6-K 1 d6k2018.htm DOCUMENT 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, 2018

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 [X]

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 [X]

 

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 [X]

 

 

 

 


 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

 

 

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”, the “BBVA Group” or first person personal pronouns, such as “we”, “us”, or “our”, mean 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” means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

·          Unaudited Condensed Interim Consolidated Financial Statements” means our Unaudited Condensed Interim Consolidated Financial Statements as of June 30, 2018 and December 31, 2017 and for the six months ended June 30, 2018 and June 30, 2017 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 Circular 4/2017 (as defined herein) 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.

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 interim 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;

1


 

·          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;

·          market adjustments in the real estate sector 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 or outsourced 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.

 

 

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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 4/2017 of November 27, 2017, “Circular 4/2017”, which replaced Circular 4/2004 of December 22, 2004, “Circular 4/2004”, on Public and Confidential Financial Reporting Rules and Formats for financial statements as of January 1, 2018 and thereafter.

Differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2004 and Circular 4/2017 and IFRS-IASB are not material for the six months ended June 30, 2018 and June 30, 2017.  Accordingly, the Unaudited Condensed Interim Consolidated Financial Statements included in this report on Form 6-K are in compliance with IAS 34 as issued by the IASB, and were prepared in accordance with EU-IFRS in consideration of the Bank of Spain’s Circular 4/2017.

IFRS 9 became effective on or after January 1, 2018 and replaced IAS 39 for financial statements from January 1, 2018 onwards and includes new classification and measurement requirements for financial assets and liabilities, impairment requirements for financial assets and hedge accounting policy. The application of this standard on January 1, 2018, has had a significant impact on the consolidated financial statements of the Group at that date. The first application is detailed in Appendix IV of the Unaudited Condensed Interim Consolidated Financial Statements.

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 interim 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.

Changes in operating segments

There have been no significant changes to our operating segments during the first six months of 2018 (see Note 5 to the Unaudited Condensed Interim Consolidated Financial Statements).

  

 

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SELECTED INTERIM CONSOLIDATED FINANCIAL DATA

The historical financial information set forth below for the six months ended June 30, 2018 and June 30, 2017 has been selected from, and should be read together with, the Unaudited Condensed 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,

 

2018

2017

Change

(%)

 

(In Millions of Euros, Except Per Share/ADS Data (3))

Consolidated Statement of Income Data

 

 

 

Interest and similar income

14,507

14,305

1.4

Interest and similar expenses

(5,864)

(5,502)

6.6

Net interest income

8,643

8,803

(1.8)

Dividend income

84

212

(60.5)

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

14

(8)

n.m. (1)

Fee and commission income

3,585

3,551

1.0

Fee and commission expenses

(1,093)

(1,095)

(0.2)

Net gains (losses) on financial assets and liabilities (2)

618

541

14.2

Exchange differences, net

90

528

(83.0)

Other operating income

509

562

(9.4)

Other operating expenses

(893)

(945)

(5.5)

Income on insurance and reinsurance contracts

1,609

1,863

(13.6)

Expenses on insurance and reinsurance contracts

(1,093)

(1,295)

(15.6)

Gross income

12,074

12,718

(5.1)

Administration costs

(5,336)

(5,599)

(4.7)

Depreciation and amortization

(606)

(712)

(14.9)

Provisions or reversal of provisions

(185)

(364)

(49.1)

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss

(1,611)

(1,941)

(17.0)

Net operating income

4,335

4,102

5.7

Impairment or reversal of impairment on non-financial assets

-

(80)

n.m. (1)

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

80

30

165.1

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

29

(18)

n.m. (1)

Operating profit before tax

4,443

4,033

10.2

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

(1,213)

(1,120)

8.3

Profit from continuing operations

3,230

2,914

10.9

Profit

3,230

2,914

10.9

Profit attributable to parent company

2,649

2,306

14.9

Profit attributable to non-controlling interests

581

607

(4.2)

Per share/ADS Data (3)

 

 

 

Profit from continuing operations

0.48

0.44

 

Diluted profit attributable to parent company (4)

0.37

0.33

 

Basic profit attributable to parent company

0.37

0.33

 

Dividends declared (In Euros)

 - 

 - 

 

Dividends declared (In U.S. dollars)

 - 

 - 

 

Number of shares outstanding (at period end)

6,667,886,580

6,667,886,580

 

 

 

 

 

 

 

 

 

 

 

 

 

(1)    Not meaningful.

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

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

(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 2017, excluding the weighted average number of treasury shares during the period (6,645 million shares for the six months ended June 30, 2018 and 6,626 million shares for the six months ended June 30, 2017).

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As of and for the six months ended June 30,

As of and for year ended December 31,

As of and for the six months ended June 30,

 

2018

2017

2017

 

(In Millions of Euros, Except  Percentages)

Consolidated Balance Sheet Data

 

 

 

Total assets

689,632

690,059

702,429

Net assets

52,087

53,323

54,727

Common stock

3,267

3,267

3,267

Financial assets at amortized cost

426,349

445,275

458,494

Customer deposits

367,312

376,379

394,626

Debt certificates and subordinated liabilities

62,349

63,915

69,513

Non-controlling interest

6,336

6,979

6,895

Total equity

52,087

53,323

54,727

Consolidated ratios

 

 

 

Profitability ratios:

 

 

 

Net interest margin (1)

2.53%

2.52%

2.45%

Return on average total assets (2)

1.0%

0.7%

0.8%

Return on average stockholders' funds (3)

9.7%

6.4%

8.6%

Credit quality data

 

 

 

Loan loss reserve (4)

13,498

12,784

15,346

Loan loss reserve as a percentage of financial assets at amortized cost

3.17%

2.87%

3.35%

Non-performing asset ratio (NPA ratio) (5)

4.29%

4.49%

4.58%

Impaired loans and advances to customers

18,627

19,390

21,730

Impaired contingent liabilities to customers (6)

641

739

691

 

19,268

20,130

22,421

 

 

 

 

Loans and advances to customers (7)

401,274

401,074

424,470

Contingent liabilities to customers

47,554

47,671

47,060

 

448,828

448,745

471,530

 

 

 

 

 

 

 

 

 

(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, 2018 and June 30, 2017, 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, 2018 and June 30, 2017, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(3)    Represents profit attributable to parent company for the period as a percentage of average shareholders’ funds for the period, excluding “Non-controlling interest”. In order to calculate “Return on average equity” for the six months ended June 30, 2018 and June 30, 2017, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(4)    Represents impairment losses on loans and advances to credit institutions and loans and advances to customers of financial assets at amortized cost. See Note 13 to the financial statements included in our 2017 Form 20-F.

(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 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 4.6% as of both June 30, 2018 and December 31, 2017.

(7)    Includes impaired loans.

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Exchange Rates

Spain’s currency is the euro. Unless otherwise indicated, the amounts that have been converted to euro in this interim report on Form 6-K have been converted 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 U.S. dollars per euro. 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)

2013

1.3303

2014

1.3210

2015

1.1032

2016

1.1029

2017

1.1396

2018 (through September 14, 2018)

1.1926

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

   

6


 

Month ended

High

Low

March 31, 2018

1.2440

1.2216

April 30, 2018

1.2384

1.2074

May 31, 2018

1.2000

1.1551

June 30, 2018

1.1815

1.1577

July 31, 2018

1.1744

1.1604

August 31, 2018

1.1720

1.1332

September 30, 2018 (through September  14, 2018)

1.1672

1.1566

The noon buying rate for euro from the Federal Reserve Bank of New York, expressed in U.S. dollars per euro, on September 14, 2018, was $1.1656.

As of June 30, 2018, approximately 47% of our assets and approximately 46% of our liabilities were denominated in currencies other than euro.

 

 

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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.

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; certain tax assets and liabilities; certain 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, 2018 and December 31, 2017 is as follows:

 

As of June 30, 2018

As of December 31, 2017 (1)

 

(In Millions of Euros)

Banking Activity in Spain

325,603

319,417

Non-Core Real Estate

8,041

9,714

The United States

77,171

75,775

Mexico

94,611

94,061

Turkey

72,818

78,694

South America

70,682

74,636

Rest of Eurasia

18,457

17,265

Subtotal Assets by Operating Segment

667,383

669,562

Corporate Center

22,249

20,497

Total Assets BBVA Group

689,632

690,059

(1)    The figures corresponding to December 31, 2017 have been restated due to changes in the structure of BBVA’s internal organization in a manner that caused the composition of the reportable segments to change. These changes were not significant.

 

 

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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, 2018 and June 30, 2017:

 

Profit/(Loss) attributable to parent company

% of Profit/(Loss) Attributable to Parent Company

 

Six months ended June 30,

 

2018

2017

2018

2017

 

(In Millions of Euros)

(In percentage)

Banking Activity in Spain

793

665

24.5

24.6

Non-Core Real Estate

(36)

(186)

(1.1)

(6.9)

The United States

387

284

12.0

10.5

Mexico

1,208

1,094

37.3

40.4

Turkey

373

374

11.5

13.8

South America

452

404

14.0

14.9

Rest of Eurasia

58

73

1.8

2.7

Subtotal operating segments

3,235

2,708

 

 

Corporate Center

(586)

(402)

 

 

Profit attributable to parent company

2,649

2,306

 

 

 

The following table sets forth information relating to the income of each operating segment and Corporate Center for the six months ended June 30, 2018 and June 30, 2017 and reconciles the income statement of the various operating segments to the consolidated income statement of the Group:

 

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)

Six months ended June 2018

 

 

 

 

 

 

 

 

 

Net interest income

1,836

20

1,082

2,648

1,510

1,606

82

(140)

8,644

Gross income

3,050

(19)

1,437

3,465

1,924

2,197

216

(196)

12,074

Net margin before provisions (1)

1,405

(58)

546

2,321

1,247

1,252

74

(655)

6,132

Operating profit/(loss) before tax

1,110

(41)

495

1,667

966

891

90

(734)

4,444

Profit attributable to parent company

793

(36)

387

1,208

373

452

58

(586)

2,649

Six months ended June 2017

 

 

 

 

 

 

 

 

 

Net interest income

1,864

31

1,078

2,696

1,611

1,617

95

(190)

8,802

Gross income

3,200

(6)

1,446

3,530

1,998

2,252

256

43

12,719

Net margin before provisions (1)

1,485

(56)

505

2,328

1,230

1,211

102

(398)

6,407

Operating profit/(loss) before tax

936

(233)

386

1,488

1,010

790

104

(448)

4,033

Profit attributable to parent company

665

(186)

284

1,094

374

404

73

(402)

2,306

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

 

 

9


 

The following tables set forth information relating to the balance sheet of the main operating segments as of June 30, 2018 and December 31, 2017:

 

As of June 30, 2018

 

 

 

Banking Activity in Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

 

 

(In Millions of Euros)

Total Assets

325,603

77,171

94,611

72,818

70,682

18,457

 

Cash, cash balances at central banks and other demand deposits

14,565

4,655

5,928

4,171

7,514

884

 

Financial assets designated at fair value

103,641

10,633

28,293

5,886

10,098

539

 

Financial assets at amortized cost

196,145

58,969

55,871

59,844

51,383

16,618

 

Loans and advances to customers

170,055

56,975

49,498

48,530

48,837

15,287

 

Total Liabilities

321,244

74,507

92,662

64,686

67,774

18,073

 

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

68,867

389

17,254

2,027

2,657

41

 

Customer deposits

173,441

60,704

49,573

42,309

45,615

5,233

 

Total Equity

4,359

2,664

1,949

8,132

2,908

384

 

 

As of December 31, 2017

 

 

 

 

 

Banking Activity in Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

 

 

(In Millions of Euros)

 

Total Assets

319,417

75,775

94,061

78,694

74,636

17,265

 

Cash, cash balances at central banks and other demand deposits

13,463

7,138

8,833

4,036

9,039

877

 

Financial assets designated at fair value

79,501

11,068

28,627

6,419

11,627

991

 

Financial assets at amortized cost

221,391

54,705

47,691

65,083

51,207

15,009

 

Loans and advances to customers

183,172

53,718

45,768

51,378

48,272

14,864

 

Total Liabilities

309,731

72,532

90,667

70,253

69,885

16,330

 

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

36,817

139

9,405

648

2,823

45

 

Customer deposits

177,763

60,806

49,964

44,691

45,666

6,700

 

Total Equity

9,686

3,243

3,394

8,441

4,751

935

 

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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.  Loan production to real estate 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.

 

 

11


 

The following table sets forth information relating to the activity of this operating segment as of June 30, 2018 and December 31, 2017:

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

325,603

319,417

Cash, cash balances at central banks and other demand deposits

14,565

13,463

Financial assets designated at fair value

103,641

79,501

Financial assets at amortized cost

196,145

221,391

Loans and advances to customers

170,055

183,172

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

68,867

36,817

Customer deposits

173,441

177,763

Mutual funds, pension funds and off-balance sheet funds

63,874

62,054

NPA Ratio (%)

5.2

5.5

Financial assets designated at fair value of this operating segment as of June 30, 2018 amounted to €103,641 million, a 30.3% increase from the €79,501 million recorded as of December 31, 2017, mainly attributable to the initial implementation of IFRS 9 as of January 1, 2018. See Appendix IV to our Unaudited Condensed Interim Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Financial assets at amortized cost of this operating segment as of June 30, 2018 amounted to €196,145, an 11.4% decrease compared with the €221,391 recorded as of December 31, 2017. Within this heading, loans and advances to customers of this operating segment as of June 30, 2018 amounted to €170,055 million, a 7.2% decrease from the €183,172 million recorded as of December 31, 2017, mainly as a result of the evolution of the mortgage portfolio, and to a lesser extent, the decrease in the public sector, corporates and other commercial portfolios.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2018 amounted to €68,867 million, an 87.1% increase compared with the €36,817 million recorded as of December 31, 2017, mainly attributable to the initial implementation of IFRS 9 as of January 1, 2018. See Appendix IV to our Unaudited Condensed Interim Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Customer deposits of this operating segment as of June 30, 2018 amounted to €173,441 million, a 2.4% decrease compared with the €177,763 million recorded as of December 31, 2017, mainly as a result of the decline in time deposits, due to the low interest rate environment.

Mutual, pension and off-balance funds of this operating segment as of June 30, 2018 amounted to €63,874 million, a 2.6% increase from the €62,054  million recorded as of December 31, 2017.

This operating segment’s non-performing asset ratio decreased to 5.2% as of June 30, 2018, from 5.5% as of December 31, 2017. This operating segment’s non-performing assets coverage ratio increased to 57% as of June 30, 2018, from 50% as of December 31, 2017.

12


 

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 primarily includes lending to real estate developers and foreclosed real estate assets (except for those new loans to developers that are included in the Banking Activity in Spain segment). In November 2017, BBVA reached an agreement with a subsidiary of Cerberus for the creation of a joint venture to which the real estate business of BBVA in Spain will be transferred, which represents the majority of the assets and the business of this operating segment. BBVA will retain a 20% interest in such joint venture, while Cerberus will acquire a 80% interest in exchange for approximately €4,000 million. For additional information on this transaction, see “—History and Development of the Company—Capital Divestitures—2017—Agreement for the creation of a joint venture and transfer of the real estate business in Spain” in our 2017 Form 20-F.

Loans and advances to customers of this operating segment have significantly declined over recent years. As of June 30, 2018, loans and advances to customers amounted to €1,139 million, a 67.6% decrease compared with the €3,521 million recorded as of December 31, 2017, principally due to transfers made pursuant to the agreement with Cerberus explained in the previous paragraph.

The non-performing assets ratio of this segment was 81.9% as of June 30, 2018. The coverage ratio of non-performing and potential problem loans of this segment was 63.7% of the total amount of real-estate assets in this operating segment, as of June 30, 2018.

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for approximately 93.6% of the operating segment’s balance sheet as of June 30, 2018. 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, 2018 and December 31, 2017:

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

77,171

75,775

Cash, cash balances at central banks and other demand deposits

4,655

7,138

Financial assets designated at fair value

10,633

11,068

Financial assets at amortized cost

58,969

54,705

Loans and advances to customers

56,975

53,718

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

389

139

Customer deposits

60,704

60,806

NPA Ratio (%)

1.2

1.2

 

 

 

The U.S. dollar depreciated 4.3% against the euro as of June 30, 2018 compared with December 31, 2017, negatively affecting the business activity of the United States operating segment as of June 30, 2018 expressed in euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates” in our 2017 Form 20-F.

 

 

13


 

Loans and advances to customers of this operating segment as of June 30, 2018 amounted to €56,975 million, a 6.1% increase compared with the €53,718 million recorded as of December 31, 2017, mainly due to the increase in consumer and credit card loans, and to a lesser extent, the increase in lending to small and medium sized companies and corporates.

Customer deposits of this operating segment as of June 30, 2018 amounted to €60,704 million, a 0.2% decrease compared with the €60,806 million recorded as of December 31, 2017.

The non-performing asset ratio of this operating segment as of June 30, 2018 and as of December 31, 2017 was 1.2%. This operating segment’s non-performing assets coverage ratio decreased to 93% as of June 30, 2018, from 104% as of December 31, 2017 due to the increase in non-performing loans and decrease in provisions. 

Mexico

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

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2018 and December 31, 2017:

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

94,611

94,061

Cash, cash balances at central banks and other demand deposits

5,928

8,833

Financial assets designated at fair value

28,293

28,627

Financial assets at amortized cost

55,871

47,691

Loans and advances to customers

49,498

45,768

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

17,254

9,405

Customer deposits

49,573

49,964

Mutual funds, pension funds and off-balance sheet funds

20,823

19,472

NPA Ratio (%)

2.0

2.3

 

 

 

The Mexican peso depreciated 1.4% against the euro as of June 30, 2018 compared with December 31, 2017, negatively affecting the business activity of the Mexico operating segment as of June 30, 2018 expressed in euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates” in our 2017 Form 20-F.

Loans and advances to customers of this operating segment as of June 30, 2018 amounted to €49,498 million, a 8.2% increase compared with the €45,768 million recorded as of December 31, 2017, mainly as a result of the increase in the wholesale portfolio, and to a lesser extent, the retail portfolio.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2018 amounted to €17,254 million, an 83.4% increase compared with the €9,405 million recorded as of December 31, 2017, mainly attributable to the initial implementation of IFRS 9 as of January 1, 2018. See Appendix IV to our Unaudited Condensed Interim Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Customer deposits of this operating segment as of June 30, 2018 amounted to €49,573 million, a 0.8% decrease compared with the €49,964 million recorded as of December 31, 2017.

14


 

Mutual, pension and off-balance funds of this operating segment as of June 30, 2018 amounted to €20,823 million, a 6.9% increase compared with the €19,472 million recorded as of December 31, 2017.

This operating segment’s non-performing asset ratio was 2.0% as of June 30, 2018 and 2.3% as of December 31, 2017. This operating segment’s non-performing assets coverage ratio increased to 155% as of June 30, 2018, from 123% as of December 31, 2017, mainly due to the increase in provisions as a result of the initial implementation of IFRS 9.

Turkey

This operating segment comprises the banking and insurance businesses conducted by Garanti and its consolidated subsidiaries.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2018 and December 31, 2017:  

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

72,818

78,694

Cash, cash balances at central banks and other demand deposits

4,171

4,036

Financial assets designated at fair value

5,886

6,419

Financial assets at amortized cost

59,844

65,083

Loans and advances to customers

48,530

51,378

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

2,027

648

Customer deposits

42,309

44,691

Mutual funds, pension funds and off-balance sheet funds

3,440

3,902

NPA Ratio (%)

4.5

3.9

 

 

 

The Turkish lira depreciated 4.6% against the euro as of June 30, 2018 compared to December 31, 2017, negatively affecting the business activity of the Turkey operating segment as of June 30, 2018 expressed in euro. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates” in our 2017 Form 20-F.

Loans and advances to customers of this operating segment as of June 30, 2018 amounted to €48,530 million, a 5.5% decrease compared with the €51,378 million recorded as of December 31, 2017 principally due to the depreciation of the Turkish lira. Using constant currency, there was a 10.9% increase.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2018 amounted to €2,027 million, a 212.8% increase compared with the €648 million recorded as of December 31, 2017, mainly attributable to the initial implementation of IFRS 9 as of January 1, 2018. See Appendix IV to our Unaudited Condensed Interim Consolidated Financial Statements for further information regarding the classification and measurement of financial instruments.

Customer deposits of this operating segment as of June 30, 2018 amounted to €42,309 million, a 5.3% decrease compared with the €44,691 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira.

Mutual, pension and off-balance funds of this operating segment as of June 30, 2018 amounted to €3,440 million, an 11.8% decrease compared with the €3,902 million recorded as of December 31, 2017, mainly as a result of the depreciation of the Turkish lira.

15


 

The non-performing asset ratio of this operating segment as of June 30, 2018 was 4.5% compared with 3.9% as of December 31, 2017 principally due to increased impaired assets.  This operating segment’s non-performing assets coverage ratio decreased to 76% as of June 30, 2018, from 85% as of December 31, 2017, mainly due to some negative impacts from wholesale customer impairment.

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.

In November 2017, BBVA reached an agreement for the sale of the entirety of BBVA’s 68.2% stake in BBVA Chile. For additional information, see “—History and Development of the Company—Capital Divestitures—2017—Agreement for the sale of BBVA’s stake in BBVA Chile” in our 2017 Form 20-F. This sale closed on July 6, 2018.

The following table sets forth information relating to the business activity of this operating segment as of June 30, 2018 and December 31, 2017:

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

70,682

74,636

Cash, cash balances at central banks and other demand deposits

7,514

9,039

Financial assets designated at fair value

10,098

11,627

Financial assets at amortized cost

51,383

51,207

Loans and advances to customers

48,837

48,272

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

2,657

2,823

Customer deposits

45,615

45,666

Mutual funds, pension funds and off-balance sheet funds

12,971

12,197

NPA Ratio (%)

3.7

3.4

 

 

 

All the currencies of the countries in which BBVA operates in South America depreciated against the euro as of June 30, 2018, negatively affecting the business activity of the South America operating segment as of June 30, 2018 expressed in euro.

Loans and advances to customers of this operating segment as of June 30, 2018 amounted to €48,837 million, a 1.2% increase compared with the €48,272 million recorded as of December 31, 2017, mainly as a result of the increase recorded in the household segment, particularly in Argentina, partially offset by the depreciation of the currencies of the region against the Euro.

Customer deposits of this operating segment as of June 30, 2018 amounted to €45,615 million, a 0.1% decrease compared with the €45,666 million recorded as of December 31, 2017.

Mutual, pension and off-balance funds of this operating segment as of June 30, 2018 amounted to €12,971 million, a 6.3% increase compared with the €12,197 million recorded as of December 31, 2017.

16


 

The non-performing asset ratio of this operating segment as of June 30, 2018 increased to 3.7% compared with 3.4% as of December 31, 2017. This operating segment’s non-performing assets coverage ratio increased to 91% as of June 30, 2018, from 89% as of December 31, 2017.

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, 2018 and December 31, 2017:

 

As of June 30, 2018

As of December 31, 2017

 

(In Millions of Euros, Except Percentages)

Total Assets

18,457

17,265

Cash, cash balances at central banks and other demand deposits

884

877

Financial assets designated at fair value

539

991

Financial assets at amortized cost

16,618

15,009

Loans and advances to customers

15,287

14,864

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

41

45

Customer deposits

5,233

6,700

Mutual funds, pension funds and off-balance sheet funds

388

376

NPA Ratio (%)

1.7

2.4

 

 

 

Loans and advances to customers of this operating segment as of June 30, 2018 amounted to €15,287 million, a 2.8% increase compared with the €14,864 million recorded as of December 31, 2017.

Customer deposits of this operating segment as of June 30, 2018 amounted to €5,233 million, a 21.9% decrease compared with the €6,700 million recorded as of December 31, 2017, mainly as a result of the decrease in time deposits due to the negative interest rates environment.

Mutual, pension and off-balance funds of this operating segment as of June 30, 2018 amounted to €388 million, a 3.2% increase compared with the €376 million recorded as of December 31, 2017.

The non-performing asset ratio of this operating segment as of June 30, 2018 was 1.7% compared with 2.4% as of December 31, 2017. This operating segment’s non-performing assets coverage ratio increased to 93% as of June 30, 2018, from 74% as of December 31, 2017 mainly as a result of the decrease in the non-performing loans.

 

 

17


 

  

 

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 revenue.

 

Average Balance Sheet - Assets and Interest from Earning Assets

 

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

 

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

38,660

55

0.14%

33,009

6

0.02%

Domestic

16,772

21

0.13%

11,759

-

-

Foreign

21,888

33

0.15%

21,250

6

0.03%

Debt securities and derivatives

194,217

2,252

1.16%

183,002

2,442

1.33%

Domestic

128,232

583

0.45%

113,680

692

0.61%

Foreign

65,985

1,669

2.53%

69,322

1,750

2.52%

Financial assets at amortized cost

404,581

12,052

2.98%

451,048

11,598

2.57%

Loans and advances to central banks

6,759

122

1.80%

12,443

148

1.19%

Loans and advances to credit institutions

12,869

327

2.54%

26,042

144

0.55%

Loans and advances to customers

384,953

11,603

3.01%

412,563

11,306

2.74%

      In euros

182,995

1,677

0.92%

197,588

1,714

0.87%

Domestic

173,842

1,641

0.94%

187,764

1,678

0.89%

Foreign

9,152

36

0.39%

9,824

36

0.37%

      In other currency

201,959

9,926

4.92%

214,974

9,591

4.46%

Domestic

13,632

228

1.68%

15,942

200

1.26%

Foreign

188,327

9,698

5.15%

199,032

9,391

4.72%

Other assets (2)

46,212

148

0.32%

50,688

259

0.51%

Total average assets (3)

683,670

14,507

2.12%

717,747

14,305

1.99%

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

(2)    Includes “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures, associates and unconsolidated subsidiaries”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups held for sale”.

(3)    Foreign activity represented 46.33% of the total average assets for the six months ended June 30, 2018 and 46.99% for the year ended December 31, 2017.

 

 

18


 

 

Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities

 

 

Six Months Ended June 30, 2018

Six Months Ended June 30, 2017

 

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

67,374

1,140

3.41%

93,471

938

2.02%

Customer deposits

372,029

3,529

1.91%

396,690

3,024

1.54%

    In euros

176,932

167

0.19%

186,550

245

0.26%

Domestic

167,609

161

0.19%

176,172

238

0.27%

Foreign

9,323

6

-

10,378

7

0.14%

    In other currency

195,097

3,363

3.48%

210,140

2,779

2.67%

Domestic

10,079

51

1.01%

12,689

28

0.44%

Foreign

185,018

3,312

2.46%

197,451

2,752

2.81%

Debt certificates

78,191

861

2.22%

86,208

865

2.02%

Other liabilities (2)

113,698

334

0.59%

86,003

675

1.58%

Total Liabilities

631,292

5,864

0.93%

662,373

5,502

0.83%

Shareholders´ equity

52,379

-

-

55,374

-

-

Total average liabilities (3)

683,670

5,864

1.73%

717,747

5,502

1.55%

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

(2)    Includes “Financial liabilities held for trading”, “Hedging derivatives”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Liabilities under insurance and reinsurance contracts”, “Provisions”, “Tax liabilities”, “Other liabilities”, “Liabilities included in disposal groups classified as held for sale”.

(3)    Foreign activity represented 46.33% of the total average liabilities for the six months ended June 30, 2018 and 46.99% for the year ended December 31, 2017.

 

 

19


 

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, 2018 compared to the six months ended June 30, 2017 and for the six month ended June 30, 2017 compared to the six month 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, 2018/June 30, 2017

 

Increase (Decrease) Due To Changes In

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

1

48

49

Securities portfolio and derivatives

150

(339)

(189)

Loans and advances to central banks

(68)

41

(27)

Loans and advances to credit institutions

(73)

256

183

Loans and advances to customers

(707)

1,005

297

   In euros

(127)

89

(38)

Domestic

(124)

87

(37)

Foreign

(2)

2

-

   In other currencies

(581)

916

335

Domestic

(29)

57

28

Foreign

(552)

859

307

Other assets

(23)

(88)

(111)

Total income

 

 

202

Interest expense

 

 

 

Deposits from central banks and credit institutions

(262)

464

202

Customer deposits

(212)

717

505

   In euros

(13)

(65)

(78)

Domestic

(12)

(65)

(77)

Foreign

(1)

-

(1)

   In other currencies

(199)

782

583

Domestic

(6)

29

23

Foreign

(193)

754

560

Debt certificates

(80)

77

(4)

Other liabilities

217

(559)

(341)

Total expense

 

 

362

Net interest income

 

 

(160)

(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.

 

 

20


 

 

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

2

(1)

1

Securities portfolio 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

(15)

572

557

   In euros

(64)

(140)

(204)

Domestic

263

498

761

Foreign

(6)

140

134

   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

(68)

65

(3)

   In euros

(36)

(139)

(175)

Domestic

(37)

(130)

(167)

Foreign

-1

(9)

(9)

   In other currencies

109

63

172

Domestic

3

4

7

Foreign

106

59

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.

 

 

21


 

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,

 

2018

2017

 

(In Millions of Euros, Except Percentages)

Average interest earning assets

640,936

667,059

Gross yield (1)

2.3%

2.1%

Net yield (2)

2.1%

2.0%

Net interest margin (3)

1.3%

1.3%

Average effective rate paid on all interest-bearing liabilities

1.1%

1.0%

Spread (4)

1.1%

1.2%

(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.

 

 

22


 

ASSETS

Interest-Bearing Deposits in Other Banks

As of June 30, 2018, interbank deposits (excluding deposits with central banks) represented 3.7% of our total assets. Of such interbank deposits, 81.0% were held outside of Spain and 19.0% 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, 2018, our total securities portfolio (consisting of investment securities and loans and advances of financial assets at amortized cost) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €118,953 million, representing 17.3% of our total assets. €29,609 million, or 24.9%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. For a discussion of our investments in affiliates, see Note 15 to the Unaudited Condensed Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Note 7 to the Unaudited Condensed Interim Consolidated Financial Statements.

The following tables analyze the amortized cost and fair value of debt securities as of June 30, 2018 and December 31, 2017, respectively. The financial assets held for trading are not included in the tables below because the amortized costs and fair values of these items are the same. See Note 9 to the Unaudited Condensed Interim Consolidated Financial Statements.

 

 

23


 

 

As of June 30, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

22,151

23,122

975

(3)

Spanish Government and other government agencies debt securities

20,478

21,346

869

(2)

Other debt securities

1,673

1,777

105

(2)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

817

884

67

-

Issued by other institutions

856

893

38

(2)

Foreign

37,799

37,478

407

(729)

The United States

14,044

13,799

27

(271)

U.S. Treasury and other U.S. Government agencies debt securities

5,944

5,861

6

(89)

States and political subdivisions debt securities

4,351

4,256

7

(102)

Other debt securities

3,748

3,681

14

(80)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

50

51

1

-

Issued by other institutions

3,698

3,630

13

(80)

Mexico

6,966

6,857

17

(126)

Mexican Government and other government agencies debt securities

5,671

5,572

11

(111)

Other debt securities

1,294

1,286

6

(15)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

30

30

-

(1)

Issued by other institutions

1,265

1,256

6

(14)

Turkey

4,582

4,409

33

(206)

Turkey Government and other government agencies debt securities

4,211

4,052

32

(191)

Other debt securities

371

357

1

(15)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

349

334

-

(15)

Issued by other institutions

22

23

1

-

Other countries

12,208

12,413

331

(126)

Other foreign governments and other government agencies debt securities

6,479

6,562

165

(82)

Other debt securities

5,729

5,852

166

(43)

Issued by Central Banks

947

946

2

(2)

Issued by credit institutions

1,992

2,089

120

(23)

Issued by other institutions

2,790

2,816

44

(18)

TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

59,951

60,600

1,382

(732)

TOTAL DEBT SECURITIES

59,951

60,600

1,382

(732)

(1)     Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 7 to the Unaudited Condensed Interim Consolidated Financial Statements.

 

 

24


 

 

As of December 31, 2017

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AVAILABLE FOR SALE PORTFOLIO

 

 

 

 

Domestic

24,716

25,605

906

(17)

Spanish Government and other government agencies debt securities

22,765

23,539

791

(17)

Other debt securities

1,951

2,066

114

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

891

962

72

-

Issued by other institutions

1,061

1,103

43

-

Foreign

40,557

40,647

661

(572)

The United States

12,479

12,317

36

(198)

U.S. Treasury and other U.S. Government agencies debt securities

3,052

3,018

-

(34)

States and political subdivisions debt securities

5,573

5,482

8

(99)

Other debt securities

3,854

3,817

28

(65)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

56

57

1

-

Issued by other institutions

3,798

3,759

26

(65)

Mexico

9,755

9,658

45

(142)

Mexican Government and other government agencies debt securities

8,101

8,015

34

(120)

Other debt securities

1,654

1,643

11

(22)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

212

209

1

(3)

Issued by other institutions

1,442

1,434

10

(19)

Turkey

5,052

4,985

48

(115)

Turkey Government and other government agencies debt securities

5,033

4,967

48

(114)

Other debt securities

19

19

1

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

19

19

-

(1)

Issued by other institutions

-

-

-

-

Other countries

13,271

13,687

533

(117)

Other foreign governments and other government agencies debt securities

6,774

7,022

325

(77)

Other debt securities

6,497

6,664

208

(40)

Issued by Central Banks

1,330

1,331

2

(1)

Issued by credit institutions

2,535

2,654

139

(19)

Issued by other institutions

2,632

2,679

66

(19)

TOTAL AVAILABLE FOR SALE PORTFOLIO

65,273

66,251

1,567

(588)

HELD TO MATURITY PORTFOLIO

 

 

 

 

Domestic

5,984

6,043

59

-

Spanish Government and other government agency debt securities

5,754

5,812

58

-

Other domestic debt securities

230

231

1

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

203

204

1

-

Issued by other institutions

27

27

 

-

Foreign

7,770

7,759

30

(42)

Government and other government agency debt securities

6,864

6,844

18

(39)

Other debt securities

906

915

12

(3)

TOTAL HELD TO MATURITY PORTFOLIO

13,754

13,801

89

(42)

TOTAL DEBT SECURITIES

79,027

80,053

1,656

(630)

(1)    Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values are used for unlisted securities based on our estimates and valuation techniques. See Note 8 to the financial statements included in our 2017 Form 20-F.

25


 

As of June 30, 2018, the carrying amount of debt securities classified within the fair value through other comprehensive income portfolio by rating categories defined by external rating agencies were as follows:

 

 

As of June 30, 2018

 

 

Debt Securities at fair value through other comprehensive income

 

 

Carrying Amount

(In Millions of Euros)

 

%

AAA

 

606

 

1.0%

AA+

 

12,331

 

20.3%

AA

 

223

 

0.4%

AA-

 

486

 

0.8%

A+

 

777

 

1.3%

A

 

786

 

1.3%

A-

 

22,676

 

37.4%

BBB+

 

9,858

 

16.3%

BBB

 

6,972

 

11.5%

BBB-

 

3,458

 

5.7%

BB+ or below

 

836

 

1.4%

Without rating

 

1,589

 

2.6%

TOTAL

 

60,600

 

100.0%

The following tables analyze the amortized cost and fair value of our ownership of equity securities as of June 30, 2018 and December 31, 2017, respectively. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

 

As of June 30, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

Domestic

2,178

1,953

1

(226)

Equity listed

2,172

1,947

-

(226)

Equity unlisted

6

6

1

-

International

540

627

96

(10)

United States

403

443

40

-

Equity listed

48

88

40

-

Equity unlisted

355

355

-

-

Other countries

138

184

56

(10)

Equity listed

71

88

26

(10)

Equity unlisted

66

96

31

(1)

 

 

 

 

 

TOTAL EQUITY SECURITIES

2,718

2,579

97

(236)

 

 

 

 

 

TOTAL INVESTMENT SECURITIES

62,669

63,180

1,479

(968)

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

 

 

26


 

 

As of December 31, 2017

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

Domestic

2,222

2,250

29

(1)

Equity listed

2,189

2,188

-

(1)

Equity Unlisted

33

62

29

-

International

880

976

110

(15)

United States

509

543

40

(6)

Equity listed

11

11

-

-

Equity Unlisted

498

532

40

(6)

Other countries

371

432

70

(9)

Equity listed

204

230

33

(7)

Equity Unlisted

167

202

37

(2)

TOTAL EQUITY SECURITIES

3,102

3,225

139

(16)

TOTAL INVESTMENT SECURITIES

82,129

83,278

1,795

(646)

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

 

Loans and Advances to Credit Institutions and Central Banks

As of June 30, 2018, our total loans and advances to credit institutions and central banks amounted to €17,107 million, or 2.5% of total assets. Net of our impairment losses, loans and advances to credit institutions and central banks amounted to €17,092 million as of June 30, 2018, or 2.5% of total assets.

Loans and Advances to Customers

As of June 30, 2018, our total loans and advances to customers amounted to €401,274 million, or 58.19% of total assets. Net of our impairment losses, loans and advances to customers amounted to €387,788 million as of June 30, 2018, or 56.23% of our total assets. As of June 30, 2018 our loans and advances to customers in Spain amounted to €174,282 million. Our loans and advances to customers outside Spain amounted to €226,960 million as of June 30, 2018. 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 2017 Form 20-F.

 

 

27


 

  Loans by Geographic Area

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

 

As of June 30, 2018

 

As of December 31, 2017

 

As of June 30, 2017

 

(In Millions of Euros)

 

 

 

 

 

 

Domestic

174,282

 

180,033

 

180,175

Foreign

 

 

 

 

 

Europe

24,915

 

25,308

 

26,916

The United States

58,038

 

53,526

 

54,176

Mexico

52,136

 

48,463

 

54,514

Turkey

46,963

 

49,690

 

53,753

South America

40,296

 

39,814

 

50,162

Other

4,613

 

4,240

 

4,774

Total foreign

226,960

 

221,041

 

244,296

Total loans and advances

401,243

 

401,074

 

424,470

Impairment losses

(13,486)

 

(12,748)

 

(15,318)

Total net lending (1)

387,757

 

388,326

 

409,152

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

28


 

Loans by Type of Customer

The following table shows, by domicile and type of customer, our net loans and advances to customers 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,

 

As of December 31,

 

As of June 30,

 

2018

 

2017

 

2017

 

(In Millions of Euros)

Domestic

 

 

 

 

 

Government

17,384

 

18,116

 

20,416

Agriculture

1,048

 

1,231

 

1,146

Industrial

13,337

 

14,707

 

14,132

Real estate and construction

11,140

 

11,786

 

12,683

Commercial and financial

17,676

 

16,075

 

12,392

Loans to individuals (1)

100,387

 

99,780

 

101,519

Other

13,311

 

18,338

 

17,887

Total Domestic

174,282

 

180,033

 

180,175

Foreign

 

 

 

 

 

Government

13,800

 

14,289

 

13,767

Agriculture

2,594

 

2,646

 

3,356

Industrial

40,649

 

37,319

 

41,113

Real estate and construction

19,275

 

17,885

 

20,557

Commercial and financial

34,704

 

31,584

 

35,151

Loans to individuals (1)

79,492

 

78,162

 

88,522

Other

36,446

 

39,156

 

41,830

Total Foreign

226,960

 

221,040

 

244,296

Total Loans and Advances

401,243

 

401,074

 

424,470

Impairment losses

(13,486)

 

(12,748)

 

(15,318)

Total net lending (2)

387,757

 

388,326

 

409,152

(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.

 

 

29


 

The following table sets forth a breakdown, by currency, of our net loan portfolio as of June 30, 2018, December 31, 2017 and June 30, 2017:

 

As of June 30, 2018

 

As of December 31, 2017

 

As of June 30, 2017

 

(In Millions of Euros)

In euros

189,196

 

199,399

 

198,986

In other currencies

198,561

 

188,926

 

210,166

Total net lending (1)

387,757

 

388,326

 

409,152

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

As of June 30, 2018, loans by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €578 million, compared with €510 million as of December 31, 2017. Loans outstanding to the Spanish government and its agencies amounted to €17,384 million, or 4.3% of our total loans and advances as of June 30, 2018 compared with €18,116 million, or 4.5% of our total loans and advances as of December 31, 2017. 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, 2018, excluding government-related loans, amounted to €20,358 million or approximately 4.95% of our total outstanding loans and advances. As of June 30, 2018 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 Sensitivity

The following table sets forth an analysis by maturity of our total loans and advances to customers by domicile of the branch office that issued the loan and the type of customer as of June 30, 2018. The determination of maturities is based on contract terms.

 

 

30


 

 

 

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

6,524

4,929

5,931

17,384

Agriculture

271

381

396

1,048

Industrial

4,653

4,232

4,452

13,337

Real estate and construction

2,398

2,882

5,859

11,140

Commercial and financial

4,190

2,390

1,500

8,080

Loans to individuals

6,630

8,778

84,979

100,387

Other

9,931

7,571

5,405

22,907

Total Domestic

34,597

31,164

108,522

174,282

Foreign

 

 

 

 

Government

1,723

2,175

9,902

13,800

Agriculture

1,482

802

309

2,594

Industrial

16,546

16,441

7,662

40,649

Real estate and construction

6,463

8,728

4,083

19,275

Commercial and financial

10,795

7,757

1,834

20,386

Loans to individuals

12,760

26,841

39,891

79,492

Other

18,525

21,978

10,262

50,764

Total Foreign

68,294

84,722

73,943

226,959

Total loans and advances

102,891

115,886

182,465

401,242

 

Impairment Losses on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Impairment losses on financial assets” in our 2017 Form 20-F.

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.

 

 

31


 

 

   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,

 

2018

2017

2017

 

(In Millions of Euros, Except Percentages)

Loan loss reserve at beginning of period:

 

 

 

Domestic

7,234

9,113

9,113

Foreign

5,550

6,903

6,903

First implementation adjustment of IFRS 9

1,171

-

-

Total loan loss reserve at beginning of period

13,955

16,016

16,016

 

 

 

 

Loans charged off (1):

 

 

 

Total domestic

(669)

(3,709)

(976)

Total foreign

(628)

(2,330)

(1,114)

Total Loans charged off:

(1,297)

(6,039)

(2,090)

 

 

 

 

Provision for possible loan losses:

 

 

 

Domestic

399

1,155

573

Foreign

1,374

3,078

1,615

Total Provision for possible loan losses

1,773

4,233

2,188

 

 

 

 

Acquisition and disposition of subsidiaries

-

(5)

-

Effect of foreign currency translation

(422)

(926)

(306)

Other

(511)

(495)

(462)

 

 

 

 

Loan loss reserve at end of period:

 

 

 

Domestic

7,683

7,234

8,440

Foreign

5,815

5,550

6,906

Total Loan loss reserve at end of period

13,498

12,784

15,346

Loan loss reserve as a percentage of total loans and receivables at end of period

3.17%

2.87%

3.35%

Net loan charge-offs as a percentage of total loans and receivables at end of period

0.30%

1.36%

0.46%

(1)     Loans charged off were mainly related to the real estate sector.

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 €1,297 million during the six months ended June 30, 2018 compared with €2,090 million during the six months ended June 30, 2017.

Our loan loss reserves as a percentage of total loans and advances increased to 3.2% as of June 30, 2018 from 2.9 % as of December 31, 2017.

32


 

 

Impaired Loans

Loans are considered to be impaired loans 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 financial assets at amortized cost 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, 2018 and 2017 was €220 million and €118 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,