Results (pages 4-8)

 

 

 

•

Incorporation of Catalunya Banc (hereinafter Cx) from April 24, although this has had a practically neutral effect on the net attributable profit for the quarter.

 

•

Positive trend in revenue items: good performance of the most recurring items, payment of the Telefónica dividend and capital gains in net trading income (NTI) from the sales in the securities portfolio.

 

•

Operating expenses grow below gross income. Efficiency continues to improve.

 

•

Impairment losses on financial assets slightly below those in the previous quarter.

 

•

Sale on the stock market of 0.8% of China Citic Bank (CNCB) in the quarter, generating net gains after tax of €122m.

Balance sheet and business activity (pages 9-10)

 

 

 

•

Figures affected by the incorporation of Cx.

 

•

Excluding this effect, growing trend in gross customer lending and customer funds, with a reduction of NPA risks.

Solvency (page 11)

 

 

 

•

Sound capital position (fully-loaded CET1 ratio of 10.4% at the close of June 2015), clearly above regulatory requirements, and with an extraordinary quality (the fully-loaded leverage ratio was 5.9% on the same date).

 

•

Moody’s has upgraded its ratings for unsecured senior debt issued by BBVA (to Baa1) and for deposits (to A3), both with a stable outlook.

Risk management (pages 12-13)

 

 

 

•

Good performance in the main asset quality indicators on a comparable scale.

 

•

The incorporation of Cx increases the NPA ratio due to higher levels of non-performing loans, but the coverage ratio has increased.

The BBVA share (page 14)

 

 

 

•

Distribution to shareholders on July 16, 2015 of a cash amount for 8 cents of euro gross per share.

Business areas (starting on page 16)

 

 

 

•

The purchase of Cx was completed on April 24. With this operation, BBVA has acquired 1.5 million customers, doubled its market share in Catalonia and become the most important player in Spain.

 

•

BBVA has completed the acquisition of 14.89% stake in the share capital of Turkiye Garanti Bankasi, A.S. (Garanti Bank). The effects of this purchase are stated in the relevant event published on July 27th.

Other matters of interest

 

 

 

•

The Board of Directors has appointed Carlos Torres Vila as President and COO. It has also approved an organizational structure whose top priority is to boost the business and continue to grow profitably, increasing the number of customers with the focus on their satisfaction. To gain market share, customers and business, BBVA is committed to investing in new capabilities associated with customer experience, big data, technology and engineering, marketing and digital sales, and talent and new digital businesses.

 

•

BBVA has drawn up a new Code of Conduct to adapt to social, technological and regulatory changes. It strengthens the Bank’s commitment to its customers, employees and society as a whole.

 

 

BBVA Group has generated a half-yearly net attributable profit of €2,759m. As already mentioned above, these earnings include those generated by Cx, whose effect is practically neutral at the level of net attributable profit.

Gross income

Net interest income increased year-on-year in the first six months thanks to increased activity in emerging countries and the United States and the reduction in the cost of deposits in Spain and Turkey.

Good performance of accumulated net fees and commissions in the half-year, despite the regulatory limitations that came into force recently in some countries. Overall, another positive performance from the more recurring revenue (net interest income plus net fees and commissions) through June 30.

 

 

Quarterly NTI was below the figure reported for the first quarter, basically due to lower capital gains from portfolio sales. However, the cumulative half-yearly total is higher than in the same period of 2014 due mainly to the positive evolution of the Global Markets unit so far this year.

The dividends item basically includes the payment by Telefónica in May.

As a result of the above, the Group’s gross income for the first half of the year grew by 11.4% in year-on-year terms (up 10.7% at constant exchange rates) to €11,554m.

 

Operating income

Operating expenses continue to be affected by the efforts to keep them in check in Spain, the Rest of Eurasia, and the

Corporate Center, as opposed to their growth in the rest of geographical areas, due to the year-on-year general appreciation of foreign currencies against the euro (though they depreciated over the quarter), and the high inflation in some countries. The

 

transformation plans the Group is undertaking in all its units also continue to affect costs. These programs are aimed at boosting alternative sales channels. Thanks to these programs, BBVA is already the leading financial institution in terms of customer satisfaction in Spain, both in mobile banking and online banking, according to the FRS ranking.

There was further improvement in the efficiency ratio (to 49.5% from 50.9% in the first half of 2014), thanks to the strength of revenue lines and control of overall costs, which boosted operating income over the half-year to €5,836m, 14.6% more than in the same period in 2014.

 

 

Provisions and other

Impairment losses on financial assets in the second quarter were slightly below the figure for the previous quarter. By areas, there was a fall in the Eurozone and a limited increase in the rest of the geographical areas very much in line with the increase in activity. Overall, the figure for the half-year is up 1.5% on the same period in 2014.

Transfers to provisions, which include the cost of the transformation plans, provisions for contingent liabilities and other

commitments, as well as contributions to pension funds, total €394m in the half year (down 11.1% year-on-year).

Other earnings performed well over the half year, largely due to lower impairment losses on real-estate activity and foreclosed or acquired assets in Spain.

Profit

As a result of the above, net income from ongoing operations in the first half of 2015 grew year-on-year by 44.5%.

 

The results from corporate operations line includes the capital gains over the half year (€705m net of taxes) from various sale operations equivalent to 6.34% of BBVA Group’s stake in CNCB (of which 0.8% happened in the second quarter) and the credit of €22m, also net of taxes, for the badwill generated in the Cx deal.

As a result, the net attributable profit in the second quarter was €1,223m. The cumulative total for the first six months is €2,759m, a figure that is more than double that of the same period in 2014.

 

By business area, banking activity in Spain has contributed €809m, real-estate activity in Spain generated a loss of €300m, the United States contributed €286m, Turkey €174m, Mexico €1,041m, South America €474m (€465m without Venezuela) and the Rest of Eurasia €43m.

BBVA Group excluding Venezuela

For a more uniform comparison (due to the exchange-rate impact), below is the Group’s income statement excluding Venezuela.

 

The BBVA Group’s business activity and balance sheet as of 30-Jun-2015 include the balances from Cx. Not including these, the observed trends are as follows:

 

•

General depreciation of exchange rates against the euro over the quarter.

 

•

Growth in gross lending to customers (up 7.3% since December 2014 at current exchange rates). In Spain, apart from the incorporation of Cx, more new loans have been granted, basically in the retail segment (mortgages, consumer finance and small businesses). At the close of the previous

year, 1.1 million households are being financed by BBVA in Spain. Also worth noting is the positive trend in funding for SMEs, particularly in Mexico and South America. Of note in this respect is the SME support program “Camino al Éxito” (Road to Success), which was launched in South America at the end of March 2015.

 

•

Increase in customer deposits in all the areas, in line with previous quarters (up 9.9% year to date also at current exchange rates). In Spain, not including the Cx figures, the decline in the balance of time deposits moderated in the quarter, while current and savings accounts continue to grow.

 

 

Loans and advances to customers

(Million euros)

 

		30-06-15				D%				30-06-14				31-03-15				31-12-14
Domestic sector			181,356				8.1				167,789				160,938				162,652
Public sector			22,998				(2.7	)			23,637				23,106				23,362
Other domestic sectors			158,358				9.9				144,152				137,832				139,290
Secured loans			100,443				11.3				90,270				86,144				87,371
Other loans			57,915				7.5				53,881				51,688				51,920
Non-domestic sector			186,036				14.9				161,858				191,148				180,719
Secured loans			78,147				18.1				66,158				79,500				72,836
Other loans			107,889				12.7				95,701				111,648				107,883
Non-performing loans			25,766				4.9				24,554				22,787				23,164
Domestic sector			21,142				6.9				19,769				18,058				18,563
Non-domestic sector			4,624				(3.4	)			4,785				4,729				4,601
Loans and advances to customers (gross)			393,158				11.0				354,202				374,873				366,536
Loan-loss provisions			(18,271	)			20.7				(15,139	)			(14,607	)			(14,7.81	)
Loans and advances to customers			374,888				10.6				339,063				360,265				351,755

 

 

Customer funds

(Million euros)

 

		30-06-15				D%				30-06-14				31-03-15				31-12-14
Deposits from customers			363,373				13.3				320,796				339,675				330,686
Domestic sector			178,581				15.8				154,244				150,512				145,251
Public sector			17,851				10.4				16,176				13,142				10,651
Other domestic sectors			160,729				16.4				138,069				137,370				134,600
Current and savings accounts			73,247				27.9				57,278				62,783				59,509
Time deposits			70,270				5.3				66,744				56,571				60,783
Assets sold under repurchase agreement and other			17,213				22.5				14,047				18,016				14,308
Non-domestic sector			184,792				11.0				166,552				189,163				185,435
Current and savings accounts			108,784				7.2				101,493				113,399				113,795
Time deposits			68,197				25.1				54,504				69,107				62,705
Assets sold under repurchase agreement and other			7,811				(26.0	)			10,555				6,657				8,935
Other customer funds			128,323				17.9				108,841				127,364				115,275
Spain			78,789				19.7				65,799				74,824				69,943
Mutual funds			32,892				27.7				25,752				30,743				28,695
Pension funds			23,106				8.2				21,364				22,595				21,880
Customer portfolios			22,791				22.0				18,683				21,485				19,368
Rest of the world			49,534				15.1				43,042				52,540				45,332
Mutual funds and investment companies			26,125				13.4				23,046				26,798				24,087
Pension funds			6,283				37.2				4,580				6,349				5,484
Customer portfolios			17,126				11.1				15,416				19,394				15,761
Total customer funds			491,695				14.4				429,637				467,039				445,961

 

•

The increase in non-performing loans in the quarter is due basically to the incorporation of those from Cx. Not including these, the positive trend seen in previous quarters has been maintained.

 

•

Off-balance-sheet funds continue to perform very favorably, above all in Spain, although they have also increased in the other geographical areas.

 

•

Lastly, the use of digital channels continues to increase. At the close of the first half of the year, the Group had 13.5 million digital customers (including Garanti’s), with year-on-year growth of 20.6%. Of these, 7.0 million access these channels from mobile devices.

 

 

Capital base

BBVA ended the first half of 2015 with comfortable capital levels clearly above the minimum regulatory requirements, and a leverage ratio (fully-loaded) that continues to compare very favorably with the rest of its peer group. The highlights in the period, apart from the incorporation of Cx, were the following:

 

•

New “dividend option” program in April for 13 cents of euro gross per share, which was highly successful: 90.3% of shareholders chose to receive bonus BBVA shares, which resulted in the issue of 80,314,074 new ordinary shares, totaling a share capital increase with a nominal value of €39,353,896.26.

 

•

Distribution to shareholders on July 16th of a cash amount of 8 cents of euro gross per share, which has involved a disbursement of €504.4m.

 

•

Issue of subordinated debt by BBVA Compass and BBVA Colombia for USD 700 million and USD 400 million, respectively.

 

•

Exercise of the early repayment option for eight issues of preferred debt and eight subordinated debt issues subject to grandfathering.

 

•

Lastly, increase in risk weighted assets –RWA– (up 1.6% in the quarter and up 0.6% over the year). During the quarter, impacts such as increased lending activity outside Spain and the incorporation of Cx have been offset by the general depreciation of currencies, as well as by the sale of BBVA Group’s stake in CNCB and the switch to advanced models of the portfolios from Unnim.

 

•

These factors, together with the other impacts of CET1 (organic growth and declines due to exchange rates), bring the phased-in core capital ratio to 12.3% (10.4% fully-loaded).

 

•

BBVA Group continues to maintain a high leverage ratio (6.2% using phased-in criterion).

Ratings

After the publication by Moody’s of the new bank rating methodology on March 16, the agency has upgraded by one notch the rating for the senior unsecured debt issued by BBVA from Baa2 to Baa1, with a stable outlook (1 notch above Spain’s sovereign rating), and the rating for BBVA’s deposits by two notches, from Baa2 to A3, also with a stable outlook, as was anticipated in the first quarter.

 

 

Ratings

 

Long term

Short term

Outlook

DBRS

A

R-1 (low)

Stable

Fitch

A–

F-2

Stable

Moody’s

Baa1

P-2

Stable

Scope Ratings

A

S-1

Stable

Standard & Poor’s

BBB

A-2

Stable

 

Credit risk

In the first half of 2015 the main variables related to the Group’s credit risk management have been positive. The increase in credit risk and non-performing loans, as well as the performance of the main risk indicators, have been affected by the incorporation of Cx. On a comparable basis, the general tone remains positive.

 

•

The Group’s credit risk has increased by 4.2% in the quarter (down 1.9% excluding Cx) and 6.7% in the semester.

 

•

Non-performing loans amount to €26,369m. Excluding those from Cx, this heading declined 3.1% in the quarter to €22,476m, mainly from the business in Spain and Europe.

 

•

26.0% increase in loan-loss provisions since the end of March and 24.8% since the end of 2014. Not including Cx, there was a 2.4% decline since 31-Mar-2015.

 

•

As a result, the NPA and coverage ratios are up in the quarter. On a uniform basis, the trend in the NPA and coverage ratios is favorable, since the NPA ratio fell by 7 basis points, while the coverage ratio increased 0.4 percentage points against the close of March.

 

•

Lastly, improvement in the cost of risk (1.16% accumulated to June 2015, compared with 1.21% in the previous quarter).

Structural risks

Liquidity and funding

Management of liquidity and funding aims to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance.

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

In the second quarter of 2015, the liquidity conditions have remained comfortable across BBVA’s global footprint:

 

•

The fourth TLTRO auction was held in June, at which BBVA borrowed €4,000m.

 

•

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

 

•

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

 

•

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

Foreign exchange

Foreign-exchange risk management of BBVA’s long-term

investments, basically stemming from its franchises abroad, aims

to preserve the Group’s capital adequacy ratios and ensure the stability of its income statement.

The second quarter of the year was characterized by the volatility of the currencies of emerging economies, affected by weak global growth. In this context, BBVA has maintained a policy of actively hedging its investments in Mexico, Chile, Colombia, Turkey and the dollar area. In addition to this corporate-level hedging, dollar positions are held at a local level by some of the subsidiary banks. The foreign-exchange risk of the earnings expected from abroad for 2015 is also managed.

Interest rate

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

In the second quarter of 2015, the results of this management have been satisfactory, with limited risk strategies in Europe, the United States and Mexico. The amount of NTI generated in these geographical regions is the result of prudent portfolio management strategies, particularly in terms of sovereign debt, in a context marked by low interest rates.

Economic capital

Attributable economic risk capital (ERC) consumption at the end of June stood at €31,071m, up 0.8% in the quarter. The most significant aspect in the period has been the increase in ERC as a result of the integration of Cx (affecting mainly credit and fixed-asset risk).

 

 

In the first half of 2015, the global economy slowed its pace of growth due to the contraction of activity in the United States, considered to be temporary, and the slowdown of the main emerging economies. This has taken place against a backdrop of a steady upturn in financial volatility, some geopolitical tension, the gradual recovery of inflation rates and accommodative monetary policies, in the lead-up to the start of interest-rate rises in the United States.

The main stock-market indices ended the period with gains so far this year (+4.8% for the Ibex 35, +8.8% for Euro Stoxx 50 and +0.2% for the S&P 500), although there were falls over the quarter (–6.5% for the Ibex 35, –7.4% for the Euro Stoxx 50 and –0.2% for the S&P 500). At the industry level, Euro Stoxx Banks lost 4.9% over the quarter, though it posted cumulative gains of 11.4% in 2015. However, the S&P Regional Banks in the U.S. posted a quarterly gain of 4.6% and 3.7% as a cumulative total for the year so far.

The BBVA share closed on June 30, 2015 at €8.79 (+11.9% in 2015 and –6.5% since March), with a better evolution than the Euro Stoxx 50 (both in the year to date and over the quarter), and also the Ibex 35 since the end of 2014. Its weighting in the Ibex 35 and the Euro Stoxx 50 has increased slightly with respect to the previous quarter, to 10.58% in the Ibex 35 and 2.54% in the Euro Stoxx 50.

 

 

The BBVA share and share performance ratios

 

		30-06-15				31-03-15
Number of shareholders			940,619				944,631
Number of shares issued			6,305,238,012				6,224,923,938
Maximum price (euros)			9.77				9.60
Minimum price (euros)			8.51				7.21
Closing price (euros)			8.79				9.41
Book value per share (euros)			8.28				8.09
Market capitalization (million euros)			55,436				58,564
Price/book value (times)			1.1				1.2
PER (Price/earnings; times)			15.1				15.9
Yield (Dividend/price; %) (1)			4.2				4.3

 

(1)	Calculated by dividing the median of the forecast dividend per share of a consensus of analysts by the BBVA share price at the end of each quarter.

With respect to shareholder remuneration, apart from the execution in April of the new “dividend option” program (see section on Solvency), the Board of Directors of BBVA agreed on July 1st the distribution of an amount of 8 cents of euro gross for each of the outstanding shares, paid on July 16, 2015.

 

 

The highlights of the period in terms of responsible banking were as follows:

 

•

Creation of a unit specifically dedicated to responsible banking (Responsible Business). The unit allows BBVA to enhance the integration of all aspects related to responsible banking into the business and its relations with the different stakeholders, while reaffirming its commitment to make people the focus of its strategy.

 

•

The presentation of the 2014 Social Impact Report of BBVA in Spain, which explains simply and directly the Bank’s influence on society and shows how its products and services are improving the lives of people across the age spectrum, from financial literacy programs for children and scholarships for young people to finance for adults and pension plans. It also stresses two issues that are of concern to the general population: housing and unemployment. BBVA has adopted a social housing policy that has prevented the most vulnerable families from being left without a home. With respect to the labor market, over 100,000 jobs, accounting for 0.6% of the occupied active population in Spain, are linked to BBVA’s activity.

In addition, BBVA has renewed its place on the Ethibel Excellence, Euronext Vigeo (Eurozone and Europe) and MSCI Global sustainability indices.

TCR Communication

BBVA has anticipated the risk warning light for financial products proposed by the Securities Exchange Commission (CNMV), developing TCR leaflets to explain the vast majority of its financial products (90%) clearly and fully.

Financial Literacy

For the second year in a row, BBVA Bancomer has won the award for Best Financial Literacy Program for Children at the EIFLE Awards organized by the Institute for Financial Literacy. Since the launch of “Valores de Futuro” (Future Values), more than 100,000 workshops have been run, benefiting over 25,000 children and young people.

BBVA Compass has taken a further step to improve people’s financial future with the launch of two websites: Money Fit and Great Ideas for Small Businesses.

Products with a high social impact

BBVA has signed an agreement with the European Investment Bank (EIB) to help kick-start the economy and boost job creation in Spain. It consists of a credit line of €1 billion to help finance SMEs.

BBVA Colombia has joined the “40,000 Primeros Empleos” (40,000 First Jobs) program, a Colombian government initiative that aims to help young people find their first job.

Momentum Project Spain is into its fifth year. The 15 entrepreneurship projects selected will have access to a training program, strategic mentoring and finance which will help them improve their projects, multiply their impact and develop sustainable business models.

BBVA has called for applications for a new edition of the BBVA Open Talent awards, which recognize innovative startups that are transforming financial services, or are linked to security, user experience or big data.

BBVA Suma has launched a donation campaign to collaborate with Nepal.

Society

Education for society

The BBVA Bancomer Foundation and the National Institute for Adult Education (INEA) have concluded an agreement to work together on the National Campaign for Literacy and Defeat of Educational Backwardness.

Ruta BBVA has presented its 30th edition. This year, the 176 participants will travel through Spain and Colombia on a route called an “adventure to the emerald country”.

The environment

BBVA has joined the Spanish Green Growth Group, a public-private partnership platform that aims to make joint progress in the fight against climate change and toward a low-carbon economy. In May, the Group presented the Barcelona Declaration, a document that includes 10 recommendations designed to create an appropriate environment for transforming the potential of a low-carbon economy into economic growth and employment.

Through the Digitization & NFT (New Forms of Work) project, the Bank in Spain has got rid of paper equivalent to 350 tons.

Science and Culture

The BBVA Foundation has held the 7th Frontiers of Knowledge Awards, which recognize people who have made particularly significant progress in a wide range of areas.

The team

BBVA has been named one of the Best Companies to Work For in Latin America in 2015 in the annual ranking prepared by Great Place to Work. The overall recognition has been achieved thanks to the local awards received in Argentina, Chile, Mexico, Paraguay, Peru and Venezuela.

The Territorios Solidarios program, now in its fourth year, aims to continue encouraging the greatest possible participation among employees resident in Spain to carry out projects headed up by non-profit organizations.

 

This section presents and analyzes the most relevant aspects of the Group’s different areas. Specifically, it shows a summary of the income statement and balance sheet, data on business activity and the most significant ratios in each of them.

In 2015 changes have been made to the reporting structure of BBVA Group’s business areas with respect to that in place during 2014. Due to the agreement to increase of the stake in the Turkish bank Garanti to 39.9%, its balance sheet and earnings are presented separately from the rest of Eurasia. Thus, the business areas are:

 

•

Banking activity in Spain includes, as in previous years, the Retail Network, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management. It also includes the portfolios, funding and structural interest-rate positions of the euro balance sheet. And from April 24th brings together the activity, balance sheet and results of Cx banking business.

 

•

Real-estate activity in Spain basically covers lending to real-estate developers and foreclosed real-estate assets in the country (including those coming from Cx).

 

•

The United States encompasses the business conducted by the Bank in that country through BBVA Compass, the office in New York and the US companies Simple and Spring Studio bought in February 2014 and April 2015 respectively as part of BBVA’s strategy to lead the technological transformation of the financial industry.

 

•

Turkey includes BBVA’s stake in the Turkish bank Garanti (25.01%, as the additional 14.89% will follow in the third quarter of 2015.

 

•

Mexico includes the banking and insurance businesses in the country.

 

•

South America includes the banking and insurance businesses that BBVA carries out in the region.

 

•

The rest of Eurasia includes the business carried out in the rest of Europe and Asia, i.e. the Group’s retail and wholesale businesses in the area.

In addition to the above, all the areas include a remainder made up of other businesses and a supplement that includes deletions and allocations not assigned to the units making up the above areas.

Lastly, the Corporate Center is an aggregate that contains the rest of the items that have not been allocated to the business areas, as it basically corresponds to the Group’s holding function. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of capital instruments to ensure adequate management of the