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, 2020

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 office)

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]

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

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

· “Consolidated Financial Statements” means our audited consolidated financial statements as of and for the years ended December 31, 2019, 2018 and 2017, 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 (each as defined herein).

· “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.

· “Unaudited Condensed Interim Consolidated Financial Statements” means our unaudited condensed interim consolidated financial statements as of June 30, 2020 and December 31, 2019 and for the six months ended June 30, 2020 and June 30, 2019 prepared in accordance with International Accounting Standard 34 (IAS 34) as issued by the IASB and adopted by the European Union (“EU”).

· “2019 Form 20-F” means our Annual Report on Form 20-F for the year ended December 31, 2019 filed with the SEC on February 28, 2020.

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:

· 4B. “Business Overview”,

· 4E. “Selected Statistical Information”, and

· 5. “Operating and Financial Review and Prospects”.

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 2019 Form 20-F, and the following, among others:

· the impact of the coronavirus (COVID-19) pandemic and the measures adopted by governments and the private sector in connection therewith on our business and the economy;

· political, economic and business conditions in Spain, the EU, Latin America, Turkey, the United States and the other geographies 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, liquidity and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union and an EU capital markets union;

· the monetary, interest rate and other policies of central banks, and the trade, economic and other policies of governments, 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;

· the political, economic and regulatory impacts related to the United Kingdom’s withdrawal from the EU and the future relationship between the United Kingdom and the EU;

· adjustments in the real estate markets in the geographies in which we operate, in particular in Spain, Mexico, the United States and Turkey;

· the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation of us or our competitors, and our ability to implement technological advances;

· 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, exchange controls or other limitations on the repatriation of dividends, international ownership legislation, interest rate caps and tax policies;

· our ability to continue to access sources of liquidity and funding, including public sources of liquidity such as the funding provided by the European Central Bank (“ECB”) through the extraordinary measures adopted in connection with the COVID-19 pandemic, and our ability to receive dividends and other funds from our subsidiaries;

· 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, joint ventures 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;

· 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 and identity theft;

· 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;

· uncertainty surrounding the integrity and continued existence of reference rates and the transition away from the Euro Interbank Offered Rate (EURIBOR), Euro OverNight Index Average (EONIA) and London Inter-bank Offered Rate (LIBOR) to new reference rates;

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

· force majeure and other events beyond our control.

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

PRESENTATION OF FINANCIAL INFORMATION

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 EU and required to be applied under the Bank of Spain’s Circular 4/2017.

For a description of our critical accounting policies, see Note 2 to our Unaudited Condensed Interim Consolidated Financial Statements, “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies”, “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” in our 2019 Form 20-F and Note 2.2.1 to our Consolidated Financial Statements.

The financial information as of December 31, 2019 included herein and in the Unaudited Condensed Interim Consolidated Financial Statements may differ from previously reported financial information as of such date in our previously filed reports, including the 2019 Form 20-F, as a result of the modifications referred to below under “—Hyperinflationary economies”.

The financial information for the six months ended June 30, 2019 included herein and in the Unaudited Condensed Interim Consolidated Financial Statements may differ from previously reported financial information for such period in our previously filed reports, as a result of the modifications referred to below under “—IFRS 9 – Collection of interest on impaired financial assets”.

Hyperinflationary economies

Considering the interpretation issued by the International Financial Reporting Interpretations Committee (IFRIC) in its “IFRIC Update” of March 2020 on IAS 29 “Financial information in hyperinflationary economies”, the Group made an accounting policy change which involves recording the differences generated when translating the restated financial statements of the subsidiaries in hyperinflationary economies into euros in the line item “Accumulated other comprehensive income – Items that may be reclassified to profit or loss – Foreign currency translation” of our consolidated balance sheet. In order to make the information as of December 31, 2019 comparable with information as of June 30, 2020, the former has been restated by reclassifying €2,985 million from “Shareholders’ funds – Retained earnings” and €6 million from “Shareholders’ funds – Other reserves” to “Accumulated other comprehensive income – Items that may be reclassified to profit or loss – Foreign currency translation”.

The reclassification has been recorded as “Effect of changes in accounting policies” under the balance as of January 1, 2019 in the consolidated statement of changes in equity for the six-month period ended June 30, 2019.

IFRS 9 – Collection of interest on impaired financial assets

As a consequence of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9, such collections are presented since 2020 as reductions in credit-related write-offs whereas previously they were included as interest income. In order to make the information for the six months ended June 30, 2019 comparable with the information for the six months ended June 30, 2020, the unaudited condensed interim consolidated income statement for the six months ended June 30, 2019 has been restated by recognizing a €45 million reduction in the heading “Interest and other income” and a €45 million increase in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification”. This reclassification has had no impact on the profit for the period for the six months ended June 30, 2019 or on the consolidated total equity as of June 30, 2019.

Intra-group reallocations

Following the publication of our unaudited condensed interim consolidated financial statements as of and for the six months ended June 30, 2019, certain balance sheet intra-group adjustments between the Corporate Center and the operating segments were reallocated to the corresponding operating segments. In addition, certain expenses related to global projects and activities were reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of and for the six months ended June 30, 2019 comparable with the information as of and for the six months ended June 30, 2020, figures as of and for the six months ended June 30, 2019 have been revised in conformity with these intra-group reallocations.

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.

3A. SELECTED INTERIM CONSOLIDATED FINANCIAL DATA

The historical financial information set forth below has been extracted 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,
	2020	2019 (1)	Change (%)
	(In Millions of Euros, Except Per Share/ADS Data)
Consolidated Statement of Income Data
Interest and other income	13,228	15,633	(15.4)
Interest expense	(4,574)	(6,691)	(31.6)
Net interest income	8,653	8,941	(3.2)
Fee and commission income	3,325	3,661	(9.2)
Fee and commission expense	(1,024)	(1,191)	(14.1)
Net gains (losses) on financial assets and liabilities ⁽²⁾	790	408	93.6
Other operating income	230	337	(31.7)
Other operating expense	(848)	(995)	(14.8)
Income from insurance and reinsurance contracts	1,307	1,547	(15.6)
Expense from insurance and reinsurance contracts	(765)	(983)	(22.2)
Gross income	12,045	11,944	0.8
Administration costs	(4,746)	(5,084)	(6.6)
Depreciation and amortization	(766)	(790)	(3.1)
Provisions or reversal of provisions	(541)	(261)	107.6
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(4,146)	(1,731)	139.5
Net operating income	1,846	4,077	(54.7)
Impairment or reversal of impairment of investments in joint ventures and associates	(60)	-	n.m. (5)
Impairment or reversal of impairment on non-financial assets	(2,149)	(44)	n.m. (5)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net	4	8	(49.9)
Negative goodwill recognized in profit or loss	-	-	-
Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	(9)	11	n.m. (5)
Operating profit / (loss) before tax	(368)	4,052	n.m. (5)
Tax (expense) or income related to profit or loss from continuing operations	(455)	(1,136)	(60.0)
Profit / (loss) from continuing operations	(823)	2,916	n.m. (5)
Profit / (loss) attributable to parent company	(1,157)	2,442	n.m. (5)
Profit attributable to non-controlling interests	333	475	(29.7)
Per share/ADS⁽³⁾ Data
Profit from continuing operations	(0.12)	0.44
Diluted profit attributable to parent company ⁽⁴⁾	(0.20)	0.34
Basic profit attributable to parent company	(0.20)	0.34
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—IFRS 9 – Collection of interest on impaired financial assets”.

(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 estimated number of shares to be issued upon conversion of other securities, excluding the weighted average number of treasury shares during the period (6,668 million shares for the six months ended June 30, 2020 and June 30, 2019).

(5) Not meaningful.

	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,
	2020	2019	2019
	(In Millions of Euros, Except Percentages)
Consolidated Balance Sheet Data
Total assets	753,824	698,690	697,626
Common stock	3,267	3,267	3,267
Financial assets at amortized cost	450,222	439,162	430,930
Financial liabilities at amortized cost - Customer deposits	402,184	384,219	375,104
Debt certificates	68,623	68,619	66,677
Non-controlling interest	5,836	6,201	5,839
Total equity (net assets)	49,555	54,925	54,690
Consolidated ratios
Certain ratios:
Net interest margin (1)	1.19%	2.61% (2)	1.31% (2)
Equity to assets ratio (3)	6.6%	7.9%	7.8%
Credit quality data
Loan loss reserve (4)	13,588	12,427	12,174
Loan loss reserve as a percentage of financial assets at amortized cost	3.02%	2.83%	2.83%
Non-performing asset ratio (NPA ratio) (5)	3.68%	3.79%	3.84%
Impaired loans and advances to customers	15,637	15,954	16,009
Impaired loan commitments and guarantees to customers (6)	702	731	707
	16,339	16,684	16,716
Loans and advances to customers at amortized cost (7)	400,764	394,763	389,306
Loan commitments and guarantees to customers	42,948	45,952	45,650
	443,711	440,714	434,955

(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, 2020 and June 30, 2019, respectively, net interest income is annualized by multiplying the net interest income for the period by two.

(2) Restated. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”.

(3) Represents average total equity over average total assets.

(4) Represents loss allowance on loans and advances at amortized cost.

(5) 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.

(6) 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 3.52% as of June 30, 2020, 3.62% as of December 31, 2019 and 3.68% as of June 30, 2019.

(7) Includes impaired loans and advances.

4B. Business Overview

The BBVA Group is a customer-centric global financial services group founded in 1857. Internationally diversified and with strengths in the traditional banking businesses of retail banking, asset management and wholesale banking, the Group is committed to offering a compelling digital proposition focused on customer experience.

For this purpose, the Group 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 six months ended June 30, 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

In 2019, the Group adopted a common global brand through the unification of the BBVA brand as part of its efforts to offer a unique value proposition and a homogeneous customer experience in the countries in which the Group operates.

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.

The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of June 30, 2020 and December 31, 2019 was as follows:

	As of June 30, 2020	As of December 31, 2019
	(In Millions of Euros)
Spain	419,475	365,380
The United States	101,118	88,529
Mexico	103,671	109,079
Turkey	63,525	64,416
South America	57,891	54,996
Rest of Eurasia	26,805	23,257
Subtotal Assets by Operating Segment	772,485	705,656
Corporate Center and adjustments (1)	(18,661)	(6,967)
Total Assets BBVA Group	753,824	698,690

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments.

The following table sets forth information relating to the profit (loss) attributable to parent company for each of BBVA’s operating segments and the Corporate Center for the six months ended June 30, 2020 and June 30, 2019:

	Profit/(Loss) Attributable to Parent Company
	Six months ended June 30,
	2020	2019	2020	2019
	(In Millions of Euros)		(In percentage)
Spain	88	734	7.0	24.0
The United States	26	297	2.0	9.7
Mexico	654	1,287	51.9	42.1
Turkey	266	282	21.2	9.2
South America	159	404	12.6	13.2
Rest of Eurasia	66	55	5.3	1.8
Subtotal operating segments	1,259	3,058	100.0	100.0
Corporate Center	(2,416)	(616)
Profit attributable to parent company	(1,157)	2,442

The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the six months ended June 30, 2020 and June 30, 2019:

	Operating Segments
	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Corporate Center	BBVA Group
	(In Millions of Euros)
June 2020
Net interest income	1,793	1,133	2,717	1,534	1,443	102	(69)	8,653
Gross income	2,900	1,607	3,550	1,957	1,664	268	98	12,045
Net margin before provisions ⁽¹⁾	1,371	648	2,349	1,394	945	131	(307)	6,533
Operating profit/(loss) before tax	124	15	891	715	297	89	(2,500)	(368)
Profit/(loss) attributable to parent company	88	26	654	266	159	66	(2,416)	(1,157)
June 2019 (2)
Net interest income	1,763	1,217	3,042	1,353	1,613	85	(132)	8,941
Gross income	2,773	1,615	3,901	1,677	1,994	220	(236)	11,944
Net margin before provisions ⁽¹⁾	1,145	655	2,611	1,084	1,215	78	(718)	6,069
Operating profit/(loss) before tax	1,027	363	1,783	726	847	69	(762)	4,052
Profit/(loss) attributable to parent company	734	297	1,287	282	404	55	(616)	2,442

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

(2) Restated. See “Presentation of Financial Information —IFRS 9 – Collection of interest on impaired financial assets”.

The following tables set forth information relating to the balance sheet of the operating segments and the Corporate Center and adjustments as of June 30, 2020 and December 31, 2019:

	As of June 30, 2020

	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Total Operating Segments	Corporate Center and adjustments (1)
	(In Millions of Euros)
Total Assets	419,475	101,118	103,671	63,525	57,891	26,805	772,485	(18,661)
Cash, cash balances at central banks and other demand deposits	32,199	13,908	6,562	5,489	8,399	310	66,867	(991)
Financial assets designated at fair value (2)	147,143	6,955	33,941	5,712	8,250	500	202,501	(7,028)
Financial assets at amortized cost	203,500	76,800	58,418	50,079	38,742	25,688	453,227	(3,004)
Loans and advances to customers	172,026	68,668	49,440	41,196	35,336	22,524	389,190	(1,978)
Total Liabilities	409,628	97,201	98,323	60,777	55,559	25,865	747,353	(43,085)
Financial liabilities held for trading and designated at fair value through profit or loss	97,430	459	24,494	2,249	1,943	47	126,622	(8,795)
Financial liabilities at amortized cost- Customer deposits	195,676	75,649	50,398	40,132	39,357	4,567	405,779	(3,595)
Total Equity	9,847	3,916	5,348	2,748	2,332	940	25,131	24,424
Assets under management	60,974	-	21,271	4,212	13,838	518	100,813
Mutual funds	37,635	-	19,359	1,755	4,489	-	63,237
Pension funds	23,339	-	-	2,457	9,350	518	35,664
Other placements	-	-	1,912	-	-	-	1,912

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments.

(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”.

	As of December 31, 2019

	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Total Operating Segments	Corporate Center and adjustments (1)
	(In Millions of Euros)
Total Assets	365,380	88,529	109,079	64,416	54,996	23,257	705,656	(6,967)
Cash, cash balances at central banks and other demand deposits	15,903	8,293	6,489	5,486	8,601	247	45,019	(716)
Financial assets designated at fair value (2)	122,844	7,659	31,402	5,268	6,120	477	173,770	(3,128)
Financial assets at amortized cost	195,260	69,510	66,180	51,285	37,869	22,233	442,336	(3,174)
Loans and advances to customers	167,332	63,162	58,081	40,500	35,701	19,669	384,445	(2,085)
Total Liabilities	356,151	84,686	104,190	61,744	52,504	22,393	681,667	(37,902)
Financial liabilities held for trading and designated at fair value through profit or loss	78,684	282	21,784	2,184	1,860	57	104,851	(5,208)
Financial liabilities at amortized cost- Customer deposits	182,370	67,525	55,934	41,335	36,104	4,708	387,976	(3,757)
Total Equity	9,229	3,843	4,889	2,672	2,492	864	23,990	30,935
Assets under management	66,068	-	24,464	3,906	12,864	500	107,803
Mutual funds	41,390	-	21,929	1,460	3,860	-	68,639
Pension funds	24,678	-	-	2,446	9,005	500	36,630
Other placements	-	-	2,534	-	-	-	2,534

(1) Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments.

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 primary 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, and public institutions;

· 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), lending to real estate developers and foreclosed real estate assets in Spain (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. On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in Spain including a long-term exclusive distribution agreement for the sale of non-life insurance products, excluding the health insurance line, through BBVA’s banking network in Spain. BBVA will transfer its non-life insurance business in Spain, excluding the health insurance line, to the new joint venture. Excluding a variable part of the price to be paid by Allianz (which may amount to up to €100 million related to achieving specific business goals and certain milestones), it is expected that the transaction will generate a profit net of taxes amounting to approximately €300 million, and that the positive impact on the fully loaded CET1 capital ratio of the BBVA Group will be approximately 7 basis points. The closing of the transaction is subject to obtaining the relevant regulatory approvals from the competent authorities.

Cash, cash balances at central banks and other demand deposits amounted to €32,199 million as of June 30, 2020, a 102.5% increase compared with the €15,903 million recorded as of December 31, 2019, mainly due to an increase in cash held at the Bank of Spain, with a view to reinforcing the Group’s cash position in face of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.

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”) amounted to €147,143 million as of June 30, 2020, a 19.8% increase from the €122,844 million recorded as of December 31, 2019, mainly as a result of the increase in derivatives due to the positive impact of changes in exchange rates on foreign currency positions recorded under “Financial assets held for trading” and, to a lesser extent, the increase in the volume of reverse repurchase agreements with credit institutions recorded under “Financial assets held for trading”.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to 203,500 million, a 4.2% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €172,026 million as of June 30, 2020, an increase of 2.8% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in retail and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, and increased drawdowns under credit facilities especially in the first quarter. This increase was partially offset by the decrease in mortgage loans, which were greatly affected by the coronavirus outbreak. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2020 amounted to €97,430 million, a 23.8% increase compared with the €78,684 million recorded as of December 31, 2019, mainly as a result of the increase in repurchase agreements with credit institutions.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €195,676 million, a 7.3% increase compared with the €182,370 million recorded as of December 31, 2019 mainly as a result of the increase in demand deposits, due mainly to the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of June 30, 2020 amounted to €60,974 million, a 7.7% decrease compared with the €66,068 million as of December 31, 2019, mainly due to the increased volatility and decline in market prices during the period and the resulting shift towards deposits.

This operating segment’s non-performing loan ratio decreased to 4.3% as of June 30, 2020 from 4.4% as of December 31, 2019, as a result mainly of the increase in wholesale customer credit facilities toward the end of the first quarter and the increase in retail and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic in the second quarter. This operating segment’s non-performing loan coverage ratio increased to 66% as of June 30, 2020 from 60% as of December 31, 2019, as a result mainly of higher loss allowances made in response to the COVID-19 pandemic.

The United States

This operating segment includes the Group’s business in the United States. BBVA USA accounted for 88.8% of this operating segment’s balance sheet as of June 30, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA. 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 0.3% against the euro as of June 30, 2020 compared with December 31, 2019, positively affecting the business activity of the United States operating segment as of June 30, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to €76,800 million, a 10.5% increase compared with the €69,510 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of June 30, 2020 amounted to €68,668 million, a 8.7% increase compared with the €63,162 million recorded as of December 31, 2019, mainly due to the growth of the commercial portfolio and corporate banking on the back of measures implemented by the U.S. government in light of the COVID-19 pandemic, including the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”) (which provides economic assistance to American workers, families and businesses, and aims to preserve jobs), with increases in the drawing down of credit facilities, partially offset by the decrease in consumer loans. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results ―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €75,649 million, a 12.0% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in deposits following the implementation of the PPP, as part of the funds that have been provided to customers under such program have been invested as deposits.

This operating segment’s non-performing loan ratio stood at 1.1% as of June 30, 2020 and as of December 31, 2019. The increased commercial and corporate banking activity toward the end of the first quarter (as a result of the increase in the availability of credit facilities) was followed by an increase in non-performing loans in the second quarter. This operating segment’s non-performing loan coverage ratio increased to 133% as of June 30, 2020, from 101% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients.

Mexico

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

The Mexican peso depreciated 18.2% against the euro as of June 30, 2020 compared with December 31, 2019, negatively affecting the business activity of the Mexico operating segment as of June 30, 2020 expressed in euros. See “I tem 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to €58,418 million, an 11.7% decrease compared with the €66,180 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of June 30, 2020 amounted to €49,440 million, a 14.9% decrease compared with the €58,081 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in consumer loans, which were adversely affected by the coronavirus outbreak, partially offset by the positive performance of wholesale loans. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2020 amounted to €24,494 million, a 12.4% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of the increase in the volume of repurchase agreements, partially offset by the depreciation of the Mexican peso against the euro.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €50,398 million, a 9.9% decrease compared with the €55,934 million recorded as of December 31, 2019, primarily due to the depreciation of the Mexican peso against the euro, partially offset by the increase in demand deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of June 30, 2020 amounted to €21,271 million, a 13.0% decrease compared with the €24,464 million as of December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro.

This operating segment’s non-performing loan ratio decreased to 2.2% as of June 30, 2020 from 2.4% as of December 31, 2019 due mainly to the moratoriums and deferrals plans adopted in connection with the COVID-19 pandemic, which limited the amount of new entries, and higher recoveries. This operating segment’s non-performing loan coverage ratio increased to 165% as of June 30, 2020 from 136% as of December 31, 2019, mainly due to higher loss allowances made in response to the COVID-19 pandemic.

Turkey

This operating segment comprises the activities carried out by Garanti BBVA as an integrated financial services group operating in every segment of the banking sector in Turkey, including corporate, commercial, SME, payment systems, retail, private and investment banking, together with its subsidiaries in pension and life insurance, leasing, factoring, brokerage and asset management, as well as its international subsidiaries in the Netherlands and Romania.

The Turkish lira depreciated 12.9% against the euro as of June 30, 2020 compared to December 31, 2019, negatively affecting the business activity of the Turkey operating segment as of June 30, 2020 expressed in euros. See “I tem 5. Operating and Financial Review and Prospects―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, 2020 amounted to €5,712 million, a 8.4% increase from the €5,268 million recorded as of December 31, 2019, mainly as a result of 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, partially offset by the depreciation of the Turkish lira. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to €50,079 million a 2.4% decrease compared with the €51,285 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of June 30, 2020 amounted to €41,196 million, a 1.7% increase compared with the €40,500 million recorded as of December 31, 2019, mainly due to the increase in loans denominated in Turkish lira and in consumer loans (supported by the General Purpose Loans program adopted by the Turkish government, which intends to mitigate the effects of the COVID-19 pandemic), partially offset by the depreciation of the Turkish lira. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of June 30, 2020 amounted to €2,249 million, a 3.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly as a result of the increase in derivatives within the trading portfolio, partially offset by the depreciation of the Turkish lira.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €40,132 million, a 2.9% decrease compared with the €41,335 million recorded as of December 31, 2019.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of June 30, 2020 amounted to €4,212 million, a 7.8% increase compared with the €3,906 million as of December 31, 2019, mainly due to an increase in mutual funds, driven mainly by the decrease in interest rates, which led customers to seek higher returns through investments in market funds.

The non-performing loan ratio of this operating segment stood at 7.0% as of June 30, 2020 and as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 82% as of June 30, 2020 from 75% as of December 31, 2019, due mainly to higher loss allowances made in response to the COVID-19 pandemic and, to a lesser extent, certain specific clients in the commercial portfolio.

South America

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

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

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

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

As of June 30, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 14.6%, 12.5% and 5.7%, respectively. Overall, changes in exchanges rates have negatively affected the business activity of the South America operating segment as of June 30, 2020 expressed in euros. See “I tem 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition ―Trends in Exchange Rates”.

As of June 30, 2020 and December 31, 2019 the Argentine and Venezuelan economies were considered to be hyperinflationary as defined by IAS 29 (see “Presentation of Financial Information—Changes in Accounting Policies—Hyperinflationary economies” in our 2019 Form 20-F).

On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of our wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The consideration for the acquisition of BBVA Paraguay’s shares amounts to approximately $270 million in the aggregate. The abovementioned consideration is subject to certain adjustments for matters between the signing and closing dates of the transaction. It is expected that the transaction will result in a capital gain, net of taxes, of approximately €20 million and in a positive impact on the BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points. The closing of the transaction is subject to obtaining the relevant regulatory authorizations from the competent authorities.

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, 2020 amounted to €8,250 million, a 34.8% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the positive evolution of loans to enterprises.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to €38,742 million, a 2.3% increase compared with the €37,869 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of June 30, 2020 amounted to €35,336 million, a 1.0% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the Argentine peso, the Colombian peso and the Peruvian sol, partially offset by the increase in wholesale loans, particularly in Peru and the increase in drawdowns in business credit lines in the first quarter. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic in these regions.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €39,357 million, a 9.0% increase compared with the €36,104 million recorded as of December 31, 2019, mainly as a result of increases in demand deposits due to the measures established by the respective central banks in the region in order to inject liquidity into the economies (as part of the funds provided thereunder have been invested as deposits), and the shift from consumption to savings due to the COVID-19 pandemic.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of June 30, 2020 amounted to €13,838 million, a 7.6% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds by period end after the temporary outflow of resources due to market instability during the six months ended June 30, 2020.

The non-performing loan ratio of this operating segment as of June 30, 2020 increased to 4.5% compared with 4.4% as of December 31, 2019, as a result mainly of the increase in non-performing loans in Peru and Chile due mainly to the decreased recovery activity due to the COVID-19 pandemic, partially offset by limited entries as a result of the moratoriums and deferrals plans. This operating segment’s non-performing loan coverage ratio increased to 108% as of June 30, 2020, from 100% as of December 31, 2019, mainly due to an increase in the balance of provisions in Colombia and Peru in response to the COVID-19 pandemic.

Rest of Eurasia

This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe and Asia, except for those businesses comprised in our Spain and Turkey operating segments. In particular, the Group’s activity in Europe is carried out through banks and financial institutions in Switzerland, Italy, Germany and Finland and branches in Germany, Belgium, France, Italy, Portugal and the United Kingdom. The Group’s activity in Asia is carried out through branches (in Taipei, Tokyo, Hong Kong, Singapore and Shanghai) and representative offices (in Beijing, Seoul, Mumbai, Abu Dhabi and Jakarta).

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, 2020 amounted to €500 million, a 4.6% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of June 30, 2020 amounted to €25,688 million, a 15.5% increase compared with the €22,233 million recorded as of December 31, 2019. Within this heading, loans and advances to customers of this operating segment as of June 30, 2020 amounted to €22,524 million, a 14.5% increase compared with the €19,669 million recorded as of December 31, 2019, mainly as a result of increased corporate and investment banking business in the rest of Europe. See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” for certain information on the impact of the COVID-19 pandemic on the Group.

Customer deposits at amortized cost of this operating segment as of June 30, 2020 amounted to €4,567 million, a 3.0% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of June 30, 2020 amounted to €518 million, a 3.5% increase compared with the €500 million recorded as of December 31, 2019.

The non-performing loan ratio of this segment as of June 30, 2020 decreased to 0.8% from 1.2% as of December 31, 2019, mainly due to the increase in the availability of credit facilities toward the end of the first quarter and the decrease in corporate and investment banking non-performing loans. This operating segment’s non-performing loan coverage ratio increased to 126% as of June 30, 2020, from 98% as of December 31, 2019.

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.

Certain financial information as of and for the six months ended June 30, 2019 has been restated for comparability purposes. See “Presentation of Financial Information”.

Interest income figures, when used, do not include interest income on non-accruing loans to the extent that cash payments have been received, as a result of the IFRIC interpretation on IFRS 9 “Collection of interest on impaired financial assets”. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”. Loan fees are included in the computation of interest revenue. Interest income figures include “other income”, which amounted to €214 million and €143 million for the six months ended June 30, 2020 and 2019, respectively. For additional information on “interest and other income” see Note 32 to our Unaudited Condensed Interim Consolidated Financial Statements.

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.

	Average Balance Sheet - Assets and Interest from Earning Assets
	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019 (1)
	Average Balance	Interest	Average Yield (2)	Average Balance	Interest	Average Yield (2)
	(In Millions of Euros, Except Percentages)
Assets
Cash and balances with central banks and other demand deposits	53,322	50	0.19%	48,217	135	0.57%
Domestic	23,830	6	0.05%	17,386	27	0.32%
Foreign	29,492	44	0.30%	30,831	108	0.71%
Debt securities and derivatives	203,544	2,193	2.17%	177,847	2,803	3.20%
Domestic	131,045	512	0.79%	106,173	537	1.03%
Foreign	72,499	1,681	4.67%	71,674	2,266	6.41%
Financial assets	431,485	10,769	5.03%	412,351	12,560	6.18%
Loans and advances to central banks	4,811	80	3.36%	5,023	146	5.90%
Loans and advances to credit institutions	41,022	281	1.38%	28,492	408	2.90%
Loans and advances to customers	385,653	10,409	5.44%	378,837	12,006	6.43%
In euros	181,271	1,613	1.79%	181,750	1,708	1.91%
Domestic	172,533	1,586	1.85%	157,350	1,673	2.16%
Foreign	8,738	27	0.61%	24,400	36	0.30%
In other currency	204,382	8,796	8.67%	197,087	10,298	10.60%
Domestic	23,213	278	2.42%	16,396	304	3.76%
Foreign	181,168	8,517	9.47%	180,691	9,994	11.22%
Other assets (3)	40,845	215	1.06%	46,563	135	0.59%
Total average assets (4)	729,196	13,228	3.65%	684,978	15,633	4.63%

(1) Restated. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”.

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

(3) Includes “Derivatives - Hedge accounting”, “Fair value changes of the hedged items in portfolio hedges of interest rate risk”, “Joint ventures and associates”, “Insurance and reinsurance assets”, “Tangible assets”, “Intangible assets”, “Tax assets”, “Other assets” and “Non-current assets and disposal groups classified as held for sale”.

(4) Foreign activity represented 39.81% of the total average assets for the six months ended June 30, 2020 and 46.09% for the six months ended June 30, 2019.

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

	Six Months Ended June 30, 2020			Six Months Ended June 30, 2019
	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	67,430	924	2.76%	62,299	1,057	3.44%
Customer deposits	391,586	2,248	1.16%	375,513	3,733	2.02%
In euros	189,944	160	0.17%	183,761	101	0.11%
Domestic	180,970	157	0.18%	158,754	96	0.12%
Foreign	8,974	3	0.06%	25,008	5	0.04%
In other currency	201,643	2,088	2.08%	191,752	3,632	3.84%
Domestic	11,406	80	1.41%	8,837	127	2.92%
Foreign	190,237	2,008	2.12%	182,915	3,505	3.89%
Debt certificates	78,476	828	2.12%	76,494	962	2.55%
Other liabilities (2)	139,608	574	0.83%	116,478	940	1.64%
Total average liabilities	677,101	4,574	1.36%	630,784	6,691	2.15%
Total Equity	52,095	-	-	54,194	-	-
Total average liabilities and equity (3)	729,196	4,574	1.26%	684,978	6,691	1.98%

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

(2) Includes “Financial liabilities held for trading”, “Derivatives - Hedge accounting”, “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 37.63% of the total average liabilities for the six months ended June 30, 2020 and 47.94% for the six months ended June 30, 2019.

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, 2020 compared with the six months ended June 30, 2019 and the six months ended June 30, 2019 compared with the six months ended June 30, 2018. 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 tables are interest payments on loans which are made in a period other than the period in which they are due.

	For the six months ended June 30, 2020/June 30, 2019 (1)
	Increase (Decrease) Due To Changes In
	Volume (2)	Rate (3)	Net Change
	(In Millions of Euros)
Interest income
Cash and balances with central banks	14	(99)	(84)
Securities portfolio and derivatives	406	(1,014)	(608)
Loans and advances to central banks	(6)	(60)	(66)
Loans and advances to credit institutions	180	(306)	(126)
Loans and advances to customers	217	(1,817)	(1,601)
In euros	(4)	(47)	(51)
Domestic	158	(199)	(41)
Foreign	(23)	14	(10)
In other currencies	384	(1,932)	(1,548)
Domestic	127	(152)	(25)
Foreign	27	(1,551)	(1,525)
Other assets	(17)	96	79
Total income			(2,405)
Interest expense
Deposits from central banks and credit institutions	87	(220)	(133)
Customer deposits	160	(1,644)	(1,484)
In euros	3	55	59
Domestic	14	47	61
Foreign	(3)	1	(2)
In other currencies	188	(1,731)	(1,543)
Domestic	37	(84)	(47)
Foreign	141	(1,636)	(1,495)
Debt certificates	25	(160)	(135)
Other liabilities	187	(553)	(365)
Total expense			(2,117)
Net interest income			(288)

(1) 2019 information has been restated. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”.

(2) 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.

(3) 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.

	For the six months ended June 30, 2019 (1)/June 30, 2018
	Increase (Decrease) Due To Changes In
	Volume (2)	Rate (3)	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)	649	403
In euros	(21)	52	31
Domestic	(151)	182	32
Foreign	130	(130)	-
In other currencies	(292)	663	371
Domestic	38	38	76
Foreign	(330)	625	296
Other assets	-	76	76
Total income			1,215
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			351

(1) Restated. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”.

(2) 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.

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

Interest Earning Assets—Margin and Spread

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

	Six months ended June 30,
	2020	2019 (1)
	(In Millions of Euros, except %)
Average interest earning assets	688,351	638,415
Gross yield (2)	1.9%	2.4%
Net yield (3)	1.8%	2.3%
Net interest margin (4)	1.3%	1.4%
Average effective rate paid on all interest-bearing liabilities	0.9%	1.3%
Spread (5)	1.1%	1.1%

(1) Restated. See “Presentation of Financial Information—IFRS 9 – Collection of interest on impaired financial assets”.

(2) “Gross yield” represents total interest income divided by average interest earning assets.

(3) “Net yield” represents total interest income divided by total average assets.

(4) “Net interest margin” represents net interest income as percentage of average interest earning assets.

(5) 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, 2020, interbank deposits (excluding deposits with central banks) represented 5.3% of our total assets. Of such interbank deposits, 15.2% were held outside of Spain and 84.8% 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, 2020, our total securities portfolio (consisting of investment securities and loans and advances) was carried on our consolidated balance sheet at a carrying amount (equivalent to its market or appraised value as of such date) of €140,138 million, representing 18.6% of our total assets. €36,397 million, or 26.0%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during the six months ended June 30, 2020 on the investment securities that BBVA held was 2.2%, compared with an average yield of approximately 3.5% earned on loans and advances during the six months ended June 30, 2020. See Notes 9 and 12 to our Unaudited Condensed Interim Consolidated Financial Statements for additional information.

The first table in Note 12.3 to our Unaudited Condensed Interim Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under “Financial assets at fair value through other comprehensive income” as of June 30, 2020 and December 31, 2019.

This information is not provided for debt securities recorded under “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” since the amortized costs and fair values of these items are the same. See Note 7 to our Unaudited Condensed Interim Consolidated Financial Statements.

The second table in Note 12.3 to our Unaudited Condensed Interim Consolidated Financial Statements shows the fair value of debt securities recorded, as of June 30, 2020 and December 31, 2019, under “Financial assets at fair value through other comprehensive income” by rating categories defined by external rating agencies.

The table in Note 12.2 to our Unaudited Condensed Interim Consolidated Financial Statements sets forth the fair value and the amortized cost of our equity instruments recorded under “Financial assets at fair value through other comprehensive income” as of June 30, 2020 and December 31, 2019.

Readers are directed to the tables and Notes referred to above for information regarding our securities portfolio.

For a discussion of our investments in joint ventures and associates, see Note 15 to our Unaudited Condensed Interim Consolidated Financial Statements. For a discussion of the manner in which we value our securities, see Notes 2.2.1 and 8 to our Consolidated Financial Statements.

Loans and Advances

See “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Note 6.2 to our Unaudited Condensed Interim Consolidated Financial Statements for information on how the Group’s loan activity has been affected by the COVID-19 pandemic.

Loans and Advances to Credit Institutions and Central Banks

As of June 30, 2020, our total loans and advances to credit institutions and central banks amounted to €45,194 million, or 6.0% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €19,651 million, or 2.6% of total assets. Net of our loss allowance, total loans and advances to credit institutions and central banks at amortized cost amounted to €19,615 million as of June 30, 2020, or 2.6% of total assets.

Loans and Advances to Customers

As of June 30, 2020, our total loans and advances to customers amounted to €413,498 million, or 54.9% of total assets. Net of our loss allowance, total loans and advances to customers amounted to €399,946 million as of June 30, 2020, or 53.1% of our total assets. As of June 30, 2020 our total loans and advances to customers in Spain amounted to €170,585 million. Our total loans and advances to customers outside Spain amounted to €242,913 million as of June 30, 2020.

Loans by Geographic Area

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

	As of June 30, 2020	As of December 31, 2019	As of June 30, 2019
		(In Millions of Euros)

Domestic	170,585	165,032	169,774
Foreign
Western Europe	32,007	31,483	29,722
The United States	70,096	64,395	61,152
Mexico	53,137	61,455	57,735
Turkey	41,067	40,230	38,790
South America	39,217	39,091	39,845
Other	7,388	6,677	5,728
Total foreign	242,913	243,332	232,972
Total loans and advances	413,498	408,364	402,747
Loss allowances	(13,552)	(12,402)	(12,151)
Total net lending (1)	399,946	395,962	390,596

(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 loss allowances.

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 the country where the branch office that issued the loan is located:

	As of June 30,	As of December 31,	As of June 30,
	2020	2019	2019
		(In Millions of Euros)
Domestic
Government	13,424	14,477	16,063
Agriculture	1,264	1,224	1,198
Industrial	14,844	13,982	14,513
Real estate and construction	10,142	9,567	9,915
Commercial and financial	13,757	16,192	16,104
Loans to individuals(1)	96,720	96,735	98,790
Other	20,434	12,855	13,191
Total Domestic	170,585	165,032	169,774
Foreign
Government	14,332	14,840	13,995
Agriculture	2,488	2,533	2,758
Industrial	47,588	43,408	42,490
Real estate and construction	21,723	20,814	18,796
Commercial and financial	39,481	41,406	39,899
Loans to individuals(1)	77,369	85,324	81,841
Other	39,932	35,007	33,193
Total Foreign	242,913	243,332	232,972
Total Loans and Advances	413,498	408,364	402,747
Loss allowances	(13,552)	(12,402)	(12,151)
Total net lending(2)	399,946	395,962	390,596

(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 loss allowances.

The following table sets forth a breakdown, by currency, of our net loans and advances to customers as of June 30, 2020, December 31, 2019 and June 30, 2019:

	As of June 30, 2020	As of December 31, 2019	As of June 30, 2019
	(In Millions of Euros)

In euros	197,174	191,083	194,195
In other currencies	202,772	204,879	196,401
Total net lending (1)	399,946	395,962	390,596

As of June 30, 2020, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,909 million, compared with €1,682 million as of December 31, 2019. Loans and advances outstanding to the Spanish government and its agencies amounted to €13,424 million, or 3.2% of our total loans and advances to customers as of June 30, 2020, compared with €14,477 million, or 3.5% of our total loans and advances to customers as of December 31, 2019. We also make loans to companies controlled by the Spanish government, but 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, 2020 (which is the latest available information) excluding government-related loans, amounted to €16,849 million or approximately 4.2% of our total outstanding loans and advances. As of March 31, 2020 (which is the latest available information) 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, 2020. 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	4,446	5,013	3,964	13,424
Agriculture	388	657	219	1,264
Industrial	5,458	6,929	2,457	14,844
Real estate and construction	2,102	4,186	3,853	10,142
Commercial and financial	7,257	4,875	1,625	13,757
Loans to individuals	12,658	24,512	59,550	96,720
Other	7,121	10,088	3,225	20,434
Total Domestic	39,431	56,261	74,893	170,585
Foreign
Government	1,459	3,145	9,727	14,332
Agriculture	1,291	897	300	2,488
Industrial	21,731	18,768	7,089	47,588
Real estate and construction	6,317	10,338	5,067	21,723
Commercial and financial	25,399	10,871	3,211	39,481
Loans to individuals	10,400	27,308	39,661	77,369
Other	12,722	19,495	7,714	39,932
Total Foreign	79,320	90,824	72,770	242,913
Total loans and advances (1)	118,750	147,084	147,663	413,498

Loss allowances on Loans and Advances

For a discussion of loan loss reserves, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Financial instruments” in our 2019 Form 20-F. For a discussion of accounting standards related to loss allowances on financial assets and credit loss, see Note 6.2.1 to our Unaudited Condensed Interim Consolidated Financial Statements and Note 2.2.1 to our Consolidated Financial Statements.

The following table provides information regarding our loan loss reserve and movements of loan charge-offs and recoveries for the periods indicated. Information as of June 30, 2020 and December 31, 2019 refers to customers, central banks and credit institutions and information as of June 30, 2019 refers to customers and credit institutions.

	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,
	2020	2019	2019
	(In Millions of Euros)
Loan loss reserve at beginning of period:
Domestic	4,931	5,774	5,774
Foreign	7,496	6,437	6,437
Total Loan loss reserve at beginning of period	12,427	12,211	12,211

Loans charged off: (1)
Total domestic	(201)	(1,006)	(552)
Total foreign	(779)	(2,250)	(809)
Total Loans charged off	(981)	(3,256)	(1,361)

Provision for loan losses:
Domestic	917	764	307
Foreign	2,736	3,560	1,665
Total Provision for loan losses	3,654	4,324	1,972

Effect of foreign currency translation	(953)	(20)	(81)
Other	(559)	(832)	(566)
	(1,512)	(852)	(647)

Loan loss reserve at end of period:
Domestic	5,403	4,931	5,291
Foreign	8,184	7,496	6,883
Total Loan loss reserve at end of period	13,588	12,427	12,174
Loan loss reserve as a percentage of loans and advances at amortized cost at end of period	3.34%	3.10%	3.09%
Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period	0.24%	0.81%	0.35%

(1) Domestic 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 €981 million during the six months ended June 30, 2020 compared with €3,256 million during the year ended December 31, 2019 and €1,361 million during the six months ended June 30, 2019, as a result mainly of the decrease in loans charged off in Spain, in part due to moratorium measures for bank customers adopted in light of COVID-19.

Our loan loss reserves as a percentage of total loans and advances decreased to 3.34% as of June 30, 2020 from 3.10% as of December 31, 2019.

Impaired Loans

Loans are considered to be credit-impaired under IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the loan.

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, 2020 and 2019 was €150 million and €168 million, respectively.

The following table provides information regarding our impaired loans of customers, central banks and credit institutions as of the dates indicated:

	As of June 30, 2020	As of December 31, 2019
	(In Millions of Euros)
Impaired loans
Domestic	8,007	8,104
Public sector	76	86
Other resident sector	7,931	8,018
Foreign	7,636	7,855
Public sector	1	1
Other non-resident sector	7,634	7,853
Total impaired loans	15,643	15,959
Total loan loss reserve	(13,588)	(12,427)
Impaired loans net of reserves	2,055	3,533
Impaired loans as a percentage of loans and advances at amortized cost	3.85%	3.99%
Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost	0.51%	0.88%

Our total impaired loans amounted to €15,643 million as of June 30, 2020, a 2.0% decrease compared with €15,959 million as of December 31, 2019. This decrease was mainly attributable to the reduction in impaired loans to the public sector and, to a lesser extent, in loans to households, as a result mainly of the moratorium measures for bank customers adopted in light of COVID-19 which led to reclassifications from impaired loans to non-impaired loans.

Our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets which present an expected credit loss. As of June 30, 2020, the loan loss reserve amounted to €13,588 million, a 9.3% increase compared with the €12,427 million recorded as of December 31, 2019, mainly due to the deterioration of macroeconomic conditions due to the negative effects of the COVID-19 pandemic.

The following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and accumulated impairment taken for each loan category, as of June 30, 2020, by type of customer:

	Impaired Loans	Loan Loss Reserve (1)	Impaired Loans as a Percentage of Loans by Category
	(In Millions of Euros)
Domestic:
Government	76	(36)	0.56%
Credit institutions	-	-	-
Other sectors	7,931	(5,352)	5.05%
Agriculture	58	(42)	4.56%
Industrial	693	(468)	4.67%
Real estate and construction	1,141	(727)	11.25%
Commercial and other financial	1,532	(1,079)	11.13%
Loans to individuals	4,418	(2,484)	4.57%
Other	90	(551)	0.44%
Total Domestic	8,007	(5,387)	4.69%
Foreign:
Government	1	(47)	0.01%
Credit institutions	6	(34)	0.04%
Other sectors	7,629	(8,119)	3.34%
Agriculture	87	(83)	3.49%
Industrial	2,076	(1,732)	4.36%
Real estate and construction	765	(726)	3.52%
Commercial and other financial	1,529	(1,636)	3.87%
Loans to individuals	2,934	(3,710)	3.79%
Other	238	(232)	0.60%
Total Foreign	7,636	(8,200)	3.14%
Total	15,643	(13,588)	3.78%

(1) Includes impairment of Stage 1, 2 and 3 loans recorded under “Financial assets at amortized cost”.

Troubled Debt Restructurings

As of June 30, 2020, of the total troubled debt restructurings of €16,768 million, €7,760 million were not considered impaired loans.

Potential Problem Loans

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

The non-performing asset ratio in our domestic real estate and construction portfolio was 11.3% as of June 30, 2020 (compared with 12.3% as of December 31, 2019), significantly higher than the average non-performing asset ratio for all of our domestic activities (4.7% as of June 30, 2020 and 4.9% as of December 31, 2019) and the average non-performing asset ratio for all of our consolidated activities (3.7% as of June 30, 2020 and 3.8% as of December 31, 2019). Within such portfolio, construction loans and property development loans (which exclude mainly infrastructure and civil construction) had a non-performing asset ratio of 7.8% as of June 30, 2020 (9.0% as of December 31, 2019).

In light of the COVID-19 outbreak, various national and supranational supervisory authorities have afforded banks with greater flexibility regarding the accounting policy to be applied with respect to potential problem loans, providing the option to suspend the application of accounting guidance for potential problem loans, for a limited period of time, with respect to loans affected by moratoriums or other relief measures adopted by authorities to address the effects of the COVID-19 pandemic. See Note 6.2 to our Unaudited Condensed Interim Consolidated Financial Statements for additional information on the impact of the COVID-19 pandemic on the Group’s loans. See also “Item 5. Operating and Financial Review and Prospects―5A. Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.

Foreign Country Outstandings

The following table sets forth, as of the dates indicated, the aggregate amounts of our cross-border outstandings (which consist of loans, interest-bearing deposits with other banks, acceptances and other monetary assets denominated in a currency other than the home-country currency of the office where the item is booked) where outstandings in the borrower’s country exceeded 1% of our total assets as of June 30, 2020 and December 31, 2019. Cross-border outstandings do not include loans in local currency made by our subsidiary banks to customers in other countries to the extent that such loans are funded in the local currency or hedged. As a result, they do not include the vast majority of the loans made by our subsidiaries in South America, Mexico, Turkey and the United States or other regions which are not listed below.

	As of June 30, 2020		As of December 31, 2019
	Amount	% of Total Assets	Amount	% of Total Assets
		% of Total Assets		% of Total Assets
	(In Millions of Euros, Except Percentages)
United Kingdom	6,182	0.8%	6,086	0.9%
Mexico	1,434	0.2%	1,697	0.2%
Turkey	423	0.1%	3,856	0.6%
Other OECD (Organization for Economic Co-operation and Development)	10,516	1.4%	9,463	1.4%
Total OECD	18,555	2.5%	21,102	3.0%
Central and South America	3,360	0.4%	3,323	0.5%
Other	7,180	1.0%	6,924	1.0%
Total	29,096	3.9%	31,349	4.5%

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

Our exposure to borrowers in countries with difficulties as defined by the OECD, excluding our exposure to subsidiaries or companies we manage and trade-related debt, amounted to €127 million and €184 million as of June 30, 2020 and December 31, 2019, respectively. These figures do not reflect loan loss reserves of 15.0% and 12.5%, respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of June 30, 2020 did not in the aggregate exceed 0.02% of our total assets.

The country-risk exposures described in the preceding paragraph as of June 30, 2020 and December 31, 2019 do not include exposures for which insurance policies have been taken out with third parties that include coverage of the risk of confiscation, expropriation, nationalization, non-transfer, non-convertibility and, if appropriate, war and political violence. The sums insured as of June 30, 2020 and December 31, 2019 amounted to $70 million and $73 million, respectively (approximately €62 million and €65 million, respectively, based on a euro/dollar exchange rate on June 30, 2020 of $1.00 = €0.89 and on December 31, 2019 of $1.00 = €0.89).

LIABILITIES

Deposits

The principal components of our customer deposits recorded under “Financial liabilities at amortized cost” are domestic demand and savings deposits and foreign time deposits. The following tables provide information regarding our deposits recorded under “Financial liabilities at amortized cost” by principal geographic area for the dates indicated.

	As of June 30, 2020
	Customer Deposits	Bank of Spain and Other Central Banks	Other Credit Institutions	Total
	(In Millions of Euros)
Total Domestic	180,265	40,668	3,483	224,416
Foreign
Western Europe	19,062	131	12,367	31,560
The United States	75,720	76	9,228	85,024
Mexico	50,840	2,168	995	54,003
Turkey	35,421	1,890	713	38,024
South America	39,522	1,735	2,205	43,462
Other	1,354	-	3,364	4,718
Total Foreign	221,919	6,000	28,872	256,791
Total	402,184	46,668	32,355	481,207

	As of December 31, 2019
	Customer Deposits	Bank of Spain and Other Central Banks	Other Credit Institutions	Total
	(In Millions of Euros)
Total Domestic	171,611	24,318	3,218	199,147
Foreign
Western Europe	15,360	-	9,190	24,549
The United States	66,181	72	6,377	72,630
Mexico	56,564	492	1,634	58,689
Turkey	36,042	257	924	37,223
South America	36,661	811	2,840	40,311
Other	1,801	-	4,568	6,369
Total Foreign	212,608	1,631	25,533	239,772
Total	384,219	25,950	28,751	438,919

For an analysis of our deposits recorded under “Financial liabilities at amortized cost”, including non-interest bearing demand deposits, interest-bearing demand deposits, saving deposits and time deposits, see Note 21 to our Unaudited Condensed Interim Consolidated Financial Statements.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by geographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of June 30, 2020 and December 31, 2019, see Note 21 to our Unaudited Condensed Interim Consolidated Financial Statements.

EQUITY

Total equity

As of June 30, 2020, total equity amounted to €49,555 million, a 9.8% decrease compared to the €54,925 million recorded as of December 31, 2019, mainly as a result of the increase in accumulated other comprehensive loss and the decrease in shareholders’ funds.

Accumulated other comprehensive income (loss)

As of June 30, 2020, the accumulated other comprehensive loss amounted to €12,822 million, a 25.4% increase compared to the €10,226 million recorded as of December 31, 2019, mainly as a result of the negative impact of changes in exchange rates on foreign currency positions in Mexico and Colombia.

The majority of the balance is related to the conversion to euros of the financial statements balances from consolidated entities whose functional currency is not the euro.

ITEM 5. OPERATING AND FINANCIAL REVIEW AND PROSPECTS

Critical Accounting Policies

For a description of our critical accounting policies, see Note 2 to our Unaudited Condensed Interim Consolidated Financial Statements, “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” in our 2019 Form 20-F and Note 2.2 to our Consolidated Financial Statements.

We consider certain of our critical accounting policies to be particularly important due to their effect on the financial reporting of our financial condition and results of operations and because they require management to make difficult, complex or subjective judgments, some of which may relate to matters that are inherently uncertain. Our reported financial condition and results of operations are sensitive to accounting methods, assumptions and estimates that underlie the preparation of our consolidated financial statements. The nature of critical accounting policies, the judgments and other uncertainties affecting application of those policies and the sensitivity of reported results to changes in conditions and assumptions are factors to be considered when reviewing our Unaudited Condensed Interim Consolidated Financial Statements. For information on the estimates made by the Group in preparing the Unaudited Condensed Interim Consolidated Financial Statement, see Note 1.6 to our Unaudited Condensed Interim Consolidated Financial Statements.

See 6.2.1 to our Unaudited Condensed Interim Consolidated Financial Statements for information on the measurement of expected credit loss.

Additional information on our assessment of goodwill impairment is included below.

Goodwill in consolidation

Pursuant to IFRS 3, if the difference on the date of a business combination between the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of equity interest previously held in the acquired entity, on one hand, and the fair value of the assets acquired and liabilities assumed, on the other hand, is positive, it is recorded as goodwill on the asset side of the balance sheet. Goodwill represents the future economic benefits from assets that cannot be individually identified and separately recognized.

Goodwill is not amortized and is subject periodically to an impairment analysis. Any impaired goodwill is written off.

If the difference is negative, it is recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.

Goodwill is allocated to one or more cash-generating units, or CGUs, expected to benefit from the synergies arising from business combinations. The CGUs to which goodwill has been allocated are tested for impairment based on the carrying amount of the unit including the allocated goodwill. Such testing is performed at least annually and whenever there is an indication of impairment.

For the purpose of determining the impairment of a CGU to which a part or all of goodwill has been allocated, the carrying amount of that CGU, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, shall be compared to its recoverable amount. The resulting difference shall be apportioned by reducing, firstly, the carrying amount of the goodwill allocated to that unit and, secondly, if there are still impairment losses remaining to be recognized, the carrying amount of the rest of the assets. This shall be done by allocating the remaining difference in proportion to the carrying amount of each of the assets in the CGU. In any case, impairment losses on goodwill can never be reversed. The results from each of these tests on the dates mentioned were as follows:

As of June 30, 2020, as a result of the CGUs assessment, the Group concluded there is no evidence of further indicators of impairment that requires recognizing significant additional impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.

As of March 31, 2020, we identified an indicator of impairment of goodwill in the United States CGU and, as a result of the goodwill impairment test performed, an impairment of €2,084 million was recognized in the United States CGU, which was mainly due to the negative impact of the macroeconomic scenario following the COVID-19 pandemic. This recognition did not affect the tangible book value or the solvency ratio of the BBVA Group. For additional information, see Note 17.1 to our Unaudited Condensed Interim Consolidated Financial Statements.

As of December 31, 2019, an impairment of €1,318 million was recognized in the United States CGU and was mainly the result of the negative changes in interest rates, especially in the second half of 2019, which together with the slowdown of the economy caused the expected results to be below the previous estimate. For additional information, see Note 18.1 to our Consolidated Financial Statements.

The Group’s most significant goodwill corresponds to the CGU in the United States. The calculation of the impairment test performed in March 2020, used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of March 31, 2020, the Group used a growth rate of 3.0% (3.5% as of December 31, 2019) to extrapolate the cash flows in perpetuity starting on the fifth year, based on the real GDP growth rate of the United States, the expected inflation and the potential growth of the banking sector in the United States. This rate is lower than the historical average nominal GDP growth rate of the United States for the past 30 years and lower than the real GDP growth rate forecasted by the IMF. The rate used to discount cash flows is the cost of capital assigned to the CGU, 10.3% as of March 31, 2020 (10.0% as of December 31, 2019), which consists of the risk free rate plus a risk premium.

As of March 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €755 million and €869 million, respectively (€871 million and €1,017 million, respectively, as of December 31, 2019). If, as of March 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €270 million and €235 million, respectively (€340 million and €292 million, respectively, as of December 31, 2019).

Part of the Group’s goodwill balance corresponds to the CGU in Turkey. The calculation of the impairment loss used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of March 31, 2020, the Group used a growth rate of 7.0% (7.0% as of December 31, 2019) to extrapolate the cash flows in perpetuity starting in the fifth year, based on the real GDP growth rate of Turkey and expected inflation. The rate used to discount cash flows is the cost of capital assigned to the CGU, 18.1% as of March 31, 2020 (17.4% as of December 31, 2019), which consists of the risk free rate plus a risk premium.

As of March 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €166 million and €183 million, respectively (€192 million and €212 million, respectively, as of December 31, 2019). If, as of March 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €23 million and €21 million, respectively (€31 million and €28 million, respectively, as of December 31, 2019).

As of June 30, 2020 and December 31, 2019 the recoverable amounts of the rest of our CGUs were in excess of their carrying value.

5A. Operating Results

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

Trends in Exchange Rates

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

Except with respect to hyperinflationary economies, the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates and income statement items have been converted at the average exchange rates for the period. See Note 2.2.20 to our Consolidated Financial Statements for information on the application of IAS 29 to hyperinflationary economies. The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per €1.00 as averages for the six months ended June 30, 2020 and June 30, 2019, and as period-end exchange rates as of June 30, 2020 and as of December 31, 2019 according to the ECB.

	Average Exchange Rates		Period-end Exchange Rates
	For the six months ended June 30, 2020	For the six months ended June 30, 2019	As of June 30, 2020	As of December 31, 2019
Mexican peso	23.8753	21.6509	25.9470	21.2202
U.S. dollar	1.1018	1.1297	1.1198	1.1234
Argentine peso			78.8283	67.2860
Colombian peso	4,066.2832	3,602.3248	4,209.2274	3,681.5391
Peruvian sol	3.7631	3.7516	3.9470	3.7205
Turkish lira	7.1541	6.3577	7.6761	6.6843

During the six months ended June 30, 2020, foreign exchange markets have been affected by the COVID-19 pandemic, which has generally had an adverse impact on currencies of emerging economies. As a result, the Mexican peso, the Colombian peso, the Turkish lira and the Peruvian sol depreciated against the euro in average terms compared with average exchange rates in the prior period. On the other hand, the U.S. dollar appreciated against the euro in average terms. In terms of period-end exchange rates, the Mexican peso, the Argentine peso, the Colombian peso, the Peruvian sol and the Turkish lira depreciated against the euro. On the other hand, the U.S. dollar appreciated against the euro. The overall effect of changes in exchange rates was negative for both the period-on-period comparison of the Group’s income statement and the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this report on Form 6-K we have sometimes excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of the more recent period for both period ends.

COVID-19 pandemic

On March 11, 2020, the World Health Organization declared the outbreak of coronavirus (COVID-19) a pandemic.

The coronavirus (COVID-19) pandemic has affected, and is expected to continue to adversely affect, the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession. Among other challenges, these countries are experiencing widespread increases in unemployment levels and falls in production, while public debt has increased significantly due to support and spending measures implemented by government authorities. In addition, there has been an increase in debt defaults by both companies and individuals, volatility in the financial markets, volatility in exchange rates and reductions in the value of assets and investments, all of which have adversely affected the Group’s results in the first six months of 2020, and are expected to continue affecting the Group’s results in the future.

Furthermore, the Group may be affected by the measures or recommendations adopted by regulatory authorities in the banking sector, including but not limited to, the recent reductions in reference interest rates, the relaxation of prudential requirements, the suspension of dividend payments until October 1, 2020, the adoption of moratorium measures for bank customers (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments) and financing with public guarantees, especially to companies and self-employed individuals, as well as changes in the financial asset purchase programs.

Since the outbreak of COVID-19, the Group has experienced a slowdown in its activity. For example, the granting of new loans to individuals has significantly decreased since the beginning of the state of emergency or periods of confinement decreed in certain countries in which the Group operates. In addition, the Group faces various risks, such as an increased risk of deterioration in the value of its assets (including financial instruments valued at fair value, which may suffer significant fluctuations) and of the securities held for liquidity reasons, a possible significant increase in non-performing loans and a negative impact on the Group’s cost of financing and on its access to financing (especially in an environment where credit ratings are affected).

In addition, in several of the countries in which the Group operates, including Spain, the Group has temporarily closed a significant number of its offices and reduced hours of working with the public, and the teams that provide central services have been working remotely. These measures are being gradually reversed in some regions, such as Spain, however, due to the continued expansion of the COVID-19 pandemic, it is unclear how long it will take for normal operations to be fully resumed. The COVID-19 pandemic could also adversely affect the business and operations of third parties that provide critical services to the Group and, in particular, the greater demand and/or reduced availability of certain resources could in some cases make it more difficult for the Group to maintain the required service levels. Furthermore, the increase in remote working has increased the risks related to cybersecurity, as the use of non-corporate networks has increased.

As a result of the above, while the impact of the COVID-19 pandemic only started to be evident at the end of the first quarter of 2020, it has had an adverse effect on the Group’s results for the first half of 2020, as well as on the Group’s capital base as of June 30, 2020. The main accumulated impacts have been the following: (i) an increase in the deterioration of financial assets, mainly due to the deterioration of the macroeconomic scenario, which has had a negative impact of €2,009 million (which includes the initial negative impact of moratoriums) and €95 million in provisions for contingent risks and commitments as of June 30, 2020, and (ii) a deterioration in the goodwill of the Group’s subsidiary in the United States, mainly due to the deterioration of the macroeconomic scenario in the United States, which has had a net negative impact of €2,084 million on the “Profit attributable to parent company” in the six months ended June 30, 2020 (although this impact does not affect the tangible book value, nor the capital or the liquidity of the Group). For information on the impact of the COVID-19 pandemic on our capital, see “—Capital”.

The final magnitude of the impact of the COVID-19 pandemic on the Group’s business, financial condition and results of operations, which is expected to be significant, will depend on future and uncertain events, including the intensity and persistence over time of the consequences arising from the COVID-19 pandemic in the different geographies in which the Group operates.

Measures adopted in light of the COVID-19 pandemic

For summarized information on certain supervisory pronouncements intended to allow greater flexibility in the implementation of the accounting and prudential frameworks applicable to financial institutions, see “—Pronouncements of regulatory bodies and supervisors regarding COVID-19” below. The Group has taken such pronouncements into consideration when preparing its Unaudited Condensed Interim Consolidated Financial Statements. For summarized information on certain relief measures adopted by the ECB regarding capital and liquidity requirements, see “Item 5. Operating and Financial Review and Prospects―5B. Liquidity and Capital Resources—Capital”.

In accordance with the recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA has resolved to modify the dividend policy of the Group, as announced on February 1, 2017, for the 2020 financial year, determining not to pay any dividend corresponding to such year until the uncertainties caused by the COVID-19 pandemic disappear and, in any case, not before the end of such year. On April 9, 2020, BBVA paid a supplementary cash dividend for the 2019 financial year of a gross amount of €0.16 per share, in line with that approved at BBVA’s General Shareholders’ Meeting held on March 13, 2020. Thus, the total dividend for the 2019 financial year amounts to €0.26 gross per share.

Set forth below is summarized information on certain economic measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic, as well as on the measures adopted by the BBVA Group to support its customers pursuant to initiatives required or supported by the relevant governments. See Note 6.2 to our Unaudited Condensed Interim Consolidated Financial Statements for additional information on how the Group’s loan activity has been affected by the COVID-19 pandemic.

In Europe, fiscal stimulus packages continue to be implemented by all the relevant European authorities, the European Union (EU) and member states, with the recovery fund (Next Generation EU) approved by the EU being the most relevant. Such fund would mean an endowment of €750,000 million to support the recovery within the coming years through the promotion of investment and the development of structural reforms. As a consequence of the transfers expected to be made thereunder, member states most affected by the health crisis would avoid incurring in higher debt and, the plan is expected to result in a lower cost of funding for member states.

Spain

In Spain, measures adopted in response to the COVID-19 pandemic include credit facilities for SMEs and self-employed workers and credit guaranteed by the Instituto de Crédito Oficial (“ICO”), upfront payment of pension payments and unemployment benefits, credit guaranteed by the ICO for rent payment, deferment of insurance and credit cards payments, as well as grace periods on loans for the most affected population.

The adoption of moratorium measures for bank customers in the different countries in which the Group operates (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement to which BBVA has adhered to in Spain) has resulted in the temporary suspension of all or part of the contractual obligations of certain debtors for a specific period of time. According to IFRS 9, when a moratorium impedes interest collection rights, a temporary loss of value is triggered for the transaction, which is calculated as the difference in current value of the original and modified cash flows, both discounted at the rate of effective interest of the original transaction. This difference is recognized at such initial time in the income statement under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification” and in the balance sheet as a reduction in the asset value of the loans. From that point on, such difference accrues as net interest income at the original effective interest rate within the period of the moratorium. Thus, at the end of the moratorium period, the impact on profit attributable to parent company is neutral.

The United States

In the United States, the Federal Reserve has cut interest rates to 0%-0.25% and has stated that it is ready to launch additional measures if necessary. In addition, the Paycheck Protection Program (“PPP”) and the business loan program established by the Coronavirus Aid, Relief, and Economic Security Act (“CARES Act”), which seek to provide economic assistance for workers, families and businesses, and preserve jobs were launched and a new infrastructure spending tax package may be approved.

Measures adopted by the Group in the United States include affording flexibility in the repayment of loans for businesses and for consumer finance customers, and the removal of certain fees for individual customers. In addition, the Group participates in the PPP and other loan programs.

Mexico

During March and April 2020, Banxico, the Mexican Central Bank, reduced the benchmark interest rate and announced certain measures to promote the orderly behavior of the financial markets, strengthen credit granting channels and provide liquidity for the development of the financial system. It also announced a reduction in the Monetary Regulation Deposit, the instrument through which the Central Bank balances its long-term liquidity, and the start of auctions of US dollars with credit institutions in which BBVA Mexico participated in April, in the aggregate amount of $1,250 million, and partially renewed that position in June for $700 million.

Measures adopted by the Group in Mexico include a repayment deferment of up to four months on various credit products, a fixed payment plan to reduce monthly credit card charges, the suspension of point of sale fees to support retailers with lower turnover and certain plans to support larger corporate customers.

Turkey

Due to the COVID-19 outbreak, the Turkish government has announced a program of fiscal measures to offset the effects of the pandemic. The main measures include the increase of minimum pensions for and financial aid to the most affected households, protection of employment and deferment of the payment of taxes in affected industries. The Central Bank has decreased the benchmark rate, most recently to 8.25%, in addition to taking measures to provide liquidity with long term instruments and discount rates.

Measures adopted by the Group in Turkey include a delay of certain loan repayments and penalty-free interest and principal payments.

South America

In Argentina, quarantine extensions have been accompanied by government fiscal support measures targeting certain sectors and regions. In Colombia, production and consumption disruption resulting from the COVID-19 pandemic has resulted in strong reductions in the components of demand, mainly consumption and investment. In this context, the central bank has reduced the benchmark interest rate by 175 basis points since the start of the pandemic, an approach which is expected to continue until it falls to 2% for the third quarter, and has also carried out liquidity injection programs in addition to bond purchase programs. In Peru, a fiscal package has been implemented to alleviate the negative impacts of COVID-19 on households and businesses.

As for the measures adopted by the Group in South America, in some countries, including Argentina, the Group has provided a credit facility for micro-SMEs to help them purchase remote work equipment and credit facilities intended for payroll payments; in Colombia, the Group has deferred repayments on loans to individuals and companies for up to six months, and it is offering special working capital facilities to companies; and in Peru, various initiatives have been approved to support SMEs, and new types of credit facilities and credit cards have been approved in order to support consumers.

Pronouncements of regulatory bodies and supervisors regarding COVID-19

With the aim of mitigating the impact of COVID-19, various European and international bodies have made pronouncements aimed at allowing greater flexibility in the implementation of the accounting and prudential frameworks applicable to financial institutions.

In particular, the ECB has adopted the following relief measures regarding asset quality deterioration and non-performing loans: (i) with respect to loans affected by legally imposed payment moratoriums related to the COVID-19 pandemic, it has extended flexibility to the unlikely-to-pay classification of such loans in regard to timing and scope of the assessment, taking into account all available support measures, and (ii) with respect to COVID-19 related financing with public guarantees, it has provided flexibility regarding the classification of obligors as unlikely to pay, and will give public-guaranteed loans a preferential treatment in terms of their minimum coverage expectation. Furthermore, Regulation (EU) 2020/873 of the European Parliament and of the Council of June 24, amending Regulations (EU) 575/2013, as amended (the “CRR”) and (EU) 2019/876 (the “CRR2”), as regards certain adjustments in response to the COVID-19 pandemic, contains a number of adjustments to CRR and CRR II to facilitate lending by banks as a response to the COVID-19 crisis. The adjustments also reflect recent statements of the Basel Committee on Banking Supervision addressing the challenges of the pandemic. These adjustments include extending for two years the transition period for arrangements related to the implementation of IFRS 9; bringing forward the introduction of some capital relief measures for banks under CRR2, including the preferential treatment of certain loans backed by pensions or salaries and of certain exposures to SMEs and infrastructure; and changing the minimum amount of capital that banks are required to hold for non-performing loans under the prudential backstop.

The Group has taken the pronouncements referred to above into consideration when preparing its Unaudited Condensed Interim Consolidated Financial Statements. See Note 1.5 to our Unaudited Condensed Interim Consolidated Financial Statements for additional information.

Operating Environment

Our results of operations are dependent, to a large extent, on the level of demand for our products and services (primarily loans and deposits but also intermediation of financial products such as sovereign or corporate debt) in the countries in which we operate. Demand for our products and services in those countries is affected by the performance of their respective economies in terms of GDP, as well as prevailing levels of employment, inflation and, particularly, interest rates. The demand for loans and saving products correlates positively with income, which correlates in turn with GDP, employment and corporate profits evolution. Interest rates have a direct impact on banking results as the banking activity mainly relies on the generation of positive interest margins by paying lower interest on liabilities, primarily deposits, than the interest received on assets, primarily loans. However, it should be noted that higher interest rates, all else being equal, also reduce the demand for banking loans and increase the cost of funding of the banking business.

The uncertainty caused by the COVID-19 pandemic led to a significant fluctuation in asset prices in the financial markets, accompanied by a sharp increase in volatility. The economic environment improved substantially at the end of March following the actions of the U.S. Federal Reserve (which offered unlimited quantitative easing, such as, lending facilities) and a sizable fiscal package announced by the U.S. government, with financial markets remaining broadly stable over the second quarter of 2020. Supportive factors include the reinforcement of previous fiscal and monetary measures by policy makers in the largest economies, the exit process in place of lockdown measures related to the COVID-19 pandemic in most countries and the related rebound in economic activity. Regarding the latter, indicators show that the contraction up to April was deeper than expected and that the improvement since May is robust and relatively widespread, especially in developed economies where the policy support has been more significant. Regarding global growth, BBVA Research continues to expect an “incomplete V” recovery of economic activity, that is, a return to almost previous levels of activity. However, this recovery is expected to be slower than anticipated and heterogeneous across countries. This view builds on the assumption that further waves of contagions of COVID-19 will occur, but without triggering generalized strict lockdown measures, until a vaccine is available. BBVA Research expects the global economy to contract by around 3.2% in 2020 and grow by 5.1% in 2021. Nonetheless, epidemiological, economic, financial and geopolitical factors keep uncertainty at exceptionally high levels and continue to be a source of risks to economic forecasts. The availability of a vaccine for COVID-19 will be particularly relevant.

Regarding the evolution of key economic areas for the Group, BBVA Research expects the Spanish economy to contract by around 11.5% in 2020 and grow by 7% in 2021. The measures implemented for containment and social distancing have lasted longer than expected, but have contributed to control the expansion of COVID-19 pandemic. Additionally, the impact on economic activity has been significant and greater than initially estimated: the drop in production exceeded 30% during the last two weeks of March and may have reached 50% by the beginning of the second quarter, when activity was limited to essential sectors. Thus, despite the fact that the easing of restrictions has given way to an intense recovery of the economy as from May, the accumulated fall in activity levels between the end of 2019 and the end of the first half of 2020 may have exceeded 20%. BBVA Research expects activity growth to reach 10% in the third quarter of 2020. Growth forecasts continue to be subject to an exceptionally high degree of uncertainty.

Meanwhile, at a European level, packages are being enacted by all relevant European authorities, the EU and member states. There are two broad sets of measures, credit guarantees and new fiscal stimulus, in addition to letting fiscal stabilizers work, relaxing EU fiscal and State aid rules. On average, the fiscal stimulus plus liquidity facilities are expected to be around 20% of EU GDP. Most importantly, the EU Council approved the “Next Generation EU” deal that amounts to €750,000 million (5.4% of the EU’s GDP), to support the recovery in the coming years after the COVID-19 pandemic through the promotion of investment and the implementation of structural reforms. In addition, the ECB has continued to expand its balance sheet, consolidating a strong increase in liquidity (TLTRO-III), by increasing the Pandemic Emergency Purchase Programme (PEPP) by a further €600 billion up to €1.35 trillion.

In Mexico, the sharp contraction of activity due to the COVID-19 pandemic and the expected subdued recovery thereafter will likely affect investment. BBVA Research’s GDP growth forecast has been revised downward to -10% for 2020, with a range from -12% to -9%. BBVA Research expects a partial recovery of GDP in 2021 with a growth rate of 3.7% (range from 2% to 4.5%). Economic activity bottomed out in the second quarter of 2020 with a two digit fall and the path to recovery is expected to be long and varied amid the long-term shock to employment and household income. During the first half of 2020, formal employment fell by almost 1 million, with a year-on-year decline of 4.3% in June 2020. The loss of jobs both in the formal and informal sectors will likely imply an important decrease in consumption, which BBVA Research estimates will contract by 10.5% in 2020. The challenging context has been affected by the lack of sizeable counter-cyclical policies, which is expected to keep investment weak. BBVA Research expects a drop in investment of around 20.5% in 2020. The new trade treaty with the U.S. and Canada (USMCA) came into effect on July 1, 2020. It represents a medium-term relevant opportunity for Mexico to attract foreign direct investment flows and might bring about growth opportunities for local supply chains. Inflation is expected to remain under control, paving the way for Banxico to cut reference interest rates towards 3% by the end of 2020 from its current level of 5%, according to BBVA Research. BBVA Research expects headline inflation to close 2020 at 3.3% and to ease to 2.8% by the end of 2021.

BBVA Research expects GDP in South America to decrease approximately 10% in 2020, having grown by 1% in 2019. The containment measures applied to contain the epidemic have been stricter and more durable than was estimated a quarter ago. As a result, BBVA Research corrected its growth estimates downwards for all countries in the region. For all the South American economies, BBVA Research expects a partial recovery in 2021 driven mostly by the base effect of the lockdown that will imply an expected growth of 4.5% for the region. BBVA Research expects a slow post COVID-19 recovery given the need to redress resources, the potential bankruptcy of companies and the household income loss.

In the three largest economies of the region, BBVA Research expects severe contractions: Argentina was going through one of its longest recessions when the COVID-19 pandemic broke out. BBVA Research expects a dramatic drop in GDP with a range from -16% to -12%. For 2021, BBVA Research expects a partial recovery with a GDP growth rate of 5.2% (range between 3% and 6%) with high macroeconomic vulnerabilities that will likely deepen once the lockdown is over. In Peru, BBVA Research expects the contraction to be -15% this year (range from -18% to -12%). The second quarter of 2020 was the one with the highest contraction. Considering that many of the restrictions imposed during the lockdown will be increasingly lifted, BBVA Research expects that there will be a partial recovery in the second half of the year and an increase of 8% year-on-year (range from 6.5% to 10.5%) in 2021. BBVA Research expects Colombia to be the least severely affected economy, with an estimated drop in GDP of -7.5% in 2020 (range from -10% to -5%), with severe effects on multiple sectors after the six-week halt in economic activity and the gradual opening up that has been uneven across sectors and regions. For 2021, the year-on-year growth will be driven mostly by the base effect and BBVA Research expects it to be 5.5% (range from 3.5% to 7.5%).

In the United States, the current crisis represents an unprecedented risk to the economy as the fallout from the COVID-19 pandemic has created a confluence of supply and demand-side shocks. The direct economic impact is expected by BBVA Research to be large, but temporary; however, the second-round effects on the real economy could imply a deeper shock and a slower recovery. Moreover, limited data availability, financial market volatility, and unprecedented policy responses imply elevated uncertainty on the economic outlook during the next few quarters. BBVA Research expects that U.S. GDP will decline by 5.1% in 2020 and increase 3.5% in 2021. The U.S. government has put in place an unprecedented stimulus package that implies a substantial increase in the federal deficit and public debt.

In Turkey, BBVA Research expects GDP to remain flat in 2020 (0% increase) and then to increase 5% in 2021. The Turkish economy grew by 4.5% year-on-year in the first quarter of 2020 and BBVA Research expects a drop in annual terms of -7.5% in the second quarter of 2020. However expansionary fiscal and monetary policies, supportive measures as well as the acceleration in credit growth accompanied by the normalization expectation on the global side could have a positive impact on economic activity in the second half of the year, and could lead to flat growth, within a growth range –given the risk- of between 1% and -3%. Recovery ahead is expected to be supported by the gradual lifting of lockdown measures and by the ongoing credit expansion.

BBVA Group results of operations for the six months ended June 30, 2020 compared to the six months ended June 30, 2019

The table below shows the Group’s unaudited condensed interim consolidated income statements for the six months ended June 30, 2020 and 2019. The Group’s unaudited condensed interim consolidated income statement for the six months ended June 30, 2019 has been restated for comparative purposes. See “Presentation of Financial Information―—IFRS 9 – Collection of interest on impaired financial assets”.

	For the six months ended June 30,
	For the six months ended June 30,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Interest and other income	13,228	15,633	(15.4)
Interest expense	(4,574)	(6,691)	(31.6)
Net interest income	8,653	8,941	(3.2)
Dividend income	77	103	(25.4)
Share of profit or loss of entities accounted for using the equity method	(17)	(19)	(11.3)
Fee and commission income	3,325	3,661	(9.2)
Fee and commission expense	(1,024)	(1,191)	(14.1)
Net gains (losses) on financial assets and liabilities (1)	790	408	93.6
Exchange differences, net	316	134	136.3
Other operating income	230	337	(31.7)
Other operating expense	(848)	(995)	(14.8)
Income from insurance and reinsurance contracts	1,307	1,547	(15.6)
Expense from insurance and reinsurance contracts	(765)	(983)	(22.2)
Gross income	12,045	11,944	0.8
Administration costs	(4,746)	(5,084)	(6.6)
Personnel expense	(2,875)	(3,131)	(8.2)
Other administrative expense	(1,872)	(1,953)	(4.1)
Depreciation and amortization	(766)	(790)	(3.1)
Net margin before provisions (2)	6,533	6,069	7.6
Provisions or reversal of provisions and other results	(601)	(261)	130.6
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(4,146)	(1,731)	139.5
Impairment or reversal of impairment on non-financial assets	(2,149)	(44)	n.m. (3)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net	4	8	(49.9)
Negative goodwill recognized in profit or loss	-	-	-
Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	(9)	11	n.m. (3)
Operating profit/(loss) before tax	(368)	4,052	n.m. (3)
Tax expense or income related to profit or loss from continuing operations	(455)	(1,136)	(60.0)
Profit / (loss) from continuing operations	(823)	2,916	n.m. (3)
Profit / (loss) from discontinued operations, net	-	-	-
Profit / (loss)	(823)	2,916	n.m. (3)
Profit / (loss) attributable to parent company	(1,157)	2,442	n.m. (3)
Profit / (loss) attributable to non-controlling interests	333	475	(29.7)

(1) 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”.

(2) Calculated as “Gross income” less “Administration costs” and “Depreciation and amortization”.

(3) Not meaningful.

The changes in our unaudited condensed interim consolidated income statements for the six months ended June 30, 2020 and June 30, 2019 were as follows:

Net interest income

Net interest income for the six months ended June 30, 2020 amounted to €8,653 million, a 3.2% decrease compared with the €8,941 million recorded for the six months ended June 30, 2019, mainly as a result of the decrease in net interest income in South America, Mexico and the United States, partially offset by the increase in net interest income in Turkey. As mentioned below, the overall decrease was attributable in part to the depreciation of the main currencies where the BBVA Group operates. At constant exchange rates, net interest income increased by 4.5%. In addition, net interest income was adversely affected by the reductions in reference interest rates.

The following factors, set out by region, contributed to the decrease in net interest income:

· Mexico: there was a 10.7% period-on-period decrease in net interest income due mainly to the decrease in the interest reference rate (by 225 basis points) during the first half of 2020 as a consequence of the COVID-19 pandemic and the depreciation of the Mexican peso against the euro, partially offset by increases in the volume of interest-earning assets in the retail portfolio and in the wholesale portfolio.

· South America: there was a 10.5% period-on-period decrease in net interest income due mainly to the depreciation of the Argentine peso and, to a lesser extent, the Colombian peso against the euro, partially offset by the growth in the yield on interest-earning assets and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru.

· The United States: there was a 6.9% period-on-period decrease in net interest income due mainly to the Federal Reserve’s decrease in interest rates since the second half of 2019 (by 225 basis points in total), offset modestly by the appreciation of the U.S. dollar against the euro.

The decrease in net interest income was partially offset by:

· Turkey: there was a 13.4% period-on-period increase in net interest income mainly as a result of the higher customer spreads in Turkish lira-denominated loans and higher loan volumes, which was partially offset by a lower contribution from inflation-linked bonds and the depreciation of the Turkish lira against the euro.

Dividend income

Dividend income for the six months ended June 30, 2020 amounted to €77 million, a 25.4% decrease compared with the €103 million recorded for the six months ended June 30, 2020.

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

Share of profit or loss of entities accounted for using the equity method for the six months ended June 30, 2020 was a €17 million loss, compared with the €19 million loss recorded for the six months ended June 30, 2019.

Fee and commission income

The breakdown of fee and commission income for the six months ended June 30, 2020 and June 30, 2019 is as follows:

	Page
Certain Terms and Conventions	1
Cautionary Statement Regarding Forward-Looking Statements	2
Presentation of Financial Information	4
3A. Selected Interim Consolidated Financial Data	5
4B. Business Overview	7
4E. Selected Statistical Information	17
5. Operating and Financial Review and Prospects	32
5A. Operating Results	34
5B. Liquidity and Capital Resources	72
5E. Off-Balance Sheet Arrangements	75
Unaudited Condensed Interim Consolidated Financial Statements	F-1