6-K 1 form6kjune2019.htm DOCUMENT 6K  

 

  

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, 2019

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)

Jaime Sáenz de Tejada Pulido

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

 

 (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. 333-232333) 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.

·          Consolidated Financial Statements”  means our recast audited consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 prepared in compliance with the International Financial Reporting Standards as issued by the International Accounting Standards Board (“IFRS-IASB”) and 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) contained in our Recast Form 6-K (as defined below). These recast Consolidated Financial Statements give retrospective effect to certain changes in our operating segments that became effective during the first half of 2019.

·          Garanti BBVA” means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires.

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

·          Recast Form 6-K” means our report on Form 6-K containing our Consolidated Financial Statements and certain revised disclosures, furnished to the SEC on June 25, 2019 (Accession No. 0000842180-19-000009).

·          Unaudited Condensed Interim Consolidated Financial Statements” means our unaudited condensed interim consolidated financial statements as of June 30, 2019 and December 31, 2018 and for the six months ended June 30, 2019 and June 30, 2018 prepared in accordance with International Accounting Standard 34 (IAS 34) as issued by the IASB and adopted by the European Union.

·          2018 Form 20-F” means our Annual Report on Form 20-F for the year ended December 31, 2018 filed with the SEC on March 28, 2019.

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

1


 

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:

·          4B. “Business Overview”,

·          4E. “Selected Statistical Information”, and

·          5A. “Operating Results”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include the factors identified in “Item 3. Key Information—Risk Factors”,  Item 4. Information on the Company”, “Item 5. Operating and Financial Review and Prospects” and “Item 11. Quantitative and Qualitative Disclosures About Market Risk” in our 2018 Form 20-F, in Item 4. Information on the Company” and “Item 5. Operating and Financial Review and Prospects” in our Recast Form 6-K and the following, among others:

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

·          our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union;

·          the monetary, interest rate and other policies of central banks in the European Union, 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;

·          the possible political, economic and regulatory impacts related to the United Kingdom’s proposed withdrawal from the European Union;

·          market adjustments in the real estate sector in Spain, Mexico, Turkey 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 Spain’s credit ratings;

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

2


 

·          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;

·          weaknesses or failures of our anti-money laundering or anti-terrorism programs, or of our internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations;

·          security breaches, including cyber-attacks;

·          the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations;

·          actions that are incompatible with our ethics and compliance standards, and our failure to timely detect or remedy any such actions;

·          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 to reflect the occurrence of unanticipated events.

3


 

PRESENTATION OF FINANCIAL INFORMATION

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, on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) for financial statements relating to periods ended January 1, 2018 or thereafter.

There are no differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017 and IFRS-IASB as of the dates and for the periods presented. 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 adopted by the European Union and required to be applied under the Bank of Spain’s Circular 4/2017.

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” in our 2018 Form 20-F

The financial information as of and for the six months ended June 30, 2018 included in the Unaudited Condensed Interim Consolidated Financial Statements may differ from previously reported financial information as of such date and for such period in our previously filed reports, as a result of the modifications referred to below under “—Hyperinflationary Economies” and “—Changes in Operating Segments”.

Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA has applied both exceptions. A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Property, plants and equipment” and “Tangible assets – Investment properties” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 16), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other  financial liabilities” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 21.5). For the consolidated income statement within our Unaudited Condensed Interim Consolidated Financial Statements, the amortization of the right to use an asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 40) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 32.2).

With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.

As allowed by IFRS 16, consolidated balance sheet information as of December 31, 2018 and consolidated income statement information for the six months ended June 30, 2018 included in our Unaudited Condensed Interim Consolidated Financial Statements has not been restated retrospectively in this regard.

See “5A. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial ConditionApplication of IFRS 16”. 

4


 

IAS 12 – “Income Taxes” Amendment

As part of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 - “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, an entity shall recognize the income tax consequences of dividends in profit or loss, other comprehensive income or equity according to where the entity originally recognized those past transactions or events. In accordance with the amended standard, we recorded the income tax consequences of dividends paid in the six months ended June 30, 2019 (amounting to €32 million income) under “Tax expense or income related to profit or loss from continuing operations” of our Unaudited Condensed Interim Consolidated Financial Statements (see Note 18). Such income tax consequences were previously recorded under “Total Equity”. Financial information for prior periods has not been restated retrospectively in this regard. If amended standard had been followed with respect to the six months ended June 30, 2018, it would have resulted in €38 million income for such period, which would have meant an increase of 1.5% of the consolidated profit of that period. The new standard has had no impact on our consolidated equity.

Hyperinflationary economies

In late 2018, the Group made a change with respect to the accounting policies for hyperinflationary economies in accordance with IAS 29 “Financial information in hyperinflationary economies”. For additional information on such change see “Presentation of Financial Information―Hyperinflationary Economies” in our 2018 Form 20-F In addition, in the third quarter of 2018, Argentina, which is part of the South America segment, was considered to be a hyperinflationary country for the first time, and we applied hyperinflation accounting in respect thereof with effect from January 1, 2018.  As a result thereof, the information for the six months ended June 30, 2018 has been restated for comparative purposes.

Changes in Operating Segments

During 2019, we changed the reporting structure of the BBVA Group’s operating segments as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed “Spain”. Additionally, certain balance sheet intra-group adjustments between Corporate Center and the operating segments have been reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of December 31, 2018 and for the six months ended June 30, 2018 comparable with the information as of and for the six months ended June 30, 2019, as required by IFRS 8 “Information by business segments”, figures as of December 31, 2018 and for the six months ended June 30, 2018 have been recast in conformity with the new segment reporting structure.

For additional information on our current segments, see 4B. Business Overview―Operating Segments” and Note 5 to 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.

·          Information has not been annualized except where explicitly stated.

 

5


 

3A. SELECTED INTERIM CONSOLIDATED FINANCIAL DATA

Except as indicated below, the historical financial information set forth below 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,

 

2019

2018 (1)

Change

(%)

 

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

Consolidated Statement of Income Data

 

 

 

Interest and other income

15,678

14,418

8.7

Interest expense

(6,691)

(5,828)

14.8

Net interest income

8,987

8,590

4.6

Dividend income

103

83

23.2

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

(19)

13

n.m. (5)

Fee and commission income

3,661

3,553

3.1

Fee and commission expense

(1,191)

(1,073)

11.1

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

408

621

(34.2)

Exchange differences, net

134

74

79.7

Other operating income

337

554

(39.2)

Other operating expense

(995)

(1,062)

(6.3)

Income on insurance and reinsurance contracts

1,547

1,601

(3.4)

Expense on insurance and reinsurance contracts

(983)

(1,091)

(9.9)

Gross income

11,989

11,863

1.1

Administration costs

(5,084)

(5,297)

(4.0)

Depreciation and amortization

(790)

(599)

32.0

Provisions or reversal of provisions

(261)

(184)

41.7

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

(1,777)

(1,606)

10.6

Net operating income

4,077

4,177

(2.4)

Impairment or reversal of impairment on non-financial assets

(44)

-

-

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

8

80

(90.5)

Negative goodwill recognized in profit or loss

-

-

-

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

11

29

(62.8)

Operating profit before tax

4,052

4,286

(5.5)

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

(1,136)

(1,222)

(7.1)

Profit from continuing operations

2,916

3,063

(4.8)

Profit from discontinued operations, net

-

-

 

Profit

2,916

3,063

(4.8)

Profit attributable to parent company

2,442

2,536

(3.7)

Profit attributable to non-controlling interests

475

528

(10.1)

Per share/ADS(3) Data

 

 

 

Profit from continuing operations

0.44

0.46

 

Diluted profit attributable to parent company (4)

0.34

0.36

 

Basic profit attributable to parent company

0.34

0.36

 

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)   Restated. See “Presentation of Financial Information—Hyperinflationary economies”. 

(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, excluding the weighted average number of treasury shares during the period (6,668 million shares for the six months ended June 30, 2019 and June 30, 2018).

(5)   Not meaningful.

6


 

 

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,

 

2019

2018 (1)

2018 (2)

 

(In Millions of Euros, Except  Percentages)

Consolidated Balance Sheet Data

 

 

 

Total assets

697,626

676,689

689,850

Net assets

54,690

52,874

52,278

Common stock

3,267

3,267

3,267

Financial assets at amortized cost

430,930

419,660

426,349

Financial liabilities at amortized cost - Customer deposits

375,104

375,970

367,312

Debt certificates

66,677

63,970

62,349

Non-controlling interest

5,839

5,764

6,400

Total equity

54,690

52,874

52,278

Consolidated ratios

 

 

 

Profitability ratios:

 

 

 

Net interest margin (3)

2.64%

2.59%

2.51%

Return on average total assets (4)

0.9%

0.9%

0.9%

Return on average shareholders' funds (5)

9.0%

10.1%

9.8%

Credit quality data

 

 

 

Loan loss reserve (6)

12,174

12,217

13,498

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

2.83%

2.91%

3.17%

Non-performing asset ratio (NPA ratio) (7)

3.84%

3.94%

4.40%

Impaired loans and advances to customers

16,009

16,349

18,627

Impaired loan commitments and guarantees to customers (8)

707

740

641

 

16,716

17,089

19,268

 

 

 

 

Loans and advances to customers at amortized cost (9)

389,306

386,225

390,661

Loan commitments and guarantees to customers

45,650

47,575

47,554

 

434,955

433,800

438,215

(1)  See “Presentation of Financial Information”. Recast consolidated income statement information for the year ended December 31, 2018 has been extracted from our Consolidated Financial Statements and is not included in our Unaudited Condensed Interim Consolidated Financial Statements.

(2)  Restated. See “Presentation of Financial Information—Hyperinflationary economies”. 

(3)  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, 2019 and June 30, 2018, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(4)  Represents profit attributable to parent company as a percentage of average total assets. In order to calculate “Return on average total assets” for the six months ended June 30, 2019 and June 30, 2018, respectively, profit attributable to parent company is annualized by multiplying profit attributable to parent company for the period by two.

(5)  Represents profit attributable to parent company for the period as a percentage of average shareholders’ funds for the period. In order to calculate “Return on average shareholders’ funds” for the six months ended June 30, 2019 and June 30, 2018, respectively, profit attributable to parent company is annualized by multiplying profit attributable to parent company for the period by two.

(6)  Represents impairment losses on loans and advances at amortized cost.

(7)  Represents the sum of impaired loans and advances to customers and impaired loan commitments and guarantees to customers divided by the sum of loans and advances to customers and loan commitments and guarantees to customers.

(8)  We include loan commitments and guarantees to customers in the calculation of our non-performing asset ratio (NPA ratio). We believe that impaired loan commitments and guarantees to customers 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 loan commitments and guarantees to customers (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 loan commitments and guarantees to customers were not included in the calculation of our NPA ratio, such ratio would generally be lower for the periods covered, amounting to 3.68% as of June 30, 2019, 3.77% as of December 31, 2018 and 4.25% as of June 30, 2018.

(9)  Includes impaired loans and advances.

 

 

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4B. Business Overview

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

The Group is committed to offering a compelling digital proposition and is focused on increasingly offering products online and through mobile channels, improving the functionality of its digital offerings and refining the customer experience. During the first six months of 2019, the number of digital and mobile customers and the volume of digital sales continued to increase.

In the second quarter of 2019, the Group carried out the unification of the BBVA brand in the countries in which it operates, replacing the local brand names in Argentina (Francés), the United States (Compass), Mexico (Bancomer), and Peru (Continental) with BBVA. The bank in Turkey has been renamed Garanti BBVA.

Operating Segments

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

•       Spain;

•       The United States;

•       Mexico;

•       Turkey;

•       South America; and

•       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; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles. BBVA’s 20% stake in Divarian Propiedad, S.A. (“Divarian”) is included in this unit. For more information regarding Divarian, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018” and “Item 10. Additional Information—C. Material Contracts—Joint Venture Agreement with Cerberus” in the 2018 Form 20-F.

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The breakdown of the Group’s total assets by operating segments and Corporate Center as of June 30, 2019 and December 31, 2018 is as follows:

 

As of June 30, 2019

As of December 31, 2018 (1)

 

(In Millions of Euros)

Spain

368,982

354,901

The United States

86,229

82,057

Mexico

105,366

97,432

Turkey

64,641

66,250

South America

56,433

54,373

Rest of Eurasia

20,209

18,834

Subtotal Assets by Operating Segment

701,860

673,848

Corporate Center and other adjustments

(4,234)

2,841

 

 

 

Total Assets BBVA Group

697,626

676,689

(1)   Recast. See “Presentation of Financial Information”. 

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, 2019 and June 30, 2018:

 

Profit/(Loss) Attributable to Parent Company

 

Six months ended June 30,

 

2019

2018 (1)

2019

2018 (1)

 

(In Millions of Euros)

(In percentage)

Spain

734

746

24.0

24.1

The United States

297

385

9.7

12.4

Mexico

1,287

1,200

42.1

38.8

Turkey

282

372

9.2

12.0

South America

404

332

13.2

10.7

Rest of Eurasia

55

60

1.8

1.9

Subtotal operating segments

3,058

3,094

100.0

100.0

Corporate Center

(616)

(558)

 

 

Profit attributable to parent company

2,442

2,536

 

 

(1)   Restated. See “Presentation of Financial Information—Hyperinflationary economies” and “Presentation of Financial Information—Changes in Operating Segments”.

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The following table sets forth certain summarized information relating to the income of each operating segment and Corporate Center for the six months ended June 30, 2019 and June 30, 2018 and reconciles the income statement of the various operating segments to the consolidated income statement of the Group:

 

Operating Segments

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Corporate Center

BBVA Group

 

(In Millions of Euros)

June 2019

 

 

 

 

 

 

 

 

Net interest income

1,808

1,217

3,042

1,353

1,613

84

(132)

8,987

Gross income

2,818

1,615

3,901

1,677

1,994

220

(236)

11,989

Net margin before provisions (1)

1,190

655

2,611

1,084

1,215

78

(718)

6,115

Operating profit/(loss) before tax

1,027

363

1,783

726

847

69

(762)

4,052

Profit attributable to parent company

734

297

1,287

282

404

55

(616)

2,442

June 2018 (2)

 

 

 

 

 

 

 

 

Net interest income

1,852

1,082

2,648

1,510

1,553

83

(137)

8,590

Gross income

3,023

1,437

3,465

1,924

1,987

217

(188)

11,863

Net margin before provisions (1)

1,336

544

2,309

1,245

1,078

77

(621)

5,967

Operating profit/(loss) before tax

1,056

493

1,654

964

724

93

(698)

4,286

Profit attributable to parent company

746

385

1,200

372

332

60

(558)

2,536

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

(2)   Restated. See “Presentation of Financial Information—Hyperinflationary economies” and “Presentation of Financial Information—Changes in Operating Segments”.

10


 

The following tables set forth information relating to the balance sheet of the operating segments, Corporate Center and other adjustments as of June 30, 2019 and December 31, 2018:

 

As of June 30, 2019

 

 

 

 

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and other adjustments

 

(In Millions of Euros)

Total Assets

368,982

86,229

105,366

64,641

56,433

20,209

701,860

(4,234)

Cash, cash balances at central banks and other demand deposits

12,157

7,504

10,051

7,687

7,662

217

45,278

(712)

Financial assets designated at fair value (1)

127,397

10,283

28,405

5,257

7,378

511

179,231

(4,177)

Financial assets at amortized cost

200,008

64,839

61,510

49,119

37,996

19,144

432,617

(1,687)

Loans and advances to customers

171,081

60,130

54,432

39,286

35,712

17,552

378,193

(1,038)

Total Liabilities

360,104

82,253

100,047

62,001

53,898

19,363

677,665

(29,485)

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

80,487

1,475

20,682

2,275

1,931

43

106,893

(6,614)

Financial liabilities at amortized cost- Customer deposits

180,434

63,122

52,960

39,456

36,896

4,294

377,162

(2,058)

Total Equity

8,878

3,976

5,319

2,640

2,535

846

24,194

30,494

Assets under management

64,370

-

23,419

2,983

12,577

454

103,804

 

Mutual funds

40,352

-

20,292

872

4,165

-

65,681

 

Pension funds

23,983

-

-

2,111

8,412

454

34,960

 

Other placements

35

-

3,127

-

-

-

3,162

 

(1)   Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

11


 

 

As of December 31, 2018 (1)

 

 

 

 

 

Spain

The United States

Mexico

Turkey

South America

Rest of Eurasia

Total Operating Segments

Corporate Center and other adjustments

 

(In Millions of Euros)

Total Assets

354,901

82,057

97,432

66,250

54,373

18,834

673,848

2,841

Cash, cash balances at central banks and other demand deposits

28,545

4,835

8,274

7,853

8,987

238

58,732

(536)

Financial assets designated at fair value (2)

107,320

10,481

26,022

5,506

5,634

504

155,467

(2,564)

Financial assets at amortized cost

195,467

63,539

57,709

50,315

36,649

17,799

421,477

(1,818)

Loans and advances to customers

170,438

60,808

51,101

41,478

34,469

16,598

374,893

(867)

Of which:

 

 

 

 

 

 

 

 

Residential mortgages

74,543

10,990

9,197

3,530

6,629

1,821

106,709

 

Consumer finance

11,749

9,187

12,145

9,145

9,431

420

52,077

 

Loans

9,665

8,467

7,347

5,265

7,374

410

38,528

 

Credit cards

2,083

720

4,798

3,880

2,058

10

13,549

 

Loans to enterprises

52,514

32,862

20,493

27,657

16,975

13,685

164,186

 

Loans to public sector

17,070

5,400

5,726

95

1,078

414

29,784

 

Total Liabilities

345,592

77,976

90,961

63,657

52,683

18,052

648,921

(25,106)

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

71,033

234

18,028

1,852

1,357

42

92,545

(4,778)

Financial liabilities at amortized cost- Customer deposits

183,414

63,891

50,530

39,905

35,842

4,876

378,456

(2,486)

Of which:

 

 

 

 

 

 

 

 

Current and savings accounts

142,912

41,213

38,167

12,530

22,959

3,544

261,324

 

Time deposits

40,072

16,856

11,593

27,367

12,829

1,333

110,051

 

Total Equity

9,309

4,082

6,471

2,593

1,690

782

24,927

27,947

Assets under management

62,559

-

20,647

2,894

11,662

388

98,150

 

Mutual funds

39,250

-

17,733

669

3,741

-

61,393

 

Pension funds

23,274

-

-

2,225

7,921

388

33,807

 

Other placements

35

-

2,914

-

-

-

2,949

 

(1)   Recast. See “Presentation of Financial Information”.

(2)   Financial assets designated at fair value includes: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”.

12


 

Spain

This operating segment includes all of BBVA’s banking and non-banking businesses in Spain, other than those included in the Corporate Center. 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: which manages small and medium sized enterprises (“SMEs”), companies and corporations, public institutions and developer segments;

·            Corporate and Investment Banking: responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and

·            Other units: which includes the insurance business unit in Spain (BBVA Seguros), the Asset Management unit, which manages Spanish mutual funds and pension funds, and lending to real estate developers and foreclosed real estate assets (including assets from the previous Non-Core Real Estate operating segment), as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center.

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €127,397 million, a 18.7% increase from the €107,320 million recorded as of December 31, 2018, mainly as a result of increased debt securities in the “Financial assets held for trading” and the “Financial assets at fair value through other comprehensive income” portfolios, in particular, there was an increase in Spanish government debt securities, and to a lesser extent, in foreign government debt securities, which more than offset the decrease in U.S. government debt securities, and increased loans to the retail segments. Also, there has been a contribution from the acceleration in commercial portfolios.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €200,008 million, a 2.3% increase compared with the €195,467 million recorded as of December 31, 2018. Within this heading, loans and advances to customers amounted to €171,081 million as of June 30, 2019, an increase of 0.4% from the €170,438 million recorded as of December 31, 2018.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €80,487 million, a 13.3% increase compared with the €71,033 million recorded as December 31, 2018, mainly as a result of the increase in repurchase agreements.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €180,434 million, a 1.6% decrease compared with the €183,414 million recorded as of December 31, 2018 mainly as a result of the decrease in time deposits.

Mutual funds of this operating segment as of June 30, 2019 amounted to €40,352 million, a 2.8% increase from the €39,250 million recorded as of December 31, 2018, mainly due to new contributions.

Pension funds of this operating segment as of June 30, 2019 amounted to €23,983 million, a 3.0% increase compared with the €23,274 million recorded as of December 31, 2018.

This operating segment’s non-performing loan ratio decreased to 4.6% as of June 30, 2019 from 5.1% as of December 31, 2018, mainly due to a 9.7% decrease in the balance of non-performing loans in the period (€9,096 million as of June 30, 2019 and €10,073 million as of December 31, 2018). This operating segment’s non-performing loan coverage ratio increased to 58% as of June 30, 2019 from 57% as of December 31, 2018.

13


 

The United States

This operating segment encompasses the Group’s business in the United States. BBVA Compass accounted for 90.8% of this operating segment’s balance sheet as of June 30, 2019. Given the importance of BBVA Compass in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA branch in New York, which specializes in transactions with large corporations.

The U.S. dollar appreciated 0.6% against the euro as of June 30, 2019 compared with December 31, 2018, positively affecting the business activity of the United States operating segment as of June 30, 2019 expressed in euros. See “5A.Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €10,283 million, a 1.9% decrease from the €10,481 million recorded as of December 31, 2018, mainly due to a fall in both U.S. Treasury and other U.S. government agencies and agency mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €64,839 million, a 2.0% increase compared with the €63,539 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €60,130 million, a 1.1% decrease compared with the €60,808 million recorded as of December 31, 2018, mainly due to a decrease in commercial loans, in particular, in real estate mortgage loans.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €63,122 million, a 1.2% decrease compared with the €63,891 million recorded as of December 31, 2018.

The non-performing loan ratio of this operating segment as of June 30, 2019 and as of December 31, 2018 was 1.3%. This operating segment’s non-performing loan coverage ratio increased to 91% as of June 30, 2019, from 85% as of December 31, 2018, mainly due to the decrease in non-performing loans.

Mexico

The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by BBVA Bancomer. Since 2018, it also includes BBVA Bancomer’s branch in Houston (which was part of our United States segment in previous periods).

The Mexican peso appreciated 3.1% against the euro as of June 30, 2019 compared with December 31, 2018, positively affecting the business activity of the Mexico operating segment as of June 30, 2019 expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €28,405 million, a 9.2% increase from the €26,022 million recorded as of December 31, 2018, mainly as a result of increased reverse repurchase agreements and debt securities within the “Financial assets held for trading” portfolio and due to the appreciation of the Mexican peso against the euro.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €61,510 million, a 6.6% increase compared with the €57,709 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €54,432 million, a 6.5% increase compared with the €51,101 million recorded as of December 31, 2018, mainly due to higher loans to non-financial entities and households and, to a lesser extent, the appreciation of the Mexican peso against the euro.

14


 

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €20,682 million, a 14.7% increase compared with the €18,028 million recorded as of December 31, 2018, mainly as a result of increased repurchase agreements and, to a lesser extent, the appreciation of the Mexican peso against the euro.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €52,960 million, a 4.8% increase compared with the €50,530 million recorded as of December 31, 2018, primarily due to the increase in both demand deposits and time deposits (which increased by 6.6% and 3.7%, respectively, year-on-year) due in part to the appreciation of the Mexican peso against the euro.

Mutual funds of this operating segment as of June 30, 2019 amounted to €20,292 million, a 14.4% increase compared with the €17,733 million recorded as of December 31, 2018, primarily due to the growth in investment funds and, to a lesser extent, the appreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio was 2.2% as of June 30, 2019 and 2.1% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio decreased to 148% as of June 30, 2019 from 154% as of December 31, 2018, due to a decrease of 1.5% in the provisions.

Turkey

This operating segment comprises the banking and insurance businesses conducted by Garanti BBVA and its consolidated subsidiaries, which are mainly carried out in Turkey and, to a lesser extent, in Romania and the Netherlands.

The Turkish lira depreciated 7.7% against the euro as of June 30, 2019 compared to December 31, 2018, negatively affecting the business activity of the Turkey operating segment as of June 30, 2019 expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

Financial assets designated at fair value of this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €5,257 million, a 4.5% decrease from the €5,506 million recorded as of December 31, 2018, mainly as a result of the contraction in loans denominated in U.S. dollars, the downward trend in consumer loans and the depreciation of the Turkish lira. This was partially offset by the increase in Turkish lira-denominated corporate banking loans as a result of the recently launched CGF-Credit Guarantee Fund, which is intended to support SMEs and entrepreneurs and pursuant to which loans are provided with Turkish Treasury-backed credit guarantees.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €49,119 million a 2.4% decrease compared with the €50,315 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €39,286 million, a 5.3% decrease compared with the €41,478 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira and the contraction of mortgage and car loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2019 amounted to €2,275 million, a 22.9% increase compared with the €1,852 million recorded as of December 31, 2018, mainly as a result of the increase in debt certificates.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €39,456 million, a 1.1% decrease compared with the €39,905 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira.

15


 

Mutual funds in this operating segment as of June 30, 2019 amounted to €872 million, a 30.3% increase compared with the €669 million recorded as of December 31, 2018, mainly due to the positive growth in money market related funds due to positive market performance.

Pension funds in this operating segment as of June 30, 2019 amounted to €2,111 million, a 5.1% decrease compared with the €2,225 million recorded as of December 31, 2018, mainly due to the depreciation of the Turkish lira.

The non-performing loan ratio of this operating segment as of June 30, 2019 was 6.3% compared with 5.3% as of December 31, 2018 mainly as a result of increased impairments of wholesale loans affected by the deteriorating macroeconomic scenario. This operating segment’s non-performing loan coverage ratio decreased to 75% as of June 30, 2019 from 81% as of December 31, 2018, mainly due to the increase in the balance of non-performing loans as of June 30, 2019 in comparison with the balance recorded as of December 31, 2018.

South America

The South America operating segment includes the 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, Colombia, Paraguay, Peru, Uruguay and Venezuela.

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

As of June 30, 2019, the Argentine peso depreciated 11.2% against the euro compared to December 31, 2018, while the Colombian peso and the Peruvian sol appreciated against the euro, compared to December 31, 2018, by 2.9% and 3.3%, respectively. Overall, changes in exchanges rates have negatively affected the business activity of the South America operating segment expressed in euros. See “5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”

At year-end 2018, the Argentinian economy was considered to be hyperinflationary as defined by IAS 29 (see “Item 5. Operating and Financial Review and Prospects—Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Hyperinflationary economies” of our 2018 Form 20-F).

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €7,378 million, a 31.0% increase compared with the €5,634 million recorded as of December 31, 2018, mainly attributable to the positive evolution of credit cards and loans to enterprises.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €37,996 million, a 3.7% increase compared with the €36,649 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €35,712 million, a 3.6% increase compared with the €34,469 million recorded as of December 31, 2018, mainly as a result of increases in Colombia and Peru.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €36,896 million, a 2.9% increase compared with the €35,842 million recorded as of December 31, 2018. By country, customer deposits increased in Peru and Colombia.

Mutual funds in this operating segment as of June 30, 2019 amounted to €4,165 million, an 11.3% increase compared with the €3,741 million recorded as of December 31, 2018, mainly due to Argentina.

16


 

Pension funds in this operating segment as of June 30, 2019 amounted to €8,412 million, a 6.2% increase compared with the €7,921 million recorded as of December 31, 2018, mainly as a result of an increase in pension funds in Bolivia.

The non-performing loan ratio of this operating segment as of June 30, 2019 increased to 4.4% compared with 4.3% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio decreased to 95% as of June 30, 2019, from 97% as of December 31, 2018, mainly due to the increase in the balance of non-performing loans as of June 30, 2019 compared to the balance recorded as of December 31, 2018.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, except for those businesses comprised in our Spain and Turkey operating segments.

Financial assets designated at fair value for this operating segment (which includes the following portfolios: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at fair value through other comprehensive income”) as of June 30, 2019 amounted to €511 million, a 1.3% increase compared with the €504 million recorded as of December 31, 2018.

Financial assets at amortized cost of this operating segment as of June 30, 2019 amounted to €19,144 million, a 7.6% increase compared with the €17,799 million recorded as of December 31, 2018. Within this heading, loans and advances to customers of this operating segment as of June 30, 2019 amounted to €17,552 million, a 5.7% increase compared with the €16,598 million recorded as of December 31, 2018, mainly as a result of an increase in enterprise loans and the growth in Asia.

Customer deposits at amortized cost of this operating segment as of June 30, 2019 amounted to €4,294 million, an 11.9% decrease compared with the €4,876 million recorded as of December 31, 2018, due to the negative interest rate environment.

Pension funds in this operating segment as of June 30, 2019 amounted to €454 million, a 17.1% increase compared with the €388 million recorded as of December 31, 2018, mainly due to increases in the business in Portugal.

The non-performing loan ratio of this segment as of June 30, 2019 was 1.4% compared with 1.7% as of December 31, 2018. This operating segment’s non-performing loan coverage ratio increased to 98% as of June 30, 2019, from 83% as of December 31, 2018.

4E. 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 determination, where applicable, that our foreign operations are significant according to Rule 9-05 of Regulation S-X. The allocation of assets and liabilities is based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Domestic balances are those of Group entities domiciled in Spain, which reflect our domestic activities, and international balances are those of the Group entities domiciled outside of Spain, which reflect our foreign activities.

Financial information as of and for the six months ended  June 30, 2018 has been restated for comparability purposes. See “Presentation of Financial Information”. 

17


 

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, 2019

Six months ended June 30, 2018

 

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

48,217

135

0.57%

38,855

55

0.29%

Domestic

17,386

27

0.32%

17,861

21

0.24%

Foreign

30,831

108

0.71%

20,994

33

0.32%

Debt securities and derivatives

177,847

2,803

3.20%

182,680

2,252

2.50%

Domestic

106,173

537

1.03%

117,373

583

1.01%

Foreign

71,674

2,266

6.41%

65,307

1,669

5.18%

Financial assets

412,351

12,605

6.20%

419,400

12,052

5.83%

Loans and advances to central banks

5,023

146

5.90%

6,797

122

3.63%

Loans and advances to credit institutions

28,492

408

2.90%

25,544

327

2.60%

Loans and advances to customers

378,837

12,051

6.45%

387,059

11,603

6.08%

      In euros

181,750

1,708

1.91%

184,002

1,677

1.85%

Domestic

157,350

1,673

2.16%

173,243

1,641

1.92%

Foreign

24,400

36

0.30%

10,759

36

0.68%

      In other currency

197,087

10,343

10.64%

203,057

9,926

9.91%

Domestic

16,396

304

3.76%

14,074

228

3.29%

Foreign

180,691

10,039

11.27%

188,983

9,698

10.41%

Other assets (2)

46,563

135

0.59%

46,467

59

0.26%

Total average assets (3)

684,978

15,678

4.64%

687,403

14,418

4.25%

(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”, “Non-current assets and disposal groups held for sale” and “Equity instruments”.

(3)   Foreign activity represented 49.96% of the total average assets for the six months ended June 30, 2019 and 46.28% for the six months ended June 30, 2018.

18


 

 

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

 

 

Six months ended June 30, 2019

Six months ended June 30, 2018

 

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

62,299

1,057

3.44%

67,739

1,140

3.41%

Customer deposits

375,513

3,733

2.02%

374,067

3,529

1.91%

    In euros

183,761

101

0.11%

177,909

167

0.19%

Domestic

158,754

96

0.12%

168,585

161

0.19%

Foreign

25,008

5

0.04%

9,324

6

0.13%

    In other currency

191,752

3,632

3.84%

196,158

3,363

3.48%

Domestic

8,837

127

2.92%

10,143

51

1.01%

Foreign

182,915

3,505

3.89%

186,014

3,312

3.61%

Debt certificates

76,494

962

2.55%

78,620

861

2.22%

Other liabilities (2)

116,478

940

1.64%

114,307

904

1.60%

Total average liabilities

630,784

6,691

2.15%

634,733

6,435

2.06%

Total Equity

54,194

-

-

52,670

-

-

Total average liabilities and equity (3)

684,978

6,691

1.98%

687,403

5,828

1.72%

(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 52.00% of the total average liabilities for the six months ended June 30, 2019 and 48.26% for the six months ended June 30, 2018.

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, 2019 compared with the six months ended June 30, 2018 and the six months ended June 30, 2018 compared with the six months ended June 30, 2017. 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.

19


 

 

For the six months ended June 30, 2019/June 30, 2018

 

Increase (Decrease) Due To Changes In

 

Volume (1)

Rate  (2)

Net Change

 

(In Millions of Euros)

Interest income

 

 

 

Cash and balances with central banks

13

67

80

Securities portfolio and derivatives

(60)

610

551

Loans and advances to central banks

(32)

56

25

Loans and advances to credit institutions

38

43

81

Loans and advances to customers

(246)

694

448

   In euros

(21)

52

31

Domestic

(151)

182

32

Foreign

130

(130)

-

   In other currencies

(292)

708

417

Domestic

38

38

76

Foreign

(330)

671

341

Other assets

-

76

76

Total income

 

 

1,260

Interest expense

 

 

 

Deposits from central banks and credit institutions

(92)

8

(83)

Customer deposits

14

190

204

   In euros

5

(71)

(66)

Domestic

(9)

(55)

(65)

Foreign

15

(16)

(1)

   In other currencies

(76)

345

269

Domestic

(7)

83

77

Foreign

(69)

262

193

Debt certificates

(23)

124

100

Other liabilities

6

637

643

Total expense

 

 

863

Net interest income

 

 

396

(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, 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

(4)

(185)

(189)

Loans and advances to central banks

(67)

40

(27)

Loans and advances to credit institutions

(3)

186

183

Loans and advances to customers

(699)

996

297

   In euros

(118)

80

(38)

Domestic

(130)

92

(37)

Foreign

12

(12)

-

   In other currencies

(532)

867

335

Domestic

(23)

52

28

Foreign

(508)

815

307

Other assets

(39)

(161)

(200)

Total income

 

 

113

Interest expense

 

 

 

Deposits from central banks and credit institutions

(258)

460

202

Customer deposits

(172)

678

505

   In euros

(11)

(66)

(78)

Domestic

(10)

(66)

(77)

Foreign

(1)

-

(1)

   In other currencies

(185)

768

583

Domestic

(6)

28

23

Foreign

(179)

740

560

Debt certificates

(76)

72

(4)

Other liabilities

208

(586)

(378)

Total expense

 

 

326

Net interest income

 

 

(213)

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

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

Interest Earning Assets—Margin and Spread

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

21


 

 

Six months ended June 30,

 

2019

2018

 

(In Millions of Euros, except %)

Average interest earning assets

638,415

640,936

Gross yield (1)

2.5%

2.2%

Net yield (2)

2.3%

2.1%

Net interest margin (3)

1.4%

1.3%

Average effective rate paid on interest-bearing liabilities

1.3%

1.1%

Spread (4)

1.2%

1.1%

(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 effective rate paid on interest-bearing liabilities”.

ASSETS

Interest-Bearing Deposits in Other Banks

As of June 30, 2019, interbank deposits (excluding deposits with central banks) represented 5.1% of our total assets. Of such interbank deposits, 10.6% were held outside of Spain and 89.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of June 30, 2019, our total securities portfolio was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €138,318 million, representing 19.8% of our total assets. €25,261 million, or 18.3%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during the six months ended June 30, 2019 on the investment securities that BBVA held was 4.6%, compared with an average yield of approximately 6.2% earned on loans and advances during the six months ended June 30, 2018. For a discussion of our investments in affiliates, see Note 15 to our Unaudited Condensed Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Note 7 to our Unaudited Condensed Interim Consolidated Financial Statements.

The following tables analyze the amortized cost and fair value, as of June 30, 2019 and December 31, 2018, respectively, of debt securities recorded under “Financial assets at fair value through other comprehensive income” in our Unaudited Condensed Interim Consolidated Financial Statements. Financial assets held for trading, non-trading financial assets mandatorily at fair value through profit or loss and financial assets designated at fair value through profit or loss are not included in the tables below because the amortized costs and fair values of these items are the same. See Notes 7 and 12 to our Unaudited Condensed Interim Consolidated Financial Statements.

22


 

 

As of June 30, 2019

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

DEBT SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

26,138

27,213

1,085

(10)

Spanish Government and other government agencies debt securities

24,304

25,261

967

(10)

Other debt securities

1,834

1,951

118

-

Issued by Central Banks

-

-

-

-

Issued by credit institutions

894

967

73

-

Issued by other institutions

940

984

45

-

Foreign

33,529

33,506

523

(548)

The United States

11,442

11,449

87

(80)

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

4,831

4,874

52

(8)

States and political subdivisions debt securities

3,389

3,374

9

(24)

Other debt securities

3,222

3,200

26

(48)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

98

100

2

-

Issued by other institutions

3,124

3,100

24

(48)

Mexico

6,209

6,150

17

(77)

Mexican Government and other government agencies debt securities

5,249

5,210

15

(54)

Other debt securities

960

940

2

(23)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

68

68

-

(1)

Issued by other institutions

892

872

2

(22)

Turkey

4,033

3,756

17

(293)

Turkey Government and other government agencies debt securities

3,893

3,620

17

(290)

Other debt securities

140

136

-

(4)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

140

136

-

(4)

Issued by other institutions

-

-

-

-

Other countries

11,845

12,150

403

(98)

Other foreign governments and other government agencies debt securities

6,659

6,840

237

(56)

Other debt securities

5,186

5,310

166

(41)

Issued by Central Banks

1,278

1,273

3

(7)

Issued by credit institutions

1,715

1,814

117

(18)

Issued by other institutions

2,194

2,224

46

(16)

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

59,667

60,718

1,608

(558)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

23


 

 

As of December 31, 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

18,802

19,553

761

(10)

Spanish Government and other government agencies debt securities

17,205

17,857

661

(9)

Other debt securities

1,597

1,696

100

(1)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

793

855

63

-

Issued by other institutions

804

841

37

(1)

Foreign

34,521

34,157

392

(758)

The United States

14,507

14,338

47

(217)

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

7,285

7,258

29

(56)

States and political subdivisions debt securities

3,942

3,872

8

(79)

Other debt securities

3,280

3,208

10

(82)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

49

50

1

-

Issued by other institutions

3,231

3,158

9

(82)

Mexico

6,299

6,163

6

(142)

Mexican Government and other government agencies debt securities

5,286

5,169

4

(121)

Other debt securities

1,013

994

2

(21)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

35

34

-

(1)

Issued by other institutions

978

961

2

(20)

Turkey

4,164

3,916

20

(269)

Turkey Government and other government agencies debt securities

4,007

3,771

20

(256)

Other debt securities

157

145

-

(13)

Issued by Central Banks

-

-

-

-

Issued by credit institutions

157

145

-

(13)

Issued by other institutions

-

-

-

-

Other countries

9,551

9,740

319

(130)

Other foreign governments and other government agencies debt securities

4,510

4,601

173

(82)

Other debt securities

5,041

5,139

146

(48)

Issued by Central Banks

987

986

2

(4)

Issued by credit institutions

1,856

1,947

111

(20)

Issued by other institutions

2,197

2,206

33

(25)

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

53,323

53,709

1,153

(768)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

24


 

As of June 30, 2019, 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, 2019

 

 

Debt Securities at Fair Value through Other Comprehensive Income

 

 

Carrying Amount

(In Millions of Euros)

 

Percentage of Total (%)

AAA

 

1,785

 

2.9%

AA+

 

8,848

 

14.6%

AA

 

257

 

0.4%

AA-

 

307

 

0.5%

A+

 

2,453

 

4.0%

A

 

578

 

1.0%

A-

 

11,389

 

18.8%

BBB+

 

22,439

 

37.0%

BBB

 

3,947

 

6.5%

BBB-

 

1,868

 

3.1%

BB+ or below

 

4,706

 

7.8%

Without rating

 

2,140

 

3.5%

TOTAL

 

60,718

 

100%

The following tables analyze the amortized cost and fair value, as of June 30, 2019 and December 31, 2018, of our equity securities recorded under “Financial assets at fair value through other comprehensive income” in the Unaudited Condensed Interim Consolidated Financial Statements (see Note 12).

25


 

 

As of June 30, 2019

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

2,178

1,937

1

(242)

Equity listed

2,172

1,930

-

(242)

Equity unlisted

6

6

1

-

Foreign

556

676

133

(13)

United States

419

487

68

-

Equity listed

30

70

40

-

Equity unlisted

389

416

28

-

Other countries

137

189

65

(13)

Equity listed

72

90

31

(13)

Equity unlisted

65

99

35

(1)

TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

2,734

2,613

134

(255)

TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

62,401

63,331

1,742

(813)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to our Unaudited Condensed Interim Consolidated Financial Statements.

26


 

 

As of December 31, 2018

 

Amortized cost

Fair Value (1)

Unrealized Gains

Unrealized Losses

 

(In Millions of Euros)

EQUITY SECURITIES

 

 

 

 

AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

 

 

 

 

Domestic

2,178

1,969

1

(210)

Equity listed

2,172

1,962

-

(210)

Equity unlisted

6

7

1

-

Foreign

543

627

97

(13)

United States

408

448

40

-

Equity listed

20

37

17

-

Equity unlisted

388

411

23

-

Other countries

135

179

57

(13)

Equity listed

70

84

26

(12)

Equity unlisted

65

95

31

(1)

TOTAL EQUITY SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

2,721

2,595

98

(223)

TOTAL INVESTMENT SECURITIES AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO

56,044

56,304

1,251

(991)

(1)   Fair values for listed securities are determined on the basis of their quoted prices at the end of the period. Fair values for unlisted securities are based on our estimates and valuation techniques. See Note 12 to the Unaudited Condensed Interim Consolidated Financial Statements.

Loans and Advances to Credit Institutions and Central Banks

As of June 30, 2019, our total loans and advances to credit institutions and central banks amounted to €41,190 million, or 5.9% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €16,445 million, or 2.4% of total assets. Net of our impairment losses, total loans and advances to credit institutions and central banks at amortized cost amounted to €16,421 million as of June 30, 2019, or 2.4% of total assets.

Loans and Advances to Customers

As of June 30, 2019, our total loans and advances to customers amounted to €402,747 million, or 57.7% of total assets. Net of our impairment losses, total loans and advances to customers amounted to €390,596 million as of June 30, 2019, or 55.9% of our total assets. As of June 30, 2019 our total loans and advances to customers in Spain amounted to €169,774 million. Our total loans and advances to customers outside Spain amounted to €232,972 million as of June 30, 2019. For a discussion of certain mandatory ratios relating to our loan portfolio, see “Item 4.Information on the Company—B. Business Overview—Supervision and Regulation—Capital Requirements” and “Item 4. Information on the Company—B.  Business Overview— Supervision and Regulation—Investment Ratio” in our 2018 Form 20-F.

27


 

Loans by Geographic Area

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

 

As of June 30,

 

As of December 31,

 

As of June 30,

 

2019

 

2018

 

2018

 

(In Millions of Euros)

 

 

Domestic

169,774

 

171,361

 

174,282

Foreign

 

 

 

 

 

Western Europe

29,722

 

29,322

 

24,915

The United States

61,152

 

61,497

 

58,038

Mexico

57,735

 

53,772

 

52,136

Turkey

38,790

 

40,641

 

46,963

South America

39,845

 

38,680

 

40,296

Other

5,728

 

4,777

 

4,613

Total foreign

232,972

 

228,688

 

226,960

Total loans and advances

402,747

 

400,049

 

401,243

Impairment losses

(12,151)

 

(12,199)

 

(13,486)

Total net lending (1)

390,596

 

387,850

 

387,757

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

28


 

Loans by Type of Customer

The following table shows 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, 2019

 

As of December 31, 2018

 

As of June 30, 2018

 

 

 

 

(In Millions of Euros)

Domestic

 

 

 

 

 

Government

16,063

 

16,671

 

17,384

Agriculture

1,198

 

1,118

 

1,048

Industrial

14,513

 

14,683

 

13,337

Real estate and construction

9,915

 

10,671

 

11,140

Commercial and financial

16,104

 

17,131

 

17,676

Loans to individuals(1)

98,790

 

98,131

 

100,387

Other

13,191

 

12,955

 

13,311

Total Domestic

169,774

 

171,361

 

174,282

Foreign

 

 

 

 

 

Government

13,995

 

13,900

 

13,800

Agriculture

2,758

 

2,566

 

2,594

Industrial

42,490

 

41,954

 

40,649

Real estate and construction

18,796

 

18,499

 

19,275

Commercial and financial

39,899

 

36,571

 

34,704

Loans to individuals(1)

81,841

 

80,224

 

79,492

Other

33,193

 

34,973

 

36,446

Total Foreign

232,972

 

228,688

 

226,960

Total Loans and Advances

402,747

 

400,049

 

401,243

Impairment losses

(12,151)

 

(12,199)

 

(13,486)

Total net lending(2)

390,596

 

387,850

 

387,757

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

(2)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

The following table sets forth a breakdown, by currency, of our net loan portfolio as of June 30, 2019, December 31, 2018 and June 30, 2018:

 

As of June 30, 2019

 

As of December 31, 2018

 

As of June 30, 2018

 

(In Millions of Euros)

 

 

 

 

 

 

In euros

194,195

 

193,702

 

189,196

In other currencies

196,401

 

194,148

 

198,561

Total net lending (1)

390,596

 

387,850

 

387,757

(1)   Includes loans and advances to customers included in the following headings: “Financial assets held for trading”, “Non-trading financial assets mandatorily at fair value through profit or loss”, “Financial assets designated at fair value through profit or loss” and “Financial assets at amortized cost”, net of impairment losses.

29


 

As of June 30, 2019, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,403 million, compared with €1,866 million as of December 31, 2018. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,063 million, or 4.1% of our total loans and advances to customers as of June 30, 2019, compared with the €16,671 million, or 4.2% of our total loans and advances to customers as of December 31, 2018. 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 March 31, 2019 (which is the latest available information) excluding government-related loans, amounted to €22,655  million or approximately 5.3% of our total outstanding loans and advances. As of June 30, 2019 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

Maturity and Interest Sensitivity

The following table sets forth a breakdown 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, 2019. The determination of maturities is based on contract terms.

 

 

Maturity

 

 

 

Due In One Year or Less

Due After One Year Through Five Years

Due After Five Years

Total

 

(In Millions of Euros)

Domestic

 

 

 

 

Government

6,049

3,305

6,710

16,063

Agriculture

344

434

419

1,198

Industrial

5,758

4,878

3,877

14,513

Real estate and construction

1,869

3,294

4,752

9,915

Commercial and financial

9,116

4,544

2,443

16,104

Loans to individuals

6,935

9,203

82,652

98,790

Other

3,980

5,135

4,077

13,191

Total Domestic

34,051

30,792

104,930

169,774

Foreign

 

 

 

 

Government

1,794

2,581

9,620

13,995

Agriculture

1,564

859

336

2,758

Industrial

16,179

18,690

7,621

42,490

Real estate and construction

5,206

8,943

4,647

18,796

Commercial and financial

25,028

12,553

2,318

39,899

Loans to individuals

11,832

28,441

41,568

81,841

Other

9,883

15,012

8,298

33,193

Total Foreign

71,486

87,079