (see Notes 2.2.16 and 2.2.20).

Although these estimates were made on the basis of the best information available as of June 30, 2017 on the events analyzed, future events may make it necessary to modify them (either up or down) over the coming years. This would be done prospectively in accordance with applicable standards, recognizing the effects of changes in the estimates in the corresponding consolidated income statement.

1.6	BBVA Group’s Internal Control over financial reporting

The financial information prepared by the BBVA Group is subject to a Financial Internal Control System (hereinafter “FICS”), which provides reasonable assurance with respect to its reliability and the integrity of the consolidated financial information. It is also aimed to ensure that the transactions are processed in accordance with the applicable laws and regulations.

The FICS was developed by the BBVA Group’s management in accordance with the framework established by the “Committee of Sponsoring Organizations of the Treadway Commission 2013” (hereinafter, “COSO”). The COSO framework sets five components that constitute the basis of the effectiveness and efficiency of the internal control systems:

●

The establishment of an appropriate control framework.

●

The assessment of the risks that could arise during the preparation of the financial information.

●

The design of the necessary controls to mitigate the identified risks.

●

The establishment of an appropriate system of information to detect and report system weaknesses.

●

The monitoring of the controls to ensure their effectiveness over time.

The FICS is a dynamic model that evolves continuously over time to reflect the reality of the BBVA Group’s businesses, processes, risks and controls designed to mitigate them. It is subject to a continuous evaluation by the internal control units located in the different entities of BBVA Group.

These internal control units are integrated within the BBVA internal control model which is based in two pillars:

F-13

●

A control model organized into three lines of defense:

The first line is located within the business and support operational units, which are responsible for identifying risks associated with their processes and to execute the controls established to mitigate them.

The second line comprises the specialized control units (Internal Risk Control, Internal Financial Control, Operations Control, Internal Engineering Control and Compliance among others). This second line defines the models and control policies under their areas of responsibility and monitors the design and the correct implementation assessing their effectiveness.

The third line is the Internal Audit unit, which conducts an independent review of the model, verifying the compliance and effectiveness of the model.

●

A set of committees called Corporate Assurance that helps to escalate the internal control issues to the management at a Group level and also in each of the countries where the Group operates.

The internal control units comply with a common and standard methodology established at Group level, as set out in the following diagram:

LOGO

The FICS Model is subject to annual evaluations by the Group’s Internal Audit Unit and external auditors. It is also supervised by the Audit and Compliance Committee of the Bank’s Board of Directors.

The BBVA Group also complies with the requirements of the Sarbanes-Oxley Act (hereafter “SOX”) for Consolidated Financial Statements as a listed company in the U.S. Securities and Exchange Commission (“SEC”). The main senior executives of the Group take part in the design, compliance and implementation of the internal control model to make it efficient and to ensure the quality and accuracy of the financial information.

1.7	Mortgage market policies and procedures

The information on “Mortgage market policies and procedures” (for the granting of mortgage loans and for debt issues secured by such mortgage loans) required by Bank of Spain Circular 5/2011, applying Royal Decree 716/2009, dated April 24 (which developed certain aspects of Act 2/1981, dated March 25, on the regulation of the mortgage market and other mortgage and financial market regulations), can be found in Appendix VIII.

F-14

2.	Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements

The Glossary includes the definition of some of the financial and economic terms used in Note 2 and subsequent Notes.

2.1	Principles of consolidation

In terms of its consolidation, in accordance with the criteria established by the IFRS, the BBVA Group is made up of four types of entities: subsidiaries, joint ventures, associates and structured entities, defined as follows:

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Subsidiaries

Subsidiaries are entities controlled by the Group (for definition of the criterion for control, see Glossary).The financial statements of the subsidiaries are fully consolidated with those of the Bank. The share of non-controlling interests from subsidiaries in the Group’s consolidated total equity is presented under the heading “Non-controlling interests” in the consolidated balance sheet. Their share in the profit or loss for the period or year is presented under the heading “Attributable to minority interest” in the accompanying consolidated income statement (see Note 31).

Note 3 includes information related to the main subsidiaries in the Group as of June 30, 2017. Appendix I includes other significant information on these entities.

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Joint ventures

Joint ventures are those entities over which there is a joint arrangement to joint control with third parties other than the Group (for definitions of joint arrangement, joint control and joint venture, refer to Glossary).

The investments in joint ventures are accounted for using the equity method (see Note 16). Appendix II shows the main figures for joint ventures accounted for using the equity method.

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Associates

Associates are entities in which the Group is able to exercise significant influence (for definition of significant influence, see Glossary). Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly, unless it can be clearly demonstrated that this is not the case.

However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since the Group does not have the ability to exercise significant influence over these entities. Investments in these entities, which do not represent material amounts for the Group, are classified as “Available-for-sale financial assets”.

In contrast, some investments in entities in which the Group holds less than 20% of the voting rights are accounted for as Group associates, as the Group is considered to have the ability to exercise significant influence over these entities. As of December 31, 2016, these entities are not significant in the Group.

Appendix II shows the most significant information related to the associates (see Note 16), which are accounted for using the equity method.

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Structured Entities

A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when the voting rights relate to administrative matters only and the relevant activities are directed by means of contractual arrangements (see Glossary).

In those cases where the Group sets up entities or has a holding in such entities, in order to allow its customers access to certain investments, to transfer risks or for other purposes, in accordance with internal criteria and procedures and with applicable regulations, the Group determines whether control over the entity in question actually exists and therefore whether it should be subject to consolidation.

Such methods and procedures determine whether there is control by the Group, considering how the decisions are made about the relevant activities, assesses whether the Group has all power over the relevant elements, exposure, or rights, to variable returns from involvement with the investee and the ability to use power over the investee to affect the amount of the investor’s returns.

F-15

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Structured entities subject to consolidation

To determine if a structured entity is controlled by the Group, and therefore should be consolidated into the Group, the existing contractual rights (different from the voting rights) are analyzed. For this reason, an analysis of the structure and purpose of each investee is performed and, among others, the following factors will be considered:

Evidence of the current ability to manage the relevant activities of the investee according to the specific business needs (including any decisions that may arise only in particular circumstances).

Potential existence of a special relationship with the investee.

Implicit or explicit Group commitments to support the investee.

The ability to use the Group´s power over the investee to affect the amount of the Group’s returns.

There are cases where the Group has a high exposure to variable returns and retains decision-making power over the investee, either directly or through an agent.

The main structured entities of the Group are the so-called asset securitization funds, to which the BBVA Group transferred loans and receivables portfolios, and other vehicles, which allow the Group’s customers to gain access to certain investments or to allow for the transfer of risks and other purposes (see Appendix I and V). The BBVA Group maintains the decision-making power over the relevant activities of these vehicles and financial support through securitized market standard contracts. The most common ones are: investment positions in equity note tranches, funding through subordinated debt, credit enhancements through derivative instruments or liquidity lines, management rights of defaulted securitized assets, “clean-up” call derivatives, and asset repurchase clauses by the grantor.

For these reasons, the loans and receivable portfolios related to the vast majority of the securitizations carried out by the Bank or Group subsidiaries are not derecognized in the books of said entity and the issuances of the related debt securities are registered as liabilities within the Group’s consolidated balance sheet.

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Non-consolidated structured entities

The Group owns other vehicles also for the purpose of allowing customers access to certain investments, to transfer risks, and for other purposes, but without the Group having control of the vehicles, which are not consolidated in accordance with IFRS 10. The balance of assets and liabilities of these vehicles is not material in relation to the Group’s Consolidated Financial Statements.

As of June 30, 2017, there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities.

The Group does not consolidate any of the mutual funds it manages since the necessary control conditions are not met (see definition of control in the Glossary). Particularly, the BBVA Group does not act as arranger but as agent since it operates the mutual funds on behalf and for the benefit of investors or parties (arranger of arrangers) and, for this reason it does not control the mutual funds when exercising its authority for decision making.

On the other hand, the mutual funds managed by the Group are not considered structured entities (generally, retail funds without corporate identity over which investors have participations which gives them ownership of said managed equity). These funds are not dependent on a capital structure that could prevent them to carry out activities without additional financial support, being in any case insufficient as far as the activities themselves are concerned. Additionally, the risk of the investment is absorbed by the fund participants, and the Group is only exposed when it becomes a participant, and as such, there is no other risk for the Group.

In all cases, results of equity method investees acquired by the BBVA Group in a particular period are included taking into account only the period from the date of acquisition to the financial statements date. Similarly, the results of entities disposed of during any year are included taking into account only the period from the start of the year to the date of disposal.

The interim consolidated financial statements of subsidiaries, associates and joint ventures used in the preparation of the Interim Consolidated Financial Statements of the Group relate to the same date of presentation as the Interim Consolidated Financial Statements. If interim financial statements at those same dates are not available, the most recent will be used, as long as these are not older than three months, and adjusted to take into account the most significant transactions. As of June 30, 2017, except for the case of the interim consolidated financial statements of four associates and joint-ventures deemed non-significant for which interim financial statements as of May 31, 2017 were used, the June 30, 2017 interim financial statements for of all Group entities were available.

F-16

Our banking subsidiaries, associates and joint venture around the world, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of such entities to transfer funds in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where such entities are incorporated, dividends may only be paid out through funds legally available for such purpose. Even when the minimum capital requirements are met and funds are legally available, the relevant regulator or other public administrations could discourage or delay the transfer of funds to the Group in the form of cash, dividends, loans or advances for prudential reasons.

2.2	Accounting policies and valuation criteria applied

The accounting standards and policies and the valuation criteria applied in preparing these Interim Consolidated Financial Statements may differ from those used by some of the entities within the BBVA Group. For this reason, necessary adjustments and reclassifications have been made in the consolidation process to standardize these principles and criteria and comply with the IFRS-IASB.

The accounting standards and policies and valuation criteria used in preparing the accompanying Consolidated Financial Statements are as follows:

2.2.1

Financial instruments

Measurement of financial instruments and recognition of changes in subsequent fair value

All financial instruments are initially accounted for at fair value which, unless there is evidence to the contrary, shall be the transaction price.

Excluding all trading derivatives not considered as economic hedges, all the changes in the fair value of the financial instruments arising from the accrual of interests and similar items are recognized under the headings “Interest income” or “Interest expenses”, as appropriate, in the accompanying consolidated income statement in which the change occurred (see Note 37). The dividends received from other entities, other than associate entities and joint venture entities, are recognized under the heading “Dividend income” in the accompanying consolidated income statement in the period in which the right to receive them arises (see Note 38).

The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets and liabilities.

“Financial assets and liabilities held for trading” and “Financial assets and liabilities designated at fair value through profit or loss”

The assets and liabilities recognized under these headings of the consolidated balance sheets are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the heading “Gains (losses) on financial assets and liabilities (net)” in the accompanying consolidated income statements (see Note 41). Interests derivatives designated as economic hedges on interest rate are registered in interest income or expense (Note 37), depending on where the result of the hedging instrument. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Exchange differences (net)” in the accompanying consolidated income statements (Note 41).

“Available-for-sale financial assets”

Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. Subsequent changes in fair value (gains or losses) are recognized temporarily for their amount net of tax effect, under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Available-for-sale financial assets” in the consolidated balance sheets.

Changes in the value of non-monetary items resulting from changes in foreign exchange rates are recognized temporarily under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” in the accompanying consolidated balance sheets. Changes in foreign exchange rates resulting from monetary items are recognized under the heading “Exchange differences (net)” in the accompanying consolidated income statements (see Note 41).

F-17

The amounts recognized under the headings “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Available-for-sale financial assets” and “Accumulated other comprehensive income- Items that may be reclassified to profit or loss - Exchange differences” continue to form part of the Group’s consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until an impairment loss is recognized on the corresponding financial instrument. If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities (net)” or “Exchange differences (net)”, as appropriate, in the consolidated income statement for the year in which they are derecognized.

The net impairment losses in “Available-for-sale financial assets” over the year are recognized under the heading “Impairment losses on financial assets (net) – Other financial instruments not at fair value through profit or loss” (see Note 47) in the consolidated income statements for that period.

“Loans and receivables”, “Held-to-maturity investments” and “Financial liabilities at amortized cost”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are measured once acquired at “amortized cost” using the “effective interest rate” method. This is because the consolidated entities generally intend to hold such financial instruments to maturity.

Net impairment losses of assets recognized under these headings arising in each period are recognized under the heading “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss – loans and receivables”, “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss - held to maturity investments” or “Impairment or (-) reversal of impairment on financial assets not measured at fair value through profit or loss – financial assets measured at cost” (see Note 47) in the consolidated income statement for that period.

“Derivatives-Hedge Accounting” and “Fair value changes of the hedged items in portfolio hedges of interest-rate risk”

Assets and liabilities recognized under these headings in the accompanying consolidated balance sheets are measured at fair value.

Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:

●

In fair value hedges, the changes in the fair value of the derivative and the hedged item attributable to the hedged risk are recognized under the heading “Gains or losses from hedge accounting, net” in the consolidated income statement, with a corresponding item under the headings where hedging items (“Hedging derivatives”) and the hedged items are recognized, as applicable. Almost all of the hedges used by the Group are for interest-rate risks. Therefore, the valuation changes are recognized under the headings “Interest income” or “Interest expenses”, as appropriate, in the accompanying consolidated income statement (see Note 37).

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In fair value hedges of interest rate risk of a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains or losses from hedge accounting, net”, using, as a balancing item, the headings “Fair value changes of the hedged items in portfolio hedges of interest rate risk” in the consolidated balance sheets, as applicable.

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In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion are recognized temporarily under the heading ““Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges” in the consolidated balance sheets, with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the Consolidated Financial Statements as applicable. These differences are recognized in the accompanying consolidated income statement at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37).

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Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly in the heading “Gains or (-) losses from hedge accounting, net” in the consolidated income statement (see Note 41).

F-18

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In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss – Hedging of net investments in foreign transactions” in the consolidated balance sheets with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the Consolidated Financial Statements as applicable. These differences in valuation are recognized under the heading “Exchange differences (net)” in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41).

Other financial instruments

The following exceptions are applicable with respect to the above general criteria:

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Equity instruments whose fair value cannot be determined in a sufficiently objective manner and financial derivatives that have those instruments as their underlying asset and are settled by delivery of those instruments are recorded in the consolidated balance sheet at acquisition cost; this may be adjusted, where appropriate, for any impairment loss (see Note 8).

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Accumulated other comprehensive income arising from financial instruments classified at the consolidated balance sheet date as “Non-current assets and disposal groups classified as held for sale” are recognized with the corresponding entry under the heading “Accumulated other comprehensive income- Items that may be reclassified to profit or loss – Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets.

Impairment losses on financial assets

Definition of impaired financial assets carried at amortized cost

A financial asset is considered impaired – and therefore its carrying amount is adjusted to reflect the effect of impairment – when there is objective evidence that events have occurred, which:

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In the case of debt instruments (loans and advances and debt securities), reduce the future cash flows that were estimated at the time the instruments were acquired. So they are considered impaired when there are reasonable doubts that the carrying amounts will be recovered in full and/or the related interest will be collected for the amounts and on the dates initially agreed.

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In the case of equity instruments, it means that their carrying amount may not be fully recovered.

As a general rule, the carrying amount of impaired financial assets is adjusted with a charge to the consolidated income statement for the period in which the impairment becomes known. The recoveries of previously recognized impairment losses are reflected, if appropriate, in the consolidated income statement for the year in which the impairment is reversed or reduced, with an exception: any recovery of previously recognized impairment losses for an investment in an equity instrument classified as financial assets available for sale is not recognized in the consolidated income statement, but under the heading “ Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” in the consolidated balance sheet (see Note 30).

In general, amounts collected on impaired loans and receivables are used to recognize the related accrued interest and any excess amount is used to reduce the unpaid principal.

When the recovery of any recognized amount is considered remote, such amount is written-off on the consolidated balance sheet, without prejudice to any actions that may be taken in order to collect the amount until the rights extinguish in full either because it is time-barred debt, the debt is forgiven, or other reasons.

Impairment on financial assets

The impairment on financial assets is determined by type of instrument and other circumstances that could affect it, taking into account the guarantees received by the owners of the financial instruments to assure (in part or in full) the performance of the financial assets. The BBVA Group recognizes impairment charges directly against the impaired financial asset when the likelihood of recovery is deemed remote, and uses an offsetting or allowance account when it recognizes non-performing loan provisions for the estimated losses.

Impairment of debt securities measured at amortized cost

With regard to impairment losses arising from insolvency risk of the obligors (credit risk), a debt instrument, mainly Loans and receivables, is impaired due to insolvency when a deterioration in the ability to pay by the obligor is evidenced, either due to past due status or for other reasons.

F-19

The BBVA Group has developed policies, methods and procedures to estimate incurred losses on outstanding credit risk. These policies, methods and procedures are applied in the due diligence, approval and execution of debt instruments and Commitments and guarantees given; as well as in identifying the impairment and, where appropriate, in calculating the amounts necessary to cover estimated losses.

The amount of impairment losses on debt instruments measured at amortized cost is calculated based on whether the impairment losses are determined individually or collectively. First it is determined whether there is objective evidence of impairment individually for individually significant debt instrument, and collectively for debt instrument that are not individually significant. In the case where the Group determines that no objective evidence of impairment in the case of debt instrument analyzed individually will be included in a group of debt instrument with similar risk characteristics and collectively impaired is analyzed.

In determining whether there is objective evidence of impairment the Group uses observable data on the following aspects:

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Significant financial difficulties of the obligors.

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Ongoing delays in the payment of interest or principal.

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Refinancing of credit due to financial difficulties by the counterparty.

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Bankruptcy or reorganization / liquidation are considered likely.

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Disappearance of the active market for a financial asset because of financial difficulties.

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Observable data indicating a reduction in future cash flows from the initial recognition such as adverse changes in the payment status of the counterparty (delays in payments, reaching credit cards limits, etc.).

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National or local economic conditions that are linked to “defaults” in the financial assets (unemployment rate, falling property prices, etc.).

Impairment losses on financial assets individually evaluated for impairment

The amount of the impairment losses incurred on financial assets represents the excess of their respective carrying amounts over the present values of their expected future cash flows. These cash flows are discounted using the original effective interest rate. If a financial asset has a variable interest rate, the discount rate for measuring any impairment loss is the current effective rate determined under the contract.

As an exception to the rule described above, the market value of listed debt instruments is deemed to be a fair estimate of the present value of their expected future cash flows.

The following is to be taken into consideration when estimating the future cash flows of debt instruments:

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All the amounts that are expected to be recovered over the remaining life of the debt instrument; including, where appropriate, those which may result from the collateral and other credit enhancements provided for the debt instrument (after deducting the costs required for foreclosure and subsequent sale). Impairment losses include an estimate for the possibility of collecting accrued, past-due and uncollected interest.

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The various types of risk to which each debt instrument is subject.

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The circumstances in which collections will foreseeably be made.

Impairment losses on financial assets collectively evaluated for impairment

With regard to the collective impairment analysis, financial assets are grouped by risk type considering the debtor’s capacity to pay based on the contractual terms. As part of this analysis, the BBVA Group estimates the impairment loan losses that are not individually significant, distinguishing between those that show objective evidence of impairment, and those that do not show objective evidence of impairment, as well as the impairment of significant loans that the BBVA Group has deemed as not showing an objective evidence of impairment.

F-20

With respect to financial assets that have no objective evidence of impairment, the Group applies statistical methods using historical experience and other specific information to estimate the losses that the Group has incurred as a result of events that have occurred as of the date of preparation of the Consolidated Financial Statements but have not been known and will be apparent, individually after the date of submission of the information. This calculation is an intermediate step until these losses are identified on an individual level, at which these financial instruments will be segregated from the portfolio of financial assets without objective evidence of impairment.

The incurred loss is calculated taking into account three key factors: exposure at default, probability of default and loss given default.

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Exposure at default (EAD) is the amount of risk exposure at the date of default by the counterparty.

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Probability of default (PD) is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.

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Loss given default (LGD) is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.

In order to calculate the LGD at each balance sheet date, the Group evaluates the whole amount expected to be obtained over the remaining life of the financial asset. The recoverable amount from executable secured collateral is estimated based on the property valuation, discounting the necessary adjustments to adequately account for the potential fall in value until its execution and sale, as well as execution costs, maintenance costs and sale costs.

In addition, to identify the possible incurred but not reported losses (IBNR) in the unimpaired portfolio, an additional parameter called “LIP” (loss identification period) has to be introduced. The LIP parameter is the period between the time at which the event that generates a given loss occurs and the time when the loss is identified at an individual level. The analysis of the LIPs is carried out on the basis of uniform risk portfolios.

When the property right is contractually acquired at the end of the foreclosure process or when the assets of distressed borrowers are purchased, the asset is recognized in the financial statements (see Note 2.2.4).

Impairment of other debt instruments classified as financial assets available for sale

The impairment losses on other debt instruments included in the “Available-for-sale financial asset” portfolio are equal to the excess of their acquisition cost (net of any principal repayment), after deducting any impairment loss previously recognized in the consolidated income statement over their fair value.

When there is objective evidence that the negative differences arising on measurement of these debt instruments are due to impairment, they are no longer considered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” and are recognized in the consolidated income statement.

If all, or part of the impairment losses are subsequently recovered, the amount is recognized in the consolidated income statement for the year in which the recovery occurred, up to the amount previously recognized in the income statement.

Impairment of equity instruments

The amount of the impairment in the equity instruments is determined by the category where they are recognized:

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Equity instruments classified as available for sale: When there is objective evidence that the negative differences arising on measurement of these equity instruments are due to impairment, they are no longer registered as “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” and are recognized in the consolidated income statement. In general, the Group considers that there is objective evidence of impairment on equity instruments classified as available-for-sale when significant unrealized losses have existed over a sustained period of time due to a price reduction of at least 40% or over a period of more than 18 months.

When applying this evidence of impairment, the Group takes into account the volatility in the price of each individual equity instrument to determine whether it is a percentage that can be recovered through its sale in the market; other different thresholds may exist for certain equity instruments or specific sectors.

In addition, for individually significant investments, the Group compares the valuation of the most significant equity instruments against valuations performed by independent experts.

F-21

Any recovery of previously recognized impairment losses for an investment in an equity instrument classified as available for sale is not recognized in the consolidated income statement, but under the heading “ Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Available-for-sale financial assets” in the consolidated balance sheet (see Note 30).

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Equity instruments measured at cost: The impairment losses on equity instruments measured at acquisition cost are equal to the excess of their carrying amount over the present value of expected future cash flows discounted at the market rate of return for similar equity instruments. In order to determine these impairment losses, save for better evidence, an assessment of the equity of the investee is carried out (excluding Accumulated other comprehensive income due to cash flow hedges) based on the last approved (consolidated) balance sheet, adjusted by the unrealized gains at measurement date.

Impairment losses are recognized in the consolidated income statement for the year in which they arise as a direct reduction of the cost of the instrument. These impairment losses may only be recovered subsequently in the event of the sale of these assets.

2.2.2

Transfers and derecognition of financial assets and liabilities

The accounting treatment of transfers of financial assets is determined by the form in which risks and benefits associated with the financial assets involved are transferred to third parties. Thus the financial assets are only derecognized from the consolidated balance sheet when the cash flows that they generate are extinguished, when their implicit risks and benefits have been substantially transferred to third parties or when the control of financial asset is transferred even with no physical transfer or substantial retention of such assets. In the latter case, the financial asset transferred is derecognized from the consolidated balance sheet, and any right or obligation retained or created as a result of the transfer is simultaneously recognized.

Similarly, financial liabilities are derecognized from the consolidated balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).

The Group is considered to have transferred substantially all the risks and benefits if such risks and benefits account for the majority of the risks and benefits involved in ownership of the transferred financial assets. If substantially all the risks and benefits associated with the transferred financial asset are retained:

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The transferred financial asset is not derecognized from the consolidated balance sheet and continues to be measured using the same criteria as those used before the transfer.

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A financial liability is recognized at the amount equal to the amount received, which is subsequently measured at amortized cost or fair value with changes in the income statement, whichever the case.

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Both the income generated on the transferred (but not derecognized) financial asset and the expenses of the new financial liability continue to be recognized.

2.2.3

Financial guarantees

Financial guarantees are considered to be those contracts that require their issuer to make specific payments to reimburse the holder of the financial guarantee for a loss incurred when a specific borrower breaches its payment obligations on the terms – whether original or subsequently modified – of a debt instrument, irrespective of the legal form it may take. Financial guarantees may take the form of a deposit, bank guarantee, insurance contract or credit derivative, among others.

In their initial recognition, financial guarantees are recognized as liabilities in the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and interest receivable from these contracts over the term thereof, and the Group simultaneously recognize a corresponding asset in the consolidated balance sheet for the amount of the fees and commissions received at the inception of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.

Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required for them. The credit risk is determined by application of criteria similar to those established for quantifying impairment losses on debt instruments measured at amortized cost (see Note 2.2.1).

The provisions recognized for financial guarantees considered impaired are recognized under the heading “Provisions - Provisions for contingent risks and commitments” on the liability side in the consolidated balance sheets (see Note 24). These provisions are recognized and reversed with a charge or credit, respectively; to “Provisions or reversal of provision” in the consolidated income statements (see Note 46).

F-22

Income from financial guarantees is recorded under the heading “Fee and commission income” in the consolidated income statement and is calculated by applying the rate established in the related contract to the nominal amount of the guarantee (see Note 40).

2.2.4

Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale

The heading “Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets includes the carrying amount of assets that are not part of the BBVA Group’s operating activities. The recovery of this carrying amount is expected to take place through the price obtained on its disposal (see Note 21).

This heading includes individual items and groups of items (“disposal groups”) and disposal groups that form part of a major operating segment and are being held for sale as part of a disposal plan (“discontinued operations”). The individual items include the assets received by the subsidiaries from their debtors, in full or partial settlement of the debtors’ payment obligations (assets foreclosed or donated in repayment of debt and recovery of lease finance transactions), unless the Group has decided to make continued use of these assets. The BBVA Group has units that specialize in real estate management and the sale of this type of asset.

Symmetrically, the heading “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheets reflects the balances payable arising from disposal groups and discontinued operations. Profit or loss from non-current assets and disposal groups classified as held for sale are generally measured, at the acquisition date and at any later date deemed necessary, at either their carrying amount or the fair value of the property (less costs to sell), whichever is lower.

In the case of real estate assets foreclosed or received in payment of debts, they are initially recognized at the lower of: the restated carrying amount of the financial asset and the fair value at the time of the foreclosure or receipt of the asset less estimated sales costs. The carrying amount of the financial asset is updated at the time of the foreclosure, treating the real property received as a secured collateral and taking into account the credit risk coverage that would correspond to it according to its classification prior to the delivery. For these purposes, the collateral will be valued at its current fair value (less sale costs) at the time of foreclosure. This carrying amount will be compared with the previous carrying amount and the difference will be recognized as a provision increase, if applicable. On the other hand, the fair value of the foreclosed asset is obtained by appraisal, evaluating the need to apply a discount on the asset derived from the specific conditions of the asset or the market situation for these assets, and in any case, deducting the company’s estimated sale costs.

At the time of the initial recognition, these real estate assets foreclosed or received in payment of debts, classified as “Non-current assets and disposal groups held for sale and liabilities included in disposal groups classified as held for sale” are valued at the lower of: their restated fair value less estimated sale costs and their carrying amount; a deterioration or impairment reversal can be recognized for the difference if applicable.

Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under this heading.

Fair value of non-current assets and disposable instruments held for sale from foreclosures or recoveries is based, mainly, in appraisals or valuations made by independent experts on a yearly based or less should there be evidence of impairment. Gains and losses generated on the disposal of assets and liabilities classified as non-current held for sale, and liabilities included in disposal groups classified as held for sale as well as impairment losses and, where pertinent, the related recoveries, are recognized in “Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” in the consolidated income statement (see Note 50). The remaining income and expense items associated with these assets and liabilities are classified within the relevant consolidated income statement headings.

Income and expenses for discontinued operations, whatever their nature, generated during the year, even if they have occurred before their classification as discontinued operations, are presented net of the tax effect as a single amount under the heading “Profit from discontinued operations” in the consolidated income statement, whether the business remains on the balance sheet or is derecognized from the balance sheet. As long as an asset remains in this category, it will not be amortized. This heading includes the earnings from their sale or other disposal.

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2.2.5

Tangible assets

Property, plant and equipment for own use

This heading includes the assets under ownership or acquired under lease finance, intended for future or current use by the BBVA Group and that it expects to hold for more than one year. It also includes tangible assets received by the consolidated entities in full or partial settlement of financial assets representing receivables from third parties and those assets expected to be held for continuing use.

Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing this net carrying amount of each item with its corresponding recoverable amount.

Depreciation is calculated using the straight-line method, on the basis of the acquisition cost of the assets less their residual value; the land is considered to have an indefinite life and is therefore not depreciated.

The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading “Depreciation” (see Note 45) and are based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):


Type of Assets				Annual Percentage
Buildings for own use				1% - 4%
Furniture				8% - 10%
Fixtures				6% - 12%
Office supplies and hardware				8% - 25%

The BBVA Group’s criteria for determining the recoverable amount of these assets, in particular buildings for own use, is based on independent appraisals that are no more than 3-5 years old at most, unless there are indications of impairment.

At each reporting date, the Group entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (as the higher between its recoverable amount less disposal costs and its value in use). When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.

Similarly, if there is any indication that the value of a tangible asset has been recovered, the consolidated entities will estimate the recoverable amounts of the asset and recognize it in the consolidated income statement, recording the reversal of the impairment loss registered in previous years and thus adjusting future depreciation charges. Under no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.

Running and maintenance expenses relating to tangible assets held for own use are recognized as an expense in the year they are incurred and recognized in the consolidated income statements under the heading “Administration costs - Other administrative expenses - Property, fixtures and equipment” (see Note 44.2).

Other assets leased out under an operating lease

The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses on them, are the same as those described in relation to tangible assets for own use.

Investment properties

The heading “Tangible assets - Investment properties” in the consolidated balance sheets reflects the net values (purchase cost minus the corresponding accumulated depreciation and, if appropriate, estimated impairment losses) of the land, buildings and other structures that are held either to earn rentals or for capital appreciation through sale and that are neither expected to be sold off in the ordinary course of business nor are destined for own use (see Note 17).

The criteria used to recognize the acquisition cost of investment properties, calculate their depreciation and their respective estimated useful lives and recognize the impairment losses on them, are the same as those described in relation to tangible assets held for own use.

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The BBVA Group’s criteria for determining the recoverable amount of these assets is based on independent appraisals that are no more than one year old at most, unless there are indications of impairment.

2.2.6

Inventories

The balance under the heading “Other assets - Inventories” in the consolidated balance sheets mainly includes the land and other properties that the BBVA Group’s real estate entities hold for development and sale as part of their real estate development activities (see Note 20).

The cost of inventories includes those costs incurred in during their acquisition and development, as well as other direct and indirect costs incurred in getting them to their current condition and location.

In the case of the cost of real-estate assets accounted for as inventories, the cost is comprised of: the acquisition cost of the land, the cost of urban planning and construction, non-recoverable taxes and costs corresponding to construction supervision, coordination and management. Borrowing cost incurred during the year form part of cost, provided that the inventories require more than a year to be in a condition to be sold.

Properties purchased from customers in distress, which the Group manages for sale, are measured at the acquisition date and any subsequent time, at either their related carrying amount or the fair value of the property (less costs to sell), whichever is lower. The carrying amount at acquisition date of these properties is defined as the balance pending collection on those assets that originated said purchases (net of provisions).

Impairment

The amount of any subsequent adjustment due to inventory valuation for reasons such as damage, obsolescence, reduction in sale price to its net realizable value, as well as losses for other reasons and, if appropriate, subsequent recoveries of value up to the limit of the initial cost value, are registered under the heading “Impairment or (-) reversal of impairment on non-financial assets” in the accompanying consolidated income statements (see Note 48) for the year in which they are incurred.

In the case of Real-Estate assets above mentioned, if the fair value less costs to sell is lower than the carrying amount of the loan recognized in the consolidated balance sheet, a loss is recognized under the heading “Impairment or (-) reversal of impairment on non-financial assets” in the consolidated income statement for the period. In the case of real-estate assets accounted for as inventories, the BBVA Group’s criterion for determining their net realizable value is mainly based on independent appraisals no more than one year old, or less if there are indications of impairment.

Inventory sales

In sale transactions, the carrying amount of inventories is derecognized from the consolidated balance sheet and recognized as an expense under the income statement heading “Other operating expenses – Changes in inventories” in the year in which the income from its sale is recognized. This income is recognized under the heading “Other operating income – Financial income from non-financial services” in the consolidated income statements (see Note 42).

2.2.7

Business combinations

A business combination is a transaction, or any other deal, by which the Group obtains control of one or more businesses. It is accounted for by applying the acquisition method.

According to this method, the acquirer has to recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the acquired entity had not recognized in the accounts. The method involves the measurement of the consideration received for the business combination and its allocation to the assets, liabilities and contingent liabilities measured according to their fair value, at the purchase date, as well as the recognition of any non-controlling participation (minority interests) that may arise from the transaction.

In a business combination achieved in stages, the acquirer shall remeasure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss under the heading “Gains (losses) on derecognized of non-financial assets and subsidiaries, net” of the Consolidated Income Statements. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.

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In addition, the acquirer shall recognize an asset in the consolidated balance sheet under the heading “Intangible asset - Goodwill” if on the acquisition date there is a positive difference between:

●

the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of stock previously held in the acquired business; and

●

the net fair value of the assets acquired and liabilities assumed.

If this difference is negative, it shall be recognized directly in the income statement under the heading “Gain on Bargain Purchase in business combinations”.

Non-controlling interests in the acquired entity may be measured in two ways: either at their fair value; or at the proportional percentage of net assets identified in the acquired entity. The method of valuing non-controlling interest may be elected in each business combination. BBVA Group has always elected for the second method.

2.2.8

Intangible assets

Goodwill

Goodwill represents a portion of consideration transferred in advance by the acquiring entity for the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is never amortized. It is subject periodically to an impairment analysis, and is written off if there has been impairment.

Goodwill is assigned to one or more cash-generating units that expect to be the beneficiaries of the synergies derived from the business combinations. The cash-generating units represent the Group’s smallest identifiable asset groups that generate cash flows for the Group and that are largely independent of the flows generated from the Group’s other assets or groups of assets. Each unit or units to which goodwill is allocated:

●

is the lowest level at which the entity manages goodwill internally.

●

is not larger than an operating segment.

The cash-generating units to which goodwill has been allocated are tested for impairment (including the allocated goodwill in their carrying amount). This analysis is performed at least annually or more frequently if there is any indication of impairment.

For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that cash-generating unit, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, in the event they are not valued at fair value, is compared with its recoverable amount.

The recoverable amount of a cash-generating unit is equal to the fair value less sale costs and its value in use, whichever is greater. Value in use is calculated as the discounted value of the cash flow projections that the unit’s management estimates and is based on the latest budgets approved for the coming years. The main assumptions used in its calculation are: a sustainable growth rate to extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows, which is equal to the cost of the capital assigned to each cash-generating unit, and equivalent to the sum of the risk-free rate plus a risk premium inherent to the cash-generating unit being evaluated for impairment.

If the carrying amount of the cash-generating unit exceeds the related recoverable amount, the Group recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized, the carrying amount of the remainder of the assets. This is done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. In the event the non-controlling interests are measured at fair value, the deterioration of goodwill attributable to non-controlling interests will be recognized. In any case, an impairment loss recognized for goodwill shall not be reversed in a subsequent period.

Goodwill impairment losses are recognized under the heading “Impairment or (-) reversal of impairment on non-financial assets – Intangible assets” in the consolidated income statements (see Note 48).

Other intangible assets

These assets may have an indefinite useful life if, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities. In all other cases they have a finite useful life.

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Intangible assets with a finite useful life are amortized according to the duration of this useful life, using methods similar to those used to depreciate tangible assets. The defined useful time intangible asset is made up mainly of IT applications acquisition costs which have a useful life of 3 to 5 years. The depreciation charge of these assets is recognized in the accompanying consolidated income statements under the heading “Depreciation” (see Note 45).

The consolidated entities recognize any impairment loss on the carrying amount of these assets with charge to the heading “Impairment or (-) reversal of impairment on non - financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 48). The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior years, are similar to those used for tangible assets.

2.2.9

Insurance and reinsurance contracts

The assets of the BBVA Group’s insurance subsidiaries are recognized according to their nature under the corresponding headings of the consolidated balance sheets and the initial recognition and valuation is carried out according to the criteria set out in IFRS 4.

The heading “Reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance subsidiaries are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries.

The heading “Liabilities under insurance contracts” in the accompanying consolidated balance sheets includes the technical provisions for direct insurance and inward reinsurance recognized by the consolidated insurance subsidiaries to cover claims arising from insurance contracts in force at period-end (see Note 23).

The income or expenses reported by the BBVA Group’s consolidated insurance subsidiaries on their insurance activities is recognized, in accordance with their nature, in the corresponding items of the consolidated income statements.

The consolidated insurance entities of the BBVA Group recognize the amounts of the premiums written to the income statement and a charge for the estimated cost of the claims that will be incurred at their final settlement to their consolidated income statements. At the close of each year the amounts collected and unpaid, as well as the costs incurred and unpaid, are accrued.

The most significant provisions registered by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23.

According to the type of product, the provisions may be as follows:

●

Life insurance provisions:

Represents the value of the net obligations undertaken with the life insurance policyholder. These provisions include:

–

Provisions for unearned premiums. These are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until the closing date that has to be allocated to the period from the closing date to the end of the insurance policy period.

–

Mathematical reserves: Represents the value of the life insurance obligations of the insurance entities at year-end, net of the policyholder’s obligations, arising from life insurance contracted.

●

Non-life insurance provisions:

–

Provisions for unearned premiums. These provisions are intended for the accrual, at the date of calculation, of the premiums written. Their balance reflects the portion of the premiums received until year-end that has to be allocated to the period between the year-end and the end of the policy period.

–

Provisions for unexpired risks: The provision for unexpired risks supplements the provision for unearned premiums by the amount by which that provision is not sufficient to reflect the assessed risks and expenses to be covered by the consolidated insurance subsidiaries in the policy period not elapsed at year-end.

●

Provision for claims:

This reflects the total amount of the outstanding obligations arising from claims incurred prior to year-end. Insurance subsidiaries calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.

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●

Provision for bonuses and rebates:

This provision includes the amount of the bonuses accruing to policyholders, insurees or beneficiaries and the premiums to be returned to policyholders or insurees, as the case may be, based on the behavior of the risk insured, to the extent that such amounts have not been individually assigned to each of them.

●

Technical provisions for reinsurance ceded:

Calculated by applying the criteria indicated above for direct insurance, taking account of the assignment conditions established in the reinsurance contracts in force.

●

Other technical provisions:

Insurance entities have recognized provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the valuation of the technical provisions.

The BBVA Group controls and monitors the exposure of the insurance subsidiaries to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.

2.2.10

Tax assets and liabilities

Expenses on corporate income tax applicable to the BBVA Group’s Spanish entities and on similar income taxes applicable to consolidated foreign entities are recognized in the consolidated income statement, except when they result from transactions on which the profits or losses are recognized directly in equity, in which case the related tax effect is also recognized in equity. The total corporate income tax expense is calculated by aggregating the current tax arising from the application of the corresponding tax rate to the tax for the year (after deducting the tax credits or discounts allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the consolidated income statement.

Deferred tax assets and liabilities include temporary differences, defined as the amounts to be payable or recoverable in future years arising from the differences between the carrying amount of assets and liabilities and their tax bases (the “tax value”), and tax loss and tax credit or discount carry forwards (see Note 19).

The “Tax Assets” line item in the accompanying consolidated balance sheets includes the amount of all the assets of a tax nature, and distinguishes between: “Current” (amounts recoverable by tax in the next twelve months) and “Deferred” (which includes the amount of tax to be recovered in future years, including those arising from tax losses or credits for deductions or rebates that can be compensated). The “Tax Liabilities” line item in the accompanying consolidated balance sheets includes the amount of all the liabilities of a tax nature, except for provisions for taxes, broken down into: “Current” (income tax payable on taxable profit for the year and other taxes payable in the next twelve months) and “Deferred” (the amount of corporate tax payable in subsequent years).

Deferred tax liabilities attributable to taxable temporary differences associated with investments in subsidiaries, associates or joint venture entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is unlikely that it will reverse in the future. Deferred tax assets are recognized to the extent that it is considered probable that the consolidated entities will have sufficient taxable profits in the future against which the deferred tax assets can be utilized and are not from the initial recognition (except in the case of a business combination) of other assets or liabilities in a transaction that does not affect the fiscal outcome or the accounting result.

The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they are still current, and the appropriate adjustments are made on the basis of the findings of the analyses performed. In those circumstances in which it is unclear how a specific requirement of the tax law applies to a particular transaction or circumstance, and the acceptability of the definitive tax treatment depends on the decisions taken by the relevant taxation authority in future, the entity recognizes current and deferred tax liabilities and assets considering whether it is probable or not that a taxation authority will accept an uncertain tax treatment. Thus, if the entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, the entity uses the amount expected to be paid to (recovered from) the taxation authorities.

The income and expenses directly recognized in equity that do not increase or decrease taxable income are accounted for as temporary differences.

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2.2.11

Provisions, contingent assets and contingent liabilities

The heading “Provisions” in the consolidated balance sheets includes amounts recognized to cover the BBVA Group’s current obligations arising as a result of past events. These are certain in terms of nature but uncertain in terms of amount and/or settlement date. The settlement of these obligations is deemed likely to entail an outflow of resources embodying economic benefits (see Note 24). The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group entities relative to third parties in relation to the assumption of certain responsibilities or through virtually certain developments of particular aspects of the regulations applicable to the operation of the entities; and, specifically, future legislation to which the Group will certainly be subject. The provisions are recognized in the consolidated balance sheets when each and every one of the following requirements is met:

●

They represent a current obligation that has arisen from a past event.

●

At the date referred to by the Consolidated Financial Statements, there is more probability that the obligation will have to be met than that it will not.

●

It is probable that an outflow of resources embodying economic benefits will be required to settle the obligation.

●

The amount of the obligation can be reasonably estimated.

Among other items, these provisions include the commitments made to employees by some of the Group entities (mentioned in Note 2.2.12), as well as provisions for tax and legal litigation.

Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement; however, they will be disclosed, should they exist, in the Notes to the Interim Consolidated Financial Statements, provided that it is more likely than not that these assets will give rise to an increase in resources embodying economic benefits.

Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the Group. They also include the existing obligations of the Group when it is not probable that an outflow of resources embodying economic benefits will be required to settle them; or when, in extremely rare cases, their amount cannot be measured with sufficient reliability.

Contingent liabilities are not recognized in the consolidated balance sheet or the income statement (excluding contingent liabilities from business combination) but are reported in the Interim Consolidated Financial Statements.

2.2.12

Pensions and other post-employment commitments

Below we provide a description of the most significant accounting criteria relating to post-employment and other employee benefit commitments assumed by BBVA Group entities (see Note 25).

Short-term employee benefits

Benefits for current active employees which are accrued and settled during the year and for which a provision is not required in the entity´s accounts. These include wages and salaries, social security charges and other personnel expenses.

Costs are charged and recognized under the heading “Administration costs – Personnel expenses – Other personnel expenses” of the consolidated income statement (see Note 44.1).

Post-employment benefits – Defined-contribution plans

The Group sponsors defined-contribution plans for the majority of its active employees. The amount of these benefits is established as a percentage of remuneration and/or as a fixed amount.

The contributions made to these plans in each period by BBVA Group entities are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-contribution plan expense” of the consolidated income statement (see Note 44.1).

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Post-employment benefits – Defined-benefit plans

Some Group entities maintain pension commitments with employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. These commitments are covered by insurance contracts, pension funds and internal provisions.

In addition, some of the Spanish entities have offered certain employees the option to retire before their normal retirement age, recognizing the necessary provisions to cover the costs of the associated benefit commitments, which include both the liability for the benefit payments due as well as the contributions payable to external pension funds during the early retirement period.

Furthermore, certain Group entities provide welfare and medical benefits which extend beyond the date of retirement of the employees entitled to the benefits.

All of these commitments are quantified based on actuarial valuations, with the amounts recorded under the heading “Provisions – Provisions for pensions and similar obligations” and determined as the difference between the value of the defined-benefit commitments and the fair value of plan assets at the date of the Interim Consolidated Financial Statements (see Note 25).

Current service cost are charged and recognized under the heading “Administration costs – Personnel expenses – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1).

Interest credits/charges relating to these commitments are charged and recognized under the headings “Interest income” and “Interest expense” of the consolidated income statement (see Note 37).

Past service costs arising from benefit plan changes as well as early retirements granted during the period are recognized under the heading “Provisions or reversals of provisions” of the consolidated income statement (see Note 46).

Other long-term employee benefits

In addition to the above commitments, certain Group entities provide long service awards to their employees, consisting of monetary amounts or periods of vacation granted upon completion of a number of years of qualifying service.

These commitments are quantified based on actuarial valuations and the amounts recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet (see Note 24).

Valuation of commitments: actuarial assumptions and recognition of gains/losses

The present value of these commitments is determined based on individual member data. Active employee costs are determined using the “projected unit credit” method, which treats each period of service as giving rise to an additional unit of benefit and values each unit separately.

In establishing the actuarial assumptions we taken into account that:

●

They should be unbiased, i.e. neither unduly optimistic nor excessively conservative.

●

They should be mutually compatible and adequately reflect the existing relationship between economic variables such as price inflation, expected wage increases, discount rates and the expected return on plan assets, etc. Future wage and benefit levels should be based on market expectations, at the balance sheet date, for the period over which the obligations are to be settled.

●

The interest rate used to discount benefit commitments is determined by reference to market yields, at the balance sheet date, on high quality bonds.

The BBVA Group recognizes actuarial gains/losses relating to early retirement benefits, long service awards and other similar items under the heading “Provisions or reversal of provisions” of the consolidated income statement for the period in which they arise (see Note 46). Actuarial gains/losses relating to pension and medical benefits are directly charged and recognized under the heading “Accumulated other comprehensive income – Items that will not be reclassified to profit or loss – Actuarial gains or (-) losses on defined benefit pension plans” of equity in the consolidated balance sheet (see Note 30).

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2.2.13

Equity-settled share-based payment transactions

Provided they constitute the delivery of such equity instruments following the completion of a specific period of services, equity-settled share-based payment transactions are recognized as an expense for services being provided by employees, by way of a balancing entry under the heading “Shareholders’ equity – Other equity” in the consolidated balance sheet (Note 44.1.1). These services are measured at fair value for the employees services received, unless such fair value cannot be calculated reliably. In such case, they are measured by reference to the fair value of the equity instruments granted, taking into account the date on which the commitments were granted and the terms and other conditions included in the commitments.

When the initial compensation agreement includes what may be considered market conditions among its terms, any changes in these conditions will not be reflected in the consolidated income statement, as these have already been accounted for in calculating the initial fair value of the equity instruments. Non-market vesting conditions are not taken into account when estimating the initial fair value of equity instruments, but they are taken into account when determining the number of equity instruments to be issued. This will be recognized on the consolidated income statement with the corresponding increase in total equity.

2.2.14

Termination benefits

Termination benefits are recognized in the accounts when the BBVA Group agrees to terminate employment contracts with its employees and has established a detailed plan.

2.2.15

Treasury stock

The value of common stock issued by the BBVA Group’s entities and held by them - basically, shares and derivatives on the Bank’s shares held by some consolidated entities that comply with the requirements to be recognized as equity instruments - are recognized as a decrease to net equity, under the heading “Shareholders’ funds - Treasury stock” in the consolidated balance sheets (see Note 29).

These financial assets are recognized at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Shareholders’ funds - Retained earnings” in the consolidated balance sheets (see Note 28).

2.2.16

Foreign-currency transactions and exchange differences

The BBVA Group’s functional currency, and thus the currency in which the Interim Consolidated Financial Statements are presented, is the euro. Thus, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”.

Conversion to euros of the balances held in foreign currency is performed in two consecutive stages:

●

Conversion of the foreign currency to the functional currency (currency of the main economic environment in which the entity operates); and

●

Conversion to euros of the balances held in the functional currencies of the entities whose functional currency is not the euro.

Conversion of the foreign currency to the functional currency

Transactions denominated in foreign currencies carried out by the consolidated entities (or accounted for using the equity method) are initially accounted for in their respective currencies. Subsequently, the monetary balances in foreign currencies are converted to their respective functional currencies using the exchange rate at the close of the financial year. In addition,

●

Non-monetary items valued at their historical cost are converted to the functional currency at the exchange rate in force on the purchase date.

●

Non-monetary items valued at their fair value are converted at the exchange rate in force on the date on which such fair value was determined.

●

Income and expenses are converted at the period’s average exchange rates for all the operations carried out during the period. When applying this criterion the BBVA Group considers whether significant variations have taken place in exchange rates during the financial year which, owing to their impact on the statements as a whole, require the application of exchange rates as of the date of the transaction instead of such average exchange rates.

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The exchange differences produced when converting the balances in foreign currency to the functional currency of the consolidated entities are generally recognized under the heading “Exchange differences (net)” in the consolidated income statements (see Note 41). However, the exchange differences in non-monetary items, measured at fair value, are recognized temporarily in equity under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Exchange differences” in the consolidated balance sheets (see Note 30).

Conversion of functional currencies to euros

The balances in the interim financial statements of consolidated entities whose functional currency is not the euro are converted to euros as follows:

●

Assets and liabilities: at the average spot exchange rates as of the date of each of the interim consolidated financial statements.

●

Income and expenses and cash flows are converted by applying the exchange rate in force on the date of the transaction, and the average exchange rate for the financial year may be used, unless it has undergone significant variations.

●

Equity items: at the historical exchange rates.

The exchange differences arising from the conversion to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recognized under the heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Exchange differences” in the interim consolidated balance sheets (Notes 30 and 31 respectively). Meanwhile, the differences arising from the conversion to euros of the interim financial statements of entities accounted for by the equity method are recognized under the heading “ Accumulated other comprehensive income - Items that may be reclassified to profit or loss - Entities accounted for using the equity method” (Note 30) until the item to which they relate is derecognized, at which time they are recognized in the income statement.

The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII.

Venezuela

Local interim financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the interim consolidated financial statements, as indicated below, since Venezuela is a country with strong exchange restrictions and has different rates officially published:

●

On February 10, 2015, the Venezuelan government announced the creation of a new foreign-currency system called “Sistema Marginal de Divisas” (SIMADI).

●

The Group used the SIMADI exchange rate from March 2015 for the conversion of the financial statements of the Group companies located in Venezuela for their Consolidated Financial Statements. The SIMADI exchange rate started to reflect the exchange rate of actual transactions increasing rapidly to approximately 200 Venezuelan bolivars per U,S. dollar (approximately 218 Venezuelan bolivars per euro), however, from May, and during the second half of 2015 the trend was confirmed, the SIMADI exchange rate had hardly fluctuated, reaching as of December 31, 2015 216.3 Venezuelan bolivars per euro, which could be considered unrepresentative of the convertibility of the Venezuelan currency.

●

In February 2016, the Venezuelan government approved a new exchange rate agreement which sets two new mechanisms that regulate the purchase and sale of foreign currency (DICOM) and the suspension of the SIMADI exchange rate.

●

In May 2017, Venezuela Central Bank created el “Comité de Subastas de Divisas”, whose object is to administer, regulate and manage the DICOM, with autonomy for the exercise of its functions.

●

From December 31, 2015, the Board of Directors considers that the use of the new exchanges rates and, previously, SIMADI for converting bolivars into euros in preparing the Consolidated Financial Statements does not reflect the true picture of the financial statements of the Group and the financial position of the Group subsidiaries in Venezuela.

●

Consequently, as of June 30, 2017 and December 31, 2016, the Group has used in the conversion of the financial statements of these foreign exchange rates amounting to 4,302 and 1,893 Venezuelan bolivars per euro, respectively. These exchanges rates have been calculated taking into account the estimated evolution of inflation in Venezuela at those dates (122.2% and 300%, respectively) by the Research Service of the Group (see Note 2.2.20).

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The summarized balance sheet and income statements of the Group subsidiaries in Venezuela, whose local interim financial statements are expressed in Venezuelan bolivars comparing their conversion to euros with the estimated exchange rate with the balances that would have result by applying the last published exchange rate, are as follows:


	Million of Euros
Balance sheet June 2017	Estimated exchange rate		Official Exchange rate		Variation
Cash and balances with central banks		307		437		131
Securities portfolio		44		58		14
Loans and recievables		474		624		150
Tangible assets		64		91		27
Other		25		35		10
TOTAL ASSETS		913		1,246		332
Deposits from central bank and credit institutions		1		2		-
Customer deposits		654		929		275
Provisions		19		28		8
Other		115		144		30
TOTAL LIABILITIES		789		1,103		314


	Million of Euros
Income statements June 2017	Estimated exchange rate		Official Exchange rate		Variation
NET INTEREST ICOME		39		55		17
GROSS INCOME		30		43		13
Administration costs		24		34		10
NET OPERATING INCOME		6		9		3
OPERATING PROFIT BEFORE TAX		(1)		(1)		-
Tax expense or (-) income related to profit or loss from continuing operation		4		6		2
PROFIT		(5)		(8)		(2)
Attributable to minority interest [non-controlling interests]		(3)		(4)		(1)
Attributable to owners of the parent		(3)		(4)		(1)

2.2.17

Recognition of income and expenses

The most significant criteria used by the BBVA Group to recognize its income and expenses are as follows.

●

Interest income and expenses and similar items:

As a general rule, interest income and expenses and similar items are recognized on the basis of their period of accrual using the effective interest rate method. The financial fees and commissions that arise on the arrangement of loans and advances (basically origination and analysis fees) are deferred and recognized in the income statement over the expected life of the loan. The direct costs incurred in originating these loans and advances can be deducted from the amount of financial fees and commissions recognized. These fees are part of the effective interest rate for the loans and advances. Also dividends received from other entities are recognized as income when the consolidated entities’ right to receive them arises.

Once a debt instrument has been impaired, an interest income is recognized applying the effective interest rate used to discount the estimated recoverable cash flows on the carrying amount of the asset.

●

Commissions, fees and similar items:

Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to the nature of such items. The most significant items in this connection are:

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Those relating to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected/paid.

Those arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services.

Those relating to single acts, which are recognized when this single act is carried out.

●

Non-financial income and expenses:

These are recognized for accounting purposes on an accrual basis.

●

Deferred collections and payments:

These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.

2.2.18

Sales and income from the provision of non-financial services

The heading “Other operating income” in the consolidated income statements includes the proceeds of the sales of assets and income from the services provided by the Group entities that are not financial institutions. In the case of the Group, these entities are mainly real estate and service entities (see Note 42).

2.2.19

Leases

Lease contracts are classified as finance leases from the inception of the transaction, if they substantially transfer all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. Leases other than finance leases are classified as operating leases.

When the consolidated entities act as the lessor of an asset in finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recognized as financing provided to third parties and, therefore, are included under the heading “Loans and receivables” in the accompanying consolidated balance sheets (see Note 13).

When the consolidated entities act as lessors of an asset in operating leases, the acquisition cost of the leased assets is recognized under “Tangible assets – Property, plant and equipment – Other assets leased out under an operating lease” in the consolidated balance sheets (see Note 17). These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statements on a straight-line basis within “Other operating expenses” (see Note 42).

If a fair value sale and leaseback results in an operating lease, the profit or loss generated from the sale is recognized in the consolidated income statement at the time of sale. If such a transaction gives rise to a finance lease, the corresponding gains or losses are accrued over the lease period.

The assets leased out under operating lease contracts to other entities in the Group are treated in the Interim Consolidated Financial Statements as for own use, and thus rental expense and income is eliminated and the corresponding depreciation is recognized.

2.2.20

Entities and branches located in countries with hyperinflationary economies

In order to assess whether an economy is under hyperinflation, the country’s economic environment is evaluated, analyzing whether certain circumstances exist, such as:

●

The country’s population prefers to keep its wealth or savings in non-monetary assets or in a relatively stable foreign currency;

●

Prices may be quoted in a relatively stable foreign currency;

●

Interest rates, wages and prices are linked to a price index;

●

The cumulative inflation rate over three years is approaching, or exceeds, 100%.

The fact that any of these circumstances is present will not be a decisive factor in considering an economy hyperinflationary, but it does provide some reasons to consider it as such.

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Since 2009, the economy of Venezuela can be considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Venezuela have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “ Financial Reporting in Hyperinflationary Economies”.

The breakdown of the General Price Index and the inflation index used as of June 30, 2017 and December 31, 2016 for the inflation restatement of the financial statements of the Group companies located in Venezuela is as follows:


General Price Index	June 2017 ()**		December *2016 ()**
GPI				9,431.60
Average GPI				5,847.74
Inflation of the period		122.2%		300.0%

(*) At the date of preparation of consolidated financial statements in 2016, the Venezuelan government had not released the official inflation figures. The Group had estimated the inflation rate applicable to December 31, 2016, based on the best estimate of BBVA Research of the Group (300%) in line with other estimates made by various international organizations.

(**) At the date of preparation of these interim consolidated financial statements, the Venezuelan government had not released the official inflation figures. As of June 30, 2017, as in the Annual Report of 2016, the group estimated the applicable inflation rate.

The losses recognized under the heading “Profit attributable to the parent company” in the accompanying consolidated income statement as a result of the adjustment for inflation on net monetary position of the Group entities in Venezuela amounted to €7.7 and €38.5 million in the first semester of 2017 and 2016 respectively.

2.3	Recent IFRS pronouncements

Changes introduced in 2017

The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) came into force after January 1, 2017. They have not had a significant impact on the BBVA Group’s Consolidated Financial Statements corresponding to the period ended June 30, 2017.

IAS 12 – “Income Taxes. Recognition of Deferred Tax Assets for Unrealized Losses”

The amendments made to IAS 12 clarify the requirements on recognition of deferred tax assets for unrealized losses. The following aspects are clarified:

●

An unrealized loss on a debt instrument measured at fair value gives rise to a deductible temporary difference regardless of whether the holder expects to recover its carrying amount by holding the debt instrument until maturity or by selling the debt instrument.

●

An entity assesses the utilization of deductible temporary differences in combination with other deductible temporary differences. In circumstances in which tax laws restricts the utilization of tax losses, an entity would assess a deferred tax asset in combination with other deferred tax assets of the appropriate type.

●

An entity’s estimate of future taxable profit can include the recovery of its assets for amounts more than their carrying amounts if there is sufficient evidence to conclude that it is probable that the entity will achieve this.

●

An entity’s estimate of future taxable profit excludes tax deductions resulting from the reversal of deductible temporary difference.

The European Union has not approved the adoption of the amendments.

IAS 7 – “Statement of Cash Flows. Disclosure Initiative”

The amendments to IAS 7 introduce the following new disclosure requirements related to changes in liabilities arising from financing activities, to enable users of financial statements to evaluate changes in those liabilities: changes from financing cash flows; changes arising from obtaining or losing control of subsidiaries or other businesses; the effect of changes in foreign exchange rates; changes in fair values; and other changes.

Liabilities arising from financing activities are liabilities for which cash flows were, or future cash flows will be, classified in the statement of cash flows as cash flows arising from financing activities. Additionally, the disclosure requirements also

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apply to changes in financial assets if cash flows from those financial assets were, or future cash flows will be, included in cash flows from financing activities.

The European Union has not approved the adoption of the amendments.

Annual improvements cycle to IFRSs 2014-2016 – Minor amendments to IFRS 12

The annual improvements cycle to IFRSs 2014-2016 includes minor changes and clarifications to IFRS 12 – Disclosure of Interests in Other Entities. The European Union has not still approved the adoption of the amendments, which is expected in the third quarter of 2017.

Standards and interpretations issued but not yet effective as of June 30, 2017

New International Financial Reporting Standards together with their interpretations had been published at the date of preparation of the accompanying Consolidated Financial Statements, but are not obligatory as of June 30, 2017. Although in some cases the IASB permits early adoption before they come into force, the BBVA Group has not done so as of this date, as it is still analyzing the effects that will result from them.

IFRS 9 - “Financial instruments”

As of July, 24, 2014, IASB issued the IFRS 9 which will replace IAS 39 and includes a new classification and assessment requirements of financial assets and liabilities, impairment requirements of financial assets and hedge accounting policy.

●

Classification and assessment of financial assets and liabilities

The classification of financial assets will depend on the company’s business model used for management purposes and the characteristics of the contractual cash flows, resulting in the measurement of such financial assets at amortized cost, fair value with changes in other comprehensive income and liabilities not measured at fair value through profit or loss, net.

The combined effect of applying the company’s business model and the characteristics of the contractual cash flows may result in differences in the stock of financial assets measured at amortized cost or at fair value compared to IAS 39, although the Group does not expect significant changes in this regard.

With regard to financial liabilities, the classification categories proposed by IFRS 9 are similar to those contained in IAS 39, so there should not be very significant differences except for the requirement to recognize changes in fair value related to own credit risk as a component of equity, in the case of financial liabilities designated at fair value through profit or loss.

Based on the analysis carried out, no significant changes are expected in the classification or valuation method of the financial assets and liabilities, maintaining a balance sheet structure similar to the current one.

●

Financial assets impairments

Impairment requirements will apply to financial assets measured at amortized cost and at fair value through other comprehensive income, and to lease receivables and certain loan commitments and financial guarantee contracts.

At initial recognition, an allowance is required for expected credit losses resulting from default events that may occur within the next 12 months (“12 month expected credit losses”).

In the event of a significant increase in credit risk, an allowance is required for expected credit losses resulting from all possible default events over the expected life of the financial instrument (“lifetime expected credit losses”).

The assessment of whether the credit risk has increased significantly since initial recognition should be performed for each reporting period by considering the change in the risk of default occurring over the remaining life of the financial instrument. The assessment of credit risk, and the estimation of expected credit losses, should be performed so that they are probability-weighted and unbiased and shall include all available information that is relevant to the assessment, including information about past events, current conditions and reasonable and supportable expectations of future events and economic conditions at the reporting date.

For the purposes of the implementation of IFRS 9, the BBVA Group considers the following definitions:

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Default

Although IFRS 9 does not specifically define default, BBVA applies a definition of default that is consistent with the definition used for internal credit risk management purposes for the relevant financial instrument and consider qualitative indicators when appropriate. However, there is a rebuttable presumption that default does not occur later than when a financial asset is 90 days past due unless an entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. The definition of default used for these purposes shall be applied consistently to all financial instruments unless information that demonstrates that another default definition is more appropriate for a particular financial instrument becomes available.

Credit impaired asset

An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:

Significant financial difficulty of the issuer or the borrower.

A breach of contract (e.g. a default or past due event).

A lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider.

It becoming probable that the borrower will enter bankruptcy or other financial reorganization.

The disappearance of an active market for that financial asset because of financial difficulties.

The purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.

It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.

Significant increase in credit risk

Expected credit losses are based on 12-month expected credit losses or lifetime expected credit losses depending on whether there has been a significant increase in credit risk since initial recognition.

The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there has been significant increases in credit risk since initial recognition (whether assessed on an individual or collective basis) considering all reasonable and supportable information, including that which is forward-looking.

In assessing whether credit risk has increased significantly, an entity should use the change in the risk of default occurring over the expected remaining life of the financial instrument, rather than the change in the magnitude of loss if the default were to occur (i.e. change in the amount of expected credit losses). Therefore, changes in loss given default (LGD) are not considered for this purpose, although they are incorporated in the resulting measurement of expected credit losses.

The assessment can be done both in an individual basis and in a collective basis (group of financial instruments with similar credit risk situation). Although the standard introduces a number of operational simplifications/practical expedients, the Groups does not expect to use them as a general rule.

Stage 1– without significant increase in credit risk since initial recognition

According to IFRS 9, financial assets which are not considered to have significantly increased in credit risk have loss allowances measured at an amount equal to 12 months expected credit losses.

Stage 2– significantly increased in credit risk since initial recognition

In accordance with IFRS 9, when the credit risk of a financial asset has increased significantly since initial recognition, the entity shall measure a loss allowance for the financial instrument at an amount equal to the lifetime expected credit losses.

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Stage 3 - Impaired

When there is objective evidence that the loan is credit impaired, the financial asset is transferred to this category.

As a result, the goal is for the recognition and measurement of impairment to be more proactive and forward-looking than under the current incurred loss model of IAS 39.

●

Hedge accounting

IFRS 9 will also affect hedge accounting, because the focus of the Standard is different from that of the current IAS 39, as it tries to align the accounting requirements with economic risk management. IFRS 9 will also permit to apply hedge accounting to a wider range of risks and hedging instruments. The Standard does not address the accounting for macro hedging strategies. To avoid any conflict between the current macro hedge accounting and the new general hedge accounting requirements, IFRS 9 includes an accounting policy choice to continue applying hedge accounting according to IAS 39.

Macro-hedges accounting is being developed as a separate project. The companies have the option to continue applying the hedge accounting as established by IAS39 until the project is completed. According to the analysis carried out to date, the Group expects to continue applying IAS 39 to its hedge accounting.

The IASB has established January 1, 2018, as the mandatory application date, with the possibility of early adoption.

During 2016 and the first semester of 2017, the Group has been analyzing this new Standard and the implications it will have in 2018 on the classification of portfolios and the valuation models for financial instruments, focusing on impairment loss models for financial assets through expected loss models.

In the second semester of 2017, the Group will continue working on the definition of accounting policies, on the implementation of the Standard, which has implications both on the financial statements and on the Group´s daily operations (initial and subsequent risk assessment, changes in systems, management metrics, etc.), and also on the models used for the presentation of financial statements.

As of the date of preparation of these Consolidated Financial Statements, the Group does not have an estimation of the quantitative impact that this Standard will have on January 1, 2018 when it will come into force.

Amended IFRS 7 - “Financial instruments: Disclosures”

The IASB modified IFRS 7 in December 2011 to include new disclosures on financial instruments that entities will have to provide as soon as they apply IFRS 9 for the first time.

IFRS 15 - “Revenue from contracts with customers”

IFRS 15 contains the principles that an entity shall apply to account for revenue and cash flows arising from a contract with a customer.

The core principle of IFRS 15 is that a company should recognize revenue to depict the transfer of promised goods or services to the customer in an amount that reflects the consideration to which the company expects to be entitled in exchange for those goods or services, in accordance with contractually agreed. It is considered that the good or service is transferred when the customer obtains control over it.

The new Standard replaces IAS 18 - Revenue IAS 11 - Construction Contracts, IFRIC 13 - Customer Loyalty Programmes, IFRIC 15 - Agreements for the Construction of Real Estate, IFRIC 18 - Transfers of Assets from Customers and SIC 31 – Revenue-Transactions Involving Advertising Services.

This Standard will be applied to the accounting years starting on or after January 1, 2018, although early adoption is permitted.

IFRS 15 – “Clarifications to IFRS 15 Revenue from Contracts with Customers”

The amendments to the Revenue Standard clarify how some of the underlying principles of the new Standard should be applied. Specifically, they clarify how to:

●

Identify a performance obligation (the promise to transfer a good or a service to a customer) in a contract.

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●

Determine whether a company is a principal (the provider of a good or service) or an agent (responsible for arranging for the good or service to be provided) and

●

Determine whether the revenue from granting a license should be recognized at a point in time or over time.

In addition to the clarifications, the amendments include two additional reliefs to reduce cost and complexity for a company when it first applies the new Standard.

The amendments will be applied at the same time as the IFRS 15, i.e. to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Amended IFRS 10 – “Consolidated Financial Statements” and Amended IAS 28 - “Investments in Associates and Joint Ventures”

The amendments to IFRS 10 and IAS 28 establish that when an entity sells or transfers assets are considered a business (including its consolidated subsidiaries) to an associate or joint venture of the entity, the latter will have to recognize any gains or losses derived from such transaction in its entirety. Notwithstanding, if the assets sold or transferred are not considered a business, the entity will have to recognize the gains or losses derived only to the extent of the interests in the associate or joint venture with unrelated investors.

These changes will be applicable to accounting periods beginning on the effective date, still to be determined, although early adoption is allowed.

IFRS 16 – “Leases”

On January 13, 2016 the IASB issued the IFRS 16 which will replace IAS 17. The new standard introduces a single lessee accounting model and will require a lessee to recognize assets and liabilities for all leases with a term of more than 12 months, unless the underlying asset is of low value. A lessee will be required to recognize a right-of–use asset representing its right to use the underlying leased asset and a lease liability representing its obligation to make lease payments.

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and account for those two types of leases differently.

The standard will be applied to the accounting years starting on or after January 1, 2019, although early application is permitted if IFRS 15 is also applied.

IFRS 2 – “Classification and Measurement of Share-based Payment Transactions”

The amendments made to IFRS 2 provide requirements on three different aspects:

●

When measuring the fair value of a cash-settled share-based payment vesting conditions, other than market conditions, shall be taken into account by adjusting the number of awards included in the measurement of the liability arising from the transaction.

●

A transaction in which an entity settles a share-base payment arrangement net by withholding a specified portion of the equity instruments to meet a statutory tax withholding obligation will be classified as equity settled in its entirety if, without the net settlement feature, the entire share-based payment would otherwise be classified as equity-settled.

●

In case of modification of a share-based payment from cash-settled to equity-settled, the modification will be accounted for derecognizing the original liability and recognizing in equity the fair value of the equity instruments granted to the extent that services have been rendered up to the modification date; any difference will be recognized immediately in profit or loss.

These amendments will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

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Amended IFRS 4 “Insurance Contracts”

The amendments made to IFRS 4 address the temporary accounting consequences of the different effective dates of IFRS 9 and the forthcoming insurance contracts Standard, by introducing two optional solutions:

●

The deferral approach or temporary exemption, that gives entities whose predominant activities are connected with insurance the option to defer the application of IFRS 9 and continue applying IAS 39 until 2021.

●

The overlay approach, that gives all issuers of insurance contracts the option to recognize in other comprehensive income, rather than profit or loss, the additional accounting volatility that may arise from applying IFRS 9 compared to applying IAS 39 before applying the forthcoming insurance contracts Standard.

These modifications will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Annual improvements cycle to IFRSs 2014-2016 – Minor amendments to IFRS 1 and IAS 28

The annual improvements cycle to IFRSs 2014-2016 includes minor changes and clarifications to IFRS 1- Frist-time Adoption of International Financial Reporting Standards and IAS 28 – Investments in Associates and Joint Ventures, which will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted to amendments to IAS 28.

IFRIC 22- Foreign Currency Transactions and Advance Consideration

The Interpretation addresses how to determine the date of the transaction, and thus, the exchange rate to use to translate the related asset, expense or income on initial recognition, in circumstances in which a non-monetary prepayment asset or a non-monetary deferred income liability arising from the payment or receipt of advance consideration is recognized in advance of the related asset, income or expense. It requires that the date of the transaction will be the date on which an entity initially recognizes the non-monetary asset or non-monetary liability.

If there are multiple payments or receipts in advance, the entity shall determine a date of the transaction for each payment or receipt of advance consideration.

The interpretation will be applied to the accounting periods beginning on or after January 1, 2018, although early application is permitted.

Amended IAS 40 – Investment Property

The amendment states that an entity shall transfer a property to, or from, investment property when, and only when, there is evidence of a change in use. A change in use occurs when the property meets, or ceases to meet, the definition of investment property.

The amendments will be applied to the accounting periods beginning on or after January 1, 2018, although early adoption is allowed.

IFRS 17 – Insurance Contracts

IFRS 17 establishes the principles for the accounting for insurance contracts and supersedes IFRS 4. The new standard introduces a single accounting model for all insurance contracts and requires the entities to use updated assumptions.

An entity shall divide the contracts into groups and recognize and measure groups of insurance contracts at the total of:

●

the fulfilment cash flows, that comprises the estimate of future cash flows, an adjustment to reflect the time value of money and the financial risk associated with the future cash flows and a risk adjustment for non-financial risk; and

●

the contractual service margin that represents the unearned profit.

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The amounts recognized in the statement of financial performance shall be disaggregated into insurance revenue, insurance service expenses and insurance finance income or expenses. Insurance revenue and insurance service expenses shall exclude any investment components. Insurance revenue shall be recognized over the period the entity provides insurance coverage and in proportion to the value of the provision of coverage that the insurer provides in the period.

The new Standard will be applied to the accounting periods beginning on or after January 1, 2021, although early adoption is allowed.

IFRIC 23– Uncertainty over Income Tax Treatments

IFRIC 23 provides guidance on how to apply the recognition and measurement requirements in IAS 12 when there is uncertainty over income tax treatments.

If the entity considers that it is probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to determine taxable profit (tax loss), tax bases, unused tax losses, unused tax credits or tax rates consistently with the tax treatment used or planned to be used in its income tax filings.

If the entity considers that it is not probable that the taxation authority will accept an uncertain tax treatment, the Interpretation requires the entity to use the most likely amount or the expected value (sum of the probability. weighted amounts in a range of possible outcomes) in determining taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates. The method used should be the method that the entity expects to provide the better prediction of the resolution of the uncertainty.

The interpretation will be applied to the accounting periods beginning on or after January 1, 2019, although early application is permitted.

3.	BBVA Group

The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking, asset management and private banking. The Group also operates in other sectors such as insurance, real estate, operational leasing, etc.

Appendices I and II provide relevant information as of June 30, 2017 on the Group’s subsidiaries, consolidated structured entities, and investments in associate entities and joint venture entities. Appendix III shows the main changes in investments for the period ended June 30, 2017, and Appendix IV gives details of the consolidated subsidiaries and which, based on the information available, are more than 10% owned by non-Group shareholders as of June 30, 2017.

The following table sets forth information related to the Group’s total assets as of June, 2017 and December 2016, broken down by the Group’s entities according to their activity:


	Millions of Euros
Contribution to Consolidated Group Total Assets. Entities by Main Activities	June 2017		December 2016
Banks and other financial services		670,256		699,592
Insurance and pension fund managing companies		26,854		26,831
Other non-financial services		5,319		5,433
Total		702,429		731,856

The total assets and results of operations broken down by the geographical areas, in which the BBVA Group operates, are included in Note 6.

The BBVA Group’s activities are mainly located in Spain, Mexico, South America, the United States and Turkey, with active presence in other countries, as shown below:

●

Spain

The Group’s activity in Spain is mainly through Banco Bilbao Vizcaya Argentaria, S.A., which is the parent company of the BBVA Group. The Group also has other entities that operate in Spain’s banking sector, insurance sector, real estate sector, services and as operational leasing entities.

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●

Mexico

The BBVA Group operates in Mexico, not only in the banking sector, but also in the insurance sector through Grupo Financiero Bancomer.

●

South America

The BBVA Group’s activities in South America are mainly focused on the banking and insurance sectors, in the following countries: Argentina, Chile, Colombia, Peru, Paraguay, Uruguay and Venezuela. It has a representative office in Sao Paulo (Brazil).

The Group owns more than 50% of most of the entities based in these countries. Appendix I shows a list of the entities which, although less than 50% owned by the BBVA Group as of December 31, 2016, are consolidated (see Note 2.1).

●

The United States

The Group’s activity in the United States is mainly carried out through a group of entities with BBVA Compass Bancshares, Inc. at their head, the New York BBVA branch and a representative office in Silicon Valley (California).

●

Turkey

The Group’s activity in Turkey is mainly carried out through the Garanti Group.

●

Rest of Europe

The Group’s activity in Europe is carried out through banks and financial institutions in Ireland, Switzerland, Italy, Netherlands, Romania and Portugal, branches in Germany, Belgium, France, Italy and the United Kingdom, and a representative office in Moscow.

●

Asia-Pacific

The Group’s activity in this region is carried out through branches (in Taipei, Seoul, Tokyo, Hong Kong Singapore and Shanghai) and representative offices (in Beijing, Mumbai, Abu Dhabi and Jakarta).

Significant transaction in the Group in the first semester of 2017

Investments

On February 21, 2017, BBVA Group entered into an agreement for the acquisition from Dogus Holding A.S. and Dogus Arastirma Gelistirme ve Musavirlik Hizmetleri A.S of 41,790,000,000 shares of Turkiye Garanti Bankasi, A.S. (“Garanti Bank”), amounting to 9.95% of the total issued share capital of Garanti Bank. On March 22, 2017, the sale and purchase agreement was completed, and therefore BBVA´s total stake in Garanti Bank now amounts to 49.85%.

Significant transaction in the Group in 2016

Mergers

The BBVA Group, at its Board of Directors meeting held on March 31, 2016, adopted a resolution to begin a merger process of BBVA S.A. (absorbing company), Catalunya Banc, S.A., Banco Depositario BBVA, S.A. y Unoe Bank, S.A.

This transaction was part of the corporate reorganization of its banking subsidiaries in Spain and was successfully completed throughout 2016 and has no impact in the Consolidated Financial Statements both from the accounting and the solvency stand points.

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4.	Shareholder remuneration system

In accordance with BBVA’s shareholder remuneration policy communicated in October 2013, which established the distribution of an annual pay-out of between 35% and 40% of the profits obtained in each financial year and the progressive reduction of the remuneration via “Dividend Options”, so that the shareholders’ remuneration would ultimately be fully in cash, on February 1, 2017 BBVA announced that it was expected to be proposed for the consideration of the competent governing bodies the approval of a capital increase to be charged to voluntary reserves for the instrumentation of one “Dividend Option” in 2017, being the subsequent shareholders’ remunerations that could be approved fully in cash.

This fully in cash shareholders’ remuneration policy would be composed, for each financial year, of an interim distribution on account of the dividend of such financial year (which is expected to be paid in October) and a final dividend (which would be paid once the financial year has ended and the profit allocation has been approved, which is expected for April), subject to the applicable authorizations by the competent governing bodies.

Shareholder remuneration scheme

During 2012, 2013, 2014, 2015, 2016 and 2017 a shareholder remuneration system called the “Dividend Option” was implemented.

Under such remuneration scheme, BBVA offered its shareholders the possibility to receive all or part of their remuneration in the form of BBVA newly-issued ordinary shares; whilst maintaining the possibility for BBVA shareholders to receive their entire remuneration in cash by selling the free allocation rights assigned to each holder in each capital increase either to BBVA (in execution of the commitment assumed by BBVA to acquire the free allocation rights attributed to the shareholders at a guaranteed fixed price) or by selling their free allocation rights on the market at the prevailing market price at that time. However, the execution of the commitment assumed by BBVA was only available to whoever had been originally assigned such rights of free allocation and only in connection with the rights of free allocation initially allocated at such time.

On March 29, 2017, the Board of Directors of BBVA resolved to execute the capital increase to be charged to voluntary reserves approved by the AGM held on March 17, 2017, under agenda item three, to implement a “Dividend Option” this year. As a result of this increase, the Bank’s share capital increased by €49,622,955.62 by the issuance of 101,271,338 newly-issued ordinary shares of BBVA at 0.49 euros par value. 83.28% of the right owners opted to receive newly-issued BBVA ordinary shares. The other 16.72% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 1,097,962,903 rights (at a gross price of €0.131 each) for a total amount of €143,833,140.29. This amount is registered in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of June, 30, 2017 (see Note 26).

On September 28, 2016, the Board of Directors of BBVA approved the execution of the second of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016. As a result of this increase, the Bank’s share capital increased by €42,266,085.33 through the issuance of 86,257,317 BBVA newly-issued ordinary shares at a €0.49 par value each. 87.85% of the right owners have opted to receive newly-issued BBVA ordinary shares. The other 12.15% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 787,374,942 rights for a total amount of €62,989,995.36. The price at which BBVA has acquired such rights of free allocation (in execution of said commitment) was €0.08 per right, registered in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December, 31, 2016 (see Note 26).

On March 31, 2016, the Board of Directors of BBVA approved the execution of the first of the share capital increases to be charged to voluntary reserves, as agreed by the AGM held on March 11, 2016. As a result of this increase, the Bank’s share capital increased by €55,702,125.43 through the issuance of 113,677,807 BBVA newly-issued ordinary shares at a €0.49 par value each. 82.13% of the right owners have opted to receive newly-issued BBVA ordinary shares. The other 17.87% of the right owners opted to sell the rights of free allocation assigned to them to BBVA, and as a result, BBVA acquired 1,137,500,965 rights for a total amount of €146,737,624.49. The price at which BBVA has acquired such rights of free allocation (in execution of said commitment) was €0.129 per right, registered in “Total Equity-Dividends and Remuneration” of the consolidated balance sheet as of December 31, 2016 (see Note 26).

Dividends

The Board of Directors, at its meeting held on June 22, 2016, approved the payment in cash of €0.08 (€0.0648 withholding tax) per BBVA share, as the first gross interim dividend against 2016 results. The dividend was paid on July 12, 2016.

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The Board of Directors, at its meeting held on December 21, 2016, approved the payment in cash of €0.08 (€0.0648 withholding tax) per BBVA share, as the second gross interim dividend against 2016 results. The dividend was paid on January 12, 2017. The total amount of the second dividend of 2016, after deducting the treasury shares held by the Group’s companies, amounted to €525 million and was recognized under the heading “Stockholders’ funds – Interim dividends” charged in the “Financial liabilities at amortized cost – Other financial liabilities (see Note 22.4) of the consolidated balance sheet as of December 31, 2016.

5.	Earnings per share

Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For more information see Glossary of terms.

The Bank issued additional share capital in 2017 and 2016 (see “Dividend Option” Program in 2016 in Note 26). In accordance with IAS 33, when events, other than the conversion of potential shares, have changed the number of shares outstanding without a corresponding change in resources, the weighted average number of shares outstanding during the period and for all the periods presented shall be adjusted. The prior year weighted average number of shares is adjusted by applying a corrective factor.

The calculation of earnings per share is as follows:



Basic and Diluted Earnings per Share	June 2017		June *2016 ()**
Numerator for basic and diluted earnings per share (millions of euros)
Profit attributable to parent company		2,306		1,832

Adjustment: Additional Tier 1 securities ⁽¹⁾		(147)		(114)
Profit adjusted (millions of euros) (A)		2,159		1,718
Profit from discontinued operations (net of non-controlling interest) (B)		-		-
Denominator for basic earnings per share (number of shares outstanding)

Weighted average number of shares outstanding ⁽²⁾		6,626		6,410

Weighted average number of shares outstanding x corrective factor ⁽³⁾		6,626		6,626
Adjustment: Average number of estimated shares to be converted (3)
Adjusted number of shares - Basic earning per share (C)		6,626		6,626
Adjusted number of shares - diluted earning per share (D)		6,626		6,626
Earnings per share		0.33		0.26
Basic earnings per share from continued operations (Euros per share)A-B/C		0.33		0.26
Diluted earnings per share from continued operations (Euros per share)A-B/D		0.33		0.26
Basic earnings per share from discontinued operations (Euros per share)B/C		-		-
Diluted earnings per share from discontinued operations (Euros per share)B/D		-		-

(1)

Remuneration in the period related to contingent convertible securities, recognized in equity (see Note 22.3).

(2)

Weighted average number of shares outstanding (millions of euros), excluded weighted average of treasury shares during the period.

(3)

Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years.

(*)

Data recalculated due to the mentioned corrective factor (see Notes 26 and 29).

As of June 30, 2017 and 2016, there were no other financial instruments or share options awarded to employees that could potentially affect the calculation of the diluted earnings per share for the years presented. For this reason, basic and diluted earnings per share are the same for both dates.

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6.	Operating segment reporting

The information about operating segments is presented in accordance with IFRS 8. Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group and, ultimately, into the reportable operating segments themselves.

During the first half of 2017, there have not been significant changes in the reporting structure of the operating segments of the BBVA Group compared to the structure existing at the end of 2016. The structure of the operating segment is as follows:

●

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.

●

Non Core Real Estate

Covers specialist management in Spain of loans to developers in difficulties and real-estate assets mainly coming from foreclosed assets, originated from both, residential mortgages, as well as loans to developers. New loan production to developers or loans to those that are not in difficulties are managed by Banking activity in Spain.

●

The United States

Includes the Group´s business activity in the country through the BBVA Compass group and the BBVA New York branch.

●

Mexico

Includes all the banking and insurance businesses in the country.

●

Turkey

Includes the activity of the Garanti Group.

●

South America

Includes BBVA´s banking and insurance businesses in the region.

●

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.

Lastly, the Corporate Center is comprised of the rest of the assets and liabilities that have not been allocated to the operating segments. 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.

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The breakdown of the BBVA Group’s total assets by operating segments as of June 30, 2017 and December 31, 2016, is as follows:


	Millions of Euros
Total Assets by Operating Segments	June 2017		December *2016 ()**
Banking Activity in Spain		316,003	335,847
Non Core Real Estate		12,491	13,713
United States		80,015	88,902
Mexico		99,233	93,318
Turkey		83,895	84,866
South America		73,323	77,918
Rest of Eurasia		18,807	19,106
Subtotal Assets by Operating Segments		683,768	713,670
Corporate Center		18,662	18,186
Total Assets BBVA Group		702,429	731,856

(*) The figures corresponding to 2016 have been restated in order to allow homogenous comparisons due to changes in the scope of operating segments.

The attributable profit and main earning figures in the interim consolidated income statements for the six months period ended June 30, 2017 and 2016 by operating segments are as follows:


	Millions of Euros
	Operating Segments
Main Margins and Profits by Operating Segments ⁽¹⁾	BBVA Group	Banking Activity in Spain	Non Core Real Estate		United States		Mexico		Turkey		South America		Rest of Eurasia		Corporate Center
June 2017
Net interest income	8,803	1,865		31		1,098		2,676		1,611		1,617		95		(190)
Gross income	12,718	3,201		(6)		1,468		3,507		1,998		2,252		256		42

Net operating income ⁽²⁾	6,407	1,492		(64)		523		2,309		1,230		1,211		102		(397)
Operating profit /(loss) before tax	4,033	943		(241)		405		1,469		1,010		790		104		(447)
Profit	2,306	670		(191)		297		1,080		374		404		73		(401)
June 2016
Net interest income	8,365	1,941		42		938		2,556		1,606		1,441		86		(245)
Gross income	12,233	3,282		11		1,330		3,309		2,154		1,999		278		(130)

Net operating income ⁽²⁾	5,901	1,493		(56)		425		2,112		1,321		1,078		110		(582)
Operating profit /(loss) before tax	3,391	898		(287)		240		1,300		1,022		804		103		(688)
Profit	1,832	621		(207)		178		968		324		394		75		(520)

⁽¹⁾

The figures corresponding to June 2016 have been restated (see Note 1.3).

⁽²⁾

Gross Income less Administrative Cost and Amortization.

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7.	Risk management


7.1	General risk management and control model	F-48

7.1.1	Governance and organization	F-48

7.1.2	Risk appetite framework	F-51

7.1.3	Decisions and processes	F-53

7.1.4	Assessment, monitoring and reporting	F-54

7.1.5	Infrastructure	F-55

7.1.6	Risk culture	F-55

7.2	Risk factors	F-56

7.3	Credit risk	F-57

7.3.1	Credit risk exposure	F-58

7.3.2	Mitigation of credit risk, collateralized credit risk and other credit enhancements	F-61

7.3.3	Credit quality of financial assets that are neither past due nor impaired	F-62

7.3.4	Past due but not impaired and impaired secured loans risks	F-64

7.3.5	Impairment losses	F-68

7.3.6	Refinancing and restructuring operations	F-71

7.4	Market risk	F-72

7.4.1	Market risk portfolios	F-72

7.4.2	Structural risk	F-77

7.4.3	Financial Instruments compensation	F-79

7.5	Liquidity risk	F-80

7.5.1	Liquidity risk management	F-80

7.5.2	Asset encumbrance	F-84

7.6	Operational Risk	F-85

7.7	Risk concentration	F-87

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7.1	General risk management and control model

The BBVA Group has an overall risk management and control model (hereinafter ‘the model’) tailored to their individual business, their organization and the geographies in which they operate, allowing them to develop their activity in accordance with their strategy and policy control and risk management defined by the governing bodies of the Bank and adapt to a changing economic and regulatory environment, tackling risk management globally and adapted to the circumstances of each instance. The model establishes a system of appropriate risk management regarding risk profile and strategy of the Group.

This model is applied comprehensively in the Group and consists of the basic elements listed below:

●

Governance and organization.

●

Risk appetite framework.

●

Decisions and processes.

●

Assessment, monitoring and reporting.

●

Infrastructure.

The Group encourages the development of a risk culture to ensure consistent application of the control and risk management model in the Group, and to ensure that the risk function is understood and assimilated at all levels of the organization.

7.1.1 Governance

and organization

The governance model for risk management at BBVA is characterized by a special involvement of its corporate bodies, both in setting the risk strategy and in the ongoing monitoring and supervision of its implementation.

Thus, as developed below, the corporate bodies are the ones that approve this risk strategy and corporate policies for the different types of risk, being the risk function responsible for the management, its implementation and development, reporting to the governing bodies.

The responsibility for the daily management of the risks lies on the businesses which abide in the development of their activity to the policies, standards, procedures, infrastructure and controls, based on the framework set by the governing bodies, which are defined by the function risk.

To perform this task properly, the risk function in the BBVA Group is configured as a single, comprehensive and independent role of commercial areas.

Corporate governance system

BBVA Group has developed a corporate governance system that is in line with the best international practices and adapted to the requirements of the regulators in the countries in which its various business units operate.

The Board of Directors (hereinafter also referred to as “the Board”) approves the risk strategy and oversees the internal management and control systems. Specifically, in relation to the risk strategy, the Board approves the Group’s risk appetite statement, the core metrics (and their statements) and the main metrics by type of risk (and their statements), as well as the general risk management and control model.

The Board of Directors is also responsible for approving and monitoring the strategic and business plan, the annual budgets and management goals, as well as the investment and funding policy, in a consistent way and in line with the approved Risk Appetite Framework. For this reason, the processes for defining the Risk Appetite Framework proposals and strategic and budgetary planning at Group level are coordinated by the executive area for submission to the Board.

With the aim of ensuring the integration of the Risk Appetite Framework into management, on the basis established by the Board of Directors, the Executive Committee approves the metrics by type of risk in relation to concentration, profitability and reputational risk and the Group’s basic structure of limits at geographical area, risk type, asset type and portfolio level. This Committee also approves specific corporate policies for each type of risk.

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Lastly, the Board has set up a Board committee focus on risks, the Risk Committee, that assists the Board and the Executive Committee in determining the Group’s risk strategy and the risk limits and policies, respectively, analyzing and assessing beforehand the proposals submitted to those bodies. The amendment of the Group’s risk strategy and of its elements is the exclusive power of the BBVA Board of Directors, while the Executive Committee is responsible for amending the metrics by type of risk within its scope of decision and the Group’s basic structure of limits, when applicable. In both cases, the amendments follow the same decision-making process described above, so the proposals for amendment are submitted by the Chief Risk Officer (“CRO”) and later analyzed, first by the Risks Committee, for later submission to the Board of Directors or to the Executive Committee, as appropriate.

Moreover, the Risks Committee, the Executive Committee and the Board itself conduct proper monitoring of the risk strategy implementation and of the Group’s risk profile. The risks function regularly reports on the development of the Group’s Risk Appetite Framework metrics to the Board and to the Executive Committee, after their analysis by the Risks Committee, whose role in this monitoring and control work is particularly relevant.

The head of the risk function in the executive hierarchy is the Group’s CRO, who carries out its functions with the independence, authority, rank, experience, knowledge and resources to do so. He is appointed by the Board of the Bank as a member of its Senior Management, and has direct access to its corporate bodies (Board, Executive Standing Committee and Risk Committee), who reports regularly on the status of risks to the Group.

The CRO, for the utmost performance of its functions, is supported by a cross composed set of units in corporate risk and the specific risk units in the geographical and / or business areas of the Group structure. Each of these units is headed by a Risk Officer for the geographical and/or business area who, within his/her field of competence, carries out risk management and control functions and is responsible for applying the corporate policies and rules approved at Group level in a consistent manner, adapting them if necessary to local requirements and reporting to the local corporate bodies.

The Risk Officers of the geographical and/or business areas report both to the Group’s CRO and to the head of their geographical and/or business area. This dual reporting system aims to ensure that the local risk management function is independent from the operating functions and that it is aligned with the Group’s corporate risk policies and goals.

Organizational structure and committees

The risk management function, as defined above, consists of risk units from the corporate area, which carry out cross-cutting functions, and risk units from the geographical and/or business areas.

●

The corporate area’s risk units develop and present the Group’s risk appetite proposal, corporate policies, rules and global procedures and infrastructures to the CRO, within the action framework approved by the corporate bodies, ensure their application, and report either directly or through the CRO to the Bank’s corporate bodies. Their functions include:

–

Management of the different types of risks at Group level in accordance with the strategy defined by the corporate bodies.

–

Risk planning aligned with the risk appetite framework principles defined by the Group.

–

Monitoring and control of the Group’s risk profile in relation to the risk appetite framework approved by the Bank’s corporate bodies, providing accurate and reliable information with the required frequency and in the necessary format.

–

Prospective analyses to enable an evaluation of compliance with the risk appetite framework in stress scenarios and the analysis of risk mitigation mechanisms.

–

Management of the technological and methodological developments required for implementing the Model in the Group.

–

Design of the Group’s Internal Control model and definition of the methodology, corporate criteria and procedures for identifying and prioritizing the risk inherent in each unit’s activities and processes.

–

Validation of the models used and the results obtained by them in order to verify their adaptation to the different uses to which they are applied.

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●

The risk units in the business units develop and present to the Risk Officer of the geographical and/or business area the risk appetite framework proposal applicable in each geographical and/or business area, independently and always within the Group’s strategy/risk appetite framework. They also ensure that the corporate policies and rules approved consistently at a Group level are applied, adapting them if necessary to local requirements; they are provided with appropriate infrastructures for management and control of their risks, within the global risk infrastructure framework defined by the corporate areas; and they report to their corporate bodies and/or to senior management, as appropriate.

The local risk units thus work with the corporate area risk units in order to adapt to the risk strategy at Group level and share all the information necessary for monitoring the development of their risks.

The risk function has a decision-making process to perform its functions, underpinned by a structure of committees, where the Global Risk Management Committee (GRMC) acts as the highest committee within Risk. It proposes, examines and, where applicable, approves, among others, the internal risk regulatory framework and the procedures and infrastructures needed to identify, assess, measure and manage the material risks faced by the Group in its businesses, and the determination of risk limits by portfolio. The members of this Committee are the Group’s CRO and the heads of the risk units of the corporate area and of the most representative geographical and/or business areas.

The GRMC carries out its functions assisted by various support committees which include:

●

Global Credit Risk Management Committee: It is responsible for analyzing and decision-making related to wholesale credit risk admission.

●

Wholesale Credit Risk Management Committee: its purpose is the analysis and decision-making regarding the admission of wholesale credit risk of certain customer segments of the BBVA Group.

●

Work Out Committee: its purpose is to be informed about decisions taken under the delegation framework regarding risk proposals concerning clients on Watch List levels 1 and 2 and clients classified as NPL of certain customer segments of the BBVA Group, as well the sanction of proposals regarding entries, exits and changes of the Special Monitoring list.

●

Monitoring, Assessment & Reporting Committee: It guarantees and ensures the appropriate development of aspects related to risk identification, assessment, monitoring and reporting, with an integrated and cross-cutting vision.

●

Asset Allocation Committee: The executive authority responsible for analyzing and deciding on credit risk issues related to processes aimed at achieving a portfolios combination and composition that, under the restrictions imposed by the Risk Appetite framework, allows to maximize the risk adjusted profit subject to an appropriate risk-adjusted return on equity.

●

Technology & Analytics Committee: It ensures an appropriate decision-making process regarding the development, implementation and use of the tools and models required to achieve an appropriate management of those risks to which the BBVA Group is exposed.

●

Corporate Technological Risks and Operational Control Committee: It approves the Technological Risks and Operational Control Management Frameworks in accordance with the General Risk Management Model’s architecture and monitors metrics, risk profiles and operational loss events.

●

Global Markets Risk Unit Global Committee: It is responsible for formalizing, supervising and communicating the monitoring of trading desk risk in all the Global Markets business units, as well as coordinating and approving GMRU key decisions activity, and developing and proposing to GRMC the corporate regulation of the unit.

●

Corporate Operational and Outsourcing Risk Admission Committee: It identifies and assesses the operational risks of new businesses, new products and services, and outsourcing initiatives.

●

Retail Risk Committee: It ensures the alignment of the practices and processes of the retail credit risk cycle with the approved risk tolerance and with the business growth and development objectives established in the corporate strategy of the Group.

●

AM Global Risk Steering Committee: its purpose is to develop and coordinate the strategies, policies, procedures, and infrastructure necessary to identify, assess, measure and manage the material risks facing the bank in the operation of businesses linked to BBVA Asset Management.

F-50

●

Global Insurance Risk Committee: its purpose is to guarantee the alignment and the communication between all the Insurance Risk Units in the BBVA Group. It will do this by promoting the application of standardized principles, policies, tools and risk metrics in the different regions with the aim of maintaining proper integration of insurance risk management in the Group.

●

COPOR: its purpose is to analyze and make decision in relation to the operations of the various geographies in which Global Markets is present.

Each geographical and/or business area has its own risk management committee (or committees), with objectives and contents similar to those of the corporate area, which perform their duties consistently and in line with corporate risk policies and rules.

Under this organizational scheme, the risk management function ensures the risk strategy, the regulatory framework, and standardized risk infrastructures and controls are integrated and applied across the entire Group. It also benefits from the knowledge and proximity to customers in each geographical and/or business area, and transmits the corporate risk culture to the Group’s different levels. Moreover, this organization enables the risks function to conduct and report to the corporate bodies integrated monitoring and control of the entire Group’s risks.

Internal Risk Control and Internal Validation

The Group has a specific Internal Risk Control unit. Its main function is to ensure there is an adequate internal regulatory framework, a process and measures defined for each type of risk identified in the Group (and for those other types of risk that may potentially affect the Group). It controls their application and operation, as well as ensuring the integration of the risk strategy into the Group’s management. In this regard, the Internal Risk Control unit verifies the performance of their duties by the units that develop the risk models, manage the processes and execute the controls. Its scope of action is global, from the geographical point of view and the type of risks.

The Group’s Head of Internal Risk Control is responsible for the function and reports on its activities and informs of its work plans to the CRO and to the Board’s Risks Committee, assisting it in any matters where requested. For these purposes the Internal Risks Control department has a Technical Secretary’s Office, which offers the Committee the technical support it needs to better perform its duties.

In addition, the Group has an Internal Validation unit, which reviews the performance of its duties by the units that develop the risk models and of those that use them in management. Its functions include review and independent validation at internal level of the models used for management and control of risks in the Group.

7.1.2

Risk appetite framework

The Group’s risk appetite framework, approved by the Board, determines the risks (and their level) that the Group is willing to assume to achieve its business objectives considering an organic evolution of its business. These are expressed in terms of solvency, liquidity and funding profitability, recurrent earnings, cost of risk or other metrics, which are reviewed periodically as well as in case of material changes to the entity’s business or relevant corporate transactions. The definition of the risk appetite has the following goals:

●

To express the maximum levels of risk it is willing to assume, at both Group and geographical and/or business area level.

●

To establish a set of guidelines for action and a management framework for the medium and long term that prevent actions from being taken (at both Group and geographical and/or business area level) that could compromise the future viability of the Group.

●

To establish a framework for relations with the geographical and/or business areas that, while preserving their decision-making autonomy, ensures they act consistently, avoiding uneven behavior.

●

To establish a common language throughout the organization and develop a compliance-oriented risk culture.

●

Alignment with the new regulatory requirements, facilitating communication with regulators, investors and other stakeholders, thanks to an integrated and stable risk management framework.

F-51

Risk appetite framework is expressed through the following elements:

Risk appetite statement

Sets out the general principles of the Group’s risk strategy and the target risk profile. The Group’s Risk appetite statement is:

BBVA Group’s risk policy is designed to achieve a moderate risk profile for the entity, through: prudent management and a responsible universal banking business model targeted to value creation, risk-adjusted return and recurrence of results; diversified by geography, asset class, portfolio and clients; and with presence in emerging and developed countries, maintaining a medium/low risk profile in every country, and focusing on a long term relationship with the client.

Core metrics and statements

Based on the risk appetite statement, statements are established to set down the general risk management principles in terms of solvency, profitability, liquidity and funding.

●

Solvency: a sound capital position, maintaining resilient capital buffer from regulatory and internal requirements that supports the regular development of banking activity even under stress situations. As a result, BBVA proactively manages its capital position, which is tested under different stress scenarios from a regular basis.

●

Liquidity and funding: A sound balance-sheet structure to sustain the business model. Maintenance of an adequate volume of stable resources, a diversified wholesale funding structure, which limits the weight of short term funding and ensures the access to the different funding markets, optimizing the costs and preserving a cushion of liquid assets to overcome a liquidity survival period under stress scenarios.

●

Income recurrence and profitability: A sound margin-generation capacity supported by a recurrent business model based on the diversification of assets, a stable funding and a customer focus; combined with a moderate risk profile that limits the credit losses even under stress situations; all focused on allowing income stability and maximizing the risk-adjusted profitability.

In addition, the core metrics define, in quantitative terms, the principles and the target risk profile set out in the risk appetite statement and are in line with the strategy of the Group. Each metric has three thresholds (traffic-light approach) ranging from a standard business management to higher deterioration levels: Management reference, Maximum appetite and Maximum capacity. The Group’s Core metrics are:


		Metric
Solvency		Economic Solvency
Solvency		Regulatory Solvency: CET1 Fully Loaded
Liquidity and Funding		Loan to Stable Costumer Deposits (LTSCD)
Liquidity and Funding		Liquidity Coverage Ratio (LCR)
Income recurrence and profitability		Net margin / Average Total Assets
		Cost of Risk
		Return on Equity (ROE)

By type of risk metrics and statements

Based on the core metrics, statements are established for each type of risk reflecting the main principles governing the management of that risk and several metrics are calibrated, compliance with which enables compliance with the core metrics and the statement of the Group. By type of risk metrics define the strategic positioning per type of risk and have a maximum appetite level.

Basic limits structure (core limits)

The purpose of the basic limits structure or core limits is to manage risks on an ongoing basis within the thresholds tolerated by core and “by type of risk” metrics; so they are a breakdown by geography and portfolio of the same metrics or complementary metrics.

F-52

In addition to this framework, there’s a Management limits level that is defined and managed by the Risk Area developing the core limits, in order to ensure that the early management of risks by subcategories or by subportfolios complies with that core limits and, in general, with the risk appetite framework.

The following graphic summarizes the structure of BBVA’s Risk appetite framework:

LOGO

The corporate risk area works with the various geographical and/or business areas to define their risk appetite framework, which will be coordinated with and integrated into the Group’s risk appetite to ensure that its profile fits as defined.

The risk appetite framework defined by the Group expresses the levels and types of risk that the Bank is willing to assume to be able to implement its strategic plan with no relevant deviations, even in situations of stress. The risk appetite framework is integrated in the management and determines the basic lines of activity of the Group, because it sets the framework within the budget is developed.

During the first six months of 2017 and the year 2016, the Risk Appetite metrics evolved in line with the set profile.

7.1.3 Decisions and processes

The transfer of risk appetite framework to ordinary management is supported by three basic aspects:

●

A standardized set of regulations

●

Risk planning

●

Comprehensive management of risks over their life cycle

Standardized regulatory framework

The corporate GRM area is responsible for proposing the definition and development of the corporate policies, specific rules, procedures and schemes of delegation based on which risk decisions should be taken within the Group.

This process aims for the following objectives:

●

Hierarchy and structure: well-structured information through a clear and simple hierarchy creating relations between documents that depend on each other.

●

Simplicity: an appropriate and sufficient number of documents.

●

Standardization: a standardized name and content of document.

●

Accessibility: ability to search for, and easy access to, documentation through the corporate risk management library.

The approval of corporate policies for all types of risks corresponds to the corporate bodies of the Bank, while the corporate risk area endorses the remaining regulations.

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Risk units of geographical and / or business areas continue to adapt to local requirements the regulatory framework for the purpose of having a decision process that is appropriate at local level and aligned with the Group policies. If such adaptation is necessary, the local risk area must inform the corporate GRM area, which must ensure the consistency of the set of regulations at the level of the entire Group, and thus must give its approval prior to any modifications proposed by the local risk areas.

Risk planning

Risk planning ensures that the risk appetite framework is integrated into management through a cascade process for establishing limits and profitability adjusted to the risk profile, in which the function of the corporate area risk units and the geographical and/or business areas is to guarantee the alignment of this process against the Group’s risk appetite framework in terms of solvency, profitability, liquidity and funding.

It has tools in place that allow the risk appetite framework defined at aggregate level to be assigned and monitored by business areas, legal entities, types of risk, concentrations and any other level considered necessary.

The risk planning process is present within the rest of the Group’s planning framework so as to ensure consistency among all of them.

Daily risk management

All risks must be managed comprehensively during their life cycle, and be treated differently depending on the type.

The risk management cycle is composed of 5 elements:

●

Planning: with the aim of ensuring that the Group’s activities are consistent with the target risk profile and guaranteeing solvency in the development of the strategy.

●

Assessment: a process focused on identifying all the risks inherent to the activities carried out by the Group.

●

Formalization: includes the risk origination, approval and formalization stages.

●

Monitoring and reporting: continuous and structured monitoring of risks and preparation of reports for internal and/or external (market, investors, etc.) consumption.

●

Active portfolio management: focused on identifying business opportunities in existing portfolios and new markets, businesses and products.

7.1.4 Assessment, monitoring and reporting

Assessment, monitoring and reporting is a cross-cutting element that should ensure that the Model has a dynamic and proactive vision to enable compliance with the risk appetite framework approved by the corporate bodies, even in adverse scenarios. The materialization of this process has the following objectives:

●

Assess compliance with the risk appetite framework at the present time, through monitoring of the core metrics, metrics by type of risk and the basic structure of limits.

●

Assess compliance with the risk appetite framework in the future, through the projection of the risk appetite framework variables, in both a baseline scenario determined by the budget and a risk scenario determined by the stress tests.

●

Identify and assess the risk factors and scenarios that could compromise compliance with the risk appetite framework, through the development of a risk repository and an analysis of the impact of those risks.

●

Act to mitigate the impact in the Group of the identified risk factors and scenarios, ensuring this impact remains within the target risk profile.

●

Supervise the key variables that are not a direct part of the risk appetite framework, but that condition its compliance. These can be either external or internal.

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This process is integrated in the activity of the risk units, both of the corporate area and in the business units, and it is carried out during the following phases:

●

Identification of risk factors, aimed at generating a map with the most relevant risk factors that can compromise the Group’s performance in relation to the thresholds defined in the risk appetite framework.

●

Impact evaluation. This involves evaluating the impact that the materialization of one (or more) of the risk factors identified in the previous phase could have on the risk appetite framework metrics, through the occurrence of a given scenario.

●

Response to undesired situations and realignment measures. Exceeding the parameters will trigger an analysis of the realignment measures to enable dynamic management of the situation, even before it occurs.

●

Monitoring. The aim is to avoid losses before they occur by monitoring the Group’s current risk profile and the identified risk factors.

●

Reporting. This aims to provide information on the assumed risk profile by offering accurate, complete and reliable data to the corporate bodies and to senior management, with the frequency and completeness appropriate to the nature, significance and complexity of the risks.

7.1.5 Infrastructure

The infrastructure is an element that must ensure that the Group has the human and technological resources needed for effective management and supervision of risks in order to carry out the functions set out in the Group’s risk Model and the achievement of their objectives.

With respect to human resources, the Group’s risk function has an adequate workforce, in terms of number, skills, knowledge and experience.

With regards to technology, the Group ensures the integrity of management information systems and the provision of the infrastructure needed for supporting risk management, including tools appropriate to the needs arising from the different types of risks for their admission, management, assessment and monitoring.

The principles that govern the Group risk technology are:

●

Standardization: the criteria are consistent across the Group, thus ensuring that risk handling is standardized at geographical and/or business area level.

●

Integration in management: the tools incorporate the corporate risk policies and are applied in the Group’s day-to-day management.

●

Automation of the main processes making up the risk management cycle.

●

Appropriateness: provision of adequate information at the right time.

Through the “Risk Analytics” function, the Group has a corporate framework in place for developing the measurement techniques and models. It covers all the types of risks and the different purposes and uses a standard language for all the activities and geographical/business areas and decentralized execution to make the most of the Group’s global reach. The aim is to continually evolve the existing risk models and generate others that cover the new areas of the businesses that develop them, so as to reinforce the anticipation and proactiveness that characterize the Group’s risk function.

Also the risk units of geographical and / or business areas have sufficient means from the point of view of resources, structures and tools to develop a risk management in line with the corporate model.

7.1.6 Risk culture

BBVA considers risk culture to be an essential element for consolidating and integrating the other components of the Model. The culture transfers the implications that are involved in the Group’s activities and businesses to all the levels of the organization. The risk culture is organized through a number of levers, including the following:

●

Communication: promotes the dissemination of the Model, and in particular the principles that must govern risk management in the Group, in a consistent and integrated manner across the organization, through the most appropriate channels. GRM has a number of communication channels to facilitate the transmission of information and knowledge among the various teams in the function and the Group, adapting the frequency, formats and recipients based on the proposed goal, in order to strengthen the basic principles of the risk function.

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The risk culture and the management model thus emanate from the Group’s corporate bodies and senior management and are transmitted throughout the organization.

●

Training: its main aim is to disseminate and establish the model of risk management across the organization, ensuring standards in the skills and knowledge of the different persons involved in the risk management processes.

Well defined and implemented training ensures continuous improvement of the skills and knowledge of the Group’s professionals, and in particular of the GRM area, and is based on four aspects that aim to develop each of the needs of the GRM group by increasing its knowledge and skills in different fields such as: finance and risks, tools and technology, management and skills, and languages.

●

Motivation: the aim in this area is for the incentives of the risk function teams to support the strategy for managing those teams and the function’s values and culture at all levels. Includes compensation and all those elements related to motivation – working environment, etc. which contribute to the achievement Model objectives.

7.2 Risk factors

As mentioned earlier, BBVA has processes in place for identifying risks and analyzing scenarios that enable the Group to manage risks in a dynamic and proactive way.

The risk identification processes are forward looking to ensure the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management.

Risks are captured and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected.

As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile.

To this extent, there are a number of emerging risks that could affect the Group’s business trends. These risks are described in the following main blocks:

●

Macroeconomic and geopolitical risks

According to the latest information available, global growth has continued to give signs of improvement in the first half of 2017, although the most recent figures also suggest some stabilization looking forward. The general improvement in confidence and global trade are underpinning the economic acceleration. In addition, central banks are continuing their support and there is relative calm in the financial markets. Performance in the developed economies continues to be positive, above all in Europe. In contrast, in Latin America recent trends suggest moderate growth, although with differences between the countries.

The main global uncertainties include the pending adjustment of the high level of corporate debt in China or the final definition of the economic policy of the government of The United States in a scenario of normalization of monetary policy.

In this regard, the Group’s geographical diversification is a key element in achieving a high level of revenue recurrence, despite the environmental conditions and economic cycles of the economies in which it operates.

●

Regulatory and reputational risks

–

Financial institutions are exposed to a complex and ever-changing regulatory environment defined by governments and regulators. This can affect their ability to grow and the capacity of certain businesses to develop, and result in stricter liquidity and capital requirements with lower profitability ratios. The Group constantly monitors changes in the regulatory framework that allow for anticipation and adaptation to them in a timely manner, adopt best practices and more efficient and rigorous criteria in its implementation.

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–

The financial sector is under ever closer scrutiny by regulators, governments and society itself. Negative news or inappropriate behavior can significantly damage the Group’s reputation and affect its ability to develop a sustainable business. The attitudes and behaviors of the group and its members are governed by the principles of integrity, honesty, long-term vision and best practices through, inter alia, internal control Model, the Code of Conduct, tax strategy and Responsible Business Strategy of the Group.

●

Business, operational and legal risks

–

New technologies and forms of customer relationships: Developments in the digital world and in information technologies pose significant challenges for financial institutions, entailing threats (new competitors, disintermediation…) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels...). Digital transformation is a priority for the Group as it aims to lead digital banking of the future as one of its objectives.

–

Technological risks and security breaches: The Group is exposed to new threats such as cyber-attacks, theft of internal and customer databases, fraud in payment systems, etc. that require major investments in security from both the technological and human point of view. The Group gives great importance to the active operational and technological risk management and control. One example was the early adoption of advanced models for management of these risks (AMA - Advanced Measurement Approach).

–

The financial sector is exposed to increasing litigation, so the financial institutions face a large number of proceedings which economic consequences are difficult to determine. The Group manages and monitors these proceedings to defend its interests, where necessary allocating the corresponding provisions to cover them, following the expert criteria of internal lawyers and external attorneys responsible for the legal handling of the procedures, in accordance with applicable legislation.

7.3 Credit risk

Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party.

It is the most important risk for the Group and includes counterparty risk, issuer risk, settlement risk and country risk management.

The principles underpinning credit risk management in BBVA are as follows:

●

Availability of basic information for the study and proposal of risk, and supporting documentation for approval, which sets out the conditions required by the internal relevant body.

●

Sufficient generation of funds and asset solvency of the customer to assume principal and interest repayments of loans owed.

●

Establishment of adequate and sufficient guarantees that allow effective recovery of the operation, this being considered a secondary and exceptional method of recovery when the first has failed.

Credit risk management in the Group has an integrated structure for all its functions, allowing decisions to be taken objectively and independently throughout the life cycle of the risk.

●

At Group level: frameworks for action and standard rules of conduct are defined for handling risk, specifically, the circuits, procedures, structure and supervision.

●

At the business area level: they are responsible for adapting the Group’s criteria to the local realities of each geographical area and for direct management of risk according to the decision-making circuit:

–

Retail risks: in general, the decisions are formalized according to the scoring tools, within the general framework for action of each business area with regard to risks. The changes in weighting and variables of these tools must be validated by the corporate GRM area.

–

Wholesale risks: in general, the decisions are formalized by each business area within its general framework for action with regard to risks, which incorporates the delegation rule and the Group’s corporate policies.

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7.3.1 Credit risk exposure

In accordance with IFRS 7 “Financial Instruments: Disclosures”, the BBVA Group’s maximum credit risk exposure (see definition below) by headings in the balance sheets as of June 30, 2017 and December 31, 2016 is provided below. It does not consider the availability of collateral or other credit enhancements to guarantee compliance with payment obligations. The details are broken down by financial instruments and counterparties.


		Millions of Euros
Maximum Credit Risk Exposure	Notes	June 2017		December 2016
Financial assets held for trading			31,380		31,995
Debt securities	10.1		27,114		27,166
Government			24,138		24,165
Credit institutions			1,575		1,652
Other sectors			1,401		1,349
Equity instruments	10.2		4,201		4,675
Loans and advances to customers			65		154
Other financial assets designated at fair value through profit or loss	11		2,230		2,062
Loans and advances to credit institutions			3		-
Debt securities			203		142
Government			145		84
Credit institutions			41		47
Other sectors			17		11
Equity instruments			2,023		1,920
Available-for-sale financial assets	12		74,762		79,553
Debt securities			70,611		74,739
Government			55,797		55,047
Credit institutions			4,407		5,011
Other sectors			10,406		14,682
Equity instruments			4,151		4,814
Loans and receivables			473,861		482,011
Loans and advances to central banks	13.1		11,142		8,894
Loans and advances to credit institutions	13.1		26,966		31,416
Loans and advances to customers	13.2		424,405		430,474
Government			34,544		34,873
Agriculture			4,501		4,312
Industry			55,245		57,072
Real estate and construction			33,240		37,002
Trade and finance			49,882		47,045
Loans to individuals			184,649		192,281
Other			62,342		57,889
Debt securities	13.3		11,348		11,226
Government			4,949		4,709
Credit institutions			50		37
Other sectors			6,348		6,481
Held-to-maturity investments	14		14,543		17,710
Government			13,263		16,049
Credit institutions			1,159		1,515
Other sectors			120		146
Derivatives (trading and hedging)	10.3 - 15		47,980		54,122
Total Financial Assets Risk			644,756		667,454
Loan commitments given			92,184		107,254
Financial guarantees given			16,363		18,267
Other Commitments given			42,790		42,592
Total Loan commitments and financial guarantees	33		151,337		168,113

Total Maximum Credit Exposure			796,093		835,567

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The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:

●

In the case of financial assets recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including impairment losses), with the sole exception of derivatives and hedging derivatives.

●

The maximum credit risk exposure on financial guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, and that is their carrying amount.

●

Our calculation of risk exposure for derivatives is based on the sum of two factors: the derivatives fair value and their potential risk (or “add-on”).

–

The first factor, fair value, reflects the difference between original commitments and fair values on the reporting date (mark-to-market). As indicated in Note 2.2.1, derivatives are accounted for as of each reporting date at fair value in accordance with IAS 39.

–

The second factor, potential risk (‘add-on’), is an estimate of the maximum increase to be expected on risk exposure over a derivative fair value (at a given statistical confidence level) as a result of future changes in the fair value over the remaining term of the derivatives.

The consideration of the potential risk (“add-on”) relates the risk exposure to the exposure level at the time of a customer’s default. The exposure level will depend on the customer’s credit quality and the type of transaction with such customer. Given the fact that default is an uncertain event which might occur any time during the life of a contract, the BBVA Group has to consider not only the credit exposure of the derivatives on the reporting date, but also the potential changes in exposure during the life of the contract. This is especially important for derivatives, whose valuation changes substantially throughout their terms, depending on the fluctuation of market prices.

The breakdown by counterparty and product of loans and advances, net of impairment losses, classified in the different headings of the assets, as of June 30, 2017 and December 31, 2016 is shown below:

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	Millions of euros
June 2017	Central banks	General governments	Credit institutions	Other financial corporations	Non-financial corporations		Households	Total
On demand and short notice	-	641	-	161		7,777	3,625	12,204
Credit card debt	-	1	-	3		1,980	14,775	16,759
Trade receivables		1,967	-	1,492		21,372	516	25,346
Finance leases	-	283	-	49		8,351	461	9,145
Reverse repurchase loans	342	428	10,509	6,221		-	-	17,500
Other term loans	10,799	28,517	6,691	7,420		132,913	164,858	351,198
Advances that are not loans	-	2,285	9,740	1,380		1,262	414	15,082
Loans and advances	11,142	34,121	26,941	16,726		173,655	184,649	447,234
of which: mortgage loans [Loans collateralized by immovable property]		1,113	142	520		42,971	125,869	170,614
of which: other collateralized loans		6,970	8,719	7,729		20,609	7,232	51,260
of which: credit for consumption							45,301	45,301
of which: lending for house purchase							123,697	123,697
of which: project finance loans						17,938		17,938

	Millions of euros
December 2016	Central banks	General governments	Credit institutions	Other financial corporations	Non-financial corporations		Households	Total
On demand and short notice	-	373	-	246		8,125	2,507	11,251
Credit card debt	-	1	-	1		1,875	14,719	16,596
Trade receivables		2,091	-	998		20,246	418	23,753
Finance leases	-	261	-	57		8,647	477	9,442
Reverse repurchase loans	81	544	15,597	6,746		-	-	22,968
Other term loans	8,814	29,140	7,694	6,878		136,105	167,892	356,524
Advances that are not loans	-	2,410	8,083	2,082		1,194	620	14,389
Loans and advances	8,894	34,820	31,373	17,009		176,192	186,633	454,921
of which: mortgage loans [Loans collateralized by immovable property]		4,722	112	690		44,406	132,398	182,328
of which: other collateralized loans		3,700	15,191	8,164		21,863	6,061	54,979
of which: credit for consumption							44,504	44,504
of which: lending for house purchase							127,606	127,606
of which: project finance loans						19,269		19,269

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7.3.2 Mitigation of credit risk, collateralized credit risk and other credit enhancements

In most cases, maximum credit risk exposure is reduced by collateral, credit enhancements and other actions which mitigate the Group’s exposure. The BBVA Group applies a credit risk hedging and mitigation policy deriving from a banking approach focused on relationship banking. The existence of guarantees could be a necessary but not sufficient instrument for accepting risks, as the assumption of risks by the Group requires prior evaluation of the debtor’s capacity for repayment, or that the debtor can generate sufficient resources to allow the amortization of the risk incurred under the agreed terms.

The policy of accepting risks is therefore organized into three different levels in the BBVA Group:

●

Analysis of the financial risk of the operation, based on the debtor’s capacity for repayment or generation of funds.

●

The constitution of guarantees that are adequate, or at any rate generally accepted, for the risk assumed, in any of the generally accepted forms: monetary, secured, personal or hedge guarantees; and finally.

●

Assessment of the repayment risk (asset liquidity) of the guarantees received.

The procedures for the management and valuation of collateral are set out in the Corporate Policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers.

The methods used to value the collateral are in line with the best market practices and imply the use of appraisal of real-estate collateral, the market price in market securities, the trading price of shares in mutual funds, etc. All the collaterals assigned must be properly drawn up and entered in the corresponding register. They must also have the approval of the Group’s legal units.

The following is a description of the main types of collateral for each financial instrument class:

●

Financial instruments held for trading: The guarantees or credit enhancements obtained directly from the issuer or counterparty are implicit in the clauses of the instrument.

●

Derivatives and hedging derivatives: In derivatives, credit risk is minimized through contractual netting agreements, where positive- and negative-value derivatives with the same counterparty are offset for their net balance. There may likewise be other kinds of guarantees, depending on counterparty solvency and the nature of the transaction.

●

Other financial assets designated at fair value through profit or loss and Available-for-sale financial assets: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

●

Loans and receivables:

–

Loans and advances to credit institutions: These usually only have the counterparty’s personal guarantee.

–

Loans and advances to customers: Most of these loans and advances are backed by personal guarantees extended by the own customer. There may also be collateral to secure loans and advances to customers (such as mortgages, cash collaterals, pledged securities and other collateral), or to obtain other credit enhancements (bonds, hedging, etc.).

–

Debt securities: The guarantees or credit enhancements obtained directly from the issuer or counterparty are inherent to the structure of the instrument.

Collateralized loans granted by the Group as of June 30, 2017 and December 31, 2016 excluding balances deemed impaired, is broken down in Note 13.2.

●

Financial guarantees, other contingent risks and drawable by third parties: These have the counterparty’s personal guarantee.

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●

7.3.3 Credit quality of financial assets that are neither past due nor impaired

The BBVA Group has tools (“scoring” and “rating”) that enable it to rank the credit quality of its operations and customers based on an assessment and its correspondence with the probability of default (“PD”) scales. To analyze the performance of PD, the Group has a series of tracking tools and historical databases that collect the pertinent internally generated information, which can basically be grouped together into scoring and rating models.

Scoring

Scoring is a decision-making model that contributes to both the arrangement and management of retail loans: consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to originate a loan, what amount should be originated and what strategies can help establish the price, because it is an algorithm that sorts transactions by their credit quality. This algorithm enables the BBVA Group to assign a score to each transaction requested by a customer, on the basis of a series of objective characteristics that have statistically been shown to discriminate between the quality and risk of this type of transactions. The advantage of scoring lies in its simplicity and homogeneity: all that is needed is a series of objective data for each customer, and this data is analyzed automatically using an algorithm.

There are three types of scoring, based on the information used and on its purpose:

●

Reactive scoring: measures the risk of a transaction requested by an individual using variables relating to the requested transaction and to the customer’s socio-economic data available at the time of the request. The new transaction is approved or rejected depending on the score.

●

Behavioral scoring: scores transactions for a given product in an outstanding risk portfolio of the entity, enabling the credit rating to be tracked and the customer’s needs to be anticipated. It uses transaction and customer variables available internally. Specifically, variables that refer to the behavior of both the product and the customer.

●

Proactive scoring: gives a score at customer level using variables related to the individual’s general behavior with the entity, and to his/her payment behavior in all the contracted products. The purpose is to track the customer’s credit quality and it is used to pre-approved new transactions.

Rating

Rating tools, as opposed to scoring tools, do not assess transactions but focus on the rating of customers instead: companies, corporations, SMEs, general governments, etc. A rating tool is an instrument that, based on a detailed financial study, helps determine a customer’s ability to meet his/her financial obligations. The final rating is usually a combination of various factors: on one hand, quantitative factors, and on the other hand, qualitative factors. It is a middle road between an individual analysis and a statistical analysis.

The main difference between ratings and scorings is that the latter are used to assess retail products, while ratings use a wholesale banking customer approach. Moreover, scorings only include objective variables, while ratings add qualitative information. And although both are based on statistical studies, adding a business view, rating tools give more weight to the business criterion compared to scoring tools.

For portfolios where the number of defaults is very low (sovereign risk, corporates, financial entities, etc.) the internal information is supplemented by “benchmarking” of the external rating agencies (Moody’s, Standard & Poor’s and Fitch). To this end, each year the PDs compiled by the rating agencies at each level of risk rating are compared, and the measurements compiled by the various agencies are mapped against those of the BBVA master rating scale.

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Once the probability of default of a transaction or customer has been calculated, a “business cycle adjustment” is carried out. This is a means of establishing a measure of risk that goes beyond the time of its calculation. The aim is to capture representative information of the behavior of portfolios over a complete economic cycle. This probability is linked to the Master Rating Scale prepared by the BBVA Group to enable uniform classification of the Group’s various asset risk portfolios.

The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of June 30, 2017:


External rating	Internal rating	Probability of default (basic points)
Standard&Poor’s List	Reduced List (22 groups)	Average		Minimum from >=		Maximum
AAA	AAA		1		-		2
AA+	AA+		2		2		3
AA	AA		3		3		4
AA-	AA-		4		4		5
A+	A+		5		5		6
A	A		8		6		9
A-	A-		10		9		11
BBB+	BBB+		14		11		17
BBB	BBB		20		17		24
BBB-	BBB-		31		24		39
BB+	BB+		51		39		67
BB	BB		88		67		116
BB-	BB-		150		116		194
B+	B+		255		194		335
B	B		441		335		581
B-	B-		785		581		1,061
CCC+	CCC+		1,191		1,061		1,336
CCC	CCC		1,500		1,336		1,684
CCC-	CCC-		1,890		1,684		2,121
CC+	CC+		2,381		2,121		2,673
CC	CC		3,000		2,673		3,367
CC-	CC-		3,780		3,367		4,243

These different levels and their probability of default were calculated by using as a reference the rating scales and default rates provided by the external agencies Standard & Poor’s and Moody’s. These calculations establish the levels of probability of default for the BBVA Group’s Master Rating Scale. Although this scale is common to the entire Group, the calibrations (mapping scores to PD sections/Master Rating Scale levels) are carried out at tool level for each country in which the Group has tools available.

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The table below outlines the distribution of exposure, including derivatives, by internal ratings, to corporates, financial entities and institutions (excluding sovereign risk), of BBVA, S.A., Bancomer, Compass and subsidiaries in Spain as of June 30, 2017 (certain information within this table is provisional. Its distribution should not be significantly affected) and December 31, 2016:


	June 2017				December 2016
Credit Risk Distribution by Internal Rating	Amount (Millions of Euros)		%		Amount (Millions of Euros)		%
AAA/AA+/AA/AA-		32,539		10.97%		35,430		11.84%
A+/A/A-		61,863		20.86%		58,702		19.62%
BBB+		41,561		14.01%		43,962		14.69%
BBB		29,775		10.04%		27,388		9.15%
BBB-		40,301		13.59%		41,713		13.94%
BB+		21,535		7.26%		32,694		10.92%
BB		18,280		6.16%		19,653		6.57%
BB-		28,941		9.76%		13,664		4.57%
B+		9,081		3.06%		10,366		3.46%
B		5,475		1.85%		4,857		1.62%
B-		2,897		0.98%		3,687		1.23%
CCC/CC		4,354		1.47%		7,149		2.39%
Total		296,602		100.00%		299,264		100.00%

7.3.4 Past due but not impaired and impaired secured loans risks

The table below provides details by counterpart and by product of past due risks but not considered to be impaired, as of June 30, 2017 and December 31, 2016, listed by their first past-due date; as well as the breakdown of the debt securities and loans and advances individually and collectively estimated, and the specific allowances for individually estimated and for collectively estimated (see Note 2.2.1):

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						Millions of Euros
June 2017	Past due but not impaired					Impaired assets *()**		Carrying amount of the impaired assets		Specific allowances for financial assets, individually estimated		Specific allowances for financial assets, collectively estimated		Collective allowances for incurred but not reported losses		Accumulated write-offs
June 2017	£ 30 days	> 30 days £ 60 days		> 60 days £ 90 days		Impaired assets *()**		Carrying amount of the impaired assets								Accumulated write-offs

Debt securities	9		-		-		207		100		(81)		(26)		(24)	(1)

Loans and advances	3,341		673		669		21,740		11,506		(2,964)		(7,270)		(5,112)	(30,113)

Central banks	-		-		-		-		-		-		-		-	-

General governments	23		2		2		225		171		(19)		(34)		(8)	(195)

Credit institutions	3		-		114		10		4		(0)		(5)		(22)	(6)

Other financial corporations	2		9		61		13		4		(5)		(5)		(53)	(5)

Non-financial corporations	1,066		207		172		12,479		5,618		(2,517)		(4,344)		(2,942)	(19,612)

Households	2,247		455		320		9,013		5,709		(422)		(2,882)		(2,087)	(10,294)
TOTAL	3,350		673		669		21,947		11,606		(3,045)		(7,296)		(5,136)	(30,114)

Loans and advances by product, by collateral and by subordination

On demand (call) and short notice (current account)	113		33		19		499		221		(53)		(226)

Credit card debt	374		69		127		655		153		(10)		(492)

Trade receivables	62		11		17		528		300		(69)		(159)

Finance leases	226		71		38		406		160		(23)		(223)

Reverse repurchase loans	-		1		115		1		-		-		(1)

Other term loans	2,563		488		293		19,633		10,668		(2,800)		(6,164)

Advances that are not loans	3		-		62		17		4		(10)		(4)

of which: mortgage loans (Loans collateralized by inmovable property)	1,176		277		290		13,756		8,613		(1,144)		(3,998)

of which: other collateralized loans	540		116		44		743		458		(116)		(169)

of which: credit for consumption	1,156		206		162		1,720		419		(118)		(1,183)

of which: lending for house purchase	852		205		112		6,148		4,793		(124)		(1,231)

of which: project finance loans	124		-		-		283		175		(58)		(50)

(*)

In the appendix X there is a breakdown of loans and advances in the heading of Loans and receivables impaired by geographical areas

F-65


						Millions of Euros
December 2016	Past due but not impaired					Impaired assets		Carrying amount of the impaired assets		Specific allowances for financial assets, individually estimated		Specific allowances for financial assets, collectively estimated		Collective allowances for incurred but not reported losses		Accumulated write-offs
December 2016	£ 30 days	> 30 days £ 60 days		> 60 days £ 90 days		Impaired assets		Carrying amount of the impaired assets								Accumulated write-offs
Debt securities	-	-		-		272		128		(120)		(24)		(46)		(1)

Loans and advances	3,384	696		735		22,925		12,133		(3,084)		(7,708)		(5,224)		(29,346)

Central banks	-	-		-		-		-		-		-		-		-

General governments	66		-		2		295		256		(19)		(20)		(13)	(13)

Credit institutions	3		-		82		10		3		-		(7)		(36)	(5)

Other financial corporations	4		7		21		34		8		(6)		(20)		(57)	(6)

Non-financial corporations	968		209		204		13,786		6,383		(2,602)		(4,801)		(2,789)	(18,020)

Households	2,343		479		426		8,801		5,483		(458)		(2,860)		(2,329)	(11,303)
TOTAL	3,384		696		735		23,197		12,261		(3,204)		(7,733)		(5,270)	(29,347)

Loans and advances by product, by collateral and by subordination

On demand (call) and short notice (current account)	79		15		29		562		249		(70)		(243)

Credit card debt	377		88		124		643		114		(11)		(518)

Trade receivables	51		15		13		424		87		(67)		(271)

Finance leases	188		107		59		516		252		(18)		(246)

Reverse repurchase loans	-		-		82		1		-		-		(1)

Other term loans	2,685		469		407		20,765		11,429		(2,909)		(6,427)

Advances that are not loans	5		-		21		14		2		(10)		(2)

of which: mortgage loans (Loans collateralized by inmovable property)	1,202		265		254		16,526		9,008		(1,256)		(4,594)

of which: other collateralized loans	593		124		47		1,129		656		(93)		(181)

of which: credit for consumption	1,186		227		269		1,622		455		(145)		(1,023)

of which: lending for house purchase	883		194		105		6,094		4,546		(140)		(1,408)

of which: project finance loans	138		-		-		253		105		(76)		(71)

F-66

The breakdown of loans and advances of loans and receivables, impaired and accumulated impairment by sectors as of June 30, 2017 and December 31, 2016 is as follows:


	Millions of Euros
June 2017	Non-performing	Accumulated impairment or Accumulated changes in fair value due to credit risk	Non-performing loans and advances as a % of the total
General governments	225	(62)	0.7%
Credit institutions	10	(28)	0.0%
Other financial corporations	13	(62)	0.1%
Non-financial corporations	12,479	(9,803)	6.8%
Agriculture, forestry and fishing	211	(174)	4.7%
Mining and quarrying	74	(69)	1.8%
Manufacturing	1,444	(1,552)	4.1%
Electricity, gas, steam and air conditioning supply	550	(318)	3.7%
Water supply	30	(11)	3.9%
Construction	4,599	(2,823)	26.6%
Wholesale and retail trade	1,767	(1,388)	5.7%
Transport and storage	417	(410)	3.9%
Accommodation and food service activities	395	(251)	4.7%
Information and communication	104	(290)	2.1%
Real estate activities	1,392	(990)	8.7%
Professional, scientific and technical activities	441	(384)	5.6%
Administrative and support service activities	157	(110)	5.3%
Public administration and defence, compulsory social security	17	(7)	4.1%
Education	57	(34)	5.4%
Human health services and social work activities	84	(79)	1.8%
Arts, entertainment and recreation	74	(49)	4.7%
Other services	667	(864)	3.9%
Households	9,013	(5,392)	4.7%
LOANS AND ADVANCES	21,740	(15,346)	4.8%


	Millions of Euros
December 2016	Non-performing	Accumulated impairment or Accumulated changes in fair value due to credit risk	Non-performing loans and advances as a % of the total
General governments	295	(52)	0.8%
Credit institutions	10	(42)	0.0%
Other financial corporations	34	(82)	0.2%
Non-financial corporations	13,786	(10,192)	7.4%
Agriculture, forestry and fishing	221	(188)	5.1%
Mining and quarrying	126	(83)	3.3%
Manufacturing	1,569	(1,201)	4.5%
Electricity, gas, steam and air conditioning supply	569	(402)	3.2%
Water supply	29	(10)	3.5%
Construction	5,358	(3,162)	26.3%
Wholesale and retail trade	1,857	(1,418)	6.2%
Transport and storage	442	(501)	4.5%
Accommodation and food service activities	499	(273)	5.9%
Information and communication	112	(110)	2.2%
Real estate activities	1,441	(1,074)	8.7%
Professional, scientific and technical activities	442	(380)	6.0%
Administrative and support service activities	182	(107)	7.3%
Public administration and defense, compulsory social security	18	(25)	3.0%
Education	58	(31)	5.4%
Human health services and social work activities	89	(88)	1.8%
Arts, entertainment and recreation	84	(51)	5.1%
Other services	691	(1,088)	4.2%
Households	8,801	(5,648)	4.6%
LOANS AND ADVANCES	22,925	(16,016)	5.0%

The changes in the six months ended June 30, 2017, and during the year 2016 of impaired financial assets and contingent risks are as follow:

F-67


	Millions of Euros
Changes in Impaired Financial Assets and Contingent Risks	June 2017		December 2016
Balance at the beginning		23,877		26,103
Additions (*)		5,015		11,133
Decreases (**)		(3,693)		(7,633)
Net additions		1,322		3,500

Amounts written-off		(2,216)		(5,592)
Exchange differences and other		(344)		(134)
Balance at the end		22,638		23,877

(*)

Reflects the total amount of impaired loans derecognized from the balance sheet throughout the period as a result of mortgage foreclosures and real estate assets received in lieu of payment as well as monetary recoveries (see Notes 20 and 21 to the consolidated financial statement for additional information).

The changes in the six months ended June 30, 2017, and during the year 2016 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely (hereinafter “write-offs”), is shown below:


	Millions of Euros
Changes in Impaired Financial Assets Written-Off from the Balance Sheet	June 2017		December 2016
Balance at the beginning	29,347		26,143
Acquisition of subsidiaries in the year		-		-
Increase:		2,526		5,699
Decrease:		(2,069)		(2,384)
Re-financing or restructuring		(6)		(32)
Cash recovery		(238)		(541)
Foreclosed assets		(96)		(210)
Sales of written-off		(146)		(45)
Debt forgiveness		(545)		(864)
Time-barred debt and other causes		(1,038)		(692)
Net exchange differences		310		(111)
Balance at the end		30,114		29,347

As indicated in Note 2.2.1, although they have been derecognized from the consolidated balance sheet, the BBVA Group continues to attempt to collect on these written-off financial assets, until the rights to receive them are fully extinguished, either because it is time-barred financial asset, the financial asset is condoned, or other reasons.

7.3.5 Impairment losses

Below are the changes in the six months ended June 30, 2017, and 2016, in the provisions recognized on the accompanying consolidated balance sheets to cover estimated impairment losses in loans and advances and debt securities, according to the different headings under which they are classified in the accompanying consolidated balance sheet:

F-68


	Millions of Euros
June 2017	Opening balance		Increases due toamounts set aside for estimated loan losses during the period		Decreases due toamounts reversed for estimated loan losses during the period		Decreases due toamounts taken against allowances		Transfers between allowances		Other adjustments		Closing balance		Recoveries recorded directly to the statement of profit or loss
Specific allowances for financial assets, individually estimated		(3,204)		(1,290)		972		122		244		111		(3,045)		5
Debt securities		(120)		(53)		45		-		46		1		(81)		-
Central banks		-		-		-		-		-		-		-		-
General governments		-		-		-		-		-		-		-		-
Credit institutions		(15)		-		-		-		-		1		(14)		-
Other financial corporations		(2)		-		-		-		-		-		(2)		-
Non-financial corporations		(103)		(53)		45		-		46		-		(66)		-
Loans and advances		(3,084)		(1,237)		927		122		198		110		(2,964)		5
Central banks		-		-		-		-		-		-		-		-
General governments		(19)		-		9		-		(10)		-		(19)		-
Credit institutions		-		-		-		-		-		-		-		-
Other financial corporations		(6)		-		-		-		-		-		(5)		-
Non-financial corporations		(2,602)		(1,170)		848		77		180		150		(2,517)		-
Households		(458)		(66)		70		45		28		(41)		(422)		5
Specific allowances for financial assets, collectively estimated		(7,733)		(2,825)		980		1,942		(41)		380		(7,296)		233
Debt securities		(24)		(2)		-		-		-		-		(26)		-
Central banks		-		-		-		-		-		-		-		-
General governments		-		-		-		-		-		-		-		-
Credit institutions		-		-		-		-		-		-		-		-
Other financial corporations		(24)		(1)		-		-		-		(1)		(26)		-
Non-financial corporations		-		(1)		-		-		-		1		-		-
Loans and advances		(7,708)		(2,823)		980		1,942		(41)		380		(7,270)		233
Central banks		-		-		-		-		-		-		-		-
General governments		(20)		(34)		21		2		(3)		-		(34)		-
Credit institutions		(7)		-		1		-		1		(1)		(5)		-
Other financial corporations		(20)		(1)		1		38		(22)		(1)		(5)		-
Non-financial corporations		(4,801)		(1,219)		594		978		(69)		173		(4,344)		146
Households		(2,860)		(1,567)		364		924		51		208		(2,882)		87
Collective allowances for incurred but not reported losses on financial assets		(5,270)		(905)		890		26		(127)		250		(5,136)		-
Debt securities		(46)		(3)		24		-		-		2		(24)		-
Loans and advances		(5,224)		(901)		866		26		(127)		248		(5,112)		-
Total		(16,206)		(5,020)		2,842		2,090		76		741		(15,477)		238

F-69


	Millions of Euros
June 2016	Opening balance		Increases due toamounts set aside for estimated loan losses during the period		Decreases due toamounts reversed for estimated loan losses during the period		Decreases due toamounts taken against allowances		Transfers between allowances		Other adjustments		Closing balance		Recoveries recorded directly to the statement of profit or loss
Specific allowances for financial assets, individually estimated		(3,851)		(610)		124		83		112		(205)		(4,347)		1
Debt securities		(21)		(126)		1		5		-		-		(141)		-
Central banks		-		-		-		-		-		-		-		-
General governments		-		-		-		-		-		-		-		-
Credit institutions		(20)		-		-		5		-		1		(15)		-
Other financial corporations		(2)		(27)		-		-		-		-		(29)		-
Non-financial corporations		-		(99)		1		-		-		-		(98)		-
Loans and advances		(3,830)		(484)		123		79		112		(205)		(4,206)		1
Central banks		-		-		-		-		-		-		-		-
General governments		(14)		(2)		1		-		(6)		(7)		(29)		-
Credit institutions		(11)		-		-		-		1		-		(10)		-
Other financial corporations		(11)		(3)		-		-		22		(19)		(10)		-
Non-financial corporations		(3,153)		(371)		113		69		(12)		(109)		(3,462)		-
Households		(641)		(108)		8		9		107		(71)		(694)		1
Specific allowances for financial assets, collectively estimated		(9,015)		(2,714)		749		2,901		125		404		(7,548)		261
Debt securities		(14)		(3)		3		-		(9)		2		(22)		-
Central banks		-		-		-		-		-		-		-		-
General governments		-		-		-		-		-		-		-		-
Credit institutions		-		-		-		-		-		-		-		-
Other financial corporations		(14)		(3)		3		-		(9)		2		(22)		-
Non-financial corporations		-		-		-		-		-		-		-		-
Loans and advances		(9,001)		(2,711)		747		2,901		135		402		(7,526)		261
Central banks		-		-		-		-		-		-		-		-
General governments		(23)		(1)		1		1		(2)		6		(18)		-
Credit institutions		(6)		-		2		-		-		(2)		(6)		3
Other financial corporations		(27)		(24)		-		23		3		4		(21)		-
Non-financial corporations		(6,071)		(1,398)		567		1,657		158		484		(4,604)		159
Households		(2,873)		(1,288)		177		1,221		(24)		(89)		(2,877)		98
Collective allowances for incurred but not reported losses on financial assets		(6,024)		(547)		632		52		197		(65)		(5,755)		1
Debt securities		(113)		(1)		3		-		63		-		(49)		-
Loans and advances		(5,911)		(546)		629		52		134		(65)		(5,707)		-
Total		(18,890)		(3,870)		1,505		3,036		434		134		(17,651)		263

F-70

7.3.6 Refinancing and restructuring operations

Group policies and principles with respect to refinancing and restructuring operations

Refinancing and restructuring operations (see definition in the Glossary) are carried out with customers who have requested such an operation in order to meet their current loan payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future.

The basic aim of a refinancing and restructuring operation is to provide the customer with a situation of financial viability over time by adapting repayment of the loan incurred with the Group to the customer’s new situation of fund generation. The use of refinancing and restructuring for other purposes, such as to delay loss recognition, is contrary to BBVA Group policies.

The BBVA Group’s refinancing and restructuring policies are based on the following general principles:

●

Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the industry in which it operates.

●

With the aim of increasing the solvency of the operation, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees.

●

This analysis is carried out from the overall customer or group perspective.

●

Refinancing and restructuring operations do not in general increase the amount of the customer’s loan, except for the expenses inherent to the operation itself.

●

The capacity to refinance and restructure loan is not delegated to the branches, but decided on by the risk units.

●

The decisions made are reviewed from time to time with the aim of evaluating full compliance with refinancing and restructuring policies.

These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.

In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of customer’s loan. The solution required is adapted to each case and the loan repayment is made easier, in accordance with the following principles:

●

Analysis of the viability of operations based on the customer’s willingness and ability to pay, which may be reduced, but should nevertheless be present. The customer must therefore repay at least the interest on the operation in all cases. No arrangements may be concluded that involve a grace period for both principal and interest.

●

Refinancing and restructuring of operations is only allowed on those loans in which the BBVA Group originally entered into.

●

Customers subject to refinancing and restructuring operations are excluded from marketing campaigns of any kind.

In the case of non-retail customers (mainly companies, enterprises and corporates), refinancing/restructuring is authorized according to an economic and financial viability plan based on:

●

Forecasted future income, margins and cash flows to allow entities to implement cost adjustment measures (industrial restructuring) and a business development plan that can help reduce the level of leverage to sustainable levels (capacity to access the financial markets).

●

Where appropriate, the existence of a divestment plan for assets and/or operating segments that can generate cash to assist the deleveraging process.

●

The capacity of shareholders to contribute capital and/or guarantees that can support the viability of the plan.

F-71

In accordance with the Group’s policy, the conclusion of a loan refinancing and restructuring operation does not imply the loan is reclassified from “impaired” or “standard under special monitoring” to outstanding risk; such a reclassification must be based on the analysis mentioned earlier of the viability.

The Group maintains the policy of including risks related to refinanced and restructured loans as either:

●

“Impaired assets”, as although the customer is up to date with payments, they are classified as impaired for reasons other than their default when there are significant doubts that the terms of their refinancing may not be met; or

●

“Normal-risk assets under special monitoring” until the conditions established for their consideration as normal risk are met).

The conditions established for “standard under special monitoring” to be reclassified out of this category are as follows:

●

The customer must have paid past-due amounts (principal and interest) since the date of the renegotiation or restructuring of the loan or other objective criteria, demonstrating the borrower´s ability to pay, have been verified; and

●

At least two years must have elapsed since completion of the renegotiation or restructuring of the loan;

●

It is unlikely that the customer will have financial difficulties and, therefore, it is expected that the customer will be able to meet its loan payment obligations (principal and interest) in a timely manner.

The BBVA Group’s refinancing and restructuring policy provides for the possibility of two modifications in a 24 month period for loans that are not in compliance with the payment schedule.

The internal models used to determine allowances for loan losses consider the restructuring and renegotiation of a loan, as well as re-defaults on such a loan, by assigning a lower internal rating to restructured and renegotiated loans than the average internal rating assigned to non-restructured/renegotiated loans. This downgrade results in an increase in the probability of default (PD) assigned to restructured/renegotiated loans (with the resulting PD being higher than the average PD of the non- renegotiated loans in the same portfolios).

For quantitative information on refinancing and restructuring operations see Appendix X.

7.4 Market risk

7.4.1 Market risk portfolios

Market risk originates as a result of movements in the market variables that impact the valuation of traded financial products and assets. The main risks generated can be classified as follows:

●

Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all the financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.

●

Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.

●

Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.

F-72

●

Credit-spread risk: Credit spread is an indicator of an issuer’s credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.

●

Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.

The metrics developed to control and monitor market risk in BBVA Group are aligned with market practices and are implemented consistently across all the local market risk units.

Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group’s Global Markets units, both under ordinary circumstances and in situations of heightened risk factors.

The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and commodity prices. The market risk analysis considers risks, such as credit spread, basis risk, volatility and correlation risk.

Most of the headings on the Group’s balance sheet subject to market risk are positions whose main metric for measuring their market risk is VaR. This table shows the accounting lines of the consolidated balance sheet as of June 30, 2017 and December 31, 2016 in which there is a market risk in trading activity subject to this measurement:


	Millions of Euros
	June 2017		December 2016
Headings of the balance sheet under market risk	Main market risk metrics - VaR	Main market risk metrics - Others (*)	Main market risk metrics - VaR	Main market risk metrics - Others (*)
Assets subject to market risk
Financial assets held for trading	59,765	1,042	64,623	1,480
Available for sale financial assets	6,984	24,636	7,119	28,771
Of which: Equity instruments	-	3,044	-	3,559
Hedging derivatives	790	1,145	1,041	1,415
Liabilities subject to market risk	-	-
Financial liabilities held for trading	41,949	3,499	47,491	2,223
Hedging derivatives	1,108	791	1,305	689

(*)

Includes mainly assets and liabilities managed by COAP.

Although the prior table shows details the financial positions subject to market risk, it should be noted that the data are for information purposes only and do not reflect how the risk is managed in trading activity, where it is not classified into assets and liabilities.

With respect to the risk measurement models used in BBVA Group, the Bank of Spain has authorized the use of the internal model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Bancomer trading book, which jointly account for around 65% and 66% of the Group’s trading-book market risk as of June 30, 2017 and December 31, 2016. For the rest of the geographical areas (mainly South America, Garanti and BBVA Compass), bank capital for the risk positions in the trading book is calculated using the standard model.

The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units.

The model used estimates VaR in accordance with the “historical simulation” methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it infers the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years. The historical simulation method is used in BBVA S.A., BBVA Bancomer, BBVA Chile, BBVA Colombia, Compass Bank and Garanti.

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VaR figures are estimated following two methodologies:

●

VaR without smoothing, which awards equal weight to the daily information for the previous two years. This is currently the official methodology for measuring market risks for the purpose of monitoring compliance with risk limits.

●

VaR with smoothing, which gives a greater weight to more recent market information. This metric supplements the previous one.

In the case of South America (except BBVA Chile and BBVA Colombia), a parametric methodology is used to measure risk in terms of VaR.

At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain’s regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the new measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:

●

VaR: In regulatory terms, the VaR charge incorporates the stressed VaR charge, and the sum of the two (VaR and stressed VaR) is calculated. This quantifies the losses associated with the movements of the two risk factors inherent to market operations (interest rates, FX, RV, credit, etc.). Both VaR and stressed VaR are rescaled by a regulatory multiplier set at three and by the square root of ten to calculate the capital charge.

●

Specific Risk: Incremental Risk Capital (“IRC”) Quantification of the risks of default and downgrading of the credit ratings of the bond and credit derivative positions in the portfolio. The specific capital risk by IRC is a charge exclusively used in the geographical areas with the internal model approved (BBVA S.A. and Bancomer). The capital charge is determined according to the associated losses (at 99.9% in a 1-year horizon under the hypothesis of constant risk) due to the rating migration and/or default state the issuer of an asset. In addition, the price risk is included in sovereign positions for the items specified.

●

Specific Risk: Securitization and correlation portfolios. Capital charge for securitizations and the correlation portfolio to include the potential losses associated at the level of rating a specific credit structure (rating). Both are calculated by the standard method. The scope of the correlation portfolios refers to the FTD-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity.

Validity tests are performed regularly on the risk measurement models used by the Group. They estimate the maximum loss that could have been incurred in the positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at trading desk level in order to enable more specific monitoring of the validity of the measurement models.

Market risk in the first half of 2017

The Group’s market risk remains at low levels compared with the risk aggregates managed by BBVA, particularly in terms of credit risk. This is due to the nature of the business. During the first half of 2017 the average VaR was €29 million, below the figure of the first semester of 2016, with a high on January 11, 2017 of €34 m. The evolution in the BBVA Group’s market risk during the first half of 2017, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:

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LOGO

By type of market risk assumed by the Group’s trading portfolio, the main risk factor for the Group continues to be that linked to interest rates, with a weight of 46% of the total at the end of the first half of 2017 (this figure includes the spread risk). The relative weight has decreased compared with the close of 2016 (58%). Exchange-rate risk accounts 22%, increasing its proportion with respect to December 2016 (13%), while equity, volatility and correlation risk have increased, with a weight of 32% at the close of the first half of 2017 (vs. 29% at the close of 2016).

As of June 30, 2017 and December 31, 2016 the balance of VaR was €26 million in both periods. These figures can be broken down as follows:


			Millions of Euros
VaR by Risk Factor	Interest/Spread Risk	Currency Risk	Stock-market Risk	Vega/Correlation Risk	Diversification Effect(*)	Total
June 2017
VaR average in the period	26	11	3	14	(25)	29
VaR max in the period	27	11	2	12	(19)	34
VaR min in the period	25	6	2	11	(21)	24
End of period VaR	23	11	3	13	(24)	26

December 2016
VaR average in the period	28	10	4	11	(23)	29
VaR max in the period	30	16	4	11	(23)	38
VaR min in the period	21	10	1	11	(20)	23
End of period VaR	29	7	2	12	(24)	26

(*)

The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.

Validation of the model

The internal market risk model is validated on a regular basis by backtesting in both BBVA S.A. and Bancomer. The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group’s results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both BBVA, S.A. and Bancomer is adequate and precise.

Two types of backtesting have been carried out during the first half of 2017 and during the year 2016:

●

“Hypothetical” backtesting: the daily VaR is compared with the results obtained, not taking into account the intraday results or the changes in the portfolio positions. This validates the appropriateness of the market risk metrics for the end-of-day position.

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●

“Real” backtesting: the daily VaR is compared with the total results, including intraday transactions, but discounting the possible minimum charges or fees involved. This type of backtesting includes the intraday risk in portfolios.

In addition, each of these two types of backtesting was carried out at the level of risk factor or business type, thus making a deeper comparison of the results with respect to risk measurements.

For the period between the end of the first semester of 2016 and the end of the first semester of 2017, it was carried out the backtesting of the internal VaR calculation model, comparing the daily results obtained with the estimated risk level estimated by the internal VaR calculation model. At the end of the semester the comparison showed the internal VaR calculation model was working correctly, within the “green” zone (0-4 exceptions), thus validating the internal VaR calculation model, as has occurred each year since the internal market risk model was approved for the Group.

Stress test analysis

A number of stress tests are carried out on BBVA Group’s trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the “Tequilazo” crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions.

Historical scenarios

The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:

●

Credit shock: reflected mainly in the increase of credit spreads and downgrades in credit ratings.

●

Increased volatility in most of the financial markets (giving rise to a great deal of variation in the prices of different assets (currency, equity, debt).

●

Liquidity shock in the financial systems, reflected by a major movement in interbank curves, particularly in the shortest sections of the euro and dollar curves.

Simulated scenarios

Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on Resampling methodology. This methodology is based on the use of dynamic scenarios are recalculated periodically depending on the main risks held in the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from 1-1-2008 until today), a simulation is performed by resampling of historic observations, generating a loss distribution and profits to analyze most extreme of births in the selected historical window. The advantage of this resampling methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a richer information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR.

The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) flexibility in the inclusion of new risk factors and c) to allow the introduction of a lot of variability in the simulations (desirable to consider extreme events).

The impact of the stress test under multivariable simulation of the risk factors of the portfolio (Expected shortfall 95% to 20 days) as of June 30, 2017 is as follows:


							Millions of Euros
	Europe		Mexico		Peru		Venezuela		Argentina		Colombia		Chile		Turkey
Expected Shortfall		(76)		(23)		(10)		-		(8)		(4)		(11)		(6)

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7.4.2 Structural risk

The Assets and Liabilities Committee (ALCO) is the key body for the management of structural risks relating to liquidity/funding, interest rates, solvency and currency rates. Every month, with representatives from the areas of Finance, Risks and Business Areas, this committee monitors the above risks and is presented with proposals for managing them for its approval. These management proposals are made proactively by the Finance area, taking into account the risk appetite framework and with the aim of guaranteeing recurrent earnings and preserving the entity’s solvency. All the balance-sheet management units have a local ALCO, assisted constantly by the members of the Corporate Center. There is also a corporate ALCO where the management strategies in the Group’s subsidiaries are monitored and presented.

Structural interest-rate risk

The structural interest-rate risk (“SIRR”) is related to the potential impact that variations in market interest rates have on an entity’s net interest income and equity. In order to properly measure SIRR, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed from two complementary points of view: net interest income (short term) and economic value (long term).

ALCO monitors the interest-rate risk metrics and the Finance area carries out the management proposals for the structural balance sheet. The management objective is to ensure the stability of net interest income and book value in the face of changes in market interest rates, while respecting the internal solvency and limits in the different balance-sheets and for BBVA Group as a whole; and complying with current and future regulatory requirements.

BBVA’s structural interest-rate risk management control and monitoring is based on a set of metrics and tools that enable the entity’s risk profile to be monitored correctly. A wide range of scenarios are measured on a regular basis, including sensitivities to parallel movements in the event of different shocks, changes in slope and curve, as well as delayed movements. Other probabilistic metrics based on statistical scenario-simulating methods are also assessed, such as income at risk (“IaR”) and economic capital (“EC”), which are defined as the maximum adverse deviations in net interest income and economic value, respectively, for a given confidence level and time horizon. Impact thresholds are established on these management metrics both in terms of deviations in net interest income and in terms of the impact on economic value. The process is carried out separately for each currency to which the Group is exposed, and the diversification effect between currencies and business units is considered after this.

In order to evaluate its effectiveness, the model is subjected to regular internal validation, which includes backtesting. In addition, the banking book’s interest-rate risk exposures are subjected to different stress tests in order to reveal balance sheet vulnerabilities under extreme scenarios. This testing includes an analysis of adverse macroeconomic scenarios designed specifically by BBVA Research, together with a wide range of potential scenarios that aim to identify interest-rate environments that are particularly damaging for the entity. This is done by generating extreme scenarios of a breakthrough in interest rate levels and historical correlations, giving rise to sudden changes in the slopes and even to inverted curves.

The model is necessarily underpinned by an elaborate set of hypotheses that aim to reproduce the behavior of the balance sheet as closely as possible to reality. Especially relevant among these assumptions are those related to the behavior of “accounts with no explicit maturity”, for which stability and remuneration assumptions are established, consistent with an adequate segmentation by type of product and customer, and prepayment estimates (implicit optionality). The hypotheses are reviewed and adapted, at least on an annual basis, to signs of changes in behavior, kept properly documented and reviewed on a regular basis in the internal validation processes.

The impacts on the metrics are assessed both from a point of view of economic value (gone concern) and from the perspective of net interest income, for which a dynamic model (going concern) consistent with the corporate assumptions of earnings forecasts is used.

The table below shows the profile of average sensitivities to net interest income and value of the main entities in BBVA Group in the first half of 2017 (certain information within this table is provisional. Its distribution should not be significantly affected):

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	*Impact on Net Interest Income ()**		Impact on Economic Value ()**
Sensitivity to Interest-Rate Analysis - June 2017	100 Basis-Point Increase	100 Basis-Point Decrease	100 Basis-Point Increase	100 Basis-Point Decrease
Europe (***)	10.33%	(7.74%)	4.23%	(4.31%)
Mexico	1.88%	(1.89%)	(1.86%)	1.91%
USA	5.69%	(7.52%)	(3.21%)	(1.04%)
Turkey	(3.46%)	1.55%	(2.78%)	3.69%
South America	2.53%	(2.57%)	(3.04%)	3.35%
BBVA Group	3.05%	(3.20%)	0.91%	(1.42%)

(*)

Percentage of “1 year” net interest income forecast for each unit.

(**)

Percentage of net assets for each unit.

(***)

In Europe downward movement allowed until more negative level than current rates.

In the first half of 2017 in Europe remained expansionary monetary policy, maintaining rates at 0%. In USA the rising rate cycle initiated by the Federal Reserve in 2015 was intensified. In Mexico and Turkey, the upward cycle has continued because of weak currencies and inflation prospects. In South America, monetary policy has been expansive, with rate declines in most of the economies where the Group operates, with the exception of Argentina, where rates increased during the first half of 2017.

The BBVA Group in all its Balance Sheet Management Units (“BSMUs”) maintains a positive sensitivity in its net interest income to an increase in interest rates. Turkey helps to diversify the Group’s net exposure due to the opposite direction of its position on Europe. The higher sensitivities in the net interest income, relatively speaking, are observed in mature markets (Europe and USA), where, however, the negative sensitivity in their net interest income to decrease in interest rates is limited by the plausible downward trend in interest rates. The Group maintains a moderate risk profile, according to its target risk, through effective management of its balance sheet structural risk.

Structural exchange-rate risk

In BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint handling of permanent foreign currency exposures, taking into account the diversification.

The corporate Assets and Liabilities Management unit, through ALCO, designs and executes hedging strategies with the main purpose of controlling the potential negative effect of exchange-rate fluctuations on capital ratios and on the equivalent value in euros of the foreign-currency earnings of the Group’s subsidiaries, considering transactions according to market expectations and their cost.

The risk monitoring metrics included in the framework of limits are integrated into management and supplemented with additional assessment indicators. At corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations.

The suitability of these risk assessment metrics is reviewed on a regular basis through backtesting exercises. The final element of structural exchange-rate risk control is the analysis of scenarios and stress with the aim of identifying in advance possible threats to future compliance with the risk appetite levels set, so that any necessary preventive management actions can be taken. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.

As for the market, in the first half of 2017 it is noteworthy the US dollar weakness, determining the underperformance against the euro of the Turkish lira and the currencies of Andean area in South America, while, on the contrary, Mexican peso appreciated significantly against US dollar, on the basis of better growth expectations for this economy.

The Group’s structural exchange-rate risk exposure level has remained fairly stable since the end of 2016 mostly due to the hedging policy, focused on Mexican peso and Turkish lira, intended to keep low levels of sensitivity to movements in the exchange rates of emerging currencies against the euro. The risk mitigation level in capital ratio due to the book value of BBVA Group’s holdings in foreign emerging currencies stood at around 70% and, as of the end of the first half of 2017, CET1 ratio sensitivity to the appreciation of 1% in the euro exchange rate for each currency is: US Dollar: +1.2 bps; Mexican peso -0.2 bps; Turkish Lira -0.1 bps; other currencies: -0.3 bps. On the other hand, hedging of emerging-currency denominated earnings of the first half of 2017 has reached a 61%, concentrated in Mexican peso and Turkish lira.

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Structural equity risk

BBVA Group’s exposure to structural equity risk stems basically from investments in industrial and financial companies with medium- and long-term investment horizons. This exposure is mitigated through net short positions held in derivatives of their underlying assets, used to limit portfolio sensitivity to potential falls in prices.

Structural management of equity portfolios is the responsibility of the Group’s units specializing in this area. Their activity is subject to the corporate risk management policies for equity positions in the equity portfolio. The aim is to ensure that they are handled consistently with BBVA’s business model and appropriately to its risk tolerance level, thus enabling long-term business sustainability.

The Group’s risk management systems also make it possible to anticipate possible negative impacts and take appropriate measures to prevent damage being caused to the entity. The risk control and limitation mechanisms are focused on the exposure, annual operating performance and economic capital estimated for each portfolio. Economic capital is estimated in accordance with a corporate model based on Monte Carlo simulations, taking into account the statistical performance of asset prices and the diversification existing among the different exposures.

Stress tests and analyses of sensitivity to different simulated scenarios are carried out periodically to analyze the risk profile in more depth. They are based on both past crisis situations and forecasts made by BBVA Research. This checks that the risks are limited and that the tolerance levels set by the Group are not at risk.

Backtesting is carried out on a regular basis on the risk measurement model used.

In the market, it is remarkable the outperformance of stock markets in the first half of 2017, especially the Spanish stock exchange. It is also noteworthy the drop from the high levels of the previous year. This outperformance led to a significant increase in the value of Group’s equity portfolios as of the end of June 2017, and has favored the sale of the stake in China Citic Bank, realizing the accumulated capital gains.

Structural equity risk, measured in terms of economic capital, has remained stable in the period since the sale of the stake in China Citic Bank.

The aggregate sensitivity of the BBVA Group’s consolidated equity to a 1% fall in the price of shares of the companies making up the equity portfolio remained at around -€35 million as of June 30, 2017 and -€38 million as of December 31, 2016. This estimate takes into account the exposure in shares valued at market prices, or if not applicable, at fair value (excluding the positions in the Treasury Area portfolios) and the net delta-equivalent positions in derivatives on the same underlyings.

7.4.3 Financial Instruments offset

Financial assets and liabilities may be netted, i.e. they are presented for a net amount on the consolidated balance sheet only when the Group’s entities satisfy with the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability.

In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling net. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity.

In the current market context, derivatives are contracted under different framework contracts being the most widespread developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”). Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as “Master Netting Agreement”, greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with professional counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty.

Moreover, in transactions involving assets purchased or sold under a purchase agreement there is a high volume transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signature of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.

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A summary of the effect of the compensation (via netting and collateral) for derivatives and securities operations is presented below as of June 30, 2017 and December 31, 2016:


									Millions of Euros
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets (D)
June 2017	Notes		Gross Amounts Recognized (A)		Gross Amounts Offset in the Condensed Consolidated Balance Sheets (B)		Net Amount Presented in the Condensed Consolidated Balance Sheets (C=A-B)		Financial Instruments		Cash Collateral Received/ Pledged		Net Amount (E=C-D)
Trading and hedging derivatives		10, 15		51,582		11,854		39,728		27,576		5,881		6,272
Reverse repurchase, securities borrowing and similar agreements		35		20,046		2,442		17,604		17,777		114		(287)
Total Assets				71,628		14,296		57,332		45,353		5,995		5,984

Trading and hedging derivatives		10, 15		53,387		12,080		41,308		27,576		9,928		3,803
Repurchase, securities lending and similar agreements		35		40,771		2,442		38,329		38,539		30		(240)
Total Liabillities				94,158		14,522		79,636		66,115		9,959		3,563

									Millions of Euros
									Gross Amounts Not Offset in the Condensed Consolidated Balance Sheets (D)
December 2016	Notes		Gross Amounts Recognized (A)		Gross Amounts Offset in the Condensed Consolidated Balance Sheets (B)		Net Amount Presented in the Condensed Consolidated Balance Sheets (C=A-B)		Financial Instruments		Cash Collateral Received/ Pledged		Net Amount (E=C-D)
Trading and hedging derivatives		10, 15		59,374		13,587		45,788		32,146		6,571		7,070
Reverse repurchase, securities borrowing and similar agreements		35		25,833		2,912		22,921		23,080		174		(333)
Total Assets				85,208		16,499		68,709		55,226		6,745		6,738

Trading and hedging derivatives		10, 15		59,545		14,080		45,465		32,146		7,272		6,047
Repurchase, securities lending and similar agreements		35		49,474		2,912		46,562		47,915		176		(1,529)
Total Liabillities				109,019		16,991		92,027		80,061		7,448		4,518

7.5 Liquidity risk

7.5.1 Liquidity risk management

Finance Division, through Global ALM, manages BBVA Group’s liquidity and funding. It plans and executes the funding of the long-term structural gap of each LMUs and proposes to ALCO the actions to adopt in this regard in accordance with the policies and limits established by the Standing Committee.

The LtSCD measures the relation between the net credit investment and stable funds. The aim is to preserve a stable funding structure in the medium term for each of the LMUs making up BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile.

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For the purpose of establishing the (maximum) target levels for LtSCD in each LMU and providing an optimal funding structure reference in terms of risk appetite, GRM-Structural Risks identifies and assesses the economic and financial variables that condition the funding structures in the various geographical areas. The behavior of the indicators reflects that the funding structure remained robust in the first half of 2017 and in the year 2016, in the sense that all the LMUs maintain levels of self-funding with stable customer funds higher than the required levels.


LtSCD by LMU	June 2017	December 2016
Group (average)	112%	113%
Eurozone	112%	113%
Bancomer	114%	113%
Compass	110%	108%
Garanti	122%	124%
Other LMUs	105%	107%

The second core element in liquidity and funding risk management is to achieve proper diversification of the funding structure, avoiding excessive reliance on short-term funding and establishing a maximum level of short-term borrowing comprising both wholesale funding as well as less stable funds from non-retail customers. Regarding long-term funding, the maturity profile does not show significant concentrations, which enables adaptation of the anticipated issuance schedule to the best financial conditions of the markets. Finally, concentration risk is monitored at the LMU level, with a view to ensuring the right diversification both per counterparty and per instrument type.

The third element promotes the short-term resilience of the liquidity risk profile, making sure that each LMU has sufficient collateral to address the risk of wholesale markets closing. Basic Capacity is the short-term liquidity risk management and control metric that is defined as the relationship between the available explicit assets and the maturities of wholesale liabilities and volatile funds, at different terms, with special relevance being given to 30-day maturities.

Each entity maintains an individual liquidity buffer, both Banco Bilbao Vizcaya Argentaria SA and its subsidiaries, including BBVA Compass, BBVA Bancomer, Garanti Bank and the Latin American subsidiaries. The table below shows the liquidity available by instrument as of June 30, 2017 and December 31, 2016 for the most significant entities:


	Millions of Euros
June 2017	BBVA Eurozone (1)		BBVA Bancomer		BBVA Compass		Garanti Bank		Others
Cash and balances with central banks		13,081		5,968		1,529		6,936		6,442
Assets for credit operations with central banks		46,764		5,274		24,414		5,699		5,513
Central governments issues		25,589		2,749		1,953		5,699		5,433
Of Which: Spanish government securities		17,233		-		-		-		-
Other issues		21,175		2,526		7,799		-		80
Loans		-		-		14,662		-		-
Other non-eligible liquid assets		6,875		808		576		1,650		754
ACCUMULATED AVAILABLE BALANCE		66,720		12,051		26,519		14,285		12,710

AVERAGE BALANCE		65,882		12,778		28,424		13,575		14,003

(1) It

includes Banco Bilbao Vizcaya Argentaria, S.A. and Banco Bilbao Vizcaya Argentaria (Portugal), S.A.

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	Millions of Euros
December 2016	BBVA Eurozone (1)		BBVA Bancomer		BBVA Compass		Garanti Bank		Other
Cash and balances with central banks		16,014		8,221		1,495		4,915		6,906
Assets for credit operations with central banks		53,167		4,175		26,907		5,529		4,506
Central governments issues		31,774		1,964		1,088		5,529		4,323
Of Which: Spanish government securities		23,353		-		-		-		-
Other issues		21,394		2,212		9,028		-		183
Loans		-		-		16,790		-		-
Other non-eligible liquid assets		7,387		939		662		1,532		700
ACCUMULATED AVAILABLE BALANCE		76,568		13,336		29,063		11,976		12,111

AVERAGE BALANCE		69,057		13,104		27,621		13,072		11,689

(1)

It includes Banco Bilbao Vizcaya Argentaria, S.A. and Banco Bilbao Vizcaya Argentaria (Portugal), S.A.

Stress analyses are also a basic element of the liquidity and funding risk monitoring system, as they help anticipate deviations from the liquidity targets and limits set out in the risk appetite as well as establish tolerance ranges at different management levels. They also play a key role in the design of the Liquidity Contingency Plan and in defining the specific measures for action for realigning the risk profile.

For each of the scenarios, a check is carried out whether the Bank has sufficient liquid assets to meet the liquidity commitments/outflows in the various periods analyzed. The analysis considers four scenarios, one core and three crisis-related: systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the bank’s customers; and a mixed scenario, as a combination of the two aforementioned scenarios. Each scenario considers the following factors: liquidity existing on the market, customer behavior and sources of funding, impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the performance of the bank’s asset quality.

The results of these stress analyses carried out regularly reveal that BBVA has a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario such as a combination of a systemic crisis and an unexpected internal crisis, during a period in general longer than 3 months for LMUs, including a major downgrade in the bank’s rating (by up to three notches).

Beside the results of stress exercises and risk metrics, Early Warning Indicators play an important role in the corporate model and also in the Liquidity Contingency Plan. These are mainly financing structure indicators, related to asset encumbrance, counterparty concentration, outflows of customer deposits, unexpected use of credit lines, and market indicators, which help to anticipate potential risks and capture market expectations.

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Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of June 30, 2017 and December 31, 2016:


	Millions of Euros
June 2017 Contractual Maturities	Demand		Up to 1 Month		1 to 3 Months		3 to 6 Months		6 to 9 Months		9 to 12 Months		1 to 2 Years		2 to 3 Years		3 to 5 Years		Over 5 Years		Total
Cash, cash balances at central banks and other demand deposits		5,787		28,170		-		-		-		-		-		-		-		-	33,956
Deposits in credit entities		1,607		1,971		299		141		90		171		119		73		64		3,656	8,190
Deposits in other financial institutions		8		1,175		915		598		684		693		1,147		1,074		779		1,939	9,012
Reverse repo, securities borrowing and margin lending		-		13,151		429		772		1,065		535		343		175		674		189	17,334
Loans and Advances		329		21,823		24,872		24,698		16,025		17,045		46,556		37,209		52,446		129,565	370,568
Securities’ portfolio settlement		-		1,977		2,514		7,059		4,186		4,037		17,066		12,054		12,370		38,700	99,962

	Millions of Euros
June 2017 Contractual Maturities	Demand		Up to 1 Month		1 to 3 Months		3 to 6 Months		6 to 9 Months		9 to 12 Months		1 to 2 Years		2 to 3 Years		3 to 5 Years		Over 5 Years		Total
Wholesale funding		-		1,636		3,829		7,296		3,945		4,386		4,694		6,117		18,179		29,770	79,853
Deposits in financial institutions		6,938		6,795		958		2,444		210		1,744		786		519		160		1,864	22,417
Deposits in other financial institutions and international agencies		11,193		3,748		6,464		2,402		1,656		762		1,042		411		344		1,075	29,096
Customer deposits		218,943		49,010		22,655		14,091		10,508		9,160		9,825		3,710		1,307		2,073	341,284
Securitiy pledge funding		-		34,149		1,783		556		791		217		544		22,969		372		1,756	63,138
Derivatives (net)		26		(147)		(188)		(203)		(19)		(127)		(240)		(193)		(220)		(484)	(1,794)

	Millions of Euros
December 2016 Contractual Maturities	Demand		Up to 1 Month		1 to 3 Months		3 to 6 Months		6 to 9 Months		9 to 12 Months		1 to 2 Years		2 to 3 Years		3 to 5 Years		Over 5 Years		Total
Cash, cash balances at central banks and other demand deposits		23,191		13,825		-		-		-		-		-		-		-		-	37,551
Deposits in credit entities		999		3,236		291		295		154		113		102		87		122		3,805	9,205
Deposits in other financial institutions		-		1,217		1,042		678		591		497		3,478		1,005		952		1,891	11,351
Reverse repo, securities borrowing and margin lending		-		20,277		544		523		-		428		500		286		124		189	22,871
Loans and Advances		419		21,184		27,084		22,766		16,443		17,742		45,290		35,578		55,757		129,506	371,767
Securities’ portfolio settlement		-		698		3,553		3,718		2,337		4,209		19,167		9,982		16,788		52,278	112,731

	Millions of Euros
December 2016 Contractual Maturities	Demand		Up to 1 Month		1 to 3 Months		3 to 6 Months		6 to 9 Months		9 to 12 Months		1 to 2 Years		2 to 3 Years		3 to 5 Years		Over 5 Years		Total
Wholesale funding		98		7,445		2,987		5,754		3,679		6,180		7,971		6,092		14,091		31,200	85,496
Deposits in financial institutions		6,845		5,656		1,240		2,424		791		2,152		901		547		430		2,085	23,069
Deposits in other financial institutions and international agencies		15,392		4,499		7,709		2,515		1,755		1,322		883		539		414		1,141	36,168
Customer deposits		208,287		52,442		25,001		16,585		12,881		12,040		8,645		5,540		1,645		1,978	345,042
Securitiy pledge funding		-		38,884		3,981		1,041		508		949		291		376		22,719		1,790	70,538
Derivatives (net)		-		(2,123)		(95)		(190)		(111)		(326)		(132)		(82)		(105)		(47)	(3,210)

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The matrix shows the retail nature of the funding structure, with a loan portfolio being mostly funded by customer deposits. On the outflows side of the matrix, the “demand” maturity bucket mainly contains the retail customers sight accounts whose behavior shows a high level of stability. According to internal methodology they are estimated to mature on average in more than three years.

In the Euro Liquidity Management Unit (LMU), solid liquidity and funding situation, where activity has continued to generate liquidity, as the evolution of deposits has shown a positive trend decreasing the credit gap. In addition, over the first half of 2017 the Euro LMU made issues in the public market for €3.5 billion, which has allowed it to obtain funding at favorable price conditions.

In Mexico, sound liquidity position, the dependence on wholesale financing remains low and closely associated with the securities portfolios. In the second quarter of 2017, BBVA Bancomer made two local issuances at 3 and 5 years for € 338 million.

In the United States, the containment of the cost of liabilities has led to an increase in the credit gap. At the end of June, 2017 BBVA Compass successfully issued 5 year senior debt for USD 750 million after two years out of the markets.

In Turkey, comfortable liquidity situation with modest widening in total credit gap due to the acceleration of the Turkish Lira lending activity in sector. During the first half of 2017, Garanti realized $1,250 million foreign currency and €150 million equivalent Turkish lira long term issuances. In addition to that, the syndication loans have been almost fully rolled over in the second quarter.

The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a solid liquidity position in all the jurisdictions in which the Group operates. Access to capital markets of these subsidiaries has also been maintained with recurring issuances in the local market.

In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while guaranteeing a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets.

7.5.2 Asset encumbrance

As of June 30, 2017 and December 31, 2016, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:


	Millions of Euros
	Encumbered assets				Non-Encumbered assets
June 2017	Book value of Encumbered assets		Market value of Encumbered assets		Book value of non- encumbered assets		Market value of non- encumbered assets
Equity instruments		1,912		1,912		8,463		8,463
Debt Securities		32,553		34,386		91,137		91,137
Loans and Advances and other assets		85,886		-		482,478		-

	Millions of Euros
	Encumbered assets				Non-Encumbered assets
December 2016	Book value of Encumbered assets		Market value of Encumbered assets		Book value of non- encumbered assets		Market value of non- encumbered assets
Equity instruments		2,214		2,214		9,022		9,022
Debt Securities		40,114		39,972		90,679		90,679
Loans and Advances and other assets		94,718		-		495,109		-

The committed value of “Loans and Advances and other assets” corresponds mainly to loans linked to the issue of covered bonds, territorial bonds or long-term securitized bonds (see Note 22.3) as well as those used as a guarantee to access certain funding transactions with central banks. Debt securities and equity instruments respond to underlying that are delivered in repos with different types of counterparties, mainly clearing houses or credit institutions, and to a lesser extent central banks. Collateral provided to guarantee derivative operations is also included as committed assets.

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As of June 30, 2017 and December 31, 2016, collateral pledge mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:


	Millions of Euros
June 2017 Collateral received	Fair value of encumbered collateral received or own debt securities issued		Fair value of collateral received or own debt securities issued available for encumbrance		Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received		20,391		5,738		39
Equity instruments		121		54		-
Debt securities		20,107		5,666		12
Loans and Advances and other assets		163		18		26
Own debt securities issued other than own covered bonds or ABSs		4		90		-

	Millions of Euros
December 2016 Collateral received	Fair value of encumbered collateral received or own debt securities issued		Fair value of collateral received or own debt securities issued available for encumbrance		Nominal amount of collateral received or own debt securities issued not available for encumbrance
Collateral received		19,921		10,039		173
Equity instruments		58		59		-
Debt securities		19,863		8,230		28
Loans and Advances and other assets		-		1,750		144
Own debt securities issued other than own covered bonds or ABSs		5		-		-

The guarantees received in the form of reverse repos or security lending transactions are committed by their use in repos, as is the case with debt securities.

As of June 30, 2017 and December 31, 2016, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:


	Millions of Euros
June 2017 Sources of encumbrance	Matching liabilities, contingent liabilities or securities lent		Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
Book value of financial liabilities		122,328		138,139
Derivatives		11,162		11,147
Loans and Advances		88,473		99,202
Outstanding subordinated debt		22,693		27,791
Other sources		-		1,441

	Millions of Euros
December 2016 Sources of encumbrance	Matching liabilities, contingent liabilities or securities lent		Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered
Book value of financial liabilities		134,387		153,632
Derivatives		9,304		9,794
Loans and Advances		96,137		108,268
Outstanding subordinated debt		28,946		35,569
Other sources		-		2,594

7.6 Operational Risk

Operational risk is defined as one that could potentially cause losses due to human errors, inadequate or faulty internal processes, system failures or external events. This definition includes legal risk but excludes strategic and/or business risk and reputational risk.

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Operational risk is inherent to all banking activities, products, systems and processes. Its origins are diverse (processes, internal and external fraud, technology, human resources, commercial practices, disasters, suppliers). Operational risk management is a part of the BBVA Group global risk management structure.

Operational risk management framework

Operational risk management in the Group is based on the value-adding drivers generated by the advanced measurement approach (AMA), as follows:

●

Active management of operational risk and its integration into day-to-day decision-making means:

–

Knowledge of the real losses associated with this type of risk.

–

Identification, prioritization and management of real and potential risks.

–

The existence of indicators that enable the Bank to analyze operational risk over time, define warning signals and verify the effectiveness of the controls associated with each risk.

●

The above helps create a proactive model for making decisions about control and business, and for prioritizing the efforts to mitigate relevant risks in order to reduce the Group’s exposure to extreme events.

●

Improved control environment and strengthened corporate culture.

●

Generation of a positive reputational impact.

●

Model based on three lines of defense, aligned with international best practices.

Operational Risk Management Principles

Operational risk management in BBVA Group should:

●

Be aligned with the risk appetite framework statement set out by the Board of BBVA.

●

Anticipate the potential operational risks to which the Group would be exposed as a result of new or modified products, activities, processes, systems or outsourcing decisions, and establish procedures to enable their evaluation and reasonable mitigation prior to their implementation.

●

Establish methodologies and procedures to enable a regular reassessment of the relevant operational risks to which the Group is exposed in order to adopt appropriate mitigation measures in each case, once the identified risk and the cost of mitigation (cost/benefit analysis) have been considered, while preserving the Group’s solvency at all times.

●

Identify the causes of the operational losses sustained by the Group and establish measures to reduce them. Procedures must therefore be in place to enable the capture and analysis of the operational events that cause those losses.

●

Analyze the events that have caused operational risk losses in other institutions in the financial sector and promote, where appropriate, the implementation of the measures needed to prevent them from occurring in the Group.

●

Identify, analyze and quantify events with a low probability of occurrence and high impact in order to evaluate their mitigation. Due to their exceptional nature, it is possible that such events may not be included in the loss database or, if they are, they have impacts that are not representative.

●

Have an effective system of governance in place, where the functions and responsibilities of the areas and bodies involved in operational risk management are clearly defined.

These principles reflect BBVA Group’s vision of operational risk, on the basis that the resulting events have an ultimate cause that should always be identified, and that the impact of the events is reduced significantly by controlling that cause.

Irrespective of the adoption of all the possible measures and controls for preventing or reducing both the frequency and severity of operational risk events, BBVA ensures at all times that sufficient capital is available to cover any expected or unexpected losses that may occur.

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7.7 Risk concentration

Policies for preventing excessive risk concentration

In order to prevent the build-up of excessive concentrations of credit risk at the individual, country and sector levels, BBVA Group maintains maximum permitted risk concentration indices updated at individual and portfolio sector levels tied to the various observable variables within the field of credit risk management.

The limit on the Group’s exposure or financial commitment to a specific customer therefore depends on the customer’s credit rating, the nature of the risks involved, and the Group’s presence in a given market, based on the following guidelines:

●

The aim is, as much as possible, to reconcile the customer’s credit needs (commercial/financial, short-term/long-term, etc.) with the interests of the Group.

●

Any legal limits that may exist concerning risk concentration are taken into account (relationship between risks with a customer and the capital of the shareholder´s entity that assumes them), the markets, the macroeconomic situation, etc.

Risk concentrations by geography

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix X.

Sovereign risk concentration

Sovereign risk management

The risk associated with the transactions involving sovereign risk is identified, measured, controlled and tracked by a centralized unit integrated in the BBVA Group’s Risk Area. Its basic functions involve the preparation of reports in the countries where sovereign risk exists (called “financial programs”), tracking such risks, assigning ratings to these countries and, in general, supporting the Group in terms of reporting requirements for any transactions involving sovereign risk. The risk policies established in the financial programs are approved by the relevant risk committees.

The country risk unit tracks the evolution of the risks associated with the various countries to which the Group are exposed (including sovereign risk) on an ongoing basis in order to adapt its risk and mitigation policies to any macroeconomic and political changes that may occur. Moreover, it regularly updates its internal ratings and forecasts for these countries. The methodology is based on the assessment of quantitative and qualitative parameters which are in line with those used by certain multilateral organizations such as the International Monetary Fund (IMF) and the World Bank, rating agencies and export credit organizations.

For additional information on sovereign risk in Europe see Appendix X.

Valuation and impairment methods

The valuation methods used to assess the instruments that are subject to sovereign risks are the same ones used for other instruments included in the relevant portfolios and are detailed in Note 8.

Specifically, the fair value of sovereign debt securities of European countries has been considered equivalent to their listed price in active markets (Level 1 as defined in Note 8).

Risk related to the developer and Real-Estate sector in Spain

One of the main Group activities of the Group in Spain is focused on developer and mortgage loans. The policies and strategies established by the Group to deal with risks related to the developer and real-estate sector are explained below:

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Policies and strategies established by the Group to deal with risks related to the developer and real-estate sector

BBVA has teams specializing in the management of the Real-Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in the Risk-Acceptance teams, but throughout the handling, commercial, problem risks and legal, etc. It also includes the research department of the BBVA Group (BBVA Research), which helps determine the medium/long-term vision needed to manage this portfolio. Specialization has been increased and the management teams in the areas of recovery and the Real Estate Unit itself have been reinforced.

The policies established to address the risks related to the developer and real-estate sector, aim to accomplish, among others, the following objectives: to avoid concentration in terms of customers, products and regions; to estimate the risk profile for the portfolio; and to anticipate possible worsening of the portfolio.

Specific policies for analysis and admission of new developer risk transactions

In the analysis of new operations, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant points that have helped ensure the success and transformation of construction land operations for customers’ developments.

With regard the participation of the Risk Acceptance teams, they have a direct link and participate in the committees of areas such as Recoveries and the Real Estate Unit. This guarantees coordination and exchange of information in all the processes.

The following strategies have been implemented with customers in the developer sector: avoidance of large corporate transactions, which had already reduced their share in the years of greatest market growth; non active participation in the second-home market; commitment to public housing financing; and participation in land operations with a high level of urban development security, giving priority to land open to urban development.

Risk monitoring policies

The base information for analyzing the real estate portfolios is updated monthly. The tools used include the so-called “watch-list”, which is updated monthly with the progress of each client under watch, and the different strategic plans for management of special groups. There are plans that involve an intensification of the review of the portfolio for financing land, while, in the case of ongoing promotions, they are classified based on the rate of progress of the projects.

These actions have enabled BBVA to identify possible impairment situations, by always keeping an eye on BBVA’s position with each customer (whether or not as first creditor). In this regard, key aspects include management of the risk policy to be followed with each customer, contract review, deadline extension, improved collateral, rate review (repricing) and asset purchase.

Proper management of the relationship with each customer requires knowledge of various aspects such as the identification of the source of payment difficulties, an analysis of the company’s future viability, the updating of the information on the debtor and the guarantors (their current situation and business course, economic-financial information, debt analysis and generation of funds), and the updating of the appraisal of the assets offered as collateral.

BBVA has a classification of debtors in accordance with legislation in force in each country, usually categorizing each one’s level of difficulty for each risk.

Based on the information above, a decision is made whether to use the refinancing tool, whose objective is to adjust the structure of the maturity of the debt to the generation of funds and the customer’s payment capacity.

As for the policies relating to risk refinancing with the developer and real-estate sector, they are the same as the general policies used for all of the Group’s risks (see Note 7.3.6). In the developer and real estate sector, they are based on clear solvency and viability criteria for projects, with demanding terms for additional guarantees and legal compliance, given a refinancing tool that standardizes criteria and variables when considering any refinancing operation.

In the case of refinancing, the tools used for enhancing the Bank’s position are: the search for new intervening parties with proven solvency and initial payment to reduce the principal debt or outstanding interest; the improvement of the debt bond in order to facilitate the procedure in the event of default; the provision of new or additional collateral; and making refinancing viable with new conditions (period, rate and repayments), adapted to a credible and sufficiently verified business plan.

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Policies applied in the management of real estate assets in Spain

The policy applied for managing these assets depends on the type of real-estate asset, as detailed below.

●

In the case of completed homes, the final aim is the sale of these homes to private individuals, thus reducing the risk and beginning a new business cycle. Here, the strategy has been to help subrogation (the default rate in this channel of business is notably lower than in any other channel of residential mortgages) and to support customers’ sales directly, using BBVA’s own channel (BBVA Services and our branches), creating incentives for sale and including sale orders for BBVA. In exceptional case we have even accepted partial haircuts, with the aim of making the sale easier.

●

In the case of ongoing home construction, the strategy has been to help and promote the completion of the construction in order to transfer the investment to completed homes. The whole developer Works in Progress portfolio has been reviewed and classified into different stages with the aim of using different tools to support the strategy. This includes the use of developer accounts-payable financing as a form of payment control, the use of project monitoring supported by the Real Estate Unit itself, and the management of direct suppliers for the works as a complement to the developer’s own management.

●

With respect to land, the fact that the risk of rustic land is not significant simplifies the management. Urban management and liquidity control to tackle urban planning costs are also subject to special monitoring.

For quantitative information about the risk related to the developer and Real-Estate sector in Spain see Appendix X.

8. Fair value

8.1 Fair value of financial instrument

The fair value of financial instrument is defined as the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. It is therefore a market-based measurement and not specific to each entity.

All financial instruments, both assets and liabilities are initially recognized at fair value, which at that point is equivalent to the transaction price, unless there is evidence to the contrary in the market. Subsequently, depending on the type of financial instrument, it may continue to be recognized at amortized cost or fair value through adjustments in the consolidated income statement or equity.

When possible, the fair value is determined as the market price of a financial instrument. However, for many of the financial assets and liabilities of the Group, especially in the case of derivatives, there is no market price available, so its fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, by using mathematical measurement models that are sufficiently tried and trusted by the international financial community. The estimates of the fair value derived from the use of such models take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent in the measurement models and possible inaccuracies in the assumptions and parameters required by these models may mean that the estimated fair value of an asset or liability does not exactly match the price for which the asset or liability could be exchanged or settled on the date of its measurement.

As part of the process established in the Group for determining the fair value in order to ensure that trading portfolio assets are properly valued, BBVA has established, at a geographic level, a structure of New Product Committees responsible for validating and approving new products or types of financial assets and liabilities before being contracted. Local responsible for valuation, are independent from the business (see Note 7) are members of these Committees.

These areas are required to ensure, prior to the approval stage, the existence of not only technical and human resources, but also adequate informational sources to measure the fair value these financial assets and liabilities, in accordance with the rules established by the Global Valuation Area and using models that have been validated and approved by the Risk Analytics Department that reports to Global Risk Management.

Additionally, for financial assets and liabilities that show significant uncertainty in inputs or model parameters used for valuation, criteria is established to measure said uncertainty and activity limits are set based on these. Finally, these measurements are compared, as much as possible, against other sources such as the measurements obtained by the business teams or those obtained by other market participants.

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The process for determining the fair value requires the classification of the financial assets and liabilities according to the measurement processes used as set forth below:

●

Level 1: Measurement using market observable quoted prices for the financial instrument in question, secured from independent sources and trading in referred to active markets - according to the Group policies. This level includes, listed equity instruments, some debt securities, some derivatives and mutual funds.

●

Level 2: Measurement that applies techniques using inputs drawn from observable market data.

●

Level 3: Measurement using techniques where some of the material inputs are not derived from market observable data. As of June 30, 2017, the affected instruments accounted for approximately 0.12% of financial assets and 0.02% of the Group’s financial liabilities registered at fair value. Model selection and validation is undertaken by control areas outside the market units.

Below is a comparison of the carrying amount of the Group’s financial instruments in the accompanying consolidated balance sheets and their respective fair values.


	Millions of Euros
Fair Value and Carrying Amount	Notes	June 2017				December 2016
Fair Value and Carrying Amount	Notes	Carrying Amount		Fair Value		Carrying Amount		Fair Value
ASSETS-

Cash, cash balances at central banks and other demand deposits	9		34,720		34,720		40,039		40,039
Financial assets held for trading	10		68,885		68,885		74,950		74,950
Financial assets designated at fair value through profit or loss	11		2,230		2,230		2,062		2,062
Available-for-sale financial assets	12		74,666		74,666		79,221		79,221
Loans and receivables	13		458,494		461,547		465,977		468,844
Held-to-maturity investments	14		14,531		14,628		17,696		17,619
Derivatives – Hedge accounting	15		2,223		2,223		2,833		2,833
LIABILITIES-							-		-

Financial liabilities held for trading	10		49,532		49,532		54,675		54,675
Financial liabilities designated at fair value through profit or loss	11		2,437		2,437		2,338		2,338
Financial liabilities at amortized cost	22		566,021		576,790		589,210		594,190
Derivatives – Hedge accounting	15		2,780		2,780		2,347		2,347

Not all financial assets and liabilities are recorded at fair value, so below we provide the information on financial instruments recorded at fair value and subsequently the information of those recorded at cost (including their fair value), although this value is not used when accounting for these instruments.

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8.1.1 Fair value of financial instrument recognized at fair value, according valuation criteria

The following table shows the main financial instruments carried at fair value in the accompanying consolidated balance sheets, broken down by the measurement technique used to determine their fair value:


					Millions of Euros
Fair Value of financial Instruments by Levels			June 2017						December 2016
Fair Value of financial Instruments by Levels	Notes		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
ASSETS-
Financial assets held for trading		10		31,825		36,944		116		32,544		42,221		184
Loans and advances				-		65		-		-		154		-
Debt securities				26,288		819		6		26,720		418		28
Equity instruments				4,109		38		53		4,570		9		96
Derivatives				1,427		36,021		57		1,254		41,640		60
Financial assets designated at fair value through profit or loss		11		2,230		-		-		2,062		-		-
Loans and advances				3		-		-		-		-		-
Debt securities				203		-		-		142		-		-
Equity instruments				2,023		-		-		1,920		-		-
Available-for-sale financial assets		12		61,932		11,475		638		62,125		15,894		637
Debt securities				58,737		11,344		434		58,372		15,779		429
Equity instruments				3,195		131		204		3,753		115		208
Hedging derivatives		15		29		2,189		5		41		2,792		-
LIABILITIES-
Financial liabilities held for trading		10		12,080		37,405		47		12,502		42,120		53
Derivatives				1,080		37,405		43		952		42,120		47
Short positions				11,000		-		5		11,550		-		6
Financial liabilities designated at fair value through profit or loss		11		-		2,435		2		-		2,338		-
Derivatives – Hedge accounting		15		-		2,731		49		94		2,189		64

The heading “Available-for-sale financial assets” in the accompanying consolidated balance sheets as of June 30, 2017 and December 31, 2016, additionally includes €621 and €565 million for equity instruments, respectively, for financial assets accounted for at cost, as indicated in the section of this Note entitled “Financial instruments at cost”.

Financial instruments carried at fair value corresponding to the companies that belong to Banco Provincial Group in Venezuela whose balance is denominated in “bolivares fuertes” are classified under Level 3 in the above tables (see Note 2.2.20).

The following table sets forth the main valuation techniques, hypothesis and inputs used in the estimation of fair value of the financial instruments classified under Levels 2 and 3, based on the type of financial asset and liability and the corresponding balances as of June 30, 2017:

F-91

Millions of Euros

Fair Value of financial Instruments by Levels
June 2017

Level 2

Level 3

Valuation technique(s)

Observable inputs

Unobservable inputs

ASSETS-

Financial assets held for trading

36,944

116

Loans and advances

Present-value method
(Discounted future cash flows)

- Issuer´s credit risk

- Current market interest rates

Debt securities

819

Present-value method
(Discounted future cash flows)

- Issuer´s credit risk

- Current market interest rates

- Prepayment rates

- Issuer´s credit risk

- Recovery rates

Equity instruments

Comparable pricing (Observable price in a similar market)
Present-value method

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Derivatives

36,021

Interest rate

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y SABR

Bond options: Black

Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assests prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Correlation between tenors

- Interes rates volatility

Equity

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Moment adjustment

- Volatility of volatility

- Assets correlation

Foreign exchange and gold

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments ajustment

- Volatility of volatility

- Assets correlation

Credit

Credit Derivatives: Default model and Gaussian copula

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

Commodities: Moment adjustment and Discounted cash flows

Available-for-sale financial assets

11,475

638

Debt securities

11,344

434

Present-value method
(Discounted future cash flows)

- Issuer´s credit risk

- Current market interest rates

- Prepayment rates

- Issuer credit risk

- Recovery rates

Equity instruments

131

204

Comparable pricing (Observable price in a similar market)
Present-value method

- Brokers quotes

- Market operations

- NAVs published

- NAV provided by the administrator of the fund

Hedging derivatives

2,189

Interest rate

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash flows

Caps/Floors: Black, Hull-White y SABR

Bond options: Black

Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assests prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

Equity

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Moment adjustment

Foreign exchange and gold

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments ajustment

Credit

Credit Derivatives: Default model and Gaussian copula

Commodities

Commodities: Moment adjustment and Discounted cash flows

F-92

Millions of Euros

Fair Value of financial Instruments by Levels
June 2017

Level 2

Level 3

Valuation technique(s)

Observable inputs

Unobservable inputs

LIABILITIES-

Financial liabilities held for trading

37,405

Derivatives

37,405

Interest rate

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash

flows

Caps/Floors: Black, Hull-White y SABR

Bond options: Black

Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assests prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Correlation between tenors

- Interes rates volatility

Equity

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Moment adjustment

- Volatility of volatility

- Assets correlation

Foreign exchange and gold

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments ajustment

- Volatility of volatility

- Assets correlation

Credit

Credit Derivatives: Default model and Gaussian copula

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

Commodities: Moment adjustment and Discounted cash flows

Short positions

Present-value method
(Discounted future cash flows)

- Correlation default

- Credit spread

- Recovery rates

- Interest rate yield

Financial liabilities designated at fair value through profit or loss

2,435

Present-value method
(Discounted future cash flows)

- Prepayment rates

- Issuer´s credit risk

- Current market interest rates

Derivatives – Hedge accounting

2,731

Interest rate

Interest rate products (Interest rate swaps, Call money Swaps y FRA): Discounted cash

flows

Caps/Floors: Black, Hull-White y SABR

Bond options: Black

Swaptions: Black, Hull-White y LGM

Other Interest rate options: Black, Hull-White y LGM

Constant Maturity Swaps: SABR

- Exchange rates

- Market quoted future prices

- Market interest rates

- Underlying assests prices: shares, funds, commodities

- Market observable volatilities

- Issuer credit spread levels

- Quoted dividends

- Market listed correlations

- Beta

- Correlation between tenors

- Interes rates volatility

Equity

Future and Equity Forward: Discounted future cash flows

Equity Options: Local Volatility, Moment adjustment

- Volatility of volatility

- Assets correlation

Foreign exchange and gold

Future and Equity Forward: Discounted future cash flows

Foreign exchange Options: Local Volatility, moments ajustment

- Volatility of volatility

- Assets correlation

Credit

Credit Derivatives: Default model and Gaussian copula

- Correlatio default

- Credit spread

- Recovery rates

- Interest rate yield

- Default volatility

Commodities

Commodities: Moment adjustment and Discounted cash flows

F-93

Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below:


Financial instrument	Valuation technique(s)	Significant unobservable inputs	Min		Max		Average		Units
Debt Securities	Net Present Value	Credit Spread		50.10		313.20		161.30	b.p.
Debt Securities	Net Present Value	Recovery Rate		0.01%		63.24%		38.98%	%
	Comparable pricing			0.29%		93.40%		38.53%	%
Equity instruments	Net Asset Value			Too wide Range to be relevant
Equity instruments	Comparable pricing			Too wide Range to be relevant
Credit Option	Gaussian Copula	Correlation Default		22.53%		69.44%		47.89%	%
Corporate Bond Option	Black 76	Price Volatility		0.00		0.00		0.00	vegas
Equity OTC Option	Heston	Forward Volatility Skew		63.60		63.60		63.60	Vegas
Interest Rate Option	Libor Market Model	Beta		0.25		18.00		9.00	%
		Correlation Rate/Credit		(100)		100			%
		Credit Default Volatility		0		0		0	Vegas

The main techniques used for the assessment of the main financial instruments classified in Level 3, and its main unobservable inputs, are described below:

●

The net present value (net present value method): This technique uses the future cash flows of each debt security, which are established in the different contracts, and discounted to their present value. This technique often includes many observable inputs, but may also include unobservable inputs, as described below:

–

Credit Spread: This input represents the difference in yield of a debt security and the reference rate, reflecting the additional return that a market participant would require to take the credit risk of that debt security. Therefore, the credit spread of the debt security is part of the discount rate used to calculate the present value of the future cash flows.

–

Recovery rate: This input represents the percentage of principal and interest recovered from a debt instrument that has defaulted.

●

Comparable prices (similar asset prices): This input represents the prices of comparable financial instruments and benchmarks used to calculate a reference yield based on relative movements from the entry price or current market levels. Further adjustments to account for differences that may exist between financial instrument being valued and the comparable financial instrument may be added. It can also be assumed that the price of the financial instrument is equivalent to the other.

●

Net asset value: This input represents the total value of the financial assets and liabilities of a fund and is published by the fund manager thereof.

●

Gaussian copula: This model is used to integrate default probabilities of credit instruments referenced to more than one underlying CDS. The joint density function used to value the instrument is constructed by using a Gaussian copula that relates the marginal densities by a normal distribution, usually extracted from the correlation matrix of events approaching default by CDS issuers.

●

Black 76: variant of Black Scholes model, whose main application is the valuation of bond options, cap floors and swaptions where the behavior of the Forward and not the Spot itself, is directly modeled.

●

Heston: This model, typically applied to equity OTC options, assumes stochastic behavior of volatility. According to which, the volatility follows a process that reverts to a long-term level and is correlated with the underlying equity instrument. As opposed to local volatility models, in which the volatility evolves deterministically, the Heston model is more flexible, allowing it to be similar to that observed in the short term today.

●

Libor market model: This model assumes that the dynamics of the interest rate curve can be modeled based on the set of forward contracts that compose the interest rate underlying. The correlation matrix is parameterized on the assumption that the correlation between any two forward contracts decreases at a constant rate, beta, to the extent of the difference in their respective due dates. The input “Credit default volatility” is a volatility input of the credit factor dynamic. The multifactorial frame of this model makes it ideal for the valuation of instruments sensitive to the slope or curve, including interest rate option.

F-94

Adjustments to the valuation for risk of default

The credit valuation adjustments (“CVA”) and debit valuation adjustments (“DVA”) are a part of derivative instrument valuations, both financial assets and liabilities, to reflect the impact in the fair value of the credit risk of the counterparty and its own, respectively.

These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, for all derivative products on any instrument at the legal entity level (all counterparties under a same ISDA / CMOF) in which BBVA has exposure.

As a general rule, the calculation of CVA is done through simulations of market and credit variables to calculate the expected positive exposure, given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the result of the expected negative exposure given the Exposure at Default and multiplying the result by the Loss Given Default of the counterparty. Both calculations are performed throughout the entire period of potential exposure.

The information needed to calculate the exposure at default and the loss given default come from the credit markets (Credit Default Swaps or iTraxx Indexes), where rating is available. For those cases where the rating is not available, BBVA implements a mapping process based on the sector, rating and geography to assign probabilities of both probability of default and loss given default, calibrated directly to market or with an adjustment market factor for the probability of default and the historical expected loss.

The amounts recognized in the Consolidated balance sheet as of June 30, 2017 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) and the derivative liabilities were €201 million and €179 million respectively. The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement during the first semester of 2017 and 2016 corresponding to the mentioned adjustments was a net impact of -€60 million and €17 million respectively.

Financial assets and liabilities classified as Level 3

The changes in the balance of Level 3 financial assets and liabilities included in the accompanying consolidated balance sheets are as follows:


	Millions of Euros
Financial Assets Level 3 Changes in the Period	June 2017				December 2016
Financial Assets Level 3 Changes in the Period	Assets		Liabilities		Assets		Liabilities
Balance at the beginning		822		116		463		182
Group incorporations		-		-		-		-
Changes in fair value recognized in profit and loss (*)		(73)		46		33		(86)
Changes in fair value not recognized in profit and loss		(12)		-		(81)		(3)
Acquisitions, disposals and liquidations (**)		13		(60)		438		(25)
Exchange differences and others		8		(4)		(31)		49
Balance at the end		758		99		822		116

(*)

Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of June 30, 2017 and December 31, 2016. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities (net)”.

(**)

Of which, in June 2017, the assets roll forward is comprised of €225 million of acquisitions, €160 millions of disposals and €53 millions of liquidations. The liabilities roll forward is comprised of €5 million of acquisitions and €50 million of disposals y 14 millions of liquidations.

For the six months ended June 30, 2017, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material.

Transfers between levels

The Global Valuation Area, in collaboration with the Technology and Methodology Area, has established the rules for a proper financials assets held for trading classification according to the fair value hierarchy defined by international accounting standards.

On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the accounting subsidiary. Then, there is a quarterly review of the portfolio in order to analyze the need for a change in classification of any of these assets.

F-95

The financial instruments transferred between the different levels of measurement in the first semester of 2017 are at the following amounts in the accompanying consolidated balance sheets as of June 30, 2017:


	Millions of Euros
Transfer Between Levels	From:	Level 1				Level 2				Level 3
Transfer Between Levels	To:	Level 2		Level 3		Level 1		Level 3		Level 1		Level 2
ASSETS
Financial assets held for trading			46		1		1		-		-		24
Available-for-sale financial assets			26		8		104		-		-		-
Total			72		9		105		-		-		24
LIABILITIES
Financial liabilities held for trading			4		-		-		-		-		-
Total			4		-		-		-		-		-

The amount of financial instruments that were transferred between levels of valuation during the first semester of 2017 is not material relative to the total portfolios, basically corresponding to the above revisions of the classification between levels because these financial instruments had modified some of its features. Specifically:

•	Transfers between Levels 1 and 2 represents mainly debt securities, which are either no longer listed on an active market (transfer from Level 1 to 2) or are just starting to be listed (transfer from Level 2 to 1).

•	Transfers from Level 1 to Level 3 affect equity instruments, using variables not obtained from observable date in the market.

•	Transfers between Levels 3 and 2 are carried out in equity instruments that change from applying commonly accepted valuation techniques using market observable data to using others that do not apply observable data.

Sensitivity Analysis

Sensitivity analysis is performed on financial instruments with significant unobservable inputs (financial instruments included in level 3), in order to obtain a reasonable range of possible alternative valuations. This analysis is carried out on a monthly basis, based on the criteria defined by the Global Valuation Area taking into account the nature of the methods used for the assessment and the reliability and availability of inputs and proxies used. In order to establish, with a sufficient degree of certainty, the valuating risk that is incurred in such assets without applying diversification criteria between them.

As of June 30, 2017, the effect on profit for the period and total equity of changing the main unobservable inputs used for the measurement of Level 3 financial instruments for other reasonably possible unobservable inputs, taking the highest (most favorable input) or lowest (least favorable input) value of the range deemed probable, would be as follows:


	Millions of Euros
	Potential Impact on Consolidated Income Statement				Potential Impact on Total Equity
Financial Assets Level 3 Sensitivity Analysis	Most Favorable Hypothesis		Least Favorable Hypothesis		Most Favorable Hypothesis		Least Favorable Hypothesis
ASSETS
Financial assets held for trading		15		(17)		-		-
Debt securities		8		(5)		-		-
Equity instruments		3		(8)		-		-
Derivatives		4		(4)		-		-
Available-for-sale financial assets		-		-		10		(21)
Debt securities		-		-		4		(4)
Equity instruments		-		-		6		(17)
LIABILITIES		-		-		-		-
Financial liabilities held for trading		-		-		-		-
Total		15		(17)		10		(21)

F-96

8.1.2

Fair value of financial instruments carried at cost

The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost are presented below:

•	The fair value of “Cash and cash balances at central banks and other demand deposits” approximates their book value, as it is mainly short-term balances.

•

The fair value of the “Loans and receivables”, “Held-to-maturity investments” and “financial liabilities at amortized cost” was estimated using the method of discounted expected future cash flows using market interest rates at the end of each year. Additionally, factors such as prepayment rates and correlations of default are taken into account.

The following table presents the fair value of key financial instruments carried at amortized cost in the accompanying consolidated balance sheets as of June 30, 2017 and December 31, 2016, broken down according to the method of valuation used for the estimation:


			Millions of Euros
Fair Value of financial Instruments at amortized cost by Levels	Notes		June 2017						December 2016
	Notes		Level 1		Level 2		Level 3		Level 1		Level 2		Level 3
ASSETS
Cash, cash balances at central banks and other demand deposits		9		34,288		-		431		39,373		-		666
Loans and receivables		13		-		10,068		451,479		-		10,991		457,853
Held-to-maturity investments		14		14,603		10		15		17,567		11		41
LIABILITIES				-		-		-
Financial liabilities at amortized cost		22		-		-		576,790		-		-		594,190

The main valuation techniques and inputs used to estimate the fair value of financial instruments accounted for at cost and classified in levels 2 and 3 is shown below. These are broken down by type of financial instrument and the balances correspond to those as of June 30, 2017:


Fair Value of financial Instruments by Levels December 2016	Level 2	Level 3	Valuation technique(s)	Observable inputs
ASSETS
Loans and receivables	10,068	451,479	Present-value method (Discounted future cash flows)
Central Banks	-	11,142		- Credit spread - Prepayment rates - Interest rate yield
Loans and advances to credit institutions	-	27,464		- Credit spread - Prepayment rates - Interest rate yield
Loans and advances to customers	-	411,606		- Credit spread - Prepayment rates - Interest rate yield
Debt securities	10,068	1,267		- Credit spread - Interest rate yield
Held-to-maturity investments	10	15
Debt securities	10	15	Present-value method (Discounted future cash flows)	- Credit spread - Interest rate yield
LIABILITIES
Financial liabilities at amortized cost	-	576,790
Central Banks	-	36,532	Present-value method (Discounted future cash flows)	- Issuer´s credit risk - Prepayment rates - Interest rate yield
Loans and advances to credit institutions	-	52,388
Loans and advances to customers	-	403,590
Debt securities	-	61,973
Other financial liabilities	-	22,306

F-97

Financial instruments at cost

As of June 30, 2017 and December 31, 2016 there were equity instruments and certain discretionary profit-sharing arrangements in some entities which were recognized at cost in the Group’s consolidated balance sheets because their fair value could not be reliably determined, as they were not traded in organized markets and reliable unobservable inputs are not available. On the above dates, the balances of these financial instruments recognized in the portfolio of available-for-sale financial assets amounted to €621 million and €565 million, respectively.

The table below outlines the financial instruments carried at cost that were sold in the six months period ended June 30, 2017 and during the year 2016:


	Millions of Euros
Sales of Financial Instruments at Cost	June 2017		December 2016
Amount of Sale (A)		17		201
Carrying Amount at Sale Date (B)		13		58
Gains/Losses (A-B)		4		142

8.2 Assets measured at fair value on a non-recurring basis

As indicated in Note 2.2.4, non-current assets held for sale are measured at the lower of their fair value less costs to sell and its carrying amount. As of June 30, 2017 nearly the entire book value of the non-current assets held for sale from foreclosures or recoveries approximate their fair value (see Note 20 and 21). The global valuation of the portfolio of assets has been carried out using a statistical methodology based on real estate and local macroeconomic variables.

Real estate properties have been appraised individually considering a hypothetical stand-alone sale and not as part of a real estate portfolio type of sale.

The portfolio of Non-current assets and disposal groups classified as held for sale by type of asset and inventories as of June 30, 2017 and December 31, 2016 is provided below by hierarchy of fair value measurements:


			Millions of Euros
Fair Value at Non-current assets and disposal groups classified as held for sale and inventories by levels	Notes		June 2017						December 2016
	Notes		Level 2		Level 3		Total		Level 2		Level 3		Total
Non-current assets and disposal groups classified as held for sale		21
Housing				1,864		296		2,160		2,059		301		2,360
Offices, warehouses and other				303		120		422		326		105		431
Land				-		161		161		-		150		150
TOTAL				2,166		576		2,743		2,385		556		2,941
Inventories		20
Housing				811		-		811		915		-		915
Offices, warehouses and other				585		-		585		620		-		620
Land				-		1,553		1,553		-		1,591		1,591
TOTAL				1,396		1,553		2,948		1,535		1,591		3,126

Since the amount of non-current assets and disposal groups classified as held for sale classified in Level 3 (€2.129 million) is not significant compared to the total consolidated assets and that the inputs used in the valuation (DRM or DFC), are diverse based on the type and geographic location (being the typical ones used in the valuation of real estate assets of this type), they have not been disclosed.

F-98

9.	Cash and cash balances at centrals and banks and other demands deposits and Financial liabilities measured at amortized cost

The breakdown of the balance under the headings “Cash and cash balances at central banks and other demands deposits” and “Financial liabilities at amortized cost – Deposits from central banks” in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Cash, cash balances at central banks and other demand deposits	June 2017		December 2016
Cash on hand		5,999		7,413
Cash balances at central banks		24,716		28,671
Other demand deposits		4,005		3,955
Total		34,720		40,039


			Millions of Euros
Financial liabilities measured at amortised cost Deposits from Central Banks	Notes		June 2017		December 2016
Deposits from Central Banks				31,678		30,022
Repurchase agreements		35		4,843		4,649
Accrued interest until expiration				4		69
Total		22		36,525		34,740

10.	Financial assets and liabilities held for trading

10.1	Breakdown of the balance

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Financial Assets and Liabilities Held-for-Trading	June 2017		December 2016
ASSETS-
Derivatives		37,505		42,955
Debt securities		27,114		27,166
Loans and advances		65		154
Equity instruments		4,201		4,675
Total Assets		68,885		74,950
LIABILITIES-
Derivatives		38,528		43,118
Short positions		11,004		11,556
Total Liabilities		49,532		54,675

F-99

10.2 Debt securities

The breakdown by type of issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Financial Assets Held-for-Trading Debt securities by issuer	June 2017		December 2016
Issued by Central Banks		841		544
Spanish government bonds		4,345		4,840
Foreign government bonds		18,952		18,781
Issued by Spanish financial institutions		223		218
Issued by foreign financial institutions		1,352		1,434
Other debt securities		1,401		1,349
Total		27,114		27,166

10.3 Equity instruments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:

Millions of Euros

Financial Assets Held-for-Trading

Equity instruments by Issuer

June

2017

December
2016

Shares of Spanish companies

Credit institutions

353

781

Other sectors

1,178

956

Subtotal

1,531

1,737

Shares of foreign companies

Credit institutions

137

220

Other sectors

2,533

2,718

Subtotal

2,670

2,938

Total

4,201

4,675

10.4 Derivatives

The derivatives portfolio arises from the Group’s need to manage the risks it is exposed to in the normal course of business and also to market products amongst the Group’s customers. As of June 30, 2017 and December 31, 2016, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties which are mainly foreign credit institutions, and related to foreign-exchange, interest-rate and equity risk.

Below is a breakdown of the net positions by transaction type of the fair value and notional amounts of derivatives recognized in the accompanying consolidated balance sheets, divided into organized and OTC markets:

F-100


	Millions of Euros
Derivatives by type of risk / by product or by type of market - June 2017	Assets		Liabilities		Notional amount - Total
Interest rate		23,158		22,990		1,916,724
OTC options		2,723		2,860		216,370
OTC other		20,435		20,130		1,671,866
Organized market options		-		-		2,001
Organized market other		-		-		26,487
Equity		2,067		2,779		101,648
OTC options		630		1,634		44,203
OTC other		71		88		6,319
Organized market options		1,366		1,057		47,471
Organized market other		-		-		3,655
Foreign exchange and gold		11,869		12,303		422,088
OTC options		232		319		26,422
OTC other		11,609		11,954		390,876
Organized market options		1		1		36
Organized market other		28		30		4,754
Credit		390		424		25,550
Credit default swap		384		413		23,801
Credit spread option		-		-		-
Total return swap		6		11		1,750
Other		-		-		-
Commodities		8		8		80
Other		13		24		1,021
DERIVATIVES		37,505		38,528		2,467,111
of which: OTC - credit institutions		22,589		25,152		915,536
of which: OTC - other financial corporations		8,303		8,767		1,303,678
of which: OTC - other		5,216		3,521		163,491

F-101


	Millions of Euros
Derivatives by type of risk / by product or by type of market - December 2016	Assets		Liabilities		Notional amount - Total
Interest rate		25,770		25,322		1,556,150
OTC options		3,331		3,428		217,958
OTC other		22,339		21,792		1,296,183
Organized market options		1		-		1,311
Organized market other		100		102		40,698
Equity		2,032		2,252		90,655
OTC options		718		1,224		44,837
OTC other		109		91		5,312
Organized market options		1,205		937		36,795
Organized market other		-		-		3,712
Foreign exchange and gold		14,872		15,179		425,506
OTC options		417		539		27,583
OTC other		14,436		14,624		392,240
Organized market options		3		-		175
Organized market other		16		16		5,508
Credit		261		338		19,399
Credit default swap		246		230		15,788
Credit spread option		-		-		150
Total return swap		2		108		1,895
Other		14		-		1,565
Commodities		6		6		169
Other		13		22		1,065
DERIVATIVES		42,955		43,118		2,092,945
of which: OTC - credit institutions		26,438		28,005		806,096
of which: OTC - other financial corporations		8,786		9,362		1,023,174
of which: OTC - other		6,404		4,694		175,473

F-102

11. Financial assets and liabilities designated at fair value through profit or loss

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Financial assets and liabilities designated at fair value through profit or loss	June 2017		December 2016
ASSETS-
Equity instruments		2,023		1,920
Unit-linked products		1,807		1,749
Other securities		216		171
Debt securities		203		142
Unit-linked products		203		128
Other securities		-		14
Loans and advances to credit institutions		3		-
Total Assets		2,230		2,062
LIABILITIES-
Customer deposits		2		-
Other financial liabilities		2,434		2,338
Unit-linked products		2,434		2,338
Total Liabilities		2,437		2,338

As of June 30, 2017 and December 31, 2016, the most significant balances within financial assets and liabilities designated at fair value through profit or loss related to assets and liabilities linked to insurance products where the policyholder bears the risk (“Unit-Link”). This type of product is sold only in Spain, through BBVA Seguros SA, insurance and reinsurance and in Mexico through Seguros Bancomer S.A. de CV.

Since the liabilities linked to insurance products in which the policyholder assumes the risk are valued the same way as the assets associated to these insurance products, there is no credit risk component borne by the Group in relation to these liabilities.

12. Available-for-sale financial assets

12.1 Available-for-sale financial assets - Balance details

The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:

Millions of Euros

Available-for-Sale Financial Assets

June
2017

December
2016

Debt securities

70,614

74,739

Impairment losses

(99)

(159)

Subtotal

70,514

74,580

Equity instruments

4,319

4,814

Impairment losses

(168)

(174)

Subtotal

4,151

4,641

Total

74,666

79,221

F-103

12.2 Debt securities

The breakdown of the balance under the heading “Debt securities” of the accompanying financial statements, broken down by the nature of the financial instruments, is as follows:


	Millions of Euros
Available-for-sale financial assets Debt Securities June 2017	Amortized Cost (*)		Unrealized Gains		Unrealized Losses		Book Value
Domestic Debt Securities
Spanish Government and other government agency debt securities		21,689		739		(15)		22,414
Other debt securities		2,121		119		(1)		2,239
Issued by Central Banks		-		-		-		-
Issued by credit institutions		951		77		-		1,028
Issued by other issuers		1,170		42		(1)		1,211
Subtotal		23,810		858		(15)		24,653
Foreign Debt Securities
Mexico		11,341		153		(161)		11,332
Mexican Government and other government agency debt securities		9,826		145		(139)		9,832
Other debt securities		1,515		8		(23)		1,500
Issued by Central Banks		-		-		-		-
Issued by credit institutions		115		1		(1)		116
Issued by other issuers		1,400		6		(22)		1,384
The United States		12,763		46		(186)		12,623
Government securities		8,489		15		(84)		8,420
US Treasury and other US Government agencies		2,553		8		(14)		2,547
States and political subdivisions		5,936		7		(71)		5,873
Other debt securities		4,273		31		(101)		4,203
Issued by Central Banks		-		-		-		-
Issued by credit institutions		66		1		-		67
Issued by other issuers		4,207		30		(101)		4,136
Turkey		4,982		109		(71)		5,020
Turkey Government and other government agency debt securities		4,869		107		(70)		4,906
Other debt securities		113		2		(1)		114
Issued by Central Banks		-		-		-		-
Issued by credit institutions		85		1		(1)		85
Issued by other issuers		28		1		-		29
Other countries		16,449		613		(176)		16,886
Other foreign governments and other government agency debt securities		8,059		370		(107)		8,322
Other debt securities		8,390		243		(69)		8,564
Issued by Central Banks		2,157		3		(1)		2,159
Issued by credit institutions		3,005		140		(44)		3,101
Issued by other issuers		3,228		100		(23)		3,304
Subtotal		45,535		920		(594)		45,861
Total		69,345		1,779		(609)		70,514

(*)

The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

F-104


	Millions of Euros
Available-for-sale financial assets Debt Securities December 2016	Amortized Cost (*)		Unrealized Gains		Unrealized Losses		Book Value
Domestic Debt Securities
Spanish Government and other general governments agencies debt securities		22,427		711		(18)		23,119
Other debt securities		2,305		117		(1)		2,421
Issued by Central Banks		-		-		-		-
Issued by credit institutions		986		82		-		1,067
Issued by other issuers		1,319		36		(1)		1,354
Subtotal		24,731		828		(19)		25,540
Foreign Debt Securities
Mexico		11,525		19		(343)		11,200
Mexican Government and other general governments agencies debt securities		9,728		11		(301)		9,438
Other debt securities		1,797		8		(42)		1,763
Issued by Central Banks		-		-		-		-
Issued by credit institutions		86		2		(1)		87
Issued by other issuers		1,710		6		(41)		1,675
The United States		14,256		48		(261)		14,043
Government securities		8,460		9		(131)		8,337
US Treasury and other US Government agencies		1,702		1		(19)		1,683
States and political subdivisions		6,758		8		(112)		6,654
Other debt securities		5,797		39		(130)		5,706
Issued by Central Banks		-		-		-		-
Issued by credit institutions		95		2		-		97
Issued by other issuers		5,702		37		(130)		5,609
Turkey		5,550		73		(180)		5,443
Turkey Government and other general governments agencies debt securities		5,055		70		(164)		4,961
Other debt securities		495		2		(16)		482
Issued by Central Banks		-		-		-		-
Issued by credit institutions		448		2		(15)		436
Issued by other issuers		47		-		(1)		46
Other countries		17,923		634		(203)		18,354
Other foreign governments and other general governments agencies debt securities		7,882		373		(98)		8,156
Other debt securities		10,041		261		(105)		10,197
Issued by Central Banks		1,657		4		(2)		1,659
Issued by credit institutions		3,269		96		(54)		3,311
Issued by other issuers		5,115		161		(49)		5,227
Subtotal		49,253		773		(987)		49,040
Total		73,985		1,601		(1,006)		74,580

(*)

The amortized cost includes portfolio gains/losses linked to insurance contracts in which the policyholder assumes the risk in case of redemption.

F-105

The credit ratings of the issuers of debt securities in the available-for-sale portfolio as of June 30, 2017 and December 31, 2016, are as follows:



	June 2017					December 2016
Available for Sale financial assets Debt Securities by Rating	Fair Value (Millions of Euros)		%			Fair Value (Millions of Euros)		%
AAA		1,002		1.4	%		4,922		6.6	%
AA+		11,195		15.9	%		11,172		15.0	%
AA		545		0.8	%		594		0.8	%
AA-		542		0.8	%		575		0.8	%
A+		692		1.0	%		1,230		1.6	%
A		489		0.7	%		7,442		10.0	%
A-		1,027		1.5	%		1,719		2.3	%
BBB+		41,118		58.3	%		29,569		39.6	%
BBB		3,836		5.4	%		3,233		4.3	%
BBB-		6,159		8.7	%		6,809		9.1	%
BB+ or below		1,668		2.4	%		2,055		2.8	%
Without rating		2,242		3.2	%		5,261		7.1	%
Total		70,514		100.0	%		74,580		100.0	%

F-106

12.3 Equity instruments

The breakdown of the balance under the heading “Equity instruments” of the accompanying financial statements as of June 30, 2017 and December 31, 2016, is as follows:


	Millions of Euros
Available-for-sale financial assets Equity Instruments June 2017	Amortized Cost		Unrealized Gains		Unrealized Losses		Book Value
Equity instruments listed
Listed Spanish company shares		3,667		33		(880)		2,820
Credit institutions		-		-		-		-
Other entities		3,667		33		(880)		2,820
Listed foreign company shares		428		110		(10)		528
United States		24		24		-		48
Mexico		10		40		-		50
Turkey		5		1		-		6
Other countries		389		45		(9)		425
Subtotal		4,095		143		(890)		3,348
Unlisted equity instruments
Unlisted Spanish company shares		44		1		(1)		44
Credit institutions		4		-		-		4
Other entities		39		1		(1)		39
Unlisted foreign companies shares		698		71		(9)		759
United States		537		26		(7)		555
Mexico		1		-		-		1
Turkey		17		7		(2)		22
Other countries		143		38		-		181
Subtotal		742		72		(10)		803
Total		4,837		215		(900)		4,151

F-107


	Millions of Euros
Available-for-sale financial assets Equity Instruments December 2016	Amortized Cost		Unrealized Gains		Unrealized Losses		Fair Value
Equity instruments listed
Listed Spanish company shares		3,690		17		(944)		2,763
Credit institutions		-		-		-		-
Other entities		3,690		17		(944)		2,763
Listed foreign company shares		793		289		(15)		1,066
United States		16		22		-		38
Mexico		8		33		-		41
Turkey		5		1		-		6
Other countries		763		234		(15)		981
Subtotal		4,483		306		(960)		3,829
Unlisted equity instruments
Unlisted Spanish company shares		57		2		(1)		59
Credit institutions		4		-		-		4
Other entities		53		2		(1)		55
Unlisted foreign companies shares		708		46		(2)		752
United States		537		13		-		550
Mexico		1		-		-		1
Turkey		18		7		(2)		24
Other countries		152		26		-		178
Subtotal		766		48		(3)		811
Total		5,248		355		(962)		4,641

12.4 Gains/losses

The changes in the gains/losses, net of taxes, recognized under the equity heading “Accumulated other comprehensive income – Items that may be reclassified to profit or loss- Available-for-sale financial assets” in the accompanying consolidated balance sheets are as follows:


	Millions of Euros
Accumulated other comprehensive income-Items that may be reclassified to profit or loss- Available-for-Sale Financial Assets		June 2017	June 2016
Balance at the beginning		947	1,674
Valuation gains and losses		666	418
Income tax		(15)	(5)
Amounts transferred to income		(614)	(401)
Other reclassifications		-	-
Balance at the end		984	1,686
Of which:
Debt securities		1,726	2,229
Equity instruments		(742)	(543)

F-108

Debt securities

During the first semester 2017, the debt securities recoveries recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss- Available- for-sale financial assets” in the accompanying consolidated income statement amounted to €11 million. In the first semester of 2016 the impairment recognized was €125 million (see Note 47).

For the rest of debt securities, the 89.1% of the unrealized losses recognized under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss– Available-for-sale financial assets” and originating in debt securities were generated over more than twelve months. However, no impairment was recognized, as following an analysis of these unrealized losses we concluded that they were temporary due to the following reasons: the interest payment dates of all the fixed-income securities have been satisfied; and because there is no evidence that the issuer will not continue to meet its payment obligations, nor that future payments of both principal and interest will not be sufficient to recover the cost of the debt securities.

Equity instruments

As mentioned in Note 2.2.1, as a general policy, the Group considers that there is objective evidence of impairment on equity instruments classified as available-for-sale when, in a consistent manner, significant unrealized losses have existed over a sustained period of time due to a price reduction of at least 40% or over a period of more than 18 months.

However, when assessing the objective evidence of impairment, the Group takes into account the price volatility of each instrument individually, to determine whether it is a recoverable amount if sold to the market. There may be other thresholds for certain specific securities or sectors.

As of June 30, 2017, the Group’s most significant investment in equity instruments classified as available for sale was the participation in Telefónica, S.A. (Telefónica), which accounted for approximately 70% of the portfolio of listed equity instruments classified as available for sale financial assets.

The Group periodically monitors the valuation of its participation in Telefónica, taking into account the volatility of the share price and the estimated amount recoverable through its sale in the market.

BBVA considers that the use of volatility is an appropriate reference for categorizing investments with similar risk profiles when determining if there is a prolonged decline in value. The comparison of the volatility of Telefónica’s shares with other market benchmarks shows a clearly lower level of volatility in these shares in the periods observed until June 2017.

As a consequence, beginning 2012, the time threshold that the Group monitors when assessing the possible existence of impairment in the case of Telefónica’s participation when there is a prolonged decline in share price is calculated by using its volatility analysis, being greater than 18 months.

As of June 30, 2017, Telefónica shares had been below the average share acquisition cost for a period of 19.4 months, within the range contemplated in the specific policy for these securities. As of that date, the unrealized loss for Telefónica amounted to €880 million and is recorded in equity under “Accumulated other comprehensive income – Items that may be reclassified to profit and loss – Available for sale financial assets”.

In the first six months of 2017, the unrealized losses recognized under the heading “Accumulated other comprehensive income - Items that may be reclassified to profit or loss– Available-for-sale financial assets” resulting from equity instruments are not significant in the accompanying consolidated financial statements.

F-109

13. Loans and receivables

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:


			Millions of Euros
Loans and Receivables	Notes		June 2017		December 2016
Debt securities		13.3		11,328		11,209
Loans and advances to central banks		13.1		11,142		8,894
Loans and advances to credit institutions		13.1		26,937		31,373
Loans and advances to customers		13.2		409,087		414,500
Total				458,494		465,977

13.1 Loans and advances to central banks and credit institutions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:


			Millions of Euros
Loans and Advances to Central Banks and Credit Institutions	Notes		June 2017		December 2016
Loans and advances to central banks				11,124		8,872
Loans and advances to credit institutions				26,913		31,364
Deposits with agreed maturity				4,251		5,063
Other accounts				12,040		10,739
Reverse repurchase agreements		35		10,622		15,561
Total gross		7.3.1		38,037		40,235
Valuation adjustments				41		32
Impairment losses		7.3.4		(29)		(43)
Accrued interests and fees				70		75
Derivatives – Hedge accounting and others				-		-
Total net				38,079		40,267

F-110

13.2 Loans and advances to customers

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:


			Millions of Euros
Loans and Advances to Customers	Notes		June 2017		December 2016
Mortgage secured loans				138,048		142,269
Operating assets mortgage loans				9,375		9,376
Home mortgages				118,803		122,758
Rest of mortgages				9,869		10,135
Other loans secured with security interest				60,180		59,898
Cash guarantees				1,224		1,253
Secured loan (pledged securities)				443		709
Rest of secured loans (*)				58,514		57,936
Unsecured loans				133,966		134,275
Credit lines				13,034		12,268
Commercial credit				14,512		14,877
Receivable on demand and other				9,315		8,858
Credit cards				15,017		15,238
Finance leases				8,824		9,144
Reverse repurchase agreements		35		6,640		7,279
Financial paper				1,005		1,020
Impaired assets		7.3.4		21,730		22,915
Total gross		7.3.1		422,271		428,041
Valuation adjustments				(13,184)		(13,541)
Impairment losses		7.3.4		(15,318)		(15,974)
Derivatives – Hedge accounting and others				1,113		1,222
Rest of valuation adjustments				1,021		1,211
Total net				409,087		414,500

(*)

Includes loans with cash collateral, other financial assets with partial real estate and cash collateral.

As of June 30, 2017, 34% of “Loans and advances to customers” with maturity greater than one year have fixed-interest rates and 66% have variable interest rates.

F-111

The heading “Loans and receivables – Loans and advances to customers” in the accompanying consolidated balance sheets also includes certain secured loans that, as mentioned in Appendix VIII and pursuant to the Mortgage Market Act, are linked to long-term mortgage-covered bonds. This heading also includes some loans that have been securitized. The balances recognized in the accompanying consolidated balance sheets corresponding to these securitized loans are as follows:


	Millions of Euros
Securitized Loans	June 2017	December 2016
Securitized mortgage assets	28,212	29,512
Other securitized assets	4,579	3,731
Commercial and industrial loans	292	762
Finance leases	81	100
Loans to individuals	3,253	2,269
Other	953	601
Total	32,791	33,243
Of which:
Liabilities associated to assets retained on the balance sheet (*)	5,967	6,525

(*)

These liabilities are recognized under “Financial liabilities at amortized cost - Debt securities” in the accompanying consolidated balance sheets (Note 22.3).

13.3 Debt securities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the issuer of the debt security, is as follows:


		Millions of Euros
Debt securities	Notes	June 2017	December 2016
Government		4,949	4,709
Credit institutions		50	37
Other sectors		6,348	6,481
Total gross	7.3.1	11,348	11,226
Impairment losses		(20)	(17)
Total net		11,328	11,209

In 2016, some debt securities were reclassified from “Available-for-sale financial assets” to “Loans and receivables-Debt securities”. The following table shows the fair value and carrying amounts of these reclassified financial assets:

Millions of Euros

As of Reclassification date

As of June 30, 2017

As of December 31, 2016

Debt Securities reclassified to “Loans and receivables” from “Available-for-sale financial assets”

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

BBVA S.A.

862

819

843

844

863

Total

862

819

843

844

863

F-112

As of June 30, 2017 and December 31, 2016, the amount recognized in the income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, if the reclassification was not performed.


	Millions of Euros
	As of June 30, 2017						As of December 31, 2016
	Recognized in		Effect of not Reclassifying in				Recognized in		Effect of not Reclassifying in
Effect on Income Statement and Other Comprehensive Income	Income Statement		Income Statement		Equity “Valuation Adjustments”		Income Statement		Income Statement		Equity “Valuation Adjustments”
BBVA S.A.		13		13		5		22		22		(5	)
Total		13		13		5		22		22		(5	)

14. Held-to-maturity investments

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the according to the issuer of the financial instrument, is as follows:


	Millions of Euros
Held-to-maturity investments Debt Securities	June 2017		December 2016
Domestic Debt Securities
Spanish Government and other general governments agencies debt securities		6,075		8,063
Other debt securities		326		562
Issued by Central Banks		-		-
Issued by credit institutions		281		494
Issued by other issuers		45		68
Subtotal		6,401		8,625
Foreign Debt Securities
Mexico		-		-
The United States		-		-
Turkey		5,644		6,184
Turkey Government and other general governments agencies debt securities		4,802		5,263
Other debt securities		842		921
Issued by Central Banks		-		-
Issued by credit institutions		800		876
Issued by other issuers		42		45
Other countries		2,486		2,887
Other foreign governments and other general governments agencies debt securities		2,384		2,719
Other debt securities		102		168
Issued by Central Banks		-		-
Issued by credit institutions		81		146
Issued by other issuers		21		22
Subtotal		8,130		9,071
Total		14,531		17,696

As of June 30, 2017 and December 31, 2016, the credit ratings of the issuers of debt securities classified as held-to-maturity investments were as follows:

F-113


	June 2017				December 2016
Held to maturity investments Debt Securities by Rating	Book value (Millions of Euros)		%		Book value (Millions of Euros)		%
AAA		-		-		-		-
AA+		-		-		-		-
AA		42		0.3%		43		0.2%
AA-		1		-		134		0.8%
A+		55		0.4%		-		-
A		-		-		-		-
A-		-		-		-		-
BBB+		8,252		56.8%		10,472		59.2%
BBB		294		2.0%		591		3.3%
BBB-		3,075		21.2%		5,187		29.3%
BB+ or below		1,751		12.1%		-		-
Without rating		1,061		7.3%		1,270		7.2%
Total		14,531		100.0%		17,696		100%

In 2016, some debt securities were reclassified from “Available-for-sale financial assets” to “Held-to-maturity investments”. The following table shows the fair value and carrying amounts of these reclassified financial assets:

Millions of Euros

As of Reclassification date

As of June 30, 2017

As of December 31, 2016

Debt Securities reclassified to “Held to Maturity Investments”

Carrying Amount

Fair Value

Carrying Amount

Fair Value

Carrying Amount

Fair Value

BBVA S.A.

11,162

6,958

6,979

9,589

9,635

TURKIYE GARANTI BANKASI A.S

6,488

5,712

5,822

6,230

6,083

Total

17,650

12,670

12,801

15,819

15,718

The fair value carrying amount of these financials asset on the date of the reclassification becomes its new amortized cost. The previous gain on that asset that has been recognized in “Accumulated other comprehensive income – Items that may be reclassified to profit or loss - Available for sale financial assets” is amortized to profit or loss over the remaining life of the held-to-maturity investment using the effective interest method. Any difference between the new amortized cost and maturity amount is also amortized over the remaining life of the financial asset using the effective interest method, similar to the amortization of a premium and a discount. This reclassification was triggered by a change in the Group´s strategy regarding the management of these securities.

The following table shows as of June 30, 2017 and December 31, 2016, the amount recognized in the income statement from the valuation at amortized cost of the reclassified financial assets, as well as the impact recognized on the income statement and under the heading “Total Equity - Accumulated other comprehensive income”, if the reclassification was not performed.


	Millions of Euros
	As of June 30, 2017							As of December 31, 2016
	Recognized in		Effect of not Reclassifying					Recognized in		Effect of not Reclassifying
Effect on Income Statement and Other Comprehensive Income	Income Statement		Income Statement		Equity “Accumulated other comprehensive income”			Income Statement		Income Statement		Equity “Accumulated other comprehensive income”
BBVA S.A.		87		87		(28	)		230		230		(86	)
TURKIYE GARANTI BANKASI A.S		237		237		71			326		326		(225	)
Total		323		323		43			557		557		(311	)

F-114

15.	Hedging derivatives and fair value changes of the hedged items in portfolio hedge of interest rate risk

The balance of these headings in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk	June 2017	December 2016
ASSETS-
Hedging Derivatives	2,223	2,833

Fair value changes of the hedged items in portfolio hedges of interest rate risk	14	17
LIABILITIES-
Hedging Derivatives	2,780	2,347

Fair value changes of the hedged items in portfolio hedges of interest rate risk	11	-

As of June 30, 2017 and December 30, 2016, the main positions hedged by the Group and the derivatives designated to hedge those positions were:

●

Fair value hedging:

–

Available-for-sale fixed-interest debt securities and loans and receivables: The interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps) and forward sales.

–

Long-term fixed-interest debt securities issued by the Bank: the interest rate risk of these securities is hedged using interest rate derivatives (fixed-variable swaps).

–

Fixed-interest loans: The equity price risk of these instruments is hedged using interest rate derivatives (fixed-variable swaps).

–

Fixed-interest and/or embedded derivative deposit portfolio hedges: it covers the interest rate risk through fixed-variable swaps. The valuation of the loan deposits corresponding to the interest rate risk is in the heading “Fair value changes of the hedged items in portfolio hedges of interest rate risk”.

–

Fixed-interest and/or embedded derivative issuances hedges: The interest rate risk is hedged with fixed-variable swaps. The valuation of the issuances corresponding to interest rate risk is recorded under the heading “Fair value changes of the hedged items in portfolio hedges of interest rate risk”.

●

Cash-flow hedges: Most of the hedged items are floating interest-rate loans and asset hedges linked to the inflation of the available for sale portfolio. This risk is hedged using foreign-exchange, interest-rate swaps, inflation and FRA’s (“Forward Rate Agreement”).

●

Net foreign-currency investment hedges: These hedged risks are foreign-currency investments in the Group’s foreign subsidiaries. This risk is hedged mainly with foreign-exchange options and forward currency sales and purchases.

Note 7 analyze the Group’s main risks that are hedged using these derivatives.

F-115

The details of the net positions by hedged risk of the fair value of the hedging derivatives recognized in the accompanying consolidated balance sheets are as follows:


	Millions of Euros
Hedging Derivatives Breakdown by type of risk and type of hedge- June 2017		Assets	Liabilities
Interest rate		1,186	867
OTC options		114	116
OTC other		1,072	751
Organized market options		-	-
Organized market other		-	-
Equity		-	36
OTC options		-	36
OTC other		-	-
Organized market options		-	-
Organized market other		-	-
Foreign exchange and gold		606	397
OTC options		-	-
OTC other		606	397
Organized market options		-	-
Organized market other		-	-
Credit		-	-
Commodity		-	-
Other		-	-
FAIR VALUE HEDGES		1,792	1,300
Interest rate		131	384
OTC options		-	-
OTC other		126	384
Organized market options		-	-
Organized market other		5	-
Equity		-	-
Foreign exchange and gold		187	615
OTC options		65	112
OTC other		122	503
Organized market options		-	-
Organized market other		-	-
Credit		-	-
Commodity		-	-
Other		-	-
CASH FLOW HEDGES		318	999
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION		57	194
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK		53	287
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK		4	-
DERIVATIVES-HEDGE ACCOUNTING		2,223	2,780
of which: OTC - credit institutions		1,703	2,394
of which: OTC - other financial corporations		513	207
of which: OTC - other		3	179

F-116


	Millions of Euros
Hedging Derivatives Breakdown by type of risk and type of hedge December 2016		Assets	Liabilities
Interest rate		1,154	974
OTC options		125	118
OTC other		1,029	856
Organized market options		-	-
Organized market other		-	-
Equity		-	50
OTC options		-	50
OTC other		-	-
Organized market options		-	-
Organized market other		-	-
Foreign exchange and gold		817	553
OTC options		-	-
OTC other		817	553
Organized market options		-	-
Organized market other		-	-
Credit		-	-
Commodities		-	-
Other		-	-
FAIR VALUE HEDGES		1,970	1,577
Interest rate		194	358
OTC options		-	-
OTC other		186	358
Organized market options		-	-
Organized market other		8	-
Equity		-	-
Foreign exchange and gold		248	118
OTC options		89	70
OTC other		160	48
Organized market options		-	-
Organized market other		-	-
Credit		-	-
Commodities		-	-
Other		-	-
CASH FLOW HEDGES		442	476
HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION		362	79
PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK		55	214
PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK		4	-
DERIVATIVES-HEDGE ACCOUNTING		2,833	2,347
of which: OTC - credit institutions		2,381	2,103
of which: OTC - other financial corporations		435	165
of which: OTC - other		9	79

F-117

The cash flows forecasts for the coming years for cash flow hedging recognized on the accompanying consolidated balance sheet as of June 30, 2017 are:


	Millions of Euros
Cash Flows of Hedging Instruments	3 Months or Less		From 3 Months to 1 Year		From 1 to 5 Years		More than 5 Years		Total
Receivable cash inflows		390		786		2,140		2,885		6,201
Payable cash outflows		194		753		2,319		3,284		6,550

The above cash flows will have an impact on the Group’s consolidated income statements until 2057.

During the six months ended June 30, 2017 and 2016, there was no reclassification in the accompanying consolidated income statements of any amount corresponding to cash flow hedges that was previously recognized in equity (see note 41).

The amount for derivatives designated as accounting hedges that did not pass the effectiveness test during the years ended June 30, 2017 and for the year ended 2016 were not material.

16. Investments in subsidiaries, joint ventures and associates

16.1 Associates and joint venture entities

The breakdown of the balance of “Investments in joint ventures and associates” (see Note 2.1) in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Associates Entities and joint ventures. Breakdown by entities	June 2017		December 2016
Joint ventures
Fideic F 403853 5 Bbva Bancom Ser.Zibata		30		33
Fideicomiso 1729 Invex Enajenacion de Cartera		60		57
PSA Finance Argentina Compañia Financier		15		21
Altura Markets, S.V., S.A.		62		19
RCI colombia		19		17
Other joint ventures		81		82
Subtotal		267		229
Associates Entities
Metrovacesa Suelo y Promoción, SA		203		208
Testa Residencial SOCIMI SAU		434		91
Metrovacesa Promoción y Arrendamientos SA		64		67
Atom Bank PLC		52		43
Brunara		-		-
Metrovacesa		-		-
Servired		8		11
Other associates		114		116
Subtotal		875		536
Total		1,142		765

Details of the joint ventures and associates as of June 30, 2017 are shown in Appendix II.

The following is a summary of the changes in the in the six months ended June 30, 2017 and as of December 31, 2016 under this heading in the accompanying consolidated balance sheets:

F-118


	Millions of Euros
Associates Entities and joint ventures. Changes in the Year	Notes		June 2017		December 2016
Balance at the beginning				765		879
Acquisitions and capital increases				405		456
Disposals and capital reductions				(7)		(91)
Transfers and changes of consolidation method				-		(351)
Share of profit and loss		39		(8)		25
Exchange differences				(1)		(34)
Dividends, valuation adjustments and others				(12)		(118)
Balance at the end				1,142		765

The variation in the six months ended June 30, 2017 is mainly explained by the increase of BBVA Propiedad, S.A. stake in Testa Residencial through its contribution to the capital increase carried out by the latter entity by contributing assets from the Bank’s real estate assets.

Appendix III provides notifications on acquisitions and disposals of holdings in subsidiaries, joint ventures and associates, in compliance with Article 155 of the Corporations Act and Article 53 of the Securities Market Act 24/1988.

16.2 Other information about associates and joint ventures

If these entities had been consolidated rather than accounted for using the equity method, the change in each of the lines of balance sheet and the consolidated income statement would not be significant.

As of June 30, 2017 and December 31, 2016 there was no financial support agreement or other contractual commitment to associates and joint ventures entities from the holding or the subsidiaries that are not recognized in the financial statements (see Note 53.2).

As of June 30, 2017 and December 31, 2016 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2).

16.3 Impairment

As described in IAS 36, when there is indicator of impairment, the book value of the associates and joint venture entities should be compared with their recoverable amount, being the latter calculated as the higher between the value in use and the fair value minus the cost of sale. As of June 30, 2017 and 2016, there was no significant impairments recognized.

F-119

17. Tangible assets

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:


	Millions of Euros
Tangible Assets. Breakdown by Type of Asset Cost Value, Depreciation and impairments	June 2017			December 2016
Property plant and equipment
For own use
Land and Buildings		6,073			6,176
Work in Progress		211			240
Furniture, Fixtures and Vehicles		7,041			7,059
Accumulated depreciation		(5,674	)		(5,577	)
Impairment		(377	)		(379	)
Subtotal		7,274			7,519
Leased out under an operating lease
Assets leased out under an operating lease		458			958
Accumulated depreciation		(83	)		(216	)
Impairment		-			(10	)
Subtotal		374			732
Subtotal		7,648			8,250
Investment property
Building rental		938			1,119
Other		43			44
Accumulated depreciation		(58	)		(63	)
Impairment		(359	)		(409	)
Subtotal		563			691
Total		8,211			8,941

The amortization amounts included under this heading for the six months ended June 30, 2017 and 2016 are detailed in Note 45.

The main activity of the Group is carried out through a network of bank branches located geographically as shown in the following table:


	Number of Branches
Branches by Geographical Location	June 2017		December 2016
Spain		3,115		3,303
Mexico		1,834		1,836
South America		1,664		1,667
The United States		650		676
Turkey		1,119		1,131
Rest of Eurasia		39		47
Total		8,421		8,660

The following table shows the detail of the net carrying amount of the tangible assets corresponding to Spanish and foreign subsidiaries as of June 30, 2017 and 2016:


	Millions of Euros
Tangible Assets by Spanish and Foreign Subsidiaries Net Assets Values	June 2017		December 2016
BBVA and Spanish subsidiaries		3,085		3,692
Foreign subsidiaries		5,126		5,249
Total		8,211		8,941

F-120

18. Intangible assets

18.1 Goodwill

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating units (CGUs), is as follows:


	Millions of Euros
Breakdown by CGU and Changes during the first semester of 2017	Balance at the Beginning	Additions	Exchange Differences	Impairment	Other	Balance at the End
The United States	5,503	-	(420)	-	-	5,083
Turkey	624	-	(48)	-	-	576
Mexico	523	14	30	-	-	567
Colombia	191	-	(17)	-	-	174
Chile	68	-	(5)	-	-	63
Other	28	-	-	(4)	-	24
Total	6,937	14	(460)	(4)	-	6,487

	Millions of Euros
Breakdown by CGU and Changes of the year 2016	Balance at the Beginning	Additions	Exchange Difference	Impairment	Rest	Balance at the End
The United States	5,328	-	175	-	-	5,503
Turkey	727	-	(101)	-	(1)	624
Mexico	602	-	(79)	-	-	523
Colombia	176	-	14	-	-	191
Chile	62	-	6	-	-	68
Other	20	8	-	-	-	28
Total	6,915	8	15	-	(1)	6,937

During the first semester of 2017 and the year 2016, there were no significant business combinations

Impairment Test

As described in Note 2.2.8, the cash-generating units (CGUs) to which goodwill has been allocated are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment.

As of June 30, 2017 and 2016, no indicators of significant impairment have been identified in any of the main CGUs.

18.2 Other intangible assets

The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:


	Millions of Euros
Other intangible assets	June 2017		December 2016
Computer software acquisition expenses		1,720		1,877
Other intangible assets with a infinite useful life		12		12
Other intangible assets with a definite useful life		828		960
Total		2,560		2,849

The amortization amounts included under this heading for the six months ended June 30, 2017 and 2016 are detailed in Note 45.

F-121

19. Tax assets and liabilities

19.1 Consolidated tax group

Pursuant to current legislation, the BBVA Consolidated Tax Group includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups.

The Group’s non-Spanish other banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.

19.2 Years open for review by the tax authorities

The years open to review in the BBVA Consolidated Tax Group as of June 30, 2017 are 2014 and subsequent years for the main taxes applicable.

The remainders of the Spanish consolidated entities in general have the last four years open for inspection by the tax authorities for the main taxes applicable, except for those in which there has been an interruption of the limitation period due to the start of an inspection.

In the year 2017 as a consequence of the tax authorities examination reviews, inspections were initiated until the year 2013 inclusive, all of them signed in acceptance during the year 2017. In this way, these inspections did not constitute any material amount for the understanding of the consolidated annual accounts and their impact was provisioned.

In view of the varying interpretations that can be made of some applicable tax legislation, the outcome of the tax inspections of the open years that could be conducted by the tax authorities in the future could give rise to contingent tax liabilities which cannot be reasonably estimated at the present time. However, the Group considers that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefore would not materially affect the Group’s accompanying interim consolidated financial statements.

F-122

19.3 Reconciliation

The reconciliation of the Group’s corporate income tax expense resulting from the application of the Spanish corporation income tax rate and the income tax expense recognized in the accompanying consolidated income statements is as follows:


	Millions of Euros
	June 2017			June 2016
Reconciliation of Taxation at the Spanish Corporation Tax Rate to the Tax Expense Recorded for the Period		Amount	Effective Tax %		Amount	Effective Tax %
Profit or (-) loss before tax	4,033			3,391
From continuing operations		4,033			3,391
From discontinued operations		-			-
Taxation at Spanish corporation tax rate 30%		1,210			1,017
Lower effective tax rate from foreign entities (*)		(231)			(135)
Mexico		(52)	26.47%		(57)	25.65%
Chile		(15)	20.97%		(11)	15.00%
Colombia		12	38.84%		6	33.28%
Peru		(8)	26.96%		(9)	26.16%
Turkey		(96)	20.03%		(102)	19.86%
Others		(54)			38
Revenues with lower tax rate (dividends)		(23)			(43)
Equity accounted earnings		3			(1)
Other effects		161			82
Current income tax		1,120			920
Of which:		-			-
Continuing operations		1,120			920
Discontinued operations		-			-

(*)

Calculated by applying the difference between the tax rate in force in Spain and the one applied to the Group’s earnings in each jurisdiction.

The effective income tax rate for the Group in the first semester ended June 30, 2017 and 2016 is as follows:


	Millions of Euros
Effective Tax Rate	June 2017		June 2016
Income from:
Consolidated Tax Group		359		(43)
Other Spanish Entities		10		53
Foreign Entities		3,664		3,381
Total		4,033		3,391
Income tax and other taxes		1,120		920
Effective Tax Rate		27.77%		27.13%

On the other hand, the changes in the nominal tax rate on corporate income tax, in comparison with those existing in the previous period, in the main countries in which the Group has a presence, have been in Chile (from 24% to 25.5%) and Peru (from 28% to 29.5%).

19.4 Income tax recognized in equity

In addition to the income tax expense recognized in the accompanying consolidated income statements, the Group has recognized the following income tax charges for these items in the consolidated total equity:

F-123



	Millions of Euros
Tax recognized in total equity	June 2017		December 2016
Charges to total equity
Debt securities		(322)		(533)
Equity instruments		(42)		(2)
Subtotal		(364)		(535)
Total		(364)		(535)

19.5 Deferred taxes

The balance under the heading “Tax assets” in the accompanying consolidated balance sheets includes deferred tax assets. The balance under the “Tax liabilities” heading includes to the Group’s various deferred tax liabilities. The details of the most important tax assets and liabilities are as follows:



	Millions of Euros
Tax assets and liabilities	June 2017		December 2016
Tax assets
Current tax assets		1,666		1,853
Deferred tax assets		15,649		16,391
Pensions		522		1,190
Financial Instruments		1,220		1,371
Other assets (investments in subsidiaries)		886		662
Impairment losses		1,355		1,390
Other		1,042		1,236
Secured tax assets (*)		9,424		9,431
Tax losses		1,200		1,111
Total		17,314		18,245
Tax Liabilities
Current tax liabilities		1,003		1,276
Deferred tax liabilities		2,848		3,392
Financial Instruments		1,578		1,794
Charge for income tax and other taxes		1,270		1,598
Total		3,851		4,668

(*)

Laws guaranteeing the deferred tax assets have been approved in Spain and Portugal in 2013 and 2014.

The most significant variations in the first semester ended June 30, 2017 and in the year 2016 derived from the followings concepts:

F-124


	Millions of Euros
	June 2017				December 2016
Guaranteed tax assets and liabilities	Deferred Assets		Deferred Liabilities		Deferred Assets		Deferred Liabilities
Balance at the beginning		16,391		3,392		15,878		3,418
Pensions		(668)		-		168		-
Financials Instruments		(151)		(216)		(103)		(113)
Other assets		224		-		108		-
Impairment losses		(35)		-		44		-
Others		(194)		-		255		-
Guaranteed Tax assets		(7)		-		(105)		-
Tax Losses		89		-		146		-
Charge for income tax and other taxes		-		(328)		-		87
Balance at the end		15,649		2,848		16,391		3,392

With respect to the changes in assets and liabilities due to deferred tax contained in the above table, the following should be pointed out:

- The evolution of the deferred tax assets and liabilities (without taking into consideration the guaranteed deferred tax asset and the tax losses) in net terms is a decrease of €280 million mainly motivated by the operation of the corporate income tax in which differences between accounting and taxation produce movements in the deferred taxes.

- The increase in tax losses is mainly due to the generation of negative tax bases and deductions during year 2017.

On the assets and liabilities due to deferred tax contained in the above table, those included in section 19.4 above have been recognized against the entity’s equity, and the rest against earnings for the year.

As of June 30, 2017, and December 31, 2016, the estimated amount of temporary differences associated with investments in subsidiaries, joint ventures and associates, which were not recognized deferred tax liabilities in the accompanying consolidated balance sheets taxes, amounted to 874 million euros.

Of the deferred tax assets contained in the above table, the detail of the items and amounts guaranteed by the Spanish and Portuguese governments, broken down by the items that originated those assets is as follows:


	Millions of Euros

Secured tax assets	June 2017		December 2016
Pensions		1,894		1,901
Impairment losses		7,530		7,530
Total		9,424		9,431

As of June 30, 2017, non-guaranteed net deferred tax assets of the above table amounted to €3,376 million (€3,568 as of December 31, 2016), which broken down by major geographies is as follows:

●

Spain: Net deferred tax assets recognized in Spain totaled €1,941 million as of June 30, 2017 (€2,007 as of December 31, 2016). €1,191 million of the figure recorded in the first semester ended June 30, 2017 for net deferred tax assets related to tax credits and tax loss carry forwards and €750 million relate to temporary differences.

●

Mexico: Net deferred tax assets recognized in Mexico amounted to €713 million as of June 30, 2017 (€698 million as of December 31, 2016). 99.95% of deferred tax assets as of June 30, 2017 relate to temporary differences. The remainders are tax credits carry forwards.

F-125

●

South America: Net deferred tax assets recognized in South America amounted to €249 million as of June 30, 2017 (€362 million as of December 31, 2016). All the deferred tax assets relate to temporary differences.

●

The United States: Net deferred tax assets recognized in The United States amounted to €288 million as of June 30, 2017 (€345 million as of December 31, 2016). All the deferred tax assets relate to temporary differences.

●

Turkey: Net deferred tax assets recognized in Turkey amounted to €177 million as of June 30, 2017 (€135 million as of December 31, 2016). As of June 30, 2017, all the deferred tax assets correspond to €8 million of tax credits related to tax losses carry forwards and deductions and €169 million relate to temporary differences.

Based on the information available as of June 30, 2017, including historical levels of benefits and projected results available to the Group for the coming years, it is considered that sufficient taxable income will be generated for the recovery of above mentioned unsecured deferred tax assets when they become deductible according to the tax laws.

On the other hand, the Group has not recognized certain deductible temporary differences, negative tax bases and deductions for which, in general, there is no legal period for offsetting, amounting to approximately 2,274 million euros, which are mainly originated by the Group CX.

20. Other assets and liabilities

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Other assets and liabilities Breakdown by nature	June 2017		December 2016
ASSETS
Inventories		3,125		3,298
Real estate		3,097		3,268
Others		29		29
Transactions in progress		261		241
Accruals		802		723
Prepaid expenses		603		518
Other prepayments and accrued income		199		204
Other items		2,989		3,012
Total Assets		7,177		7,274
LIABILITIES
Transactions in progress		167		127
Accruals		2,468		2,721
Accrued expenses		1,859		2,125
Other accrued expenses and deferred income		609		596
Other items		2,391		2,131
Total Liabilities		5,026		4,979

The heading “Inventories” includes the net book value of land and building purchases that the Group’s Real estate entities have available for sale or as part of their business. Balances under this heading include mainly real estate assets acquired by these entities from distressed customers (mostly in Spain), net of their corresponding losses. The roll-forward of our inventories from distressed customers is provided below:

F-126

Millions of Euros

Inventories from Distressed Customers

June

2017

December

2016

Balance at the beginning

8,511

9,445

Business combinations and disposals

Acquisitions

297

345

Disposals

(676)

(1,338)

Others

(1)

Balance at the end

8,131

8,511

Accumulated impairment losses

(5,183)

(5,385)

Carrying amount

2,948

3,126

The impairment included under the heading “Impairment or reversal of impairment on non-financial assets” of the accompanying consolidated financial statements were €53 million and €80 million for the first semester of 2017 and 2016 respectively (see Note 48).

21. Non-current assets and disposal groups classified as held for sale

The composition of the balance under the heading “Non-current assets and disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:


	Millions of Euros
Non-current assets and disposal groups classified as held for sale Breakdown by items	June 2017		December 2016
Foreclosures and recoveries		3,975		4,225
Foreclosures		3,808		4,057
Recoveries from financial leases		167		168
Other assets from tangible assets		356		1,181
Property, plant and equipment		331		378
Operating leases (*)		25		803
Business sale - Assets		464		40
Accrued amortization (**)		(57)		(116)
Impairment losses		(1,393)		(1,727)
Total Non-current assets and disposal groups classified as held for sale		3,344		3,603

(*)

As of December 31, 2016, included mainly Real Estate Investments from BBVA Propiedad which were transferred to Testa Residencial in the first quarter of 2017 (see Note 16).

(**)

Net of accumulated amortization until reclassified as “non-current assets and disposal groups held for sale”.

F-127

22. Financial liabilities at amortized cost

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:


		Millions of Euros
Financial liabilities measured at amortised cost	Notes	June 2017		December 2016
Deposits			483,627		499,706
Deposits from Central Banks	9		36,525		34,740
Deposits from Credit Institutions	22.1		52,477		63,501
Customer deposits	22.2		394,626		401,465
Debt securities issued	22.3		69,513		76,375
Other financial liabilities	22.4		12,880		13,129
Total			566,021		589,210

22.1 Deposits from credit institutions

The breakdown of the balance under this heading in the consolidated balance sheets, according to the nature of the financial instruments, is as follows:


			Millions of Euros
Deposits from credit institutions	Notes		June 2017		December 2016
Reciprocal accounts				124		165
Term deposits				28,745		30,286
Demand deposits				4,325		4,435
Repurchase agreements		35		19,171		28,421
Other deposits				20		35
Subtotal				52,385		63,342
Accrued interest until expiration				92		160
Total				52,477		63,501

The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Deposits from credit institutions June 2017	Demand Deposits & Reciprocal Accounts		Deposits with Agreed Maturity		Repurchase Agreements		Total
Spain		801		4,300		224		5,325
South America		1,940		2,930		1		4,872
Mexico		63		266		2,537		2,866
Turkey		504		1,595		64		2,164
United States		318		3,219		424		3,961
Rest of Europe		762		12,203		15,536		28,501
Rest of the world		82		4,325		382		4,789
Total		4,470		28,839		19,171		52,477

F-128


	Millions of Euros
Deposits from credit institutions December 2016	Demand Deposits & Reciprocal Accounts		Deposits with Agreed Maturity		Repurchase Agreements		Total
Spain		956		4,995		817		6,768
The United States		1,812		3,225		3		5,040
Mexico		306		426		2,931		3,663
Turkey		317		1,140		5		1,463
South America		275		3,294		465		4,035
Rest of Europe		896		13,751		23,691		38,338
Rest of the world		88		3,597		509		4,194
Total		4,651		30,429		28,420		63,501

22.2 Customer deposits

The breakdown of this heading in the accompanying consolidated balance sheets, by type of financial instrument, is as follows:


			Millions of Euros
Customer deposits	Notes		June 2017		December 2016
General Governments				22,951		21,359
Current accounts				122,354		123,401
Savings accounts				95,850		88,835
Time deposits				136,727		153,123
Repurchase agreements		35		14,314		13,491
Subordinated deposits				189		233
Other accounts				942		329
Valuation adjustments				1,299		694
Total				394,626		401,465
Of which:
In Euros				190,569		189,438
In foreign currency				204,057		212,027
Of which:
Deposits from other creditors without valuation adjustment				393,964		400,742
Accrued interests				662		723

The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:


	Millions of Euros
Customer Deposits June 2017	Demand Deposits		Deposits with Agreed Maturity		Repurchase Agreements		Total
Spain		112,638		48,132		3,077		163,847
The United States		42,825		12,535		-		55,361
Mexico		39,680		11,708		6,784		58,171
Turkey		10,057		28,670		14		38,742
South America		25,746		21,038		264		47,048
Rest of Europe		6,751		17,451		4,177		28,379
Rest of the world		1,281		1,798		-		3,078
Total		238,978		141,332		14,314		394,626

F-129


	Millions of Euros
Customer Deposits December 2016	Demand Deposits		Deposits with Agreed Maturity		Repurchase Agreements		Total
Spain		102,730		56,391		1,901		161,022
The United States		26,997		23,023		263		50,282
Mexico		36,468		10,647		7,002		54,117
Turkey		47,340		14,971		-		62,311
South America		9,862		28,328		21		38,211
Rest of Europe		6,959		19,683		4,306		30,949
Rest of the world		1,190		3,382		-		4,572
Total		231,547		156,425		13,493		401,465

22.3 Debt securities issued (including bonds and debentures)

The breakdown of the balance under this heading, by currency, is as follows:


	Millions of Euros
Debt securities issued	June 2017		December 2016
In Euros		38,904		45,619
Promissory bills and notes		628		841
Non-convertible bonds and debentures		8,304		8,422
Mortgage Covered bonds (**)		17,518		23,869
Hybrid financial instruments		515		450
Convertible perpetual securities		4,500		4,000
Non-convertible		3,907		2,852
Preferred Stock		113		359
Other subordinated liabilities		3,794		2,493
Accrued interest and others (*)		72		120
In Foreign Currencies		30,608		30,759
Non-convertible bonds and debentures		15,694		14,924
Mortgage Covered bonds		267		147
Hybrid financial instruments		2,241		2,030
Securitization bonds issued by the Group		2,720		2,977
Subordinated liabilities		9,031		10,016
Convertible		1,354		1,487
Convertible perpetual securities		1,354		1,487
Non-convertible		7,354		8,134
Preferred Stock		57		629
Other subordinated liabilities		7,298		7,505
Accrued interest and others (*)		322		394
Total		69,513		76,375

(*)

Hedging operations and issuance costs.

(**)

For more information about Mortgage Covered bonds see Appendix VIII.

As of June 30, 2017, 73% of “Debt securities issued” have fixed-interest rates and 27% have variable interest rates. Most of the foreign currency issues are denominated in U.S. dollars.

F-130

22.3.1 Promissory notes and bills

The promissory notes issued by BBVA Senior Finance, S.A.U. are guaranteed jointly, severally and irrevocably by the Bank.

22.3.2 Bonds and debentures issued

The senior debt issued by BBVA Senior Finance, S.A.U., are guaranteed jointly, severally and irrevocably by the Bank (included within “Non-convertible bonds and debentures” in the table above).

22.3.3 Subordinated liabilities

Of the above, the issuances of BBVA International Preferred, S.A.U., BBVA Subordinated Capital, S.A.U., BBVA Global Finance, Ltd., Caixa Terrassa Societat de Participacions Preferents, S.A.U. and CaixaSabadell Preferents, S.A.U., are jointly, severally and irrevocably guaranteed by the Bank. The balance variances are mainly due to the following transactions:

Convertible perpetual securities

On May 24, 2017, BBVA carried out the fifth issuance of perpetual contingent convertible securities, convertible into newly issued ordinary shares of BBVA (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €500 million. This issuance is listed in the Irish Stock Exchange and was targeted only at qualified investors, and would not be offered to, and may not be subscribed for, in Spain or by Spanish residents. The qualification of this issuance as additional tier 1 capital has been requested (see Note 26).

The additional four issuances of perpetual contingent convertible securities, convertible into newly issued ordinary shares of BBVA (additional tier 1 instruments), were issued with exclusion of pre-emptive subscription rights of shareholders (in April 2013 for an amount of $1.5 billion, in February 2014 and February 2015 for an amount of €1.5 billion each one, and in April 2016 for an amount of €1 billion). These issuances were targeted only at qualified investors and foreign private banking clients, and would not be offered to, and may not be subscribed for, in Spain or by Spanish residents. The first two issuances are listed in the Singapore Exchange Securities Trading Limited and the last two issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these four issuances qualify as additional tier 1 capital of the Bank and/or the Group in accordance with Regulation UE 575/2013 (see Note 26).

These perpetual securities will be converted into newly issued ordinary shares of BBVA if the CET 1 ratio of the Bank or the Group is less than 5.125%, in accordance with their respective terms and conditions.

These issues may be fully redeemed at BBVA´s option only in the cases contemplated in their respective terms and conditions, and in any case, in accordance with the provisions of the applicable legislation.

Preferred securities

The breakdown by issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Preferred Securities by Issuer	June 2017		December 2016
BBVA International Preferred, S.A.U. ⁽¹⁾		35		855
Unnim Group ⁽²⁾		112		109
Compass Group		20		22
BBVA Colombia, S.A.		1		1
Total		168		987

⁽¹⁾

Listed on the London and New York stock exchanges.

⁽²⁾

Unnim Group: Issuances prior to the acquisition by BBVA.

These issues were fully subscribed at the moment of the issue by investors outside the Group and are redeemable at the issuer company’s option after five years from the issue date, depending on the terms of each issue and with prior consent from the Bank of Spain.

F-131

Redemption of preferred securities

On March 20, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series B preferred securities for an outstanding amount of €164,350,000.

Likewise, on March 22, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series A preferred securities for an outstanding amount of €85,550,000.

Finally, on April 18, 2017 BBVA International Preferred, S.A.U. carried out the early redemption in full of its Series C preferred securities for an outstanding amount of USD 600,000,000, once the relevant authorizations had been obtained.

22.4 Other financial liabilities

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:


		Millions of Euros
Other financial liabilities	Note	June 2017		December 2016
Creditors for other financial liabilities			3,975		3,465
Collection accounts			3,723		2,768
Creditors for other payment obligations			5,183		6,370
Dividend payable but pending payment	4		-		525
Total			12,880		13,129

23. Liabilities under reinsurance and insurance contracts

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

There are two types of life-saving insurance products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.

The insurance business is affected by different risks, including those that are related to the BBVA Group such as credit risk, market risk, liquidity risk and operational risk and the methodology for risk measurement applied in the insurance activity is similar (see Note 7), although it has a differentiated management due to the particular characteristics of the insurance business, such as the coverage of contracted obligations and the long term of the commitments. Additionally, the insurance business generates certain specific risks, of a probabilistic nature:

●

Technical risk: arises from deviations in the estimation of the casualty rate of insurances, either in terms of numbers, the amount of such claims and the timing of its occurrence.

●

Biometric risk: depending on the deviations in the expected mortality behavior or the survival of the insured persons.

The insurance industry is highly regulated in each country. In this regard, it should be noted that the insurance industry is undergoing a gradual regulatory transformation through new capital regulations risk-based, which have already been published in several countries.

The most significant provisions recognized by consolidated insurance subsidiaries with respect to insurance policies issued by them are under the heading “Liabilities under “Insurance and reinsurance contracts” in the accompanying consolidated balance sheets.

F-132

The breakdown of the balance under this heading is as follows:


	Millions of Euros
Technical Reserves by type of insurance product	June 2017		December 2016
Mathematical reserves		8,469		7,813
Individual life insurance ⁽¹⁾		5,808		4,791
Savings		4,756		3,943
Risk		1,052		848
Group insurance ⁽²⁾		2,660		3,022
Savings		2,485		2,801
Risk		175		221
Provision for unpaid claims reported		674		691
Provisions for unexpired risks and other provisions		702		635
Total		9,846		9,139

⁽¹⁾

Provides coverage in the event of death or disability.

⁽²⁾

The insurance policies purchased by employers (other than BBVA Group) on behalf of its employees.

The cash flows of those Liabilities under Reinsurance and reinsurance contracts are shown below:

Millions of Euros

Maturity

Up to 1 Year

1 to 3 Years

3 to 5 Years

Over 5 Years

Total

Liabilities under Insurance and Reinsurance Contracts

1,620

1,370

1,489

5,366

9,846

The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the respective country’s insurance regulator or supervisor. The most important insurance entities are located in Spain and Mexico (which together account for approximately 87% of the insurance revenues), where the modeling methods and techniques are reviewed by the insurance regulator in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are based on IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensure this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with the customers.

The table below shows the key assumptions used in the calculation of the mathematical reserves for insurance products in Spain and Mexico, respectively as of June 30, 2017:

Mathematical Reserves

Mortality table

Average technical interest type

Spain

Mexico

Spain

Mexico

Individual life insurance ⁽¹⁾

GKMF80 PASEM/
Own tables

Tables of the
Comision Nacional De
Seguros y Fianzas
2000-individual

1.49%

3.00%

Group insurance⁽²⁾

PERMF 2000/
Own tables

Tables of the
Comision Nacional De
Seguros y Fianzas
2000-group

4.72% ⁽³⁾

4.00%

⁽¹⁾ Provides coverage in the case of one or more of the following events: death and disability.

⁽²⁾ Insurance policies purchased by companies (other than Group BBVA entities) on behalf of their employees.

⁽³⁾ Depending on the related portfolio.

F-133

The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of June 30, 2017 and December 31, 2016, the balance under this heading amounted to €432 million and €447 million, respectively.

24. Provisions

The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:


		Millions of Euros
Provisions. Breakdown by concepts	Notes	June 2017		December 2016
Pensions and other post employment defined benefit obligations	25		5,648		6,025
Other long term employee benefits	25		64		69
Pending legal issues and tax litigation			718		418
Commitments and guarantees given			850		950
Other provisions			904		1,609
Total			8,184		9,071

Ongoing legal proceedings and litigation

Different entities of the BBVA Group are frequently party to legal actions in a number of jurisdictions (including, among others, Spain, Mexico and the United State) arising in the ordinary course of business. According to the procedural status of these proceedings and the criteria of the legal counsel, BBVA considers that, except for the proceeding mentioned below, none of such actions is material, individually or as a whole, and with no significant impact on the operating results, liquidity or financial situation at a consolidated or individual level of the Bank. The Group´s Management believes that the provisions made in respect of such legal proceedings are adequate.

Regarding the consequences of the invalidity of the clauses of limitation of interest rates in mortgage loans with consumers (the so-called “cláusulas suelo”) the legal situation is as follows:

●

The Spanish Supreme Court, in a judgment dated May 9, 2013, rendered on a collective claim against BBVA among others, and that is definitive, resolved unanimously that those clauses should be deemed as invalid if they did not comply with certain requirements of material transparency set forth in the referred judgment. In addition, that judgment determined that there were no grounds for the refund of the amounts collected pursuant to those clauses before May 9, 2013.

●

As communicated to the market by means of Relevant Event dated June 12, 2013, BBVA ceased to apply, in execution of that judgment, as from May 9, 2013, the “cláusula suelo” in all mortgage loan agreements with consumers in which it had been included.

In an individual claim, the Provincial Court of Alicante raised a preliminary ruling to the Court of Justice of the European Union (CJEU), for the CJEU to determine if the time limitation for the refund of the amounts set forth by the Supreme Court complies with Directive 93/13/EEC. On July 13, the opinion of the Advocate-General of the CJEU was published and in its conclusions it stated that the European directive did not oppose to a Member State’s Supreme Court limiting, due to exceptional circumstances, the restorative effects of the invalidity to the date on which its first judgment in this regard was issued.

Last December 21, the CJEU published its sentence that decided the preliminary ruling raised by the Provincial Court of Alicante and other national judicial bodies, in the sense that the Supreme Court’s case law that limited in time the restorative effects related to the unfair declaration of a clause included in an agreement between a consumer and a professional is contrary to Article 6.1 of Directive 93/13/EEC on unfair terms in consumer contracts.

After the mentioned CJEU’s decision, BBVA made, once analyzed the portfolio of mortgage loans to consumers, in which the “cláusulas suelo” had applied, a provision of €577 million (with an impact on the attributed profit of approximately €404 million, as communicated to the market in the Relevant Event dated December 21, 2016), to cover future claims that could be filed. In the first half of 2017, no additional provisions were made regarding to this matter.

F-134

25. Post-employment and other employee benefit commitments

As stated in Note 2.2.12, the Group has assumed commitments with employees including short-term employee benefits, defined contribution and defined benefit plans (see Note 44.1), healthcare and other long-term employee benefits.

The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees and with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico, the United States and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirement.

The breakdown of the balance sheet net defined benefit liability as of June 30, 2017 and December 31, 2016, is provided below:


	Millions of Euros
Net Defined Benefit Liability (asset) on the Balance Sheet	June 2017		December 2016
Pension commitments		4,999		5,277
Early retirement commitments		2,434		2,559
Medical benefits commitments		1,122		1,015
Other long term employee benefits		64		69
Total commitments		8,619		8,920
Pension plan assets		1,886		1,909
Medical benefit plan assets		1,218		1,113
Total plan assets		3,105		3,022
Total net liability / asset on the balance sheet		5,514		5,898
Of which:
Net asset on the balance sheet ⁽¹⁾		(197)		(194)
Net liability on the balance sheet for provisions for pensions and similar obligations ⁽²⁾		5,648		6,025
Net liability on the balance sheet for other long term employee benefits ⁽³⁾		64		69

⁽¹⁾

Recorded under the heading “Other Assets - Other” of the consolidated balance sheet (see Note 20).

⁽²⁾

Recorded under the heading “Provisions - Provisions for pensions and similar obligations” of the consolidated balance sheet (see Note 24).

⁽³⁾

Recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet.

F-135

The amounts relating to benefit commitments charged to consolidated income statement for the six months ended June 30, 2017 and 2016 are as follows:


			Millions of Euros
Consolidated Income Statement Impact	Notes		June 2017		June 2016
Interest and similar expenses				41		53
Interest expense				154		154
Interest income				(113)		(101)
Personnel expenses				84		79
Defined contribution plan expense		44.1		52		45
Defined benefit plan expense		44.1		32		34
Provisions (net)		46		212		195
Early retirement expense				153		131
Past service cost expense				6		4
Remeasurements ^(*)				33		25
Other provision expenses				20		35
Total impact on Consolidated Income Statement: Debit (Credit)				337		326

(*)

Actuarial losses (gains) on remeasurement of the net defined benefit liability relating to early retirements in Spain and other long-term employee benefits (see Note 2.2.12).

The amounts relating to post-employment benefits charged to the consolidated balance sheet as of June 30, 2017 and 2016 are as follows:

Millions of Euros

Equity Impact

Notes

June

2017

June

2016

Defined benefit plans

(75

)

164

Post-employment medical benefits

Total impact on equity: Debit (Credit) ^(*)

2.2.12

(75

)

164

(*)

Actuarial gains (losses) on remeasurement of the net defined benefit liability relating to pension and medical commitments before income taxes.

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25.1 Defined benefit plans

Defined benefit commitments relate mainly to employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. For the latter the Group pays the required premiums to fully insure the related liability. The change in these pension commitments during the year ended June 30, 2017 and 2016 is presented below:


	Millions of Euros
	June 2017						June 2016
Defined Benefits	Defined Benefit Obligation		Plan Assets		Net Liability (asset)		Defined Benefit Obligation		Plan Assets		Net Liability (asset)
Balance at the beginning		8,851		3,022		5,829		9,184		3,124		6,060
Current service cost		34		-		34		34		-		34
Interest income or expense		153		113		40		154		101		53
Contributions by plan participants		2		2		-		2		2		-
Employer contributions		-		10		(10)		-		10		(10)
Past service costs ⁽¹⁾		159		-		159		135		-		135
Remeasurements:		(33)		9		(42)		227		38		189
Return on plan assets ⁽²⁾		-		9		(9)		-		-		-
From changes in demographic assumptions		-		-		-		-		-		-
From changes in financial assumptions		(27)		-		(27)		229		-		229
Other actuarial gain and losses		(6)		-		(6)		(2)		38		(40)
Benefit payments		(545)		(93)		(451)		(552)		(89)		(463)
Settlement payments		-		-		-		(1)		-		(1)
Business combinations and disposals		-		-		-		-		-		-
Effect on changes in foreign exchange rates		16		42		(25)		(154)		(167)		13
Conversions to defined contributions		(83)		-		(83)
Other effects		-		-		-		37		34		3
Balance at the end		8,555		3,105		5,450		9,066		3,054		6,013
Of which
Spain		5,769		336		5,433		6,436		380		6,056
Mexico		1,590		1,764		(174)		1,441		1,637		(195)
The United States		358		314		44		358		324		34
Turkey		436		340		96		452		350		102

⁽¹⁾

Including gains and losses arising from settlements.

⁽²⁾

Excluding interest, which is recorded under “Interest income or expense”.

The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of June 30, 2017 includes €345 million relating to post-employment benefit commitments to former members of the Board of Directors and the Bank’s Management (see Note 54).

The most significant commitments are those in Spain and Mexico and, to a lesser extent, in the United States and Turkey. The remaining commitments are located mostly in Portugal and South America. Unless otherwise required by local regulation, all defined benefit plans have been closed to new entrants, who instead are able to participate in the Group´s defined contribution plans. Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

In order to guarantee the good governance of these plans, the Group has established specific benefits committees. These benefit committees include members from the different areas of the business to ensure that all decisions are made taking into consideration all of the associated impacts. Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method.

F-137

The following table sets out the key actuarial assumptions used in the valuation of these commitments as of December 31, 2016:


	2016
Actuarial Assumptions	Spain		Mexico	USA	Turkey
Discount rate		1.50%	9.95%	4.04%		11.50%
Rate of salary increase		1.50%	4.75%	3.00%		9.30%
Rate of pension increase		-	2.13%	-		7.80%
Medical cost trend rate		-	6.75%	-		10.92%
Mortality tables		PERM/F 2000P	EMSSA97 (adjustment EMSSA09)	RP 2014		CSO2001

The actuarial hypotheses used are the same as of December, 31 2016 except in Spain where the discount rates are 0.50% and 1.75% depending on the type of commitment.

In addition to the commitments to employees shown above, the Group has other less material long-term employee benefits. These include long-service awards, which consist of either an established monetary award or some vacation days granted to certain groups of employees when they complete a given number of years of service. As of June 30, 2017 and December 31, 2016, the actuarial liabilities for the outstanding awards amounted to €64 million, and €69 million, respectively. These commitments are recorded under the heading “Provisions - Other long-term employee benefits” of the accompanying consolidated balance sheet (see Note 24).

As described above, the Group maintains both pension and medical post-employment benefit commitments with their employees.

Post-employment commitments and similar obligations

These pension commitments relate mostly to pensions where the employees are already receiving payment, and which have been determined based on salary and years of service in accordance with the specific plan rules. For most plans pension payments are due on retirement, death and long term disability.

In addition, during the six months ended June 2017, Group entities in Spain offered certain employees the option to take early retirement (that is, earlier than the age stipulated in the collective labor agreement in force). This offer was accepted by 489 employees (259 employees during the six months ended June 30, 2016). These commitments include both the compensation and indemnities due as well as the contributions payable to external pension funds during the early retirement period. As of June 30, 2017 and December 31, 2016, the value of these commitments amounted to €2,434 million and €2,559, respectively.

F-138

The change in the benefit plan obligations and plan assets as of June 30, 2017 and 2016 was as follows:


	Millions of Euros
	Defined Benefit Obligation
Post employment commitments June 2017	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		6,157		455		385		447		392
Current service cost		3		3		2		11		2
Interest income or expense		44		22		7		23		4
Contributions by plan participants		-		-		-		2		-
Employer contributions		-		-		-		-		-
Past service costs ⁽¹⁾		158		-		-		-		-
Remeasurements:		(33)		-		-		-		-
Return on plan assets ⁽²⁾		-		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		(27)		-		-		-		-
Other actuarial gain and losses		(6)		-		-		-		-
Benefit payments		(478)		(24)		(7)		(12)		(5)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		-		27		(28)		(35)		(6)
Conversions to defined contributions		(83)		-		-		-		-
Other effects		1		-		(1)		-		-
Balance at the end		5,769		482		358		436		388
Of which:
Vested benefit obligation relating to current employees		72
Vested benefit obligation relating to retired employees		5,697

	Millions of Euros
	Plan Assets
Post-employment commitments June 2017	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		358		514		339		348		350
Current service cost		-		-		-		-		-
Interest income or expense		3		25		6		18		3
Contributions by plan participants		-		-		-		2		-
Employer contributions		1		-		-		6		4
Past service costs ⁽¹⁾		-		-		-		-		-
Remeasurements:		9		-		-		-		-
Return on plan assets ⁽²⁾		9		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		-		-		-		-		-
Other actuarial gain and losses		-		-		-		-		-
Benefit payments		(35)		(24)		(6)		(7)		(4)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		-		30		(25)		(27)		(2)
Conversions to defined contributions		-		-		-		-		-
Other effects		-		-		-		-		-
Balance at the end		336		546		314		340		351

	Millions of Euros
	Net Liability (Asset)
Post-employments commitments June 2017	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		5,799		(59)		46		99		42
Current service cost		3		3		2		11		2
Interest income or expense		41		(3)		1		5		1
Contributions by plan participants		-		-		-		-		-
Employer contributions		(1)		-		-		(6)		(4)
Past service costs ⁽¹⁾		158		-		-		-		-
Remeasurements:		(42)		-		-		-		-
Return on plan assets ⁽²⁾		(9)		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		(27)		-		-		-		-
Other actuarial gain and losses		(6)		-		-		-		-
Benefit payments		(443)		-		(1)		(5)		(1)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		-		(3)		(3)		(8)		(4)
Conversions to defined contributions		(83)		-		-		-		-
Other effects		1		-		(1)		-		-
Balance at the end		5,433		(63)		44		96		37

⁽¹⁾

Including gains and losses arising from settlements.

⁽²⁾

Excluding interest, which is recorded under “Interest income or expense”.

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	Millions of Euros
	Defined Benefit Obligation
Post-employment commitments June 2016	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		6,491		518		365		435		356
Current service cost		5		3		2		11		-
Interest income or expense		54		21		7		21		6
Contributions by plan participants		-		-		-		2		-
Employer contributions		-		-		-		-		-
Past service costs ⁽¹⁾		135		-		-		-		-
Remeasurements:		206		-		-		-		21
Return on plan assets ⁽²⁾		-		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		208		-		-		-		21
Other actuarial gain and losses		(2)		-		-		-		-
Benefit payments		(489)		(21)		(7)		(14)		(6)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		(2)		(43)		(7)		(3)		(13)
Other effects		36		-		(2)		-		2
Balance at the end		6,436		478		358		452		365
Of which:
Vested benefit obligation relating to current employees		172
Vested benefit obligation relating to retired employees		6,264

	Millions of Euros
	Plan Assets
Post-employment commitments June 2016	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		380		596		329		337		333
Current service cost		-		-		-		-		-
Interest income or expense		-		25		6		17		4
Contributions by plan participants		-		-		-		2		-
Employer contributions		-		-		-		6		5
Past service costs ⁽¹⁾		-		-		-		-		-
Remeasurements:		-		-		-		-		38
Return on plan assets ⁽²⁾		-		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		-		-		-		-		-
Other actuarial gain and losses		-		-		-		-		38
Benefit payments		(34)		(21)		(6)		(8)		(5)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		-		(50)		(6)		(3)		(11)
Other effects		34		-		1		-		-
Balance at the end		380		550		324		350		362

	Millions of Euros
	Net Liability (asset)
Post-employment commitments June 2016	Spain		Mexico		USA		Turkey		Rest of the world
Balance at the beginning		6,111		(78)		36		98		23
Current service cost		5		3		2		11		-
Interest income or expense		54		(4)		1		5		2
Contributions by plan participants		-		-		-		-		-
Employer contributions		-		-		-		(6)		(5)
Past service costs ⁽¹⁾		135		-		-		-		-
Remeasurements:		206		-		-		-		(17)
Return on plan assets ⁽²⁾		-		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-
From changes in financial assumptions		208		-		-		-		21
Other actuarial gain and losses		(2)		-		-		-		(38)
Benefit payments		(455)		-		(1)		(5)		(1)
Settlement payments		-		-		-		-		-
Business combinations and disposals		-		-		-		-		-
Effect on changes in foreign exchange rates		(2)		7		(1)		(1)		(2)
Other effects		2		-		(3)		-		2
Balance at the end		6,056		(72)		34		102		3

⁽¹⁾

Includes gains and losses from settlements.

⁽²⁾

Excludes interest which is reflected in the line item “Interest income and expenses”.

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In Spain, local regulation requires that pension and death benefit commitments must be funded, either through the assets held for a qualified pension plan or an insurance contract.

In the Spanish entities these commitments are covered by insurance contracts which meet the requirements of the accounting standard regarding the non-recoverability of contributions. However, a significant number of the insurance contracts are with BBVA Seguros, S.A.–consolidated subsidiary and related party – and consequently these policies cannot be considered plan assets under IAS 19. For this reason, the liabilities insured under these policies are fully recognized under the heading “Provisions – Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet (see Note 24), while the related assets held by the insurance company are included within the Group´s consolidated assets (registered according to the classification of the corresponding financial instruments). As of June 30, 2017 the value of these separate assets was €2,775 million, representing direct rights of the insured employees held in the consolidated balance sheet, hence these benefits are effectively fully funded.

On the other hand, some pension commitments have been funded through insurance contracts with insurance companies not related to the Group, and can therefore be considered qualifying insurance policies and plan assets under IAS 19. In this case the accompanying consolidated balance sheet reflects the value of the obligations net of the fair value of the qualifying insurance policies. As of June 30, 2017 and December 31, 2016, the fair value of the aforementioned insurance policies (€336 million and €358 million, respectively) exactly match the value of the corresponding obligations and therefore no amount for this item has been recorded in the accompanying consolidated balance sheet.

Pensions benefits are paid by the insurance companies with whom BBVA has insurance contracts and to whom all insurance premiums have been paid. The premiums are determined by the insurance companies using “cash flow matching” techniques to ensure that benefits can be met when due, guaranteeing both the actuarial and interest rate risk.

In Mexico, there is a defined benefit plan for employees hired prior to 2001. Other employees participate in a defined contribution plan. External funds/trusts have been constituted locally to meet benefit payments as required by local regulation.

In The United States there are mainly two defined benefit plans, both closed to new employees, who instead are able to join a defined contribution plan. External funds/trusts have been constituted locally to fund the plans, as required by local regulation.

In 2008, the Turkish government passed a law to unify the different existing pension systems under a single umbrella of Social Security. Such system provides for the transfer of the various prior funds established.

The financial sector is in this stage at present, maintaining these pension commitments managed by external pension funds (foundations) established for that purpose.

The foundation that maintains the assets and liabilities relating to employees of Garanti in Turkey, as per the local regulatory requirements, has registered an obligation pending future social security transfer.

Furthermore, Garanti has set up a defined benefit pension plan for employees, additional to the social security benefits, reflected in the consolidated balance sheet.

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Medical benefit commitments

The change in defined benefit obligations and plan assets during the period ended June 30 2017and 2016 was as follows:


	Millions of Euros
	June 2017						June 2016
Medical Benefits Commitments	Defined Benefit Obligation		Plan assets		Net liability (Asset)		Defined Benefit Obligation		Plan assets		Net liability (Asset)
Balance at the beginning		1,015		1,113		(98)		1,022		1,149		(127)
Current service cost		13		-		13		12		-		12
Interest income or expense		52		57		(5)		44		50		(6)
Contributions by plan participants		-		-		-		-		-		-
Employer contributions		-		-		-		-		-		-
Past service costs ⁽¹⁾		1		-		1		-		-		-
Remeasurements:		-		-		-		-		-		-
Return on plan assets ⁽²⁾		-		-		-		-		-		-
From changes in demographic assumptions		-		-		-		-		-		-
From changes in financial assumptions		-		-		-		-		-		-
Other actuarial gain and losses		-		-		-		-		-		-
Benefit payments		(18)		(17)		(1)		(15)		(15)		-
Settlement payments		-		-		-		(1)		-		(1)
Business combinations and disposals		-		-		-		-		-		-
Effect on changes in foreign exchange rates		58		65		(7)		(86)		(97)		11
Other effects		-		-		-		-		-		-
Balance at the end		1,122		1,218		(97)		977		1,087		(110)

⁽¹⁾

Including gains and losses arising from settlements.

⁽²⁾

Excluding interest, which is recorded under “Interest income or expense”.

In Mexico there is a medical benefit plan for employees hired prior to 2007. New employees from 2007 are covered by medical insurance policy. An external trust has been constituted locally to fund the plan, in accordance with local legislation and Group policy.

In Turkey employees are currently provided with medical benefits through a foundation in collaboration with the social security system, although local legislation prescribes the future unification of this and similar systems into the general social security system itself.

The valuation of these benefits and their accounting treatment follow the same methodology as that employed in the valuation of pension commitments.

Estimated benefit payments

The estimated benefit payments over the next ten years for all the entities in Spain, Mexico, The United States and Turkey are as follows:


	Millions of Euros
Estimated Benefit Payments	*2017 ()**		2018		2019		2020		2021		2022-2026
Commitments in Spain		410		736		652		563		470		1,269
Commitments in Mexico		40		80		84		88		93		556
Commitments in United States		9		18		18		19		20		112
Commitments in Turkey		13		15		16		18		21		165
Total		471		849		770		688		604		2,102

(*)

Estimate for second semester of 2017.

Plan assets

The majority of the Group´s defined benefit plans are funded by plan assets held in external funds/trusts legally separate from the Group sponsoring entity. However, in accordance with local regulation, some commitments are not externally funded and covered through internally held provisions, principally those relating to early retirements in Spain.

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Plan assets are those assets which will be used to directly settle the assumed commitments and which meet the following conditions: they are not part of the Group sponsoring entity´s assets, they are available only to pay post-employment benefits and they cannot be returned to the Group sponsoring entity.

To manage the assets associated with defined benefit plans, BBVA Group has established investment policies designed according to criteria of prudence and minimizing the financial risks associated with plan assets.

The investment policy consists of investing in a low risk and diversified portfolio of assets with maturities consistent with the term of the benefit obligation and which, together with contributions made to the plan, will be sufficient to meet benefit payments when due, thus mitigating the plans‘ risks.

In those countries where plan assets are held in pension funds or trusts, the investment policy is developed consistently with local regulation. When selecting specific assets, current market conditions, the risk profile of the assets and their future market outlook are all taken into consideration. In all the cases, the selection of assets takes into consideration the term of the benefit obligations as well as short-term liquidity requirements.

The risks associated with these commitments are those which give rise to a deficit in the plan assets. A deficit could arise from factors such as a fall in the market value of plan assets, an increase in long-term interest rates leading to a decrease in the fair value of fixed income securities, or a deterioration of the economy resulting in more write-downs and credit rating downgrades.

The table below shows the allocation of plan assets of the main companies of the BBVA Group as of June 30, 2017:


	Millions of Euros
Plan Assets Breakdown	June 2017
Cash or cash equivalents		158
Debt securities (Government bonds)		2,254
Property		1
Mutual funds		1
Insurance contracts		5
Other investments		10
Total		2,429
Of which:
Bank account in BBVA		4
Debt securities issued by BBVA		3

In addition to the above there are plan assets relating to the previously mentioned insurance contracts in Spain and the foundation in Turkey.

The following table provides details of investments in listed securities (Level 1) as of June 30, 2017:


	Millions of Euros
Investments in listed markets	June 2017
Cash or cash equivalents		158
Debt securities (Government bonds)		2,254
Mutual funds		1
Total		2,413
Of which:
Bank account in BBVA		4
Debt securities issued by BBVA		3

The remainders of the assets are mainly invested in Level 2 assets in in accordance with the classification established under IFRS 13 (mainly insurance contracts). As of June 30, 2017, almost all of the assets related to employee’s commitments corresponded to fixed income securities.

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25.2 Defined contribution plans

Certain Group entities sponsor defined contribution plans. Some of these plans allow employees to make contributions which are then matched by the employer.

Contributions are recognized as and when they are accrued, with a charge to the consolidated income statement in the corresponding financial year. No liability is therefore recognized in the accompanying consolidated balance sheet (see Note 44.1).

26. Common stock

As of June 30, 2017, BBVA’s common stock amounted to €3,267,264,424.20 divided into 6,667,886,580 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entry accounts. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock.

The Bank’s shares are traded on the Spanish stock market, as well as on the London and Mexico stock markets. BBVA American Depositary Shares (ADSs) traded on the New York Stock Exchange.

Also, as of June 30, 2017, the shares of BBVA Banco Continental, S.A., Banco Provincial S.A., BBVA Colombia, S.A., BBVA Chile, S.A., and BBVA Banco Frances, S.A. were listed on their respective local stock markets. BBVA Banco Frances, S.A. is also listed on the Latin American market (Latibex) of the Madrid Stock Exchange and on the New York Stock Exchange.

As of June 30, 2017, State Street Bank and Trust Co., Chase Nominees Ltd and The Bank of New York Mellon SA NV in their capacity as international custodian/depositary banks, held 12.82%, 6.20%, and 5.02% of BBVA common stock, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding.

On January 13, 2017, the Blackrock, Inc. reported to the Spanish Securities and Exchange Commission (CNMV) that, it now has an indirect holding of BBVA common stock totaling 5.606%, of which 5.253% are voting rights attributed to shares and 0.353% are voting rights through financial instruments.

BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. No agreement is known that could give rise to changes in the control of the Bank.

The changes in the heading “Common Stock” of the accompanying consolidated balance sheets are due to the following common stock increases:


Capital Increase	Number of Shares		Common Stock (Millions of Euros)
As of December 31, 2015	6,366,680,118		3,120
Dividend option - April 2016		113,677,807		56
As of June 30, 2016	6,480,357,925		3,175
Dividend option - October 2016		86,257,317		42
As of December 31, 2016		6,566,615,242		3,218
Dividend Option . April 2017		101,271,338		50
As of June 30, 2017		6,667,886,580		3,267

“Dividend Option” Program in 2017:

The AGM held on March 17, 2017 adopted, under agenda item three, a capital increase to be charged to voluntary reserves, to implement a “Dividend Option” this year in similar conditions to 2014, 2015 and 2016, conferring on the Board of Directors the authority to set the date on which the capital increase should be carried out, within one year from the date of approval of the AGM resolution.

F-144

By virtue of such resolution, the Board of Directors of BBVA resolved, on March 29, 2017, to execute the capital increase to be charged to voluntary reserves, in accordance with the terms and conditions approved by the AGM mentioned above. On April 24, 2017, BBVA’s share capital was increased by an amount of 49,622,955.62 euros through the issuance of 101,271,338 newly-issued ordinary shares of BBVA at 0.49 euros par value each (see Note 4).

“Dividend Option” Program in 2016:

The AGM held on March 11, 2016 adopted, under agenda item three, four resolutions on capital increase to be charged to voluntary reserves, to once again implement the shareholder remuneration system called the “Dividend Option” (see Note 4), conferring, pursuant to article 297.1 a) of the Spanish Corporate Enterprises Act, on the Board of Directors the authority to set the date on which the resolutions to increase capital will carried out, within one year from the date of approval of the AGM resolution, including the power to refrain from executing any of the capital increases, when deemed advisable.

By virtue of the referred AGM resolution, on March 31, 2016, the Board of Directors of BBVA approved the execution of the first of the capital increases to be charged to voluntary reserves, in accordance with the terms and conditions approved by the AGM. As a result of this increase, the Bank’s capital increased by €55,702,125.43 through the issuance of 113,677,807 BBVA newly-issued ordinary shares with a €0.49 par value each (see Note 4).

Subsequently, on September 28, 2016, the Board of Directors of BBVA approved the execution of the second of the capital increases to be charged to voluntary reserves, in accordance with the terms and conditions approved by the referred AGM. As a result of this increase, the Bank’s capital increased by €42,266,085.33 through the issuance of 86,257,317 BBVA newly-issued ordinary shares with a €0.49 par value each (see Note 4).

Convertible and/or exchangeable securities:

The AGM held on March 17, 2017, resolved, under agenda item 5, to confer authority to the Board of Directors to issue securities convertible into newly issued BBVA shares, on one or several occasions, within the maximum legal term of five years from the approval date of the authorization, up to a maximum overall amount of €8 billion or its equivalent in any other currency. Likewise, the AGM resolved to confer to the Board of Directors the authority to exclude pre-emptive subscription rights, although this power was limited to ensure the nominal amount of the capital increases resolved or effectively carried out to cover the conversion of mandatory convertible issues in issue of this authority (without prejudice to anti-dilution adjustments), with exclusion of pre-emptive subscription rights and of those likewise resolved or carried out with exclusion of pre-emptive subscription rights in use of the authority to increase the share capital conferred by the AGM held on March 17, 2017, under agenda item four, do not exceed the maximum nominal amount, overall, of 20% of the share capital of BBVA at the time of the authorization, not being this limit applicable to the contingent convertible issues.

In use of the authority mentioned above, BBVA carried out, on May 24, 2017 the fifth issuance of perpetual contingent convertible securities, convertible into newly issued ordinary shares of BBVA (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €500 million. This issuance is listed in the Irish Stock Exchange and was targeted only at qualified investors, and would not be offered to, and may not be subscribed for, in Spain or by Spanish residents. The qualification of this issuance as additional tier 1 capital has been requested (see Note 22.3).

Likewise, BBVA has carried out, in use of the previous authority (in effect until March 16, 2017) regarding the issue of convertible securities conferred by the AGM, four additional issuances of perpetual contingent convertible securities, convertible into newly issued ordinary shares of BBVA (additional tier 1 instrument), with exclusion of pre-emptive subscription rights of shareholders (in April 2013 for an amount of $1.5 billion, in February 2014 and February 2015 for an amount of €1.5 billion each one, and in April 2016 for an amount of €1 billion). These issuances were targeted only at qualified investors and foreign private banking clients, and would not be offered to, and may not be subscribed for, in Spain or by Spanish residents. The first two issuances are listed in the Singapore Exchange Securities Trading Limited and the last two issuances are listed in the Global Exchange Market of the Irish Stock Exchange. Furthermore, these four issuances qualify as additional tier 1 capital of the Bank and/or the Group in accordance with Regulation UE 575/2013 (see Note 22.3).

Capital increase

BBVA’s AGM held on March 17, 2017 resolved, under agenda item four, to confer authority on the Board of Directors to increase Bank’s share capital, on one or several occasions, subject to provisions in the law and in the Company Bylaws that may be applicable at any time, within the legal term of five years from the approval date of the authorization, up to the maximum amount corresponding to 50% of Bank’s share capital at the time on which the resolution was adopted, likewise conferring authority to the Board of Directors to exclude pre-emptive subscription rights on those capital increases;

F-145

although the power to exclude pre-emptive subscription rights was limited, such that the nominal amount of the capital increases resolved or effectively carried out with the exclusion of pre-emptive subscription rights in use of the referred authority and those that may be resolved or carried out to cover the conversion of mandatory convertible issues that may equally be made with the exclusion of pre-emptive subscription rights in use of the authority to issue convertible securities conferred by the AGM held on March 17, 2017, under agenda item five (without prejudice to the anti-dilution adjustments) shall not exceed the nominal maximum overall amount of 20% of the share capital of BBVA at the time of the authorization.

27. Share premium

As of June 30, 2017 and December 31, 2016 the balance under this heading in the accompanying consolidated balance sheets was €23,992 million. During the six months ended June 30, 2017 there were no changes.

The amended Spanish Corporation Act expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use.

28. Retained earnings, revaluation reserves and other reserves

The breakdown of the balance under this heading in the accompanying consolidated balance sheet is as follows:


			Millions of Euros
Retained earnings, revaluation reserves and other reserves. Breakdown by concepts	Notes		June 2017		December 2016
Legal reserve		28.1		644		624
Restricted reserve for retired capital		28.2		173		201
Reserves for balance revaluations				15		20
Voluntary reserves				8,626		8,521
*Total reserves holding company ^()**				9,458		9,366
Consolidation reserves attributed to the Bank and dependents consolidated companies.				16,101		14,275
Total		28.3		25,559		23,641

^(*)

Total reserves of BBVA, S.A.

28.1 Legal reserve

Under the amended Corporations Act, 10% of any profit made each year must be transferred to the legal reserve. The transfer must be made until the legal reserve reaches 20% of the common stock.

The legal reserve can be used to increase the common stock provided that the remaining reserve balance does not fall below 10% of the increased capital. While it does not exceed 20% of the common stock, it can only be allocated to offset losses exclusively in the case that there are not sufficient reserves available.

28.2 Restricted reserves

As of June 30, 2017 and December 31, 2016, the Bank’s restricted reserves are as follows:


	Millions of Euros
Restricted Reserves	June 2017	December 2016
Restricted reserve for retired capital	88	88
Restricted reserve for Parent Company shares and loans for those shares	83	111
Restricted reserve for redenomination of capital in euros	2	2
Total	173	201

The restricted reserve for retired capital resulted from the reduction of the nominal par value of the BBVA shares made in April 2000.

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The most significant heading corresponds to restricted reserves related to the amount of shares issued by the Bank in its possession at each date, as well as the amount of customer loans outstanding at those dates that were granted for the purchase of, or are secured by, the Bank’s shares.

Finally, pursuant to Law 46/1998 on the Introduction of the Euro, a restricted reserve is recognized as a result of the rounding effect of the redenomination of the Bank’s common stock in euros.

28.3 Retained earnings, revaluation reserves and other reserves by entity

The breakdown, by company or corporate group, under the heading “Reserves” in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Retained earnings, Revaluation reserves and Other reserves	June 2017		December 2016
Accumulated income ans Revaluation reserves
Holding Company		14,106		14,101
BBVA Bancomer Group		10,082		9,108
BBVA Seguros, S.A.		(210)		(62)
Corporacion General Financiera, S.A.		1,237		1,187
BBVA Banco Provincial Group		1,750		1,752
BBVA Chile Group		1,404		1,264
BBVA Paraguay		121		96
Compañía de Cartera e Inversiones, S.A.		(22)		(27)
Anida Grupo Inmobiliario, S.L.		515		528
BBVA Suiza, S.A.		(57)		(1)
BBVA Continental Group		681		611
BBVA Luxinvest, S.A.		53		16
BBVA Colombia Group		928		803
BBVA Banco Francés Group		995		827
Banco Industrial De Bilbao, S.A.		78		61
Gran Jorge Juan, S.A.		(47)		(30)
BBVA Portugal Group		(436)		(477)
Participaciones Arenal, S.L.		(180)		(180)
BBVA Propiedad S.A.		(503)		(431)
Anida Operaciones Singulares, S.L.		(4,500)		(4,127)
Grupo BBVA USA Bancshares		(710)		(1,053)
Garanti Turkiye Bankasi Group		751		127
Unnim Real Estate		(708)		(477)
Bilbao Vizcaya Holding, S.A.		148		139
BBVA Autorenting, S.A.		(23)		(38)
Pecri Inversión S.L.		(76)		(75)
Other		217		67
Subtotal		25,595		23,708
Reserves or accumulated losses of investments in joint ventures and associates
Metrovacesa Suelo		(52)		(52)
Other		16		(15)
Subtotal		(37)		(67)
Total		25,558		23,641

For the purpose of allocating the reserves and accumulated losses to the consolidated entities and to the parent company, the transfers of reserves arising from the dividends paid and transactions between these entities are taken into account in the period in which they took place.

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29. Treasury shares

As of June 30, 2017 and December 31, 2016 the Group entities performed the following transactions with shares issued by the Bank:


	June 2017				December 2016
Treasury Stock	Number of Shares		Millions of Euros		Number of Shares		Millions of Euros
Balance at beginning		7,230,787		48		38,917,665		309
+ Purchases		156,468,233		1,025		379,850,939		2,004
- Sales and other changes		(156,170,127)		(1,016)		(411,537,817)		(2,263)
+/- Derivatives on BBVA shares		-		(4)		-		(1)
+/- Other changes		-		-		-		-
Balance at the end		7,528,893		54		7,230,787		48
Of which:
Held by BBVA, S.A.		-		-		2,789,894		22
Held by Corporación General Financiera, S.A.		7,528,893		54		4,440,893		26
Average purchase price in Euros		6.55				5.27
Average selling price in Euros		6.50				5.50
Net gain or losses on transactions (Shareholders’ funds-Reserves)				1				(30)

The percentages of treasury stock held by the Group in the six months period ended June 30, 2017 and December 31, 2016 are as follows:

2017

2016

Treasury Stock

Min

Max

Closing

Min

Max

Closing

% treasury stock

0.004%

0.278%

0.113%

0.081%

0.756%

0.110%

The number of BBVA shares accepted by the Group in pledge of loans as of June 30, 2017 and December 31, 2016 is as follows:


Shares of BBVA Accepted in Pledge	June 2017	December 2016
Shares of BBVA Accepted in Pledge	June 2017	December 2016
Number of shares in pledge	82,238,197	90,731,198
Nominal value	0.49	0.49
% of share capital	1.23%	1.38%

The number of BBVA shares owned by third parties but under management of a company within the Group as of June 30, 2017 and December 31, 2016, is as follows:


Shares of BBVA Owned by Third Parties but Managed by the Group	June 2017	December 2016
Number of shares owned by third parties	82,660,434	85,766,602
Nominal value	0.49	0.49
% of share capital	1.24%	1.31%

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30. Accumulated other comprehensive income

The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:


	Millions of Euros
Accumulated other comprehensive income	June 2017		December 2016
Accumulated other comprehensive income	June 2017		December 2016
Items that will not be reclassified to profit or loss		(1,058)	(1,095)
Actuarial gains or (-) losses on defined benefit pension plans		(1,058)	(1,095)
Non-current assets and disposal groups classified as held for sale		-	-
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates		-	-
Other adjustments		-	-
Items that may be reclassified to profit or loss		(5,933)	(4,363)
Hedge of net investments in foreign operations [effective portion]		(412)	(118)
Foreign currency translation		(6,451)	(5,185)
Hedging derivatives. Cash flow hedges [effective portion]		(25)	16
Available-for-sale financial assets		984	947
Debt instruments		1,726	1,629
Equity instruments		(742)	(682)
Non-current assets and disposal groups classified as held for sale		-	-
Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates		(29)	(23)
Total		(6,991)	(5,458)

The balances recognized under these headings are presented net of tax.

The main variation is related to the conversion to euros of the interim financial statements balances from consolidated entities whose functional currency is not euros. In this regard, the increase in item “Foreign currency translation” in the above table in the first semester of 2017 is mainly related to the depreciation of the Mexican peso and the Turkish lira, partially offset by the appreciation of the U.S. dollar against the euro (see Note 2.2.16).

31. Non-controlling interests

The breakdown by groups of consolidated entities of the balance under the heading “Non-controlling interests” of total equity in the accompanying consolidated balance sheets is as follows:


	Millions of euros
Non-Controlling Interests	June 2017	December 2016
Non-Controlling Interests	June 2017	December 2016
BBVA Colombia Group	62	67
BBVA Chile Group	365	377
BBVA Banco Continental Group	1,000	1,059
BBVA Banco Provincial Group	81	97
BBVA Banco Francés Group	245	243
Garanti Group (Note 3)	5,079	6,157
Other entities	64	64
Total	6,895	8,064

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These amounts are broken down by groups of consolidated entities under the heading “Profit - Attributable to non-controlling interests” in the accompanying consolidated income statements:


	Millions of Euros
Profit attributable to Non-Controlling Interests	June 2017	June 2016
Profit attributable to Non-Controlling Interests	June 2017	June 2016
BBVA Colombia Group	3	5
BBVA Chile Group	25	14
BBVA Banco Continental Group	98	92
BBVA Banco Provincial Group	(2)	(6)
BBVA Banco Francés Group	46	34
Garanti Group (Note 3)	436	495
Other entities	1	6
Total	607	639

Dividends distributed to non-controlling interests of the Group during the six months ended June 30, 2017 are: BBVA Banco Continental Group €104 million, BBVA Chile Group €11 million, BBVA Banco Francés Group €12 million, Garanti Group €158 million, BBVA Colombia Group €3 million, and other Spanish entities accounted for €8 million.

32. Capital base and capital management

Capital base

As of June 30, 2017 and December 31, 2016, equity is calculated in accordance with current regulation on minimum capital base requirements for Spanish credit institutions –both as individual entities and as consolidated group– and how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market.

The minimum capital base requirements established by the current regulation are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in said regulation and the internal corporate governance obligations.

As a result of the Supervisory Review and Evaluation Process (SREP) carried out by the European Central Bank (ECB), BBVA has received a communication from the ECB requiring BBVA to maintain, on a consolidated basis, effective from January 1, 2017, a phased-in total capital of 11.125% and on an individual bases, a phased-in total capital of 10.75%.

This total capital requirement of 11.125% includes: i) the minimum CET1 capital ratio required under Pillar 1 (4.5%); ii) Pillar 1 Additional Tier 1 capital requirements (1.5%); iii) Pillar 1 Tier 2 capital requirements (2%); iv) Pillar 2 CET1 capital requirement (1.5%); v) the capital conservation buffer (CCB) (1.25% CET1 in a phased-in term and 2.5% in a fully loaded term) and vi) the Other Systemic Important Institution buffer (OSII) (0.375% CET1 in a phased-in term and 0.75% in a fully loaded term).

Since BBVA has been excluded from the list of global systemically important financial institutions in 2016 (which is updated every year by the Financial Stability Board (FSB)), as of January 1, 2017, the G-SIB buffer will not apply to BBVA in 2017, (notwithstanding the possibility that the FSB or the supervisor may include BBVA on it in the future).

However, the supervisor has informed BBVA that it is included on the list of other systemically important financial institutions, and a D-SIB buffer of 0.75% of the fully-loaded ratio applies at the consolidated level. It will be implemented gradually from January 1, 2016 to January 1, 2019.

The CET1 requirement on phased-in terms stands at 7.625% on a consolidated basis and 7.25% on an individual basis.

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The Group’s bank capital in accordance with the aforementioned applicable regulation, considering entities scope required by the above regulation, as of June 30, 2017 and December 31, 2016, is shown below: (please note that the information for the latter period has been adapted to the new presentation format for comparison purposes):



	Millions of euros
Eligible capital resources	June *2017 ^()**		December 2016
Capital		3,267		3,218
Share premium		23,992		23,992
Retained earnings, revaluation reserves and other reserves		25,559		23,641
Other equity instruments (net)		43		54
Treasury shares		(54)		(48)
Attributable to the parent company		2,306		3,475
Attributable dividend		(291)		(1,510)
Total equity		54,823		52,821
Accumulated other comprehensive income		(6,991)		(5,458)
Non-controlling interest		6,895		8,064
Shareholders’ equity		54,727		55,428
Intangible assets		(7,014)		(5,675)
Fin. treasury shares		(73)		(82)
Indirect treasury shares		(178)		(51)
Deductions		(7,265)		(5,808)
Temporary CET 1 adjustments		(80)		(129)
Capital gains from the Available-for-sale debt instruments portfolio		(228)		(402)
Capital gains from the Available-for-sale equity portfolio		148		273
Differences from solvency and accounting level		(165)		(120)
Equity not eligible at solvency level		(244)		(249)
Other adjustments and deductions		(3,330)		(2,001)
Common Equity Tier 1 (CET 1)		43,888		47,370
Additional Tier 1 before Regulatory Adjustments		5,955		6,114
Total Regulatory Adjustments of Aditional Tier 1		(1,359)		(3,401)
Tier 1		48,484		50,083
Tier 2		9,351		8,810
Total Capital (Total Capital=Tier 1 + Tier 2)		57,835		58,893


Total Minimum equity required		41,505		37,923

(*) Provisional data.

The changes in the Tier 1 Capital Ratio (CET1) in the previous table are mainly explained by the generation of results, net of dividend and remuneration payments, the reduction of risk-weighted assets, mainly due to the depreciation of currencies (especially significant for the Turkish lira and the US dollar) and the negative impact on minority stakes and deductions for the increase of the phase-out schedule of 80% in 2017, compared to 60% in 2016.

Additionally, the acquisition of an additional 9.95% in Garanti Bank and the sale of a 1.7% stake in CNCB with an impact of approximately -13 basis points of CET.

During the first half of the year, the Group has carried out an issue, classified as additional capital instruments (TIER I), of preference shares that may eventually be converted into ordinary shares of BBVA amounting to 500 million euros A positive impact of 13 basis points, as well as several issues of subordinated debt computable as TIER II instruments with an impact of about 50 basis points as of June 30, 2017.

The total ratio grows to 15.50%, taking into account the effects discussed above.

F-151

The leverage ratio reaches 6.87% at June 30, which is a variation of 17 basic points from December due to the reduction in exposure mainly due to the impact of the depreciation of the currencies:



	Millions de euros
Capital Base	June *2017 ^()**		December 2016
Tier 1 (thousand of euros) (a)		48,484		50,083
Exposure (thousand of euros) (b)		705,974		747,217
Leverage ratio (a)/(b) (percentage)		6.87%		6.70%

(*) Provisional data

A reconciliation of the balance sheet to the accounting and regulatory scope (provisional data) as of June 30, 2017 is provided below:



	Millions of Euros
Public balance sheet headings	Public balance sheet	Insurance companies and real estate companies ⁽¹⁾	Jointly-controlled entities and other adjustments ⁽²⁾	Regulatory balance sheet
Cash and balances with central banks and other demand deposits	34,720	-	74	34,794
Financial assets held for trading	68,885	2,015	-	70,900
Other financial assets designated at fair value through profit or loss	2,230	(2,226)	-	4
Available for sale financial assets	74,666	(20,794)	-	53,872
Loans and receivables	458,494	(862)	617	458,249
Held to maturity investments	14,531	-	-	14,531
Hedgind derivatives	2,223	(97)	-	2,126
Fair value changes of the hedged items in portfolio hedges of interest rate risk	14	-	-	14
Investments in entities accounted for using the equity method	1,142	3,546	(20)	4,668
Non-current assets held for sale	3,344	(389)	(56)	2,899
Other	42,181	561	6	42,748
Total assets	702,429	(18,246)	621	684,805

⁽¹⁾

Correspond to balances of entities fully consolidated in the public balance sheet but consolidated by the equity method in the regulatory balance sheet.

⁽²⁾

Correspond to intragroup adjustments and other consolidation adjustments.

Capital management

Capital management in the BBVA Group has a twofold aim:

●

Maintain a level of capitalization according to the business objectives in all countries in which it operates and, simultaneously.

●

Maximize the return on shareholders’ funds through the efficient allocation of capital to the different units, a good management of the balance sheet and appropriate use of the various instruments forming the basis of the Group’s equity: shares, preferred securities and subordinate debt.

This capital management is carried out determining the capital base and the solvency ratios established by the prudential and minimum capital requirements also have to be met for the entities subject to prudential supervision in each country.

The current regulation allows each entity to apply its own internal ratings-based (IRB) approach to risk assessment and capital management, subject to Bank of Spain approval. The BBVA Group carries out an integrated management of these

F-152

risks in accordance with its internal policies and its internal capital estimation model has received the Bank of Spain’s approval for certain portfolios (see Note 7).

33. Commitments and guarantees given

The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:



	Millions of euros
Loan commitments, financial guarantees and other *commitments ^()**	June 2017		December 2016
Loan commitments given		92,184		107,254
of which: defaulted		553		411
Central banks		-		1
General governments		2,898		4,354
Credit institutions		1,027		1,209
Other financial corporations		2,660		4,155
Non-financial corporations		61,361		71,710
Households		24,238		25,824
Financial guarantees given		16,363		18,267
of which: defaulted		256		278
Central banks		-		-
General governments		112		103
Credit institutions		1,282		1,553
Other financial corporations		2,402		722
Non-financial corporations		11,772		15,354
Households		794		534
Other commitments and guarantees given		42,790		42,592
of which: defaulted		435		402
Central banks		48		12
General governments		246		372
Credit institutions		10,975		9,880
Other financial corporations		5,584		4,892
Non-financial corporations		25,811		27,297
Households		127		138

Total Loan commitments and financial guarantees		151,337		168,113

^(*)

Non performing financial guarantees given amounted €691 and €680 million as of June 30, 2017 and December 31, 2016, respectively.

As of June 30, 2017, the provisions of loan commitments given, financial guarantees given and other commitments and guarantees given, registered in the consolidated balance sheet amounted €303 million, €195 million and €352 million, respectively.

Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.

In the six months ended June 30, 2017 and 2016 no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed.

34. Other contingent assets and liabilities

As of June 30, 2017 and December 30, 2016, there were no material contingent assets or liabilities other than those disclosed in the accompanying notes to the financial statements.

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35. Purchase and sale commitments and future payment obligations

The breakdown of purchase and sale commitments of the BBVA Group as of June 30, 2017 and December 31, 2016, is as follows:


		Millions of Euros
Purchase and Sale Commitments	Notes	June 2017	December 2016
Purchase and Sale Commitments	Notes	June 2017	December 2016
Financial instruments sold with repurchase commitments		38,329	46,562
Central Banks	9	4,843	4,649
Credit Institutions	22.1	19,171	28,421
General governments	22.2	-	-
Other domestic sectors	22.2	6,891	5,271
Foreign sectors	22.2	7,424	8,221
Financial instruments purchased with resale commitments		17,604	22,921
Central Banks		342	81
Credit Institutions	13.1	10,622	15,561
General governments	13.2	428	544
Other domestic sectors	13.2	2,070	3,388
Foreign sectors	13.2	4,142	3,347

A breakdown of the maturity of other payment obligations, not included in previous notes, due after June 30, 2017 is provided below:


	Millions of Euros
Maturity of Future Payment Obligations	Up to 1 Year		1 to 3 Years		3 to 5 Years		Over 5 Years		Total
Finance leases		-		-		-		-		-
Operating leases		376		330		366		2,385		3,457
Purchase commitments		35		-		-		-		35
Technology and systems projects		14		-		-		-		14
Other projects		22		-		-		-		22
Total		412		330		366		2,385		3,493

36. Transactions on behalf of third parties

As of June 30, 2017 and December 31, 2016, the details of the most significant items under this heading are as follows:


	Millions of Euros
Transactions on Behalf of Third Parties	June 2017	December 2016
Transactions on Behalf of Third Parties	June 2017	December 2016
Financial instruments entrusted by third parties	666,587	637,761
Conditional bills and other securities received for collection	14,867	16,054
Securities lending	5,561	3,968
Total	687,015	657,783

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As of June 30, 2017 and December 31, 2016, the customer funds managed by the BBVA Group are as follows:


	Millions of Euros
Customer Funds by Type	June 2017	December 2016
Customer Funds by Type	June 2017	December 2016
*Asset management by type of customer ():**
Collective investment	59,905	55,037
Pension funds	33,412	33,418
Customer portfolios managed on a discretionary basis	40,510	40,805
Of which:
Portfolios managed on a discretionary	21,229	18,165
Other resources	3,217	2,831
Customer resources distributed but not managed by type of product:
Collective investment	3,530	3,695
Insurance products	37	39
Other	-	-
Total	140,611	135,824

^(*) Excludes balances from securitization funds.

37. Interest income and expense

37.1 Interest income

The breakdown of the interest and similar income recognized in the accompanying consolidated income statement is as follows:


	Millions of Euros
Interest Income Breakdown by Origin	June 2017	June 2016
Interest Income Breakdown by Origin	June 2017	June 2016
Central Banks	148	99
Loans and advances to credit institutions	151	161
Loans and advances to customers	11,135	10,635
Debt securities	1,872	2,135
Held for trading	627	494
Available-for-sale financial assets	1,245	1,641
Adjustments of income as a result of hedging transactions	(138)	(208)
Cash flow hedges (effective portion)	-	6
Fair value hedges	(138)	(214)
Insurance activity	660	569
Other income	477	311
Total	14,305	13,702

The amounts recognized in consolidated equity in connection with hedging derivatives and the amounts derecognized from consolidated equity and taken to the consolidated income statement during both periods are given in the accompanying “Consolidated statements of recognized income and expenses”.

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37.2 Interest expense

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:


		Millions of Euros
Interest Expenses Breakdown by Origin	June 2017		June 2016
Central banks		62		93
Deposits from credit institutions		744		697
Customers deposits		2,970		2,921
Debt securities issued		1,102		1,196
Adjustments of expenses as a result of hedging transactions		(269)		(293)
Cash flow hedges (effective portion)		19		15
Fair value hedges		(288)		(308)
Cost attributable to pension funds		68		63
Insurance activity		474		387
Other expenses		350		274
Total		5,502		5,338

37.3 Average return on investments and average borrowing cost

The detail of the average return on investments in the six months ended June 30, 2017 and 2016 is as follows:


	Millions of Euros
	June 2017			June 2016
Assets	Average Balances	Interest income	Average Interest Rates (%)	Average Balances	Interest income	Average Interest Rates (%)
Cash and balances with central banks and other demand deposits	33,009	6	0.04	25,003	5	0.04
Securities portfolio and derivatives	183,002	2,442	2.69	207,222	2,562	2.49
Loans and advances to central banks	12,443	148	2.41	17,215	99	1.15
Loans and advances to credit institutions	26,042	144	1.12	27,865	163	1.18
Loans and advances to customers	412,563	11,306	5.53	412,000	10,748	5.25
Euros	197,588	1,714	1.75	203,819	1,918	1.89
Foreign currency	214,974	9,591	9.00	208,182	8,830	8.53
Other assets	50,688	259	1.03	53,184	125	0.47
Totals	717,747	14,305	4.02	742,490	13,702	3.71

The average borrowing cost in the six months ended June 30, 2017 and 2016 is as follows:


	Millions of Euros
	June 2017			June 2016
Liabilities	Average Balances	Interest expenses	Average Interest Rates (%)	Average Balances	Interest expenses	Average Interest Rates (%)
Deposits from central banks and credit institutions	93,471	938	2.02	102,555	952	1.87
Customer deposits	396,690	3,024	1.54	404,701	3,027	1.50
Euros	186,550	245	0.26	203,558	420	0.41
Foreign currency	210,140	2,779	2.67	201,143	2,607	2.61
Debt securities issued	86,208	865	2.02	89,982	876	1.96
Other liabilities	86,003	675	1.58	90,117	483	1.08
Equity	55,374	-	-	55,135	-	-
Totals	717,747	5,502	1.55	742,490	5,338	1.44

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The change in the balance under the headings “Interest and similar income” and “Interest and similar expenses” in the accompanying consolidated income statements is the result of exchange rate effect, changing prices (price effect) and changing volume of activity (volume effect), as can be seen below:


	Millions of Euros
	June 2017 /June 2016						June 2016 /June 2015
Interest Income and Expenses Change in the Balance	Volume Effect (1)		Price Effect (2)		Total Effect		Volume Effect (1)		Price Effect (2)		Total Effect
Cash and balances with central banks and other demand deposits		2		(1)		1		-		3		4
Securities portfolio and derivatives		(306)		185		(120)		27		584		611
Loans and advances to Central Banks		(28)		77		50		89		(53)		37
Loans and advances to credit institutions		(11)		(7)		(19)		5		38		43
Loans and advances to customers
In Euros		(64)		(140)		(204)		185		(448)		(263)
In other currencies		263		498		761		1,659		915		2,574
Other assets		(6)		140		134		15		17		32
Interest income						603						3,037
Deposits from central banks and credit institutions		(87)		73		(14)		97		244		341
Customer deposits
Domestic		(36)		(139)		(175)		96		(242)		(146)
Foreign		109		63		172		268		1,186		1,454
Debt securities issued		(39)		28		(11)		56		(17)		38
Other liabilities		(23)		215		192		(28)		108		80
Interest expenses						164						1,768
Net Interest Income						438						1,269

(1)

The volume effect is calculated as the result of the interest rate of the initial period multiplied by the difference between the average balances of both periods.

(2)

The price effect is calculated as the result of the average balance of the last period multiplied by the difference between the interest rates of both periods.

38. Dividend income

The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 39), as can be seen in the breakdown below:


	Millions of Euros
Dividend Income	June 2017		June 2016
Dividends from:
Financial assets held for trading		106		106
Available-for-sale financial assets		106		195
Total		212		301

39. Share of profit or loss of entities accounted for using the equity method

Net income from “Investments in Entities Accounted for Using the Equity Method” resulted in a loss of €8 million for the first semester of 2017 compared with a profit of €1 million recorded for the first semester of 2016.

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40.	Fee and commission income and expenses

The breakdown of the balance under the heading “Fee and commission income” in the accompanying consolidated income statements is as follows:


	Millions of Euros
Fee and Commission Income	June 2017		June 2016
Bills receivables		24		27
Demand accounts		247		224
Credit and debit cards		1,386		1,293
Checks		104		100
Transfers and others payment orders		296		278
Insurance product commissions		97		88
Commitment fees		122		121
Contingent risks		198		201
Asset Management		444		415
Securities fees		216		171
Custody securities		62		60
Other fees and commissions		355		335
Total		3,551		3,313

The breakdown of the balance under the heading “Fee and commission expenses” in the accompanying consolidated income statements is as follows:


	Millions of Euros
Fee and Commission Expense	June 2017		June 2016
Credit and debit cards		717		613
Transfers and others payment orders		52		51
Commissions for selling insurance		29		30
Other fees and commissions		297		269
Total		1,095		963

F-158

41.	Gains (losses) on financial assets and liabilities (net) and Exchange Differences

The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statements is as follows:


	Millions of Euros
Gains or losses on financial assets and liabilities and exchange differences Breakdown by Heading of the Balance Sheet	June 2017		June 2016
Gains or losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net		683		683
Available-for-sale financial assets		623		607
Loans and receivables		59		77
Other		1		(1)
Gains or losses on financial assets and liabilities held for trading, net		139		106
Gains or losses on financial assets and liabilities designated at fair value through profit or loss, net		(88)		24
Gains or losses from hedge accounting, net		(193)		(171)
Subtotal Gains or losses on financial assets and liabilities		541		642
Exchange Differences		528		533
Total		1,069		1,175

The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:


	Millions of Euros
Gains or losses on financial assets and liabilities Breakdown by nature of the Financial Instrument	June 2017		June 2016
Debt instruments		448		510
Equity instruments		546		(149)
Loans and advances to customers		44		33
Trading derivatives and hedge accounting		(410)		249
Costumer deposits		(97)		3
Other		10		(4)
Total		541		642

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The breakdown of the balance of the impact of the derivatives (trading and hedging) under this heading in the accompanying consolidated income statements is as follows:


	Millions of Euros
Derivatives - Hedge accounting	June 2017		June 2016
Derivatives
Interest rate agreements		111		(116)
Security agreements		(137)		373
Commodity agreements		9		14
Credit derivative agreements		58		16
Foreign-exchange agreements		(64)		128
Other agreements		(195)		4
Subtotal		(218)		419
Hedging Derivatives Ineffectiveness
Fair value hedges		(201)		(170)
Hedging derivative		(159)		(585)
Hedged item		(41)		414
Cash flow hedges		8		-
Subtotal		(193)		(170)
Total		(410)		249

In addition, in the six months ended June 30, 2017 and 2016, under the heading “Gains or losses on financial assets and liabilities held for trading, net” of the consolidated income statement, net amounts of negative €129 million and positive €253 million, respectively, were recognized for transactions with foreign exchange trading derivatives.

42.	Other operating income and expenses

The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:


	Millions of Euros
Other operating income	June 2017		June 2016
Gains from sales of non-financial services		390		447
Of which: Real estate		251		296
Rest of other operating income		172		268
Of which: net profit from building leases		34		39
Total		562		716

The breakdown of the balance under the heading “Other operating expenses” in the accompanying consolidated income statements is as follows:


	Millions of Euros
Other operating expense	June 2017		June 2016
Change in inventories		266		312
Of Which: Real estate		218		258
Rest of other operating expenses		679		874
Total		945		1,186

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43. Insurance and reinsurance contracts incomes and expenses

The breakdown of the balance under the headings “Insurance and reinsurance contracts incomes and expenses” in the accompanying consolidated income statements is as follows:


	Millions of Euros
Other operating income and expenses on insurance and reinsurance contracts	June 2017	June 2016

Income on insurance and reinsurance contracts	1,863	1,958
Expenses on insurance and reinsurance contracts	(1,295)	(1,446)
Total	568	512

The table below shows the contribution of each insurance product to the Group’s income for the six months ended June 30, 2017 and 2016:


	Millions of Euros
Income by type of insurance product	June 2017	June 2016
Life insurance	357	282
Individual	199	120
Savings	38	2
Risk	161	118
Group insurance	158	162
Savings	1	14
Risk	157	148
Non-Life insurance	211	230
Home insurance	48	77
Other non-life insurance products	163	153
Total	568	512

44. Administration costs

44.1	Personnel expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:


		Millions of euros
Personnel Expenses	Notes		June 2017	June 2016
Wages and salaries			2,590	2,587
Social security costs			394	403
Defined contribution plan expense	25		52	45
Defined benefit plan expense	25		32	34
Other personnel expenses			256	255
Total			3,324	3,324

F-161

The breakdown of the average number of employees in the BBVA Group in the six months ended June 30, 2017 and 2016 by professional categories and geographical areas is as follows:


	Average Number of Employees
Average Number of Employees by Geographical Areas		June 2017	June 2016
Spanish banks

Management Team		1,021	1,039
Other line personnel		22,280	23,382
Clerical staff		3,109	4,044
Branches abroad		618	747
Subtotal		27,028	29,212
Companies abroad

Mexico		30,567	29,969
United States		9,425	9,951
Turkey		23,426	23,897
Venezuela		4,553	5,175
Argentina		6,220	5,926
Colombia		5,454	5,734
Peru		5,556	5,395
Other		5,442	4,802
Subtotal		90,643	90,849
Pension fund managers		361	325
Other non-banking companies		14,893	17,077
Total		132,924	137,463
Of Which:
Men		60,873	63,053
Women		72,051	74,410
Of Which:
BBVA, S.A.		27,028	25,077

The breakdown of the number of employees in the BBVA Group as of June 30, 2017 and 2016 by category and gender is as follows:


Number of Employees at the period end	June 2017				June 2016
Professional Category and Gender	Male		Female		Male		Female
Management Team		1,275		344		1,389		353
Other line personnel		38,173		38,949		38,881		38,978
Clerical staff		21,126		32,454		22,770		34,939
Total		60,574		71,747		63,040		74,270

44.1.1 Share-based employee remuneration

The amounts recognized under the heading “Administration costs - Personnel expenses - Other personnel expenses” in the consolidated income statements for the six months ended June 30, 2017 and 2016 corresponding to the plans for remuneration based on equity instruments in each year, amounted to €21 and €20 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity instruments” in the accompanying consolidated balance sheets, net of tax effect.

The characteristics of the Group’s remuneration plans based on equity instruments are described below.

System of Variable Remuneration in Shares

In BBVA, the annual variable remuneration applying generally to all employees consists of one incentive, to be paid in cash, awarded once a year and linked to the achievement of predetermined objectives and to a sound risk management

F-162

based on the design of incentives that are aligned with the company’s long-term interests, taking into account current and future risks (hereinafter, the “Annual Variable Remuneration”).

Notwithstanding the foregoing, the remuneration policy for BBVA Group, in force until 2016, had a specific settlement and payment system for the Annual Variable Remuneration applicable to those employees and senior managers, including the executive directors and members of BBVA Senior Management, whose professional activities may have a significant impact on the Group’s risk profile or perform control functions (hereinafter, the “Identified Staff”), which included, among others, the payment in shares of part of their Annual Variable Remuneration.

This remuneration policy was approved, with respect to BBVA directors, by the Annual General Shareholders’ Meeting held on March 13, 2015.

The specific rules of the settlement and payment system of 2016 Annual Variable Remuneration for executive directors and members of the Senior Management are described in Note 54, while the rules listed below were applicable to the rest of the Identified Staff:

●

The Annual Variable Remuneration of Identified Staff members would be paid in equal parts in cash and in BBVA shares.

●

The payment of 40% of the Annual Variable Remuneration, both in cash and in shares, would be deferred in its entirety for a three–year period. Its accrual and payment would be subject to compliance with certain multi-year performance indicators related to the share performance and the Group’s fundamental control and risk management metrics regarding solvency, liquidity and profitability, which would be calculated over the deferral period (hereinafter “Multi-year Performance Indicators”). These Multi-year Performance Indicators could lead to a reduction in the amounts deferred, and might even bring it down to zero, but they would not be used under any circumstances to increase the aforementioned deferred remuneration.

●

All the shares delivered pursuant to the rules indicated above would be withheld for a period of one year from the date of delivery. This withholding would be applied over the net amount of the shares, after discounting the necessary part to pay any tax accruing on the shares received.

●

A prohibition was also established against hedging, both regarding vested shares that were withheld and shares whose delivery was pending.

●

Moreover, circumstances were established under which the payment of the deferred Annual Variable Remuneration could be limited or impeded (“malus” clauses), as well as the adjustment to update these deferred parts.

●

Finally, the variable component of the remuneration corresponding to a financial year for the Identified Staff would be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the General Meeting resolved to increase such limit which, in any event, could not exceed 200% of the fixed component of total remuneration.

In this regard, the Annual General Meetings held on 2014 and 2015 resolved, in line with applicable legislation, the application of the maximum level of variable remuneration up to 200% of the fixed remuneration for a specific group of employees whose professional activities have a material impact on the Group’s risk profile or are engaged in control functions, and to enlarge this group, whose variable remuneration will be subject to the maximum threshold of 200% of the fixed component of their total remuneration, respectively. This is entirely consistent with the Recommendations Report issued by the BBVA’s Board of Directors on February 3, 2015.

According to the settlement and payment scheme mentioned above, during the first semester of 2017, members of the Identified Staff received 6,481,409 shares corresponding to the initial payment of 2016 Annual Variable Remuneration to be delivered in shares.

Additionally, the remuneration policy prevailing until 2014 provided for a specific settlement and payment scheme for the variable remuneration of the Identified Staff that established a three-year deferral period for the Annual Variable Remuneration, being the deferred amount paid in thirds over this period.

According to this prior scheme, during the first semester of 2017, the members of the Identified Staff received the shares corresponding to the deferred parts of the Annual Variable Remuneration in shares from previous years, and their corresponding adjustments in cash, were delivered to the beneficiary members of the Identified Staff, resulting in (i) a total amount of 943,955 shares corresponding to the second deferred third of the 2014 Annual Variable Remuneration and €697,583 as adjustments for updates of the shares granted; and (ii) a total amount of 437,069 shares corresponding to the last deferred third of the 2013 Annual Variable Remuneration and €501,318 in adjustments for updates.

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Additionally, in line with specific regulation applicable in Portugal and Brazil, BBVA identifies those employees that, according to local regulators, should be subject to a specific settlement and payment scheme of the Annual Variable Remuneration.

According to this regulation, during the first semester 2017 a number of 49,798 shares corresponding to the initial payment of 2016 Annual Variable Remuneration were delivered to these beneficiaries.

Additionally, during the first semester 2017 the shares corresponding to the deferred parts of the Annual Variable Remuneration and their corresponding adjustments in cash, were delivered to these beneficiaries, giving rise in 2017, of a total of 10,485 shares corresponding to the first deferred third of the 2015 Annual Variable Remuneration, and €3,869 as adjustments for updates of the shares granted; a total of 7,201 shares corresponding to the second third of the 2014 Annual Variable Remuneration, and €5,322 as adjustments for updates of the shares granted; and a total of 5,757 shares corresponding to the final third of the 2013 Annual Variable Remuneration, and €6,603 as adjustments for updates of the shares granted.

Additionally, BBVA Compass’ remuneration structure included a long-term incentive programme in shares for employees in certain key positions. This plan is applicable for a three-year term and consisted in the delivery of a number of shares to its beneficiaries, subject to their permanence in the company for a period of three years.

During the first semester of 2017, a number of 331,111 shares corresponding to this programme were delivered.

Remuneration policy applicable from 2017 onwards

The Bank has modified its remuneration policy applicable to the Identified Staff and to BBVA Directors for the years 2017, 2018 and 2019, aimed at improving alignment with new regulatory requirements, best market practices and BBVA’s organization and internal strategy. This policy was approved, with respect to Identified Staff, by the Board of Directors held in 9 February 2017, and, with respect to BBVA directors, by the General Shareholders’ Meeting held on March 17, 2017.

The new remuneration policy includes a specific settlement and payment system of the Annual Variable Remuneration applicable to the Identified Staff, including directors and senior management, under the following rules, among others:

●

A significant percentage of variable remuneration – 60% in the case of executive directors, Senior Management and those Identified Staff members with particularly high variable remuneration, and 40% for the rest of the Identified Staff– shall be deferred over a five- year period, in the case of executive directors and Senior Management, and over a three-year period, for the remaining Identified Staff.

●

50% of the variable remuneration of each year (including both upfront and deferred portions), shall be established in BBVA shares, albeit a larger proportion (60%) in shares shall be deferred in the case of executive directors and Senior Management.

●

The variable remuneration will be subject to ex ante adjustments, so that it will not be accrued, or will be accrued in a reduced amount, should a certain level of profit or capital ratio not be obtained. Likewise, the Annual Variable Remuneration will be reduced upon performance assessment in the event of negative evolution of the Bank’s results or other parameters such as the level of achievement of budgeted targets.

●

The deferred component of the variable remuneration (in shares and in cash) may be reduced in its entirety, yet not increased, based on the result of multi-year performance indicators aligned with the Bank’s fundamental risk management and control metrics, related to the solvency, capital, liquidity, funding or profitability, or to the share performance and recurring results of the Group.

●

During the entire deferral period (5 or 3 years, as applicable) and retention period, variable remuneration shall be subject to malus and clawback arrangements, both linked to a downturn in financial performance of the Bank, specific unit or area, or individual, under certain circumstances.

●

All shares shall be withheld for a period of one year after delivery, except for those shares required to honor the payment of taxes.

●

No personal hedging strategies or insurance may be used in connection with remuneration and responsibility that may undermine the effects of alignment with sound risk management

●

The deferred amounts in cash subject to multi-year performance indicators that are finally paid shall be subject to updating, in the terms determined by the Bank’s Board of Directors, upon proposal of the Remunerations Committee, whereas deferred amounts in shares shall not be updated.

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●

Finally, the variable component of the remuneration of the Identified Staff members shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the General Meeting resolves to increase this percentage up to 200%.

In this regard, the General Meeting held on March, 17 2017 resolved to increase the maximum level of variable remuneration to 200% of the fixed component for a number of risk takers (replacing the previous ones), in the terms indicated in the Report of Recommendations issued for this purpose by the Board of Directors dated 9 February 2017.

In accordance with the new remuneration policy applicable to the Identified Staff, malus and clawback arrangements will be applicable to the Annual Variable Remuneration awarded as of the year 2016, inclusive, for each member of the Identified Staff.

The first disbursement in shares under this new policy will be the upfront payment of the 2017 Annual Variable Remuneration to be paid in shares, which will take place in the first half of 2018.

44.2 Other administrative expenses

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:


	Millions of Euros
Other Administrative Expenses		June 2017	June 2016
Technology and systems		342	333
Communications		149	151
Advertising		186	205
Property, fixtures and materials		528	547
Of which: Rent expenses (*)		299	313
Taxes other than income tax		237	228
Other expenses		833	855
Total		2,275	2,319

(*)

The consolidated companies do not expect to terminate the lease contracts early.

45. Depreciation

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:


		Millions of Euros
Depreciation and amortization	Notes		June 2017	June 2016
Tangible assets	17		355	345
For own use			348	333
Investment properties			7	12
Assets leased out under operating lease			-	-
Other Intangible assets	18.2		357	344
Total			712	689

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46. Provisions or reversal of provisions

In the six months ended June 30, 2017 and 2016 the net provisions registered in this income statement line item were as follows:


		Millions of Euros
Provisions or reversal of provisions	Notes		June 2017	June 2016
Pensions and other post employment defined benefit obligations	25		212	195
Commitments and guarantees given			(81)	13
Pending legal issues and tax litigation			131	27
Other Provisions			102	27
Total			364	262

47. Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss

The breakdown of Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss by the nature of those assets in the accompanying consolidated income statements is as follows:


		Millions of Euros
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss	Notes		June 2017	June 2016
Financial assets measured at cost			-	-
Available-for-sale financial assets	12		(9)	133
Debt securities			(11)	125
Equity instruments			2	8
Loans and receivables	7.3.5		1,950	1,977
Of which: Recovery of written-off assets	7.3.5		238	263
Held to maturity investments			(1)	-
Total			1,941	2,110

48. Impairment or reversal of impairment on non-financial assets

The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:


		Millions of Euros
Impairment or reversal of impairment on non-financial assets	Notes		June 2017	June 2016
Tangible assets	17		17	19
Intangible assets	18.2		10	-
Others	20		53	80
Total			80	99

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49. Gains (losses) on derecognized non financial assets and subsidiaries, net

The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:


	Millions of Euros
Gains or losses on derecognition of non financial assets and subsidiaries, net		June 2017	June 2016
Gains
Disposal of investments in non-consolidated subsidiaries		6	29
Disposal of tangible assets and other		44	32
Losses:
Disposal of investments in non-consolidated subsidiaries		(2)	-
Disposal of tangible assets and other		(19)	(24)
Total		30	37

50. Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations

The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:


		Millions of Euros
Profit or loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	Notes		June 2017	June 2016
Gains on sale of real estate			27	19
Impairment of non-current assets held for sale	21		(52)	(94)
Gains on sale of investments classified as non current assets held for sale			7	-
Gains on sale of equity instruments classified as non current assets held for sale			-	-
Total			(18)	(75)

51. Consolidated statements of cash flows

Cash flows from operating activities decreased in the six months ended June 30, 2017 by €4,732 million (compared with a decrease of €1,387 million in June 30, 2016). The most significant reason for the change occurred under “Financial liabilities held for trading”.

The variances in cash flows from investing activities increased in the six months ended June 30, 2017 by €1,444 million (compared with a decrease of €1,703 million in June 30, 2016). The most significant reason for the change occurred under the heading “Held to maturity investments”.

The variances in cash flows from financing activities decreased in the six months ended June 30, 2017 by €1,173 million (compared with an increase of €53 million in June 30, 2016). The most significant reason for the change occurred under the heading “Subordinated liabilities”.

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52. Accountant fees and services

The details of the fees for the services contracted by entities of the BBVA Group in the six months ended June 30, 2017 with their respective auditors and other audit entities are as follows:


		Millions of Euros
Fees for Audits Conducted and Other Related Services		June 2017
Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*)		27.2

Other reports required by the supervisory bodies or tax and legal regulations issued of the countries in which the Group operates, reviewed by firms belonging to the KPMG worldwide organization		1.8

Fees for audits conducted by other firms		0.1

(*)

Including fees pertaining to annual legal audits (€22.8 million).

In the six months ended June 30, 2017, other entities in the BBVA Group contracted other services (other than audits) as follows:


		Millions of Euros
Other Services Contracted		June 2017
Firms belonging to the KPMG worldwide organization		0.4

This total of contracted services includes the detail of the services provided by KPMG Auditores, S.L. to BBVA, S.A. or its controlled companies at the date of preparation of these consolidated financial statements as follows:


		Millions of Euros
*Fees for Audits Conducted ()**		June 2017
Legal audit of BBVA,S.A. or its under control		2.0
Limited Review of BBVA, S.A. or its companies under control		0.5
Reports related to issuances		0.1
Assurance jobs and other required by the regulator		0.2
Other		0.0

(*)

The fees for audits conducted by KPMG Auditors SL in this period came from services provided only to companies located in Spain.

The services provided by the auditors meet the independence requirements established under Audit of Accounts Law (Law 22/2015) and under the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC); accordingly they do not include the performance of any work that is incompatible with the auditing function.

53. Related-party transactions

As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. All of these transactions are not material and are carried out under normal market conditions. As of June 30, 2017 and 2016, the following are the transactions with related parties:

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53.1	Transactions with significant shareholders

As of June 30, 2017 and 2016, there were no shareholders considered significant (see Note 26).

53.2	Transactions with BBVA Group entities

The balances of the main aggregates in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:


	Millions of Euros
Balances arising from transactions with Entities of the Group	June 2017		December 2016
Assets:
Loans and advances to credit institutions		93		69
Loans and advances to customers		547		442
Liabilities:
Deposits from credit institutions		1		1
Customer deposits		453		533
Debt certificates		-		-
Memorandum accounts:
Financial guarantees given		1,141		1,586
Contingent commitments		96		42

The balances of the main aggregates in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:


	Millions of Euros
Balances of Income Statement arising from transactions with Entities of the Group	June 2017		June 2016
Income statement:
Financial incomes		12		15
Financial costs		-		-
Fee and Commission Income		2		4
Fee and Commission Expenses		27		27

There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar commitments, as described in Note 25; and the futures transactions arranged by BBVA Group with these entities, associates and joint ventures.

In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying consolidated financial statements.

53.3	Transactions with members of the Board of Directors and Senior Management

The information on the remuneration of the members of the BBVA Board of Directors and Senior Management is included in Note 54.

As of June 30, 2017 and December 31, 2016 there were no loans granted by the Group’s entities to the members of the Board of Directors. As of June 30, 2017 and December 31, 2016 the amount availed against the loans by the Group’s entities to the members of Senior Management (excluding the executive directors) amounted to €4,360 and €5,573 thousand, respectively.

As of June 30, 2017 and December 31, 2016 there were no loans granted to parties related to the members of the Board of Directors. As of June 30, 2017 and December 31, 2016 the amount availed against the loans to parties related to members of the Senior Management amounted to €94 and €98 thousand, respectively.

As of June 30, 2017 and December 31, 2016 no guarantees had been granted to any member of the Board of Directors.

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As of June 30, 2017 and December 31, 2016 the amount availed against guarantees arranged with members of the Senior Management amounted to €28 thousand.

As of June 30, 2017 and December 31, 2016 the amount availed against commercial loans and guarantees arranged with parties related to the members of the Bank’s Board of Directors and the Senior Management amounted to €8 thousand.

53.4	Transactions with other related parties

In the six months ended June 30, 2017 and December 31, 2016 the Group did not conduct any transactions with other related parties that are not in the ordinary course of its business, which were carried out at arm’s-length market conditions and of marginal relevance; whose information is not necessary to give a true picture of the BBVA Group’s consolidated net equity, net earnings and financial situation.

54. Remuneration and other benefits received by the Board of Directors and members of the Bank’s Senior Management

●

Remuneration of non-executive directors received in the first semester of 2017

The remuneration paid to the non-executive members of the Board of Directors during the first semester of 2017 is indicated below. The figures are given individually for each non-executive director and itemized:


							Thousands of Euros
Remuneration for non-executive directors	Board of Directors		Executive Committee		Audit & Compliance Committee		Risks Committee		Remunerations Committee		Appointments Committee		Technology and Cybersecurity Committee		Total
Tomás Alfaro Drake		64		-		36		-		4		51		21		176
José Miguel Andrés Torrecillas		64		-		89		53		-		20		-		227
José Antonio Fernández Rivero		64		83		-		-		21		-		4		173
Belén Garijo López		64		-		36		-		27		-		-		127
Sunir Kumar Kapoor		64		-		-		-		-		-		21		86
Carlos Loring Martínez de Irujo		64		83		-		53		4		-		-		205
Lourdes Máiz Carro		64		-		36		-		4		20		-		124
José Maldonado Ramos		64		83		-		9		-		20		-		177
Juan Pi Llorens		64		-		36		18		45		-		21		184
Susana Rodríguez Vidarte		64		83		-		53		-		20		-		222
Total (1)		644		334		232		187		104		132		68		1,700

(1)

Includes the amounts for the memberships of the different committees during the first semester of 2017. The composition of these committees was modified on May 31, 2017.

In addition, José Luis Palao García-Suelto and James Andrew Stott, who ceased as directors on March 17, 2017 and May 31, 2017, respectively, received a total amount of €70 thousand and €178 thousand, respectively, as members of the Board of Directors and of the different Board Committees.

Moreover, during the first semester of 2017, €122 thousand has been paid in healthcare and casualty insurance premiums for the non-executive members of the Board of Directors.

●

Remuneration of executive directors received in the first semester of 2017

During the first semester of 2017, the executive directors have received the amount of fixed remuneration corresponding to the first six months of the year according to the new Remuneration Policy for BBVA Directors approved by the General Meeting held on March 17, 2017 by a majority of 96.54%. This new Policy is applicable for financial years 2017, 2018 and 2019.

Additionally, the executive directors have received the annual variable remuneration corresponding to 2016 which payment vested during the first quarter of the year 2017, according to the settlement and payment system under the former remuneration policy for directors approved by the General Meeting held on March 13, 2015. This settlement and payment system provided that:

●

The annual variable remuneration would be paid in equal parts in cash and in BBVA shares.

●

50% of the annual variable remuneration, both in cash and in shares, would be deferred in its entirety for a three-year period, its accrual and vesting subject to compliance with a series of multi-year indicators.

●

All the shares delivered pursuant to the rules indicated above would be withheld for a one-year period from the date of delivery. This withholding would be applied to the net amount of the shares, after discounting the amount necessary to honor the payment of taxes accruing on the shares received.

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●

A prohibition against hedging was also established, both regarding withheld vested shares and shares pending delivery.

●

The deferred parts of the annual variable remuneration would be subject to updating under the terms established by the Board of Directors.

●

The variable component of the remuneration corresponding to a financial year would be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the General Meeting resolved to increase such percentage up to 200%.

Furthermore, following approval of the new Remuneration Policy for BBVA Directors by the 2017 General Meeting, the annual variable remuneration awarded as of the year 2016, inclusive, would be subject to arrangements for the reduction (“malus”) and recoupment (“clawback”) of variable remuneration during the entire deferral and retention period.

Likewise, in accordance with the settlement and payment system of the annual variable remuneration of 2014 and 2013, pursuant to the applicable policy for said years, the executive directors have received the deferred parts of the annual variable remuneration from those years, which vested in the first quarter of year 2017.

Pursuant to the above, the remuneration paid to the executive directors during the first semester of 2017 is shown below. The figures are given individually for each executive director and itemized:


			Thousands of Euros
Remuneration of executive directors	Fixed remuneration		2016 annual variable remuneration in cash (1)		Deferred variable remuneration in cash from previous years (2)		Total cash		2016 annual variable remuneration in BBVA shares (1)		Deferred variable remuneration in BBVA shares		Total shares
Group Executive Chairman		1,237		734		622		2,594		114,204		66,947		181,151
Chief Executive Officer		983		591		182		1,755		91,915		19,703		111,618
Head of Global Economics, Regulation & Public Affairs (“Head of GERPA”)		417		89		50		555		13,768		5,449		19,217
Total		2,637		1,414		853		4,904		219,887		92,099		311,986

(1)

Amounts corresponding to 50% of 2016 annual variable remuneration.

(2)

Amounts corresponding to the sum of the deferred parts of the annual variable remuneration from previous years (2014 and 2013), and their respective updated cash adjustments, payment or delivery of which has been made in the first semester of 2017, in application of the settlement and payment system, as broken down below:

- 2nd third of deferred annual variable remuneration from 2014:

Under this item, the executive directors have received: €321 thousand and 37,392 BBVA shares in the case of the Group Executive Chairman; €101 thousand and 11,766 BBVA shares in the case of the CEO; and €32 thousand and 3,681 BBVA shares in the case of the executive director Head of GERPA.

- 3rd third of deferred annual variable remuneration from 2013:

Under this item, the executive directors have received: €301 thousand and 29,555 BBVA shares in the case of the Group Executive Chairman; €81 thousand and 7,937 BBVA shares in the case of the CEO; and €18 thousand and 1,768 BBVA shares in the case of the executive director Head of GERPA.

As of June 30, 2017, amounts corresponding to the deferred variable remuneration of financial years 2014 (last third), 2015 (50%) and 2016 (50%) are pending payment to executive directors, where applicable, in accordance with the conditions established in the settlement and payment system applicable in each year.

Likewise, during the first semester of 2017, executive directors have received payment in kind, which includes insurance premiums and others, for a total overall amount of €204 thousand, of which €16 thousand has been paid to the Group Executive Chairman; €112 thousand to the CEO; and €76 thousand to the executive director Head of GERPA.

●

Remuneration of the members of the Senior Management received in the first semester of 2017

The remuneration paid during the first semester of 2017 to members of BBVA’s Senior Management as a whole, excluding executive directors, is shown below (itemized):

F-171


			Thousands of Euros
Remuneration of members of the Senior Management	Fixed remuneration		2016 annual variable remuneration in cash (1)		Deferred variable remuneration in cash from previous years (2)		Total cash		2016 annual variable remuneration in BBVA shares (1)		Deferred variable remuneration in BBVA shares		Total shares
Total Members of the Senior Management (*)		7,802		2,869		1,016		11,687		441,596		110,105		551,701

(*) This section includes aggregate information regarding the members of BBVA Group Senior Management, excluding executive directors, who were members of the Senior Management as at June 30, 2017 (15 members).

(1) Amounts corresponding to 50% of 2016 annual variable remuneration.

(2) Amounts corresponding to the sum of the deferred parts of the annual variable remuneration from previous years (2014 and 2013), and their respective updated cash adjustments, payment or delivery of which has been made in the first semester of 2017 to the members of the Senior Management who had this right, as broken down below:

- 2nd third of deferred annual variable remuneration from 2014:

An aggregate amount of €555 thousand and 64,873 BBVA shares.

- 3rd third of deferred annual variable remuneration from 2013:

An aggregate amount of €461 thousand and 45,232 BBVA shares.

As of June 30, 2017, amounts corresponding to the deferred variable remuneration of financial years 2014 (last third), 2015 (50%) and 2016 (50%) are pending payment, where applicable, to members of the Senior Management as a whole, in accordance with the settlement and payment system applicable in said years to each member.

Moreover, during the first semester of 2017, members of the Senior Management as a whole, excluding executive directors, have received payment in kind, which includes insurance premiums and others, for a total overall amount of €468 thousand.

●

Remuneration system in shares with deferred delivery for non-executive directors

BBVA has a remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the General Meeting held on March 18, 2006 and extended by resolutions of the General Meeting held on March 11, 2011 and on March 11, 2016, for a further five-year period in each case.

This system is based on the annual allocation to non-executive directors of a number of “theoretical shares”, equivalent to 20% of the total remuneration in cash received by each director in the previous year, according to the average closing prices of the BBVA share during the sixty trading sessions prior to the Annual General Meeting approving the corresponding financial statements for each year.

These shares will be delivered to each beneficiary, where applicable, on the date they cease in their position as directors for any reason other than serious breach of their duties.

The number of “theoretical shares” allocated in the first semester of 2017 to each non-executive director beneficiary of the remuneration system in shares with deferred delivery, corresponding to 20% of the total remuneration received in cash by said directors in 2016, is as follows:


	Theoretical shares allocated in 2017		Theoretical shares accumulated to 30th June 2017
Tomás Alfaro Drake		10,630		73,082
José Miguel Andrés Torrecillas		14,002		23,810
José Antonio Fernández Rivero		11,007		102,053
Belén Garijo López		7,313		26,776
Sunir Kumar Kapoor		4,165		4,165
Carlos Loring Martínez de Irujo		11,921		86,891
Lourdes Máiz Carro		7,263		15,706
José Maldonado Ramos		10,586		67,819
Juan Pi Llorens		10,235		42,609
Susana Rodríguez Vidarte		13,952		92,558
Total (1)		101,074		535,469

(1)

In addition, in the first semester of 2017, 8,752 theoretical shares were allocated to José Luis Palao García-Suelto and 10,226 theoretical shares were allocated to James Andrew Stott, who ceased as directors on March 17, 2017 and on May 31, 2017 respectively.

F-172

●

Pension commitments

The Bank has undertaken pension commitments in favor of the Chief Executive Officer and the executive director Head of GERPA, in accordance with the Bylaws, the Remuneration Policy for BBVA Directors and their respective contracts entered into with the Bank, which include a pension scheme to cover retirement, disability and death.

With respect to the Chief Executive Officer, the Remuneration Policy for BBVA Directors, approved by the 2017 General Meeting, provides for a new benefits framework which entails a change of the former defined-benefit scheme to a defined-contribution scheme, according to which the Chief Executive Officer is entitled, provided he does not leave his position as Chief Executive Officer due to serious breach of duties, to a retirement benefit when he reaches the legal age established for these purposes, which amount shall result from the funds accumulated by the Bank until December 2016 for pension commitments under his previous scheme and the sum of the annual contributions made by the Bank as of January 1, 2017, to cover said benefit under the new pension scheme, in addition to the corresponding accumulated yields.

The amount determined as annual fixed contribution to cover the retirement benefit under the new defined-contribution scheme for the Chief Executive Officer amounts to €1,642 thousand, amount which shall be updated in the same proportion as the annual fixed remuneration for the Chief Executive Officer in the terms established in the Remuneration Policy for BBVA Directors, approved by the 2017 General Meeting.

In the event the contractual relationship terminates before he reaches the retirement age, for reason other than serious breach of duties, the retirement benefits corresponding to the Chief Executive Officer when he reaches the retirement age shall be calculated solely on the basis of the contributions made by the Bank up to the termination date in addition to the corresponding accumulated yields, with no additional contributions to be made by the Bank.

Pursuant to the new Remuneration Policy for BBVA Directors, 15% of the annual contributions made from the year 2016 onwards to cover pension commitments shall be based on variable components and be considered “discretionary pension benefits”, subject to share delivery, retention and clawback conditions as determined in applicable regulations, as well as to those conditions of variable remuneration applicable pursuant to said Policy.

In accordance with the new Remuneration Policy for BBVA Directors, during the first semester of 2017, €804 thousand has been recorded to cover pension commitments undertaken with the Chief Executive Officer, amount which covers the contributions for retirement, disability and death, with the total accumulated fund to cover retirement commitments standing at €16,605 thousand.

As regards the executive director Head of GERPA, the pension scheme established in the Remuneration Policy for BBVA Directors, approved by the 2017 General Meeting, provides for a defined-contribution regime amounting to 30% of his annual fixed remuneration each financial year as of January 1, 2017.

Pursuant to the foregoing, the executive director Head of GERPA shall be entitled, when he reaches the retirement age, to the benefits arising from the contributions made by the Bank to cover such pension commitments, plus the corresponding accumulated yields up to that date, provided he does not leave his position due to serious breach of his duties. In the event of voluntary termination of contractual relationship before he reaches the retirement age, benefits shall be limited to 50% of the contributions made by the Bank to that date, plus the corresponding accumulated yields, with the Bank’s contributions ceasing upon leave of directorship.

As in the case of the Chief Executive Officer, and in application of the Remuneration Policy for BBVA Directors, as approved by the 2017 General Meeting, 15% of the annual contributions made from the year 2016 onwards to cover pension commitments shall be based on variable components and be considered “discretionary pension benefits”, subject to share delivery, retention and clawback conditions as determined in applicable regulations, as well as to those conditions of variable remuneration applicable pursuant to said Policy.

Therefore, in accordance with the new Remuneration Policy for BBVA Directors, during the first semester of 2017, €178 thousand has been recorded to cover pension commitments undertaken with the executive director Head of GERPA, amount which covers the contributions for retirement, disability and death, with the total accumulated fund to cover retirement commitments standing at €726 thousand.

There are no other pension obligations undertaken in favor of other executive directors.

During the first semester of 2017, €3,001 thousand has been recorded to cover pension commitments undertaken with members of the Senior Management, excluding executive directors, amount which covers the contributions for retirement, disability and death, with the total accumulated fund to cover retirement commitments standing at €53,526 thousand.

F-173

Likewise, in accordance with the Remuneration Policy for BBVA’s Identified Staff, 15% of the annual contributions made from the year 2016 onwards to cover pension commitments for the members of the Senior Management shall be based on variable components and be considered “discretionary pension benefits”, subject to share delivery, retention and clawback conditions as determined in applicable regulations, as well as to those conditions of variable remuneration applicable pursuant to said Policy.

●

Extinction of contractual relationship

In accordance with the Remuneration Policy for BBVA Directors, approved by the 2017 General Meeting, the Bank has no commitments to pay severance indemnity to executive directors.

The new contractual framework for the Chief Executive Officer and the executive director Head of GERPA includes a post-contractual non-compete agreement for a period of two years after they cease as BBVA executive directors, in accordance to which they shall receive remuneration in an amount equivalent to two times their annual fixed remuneration, which shall be paid periodically through monthly payments over course of the two years of non-competition, provided that leave of directorship is not due to death, retirement, disability or serious breach of duties.

55. Other information

55.1 Environmental impact

Given the activities BBVA Group entities engage in, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation and profits. Consequently, as of June 30, 2017, there is no item in the Group’s accompanying consolidated financial statements that requires disclosure in an environmental information report pursuant to Ministry of Economy Order JUS/206/2009 dated January 28, and consequently no specific disclosure of information on environmental matters is included in these financial statements.

55.2 Reporting requirements of the Spanish National Securities Market Commission (CNMV)

Dividends paid in the year

The table below presents the dividends per share paid in cash during the six months ended June 30, 2017 and 2016 (cash basis dividend, regardless of the year in which they were accrued, but without including other shareholder remuneration, such as the “Dividend Option”). See Notes 4 and 22.4 for a complete analysis of all remuneration awarded to shareholders during the six months ended June 30, 2017 and 2016.


	June 2017						June 2016
Dividends Paid (“Dividend Option” not included)	% Over Nominal		Euros per Share		Amount (Millions of Euros)		% Over Nominal		Euros per Share		Amount (Millions of Euros)
Ordinary shares		16%		0.08		525		16%		0.08		509
Rest of shares		-		-		-		-		-		-
Total dividends paid in cash		16%		0.08		525		16%		0.08		509
Dividends with charge to income		16%		0.08		525		16%		0.08		509
Dividends with charge to reserve or share premium		-		-		-		-		-		-
Dividends in kind		-		-		-		-		-		-

F-174

Earnings and ordinary income by operating segment

The detail of the consolidated profit for the six months ended June 30, 2017 and 2016 for each operating segment is as follows:


	Millions of Euros
Profit Attributable by Operating Segments	June 2017		June 2016
Banking Activity in Spain		670		621
Non Core Real Estate		(191)		(207)
United States		297		178
Mexico		1,080		968
Turkey		374		324
South America		404		394
Rest of Eurasia		73		75
Subtotal operating segments		2,707		2,352
Corporate Center		(401)		(520)
Profit attributable to parent company		2,306		1,832
Non-assigned income		-		-
Elimination of interim income (between segments)		-		-
Other gains (losses) (*)		607		639
Income tax and/or profit from discontinued operations		1,120		920
Operating profit before tax		4,033		3,391

(*)

Profit attributable to non-controlling interests.

Interest income by geographical area

The breakdown of the balance of “Interest Income” in the accompanying consolidated income statements by geographical area is as follows:


	Millions of Euros
Interest Income Breakdown by Geographical Area	June 2017		June 2016
Domestic		2,575		2,882
Foreign		11,730		10,820
European Union		251		283
Other OECD countries		9,175		8,330
Other countries		2,304		2,206
Total		14,305		13,702
Of which *BBVA, S.A.*:
Domestic		2,238		2,303
Foreign		182		154
European Union		79		73
Other OECD countries		54		38
Other countries		49		43
Total		2,420		2,457

56. Subsequent events

From January 1, 2017 to the date of preparation of these interim consolidated financial statements, no other subsequent events not mentioned above in these interim financial statements have taken place that could significantly affect the Group’s earnings or its equity position.

F-175

LOGO

Appendices

APPENDIX I Additional information on consolidated subsidiaries and consolidated structured entities composing the BBVA Group

Additional Information on Consolidated Subsidiaries and consolidated structured entities composing the BBVA Group


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
4D INTERNET SOLUTIONS, INC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	20	21	1	21	(1)
ACTIVOS MACORP, S.L. (**)	SPAIN	REAL ESTATE	50.63	49.37	100.00	19	114	94	3	16
ALCALA 120 PROMOC. Y GEST.IMMOB. S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	14	26	12	14	-
ALGARVETUR, S.L. (**)	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	23	(22)	(1)
AMERICAN FINANCE GROUP, INC.	UNITED STATES	INACTIVE	-	100.00	100.00	18	18	-	18	-
ANIDA DESARROLLOS INMOBILIARIOS, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	43	434	413	56	(35)
ANIDA GERMANIA IMMOBILIEN ONE, GMBH	GERMANY	IN LIQUIDATION	-	100.00	100.00	-	1	-	-	-
ANIDA GRUPO INMOBILIARIO, S.L. (**)	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	-	1,443	1,836	(161)	(232)
ANIDA INMOBILIARIA, S.A. DE C.V.	MEXICO	INVESTMENT COMPANY	-	100.00	100.00	161	126	-	125	1
ANIDA OPERACIONES SINGULARES, S.A. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	3,982	4,222	(99)	(141)
ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V.	MEXICO	REAL ESTATE	-	100.00	100.00	99	111	12	98	1
ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA	PORTUGAL	REAL ESTATE	-	100.00	100.00	29	101	95	8	(2)
APLICA TECNOLOGIA AVANZADA OPERADORA, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	5	11	6	5	-
APLICA TECNOLOGIA AVANZADA SERVICIOS, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	1	3	2	1	-
APLICA TECNOLOGIA AVANZADA, S.A. DE C.V.- ATA	MEXICO	SERVICES	100.00	-	100.00	203	318	98	215	5
AREA TRES PROCAM, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	-	-	-
ARIZONA FINANCIAL PRODUCTS, INC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	857	857	-	857	-
ARRAHONA AMBIT, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	65	101	(37)	1
ARRAHONA IMMO, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	53	226	87	133	6
ARRAHONA NEXUS, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	209	317	(109)	1
ARRAHONA RENT, S.L.U.	SPAIN	REAL ESTATE	-	100.00	100.00	9	11	-	9	1
ARRELS CT FINSOL, S.A. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	250	337	(91)	4
ARRELS CT LLOGUER, S.A. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	54	62	(13)	4
ARRELS CT PATRIMONI I PROJECTES, S.A. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	93	125	(36)	4
ARRELS CT PROMOU, S.A. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	39	52	(12)	(1)
BAHIA SUR RESORT, S.C.	SPAIN	INACTIVE	99.95	-	99.95	1	1	-	1	-
BANCO BILBAO VIZCAYA ARGENTARIA (PORTUGAL), S.A.	PORTUGAL	BANKING	100.00	-	100.00	240	3,839	3,606	221	13
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A.	CHILE	BANKING	-	68.19	68.19	796	18,425	17,258	1,093	74
BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY, S.A.	URUGUAY	BANKING	100.00	-	100.00	110	2,926	2,737	178	12
BANCO CONTINENTAL, S.A.	PERU	BANKING	-	46.12	46.12	862	19,772	17,903	1,688	182
BANCO INDUSTRIAL DE BILBAO, S.A.	SPAIN	BANKING	-	99.93	99.93	97	186	3	120	63
BANCO OCCIDENTAL, S.A.	SPAIN	BANKING	49.43	50.57	100.00	17	18	-	18	-
BANCO PROVINCIAL OVERSEAS N.V.	CURAÇAO	BANKING	-	100.00	100.00	49	415	366	48	1
BANCO PROVINCIAL S.A. - BANCO UNIVERSAL	VENEZUELA	BANKING	1.46	53.75	55.21	82	768	677	100	(9)
BANCOMER FINANCIAL SERVICES INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	2	2	-	2	-
BANCOMER FOREIGN EXCHANGE INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	12	24	12	9	2
BANCOMER PAYMENT SERVICES INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1	2	1	1	-
BANCOMER TRANSFER SERVICES, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	52	124	71	46	6
BBV AMERICA, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	79	1,026	400	599	27
BBVA AGENCIA DE SEGUROS COLOMBIA LTDA	COLOMBIA	INSURANCES SERVICES	-	100.00	100.00	-	-	-	-	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) These companies have equity loans from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(***) This company has an equity loan from ANIDA GRUPO INMOBILIARIO, S.L.

(****) These companies have an equity loan from UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A

A-1

Additional Information on Consolidated Subsidiaries and strucuted entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
BBVA ASESORIAS FINANCIERAS, S.A.	CHILE	FINANCIAL SERVICES	-	100.00	100.00	3	3	1	1	2
BBVA ASSET MANAGEMENT ADMINISTRADORA GENERAL DE FONDOS S.A.	CHILE	FINANCIAL SERVICES	-	100.00	100.00	11	13	2	8	3
BBVA ASSET MANAGEMENT CONTINENTAL S.A. SAF	PERU	FINANCIAL SERVICES	-	100.00	100.00	13	14	1	11	2
BBVA ASSET MANAGEMENT, S.A. SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA)	COLOMBIA	FINANCIAL SERVICES	-	100.00	100.00	24	35	11	21	4
BBVA ASSET MANAGEMENT, S.A., SGIIC	SPAIN	OTHER INVESTMENT COMPANIES	17.00	83.00	100.00	38	152	98	36	18
BBVA AUTOMERCANTIL, COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS,LDA.	PORTUGAL	FINANCIAL SERVICES	100.00	-	100.00	5	18	14	5	-
BBVA AUTORENTING, S.A.	SPAIN	SERVICES	100.00	-	100.00	69	461	410	45	6
BBVA BANCO FRANCES, S.A.	ARGENTINA	BANKING	45.61	30.34	75.95	157	8,608	7,711	819	78
BBVA BANCOMER GESTION, S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	16	33	16	9	7
BBVA BANCOMER OPERADORA, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	151	346	196	147	3
BBVA BANCOMER SEGUROS SALUD, S.A. DE C.V.	MEXICO	INSURANCES SERVICES	-	100.00	100.00	23	33	10	21	2
BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	32	127	95	27	5
BBVA BANCOMER, S.A.,INSTITUCION DE BANCA MULTIPLE, GRUPO FINANCIERO BBVA BANCOMER	MEXICO	BANKING	-	100.00	100.00	8,241	90,655	82,415	7,295	945
BBVA BRASIL BANCO DE INVESTIMENTO, S.A.	BRASIL	BANKING	100.00	-	100.00	16	36	5	29	1
BBVA BROKER, CORREDURIA DE SEGUROS Y REASEGUROS, S.A.	SPAIN	INSURANCES SERVICES	99.94	0.06	100.00	-	25	13	9	3
BBVA BROKER, S.A.	ARGENTINA	INSURANCES SERVICES	-	95.00	95.00	-	-	-	-	-
BBVA COLOMBIA, S.A.	COLOMBIA	BANKING	77.41	18.06	95.47	355	15,634	14,423	1,139	71
BBVA COMPASS BANCSHARES, INC	UNITED STATES	INVESTMENT COMPANY	100.00	-	100.00	11,703	11,486	129	11,101	256
BBVA COMPASS FINANCIAL CORPORATION	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	223	474	252	231	(9)
BBVA COMPASS INSURANCE AGENCY, INC	UNITED STATES	INSURANCES SERVICES	-	100.00	100.00	26	28	2	22	4
BBVA COMPASS PAYMENTS, INC	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	67	67	-	58	9
BBVA CONSOLIDAR SEGUROS, S.A.	ARGENTINA	INSURANCES SERVICES	87.78	12.22	100.00	12	160	96	46	18
BBVA CONSULTING ( BEIJING) LIMITED	CHINA	FINANCIAL SERVICES	-	100.00	100.00	-	2	-	2	-
BBVA CONSULTORIA, S.A.	SPAIN	SERVICES	-	100.00	100.00	4	5	-	5	-
BBVA CONSUMER FINANCE ENTIDAD DE DESARROLLO A LA PEQUEÑA Y MICRO EMPRESA, EDPYME, S.A. (BBVA CONSUMER FINANCE - EDPYME)	PERU	FINANCIAL SERVICES	-	100.00	100.00	19	115	97	18	-
BBVA CORREDORA TECNICA DE SEGUROS LIMITADA	CHILE	INSURANCES SERVICES	-	100.00	100.00	4	9	5	-	4
BBVA CORREDORES DE BOLSA LIMITADA	CHILE	SECURITIES DEALER	-	100.00	100.00	61	570	508	57	4
BBVA DATA & ANALYTICS, S.L.	SPAIN	SERVICES	-	100.00	100.00	6	5	2	2	1
BBVA DINERO EXPRESS, S.A.U	SPAIN	PENSION FUNDS MANAGEMENT	100.00	-	100.00	2	6	2	4	-
BBVA DISTRIBUIDORA DE SEGUROS S.R.L.	URUGUAY	INSURANCES SERVICES	-	100.00	100.00	4	4	-	3	1
BBVA EMISORA, S.A.	SPAIN	FINANCIAL SERVICES	-	100.00	100.00	64	75	-	75	-
BBVA FACTORING LIMITADA (CHILE)	CHILE	FINANCIAL SERVICES	-	100.00	100.00	10	56	46	10	-
BBVA FINANZIA, S.p.A	ITALY	FINANCIAL SERVICES	100.00	-	100.00	4	19	15	4	-
BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN.	ARGENTINA	FINANCIAL SERVICES	-	100.00	100.00	8	14	3	4	6
BBVA FRANCES VALORES, S.A.	ARGENTINA	SECURITIES DEALER	-	100.00	100.00	5	7	2	5	-
BBVA FUNDOS, S.GESTORA FUNDOS PENSOES,S.A.	PORTUGAL	PENSION FUNDS MANAGEMENT	-	100.00	100.00	1	18	-	17	1
BBVA GLOBAL FINANCE LTD.	CAYMAN ISLANDS	FINANCIAL SERVICES	100.00	-	100.00	-	179	175	4	-
BBVA GLOBAL MARKETS B.V.	NETHERLANDS	FINANCIAL SERVICES	100.00	-	100.00	-	1,901	1,901	1	-
BBVA INMOBILIARIA E INVERSIONES, S.A.	CHILE	REAL ESTATE	-	68.11	68.11	4	43	37	7	-
BBVA INSTITUIÇAO FINANCEIRA DE CREDITO, S.A.	PORTUGAL	FINANCIAL SERVICES	49.90	50.10	100.00	40	315	269	45	1

(*) Information on foreign companies at exchange rate on June 30, 2017

A-2

Additional Information on Consolidated Subsidiaries and strucuted entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
BBVA INTERNATIONAL PREFERRED, S.A.U.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	-	37	36	1	-
BBVA INVERSIONES CHILE, S.A.	CHILE	INVESTMENT COMPANY	61.22	38.78	100.00	483	1,625	3	1,518	104
BBVA IRELAND PLC	IRELAND	FINANCIAL SERVICES	100.00	-	100.00	176	445	252	191	2
BBVA LUXINVEST, S.A.	LUXEMBOURG	INVESTMENT COMPANY	36.00	64.00	100.00	204	248	1	209	38
BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A.	SPAIN	INSURANCES SERVICES	-	100.00	100.00	10	138	116	16	6
BBVA NOMINEES LIMITED	UNITED KINGDOM	SERVICES	100.00	-	100.00	-	-	-	-	-
BBVA OP3N S.L. (**)	SPAIN	SERVICES	-	100.00	100.00	-	2	2	-	-
BBVA OP3N, INC	UNITED STATES	SERVICES	-	100.00	100.00	1	2	1	3	(2)
BBVA PARAGUAY, S.A.	PARAGUAY	BANKING	100.00	-	100.00	23	1,779	1,610	155	14
BBVA PENSIONES, SA, ENTIDAD GESTORA DE FONDOS DE PENSIONES	SPAIN	PENSION FUNDS MANAGEMENT	100.00	-	100.00	13	63	33	27	3
BBVA PLANIFICACION PATRIMONIAL, S.L.	SPAIN	FINANCIAL SERVICES	80.00	20.00	100.00	-	1	-	1	-
BBVA PREVISION AFP S.A. ADM.DE FONDOS DE PENSIONES	BOLIVIA	PENSION FUNDS MANAGEMENT	75.00	5.00	80.00	1	19	12	5	2
BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA	CHILE	SERVICES	-	100.00	100.00	6	8	3	6	-
BBVA PROPIEDAD, S.A.	SPAIN	REAL ESTATE INVESTMENT COMPANY	-	100.00	100.00	899	910	11	918	(18)
BBVA RE DAC	IRELAND	INSURANCES SERVICES	-	100.00	100.00	39	84	42	40	2
BBVA REAL ESTATE MEXICO, S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
BBVA RENTAS E INVERSIONES LIMITADA	CHILE	INVESTMENT COMPANY	-	100.00	100.00	257	259	1	221	36
BBVA RENTING, S.A.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	90	642	547	95	-
BBVA SECURITIES INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	179	2,426	2,247	171	8
BBVA SEGUROS COLOMBIA, S.A.	COLOMBIA	INSURANCES SERVICES	94.00	6.00	100.00	10	77	60	13	4
BBVA SEGUROS DE VIDA COLOMBIA, S.A.	COLOMBIA	INSURANCES SERVICES	94.00	6.00	100.00	14	412	312	77	23
BBVA SEGUROS DE VIDA, S.A.	CHILE	INSURANCES SERVICES	-	100.00	100.00	64	201	136	60	5
BBVA SEGUROS, S.A., DE SEGUROS Y REASEGUROS	SPAIN	INSURANCES SERVICES	99.96	-	99.96	1,039	18,713	17,457	1,095	161
BBVA SENIOR FINANCE, S.A.U.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	-	3,921	3,920	1	-
BBVA SERVICIOS CORPORATIVOS LIMITADA	CHILE	SERVICES	-	100.00	100.00	1	6	5	-	1
BBVA SERVICIOS, S.A.	SPAIN	COMMERCIAL	-	100.00	100.00	-	9	2	7	-
BBVA SOCIEDAD DE LEASING INMOBILIARIO, S.A.	CHILE	FINANCIAL SERVICES	-	97.49	97.49	26	81	54	25	2
BBVA SUBORDINATED CAPITAL S.A.U.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	-	1,744	1,743	1	-
BBVA SUIZA, S.A. (BBVA SWITZERLAND)	SWITZERLAND	BANKING	39.72	60.28	100.00	67	1,057	948	105	3
BBVA TRADE, S.A.	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	13	36	34	13	(12)
BBVA U.S. SENIOR S.A.U.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	-	-	-	-	-
BBVA VALORES COLOMBIA, S.A. COMISIONISTA DE BOLSA	COLOMBIA	SECURITIES DEALER	-	100.00	100.00	3	3	-	4	(1)
BBVA WEALTH SOLUTIONS, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	5	6	-	5	-
BEEVA TEC OPERADORA, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	-	1	1	-	-
BEEVA TEC, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	1	3	1	2	-
BILBAO VIZCAYA HOLDING, S.A.	SPAIN	INVESTMENT COMPANY	89.00	11.00	100.00	35	248	36	198	14
BLUE INDICO INVESTMENTS, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	18	24	18	7	(1)
CAIXA MANRESA IMMOBILIARIA ON CASA, S.L. (***)	SPAIN	REAL ESTATE	100.00	-	100.00	-	2	5	(3)	-
CAIXA MANRESA IMMOBILIARIA SOCIAL, S.L. (***)	SPAIN	REAL ESTATE	100.00	-	100.00	-	4	4	-	-
CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS, S.A.U.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	1	76	74	2	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from BILBAO VIZCAYA HOLDING, S.A.

(***) These companies have an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

A-3

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
CAIXASABADELL PREFERENTS, S.A.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	-	91	90	1	-
CAIXASABADELL TINELIA, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	41	41	-	41	-
CAPITAL INVESTMENT COUNSEL, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	13	13	-	13	-
CARTERA E INVERSIONES S.A., CIA DE	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	92	65	35	21	9
CASA DE BOLSA BBVA BANCOMER, S.A. DE C.V.	MEXICO	SECURITIES DEALER	-	100.00	100.00	32	44	12	20	12
CATALONIA GEBIRA, S.L. ()(*)	SPAIN	REAL ESTATE	-	100.00	100.00	-	4	8	(4)	-
CATALONIA PROMODIS 4, S.A. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	9	14	(5)	-
CATALUNYACAIXA ASSEGURANCES GENERALS, S.A.	SPAIN	INSURANCES SERVICES	100.00	-	100.00	42	49	25	22	2
CATALUNYACAIXA CAPITAL, S.A.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	101	106	10	96	-
CATALUNYACAIXA IMMOBILIARIA, S.A. (**)(*)(****)	SPAIN	REAL ESTATE	100.00	-	100.00	112	201	130	74	(3)
CATALUNYACAIXA SERVEIS, S.A.	SPAIN	SERVICES	100.00	-	100.00	2	10	7	3	-
CB TRANSPORT ,INC.	UNITED STATES	INACTIVE	-	100.00	100.00	16	17	1	16	-
CDD GESTIONI, S.R.L.	ITALY	REAL ESTATE	100.00	-	100.00	5	6	-	6	-
CETACTIUS, S.L. (******)	SPAIN	REAL ESTATE	100.00	-	100.00	-	2	22	(20)	-
CIDESSA DOS, S.L.	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	15	15	1	15	-
CIDESSA UNO, S.L.	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	5	228	126	75	27
CIERVANA, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	53	62	2	60	-
CLUB GOLF HACIENDA EL ALAMO, S.L.	SPAIN	REAL ESTATE	-	97.87	97.87	-	-	-	-	-
COMERCIALIZADORA CORPORATIVA SAC	PERU	FINANCIAL SERVICES	-	50.00	50.00	-	1	1	-	-
COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A.	COLOMBIA	SERVICES	-	100.00	100.00	2	8	6	2	1
COMPASS ASSET ACCEPTANCE COMPANY, LLC	UNITED STATES	INACTIVE	-	100.00	100.00	428	428	-	428	-
COMPASS AUTO RECEIVABLES CORPORATION	UNITED STATES	INACTIVE	-	100.00	100.00	4	4	-	4	-
COMPASS BANK	UNITED STATES	BANKING	-	100.00	100.00	10,585	79,691	69,106	10,342	243
COMPASS CAPITAL MARKETS, INC.	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	7,109	7,109	-	7,072	37
COMPASS GP, INC.	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	43	54	11	43	-
COMPASS INSURANCE TRUST	UNITED STATES	INSURANCES SERVICES	-	100.00	100.00	-	-	-	-	-
COMPASS LIMITED PARTNER, INC.	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	6,209	6,209	-	6,172	37
COMPASS LOAN HOLDINGS TRS, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	71	71	-	71	-
COMPASS MORTGAGE CORPORATION	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	2,769	2,801	32	2,741	27
COMPASS MORTGAGE FINANCING, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
COMPASS SOUTHWEST, LP	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	5,126	5,127	-	5,094	32
COMPASS TEXAS ACQUISITION CORPORATION	UNITED STATES	INACTIVE	-	100.00	100.00	2	2	-	2	-
COMPASS TEXAS MORTGAGE FINANCING, INC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
COMPASS TRUST II	UNITED STATES	INACTIVE	-	100.00	100.00	-	-	-	-	-
COMPAÑIA CHILENA DE INVERSIONES, S.L.	SPAIN	INVESTMENT COMPANY	99.97	0.03	100.00	580	781	-	781	-
COMPLEMENTOS INNOVACIÓN Y MODA, S.L.	SPAIN	IN LIQUIDATION	-	100.00	100.00	-	-	-	-	-
CONJUNT RESIDENCIAL FREIXA, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	1	(1)	-
CONSOLIDAR A.F.J.P., S.A.	ARGENTINA	IN LIQUIDATION	46.11	53.89	100.00	-	2	2	-	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from ARRELS CT PATRIMONI I PROYECTES, S.A

(***) These companies have an equity loan from UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A

(****) These companies have an equity loan from EXPANSION INTERCOMARCAL, S.L.

(*****) This company has an equity loan from SATICEM IMMOBILIARIA, S.L.

(******) These companies have an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

A-4

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
CONSORCIO DE CASAS MEXICANAS, S.A.P.I. DE C.V.	MEXICO	REAL ESTATE	-	99.99	99.99	3	16	13	3	-
CONTENTS AREA, S.L.	SPAIN	SERVICES	-	100.00	100.00	6	6	-	6	-
CONTINENTAL BOLSA, SDAD. AGENTE DE BOLSA, S.A.	PERU	SECURITIES DEALER	-	100.00	100.00	5	11	6	5	-
CONTINENTAL DPR FINANCE COMPANY	CAYMAN ISLANDS	FINANCIAL SERVICES	-	100.00	100.00	-	73	73	-	-
CONTINENTAL SOCIEDAD TITULIZADORA, S.A.	PERU	FINANCIAL SERVICES	-	100.00	100.00	1	1	-	1	-
CONTRATACION DE PERSONAL, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	5	9	4	5	-
COPROMED S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	-	-	-	-	-
CORPORACION GENERAL FINANCIERA, S.A.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	510	1,617	4	1,578	35
CX PROPIETAT, FII	SPAIN	REAL ESTATE INVESTMENT COMPANY	67.98	-	67.98	35	52	-	60	(8)
DALLAS CREATION CENTER, INC	UNITED STATES	SERVICES	-	100.00	100.00	(3)	3	6	2	(4)
DATA ARCHITECTURE AND TECHNOLOGY S.L.	SPAIN	SERVICES	-	51.00	51.00	-	3	2	-	1
DENIZEN FINANCIAL, INC	UNITED STATES	SERVICES	-	100.00	100.00	-	-	-	-	-
DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	17	17	-	-
DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	17	17	-	-
DISTRITO CASTELLANA NORTE, S.A.	SPAIN	REAL ESTATE	-	75.54	75.54	82	120	13	108	(1)
ECASA, S.A.	CHILE	FINANCIAL SERVICES	-	100.00	100.00	15	17	1	12	3
EL ENCINAR METROPOLITANO, S.A.	SPAIN	REAL ESTATE	-	99.05	99.05	6	7	-	6	-
EL MILANILLO, S.A. (**)	SPAIN	REAL ESTATE	-	100.00	100.00	10	8	1	7	-
EMPRENDIMIENTOS DE VALOR S.A.	URUGUAY	FINANCIAL SERVICES	-	100.00	100.00	3	6	3	3	-
ENTIDAD DE PROMOCION DE NEGOCIOS, S.A.	SPAIN	OTHER HOLDING	-	99.86	99.86	15	19	-	19	-
ENTRE2 SERVICIOS FINANCIEROS, E.F.C., S.A.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	9	9	-	9	-
ESPAIS SABADELL PROMOCIONS INMOBILIARIES, S.A.	SPAIN	REAL ESTATE	-	100.00	100.00	7	8	-	8	-
ESTACION DE AUTOBUSES CHAMARTIN, S.A.	SPAIN	SERVICES	-	51.00	51.00	-	-	-	-	-
EUROPEA DE TITULIZACION, S.A., S.G.F.T.	SPAIN	FINANCIAL SERVICES	88.24	-	88.24	2	43	4	38	2
EXPANSION INTERCOMARCAL, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	27	28	1	26	1
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION	MEXICO	REAL ESTATE	-	42.40	42.40	1	1	-	1	-
F/253863 EL DESEO RESIDENCIAL	MEXICO	REAL ESTATE	-	65.00	65.00	-	1	-	1	-
F/403035-9 BBVA HORIZONTES RESIDENCIAL	MEXICO	REAL ESTATE	-	65.00	65.00	-	-	-	-	-
FACILEASING EQUIPMENT, S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	51	287	163	114	10
FACILEASING S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	104	717	622	86	9
FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	3	3	-	2	-
FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	47	47	-	45	2
FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS	MEXICO	REAL ESTATE	-	100.00	100.00	7	7	-	7	-
FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2	MEXICO	REAL ESTATE	-	100.00	100.00	14	17	2	14	-
FIDEICOMISO LOTE 6.1 ZARAGOZA	COLOMBIA	REAL ESTATE	-	59.99	59.99	1	2	-	2	-
FIDEICOMISO N.989, EN THE BANK OF NEW YORK MELLON, S.A. INSTITUCION DE BANCA MULTIPLE, FIDUCIARIO (FIDEIC.00989 6 EMISION)	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	112	112	(2)	2
FIDEICOMISO Nº 711, EN BANCO INVEX, S.A.,INSTITUCION DE BANCA MULTIPLE, INVEX GRUPO FINANCIERO, FIDUCIARIO (FIDEIC. INVEX 1ª EMISION)	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	23	23	-	-
FIDEICOMISO Nº 752, EN BANCO INVEX, S.A.,INSTITUCION DE BANCA MULTIPLE, INVEX GRUPO FINANCIERO, FIDUCIARIO (FIDEIC. INVEX 2ª EMISION)	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	12	12	-	-
FIDEICOMISO Nº 847, EN BANCO INVEX, S.A.,INSTITUCION DE BANCA MULTIPLE, INVEX GRUPO FINANCIERO, FIDUCIARIO (FIDEIC. INVEX 4ª EMISION)	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	-	62	63	(1)	-
FIDEICOMISO SCOTIABANK INVERLAT S A F100322908	MEXICO	REAL ESTATE	-	100.00	100.00	5	13	8	6	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from ANIDA OPERACIONES SINGULARES, S.A.

A-5

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
FINANCEIRA DO COMERCIO EXTERIOR S.A.R.	PORTUGAL	INACTIVE	100.00	-	100.00	-	-	-	-	-
FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	118	122	4	112	5
FODECOR, S.L.	SPAIN	REAL ESTATE	-	60.00	60.00	-	1	-	-	-
FORUM COMERCIALIZADORA DEL PERU, S.A.	PERU	SERVICES	-	100.00	100.00	2	1	-	1	-
FORUM DISTRIBUIDORA DEL PERU, S.A.	PERU	FINANCIAL SERVICES	-	100.00	100.00	5	25	21	4	-
FORUM DISTRIBUIDORA, S.A.	CHILE	FINANCIAL SERVICES	-	100.00	100.00	34	244	212	29	3
FORUM SERVICIOS FINANCIEROS, S.A.	CHILE	FINANCIAL SERVICES	-	100.00	100.00	191	2,008	1,832	145	30
FUTURO FAMILIAR, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	1	3	2	1	-
G NETHERLANDS BV	NETHERLANDS	INVESTMENT COMPANY	-	100.00	100.00	340	356	49	309	(1)
GARANTI BANK SA	ROMANIA	BANKING	-	100.00	100.00	276	2,034	1,765	252	17
GARANTI BILISIM TEKNOLOJISI VE TIC. TAS	TURKEY	SERVICES	-	100.00	100.00	26	20	3	15	1
GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY	CAYMAN ISLANDS	FINANCIAL SERVICES	-	100.00	100.00	-	3,221	3,221	-	-
GARANTI EMEKLILIK VE HAYAT AS	TURKEY	INSURANCES SERVICES	-	84.91	84.91	313	500	134	326	39
GARANTI FACTORING HIZMETLERI AS	TURKEY	FINANCIAL SERVICES	-	81.84	81.84	41	692	642	46	4
GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S.	TURKEY	INSURANCES SERVICES	-	100.00	100.00	-	1	-	-	-
GARANTI FILO YONETIM HIZMETLERI A.S.	TURKEY	SERVICES	-	100.00	100.00	2	339	331	6	2
GARANTI FINANSAL KIRALAMA A.S.	TURKEY	FINANCIAL SERVICES	-	100.00	100.00	243	1,308	1,065	230	13
GARANTI HIZMET YONETIMI A.S	TURKEY	FINANCIAL SERVICES	-	99.40	99.40	-	1	-	1	-
GARANTI HOLDING BV	NETHERLANDS	INVESTMENT COMPANY	-	100.00	100.00	216	340	-	340	-
GARANTI KONUT FINANSMANI DANISMANLIK HIZMETLERI AS (GARANTI MORTGAGE)	TURKEY	SERVICES	-	100.00	100.00	-	1	-	-	-
GARANTI KULTUR AS	TURKEY	SERVICES	-	100.00	100.00	-	1	-	-	-
GARANTI ODEME SISTEMLERI A.S.(GOSAS)	TURKEY	FINANCIAL SERVICES	-	100.00	100.00	-	7	4	4	-
GARANTI PORTFOY YONETIMI AS	TURKEY	FINANCIAL SERVICES	-	100.00	100.00	15	17	2	13	2
GARANTI YATIRIM MENKUL KIYMETLER AS	TURKEY	FINANCIAL SERVICES	-	100.00	100.00	23	36	13	17	6
GARANTI YATIRIM ORTAKLIGI AS	TURKEY	INVESTMENT COMPANY	-	99.97	99.97	-	9	-	8	-
GARANTIBANK INTERNATIONAL NV	NETHERLANDS	BANKING	-	100.00	100.00	580	4,282	3,701	561	21
GARRAF MEDITERRANIA, S.A. (**)	SPAIN	REAL ESTATE	-	100.00	100.00	1	14	13	-	1
GESCAT LLEVANT, S.L. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	14	17	(2)	-
GESCAT LLOGUERS, S.L. (****)	SPAIN	REAL ESTATE	100.00	-	100.00	-	6	17	(10)	(1)
GESCAT POLSKA, SP. ZOO	POLAND	REAL ESTATE	100.00	-	100.00	9	10	1	12	(3)
GESCAT SINEVA, S.L. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	2	3	(1)	-
GESCAT, GESTIO DE SOL, S.L. (****)	SPAIN	REAL ESTATE	100.00	-	100.00	-	29	43	(22)	8
GESCAT, VIVENDES EN COMERCIALITZACIO, S.L. (*) (**)	SPAIN	REAL ESTATE	100.00	-	100.00	-	217	629	(393)	(19)
GESTIO D’ACTIUS TITULITZATS, S.A.	SPAIN	FINANCIAL SERVICES	100.00	-	100.00	3	4	-	3	-
GESTION DE PREVISION Y PENSIONES, S.A.	SPAIN	PENSION FUNDS MANAGEMENT	60.00	-	60.00	9	28	4	21	3
GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA	SPAIN	SERVICES	-	100.00	100.00	1	2	1	2	-
GOBERNALIA GLOBAL NET, S.A.	SPAIN	SERVICES	-	100.00	100.00	2	18	6	10	2
GRAN JORGE JUAN, S.A.	SPAIN	REAL ESTATE	100.00	-	100.00	388	1,017	628	381	8
GRANFIDUCIARIA	COLOMBIA	IN LIQUIDATION	-	90.00	90.00	-	-	-	-	-
GRUPO FINANCIERO BBVA BANCOMER, S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	99.98	-	99.98	6,678	10,167	759	8,306	1,102

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A.

(***) These companies have equity loans from CATALUNYACAIXA IMMOBILIARIA, S.A.

(****) These companies have equity loans from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

A-6

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
GUARANTY BUSINESS CREDIT CORPORATION	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	32	32	-	32	-
GUARANTY PLUS HOLDING COMPANY	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	(40)	59	98	(39)	(1)
GUARANTY PLUS PROPERTIES LLC-2	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	41	41	-	41	-
GUARANTY PLUS PROPERTIES, INC-1	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	11	11	-	11	-
HABITAT ZENTRUM, S.L.	SPAIN	REAL ESTATE	-	50.00	50.00	-	-	-	(6)	6
HABITATGES FINVER, S.L. (**)	SPAIN	REAL ESTATE	-	100.00	100.00	-	2	2	(1)	-
HABITATGES INVERCAP, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	-	(1)	1
HABITATGES INVERVIC, S.L. (**)	SPAIN	REAL ESTATE	-	35.00	35.00	-	-	2	(14)	12
HABITATGES JUVIPRO, S.L. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	1	2	-	-
HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U. (****)	SPAIN	INSURANCES SERVICES	-	100.00	100.00	-	1	1	-	-
HOLVI PAYMENT SERVICE OY	FINLAND	FINANCIAL SERVICES	-	100.00	100.00	17	3	1	5	(3)
HOMEOWNERS LOAN CORPORATION	UNITED STATES	IN LIQUIDATION	-	100.00	100.00	7	9	1	7	-
HUMAN RESOURCES PROVIDER, INC	UNITED STATES	SERVICES	-	100.00	100.00	405	405	-	402	3
HUMAN RESOURCES SUPPORT, INC	UNITED STATES	SERVICES	-	100.00	100.00	400	401	-	398	3
INMESP DESARROLLADORA, S.A. DE C.V.	MEXICO	REAL ESTATE	-	100.00	100.00	27	41	13	27	-
INMUEBLES Y RECUPERACIONES CONTINENTAL S.A	PERU	REAL ESTATE	-	100.00	100.00	13	14	1	12	1
INNOVATION 4 SECURITY, S.L.	SPAIN	SERVICES	-	100.00	100.00	-	4	1	3	(1)
INPAU, S.A. (*****)	SPAIN	REAL ESTATE	-	100.00	100.00	1	42	42	2	(2)
INVERAHORRO, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	11	86	74	13	(1)
INVERCARTERA INTERNACIONAL, S.L.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	8	8	-	8	-
INVERPRO DESENVOLUPAMENT, S.L.	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	3	8	5	3	1
INVERSIONES ALDAMA, C.A.	VENEZUELA	IN LIQUIDATION	-	100.00	100.00	-	-	-	-	-
INVERSIONES BANPRO INTERNATIONAL INC. N.V.	CURAÇAO	INVESTMENT COMPANY	48.00	-	48.00	16	52	2	49	1
INVERSIONES BAPROBA, C.A.	VENEZUELA	FINANCIAL SERVICES	100.00	-	100.00	1	-	-	-	-
INVERSIONES DE INNOVACION EN SERVICIOS FINANCIEROS, S.L. (****)	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	40	71	30	41	-
INVERSIONES P.H.R.4, C.A.	VENEZUELA	INACTIVE	-	60.46	60.46	-	-	-	-	-
INVESCO MANAGEMENT Nº 1, S.A.	LUXEMBOURG	FINANCIAL SERVICES	-	100.00	100.00	8	9	-	8	-
INVESCO MANAGEMENT Nº 2, S.A.	LUXEMBOURG	FINANCIAL SERVICES	-	100.00	100.00	-	2	17	(15)	-
IRIDION SOLUCIONS IMMOBILIARIES, S.L. (******)	SPAIN	REAL ESTATE	100.00	-	100.00	-	2	129	(125)	(2)
JALE PROCAM, S.L.	SPAIN	REAL ESTATE	-	50.00	50.00	-	4	44	(40)	-
L’EIX IMMOBLES, S.L. (*) (*****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	19	25	(7)	-
LIQUIDITY ADVISORS, L.P	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1,110	1,110	-	1,107	3
MADIVA SOLUCIONES, S.L.	SPAIN	SERVICES	-	100.00	100.00	5	2	-	1	-
MICRO SPINAL LLC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
MISAPRE, S.A. DE C.V.	MEXICO	FINANCIAL SERVICES	-	100.00	100.00	2	2	-	2	-
MOMENTUM SOCIAL INVESTMENT HOLDING, S.L.	SPAIN	INVESTMENT COMPANY	-	100.00	100.00	7	7	-	7	-
MOTORACTIVE IFN SA	ROMANIA	FINANCIAL SERVICES	-	100.00	100.00	38	166	142	22	2
MOTORACTIVE MULTISERVICES SRL	ROMANIA	SERVICES	-	100.00	100.00	-	13	13	-	-
MULTIASISTENCIA OPERADORA S.A. DE C.V.	MEXICO	INSURANCES SERVICES	-	100.00	100.00	-	1	1	-	-
MULTIASISTENCIA SERVICIOS S.A. DE C.V.	MEXICO	INSURANCES SERVICES	-	100.00	100.00	1	2	1	1	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) These companies have equity loans INVERPRO DESENVOLUPAMENT, S.L.

(***) These companies have equity loans UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A

(****) These companies have equity loans BILBAO VIZCAYA HOLDING, S.A.

(*****) This company has an equity loan from CATALUNYACAIXA IMMOBILIARIA, S.A.

(******) This company has an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(*******) This company has an equity loan from PROMOTORA DEL VALLES, S.L.

A-7

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
MULTIASISTENCIA, S.A. DE C.V.	MEXICO	INSURANCES SERVICES	-	100.00	100.00	26	36	10	23	3
NEWCO PERU S.A.C.	PERU	INVESTMENT COMPANY	100.00	-	100.00	124	869	-	786	84
NOET, INC.	UNITED STATES	SERVICES	-	100.00	100.00	-	1	-	1	(1)
NOIDIRI, S.L. (**)	SPAIN	REAL ESTATE	100.00	-	100.00	-	-	12	(11)	-
NOVA TERRASSA 3, S.L. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	5	13	8	4	-
OPCION VOLCAN, S.A.	MEXICO	REAL ESTATE	-	100.00	100.00	21	23	2	17	4
OPENPAY S.A.P.I DE C.V.	MEXICO	PAYMENT INSTITUIONS	-	100.00	100.00	14	1	-	1	-
OPERADORA DOS LAGOS S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	1	1	-	1	-
OPPLUS OPERACIONES Y SERVICIOS, S.A.	SPAIN	SERVICES	100.00	-	100.00	1	34	12	19	4
OPPLUS S.A.C (En liquidacion)	PERU	IN LIQUIDATION	-	100.00	100.00	1	1	-	1	-
P.I. HOLDINGS GPP, LLC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
PARCSUD PLANNER, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	6	9	(3)	-
PARTICIPACIONES ARENAL, S.L.	SPAIN	INACTIVE	-	100.00	100.00	8	8	-	8	-
PECRI INVERSION S.L.	SPAIN	OTHER INVESTMENT COMPANIES	100.00	-	100.00	99	101	3	100	(1)
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER	MEXICO	INSURANCES SERVICES	-	100.00	100.00	179	4,484	4,305	160	19
PHOENIX LOAN HOLDINGS, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	287	307	20	285	3
PI HOLDINGS NO. 1, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	83	83	-	83	-
PI HOLDINGS NO. 3, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1	1	-	1	-
PORTICO PROCAM, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	26	27	1	25	1
PRO-SALUD, C.A.	VENEZUELA	INACTIVE	-	58.86	58.86	-	-	-	-	-
PROCAMVASA, S.A.	SPAIN	REAL ESTATE	-	51.00	51.00	-	-	-	-	-
PROMOCION EMPRESARIAL XX, S.A.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	8	8	-	8	-
PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U.	SPAIN	REAL ESTATE	-	100.00	100.00	9	27	-	25	1
PROMOTORA DEL VALLES, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	136	253	(106)	(11)
PROMOU CT 3AG DELTA, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	10	12	(3)	-
PROMOU CT EIX MACIA, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	4	6	1	4	-
PROMOU CT GEBIRA, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	8	11	(3)	-
PROMOU CT OPENSEGRE, S.L. (**) (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	27	44	(18)	1
PROMOU CT VALLES, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	2	9	7	2	-
PROMOU GLOBAL, S.L. (**) (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	90	114	(30)	6
PRONORTE UNO PROCAM, S.A. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	5	15	(10)	-
PROPEL VENTURE PARTNERS US FUND I, L.P.	UNITED STATES	VENTURE CAPITAL	-	100.00	100.00	30	30	-	31	-
PROV-INFI-ARRAHONA, S.L. (****)	SPAIN	REAL ESTATE	-	100.00	100.00	-	14	22	(4)	(4)
PROVINCIAL DE VALORES CASA DE BOLSA, C.A.	VENEZUELA	SECURITIES DEALER	-	90.00	90.00	-	-	-	-	-
PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA, C.A.	VENEZUELA	FINANCIAL SERVICES	-	100.00	100.00	-	-	-	-	-
PROVIURE BARCELONA, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	-	-	-
PROVIURE CIUTAT DE LLEIDA, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	-	-	-
PROVIURE, S.L. (***)	SPAIN	REAL ESTATE	-	100.00	100.00	-	4	3	-	-
PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A.	BOLIVIA	PENSION FUNDS MANAGEMENT	-	100.00	100.00	2	7	5	2	-

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(***) These companies have equity loans from CATALUNYACAIXA IMMOBILIARIA, S.A.

(****) These companies have equity loans from UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A.

(*****) These companies have equity loans from ARRELS CT PROMOU, S.A.

A-8

Additional Information on Consolidated Subsidiaries and structured entities composing the BBVA Group (Continued)


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
PUERTO CIUDAD LAS PALMAS, S.A. (**)	SPAIN	REAL ESTATE	-	96.64	96.64	-	36	64	(26)	(2)
QIPRO SOLUCIONES S.L.	SPAIN	SERVICES	-	100.00	100.00	5	13	3	9	1
RALFI IFN SA	ROMANIA	FINANCIAL SERVICES	-	100.00	100.00	40	111	95	14	2
RENTRUCKS, ALQUILER Y SERVICIOS DE TRANSPORTE, S.A.	SPAIN	INACTIVE	100.00	-	100.00	1	2	-	1	-
RESIDENCIAL CUMBRES DE SANTA FE, S.A. DE C.V.	MEXICO	REAL ESTATE	-	100.00	100.00	15	15	-	15	-
RPV COMPANY	CAYMAN ISLANDS	FINANCIAL SERVICES	-	100.00	100.00	-	1,445	1,445	-	-
RWHC, INC	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	719	719	-	711	7
S.B.D. NORD, S.L.	SPAIN	REAL ESTATE	-	100.00	100.00	-	-	-	-	-
SATICEM GESTIO, S.L. (***)	SPAIN	REAL ESTATE	100.00	-	100.00	-	11	91	(81)	1
SATICEM HOLDING, S.L. (***)	SPAIN	REAL ESTATE	100.00	-	100.00	5	6	-	6	-
SATICEM IMMOBILIARIA, S.L.	SPAIN	REAL ESTATE	100.00	-	100.00	11	20	-	19	1
SATICEM IMMOBLES EN ARRENDAMENT, S.L.	SPAIN	REAL ESTATE	100.00	-	100.00	-	26	87	(59)	(1)
SCALDIS FINANCE, S.A.	BELGIUM	INVESTMENT COMPANY	-	100.00	100.00	4	18	-	18	-
SEGUROS BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER	MEXICO	INSURANCES SERVICES	-	100.00	100.00	388	3,405	3,017	290	97
SEGUROS PROVINCIAL, C.A.	VENEZUELA	INSURANCES SERVICES	-	100.00	100.00	-	1	-	1	-
SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	5	7	2	5	-
SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V.	MEXICO	SERVICES	-	100.00	100.00	2	11	9	2	-
SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V.	MEXICO	SERVICES	-	100.00	100.00	8	27	19	7	1
SERVICIOS TECNOLOGICOS SINGULARES, S.A.	SPAIN	SERVICES	-	100.00	100.00	1	1	-	1	-
SIMPLE FINANCE TECHNOLOGY CORP.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	64	76	12	84	(20)
SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO.,S.A.	SPAIN	SERVICES	100.00	-	100.00	102	109	7	104	(1)
SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO, S.A.	SPAIN	INACTIVE	77.20	-	77.20	-	-	-	-	-
SPORT CLUB 18, S.A.	SPAIN	INVESTMENT COMPANY	100.00	-	100.00	11	14	1	14	-
STATE NATIONAL CAPITAL TRUST I	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	14	13	-	-
STATE NATIONAL STATUTORY TRUST II	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	-	9	9	-	-
TEXAS LOAN SERVICES, LP.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1,119	1,120	2	1,116	3
TEXAS REGIONAL STATUTORY TRUST I	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1	45	44	1	-
TEXASBANC CAPITAL TRUST I	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	1	23	22	1	-
TMF HOLDING INC.	UNITED STATES	INVESTMENT COMPANY	-	100.00	100.00	14	20	7	13	-
TRIFOI REAL ESTATE SRL	ROMANIA	REAL ESTATE	-	100.00	100.00	1	1	-	1	-
TUCSON LOAN HOLDINGS, INC.	UNITED STATES	FINANCIAL SERVICES	-	100.00	100.00	53	53	-	52	1
TURKIYE GARANTI BANKASI A.S	TURKEY	BANKING	49.85	-	49.85	7,026	76,098	66,578	8,738	782
UNITARIA GESTION DE PATRIMONIOS INMOBILIARIOS	SPAIN	REAL ESTATE	-	100.00	100.00	2	3	-	3	-
UNIVERSALIDAD TIPS PESOS E-9	COLOMBIA	FINANCIAL SERVICES	-	100.00	100.00	-	55	26	28	-
UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS, S.A. (***)	SPAIN	REAL ESTATE	100.00	-	100.00	-	934	1,154	(161)	(59)
URBANIZADORA SANT LLORENC, S.A.	SPAIN	INACTIVE	60.60	-	60.60	-	-	-	-	-
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.	SPAIN	SERVICES	-	51.00	51.00	-	3	3	-	-
VOLJA LUX, SARL	LUXEMBOURG	INVESTMENT COMPANY	-	71.78	71.78	-	1	1	-	-
VOLJA PLUS SL	SPAIN	INVESTMENT COMPANY	75.40	-	75.40	1	2	-	2	-
VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA S.A.	ARGENTINA	FINANCIAL SERVICES	-	51.00	51.00	15	165	135	28	2

(*) Information on foreign companies at exchange rate on June 30, 2017

(**) This company has an equity loan from INPAU, S.A.

(***) These companies have equity loans from BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

A-9

APPENDIX II Additional information on investments in subsidiaries, joint ventures and associates in the BBVA Group

Including the most significant entities, jointly representing 99.71% of all investment in this group


			% Legal share			*Millions of Euros ()**
			of participation			Affiliate Entity Data
Company	Location	Activity	Direct	Indirect	Total	Net Carrying Amount	Assets 30.06.17	Liabilities 30.06.17	Equity 30.06.17	Profit (Loss) 30.06.17
ADQUIRA ESPAÑA, S.A.	SPAIN	COMMERCIAL	-	40.00	40.00	3	17	11	6		1
ADQUIRA MEXICO, S.A. DE C.V.	MEXICO	COMMERCIAL	-	50.00	50.00	2	5	2	4		-
ALTURA MARKETS, SOCIEDAD DE VALORES, S.A.	SPAIN	SECURITIES DEALER	50.00	-	50.00	62	1,793	1,668	120		4
ATOM BANK PLC	UNITED KINGDOM	BANKING	29.72	-	29.72	52	787	664	148		(25)
AUREA, S.A. (CUBA)	CUBA	REAL ESTATE	-	49.00	49.00	4	9	-	9		-
AVANTESPACIA INMOBILIARIA, S.L.	SPAIN	REAL ESTATE	-	30.01	30.01	18	76	17	60		-
BANK OF HANGZHOU CONSUMER FINANCE CO LTD	CHINA	BANKING	30.00	-	30.00	19	111	48	63		(1)
CANCUN SUN & GOLF COUNTRY CLUB, S.A.P.I. DE C.V.	MEXICO	REAL ESTATE	-	33.33	33.33	25	80	35	42		2
COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO S.A.	SPAIN	FINANCIAL SERVICES	16.67	-	16.67	20	124	4	116		4
COMPAÑIA MEXICANA DE PROCESAMIENTO, S.A. DE C.V.	MEXICO	SERVICES	-	50.00	50.00	7	13	-	13		-
CORPORACION IBV PARTICIPACIONES EMPRESARIALES, S.A.	SPAIN	INVESTMENT COMPANY	-	50.00	50.00	29	63	6	58		- (**)
DESARROLLOS METROPOLITANOS DEL SUR, S.L.	SPAIN	REAL ESTATE	-	50.00	50.00	11	48	26	22		-
FERROMOVIL 3000, S.L.	SPAIN	SERVICES	-	20.00	20.00	4	449	425	25		-
FERROMOVIL 9000, S.L.	SPAIN	SERVICES	-	20.00	20.00	3	293	274	19		-
FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA	MEXICO	REAL ESTATE	-	32.25	32.25	60	187	-	187		-
FIDEICOMISO F 403853- 5 BBVA BANCOMER SERVICIOS ZIBATA	MEXICO	REAL ESTATE	-	30.00	30.00	30	163	56	104		2
FIDEICOMISO F/00185 FIMPE - FIDEICOMISO F/00185 PARA EXTENDER A LA SOCIEDAD LOS BENEFICIOS DEL ACCESO A LA INFRAESTRUCTURA DE LOS MEDIOS DE PAGO ELECTRONICOS	MEXICO	FINANCIAL SERVICES	-	28.50	28.50	4	14	-	15		(1)
FIDEICOMISO F/402770-2 ALAMAR	MEXICO	REAL ESTATE	-	42.40	42.40	8	19	-	19		-
INVERSIONES PLATCO, C.A.	VENEZUELA	FINANCIAL SERVICES	-	50.00	50.00	3	8	2	7		(2)
METROVACESA PROMOCION Y ARRENDAMIENTO S.A.	SPAIN	REAL ESTATE	15.90	4.62	20.52	64	324	14	310		-
METROVACESA SUELO Y PROMOCION, S.A.	SPAIN	REAL ESTATE	15.90	4.62	20.52	203	1,060	69	999		(8)
PARQUE RIO RESIDENCIAL, S.L.	SPAIN	REAL ESTATE	-	50.00	50.00	10	23	3	20		-
PROMOCIONS TERRES CAVADES, S.A.	SPAIN	REAL ESTATE	-	39.11	39.11	4	15	-	15		-
PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA, S.A.	ARGENTINA	BANKING	-	50.00	50.00	15	225	194	25		5
RCI COLOMBIA S.A., COMPAÑIA DE FINANCIAMIENTO	COLOMBIA	FINANCIAL SERVICES	-	49.00	49.00	19	224	186	40		(1)
REAL ESTATE DEAL II, S.A.	SPAIN	IN LIQUIDATION	20.06	-	20.06	4	18	-	18		-
REDSYS SERVICIOS DE PROCESAMIENTO, S.L.	SPAIN	FINANCIAL SERVICES	20.00	0.00	20.00	9	129	86	41		2
ROMBO COMPAÑIA FINANCIERA, S.A.	ARGENTINA	BANKING	-	40.00	40.00	17	380	339	39		1
SERVICIOS ELECTRONICOS GLOBALES, S.A. DE C.V.	MEXICO	SERVICES	-	46.14	46.14	6	14	-	13		1
SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO, S.A.	SPAIN	FINANCIAL SERVICES	28.72	-	28.72	8	39	10	27		2
TELEFONICA FACTORING ESPAÑA, S.A.	SPAIN	FINANCIAL SERVICES	30.00	-	30.00	3	48	34	7		7 (***)
TESTA RESIDENCIAL SOCIMI SAU	SPAIN	S.A. LISTED IN INVESTMENT OF REAL ESTATE(SOCIMI)	4.94	28.79	33.73	434	1,742	434	1,308		-
VITAMEDICA ADMINISTRADORA, S.A. DE C.V	MEXICO	SERVICES	-	51.00	51.00	3	11	6	4		-

(*) Joint ventures accounted for using the equity method.

(**) Non current assets for sale.

(***) Budget based data

A-10

APPENDIX III Changes and notification of investments and divestments in the BBVA Group in the six month ended June 30, 2017

Acquisitions or Increases of Interest Ownership in Consolidated Subsidiaries


			Millions of Euros		% of Voting Rights
Company	Type of Transaction	Activity	Price Paid in the Transactions + Expenses directly attributable to the Transactions	Fair Value of Equity Instruments issued for the Transactions	% Participation (net) Acquired in the Period	Total Voting Rights Controlled after the Transactions	Effective Date for the Transaction (or Notification Date)	Category
EUROPEA DE TITULIZACION, S.A., S.G.F.T.	ACQUISITION	FINANCIAL SERVICES	-	-	0.38%	88.24%	16-Mar-17	SUBSIDIARY
COMPASS INSURANCE TRUST WILLMINGTON, DE	FOUNDING	INSURANCES SERVICES	-	-	100.00%	100.00%	30-Jun-17	SUBSIDIARY
P.I.HOLDINGS GPP, LLC	FOUNDING	FINANCIAL SERVICES	-	-	100.00%	100.00%	30-Jun-17	SUBSIDIARY
MICRO SPINAL LLC	FOUNDING	FINANCIAL SERVICES	-	-	100.00%	100.00%	30-Jun-17	SUBSIDIARY
HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U.	FOUNDING	INSURANCES SERVICES	-	-	100.00%	100.00%	22-Feb-17	SUBSIDIARY
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION	FOUNDING	REAL ESTATE	1	-	42.40%	42.40%	01-Feb-17	SUBSIDIARY
DENIZEN FINANCIAL, INC	FOUNDING	SERVICES	-	-	100.00%	100.00%	24-Feb-17	SUBSIDIARY
OPENPAY S.A.P.I DE C.V.	ACQUISITION	PAYMENT INSTITUTIONS	14	-	100.00%	100.00%	28-Apr-17	SUBSIDIARY
BBVA AGENCIA DE SEGUROS COLOMBIA LTDA	FOUNDING	INSURANCES SERVICES	-	-	100.00%	100.00%	28-Apr-17	SUBSIDIARY
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.	FOUNDING	SERVICES	-	-	51.00%	51.00%	29-May-17	SUBSIDIARY
TURKIYE GARANTI BANKASI A.S	ACQUISITION	BANKING	849	-	9.95%	49.85%	22-Mar-17	SUBSIDIARY
CX PROPIETAT, FII	ACQUISITION	REAL ESTATE INVESTMENT FUND	-	-	0.04%	67.98%	30-Jun-17	SUBSIDIARY

A-11

Disposals or Reduction of Interest Ownership in Consolidated Subsidiaries


			Millions of Euros				% of Voting Rights
Company	Type of Transaction	Activity	Profit (Loss) in the Transaction		Changes in the Equity due to the transaction		% Participation Sold in the Period	Total Voting Rights Controlled after the Disposal		Effective Date for the Transaction (or Notification Date)	Category
ESPANHOLA COMERCIAL E SERVIÇOS, LTDA.	LIQUIDATION	FINANCIAL SERVICES		-		-	100.00%		-	30-Apr-17	SUBSIDIARY
BBVA COMERCIALIZADORA LTDA.	LIQUIDATION	FINANCIAL SERVICES		(1)		-	100.00%		-	31-Mar-17	SUBSIDIARY
BETESE S.A DE C.V.	MERGER	INVESTMENT COMPANY		-		-	100.00%		-	15-Feb-17	SUBSIDIARY
HIPOTECARIA NACIONAL, S.A. DE C.V.	MERGER	FINANCIAL SERVICES		-		-	100.00%		-	15-Feb-17	SUBSIDIARY
TEXTIL TEXTURA, S.L.	DISPOSAL	COMMERCIAL		3		-	68.67%		-	01-Jun-17	SUBSIDIARY
VALANZA CAPITAL S.A. UNIPERSONAL	LIQUIDATION	SERVICES		-		-	100.00%		-	10-Mar-17	SUBSIDIARY
DESITEL TECNOLOGIA Y SISTEMAS, S.A. DE C.V.	MERGER	SERVICES		-		-	100.00%		-	15-Feb-17	SUBSIDIARY
APLICA SOLUCIONES TECNOLOGICAS CHILE LIMITADA	LIQUIDATION	SERVICES		-		-	100.00%		-	24-Mar-17	SUBSIDIARY
BBVA PARTICIPACIONES MEJICANAS, S.L.	LIQUIDATION	INVESTMENT COMPANY		-		-	100.00%		-	04-Apr-17	SUBSIDIARY
COMPASS MULTISTATE SERVICES CORPORATION	LIQUIDATION	SERVICES		-		-	100.00%		-	01-Jun-17	SUBSIDIARY
COMPASS INVESTMENTS, INC.	LIQUIDATION	FINANCIAL SERVICES		-		-	100.00%		-	01-Jun-17	SUBSIDIARY
COMPASS CUSTODIAL SERVICES, INC.	LIQUIDATION	FINANCIAL SERVICES		-		-	100.00%		-	01-Jun-17	SUBSIDIARY
BBVA LEASIMO - SOCIEDADE DE LOCAÇAO FINANCEIRA, S.A.	MERGER	FINANCIAL SERVICES		-		-	100.00%		-	10-Feb-17	SUBSIDIARY
BBVA SEGUROS GENERALES S.A.	LIQUIDATION	INSURANCES SERVICES		-		-	100.00%		-	03-Apr-17	SUBSIDIARY
CATALUNYACAIXA VIDA, S.A.	MERGER	INSURANCES SERVICES		-		-	100.00%		-	31-Jan-17	SUBSIDIARY
AUMERAVILLA, S.L.	LIQUIDATION	REAL ESTATE		-		-	100.00%		-	30-Jun-17	SUBSIDIARY
ESPAIS CERDANYOLA, S.L.	DISPOSAL	REAL ESTATE		4		-	97.51%		-	13-Jun-17	SUBSIDIARY
NOVA EGARA-PROCAM, S.L.	LIQUIDATION	REAL ESTATE		-		-	100.00%		-	30-Jun-17	SUBSIDIARY
CORPORACION BETICA INMOBILIARIA, S.A.	LIQUIDATION	REAL ESTATE		-		-	100.00%		-	30-Jun-17	SUBSIDIARY
MILLENNIUM PROCAM, S.L.	LIQUIDATION	REAL ESTATE		-		-	100.00%		-	30-Jun-17	SUBSIDIARY
PROVIURE PARC D’HABITATGES, S.L.	LIQUIDATION	REAL ESTATE		-		-	100.00%		-	30-Jun-17	SUBSIDIARY

A-12

Business Combinations and Other Acquisitions or Increases of Interest Ownership in Associates and Joint-Ventures Accounted for Under the Equity Method

Millions of Euros

% of Voting Rights

Company

Type of Transaction

Activity

Price Paid in the
Transactions +
Expenses Directly
Attributable to the
Transactions

Fair Value of
Equity
Instruments
Issued for the
Transactions

% Participation
(Net)
Acquired
in the Period

Total Voting
Rights
Controlled After
the
Transactions

Effective Date for
the Transaction
(or Notification
Date)

Category

ATOM BANK PLC

DILUTION EFFECT

BANKING

0.26%

29.72

17-Feb-16

ASSOCIATED

TESTA RESIDENCIAL SOCIMI SAU

CAPITAL INCREASE

SOCIMI

340

20.24%

33.73

30-Jun-17

ASSOCIATED

BATEC ORTO DISTRIBUCION S.L.

FOUNDING

COMMERCIAL

100.00%

100.00

08-Jun-17

JOINT VENTURE

VISOREN CENTRE, S.L.

CREDITORS AGREEMENT

REAL ESTATE

40.00%

40.00

01-May-17

JOINT VENTURE

A-13

Disposal or Reduction of Interest Ownership in Associates and Joint-Ventures Companies Accounted for Under the Equity Method

Millions of
Euros

% of Voting Rights

Company

Type of
Transaction

Activity

Profit (Loss)
in the
Transaction

% Participation
Sold
in the Period

Total Voting
Rights
Controlled after
the
Disposal

Effective Date for
the Transaction
(or Notification
Date)

Category

SOCIEDAD ADMINISTRADORA DE FONDOS DE CESANTIA DE CHILE II, S.A.

DISPOSAL

PENSION FUNDS

48.60%

28-Jan-17

ASSOCIATE

DOBIMUS, S.L.

LIQUIDATION

REAL ESTATE

50.00%

10-Jan-17

JOINT VENTURE

ESPAIS CATALUNYA INVERSIONS IMMOBILIARIES, S.L.

DISPOSAL

REAL ESTATE

50.84%

13-Jun-17

JOINT VENTURE

FACTOR HABAST, S.L.

DISPOSAL

REAL ESTATE

50.00%

24-Jan-17

JOINT VENTURE

IMPULS LLOGUER, S.L.

DISPOSAL

REAL ESTATE

100.00%

24-Jan-17

JOINT VENTURE

NAVIERA CABO ESTAY, AIE

LIQUIDATION

SERVICES

16.00%

01-Feb-17

ASSOCIATE

A-14

APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of June 30, 2017


		% of Voting Rights Controlled by the Bank
Company	Activity	Direct	Indirect	Total
BANCO CONTINENTAL, S.A.	BANKING	-	46.12	46.12
BANCO PROVINCIAL S.A. - BANCO UNIVERSAL	BANKING	1.46	53.75	55.21
INVERSIONES BANPRO INTERNATIONAL INC. N.V.	INVESTMENT COMPANY	48.00	-	48.00
PRO-SALUD, C.A.	NO ACTIVITY	-	58.86	58.86
INVERSIONES P.H.R.4, C.A.	NO ACTIVITY	-	60.46	60.46
BANCO BILBAO VIZCAYA ARGENTARIA CHILE, S.A.	BANKING	-	68.19	68.19
BBVA INMOBILIARIA E INVERSIONES, S.A.	REAL ESTATE	-	68.11	68.11
DISTRITO CASTELLANA NORTE, S.A.	REAL ESTATE	-	75.54	75.54
GESTION DE PREVISION Y PENSIONES, S.A.	PENSION FUND MANAGEMENT	60.00	-	60.00
ESTACION DE AUTOBUSES CHAMARTIN, S.A.	SERVICES	-	51.00	51.00
URBANIZADORA SANT LLORENC, S.A.	NO ACTIVITY	60.60	-	60.60
F/253863 EL DESEO RESIDENCIAL	REAL ESTATE	-	65.00	65.00
DATA ARCHITECTURE AND TECHNOLOGY S.L.	SERVICES	-	51.00	51.00
VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA S.A.	FINANCIAL SERVICES	-	51.00	51.00
FIDEICOMISO LOTE 6.1 ZARAGOZA	REAL ESTATE	-	59.99	59.99
F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION	REAL ESTATE	-	42.40	42.40
VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L.	SERVICES	-	51.00	51.00
HABITATGES INVERVIC, S.L.	REAL ESTATE	-	35.00	35.00
TURKIYE GARANTI BANKASI A.S	BANKING	49.85	-	49.85
GARANTI EMEKLILIK VE HAYAT AS	INSURANCES	-	84.91	84.91
GARANTI YATIRIM ORTAKLIGI AS	INVESTMENT COMPANY	-	99.97	99.97
FODECOR, S.L.	REAL ESTATE	-	60.00	60.00
PROCAMVASA, S.A.	REAL ESTATE	-	51.00	51.00
JALE PROCAM, S.L.	REAL ESTATE	-	50.00	50.00
VOLJA LUX, SARL	INVESTMENT COMPANY	-	71.78	71.78
HABITAT ZENTRUM, S.L.	REAL ESTATE	-	50.00	50.00
VOLJA PLUS SL	INVESTMENT COMPANY	75.40	-	75.40

A-15

APPENDIX V BBVA Group’s structured entities. Securitization funds


			Millions of Euros
Securitization Fund (consolidated)	Company	Origination Date	Total Securitized Exposures at the Origination Date	Total Securitized Exposures as of *June 30, 2017 ()**
2 PS Interamericana	BBVA CHILE S.A.	Oct-04	28	3
AYT CAIXA SABADELL HIPOTECARIO I, FTA	BBVA, S.A.	Jul-08	300	94
AYT HIPOTECARIO MIXTO IV, FTA	BBVA, S.A.	Jun-05	100	22
AYT HIPOTECARIO MIXTO, FTA	BBVA, S.A.	Mar-04	100	16
BACOMCB 07	BBVA BANCOMER, S.A.,INSTIT. BANCA	Dec-07	128	-
BACOMCB 08	BBVA BANCOMER, S.A.,INSTIT. BANCA	Mar-08	56	-
BACOMCB 08-2	BBVA BANCOMER, S.A.,INSTIT. BANCA	Dec-08	283	-
BBVA CONSUMO 6 FTA	BBVA, S.A.	Oct-14	299	132
BBVA CONSUMO 7 FTA	BBVA, S.A.	Jul-15	1,450	1,134
BBVA CONSUMO 8 FT	BBVA, S.A.	Jul-16	700	646
BBVA CONSUMO 9 FT	BBVA, S.A.	Mar-17	1,375	1,339
BBVA EMPRESAS 4 FTA	BBVA, S.A.	Jul-10	1,700	75
BBVA LEASING 1 FTA	BBVA, S.A.	Jun-07	2,500	78
BBVA PYME 10 FT	BBVA, S.A.	Dec-15	780	319
BBVA RMBS 1 FTA	BBVA, S.A.	Feb-07	2,500	1,157
BBVA RMBS 10 FTA	BBVA, S.A.	Jun-11	1,600	1,256
BBVA RMBS 11 FTA	BBVA, S.A.	Jun-12	1,400	1,109
BBVA RMBS 12 FTA	BBVA, S.A.	Dec-13	4,350	3,558
BBVA RMBS 13 FTA	BBVA, S.A.	Jul-14	4,100	3,477
BBVA RMBS 14 FTA	BBVA, S.A.	Nov-14	700	550
BBVA RMBS 15 FTA	BBVA, S.A.	May-15	4,000	3,540
BBVA RMBS 16 FT	BBVA, S.A.	May-16	1,600	1,492
BBVA RMBS 17 FT	BBVA, S.A.	Nov-16	1,800	1,737
BBVA RMBS 2 FTA	BBVA, S.A.	Mar-07	5,000	2,163
BBVA RMBS 3 FTA	BBVA, S.A.	Jul-07	3,000	1,576
BBVA RMBS 5 FTA	BBVA, S.A.	May-08	5,000	2,606
BBVA RMBS 9 FTA	BBVA, S.A.	Apr-10	1,295	923
BBVA UNIVERSALIDAD E10	BBVA COLOMBIA, S.A.	Mar-09	21	-
BBVA UNIVERSALIDAD E11	BBVA COLOMBIA, S.A.	May-09	14	-
BBVA UNIVERSALIDAD E12	BBVA COLOMBIA, S.A.	Aug-09	23	-
BBVA UNIVERSALIDAD E9	BBVA COLOMBIA, S.A.	Dec-08	41	-
BBVA UNIVERSALIDAD N6	BBVA COLOMBIA, S.A.	Aug-12	61	-
BBVA VELA SME 2017-1	BBVA, S.A.	Jun-17	3,000	2,811
BBVA-5 FTPYME FTA	BBVA, S.A.	Nov-06	1,900	21
BBVA-6 FTPYME FTA	BBVA, S.A.	Jun-07	1,500	26
BBVA-FINANZIA AUTOS 1 FTA	BBVA, S.A.	Apr-07	800	1
BMERCB 13	BBVA BANCOMER, S.A.,INSTIT. BANCA	Jun-13	526	-
FTA TDA-22 MIXTO	BBVA, S.A.	Dec-04	112	29
FTA TDA-27	BBVA, S.A.	Dec-06	275	103
FTA TDA-28	BBVA, S.A.	Jul-07	250	104
GAT ICO FTVPO 1, F.T.H	BBVA, S.A.	Mar-04	40	116
GC FTGENCAT TARRAGONA 1 FTA	BBVA, S.A.	Jun-08	283	41
HIPOCAT 10 FTA	BBVA, S.A.	Jul-06	1,500	381
HIPOCAT 11 FTA	BBVA, S.A.	Mar-07	1,600	390
HIPOCAT 6 FTA	BBVA, S.A.	Jul-03	850	133
HIPOCAT 7 FTA	BBVA, S.A.	Jun-04	1,400	275
HIPOCAT 8 FTA	BBVA, S.A.	May-05	1,500	334
HIPOCAT 9 FTA	BBVA, S.A.	Nov-05	1,000	257
Instrumentos de Titulización Hip- Junior	BANCO CONTINENTAL, S.A.	Dec-07	22	1
TDA 19 FTA	BBVA, S.A.	Mar-04	200	32
TDA 20-MIXTO, FTA	BBVA, S.A.	Jun-04	100	18
TDA 23 FTA	BBVA, S.A.	Mar-05	300	69
TDA TARRAGONA 1 FTA	BBVA, S.A.	Dec-07	397	140

			Millions of Euros (thousand of euros)
Securitization Fund (not consolidated)	Company	Origination Date	Total Securitized Exposures at the Origination Date	Total Securitized Exposures as of *June 30, 2017 ()**
FTA TDA13	BBVA, S.A.	Dec-00	84	12
FTA TDA-18 MIXTO	BBVA, S.A.	Nov-03	91	14

(*)

Solvency scope.

A-16

APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of June 30, 2017 and December 31, 2016(*)

Outstanding as of June 30, 2017 and December 31, 2016 of subordinated issues


	Millions of Euros
Issuer Entity and Issued Date	Currency	June 2017	December 2016	Prevailing Interest Rate as of June 30, 2017	Maturity Date
Issues in Euros
BBVA
February-07	EUR	255	255	0.47%	16-Feb-22
March-08	EUR	125	125	6.03%	3-Mar-33
July-08	EUR	100	100	6.20%	4-Jul-23
February-14	EUR	1,500	1,500	7.00%	Perpetual
February-15	EUR	1,500	1,500	6.75%	Perpetual
April-16	EUR	1,000	1,000	8.88%	Perpetual
February-17	EUR	997	-	3.50%	10-Feb-27
May-17	EUR	150	-	2.54%	24-May-27
May-17	EUR	500	-	5.88%	Perpetual
Various	EUR	432	277
Subtotal	EUR	6,559	4,756
BBVA SUBORDINATED CAPITAL, S.A.U. ()**
October-05	EUR	99	99	0.47%	13-Oct-20
April-07	EUR	68	68	0.80%	4-Apr-22
May-08	EUR	50	50	3.00%	19-May-23
July-08	EUR	20	20	6.11%	22-Jul-18
April-14	EUR	1,500	1,500	3.50%	11-Apr-24
Subtotal	EUR	1,737	1,737
Total issued in Euros		8,296	6,493

(*)’ Excludes Subordinated customer deposits under the heading “Customer deposits”.

(**) The issuances of BBVA Subordinated Capital, S.A.U. and BBVA Global Finance, LTD., are jointly, severally and unconditionally guaranteed by the Bank.

A-17

Outstanding as of June 30, 2017 and December 31, 2016 of subordinated issues (Continued)


		Millions of Euros
Issuer Entity and Issued Date	Currency	June 2017	December 2016	Prevailing Interest Rate as of June 30, 2017	Maturity Date
Issues in foreign currency
BBVA
May-13	USD	1,314	1,423	9.00%	Perpetual
March-17	USD	105	-	5.70%	31-Mar-32
Subtotal	USD	1,419	1,423
May-17	CHF	18	-	1.60%	24-May-27
Subtotal	CHF	18	-
*BBVA GLOBAL FINANCE, LTD. ()**
December-95	USD	170	189	7.00%	01-Dec-25
Subtotal	USD	170	189
BANCO BILBAO VIZCAYA ARGENTARIA, CHILE	USD
Different issues	CLP	563	609		Various
Subtotal	CLP	563	609
BBVA BANCOMER, S.A. de C.V.
May-07	USD	-	474	6.01%	17-May-22
April-10	USD	878	947	7.25%	22-Apr-20
March-11	USD	1,097	1,184	6.50%	10-Mar-21
July-12	USD	1,316	1,421	6.75%	30-Sep-22
November-14	USD	176	189	5.35%	12-Nov-29
Subtotal	USD	3,467	4,214
BBVA PARAGUAY
November-14	USD	18	19	6.75%	05-Nov-21
November-15	USD	22	24	6.70%	22-Nov-22
Subtotal	USD	40	43
TEXAS REGIONAL STATUTORY TRUST I
February-04	USD	44	47	3.13%	17-Mar-34
Subtotal	USD	44	47

(*) The issuances of BBVA Global Finance, Ltd, are guaranteed (secondary liability) by the Bank

A-18


Outstanding as of June 30, 2017 and December 31, 2016 of subordinated issues
		Millions of Euros
Issuer Entity and Issued Date	Currency	June 2017		December 2016		Prevailing Interest Rate as of June 30, 2017			Maturity Date
STATE NATIONAL CAPITAL TRUST I
July-03	USD		13		14		3.32	%		30-Sep-33
Subtotal	USD		13		14
STATE NATIONAL STATUTORY TRUST II
March-04	USD		9		9		3.07	%		17-Mar-34
Subtotal	USD		9		9
TEXASBANC CAPITAL TRUST I
June-04	USD		22		24		2.88	%		23-Jul-34
Subtotal	USD		22		24
COMPASS BANK
March-05	USD		200		212		5.50	%		01-Apr-20
March-06	USD		62		65		5.90	%		01-Apr-26
September-07	USD		307		332		6.40	%		01-Oct-17
April-15	USD		613		655		3.88	%		10-Apr-25
Subtotal			1,182		1,264
BBVA COLOMBIA, S.A.
September-11	COP		31		33		8.72	%		19-Sep-21
September-11	COP		45		49		8.97	%		19-Sep-26
September-11	COP		29		32		8.56	%		19-Sep-18
February-13	COP		58		63		7.89	%		19-Feb-23
February-13	COP		48		52		8.18	%		19-Feb-28
November-14	COP		46		51		8.77	%		26-Nov-34
November-14	COP		26		28		8.66	%		26-Nov-29
Subtotal	COP		283		309
April-15	USD		334		379		4.88	%		21-Apr-25
Subtotal	USD		334		379
BANCO CONTINENTAL, S.A.
May-07	USD		18		19		6.00	%		14-May-27
September-07	USD		18		19		3.59	%		24-Sep-17
February-08	USD		18		19		6.47	%		28-Feb-28
October-13	USD		40		43		6.53	%		02-Oct-28
September-14	USD		257		273		5.25	%		22-Sep-29
Subtotal	USD		351		373
May-07	PEN		-		11		5.85	%		07-May-22
June-07	PEN		21		21		4.36	%		18-Jun-32
November-07	PEN		18		19		4.46	%		19-Nov-32
July-08	PEN		16		17		3.94	%		08-Jul-23
September-08	PEN		18		18		3.98	%		09-Sep-23
December-08	PEN		10		11		5.08	%		15-Dec-33
Subtotal	PEN		83		97
TURKIYE GARANTI BANKASI A.S
May-17	USD		656		-		6.13	%		24-May-27
Subtotal	USD		656		-
Total issues in foreign currencies(Millions of Euros)			8,654		8,995

A-19

Outstanding as of June 30, 2017 and December 31, 2016 of subordinated issues

Millions of Euros

June 2017

December 2016

Issuer Entity and Issued Date

Currency

Amount Issued

(Millions of Euros)

Currency

Amount Issued

(Millions of Euros)

BBVA

December 2007

EUR

BBVA International Preferred, S.A.U.

September 2005

EUR

September 2006

EUR

164

Abril 2007

USD

569

July 2007

GBP

Phoenix Loan Holdings Inc.

December 2000

USD

Caixa Terrasa Societat de Participacion

August 2005

EUR

Caixasabadell Preferents, S.A.

July 2006

EUR

Others

A-20

APPENDIX VII Consolidated balance sheets held in foreign currency as of June 30, 2017 and December 31, 2016.


			Millions of Euros
June 2017	USD		Mexican Pesos		Turkish Lira		Other Foreign Currencies		Total Foreign Currencies
Assets -
Cash, cash balances at central banks and other demand deposits		11,704		5,334		324		3,686		21,048
Financial assets held for trading		3,951		16,625		503		4,792		25,871
Available-for-sale financial assets		15,003		9,932		4,843		5,026		34,803
Loans and receivables		103,335		45,107		35,959		45,629		230,030
Held to maturity investments		2,712		-		3,013		-		5,725
Investments in entities accounted for using the equity method		5		138		-		124		267
Tangible assets		707		2,258		1,327		791		5,083
Other assets		1,750		5,134		1,819		3,165		11,869
Total		139,167		84,527		47,788		63,213		334,695
Liabilities-
Financial liabilities held for trading		3,191		6,595		469		1,381		11,637
Financial liabilities at amortized cost		140,504		58,070		27,003		50,520		276,097
Other liabilities		1,534		9,187		1,189		1,936		13,846
Total		145,229		73,853		28,662		53,837		301,580

			Millions of Euros
December 2016	USD		Mexican Pesos		Turkish Lira		Other Foreign Currencies		Total Foreign Currencies
Assets -
Cash, cash balances at central banks and other demand deposits		15,436		4,947		426		4,547		25,357
Financial assets held for trading		5,048		15,541		732		2,695		24,016
Available-for-sale financial assets		18,525		9,458		4,889		5,658		38,530
Loans and receivables		109,167		41,344		34,425		46,629		231,565
Investments in entities accounted for using the equity method		5		135		-		106		247
Tangible assets		788		2,200		1,376		844		5,207
Other assets		4,482		5,214		5,219		4,358		19,273
Total		153,451		78,839		47,066		64,839		344,194
Liabilities-
Financial liabilities held for trading		3,908		5,957		693		1,426		11,983
Financial liabilities at amortized cost		150,035		53,185		28,467		53,858		285,546
Other liabilities		1,812		8,774		1,418		1,957		13,961
Total		155,755		67,916		30,578		57,241		311,490

A-21

APPENDIX VIII Information on data derived from the special accounting registry

a)	Mortgage market policies and procedures

Information required pursuant to Circular 5/2011 of the Bank of Spain is indicated as follows.

The Bank has express policies and procedures in place regarding its activities in the mortgage market, which provide for full compliance with applicable regulations.

The mortgage origination policy is based in principles focused on assessing the adequate ratio between the amount of the loan, and the payments, and the income of the applicant. Applicants must in all cases prove sufficient repayment ability (present and future) to meet their repayment obligations, for both the mortgage debt and for other debts detected in the financial system. Therefore, the applicant’s repayment ability is a key aspect within the credit decision-making tools and retail risk acceptance manuals, and has a high weighting in the final decision.

During the mortgage risk transaction analysis process, documentation supporting the applicant’s income (payroll, etc.) is required, and the applicant’s position in the financial system is checked through automated database queries (internal and external). This information is used for calculation purposes in order to determine the level of indebtedness/compliance with the remainder of the system. This documentation is kept in the transaction’s file.

In addition, the mortgage origination policy assesses the adequate ratio between the amount of the loan and the appraisal value of the mortgaged asset. The policy also establishes that the property to be mortgaged be appraised by an independent appraisal company as established by Circular 3/2010 and Circular 4/2016. BBVA selects those companies whose reputation, standing in the market and independence ensure that their appraisals adapt to the market reality in each region. Each appraisal is reviewed and checked before the loan is granted and, in those cases where the loan is finally granted, it is kept in the transaction’s file.

As for issues related to the mortgage market, the Finance Division annually defines the wholesale finance issue strategy, and more specifically mortgage bond issues, such as mortgage covered bonds or mortgage securitization. The Assets and Liabilities Committee (“ALCO”) tracks the budget monthly. The volume and type of assets in these transactions is determined in accordance with the wholesale finance plan, the trend of the Bank’s “Loans and receivables” outstanding balances and market conditions.

The Board of the Bank authorizes each of the issues of Mortgage Transfer Certificate and/or Mortgage Participation issued by BBVA to securitize loans and mortgage loans, Likewise, the Board of Directors authorize, under the power delegated by the Annual General Meeting held on March 13, 2015 under item three of the agenda and its own powers, the establishment of a Base Prospectus for the issue of fixed-income securities through which the mortgage-covered bonds are implemented.

As established in article 24 of Royal Decree 716/2009, the volume of outstanding mortgage-covered bonds issued by a bank may not exceed 80% of a calculation base determined by adding the outstanding principal of all the loans and mortgage loans in the bank’s portfolio that are eligible and are not covered by the issue of Mortgage Bonds, Mortgage Participations or Mortgage Transfer Certificates. For these purposes, in accordance with the aforementioned Royal Decree 716/2009, in order to be eligible, loans and mortgage loans must, on a general basis: (i) be secured by a first mortgage on the freehold; (ii) the loan’s amount may not exceed 80% of the appraisal value for home mortgages, and 60% for other mortgage lending; (iii) be established on assets exclusively and wholly owned by the mortgagor; (iv) have been appraised by an independent appraisal company unrelated to the Group and authorized by the Bank of Spain; and (v) the mortgaged property must be covered at least by a current damage insurance policy.

The Bank has set up a series of controls for mortgage covered bonds, which regularly control the total volume of issued mortgage covered bonds issued and the remaining eligible collateral, to avoid exceeding the maximum limit set by Royal Decree 716/2009, and outlined in the preceding paragraph. In the case of securitizations, the preliminary portfolio of loans and mortgage loans to be securitized is checked according to an agreed procedures engagement, by the Bank’s external auditor as required by the Spanish Securities and Exchange Commission. There is also a series of filters through which some mortgage loans and credits are excluded in accordance with legal, commercial and risk concentration criteria.

A-22

b)	Quantitative information on activities in the mortgage market

The quantitative information on activities in the mortgage market required by Bank of Spain Circular 5/2011 is shown below.

b.1) Ongoing operations


		Millions of Euros
Mortgage loans. Eligibility for the purpose of the mortgage market		June 2017		December 2016
Nominal value of outstanding loans and mortgage loans	(A)		109,429		113,977
Minus: Nominal value of all outstanding loans and mortgage loans that form part of the portfolio, but have been mobilized through mortgage bond holdings or mortgage transfer certificates.	(B)		(31,821)		(33,677)
Nominal value of outstanding loans and mortgage loans, excluding securitized loans	(A)-(B)		77,608		80,300
Of which:			-
Loans and mortgage loans which would be eligible if the calculation limits set forth in Article 12 of Spanish Royal Decree 716/2009 were not applied.	(C)		49,455		46,987
Minus: Loans and mortgage loans which would be eligible but, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, cannot be used to collateralize any issuance of mortgage bonds.	(D)		(2,052)		(2,268)
Eligible loans and mortgage loans that, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, can be used as collateral for the issuance of mortgage bonds	(C)-(D)		47,403		44,719
Issuance limit: 80% of eligible loans and mortgage loans that can be used as collateral	(E)		37,922		35,775
Issued Mortgage-covered bonds	(F)		22,366		29,085
Outstanding Mortgage-covered bonds			18,239		24,670
Capacity to issue mortgage-covered bonds	(E)-(F)		15,556		6,690
Memorandum items:			-
Percentage of overcollateralization across the portfolio			347%		276%
Percentage of overcollateralization across the eligible used portfolio			212%		154%
Nominal value of available sums (committed and unused) from all loans and mortgage loans.			3,016		2,917
Of which:			-
Potentially eligible			2,433		2,237
Ineligible			583		680

Nominal value of all loans and mortgage loans that are not eligible, as they do not meet the thresholds set in Article 5.1 of Spanish Royal Decree 716/2009, but do meet the rest of the eligibility requirements indicated in Article 4 of the Royal Decree.			19,871		25,282
Nominal value of the replacement assets subject to the issue of mortgage-covered bonds.			-		-

A-23


		Millions of Euros
Mortgage loans. Eligibility for the purpose of the mortgage market		June 2017		December 2016
Total loans	(1)		109,429		113,977
Issued mortgage participations	(2)		1,964		2,865
Of which: recognized on the balance sheet			-		695
Issued mortgage transfer certificates	(3)		29,857		30,812
Of which: recognized on the balance sheet			28,185		28,778
Mortgage loans as collateral of mortgages bonds	(4)
Loans supporting the issuance of mortgage-covered bonds	1-2-3-4		77,608		80,300
Non elegible loans			28,153		33,313
Comply requirements to be elegible except the limit provided for under the article 5.1 of the Spanish Royal Decree 716/2009			19,871		25,282
Other			8,281		8,031
Elegible loans			49,455		46,987
That can not be used as collateral for issuances			2,052		2,268
That can be used as collateral for issuances			47,403		44,719
Loans used to collateralize mortgage bonds			-		-
Loans used to collateralize mortgage-covered bonds			47,403		44,719

A-24


	Millions of Euros
	June 2017						December 2016
Mortgage loans. Classification of the nominal values according to different characteristics	Total mortgage loans		*Elegibles ()**		Elegibles that can be used as collateral for issuances (**)		Total mortgage loans		*Elegibles ()**		Elegibles that can be used as collateral for issuances (**)
TOTAL		77,608		49,455		47,403		80,300		46,987		44,719
By source of the operations
Originated by the bank		71,725		44,726		42,745		74,220		42,641		40,451
Subrogated by other institutions		864		721		713		904		685		678
Rest		5,019		4,008		3,945		5,176		3,661		3,590
By Currency
In euros		76,828		49,057		47,024		79,422		46,594		44,341
In foreign currency		780		398		379		878		393		378
By payment situation
Normal payment		61,410		43,680		43,012		61,264		40,685		40,389
Other situations		16,198		5,775		4,391		19,036		6,302		4,330
By residual maturity
Up to 10 years		17,767		11,403		10,621		19,762		12,722		11,765
10 to 20 years		30,064		23,720		23,043		30,912		22,417		21,646
20 to 30 years		19,718		11,421		10,923		19,899		9,375		8,910
Over 30 years		10,059		2,911		2,816		9,727		2,473		2,398
By Interest Rate
Fixed rate		5,285		2,408		2,317		4,460		1,680		1,559
Floating rate		72,323		47,047		45,086		75,840		45,307		43,160
Mixed rate										-		-
By Target of Operations

For business activity		19,274		8,222		6,737		20,913		8,614		6,926
From which: public housing		6,187		1,845		763		6,958		1,894		740
For households		58,334		41,233		40,666		59,387		38,373		37,793
By type of guarantee		-		-		-
Secured by completed assets/buildings		73,333		48,714		46,871		75,806		46,240		44,237
Residential use		56,265		40,166		39,458		61,338		39,494		38,139
From which: public housing		4,362		3,094		3,039		5,607		3,338		3,213
Commercial		8,565		4,273		3,409		5,453		2,563		2,289
Other		8,503		4,275		4,004		9,015		4,183		3,809
Secured by assets/buildings under construction		2,021		411		336		1,914		413		295
Residential use		574		73		72		1,457		290		187
From which: public housing		14		1		1		57		11		10
Commercial		1,262		301		228		286		61		53
Other		185		37		36		171		62		55
Secured by land		2,254		330		196		2,580		334		187
Urban		-		-		-		-		-		-
Non-urban		2,254		330		196		2,580		334		187

(*) Not taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009

(**) Taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009

Millions of Euros

Loan to Value (Last available appraisal risk)

June 2017

Nominal value of the total mortgage loans

Less than or

equal to 40%

Over 40% but

less than or
equal to 60%

Over 60% but

less than or
equal to 80%

Over 80%

Total

Home mortgages

14,627

17,551

13,358

45,536

Other mortgages

2,007

1,912

3,919

Total

16,634

19,463

13,358

49,455

A-25

Millions of Euros

Loan to Value (Last available appraisal risk)

December 2016

Nominal value of the total mortgage loans

Less than or

equal to 40%

Over 40% but

less than or
equal to 60%

Over 60% but

less than or
equal to 80%

Over 80%

Total

Home mortgages

12,883

15,921

14,047

42,851

Other mortgages

2,150

1,986

4,136

Total

15,033

17,907

14,047

46,987


	Millions of Euros
	June 2017				December 2016
Elegible and non elegible mortgage loans. Changes of the nominal values in the period	*Elegibles ()**		Non elegible		*Elegibles ()**		Non elegible
Balance at the begining		46,987		33,313		40,373		32,532
Retirements		4,195		7,504		7,458		11,489
Held-to-maturity cancellations		2,356		1,093		3,552		2,084
Anticipated cancellations		1,029		1,091		1,479		1,971
Subrogations to other institutions		19		14		37		30
Rest		791		5,307		2,390		7,404
Additions		6,663		2,345		14,072		12,270
Originated by the bank		1,405		1,472		10,051		9,523
Subrogations to other institutions		7		3		283		162
Rest		5,250		870		3,738		2,585
Balance at the end		49,455		28,153		46,987		33,313

(*) Not taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009


	Millions of Euros
Mortgage loans supporting the issuance of mortgage-covered bonds Nominal value.	June 2017		December 2016
Potentially eligible		2,433		2,237
Ineligible		583		680
Total		3,016		2,917

A-26

b.2) Liabilities operations


	Millions of Euros
	June 2017				December 2016
Issued Mortgage Bonds	Nominal value		Average residual maturity		Nominal value		Average residual maturity
Mortgage bonds		-				-
*Mortgage-covered bonds ()**		22,366				29,085
Of which:Non recognized as liabilities on balance		4,127				4,414
Of Which: outstanding		18,239				24,670

Debt securities issued through public offer		14,501				20,773
Residual maturity up to 1 year		2,000				8,272
Residual maturity over 1 year and less than 2 years		-				-
Residual maturity over 2 years and less than 3 years		-				-
Residual maturity over 3 years and less than 5 years		6,051				4,801
Residual maturity over 5 years and less than 10 years		6,250				7,500
Residual maturity over 10 years		200				200
Debt securities issued without public offer		4,165				4,321
Residual maturity up to 1 year		-				150
Residual maturity over 1 year and less than 2 years		-				-
Residual maturity over 2 years and less than 3 years		-				-
Residual maturity over 3 years and less than 5 years		1,550				1,550
Residual maturity over 5 years and less than 10 years		2,500				2,500
Residual maturity over 10 years		115				121
Deposits		3,701				3,991
Residual maturity up to 1 year		435				460
Residual maturity over 1 year and less than 2 years		666				791
Residual maturity over 2 years and less than 3 years		526				380
Residual maturity over 3 years and less than 5 years		625				671
Residual maturity over 5 years and less than 10 years		739				839
Residual maturity over 10 years		710				850
Mortgage participations		-		-		695		196
Mortgage transfer certificates		28,185		280		28,778		286
Issued through public offer		28,185		280		28,778		286
Issued without public offer		-		-		-		-
(*) Including mortgage-covered bonds hold by the BBVA Group’s companies

Given the characteristics of the type of covered bonds issued by the Bank, there is no substituting collateral related to these issues.

The Bank does not hold any derivative financial instruments relating to mortgage bond issues, as defined in the aforementioned Royal Decree.

A-27

APPENDIX IX Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012

a)	Quantitative information on refinancing and restructuring operations

The breakdown of refinancing and restructuring operations as of June 30, 2017 and December 31, 2016 is as follows:


	JUNE 2017 BALANCE OF FORBEARANCE (Millions of Euros)
	TOTAL
	Unsecured loans				Secured loans								Accumulated impairment or accumulated losses in fair value due to credit risk
									Maximum amount of secured loans that can be considered
	Number of operations		Gross carrying amount		Number of operations		Gross carrying amount		Real estate mortgage secured		Rest of secured loans
Credit institutions		-		-		-		-		-		-		-

General Governments		69		85		111		613		86		-		14

Other financial corporations and individual entrepreneurs (financial business)		249		50		38		4		1		-		7
Non-financial corporations and individual entrepreneurs (corporate non-financial activities)		127,918		5,374		20,598		8,217		1,831		258		4,935
Of which: financing the construction and property (including land)		1,884		514		4,680		3,827		1,038		-		2,279

*Rest homes ()**		82,061		1,384		110,288		8,649		6,937		18		1,418
Total		210,297		6,893		131,035		17,483		8,855		275		6,374


	Of which: IMPAIRED

	Unsecured loans				Secured loans								Accumulated impairment or accumulated losses in fair value due to credit risk
									Maximum amount of secured loans that can be considered
	Number of operations		Gross carrying amount		Number of operations		Gross carrying amount		Real estate mortgage secured		Rest of secured loans
Credit institutions		-		-		-		-		-		-		-

General Governments		50		50		59		39		30		-		13

Other financial corporations and individual entrepreneurs (financial business)		126		8		16		2		-		-		6
Non-financial corporations and individual entrepreneurs (corporate non-financial activities)		103,493		3,245		12,703		5,745		1,300		46		4,695
Of which: financing the construction and property (including land)		1,473		322		3,680		3,328		895		-		2,215

*Rest homes ()**		19,938		716		50,551		4,457		3,372		4		1,261
Total		123,607		4,019		63,329		10,243		4,703		50		5,975

Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.

(*)

Number of operations does not include Garanti Bank

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €399 million of collective impairment losses and €5,975 million of specific impairment losses.

A-28


	DECEMBER 2016 BALANCE OF FORBEARANCE (Millions of Euros)

	TOTAL
	Unsecured loans				Secured loans								Accumulated impairment or accumulated losses in fair value due to credit risk
									Maximum amount of secured loans that can be considered
	Number of operations		Gross carrying amount		Number of operations		Gross carrying amount		Real estate mortgage secured		Rest of secured loans
Credit institutions		-		-		-		-		-		-		-

General Governments		24		8		112		711		98		584		6

Other financial corporations and individual entrepreneurs (financial business)		3,349		59		71		18		5		-		8
Non-financial corporations and individual entrepreneurs (corporate non-financial activities)		125,328		5,057		25,327		9,643		4,844		124		5,310
Of which: financing the construction and property (including land)		1,519		496		5,102		4,395		694		-		2,552

*Rest homes ()**		116,961		1,550		103,868		9,243		7,628		18		1,474
Total		245,662		6,674		129,378		19,615		12,576		726		6,798


	Of which: IMPAIRED

	Unsecured loans				Secured loans								Accumulated impairment or accumulated losses in fair value due to credit risk
									Maximum amount of secured loans that can be considered
	Number of operations		Gross carrying amount		Number of operations		Gross carrying amount		Real estate mortgage secured		Rest of secured loans
Credit institutions		-		-		-		-		-		-		-

General Governments		12		8		53		33		27		-		4

Other financial corporations and individual entrepreneurs (financial business)		131		8		22		2		-		-		5
Non-financial corporations and individual entrepreneurs (corporate non-financial activities)		103,310		2,857		16,327		6,924		3,002		53		4,986
Of which: financing the construction and property (including land)		1,191		304		4,188		3,848		494		-		2,499

*Rest homes ()**		72,199		672		47,767		4,366		3,271		3		1,285
Total		175,652		3,545		64,169		11,325		6,300		57		6,281

(a)

(*)

Number of operations does not include Garanti Bank

The accumulated impairment or accumulated losses in fair value due to credit risk correspond to €517 million of collective impairment losses and €6,281 million of specific impairment losses.

A-29

In addition to the restructuring and refinancing transactions mentioned in this section, loans that were not considered impaired or renegotiated have been modified based on the criteria set out in paragraph 59 (c) of IAS 39. These loans have not been classified as renegotiated or impaired, since they were modified for commercial or competitive reasons (for instance, to improve our relationship with the client) rather than for economic or legal reasons relating to the borrower’s financial situation.

The table below provides a roll forward of refinanced assets during the first half of 2017:


					Millions of Euros
Refinanced assets Roll forward June 2017	Normal				Impaired				TOTAL
Refinanced assets Roll forward June 2017	Risk		Coverage		Risk		Coverage		Risk		Coverage
Balance at the beginning		11,418		517		14,869		6,281		26,288		6,798
(+) Additions		2,121		157		1,842		658		3,963		815
(-) Decreases (payments or repayments)		(1,421)		(117)		(1,339)		(742)		(2,760)		(859)
(-) Foreclosures		-		-		(200)		(133)		(200)		(133)
(-) Write-offs		(48)		(3)		(567)		(428)		(615)		(431)
(+)/(-) Other		(1,956)		(156)		(341)		339		(2,298)		183
Ending Balance		10,114		399		14,262		5,975		24,377		6,374

The table below provides a breakdown by segments of the forbearance operations (net of provisions) as of June 30, 2017 and December 31, 2016:


	Millions of Euros
Forbereance operations. Breakdown by segments	June 2017		December 2016
Credit institutions
Central governments		684		713
Other financial corporations and individual entrepeneurs (financial activity)		47		69
Non-financial corporations and individual entrepeneurs (non-financial activity)		8,656		9,390
Of which: Financing the construction and property development (including land)		2,061		2,339
Households		8,616		9,319
Total carrying amount		18,003		19,491

Financing classified as non-current assets and disposal groups held for sale		-		-

NPL ratio by type of renegotiated loan

The non performing ratio of the renegotiated portfolio is defined as the impaired balance of renegotiated loans that shows signs of difficulties as of the closing of the reporting period, divided by the total payment outstanding in that portfolio.

A-30

As of June 30, 2017 and December 31, 2016, the non performing ratio for each of the portfolios of renegotiated loans is as follows:


June 2017 NPL ratio renegotiated loan portfolio		Ratio of Impaired loans - Past due
General governments		13%
Commercial		66%
Of which: Construction and developer		84%
Other consumer		52%

57% of the renegotiated loans classified as impaired was for reasons other than default (delinquency).

A-31

b)	Quantitative information on the concentration of risk by activity and guarantees

Loans and advances to customers by activity (carrying amount)


					Millions of Euros
							Collateralized Credit Risk. Loan to value
June 2017	*TOTAL ()**		Of which: Mortgage loans		Of which: Secured loans		Less than or equal to 40%		Over 40% but less than or equal to 60%		Over 60% but less than or equal to 80%		Over 80% but less than or equal to 100%		Over 100%
1 General governments		34,121		1,113		6,970		381		778		1,312		2,363		3,249
2 Other financial institutions		16,913		635		7,732		523		513		229		6,447		655
3 Non-financial institutions and individual entrepreneurs		182,091		45,540		21,355		16,015		13,094		11,054		13,052		13,680
3.1 Construction and property development		18,431		13,248		619		2,862		4,211		3,443		1,933		1,418
3.2 Construction of civil works		8,613		1,781		460		367		422		478		218		756
3.3 Other purposes		155,047		30,511		20,276		12,786		8,461		7,133		10,901		11,506
3.3.1 Large companies		96,491		12,389		15,424		5,588		4,790		4,358		5,615		7,462
3.3.2 SMEs (**) and individual entrepreneurs		58,556		18,122		4,852		7,198		3,671		2,775		5,286		4,044
4 Rest of households and NPISHs (***)		176,027		123,185		6,482		20,460		25,455		34,388		27,856		21,508
4.1 Housing		123,697		120,513		126		17,756		23,831		32,759		26,533		19,760
4.2 Consumption		45,301		785		5,479		2,196		1,243		1,249		916		660
4.3 Other purposes		7,029		1,887		877		508		381		380		407		1,088
SUBTOTAL		409,152		170,473		42,539		37,379		39,840		46,983		49,718		39,092
5 Less: Valuation adjustments due to impairment of assets not attributable to specific operations		-		-		-		-		-		-		-		-
6 TOTAL		409,152		170,473		42,539		37,379		39,840		46,983		49,718		39,092
MEMORANDUM:
Forbereance operations (****)		18,004		7,111		5,661		3,401		1,501		2,118		2,022		3,730

(*)

The amounts included in this table are net of impairment losses.

(**)

Small and medium enterprises

(***)

Nonprofit institutions serving households.

(****)

Net of provisions except valuation adjustments due to impairment of assets not attributable to specific operations.

A-32


					Millions of Euros
							Collateralized Credit Risk. Loan to value
December 2016	*TOTAL ()**		Of which: Mortgage loans		Of which: Secured loans		Less than or equal to 40%		Over 40% but less than or equal to 60%		Over 60% but less than or equal to 80%		Over 80% but less than or equal to 100%		Over 100%
1 General governments		34,820		4,722		3,700		380		715		1,266		2,740		3,320
2 Other financial institutions		17,181		800		8,168		650		464		319		6,846		690
3 Non-financial institutions and individual entrepreneurs		183,871		47,105		22,663		17,000		13,122		11,667		14,445		13,533
3.1 Construction and property development		19,283		12,888		1,736		3,074		4,173		3,843		2,217		1,316
3.2 Construction of civil works		8,884		1,920		478		508		547		469		379		494
3.3 Other purposes		155,704		32,297		20,449		13,417		8,402		7,356		11,850		11,722
3.3.1 Large companies		107,550		16,041		16,349		7,311		5,149		4,777		7,160		7,993
3.3.2 SMEs (**) and individual entrepreneurs		48,154		16,257		4,100		6,106		3,253		2,579		4,689		3,729
4 Rest of households and NPISHs (***)		178,781		129,590		5,257		21,906		24,764		34,434		34,254		19,489
4.1 Housing		127,606		124,427		477		18,802		23,120		32,713		32,148		18,122
4.2 Consumption		44,504		3,181		3,732		2,535		1,278		1,230		1,322		547
4.3 Other purposes		6,671		1,982		1,048		569		366		491		784		820
SUBTOTAL		414,654		182,216		39,789		39,936		39,065		47,687		58,286		37,032
5 Less: Valuation adjustments due to impairment of assets not attributable to specific operations		-		-		-		-		-		-		-		-
6 TOTAL		414,654		182,216		39,789		39,936		39,065		47,687		58,286		37,032
MEMORANDUM:

Forbereance operations (****)		19,491		8,031		6,504		3,703		1,845		2,316		2,091		4,580

(*)	The amounts included in this table are net of impairment losses.

(**)	Small and medium enterprises

(***)

Nonprofit institutions serving households.

(****)

Net of provisions

A-33

c) Information on the concentration of risk by activity and geographical areas.


					Millions of Euros
June 2017	*TOTAL()**		Spain		European Union Other		America		Other
Credit institutions		76,844		9,830		32,242		18,293		16,479
General governments		130,527		58,204		12,935		49,014		10,374
Central Administration		89,681		35,990		12,609		30,744		10,338
Other		40,846		22,214		326		18,270		36
Other financial institutions		44,610		17,353		12,810		12,140		2,307
Non-financial institutions and individual entrepreneurs		240,963		70,040		25,622		91,931		53,370
Construction and property development		23,074		5,791		283		11,457		5,543
Construction of civil works		13,243		5,995		2,365		3,236		1,647
Other purposes		204,646		58,254		22,974		77,238		46,180
Large companies		139,445		35,358		21,507		54,082		28,498
SMEs and individual entrepreneurs		65,201		22,896		1,467		23,156		17,682
Other households and NPISHs		176,286		95,622		3,759		61,351		15,554
Housing		123,699		83,373		3,021		31,413		5,892
Consumer		45,302		7,695		609		27,992		9,006
Other purposes		7,285		4,554		129		1,946		656
SUBTOTAL		669,230		251,049		87,368		232,729		98,084
Less: Valuation adjustments due to impairment of assets not attributable to specific operations		-		-		-		-		-
TOTAL		669,230		251,049		87,368		232,729		98,084

(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: Loans and advances to credit institutions, Loans and advances to customers, Debt securities, Equity instruments, Other equity securities, Derivatives, Trading Derivatives, Derivatives – Hedge accounting derivatives, Investments in subsidiaries, joint ventures and associates and guarantees given and Contingent risks. The amounts included in this table are net of impairment losses.

A-34


					Millions of Euros
December 2016	*TOTAL()**		Spain		European Union Other		America		Other
Credit institutions		84,381		12,198		40,552		17,498		14,133
General governments		134,261		61,495		14,865		47,072		10,829
Central Administration		92,155		39,080		14,550		27,758		10,768
Other		42,105		22,415		315		19,314		61
Other financial institutions		47,029		16,942		14,881		12,631		2,576
Non-financial institutions and individual entrepreneurs		249,322		69,833		26,335		98,797		54,357
Construction and property development		23,141		5,572		371		11,988		5,209
Construction of civil works		14,185		6,180		2,493		3,803		1,709
Other purposes		211,996		58,080		23,471		83,005		47,439
Large companies		158,356		35,514		22,074		64,940		35,828
SMEs and individual entrepreneurs		53,640		22,566		1,397		18,065		11,611
Other households and NPISHs		179,051		96,345		3,796		62,836		16,073
Housing		127,607		85,763		3,025		32,775		6,044
Consumer		44,504		7,230		642		27,398		9,234
Other purposes		6,939		3,352		129		2,663		795
SUBTOTAL		694,044		256,813		100,428		238,834		97,968
Less: Valuation adjustments due to impairment of assets not attributable to specific operations		-		-		-		-		-
TOTAL		694,044		256,813		100,428		238,834		97,968

A-35

APPENDIX X Additional information on Risk Concentration

a) Sovereign risk exposure

The table below provides a breakdown of exposure to financial assets (excluding derivatives and equity instruments), as of June 30, 2017 and December 31, 2016 by type of counterparty and the country of residence of such counterparty. The below figures do not take into account accumulated other comprehensive income, impairment losses or loan-loss provisions:


	Millions of Euros
	*Sovereign Risk ()**
Risk Exposure by Countries	June 2017		December 2016
Spain		57,523		60,434
Turkey		9,992		10,478
Italy		10,499		12,206
France		458		518
Portugal		925		586
Germany		246		521
United Kingdom		40		17
Ireland		-		-
Greece		-		-
Rest of Europe		725		940
Subtotal Europe		80,408		85,699
Mexico		29,239		26,942
The United States		15,362		16,039
Venezuela		147		179
Rest of countries		4,208		3,814
Total Rest of Countries		48,956		46,974
Total Exposure to Financial Instruments		129,364		132,674

(*) In addition, as of June 30, 2017 and December 31, 2016, undrawn lines of credit, granted mainly to the Spanish

General Governments and amounted to €2,557 million and €2,864 million, respectively.

The exposure to sovereign risk set out in the above table includes positions held in government debt securities in countries where the Group operates. They are used for ALCO’s management of the interest-rate risk on the balance sheets of the Group’s entities in these countries, as well as for hedging of pension and insurance commitments by insurance entities within the BBVA Group.

Sovereign risk exposure in Europe

The table below provides a breakdown of the exposure of the Group’s credit institutions to European sovereign risk as of June 30, 2017 and December 2016 by type of financial instrument and the country of residence of the counterparty, under EBA (European Banking Authority) requirements:


										Millions of Euros
	Debt securities							Loans and receivables		Derivatives
	Debt securities									Direct exposure							Indirect exposure
Exposure to Sovereign Risk by European Union Countries June 2017	Financial Assets Held-for-Trading			Available-for- Sale Financial Assets		Held -to- maturity investment				Notional value		Fair value +		Fair value -			Notional value			Fair value +		Fair value -			Total		%
Spain		1,425			13,087		6,075		24,779		1,622		72		(21	)		(801	)		3,415		(3,546	)		46,108		82%
Italy		1,234			4,915		2,384		61		-		-		-			(2,251	)		1,740		(2,174	)		5,908		11%
France		34			9		-		29		-		-		-			225			30		(53	)		274		0%
Germany		(180	)		-		-		-		-		-		-			2,478			213		(192	)		2,320		4%
Portugal		226			1		-		314		516		9		(132	)		(32	)		67		(151	)		818		1%
United Kingdom		-			-		-		38		-		-		-			(2	)		1		-			37		0%
Greece		-			-		-		-		-		-		-			-			-		-			-		0%
Hungary		-			-		-		-		-		-		-			-			-		-			-		0%
Ireland		-			-		-		-		-		-		-			-			-		-			-		0%
Rest of European Union		67			482		-		34		-		-		-			21			11		(6	)		610		1%
Total Exposure to Sovereign Counterparties (European Union)		2,808			18,492		8,459		25,255		2,138		81		(153	)		(362	)		5,478		(6,121	)		56,076		100%

A-36

This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,266 million as of June 30, 2017) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.


											Millions of Euros
	Debt securities								Loans and receivables		Derivatives
	Debt securities										Direct exposure							Indirect exposure
Exposure to Sovereign Risk by European Union Countries December 2016	Financial Assets Held- for-Trading		Financial assets designated at fair value through profit or loss		Available-for- Sale Financial Assets		Held -to- maturity investment				Notional value		Fair value +		Fair value -			Notional value			Fair value +		Fair value -			Total		%
Spain		927		-		13,385		8,063		24,835		1,786		88		(27	)		(744	)		993		(1,569	)		47,737		81%
Italy		1,973		-		4,806		2,719		60		-		-		-			(1,321	)		1,271		(866	)		8,641		15%
France		250		-		-		-		28		-		-		-			(13	)		46		(63	)		248		0%
Germany		82		-		-		-		-		-		-		-			(5	)		203		(249	)		30		0%
Portugal		54		-		1		-		285		1,150		-		(215	)		10			1		(6	)		1,280		2%
United Kingdom		-		-		-		-		16		-		-		-			(9	)		1		-			8		0%
Greece		-		-		-		-		-		-		-		-			-			-		-			-		0%
Hungary		-		-		-		-		-		-		-		-			-			-		-			-		0%
Ireland		-		-		-		-		-		-		-		-			-			-		-			0		0%
Rest of European Union		195		-		469		-		36		-		-		-			30			13		(6	)		736		1%
Total Exposure to Sovereign Counterparties (European Union)		3,482		-		18,660		10,783		25,259		2,936		88		(242	)		(2,053	)		2,527		(2,759	)		58,680		100%

This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of the Group’s insurance companies (€10,443 million as of December 31, 2016) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.

As of June 30, 2017 and December 31, 2016 the breakdown of total exposure faced by the Group’s credit institutions to Spain and other countries, by maturity of the financial instruments, is as follows:


										Millions of Euros
	Debt securities							Loans and receivables		Derivatives
	Debt securities									Direct exposure							Indirect exposure
Maturities of Sovereign Risks European Union June 2017	Financial Assets Held- for-Trading			Available-for- Sale Financial Assets		Held -to- maturity investment				Notional value		Fair value +		Fair value -			Notional value			Fair value +		Fair value -			Total		%
Spain		1,425			13,087		6,075		24,779		1,622		72		(21	)		(801	)		3,415		(3,546	)		46,108		82%
Up to 1 Year		1,260			3,180		480		12,978		-		-		-			(800	)		3,415		(3,546	)		16,966		30%
1 to 5 Years		391			1,919		2,825		8,506		1,136		25		-			(1	)		-		-			14,802		26%
Over 5 Years		(225	)		7,988		2,770		3,295		486		46		(20	)		-			-		-			14,340		26%
Rest of European Union		1,382			5,406		2,384		476		516		9		(132	)		439			2,063		(2,575	)		9,968		18%
Up to 1 Year		1,307			212		-		310		-		-		-			(181	)		2,040		(2,414	)		1,273		2%
1 to 5 Years		34			2,076		1,926		4		516		9		-			253			18		(58	)		4,778		9%
Over 5 Years		42			3,118		457		162		-		-		(132	)		368			5		(103	)		3,917		7%
Total Exposure to European Union Sovereign Counterparties		2,808			18,492		8,459		25,255		2,138		81		(153	)		(362	)		5,478		(6,121	)		56,076		100%


										Millions of Euros
	Debt securities							Loans and receivables		Derivatives
	Debt securities									Direct exposure							Indirect exposure
Maturities of Sovereign Risks European Union December 2016	Financial Assets Held- for-Trading			Available- for-Sale Financial Assets		Held -to- maturity investment				Notional value		Fair value +		Fair value -			Notional value			Fair value +		Fair value -			Total			%
Spain		927			13,385		8,063		24,835		1,786		88		(27	)		(744	)		993		(1,569	)		47,737			81%
Up to 1 Year		913			889		1,989		9,087		-		-		-			(736	)		993		(1,564	)		11,571			20%
1 to 5 Years		1,272			3,116		3,319		7,059		1,209		32		(1	)		(3	)		-		-			16,004			27%
Over 5 Years		(1,259	)		9,380		2,755		4,595		577		56		(27	)		(6	)		-		(4	)		16,068			27%
Rest of European Union		2,554			5,275		2,719		424		1,150		-		(215	)		(1,309	)		1,534		(1,191	)		10,943			19%
Up to 1 Year		(395	)		38		-		2		-		-		-			(1,721	)		1,507		(1,054	)		(1,623	)		-3%
1 to 5 Years		1,535			2,050		1,958		247		381		-		(12	)		194			19		(50	)		6,322			11%
Over 5 Years		1,414			3,186		761		175		770		-		(203	)		218			8		(86	)		6,243			11%
Total Exposure to European Union Sovereign Counterparties		3,482			18,660		10,783		25,259		2,936		88		(242	)		(2,053	)		2,527		(2,759	)		58,680			100%

A-37

b) Concentration of risk on activities in the real-estate market in Spain

Quantitative information on activities in the real-estate market in Spain

The following quantitative information on real-estate activities in Spain has been prepared using the reporting models required by Bank of Spain Circular 5/2011, of November 30.

As of June 30, 2017 and December 31, 2016, exposure to the construction sector and real-estate activities in Spain stood at €14,405 and €15,285 million, respectively. Of that amount, risk from loans to construction and real-estate development activities accounted for €7,072 and €7,930 million, respectively, representing 4.4% and 4.5% of loans and advances to customers of the balance of business in Spain (excluding the general governments) and 1.0% and 1.1% of the total assets of the Consolidated Group.

Lending for real estate development of the loans as of June 30, 2017 and December 31, 2016 is shown below:

Millions of Euros

June 2017

Financing Allocated by credit institutions to Construction and

Real Estate Development and lending for house purchase

Gross
Amount

Drawn Over
the Guarantee
Value

Accumulated
impairment

Financing to construction ans real estate development

(including land) (Business in Spain)

7,072

3,170

(2,554)

Of which: Impaired assets

4,345

2,506

(2,510)

Memorandum item:

Write-offs

2,140

Memorandum item:

Total loans and advances to customers, excluding the General Governments (Business in Spain)

161,408

Total consolidated assets (total business)

702,429

Impairment and provisions for normal exposures

(5,766)

Millions of Euros

December 2016

Financing Allocated by credit institutions to Construction and

Real Estate Development and lending for house purchase

Gross
Amount

Drawn Over
the Guarantee
Value

Accumulated
impairment

Financing to construction ans real estate development

(including land) (Business in Spain)

7,930

3,449

(2,944)

Of which: Impaired assets

5,095

2,680

(2,888)

Memorandum item:

Write-offs

2,061

Memorandum item:

Total loans and advances to customers, excluding the General Governments (Business in Spain)

159,492

Total consolidated assets (total business)

731,856

Impairment and provisions for normal exposures

(5,830)

A-38

The following is a description of the real estate credit risk based on the types of associated guarantees:


	Millions of Euros
Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase	June 2017		December 2016
Without secured loan		714		801
With secured loan		6,358		7,129
Terminated buildings		3,476		3,875
Homes		2,657		2,954
Other		819		921
Buildings under construction		774		760
Homes		632		633
Other		142		127
Land		2,108		2,494
Urbanized land		1,040		1,196
Rest of land		1,068		1,298
Total		7,072		7,930

As of June 30, 2017 and December 31, 2016, 49.2% and 48.9% of loans to developers were guaranteed with buildings (76.4% and 76.2%, are homes), and only 29.8% and 31.5% by land, of which 49.3% and 48.0% are in urban locations, respectively.

The table below provides the breakdown of the financial guarantees given as of June 30, 2017 and December 31, 2016:


	Millions of Euros
Financial guarantees given	June 2017		December 2016
Houses purchase loans		61		62
Without mortgage		16		18

The information on the retail mortgage portfolio risk (housing mortgage) as of June 30, 2017 and December 31, 2016 is as follows:


	Millions of Euros
Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase June 2017	Gross amount		Of which: impaired loans
Houses purchase loans		85,154		5,005
Without mortgage		1,521		38
With mortgage		83,633		4,967

	Millions of Euros
Financing Allocated by credit institutions to Construction and Real Estate Development and lending for house purchase December 2016	Gross amount		Of which: impaired loans
Houses purchase loans		87,874		4,938
With mortgage		1,935		93
Without mortgage		85,939		4,845

A-39

The loan to value (LTV) ratio of the above portfolio is as follows:


	Millions of Euros
	*Total risk over the amount of the last valuation available (Loan To Value-LTV)*
June 2017 LTV Breakdown of mortgage to households for the purchase of a home (Business in Spain)	Less than or equal to 40%		Over 40% but less than or equal to 60%		Over 60% but less than or equal to 80%		Over 80% but less than or equal to 100%		Over 100%		Total
Gross amount		14,301		18,213		20,616		15,107		15,396		83,633
of which: Impaired loans		327		477		781		991		2,391		4,967

	Millions of Euros
	*Total risk over the amount of the last valuation available (Loan To Value-LTV)*
December 2016 LTV Breakdown of mortgage to households for the purchase of a home (Business in Spain)	Less than or equal to 40%		Over 40% but less than or equal to 60%		Over 60% but less than or equal to 80%		Over 80% but less than or equal to 100%		Over 100%		Total
Gross amount		13,780		18,223		20,705		15,967		17,264		85,939
of which: Impaired loans		306		447		747		962		2,383		4,845

The breakdown of foreclosed, acquired, purchased or exchanged assets from debt from loans relating to business in Spain, as well as the holdings and financing to non-consolidated entities holding such assets is as follows:


	Millions of Euros
	June 2017
Information about Assets Received in Payment of Debts (Business in Spain)	Gross Value		Provisions		Of wich: Valuation adjustments on impaired assets, from the time of foreclosure		Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.		7,604		5,068		2,904		2,536

Terminated buildings		2,289		1,220		622		1,069
Homes		1,416		739		364		677
Other		873		481		258		392
Buildings under construction		685		442		232		243
Homes		664		429		226		235
Other		21		13		6		8
Land		4,630		3,406		2,050		1,224
Urbanized land		3,124		2,275		1,376		849
Rest of land		1,506		1,131		674		375

Real estate assets from mortgage financing for households for the purchase of a home		3,857		2,304		1,098		1,553

Rest of foreclosed real estate assets		1,722		889		247		833

Equity instruments, investments and financing to non-consolidated companies holding said assets		1,226		540		442		686

Total		14,409		8,801		4,691		5,608

Additionally, in March 2017, there was an increase of BBVA, S.A.’s stake in Testa Residencial through its contribution to the capital increase carried out by the latter entity by contributing assets from the Bank’s real estate assets. The stake in Testa Residencial as of June 30, 2017 is 33.7%.

A-40


	Millions of Euros
	December 2016
Information about Assets Received in Payment of Debts (Business in Spain)	Gross Value		Provisions		Of wich: Valuation adjustments on impaired assets, from the time of foreclosure		Carrying Amount

Real estate assets from loans to the construction and real estate development sectors in Spain.		8,017		5,290		2,790		2,727

Terminated buildings		2,602		1,346		688		1,256
Homes		1,586		801		408		785
Other		1,016		545		280		471
Buildings under construction		665		429		203		236
Homes		642		414		195		228
Other		23		15		8		8
Land		4,750		3,515		1,899		1,235
Urbanized land		3,240		2,382		1,364		858
Rest of land		1,510		1,133		535		377

Real estate assets from mortgage financing for households for the purchase of a home		4,332		2,588		1,069		1,744

Rest of foreclosed real estate assets		1,856		1,006		225		850

Equity instruments, investments and financing to non-consolidated companies holding said assets		1,240		549		451		691

Total		15,445		9,433		4,535		6,012

As of June 30, 2017 and December 31, 2016, the gross book value of the Group’s real-estate assets from corporate financing of real-estate construction and development was €7,604 and €8,017 million, respectively, with an average coverage ratio of 66.6% and 66.0%, respectively.

The gross book value of real-estate assets from mortgage lending to households for home purchase as of June 30, 2017 and December 31, 2016, amounted to €3,857 and €4,332 million, respectively, with an average coverage ratio of 59.7%.

As of June 30, 2017 and December 31, 2016, the gross book value of the BBVA Group’s total real-estate assets (business in Spain), including other real-estate assets received as debt payment, was €13,183 and €14,205 million, respectively. The coverage ratio was 62.7% and 62.5%, respectively.

A-41

c) Concentration of risk by geography

Below is a breakdown of the balances of financial instruments registered in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. It does not take into account impairment losses or loan-loss provisions:


	Millions of Euros
Risks by Geographical Areas June 2017	Spain		Europe, Excluding Spain		Mexico		USA		Turkey		South America		Other		Total
Derivatives		6,382		22,139		1,805		3,909		159		2,105		1,005		37,505
*Equity instruments ()**		4,470		2,266		2,370		798		43		282		145		10,375
Debt securities		46,008		17,093		24,635		15,822		10,804		7,752		1,705		123,819
Central banks		-		-		-		-		-		3,065		48		3,112
General governments		37,276		12,334		22,199		10,895		9,809		2,724		200		95,437
Credit institutions		1,537		2,300		336		82		911		1,176		906		7,248
Other financial corporations		6,882		1,140		444		3,433		11		336		214		12,461
Non-financial corporations		314		1,319		1,657		1,411		72		451		339		5,563
Loans and advances		184,703		40,942		57,766		55,735		63,522		54,057		5,855		462,580
Central banks		-		37		79		-		8,570		2,455		-		11,142
General governments		20,416		476		7,108		4,467		182		1,244		290		34,183
Credit institutions		4,528		13,989		3,173		1,560		1,198		1,440		1,081		26,969
Other financial corporations		4,532		6,858		1,629		1,416		1,429		605		319		16,788
Non-financial corporations		53,708		15,295		21,131		30,616		34,652		24,181		3,875		183,458
Households		101,519		4,287		24,646		17,677		17,491		24,132		289		190,041
Total Risk in Financial Assets		241,563		82,441		86,576		76,264		74,528		64,197		8,711		634,280
Loan commitments given		31,848		18,221		2,164		30,945		3,106		5,068		832		92,184
Financial guarantees given		2,969		1,767		111		752		8,937		1,182		645		16,363
Other Commitments given		15,882		15,762		1,609		2,247		1,451		3,801		2,038		42,790
Off-balance sheet exposures		50,699		35,750		3,884		33,944		13,494		10,051		3,515		151,337

Total Risks in Financial Instruments		292,262		118,192		90,460		110,208		88,021		74,248		12,226		785,617

(*)

Equity instruments are shown net of valuation adjustment.

A-42


	Millions of Euros
Risks by Geographical Areas December 2016	Spain		Europe, Excluding Spain		Mexico		USA		Turkey		South America		Other		Total
Derivatives		7,143		26,176		2,719		4,045		175		1,359		1,339		42,955
*Equity instruments ()**		4,641		2,303		2,383		831		57		316		706		11,236
Debt securities		49,355		20,325		22,380		18,043		11,695		7,262		1,923		130,983
Central banks		-		-		-		-		-		2,237		16		2,253
General governments		40,172		14,282		19,771		11,446		10,258		2,257		240		98,426
Credit institutions		1,781		2,465		257		112		1,331		1,459		869		8,275
Other financial corporations		6,959		1,181		352		4,142		15		347		379		13,376
Non-financial corporations		443		2,397		2,000		2,343		90		961		418		8,653
Loans and advances		187,717		45,075		52,230		61,739		61,090		58,020		5,067		470,938
Central banks		-		158		21		-		5,722		2,994		-		8,894
General governments		20,741		424		7,262		4,593		217		1,380		256		34,873
Credit institutions		5,225		19,154		1,967		1,351		1,194		1,515		1,011		31,416
Other financial corporations		5,339		6,213		1,171		1,648		1,620		886		214		17,091
Non-financial corporations		54,112		14,818		19,256		34,330		34,471		26,024		3,371		186,384
Households		102,299		4,308		22,552		19,818		17,866		25,221		216		192,281
Total Risk in Financial Assets		248,856		93,880		79,712		84,657		73,016		66,956		9,036		656,112
Loan commitments given		31,477		19,219		13,060		34,449		2,912		5,161		976		107,254
Financial guarantees given		1,853		3,504		121		819		9,184		2,072		714		18,267
Other Commitments given		16,610		14,154		1,364		2,911		2,002		3,779		1,771		42,592
Off-balance sheet exposures		49,940		36,878		14,545		38,179		14,098		11,012		3,461		168,113

Total Risks in Financial Instruments		298,796		130,757		94,257		122,836		87,114		77,968		12,497		824,225

(*)

Equity instruments are shown net of valuation adjustment.

The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix VII.

A-43

The breakdown of loans and advances in the heading of Loans and receivables, impaired by geographical area as of June 30, 2017 and December 31, 2016 is as follows:


	Millions of Euros
Impaired Financial Assets by geographic area	June 2017		December 2016
Spain		15,832		16,812
Rest of Europe		633		704
Mexico		1,270		1,152
South America		1,781		1,589
The United States		716		975
Turkey		1,509		1,693
Rest of the world		-		-
IMPAIRED RISKS		21,740		22,925

A-44

Glossary


Additional Tier 1 Capital		Includes: Preferred stock and convertible perpetual securities and deductions.

Adjusted acquisition cost		The acquisition cost of the securities less accumulated amortizations, plus interest accrued, but not net of any other valuation adjustments.

Amortized cost		The amortized cost of a financial asset is the amount at which it was measured at initial recognition minus principal repayments, plus or minus, as warranted, the cumulative amount taken to profit or loss using the effective interest rate method of any difference between the initial amount and the maturity amount, and minus any reduction for impairment or change in measured value.

Associates		Companies in which the Group has a significant influence, without having control. Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly.

Available-for-sale financial assets		Available-for-sale (AFS) financial assets are debt securities that are not classified as held-to-maturity investments or as financial assets designated at fair value through profit or loss (FVTPL) and equity instruments that are not subsidiaries, associates or jointly controlled entities and have not been designated as at FVTPL.

Basic earnings per share		Calculated by dividing “Profit attributable to Parent Company” corresponding to ordinary shareholders of the entity by the weighted average number of shares outstanding throughout the year (i.e., excluding the average number of treasury shares held over the year).

Basis risk		Risk arising from hedging exposure to one interest rate with exposure to a rate that reprices under slightly different conditions.

Business combination		A business combination is a transaction, or any other event, through which a single entity obtains the control of one or more businesses.

Cash flow hedges		Those that hedge the exposure to variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.
Commissions		Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are: · Fees and commissions relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected. · Fees and commissions arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services. · Fees and commissions generated by a single act are accrued upon execution of that act.

G-1


Consolidated statements of cash flows		The indirect method has been used for the preparation of the consolidated statement of cash flows. This method starts from the entity’s consolidated profit and adjusts its amount for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with cash flows classified as investment or finance. As well as cash, short-term, highly liquid investments subject to a low risk of changes in value, such as cash and deposits in central banks, are classified as cash and equivalents. When preparing these financial statements the following definitions have been used: · Cash flows: Inflows and outflows of cash and equivalents. · Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investment or financing activities. · Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents or in operating activities. · Financing activities: Activities that result in changes in the size and composition of the Group’s equity and of liabilities that do not form part of operating activities.
Consolidated statements of changes in equity		The consolidated statements of changes in equity reflect all the movements generated in each year in each of the headings of the consolidated equity, including those from transactions undertaken with shareholders when they act as such, and those due to changes in accounting criteria or corrections of errors, if any. The applicable regulations establish that certain categories of assets and liabilities are recognized at their fair value with a charge to equity. These charges, known as “Valuation adjustments” (see Note 31), are included in the Group’s total consolidated equity net of tax effect, which has been recognized as deferred tax assets or liabilities, as appropriate.
Consolidated statements of recognized income and expenses		The consolidated statements of recognized income and expenses reflect the income and expenses generated each year. Such statement distinguishes between income and expenses recognized in the consolidated income statements and “Other recognized income (expenses)” recognized directly in consolidated equity. “Other recognized income (expenses)” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item. The sum of the changes to the heading “Other comprehensive income “ of the consolidated total equity and the consolidated profit for the year comprise the “Total recognized income/expenses of the year”.
Consolidation method		Method used for the consolidation of the accounts of the Group’s subsidiaries. The assets and liabilities of the Group entities are incorporated line-by-line on the consolidate balance sheets, after conciliation and the elimination in full of intragroup balances, including amounts payable and receivable. Group entity income statement income and expense headings are similarly combined line by line into the consolidated income statement, having made the following consolidation eliminations: a) income and expenses in respect of intragroup transactions are eliminated in full. b) profits and losses resulting from intragroup transactions are similarly eliminated. The carrying amount of the parent’s investment and the parent’s share of equity in each subsidiary are eliminated.
Contingencies		Current obligations of the entity arising as a result of past events whose existence depends on the occurrence or non-occurrence of one or more future events independent of the will of the entity.

G-2


Contingent commitments		Possible obligations of the entity that arise from past events and whose existence depends on the occurrence or non-occurrence of one or more future events independent of the entity’s will and that could lead to the recognition of financial assets.
Control		An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An investor controls an investee if and only if the investor has all the following: a) Power; An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns. b) Returns; An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative. c) Link between power and returns; An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.
Correlation risk		Correlation risk is related to derivatives whose final value depends on the performance of more than one underlying asset (primarily, stock baskets) and indicates the existing variability in the correlations between each pair of assets.
Credit Valuation Adjustment (CVA)		An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties.
Current service cost		Current service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the current period.
Current tax assets		Taxes recoverable over the next twelve months.
Current tax liabilities		Corporate income tax payable on taxable profit for the year and other taxes payable in the next twelve months.
Debit Valuation Adjustment (DVA)		An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s own credit risk.
Debt certificates		Obligations and other interest-bearing securities that create or evidence a debt on the part of their issuer, including debt securities issued for trading among an open group of investors, that accrue interest, implied or explicit, whose rate, fixed or benchmarked to other rates, is established contractually, and take the form of securities or book-entries, irrespective of the issuer.
Deferred tax assets		Taxes recoverable in future years, including loss carry forwards or tax credits for deductions and tax rebates pending application.
Deferred tax liabilities		Income taxes payable in subsequent years.
Defined benefit plans		Post-employment obligation under which the entity, directly or indirectly via the plan, retains the contractual or implicit obligation to pay remuneration directly to employees when required or to pay additional amounts if the insurer, or other entity required to pay, does not cover all the benefits relating to the services rendered by the employees when insurance policies do not cover all of the corresponding post-employees benefits.

G-3


Defined contribution plans		Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon. The employer’s obligations in respect of its employees current and prior years’ employment service are discharged by contributions to the fund.
Deposits from central banks		Deposits of all classes, including loans and money market operations, received from the Bank of Spain and other central banks.
Deposits from credit institutions		Deposits of all classes, including loans and money market operations received, from credit entities.
Deposits from customers		Redeemable cash balances received by the entity, with the exception of debt certificates, money market operations through counterparties and subordinated liabilities, which are not received from either central banks or credit entities. This category also includes cash deposits and consignments received that can be readily withdrawn.
Derivatives		The fair value in favor (assets) or again (liabilities) of the entity of derivatives not designated as accounting hedges.
Derivatives - Hedging derivatives		Derivatives designated as hedging instruments in an accounting hedge. The fair value or future cash flows of those derivatives is expected to offset the differences in the fair value or cash flows of the items hedged.
Diluted earnings per share		Calculated by using a method similar to that used to calculate basic earnings per share; the weighted average number of shares outstanding, and the profit attributable to the parent company corresponding to ordinary shareholders of the entity, if appropriate, is adjusted to take into account the potential dilutive effect of certain financial instruments that could generate the issue of new Bank shares (share option commitments with employees, warrants on parent company shares, convertible debt instruments, etc.).
Dividends and retributions		Dividend income collected announced during the year, corresponding to profits generated by investees after the acquisition of the stake.
Early retirements		Employees that no longer render their services to the entity but which, without being legally retired, remain entitled to make economic claims on the entity until they formally retire.
Economic capital		Methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities.
Effective interest rate		Discount rate that exactly equals the value of a financial instrument with the cash flows estimated over the expected life of the instrument based on its contractual period as well as its anticipated amortization, but without taking the future losses of credit risk into consideration.
Employee expenses		All compensation accrued during the year in respect of personnel on the payroll, under permanent or temporary contracts, irrespective of their jobs or functions, irrespective of the concept, including the current costs of servicing pension plans, own share based compensation schemes and capitalized personnel expenses. Amounts reimbursed by the state Social Security or other welfare entities in respect of employee illness are deducted from personnel expenses.
Equity		The residual interest in an entity’s assets after deducting its liabilities. It includes owner or venturer contributions to the entity, at incorporation and subsequently, unless they meet the definition of liabilities, and accumulated net profits or losses, fair value adjustments affecting equity and, if warranted, non-controlling interests.
Equity instruments		An equity instrument that evidences a residual interest in the assets of an entity, that is after deducting all of its liabilities.

G-4


Equity instruments issued other than capital		Includes equity instruments that are financial instruments other than “Capital” and “Equity component of compound financial instruments”.
Equity Method		Is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income.
Exchange/translation differences		Exchange differences (P&L): Includes the earnings obtained in currency trading and the differences arising on translating monetary items denominated in foreign currency to the functional currency. Exchange differences (valuation adjustments): those recorded due to the translation of the financial statements in foreign currency to the functional currency of the Group and others recorded against equity.
Exposure at default		EAD is the amount of risk exposure at the date of default by the counterparty.
Fair value		The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Fair value hedges		Derivatives that hedge the exposure to changes in the fair value of assets and liabilities or firm commitments that have not be recognized, or of an identified portion of said assets, liabilities or firm commitments, attributable to a specific risk, provided it could affect the income statement.
Financial guarantees		Contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs when a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of deposits, technical or financial guarantees, insurance contracts or credit derivatives.
Financial guarantees given		Transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts.
Financial instrument		A financial instrument is any contract that gives rise to a financial asset of one entity and to a financial liability or equity instrument of another entity.
Financial liabilities at amortized cost		Financial liabilities that do not meet the definition of financial liabilities designated at fair value through profit or loss and arise from the financial entities’ ordinary activities to capture funds, regardless of their instrumentation or maturity.
Goodwill		Goodwill acquired in a business combination represents a payment made by the acquirer in anticipation of future economic benefits from assets that are not able to be individually identified and separately recognized.
Gross income		Sum of net interest income, dividend income, share of profit or loss entities accounted for using the equity method, net fee and commission income, net gains and losses on financial assets and liabilities, net exchange differences and net other operating income.
Hedges of net investments in foreign operations		Foreign currency hedge of a net investment in a foreign operation.
Held for trading (assets and liabilities)		Financial assets and liabilities acquired or incurred primarily for the purpose of profiting from variations in their prices in the short term. This category also includes financial derivatives not qualifying for hedge accounting, and in the case of borrowed securities, financial liabilities originated by the firm sale of financial assets acquired under repurchase agreements or received on loan (“short positions”).

G-5


Held-to-maturity investments		Held-to-maturity investments are financial assets traded on an active market, with fixed maturity and fixed or determinable payments and cash flows that an entity has the positive intention and financial ability to hold to maturity.
Impaired financial assets		A financial asset is deemed impaired, and accordingly restated to fair value, when there is objective evidence of impairment as a result of one or more events that give rise to: a) A measurable decrease in the estimated future cash flows since the initial recognition of those assets in the case of debt instruments (loans and receivables and debt securities). b) A significant or prolonged drop in fair value below cost in the case of equity instruments.
Income from equity instruments		Dividends and income on equity instruments collected or announced during the year corresponding to profits generated by investees after the ownership interest is acquired. Income is recognized gross, i.e., without deducting any withholdings made, if any.
Insurance contracts linked to pensions		The fair value of insurance contracts written to cover pension commitments.
Inventories		Assets, other than financial instruments, under production, construction or development, held for sale during the normal course of business, or to be consumed in the production process or during the rendering of services. Inventories include land and other properties held for sale at the real estate development business.
Investment properties		Investment property is property (land or a building–or part of a building–or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for own use or sale in the ordinary course of business.
Joint arrangement		An arrangement of which two or more parties have joint control.
Joint control		The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
Joint operation		A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets of the arrangement and obligations for the liabilities. A joint venturer shall recognize the following for its participation in a joint operation: a) its assets, including any share of the assets of joint ownership; b) its liabilities, including any share of the liabilities incurred jointly; c) income from the sale of its share of production from the joint venture; d) its share of the proceeds from the sale of production from the joint venturer; and e) its expenses, including any share of the joint expenses. A joint venturer shall account for the assets, liabilities, income and expenses related to its participation in a joint operation in accordance with IFRS applicable to the assets, liabilities, income and expenses specific question.
Joint venture		A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.

G-6



Leases		A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time, a stream of cash flows that is essentially equivalent to the combination of principal and interest payments under a loan agreement. a) A lease is classified as a finance lease when it substantially transfers all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. b) A lease will be classified as operating lease when it is not a financial lease.

Liabilities included in disposal groups classified as held for sale		The balance of liabilities directly associated with assets classified as non-current assets held for sale, including those recognized under liabilities in the entity’s balance sheet at the balance sheet date corresponding to discontinued operations.

Liabilities under insurance contracts		The technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at period-end.

Loans and advances to customers		Loans and receivables, irrespective of their type, granted to third parties that are not credit entities.

Loans and receivables		Financial instruments with determined or determinable cash flows and in which the entire payment made by the entity will be recovered, except for reasons attributable to the solvency of the debtor. This category includes both the investments from the typical lending activity (amounts of cash available and pending maturity by customers as a loan or deposits lent to other entities, and unlisted debt certificates), as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors.
Loss given default (LGD)		It is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.
Mortgage-covered bonds		Financial asset or security created from mortgage loans and backed by the guarantee of the mortgage loan portfolio of the entity.

Net operating income		Gross income less administrative costs and amortization.

Non performing financial guarantees given		The balance of non performing risks, whether for reasons of default by customers or for other reasons, for financial guarantees given. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.

Non Performing Loans (NPL)		The balance of non performing risks, whether for reasons of default by customers or for other reasons, for exposures on balance loans to customers. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.

Non-controlling interests		The net amount of the profit or loss and net assets of a subsidiary attributable to associates outside the group (that is, the amount that is not owned, directly or indirectly, by the parent), including that amount in the corresponding part of the consolidated earnings for the period.

Non-current assets and disposal groups held for sale		A non-current asset or disposal group, whose carrying amount is expected to be realized through a sale transaction, rather than through continuing use, and which meets the following requirements: a) it is immediately available for sale in its present condition at the balance sheet date, i.e. only normal procedures are required for the sale of the asset. b) the sale is considered highly probable.

G-7


Non-monetary assets		Assets and liabilities that do not provide any right to receive or deliver a determined or determinable amount of monetary units, such as tangible and intangible assets, goodwill and ordinary shares subordinate to all other classes of capital instruments.
Option risk		Risks arising from options, including embedded options.

Other financial assets/liabilities at fair value through profit or loss		Instruments designated by the entity from the inception at fair value with changes in profit or loss. An entity may only designate a financial instrument at fair value through profit or loss, if doing so more relevant information is obtained, because: a) It eliminates or significantly reduces a measurement or recognition inconsistency (sometimes called “accounting mismatch”) that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. It might be acceptable to designate only some of a number of similar financial assets or financial liabilities if doing so a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency is achieved. b) The performance of a group of financial assets or financial liabilities is managed and evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity´s key management personnel. These are financial assets managed jointly with “Liabilities under insurance contracts” measured at fair value, in combination with derivatives written with a view to significantly mitigating exposure to changes in these contracts’ fair value, or in combination with financial liabilities and derivatives designed to significantly reduce global exposure to interest rate risk. These headings include customer loans and deposits effected via so-called unit-linked life insurance contracts, in which the policyholder assumes the investment risk.

Other Reserves		This heading is broken down as follows: i) Reserves or accumulated losses of investments in subsidiaries, joint ventures and associate: include the accumulated amount of income and expenses generated by the aforementioned investments through profit or loss in past years. ii) Other: includes reserves different from those separately disclosed in other items and may include legal reserve and statutory reserve.

Other retributions to employees long term		Includes the amount of compensation plans to employees long term.

Own/treasury shares		The amount of own equity instruments held by the entity.

Past service cost		It is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits.
Post-employment benefits		Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service.
Probability of default (PD)		It is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.

Property, plant and equipment/tangible assets		Buildings, land, fixtures, vehicles, computer equipment and other facilities owned by the entity or acquired under finance leases.

G-8



Provisions		Provisions include amounts recognized to cover the Group’s current obligations arising as a result of past events, certain in terms of nature but uncertain in terms of amount and/or cancellation date.

Provisions for contingent liabilities and commitments		Provisions recorded to cover exposures arising as a result of transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts, and provisions for contingent commitments, i.e., irrevocable commitments which may arise upon recognition of financial assets.

Provisions for pensions and similar obligation		Constitutes all provisions recognized to cover retirement benefits, including commitments assumed vis-à-vis beneficiaries of early retirement and analogous schemes.

Provisions or (-) reversal of provisions		Provisions recognized during the year, net of recoveries on amounts provisioned in prior years, with the exception of provisions for pensions and contributions to pension funds which constitute current or interest expense.

Refinanced Operation		An operation which is totally or partially brought up to date with its payments as a result of a refinancing operation made by the entity itself or by another company in its group.

Refinancing Operation		An operation which, irrespective of the holder or guarantees involved, is granted or used for financial or legal reasons related to current or foreseeable financial difficulties that the holder(s) may have in settling one or more operations granted by the entity itself or by other companies in its group to the holder(s) or to another company or companies of its group, or through which such operations are totally or partially brought up to date with their payments, in order to enable the holders of the settled or refinanced operations to pay off their loans (principal and interest) because they are unable, or are expected to be unable, to meet the conditions in a timely and appropriate manner.

Renegotiated Operation		An operation whose financial conditions are modified when the borrower is not experiencing financial difficulties, and is not expected to experience them in the future, i.e. the conditions are modified for reasons other than restructuring.

Repricing risk		Risks related to the timing mismatch in the maturity and repricing of assets and liabilities and off-balance sheet short and long-term positions.

Restructured Operation		An operation whose financial conditions are modified for economic or legal reasons related to the holder’s (or holders’) current or foreseeable financial difficulties, in order to enable payment of the loan (principal and interest), because the holder is unable, or is expected to be unable, to meet those conditions in a timely and appropriate manner, even if such modification is provided for in the contract. In any event, the following are considered restructured operations: operations in which a haircut is made or assets are received in order to reduce the loan, or in which their conditions are modified in order to extend their maturity, change the amortization table in order to reduce the amount of the installments in the short term or reduce their frequency, or to establish or extend the grace period for the principal, the interest or both; except when it can be proved that the conditions are modified for reasons other than the financial difficulties of the holders and, are similar to those applied on the market on the modification date for operations granted to customers with a similar risk profile.

Retained earnings		Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution.

Securitization fund		A fund that is configured as a separate equity and administered by a management company. An entity that would like funding sells certain assets to the securitization fund, which, in turn, issues securities backed by said assets.

G-9



Share premium		The amount paid in by owners for issued equity at a premium to the shares’ nominal value.

Shareholders’ funds		Contributions by stockholders, accumulated earnings recognized in the income statement and the equity components of compound financial instruments.

Short positions		Financial liabilities arising as a result of the final sale of financial assets acquired under repurchase agreements or received on loan.

Significant influence		Is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. If an entity holds, directly or indirectly (i.e. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (i.e. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. The existence of significant influence by an entity is usually evidenced in one or more of the following ways: a) representation on the board of directors or equivalent governing body of the investee; b) participation in policy-making processes, including participation in decisions about dividends or other distributions; c) material transactions between the entity and its investee; d) interchange of managerial personnel; or e) provision of essential technical information.

Structured credit products		Special financial instrument backed by other instruments building a subordination structure.

Structured Entities		A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes: a) restricted activities. b) a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors y passing on risks and rewards associated with the assets of the structured entity to investors. c) insufficient equity to permit the structured entity to finance its activities without subordinated financial support. d) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).

Subordinated liabilities		Financing received, regardless of its instrumentation, which ranks after the common creditors in the event of a liquidation.

G-10



Subsidiaries		Companies over which the Group exercises control. An entity is presumed to have control over another when it possesses the right to oversee its financial and operational policies, through a legal, statutory or contractual procedure, in order to obtain benefits from its economic activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one half of an entity’s voting power, unless, exceptionally, it can be clearly demonstrated that ownership of more than one half of an entity’s voting rights does not constitute control of it. Control also exists when the parent owns half or less of the voting power of an entity when there is: a) an agreement that gives the parent the right to control the votes of other shareholders; b) power to govern the financial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body; c) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.

Tax liabilities		All tax related liabilities except for provisions for taxes.

Territorial bonds		Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity.

Tier 1 Capital		Mainly includes: Common stock, parent company reserves, reserves in consolidated companies, non-controlling interests, deductions and others and attributed net income.

Tier 2 Capital		Mainly includes: Subordinated, preferred shares and non- controlling interest.

Unit-link		This is life insurance in which the policyholder assumes the risk. In these policies, the funds for the technical insurance provisions are invested in the name of and on behalf of the policyholder in shares of Collective Investment Institutions and other financial assets chosen by the policyholder, who bears the investment risk.

Value at Risk (VaR)		Value at Risk (VaR) is the basic variable for measuring and controlling the Group’s market risk. This risk metric estimates the maximum loss that may occur in a portfolio’s market positions for a particular time horizon and given confidence level VaR figures are estimated following two methodologies: a) VaR without smoothing, which awards equal weight to the daily information for the immediately preceding last two years. This is currently the official methodology for measuring market risks vis-à-vis limits compliance of the risk. b) VaR with smoothing, which weights more recent market information more heavily. This is a metric which supplements the previous one. VaR with smoothing adapts itself more swiftly to the changes in financial market conditions, whereas VaR without smoothing is, in general, a more stable metric that will tend to exceed VaR with smoothing when the markets show less volatile trends, while it will tend to be lower when they present upturns in uncertainty.

Yield curve risk		Risks arising from changes in the slope and the shape of the yield curve.

G-11

SIGNATURES

Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.


BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

By:		/s/ RICARDO GOMEZ BARREDO
Name:		RICARDO GOMEZ BARREDO

Title:		Global Head of Accounting and Supervisors

Date: September 25, 2017