UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

FORM 20-F

[  ]        REGISTRATION STATEMENT PURSUANT TO SECTION 12(b) OR (g) OF THE SECURITIES EXCHANGE ACT OF 1934

OR

[X]       ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the fiscal year ended December 31, 2020

OR

[  ]        TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

For the transition period from ___ to ___

OR

[  ]        SHELL COMPANY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Date of event requiring this shell company report

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)

Kingdom of Spain

(Jurisdiction of incorporation or organization)

Calle Azul, 4

28050 Madrid

Spain

(Address of principal executive offices)

Jaime Sáenz de Tejada Pulido

Calle Azul, 4

28050 Madrid

Spain

Telephone number +34 91 537 7000

(Name, Telephone, E-mail and /or Facsimile Number and Address of Company Contact Person)

Securities registered or to be registered pursuant to Section 12(b) of the Act.

Title of Each Class	Trading Symbol	Name of Each Exchange on which Registered
American Depositary Shares, each representing the right to receive one ordinary share, par value €0.49 per share	BBVA	New York Stock Exchange
Ordinary shares, par value €0.49 per share	BBVA*	New York Stock Exchange*
0.875% Fixed Rate Senior Notes due 2023	BBVA 23	New York Stock Exchange
1.125% Fixed Rate Senior Notes due 2025	BBVA 25	New York Stock Exchange

*         The ordinary shares are not listed for trading, but are listed only in connection with the registration of the American Depositary Shares, pursuant to requirements of the New York Stock Exchange.

Securities registered or to be registered pursuant to Section 12(g) of the Act.

None

Securities for which there is a reporting obligation pursuant to Section 15(d) of the Act.

Title of Each Class	Name of Each Exchange on which Registered
Non-Step-Up Non-Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities	Irish Stock Exchange
Series 9 Non-Step-Up Non-Cumulative Contingent Convertible Perpetual Preferred Tier 1 Securities	Irish Stock Exchange

The number of outstanding shares of each class of stock of the Registrant as of December 31, 2020, was:

Ordinary shares, par value €0.49 per share—6,667,886,580

Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.

Yes [X] No [  ]

If this report is an annual or transition report, indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934.

Yes [  ] No [X]

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days.

Yes [X] No [  ]

Indicate by check mark whether the registrant has submitted electronically every Interactive Data File required to be submitted pursuant to Rule 405 of Regulation S-T (Section 232.405 of this chapter) during the preceding 12 months (or for such shorter period that the registrant was required to submit such files).

Yes [X] No [  ]

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or an emerging growth company. See definition of “large accelerated filer”, “accelerated filer,” and “emerging growth company” in Rule 12b-2 of the Exchange Act.:

Large accelerated filer [X] Accelerated filer [  ] Non-accelerated filer [  ] Emerging growth company [  ]

If an emerging growth company that prepares its financial statements in accordance with U.S. GAAP, indicate by check mark if the registrant has elected not to use the extended transition period for complying with any new or revised financial accounting standards provided pursuant to Section 13(a) of the Exchange Act.    [  ]

The term “new or revised financial accounting standard” refers to any update issued by the Financial Accounting Standards Board to its Accounting Standards Codification after April 5, 2012.

Indicate by check mark whether the registrant has filed a report on and attestation to its management’s assessment of the effectiveness of its internal control over financial reporting under Section 404(b) of the Sarbanes-Oxley Act (15 U.S.C. 7262(b)) by the registered public accounting firm that prepared or issued its audit report.[X]

Indicate by check mark which basis of accounting the registrant has used to prepare the financial statements included in this filing:

U.S. GAAP [  ] International Financial Reporting Standards as Issued by the International Accounting Standards Board [X] Other [  ]

If “Other” has been checked in response to the previous question, indicate by check mark which financial statement item the registrant has elected to follow.

Item 17 [  ] Item 18 [  ]

If this is an annual report, indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Exchange Act).

Yes [  ] No [X]

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

TABLE OF CONTENTS

		PAGE
PART I
ITEM 1.	IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS	7
A.	Director and Senior Management	7
B.	Advisers	7
C.	Auditors	7
ITEM 2.	OFFER STATISTICS AND EXPECTED TIMETABLE	7
ITEM 3.	KEY INFORMATION	7
A.	Selected Consolidated Financial Data	7
B.	Capitalization and Indebtedness	9
C.	Reasons for the Offer and Use of Proceeds	10
D.	Risk Factors	10
ITEM 4.	INFORMATION ON THE COMPANY	26
A.	History and Development of the Company	26
B.	Business Overview	29
C.	Organizational Structure	63
D.	Property, Plants and Equipment	64
E.	Selected Statistical Information	64
F.	Competition	87
G.	Cybersecurity and Fraud Management	91
ITEM 4A.	UNRESOLVED STAFF COMMENTS	93
ITEM 5.	OPERATING AND FINANCIAL REVIEW AND PROSPECTS	93
A.	Operating Results	97
B.	Liquidity and Capital Resources	162
C.	Research and Development, Patents and Licenses, etc.	164
D.	Trend Information	164
E.	Off-Balance Sheet Arrangements	165
F.	Tabular Disclosure of Contractual Obligations	165
ITEM 6.	DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES	166
A.	Directors and Senior Management	166
B.	Compensation	175
C.	Board Practices	185
D.	Employees	197
E.	Share Ownership	200
ITEM 7.	MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS	201
A.	Major Shareholders	201
B.	Related Party Transactions	201
C.	Interests of Experts and Counsel	202
ITEM 8.	FINANCIAL INFORMATION	202
A.	Consolidated Statements and Other Financial Information	202
B.	Significant Changes	203
ITEM 9.	THE OFFER AND LISTING	204
A.	Offer and Listing Details	204
B.	Plan of Distribution	210
C.	Markets	210
D.	Selling Shareholders	210
E.	Dilution	210
F.	Expenses of the Issue	210

		PAGE
ITEM 10.	ADDITIONAL INFORMATION	210
A.	Share Capital	210
B.	Memorandum and Articles of Association	210
C.	Material Contracts	214
D.	Exchange Controls	215
E.	Taxation	216
F.	Dividends and Paying Agents	221
G.	Statement by Experts	221
H.	Documents on Display	221
I.	Subsidiary Information	221
ITEM 11.	QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK	221
ITEM 12.	DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES	221
A.	Debt Securities	221
B.	Warrants and Rights	221
C.	Other Securities	221
D.	American Depositary Shares	222
PART II
ITEM 13.	DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES	223
ITEM 14.	MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS	223
ITEM 15.	CONTROLS AND PROCEDURES	223
ITEM 16.	[RESERVED]	226
ITEM 16A.	AUDIT COMMITTEE FINANCIAL EXPERT	226
ITEM 16B.	CODE OF ETHICS	226
ITEM 16C.	PRINCIPAL ACCOUNTANT FEES AND SERVICES	226
ITEM 16D.	EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES	227
ITEM 16E.	PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS	228
ITEM 16F.	CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT	228
ITEM 16G.	CORPORATE GOVERNANCE	228
ITEM 16H.	MINE SAFETY DISCLOSURE	230
PART III
ITEM 17.	FINANCIAL STATEMENTS	230
ITEM 18.	FINANCIAL STATEMENTS	230
ITEM 19.	EXHIBITS	231

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, 2020, 2019 and 2018, 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 4/2017 (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.

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

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CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS

This Annual 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 Annual Report, including, without limitation, the information under the items listed below, identifies important factors that could cause such differences:

·“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”.

Other important factors that could cause actual results to differ materially from those in forward-looking statements include, 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, including any adverse developments, or the perception that such developments may occur, regarding credit quality, public debt sustainability and sovereign ratings, particularly Spain’s, among other factors;

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

·our ability to complete the sale of BBVA USA as planned (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). Completion of the transaction is dependent on the satisfaction of certain closing conditions, which cannot be assured;

·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;

·the monetary, interest rate and other policies of central banks, and the trade, economic and other policies of governments, in the EU, Spain, Mexico, Turkey, the United States 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;

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

·the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation affecting 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 distribution or repatriation of dividends, international ownership legislation, interest rate caps and tax policies;

2

·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 sovereign credit ratings, particularly 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.

3

PRESENTATION OF FINANCIAL INFORMATION

Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with EU-IFRS. The Bank of Spain issued Circular 4/2017 of November 27, 2017 (“Circular 4/2017”), which replaced Circular 4/2004 of December 22, 2004, on Public and Confidential Financial Reporting Rules and Formats (“Circular 4/2004”) for financial statements relating to periods ended January 1, 2018 or thereafter.

There are no differences between EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017 and IFRS-IASB for the years ended December 31, 2020, 2019 and 2018. The Consolidated Financial Statements included in this Annual Report have been prepared in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017.

For a description of our critical accounting policies, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies” and Note 2.2 to our Consolidated Financial Statements. 

The financial information as of and for the years ended December 31, 2019 and 2018 may differ from previously reported financial information as of such dates and for such periods in our respective annual reports on Form 20-F for certain prior years, as a result of the changes and adjustments referred to below.

Changes in Accounting Policies

IFRS 16 –Leases – COVID-19 modifications

On May 28, 2020, the IASB approved an amendment to IFRS 16 which provides an optional exemption for lessees from assessing whether rent concessions that occur due to COVID-19 (including payment holidays and deferrals of lease payments for a period of time, in each case in connection with payments due on or before June 30, 2020) are lease modifications. For additional information, see Note 2.3 to the Consolidated Financial Statements.

This amendment is effective from June 1, 2020 and has been endorsed by the European Union. The amendment, which has been applied by the Group, has had no significant impact on the Consolidated Financial Statements of the Group.

IAS 12 – “Income Taxes” Amendment

As part of the annual improvements to IFRS standards (2015-2017 cycle), IAS 12 “Income Taxes” was amended for annual reporting periods beginning on or after January 1, 2019. According to the amended standard, an entity shall recognize the income tax consequences of payments of dividends in profit or loss, other comprehensive income or equity, depending on where the entity recognized the originating transaction or event that generated the distributable profits giving rise to the dividend. In accordance with the amended standard, we recorded the income tax consequences of dividends paid for the year ended December 31, 2019 (amounting to €91 million of income) under “Tax expense or income related to profit or loss from continuing operations” in our consolidated income statement within our Consolidated Financial Statements (see Note 19). Such income tax consequences were recorded under “Total equity” in our consolidated balance sheet in previous periods. In order to make the financial information for prior years comparable with the financial information for 2019, the financial information for 2018 was restated retrospectively in this regard. The application of the amended standard resulted in an increase by €76 million in our “Profit attributable to parent company” for 2018 (an increase of 1.4% in the “Profit attributable to parent company” for 2018). The new standard had no significant impact on our consolidated total equity.

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 and 2018 comparable with information as of December 31, 2020, the information as of

4

December 31, 2019 and 2018 has been restated by reclassifying €2,985 million and €2,987 million, respectively,from “Shareholders’ funds – Retained earnings” and €6 million and €20 million, respectively, from “Shareholders’ funds – Other reserves” to “Accumulated other comprehensive income – Items that may be reclassified to profit or loss – Foreign currency translation” and “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Share of other recognized income and expense of investments in joint ventures and associates” as of December 31, 2019 and 2018, respectively.

The reclassification has been recorded as “Effect of changes in accounting policies” under the balance as of January 1, 2020 and 2019 in the consolidated statement of changes in equity for the years ended December 31, 2019 and 2018.

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 years ended December 31, 2019 and 2018 comparable with the information for the year ended December 31, 2020, the consolidated income statement for the year ended December 31, 2019 has been restated by recognizing a €78 million reduction in the heading “Interest and other income” and a €78 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” (€80 million reduction in the heading “Interest and other income” and a €80 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” for the year ended December 31, 2018). This reclassification has had no impact on the profit for the years ended December 31, 2019 and 2018 or on the consolidated total equity as of December 31, 2019 and 2018.

Trading derivatives recognition

Information as of December 31, 2020 has been subject to certain balance sheet presentation modifications related to non-significant cross currency swap transactions. In order to make the information as of December 31, 2019 and 2018 comparable with the information as of December 31, 2020, figures as of December 31, 2019 and 2018 have been restated by recognizing a €953 million and a €1,013 million reduction in “Total assets” and “Total liabilities”, respectively.

Intra-group reallocations

Following the publication of our consolidated financial statements as of and for the year ended December 31, 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 years ended December 31, 2019 and 2018 comparable with the information as of and for the year ended December 31, 2020, segmental balances as of and for the years ended December 31, 2019 and 2018 have been revised in conformity with these intra-group reallocations.

Agreement for the sale of BBVA USA Bancshares, Inc.

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of the share capital in BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business, for approximately $11.6 billion (€9.7 billion), to be paid in cash. As a result, the assets and liabilities of these companies were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, respectively. In addition, the profit (loss) of these companies was recognized under “Profit / (loss) from discontinued operations, net” in the consolidated income statement for the year ended December 31, 2020. In accordance with IFRS 5, for comparative purposes the profit (loss) of these companies for the years ended December 31, 2019 and 2018 was also reclassified under the heading “Profit / (loss) from discontinued operations, net”. In addition, in accordance with IFRS 5, and following IFRS 8 “Information by business segments”, information on the United States reportable segment in which the non-current asset (disposal group) is recognized, is provided for the years ended December 31, 2020, 2019 and 2018.For additional information, see Note 21 to our Consolidated Financial Statements.

5

Segment information included in “Item 4. Information on the Company—Business Overview” and “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”  is being presented under management criteria, pursuant to which the assets, liabilities and profit (loss) of the aforementioned companies held for sale are included in every line item of the balance sheet and income statement of the United States segment (rather than in a single item).

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 year. 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 annual report may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded.

See “Item 4. Information on the Company—Selected Statistical Information” for information on how the information for BBVA USA has been treated for purposes of calculating the selected financial information contained herein.

6

PART I

ITEM 1.      IDENTITY OF DIRECTORS, SENIOR MANAGEMENT AND ADVISERS

A.   Director and Senior Management

Not Applicable.

B.   Advisers

Not Applicable.

C.   Auditors

Not Applicable.

ITEM 2.      OFFER STATISTICS AND EXPECTED TIMETABLE

Not Applicable.

ITEM 3. KEY INFORMATION

A. Selected Consolidated Financial Data

The historical financial information set forth below for the years ended December 31, 2020, 2019 and 2018 has been selected from, and should be read together with, the Consolidated Financial Statements included herein. For information concerning the preparation and presentation of such financial information, see “Presentation of Financial Information”.  

7

	Year Ended December 31,
	2020	2019	2018
	(In Millions of Euros, Except Per Share/ADS Data (in Euros))
Consolidated Statement of Income Data
Interest and other income	22,389	27,762	26,954
Interest expense	(7,797)	(11,972)	(11,669)
Net interest income	14,592	15,789	15,285
Fee and commission income	5,980	6,786	6,462
Fee and commission expense	(1,857)	(2,284)	(2,059)
Net gains (losses) on financial assets and liabilities (1)	1,187	705	1,136
Other operating income	492	639	929
Other operating expense	(1,662)	(1,943)	(2,021)
Income on insurance and reinsurance contracts	2,497	2,890	2,949
Expense on insurance and reinsurance contracts	(1,520)	(1,751)	(1,894)
Gross income	20,166	21,522	20,936
Administration costs	(7,799)	(8,769)	(9,020)
Depreciation and amortization	(1,288)	(1,386)	(1,034)
Provisions or reversal of provisions	(746)	(614)	(395)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(5,179)	(3,552)	(3,681)
Net operating income	5,153	7,202	6,807
Impairment or reversal of impairment of investments in joint ventures and associates	(190)	(46)	-
Impairment or reversal of impairment on non-financial assets	(153)	(128)	(137)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net	(7)	(5)	80
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	444	23	815
Operating profit / (loss) before tax	5,248	7,046	7,565
Tax (expense) or income related to profit or loss from continuing operations	(1,459)	(1,943)	(2,042)
Profit / (loss) from continuing operations	3,789	5,103	5,523
Profit / (loss) from discontinued operations, net	(1,729)	(758)	704
Profit	2,060	4,345	6,227
Profit / (loss) attributable to parent company	1,305	3,512	5,400
Profit attributable to non-controlling interests	756	833	827
Per share/ADS (2) Data
Earnings per share (In Euros)	0.14	0.47	0.75
Diluted earnings (losses) per share from continuing operations (3)	0.40	0.58	0.64
Basic earnings (losses) per share from continuing operations	0.40	0.58	0.64
Dividends declared (In Euros)	0.160	0.260	0.250
Dividends declared (In U.S. dollars)	0.196	0.292	0.286
Number of shares outstanding (at period end)	6,667,886,580	6,667,886,580	6,667,886,580

(1)Comprises the following income statement line items contained in the 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)Each American Depositary Share (“ADS”) represents the right to receive one ordinary share.

(3)  Calculated on the basis of the weighted average number of BBVA’s ordinary shares outstanding during the relevant period, including the average number of estimated shares to be issued upon the conversion of convertible instruments, excluding the weighted average number of treasury shares during the year (6,655 million, 6,648 million and 6,636 million shares for the years ended December 31, 2020, 2019 and 2018, respectively).

8

	As of and for the Year Ended December 31,
	2020	2019	2018
	(In Millions of Euros, Except  Percentages)
Consolidated Balance Sheet Data
Total assets	736,176	697,737	675,675
Common stock	3,267	3,267	3,267
Financial assets at amortized cost	367,668	439,162	419,660
Financial liabilities at amortized cost - Customer deposits	342,661	384,219	375,970
Debt certificates	66,311	68,619	63,970
Non-controlling interest	5,471	6,201	5,764
Total equity (net assets)	50,020	54,925	52,874
Consolidated ratios
Net interest margin (1)	2.30%	2.62%	2.58%
Return on average total assets (2)	0.5%	0.8%	0.9%
Return on average shareholders’ funds (3)	6.9%	9.9%	11.7%
Equity to assets ratio (4)	6.8%	7.9%	7.8%
Credit quality data
Loan loss reserve  (5)	12,141	12,427	12,217
Loan loss reserve as a percentage of financial assets at amortized cost	3.30%	2.83%	2.91%
Non-performing asset ratio (NPA ratio) (6) (7)	4.11%	3.79%	3.94%
Impaired loans and advances to customers	14,672	15,954	16,349
Impaired loan commitments and guarantees to customers (7)	767	731	740
	15,439	16,685	17,089
Loans and advances to customers at amortized cost (8)	323,252	394,763	386,225
Loan commitments and guarantees to customers	52,204	45,952	47,575
	375,456	440,715	433,800

(1)  Represents net interest income as a percentage of average total assets.

(2)  Represents profit as a percentage of average total assets. In order to calculate “Return on average total assets” for the year ended December 31, 2020, the net capital gain from the bancassurance transaction with Allianz (€304 million) and the goodwill impairment in the United States cash-generating unit (CGU) (€2,084 million) have been excluded from profit. In order to calculate “Return on average total assets” for the year ended December 31, 2019, the goodwill impairment in the United States CGU (€1,318 million) has been excluded from profit. If such exclusions had not been made, “Return on average total assets” for the years ended December 31, 2020 and 2019 amounted to 0.3% and 0.6%, respectively. For additional information on the bancassurance transaction with Allianz, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2020—Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.”. For additional information on the goodwill impairment in the United States CGU, see “Item 5. Operating and Financial Review and Prospects—Critical Accounting Policies—Goodwill in consolidation”. 

(3)  Represents profit for the year as a percentage of average shareholders’ funds for the year. In order to calculate “Return on average shareholders’ funds” for the year ended December 31, 2020, the net capital gain from the bancassurance transaction with Allianz (€304 million) and the goodwill impairment in the United States CGU (€2,084 million) have been excluded from profit. In order to calculate “Return on average shareholders’ funds” for the year ended December 31, 2019, the goodwill impairment in the United States CGU (€1,318 million) has been excluded from profit. If such exclusions had not been made, “Return on average shareholders’ funds” for the years ended December 31, 2020 and 2019 amounted to 2.9% and 7.2%, respectively.

(4)  Represents average total equity (net assets) over average total assets.

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

(6)  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.

(7)  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 be higher for the periods covered, amounting to 3.91%, 3.62% and 3.77% as of December 31, 2020, 2019 and 2018, respectively.

(8)  Includes impaired loans and advances.

B.   Capitalization and Indebtedness

Not Applicable.

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C.   Reasons for the Offer and Use of Proceeds

Not Applicable.

D.   Risk Factors

MACROECONOMIC RISKS AND COVID-19 CONSEQUENCES

The COVID-19 pandemic is adversely affecting the Group

The COVID-19 (coronavirus) 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 falls in the value of assets and investments, all of which have adversely affected the Group’s results in 2020 and are expected to continue affecting the Group’s results in the future.

Furthermore, the Group has been and 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, 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 guarantee by public entities of certain provisions of credit, especially to companies and self-employed individuals, as well as changes in the financial asset purchase programs. As of December 31, 2020, the majority of the amounts that had been deferred pursuant to the mandatory COVID-19 moratoria will be due by the end of the first half of 2021, a period during which economic conditions will likely continue to be challenging.

Since the outbreak of COVID-19, the Group has experienced a decline 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 risk-weighted assets 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). As of December 31, 2020, an estimated approximately 9% of the Group’s exposure at default (defined as the amount of risk exposure upon default by counterparties, considering the Group’s loans and advances at amortized cost) related to borrowers in certain industries facing particularly challenging conditions as a result of the COVID 19 pandemic, specifically leisure, real estate developers, non-food retailers, upstream and oilfield services and air and marine transportation.

In addition, in several of the countries in which the Group operates, including Spain, the Group temporarily closed a significant number of its offices and reduced the hours of working with the public, and the teams that provide central services have had to work remotely. While these measures were progressively reversed in most regions, additional restrictions on mobility could be adopted that affect the Group’s operations. 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.

The COVID-19 pandemic has had an adverse effect on the Group’s results for the year ended December 31, 2020 as well as on the Group’s capital base as of December 31, 2020. For information on the impact of the COVID-19 pandemic on the Group, see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements.

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The COVID-19 pandemic has also exacerbated, and is likely to continue to exacerbate, other risks disclosed in this section, including but not limited to risks associated with the credit quality of the Group’s borrowers and counterparties or collateral, any withdrawal of ECB funding (of which the Group has made and continues to make significant use), the Group’s exposure to sovereign debt and rating downgrades, the Group’s ability to comply with its regulatory requirements, including MREL (as defined herein) and other capital requirements, and the deterioration of economic conditions or changes in the institutional environment.

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.

A deterioration in economic conditions or the institutional environment in the countries where the Group operates could have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group is sensitive to the deterioration of economic conditions or the alteration of the institutional environment of the countries in which it operates, and especially Spain, Mexico, the United States and Turkey, which respectively represented 55.1%, 15.0%, 12.8% and 8.1% of the Group's assets as of December 31, 2020 (52.3%, 15.6%, 12.7% and 9.2% as of December 31, 2019, respectively). Additionally, the Group is exposed to sovereign debt, particularly sovereign debt related to these geographies. Please see “Item 5. Operating and Financial Review and Prospects—Operating Results—Operating Environment” for summarized information on some of the challenges that these countries are currently facing and that, therefore, could significantly affect the Group.

Currently, the world economy is facing several exceptional challenges. In particular, the crisis derived from the COVID-19 pandemic has abruptly and significantly deteriorated the economic conditions of the countries in which the Group operates, leading many of them to an economic recession in 2020. Furthermore, this crisis could lead to a deglobalization of the world economy, produce an increase in protectionism or barriers to immigration, fuel the trade war between the United States and China and result in a general withdrawal of international trade in goods and services, as well as having other effects of long duration that transcend the pandemic itself. Added to this is the uncertainty regarding the United Kingdom’s (the “UK”) exit from the EU (“Brexit”). The long-term effects of Brexit will depend on the relationship between the UK and the EU after its complete exit from the European Single Market, which took place last December 31, 2020. Furthermore, in a scenario as uncertain as the current one, emerging economies (to which the Group is significantly exposed, particularly in the case of Mexico and Turkey) could be particularly vulnerable to a trade war or if there were changes in the financial risk appetite. Likewise, the possible triggering of a disorderly deleveraging process in China would pose a significant risk to these economies.

Thus, the Group faces, among others, the following general risks to the economic and institutional environment in which it operates: a deterioration in economic activity in the countries in which it operates, which could lead to further economic recession in some or all of those countries; more intense deflationary pressures or even deflation; variations in exchange rates; a very low interest rate environment, or even a long period of negative interest rates in some regions where the Group operates; an unfavorable evolution of the real estate market, to which the Group remains significantly exposed; very low oil prices; changes in the institutional environment in the countries in which the Group operates that could lead to sudden and sharp falls in GDP and/or regulatory changes; a growing public deficit that could lead to downgrades in sovereign debt credit ratings and even a possible default or restructuring of such debt; and episodes of volatility in markets, such as those currently being experienced, which could lead the Group to register significant losses.

BUSINESS RISKS

The Group’s businesses are subject to inherent risks concerning borrower and counterparty credit quality, which have affected and are expected to continue to affect the recoverability and value of assets on the Group’s balance sheet

The total maximum credit risk exposure of the Group as of December 31, 2020 was €749,524 million (€809,786 million and €763,082 million as of December 31, 2019 and 2018, respectively). The Group has exposures to many different products, counterparties and obligors and the credit quality of its exposures can have a significant effect on the Group’s earnings. Adverse changes in the credit quality of the Group’s borrowers and counterparties or collateral, or in their behavior or businesses, may reduce the value of the Group’s assets, and materially increase the Group’s write-downs and loss allowances. Credit risk can be affected

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by a range of factors, including an adverse economic environment, reduced consumer, corporate or government spending, changes in the rating of individual contractual counterparties, their debt levels and the environment in which they operate, increased unemployment, reduced asset values, increased retail or corporate insolvency levels, reduced corporate profits, changes (and the timing, quantum and pace of these changes) in interest rates, counterparty challenges to the interpretation or validity of contractual arrangements or provisions and legal and regulatory developments.

Non-performing or impaired customer loans have been adversely affecting, and are expected to continue to adversely affect, the Group's results given the increasing economic uncertainty. As of December 31, 2020, the Group had a 4.0% NPL ratio (as defined in the Glossary to our Consolidated Financial Statements) compared to 3.8% and 3.9% as of December 31, 2019 and 2018, respectively. Prior to the COVID-19 pandemic, NPL ratios progressively improved due in part to the low interest rates, which improved clients' ability to pay. However, NPLs are expected to significantly increase once payment moratoria schemes adopted by governments are lifted due to the effects of the COVID-19 pandemic.

In addition, it is possible that the current scenario of economic deterioration results in a decrease in the prices of real estate assets in Spain and other countries (in particular, Mexico, Turkey and the United States, given the Group’s exposure to these markets).

As of December 31, 2020, the Group's exposure to the construction and real estate sectors (excluding the mortgage portfolio) in Spain was equivalent to €10,024 million, of which €2,565 million corresponded to loans for construction and development activities in Spain (representing 1.6% of the Group's loans and advances to customers in Spain (excluding the public sector) and 0.3% of the Group's consolidated assets). The Group continues to be exposed to the real estate market, mainly in Spain, due to the fact that many of its loans are secured by real estate assets, due to the significant volume of real estate assets that it maintains on its balance sheet, and due to its shareholding in real estate companies such as Metrovacesa, S.A. and Divarian Propiedad, S.A (“Divarian”). The total real estate exposure (excluding the mortgage portfolio), including developer credit, foreclosed assets and other assets, reflected a coverage ratio of 53% in Spain as of December 31, 2020. A fall in the prices of real estate assets in Spain (or in other countries where the Group has significant real estate exposure such as Mexico) would reduce the value of the shareholdings referred to above, as well as the value of any real estate securing loans granted by the Group and, therefore, in the event of default, the amount of the “expected losses” related to such loans would increase. In addition, it could also have a significant adverse effect on the default rates of the Group's residential mortgage portfolio, the balance of which, as of December 31, 2020, was €103,923 million at a global level (€110,534 million and €111,526 million as of December 31, 2019 and 2018, respectively).

The magnitude, timing and pace of any increase in default rates will be key for the Group. Furthermore, it is possible that the Group has incorrectly assessed the creditworthiness or willingness to pay of its borrowers and counterparties, that it has underestimated the credit risks and potential losses inherent in its credit exposure and that it has made insufficient provisions for such risks in a timely manner. These processes, which have a crucial impact on the Group's results and financial condition, require difficult, subjective and complex calculations, including forecasts of the impact that macroeconomic conditions could have on these borrowers and counterparties. In particular, the processes followed by the Group to estimate losses derived from its exposure to credit risk may prove to be inadequate or insufficient in the current environment of high economic uncertainty, which could affect the adequacy of the provisions for insolvencies provided by the Group. An increase in non-performing or low-quality loans could significantly and adversely affect the Group's business, financial condition and results of operations.

The Group’s business is particularly vulnerable to interest rates

The Group’s results of operations are substantially dependent upon the level of its net interest income, which is the difference between interest income from interest-earning assets and interest expense on interest-bearing liabilities. Interest rates are highly sensitive to many factors beyond the Group’s control, including fiscal and monetary policies of governments and central banks, regulation of the financial sector in the markets in which it operates, domestic and international economic and political conditions and other factors. In this sense, the COVID-19 pandemic has triggered a process of cuts in reference interest rates, which, moreover, will likely take time to be raised and, if raised, interest rates will likely increase at a slower rate than previously foreseen. It is possible that changes in market interest rates, which could be negative in some cases, and the ongoing benchmark reform affect the Group’s interest-earning assets differently from the Group’s interest-bearing liabilities. This, in turn, may lead to a reduction in the Group's net interest margin, which could have a significant adverse effect on its results. Moreover, the ongoing benchmark reform exposes the Group to other significant risks, including legal and operational risks.

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Furthermore, if interest rates were to increase in some or all of our markets, this could reduce the demand for credit and the Group’s ability to generate credit for its clients, as well as contribute to an increase in the default rate.

As a result of the above, the evolution of interest rates could have a material adverse effect on the Group’s business, financial condition or results of operations.

The Group is exposed to risks related to the continued existence of certain reference rates and the transition to alternative reference rates

In recent years, international regulators have been driving a transition from the use of interbank offer rates (“IBORs”), including EURIBOR, LIBOR and EONIA, to alternative risk free rates (“RFRs”). This has resulted in regulatory reform and changes to existing IBORs, with further changes anticipated. These reforms and changes may cause an IBOR to perform differently than it has done in the past or to be discontinued. For example, in 2017, the U.K. Financial Conduct Authority announced that it will no longer persuade or compel banks to submit rates for the calculation of LIBOR after 2021, and EONIA modified its methodology on October 2, 2019 and will likely be discontinued as from January 2022. In November 2019, the determination methodology for EURIBOR was changed to a new hybrid methodology using transaction-based data and other sources of data.

Uncertainty as to the nature and extent of such reforms and changes, and how they might affect financial instruments, may adversely affect the valuation or trading of a broad array of financial instruments that use IBORs, including any EURIBOR, EONIA or LIBOR-based securities, loans, deposits and derivatives that are issued by the Group or otherwise included in the Group’s financial assets and liabilities. Such uncertainty may also affect the availability and cost of hedging instruments and borrowings. The Group is particularly exposed to EURIBOR-based financial instruments.

It is not possible to predict the timing or full effect of the transition to RFRs. As a result of such transition, the Group will be required to adapt or amend documentation for new and the majority of existing financial instruments, and may be subject to disputes (including with customers of the Group) related thereto, either of which could have an adverse effect on the Group’s results of operations. The implementation of any alternative RFRs may be impossible or impracticable under the existing terms of certain financial instruments. Such transition could also result in pricing risks arising from how changes to reference rates could impact pricing mechanisms in some instruments, and could have an adverse effect on the value of, return on and trading market for such financial instruments and on the Group’s profitability. In addition, the transition to RFRs will require important operational changes to the Group’s systems and infrastructure as all systems will need to account for the changes in the reference rates.

Any of these factors may have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group faces increasing competition

The markets in which the Group operates are highly competitive and it is expected that this trend will continue in the coming years with the increasing entry of non-bank competitors (some of which have large client portfolios and strong brand recognition) and the emergence of new business models, as indicated by the Financial Stability Board’s report on FinTech and market structure in financial services. Although the Group is making efforts to anticipate these changes, betting on its digital transformation, its competitive position is affected by the regulatory asymmetry that benefits non-bank operators. For example, banking groups are subject to prudential regulations that have implications for most of their businesses, including those in which they compete with non-bank operators that are only subject to regulations specific to the activity they develop or that benefit from loopholes in the regulatory framework. Furthermore, when banking groups carry out financial activities through the use of new technologies, they are generally subject to additional internal governance rules that place such groups at a competitive disadvantage.

13

Moreover, the widespread adoption of new technologies, including cryptocurrencies and payment systems, could require substantial investment to modify or adapt existing products and services as the Group continues to increase its mobile and internet banking capabilities. Likewise, the increasing use of these new technologies and mobile banking platforms could have an adverse impact on the Group's investments in facilities, equipment and employees of the branch network. A faster pace of transformation towards mobile and online banking models could require changes in the Group's commercial banking strategy, including the closure or sale of some branches and the restructuring of others, and reductions in employees. These changes could result in significant expenses as the Group reconfigures and transforms its commercial network. Failure to effectively implement such changes efficiently and on a timely basis could have a material adverse impact on the Group's competitive position or otherwise have a material adverse effect on the Group’s business, financial condition or results of operations.

The Group faces risks related to its acquisitions and divestitures

The Group has both acquired and sold various companies and businesses over the past few years. As of the date of this Annual Report, the closing of the sale of BBVA USA remains subject to obtaining the relevant regulatory authorizations. Other recent transactions include the sale of BBVA Paraguay, BBVA Chile and the Cerberus Transaction (as defined herein). For additional information, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures”.  

The Group may not complete any ongoing or future transactions in a timely manner, on a cost-effective basis or at all and, if completed, they may not obtain the expected results. In addition, if completed, the Group’s results of operations could be adversely affected by divestiture or acquisition-related charges and contingencies. The Group may be subject to litigation in connection with, or as a result of, divestitures or acquisitions, including claims from terminated employees, customers or third parties. In the case of an acquisition, the Group may be liable for potential or existing litigation and claims related to an acquired business, including because either the Group is not indemnified for such claims or the indemnification is insufficient. Further, in the case of a divestiture, the Group may be required to indemnify the buyer in respect of similar or other matters, including claims against the divested entity or business.

In the case of an acquisition, even though the Group reviews the companies it plans to acquire, it is often not possible for these reviews to be complete in all respects and there may be risks associated with unforeseen events or liabilities relating to the acquired assets or businesses that may not have been revealed or properly assessed during the due diligence processes, resulting in the Group assuming unforeseen liabilities or an acquisition not performing as expected. In addition, acquisitions are inherently risky because of the difficulties of integrating people, operations and technologies that may arise. There can be no assurance that any of the businesses the Group acquires can be successfully integrated or that they will perform well once integrated. Acquisitions may also lead to potential write-downs that adversely affect the Group’s results of operations.

Any of the foregoing may cause the Group to incur significant unexpected expenses, may divert significant resources and management attention from our other business concerns, or may otherwise have a material adverse impact on the Group’s business, financial condition and results of operations.

The Group faces risks derived from its international geographic diversification and its significant presence in emerging countries

The Group is made up of commercial banks, insurance companies and other financial services companies in various countries and its performance as a global business depends on its ability to manage its different businesses under various economic, social and political conditions, facing different normative and regulatory requirements in many of the jurisdictions in which it operates (including, among others, different supervisory regimes and different tax and legal regimes related to the repatriation of funds or the nationalization or expropriation of assets).

In addition, the Group's international operations may expose it to risks and challenges to which its local competitors may not be exposed, such as currency risk, the difficulty of managing or supervising a local entity from abroad, political risks (which could affect only foreign investors) or limitations on the distribution of dividends, thus worsening its position compared to that of local competitors.

14

There can be no guarantee that the Group will be successful in developing and implementing policies and strategies in all of the countries in which it operates, some of which have experienced significant economic, political and social volatility in recent decades. In particular, the Group has significant operations in several emerging countries, such as Mexico and Turkey, and is therefore vulnerable to the deterioration of these economies. Emerging markets are generally affected by the conditions of other commercially or financially related markets and by the evolution of global financial markets in general (they may be affected, for example, by the evolution of interest rates in the United States and the exchange rate of the U.S. dollar), as well as, in some cases, by fluctuations in the prices of commodities. The perception that the risks associated with investing in emerging economies have increased, in general, or in emerging markets where the Group operates, in particular, could reduce capital flows to those economies and adversely affect such economies, and therefore the Group. Moreover, emerging countries are more prone to experience significant changes in inflation and foreign exchange rates, which may have a material impact on the Group’s results of operations, assets (including RWAs (as defined herein)) and liabilities.

The Group's operations in emerging countries are also exposed to heightened political risks, such as changes in governmental policies, expropriation, nationalization, interest rate limits, exchange controls, government restrictions on dividends and adverse tax policies. For example, the repatriation of dividends from BBVA’s Venezuelan and Argentinean subsidiaries is subject to certain restrictions and there is no assurance that further restrictions will not be imposed.

If the Group failed to adopt effective and timely policies and strategies in response to the risks and challenges it faces in each of the regions where it operates, particularly in emerging countries, the Group’s business, financial condition and results of operations could be materially and adversely affected.

Since the Group’s loan portfolio is highly concentrated in Spain, adverse changes affecting the Spanish economy could have a material adverse effect on its financial condition

The Group has historically carried out its lending activity mainly in Spain, which continues to be one of its primary business areas, such that as of December 31, 2020, total risk in financial assets in Spain (calculated as set forth in item (c) of Appendix IX (Additional information on risk concentration) of our Consolidated Financial Statements) amounted to €236,016 million, equivalent to 42% of the Group’s total risk in financial assets.The COVID-19 pandemic has had a significant impact on the Spanish economy and the sovereign fiscal position. Spanish GDP is estimated to have contracted around 11.0% in 2020, as the pandemic and the measures adopted to slow its spread brought about a sharp reduction in economic activity in the first half of the year, which was among the most severe within the Eurozone. The sharp decline in economic activity and measures adopted to support the economy have given rise to concerns about public debt sustainability in the medium and long term. In addition, while increases in unemployment have been limited by the implementation of short-time work schemes (ERTEs), as these measures are withdrawn in 2021, unemployment is expected to rise. Further, while economic recovery is expected to be boosted by the implementation of EU-level initiatives, in particular the financial support linked to the Next Generation EU (NGEU) plan, there are risks as to the capacity of the Spanish economy to absorb the EU funds and translate the support to productive investment. In addition, the Spanish economy is particularly sensitive to economic conditions in the Eurozone, the main export market for Spanish goods and services. The Group’s gross exposure of loans and advances to customers in Spain totaled €195,983 million as of December 31, 2020, representing 61% of the total amount of loans and advances to customers included on the Group’s consolidated balance sheet. Our Spanish business includes extensive operations in Catalonia, which represented 16% of the Group’s assets in Spain as of December 31, 2020 (18% as of December 31, 2019). While social and political tensions have generally declined since 2017, if such tensions were to increase, this could lead to scenarios of uncertainty, volatility in capital markets and a deterioration of economic and financing conditions in Spain.

Given the relevance of the Group’s loan portfolio in Spain, any adverse change affecting economic conditions in Spain could have a material adverse effect on our business, financial condition and results of operations.

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FINANCIAL RISKS

The Group has a continuous demand for liquidity to finance its activities and the withdrawal of deposits or other sources of liquidity could significantly affect it

Traditionally, one of the Group's main sources of financing has been savings accounts and demand deposits. As of December 31, 2020, the balance of customer deposits represented 70% of the Group's total financial liabilities at amortized cost. However, the volume of wholesale and retail deposits can fluctuate significantly, including as a result of factors beyond the Group's control, such as general economic conditions, changes in economic policy or administrative decisions that diminish their attractiveness as savings instruments (for example, as a consequence of changes in taxation, coverage by guarantee funds for deposits or expropriations) or competition from other savings or investment instruments (including deposits from other banks).

Likewise, changes in interest rates and credit spreads may significantly affect the cost of the Group’s short and long-term wholesale financing. Changes in credit spreads are driven by market factors and are also influenced by the market’s perception of the Group's solvency. As of December 31, 2020, debt securities issued by the Group represented 12.6% of the total financial liabilities at amortized cost of the Group.

In addition, the Group has made and continues to make significant use of public sources of liquidity, such as the European Central Bank's (ECB) extraordinary measures taken in response to the financial crisis since 2008 or those taken in connection with the crisis caused by the COVID-19 pandemic. The ECB announced in December 2020 the new conditions of Targeted Long Term Refinancing Operations (TLTRO) III, increasing the maximum amount that BBVA may receive from €35,000 million to €38,500 million and extending the enhanced conditions in terms of cost one additional year until June 2022. As of December 31, 2020, €35,032 million had been borrowed by BBVA (€7,000 million were drawn down as of each of December 2019 and March 2020, and €21,000 million as of June 2020). BBVA plans to take up an additional €3,500 million in March 2021 to reach its full allotment. However, the conditions of this or other programs could be revised or these programs could be cancelled.

In the event of a withdrawal of deposits or other sources of liquidity, especially if it is sudden or unexpected, the Group may not be able to finance its financial obligations or meet the minimum liquidity requirements that apply to it, and may be forced to incur higher financial costs, liquidate assets and take additional measures to reduce leverage. Furthermore, the Group could be subject to the adoption of early intervention measures or, ultimately, to the adoption of a resolution measure by the Relevant Spanish Resolution Authority (see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Principal Markets—Spain—Recovery and Resolution of Credit Institutions and Investment Firms”). Any of the above could have a material adverse effect on the Group’s business, financial condition and results of operations. 

The Group and some of its subsidiaries depend on their credit ratings and sovereign credit ratings

Rating agencies periodically review the Group's debt credit ratings. Any reduction, effective or anticipated, in any such ratings of the Group, whether below investment grade or otherwise, could limit or impair the Group's access to capital markets and other possible sources of liquidity and increase the Group’s financing cost, and entail the breach or early termination of certain contracts or give rise to additional obligations under those contracts, such as the need to grant additional guarantees. The Group estimates that, if at December 31, 2020 rating agencieshad downgraded Banco Bilbao Vizcaya Argentaria, S.A.’s long-term senior debt rating by one notch, it would have had to provide additional guarantees/collateral amounting to €36.3 million under its derivative and other financial contracts. A hypothetical two-notch downgrade would have involved an outlay of €66.8 million in additional guarantees/collateral. Furthermore, if the Group were required to cancel its derivative contracts with some of its counterparties and were unable to replace them, its market risk would worsen. Likewise, a reduction in the credit rating could affect the Group's ability to sell or market some of its products or to participate in certain transactions, and could lead to the loss of customer deposits and make third parties less willing to carry out commercial transactions with the Group (especially those that require a minimum credit rating), having a significant adverse impact on the Group's business, financial condition and results of operations.

16

Furthermore, the Group's credit ratings could be affected by variations in sovereign credit ratings, particularly the rating of Spanish sovereign debt. The Group holds a significant portfolio of debt issued by the Kingdom of Spain, by the Spanish autonomous communities and by other Spanish issuers. As of December 31, 2020, the Group's exposure to the Kingdom of Spain's public debt portfolio was €46,401 million, representing 6% of the consolidated total assets of the Group. Any decrease in the credit rating of the Kingdom of Spain could adversely affect the valuation of the respective debt portfolios held by the Group and lead to a reduction in the Group's credit ratings. Additionally, counterparties to many of the credit agreements signed with the Group could also be affected by a decrease in the credit rating of the Kingdom of Spain, which could limit their ability to attract additional resources or otherwise affect their ability to pay their outstanding obligations to the Group.

As a consequence of the COVID-19 pandemic, some rating agencies have reviewed the Group's credit ratings or trends. Specifically, on June 22, 2020 Fitch announced the modification of BBVA’s senior preferred debt long-term rating to A- with stable outlook from A with Rating Watch Negative. On April 1, 2020, DBRS confirmed BBVA’s long-term rating of A (High) and maintained the outlook as stable. On April 29, 2020 S&P confirmed BBVA's long-term rating of A- and maintained its negative outlook. There may be more ratings actions and changes in BBVA’s credit ratings in the future as a result of the crisis caused by the COVID-19 pandemic, any of which could have a material adverse effect on the Group’s business, financial condition and results of operations.

The Group's ability to pay dividends depends, in part, on the receipt of dividends from its subsidiaries

Some of the Group’s operations are conducted through BBVA’s subsidiaries. As a result, BBVA’s results (and its ability to pay dividends) depend in part on the ability of its subsidiaries to generate earnings and to pay dividends to BBVA. Due, in part, to the Group's decision to follow a 'Multiple Point of Entry' strategy, in accordance with the framework for the resolution of financial entities designed by the Financial Stability Board (FSB), the Group’s subsidiaries are self-sufficient and each subsidiary is responsible for managing its own capital and liquidity. This means that the payment of dividends, distributions and advances by the Group’s subsidiaries to BBVA depends not only on the results of those subsidiaries, but also on the context of their operations and liquidity needs, and may be further limited by legal, regulatory and contractual restrictions. For example, in response to the crisis caused by the COVID-19 pandemic, certain restrictions were adopted that affect the distribution and/or repatriation of dividends of some of the Group's subsidiaries. There is no assurance that these restrictions will not remain in effect or, where lifted, reinstated, or that similar or new restrictions will not be imposed in the future. Furthermore, the Group's right, as a shareholder, to participate in the distribution of assets resulting from the eventual liquidation or any reorganization of its subsidiaries will be effectively subordinated to the rights of the creditors of those subsidiaries, including their commercial creditors.

In addition, the Group (including the Bank) must comply with certain capital requirements, where non-compliance could lead to the imposition of restrictions or prohibitions on making any: (i) distributions relating to common equity tier (“CET1”) capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to additional tier 1 (“AT1”) instruments (collectively, “discretionary payments”). Likewise, the ability of the Bank and its subsidiaries to pay dividends is conditioned by the recommendations and requirements of their respective supervisors, such as those made in response to the COVID-19 pandemic. In this regard, on April 30, 2020, the Bank announced that it had agreed to modify, for the financial year 2020, the Group's shareholder remuneration policy, opting not to pay any amount as a dividend corresponding to the financial year 2020 until the uncertainties generated by the COVID-19 pandemic dissipate and, in any case, not before the close of the 2020 fiscal year. While, on January 29, 2021, in line with the latest recommendation of the ECB, the Bank announced its intention to distribute 0.059 euros per share in respect of 2020 profit and to reinstate during 2021 its dividend policy announced in 2017 once any recommendation is repealed and there are no additional restrictions or limitations, no assurance can be given that further supervisory restrictions or recommendations will not restrict our or our subsidiaries’ ability to distribute dividends in the future (see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”). 

Any dividends of BBVA or any of its subsidiaries may be subject to further regulatory restrictions or recommendations, or current restrictions or recommendations could be in place for a longer or indefinite period.

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The Group’s earnings and financial condition have been, and its future earnings and financial condition may continue to be, materially affected by asset impairment

Regulatory, business, economic or political changes and other factors could lead to asset impairment. In recent years, severe market events such as the past sovereign debt crisis, rising risk premiums and falls in share market prices, have resulted in the Group recording large write-downs on its credit market exposures. Doubts regarding the asset quality of European banks has also affected their evolution in the market in recent years.

Several ongoing factors could depress the valuation of our assets or otherwise lead to the impairment of such assets (including goodwill and deferred tax assets). This includes the COVID-19 crisis, Brexit, the surge of populist trends in several European countries, increased trade tensions and potential changes in U.S. economic policies implemented by the new U.S. administration, any of which could increase global financial volatility and lead to the reallocation of assets. In addition, uncertainty about China’s growth expectations and its policymaking capability to address certain severe challenges has contributed to the deterioration of the valuation of global assets and further increased volatility in the global financial markets.

In particular, the final impact of the COVID-19 crisis on the valuation of the Group’s assets is still unknown. Since the outbreak of the crisis in the first quarter of 2020, public support measures have been introduced in the countries where the Group operates, most of which have been in the form of public guarantees on new loans to corporates and SMEs and moratoria and payment holidays on certain household loans. Once these measures come to an end, it is possible that the Group will need to record significant loan-loss provisions as a result of the deterioration in the credit quality of our clients, especially SMEs. Any such provisions could have a material adverse effect on the Group’s business, financial condition and results of operations

The Group has a substantial amount of commitments with personnel considered wholly unfunded due to the absence of qualifying plan assets

The Group’s commitments with personnel which are considered to be wholly unfunded are recognized under the heading “Provisions—Provisions for pensions and similar obligations” in its consolidated balance sheets included in the Consolidated Financial Statements. See Note 24 to the Consolidated Financial Statements.

The Group faces liquidity risk in connection with its ability to make payments on its unfunded commitments with personnel, which it seeks to mitigate, with respect to post-employment benefits, by maintaining insurance contracts which were contracted with insurance companies owned by the Group. The insurance companies have recorded in their balance sheets specific assets (fixed interest deposit and bonds) assigned to the funding of these commitments. The insurance companies also manage derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. The Group seeks to mitigate liquidity risk with respect to early retirements and post-employment welfare benefits through oversight by the Assets and Liabilities Committee (“ALCO”) of the Group. The Group’s ALCO manages a specific asset portfolio to mitigate the liquidity risk resulting from the payments of these commitments. These assets are government and covered bonds which are issued at fixed interest rates with maturities matching the aforementioned commitments. The Group’s ALCO also manages derivatives (primarily swaps) to mitigate the interest rate risk in connection with the payments of these commitments. Should BBVA fail to adequately manage liquidity risk and interest rate risk either as described above or otherwise, it could have a material adverse effect on the Group’s business, financial condition and results of operations.

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LEGAL RISKS

The Group is party to a number of legal and regulatory actions and proceedings

The financial sector faces an environment of increasing regulatory and litigation pressure. The Group is party to government procedures and investigations, such as those carried out by the antitrust authorities which, among other things, have in the past and could in the future result in sanctions, as well as lead to claims by customers and others. The various Group entities are also frequently party to individual or collective judicial proceedings (including class actions) resulting from their activity and operations, as well as arbitration proceedings. For example, in April 2017, the Mexican Federal Economic Competition Commission (Comisión Federal de Competencia Económica) launched an antitrust investigation relating to alleged monopolistic practices of certain financial institutions, including BBVA’s subsidiary BBVA Bancomer, S.A. (“BBVA Mexico”) in connection with transactions in Mexican government bonds. The Mexican Banking and Securities Exchange Commission (Comisión Nacional Bancaria y de Valores) also initiated a separate investigation regarding this matter. These investigations resulted in certain fines, insignificant in amount, being initially imposed, certain of which BBVA Mexico has challenged. In March 2018, BBVA Mexico and certain other affiliates of the Group were named as defendants in a putative class action lawsuit filed in the United States District Court for the Southern District of New York, alleging that the defendant banks and their named subsidiaries engaged in collusion with respect to the purchase and sale of Mexican government bonds. In December 2019, following a decision from the judge assigned to hear the proceedings, plaintiffs withdrew their claims against BBVA Mexico’s affiliates. In November 2020, the judge granted the remaining defendants’ motion to dismiss for lack of personal, which the plaintiffs may appeal. More generally, in recent years, regulators have increased their supervisory focus on consumer protection and corporate behavior, which has resulted in a larger number of regulatory actions.

In Spain and in other jurisdictions where the Group operates, legal and regulatory actions and proceedings against financial institutions, prompted in part by certain recent national and supranational rulings in favor of consumers (with regards to matters such as credit cards and mortgage loans), have increased significantly in recent years and this trend could continue in the future. The legal and regulatory actions and proceedings faced by other financial institutions in relation to these and other matters, especially if such actions or proceedings result in favorable resolutions for the consumer, could also adversely affect the Group.

All of the above may result in a significant increase in operating and compliance costs and/or a reduction in revenues, and it is possible that an adverse outcome in any proceedings (depending on the amount thereof, the penalties imposed or the resulting procedural or management costs for the Group) could materially and adversely affect the Group, including by damaging its reputation.

It is difficult to predict the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and those that may arise in the future, including actions and proceedings relating to former Group subsidiaries or in respect of which the Group may have indemnification obligations. Any of such outcomes could be significantly adverse to the Group. In addition, a decision in any matter, whether against the Group or against another credit entity facing similar claims as those faced by the Group, could give rise to other claims against the Group. In addition, these actions and proceedings draw resources away from the Group and may require significant attention on the part of the Group's management and employees.

As of December 31, 2020, the Group had €612 million in provisions for the proceedings it is facing (which are included in the line item "Provisions for taxes and other legal contingencies" in the consolidated balance sheet), of which €574 million corresponded to legal contingencies and €38 million corresponded to tax related contingencies. However, the uncertainty arising from these proceedings (including those for which no provisions have been made, either because it is not possible to estimate any such provisions or for other reasons) makes it impossible to guarantee that the possible losses arising from such proceedings will not exceed, where applicable, the amounts that the Group currently has provisioned and, therefore, could affect the Group's consolidated results in a given period.

As a result of the above, legal and regulatory actions and proceedings currently faced by the Group or to which it may become subject in the future or which may otherwise affect the Group, whether individually or in the aggregate, if resolved in whole or in part adversely to the Group's interests, could have a material adverse effect on the Group’s business, financial condition and results of operations.

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The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank

Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (“Cenyt”). Such investigation includes the provision of services by Cenyt to the Bank. On July 29, 2019, the Bank was named as an investigated party (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could constitute bribery, revelation of secrets and corruption. On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. Certain current and former officers and employees of the Group, as well as former directors, have also been named as investigated parties in connection with this investigation. The Bank has been and continues to be proactively collaborating with the Spanish judicial authorities, including sharing with the courts information obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of the facts. As at the date of this Annual Report, no formal accusation against the Bank has been made.

This criminal judicial proceeding is in the pre-trial phase. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.

REGULATORY, TAX AND REPORTING RISKS

The financial services sector is one of the most regulated in the world. The Group is subject to a broad regulatory and supervisory framework, which has increased significantly in the last decade. Regulatory activity in recent years has affected multiple areas, including changes in accounting standards; strict regulation of capital, liquidity and remuneration; bank charges and taxes on financial transactions; regulations affecting mortgages, banking products and consumers and users; recovery and resolution measures; stress tests; prevention of money laundering and terrorist financing; market abuse; conduct in the financial markets; anti-corruption; and requirements as to the periodic publication of information. Governments, regulatory authorities and other institutions continually make proposals to strengthen the resistance of financial institutions to future crises.

Furthermore, the international nature of the Group’s operations means that the Group is subject to a wide and complex range of local and international regulations in these matters, sometimes with overlapping scopes and areas regulated. This complexity, which can be exacerbated by differences and changes in the interpretation or application of these standards by local authorities, makes compliance risk management difficult, requiring highly sophisticated monitoring, qualified personnel and general training of employees.

Any change in the Group's business that is necessary to comply with any particular regulations at any time, especially in Spain, Mexico, Turkey or, pending completion of the sale of BBVA USA, the United States, could lead to a considerable loss of income, limit the Group's ability to identify business opportunities, affect the valuation of its assets, force the Group to increase its prices and, therefore, reduce the demand for its products, impose additional costs on the Group or otherwise adversely affect its business, financial condition and results of operations.

The Group is subject to a broad regulatory and supervisory framework, including resolution regulations, which could have a significant adverse effect on its business, financial condition and results of operations

The Group is subject to a comprehensive regulatory and supervisory framework the complexity and scope of which has increased significantly since the previous financial crisis and which could further increase as a result of the crisis caused by the COVID-19 pandemic. In particular, the banking sector is subject to continuous scrutiny at the political and supervisory levels, and it is foreseeable that in the future there will continue to be political involvement in regulatory and supervisory processes, as well as in the governance of the main financial entities. For this reason, the laws, regulations and policies to which the Group is subject, as well as their interpretation and application, may change at any time. In addition, supervisors and regulators have significant discretion in carrying out their duties, which gives rise to uncertainty regarding the interpretation and implementation of the regulatory framework. Moreover, regulatory fragmentation and the implementation by some countries of more flexible or stricter rules or regulations could also adversely affect the Group's ability to compete with financial institutions that may or may not have to comply with any such rules or regulations, as applicable.

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Regulatory changes, adopted or proposed, as well as their interpretation or application, have increased and may continue to substantially increase the Group's operating expenses and adversely affect its business model. For example, the imposition of prudential capital standards has limited and could further limit the ability of subsidiaries to distribute capital to the Group, while liquidity standards may require the Group to hold a higher proportion of financial instruments with higher liquidity and lower performance, which can adversely affect its net interest margin. In addition, the Group's regulatory and supervisory authorities may require the Group to increase its loan loss allowances or asset impairments, which could have an adverse effect on its financial condition. It is also possible that governments and regulators impose additional ad hoc regulations or requirements in response to the crisis caused by the COVID-19 pandemic, including the imposition of requirements on credit institutions to provide financing to various entities such as, for example, the Fund for Orderly Bank Restructuring (Fondo de Reestructuración Ordenada Bancaria) (the “FROB”) or the Single Resolution Board (“SRB”). 

Any legislative or regulatory measure and any necessary change in the Group's business operations as a consequence of such measure, as well as any failure to comply with it, could result in a significant loss of income, represent a limitation on the ability of the Group to take advantage of business opportunities and offer certain products and services, affect the value of the Group's assets, force the Group to increase prices (which could reduce the demand for its products), impose additional compliance costs or result in other possible negative effects for the Group.

One of the most significant regulatory changes resulting from the prior financial crisis was the introduction of resolution regulations (which are described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”). In the event that the Relevant Spanish Resolution Authority (as defined herein) considers that the Group is in a situation where conditions for early intervention or resolution are met, it may adopt the measures provided for in the applicable regulations, including without prior notice. Such determination, or the mere possibility that such determination could be made, could materially and adversely affect the Group's business, financial condition and results of operations, as well as the market price and behavior of certain securities issued by the Group (or their terms, in the event of an exercise of the Spanish Bail-in-Power (as defined herein)).

Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations

As described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, in its capacity as a Spanish credit institution, the Group is subject to compliance with a “Pillar 1” solvency requirement, a “Pillar 2” solvency requirement and a “combined buffer requirement” at both the individual and consolidated levels. As a result of the latest Supervisory Review and Evaluation Process (“SREP”) carried out by the ECB, and in accordance with the measures implemented by the ECB on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, at a consolidated level, a CET1 ratio of 8.59% and a total capital ratio of 12.75%. In addition, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.01% As of December 31, 2020, the Group’s phased-in total capital ratio was 16.46% on a consolidated basis and 20.68% on an individual basis, and its CET1 phased-in capital ratio was 12.15% on a consolidated basis and 15.14% on an individual basis.

Additionally, as described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, Banco Bilbao Vizcaya Argentaria, S.A., as a Spanish credit institution, must maintain a minimum level of own funds and eligible liabilities (the “MREL requirement”) in relation to total liabilities and own funds. On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain of its MREL, as determined by the SRB. The Bank’s MREL was set at 15.16% of the total liabilities and own funds of the Bank’s resolution group at a sub-consolidated level from January 1, 2021. Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments, once the allowance established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Risk Weighted Assets (“RWAs”) of the Bank’s resolution group, while the subordination requirement included in the MREL is equivalent to 15.05% of the RWAs of the Group’s resolution group, once the corresponding allowance has been applied.

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The Bank estimates that, following the entry into force of SRM Regulation II (as defined herein) (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement. However, both the total capital and the MREL requirements are subject to interpretation and change and, therefore, no assurance can be given that our interpretation is the appropriate one or that the Bank and/or the Group will not be subject to more stringent requirements at any future time. Likewise, no assurance can be given that the Bank and/or the Group will be able to fulfil whatever future requirements may be imposed, even if such requirements were to be equal or lower. There can also be no assurances as to the ability of the Bank and/or the Group to comply with any capital target announced to the market at any given time, which could be adversely perceived by investors and/or supervisors, who could interpret that a lack of capital-generating capacity exists or that the capital structure has deteriorated, either of which could adversely affect the market value or behavior of securities issued by the Bank and/or the Group (and, in particular, any eligible liabilities and any capital instruments) and, therefore, lead to the implementation of new recommendations or requirements regarding “Pillar 2” or (should the Relevant Spanish Resolution Authority interpret that obstacles may exist for the viability of the resolution of the Bank and /or the Group), MREL.

If the Bank or the Group failed to comply with its “combined buffer requirement” they would have to calculate the Maximum Distributable Amount (“MDA”) and, until such calculation has been undertaken and reported to the Bank of Spain, the affected entity would not be able to make any discretionary payments. Once the MDA has been calculated and reported, such discretionary payments would be limited to the calculated MDA. Likewise, should the Bank or the Group not meet the applicable capital requirements, additional requirements of “Pillar 2” or, if applicable, MREL could be imposed. Likewise, in accordance with the EU Banking Reforms (as defined below), any failure by the Bank or the Group to comply with its respective “combined buffer requirement” when considered in addition to its MREL could result in the imposition of restrictions or prohibitions on discretionary payments. Additionally, failure to comply with the capital requirements may result in the implementation of early intervention measures or, ultimately, resolution measures by the resolution authorities.

Regulation (EU) 2019/876 of the European Parliament and of the Council, of May 20, 2019 (as amended, replaced or supplemented at any time, “CRR II”) establishes a binding requirement for the leverage ratio effective from June 28, 2021 of 3% of Tier 1 capital (as of December 31, 2020, the phased-in leverage ratio of the Group was 6.68% and fully loaded it was 6.46%). Moreover, the EU Banking Reforms include a leverage ratio buffer for financial institutions of global systemic importance (G-SIBs) to be met with Tier 1 capital. Any failure to comply with this leverage ratio buffer may also result in the need to calculate and report the MDA, and restrictions on discretionary payments. Moreover, CRR II proposes new requirements that capital instruments must meet in order to be considered AT1 or Tier 2 instruments, including certain grandfathering measures until June 28, 2025. Once the grandfathering period in CRR II has elapsed, AT1 and/or Tier 2 instruments which do not comply with the new requirements at such date will no longer be considered as capital instruments. This could give rise to shortfalls in regulatory capital and, ultimately, could result in failure to comply with the applicable minimum regulatory capital requirements, with the aforementioned consequences.

Additionally, the implementation of the ECB expectations regarding prudential provisions for NPLs (published on May 15, 2018) and the ECB’s current review of internal models being used by banks subject to its supervision for the calculation of their RWAs (TRIMs) could result, respectively, in the need to increase provisions for future NPLs and increases in the Group’s capital needs.

Furthermore, the implementation of the Basel III reforms described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation” could result in an increase of the Bank’s and the Group’s total RWAs and, therefore, could also result in a decrease of the Bank’s and the Group’s capital ratios. Likewise, the lack of uniformity in the implementation of the Basel III reforms across jurisdictions in terms of timing and applicable regulations could give rise to inequalities and competition distortions. Moreover, the lack of regulatory coordination, with some countries bringing forward the application of Basel III requirements or increasing such requirements, could adversely affect an entity with global operations such as the Group and could affect its profitability.

Additionally, should the Total Loss Absorbing Capacity (TLAC) requirements, as described in “Item 4. Information on the Company—Business Overview—Supervision and Regulation”, currently only imposed upon G-SIBs, be applicable upon non-G-SIBs entities or should the Group once again be classified as a G-SIB, additional minimum requirements similar to MREL could in the future be imposed upon the Group.

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There can be no assurance that the above capital requirements or MREL will not adversely affect the Bank’s or its subsidiaries’ ability to make discretionary payments, or result in the cancellation of such payments (in whole or in part), or require the Bank or such subsidiaries to issue additional securities that qualify as eligible liabilities or regulatory capital, to liquidate assets, to curtail business or to take any other actions, any of which may have adverse effects on the Group’s business, financial condition and results of operations. Furthermore, an increase in capital requirements could adversely affect the return on equity and other of the Group’s financial results indicators. Moreover, the Bank’s or the Group’s failure to comply with their capital requirements and MREL could have a significant adverse effect on the Group’s business, financial condition and results of operations.

Lastly, the Group must also comply with liquidity and funding ratios. Several elements of the Liquidity Coverage Ratio (“LCR”)  and net stable financing ratio (“NSFR”) (as such ratios are defined in Note 7.5 to our Consolidated Financial Statements), as introduced by national banking regulators and fulfilled by the Group, may require implementing changes in some of its commercial practices, which could expose the Group to additional expenses (including an increase in compliance expenses), affect the profitability of its activities or otherwise lead to a significant adverse effect over the Group’s business, financial condition or results of operations. As of December 31, 2020 and December 31, 2019, the Group's LCR was 149% and 129% respectively. The NSFR was 127% as of December 31, 2020 and 120% as of December 31, 2019. For further information, see Note 7.5 to our Consolidated Financial Statements.

The Group is exposed to tax risks that may adversely affect it

The size, geographic diversity and complexity of the Group and its commercial and financial relationships with both third parties and related parties result in the need to consider, evaluate and interpret a considerable number of tax laws and regulations, as well as any relevant interpretative materials, which in turn involve the use of estimates, the interpretation of indeterminate legal concepts and the determination of appropriate valuations in order to comply with the tax obligations of the Group. In particular, the preparation of the Group's tax returns and the process for establishing tax provisions involve the use of estimates and interpretations of tax laws and regulations, which are complex and subject to review by the tax authorities. Any error or discrepancy with tax authorities in any of the jurisdictions in which the Group operates may give rise to prolonged administrative or judicial proceedings that may have a material adverse effect on the Group’s results of operations.

In addition, governments in different jurisdictions are in the search for new funding sources, and they have recently focused on the financial sector. The Group's presence in various jurisdictions increases its exposure to regulatory and interpretative changes, which could, among other things, lead to (i) an increase in the types of tax to which the Group is subject, including in response to the demands of various political forces at the national and global level, (ii) changes in the calculation of tax bases and exemptions therefrom, such as the proposal in Spain to limit the exemption for dividends and capital gains from domestic and foreign subsidiaries to 95%, which would mean that 5% of the dividends and capital gains obtained by the Group companies in Spain would be subject to, and not exempt from, corporate tax,or (iii) the creation of new taxes, like the common financial transaction tax (“FTT”) in the proposed Tax Directive for the Financial Transactions Tax of the European Commission (which would tax the acquisitions of certain securities, including those issued by the Group) and the Spanish FTT which came into effect in Spain in January 2021, may have adverse effects on the business, financial condition and results of operations of the Group.

The Group is exposed to compliance risks

The Group, due to its role in the economy and the nature of its activities, is singularly exposed to certain compliance risks. In particular, the Group must comply with regulations regarding customer conduct, market conduct, the prevention of money laundering and the financing of terrorist activities, the protection of personal data, the restrictions established by national or international sanctions programs and anti-corruption laws (including the US Foreign Corrupt Practices Act of 1977 and the UK Bribery Act of 2010), the violations of which could lead to very significant penalties. These anti-corruption laws generally prohibit providing anything of value to government officials for the purposes of obtaining or retaining business or securing any improper business advantage. As part of the Group’s business, the Group directly or indirectly, through third parties, deals with entities whose employees are considered to be government officials. The Group’s activities are also subject to complex customer protection and market integrity regulations.

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Generally, these regulations require banking entities to, among other measures, use diligence measures to manage compliance risk. Sometimes, banking entities must apply reinforced due diligence measures because they understand that, due to the very nature of the activities they carry out (among others, private banking, money transfer and foreign currency exchange operations), they may present a higher risk of money laundering or terrorist financing.

Although the Group has adopted policies, procedures, systems and other measures to manage compliance risk, it is dependent on its employees and external suppliers for the implementation of these policies, procedures, systems and other measures, and it cannot guarantee that these are sufficient or that the employees (123,174  as of December 31, 2020) or other persons of the Group or its business partners, agents and/or other third parties with a business or professional relationship with BBVA do not circumvent or violate current regulations or BBVA’s ethics and compliance regulations, acts for which such persons or the Group could be held ultimately responsible and/or that could damage the Group's reputation. In particular, acts of misconduct by any employee, and particularly by senior management, could erode trust and confidence and damage the Group’s reputation among existing and potential clients and other stakeholders. Actual or alleged misconduct by Group entities in any number of activities or circumstances, including operations, employment-related offenses such as sexual harassment and discrimination, regulatory compliance, the use and protection of data and systems, and the satisfaction of client expectations, and actions taken by regulators or others in response to such misconduct, could lead to, among other things, sanctions, fines and reputational damage, any of which could have a material adverse effect on the Group’s business, financial condition and results of operations.

Furthermore, the Group may not be able to prevent third parties outside the Group from using the banking network in order to launder money or carry out illegal or inappropriate activities. Further, financial crimes continually evolve and emerging technologies, such as cryptocurrencies and blockchain, could limit the Group's ability to track the movement of funds. Additionally, in adverse economic conditions, it is possible that financial crime attempts will increase significantly.

If there is a breach of the applicable regulations or BBVA’s ethics and compliance regulations or if the competent authorities consider that the Group does not perform the necessary due diligence inherent to its activities, such authorities could impose limitations on the Group's activities, the revocation of its authorizations and licenses, and economic penalties, in addition to having significant consequences for the Group's reputation, which could have a significant adverse impact on the Group's business, financial condition and results of operations. Furthermore, the Group from time to time conducts investigations related to alleged violations of such regulations and BBVA’s ethics and compliance regulations, and any such investigation or any related procedure could be time consuming and costly, and its results difficult to predict.

Finally, in 2020 the COVID-19 outbreak has led in many countries to new specific regulations, mainly focused on consumer protection measures. The difficulties associated with the need to adapt the Group’s systems to these new regulations quickly along with the fact that the majority of BBVA’s employees have been working remotely could pose new compliance risks. Likewise, despite the existing controls in place, the increase in remote account opening driven by the pandemic could increase money laundering risks. Additionally, criminals are continuing to exploit the opportunities created by the pandemic across the globe and increased money laundering risks associated with counterfeiting of medical goods, investment fraud, cyber-crime scams and exploitation of economic stimulus measures put in place by governments. Increased strain on our communications surveillance frameworks could in turn raise our market conduct risk.

BBVA’s financial statements are based in part on assumptions and estimates which, if inaccurate, could cause material misstatement of the results of its operations and financial position

The preparation of financial statements in compliance with IFRS-IASB requires the use of estimates. It also requires management to exercise judgment in applying relevant accounting policies. The key areas involving a higher degree of judgment or complexity, or areas where assumptions are significant to the consolidated and individual financial statements, include the classification, measurement and impairment of financial assets, particularly where such assets do not have a readily available market price, the assumptions used to quantify certain provisions and for the actuarial calculation of post-employment benefit liabilities and commitments, the useful life and impairment losses of tangible and intangible assets, the valuation of goodwill and purchase price allocation of business combinations, the fair value of certain unlisted financial assets and liabilities, the recoverability of deferred tax assets and the exchange and inflation rates of Venezuela. There is a risk that if the judgment exercised or the estimates or assumptions used subsequently turn out to be incorrect then this could result in significant loss to the Group beyond that anticipated or provided for, which could have an adverse effect on the Group’s business, financial condition and results of operations.

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Observable market prices are not available for many of the financial assets and liabilities that the Group holds at fair value and a variety of techniques to estimate the fair value are used. Should the valuation of such financial assets or liabilities become observable, for example as a result of sales or trading in comparable assets or liabilities by third parties, this could result in a materially different valuation to the current carrying value in the Group’s financial statements.

The further development of standards and interpretations under IFRS-IASB could also significantly affect the results of operations, financial condition and prospects of the Group.

OPERATIONAL RISKS

Attacks, failures or deficiencies in the Group's procedures, systems and security or those of third parties to which the Group is exposed could have a significant adverse impact on the Group's business, financial condition and results of operations, and could be detrimental for its reputation

The Group's activities depend to a large extent on its ability to process and report effectively and accurately on a high volume of highly complex transactions with numerous and diverse products and services (by their nature, generally ephemeral), in different currencies and subject to different regulatory regimes. Therefore, it relies on highly sophisticated information technology (“IT”) systems for data transmission, processing and storage. However, IT systems are vulnerable to various problems, such as hardware and software malfunctions, computer viruses, hacking, and physical damage to IT centers. BBVA's exposure to these risks has increased significantly in recent years due to the Group's implementation of its ambitious digital strategy. According to data as of December 31, 2020, 63% of the Group’s customers are digital and 59% of customers regularly use their mobile phones to interact with BBVA, and digital sales represent 63.6% of total sales. BBVA already has more than 500,000 customers registered exclusively through digital channels in Spain, of which more than 50% did so via mobile. These digital services, as well as other alternatives that BBVA offers users to become BBVA customers, have become even more important after the COVID-19 outbreak and the ensuing restrictions on mobility in the countries in which the Group operates. Currently, one in three new clients chooses digital channels to start their relationship with BBVA. Any attack, failure or deficiency in the Group's systems could, among other things, lead to the misappropriation of funds of the Group's clients or the Group itself and the unauthorized disclosure, destruction or use of confidential information, as well as preventing the normal operation of the Group, and impair its ability to provide services and carry out its internal management. In addition, any attack, failure or deficiency could result in the loss of customers and business opportunities, damage to computers and systems, violation of regulations regarding data protection and/or other regulations, exposure to litigation, fines, sanctions or interventions, loss of confidence in the Group's security measures, damage to its reputation, reimbursements and compensation, and additional regulatory compliance expenses and could have a significant adverse impact on the Group's business, financial condition and results of operations. Furthermore, it is possible that such attacks, failures or deficiencies will not be detected on time or ever. The Group is likely to be forced to spend significant additional resources to improve its security measures in the future. As cyber-attacks are becoming increasingly sophisticated and difficult to prevent, the Group may not be able to anticipate or prevent all possible vulnerabilities, nor to implement preventive measures that are effective or sufficient.

Customers and other third parties to which the Group is significantly exposed, including the Group's service providers (such as data processing companies to which the Group has outsourced certain services), face similar risks. Any attack, failure or deficiency that may affect such third parties could, among other things, adversely affect the Group's ability to carry out operations or provide services to its clients or result in the unauthorized disclosure, destruction or use of confidential information. Furthermore, the Group may not be aware of such attack, failure or deficiency in time, which could limit its ability to react. Moreover, as a result of the increasing consolidation, interdependence and complexity of financial institutions and technological systems, an attack, failure or deficiency that significantly degrades, eliminates or compromises the systems or data of one or more financial institutions could have a significant impact on its counterparts or other market participants, including the Group.

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ITEM 4.INFORMATION ON THE COMPANY

A.History and Development of the Company

BBVA’s predecessor bank, BBV (Banco Bilbao Vizcaya), was incorporated as a public limited company (a “sociedad anónima” or S.A.) under the Spanish Corporations Law on October 1, 1988. BBVA was formed following the merger of Argentaria into BBV (Banco Bilbao Vizcaya), which was approved by the shareholders of each entity on December 18, 1999 and registered on January 28, 2000. It conducts its business under the commercial name “BBVA”. BBVA is registered with the Commercial Registry of Vizcaya (Spain). It has its registered office at Plaza de San Nicolás 4, Bilbao, Spain, 48005, and operates out of Calle Azul, 4, 28050, Madrid, Spain (Telephone: +34-91-374-6201). BBVA’s agent in the U.S. for U.S. federal securities law purposes is Banco Bilbao Vizcaya Argentaria, S.A. New York Branch (1345 Avenue of the Americas, 44th Floor, New York, New York 10105 (Telephone: +1-212-728-1660)). BBVA is incorporated for an unlimited term.

Capital Expenditures

Our principal investments are financial investments in our subsidiaries and affiliates. There were no significant capital expenditures in the years ended December 31, 2020, 2019 and 2018.

Capital Divestitures

Our principal divestitures are divestitures in our subsidiaries and affiliates. The main divestitures from 2018 to the date of this Annual Report were the following:

2020

Agreement for the sale of BBVA USA Bancshares, Inc.

On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the share capital in its subsidiary BBVA USA Bancshares, Inc., which in turn owns 100% of the share capital in BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business, for approximately $11.6 billion (approximately equivalent to €9.7 billion), to be paid in cash (the “USA Sale”).  

The scope of the USA Sale does not include BBVA Securities Inc. (the Group’s broker-dealer in the United States), the Group’s stake in Propel Venture Partners US Fund I, L.P. and BBVA Processing Services, Inc. (together, the “Excluded Business”). Prior to the closing of the USA Sale, the Excluded Business will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York. 

It is expected that the USA Sale will result in an increase in BBVA Group’s CET1 (fully loaded) ratio of approximately 294 basis points. In addition, we expect to recognize profit net of taxes of approximately €580 million (based on an exchange rate of $1.20 per euro) for the companies included within the scope of the USA Sale from the date of the agreement through the date on which closing is expected to take place. Of this amount, approximately €300 million has already been recognized in the consolidated statement of income for the year ended December 31, 2020.In addition, of the expected impact on the BBVA Group’s CET1 (fully loaded) ratio, an increase of approximately 9 basis points had already been recognized as of December 31, 2020.

The closing of the USA Sale is subject to obtaining the relevant regulatory authorizations from the competent authorities. It is expected that the closing of the USA Sale may take place in mid-2021.

For additional information, see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”.

Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

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 business, through BBVA’s branch network in Spain.

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On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros, S.A. de Seguros y Reaseguros (“BBVA Seguros”) transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (“BBVA Seguros Generales”). BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points as of December 31, 2020.

2019

Sale of BBVA Paraguay

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 sale closed on January 22, 2021 and BBVA received approximately $250 million (approximately €210 million) in cash. The transaction resulted in a loss of approximately €9 million net of taxes and is estimated to increase the Group’s CET1 (fully loaded) ratio by approximately 6 basis points in the first quarter of 2021.

2018

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from The Bank of Nova Scotia (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement. The sale was completed on July 6, 2018.

The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.

Transfer of real estate business and sale of stake in Divarian

On November 29, 2017, BBVA reached an agreement with Promontoria Marina, S.L.U. (“Promontoria”), a company managed by Cerberus Capital Management, L.P. (“Cerberus”), for the creation of a joint venture to which an important part of the real estate business of BBVA in Spain (the “Business”) was transferred.

The Business comprised: (i) foreclosed real estate assets (the “REOs”) held by BBVA as of June 26, 2017, with a gross book value of approximately €13,000 million; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For purposes of the transaction with Cerberus, the Business was valued at approximately €5,000 million.

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs, which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian Propiedad, S.A. (“Divarian”) and the sale of an 80% stake in Divarian to Promontoria. Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian.

As of December 31, 2018 and for the year then ended, the transaction did not have a significant impact on the Group’s attributable profit or CET1 (fully loaded).

The above transaction is referred to as the “Cerberus Transaction” in this Annual Report.

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Sale of BBVA’s stake in Testa

On September 14, 2018, BBVA and other shareholders of Testa Residencial SOCIMI, S.A. (“Testa”) entered into an agreement with Tropic Real Estate Holding, S.L. (a company which is advised and managed by a private equity investment group controlled by Blackstone Group International Partners LLP) pursuant to which BBVA agreed to transfer its 25.24% interest in Testa to Tropic Real Estate Holding, S.L. The sale was completed on December 21, 2018.

The consideration received in cash by BBVA in the sale amounted to €478 million.

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager Investing UK Limited Partnership (“Voyager”), an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits.

The transaction was completed during the third quarter of 2019 and resulted in a capital gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1 (fully loaded).

Public Information

The SEC maintains an Internet site (www.sec.gov) that contains reports and other information regarding issuers that file electronically with the SEC, including BBVA. See “Item 10. Additional Information—Documents on Display”. Additional information on the Group is also available on our website at https://shareholdersandinvestors.bbva.com. The information contained on such websites does not form part of this Annual Report.

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B. 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. In 2020, the number of digital and mobile customers and the volume of digital sales continued to increase.

As of December 31, 2020, the structure of the operating segments used by the BBVA Group for management purposes remained the same as in 2019. However, the BBVA Group has reached agreements which may affect the structure of the Group’s operating segments in the future.

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. BBVA’s 20% stake in Divarian is also included in this unit. For more information regarding Divarian, see “—History and Development of the Company—Capital Divestitures—2018”.

For certain relevant information concerning the preparation and presentation of the financial information included in this Annual Report, see “Presentation of Financial Information”. 

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The breakdown of the Group’s total assets by each of BBVA’s operating segments and the Corporate Center as of December 31, 2020, 2019 and 2018 was as follows:

	As of December 31,
	2020	2019	2018
	(In Millions of Euros)
Spain	405,878	364,427	353,923
The United States (1)	93,953	88,529	82,057
Mexico	110,224	109,079	97,432
Turkey	59,585	64,416	66,250
South America	55,435	54,996	54,373
Rest of Eurasia	22,881	23,257	18,845
Subtotal Assets by Operating Segment	747,957	704,703	672,880
Corporate Center and Adjustments (2)	(11,781)	(6,967)	2,796
Total Assets BBVA Group	736,176	697,737	675,675

(1)€83,257 million as of December 31, 2020 relates to BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”) and is recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 (see Note 21 to our Consolidated Financial Statements).

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments. See “Presentation of Financial Information—Intra-group reallocations”.

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 years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

	Profit/(Loss) Attributable to Parent Company			% of Profit/(Loss) Attributable to Parent Company
	For the Year Ended December 31,
	2020	2019	2018	2020	2019	2018
	(In Millions of Euros)			(In Percentage)
Spain	606	1,386	1,400	15	23	24
The United States (1)	429	590	736	11	10	13
Mexico	1,759	2,699	2,367	45	45	41
Turkey	563	506	567	14	8	10
South America	446	721	578	11	12	10
Rest of Eurasia	137	127	96	3	2	2
Subtotal operating segments	3,940	6,029	5,743	100	100	100
Corporate Center	(2,635)	(2,517)	(343)
Profit attributable to parent company	1,305	3,512	5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

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The following table sets forth certain summarized information relating to the income of each operating segment and the Corporate Center for the years ended December 31, 2020, 2019 and 2018. Such information is presented under management criteria. For information on the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

	Operating Segments
	Spain	The United States (1)	Mexico	Turkey	South America	Rest of Eurasia	Corporate Center	Total (2)
	(In Millions of Euros)
2020
Net interest income	3,553	2,284	5,415	2,783	2,701	214	(149)	16,801
Gross income	5,554	3,152	7,017	3,573	3,225	510	(57)	22,974
Net margin before provisions (3)	2,515	1,281	4,677	2,544	1,853	225	(876)	12,219
Operating profit/(loss) before tax	809	502	2,472	1,522	896	184	(2,810)	3,576
Profit /(loss) attributable to parent company	606	429	1,759	563	446	137	(2,635)	1,305
2019
Net interest income	3,567	2,395	6,209	2,814	3,196	175	(233)	18,124
Gross income	5,656	3,223	8,029	3,590	3,850	454	(339)	24,463
Net margin before provisions (3)	2,402	1,257	5,384	2,375	2,276	161	(1,294)	12,561
Operating profit/(loss) before tax	1,878	705	3,691	1,341	1,396	163	(2,775)	6,397
Profit /(loss) attributable to parent company	1,386	590	2,699	506	721	127	(2,517)	3,512
2018
Net interest income	3,618	2,276	5,568	3,135	3,009	175	(269)	17,511
Gross income	5,888	2,989	7,193	3,901	3,701	414	(420)	23,667
Net margin before provisions (3)	2,554	1,129	4,800	2,654	1,992	127	(1,291)	11,965
Operating profit/(loss) before tax	1,840	920	3,269	1,444	1,288	148	(1,329)	7,580
Profit /(loss) attributable to parent company	1,400	736	2,367	567	578	96	(343)	5,400

(1)Includes the results of BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). 

(2)For information on the reconciliation of the income statement of our operating segments and Corporate Center to the consolidated income statement of the Group, see “Item 5. Operating and Financial Review and Prospects—Operating Results—Results of Operations by Operating Segment”. 

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

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The following tables set forth information relating to the balance sheet of our operating segments and the Group Corporate Center and adjustments as of December 31, 2020, 2019 and 2018:

	As of December 31, 2020
	Spain	The United States (1)	Mexico	Turkey	South America	Rest of Eurasia	Total Operating Segments	Corporate Center and Adjustments (2)
	(In Millions of Euros)
Total Assets	405,878	93,953	110,224	59,585	55,435	22,881	747,957	(11,781)
Cash, cash balances at central banks and other demand deposits	38,360	17,260	9,159	5,477	7,126	285	77,667	(364)
Financial assets designated at fair value (3)	137,969	6,792	36,360	5,332	7,329	492	194,274	(4,452)
Financial assets at amortized cost	198,173	66,933	59,814	46,705	38,549	21,839	432,014	(1,754)
Loans and advances to customers	167,998	57,983	50,002	37,295	33,615	18,908	365,801	(796)
Of which:
Residential mortgages	71,530	12,465	9,890	2,349	6,252	1,436	103,923
Consumer finance	11,820	4,633	7,025	5,626	6,773	497	36,373
Loans	5,859	1,153	1,629	630	974	183	10,427
Credit cards	2,087	700	4,682	3,259	2,008	7	12,744
Loans to enterprises	61,748	33,975	22,549	24,597	16,392	16,011	175,273
Loans to public sector	12,468	4,860	4,670	178	1,319	773	24,267
Total Liabilities	395,422	90,317	104,888	57,050	53,283	22,003	722,963	(36,807)
Financial liabilities held for trading and designated at fair value through profit or loss	73,921	952	23,801	2,336	1,326	46	102,382	(5,746)
Financial liabilities at amortized cost - Customer deposits	206,428	69,923	54,052	39,353	36,874	4,578	411,208	(2,086)
Of which:
Demand and savings deposits	174,789	61,354	43,460	20,075	25,847	3,481	329,008
Time deposits	31,019	8,571	10,315	19,270	11,038	1,097	81,310
Total Equity	10,457	3,636	5,336	2,535	2,152	879	24,995	25,025
Assets under management	62,707	-	22,524	3,425	13,722	569	102,947
Mutual funds	38,434	-	20,660	1,087	4,687	-	64,869
Pension funds	24,273	-	-	2,337	9,035	569	36,215
Other placements	-	-	1,863	-	-	-	1,863

(1)Includes the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”) and the reclassification of assets and liabilities of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet of the BBVA Group.See Note 21 to our Consolidated Financial Statements.

(3)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”.

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	As of December 31, 2019
	Spain	The United States (1)	Mexico	Turkey	South America	Rest of Eurasia	Total Operating Segments	Corporate Center and Adjustments (2)
	(In Millions of Euros)
Total Assets	364,427	88,529	109,079	64,416	54,996	23,257	704,703	(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 (3)	121,890	7,659	31,402	5,268	6,120	477	172,817	(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)
Of which:
Residential mortgages	73,871	14,160	10,786	2,928	7,168	1,624	110,534
Consumer finance	11,390	5,201	8,683	5,603	7,573	453	38,904
Loans	5,586	1,213	1,802	635	1,074	195	10,505
Credit cards	2,213	883	5,748	3,837	2,239	8	14,929
Loans to enterprises	57,194	36,346	24,778	26,552	16,251	16,716	177,836
Loans to public sector	13,886	5,373	6,819	107	1,368	667	28,220
Total Liabilities	355,198	84,686	104,190	61,744	52,504	22,393	680,714	(37,902)
Financial liabilities held for trading and designated at fair value through profit or loss	77,731	282	21,784	2,184	1,860	57	103,898	(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)
Of which:
Demand and savings deposits	150,917	53,001	42,959	15,737	22,682	3,292	288,588
Time deposits	31,453	14,527	12,372	25,587	13,441	1,416	98,797
Total Equity	9,229	3,843	4,889	2,672	2,492	864	23,989	30,936
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 the respective amounts for BBVA USA and the other companies falling within the scope of the USA Sale (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”).  

(2)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(3)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”.

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	As of December 31, 2018
	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	353,923	82,057	97,432	66,250	54,373	18,845	672,880	2,796
Cash, cash balances at central banks and other demand deposits	28,545	4,835	8,274	7,853	8,987	238	58,732	(536)
Financial assets designated at fair value (2)	106,307	10,481	26,022	5,506	5,634	504	154,454	(2,564)
Financial assets at amortized cost	195,457	63,539	57,709	50,315	36,649	17,809	421,477	(1,818)
Loans and advances to customers	170,427	60,808	51,101	41,478	34,469	16,609	374,893	(867)
Of which:
Residential mortgages	76,388	13,961	9,197	3,530	6,629	1,821	111,526
Consumer finance	9,665	5,353	7,347	5,265	6,900	410	34,940
Loans	5,564	1,086	1,766	570	955	212	10,153
Credit cards	2,083	720	4,798	3,880	2,058	10	13,549
Loans to enterprises	57,306	34,264	22,553	27,657	16,897	13,685	172,362
Loans to public sector	15,379	5,400	5,726	95	1,078	414	28,093
Total Liabilities	345,215	78,675	93,291	63,721	52,019	18,126	651,046	(28,245)
Financial liabilities held for trading and designated at fair value through profit or loss	70,020	234	18,028	1,852	1,357	42	91,532	(4,778)
Financial liabilities at amortized cost - Customer deposits	183,413	63,891	50,530	39,905	35,842	4,876	378,456	(2,486)
Of which:
Demand and savings deposits	142,912	47,031	38,167	12,530	23,195	3,544	267,379
Time deposits	40,072	16,857	11,573	27,367	12,817	1,333	110,018
Total Equity	8,708	3,383	4,140	2,529	2,355	719	21,834	31,041
Assets under management	62,559	-	20,647	2,894	11,662	388	98,150
Mutual funds	39,250	-	17,733	669	3,741	-	61,393
Pension funds	23,274	-	-	2,225	7,921	388	33,807
Other placements	35	-	2,914	-	-	-	2,949

(1)Includes balance sheet intra-group adjustments between the Corporate Center and the operating segments (see “Presentation of Financial Information—Intra-group reallocations”). 

(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”.

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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) as well as the Group’s shareholding in the bancassurance joint venture with Allianz, Compañía de Seguros y Reaseguros, S.A. (see “—History and Development of the Company―Capital Divestitures—2020”), the Asset Management unit (which manages Spanish mutual funds and pension funds), lending to real estate developers and foreclosed real estate assets in Spain, 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.

Cash, cash balances at central banks and other demand deposits amounted to €38,360 million as of December 31, 2020 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 light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―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 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 €137,969 million as of December 31, 2020, a 13.2% increase from the €121,890 million recorded as of December 31, 2019, mainly as a result of the increase in trading derivatives recorded under “Financial assets held for trading” due to the positive impact of changes in exchange rates on foreign currency positions and the increase in sovereign debt securities recorded under the “Financial assets at fair value through other comprehensive income”.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €198,173 million, a 1.5% increase compared with the €195,260 million recorded as of December 31, 2019. Within this heading, loans and advances to customers amounted to €167,998 million as of December 31, 2020, an increase of 0.4% from the €167,332 million recorded as of December 31, 2019, mainly as a result of the increase in SMEs and corporate banking credit 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, partially offset by the decrease in mortgage loans.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €73,921 million, a 4.9% decrease compared with the €77,731 million recorded as of December 31, 2019, mainly due to a decrease in deposits from credit institutions, partially offset by the positive impact of changes in exchange rate derivatives on foreign currency positions.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €206,428 million, a 13.2% increase compared with the €182,370 million recorded as of December 31, 2019 mainly due to the increase in demand deposits within the retail portfolio, as a result of 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 December 31, 2020 amounted to €62,707 million, a 5.1% 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.

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This operating segment’s non-performing loan ratio decreased to 4.3% as of December 31, 2020 from 4.4% as of December 31, 2019, mainly as a result of the increase in retail, SMEs and corporate banking credit facilities on the back of the measures implemented by the Spanish government in light of the COVID-19 pandemic, as well as the temporary moratoria and other relief measures adopted to address the effects thereof. This operating segment’s non-performing loan coverage ratio increased to 67% as of December 31, 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. The Group’s activity in the United States is mainly carried out through BBVA USA and other subsidiaries in the United States with activities related to banking activity and which are classified as discontinued operations (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”). It also includes Banco Bilbao Vizcaya Argentaria, S.A. New York Branch,the Group’s stake in Propel Venture Partners, the business developed through the Group’s broker-dealer BBVA Securities Inc. and a representative office in Silicon Valley (California).

BBVA USA accounted for 87.5% of this operating segment’s balance sheet as of December 31, 2020. Given the importance of BBVA USA in this segment, most of the comments below refer to BBVA USA.

The U.S. dollar depreciated 8.5% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the United States operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Cash, cash balances at central banks and other demand deposits amounted to €17,260 million as of December 31, 2020 compared with the €8,293 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents with the Federal Reserve with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the U.S. dollar against the euro. See “Item 5. Operating and Financial Review and Prospects―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 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 December 31, 2020 amounted to €6,792 million, an 11.3% decrease from the €7,659 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro and a fall in the volume of U.S. Treasury and other U.S. government agencies securities and mortgage-backed securities.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €66,933 million, a 3.7% decrease 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 December 31, 2020 amounted to €57,983 million, an 8.2% decrease compared with the €63,162 million recorded as of December 31, 2019, mainly due to the depreciation of the U.S. dollar against the euro, a reduction in consumer activity, since branches closed for business for part of the year and the decrease in consumer loans. The decrease was partially offset by the growth in loans to enterprises (in local currency) and the growth in residential mortgage loans in the fourth quarter of the year, 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), and increases in the drawing down of credit facilities.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €69,923 million, a 3.6% increase compared with the €67,525 million recorded as of December 31, 2019, mainly due to an increase in demand 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, offset in part by the depreciation of the U.S. dollar against the euro. 

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The non-performing loan ratio of this operating segment as of December 31, 2020 jumped to 2.1% from 1.1% as of December 31, 2019 mainly as a result of the increase in non-performing loans in the Oil & Gas sector and, to a lesser extent, the Real Estate sector, as a result of the deteriorating economic conditions and adverse sector dynamics. This operating segment’s non-performing loan coverage ratio decreased to 84% as of December 31, 2020, from 101% as of December 31, 2019, mainly due to higher non-performing loans and lower loss allowances. As loans becoming non-performing in 2020 were generally collateralized, provision requirements were lower than the stock.

Mexico

The Mexico operating segment includes the banking and insurance businesses conducted in Mexico by BBVA Mexico. It also includes BBVA Mexico’s branch in Houston.

The Mexican peso depreciated 13.1% against the euro as of December 31, 2020 compared with December 31, 2019, adversely affecting the business activity of the Mexico operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Cash, cash balances at central banks and other demand deposits amounted to €9,159 million as of December 31, 2020 compared with the €6,489 million recorded as of December 31, 2019, mainly due to an increase in cash and cash equivalents held at BANXICO (as defined herein), with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic, offset in part by the depreciation of the Mexican peso against the euro. See “Item 5. Operating and Financial Review and Prospects―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 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 December 31, 2020 amounted to €36,360 million, a 15.8% increase from the €31,402 million recorded as of December 31, 2019, mainly due to an increase in sovereign debt securities, offset in part by the depreciation of the Mexican peso against the euro.  

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €59,814 million, a 9.6% 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 December 31, 2020 amounted to €50,002 million, a 13.9% 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 corporate loans and retail portfolios (mainly residential mortgages and consumer finance), due to the adverse effect of the COVID-19 pandemic. These effects were partially offset by the partial recovery of mortgage loans in the second half of 2020.

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €23,801 million, a 9.3% increase compared with the €21,784 million recorded as of December 31, 2019, mainly as a result of increases in government agency debt securities, offset in part by the depreciation of the Mexican peso against the euro. Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €54,052 million, a 3.4% 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.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Other placements”) as of December 31, 2020 amounted to €22,524 million, a 7.9% 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, partially offset by the shift towards higher profitability investments such as private banking.

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This operating segment’s non-performing loan ratio increased to 3.3% as of December 31, 2020 from 2.4% as of December 31, 2019, mainly due to the increase in non-performing loans from the retail portfolio during the fourth quarter of 2020, following the lifting of the moratoria measures adopted in response to the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio decreased to 122% as of December 31, 2020 from 136% as of December 31, 2019.

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 26.7% against the euro as of December 31, 2020 compared to December 31, 2019, adversely affecting the business activity of the Turkey operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Cash, cash balances at central banks and other demand deposits amounted to €5,477 million as of December 31, 2020 compared with the €5,486 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro. At constant exchange rates, there was an increase in cash, cash balances at central banks and other demand deposits as a result of the increase in cash and cash equivalents held at the Central Bank of the Republic of Turkey, with a view to reinforcing the Group’s cash position in light of the COVID-19 pandemic. See “Item 5. Operating and Financial Review and Prospects―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 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 December 31, 2020 amounted to €5,332 million, a 1.2% 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 against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €46,705 million an 8.9% 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 December 31, 2020 amounted to €37,295 million, a 7.9% decrease compared with the €40,500 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, offset, in part, by the increase (in local currency) in loans denominated in Turkish lira and increases in the commercial portfolio 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).

Financial liabilities held for trading and designated at fair value through profit or loss of this operating segment as of December 31, 2020 amounted to €2,336 million, a 7.0% increase compared with the €2,184 million recorded as of December 31, 2019, mainly due to 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 December 31, 2020 amounted to €39,353 million, a 4.8% decrease compared with the €41,335 million recorded as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro, partially offset by the increase in demand deposits and increasing demand for gold deposits.

Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €3,425 million, a 12.3% decrease compared with the €3,906 million as of December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro,partially offset by increases in pension funds (in local currency).

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The non-performing loan ratio of this operating segment decreased to 6.6% as of December 31, 2020 from 7.0% as of December 31, 2019, as a result of the increase in loans denominated in Turkish lira, increases in the commercial portfolio and in consumer loans (in local currency) and, to a lesser extent, increases in write offs in the fourth quarter of 2020. This operating segment’s non-performing loan coverage ratio increased to 80% as of December 31, 2020 from 75% 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 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.

The sale of BBVA Paraguay closed in January 2021. See “—History and Development of the Company—Capital Divestitures—2019”.

As of December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated against the euro compared to December 31, 2019, by 34.8%, 12.6% and 16.3%, respectively. Changes in exchanges rates have adversely affected the business activity of the South America operating segment as of December 31, 2020 expressed in euros. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”.

As of and for the years ended December 31, 2020 and 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”).

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 December 31, 2020 amounted to €7,329 million, a 19.7% increase compared with the €6,120 million recorded as of December 31, 2019, attributable in part to the increase in the fair value of debt securities issued by the Peruvian government held by the segment and increases in purchases of debt securities issued by the Central Bank of the Argentine Republic (BCRA) in Argentina in connection to the COVID-19 pandemicand held by the segment. The increase was offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €38,549 million, a 1.8% 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 December 31, 2020 amounted to €33,615 million, a 5.8% decrease compared with the €35,701 million recorded as of December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increase in wholesale loans, particularly in Peru (supported by the “Reactiva Plan” adopted in response to the COVID-19 pandemic), the increase in credit cards loans, in particular in Argentina, and increases in the retail portfolio (in each case, in local currency). See “Item 5. Operating and Financial Review and Prospects―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 the region.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €36,874 million, a 2.1% 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 their 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, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

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Off-balance sheet funds of this operating segment (which includes “Mutual funds” and “Pension funds”) as of December 31, 2020 amounted to €13,722 million, a 6.7% increase compared with the €12,864 million as of December 31, 2019, mainly due to the recovery in mutual funds, after the temporary outflow of resources due to market instability, during the second half of 2020, partially offset by the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

The non-performing loan ratio of this operating segment as of December 31, 2020 and 2019 stood at 4.4%. The non-performing loan ratio as of December 31, 2020 was positively affected by the temporary moratoria and other relief measures adopted to address the effects of the COVID-19 pandemic. This operating segment’s non-performing loan coverage ratio increased to 110% as of December 31, 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 included 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 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 December 31, 2020 amounted to €492 million, a 3.0% increase compared with the €477 million recorded as of December 31, 2019.

Financial assets at amortized cost of this operating segment as of December 31, 2020 amounted to €21,839 million, a 1.8% decrease 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 December 31, 2020 amounted to €18,908 million, a 3.9% decrease compared with the €19,669 million recorded as of December 31, 2019.

Customer deposits at amortized cost of this operating segment as of December 31, 2020 amounted to €4,578 million, a 2.8% decrease compared with the €4,708 million recorded as of December 31, 2019.

Pension funds in this operating segment as of December 31, 2020 amounted to €569 million, a 13.8% increase compared with the €500 million recorded as of December 31, 2019, mainly due to increased sales of a multi-strategic product launched in 2019.

The non-performing loan ratio of this operating segment as of December 31, 2020 decreased to 1.1% from 1.2% as of December 31, 2019. This operating segment’s non-performing loan coverage ratio increased to 100% as of December 31, 2020, from 98% as of December 31, 2019.

Insurance Activity

The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main products offered by the insurance subsidiaries are life insurance to cover the risk of death and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death.

On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the transaction and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3 to our Consolidated Financial Statements).

The Group offers, in general, two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and collective insurance, which is taken out by employers to cover their commitments to their employees.

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See Note 23 to our Consolidated Financial Statements for additional information on our insurance activity.

Monetary Policy

The integration of Spain into the European Monetary Union (“EMU”) on January 1, 1999 implied the yielding of monetary policy sovereignty to the Eurosystem. The “Eurosystem” is composed of the ECB and the national central banks of the 19 member countries that form the EMU.

The Eurosystem determines and executes the policy for the single monetary union of the 19 member countries of the EMU. The Eurosystem collaborates with the central banks of member countries to take advantage of the experience of the central banks in each of its national markets. The basic tasks carried out by the Eurosystem include:

·defining and implementing the single monetary policy of the EMU;

·conducting foreign exchange operations in accordance with the set exchange policy;

·lending to national monetary financial institutions in collateralized operations;

·holding and managing the official foreign reserves of the member states; and

·promoting the smooth operation of the payment systems.

In addition, the Treaty on the EU (“EU Treaty”) establishes a series of rules designed to safeguard the independence of the system, in its institutional as well as its administrative functions.

Supervision and Regulation

This section discusses the most significant supervision and regulatory matters applicable to us as a bank organized under the laws of Spain, our principal market, and as a result of activities we undertake in the European Union. Further below, this section also includes information regarding supervision and regulatory matters applicable to our operations in Mexico, Turkey and the United States.

The Bank’s “home” supervisor is the European Central Bank (“ECB”) at the European level and the Bank of Spain at the national level, both authorities being part of the Single Supervisory Mechanism (“SSM”). The BBVA Group is also subject to supervision by a wide variety of other local authorities given the Bank’s global presence, which are considered to be “host” supervisors given the Bank’s foreign origin. These include authorities in countries such as the United States, Mexico, Turkey and the whole of BBVA’s footprint in South America.

Following the prior global financial crisis, European politicians took action to stabilize the region’s banking sector, due to a period of turbulence and doubts regarding its sustainability. This action culminated in the launch of the European Banking Union (“EBU”). The EBU can be viewed as a house with different building blocks. The EBU’s foundation includes the single rulebook (the “Single Rulebook”), which was the first step to harmonize banking rules in the European Union and includes landmark pieces of legislation such as the Capital Requirements Regulation, the Capital Requirements Directive and the Bank Recovery and Resolution Directive, among others.

The first pillar of the EBU relates to supervision and includes the SSM, which unified banking supervision in the European Union. This responsibility was placed under the ECB, which follows a strict policy of separation and confidentiality in order to ensure the independence of banking supervision and monetary policy. The SSM works in very close coordination with the national competent authorities (“NCAs”). As a result, the joint supervisory teams (“JSTs”) that are responsible for the daily supervision of the most significant banks (one JST per bank) are composed of employees from the ECB and, in the case of BBVA, from the Bank of Spain. This arrangement enables supervision to be distant enough in order to avoid any potential conflicts of interest, while also benefiting from local expertise on a particular country’s intricacies. In addition, each JST member rotates every three years. Furthermore, the SSM has pushed for more internationally diverse JSTs and teams conducting on-site inspections, including assigning Heads of Mission of a different nationality than the bank’s country of origin and by having some members of the inspection team from a different EU country.

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The second pillar of the EBU relates to resolution mechanisms and includes the Single Resolution Mechanism (“SRM”), for which a new institution was created, known as the Single Resolution Board (“SRB”). The SRB, located in Brussels, works closely with the National Resolution Authorities (“NRAs”), and, in the case of Spain, the Bank of Spain and the Fund for Orderly Banking Restructuring (“FROB”), to ensure the orderly resolution of failing banks with minimum impact on the real economy, the financial system and the public finances of the participating EU member states and other countries.

The role of the SRB is proactive. Instead of waiting for resolution cases, the SRB focuses on resolution planning and preparation with a forward-looking mindset to avoid the negative impacts of a bank failure on the economy and financial stability of the participating EU member states and other countries. Accordingly, one of the key tasks of the SRB and NRAs is to draft resolution plans for the banks under its remit. These plans are prepared jointly by the SRB and NRAs through internal resolution teams (“IRTs”). The IRTs are composed of staff from the SRB and the NRAs and are headed by coordinators appointed from the SRB’s senior staff.

Banking resolution, previously not prioritized by regulatory authorities, became crucial following the prior financial crisis and the need to inject substantial taxpayer funds into financial institutions. The idea that underlies banking resolution is that a “bail-in” is preferable to a “bail-out”. A “bail-out” occurs when outside investors, such as a government, rescue a bank by injecting money to help make debt payments. In the past, such as during the prior financial crisis, “bail-outs” helped save banks from failing, with taxpayers assuming the risks associated with their inability to make debt payments. On the other hand, a “bail-in” occurs when a bank’s creditors (in addition to its shareholders) are forced to bear some of the burden by having some or all of their debt written off. See “—Principal Markets—Spain—Recovery and Resolution of Credit Institutions and Investment Firms” below.

In order to permit the execution of a bail-in, banks are required to hold on their balance sheet a minimum volume of liabilities that could be bailed-in without operational or legal issues in the event of resolution. This is the rationale behind the minimum requirement for own funds and eligible liabilities (“MREL”).  

Within the framework of the SRM, the Single Resolution Fund (“SRF”) was also developed. This is a fund composed of contributions from credit institutions and certain investment firms in the 19 participating countries within the EBU. The SRF may be used only under specific circumstances in banking resolution, such as to guarantee the assets or liabilities of an institution under resolution or make contributions to a bridge institution or asset management vehicle. The SRF can be used only to ensure the effective application of resolution tools but not to absorb the losses of an institution or for a recapitalization.

The first and second pillars of the EBU are highly interlinked. Prior to entering into a resolution process, a bank must be considered by the SSM as failing or likely to fail, which occurs when there is no other option to restore its viability (such as applying the bank’s recovery plan) within the available time frame.

The third and final pillar of the EBU, which is still under discussion, is the European Deposit Insurance Scheme (“EDIS”). The EDIS would enable the insurance of deposits regardless of the country of origin of the bank, thus creating a fully harmonized banking union. However, there remain political obstacles to the creation of the EDIS which have not yet been resolved. In 2019, a High Level Working Group on EDIS was created and charged with presenting a roadmap to start political negotiations. At the national level, BBVA is currently subject to the Deposit Guarantee Fund of Credit Institutions (“FGD”), which operates under the guidance of the Bank of Spain.

In the aftermath of the prior global financial crisis, important reforms were adopted at the international level, namely the Basel III capital reforms (as defined below), which have been translated into relevant legislation at the European and national level. In May 2019, the European Council adopted a banking package which included new versions of some of the regulations and directives that are part of the Single Rulebook. More concretely, this package included the CRR II, the CRD V Directive, the SRM Regulation II and the BRRD II (each as defined below). This package incorporated some of the most recent internationally-agreed reforms mentioned above, including measures such as a new leverage ratio requirement for all institutions, a revised “Pillar 2” (as described below) framework, additional supervisory powers in the area of money laundering and enhanced MREL subordination rules for global systemically important institutions (“G-SIIs”) and other top-tier banks.

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As a result of the foregoing, banks in the EBU face increasingly intense supervisory scrutiny. However, the reforms discussed above have resulted in structurally important advances as asset quality, capital and liquidity levels in the European banking sector have greatly improved since they were adopted. Another important component of this progress has been the Supervisory Review and Examination Process (“SREP”). The SREP is an annual exercise that determines a bank’s capital requirements, on a “Pillar 2” basis, as well as the qualitative requirements that the bank must address in the following year. This exercise takes four different elements of a bank into account: (a) business model and profitability, (b) capital, (c) liquidity and (d) governance and risk management.

In addition, any work done during the year related to on-site inspections, deep dives, thematic reviews, internal model investigations and other ad hoc requests (e.g., Brexit-related) feeds into the SREP. The SREP culminates with a supervisory dialogue at the end of the year, where a preliminary review of the bank is presented. In addition, prior to the beginning of each year, the SSM presents a Supervisory Examination Program (“SEP”) which details the inspections, high-level meetings and potential visits to group subsidiaries that are forecasted to occur throughout the year. The process for creating a SEP for each entity begins with defining the SSM’s risk dashboard and the classification of risks according to their probability of occurring and probable magnitude of impact, which then translates into the SSM’s priorities for the following year.

Another important tool that the SSM possesses to supervise large European banking groups is the Supervisory Colleges. For those banks for which the SSM acts as the consolidated “home” supervisor, the SSM together with the relevant NCA organizes an event where all of the banking group’s “host” supervisors are gathered at a roundtable and where they discuss the current state of affairs of the bank in the different relevant jurisdictions. The SRB follows a similar approach, organizing Resolution Colleges with the banking group’s “host” resolution authorities.

The SSM also performs comprehensive assessments, together with the NCAs, over the banks it directly supervises. These are performed either regularly (at periodic intervals) or on an ad hoc basis (e.g., when an EU member state requests to be part of the EBU). These comprehensive assessments include two parts: (a) asset quality reviews of the banks’ exposures and (b) stress testing of the banks’ balance sheets under different scenarios. Furthermore, the European Banking Authority (“EBA”) also organizes and performs an EU-wide stress test in coordination with the ECB. This test, which occurs every two years, does not confer a pass or fail result but instead contributes to determining “Pillar 2” guidance. While “Pillar 2” guidance is a non-binding capital requirement, the EBA nonetheless expects compliance with it. In those years in which there is no EBA stress test, the SSM organizes a more specific stress test concerning a particular topic, such as the impact of interest rate risk on the banking book or liquidity.

Due to the COVID-19 pandemic crisis, the EBA postponed the scheduled 2020 stress test by one year. This was one of the several measures taken by the regulators and supervisors in Europe in order to provide relief for banks at the operational, capital and liquidity levels. The ECB also issued a recommendation stating that banks under its direct supervision should not distribute capital in the form of dividends and share buybacks during 2020, and should refrain from making variable discretionary remuneration payments in order to preserve their capital position and lending capacity. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing its recommendation of July, and recommending that significant credit institutions (which would include the Group) exercise extreme prudence when deciding on or paying out dividends or carrying out share buy-backs aimed at remunerating shareholders. For additional information, see “—Dividends”. 

Given that there was no EU-wide stress test during 2020, the ECB performed a vulnerability assessment in order to assess the early impact of the crisis within the SSM banking sector. This assessment focused on two different economic scenarios, a central scenario (the most likely to materialize according to ECB staff) and a severe scenario. The ECB published its findings at an aggregate level in July 2020 and concluded that the banking sector was generally well capitalized and capable of handling the fallout of the crisis from a solvency perspective; however, it also expressed that if the situation were to worsen, the depletion of bank capital would be material.

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The macro-prudential aspect of supervision is also increasingly gaining relevance, including through specific thematic reviews undertaken by the SSM on certain portfolios (e.g., real estate or shipping) and the creation of new authorities and review boards. At the European level, these include the European Systemic Risk Board (“ESRB”), which is responsible for monitoring macro-risks at the European level. The ESRB also develops the adverse scenarios to be used in the EU-wide stress test. In addition, in 2019 the Spanish Government created the Macro-prudential Authority Financial Stability Council, which is chaired by the Minister of Economy and Business and vice-chaired by the Governor of the Bank of Spain, and includes the Deputy Governor of the Bank of Spain, who is responsible for banking supervision, among its members.

The foregoing illustrates how much the regulatory and supervisory landscape has changed in the decade following the prior financial crisis, due in large part to the Basel Committee on Banking Supervision (the “Basel Committee”), an international, standard-setting forum, which established important reforms at a global level. Some of these reforms have been adopted in regulations at the European level.

The following is a discussion of certain of these and other regulations that are applicable to BBVA and certain related requirements.

Liquidity Requirements – Minimum Reserve Ratio

The legal framework for the minimum reserve ratio is set out in Regulation (EC) No. 2818/98 of the ECB of December 1, 1998 on the application of minimum reserves (ECB/1998/15). The reserve coefficient for overnight deposits, deposits with agreed maturity or period of notice up to two years, debt certificates with maturity up to two years and money market paper is 1%. There is no required reserve coefficient for deposits with agreed maturity or period of notice over two years, repurchase agreements and debt certificates with maturity over two years.

According to the Delegated Regulation (EU) 2015/61 issued by the European Commission (EC) of October 10, 2014, the liquidity coverage ratio came into force in Europe on October 1, 2015, with an initial 60% minimum requirement, which was progressively increased (phased-in) up to 100% in 2018.

Capital Requirements

In December 2010, the Basel Committee proposed a number of fundamental reforms to the regulatory capital framework for internationally active banks (the “Basel III capital reforms”). The Basel III capital reforms raised the quantity and quality of capital required to be held by a financial institution with an emphasis on Common Equity Tier 1 capital (the “CET1 capital”). 

As a Spanish credit institution, the BBVA Group is subject to Directive 2013/36/EU of the European Parliament and of the Council of June 26, 2013 on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms, amending Directive 2002/87/EC, and repealing Directives 2006/48/EC and 2006/49/EC (as amended, replaced or supplemented from time to time, the “CRD IV Directive”), through which the EU began implementing the Basel III capital reforms, with effect from January 1, 2014, with certain requirements being phased in until January 1, 2019. The core regulation regarding the solvency of credit institutions is Regulation (EU) No. 575/2013 of the European Parliament and of the Council of June 26, 2013 on prudential requirements for credit institutions and investment firms, and amending Regulation (EU) No. 648/2012 (as amended, replaced or supplemented from time to time, the “CRR I” and, together with the CRD IV Directive and any measures implementing the CRD IV Directive or CRR I which may from time to time be applicable in Spain, “CRD IV”), which is complemented by several binding regulatory technical standards, all of which are directly applicable in all EU Member States, without the need for national implementation measures. The implementation of the CRD IV Directive into Spanish law took place through Royal Decree-Law 14/2013, of November 29, Law 10/2014, of June 26, on the organization, supervision and solvency of credit institutions (“Law 10/2014”), Royal Decree 84/2015, of February 13 (“Royal Decree 84/2015”), Bank of Spain Circular 2/2014 of January 31, and Bank of Spain Circular 2/2016, of February 2 (the “Bank of Spain Circular 2/2016”). 

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On June 7, 2019, the following amendments to CRD IV and Directive 2014/59/EU of the European Parliament and of the Council of May 15, 2014 establishing a framework for the recovery and resolution of credit institutions and investment firms (“BRRD I”) were published:

·Directive 2019/878/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “CRD V Directive”) amending the CRD IV Directive (the CRD IV Directive as so amended by the CRD V Directive and as amended, replaced or supplemented from time to time, the “CRD Directive”);  

·Directive 2019/879/EU of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “BRRD II”) amending, among other things, BRRD I as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (BRRD I as so amended by BRRD II and as amended, replaced or supplemented from time to time, the “BRRD”); 

·Regulation (EU) No. 876/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, “CRR II” and, together with the CRD V Directive, “CRD V”) amending, among other things, CRR I as regards the leverage ratio, the net stable funding ratio, requirements on own funds and eligible liabilities, counterparty credit risk, market risk, exposures to central counterparties, exposures to collective investment undertakings, large exposures, and reporting and disclosure requirements (CRR I as so amended by CRR II and as amended, superseded or supplemented from time to time, the “CRR”); and

·Regulation (EU) No. 877/2019 of the European Parliament and of the Council of May 20, 2019 (as amended, replaced or supplemented from time to time, the “SRM Regulation II”) amending Regulation (EU) No. 806/2014 of the European Parliament and of the Council of July 15, 2014 establishing uniform rules and a uniform procedure for the resolution of credit institutions and certain investment firms in the framework of a Single Resolution Mechanism and a Single Resolution Fund (the “SRM Regulation I”) as regards the loss-absorbing and recapitalization capacity of credit institutions and investment firms (SRM Regulation I as so amended by SRM Regulation II and as amended, replaced or supplemented from time to time, the “SRM Regulation”) (CRD V, together with BRRD II and the SRM Regulation II, the “EU Banking Reforms”).  

The EU Banking Reforms (other than CRR II) are stated to apply from 18 months plus one day after the date of their entry into force on June 27, 2019, save for certain provisions of the CRD V Directive where a two year period is provided for. CRR II is stated to apply from 24 months and one day after the date of its entry into force on June 27, 2019, although certain provisions are stated to enter into force before or after that date, as described therein.

CRD IV, among other things, established a “Pillar 1” minimum capital requirement and increased the level of capital required through the “combined capital buffer requirement” that institutions must comply with from 2016 onwards. The “combined capital buffer requirement” introduced five new capital buffers: (i) the capital conservation buffer, (ii) the G-SIB buffer, (iii) the institution-specific counter-cyclical capital buffer, (iv) the D-SIB buffer and (v) the systemic risk buffer (a buffer to prevent systemic or macroprudential risks). The “combined capital buffer requirement” applies in addition to the minimum “Pillar 1” capital requirements and must be satisfied with CET1 capital.

The G-SIB buffer is applicable to the institutions included in the list of G-SIBs, which is updated annually by the Financial Stability Board (the “FSB”). The Bank was excluded from this list with effect as from January 1, 2017, so, unless otherwise indicated by the Financial Stability Board (or the Bank of Spain) in the future, the Bank will no longer be required to maintain the G-SIB buffer.

The Bank of Spain announced on November 25, 2019 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer equivalent to a CET1 ratio of 0.75% on a consolidated basis.

In December 2015, the Bank of Spain agreed to set the counter cyclical capital buffer applicable to credit exposures in Spain at 0% from January 1, 2016. This percentage is reviewed quarterly. The Bank of Spain agreed in December 21, 2020 to maintain the counter cyclical capital buffer applicable to credit exposures in Spain at 0% for the fourth quarter of 2020. As of the date of this Annual Report, the counter cyclical capital buffer applicable to the Group stands at 0%.

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Additionally, Article 104 of the CRD Directive, as implemented by Article 68 of Law 10/2014, and similarly Article 16 of Council Regulation (EU) No. 1024/2013 of October 15, conferring specific tasks on the ECB concerning policies relating to the prudential supervision of credit institutions (the “SSM Regulation”), also contemplates the possibility that the supervisory authorities may require credit institutions to meet capital requirements exceeding the “Pillar 1” minimum capital requirements and the “combined capital buffer requirement” by establishing “Pillar 2” capital requirements (which, with respect to other requirements, are above “Pillar 1” requirements and below the “combined capital buffer requirement”).

Furthermore, the ECB is required, under Regulation (EU) No. 468/2014 of the ECB of April 16, 2014 establishing the framework for cooperation within the Single Supervisory Mechanism between the ECB and national competent authorities and with national designated authorities (the “SSM Framework Regulation”), to carry out a SREP for us and the Group at least on an annual basis.

On July 19, 2018, the EBA published its final guidelines intended to further enhance risk management by institutions and the convergence of supervision with respect to the SREP. These guidelines focus on stress testing, particularly to determine “Pillar 2” and the level of interest rate risk.

Likewise, the ECB announced on March 12, 2020 that it will allow banks to partially use AT1 and Tier 2 instruments to meet the Pillar 2 requirement, being this measure introduced by CRD V and initially expected to be implemented in 2021. In particular, the composition of the capital instruments to meet he “Pillar 2” requirement, shall be made up in the form of 56% of CET1 capital and 75% of Tier 1 capital, as a minimum.

Consequently, all additional “Pillar 2” own funds requirements that the ECB may impose on the Bank and/or the Group under the SREP will require the Bank and/or the Group to maintain capital levels higher than the “Pillar 1” minimum capital requirement.

As a result of the most recent SREP carried out by the European Central Bank, and in accordance with the measures implemented by the European Central Bank on March 12, 2020, by means of which banks may partially use AT1 and Tier 2 capital instruments in order to fulfil the “Pillar 2” requirement, BBVA must maintain, a CET1 ratio of 8.59% at the consolidated level and 12.75% at the individual level. The consolidated overall capital requirement includes: i) the minimum capital requirement of Pillar 1 of 8.0%, that must be composed by a 4.5% minimum CET1; ii) the AT1 requirement of Pillar 1 of 1.5%, that must be composed by a minimum CET1 of 0.84%; iii) the capital conservation buffer (2.5% of CET1) and iv) the capital buffer for Other Systemically Important Institutions (O-SIIs) (0.75% of CET1). Likewise, BBVA must maintain, on an individual level, a CET1 ratio of 7.84% and a total capital ratio of 12.00%.

For further information on the countercyclical capital buffer and the total capital requirements applicable to the BBVA Group, see Note 32 to our Consolidated Financial Statements.

In accordance with Article 48 of Law 10/2014, Article 73 of Royal Decree 84/2015 and Rule 24 of Bank of Spain Circular 2/2016, any institution not meeting its “combined capital buffer requirement” is required to calculate its maximum distributable amount (“MDA”) as stipulated in such legislation. Should that requirement not be met and until the MDA has been calculated and communicated to the Bank of Spain, the relevant institution shall not make any: (i) distributions relating to CET1 capital; (ii) payments related to variable remuneration or discretionary pension benefits; and (iii) distributions linked to AT1 instruments (“discretionary payments”), and once the MDA has been calculated and communicated to the Bank of Spain, the discretionary payments will be subject to the limit of the MDA calculated.

Additionally, pursuant to Article 48 of Law 10/2014, the Bank of Spain’s adoption of the measures provided by Articles 68.2.h) and 68.2.i) of Law 10/2014, aimed at strengthening own funds and limiting or prohibiting the distribution of dividends, respectively, will also entail the requirement to determine the MDA and to restrict discretionary payments to such MDA. In accordance with the EU Banking Reforms, the calculation of the MDA and the restrictions described in the preceding paragraph while such calculation is pending, shall also be triggered by a breach of the MREL requirement (see “Item 3. Risk Factors—Regulatory, Tax and Reporting Risks—Increasingly onerous capital and liquidity requirements may have a material adverse effect on the Group’s business, financial condition and results of operations”) or a breach of the minimum leverage ratio requirement.

CRD V also distinguishes between “Pillar 2” capital requirements and “Pillar 2” capital guidance, only the former being regarded as mandatory requirements. Notwithstanding the foregoing, CRD V provides that, besides other measures, supervisory authorities are entitled to impose further “Pillar 2” capital requirements when an institution repeatedly fails to follow the “Pillar 2” capital guidance previously imposed.

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Additionally, CRD II sets a binding leverage ratio requirement of 3% of Tier 1 capital, in addition to the institution’s own funds requirements and risk-weighted assets (“RWAs”)-based requirements. In particular, any breach of this leverage ratio would entail the need to determine the MDA and the related consequences.

Furthermore, on December 7, 2017 the BCBS announced the end of the Basel III reforms (informally referred to as Basel IV). These reforms include changes to the risk weightings applied to different assets and measures to enhance the sensitivity to risk in those weightings and impose limits on the use of internal ratings-based approaches to ensure a minimum level of conservatism in the use of such approaches and enhance comparability among banks in which such internal ratings-based approaches are used. The review of minimum capital requirements will also limit the regulatory benefit for banks when calculating total RWAs using internal risk models as compared with the standardized approach, with a minimum capital requirement of 50% of RWAs calculated using only the standardized approaches that will be applicable as from January 1, 2022, which is expected to increase to 72.5% as from January 1, 2027.

Moreover, on March 15, 2018, the ECB published its supervisory expectations on prudential provisions for non-performing loans by publishing the Addendum to the ECB’s guide on non-performing loans for credit institutions, issued on March 20, 2017, which clarifies the ECB expectations regarding supervision over the identification, management, measurement and reorganization of non-performing loans, in order to avoid future and excessive accumulation of non-performing loans without coverage in the balance sheets of the credit entities.

The Addendum’s supervisory expectations are applicable to new non-performing loans classified as such as of April 1, 2018. The ECB will evaluate the banks’ practices at least once a year and, from the beginning of 2021, the banks must inform the ECB of any difference between their practices and the prudential provision expectations.

In addition, the ECB has announced that a TRIM is being conducted on the internal models used by banks subject to its supervision to calculate their RWAs, in order to reduce inconsistencies and unjustified variability in these internal models throughout the European Union. Although the full results of the TRIM are not yet known, it could imply a change in the internal models used by banks and, at the same time, increases or decreases in the capital needs of banks, including the Bank.

The BRRD prescribes that banks shall hold a minimum level of own funds and eligible liabilities in relation to total liabilities known as MREL requirement. According to the Commission Delegated Regulation (EU) 2016/1450 of May 23, 2016 (“MREL Delegated Regulation”), the level of own funds and eligible liabilities required under MREL will be set by the resolution authority, in agreement with the competent authority, for each bank (and/or group) based on, among other things, the criteria set forth in Article 45c.1 of the BRRD, including the systemic importance of the institution.

On November 19, 2019, the Bank announced that it had received notification from the Bank of Spain regarding its MREL, as determined by the SRB. The Bank’s MREL has been set at 15.16% of the total liabilities and own funds of the Bank’s resolution group, at a sub-consolidated level from January 1, 2021 (as detailed below). Likewise, of this MREL, 8.01% of the total liabilities and own funds must be met with subordinated instruments (the subordination requirement), once the concession established in the requirement itself has been applied. This MREL is equivalent to 28.50% of the Bank’s RWAs, while the subordination requirement included in the MREL is equivalent to 15.05% in terms of the RWAs, once the corresponding concession has been applied.

The Bank estimates that, following the entry into force of SRM Regulation II (which, among other matters, establishes the MREL in terms of RWAs and sets forth new transitional periods and deadlines, and which we interpret would be applicable to our MREL requirement), the current structure of shareholders’ funds and admissible liabilities enables the Bank’s compliance with its MREL requirement.

As of December 31, 2017 (reference date taken by the SRB), the total liabilities and equity of the Bank’s resolution group amounted to 371,910 million euros, of which the total liabilities and equity of the Bank represented approximately 95%, and the RWAs of the Bank’s resolution group amounted to 197,819 million euros.

If the FROB, the SRM or a Spanish Resolution Authority considers that there may be any obstacles to resolvability by the Bank and/or the Group, a higher MREL could be imposed.

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The EU Banking Reforms provide that the breach by a bank of its MREL should be addressed by the competent authorities through their powers to address or remove obstacles to resolution, the exercise of their supervisory powers and their power to impose early intervention measures, administrative sanctions and other administrative measures. If there were a deficit in the level of an entity’s eligible own funds and liabilities, and that entity’s own funds were contributing to meeting the “combined capital buffer requirement,” these own funds would automatically be deemed to count toward meeting the MREL of said entity and would cease to count for purposes of meeting the “combined capital buffer requirement”, which could lead the entity to fail to comply with its “combined capital buffer requirement”. This could result in the need to calculate the MDA and the resolution authority would have the power (but not the obligation) to impose restrictions on the making of discretionary payments. Therefore, with the entry into force of the EU Banking Reforms, the Bank will have to fully comply with its “combined capital buffer requirement”, in addition to its MREL, to ensure that it can make discretionary payments.

In addition, in accordance with the EBA guidelines on the assumptions of triggering the use of early intervention measures of May 8, 2015, a significant deterioration in the amount of liabilities and eligible own funds held by an entity in order to comply with Its MREL could place an entity in a situation where the conditions for early intervention are met, which could entail the application of early intervention measures by the competent resolution authority, which in the Spanish case are detailed in Articles 9 and 10 of Law 11/2015, including the intervention or provisional replacement of administrators.

On November 9, 2015, the FSB published its final Principles and Term Sheet (the “TLAC Principles and Term Sheet”), proposing that G-SIBs maintain significant minimum amounts of liabilities that are subordinated (by law, contract or structurally) to certain prior-ranking liabilities, such as guaranteed insured deposits, and forming a new standard for G-SIBs. The TLAC Principles and Term Sheet contain a set of principles on loss-absorbing and recapitalization capacity of G-SIBs in resolution and a term sheet for the implementation of these principles in the form of an internationally agreed standard. The TLAC Principles and Term Sheet require a minimum TLAC requirement to be determined individually for each G-SIB at the greater of (i) 16% of RWAs as of January 1, 2019 and 18% as of January 1, 2022, and (ii) 6% of the Basel III Tier 1 leverage ratio exposure measured as of January 1, 2019, and 6.75% as of January 1, 2022.

Among other amendments, BRRD II introduced the concepts of resolution institution and resolution group. The EU Banking Reforms provide for the amendment of a number of aspects of the MREL framework to align it with the Total Loss-Absorbing Capacity (“TLAC”) standards included in the FSB final TLAC Principles and Term Sheet. To maintain coherence between the MREL rules applicable to G-SIBs and those applicable to non-G-SIBs, the BRRD II introduced a number of changes to the MREL rules applicable to non-G-SIBs. While the EU Banking Reforms propose for minimum harmonized or “Pillar 1” MRELs for G-SIBs, in the case of non-G-SIBs, it is proposed that MRELs will be imposed on a bank-specific basis. For G-SIBs, it is also proposed that a supplementary or “Pillar 2” MRELs may be further imposed on a bank-specific basis. The EU Banking Reforms further provide for the resolution authorities to give guidance to an institution to have own funds and eligible liabilities above the required levels.

Following the application of CRR II, CRR will establish that an institution’s eligible liabilities will consist of its eligible liability items (as defined therein) after a number of mandatory deductions and, in order to be considered as eligible liabilities, it is stipulated, for example, that the instruments must meet the requirements set out in Article 72b of the CRR, which includes the need for those instruments to rank below the liabilities excluded under Article 72.a.2 of the CRR.

To facilitate compliance with this requirement, Directive (EU) 2017/2399 of the European Parliament and of the Council of December 12, 2017 amending BRRD as regards the ranking of unsecured debt instruments in insolvency hierarchy was approved, with the aim to harmonize national laws on insolvency and recovery and resolution of credit institutions and investment firms, by creating a new credit class of “non-preferred” senior debt that should only be bailed-in after junior ranking instruments but before other senior liabilities. In this regard, on June 23, 2017 Royal Decree-Law 11/2017 of June 23 on urgent measures in financial matters introduced into Spanish law the new class of “non-preferred” senior debt.

Notwithstanding the foregoing, CRR II provides for some exemptions which could allow outstanding senior debt instruments to be used to comply with MREL. However, there is uncertainty regarding the final form of the EU Banking Reforms insofar as such eligibility is concerned and how the regulations are to be interpreted and applied. In any event, BRRD II aims to provide greater certainty with respect to eligible liabilities, in order to provide markets with the necessary clarity concerning the eligibility criteria for instruments to be recognized as eligible liabilities for TLAC or MREL purposes.

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The EU Banking Reforms further include, as part of MREL, a new subordination requirement of eligible instruments for G-SIBs and “top tier” banks (including the Bank) that will be determined according to their systemic importance, involving a minimum “Pillar 1” subordination requirement. This “Pillar 1” subordination requirement must be satisfied with own funds and other eligible MREL instruments (which MREL instruments may not for these purposes be senior debt instruments and only MREL instruments constituting “non-preferred” senior debt under the new insolvency hierarchy introduced into Spain and other subordinated will be eligible for compliance with the subordination requirement). For “top tier” banks such as the Bank, this “Pillar 1” subordination requirement has been determined as the highest of 13.5% of the Bank’s RWAs or alternatively, 5% of its leverage exposure. Resolution authorities may also impose further “Pillar 2” subordination requirements, which would be determined on a case-by-case basis but at a minimum level equal to the lower of 8% of a bank’s total liabilities and own funds and 27% of its RWAs.

Capital Management

Basel Capital Accord - Economic Capital

The Group’s capital management is performed at both the regulatory and economic levels. Regulatory capital management is based on the analysis of the capital base and the capital ratios (core capital, Tier 1, etc.) using the BIS Framework rules and the CRR. See Note 32 to our Consolidated Financial Statements.

The aim of our capital management is to achieve a capital structure that is as efficient as possible in terms of both cost and compliance with the requirements of regulators, ratings agencies and investors. Active capital management includes securitizations, sales of assets, and preferred and subordinated issues of equity and hybrid instruments. Various actions have been taken during the last years in connection with our capital management and in order to comply with various capital requirements applicable to us related to various actions regarding asset sales. In addition, we may make securities issuances or undertake new asset sales in the future, which could involve outright sales of businesses or reductions in interests held by us, which could be material and could be undertaken at less than their respective book values, resulting in material losses thereon, in connection with our capital management and in order to comply with capital requirements or otherwise. The Bank has obtained the Bank of Spain’s approval with respect to its internal model of capital estimation concerning certain portfolios and its operational risk internal model.

From an economic standpoint, capital management seeks to optimize value creation for the Group and its different business units. The Group allocates economic capital (“CER”) commensurate with the risks incurred by each business. This is based on the concept of unexpected loss at a certain level of statistical confidence, depending on the Group’s targets in terms of capital adequacy. The CER calculation combines credit risk, market risk (including structural risk associated with the balance sheet and equity positions), operational risk, model risk, business risk, reputational risk and technical risks in the case of insurance companies.

Shareholders’ equity, as calculated under the BIS Framework rules, is an important metric for the Group. For the purpose of allocating capital to operating segments, the Group focuses on both economic and regulatory capital. The purpose is to ensure that the businesses are run considering both the risk-sensitive perspective and the regulation requirement. These are designed to provide an equitable basis for assigning capital and ensure adequate capital management across the Group.

Concentration of Risk

According to the CRR, an institution’s exposure to a client or group of connected clients shall be considered a large exposure where its value is equal to or exceeds 10% of its eligible capital, and such institution shall have sound administrative and accounting procedures and adequate internal control mechanisms for the purposes of identifying, managing, monitoring, reporting and recording all large exposures and subsequent changes to them, in accordance with the CRR. Where so required under the CRR, an institution must make available to the NCAs its 20 largest exposures on a consolidated basis (but excluding certain exposures, if allowed under the CRR). In addition, an institution must also report its 10 largest exposures on a consolidated basis to other institutions as well as its 10 largest exposures on a consolidated basis to unregulated financial entities, as well as any exposure to a client or group of connected clients greater than €300 million (before taking into account the effect of credit risk mitigation measures).

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The CRR also imposes certain limits to large exposures. In particular, an institution must not incur an exposure, after taking into account the effect of credit risk mitigation measures, to a client or group of connected clients the value of which exceeds 25% of its eligible capital. Where that client is an institution or where a group of connected clients includes one or more institutions, that value must not exceed the higher of 25% of the institution’s eligible capital or €150 million, provided that the sum of exposure values, after taking into account the effect of credit risk mitigation measures, to all connected clients that are not institutions does not exceed 25% of the institution’s eligible capital. Where 25% of an institution’s eligible capital is less than €150 million, the value of the exposure, after taking into account the effect of credit risk mitigation measures, must not exceed a reasonable limit in terms of the institution’s eligible capital. That limit shall be determined by the institution in accordance with the policies and procedures referred to in the CRD IV Directive to address and control concentration risk, provided that this limit shall not exceed 100% of the institution’s eligible capital.

Legal and Other Restricted Reserves

We are subject to the legal and other restricted reserves requirements applicable to Spanish companies. Please see “—Capital Requirements”.

Impairment of Financial Assets

For a discussion of applicable accounting standards related to loss allowances on financial assets and the method for calculating expected credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

Dividends

A bank may generally dedicate all of its net profits and its distributable reserves to the payment of dividends. In no event may dividends be paid from non-distributable reserves. For additional information see “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”.

Since January 1, 2016, according to CRD IV, those credit entities required to calculate their MDA are subject to restrictions on discretionary payments, which include, among others, dividend payments. See “—Capital Requirements”.

Although banks are not legally required to seek prior approval from the Bank of Spain or the ECB before declaring dividends (distributions of share premium account is subject to prior approval), we inform each of them on a voluntary basis upon the declaration of a dividend. The ECB recommendation dated January 7, 2019 addressed to, among others, significant supervised entities and significant supervised groups, such as BBVA and its Group, recommended that credit institutions establish dividend policies using conservative and prudent assumptions so that, after any such distribution, they are able to satisfy the applicable capital requirements and any other requirements resulting from the SREP.

In accordance with 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 resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

Our Bylaws allow for dividends to be paid in cash or in kind as determined by shareholders’ resolution.

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Investment Ratio

In the past, the Spanish government used the investment ratio to allocate funds among specific sectors or investments. As part of the liberalization of the Spanish economy, it was gradually reduced to a rate of zero percent as of December 31, 1992. However, the law that established the ratio has not been abolished and the government could re-impose the ratio, subject to applicable EU requirements.

Principal Markets

The following is a summary of certain laws and regulations applicable to BBVA’s operations in Spain, Mexico, Turkey and the United States.

For information on certain measures that the governments of the main countries where the BBVA Group operates have taken to limit the effects of the COVID-19 pandemic (including measures which have affected the BBVA Group’s lending activity and credit risk-taking), 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 “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” .

Spain

BBVA’s operations in Spain are subject to European Union-wide and Spanish national regulations. Spain has a broad regulatory framework designed to ensure consumer protection and enhance transparency. Finance and deposits products are subject to both general consumer and product-specific laws which, in certain circumstances, differentiate between consumers and non-consumers.

The provision of payment accounts and services in Spain is subject to various regulations, most of which transpose European legislation, such as Directive (EU) 2015/2366 (“PSD 2”) and Directive (EU) 2014/92. Such regulations lay down minimum information requirements for providers of payment accounts and services as well as certain transparency provisions with regard to fees. A significant development in relation to the implementation of PSD2 is a requirement to allow third parties access to accounts to provide account information and payment initiation services, provided they have a customer’s consent.

Regarding loans, there are separate regulations applying to consumer loans and residential loans which are, in both cases, mainly derived from European legislation, including Directive (EU) 2008/48 (relating to credit agreements for consumers) and Directive (EU) 2014/17 (relating to credit agreements for residential immovable property). In 2019, Law 5/2019, of March 15, regulating real estate credit agreements (“Law 5/2019”) was passed. It applies to individuals, whether or not they are consumers, and sets limits on default interest, early maturity and early repayment fees, and provides a comprehensive framework of pre-contractual information provisions. Law 5/2019 also requires that a notarial act shall be granted prior to signing a residential credit agreement in which the notary verifies that the bank has fulfilled all of its legal pre-contractual information obligations.

The regulatory framework also includes specific regulations designed to protect the most vulnerable customers, such as the requirement for banks to offer basic accounts to customers without access to ordinary bank accounts. Basic accounts may be free of charge or have a maximum monthly cost of three euros. In the area of mortgage lending, there is a code of good practice to be adhered to by entities to make it easier for distressed debtors to refinance their debt, including dation-in-payment as a refinance measure.

In 2020, extensive regulation about revolving credit has been approved by Order ETD/699/2020, of July 24, regulating revolving credit and amending Order ECO/697/2004, of March 11, on the Central Risk Information Office, Order EHA/1718/2010, of June 11, regulating and controlling the advertising of banking services and products and Order EHA/2899/2011, of October 28, on transparency and protection of customers of banking services. This new regulation sets out, among others, new provisions on creditworthiness assessment and transparency requirements for revolving credit. In particular, lenders shall assess whether customers could repay amounts equal to at least 25% of the credit on an annual basis. Regarding European cross-border payments, Regulation 2019/518 introduced two amendments to Regulation 924/2009: (i) the extension of the equality of charges principle to non-euro Member States; and (ii) new rules on the transparency of charges regarding currency conversions for payments at the point of sale (“POS”) or at ATM machines, as well as for credit transfers. The main changes introduced by this regulation entered into force in December 2019 and April 2020 and some obligations of information, related to electronic communications, will enter into force in April 2021.

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In relation to payment services, Order ECE/1263/2019 of December 26, on transparency of conditions and information requirements applicable to payment services, entered into force on July 1, 2020. This Order establishes the information requirements applicable to payment transactions and is mandatory for both parties if the customer is a consumer or a micro-enterprise.

Additionally, Circular 4/2020, of June 26, of the Bank of Spain on advertising products and banking services came into force on October 15, 2020. This Circular sets out a specific regime for advertising of banking products and services in audiovisual, radio or digital media and social networks. According to Circular 4/2020, a commercial communication policy shall be approved by the management body and internal records of all advertising campaigns shall be kept.

CNMV circular 2/2020, of October 28, on the advertising of investment products and services, complemented and developed Order EHA/1717/2010, of June 11, on the regulation and control of advertising of investment services and products, of the Ministry of Economy and Finance.

In addition, Spanish Act 7/2020 for the digital transformation of the financial system was adopted. This law regulates the controlled testing environment (“regulatory sandboxes”) that are designed to facilitate the development and implementation of innovative technology in the financial system, while providing supervisory coverage and aiming to respect the principle of non-discrimination.

Moreover, Spanish Act 6/2020, regulating certain aspects of electronic trust services, was adopted. This law seeks to adapt Spanish legislation to certain aspects of Regulation (EU) 910/2014 regarding electronic identification and trust services for electronic transactions.

In relation to insolvency regulation, Royal Legislative Decree 1/2020 of May 5, approving the revised text of the new Spanish Insolvency Law entered into force on September 1, 2020. Additionally, Royal Decree Law 16/2020 introduced some exceptional and temporary measures as a consequence of the effects of the COVID-19 pandemic. The main changes of this Royal Decree affect refinancing agreements, the extension of the period for requesting –on a voluntary basis- the start of insolvency proceedings, special temporary regime for parties mostly related to an insolvent company, among other temporary changes. Other measures to support solvency were introduced by Royal Decree Law 34/2020 with (i) the extension of the maturity and interest-only periods (carencia) of transactions guaranteed by the ICO (Instituto de Crédito Oficial, a state-owned bank), (ii) the extension, until March 14, 2021, of the suspension of the duty to request the start of insolvency proceedings, (iii) the scope of the measures of inadmissibility to process a declaration of default/noncompliance of a refinancing agreement, or an out-of-court settlement (originally provided for in Article 3 of Law 3/2020) is expanded. This regime, which was originally in force for requests of declarations of default submitted up to October 31, 2020, continues to be in effect on the same terms.

Regarding real estate, the Spanish government and the governments of several autonomous regions of Spain have taken measures to improve access to housing by either supporting public housing or protecting mortgage owners and/or home renters. Measures have also been adopted to protect mortgage owners and/or renters of industrial/commercial properties. Some of these measures affect the Bank. At a national level, Decree Law 34/2020, of October 20, on urgent measures to support economic activity in leased business premises was approved with the objective of reducing the onerous nature of contractual obligations under property leases for industrial and/or commercial activities that have been affected by the suspensions and restrictions adopted by the public authorities in response to the COVID-19 pandemic. Measures adopted by autonomous regions include the following:

·In the Autonomous Region of Valencia, Decree Law 6/2020 of June 5, supports public housing by introducing prospective and retrospective rights of first refusal (derechos de tanteo y retracto) of the Generalitat of Valencia in connection with transfers of housing acquired by means of settling mortgage debts (dation-in payment or “dación en pago”), transfer of buildings containing a minimum of five dwellings, transfers of ten or more dwellings and housing acquired in a judicial mortgage foreclosure proceeding.

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·In Catalonia, Decree Law 17/2019 of December 23, on urgent measures to improve access to housing was approved, modifying various regulations in the area of housing, affecting owners of empty housing, providing preferential and withdrawal rights in favor of the Generalitat in connection with housing acquired in a foreclosure proceeding or by means of settling mortgage debts (dation-in payment or “dación en pago”) , and establishing the concept of “large house holder”. The main measures are: (i) expropriation of housing for a social purpose, (ii) the requirement to extend lease contracts with low prices to certain vulnerable renters, (iii) the obligation to relocate persons or family units at risk of residential exclusion, (iv) the indexation of rental prices in some cases, and (v) right of first refusal in case of transfer of rented housing. On January 28, 2021, the Spanish Constitutional Court ruled in favor of the annulment of some of these provisions.

·In Andalusia, Decree-Law 2/2020, of March 9, on the improvement and simplification of the regulation for the promotion of productive activity in Andalusia, introduced changes to the administrative intervention procedures relating to construction activities in order to eliminate certain burdens. In addition, Decree 175/2020, of October 27, regulates the right of information of consumers, borrowers and guarantors in connection with issuances of mortgage bonds,mortgage transfer certificates, and other means of transferring credit rights over home mortgages. This decree imposes obligations of information to creditors that intend to sell their position on mortgages to third parties.

In the Autonomous Region of Murcia, measures have also been adopted to address the illegal occupation of dwellings (Decree Law 10/2020, of October 8).

The European Union’s sustainability initiatives is expected to impact asset management legislation, with MiFID II (as defined below), the Alternative Investment Fund Managers Directive, the Undertakings for Collective Investment in Transferable Securities Directive and the Revision of the Institutions for Occupational Retirement Provision Directive being amended in order to include environmental, social and governance factors in investment processes, risk management and know-your-clients procedures. In addition, the Taxonomy Regulation, which provides for a general framework for the development of an EU-wide classification system for environmentally sustainable economic activities, has been published, although most of its obligations will not enter into force for the time being. Furthermore, the EBA published its Action Plan on sustainable finance (including a voluntary sensitivity analysis for transition risks in the second half of 2020), and the European Commission presented the European Green Deal, a set of policy initiatives with the overarching aim of making Europe climate neutral in 2050.

Regarding the pension funds sector, Royal Decree 738/2020, of August 4, has completed the implementation in Spain of Directive (EU) 2016/2341. This regulation further develops Royal Decree Law 3/2020, of February 4, which incorporates (a) new governance requirements, (b) new rules on own risk assessment, (c) increased reporting obligations vis-à-vis the clients and (d) enhanced powers for supervisors.

In terms of financial markets legislation, Directive (EU) 2014/65 relating to markets in financial instruments (“MIFID II”) has been fully implemented in Spain. Investor protection legislation is completed by Regulation (EU) 1286/2014 (the “PRIIPs Regulation”) which became applicable on January 1, 2018. The PRIIPs Regulation requires product manufacturers to create and maintain key information documents (“KIDs”) and persons advising or selling packaged retail and insurance-based investment products (“PRIIPs”) to provide retail investors based in the European Economic Area with KIDs to enable those investors to better understand and compare products. Recently, European authorities have issued a consultation paper to obtain feedback from the industry in order to amend the PRIIPs Regulation. Depending on the result of that assessment, entities could be subject to changes in systems and documentation related to PRIIPs.

Similarly, the European Union has started a review of MIFID II focused on the reduction of potential administrative burdens in the context of the provision of financial services. The European co-legislators need to agree on the final text of the amendment and, depending on the result of that agreement, entities could be subject to changes in systems and documentation, but the initial expectation is that potential changes will eliminate certain processes and requirements.

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The European Union has also been very active in terms of legislation to preserve financial stability. In this regard, the BBVA Group has been subject to initial margin requirements under Regulation (EU) 648/2012, regarding OTC derivatives, central counterparties and trade repositories, since September 2019, as well as similar legislation in other geographies. Consequently, BBVA Group entities classified as financial counterparties are required to post and receive initial margins when dealing with other in-scope entities. Due to the European authorities intention to postpone the entry into force of the obligations for new entities (which would be phased in as suggested by the International Organization of Securities Commissions) only a small number of additional contracts have been negotiated during 2020.

The other main initiative in which both the public and private sectors have been fully involved during the last few years is the interbank offered rates (“IBORs”) reform led by the Financial Stability Board. BBVA has currently set up an internal working group to analyze the potential impact of IBORs reform and actions to be taken in relation thereto. It is expected that changes will need to be made to some legacy contracts (mainly those linked to LIBOR and EONIA) and in certain templates for new agreements. Regarding changes to EURIBOR, at the end of November 2019, the European Money Markets Institute announced that panel banks’ transition to the hybrid model had been completed. The new methodology is not expected to have an impact on existing contracts, as EURIBOR will keep its name unchanged and will still measure the same economic reality (i.e., cost of wholesale funding for the banks of the European Union, Liechtenstein, Iceland, Norway and Switzerland).

In this regard, the European Union is working on an amendment to Regulation 2016/1011 relating to financial benchmarks (“BMR”) which would cover the potential cessation or lack of representativeness of specific benchmarks to mitigate the risk of contract frustration by mandating the application by law of a given fallback. According to the proposed draft, the European Commission may designate a replacement benchmark for a benchmark that will cease to be published where the cessation of that publication may result in significant disruption in the functioning of financial markets in the Union. The replacement benchmark would apply to certain contracts which do not already include a suitable permanent fallback. The proposal to amend the BMR is currently subject to discussions among the European Commission, the European Parliament and the European Council.

Prevention of Money Laundering and Terrorist Financing

Law 10/2010, of April 28 (“Law 10/2010”), has the purpose of safeguarding the integrity of the financial system and other economic sectors by establishing obligations in respect of preventing money laundering and terrorist financing. Credit institutions, including BBVA, are subject to Law 10/2010, which transposes European legislation and establishes applicable due diligence, internal controls and reporting obligations.

It is important to highlight the costs of implementing this regulation, which includes, among other obligations, procedures to know your clients, continuous monitoring of their activity, warning generation, investigation and suspicious activity reports.

Data Protection Regulation

Regulation (EU) 2016/679 of the European Parliament and of the Council of April 27, 2016 on the protection of natural persons with regard to the processing of personal data and on the free movement of such data (“GDPR”) aims to achieve effective protection of personal data by providing natural persons in all EU member states with the same level of legally enforceable rights and obligations regarding personal data and imposing responsibilities on data controllers and processors to ensure consistent monitoring of the processing of personal data. Organic Law 3/2018, of December 5, on the protection of personal data and guarantee of digital rights implemented the GDPR into law in Spain.

For BBVA, the GDPR has affected directly the way we manage internal and external processes. Due to the incremental use of new technologies in almost any process carried out by the Group, where personal data of individuals are usually involved, we had to introduce multiple changes. The GDPR’s accountability requirements to comply with data protection principles and to be able to demonstrate such compliance, has led to an increased uptake of implementing and revising our privacy management processes, from the way in which consent is obtained from the client, to the implementation of processes to put into effect new rights, such as the right to be forgotten or the right to data portability.

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GDPR introduces the risk-based approach, including Data Protection Assessments, privacy by design requirements and the legitimate interest balancing test, which have fostered a consistent discipline of assessing risk within the Group. This ensures appropriate risk-based prioritization of mitigations and controls and a more effective data management program based on actual risk.

In terms of security, GDPR obligations and requirements to notify breaches to authorities and individuals under different circumstances meant that BBVA had to review and enhance our existing data security measures and programs and also to update BBVA’s breach response plans and notification procedures, while training staff and management.

Regarding GDPR’s territorial scope, the rule is complex and it has created different interpretations and compliance issues.

Spanish Auditing Law

Law 22/2015, of July 20, on Auditing (“Law 22/2015”), adapted Spain’s internal legislation to the changes incorporated in Directive 2014/56/EU of the European Parliament and of the Council, of April 16, amending Directive 2006/43/EC of the European Parliament and of the Council of May 17, on statutory audits of annual accounts and consolidated accounts, to the extent that they were inconsistent. Together with this Directive, approval was also given to Regulation (EU) 537/2014 of the European Parliament and of the Council, of April 16, on specific requirements regarding statutory audit of public-interest entities. Such Directive and Regulation constitute the fundamental legal regime that should govern audit activity in the European Union. Law 22/2015 regulates general aspects of access to audit practice and the requirements to be followed in that practice, from objectivity and independence, to the organization of auditors and performance of their work, as well as the regime for their oversight and the sanctions available to ensure the efficacy of the regulations.

Recovery and Resolution of Credit Institutions and Investment Firms

The BRRD I (transposed in Spain by Law 11/2015, of June 18, on the recovery and resolution of credit institutions and investment firms (“Law 11/2015”) and Royal Decree 1012/2015, of November 6, on development of law on recovery and resolution of credit entities and investment firms and modification of the Royal Decree on deposit guarantee funds of credit entities (“RD 1012/2015”) and the SRM Regulation were designed to provide the authorities with mechanisms and instruments to intervene sufficiently early and rapidly in failing or likely to fail credit institutions or investment firms (each an “Entity”) in order to ensure the continuity of the Entity’s critical financial and economic functions, while minimizing the impact of its non-feasibility on the economic and financial system. The BRRD further provided that a Member State may only use additional financial stabilization instruments to provide extraordinary public financial support as a last resort, once the resolution instruments (described further below) have been evaluated and used to the fullest extent possible while maintaining financial stability.

In May 2019, the European Commission published the BRRD II, which amended the BRRD I and incorporated, among other changes, the international standards of total loss absorption capacity and recapitalization, with the aim of improving operational execution, strengthening competencies in internal recapitalization and avoiding legal uncertainty. Although the transposition period was established within eighteen months from the date of its entry into force, the approval of the law transposing this directive in Spain is still pending.

In accordance with the provisions of Article 20 of Law 11/2015, an Entity will be considered as failing or likely to fail in any of the following situations: (i) when the Entity significantly fails, or may reasonably be expected to significantly fail in the near future, to comply with the solvency requirements or other requirements necessary to maintain its authorization; (ii) when the Entity’s enforceable liabilities exceed its assets, or it is reasonably foreseeable that they will exceed them in the near future; (iii) when the Entity is unable, or it is reasonably foreseeable that it will not be able, to meet its enforceable obligations in a timely manner; or (iv) when the Entity needs extraordinary public financial support (except in limited circumstances). The decision as to whether the Entity is failing or likely to fail may depend on a number of factors which may be outside of that Entity’s control.

In line with the provisions of the BRRD I, Law 11/2015 contains four resolution tools which may be used individually or in any combination, when the Spanish Resolution Authority considers that (a) an Entity is non-viable or is failing or likely to fail, (b) there is no reasonable prospect of any other measures that would prevent the failure of such Entity within a reasonable period of time, and (c) resolution is necessary or advisable, as opposed to the winding up of the Entity through ordinary insolvency proceedings, for reasons of public interest.

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The four resolution instruments are (i) the sale of the Entity’s business, which enables the resolution authorities to transfer, under market conditions, all or part of the business of the Entity being resolved; (ii) “bridge institution”, which enables resolution authorities to transfer all or part of the business of the Entity to a “bridge institution” (an entity created for this purpose that is wholly or partially in public control); (iii) asset separation, which enables resolution authorities to transfer certain categories of assets (normally impaired or otherwise problematic) to one or more asset management vehicles to allow them to be managed with a view to maximizing their value through their eventual sale or orderly wind-down (this can be used together with another resolution tool only); and (iv) the Bail-in Tool.

In the event that an Entity is in a resolution situation, the “Bail-in Tool” is understood to mean any write-down, conversion, transfer, modification, or suspension power, existing from time to time, of the Spanish Resolution Authority, under: (i) any law, regulation, rule or requirement applicable from time to time in Spain, relating to the transposition or development of the BRRD (as amended, replaced or supplemented from time to time), including, but not limited to (a) Law 11/2015, (b) RD 1012/2015, and (c) the SRM Regulation, each as amended, replaced or supplemented from time to time; or (ii) any other law, regulation, rule or requirement applicable from time to time in Spain pursuant to which (a) obligations or liabilities of banks, investment firms or other financial institutions or their affiliates can be reduced, cancelled, modified, transferred or converted into shares, other securities, or other obligations of such persons or any other person (or suspended for a temporary period or permanently) or (b) any right in a contract governing such obligations may be deemed to have been exercised. “Relevant Spanish Resolution Authority” means any of the Spanish Fund for the Orderly Restructuring of Banks (Fondo de Restructuración Ordenada Bancaria), the European Single Resolution Mechanism and, as the case may be, according to Law 11/2015, RD 1012/2015 and the SRM Regulation, the Bank of Spain and the Spanish Securities Market Commission (CNMV) or any other entity with the authority to exercise the Spanish Bail-in Power from time to time.

In accordance with the provisions of Article 48 of Law 11/2015 (without prejudice to any exclusions that may be applied by the Spanish Resolution Authority in accordance with Article 43 of Law 11/2015), in the event of any application of the Bail-in Tool, any resulting write-down or conversion by the Spanish Resolution Authority will be carried out so that they affect instruments in the following sequence: (i) CET1 items; (ii) the principal amount of Additional Tier 1 capital instruments; (iii) the principal amount of Tier 2 capital instruments; (iv) the principal amount of other subordinated claims other than Additional Tier 1 capital or Tier 2 capital; and (v) the principal or outstanding amount of the remaining eligible liabilities in the order of the hierarchy of claims in Spanish normal insolvency proceedings (with senior non-preferred claims (créditos ordinarios no preferentes) subject to the Bail-in Tool after any subordinated claims (créditos subordinados) under Article 92 of the Insolvency Law, but before the other senior claims).

In addition to the Bail-in Tool, the BRRD, Law 11/2015 and the SRM Regulation provide for resolution authorities to have the further power to permanently write-down or convert into equity capital instruments of an Entity at the point of non-viability (“Non-Viability Loss Absorption” and, together with the Bail-in Tool, the “Spanish Bail-in Power” ). Any write-down or conversion must follow the same insolvency hierarchy as described below. The point of non-viability of an Entity is the point at which the Spanish Resolution Authority determines that the Entity meets the conditions for resolution or will no longer be viable unless the relevant capital instruments are written down or converted into equity or extraordinary public support is to be provided and without such support the Spanish Resolution Authority determines that the institution would no longer be viable. The point of non-viability of a group is the point at which the group infringes or there are objective elements to support a determination that the group, in the near future, will infringe its consolidated solvency requirements in a way that would justify action by the Spanish Resolution Authority in accordance with article 38.3 of Law 11/2015. Non-Viability Loss Absorption may be imposed prior to or in combination with any exercise of the Bail-in Tool or any other resolution tool or power (where the conditions for resolution referred to above are met).

To the extent that any resulting treatment of a holder of the Bank’s securities pursuant to the exercise of the Bail-in Tool is less favorable than would have been the case under such hierarchy in normal insolvency proceedings, a holder of such affected securities would have a right to compensation though the SRF under the BRRD and the SRM Regulation based on an independent valuation of the institution, in accordance with Article 10 of RD 1012/2015 and the SRM Regulation, together with any other compensation provided for in any applicable banking regulations including, inter alia, compensation in accordance with Article 36.5 of Law 11/2015. However, if the treatment of a creditor following a Non-Viability Loss Absorption is less favorable than it would have been under ordinary insolvency proceedings, it is uncertain whether said creditor would be entitled to the compensation provided for in the BRRD and the SRM Regulation.

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The SRF was established by Regulation (EU) No 806/2014 (SRM Regulation). Where necessary, the SRF may be used to ensure the efficient application of resolution tools and the exercise of the resolution powers conferred to the SRB by the SRM Regulation.

The SRF is composed of contributions from credit institutions and certain investment firms in the 19 participating Member States within the Banking Union.

SRF will be gradually built up during the first eight years (2016-2023) and shall reach the target level of at least 1% of the amount of covered deposits of all credit institutions within the Banking Union by December 31, 2023.

Within the resolution scheme, the SRF may be used only to the extent necessary to ensure the effective application of the resolution tools, as last resort, in particular:

·To guarantee the assets or the liabilities of the institution under resolution;

·To make loans to or to purchase assets of the institution under resolution;

·To make contributions to a bridge institution and an asset management vehicle;

·To make a contribution to the institution under resolution in lieu of the write-down or conversion of liabilities of certain creditors under specific conditions;

·To pay compensation to shareholders or creditors who incurred greater losses than under normal insolvency proceedings.

The Intergovernmental Agreement (“IGA”) acknowledges that situations may exist where the means available in the Single Resolution Fund (Fund) are not sufficient to undertake a particular resolution action, and where the ex-post contributions that should be raised in order to cover the necessary additional amounts are not immediately accessible.

In December 2013, ECOFIN Ministers agreed to put in place a system by which bridge financing would be available as a last resort. The arrangements for the transitional period should be operational by the time the Fund was established.

In this scenario, the Eurogroup decided in 2017 to expand the ESM role to serve as a backstop for the SRF. While the new features of the expanded role for the ESM were agreed by 2019, it was not until late 2020 that the euro area finance ministers agreed to proceed with the reform of the ESM and was later signed by Member States (represented by their ambassadors to the EU) on January 27 (the ratification by national parliaments is pending to come into force). The backstop to the SRF will be operational at the beginning of 2022 (earlier than expected) and will be able to provide support for up to €68 billion (in the form of credit lines). If this financial assistance is requested, the SRF will pay back the ESM loan with funds obtained from banks’ contributions (in a period of three years, with the possibility to extend it to five years).

Mexico

BBVA’s operations in Mexico are highly regulated. The Mexican regulatory framework for financial and banking activities aims to ensure the stability of the financial system and combat money laundering, as well as to provide consumer protection and transparency in the provision of financial services.

The provision of financial and deposit products is mainly regulated in the Banking Law and provisions issued by the National Banking and Securities Commission (“CNBV”) and Banco de México (the Mexican Central Bank) (“BANXICO”), where CNBV issues prudential regulation and BANXICO regulates banking transactions, including financial and deposit products. In addition, the Financial Services Transparency and Regulation Law contains provisions regarding transparency and consumer protection.

The regulatory framework for capital markets includes specific regulations designed to develop the stock market in an equitable, efficient and transparent manner, protect the interests of investors and promote competition, as well as to minimize systemic risk.

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Regarding asset management, regulation encourages the creation and development of investment companies and promotes the strengthening and the decentralization of the stock market by facilitating the access of small and medium investors. It also establishes the rules for the organization and operation of investment funds, the intermediation of their shares in the stock market, as well as the organization and operation of the people who provide asset management services.

Regulatory activity increased throughout 2020 driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic. Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December 2020, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

Moreover, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

In addition, the President submitted a bill to ban outsourcing. Due to its importance, the negotiation and discussion of the bill have been postponed until February 2021. If approved, BBVA would need to evaluate its personnel hiring schemes and determine if a reorganization of the personnel structure is required.

The Federal Labor Law was recently amended in order to regulate home office. This amendment includes the employer’s obligation to assume employee’s expenses resulting from home office, including payment of telecommunication services and a portion of the electric bill.

Turkey

BBVA’s operations in Turkey are subject to regulation by Turkish national authorities. In general, the rules applicable to products and services that banks in Turkey offer to consumers are more stringent than rules applicable with respect to commercial and corporate banking customers. Besides general consumer protection regulations, there are specific regulations of the Banking Regulation and Supervision Agency (“BRSA”) on banking consumers. In 2020, new laws were introduced authorizing the Central Bank of Turkey (“CBT”) to impose restrictions regarding certain fees and commissions that may be charged to customers, thereby increasing the number of regulators that are focused on consumer protection-related matters in the banking sector.

Apart from fundamental legal rules and product/service-specific legal regulations, the most basic regulation for the sector is the Banking Law No. 5411. The purpose of this law is to regulate the principles and procedures for ensuring confidence and stability in financial markets, the efficient functioning of the credit system and the protection of the rights and interests of depositors.

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In 2020, a significant number of regulations were introduced, the majority of which related to measures taken as a result of COVID 19. These regulations focused on extending the delinquency period up to 180 days for the classification of non-performing loans, facilitating the use of credit cards such as by increasing limits on contactless cards, promoting the use of digital channels for almost all banking transactions, encouraging banks to extend loan maturities and stopping all execution and bankruptcy proceedings between March 22, 2020 and April 30, 2020, among others. New regulations were adopted to facilitate the restructuring and repayment of loans by distressed commercial customers, provided that they are willing to pay their debts but are not able to fulfill their obligations due to financial distress experienced as a result of COVID-19. The BRSA has encouraged banks to apply interest on extended maturities provided that the interest rates applicable for such extension shall be in line with the market rates applicable at the time of restructuring.

In March 2020, the BRSA also introduced a new asset ratio calculation which required the sum of all loans, securities held and swap transactions to be equal to all local and foreign currency deposits. Failure to comply with such requirement resulted in monetary fines. In the last quarter of 2020, this requirement was eliminated. Garanti BBVA complied with such requirement while in effect.

Floating interest rates can be applied to Turkish Lira deposits with a maturity of three months or more, and to foreign currency deposits with a maturity of more than six months. Regarding the interest rates applicable to credit cards and overdraft accounts a new law was introduced in October 2020 and as November 1, became effective. Pursuant to this new law CBT will announce the interest applicable to credit cards, which shall also be applied to overdraft accounts, on the last fifth business day every month.

In general, the Payment Systems Law regulates the procedures and principles of payment services, payment institutions and electronic money institutions. Significant amendments have been made to this law in 2019 and they all became effective in 2020. These amendments were introduced to: (i) answer the sectorial needs of the payment and electronic money institutions; (ii) eliminate the dual structure which consists of the CBT and BRSA and position the CBT as the sole regulatory and supervisory authority and; (iii) ensure the compliance of Turkish legislation with EU regulations (especially the Payment Services (PSD2) Directive). As part of these amendments, it will be possible to consolidate payment account information online with consenting users and initiate a payment for a payment account at another payment service provider.

In addition, in March 2020, the Regulation on Information Systems and Electronic Banking Services was enacted and it came into force at the end of June 2020. The regulation governs issues relating to information systems and electronic banking. Under such regulation, banks are required to establish a new governance structure pursuant to which an Information Security Function directly reporting to the CEO or the Board of Directors is established. The regulation further requires a strategic plan, better governance and controls over data management and various controls over back-up solutions and business continuity.

On electronic banking services, new rules have been adapted which regulates all electronic banking services and channels such as mobile banking, internet banking, telephone, banking and ATM banking. Particularly, customer identification rules have been modified and adapted with the new technological standards.

Article 73 of Banking Law No. 5411, which governs issues around bank secrecy, has been amended and introduced two new concepts in terms of the sharing of data with controlling shareholders. Banks operating in Turkey are now required to provide information subject to a “reasonableness” test yet to be defined by the BRSA. In addition, banks may only share customer specific information with third parties at the specific instruction of customers under the new rule.

In 2020, new provisions were introduced to the applicable banking laws and regulations allowing customer onboarding through digital channels and open banking practices. Secondary legislation detailing the principles and processes are to be published by the relevant regulators.

Banking Law No.5411 has also been amended to allow banks to enter into banking services agreements and various other banking products through digital channels. Furthermore, with the amendment introduced on Bank Cards and Credit Cards Law No.5464, credit card contracts can be established using digital or alternative channels of the banks.

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Garanti BBVA is required to conduct its investment banking business in accordance with the Turkish Capital Market Law and various related regulations issued by Capital Market Board of Turkey. As a commercial bank, Garanti BBVA has a license to carry out the following activities: (a) receipt and transmission of orders in relation to capital market instruments, (b) execution of orders in relation to capital market instruments (except shares and derivative instruments based on stock indices or stocks) in the name and account of the customer or in its own name and in the account of the customer, (c) dealing for its own account (except for derivative instruments based on stock indices and stocks) and (d) safekeeping and administration of capital market instruments in the name of the customer and portfolio custody service.

United States

BBVA’s activities and operations in the United States are subject to extensive U.S. federal and state supervision and regulation, and in some cases, U.S. requirements may impose restrictions on BBVA’s global activities. BBVA is a foreign banking organization and a bank holding company within the meaning of the U.S. Bank Holding Company Act of 1956, as amended (the “BHC Act”) and the International Banking Act of 1978, as amended (the “IBA”), and as a result, BBVA is subject to regulation and supervision by the Board of Governors of the Federal Reserve System (the “Federal Reserve”). BBVA has also elected to be treated as a financial holding company.

As a bank holding company, BBVA’s direct and indirect activities and investments in the United States are limited to banking activities and certain non-banking activities that are “closely related to banking,” as determined by the Federal Reserve, and certain other activities permitted under the BHC Act and IBA. BBVA is required to obtain the prior approval of the Federal Reserve before acquiring, directly or indirectly, the ownership or control of more than 5% of any class of voting securities of any U.S. bank or bank holding company. In addition, a bank holding company, including BBVA, is required to act as a source of financial strength for its U.S. bank subsidiaries. Among other things, this source of strength obligation may result in a requirement for BBVA, as controlling shareholder, to inject capital into its U.S. bank subsidiary. BBVA’s U.S. branches and agencies are also subject to additional liquidity requirements, and in certain cases the entirety of BBVA’s U.S. operations are subject to additional risk management requirements.

BBVA’s New York branch is supervised by the Federal Reserve through the Federal Reserve Bank of New York, as well as licensed and supervised by the New York State Department of Financial Services.

BBVA USA Bancshares, Inc., BBVA’s top-tier U.S. intermediate holding company, holds all of BBVA’s U.S. bank and nonbank subsidiaries, including BBVA’s U.S. bank subsidiary, BBVA USA. BBVA USA Bancshares, Inc. is also a bank holding company that has elected to be treated as a financial holding company and is subject to regulation and supervision by the Federal Reserve. BBVA USA is regulated extensively under U.S. federal and state law by, among other regulators, the Federal Reserve, the Federal Deposit Insurance Corporation (“FDIC”) and the Alabama State Banking Department. BBVA USA Bancshares, Inc. is also subject to supervision and regulation by the Consumer Financial Protection Bureau (“CFPB”) with respect to consumer protection laws. 

Upon completion of the previously announced stock purchase of 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. by PNC Financial Services Group, Inc., the requirements described in this section that apply only to BBVA USA Bancshares, Inc. and BBVA USA, but not BBVA, would no longer be applicable. However, BBVA will continue to be subject to U.S. federal and state supervision and regulation as a foreign banking organization and a bank holding company because it maintains a branch in the United States.

To continue to be treated as a financial holding company, each of BBVA and BBVA USA Bancshares, Inc. must maintain certain regulatory capital ratios above minimum requirements and must be deemed to be “well-managed” for U.S. bank regulatory purposes. In addition, any U.S. depository institution subsidiaries of the foreign banking organization or bank holding company must also maintain certain regulatory capital ratios above minimum requirements and be deemed to be “well-managed” and must have at least a “satisfactory” rating under the Community Reinvestment Act of 1977.

Sections 23A and 23B of Federal Reserve Act and Regulation W place various qualitative and quantitative restrictions on BBVA and its non-bank subsidiaries with regard to extensions of credit, credit exposures arising from derivative transactions, and securities borrowing and lending transactions from their U.S. banking affiliates or engaging in certain other transactions involving those subsidiaries. Such transactions must be on terms that would ordinarily be offered to unaffiliated entities, must be secured by designated amounts of specified collateral, and are subject to quantitative limitations. These restrictions also apply to certain transactions of BBVA’s New York branch with certain of its affiliates.

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The availability of dividends from banking organizations in the United States is limited by various statutes and regulations. Federal banking agencies are authorized to determine, under certain circumstances relating to the financial condition of a bank holding company or a bank, that the payment of dividends would be an unsafe or unsound practice and to prohibit payment thereof. In particular, the banking agencies have stated that paying dividends that deplete a banking organization’s capital base to an inadequate level would be an unsafe and unsound banking practice and that banking organizations should generally pay dividends only out of current operating earnings. In addition, state-chartered banking institutions, including BBVA USA, are subject to dividend limitations imposed by applicable federal and state laws.

Enhanced Prudential Standards

Pursuant to the Dodd-Frank Wall Street Reform and Consumer Protection Act of 2010 (the “Dodd-Frank Act”), BBVA and BBVA USA Bancshares, Inc. have been subject to certain enhanced prudential standards (including resolution planning), capital adequacy requirements, capital planning and stress testing, liquidity standards, risk management and governance requirements, among other regulatory and supervisory requirements. 

In October 2019, the Federal Reserve finalized rules that implement certain provisions of the Economic Growth Regulatory Relief and Consumer Protection Act (“EGRRCPA”) by tailoring enhanced prudential standards and capital and liquidity requirements applicable to foreign and domestic banking organizations, including BBVA and BBVA USA Bancshares, Inc. As a result, both BBVA and BBVA USA Bancshares, Inc. have been subject to less restrictive enhanced prudential standards and capital and liquidity requirements. As of December 31, 2020, BBVA USA Bancshares, Inc. became a Category IV banking organization for purposes of these rules, and certain enhanced prudential standards and capital and liquidity requirements will again apply to BBVA USA Bancshares, Inc. following applicable phase-in and transition periods.

Under Title I of the Dodd-Frank Act and implementing regulations issued by the Federal Reserve and the FDIC, BBVA must prepare and submit a plan for the orderly resolution of its U.S. subsidiaries and U.S. operations in the event of future material financial distress or failure (the “Title I Resolution Plan”). BBVA filed its most recent Title I Resolution Plan in December 2018. As a result of EGRRCPA and its implementing regulations, BBVA will now be required to file a reduced Title I Resolution Plan once every three years. In addition, BBVA USA is subject to the FDIC rule requiring large insured depository institutions to submit periodically to the FDIC a plan for resolution in the event of failure under the Federal Deposit Insurance Act. The FDIC has issued an advance notice of proposed rulemaking to revise the FDIC resolution plan rule, but a notice of proposed rulemaking has yet to be issued. The deadline for BBVA USA’s next FDIC rule resolution plan submission is currently unclear, but the FDIC announced that it intends to resume requiring banks to submit FDIC resolution plans, and that banks subject to the rule will have at least 12 months’ advance notice before being required to do so.

BBVA USA Bancshares, Inc. and BBVA USA are subject to the U.S. Basel III capital rule (“U.S. Basel III”), which is based on the Basel III regulatory capital standards established by the Basel Committee. In the past, BBVA USA Bancshares, Inc. and BBVA USA had been subject to certain additional capital planning, stress testing and liquidity requirements, but, as result of EGRRCPA and its implementing regulations, BBVA USA Bancshares, Inc. and BBVA USA were not subject to these additional requirements in 2020. As a result of becoming a Category IV banking organization as of December 31, 2020, BBVA USA Bancshares, Inc. and BBVA USA will again be subject to certain of these additional requirements following applicable phase-in and transition periods.

Volcker Rule

The Volcker Rule prohibits an insured depository institution, such as BBVA USA, and its affiliates from (1) engaging in “proprietary trading” and (2) investing in or sponsoring certain types of funds (covered funds) subject to certain limited exceptions. The final rules contain exemptions for market-making, hedging, underwriting, trading in U.S. government and agency obligations, and permit certain ownership interests in certain types of funds to be retained. They also permit the offering and sponsoring of funds under certain conditions. In the case of non-U.S. banking entities, such as BBVA, there is also an exemption permitting activities conducted solely outside of the United States, provided that certain criteria are satisfied. The final Volcker Rule regulations impose significant compliance and reporting obligations on banking entities.

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In October 2019, the five regulatory agencies charged with implementing the Volcker Rule released finalized amendments to the current Volcker Rule regulations that tailor the Volcker Rule’s compliance requirements to the amount of a firm’s trading activity, revise the definition of a trading account, clarify certain key provisions in the Volcker Rule, and simplify the information that covered entities are required to provide to regulatory agencies. In addition, in June 2020, the five regulatory agencies finalized amendments to the Volcker Rule's restrictions on ownership interests in and relationships with covered funds. Among other things, these amendments permit banking entities to have relationships with and offer additional financial services to additional types of funds and investments vehicles.

BBVA is of the view that the impact of the Volcker Rule, as amended and proposed to be amended, is not material to its business operations.

Derivatives

BBVA is provisionally registered as a “swap dealer” as defined in the Commodity Exchange Act and the regulations promulgated thereunder with the U.S. Commodity Futures Trading Commission (the “CFTC”), which subjects BBVA to regulation and supervision by the CFTC and the National Futures Association. In general, as a non-U.S. swap dealer, BBVA is not subject to all CFTC requirements, including certain business conduct standards, when entering into swaps with non-U.S. counterparties. In addition, subject to certain conditions, BBVA may comply with EU OTC derivatives requirements in lieu of certain CFTC requirements, including portfolio reconciliation, portfolio compression and trade confirmation requirements, pursuant to substituted compliance determinations issued by the CFTC.

BBVA’s world-wide swap activities are also subject to regulations adopted by the European Commission pursuant to the European Market Infrastructure Regulation (“EMIR”) and the EU’s Markets in Financial Instruments Directive (“MiFID”) and other European regulations and directives.

BBVA is currently assessing whether it, or any of its affiliates, will be required to register as a security-based swap dealer with the SEC, once such registration requirement comes into effect.

Anti-Money Laundering; Office of Foreign Assets Control

A major focus of U.S. governmental policy relating to financial institutions in recent years has been aimed at fighting money laundering and terrorist financing. Regulations applicable to BBVA and certain of its affiliates impose obligations to maintain appropriate policies, procedures, and controls to detect, prevent, and report money laundering. In particular, the Bank Secrecy Act, as amended by Title III of the Uniting and Strengthening America by Providing Appropriate Tools Required to Intercept and Obstruct Terrorism Act of 2001 (USA PATRIOT Act), as amended, requires financial institutions operating in the United States to, among other things, (a) give special attention to correspondent and payable-through bank accounts, (b) implement enhanced reporting due diligence, and “know your customer” standards for private banking and correspondent banking relationships, (c) scrutinize the beneficial ownership and activity of certain non-U.S. and private banking customers (especially for so-called politically exposed persons), and (d) develop and maintain anti-money laundering programs, customer identification procedures, and due diligence policies and controls to ensure the detection and reporting of money laundering. Such required compliance programs are intended to supplement compliance programs with respect to the sanctions programs administered by the Office of Foreign Assets Control. Failure of a financial institution to maintain and implement adequate programs to combat money laundering and terrorist financing could have serious legal and reputational consequences for the institution.

Other Regulated U.S. Entities

BBVA Bancomer, S.A.’s agency office in Houston, Texas is a non-FDIC insured agency office of BBVA Bancomer, S.A., an indirect subsidiary of BBVA, which is licensed under the laws of the State of Texas and supervised by the Texas Department of Banking and the Federal Reserve.

Bancomer Transfer Services, Inc., a non-banking affiliate of BBVA and a direct subsidiary of BBVA Bancomer USA, Inc., is licensed as a money transmitter by the State of California Department of Business Oversight, the Texas Department of Banking, and certain other state regulatory agencies. Bancomer Transfer Services, Inc. is also registered as a money services business with the Financial Crimes Enforcement Network (“FinCEN”) of the U.S. Department of the Treasury.

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BBVA’s indirect U.S. broker-dealer subsidiary, BBVA Securities Inc. (“BSI”), is subject to regulation and supervision by the Securities and Exchange Commission (“SEC”) and the Financial Industry Regulatory Authority (“FINRA”) with respect to its securities activities, as well as various U.S. state regulatory authorities. In addition, the securities underwriting and dealing activities of BSI are subject to regulation and supervision by the Federal Reserve.

The activities of BBVA’s U.S. investment adviser affiliates are regulated and supervised by the SEC. In addition, BBVA USA has registered with the SEC and the Municipal Securities Rulemaking Board as a municipal advisor pursuant to the Dodd-Frank Act’s municipal advisor registration requirements.

BBVA’s U.S. insurance agency affiliate is subject to regulation and supervision by various U.S. state insurance regulatory authorities.

Disclosure of Iranian Activities under Section 13(r) of the Exchange Act

The BBVA Group discloses the following information pursuant to Section 13(r) of the Exchange Act, which requires an issuer to disclose whether it or any of its affiliates knowingly engaged in certain activities, transactions or dealings relating to Iran or with natural persons or entities designated by the U.S. government under specified executive orders, including activities not prohibited by U.S. law and conducted outside the United States by non-U.S. affiliates in compliance with local law. In order to comply with this requirement, the Company has requested relevant information from its affiliates globally.

The BBVA Group has the following activities, transactions and dealings with Iran requiring disclosure:

Iranian embassy-related activity. On a continuing basis, the BBVA Group maintains a bank account in Spain for one employee of the Iranian embassy in Spain. This employee is a Spanish citizen. Estimated gross revenues for the year ended December 31, 2020, from embassy-related activity, which include fees and/or commissions, totaled $128.98. The BBVA Group does not allocate direct costs to fees and commissions and therefore has not disclosed a separate profit measure.

C.   Organizational Structure

For information on the composition of the BBVA Group as of December 31, 2020, see Note 1.1 to our Consolidated Financial Statements.

The companies comprising the BBVA Group are principally domiciled in the following countries: Argentina, Bolivia, Chile, Colombia, Finland, France, Germany, Italy, Mexico, Netherlands, Peru, Portugal, Romania, Spain, Switzerland, Turkey, United Kingdom, the United States of America and Uruguay. In addition, BBVA has an active presence in Asia.

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Below is a simplified organizational chart of BBVA’s most significant subsidiaries as of December 31, 2020.

Subsidiary	Country of Incorporation	Activity	BBVA Voting Power	BBVA Ownership	Total Assets (1)
			(in Percentages)		(In Millions of Euros)
BBVA MEXICO	MEXICO	Bank	100.00	100.00	97,518
BBVA USA	THE UNITED STATES	Bank	100.00	100.00	76,128
GARANTI BBVA AS	TURKEY	Bank	49.85	49.85	52,319
BBVA PERU	PERU	Bank	92.24 (2)	46.12	23,891
BBVA SEGUROS S.A. DE SEGUROS Y REASEGUROS	SPAIN	Insurance	99.96	99.96	17,601
BBVA COLOMBIA S.A.	COLOMBIA	Bank	95.47	95.47	15,573
BANCO BBVA ARGENTINA S.A.	ARGENTINA	Bank	66.55	66.55	6,553
SEGUROS BBVA BANCOMER S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER	MEXICO	Insurance	100.00	100.00	5,391
PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER	MEXICO	Insurance	100.00	100.00	4,815
GARANTIBANK BBVA INTERNATIONAL N.V.	THE NETHERLANDS	Bank	49.85	100.00	3,398

(1)   Information for non-EU subsidiaries has been calculated using the prevailing exchange rates on December 31, 2020.

(2)   Subject to certain exceptions.

D.   Property, Plants and Equipment

We own and rent a substantial network of properties in Spain and abroad, including 2,482 branch offices in Spain and, principally through our various subsidiaries, 4,950 branch offices abroad as of December 31, 2020. As of December 31, 2020, approximately 68% of our branches in Spain and 66% of our branches abroad (60% excluding branches relating to Garanti BBVA) were rented from third parties pursuant to leases that may be renewed by mutual agreement.

E. 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.

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 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 (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 €534 million, €343 million and €268 million for the years ended December 31, 2020, 2019 and 2018, respectively. For additional information on “interest and other income” see Note 37.1 to our Consolidated Financial Statements.

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Year-on-year variations in the selected statistical information presented herein have been affected by the planned USA Sale, mainly as follows:

·2020 year-end data. All assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively, in the consolidated balance sheet as of December 31, 2020. Accordingly, loans and advances and deposits as of December 31, 2020 (among other balance sheet information provided in this section as of such date) do not include the respective amounts of BBVA USA and other companies included within the scope of the USA Sale.

·2020 average data. As indicated in “Presentation of Financial Information—Statistical and Financial Information” and further below, average balance sheet information is based on the beginning and month-end balances in the relevant year. Up until the time the assets and liabilities of BBVA USA and other companies included within the scope of the USA Sale were reclassified to “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale”, respectively (which occurred on November 15, 2020, upon the signing of the relevant share purchase agreement), the beginning and month-end balances of BBVA USA and other companies included within the scope of the USA Sale were considered to calculate the average balances of all balance sheet items provided in this section in the same manner as in 2019 and 2018. Following such reclassification, the beginning and month-end balances of these entities were no longer considered in such calculations and were included instead in the calculations of the average balances of “Other assets” and “Other liabilities”, as applicable, for the year ended December 31, 2020. The same approach was followed to calculate the respective “Interest” and “Average Yield” of balance sheet items. In particular, tables included under “—Average Balances and Rates”, “—Changes in Net Interest Income-Volume and Rate Analysis” and “—Interest Earning Assets—Margin and Spread” were prepared on this basis.

Certain financial information as of and for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.

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 year. We do not believe that monthly averages present trends materially different from those that would be presented by daily averages.

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	Average Balance Sheet - Assets and Interest from Earning Assets
	Year Ended December 31, 2020			Year Ended December 31, 2019			Year Ended December 31, 2018
	Average Balance	Interest	Average Yield (1)	Average Balance	Interest	Average Yield (1)	Average Balance	Interest	Average Yield (1)
	(In Millions of Euros, Except Percentages)
Assets
Cash and balances with central banks and other demand deposits	60,172	68	0.11%	46,060	256	0.56%	42,730	135	0.32%
Domestic	30,120	8	0.03%	17,293	50	0.29%	19,883	43	0.22%
Foreign	30,051	60	0.20%	28,767	206	0.72%	22,847	92	0.40%
Debt securities and derivatives	205,245	4,253	2.07%	185,200	5,450	2.94%	178,729	5,677	3.18%
Domestic	134,179	891	0.66%	123,645	1,062	0.86%	116,055	1,202	1.04%
Foreign	71,067	3,362	4.73%	61,555	4,388	7.13%	62,674	4,475	7.14%
Financial assets	414,631	17,533	4.23%	415,580	21,729	5.23%	410,149	20,872	5.09%
Loans and advances to central banks	4,747	164	3.46%	5,086	267	5.25%	5,518	258	4.67%
Loans and advances to credit institutions	39,720	521	1.31%	32,448	806	2.48%	25,634	657	2.56%
Loans and advances to customers	370,165	16,847	4.55%	378,046	20,655	5.46%	378,996	19,957	5.27%
In euros	179,433	3,030	1.69%	180,028	3,372	1.87%	181,668	3,381	1.86%
Domestic	170,926	2,998	1.75%	171,412	3,344	1.95%	172,561	3,276	1.90%
Foreign	8,507	32	0.37%	8,617	28	0.32%	9,107	105	1.16%
In other currency	190,731	13,817	7.24%	198,018	17,284	8.73%	197,328	16,576	8.40%
Domestic	22,297	439	1.97%	18,622	601	3.23%	14,825	511	3.45%
Foreign	168,434	13,378	7.94%	179,397	16,682	9.30%	182,503	16,065	8.80%
Other assets (2)	49,786	535	1.07%	45,957	327	0.71%	46,343	270	0.58%
Total average assets (3)	729,833	22,389	3.07%	692,798	27,762	4.01%	677,951	26,954	3.98%

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

(2)  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 held for sale”.

(3)  Foreign activity represented 41.27% of the total average assets for the year ended December 31, 2020, 43.60% for the year ended December 31, 2019 and 45.34% for the year ended December 31, 2018.

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	Average Balance Sheet - Liabilities and Interest Paid on Interest Bearing Liabilities
	Year Ended December 31, 2020			Year Ended December 31, 2019			Year Ended December 31, 2018
	Average Balance	Interest	Average Yield (1)	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	71,279	1,525	2.14%	61,285	2,123	3.46%	65,044	2,192	3.37%
Customer deposits	387,563	3,908	1.01%	376,057	6,984	1.86%	370,078	6,559	1.77%
In euros	195,410	315	0.16%	183,316	236	0.13%	178,370	337	0.19%
Domestic	186,594	310	0.17%	174,301	230	0.13%	169,163	323	0.19%
Foreign	8,816	5	0.05%	9,015	7	0.07%	9,206	14	0.16%
In other currency	192,153	3,593	1.87%	192,741	6,748	3.50%	191,709	6,222	3.25%
Domestic	11,518	115	1.00%	9,505	178	1.87%	10,738	130	1.21%
Foreign	180,636	3,478	1.93%	183,236	6,571	3.59%	180,971	6,092	3.37%
Debt certificates	78,260	1,541	1.97%	77,438	1,884	2.43%	75,927	1,753	2.31%
Other liabilities (2)	142,056	823	0.58%	123,053	982	0.80%	114,695	1,165	1.02%
Total average liabilities	679,158	7,797	1.15%	637,833	11,973	1.88%	625,745	11,669	1.86%
Equity	50,675	-	-	54,964	-	-	52,206	-	-
Total average liabilities and equity (3)	729,833	7,797	1.07%	692,798	11,973	1.73%	677,951	11,669	1.72%

(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 39.29% of the total average liabilities for the year ended December 31, 2020, 41.92% for the year ended December 31, 2019 and 47.61% for the year ended December 31, 2018.

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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 year ended December 31, 2020 compared with the year ended December 31, 2019, and the year ended December 31, 2019 compared with the year ended December 31, 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 such table are interest payments on loans which are made in a period other than the period in which they are due.

	2020 / 2019
	Increase (Decrease) Due to Changes in
	Volume (1)	Rate  (2)	Net Change
	(In Millions of Euros)
Interest income
Cash and balances with central banks	78	(266)	(188)
Securities portfolio and derivatives	590	(1,787)	(1,197)
Loans and advances to central banks	(18)	(85)	(103)
Loans and advances to credit institutions	181	(466)	(285)
Loans and advances to customers	(431)	(3,377)	(3,808)
In euros	(11)	(331)	(342)
Domestic	(9)	(336)	(346)
Foreign	-	4	4
In other currencies	(636)	(2,830)	(3,466)
Domestic	119	(281)	(162)
Foreign	(1,019)	(2,285)	(3,304)
Other assets	27	180	208
Total income			(5,373)
Interest expense
Deposits from central banks and credit institutions	346	(944)	(598)
Customer deposits	214	(3,290)	(3,077)
In euros	16	63	79
Domestic	16	64	80
Foreign	-	(2)	(2)
In other currencies	(21)	(3,135)	(3,155)
Domestic	38	(100)	(63)
Foreign	(93)	(2,999)	(3,093)
Debt certificates	20	(363)	(343)
Other liabilities	152	(310)	(158)
Total expense			(4,175)
Net interest income			(1,197)

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

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

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	2019 / 2018
	Increase (Decrease) Due to Changes in
	Volume (1)	Rate  (2)	Net Change
	(In Millions of Euros)
Interest income
Cash and balances with central banks	11	111	121
Securities portfolio and derivatives	206	(433)	(227)
Loans and advances to central banks	(20)	29	9
Loans and advances to credit institutions	175	(25)	150
Loans and advances to customers	(50)	748	698
In euros	(31)	21	(10)
Domestic	(22)	90	68
Foreign	(6)	(72)	(78)
In other currencies	58	650	708
Domestic	131	(41)	90
Foreign	(273)	891	618
Other assets	(2)	60	58
Total income			808
Interest expense
Deposits from central banks and credit institutions	(127)	57	(69)
Customer deposits	106	320	426
In euros	9	(110)	(101)
Domestic	10	(103)	(93)
Foreign	(0)	(8)	(8)
In other currencies	34	493	526
Domestic	(15)	62	47
Foreign	76	403	479
Debt certificates	35	96	131
Other liabilities	85	(268)	(183)
Total expense			303
Net interest income			504

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

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

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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 years indicated.

	December 31,
	2020	2019	2018
	(In Millions of Euro, Except Percentages)
Average interest earning assets	680,047	646,841	631,608
Gross yield (1)	3.3%	4.3%	4.3%
Net yield (2)	3.1%	4.0%	4.0%
Average effective rate paid on interest-bearing liabilities	1.5%	2.3%	2.3%
Spread (3)	1.8%	2.0%	2.0%

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

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

(3)    Spread is the difference between “Gross yield” and the “Average effective rate paid on interest-bearing liabilities”.

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ASSETS

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

Interest-Bearing Deposits in Other Banks

As of December 31, 2020, interbank deposits (excluding deposits with central banks) represented 4.8% of our total assets. Of such interbank deposits, 18.6% were held outside of Spain and 81.4% in Spain. We believe that our deposits are generally placed with highly rated banks and have a lower risk than many loans we could make in Spain. However, such deposits are subject to the risk that the deposit banks may fail or the banking system of certain of the countries in which a portion of our deposits are made may face liquidity or other problems.

Securities Portfolio

As of December 31, 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€137,515 million,representing 18.7% of our total assets. €34,116 million, or 24.8%, of our securities portfolio consisted of Spanish Treasury bonds and Treasury bills. The average yield during 2020 on the investment securities that BBVA held was 3.3%, compared with an average yield of approximately 2.0% earned on loans and advances during 2020. See Notes 10 and 13 to our Consolidated Financial Statements for additional information.

The first table in Note 13.3 to our 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 December 31, 2020, 2019 and 2018.

Note 14.2 to our Consolidated Financial Statements sets forth the fair value and the amortized cost of our debt securities recorded under“Financial assets at amortized cost” as of December 31, 2020, 2019 and 2018.

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 8 to our Consolidated Financial Statements.

The second table in Note 13.3 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at fair value through other comprehensive income” by rating categories defined by external rating agencies. The second table in Note 14.2 to our Consolidated Financial Statements shows the fair value of debt securities recorded, as of December 31, 2020, 2019 and 2018, under “Financial assets at amortized cost”, by rating categories defined by external rating agencies.

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 16 to our 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.

The following table analyzes the maturities of our debt securities recorded under “Financial assets at fair value through other comprehensive income” and “Financial assets at amortized cost”, by type and geographical area, as of December 31, 2020.

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	Maturity at One Year or Less		Maturity After One Year to Five Years		Maturity after Five Years to 10 Years		Maturity after 10 Years		Total
	Amount	Yield % (1)	Amount	Yield %  (1)	Amount	Yield %  (1)	Amount	Yield %  (1)	Amount
	(Millions of Euros, Except Percentages)
DEBT SECURITIES
AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME PORTFOLIO
Domestic
Spanish government and other government agencies debt securities	12,413	0.16	10,359	1.58	4,064	4.31	2,532	3.62	29,367
Other debt securities	520	3.14	1,216	1.20	468	2.32	141	4.61	2,345
Total Domestic	12,932	0.28	11,576	1.54	4,531	4.10	2,673	3.67	31,712
Foreign
Mexico	272	5.17	5,673	4.96	3,402	4.36	48	5.72	9,395
Mexican Government and other government agency debt securities	92	6.29	5,267	4.96	3,186	4.30	35	6.41	8,580
Other debt securities	180	4.59	406	4.94	216	5.30	14	3.95	816
The United States	2,514	1.31	1,111	2.21	754	2.38	312	5.34	4,691
U.S. Treasury and other government agency debt securities	2,312	1.26	-	-	3	0.63	-	-	2,315
States and political subdivisions debt securities	-	-	-	-	-	-	-	-	-
Other debt securities	202	2.07	1,111	2.21	750	2.39	312	5.34	2,376
Turkey	495	10.33	2,036	12.58	858	11.74	85	6.81	3,473
Turkey Government and other government agencies debt securities	495	10.33	2,036	12.58	858	11.74	85	6.81	3,473
Other debt securities	-	-	-	-	-	-	-	-	-
Other countries	5,811	7.62	8,242	2.81	3,066	1.78	1,917	3.86	19,037
Securities of other foreign governments(2)	3,551	0.37	4,583	3.28	1,508	1.53	1,302	4.12	10,943
Other debt securities of other countries	2,260	19.06	3,660	2.23	1,559	1.99	616	3.34	8,094
Total Foreign	9,092	6.17	17,062	4.67	8,079	4.08	2,363	4.21	36,596
TOTAL AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME	22,024	2.58	28,637	3.39	12,611	4.09	5,036	3.92	68,308
AT AMORTIZED COST PORTFOLIO
Domestic
Spanish government and other government agencies debt securities	95	2.95	956	1.11	10,858	1.33	1,748	0.85	13,656
Other debt securities	2,133	-	2,496	0.10	123	1.13	84	-	4,835
Total Domestic	2,228	0.13	3,452	0.38	10,980	1.33	1,831	0.81	18,492
Foreign
Mexico	691	6.63	2,297	6.19	826	4.37	3,956	3.94	7,771
Mexican Government and other government agency debt securities	634	6.88	2,266	6.22	611	4.52	3,452	3.94	6,963
Other debt securities	57	3.94	31	3.94	216	3.94	504	3.94	808
The United States	9	3.94	9	3.94	34	1.24	-	-	51
U.S. Treasury and other government agency debt securities	6	-	6	-	2	-	-	-	14
States and political subdivisions debt securities	-	-	-	-	-	-	-	-	-
Other debt securities	3	3.94	3	3.94	31	1.24	-	-	37
Turkey	384	9.90	2,301	10.80	942	10.78	-	-	3,628
Turkey Government and other government agencies debt securities	378	10.07	2,301	10.79	942	10.78	-	-	3,621
Other debt securities	6	-	1	18.10	-	-	-	-	7
Other countries	950	1.65	1,007	1.94	3,697	2.56	141	4.49	5,795
Securities of other foreign governments(2)	324	1.59	520	2.50	3,489	2.58	141	4.49	4,473
Other debt securities of other countries	626	1.68	487	1.31	208	1.93	-	-	1,322
Total Foreign	2,034	5.06	5,615	7.61	5,499	4.26	4,097	3.95	17,245
TOTAL AT AMORTIZED COST PORTFOLIO	4,262	2.42	9,067	4.77	16,479	2.30	5,928	2.96	35,737
TOTAL DEBT SECURITIES	26,286	2.55	37,705	3.72	29,090	3.08	10,964	3.40	104,044
(1)   Rates have been presented on a non-taxable equivalent basis. (2)   Securities of other foreign governments mainly include investments made by our subsidiaries in securities issued by the governments of the countries where they operate.

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Loans and Advances

In 2020, the Group’s loan activity has been affected by the COVID-19 pandemic, which resulted in a decrease in global activity driven by mandatory lock-downs and consumer caution. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic” and Notes 1.5 and 7.2 to our Consolidated Financial Statements for additional information on the impact of the COVID-19 pandemic on our financial condition and results of operations.

In addition, the year-on-year variation in reported “Loans and advances” has been significantly affected by the USA Sale. In particular, loans and advances of BBVA USA and other companies included within the scope of the USA Sale have been recorded as “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020, while they are shown under “Loans and advances” in the consolidated balance sheets as of December 31, 2019 and 2018 (and, where applicable, prior years). See “Presentation of Financial Information—Agreement for the sale of BBVA USA Bancshares, Inc.”. 

Moreover, during 2020, the currencies of the main countries where the BBVA Group operates depreciated against the euro in terms of period-end exchange rates. See “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Loans and Advances to Credit Institutions and Central Banks

As of December 31, 2020, our total loans and advances to credit institutions and central banks amounted to €41,368 million, or 5.6% of total assets, of which total loans and advances to credit institutions and central banks at amortized cost amounted to €20,820 million, or 2.8% of total assets. Net of our loss allowances, total loans and advances to credit institutions and central banks at amortized cost amounted to €20,784 million as of December 31, 2020, or 2.8% of total assets.

Loans and Advances to Customers

As of December 31, 2020, our total loans and advances to customers amounted to €336,056 million, or 45.6% of total assets. Net of our loss allowances, total loans and advances to customers amounted to €323,951 million as of December 31, 2020, or 44.00% of our total assets, a decline from 56.7% of our total assets as of December 31, 2019. As of December 31, 2020 our total loans and advances to customers in Spain amounted to €166,905 million. Our total loans and advances to customers outside Spain amounted to €169,150 million as of December 31, 2020, down from €243,332 million as of December 31, 2019 mainly due to the USA Sale and the depreciation of the currencies of the main countries where the BBVA Group operates.

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Loans by Geographic Area

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

	As of December 31,
	2020	2019	2018	2017	2016
	(In Millions of Euros)
Domestic	166,905	165,032	171,361	180,033	182,492
Foreign
Western Europe	27,729	31,483	29,322	25,308	25,763
The United States (1)	6,654	64,395	61,497	53,526	60,388
Mexico	54,663	61,455	53,772	48,463	50,242
Turkey	36,748	40,230	40,641	49,690	54,174
South America	37,192	39,091	38,680	39,814	53,512
Other	6,165	6,677	4,777	4,240	4,058
Total foreign	169,150	243,332	228,688	221,041	248,137
Total loans and advances	336,056	408,364	400,049	401,074	430,629
Loss allowances	(12,105)	(12,402)	(12,199)	(12,748)	(15,974)
Total net lending (2)	323,951	395,962	387,850	388,326	414,655

(1)  Balance as of December 31, 2020 corresponds to subsidiaries in the United States not included within the scope of the USA Sale.

(2)  As of December 31, 2020, 2019 and 2018, 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. As of December 31, 2017 and 2016, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

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Loans by Type of Customer

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

	As of December 31,
	2020	2019	2018	2017	2016
	(In Millions of Euros)
Domestic
Government	16,456	14,477	16,671	18,116	20,741
Agriculture	1,268	1,224	1,118	1,231	1,076
Industrial	14,946	13,982	14,683	14,707	13,670
Real estate and construction	9,452	9,567	10,671	11,786	15,179
Commercial and financial	9,640	16,192	17,131	16,075	13,111
Loans to individuals (1)	95,136	96,735	98,131	99,780	102,299
Other	20,007	12,855	12,955	18,338	16,415
Total Domestic	166,905	165,032	171,361	180,033	182,492
Foreign
Government	24,415	14,840	13,900	14,289	14,132
Agriculture	2,169	2,533	2,566	2,646	3,236
Industrial	37,631	43,408	41,954	37,319	43,402
Real estate and construction	10,570	20,814	18,499	17,885	21,822
Commercial and financial	14,954	41,406	36,571	31,584	33,933
Loans to individuals (1)	56,358	85,324	80,224	78,162	89,981
Other	23,054	35,007	34,973	39,156	41,630
Total Foreign	169,150	243,332	228,688	221,040	248,137
Total Loans and Advances	336,056	408,364	400,049	401,074	430,629
Loss allowances	(12,105)	(12,402)	(12,199)	(12,748)	(15,974)
Total net lending (2)	323,951	395,962	387,850	388,326	414,655

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

(2)  As of December 31, 2020, 2019 and 2018, 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. As of December 31, 2017 and 2016, includes loans and advances to customers reported as “Financial assets held for trading” and “Loans and receivables”.

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The following table sets forth a breakdown, by currency, of our net loans and advances to customers as of December 31, 2020, 2019, 2018, 2017 and 2016:

	As of December 31,
	2020	2019	2018	2017	2016
	(In Millions of Euros)
In euros	188,729	191,083	193,702	199,399	199,289
In other currencies	135,221	204,879	194,148	188,926	215,366
Total net lending (1)	323,951	395,962	387,850	388,326	414,655

(1)   As of December 31, 2020, 2019 and 2018, 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. As of December 31, 2017 and 2016, includes loans and advances to customers previously reported as financial assets held for trading and loans and receivables.

As of December 31, 2020, total loans and advances by BBVA and its subsidiaries to associates and jointly controlled companies amounted to €1,743 million, compared with €1,682 million as of December 31, 2019. Loans and advances outstanding to the Spanish government and its agencies amounted to €16,456 million, or 4.9% of our total loans and advances to customers as of December 31, 2020, compared with the €14,477 million, or 3.5% of our total loans and advances to customers as of December 31, 2019. 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 December 31, 2020 excluding government-related loans amounted to €16,604million or approximately 4.9% of our total outstanding loans and advances. As of December 31, 2020 there did not exist any concentration of loans exceeding 10% of our total outstanding loans and advances, other than by category as disclosed above.

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Maturity and Interest Sensitivity

The following table sets forth a breakdown by maturity of our total loans and advances to customers by type of customer as of December 31, 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	6,524	5,782	4,150	16,456
Agriculture	345	722	202	1,268
Industrial	5,923	6,723	2,300	14,946
Real estate and construction	1,667	4,118	3,667	9,452
Commercial and financial	3,617	4,865	1,158	9,640
Loans to individuals	11,356	24,653	59,127	95,136
Other	6,460	10,494	3,054	20,007
Total Domestic	35,892	57,356	73,657	166,905
Foreign
Government	14,493	3,606	6,317	24,415
Agriculture	1,207	762	200	2,169
Industrial	16,316	14,651	6,663	37,631
Real estate and construction	3,591	2,998	3,980	10,570
Commercial and financial	7,858	6,232	864	14,954
Loans to individuals	9,028	22,870	24,460	56,358
Other	8,762	10,328	3,963	23,054
Total Foreign	61,255	61,448	46,447	169,150
Total loans and advances (1)	97,147	118,804	120,105	336,056

(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”.

The second table in Note 14.3 to our Consolidated Financial Statements provides a breakdown of our fixed and variable rate loans which had a maturity of more than one year as of December 31, 2020.

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”. For a discussion of accounting standards related to loss allowances on financial assets and credit loss, see Note 2.2.1 to our Consolidated Financial Statements.

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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 December 31, 2020 and 2019 refers to customers, central banks and credit institutions and information as of December 31, 2018, 2017 and 2016 refers to customers and credit institutions:

		As of and for the Year Ended December 31,
	2020	2019	2018	2017	2016
	(In Millions of Euros)
Loan loss reserve at beginning of period:
Domestic	4,931	5,774	7,234	9,113	12,357
Foreign	7,496	6,437	5,550	6,903	6,385
First implementation of IFRS 9	-	-	1,171	-	-
Total loan loss reserve at beginning of period	12,427	12,211	13,955	16,016	18,742
Loans charged off: (1)
Total domestic	(495)	(1,006)	(2,818)	(3,709)	(3,298)
Total foreign	(2,073)	(2,250)	(1,956)	(2,330)	(2,400)
Total loans charged off	(2,568)	(3,256)	(4,774)	(6,039)	(5,698)
Provision for loan losses:
Domestic	1,289	764	910	1,155	1,095
Foreign	3,605	3,560	3,659	3,078	3,046
Total provision for loan losses	4,894	4,324	4,569	4,233	4,141
Acquisition and disposition of subsidiaries	(1,123)	-	-	(5)	-
Effect of foreign currency translation	(1,204)	(20)	(239)	(926)	(601)
Other	(285)	(832)	(1,301)	(495)	(567)
Acquisition, foreign currency and others	(2,612)	(852)	(1,539)	(1,426)	(1,168)
Loan loss reserve at end of period:
Domestic	5,362	4,931	5,774	7,234	9,113
Foreign	6,779	7,496	6,437	5,550	6,903
Total loan loss reserve at end of period	12,141	12,427	12,211	12,784	16,016
Loan loss reserve as a percentage of loans and advances at amortized cost at end of period	3.66%	3.10%	3.19%	3.09%	3.44%
Net loan charge-offs as a percentage of loans and advances at amortized cost at end of period	0.77%	0.81%	1.25%	1.46%	1.22%

(1)Domestic loans charged off in 2020, 2019, 2018, 2017 and 2016 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 €2,568 million during the year ended December 31, 2020, compared with €3,256 million during the year ended December 31, 2019, mainly as a result of the decrease in loans charged off in Spain, as a result of moratorium measures for bank customers adopted in light of COVID-19 and the depreciation of the currencies of the main countries where the BBVA Group operates.

Our loan loss reserves as a percentage of total loans and advances increased to 3.66% as of December 31, 2020 compared with 3.10% as of December 31, 2019.

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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 in 2020, 2019, 2018, 2017 and 2016 was €249.1 million, €301.6 million, €310.5 million, €347.4 million and €264.2 million, respectively.

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

	As of December 31,
	2020	2019	2018	2017	2016
	(In Millions of Euros)
Impaired loans
Domestic	7,823	8,104	9,436	12,730	16,360
Public sector	68	86	112	158	270
Other resident sector	7,755	8,018	9,324	12,572	16,090
Foreign	6,855	7,855	6,923	6,671	6,565
Public sector	8	1	16	13	42
Other non-resident sector	6,847	7,853	6,906	6,658	6,523
Total impaired loans	14,678	15,959	16,359	19,401	22,925
Total loan loss reserve	(12,141)	(12,427)	(12,211)	(12,784)	(16,016)
Impaired loans net of reserves	2,537	3,533	4,148	6,617	6,909
Impaired loans as a percentage of loans and advances at amortized cost	4.42%	3.99%	4.27%	4.69%	4.92%
Impaired loans (net of reserve) as a percentage of loans and advances at amortized cost	0.76%	0.88%	1.08%	1.60%	1.48%

Our total impaired loans amounted to €14,678 million as of December 31, 2020, an 8.0% decrease compared with €15,959 million as of December 31, 2019. This decrease was mainly attributable to the reduction in impaired loans from households, as a result of the moratorium measures for bank customers adopted in light of COVID-19, and, to a lesser extent, the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020.

Our loan loss reserve includes loss reserve for impaired assets and loss reserve for unimpaired assets which present an expected credit loss. As of December 31, 2020, the loan loss reserve amounted to €12,141 million, a 2.3% decrease compared with the €12,427 million recorded as of December 31, 2019, mainly due to the positive impact of changes in exchange rates on foreign currency positions and the reclassification of the balance of BBVA USA and the other companies falling within the scope of the USA Sale to “Non-current assets and disposal groups classified as held for sale” of our consolidated balance sheet as of December 31, 2020. The decrease was offset, in part, by higher provisions for possible loan losses in Spain, in light of the uncertainty associated with the pace of economic recovery.

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The following tables provide information regarding impaired loans to customers, central banks and credit institutions recorded under “Financial assets at amortized cost” and loan loss reserve taken for each loan category, as of December 31, 2020 and 2019, by type of customer:

2020	Impaired Loans	Loan Loss Reserve (1)	Impaired Loans as a Percentage of Loans by Category
	(In Millions of Euros)
Domestic:
Government	68	(32)	0.41%
Credit institutions	-	-	-
Other sectors	7,755	(5,319)	5.15%
Agriculture	61	(38)	4.83%
Industrial	664	(440)	4.44%
Real estate and construction	722	(490)	7.64%
Commercial and other financial	862	(608)	8.95%
Loans to individuals	4,361	(2,686)	4.58%
Other	1,084	(1,057)	5.42%
Total Domestic	7,823	(5,351)	4.69%
Foreign:
Government	8	(16)	0.03%
Credit institutions	6	(36)	0.04%
Other sectors	6,842	(6,738)	4.73%
Agriculture	71	(70)	3.25%
Industrial	1,477	(1,273)	3.93%
Real estate and construction	675	(232)	6.39%
Commercial and other financial	717	(747)	4.79%
Loans to individuals	2,745	(3,209)	4.87%
Other	1,156	(1,207)	5.02%
Total Foreign	6,855	(6,790)	4.05%
Total	14,678	(12,141)	4.37%

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

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2019	Impaired Loans	Loan Loss Reserve (1)	Impaired Loans as a Percentage of Loans by Category
	(In Millions of Euros)
Domestic:
Government	86	(36)	0.60%
Credit institutions	-	-	-
Other sectors	8,018	(4,895)	5.33%
Agriculture	60	(42)	4.93%
Industrial	686	(513)	4.90%
Real estate and construction	1,180	(751)	12.33%
Commercial and other financial	1,173	(856)	7.24%
Loans to individuals	4,257	(2,176)	4.40%
Other	663	(557)	5.16%
Total Domestic	8,104	(4,931)	4.91%
Foreign:
Government	1	(23)	0.01%
Credit institutions	6	(24)	0.04%
Other sectors	7,848	(7,448)	3.43%
Agriculture	93	(83)	3.69%
Industrial	1,824	(1,405)	4.20%
Real estate and construction	980	(652)	4.71%
Commercial and other financial	835	(763)	2.02%
Loans to individuals	3,124	(3,670)	3.66%
Other	991	(876)	2.83%
Total Foreign	7,855	(7,496)	3.23%
Total	15,959	(12,427)	3.91%

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

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Troubled Debt Restructurings

As of December 31, 2020, of the total troubled debt restructurings of €16,699 million, €7,659 million were not considered impaired loans. See Note 7.2 and Appendix VIII to our Consolidated Financial Statements.

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 ratios 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 Leisure, Automotive and Real Estate sectors have been among the most affected by the COVID-19 pandemic and they are the sectors that have most relied on payment deferrals granted by BBVA (see “Item 5. Operating and Financial Review and Prospects―Operating Results―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”).  See Note 7.2 to our Consolidated Financial Statements for additional information. The non-performing asset ratio in our domestic real estate and construction portfolio was 7.6%  as of December 31, 2020 (compared with 12.3% as of December 31, 2019), the average non-performing asset ratio for all of our domestic activities was 4.7% as of December 31, 2020 (compared with 4.9% as of December 31, 2019) and the average non-performing asset ratio for all of our consolidated activities was 4.4% as of December 31, 2020 (compared with 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 7.7% as of December 31, 2020 (compared with 9.0% as of December 31, 2019).

In light of the COVID-19 outbreak, various national and supranational supervisory authorities have published considerations to be taken into account 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 moratoria or other relief measures adopted by authorities to address the effects of the COVID-19 pandemic. See Notes 1.5 and 7.2 to our Consolidated Financial Statements. See also “Item 5. Operating and Financial Review and Prospects―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 end of the years 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 December 31, 2020, 2019 and 2018. 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.

	2020		2019		2018
	Amount	% of Total Assets	Amount	% of Total Assets	Amount	% of Total Assets
	(In Millions of Euros, Except Percentages)
United Kingdom	7,107	1.0%	6,086	0.9%	7,114	1.1%
Mexico	1,128	0.2%	1,697	0.2%	2,217	0.3%
Turkey	3,265	0.4%	3,856	0.6%	5,060	0.7%
Other OECD (Organization for Economic Co-operation and Development)	9,715	1.3%	9,463	1.4%	7,779	1.1%
Total OECD	21,215	2.9%	21,102	3.0%	22,170	3.3%
Central and South America	3,142	0.4%	3,323	0.5%	2,720	0.4%
Other	7,329	1.0%	6,924	1.0%	4,739	0.7%
Total	31,686	4.3%	31,349	4.5%	29,629	4.4%

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The following table sets forth the amounts of our cross-border outstandings as of December 31, 2020, 2019, and 2018 by type of borrower where outstandings in the borrower’s country exceeded 1% of our total assets.

	Governments	Banks and Other Financial Institutions	Commercial, Industrial and Other	Total
	(In Millions of Euros)
As of December 31, 2020
Mexico	44	4	1,080	1,128
Turkey	559	283	2,422	3,265
United Kingdom	-	6,204	904	7,107
Total	603	6,491	4,406	11,500
As of December 31, 2019
Mexico	188	8	1,501	1,697
Turkey	618	283	2,955	3,856
United Kingdom	-	5,246	839	6,086
Total	806	5,537	5,295	11,638
As of December 31, 2018
Mexico	133	7	2,078	2,217
Turkey	1,250	505	3,304	5,060
United Kingdom	22	6,215	876	7,114
Total	1,405	6,727	6,258	14,391

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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 €360 million, €184 million and €100 million as of December 31, 2020, 2019 and 2018, respectively. These figures do not reflect loan loss reserves of 8.3%, 12.5% and 38.0%, respectively, of the relevant amounts outstanding at such dates. Deposits with or loans to borrowers in all such countries as of December 31, 2020 did not in the aggregate exceed 0.05% of our total assets.

The country-risk exposures described in the preceding paragraph as of December 31, 2020, 2019 and 2018 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 December 31, 2020, 2019 and 2018 amounted to $50 million, $73 million and $90 million, respectively (approximately €41 million, €65 million and €78 million, respectively, based on a euro/dollar exchange rate on December 31, 2020 of $1.00 = €0.81, on December 31, 2019 of $1.00 = €0.89 and on December 31, 2018 of $1.00 = €0.87).

LIABILITIES

See the introduction to “—Selected Statistical Information” for information on the impact of the planned sale of BBVA USA on the information reported below.

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 December 31, 2020
	Customer Deposits	Bank of Spain and Other Central Banks	Other Credit Institutions	Total
	(In Millions of Euros)
Total Domestic	188,757	37,822	1,751	228,330
Foreign
Western Europe	21,427	207	11,444	33,078
The United States	-	82	-	82
Mexico	54,398	3,422	1,549	59,370
Turkey	34,621	215	617	35,453
South America	36,989	3,428	2,041	42,458
Other	6,468	-	10,228	16,696
Total Foreign	153,904	7,355	25,878	187,137
Total	342,661	45,177	27,629	415,467

	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

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	As of December 31, 2018
	Customer Deposits	Bank of Spain and Other Central Banks	Other Credit Institutions	Total
	(In Millions of Euros)
Total Domestic	166,403	26,544	4,563	197,510
Foreign
Western Europe	22,077	-	14,545	36,621
The United States	62,539	61	4,379	66,979
Mexico	50,991	133	566	51,690
Turkey	33,427	212	1,323	34,963
South America	37,970	330	2,335	40,635
Other	2,563	-	4,268	6,831
Total Foreign	209,567	737	27,415	237,719
Total	375,970	27,281	31,978	435,229

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 22 to our Consolidated Financial Statements.

As of December 31, 2020, the maturity of our time deposits recorded under “Financial liabilities at amortized cost” (excluding interbank deposits) in denominations of $100,000 or greater was as follows:

	As of December 31, 2020
	Domestic	Foreign	Total
	(In Millions of Euros)
3 months or under	3,799	22,584	26,383
Over 3 to 6 months	1,883	2,708	4,590
Over 6 to 12 months	2,960	2,083	5,043
Over 12 months	2,746	898	3,644
Total	11,388	28,272	39,659

Time deposits recorded under “Financial liabilities at amortized cost” from Spanish and foreign financial institutions amounted to €16,079 million as of December 31, 2020, substantially all of which were in excess of $100,000.

Large denomination deposits may be a less stable source of funds than demand and savings deposits because they are more sensitive to variations in interest rates. For a breakdown by geographic area of customer deposits recorded under “Financial liabilities at amortized cost” as of December 31, 2020, 2019 and 2018 see Note 22 to our Consolidated Financial Statements.

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Short-term Borrowings

Securities sold under agreements to repurchase and promissory notes issued by us constituted the only categories of short-term borrowings that equaled or exceeded 30% of stockholders’ equity as of December 31, 2020, 2019 and 2018.

The following table provides information about our total short-term borrowings for the years ended December 31, 2020, 2019 and 2018:

	As of and for the Year Ended December 31, 2020 (1)		As of and for the Year Ended December 31, 2019 (1)		As of and for the Year Ended December 31, 2018 (1)
	Amount	Average rate	Amount	Average rate	Amount	Average rate
	(In Millions of Euros, Except Percentages)
Securities sold under agreements to repurchase:
As of end of period	43,543	1.0%	45,296	1.9%	16,524	4.3%
Average during period	50,100	1.1%	46,139	2.1%	16,836	4.7%
Maximum quarter-end balance	55,156	-	50,482	-	17,155	-
Bank promissory notes:
As of end of period	1,454	0.1%	801	0.4%	449	3.1%
Average during period	1,094	0.1%	681	0.7%	580	1.6%
Maximum quarter-end balance	1,454	-	939	-	1,036	-
Bonds and subordinated debt:
As of end of period	10,546	1.3%	9,249	3.8%	5,633	3.6%
Average during period	12,076	2.1%	6,799	4.5%	4,775	4.6%
Maximum quarter-end balance	12,928	-	9,468	-	5,633	-
Total short-term borrowings as of end of period	55,543	1.0%	55,346	2.2%	22,606	4.1%

(1)  As of December 31, 2020 and 2019, includes all repurchase agreements recorded under “Financial liabilities at amortized cost” and “Financial liabilities held for trading”. As of December 31, 2018, includes only certain repurchase agreements which were accounted for as “Financial liabilities at amortized cost” as of December 31, 2017.

As of December 31, 2020, 2019 and 2018, the securities sold under agreements to repurchase were mainly Mexican and Spanish treasury bills and such agreements were entered into with other financial and credit institutions.

EQUITY

Shareholders’ equity

As of December 31, 2020, shareholders’ equity amounted to €50,020 million, an 8.9% 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.

Accumulated other comprehensive income (loss)

As of December 31, 2020, the accumulated other comprehensive loss amounted to €14,356 million, a 40.4% increase compared to the €10,226 million recorded as of December 31, 2019, mainly as a result of the adverse impact of the depreciation of the currencies of the main countries where the BBVA Group operates (in particular, the Mexican peso, the U.S. dollar and the Turkish lira) on “Foreign currency translation”. As of December 31, 2018, the accumulated other comprehensive loss amounted to €10,223 million.

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.

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F.   Competition

In recent years, the global financial services sector has undergone significant transformation in relation to the development of the Internet and mobile and other exponential technologies and the entrance of new players into activities previously provided in the main by financial institutions. Whereas commercial banks were previously almost the sole providers of the whole range of financial products, from credit to deposits, or payments and investment services, today, a set of non-bank digital providers compete (and cooperate) among each other and with banks in the provision of financial services. These new fintech providers can be startup firms that are specialized in a specific service or niche of the financial services market, or large digital players (known as BigTechs). BigTech companies such as Amazon, Facebook and Apple have also started to offer financial services (mainly, in relation to payments and credit) ancillary to their core business.

In this new competitive environment, banks and other players are calling for a level playing field that ensures fair competition among the different financial services providers. Regulations on consumer protection and the integrity of the financial system (such as anti-money laundering regulations or regulations for combating the financing of terrorism) are generally activity-specific and, therefore, meet the principle of a level playing field. However, with regards to financial stability, banking groups are subject to prudential regulations that have implications for most of their activities, including those in which they compete with non-bank players that are only subject to activity-specific regulations, at best, or not regulated at all. Therefore, the scope of the perimeter of prudential consolidation to which the prudential regulation and supervision in the European Union and elsewhere applies compromises the level playing field principle by requiring banking groups to apply banking-level controls to all subsidiaries, no matter their activities and actual risks involved. Restrictions on the activity of bank players, for instance as regards internal governance requirements, leave EU banks at a competitive disadvantage as regards cost, time-to-market or talent attraction compared to their competitors.

Existing loopholes in the regulatory framework are another cause of an uneven playing field between banks and non-bank players. Some new services or business models are not yet subject to existing regulations. In such cases, not only are potential risks to financial stability, consumer protection and the integrity of the financial system unaddressed, but asymmetries may arise between players since regulated providers often face obstacles that unregulated providers do not.

Another significant trend in the market is consolidation. Following the prior global financial crisis, a number of banks disappeared or were absorbed by other banks. We believe that the COVID-19 crisis may result in a number of mergers and acquisitions between financial entities in the regions where the Group operates, as recently seen in Spain.

Additional information on certain market dynamics affecting the four main countries where we operate is provided below.

Spain

The commercial banking sector in Spain has undergone significant consolidation. In the majority of the markets where we provide financial services, the Banco Santander Group is our largest competitor, but the restructuring processes that have been underway for several years have increased the size of certain banks, such as Bankia (an integration of seven regional saving banks, led by Caja Madrid), Caixabank (which acquired Banco de Valencia, Banca Cívica and Barclays’s Spanish operations) and Banco Sabadell. Furthermore, several M&A transactions have taken place in the Spanish banking system over the past 3-4 years. In this vein, in June 2017, Banco Santander announced the acquisition of 100% of the share capital of Banco Popular as part of the resolution strategy adopted by the SRB for the latter. This has further increased the market share of Banco Santander in Spain. In January 2018, the merger between Bankia and Banco Mare Nostrum (“BMN”) was completed. More recently, in September 2020 the merger between Caixabank and Bankia was announced, which creates the largest bank in Spain in terms of total assets. This transaction is expected to close during the first quarter of 2021 once all regulatory authorizations have been received. Finally, the merger between Unicaja and Liberbank was announced in December 2020. This transaction will create Spain’s fifth largest bank in terms of total assets.

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We face strong competition in all of our principal areas of operations. The low interest rate environment which depresses interest income and the ongoing de-leveraging process makes competition quite fierce in the Spanish market. In particular, competition is particularly intense in the credit market for lending to SMEs, where new credit interest rates have fallen from a weighted average of 5.5% between January 2012 and May 2014 to around 2.7% since the outbreak of the COVID-19 crisis in March 2020, barely exceeding credit costs. Since the outbreak of the crisis in the first quarter of 2020, public support measures have been introduced in Spain, particularly in the form of public guarantees on new loans to corporates and SMEs and moratoria and payment holidays on certain loans. The former has resulted in decreased competition in the SME loans segment. However, these public guarantees will be lifted in the future, which will likely increase competition levels again. More broadly, the end of the COVID-19 related public relief measures might result in a deterioration in the credit quality of borrowers, especially SMEs, which might require the recording of high loan-loss provisions by banks.

In the aftermath of the prior global financial crisis, the need for a more balanced funding structure led to increased competition for deposits in Spain. While the low interest rate environment has depressed remuneration for deposits, there seems to be a zero interest rate floor as deposit rates are not entering negative territory. Former Spanish savings banks, and money market mutual funds provide strong competition for savings deposits and, in the case of savings banks, for other retail banking services. More recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.

Credit cooperatives, which are active principally in rural areas where they provide savings and loan services and related services such as the financing of agricultural machinery and supplies, are also a source of competition. The entry of “fintech companies” and online banks into the Spanish banking system has also increased competition, especially in payment services. Insurance companies and other financial service firms also compete for customer funds. Like commercial banks, former savings banks, insurance companies and other financial service firms are expanding the services offered to consumers in Spain. We face competition in mortgage loans from savings banks and, to a lesser extent, cooperatives.

In Spain and in Europe, changes in banking regulation could have a significant potential impact on competition in the near future. The EU Directive on Investment Services took effect on December 31, 1995. The EU Directive permits all brokerage houses authorized to operate in other member states of the European Union to carry out investment services in Spain. Although the EU Directive is not specifically addressed to banks, it affects the activities of banks operating in Spain. Several initiatives have also been implemented in order to facilitate the creation of a Pan-European financial market, including the Single Euro Payments Area, which is a payment-integration initiative for simplification of bank transfers, direct debits and payment cards mainly within the European Union, and MiFID, complemented with the introduction of MiFID II in January 2018, which aims to create a European framework for investment services. In addition, further steps have been taken towards achieving a banking and capital markets union in Europe. The ECB started to work as a single supervisor in November 2014, supervising 117 entities (including BBVA) in the Eurozone. Moreover, the foundations of a single resolution mechanism were set with the agreement on the regulation and contributions to the SRF, the appointment of the SRB which is operational since January 1, 2015 and the Bail-in Tool included in the BRRD, which entered into force on January 1, 2016. For additional information on regulatory developments, see “―Business Overview―Supervision and Regulation”.  

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United States

The U.S. banking system’s performance in 2020 deteriorated significantly compared to 2019. However, in light of the unprecedented contraction of economic output due to the COVID-19 pandemic, the system remained resilient. While profitability was adversely affected primarily by the large loan loss provisions, credit quality did not deteriorate as much as in previous recessions due to the forceful and large monetary and fiscal support that the economy received early into the pandemic-induced downturn. During the first three quarters of 2020, net interest income for all FDIC-insured commercial banks fell by 4.2% year-on-year, while non-interest income and expenses remained on their pre-crisis trajectory. At the same time, provisions for loan and lease losses increased by more than 3.5 times, and as a result, net income reached only 48% of the level achieved in the same period in 2019. Return on assets and return on equity declined to their lowest levels since 2009. The core capital ratio of FDIC-insured commercial banks declined from 9.6% in the fourth quarter of 2019 to 8.7% and 8.8% in the second and third quarter of 2020, respectively, the lowest since 2010. Going forward, we expect commercial banks to benefit from the economic recovery and any subsequent round of stimulus, while at the same time remaining somewhat challenged by the low interest rate environment that will likely persist for a number of years going forward.

Mexico

In Mexico, the banking sector had a capitalization ratio of 17.4% in October 2020 (higher than the ratio reported in October 2019 of 16.1%) (in each case considering the group of entities of “banca múltiple” operating in Mexico). On October 31, 2020, the Mexican banking sector had 50 operating banks, one less than the previous year.

The growth of total bank lending to the non-financial private sector in Mexico decreased from an annual nominal average growth rate of 8.8% from January to November of 2019 to 5.2% in the same period of 2020. The negative impact of the COVID-19 pandemic over economic activity and formal employment deepened the slowdown in private sector credit that was already evident at the end of 2019. After a short rebound in the first months of the pandemic (boosted by liquidity needs), corporate lending lost momentum and registered its first contraction since February 2010 in November (-0.9%). The reduction of private investment was reflected in a weak corporate credit demand, so that the average growth rate of corporate loans was 6.9% from January to November of 2020, below the 9.2% reached in the same period of the previous year.

 Credit to consumers also decreased its annual nominal average growth rate from 6.1% in January to November 2019 to -2.3% in the same period of 2020. Consumer credit experienced seven months of contraction (starting in May 2020), reaching a double digit fall of -10.7% in November 2020. Mobility restrictions (which limit consumption opportunities), the fall of formal employment (and therefore household income) as well as consumer caution as a response to the uncertainty associated with the pace of economic recovery, contributed to deteriorate the dynamism of this type of loans.

 Mortgage lending was the only category of commercial bank credit which ended 2020 without a contraction, with an average nominal growth rate of 9.3% in January to November 2020, slightly below the rate of 10.5% in the same period of 2019. This credit portfolio was able to maintain some dynamism due to both low and stable long-term interest rates and the lagged impact of the increase in the number of formal workers in previous years, since potential clients of this type of credit must prove a minimum time in service to obtain a mortgage. However, due to this deferred effect, the negative impact of job losses as a result of the COVID-19 pandemic is expected to affect the performance of this portfolio for some time.

Bank deposits in Mexico increased in 2020 as a result of the shift from consumption to savings due to the COVID-19 pandemic. Traditional bank deposits (sight deposits and term deposits) had an average annual growth rate of 11.4% in nominal terms between January and November 2020, which represented a 4.3 p.p. increase in comparison with the same period of 2019. This significant increase was underpinned mainly by the increase of sight deposits, which grew at an average annual growth rate of 15.7% between January and November 2020. It is worth noting that the resilience of sight deposits in a recessionary environment (stemming from the low unemployment rate among medium and high-income earners) coupled with a slump in consumption, led to a sharp increase in liquid deposits. 

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On the other hand, term deposits slowed down sharply as the economic recession and the drop in benchmark interest rates took their toll on medium-term savings. In fact, the nominal growth of term deposits halved in 2020 with respect to 2019 as the average annual nominal growth rate during the last eleven months of the year decreased to 5.2%. Finally, the growth of deposits in debt investment funds was hit too as the economy slumped, the Mexican peso depreciated and the demand for liquid assets rose. As a result the average annual growth rate of deposits in debt investment funds dropped from 10.4% between January and November 2019 to 5.9% during the same period of 2020. 

Throughout 2020, regulatory activity increased driven by measures taken to tackle COVID-19’s impact on banking activity. BANXICO issued several rules aimed at promoting the orderly behavior of financial markets, providing markets with liquidity and facilitating the granting of credit by banks with a specific focus on SMEs. Meanwhile, the CNBV issued special accounting standards enabling banks to offer grace periods and avoid considering loans overdue in the context of the pandemic.

Later on, the CNBV issued a framework for loan restructuring which provided for beneficial treatment in terms of capital and reserves for banks willing to offer loan-restructuring under certain conditions specified by the regulator.

In December, the Federal Economic Competition Commission published a preliminary opinion on its investigation regarding the card payments’ market identifying four potential barriers to competition that prevent the entry and increase costs for new market participants that hinder innovation and investment and increase merchant acquisition costs. Among other measures, COFECE could order that banks divest at least 51% of their stakes in card payment clearing houses (Prosa and E-Global), and the preliminary opinion recommends that BANXICO and the CNBV eliminate regulatory obstacles and issue regulations to ensure competition. At this stage, stakeholders have 45 working days to present arguments and offer alternative measures to address the Commission’s concerns.

In November 2020, a bill was presented to the Senate which would affect the repatriation of U.S. dollars. Finally, there were new developments during 2020 regarding the Mexican Fintech Law, in force since 2018. The law creates and regulates financial technology institutions, which may engage in either crowdfunding or the issue of e-money. Following the law, BANXICO has regulated the recognition and use of virtual assets. The law also introduced a regime of “innovative models for the provision of financial services” that enables financial institutions (including FinTechs), as well as other startups, to offer financial services for the benefit of users in a regulatory sandbox. BANXICO and the CNBV have already published most of the secondary regulation related with the Fintech Law, but the rules to govern the sharing of data are still being developed.

Turkey

In Turkey, where we operate through Garanti BBVA, the three public deposit banks that operate in the country accounted for 37% of the total assets of financial institutions as of November 30, 2020, whereas private deposit banks (including Garanti BBVA) accounted for 49%. Development banks and participation banks (banks that operate under the ethos of Islamic banking) together accounted for 14% of the total. The Turkish economy experienced a significant acceleration in the credit growth rate on the back of supportive economic policies implemented in the COVID-19 crisis. TL lending (i.e., loans denominated in Turkish lira) growth accelerated to 44% in 2020 from 14% in 2019 due to the supportive credit policies implemented in response to COVID-19. In 2020, TL lending to corporations grew by 45%, consumer loans grew by 45% and credit cards grew by 24.3%. Credit growth adjusted for the exchange rate depreciation rose to 22% in 2020 from its 6% growth in 2019. Total customer deposits grew by 35% during the year (16.4% on a foreign exchange adjusted basis, compared with 18.6% in 2019). The growth in TL customer deposits (i.e., customer deposits denominated in Turkish lira) rose to 24% from 20% in 2019. Foreign exchange deposit growth rate rose to 16.8% from 16.3% in 2019. Given the increases in TL credits, the TL loan-to-deposit ratio rose to 152% from 130% in 2019. The foreign exchange loan-to-deposit ratio fell to 64% from 78% due to the increase in foreign exchange deposits.

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G.   Cybersecurity and Fraud Management

BBVA’s Corporate Security Area is responsible for ensuring adequate information security management, including by establishing security policies, procedures and controls regarding the security of the Group’s global infrastructures, digital channels and payment methods with a holistic and threat intelligence-led approach.

BBVA’s security strategy resides on three fundamental pillars: cybersecurity, data protection and security in business processes and fraud management. A program has been designed for each of these pillars, with the aim to reduce the risks identified in the developed taxonomy. These programs, which consider security industry best practices established by internationally accepted security standards, are periodically reviewed to evaluate the progress and the effective impact on the Group risks.

During 2020, within the framework of the implementation of the security strategy, security measures were adopted to ensure an adequate protection of BBVA’s information and the assets supporting business processes. The implementation of these measures, which were perceived as necessary to mitigate the security risks the BBVA Group is exposed to, was carried out with a global perspective and an integral approach (considering not only technological aspects but also aspects related to the Group’s staff, processes and security governance).

Measures adopted in 2020 included measures intended to: (i) ensure end-to-end protection of business processes, considering logical and physical security, privacy and fraud management, (ii) ensure compliance of the security and privacy by design principles; and (iii) improve client access control and authentication services related to online services, from a security and user experience perspective, using the mobile device as the main element, in line with BBVA’s digital transformation strategy.  

The main initiatives which are being implemented to improve BBVA’s security and client protection are the following:

·Aqua card launch, the first card without a printed card number or CVV, with a dynamic CVV, reinforcing security, since not having these data prevents their possible fraudulent use.

·Implementation of strong customer authentication measures in e-commerce, requiring two of the three possible authentication mechanisms (something you know, something you own, something you are).

·Implementation of the “where is my card?” functionality, that allows the customer to have an overview of all e-commerce or platforms where they have registered their bank cards.

·Implementation of new behavior biometrics and malware protection for digital clients to reinforce analytical and fraud detection capabilities in mobile channels.

·Enhancement of the information provide to clients in the BBVA app to make them aware of the main risks they are exposed to, so that they can prevent or act against possible threats.

Additionally, BBVA has continued carrying out training and awareness initiatives related to security and privacy, promoting training and awareness campaigns for BBVA’s employees, clients and society in general on matters such as the BBVA app, online channels and social networks, secure password management, phishing and other technical attacks detection, detection of scams, security in online purchases and protection of personal information.

Other lines of action also include the adequate training of BBVA’s Board members in the area of security and incident management, as well as the periodic performance of global and local simulation exercises in order to raise the level of training and awareness of the Board of Directors and certain key personnel and ensure an immediate and effective response in case of a security breach.

Cybersecurity

Ensuring the effective protection of BBVA’s assets and customers’ data is vital for the Group.

During 2020, the Group has detected an increase in the number of attacks, accentuated by the presence of organized crime groups specialized in the banking sector and working in a multi-country environment.

Furthermore, the COVID-19 pandemic has been used by cybercriminals to increase the scope of social engineering attacks through email, SMS, instant messaging systems and social networks. It has also contributed to the emergence of new risks and challenges for companies, like the ones related to security in teleworking and the increase on the attack surface.

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The Global Computer Emergency Response Team (CERT) is the Group’s first line of detection and response to cyberattacks aimed at global users and the Group’s infrastructure, combining information on cyber threats from our Threat Intelligence unit. The Global CERT, which is based in Madrid, operates 24x7 and provides services in all countries where the Group operates, under a scheme of managed security services, with operation lines dedicated to fraud and cybersecurity.

As cyberattacks evolve and become more sophisticated, the Group has strengthened its prevention and monitorization efforts. System monitoring capabilities have been reinforced, with particular attention to the critical assets that support business processes in order to prevent threats from materializing and, if necessary, to immediately identify and respond to any security incident that may occur. Incident prevention, detection and response capabilities have also been strengthened through the use of integrated information sources, improved analytical capabilities and automated platforms.

We believe that measures implemented by the Group have improved information security management as a result in part of the use of digital intelligence and advanced analytical capabilities. The main objective of these measures is to ensure an immediate and effective response to any security incident that occurs through the coordination of the different business and support areas involved, to reduce the possible negative impact and, if necessary, to report such incident in a timely manner to the relevant supervisory or regulatory authorities.

BBVA routinely reviews, reinforces and tests its security processes and procedures through simulation exercises in the areas of physical security and digital security. Specialized teams periodically perform security technical tests in order to detect and correct possible security vulnerabilities. These tests include technical tests of technological platforms as well as malicious users simulated attacks performed by the “red team”. The outcome of such exercises is a fundamental part of a feedback process designed to improve the Group’s cybersecurity strategies.

Data Protection

The second pillar of the strategy is based on the adequate protection of data and its treatment, which is a fundamental element of the data-centric strategy of the BBVA Group. The main initiatives in this area relate to the adoption of measures to ensure that BBVA’s information assets are properly protected, limiting their use to their intended purposes and controlling access to them, considering the security guidelines established by the Group. All activities related to the data protection program are reviewed by the Data Protection Committee, where all relevant stakeholders of the Bank are represented.

Security in Business Processes and Fraud

Cybersecurity efforts are frequently undertaken in close coordination with our fraud prevention efforts and there are considerable interactions and synergies between the relevant teams. As part of the efforts to monitor fraud evolution and to actively support the deployment of adequate anti-fraud policies and measures, the Corporate Fraud Committee, chaired by the Global Head of Engineering, oversees the evolution of all external and internal fraud types in all countries where the Group operates. Its functions include: (i) actively monitoring fraud risks and mitigation plans; (ii) evaluating the impact thereof on the Group’s business and customers; (iii) monitoring relevant fraud facts, events and trends; (iv) monitoring accrued fraud cases and losses; (v) carrying out internal and external benchmarking; and (vi) monitoring relevant fraud incidents in the financial industry.

BBVA maintains cybersecurity and fraud insurance policies in respect of each of its subsidiaries. These insurance policies are subject to certain loss limits, deductions and exclusions. We can provide no assurance that all losses related to a cybersecurity or fraud incident will be covered under our policies.

With the aim of guaranteeing the effective implementation of the Group’s security strategy, BBVA has established a security governance model. Among the bodies composing the security governance model, there are Committees responsible for the approval and supervision of the execution of the information security strategy, in matters such as corporate security, information security and protection, and fraud management. One of the main elements of this security governance model is the Technology and Cybersecurity Commission, composed by BBVA’s Chairman and BBVA’s Board of Directors. This Commission is responsible for the oversight of the Group’s technological strategy and cybersecurity strategy and allows the Board of Directors to be informed of the main technological risks to which the Group is exposed, as well as current cybersecurity and technology trends and any relevant security event that can affect the BBVA Group.

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Regarding business continuity, during 2020 BBVA has included “resilience” as an integral part of its holistic approach. This change reflects the evolution from a model mainly oriented to guarantee the continuous provision of products and services in situations with high impact and low probability to a model where the organization has the ability to absorb and adapt to situations with an operative impact due to disruptions of different nature (such as pandemics, cyber incidents, natural disasters or technological failures). This transition has implied an intense activity of the Resilience Office that, together with the Group’s Crisis Management Committees and Continuity Committees has had a relevant role in the management of the crisis caused by the COVID-19 pandemic.

ITEM 4A.      UNRESOLVED STAFF COMMENTS

None.

ITEM 5.      OPERATING AND FINANCIAL REVIEW AND PROSPECTS

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.

BBVA has a solid leadership position in the Spanish market, it is the largest financial institution in Mexico in terms of assets, it has leading franchises in South America and the Sunbelt Region of the United States (see “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” ) and it is the largest shareholder in Garanti BBVA, Turkey’s biggest bank in terms of market capitalization.

The purpose of the BBVA Group is to bring the age of opportunities to everyone, based on our customers’ real needs, resting the institution in solid values: customer comes first, we think big and we are one team.

The BBVA Group operates in Spain through Banco Bilbao Vizcaya Argentaria, S.A., a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. In addition to the transactions it carries out directly, Banco Bilbao Vizcaya Argentaria, S.A. is the parent company of the BBVA Group, which includes a group of subsidiaries, joint ventures and associates performing a wide range of activities.

Critical Accounting Policies

The Consolidated Financial Statements as of and for the years ended December 31, 2020, 2019 and 2018 were prepared by the Bank’s directors in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spain’s Circular 4/2017, and by applying the basis of consolidation, accounting policies and measurement bases described in Note 2 to the Consolidated Financial Statements, so that they present fairly the Group’s total equity and financial position as of December 31, 2020, 2019 and 2018, and its results of operations and consolidated cash flows for the years ended December 31, 2020, 2019 and 2018. The Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and by each of the other Group companies and include the adjustments and reclassifications required to unify the accounting policies and measurement bases used by the Group. See Note 2.2 to our Consolidated Financial Statements.

In preparing the Consolidated Financial Statements, estimates were made by the Group and the consolidated companies in order to quantify certain of the assets, liabilities, income, expense and commitments reported herein. These estimates relate mainly to the following:

·The loss allowance of certain financial assets.

·The assumptions used to quantify certain provisions and for the actuarial calculation of the post- employment benefit liabilities and commitments.

·The useful life and impairment losses of tangible and intangible assets.

·The valuation of goodwill and price allocation of business combinations.

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·The fair value of certain unlisted financial assets and liabilities.

·The recoverability of deferred tax assets.

Although these estimates were made on the basis of the best information available as of December 31, 2020, 2019 and 2018, respectively, events that take place in the future might make it necessary to revise these estimates (upwards or downwards) in coming years.

Note 2 to our Consolidated Financial Statements contains a summary of our significant accounting policies. We consider certain of these 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 Consolidated Financial Statements and the discussion below.

We have identified the accounting policies enumerated below as critical to the understanding of our financial condition and results of operations, since the application of these policies requires significant management assumptions and estimates that could result in materially different amounts to be reported if the assumptions used or underlying circumstances were to change.

See Note 2.3 to our Consolidated Financial Statements for information on changes to IFRS or their interpretation that were not yet effective as of December 31, 2020.

Financial instruments

As we describe in Note 1.3 to our Consolidated Financial Statements, IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting.

Fair value of financial instruments

The fair value of an asset or a liability on a given date is taken to be the price that would be received upon the sale of an asset, or paid, upon the transfer of a liability in an orderly transaction between market participants at the measurement date. The most objective and common reference for the fair value of an asset or a liability is the price that would be paid for it on an organized, transparent and deep market (“quoted price” or “market price”). 

If there is no market price for a given asset or liability, its fair value is estimated on the basis of the price established in recent transactions involving similar instruments and, in the absence thereof, by using mathematical measurement models sufficiently tried and trusted by the international financial community. Such estimates would take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with the asset or liability. However, the limitations inherent to the measurement models developed and the possible inaccuracies of the assumptions required by these models may signify that the fair value of an asset or liability thus estimated does not coincide exactly with the price for which the asset or liability could be purchased or sold on the date of its measurement.

See Notes 2.2.1 and 8 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies.

Derivatives and other future transactions

These instruments include outstanding foreign currency purchase and sale transactions, outstanding securities purchase and sale transactions, futures transactions relating to securities, exchange rates or interest rates, forward interest rate agreements, options relating to exchange rates, securities or interest rates and various types of financial swaps.

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All derivatives are recognized on the balance sheet at fair value from the date of arrangement. If the fair value of a derivative is positive, it is recorded as an asset and if it is negative, it is recorded as a liability. Unless there is evidence to the contrary, it is understood that on the date of arrangement the fair value of the derivatives is equal to the transaction price. Changes in the fair value of derivatives after the date of arrangement are recognized in the heading “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the consolidated income statement.

Specifically, the fair value of the standard financial derivatives included in the held for trading portfolios is equal to their daily quoted price. If, under exceptional circumstances, their quoted price cannot be established on a given date, these derivatives are measured using methods similar to those used to measure over-the-counter (“OTC”) derivatives.

The fair value of OTC derivatives is equal to the sum of the future cash flows arising from the instruments discounted at the measurement date (“present value” or “theoretical value”). These derivatives are measured using methods recognized by the financial markets, including the net present value method and option price calculation models.

Financial derivatives that have equity instruments as their underlying, whose fair value cannot be determined in a sufficiently objective manner and are settled by delivery of those instruments, are measured at cost, although the amortized cost criteria is not used when accounting for these instruments.

Financial derivatives designated as hedging items are included in the heading of the balance sheet “Derivatives - Hedge accounting”. These financial derivatives are valued at fair value.

See Note 2.2.1 to our Consolidated Financial Statements, which contains a summary of our significant accounting policies with respect to these instruments.

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. See Note 2.2.7 to our Consolidated Financial Statements for the definition of CGU.

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 (except where they are not valued at fair value). 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.

See Notes 2.2.6 and 2.2.7 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies related to goodwill.

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The results from each of these tests on the dates mentioned were as follows:

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 18.1 to our Consolidated Financial Statements. As of December 31, 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 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 prior estimates. For additional information, see Note 18.1 to our Consolidated Financial Statements.

As of December 31, 2018, as a result of the CGUs assessment, the Group concluded there was no evidence of indicators of impairment that require recognizing significant impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.

United States CGU

As of December 31, 2020, the remaining goodwill corresponding to the United States CGU has been reclassified to the heading "Non-current assets and disposal groups classified as held for sale" in the consolidated balance sheet. Pursuant to IFRS 5.15, the CGU must be measured at the lower of fair value less costs to sell and the carrying amount. Given the price agreed in the USA Sale share purchase agreement, the fair value less costs to sell is higher than the carrying amount of the assets and liabilities of the CGU, which means that as of December 31, 2020 the assets and liabilities of the CGU will remain valued at their carrying amount (including goodwill) on the reclassification date.

The calculation of the impairment test performed as of March 31, 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% and 4.0% as of December 31, 2019 and 2018, respectively) to extrapolate the cash flows in perpetuity starting in 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. The GDP growth 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% and 10.5% as of December 31, 2019 and 2018, respectively), 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, and €1,009 million and €1,176 million, respectively, as of December 31, 2018). 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, and €526 million and €451 million, respectively, as of December 31, 2018).

Mexico CGU

Part of the Group’s goodwill balance corresponds to the CGU in Mexico. The impairment test used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2020, the Group used a growth rate of 5.7% (5.9% as of December 31, 2019 and 5.6% as of December 31, 2018) to extrapolate the cash flows in perpetuity starting in the fifth year, based on the real GDP growth rate of Mexico, expected inflation and the potential growth of the banking sector in Mexico. The rate used to discount cash flows is the cost of capital assigned to the CGU, 15.3% as of December 31, 2020 (14.8% as of December 31, 2019 and 2018).

As of December 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €1,043 million and €1,156 million, respectively (€1,453 million and €1,624 million, respectively, as of December 31, 2019). If, as of December 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €688 million and €620 million, respectively (€957 million and €856 million, respectively, as of December 31, 2019).

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Turkey CGU

Part of the Group’s goodwill balance corresponds to the CGU in Turkey. The impairment test used the cash flow projections estimated by the Group’s management, based on the latest budgets available for the next five years. As of December 31, 2020, the Group used a growth rate of 7.0% (the same rate was considered as of December 31, 2019 and 2018) 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, 21.0% as of December 31, 2020 (17.4% and 24.3% as of December 31, 2019 and 2018, respectively), which consists of the risk free rate plus a risk premium.

As of December 31, 2020 if the discount rate had increased or decreased by 50 basis points, the recoverable amount would have decreased or increased by €164 million and €175 million, respectively (€192 million and €212 million, respectively, as of December 31, 2019). If, as of December 31, 2020, the growth rate had increased or decreased by 50 basis points, the recoverable amount would have increased or decreased by €29 million and €26 million, respectively (€31 million and €28 million, respectively, as of December 31, 2019).

As of December 31, 2020, December 31, 2019 and December 31, 2018 the recoverable amounts of the CGUs not listed above were in excess of their carrying value.

 Insurance contracts

The methods and techniques used to calculate the mathematical reserves for insurance contracts mainly involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each contract. Changes in insurance mathematical reserves may occur in the future as a consequence of changes in interest rates and other key assumptions. See Notes 2.2.8 and 23 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies and assumptions about our most significant insurance contracts.

Post-employment benefits and other long term commitments to employees

Pension and post-retirement benefit costs and credits are based on actuarial calculations. Inherent in these calculations are assumptions including discount rates, rate of salary increase and expected return on plan assets. Changes in pension and post-retirement costs may occur in the future as a consequence of changes in interest rates, expected return on assets or other assumptions. See Notes 2.2.11 and 25 to our Consolidated Financial Statements, which contain a summary of our significant accounting policies about pension and post-retirement benefit costs and credits.

A.   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.

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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 for inclusion in our Consolidated Financial Statements, and income statement items have been converted at the average exchange rates for the period. See Note 2.2.19 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 years ended December 31, 2020, 2019 and 2018 and as period-end exchange rates as of December 31, 2020, 2019 and 2018 according to the European Central Bank (the “ECB”). 

	Average Exchange Rates			Period-End Exchange Rates
	Year Ended December 31, 2020	Year Ended December 31, 2019	Year Ended December 31, 2018	As of December 31, 2020	As of December 31, 2019	As of December 31, 2018
Mexican peso	24.5301	21.5531	22.7046	24.4160	21.2202	22.4921
U.S. dollar	1.1418	1.1195	1.1810	1.2271	1.1234	1.1450
Argentine peso				103.2543	67.2860	43.2900
Colombian peso	4,216.8126	3,673.6747	3,484.3206	4,212.0208	3,681.5391	3,745.3184
Peruvian sol	3.9923	3.7335	3.8787	4.4470	3.7205	3.8621
Turkish lira	8.0501	6.3595	5.7058	9.1131	6.6843	6.0588

During 2020, foreign exchange markets have been affected by the COVID-19 pandemic, which has generally had an adverse impact on currencies of emerging economies. The COVID-19 pandemic also affected the U.S. dollar as the extraordinary response taken by the U.S. government and the Federal Reserve placed downward pressure on the U.S. dollar. All currencies listed above depreciated against the euro in average terms compared with average exchange rates in the prior year.In terms of period-end exchange rates, all these currencies depreciated as well against the euro. As a result, the overall effect of changes in exchange rates was negative for the period-on-period comparison of the Group’s income statement and balance sheet.

During 2019, the Turkish lira, the Argentine peso and the Colombian peso depreciated against the euro in average terms compared with average exchange rates in the prior year. On the other hand, the Mexican peso, the U.S. dollar and the Peruvian sol appreciated against the euro in average terms. In terms of period-end exchange rates, the Argentine peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian sol appreciated against the euro. The overall effect of changes in exchange rates was positive for the period-on-period comparison of the Group’s income statement and negative for the period-on-period comparison of the Group’s balance sheet.

When comparing two dates or periods in this annual report on Form 20-F 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.

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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 year ended 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 reductions in reference interest rates, the relaxation of prudential requirements, restrictions on the distribution of dividends, 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 (as defined below) to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments), the implementation of credit programs supported by public guarantees for corporates, SMEs 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 significantly decreased during 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 RWAs, 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) and the deterioration of the Group’s capital ratios. 

In addition, in several of the countries in which the Group operates, including Spain, the Group temporarily closed a significant number of its offices and reduced hours of working with the public, with teams that provide central services working remotely. These measures were partially reversed in some regions. 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, the COVID-19 pandemic has had an adverse effect on the Group’s results and capital base. During the first half of the year the main accumulated impacts were the following:

a)a deterioration in the portfolio of financial assets at amortized cost (mainly loans and advances to customers), mainly due to the deterioration of the macroeconomic environment, which had a negative impact of €2,009 million (including the initial adverse effect of moratoria) and provisions for credit risk and contingent commitments in an aggregate amount of €95 million (see Notes 7.2, 46 and 47 to our Consolidated Financial Statements); and

b)a deterioration in the value of 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 had a net negative impact of €2,084 million on the Group’s attributed profit (although this impact does not affect the tangible book value, nor the solvency or the liquidity of the Group) (see Notes 18.1 and 49 to our Consolidated Financial Statements).

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From June 30, 2020 on, and as a consequence of the general economic deterioration in many countries and the pick up in activity in certain countries in the latter part of the year, we believe that the specific impact of COVID-19 cannot be easily isolated and we have therefore not quantified its impact for the year ended December 31, 2020. We expect the COVID-19 pandemic to continue adversely affecting the Group. Among other impacts, we expect non-performing loans and RWAs to increase once payment moratoria schemes adopted by governments are lifted.

For information on the impact of the COVID-19 pandemic on our capital, see “—Capital”. 

Measures adopted in light of the COVID-19 pandemic

For summarized information on certain supervisory pronouncements to be taken into account 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 the Consolidated Financial Statements. For summarized information on certain relief measures adopted by the ECB regarding capital and liquidity requirements, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Capital Requirements”. 

In accordance with 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 resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludes distributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends”. 

Since the beginning of the pandemic, the Group has offered payment deferrals to its customers in all the geographies in which it operates. These measures have been driven both by government-led initiatives (typically reflected in local laws and regulation) and non-legally-imposed initiatives (based on sectorial or individual schemes), aimed at mitigating the effects of COVID-19. Generally, the payment of principal and/or interest has been deferred without there being lease modifications in accordance with IFRS 16. See “Presentation of Financial Information—Changes in Accounting Policies—IFRS 16 –Leases – COVID-19 modifications”. Generally, these deferrals have been given for a period of less than one year. Deferrals have been granted to customers in all categories (retail, SMEs and wholesale). With respect to corporates, they are mainly in the Leisure, Real Estate and Automotive sectors. Except in the case of Mexico and Argentina (where the period for qualifying for payment deferrals has already ended), additional customers may qualify for these deferrals. The deadline for qualifying for payment deferrals in most regions ends in the first quarter of 2021, except in Turkey (May 2021), Colombia (July 2021) and in the United States (January 2022).

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.

Europe

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 initial endowment of €750,000 million and an additional endowment of €600,000 million until June 2021 (or until the ECB considers the crisis has been resolved) 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 higher debt and the plan is expected to result in a lower cost of funding for member states.

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In addition, on April 30, 2020, the ECB relaxed some of the terms and conditions of the TLTRO III facilities to support banks’ liquidity and, therefore, support the continued access of companies and households to bank credit. Entities whose eligible net credit investment exceeds 0% between March 1, 2020 and March 31, 2021 will pay an interest rate 0.5% lower than the average rate of their deposit facilities from June 24, 2020 to June 23, 2021, meaning that the interest rate applicable to the facilities arranged is -1%. Outside of this period, the average interest rate of the deposit facilities will be applied (currently -0.5%) provided that the financing objectives are met according to the conditions of the ECB. BBVA participated in the TLTRO III program windows in December 2019 and in March and June 2020 (with an amount drawn down at the end of December 2020 of €35,032 million) due to their favorable conditions in terms of cost and term, repaying in turn the corresponding part of the TLTRO II program.

In addition, a new program for long-term refinancing transactions without a specific emergency objective (PELTRO) was established.

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, payment deferrals on insurance and credit cards, as well as grace periods on loans for the most affected population. Such measures have been covered mainly by Royal Decree Laws 8/2020 and 11/2020 (jointly, the “RDL”), as well as the agreement promoted by the Spanish Banking Association (“AEB”) to which BBVA has adhered (the “CECA-AEB agreement”).  

The moratoria measures included in the RDL have been directed to the especially vulnerable groups indicated in the regulation. These measures consist of a three-month payment deferral of principal and interest. Additionally, once the term of such deferral has expired, customers have the possibility of joining the relevant sector agreement. By type of customer, they are aimed at individuals and individual or self-employed entrepreneurs, and by type of product, mortgage, personal and consumer loans.

The moratoria measures included in the CECA-AEB agreement to which BBVA has adhered allow loan debtors to extend maturities and defer interest payments. As originally drafted, these measures consisted of an up to 12-month payment deferral of principal in the case of mortgage loans and an up to six-month payment deferral of principal and interest in personal loans. Said agreement expired on September 29, 2020, but was extended (with certain changes) until March 30, 2021. In particular, the new conditions provide an up to nine-month payment deferral of principal in the case of mortgage loans (while the duration of the deferral for personal loans continued to be the same).

Additionally, the ICO has implemented several aid programs aimed at self-employed individuals, SMEs and entities, through which a public guarantee which covers between 60% and 80% of the principal amount of a loan is granted for a period of up to five years in respect of loans eligible under such programs. The amount of the guarantee and the term depend on the size of the company and the type of product. The ICO has also granted loans to individuals in an aggregate amount equivalent to up to six months of rent in loans to be repaid in up to six years.

The United States

In the United States, the Federal Reserve has cut interest rates to zero, launched a program of massive purchases of financial assets, created a number of credit facilities and revised its monetary policy strategy, suggesting greater tolerance for inflation in the future. 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.

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.

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Mexico

In Mexico, the National Banking Commission of Securities (“CNBV”) published official letters P285 / 2020 of March 26, 2020 and P293 / 2020 of April 15, 2020, allowing the granting of capital and interest payment deferral for a period of four months, extendable for two additional months. These measures were relied on both by individuals and corporates, affecting mortgage loans, personal loans and consumer loans, including credit cards. During March and April 2020, BANXICO reduced the monetary policy 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 U.S. dollars with credit institutions in which BBVA Mexico participated since April, in the aggregate amount of $1,250 million, and partially renewed that position from June to September for $700 million.

Measures adopted by the Group in Mexico include a repayment deferral 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 large corporate customers.

Turkey

Due to the COVID-19 outbreak, the Turkish government has announced a program of fiscal measures (Economic Stability Shield) to offset the effects of the pandemic by allowing banks to defer payments for three months, extendable for three additional months, which was accompanied by several communications from the BRSA. These support measures are granted to both individuals and companies. Additionally, public support programs have been implemented, through which a public guarantee which covers up to 80% of the principal amount of a loan eligible thereunder is granted for a period of one year.

The Central Bank has decreased the average financing rate, tightened its monetary policy and increased the reserve requirement rates, in addition to taking measures to provide liquidity with long term instruments and discount rates.

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

For information on additional measures adopted in Turkey, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Principal Markets—Turkey”. 

South America

In South America, various central banks and governments have implemented measures to stimulate economic activity and provide greater liquidity in financial systems.

In Colombia, the binding legislation for moratoria was approved by the Financial Superintendency, through Circulars 07/2020 and 14/2020, as well as Resolution No. 385. The moratoria consist of the payment deferral of principal and interest payments for up to six months. The deadline to apply for them has been extended until July 2021.

 In Peru, a fiscal package has been implemented to alleviate the negative impacts of COVID-19 on households and businesses. The measures were approved through various official letters issued by the Superintendency of Banking and Insurance, allowing the deferral of principal and interest payments initially up to six months and then extended to up to 12, mainly to individuals, self-employed entrepreneurs and SMEs. Additionally, there have been public support programs such as Reactiva, Crecer or FAE aimed at companies and micro-companies.

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 In Argentina, the repeated implementation of quarantine restrictions has been accompanied by government fiscal support measures targeting certain sectors and regions. Exchange-rate restrictions have been adopted in order to halt the fall in reserves. Further, moratorium measures have been mainly reflected on state legislation, such as Royal Decree 544/2020 or Decree 319/202, as well as various Central Bank regulations. Aimed at a broad group of clients, they facilitate the deferral of capital and interest for up to three months. Public support programs have also been adopted in Argentina. Such programs offer public guarantees of up to 100% of the principal amount of eligible loans to micro-SMEs or self-employed entrepreneurs and up to 25% with respect to loans to other companies for up to one year.

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 to be taken into accountin the implementation of the accounting and prudential frameworks applicable to financial institutions. In particular, the ECB and/or the EBA, as the case may be, have adopted the following relief measures regarding asset quality deterioration and non-performing loans: (i) with respect to loans affected by legally imposed payment moratoria related to the COVID-19 pandemic, it has afforded 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 the CRR, as regards certain adjustments in response to the COVID-19 pandemic (the “CRR Quick Fix”) , contains a number of adjustments to the CRR 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.

On December 2, 2020, recognizing the exceptional circumstances of the second wave of COVID-19, the EBA expanded the period for applying the beneficial regulatory treatment for moratoria until March 31, 2021, updating the guidelines on legally-imposed and non-legally-imposed moratoria on loan repayments, including additional safeguards against the risk of an excessive increase in unrecognized losses on banks’ balance sheets.

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

Agreement for the alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.

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 business, through BBVA’s branch network in Spain.

On December 14, 2020, after obtaining the relevant regulatory approvals from the competent authorities, BBVA Seguros transferred to Allianz, Compañía de Seguros y Reaseguros, S.A., 50% of the share capital plus one share in BBVA Seguros Generales. BBVA Seguros received a cash payment of €274 million. Prior to that, BBVA transferred its non-life insurance business in Spain, excluding the health insurance business, to BBVA Seguros Generales. 

Allianz, Compañía de Seguros y Reaseguros, S.A. may need to make an additional payment to BBVA of up to €100 million if certain business goals and milestones are met. This transaction has resulted in a profit net of taxes of approximately €304 million and has increased the Group’s CET1 (fully loaded) ratio by 7 basis points.

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Application of IFRS 16

On January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The new standard introduced a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA applied both exceptions.

A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings “Tangible assets - Properties, plants and equipment” and “Tangible assets – Investment properties” in our Consolidated Financial Statements (see Note 17), and a lease liability representing its obligation to make lease payments, which is recorded under the heading “Financial liabilities at amortized cost – Other financial liabilities” in our Consolidated Financial Statements (see Note 22.5). For the consolidated income statement within our Consolidated Financial Statements, the amortization of the right to use asset is recorded under the heading “Depreciation and amortization – Tangible assets” (see Note 45) and the financial cost associated with the lease liability is recorded under the heading “Interest expense – Financial liabilities at amortized cost” (see Note 37.2).

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

At the adoption date, the Group decided to apply the modified retrospective approach which required the recognition of lease liabilities in an amount equal to the present value of any future payments committed under the Group’s leases as of such date. Regarding the measurement of its right-of-use assets, the Group elected to record an amount equal to the lease liabilities, adjusted for the amount of any advance or accrued lease payment related to the Group’s leases recognized in the consolidated financial statements immediately before the adoption date.

As of January 1, 2019, the Group recognized right-of-use assets and lease liabilities for an amount of €3,419 million and €3,472 million, respectively. The impact in terms of the CET1 of the Group amounted to -11 basis points.

As allowed by IFRS 16, consolidated financial information as of December 31, 2018 and for the year then ended has not been restated retrospectively in this regard.

Sale of BBVA Chile

On November 28, 2017, BBVA received a binding offer from Scotiabank for the acquisition of BBVA’s stake in BBVA Chile as well as in other companies of the Group in Chile with operations that are complementary to the banking business (among them, BBVA Seguros de Vida, S.A.). BBVA owned, directly and indirectly, 68.19% of BBVA Chile’s share capital. On December 5, 2017, BBVA accepted the offer and entered into a sale and purchase agreement and the sale was completed on July 6, 2018. The consideration received in cash by BBVA in the referred sale amounted to approximately $2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018. BBVA Chile was part of our South America segment.

Transfer of real estate business and sale of stake in Divarian

On October 10, 2018, after obtaining the required authorizations, BBVA completed the transfer of the Business (except for part of the agreed REOs which were contributed in several subsequent transfers, being the last one in May 2020) to Divarian and the sale of an 80% stake in Divarian to Promontoria. Prior to its contribution to Divarian, the Business was part of our former Non-Core Real Estate segment (which was subsequently integrated into our Spain operating segment). Following the closing of the transaction, BBVA retained 20% of the share capital of Divarian, which is accounted for under the Corporate Center. For additional information on the Cerberus Transaction, see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2018”. 

Agreement with Voyager Investing UK Limited Partnership (Anfora)

On December 21, 2018, BBVA reached an agreement with Voyager, an entity managed by Canada Pension Plan Investment Board, for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in default mortgage credits. The transaction was completed during the third quarter of 2019 and resulted in a gain, net of taxes, of €138 million and a slightly positive impact on the BBVA Group’s CET1.

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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. Typically, 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.

BBVA Research estimates that the world’s GDP contracted severely in 2020 due to the effects of the COVID-19 pandemic. Global growth is expected to go back to positive in 2021, but the recovery is expected to be gradual and heterogeneous across countries. Supply, demand and financial factors caused an unprecedented drop in GDP in the first half of the year. Supported by decisive measures on fiscal and monetary policy, as well as tighter control of the spread of the virus, global growth rebounded more significantly than expected in the third quarter, before moderating in the fourth quarter, when the number of infections rose again in many regions, mainly in the United States and Europe. The negative evolution of the pandemic is expected to adversely affect activity in the short term and that new fiscal and monetary stimuli as well as the inoculation of vaccines will support the recovery from the middle of the year.

Uncertainty remains high despite the improvement in prospects created by vaccines. Slow vaccination rates, new strains of the coronavirus as well as stress generated by high public and private debt could, for example, pave the way for more negative scenarios. But more positive scenarios, either due to a sharper rebound in confidence following the inoculation of the vaccines or stimulated by further monetary and fiscal policies (especially in the United States) should not be ruled out.

In Spain, according to BBVA Research estimates, GDP contracted by an estimated 11.0% in 2020 and could grow by around 5.5% in 2021 and 7.0% in 2022. The performance of the economy improved during the third quarter of 2020, but it slowed down in the fourth quarter of 2020, as the impact of public policies on domestic demand showed symptoms of exhaustion. Both private consumption and investment -public and private-, are expected to benefit from the vaccination campaign, the expansive fiscal policy and favorable financing conditions. The vaccination campaign is expected to boost activity as it would reduce health uncertainty and relax restrictions on the mobility and the permit the re-opening of service sector businesses. Funds associated with the European Recovery Plan (Next generation EU or “NGEU”) are expected to have an increasing effect over time. Estimates of the impact of these funds on the economy continue to point to a significant effect this year and the next two years.

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Meanwhile, at a European level, fiscal packages have been enacted by all relevant European authorities, the EU and member states. The European Commission has approved the NGEU plan, a €750 billion temporary recovery instrument (5.4% EU GDP). Its centerpiece, the Recovery and Resilience Facility has been launched to support reforms and investments undertaken by EU countries, and includes €390 billion in grants to be released until 2023, and €360 billion in loans which are expected to be in place until 2026. According to the European Commission estimates, NGEU could lift GDP growth by 1.5%-2% by 2024. Moreover, the ECB has extended the Pandemic Emergency Purchase Programme (PEPP) to up to €1,850 billion, while purchases have been extended until March 2022, and the terms of liquidity operations TLTROs III have also been relaxed. After a quarterly GDP rebound of 12.5% in the third quarter of 2020 in the Eurozone, the resurgence of COVID-19 infections since the autumn and the accompanying tighter social restrictions started to take their toll again on activity in the fourth quarter of 2020 and they are expected to extend into the first half of 2021. However, unlike the first COVID-19 wave, the new lockdown measures are more limited and both the manufacturing sector and exports seem to be more resilient due also to the recovery in global demand, especially from China, and some positive effects due to higher inventories related to the end of the Brexit transition period. This could partly offset the sharp fall in activity in social consumption sectors and services. BBVA Research expects the world’s GDP to have fallen around -2.6% quarter-on-quarter in the fourth quarter of 2020, resulting in an estimated annual GDP fall of -7.3% in 2020. Weaker momentum in the first half of 2021 is expected to result in a slow recovery in 2021 (4.1%), although the roll out of the vaccines and the EU’s fiscal program is expected to underpin growth as from the second half of 2021 and in 2022 (4.4%).

After a rebound in growth during the third quarter of 2020, the Mexican economy moderated its recovery in the fourth quarter of 2020, due in part to the announcement of new restrictions on mobility at the end of the year. The economy contracted by 8.5% in 2020 and BBVA Research expects it to grow by 3.2% in 2021. The lack of fiscal stimulus in Mexico could make the recovery particularly slow. Regarding the vaccine, Mexico has purchased doses from different suppliers, which could boost the opening of economic activities, although the distribution of these vaccines and the speed of the vaccination process represent an important challenge that will need to be addressed throughout the year. Inflation is expected to remain within the target range of BANXICO and BBVA Research expects that BANXICO will continue the cycle of lowering the monetary policy rate and that it will lower it from the current 4.25% to 3.5% by May 2021.

In Turkey, BBVA Research estimates GDP grew by 1% in 2020, and expects that GDP will increase by 5.5% in 2021 and 4.5% in 2022. GDP growth in the third quarter of 2020 was better than estimated, with the services sector, which is very sensitive to the COVID-19 crisis, contributing positively while other main sub sectors also showing a strong rebound.

In the United States, GDP contracted by 3.5% in 2020. Although the spread of COVID-19 may adversely affect the beginning of 2021, BBVA Research expects that the progressive vaccination of the population as well as highly expansionary fiscal and monetary policies will increasingly support economic activity. BBVA Research expects GDP to expand 3.6% in 2021 and 2.4% in 2022, after having contracted around 3.6% in 2020. The new administration is expected to adopt further fiscal stimulus measures.

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In Argentina, the third quarter of 2020 GDP was better than expected, driven by the decrease in mobility restrictions. Overall, BBVA Research estimates that GDP contracted by -11.0% in 2020 and it expects Argentina to grow by 6.0% in 2021. Growth in 2021 will depend on the rebound of the economy but GDP levels are expected to remain below those of 2019. At the end of 2020, some fiscal measures were implemented to reduce the fiscal deficit, so that the primary deficit is estimated to have closed the year at around 6.5% of GDP, significantly below what was expected. It is expected that an agreement will be reached with the IMF by the second quarter. The vaccination process has already begun.

In Colombia, BBVA Research estimates a GDP contraction of 7.2% in 2020 and a partial recovery of 4.8% in 2021. Growth dynamics this year are expected to be led by housing construction, one of the pillars of the government’s recovery policies. On the other hand, the recovery is expected to be limited by the effect of new mobility restrictions adopted in light of the COVID-19 outbreaks (which, however, are expected to have less effect than those adopted during 2020) and the effect of a potential tax reform that would imply higher VAT. Going forward, growth risks are expected to be mainly related to the new wave of infections that could lead authorities to impose new mobility restrictions as well as delays in the vaccination process.

 Peru’s GDP in the fourth quarter of 2020 was better than expected, with a contraction close to 3.3%. BBVA Research estimates that in 2020 GDP contracted by 11.5%. In 2021 it expects growth to be 10%. The elections scheduled for April may lead to political uncertainty for at least the first part of the year. The risks ahead are related to an eventual outbreak of the virus and to governance in the face of a fragmented congress.

BBVA Group results of operations for 2020 compared to 2019

The table below shows the Group’s consolidated income statements for 2020 and 2019.

As a consequence of the proposed USA Sale, the profit (loss) of companies falling within the scope of this transaction was recognized under “Profit / (loss) from discontinued operations, net” in the consolidated income statement for the year ended December 31, 2020. The Group’s consolidated income statement for 2019 has been restated for comparative purposes. See “Presentation of Financial Information” for additional information.

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	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Interest and other income	22,389	27,762	(19.4)
Interest expense	(7,797)	(11,972)	(34.9)
Net interest income	14,592	15,789	(7.6)
Dividend income	137	153	(10.1)
Share of profit or loss of entities accounted for using the equity method	(39)	(42)	(6.9)
Fee and commission income	5,980	6,786	(11.9)
Fee and commission expense	(1,857)	(2,284)	(18.7)
Net gains (losses) on financial assets and liabilities (1)	1,187	705	68.4
Exchange differences, net	359	581	(38.2)
Other operating income	492	639	(23.0)
Other operating expense	(1,662)	(1,943)	(14.4)
Income on insurance and reinsurance contracts	2,497	2,890	(13.6)
Expense on insurance and reinsurance contracts	(1,520)	(1,751)	(13.2)
Gross income	20,166	21,522	(6.3)
Administration costs	(7,799)	(8,769)	(11.1)
Personnel expense	(4,695)	(5,351)	(12.3)
Other administrative expense	(3,105)	(3,418)	(9.2)
Depreciation and amortization	(1,288)	(1,386)	(7.0)
Net margin before provisions (2)	11,079	11,368	(2.5)
Provisions or reversal of provisions and other results	(746)	(614)	21.6
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(5,179)	(3,552)	45.8
Impairment or reversal of impairment on non-financial assets	(153)	(128)	19.2
Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates	(197)	(50)	293.0
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	444	23	n.m. (3)
Operating profit/(loss) before tax	5,248	7,046	(25.5)
Tax expense or income related to profit or loss from continuing operations	(1,459)	(1,943)	(24.9)
Profit /(loss) from continuing operations	3,789	5,103	(25.8)
Profit /(loss) from discontinued operations, net	(1,729)	(758)	128.1
Profit /(loss)	2,060	4,345	(52.6)
Profit /(loss) attributable to parent company	1,305	3,512	(62.9)
Profit /(loss) attributable to non-controlling interests	756	833	(9.3)

(1) Comprises the following income statement line items contained in the 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.

108

The changes in our consolidated income statements for the years ended December 31, 2020 and 2019 were as follows:

Net interest income

The following table summarizes net interest income for the years ended December 31, 2020 and 2019.

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Interest and other income	22,389	27,762	(19.4)
Interest expense	(7,797)	(11,972)	(34.9)
Net interest income	14,592	15,789	(7.6)

Net interest income for the year ended December 31, 2020 amounted to €14,592 million, a 7.6% decrease compared with the €15,789 million recorded for the year ended December 31, 2019, as interest and other income declined by 19.4% due mainly to the decrease in volumes and yields (see “Item 4. Information on the Company—Selected Statistical Information—Average Balances and Rates”), combined with a decrease in interest expense of 34.9%, mainly driven by lower funding costs. By region, the decline in net interest income was mainly as a result of the decreases in net interest income in Mexico and South America (as described below). At constant exchange rates, net interest income increased by 4.8%. The following factors, set out by region, were the main contributors to the 7.6% decrease in net interest income:

·Mexico: there was a 12.8% decrease mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in the interest reference rate by 300 basis points during 2020 in response to the COVID-19 pandemic crisis. At constant exchange rates, there was a 0.7% decrease.

·South America: there was a 15.5% decrease mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates in the region against the euro. At constant exchange rates, there was a 0.9% increase.

·Turkey: there was a 1.1% decrease mainly as a result of the depreciation of the Turkish lira against the euro. At a constant exchange rate, there was a 25.2% increase in net interest income, mainly as a result of higher customer spreads in Turkish lira-denominated loans and higher loan volumes.

·Spain: there was a 0.4% decrease mainly as a result of the lower interest rates.

Dividend income

Dividend income for the year ended December 31, 2020 amounted to €137 million, a 10.1% decrease compared with the €153 million recorded for the year ended December 31, 2019 mainly as a result of the restriction imposed by the Central Bank of the Argentine Republic (BCRA) to private banks on the distribution of profits to shareholders until June 30, 2021, with the goal of preserving available liquidity for the granting of loans to customers, and, to a lesser extent, the depreciation of the currencies of the main countries where the Group operates against the euro.

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 year ended December 31, 2020 amounted to a €39 million loss, compared with the €42 million loss recorded for the year ended December 31, 2019.

109

Fee and commission income

The table below provides a breakdown of fee and commission income for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Bills receivables	27	39	(30.8)
Demand accounts	322	301	7.0
Credit and debit cards and TPVs	2,089	2,862	(27.0)
Checks	136	198	(31.3)
Transfers and other payment orders	555	623	(10.9)
Insurance product commissions	159	158	0.6
Loan commitments given	185	187	(1.1)
Other commitments and financial guarantees given	349	377	(7.4)
Asset management	1,100	1,026	7.2
Securities fees	367	294	24.8
Custody securities	135	123	10.0
Other fees and commissions	556	599	(7.2)
Fee and commission income	5,980	6,786	(11.9)

Fee and commission income decreased by 11.9% to €5,980 million for the year ended December 31, 2020 from the €6,786 million recorded for the year ended December 31, 2019, primarily due to the depreciation of the currencies of the main countries where the BBVA Group operates and the lower volume of transactions as a result of the COVID-19 pandemic, especially in Mexico, particularly involving credit cards, and the temporary elimination or reduction of fees in certain regions, such as point of sale fees in Mexico and Turkey in order to support retailers with lower turnover, partially offset by the increase in fee and commission income from asset management activities in Spain.

Fee and commission expense

The breakdown of fee and commission expense for the years ended December 31, 2020 and 2019 is as follows:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Demand accounts	5	6	(16.7)
Credit and debit cards	1,130	1,566	(27.8)
Transfers and other payment orders	97	81	19.8
Commissions for selling insurance	54	54	0.0
Custody securities	52	30	73.3
Other fees and commissions	519	548	(5.3)
Fee and commission expense	1,857	2,284	(18.7)

Fee and commission expense decreased by 18.7% to €1,857 million for the year ended December 31, 2020 from the €2,284 million recorded for the year ended December 31, 2019, primarily due to the depreciation of the currencies of the main countries where the BBVA Group operates and the lower volume of transactions as a result of the COVID-19 pandemic, particularly involving credit cards, and the temporary elimination or reduction of fees in certain regions.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities increased by 68.4% to €1,187 million for the year ended December 31, 2020 compared to the net gain of €705 million recorded for the year ended December 31, 2019, mainly due to increased sales in the Global Markets unit in Mexico and securities’ sales within the ALCO portfolio in Mexico, partially offset by decreased sales in the Global Markets unit in Spain and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

110

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net	139	186	(25.0)
Financial assets at fair value through other comprehensive income	114	142	(20.2)
Financial assets at amortized cost	106	44	138.6
Other financial assets and liabilities	(81)	(1)	n.m. (1)
Gains (losses) on financial assets and liabilities held for trading, net	777	419	85.2
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net	208	143	45.6
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net	56	(98)	n.m. (1)
Gains (losses) from hedge accounting, net	7	55	(87.4)
Net gains (losses) on financial assets and liabilities	1,187	705	68.4

(1)   Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased 25.0% to €139 million in the year ended December 31, 2020 from €186 million in the year ended December 31, 2019 mainly due to decreased sales in the Global Markets unit in Spain.

Gains on financial assets and liabilities held for trading increased by 85.2%, to €777 million in the year ended December 31, 2020 from €419 million in the year ended December 31, 2019, mainly as a result of higher sales in the Global Markets unit in Mexico and securities’ sales within the ALCO portfolio in Mexico.

Gains on non-trading financial assets mandatorily at fair value through profit or loss increased by 45.6% to €208 million in the year ended December 31, 2020 from €143 million in the year ended December 31, 2019, primarily due to the positive evolution of a particular customer portfolio in Turkey and the positive impact of changes in exchange rates on certain foreign currency positions.

Exchange differences, net

Exchange differences decreased to a €359 million gain for the year ended December 31, 2020 from a €581 million gain for the year ended December 31, 2019 mainly as a result of the depreciation of the currencies of the main countries where the Group operates against the euro.

Other operating income and expense, net

Other operating income for the year ended December 31, 2020 decreased by 23.0% to €492 million compared with the €639 million recorded for the year ended December 31, 2019, mainly as a result of the lower adjustment for hyperinflation in Argentina, the lower dividend income from investees accounted for under the equity method and the depreciation of the currencies of the main countries where the Group operates against the euro.

Other operating expense for the year ended December 31, 2020 amounted to €1,662 million, a 14.4% decrease compared with the €1,943 million recorded for the year ended December 31, 2019, mainly driven by the lower adjustment for hyperinflation in Argentina and the depreciation of the currencies of the main countries where the BBVA Group operates, offset in part by the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

111

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 2020 was €2,497 million, a 13.6% decrease compared with the €2,890 million of income recorded for the for the year ended December 31, 2019, mainly due to the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

Expense on insurance and reinsurance contracts for the year ended December 31, 2020 was €1,520 million, a 13.2% decrease compared with the €1,751 million expense recorded for the year ended December 31, 2019, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 2020 amounted to €7,799 million, an 11.1% decrease compared with the €8,769 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates against the euro and lower costs driven by efficiency plans, in particular in Spain.

The table below provides a breakdown of personnel expense for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Wages and salaries	3,610	4,103	(12.0)
Social security costs	671	725	(7.5)
Defined contribution plan expense	72	95	(23.7)
Defined benefit plan expense	49	49	(1.4)
Other personnel expense	293	379	(22.7)
Personnel expense	4,695	5,351	(12.3)

The table below provides a breakdown of other administrative expense for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Technology and systems	1,088	1,060	2.6
Communications	172	181	(4.7)
Advertising	186	250	(25.5)
Property, fixtures and materials	404	477	(15.4)
Taxes other than income tax	344	378	(8.9)
Surveillance and cash courier services	161	188	(14.2)
Other expense	749	885	(15.4)
Other administrative expense	3,105	3,418	(9.2)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €1,288 million, a 7.0% decrease compared with the €1,386 million recorded for the year ended December 31, 2019, mainly due to the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

112

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results for the year ended December 31, 2020 amounted to an expense of €746 million, a 21.6% increase compared with the €614 million expense recorded for the year ended December 31, 2019, mainly as a result of higher provisions for various purposes, including mainly contingent risks in Spain, Mexico and South America, offset in part by the depreciation of the currencies of the main countries where the BBVA Group operates against the euro. 

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 2020 was an expense of €5,179 million, a 45.8% increase compared with the €3,552 million expense recorded for the year ended December 31, 2019, mainly due to the deterioration of macroeconomic conditions due to the negative effects of COVID-19 especially during the first half of 2020, which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers) in the main countries where the Group operates. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its retail, SMEs and wholesale customers amounting to €33,828 million as of December 31, 2020 (see Note 7.2 to the Consolidated Financial Statements), and the depreciation of the currencies of the main countries where the BBVA Group operates against the euro.

The table below provides a breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the years ended December 31, 2020 and 2019:

	Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Financial assets at fair value through other comprehensive income	19	82	(77.1)
Financial assets at amortized cost	5,160	3,470	48.7
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	5,179	3,552	45.8

Impairment or reversal of impairment on non-financial assets

Impairment or reversal of impairment on non-financial assets for the year ended December 31, 2020 amounted to an expense of €153 million, compared with the €128 million expense recorded for the year ended December 31, 2019, mainly as a result of the impairment on tangible assets, mostly real estate assets of own use.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates for the year ended December 31, 2020 amounted to a €197 million loss compared with the €50 million loss recorded for the year ended December 31, 2019.

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

Gains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 2020 was €444 million, compared with the €23 million recorded for the year ended December 31, 2019, mainly due to the sale to Allianz, Compañía de Seguros y Reaseguros, S.A. of 50% of the share capital plus one share in BBVA Allianz Seguros y Reaseguros, S.A. in the fourth quarter of 2020. See “― Factors Affecting the Comparability of our Results of Operations and Financial Condition―Alliance with Allianz, Compañía de Seguros y Reaseguros, S.A.” and Note 3 to our Consolidated Financial Statements.

113

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 2020 amounted to €5,248 million, a 25.5% decrease compared with the €7,046 million operating profit before tax recorded for the year ended December 31, 2019.

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

Tax expense related to profit from continuing operations for the year ended December 31, 2020 amounted to €1,459 million, a 24.9% decrease compared with the €1,943 million expense recorded for the year ended December 31, 2019, mainly due to the decrease in operating profit before tax. Tax expense amounted to 27.8% of operating profit before tax for the year ended December 31, 2020 and 27.6% for the year ended December 31, 2019.

Profit / (loss) from discontinued operations, net

Loss from discontinued operations for the year ended December 31, 2020 amounted to €1,729 million compared with the €758 million recorded for the year ended December 31, 2019, due to the year-on-year increase in the loss recognized by the Group from the companies held for sale in the United States. Such increase was mainly the result of the goodwill impairment losses recognized in the United States CGU, which are recorded in this line item in light of the pending sale of such business.

See “Presentation of Financial Information―Agreement for the sale of BBVA USA Bancshares, Inc.”, “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group” and Note 21 to our Consolidated Financial Statements.

Profit / (loss)

As a result of the foregoing, profit for the year ended December 31, 2020 amounted to €2,060 million, a 52.6% decrease compared with the €4,345 million recorded for the year ended December 31, 2019.

Profit / (loss) attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 2020 amounted to €1,305 million, a 62.9% decrease compared with the €3,512 million recorded for the year ended December 31, 2019.

Profit / (loss) attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 2020 amounted to €756 million, a 9.3% decrease compared with the €833 million profit attributable to non-controlling interests recorded for the year ended December 31, 2019.

114

BBVA Group results of operations for 2019 compared to 2018

The table below shows the Group’s consolidated income statements for 2019 and 2018. These consolidated income statements have been restated for comparative purposes, including to reflect the impact of the proposed USA Sale. See “Presentation of Financial Information”.

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Interest and other income	27,762	26,954	3.0
Interest expense	(11,972)	(11,669)	2.6
Net interest income	15,789	15,285	3.3
Dividend income	153	145	5.7
Share of profit or loss of entities accounted for using the equity method	(42)	(7)	n.m. (3)
Fee and commission income	6,786	6,462	5.0
Fee and commission expense	(2,284)	(2,059)	10.9
Net gains (losses) on financial assets and liabilities (1)	705	1,136	(37.9)
Exchange differences, net	581	13	n.m. (3)
Other operating income	639	929	(31.2)
Other operating expense	(1,943)	(2,021)	(3.9)
Income on insurance and reinsurance contracts	2,890	2,949	(2.0)
Expense on insurance and reinsurance contracts	(1,751)	(1,894)	(7.5)
Gross income	21,522	20,936	2.8
Administration costs	(8,769)	(9,020)	(2.8)
Personnel expense	(5,351)	(5,205)	2.8
Other administrative expense	(3,418)	(3,816)	(10.4)
Depreciation and amortization	(1,386)	(1,034)	34.0
Net margin before provisions (2)	11,368	10,883	4.5
Provisions or reversal of provisions and other results	(614)	(395)	55.4
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(3,552)	(3,681)	(3.5)
Impairment or reversal of impairment on non-financial assets	(128)	(137)	(6.2)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates	(50)	80	n.m. (3)
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	23	815	(97.2)
Operating profit/(loss) before tax	7,046	7,565	(6.9)
Tax expense or income related to profit or loss from continuing operations	(1,943)	(2,042)	(4.9)
Profit from continuing operations	5,103	5,523	(7.6)
Profit (loss) from discontinued operations, net	(758)	704	n.m. (3)
Profit	4,345	6,227	(30.2)
Profit attributable to parent company	3,512	5,400	(35.0)
Profit attributable to non-controlling interests	833	827	0.8

(1) Comprises the following income statement line items contained in the 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.

115

The changes in our consolidated income statements for the years ended December 31, 2019 and 2018 were as follows:

Net interest income

The following table summarizes net interest income for the years ended December 31, 2019 and 2018.

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Interest and other income	27,762	26,954	3.0
Interest expense	(11,972)	(11,669)	2.6
Net interest income	15,789	15,285	3.3

Net interest income for the year ended December 31, 2019 amounted to €15,789 million, a 3.3% increase compared with the €15,285 million recorded for the year ended December 31, 2018, mainly as a result of the increases in net interest income in Mexico and, to a lesser extent, South America (as described below). At constant exchange rates, net interest income increased by 4.1%. The following factors, set out by region, were the main contributors to the 3.3% increase in net interest income:

·Mexico: there was an 11.5% period-on-period increase in net interest income mainly as a result of increases in the volume of interest-earning assets in the retail portfolio and volumes and yields in the wholesale portfolio and, to a lesser extent, the appreciation of the Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers, particularly to enterprises and households. The increase was partially offset by greater funding costs. 

·South America: there was a 6.2% period-on-period increase in net interest income mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans in Colombia increased during 2019. These effects were partially offset by the depreciation of the Argentine peso against the euro. At constant exchange rates, there was a 15.2% increase.

The increase in net interest income was partially offset by:

·Spain: there was a 1.4% period-on-period decrease in net interest income mainly as a result of the lower contribution from the ALCO portfolio.

·Turkey: there was a 10.2% period-on-period decrease in net interest income mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 0.1% increase.

Dividend income

Dividend income for the year ended December 31, 2019 amounted to €153 million, a 5.7% increase compared with the €145 million recorded for the year ended December 31, 2018.

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 year ended December 31, 2019 amounted to a €42 million loss, compared with the €7 million loss recorded for the year ended December 31, 2018.

116

Fee and commission income

The table below provides a breakdown of fee and commission income for the years ended December 31, 2019 and 2018:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Bills receivables	39	39	-
Demand accounts	301	249	20.9
Credit and debit cards and TPVs	2,862	2,690	6.4
Checks	198	188	5.3
Transfers and other payment orders	623	595	4.7
Insurance product commissions	158	169	(6.5)
Loan commitments given	187	183	2.2
Other commitments and financial guarantees given	377	374	0.8
Asset management	1,026	986	4.1
Securities fees	294	301	(2.3)
Custody securities	123	123	-
Other fees and commissions	599	564	6.2
Fee and commission income	6,786	6,462	5.0

Fee and commission income increased by 5.0% to €6,786 million for the year ended December 31, 2019 from the €6,462 million recorded for the year ended December 31, 2018, primarily due to the increase in commissions relating to the use of credit and debit cards, as a result of the increased level of transactions (mainly in Mexico), the appreciation of the currencies of some of the main countries where the Group operates against the euro and, to a lesser extent, the increase in the number of corporate banking transactions and the positive performance of asset management activities in Spain.

Fee and commission expense

The breakdown of fee and commission expense for the years ended December 31, 2019 and 2018 is as follows:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Demand accounts	6	11	(45.5)
Credit and debit cards	1,566	1,403	11.6
Transfers and other payment orders	81	36	125.0
Commissions for selling insurance	54	48	12.5
Custody securities	30	29	3.4
Other fees and commissions	548	531	3.2
Fee and commission expense	2,284	2,059	10.9

Fee and commission expense increased by 10.9% to €2,284 million for the year ended December 31, 2019 from the €2,059 million recorded for the year ended December 31, 2018, mainly due to the increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in Mexico and Turkey, and the appreciation of the currencies of some of the main countries where BBVA operates against the euro.

Net gains (losses) on financial assets and liabilities

Net gains on financial assets and liabilities decreased by 37.9% to €705 million for the year ended December 31, 2019 compared to the net gain of €1,136 million recorded for the year ended December 31, 2018, mainly due to the weaker performance in Spain, due mainly to uneven market conditions, lower portfolio sales in 2019, and the depreciation of the Turkish lira.

117

The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the years ended December 31, 2019 and 2018:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net	186	191	(3.0)
Financial assets at fair value through other comprehensive income	142	153	(6.7)
Financial assets at amortized cost	44	37	21.9
Other financial assets and liabilities	(1)	2	n.m. (1)
Gains (losses) on financial assets and liabilities held for trading, net	419	640	(34.5)
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net	143	96	49.4
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net	(98)	139	n.m. (1)
Gains (losses) from hedge accounting, net	55	69	(20.2)
Net gains (losses) on financial assets and liabilities	705	1,136	(37.9)

(1)   Not meaningful.

Gains on derecognition of financial assets and liabilities not measured at fair value through profit or loss decreased to €186 million in the year ended December 31, 2019 from €191 million in the year ended December 31, 2018.

Gains on financial assets and liabilities held for trading decreased by 34.5%, to €419 million in the year ended December 31, 2019 from €640 million in the year ended December 31, 2018, mainly as a result of the decrease in the volume of U.S. Treasury securities and the depreciation of the Turkish lira, as well as the decrease in gains associated with derivatives and interest-bearing securities in Spain.

Gains on non-trading financial assets mandatorily at fair value through profit or loss increased to €143 million in the year ended December 31, 2019 from €96 million in the year ended December 31, 2018, primarily due to increased foreign-currency transactions and the valuation and sale of the stake in Prisma Medios de Pago, S.A. in Argentina.

Gains (losses) on financial assets and liabilities designated at fair value through profit or loss amounted to a €98 million loss in the year ended December 31, 2019 compared to the €139 million gain recorded in the year ended December 31, 2018.

Exchange differences, net

Exchange differences increased to a €581 million gain for the year ended December 31, 2019 from a €13 million gain for the year ended December 31, 2018 mainly as a result of the appreciation of the currencies of some of the main countries where BBVA operates against the euro (in average terms).

Other operating income and expense, net

Other operating income for the year ended December 31, 2019 decreased by 31.2% to €639 million compared with the €929 million recorded for the year ended December 31, 2018, mainly as a result of lower income from real estate related services in Spain following the various dispositions of real estate related assets completed (see “—Results of Operations by Operating Segment— Results of Operations by Operating Segment for 2019 Compared with 2018—Spain”) and, to a lesser extent, decreased dividends from Telefónica, S.A.

Other operating expense for the year ended December 31, 2019 amounted to €1,943 million, a 3.9% decrease compared with the €2,021 million recorded for the year ended December 31, 2018, mainly as a result of lower expense from real estate related services in Spain and the impact of the hyperinflation adjustment in Argentina.

118

Income and expense on insurance and reinsurance contracts

Income on insurance and reinsurance contracts for the year ended December 31, 2019 was €2,890 million, a 2.0% decrease compared with the €2,949 million of income recorded for the year ended December 31, 2018.

Expense on insurance and reinsurance contracts for the year ended December 31, 2019 was €1,751 million, a 7.5% decrease compared with the €1,894 million expense recorded for the year ended December 31, 2018, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and the depreciation of the Argentine peso against the euro.

Administration costs

Administration costs, which include personnel expense and other administrative expense, for the year ended December 31, 2019 amounted to €8,769 million, a 2.8% decrease compared with the €9,020 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due to the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, partially offset by increases in wages and salaries and increased technology costs.

The table below provides a breakdown of personnel expense for the years ended December 31, 2019 and 2018:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Wages and salaries	4,103	4,031	1.8
Social security costs	725	670	8.2
Defined contribution plan expense	95	72	31.0
Defined benefit plan expense	49	58	(15.2)
Other personnel expense	379	373	1.5
Personnel expense	5,351	5,205	2.8

The table below provides a breakdown of other administrative expense for the years ended December 31, 2019 and 2018:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Technology and systems	1,060	1,000	6.0
Communications	181	193	(6.2)
Advertising	250	265	(5.7)
Property, fixtures and materials	477	865	(44.9)
Taxes other than income tax	378	395	(4.3)
Surveillance and cash courier services	188	177	6.2
Other expense	885	921	(3.9)
Other administrative expense	3,418	3,816	(10.4)

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €1,386 million, a 34.0% increase compared with the €1,034 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets” (within “Depreciation and amortization”).

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results for the year ended December 31, 2019 amounted to an expense of €614 million, a 55.4% increase compared with the €395 million expense recorded for the year ended December 31, 2018, mainly as a result of increased provisions for commitments and guarantees given in Turkey and Spain, the increase in provisions for various purposes, particularly in Argentina, and the higher pension and pre-early retirement provisions in Spain, partially offset by lower real estate-related costs and the reversal of provisions in Spain.

119

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the year ended December 31, 2019 was an expense of €3,552 million, a 3.5% increase compared with the €3,681 million expense recorded for the year ended December 31, 2018, mainly due to the increase in allowances for loan losses driven by the contagion rules for retail exposures (‘pulling effect’) and macroeconomic deterioration, especially in Mexico and South America. In addition, there was credit quality deterioration in Argentina and Peru (which more than offset the impact of the depreciation of the Argentine peso).

The table below provides a breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the years ended December 31, 2019 and 2018:

	Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Financial assets at fair value through other comprehensive income	82	1	n.m.(1)
Financial assets at amortized cost	3,470	3,680	(5.7)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	3,552	3,681	(3.5)

(1)   Not meaningful.

Impairment or reversal of impairment on non-financial assets

Impairment or reversal of impairment on non-financial assets for the year ended December 31, 2019 amounted to an expense of €128 million, compared with the €137 million expense recorded for the year ended December 31, 2018.

Gains (losses) on derecognition of non-financial assets and subsidiaries, net and Impairment or reversal of impairment of investments in joint ventures and associates

Gains (losses) on derecognition of non-financial assets and subsidiaries net and Impairment or reversal of impairment of investments in joint ventures and associates, for the year ended December 31, 2019 amounted to a €50 million loss compared with the €80 million gain recorded for the year ended December 31, 2018. Capital gains in the year ended December 31, 2018 related mainly to the sale of portfolios in the Mexico and Spain segments.

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

Gains from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the year ended December 31, 2019 was €23 million, compared with the €815 million recorded for the year ended December 31, 2018, mainly due to the result of the sale of BBVA Chile and the Cerberus Transaction recognized in 2018.

Operating profit before tax

As a result of the foregoing, operating profit before tax for the year ended December 31, 2019 amounted to €7,046 million, a 6.9% decrease compared with the €7,565 million operating profit before tax recorded for the year ended December 31, 2018.

120

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

Tax expense related to profit from continuing operations for the year ended December 31, 2019 amounted to €1,943 million, a 4.9% decrease compared with the €2,042 million expense recorded for the year ended December 31, 2018, mainly due to the decrease in operating profit before tax. The year-on-year variation was also affected by the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 tax declaration presented in July 2018) in Spain and the recognition of the income tax deductibility for hyperinflation in Argentina. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018. Tax expense amounted to 27.6% of operating profit before tax for the year ended December 31, 2019 and 27.0% for the year ended December 31, 2018.

Profit (loss) from discontinued operations, net

Loss from discontinued operations for the year ended December 31, 2019 amounted to €758 million, compared with €704 million profit for the year ended December 31, 2018. The year-on-year variation was mainly the result of the goodwill impairment losses recognized in the United States CGU in 2019.

Profit

As a result of the foregoing, profit for the year ended December 31, 2019 amounted to €4,345 million, a 30.2% decrease compared with the €6,227 million recorded for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company for the year ended December 31, 2019 amounted to €3,512 million, a 35.0% decrease compared with the €5,400 million recorded for the year ended December 31, 2018.

121

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests for the year ended December 31, 2019 amounted to €833 million, a 0.8% increase compared with the €827 million profit attributable to non-controlling interests recorded for the year ended December 31, 2018, mainly as a result of the increase in profit in South America.

Results of Operations by Operating Segment

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

The tables set forth below show the income statement of our operating segments and Corporate Center for the years indicated. In addition, the income statement of our operating segments and Corporate Center is reconciled to the consolidated income statement of the Group. The “Adjustments” column in the tables for such years (and, in the table for 2018, the “Adjustments” and “Other adjustments” columns) shows the differences between the Group income statement and the income statement calculated in accordance with management operating segment reporting criteria. In particular:

·in 2020, such differences relate to the accounting of (i) the earnings of BBVA USA and the other entities included within the scope of the USA Sale. In particular, such earnings were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information for such companies is being presented under management criteria, pursuant to which their results are included in every line item of the income statement of the United States segment (the “BBVA USA Adjustment”); and (ii) the impairment of goodwill in the United States’ CGU, which amounted to €2,084 million for the year ended December 31, 2020. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”;

·in 2019, such differences relate to (i) the BBVA USA Adjustment; (ii) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”; and (iii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group income statement, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”; and

·in 2018, such differences relate to (i) the BBVA USA Adjustment; and (ii) the capital gain resulting from the sale of our stake in BBVA Chile (which amounted to €633 million, net of taxes). With respect to the latter, for purposes of the Group income statement, such capital gain was recorded under “Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations”. In this section, information relating to our Corporate Center for 2018 has been presented under management criteria pursuant to which such capital gain has been recorded under “Profit from corporate operations, net”.

122

Consolidated financial information for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.  

	For the Year Ended December 31, 2020
	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Corporate Center	Adjustments (1)	Group
	(In Millions of Euros)
Net interest income	3,553	2,284	5,415	2,783	2,701	214	(149)	(2,209)	14,592
Net fees and commissions	1,802	665	1,065	510	484	150	(59)	(494)	4,123
Net gains (losses) on financial assets and liabilities and exchange differences, net (2)	174	220	423	227	407	137	104	(145)	1,546
Other operating income and expense, net (3)	25	(17)	114	53	(367)	9	47	40	(95)
Gross income	5,554	3,152	7,017	3,573	3,225	510	(57)	(2,808)	20,166
Administration costs	(2,580)	(1,662)	(2,028)	(880)	(1,219)	(268)	(625)	1,462	(7,799)
Depreciation and amortization	(460)	(209)	(311)	(150)	(154)	(17)	(194)	205	(1,288)
Net margin before provisions (4)	2,515	1,281	4,677	2,544	1,853	225	(876)	(1,140)	11,079
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(1,167)	(776)	(2,172)	(895)	(864)	(38)	4	729	(5,179)
Provisions or reversal of provisions and other results	(538)	(4)	(33)	(127)	(93)	(2)	(1,938)	2,235	(499)
Impairment or reversal of impairment on non-financial assets	-	-	-	-	-	-	-	(153)	(153)
Operating  profit/ (loss) before tax	809	502	2,472	1,522	896	184	(2,810)	1,671	5,248
Tax expense or income related to profit or loss from continuing operations	(200)	(73)	(713)	(380)	(277)	(48)	174	57	(1,459)
Profit / (loss) from continuing operations	610	429	1,759	1,142	619	137	(2,635)	1,729	3,789
Profit from discontinued operations/ Profit from corporate operations, net	-	-	-	-	-	-	-	(1,729)	(1,729)
Profit / (loss)	610	429	1,759	1,142	619	137	(2,635)	-	2,060
Profit / (loss) attributable to non-controlling interests	(3)	-	-	(579)	(173)	-	-	-	(756)
Profit / (loss) attributable to parent company	606	429	1,759	563	446	137	(2,635)	-	1,305

(1)  Corresponds to (i) the BBVA USA Adjustment; and (ii) the impairment of goodwill in the United States’ CGU, which amounted to €2,084 million for the year ended December 31, 2020. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”.

(2)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

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

123

	For the Year Ended December 31, 2019
	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Corporate Center	Adjustments (1)	Group
	(In Millions of Euros)
Net interest income	3,567	2,395	6,209	2,814	3,196	175	(233)	(2,335)	15,789
Net fees and commissions	1,751	644	1,298	717	557	139	(73)	(531)	4,502
Net gains (losses) on financial assets and liabilities and exchange differences, net (2)	239	173	310	10	576	131	(54)	(98)	1,286
Other operating income and expense, net (3)	98	12	212	50	(479)	9	21	22	(55)
Gross income	5,656	3,223	8,029	3,590	3,850	454	(339)	(2,941)	21,522
Administration costs	(2,777)	(1,747)	(2,299)	(1,036)	(1,403)	(275)	(765)	1,534	(8,769)
Depreciation and amortization	(476)	(219)	(346)	(179)	(171)	(18)	(190)	214	(1,386)
Net margin before provisions (4)	2,402	1,257	5,384	2,375	2,276	161	(1,294)	(1,193)	11,368
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(138)	(550)	(1,698)	(906)	(777)	(4)	-	521	(3,552)
Provisions or reversal of provisions and other results	(386)	(2)	5	(128)	(103)	6	(1,481)	1,447	(641)
Impairment or reversal of impairment on non-financial assets	-	-	-	-	-	-	-	(128)	(128)
Operating  profit/ (loss) before tax	1,878	705	3,691	1,341	1,396	163	(2,775)	648	7,046
Tax expense or income related to profit or loss from continuing operations	(489)	(115)	(992)	(312)	(368)	(36)	258	110	(1,943)
Profit from continuing operations	1,389	590	2,699	1,029	1,028	127	(2,517)	758	5,103
Profit from discontinued operations/ Profit from corporate operations, net	-	-	-	-	-	-	-	(758)	(758)
Profit	1,389	590	2,699	1,029	1,028	127	(2,517)	-	4,345
Profit attributable to non-controlling interests	(3)	-	-	(524)	(307)	-	-	-	(833)
Profit attributable to parent company	1,386	590	2,699	506	721	127	(2,517)	-	3,512

(1)  Consists of (i) the BBVA USA Adjustment; (ii) the impairment of goodwill in the United States’ CGU, which amounted to €1,318 million for the year ended December 31, 2019. In particular, such losses were recognized under “Profit / (loss) from discontinued operations, net” of the Group income statement. In this section, information relating to our Corporate Center has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results” and (iii) the impairment or reversal of impairment on tangible assets and other intangible assets, which amounted to €129 million for the year ended December 31, 2019. In this section, information relating to our Corporate Center for 2019 has been presented under management criteria pursuant to which such losses have been recognized under the heading “Provisions or reversal of provisions and other results”. However, for purposes of the Group income statement, such losses are presented under the heading “Impairment or reversal of impairment on non-financial assets”.

(2)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(3)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

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

124

	For the Year Ended December 31, 2018
	Spain	The United States	Mexico	Turkey	South America	Rest of Eurasia	Corporate Center	Adjustments (1)	Other adjustments (2)	Group
	(In Millions of Euros)
Net interest income	3,618	2,276	5,568	3,135	3,009	175	(269)	(2,227)	-	15,285
Net fees and commissions	1,682	596	1,205	686	631	138	(59)	(476)	-	4,403
Net gains (losses) on financial assets and liabilities and exchange differences, net (3)	529	109	223	11	405	101	(155)	(75)	-	1,148
Other operating income and expense, net (4)	59	9	197	70	(344)	-	63	47	-	100
Gross income	5,888	2,989	7,193	3,901	3,701	414	(420)	(2,731)	-	20,936
Administration costs	(3,027)	(1,683)	(2,139)	(1,109)	(1,584)	(281)	(672)	1,474	-	(9,020)
Depreciation and amortization	(308)	(178)	(253)	(138)	(125)	(6)	(200)	174	-	(1,034)
Net margin before provisions (5)	2,554	1,129	4,800	2,654	1,992	127	(1,291)	(1,083)	-	10,883
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(303)	(225)	(1,555)	(1,202)	(638)	24	(2)	221	-	(3,681)
Provisions or reversal of provisions and other results	(410)	16	24	(8)	(65)	(3)	(36)	118	866	500
Impairment or reversal of impairment on non-financial assets	-	-	-	-	-	-	-	(137)	-	(137)
Operating  profit/ (loss) before tax	1,840	920	3,269	1,444	1,288	148	(1,329)	(881)	866	7,565
Tax expense or income related to profit or loss from continuing operations	(437)	(185)	(901)	(293)	(469)	(52)	350	177	(233)	(2,042)
Profit from continuing operations excluding corporate operations	1,403	736	2,368	1,151	819	96	(979)	(704)	633	5,523
Profit from discontinued operations/ Profit from corporate operations, net	-	-	-	-	-	-	633	704	(633)	704
Profit	1,403	736	2,368	1,151	819	96	(346)	-	-	6,227
Profit attributable to non-controlling interests	(3)	-	-	(585)	(241)	-	3	-	-	(827)
Profit attributable to parent company	1,400	736	2,367	567	578	96	(343)	-	-	5,400

(1)  Consists of the BBVA USA Adjustment.

(2)  Other adjustments in 2018 relate to the treatment of the capital gain derived from the sale of our 68.19% stake in BBVA Chile. In particular, information relating to our Corporate Center for 2018 has been presented under management criteria pursuant to which such capital gain has been recorded under “Profit from corporate operations, net”. However, for purposes of the Group income statement, the capital gain from the sale of our stake in BBVA Chile has been recorded under the heading “Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” (which is included in “Provisions or reversal of provisions and other results” in the table above).

(3)   Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

 (4)  Includes “Dividend income”, “Share of profit or loss of entities accounted for using the equity method”, “Income/Expense on insurance and reinsurance contracts” and “Other operating income/expense”.

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

125

Results of Operations by Operating Segment for 2020 Compared with 2019

SPAIN

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	3,553	3,567	(0.4)
Net fees and commissions	1,802	1,751	2.9
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	174	239	(27.2)
Other operating income and expense, net	(440)	(419)	4.9
Income and expense on insurance and reinsurance contracts	465	518	(10.1)
Gross income	5,554	5,656	(1.8)
Administration costs	(2,580)	(2,777)	(7.1)
Depreciation and amortization	(460)	(476)	(3.4)
Net margin before provisions (2)	2,515	2,402	4.7
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(1,167)	(138)	n.m. (3)
Provisions or reversal of provisions and other results	(538)	(386)	39.3
Operating profit/(loss) before tax	809	1,878	(56.9)
Tax expense or income related to profit or loss from continuing operations	(200)	(489)	(59.1)
Profit from continuing operations	610	1,389	(56.1)
Profit from corporate operations, net	-	-	-
Profit	610	1,389	(56.1)
Profit attributable to non-controlling interests	(3)	(3)	-
Profit attributable to parent company	606	1,386	(56.3)

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3) Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €3,553 million, a 0.4% decrease compared with the €3,567 million recorded for the year ended December 31, 2019, mainly as a result of the lower interest rates. The net interest margin over total average assets of this operating segment amounted to 0.89% for the year ended December 31, 2020, compared with 0.99% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €1,802 million, a 2.9% increase compared with the €1,751 million recorded for the year ended December 31, 2019,mainly due to the increase in fee and commission income from asset management activities.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 was a net gain of €174 million, a 27.2% decrease compared with the €239 million net gain recorded for the year ended December 31, 2019, mainly as a result of decreased sales in the Global Markets unit in Spain, partially offset by greater ALCO portfolio sales.

126

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2020 amounted to €440 million, a 4.9% increase compared with the €419 million expense recorded for the year ended December 31, 2019, mainly due to the greater contributions made to the Deposit Guarantee Fund of Credit Institutions and to the ECB’s Single Resolution Fund.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €465 million, a 10.1% decrease compared with the €518 million recorded for the year ended December 31, 2019, mainly as a result of lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros) and to a lesser extent, as a consequence of the sale agreement of the non-life portfolio (excluding health insurance) to Allianz in the fourth quarter of 2020. See “Item 4. Information on the Company—History and Development of the Company―Capital Divestitures—2020”.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €2,580 million, a 7.1% decrease compared with the €2,777 million recorded for the year ended December 31, 2019, mainly as a result of cost reduction plansand a decrease in certain general expenses driven by the lockdown derived from the COVID-19 pandemic.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €460 million, a 3.4% decrease compared with the €476 million recorded for the year ended December 31, 2019.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2020 amounted to a  €1,167 million expense compared with the €138 million expense recorded for the year ended December 31, 2019, mainly as a result of the deterioration of macroeconomic conditions especially during the first half of 2020, caused by COVID-19 (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers from the leisure and transportation sectors)) and lower write-off recoveries. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees granted by the Group to its customers (by which lower quality loans were replaced with higher quality loans). Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was positively affected by our sale of non-performing and in-default mortgage credits as part of the Anfora transaction in the third quarter of 2019 (see “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Agreement with Voyager Investing UK Limited Partnership (Anfora)”) .

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €538 million expense, a 39.3% increase compared with the €386 million expense recorded for the year ended December 31, 2019, mainly due to higher provisions for various purposes, including potential claims.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €809 million, a 56.9% decrease compared with the €1,878 million profit recorded for the year ended December 31, 2019.

127

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was an expense of €200 million, a 59.1% decreasecompared with the €489 million expense recorded for the year ended December 31, 2019 as a result of the lower operating profit recorded for the year ended December 31, 2020. Tax expense amounted to 24.7% of operating profit before tax for the year ended December 31, 2020 and 26.0% for the year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €606 million, a 56.3% decrease compared with the €1,386 million profit recorded for the year ended December 31, 2019.

THE UNITED STATES

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	2,284	2,395	(4.6)
Net fees and commissions	665	644	3.2
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	220	173	27.4
Other operating income and expense, net	(17)	12	n.m. (2)
Income and expense on insurance and reinsurance contracts	-	-	-
Gross income	3,152	3,223	(2.2)
Administration costs	(1,662)	(1,747)	(4.9)
Depreciation and amortization	(209)	(219)	(4.7)
Net margin before provisions (3)	1,281	1,257	1.9
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(776)	(550)	41.0
Provisions or reversal of provisions and other results	(4)	(2)	70.8
Operating profit/(loss) before tax	502	705	(28.8)
Tax expense or income related to profit or loss from continuing operations	(73)	(115)	(36.8)
Profit from continuing operations	429	590	(27.2)
Profit from corporate operations, net	-	-	-
Profit	429	590	(27.2)
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	429	590	(27.2)

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

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

In the year ended December 31, 2020 the U.S. dollar depreciated 2.0% against the euro in average terms, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

128

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €2,284 million, a 4.6% decrease compared with the €2,395 million recorded for the year ended December 31, 2019, mainly due to the Federal Reserve’s decrease in interest rates since the second half of 2019, including in response to COVID-19 (by 225 basis points in total), thus lower income from the commercial banking and retail portfolios, partially offset by lower funding costs and the depreciation of the U.S. dollar. The net interest margin over total average assets of this operating segment amounted to 2.36% for the year ended December 31, 2020, compared with 2.78% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €665 million, a 3.2% increase compared with the €644 million recorded for the year ended December 31, 2019.

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

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 was a net gain of 220 million, a 27.4% increase compared with the €173 million gain recorded for the year ended December 31, 2019, mainly as a result of higher corporate banking gains.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2020 amounted to €17 million, compared with the €12 million income recorded for the year ended December 31, 2019.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €1,662 million, a 4.9% decrease compared with the €1,747 million recorded for the year ended December 31, 2019 mainly due to a decrease in general expenses and the depreciation of the U.S. dollar.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €209 million, a 4.7% decrease compared with the €219 million recorded for the year ended December 31, 2019.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment was a €776 million expense for the year ended December 31, 2020, a 41.0% increase compared with the €550 million expense recorded for the year ended December 31, 2019, mainly as a result of macroeconomic deterioration, especially during the first half of 2020, due to the negative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers in the Oil & Gas sector), partially offset by the depreciation of the U.S. dollar.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €4 million expense, compared with the €2 million expense recorded for the year ended December 31, 2019.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €502 million, compared with the €705 million of operating profit recorded for the year ended December 31, 2019.

129

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was €73 million, compared with the €115 million expense recorded for the year ended December 31, 2019, as a result of the lower operating profit before tax and changes to the applicable tax rate. Tax expense amounted to 14.5% of operating profit before tax for the year ended December 31, 2020, compared with 16.3% for the year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €429 million, compared with the €590 million recorded for the year ended December 31, 2019.

130

MEXICO

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	5,415	6,209	(12.8)
Net fees and commissions	1,065	1,298	(17.9)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	423	310	36.4
Other operating income and expense, net	(248)	(267)	(7.1)
Income and expense on insurance and reinsurance contracts	362	479	(24.4)
Gross income	7,017	8,029	(12.6)
Administration costs	(2,028)	(2,299)	(11.8)
Depreciation and amortization	(311)	(346)	(9.9)
Net margin before provisions (2)	4,677	5,384	(13.1)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(2,172)	(1,698)	28.0
Provisions or reversal of provisions and other results	(33)	5	n.m. (3)
Operating profit/(loss) before tax	2,472	3,691	(33.0)
Tax expense or income related to profit or loss from continuing operations	(713)	(992)	(28.1)
Profit from continuing operations	1,759	2,699	(34.8)
Profit from corporate operations, net	-	-	-
Profit	1,759	2,699	(34.8)
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	1,759	2,699	(34.8)

(1)   Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

In the year ended December 31, 2020, the Mexican peso depreciated 12.1% against the euro in average terms compared with the year ended December 31, 2019, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the results of operations of the Mexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €5,415 million, a 12.8% decrease compared with the €6,209 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro and the decrease in the interest reference rate by 300 basis points during 2020 in response to the COVID-19 pandemic crisis. At constant exchange rates, there was a 0.7% decrease.

The net interest margin over total average assets of this operating segment amounted to 5.00% for the year ended December 31, 2020, compared with 5.91% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €1,065 million, a 17.9% decrease compared with the €1,298 million recorded for the year ended December 31, 2019, mainly due to the depreciation of the Mexican peso and, to a lesser extent, the decreased volume of transactions by credit card customers as a result of the restrictions on mobility adopted in response to the COVID-19 pandemic, which led to an increase in the volume of transactions through digital channels (which do not generate commissions for retail customers) and the temporary elimination or reduction of certain fees, such as point of sale fees. At a constant exchange rate, there was a 6.6% year-on-year decrease.

131

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 were €423 million, a 36.4% increase compared with the €310 million gain recorded for the year ended December 31, 2019, mainly as a result of increased sales in the Global Markets unit in Mexico and securities’ sales within the ALCO portfolio, along with the positive impact of changes in exchange rates on foreign currency positions, offset in part by the depreciation of the Mexican peso against the euro. 

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2020 was a net expense of €248 million, a 7.1% decrease compared with the €267 million net expense recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the Mexican peso against the euro, partially offset by greater contributions made to the Deposit Guarantee Fund as a result of increases in the volume of deposits (in local currency).

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €362 million, a 24.4% decrease compared with the €479 million net income recorded for the year ended December 31, 2019, due to a higher claims ratio and, to a lesser extent, the depreciation of the Mexican peso against the euro.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 were €2,028 million, an 11.8% decrease compared with the €2,299 million recorded for the year ended December 31, 2019, as a result of the depreciation of the Mexican peso. At a constant exchange rate, administration costs increased by 0.4%. Such increase was below Mexico’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €311 million, a 9.9% decrease compared with the €346 million recorded for the year ended December 31, 2019 mainly due to the depreciation of the Mexican peso against the euro. At a constant exchange rate, depreciation and amortization increased by 2.5%.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2020 was a €2,172 million expense, a 28.0% increase compared with the €1,698 million expense recorded for the year ended December 31, 2019, mainly due to the macroeconomic deterioration especially in the first half of 2020, as a result of the negative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers). The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers and the depreciation of the Mexican peso.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €33 million expense compared with the €5 million income recorded for the year ended December 31, 2019, mainly due to higher provisions for contingent risks related to the COVID-19 pandemic.

132

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €2,472 million, a 33.0% decrease compared with the €3,691 million of operating profit recorded for the year ended December 31, 2019.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was €713 million, a 28.1% decrease compared with the €992 million expense recorded for the year ended December 31, 2019, mainly as a result of the lower operating profit before tax. The tax expense amounted to 28.8% of operating profit before tax for the year ended December 31, 2020, and 26.9% for the year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €1,759 million, a 34.8% decrease compared with the €2,699 million recorded for the year ended December 31, 2019.

133

TURKEY

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	2,783	2,814	(1.1)
Net fees and commissions	510	717	(28.8)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	227	10	n.m. (2)
Other operating income and expense, net	(11)	(10)	12.4
Income and expense on insurance and reinsurance contracts	64	60	8.1
Gross income	3,573	3,590	(0.5)
Administration costs	(880)	(1,036)	(15.1)
Depreciation and amortization	(150)	(179)	(16.4)
Net margin before provisions (3)	2,544	2,375	7.1
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(895)	(906)	(1.2)
Provisions or reversal of provisions and other results	(127)	(128)	(1.0)
Operating profit/(loss) before tax	1,522	1,341	13.5
Tax expense or income related to profit or loss from continuing operations	(380)	(312)	21.7
Profit from continuing operations	1,142	1,029	11.0
Profit from corporate operations, net	-	-	-
Profit	1,142	1,029	11.0
Profit attributable to non-controlling interests	(579)	(524)	10.6
Profit attributable to parent company	563	506	11.4

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)  Not meaningful.

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

The Turkish lira depreciated 21.0% against the euro in average terms in the year ended December 31, 2020, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the results of operations of the Turkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €2,783 million, a 1.1% decrease compared with the €2,814 million recorded for the year ended December 31, 2019 as a result of the depreciation of the Turkish lira against the euro. At a constant exchange rate, there was a 25.2% increase in net interest income, mainly as a result of the higher customer spreads in Turkish lira-denominated loans and higher loan volumes. 

The net interest margin over total average assets of this operating segment amounted to 4.53% for the year ended December 31, 2020, compared with 4.26% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €510 million, a 28.8% decrease compared with the €717 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the Turkish lira and, to a lesser extent, a reduction in the commissions charged to customers and the impact of the COVID-19 pandemic on the volume of transactions.

134

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 amounted to €227 million gain, compared with the €10 million gain recorded for the year ended December 31, 2019, mainly due to the results generated by trading transactions and the positive impact of changes in exchange rates on foreign currency positions, offset in part by the depreciation of the Turkish lira.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2020 was a €11 million expense compared with the €10 million of net expense recorded for the year ended December 31, 2019.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €64 million, an 8.1% increase compared with the €60 million income recorded for the year ended December 31, 2019, mainly as a result of higher sales in the insurance business, partially offset by the depreciation of the Turkish lira.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €880 million, a 15.1% decrease compared with the €1,036 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the Turkish lira against the euro, partially offset by the increase in certain general expenses. At a constant exchange rate, administration costs increased by 7.5%, which was below Turkey’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €150 million, a 16.4% decrease compared with the €179 million recorded for the year ended December 31, 2019.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2020 was a €895 million expense, a 1.2% decrease compared with the €906 million expense recorded for the year ended December 31, 2019, mainly due to the depreciation of the Turkish lira against the euro and the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers, partially offset by the impact of the macroeconomic deterioration as a result of the negative effects of the COVID-19 pandemic (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers), and to certain allowances for loan losses for specific commercial portfolio customers.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €127 million expense compared with the €128 million expense recorded for the year ended December 31, 2019.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €1,522 million, a 13.5% increase compared with the €1,341 million recorded for the year ended December 31, 2019. At a constant exchange rate, operating profit increased by 43.7%.

135

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was €380 million, a 21.7% increase compared with the €312 million expense recorded for the year ended December 31, 2019,mainly as a result of the higher operating profit before tax. The effective tax rate amounted to 24.9% of the operating profit before tax for the year ended December 31, 2020, and 23.3% for the year ended December 31, 2019.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2020 amounted to €579 million, a 10.6% increase compared with the €524 million recorded for the year ended December 31, 2019.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €563 million, an 11.4% increase compared with the €506 million recorded for the year ended December 31, 2019.

136

SOUTH AMERICA

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	2,701	3,196	(15.5)
Net fees and commissions	484	557	(13.1)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	407	576	(29.3)
Other operating income and expense, net	(459)	(580)	(20.9)
Income and expense on insurance and reinsurance contracts	92	101	(8.8)
Gross income	3,225	3,850	(16.2)
Administration costs	(1,219)	(1,403)	(13.1)
Depreciation and amortization	(154)	(171)	(10.3)
Net margin before provisions (2)	1,853	2,276	(18.6)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(864)	(777)	11.3
Provisions or reversal of provisions and other results	(93)	(103)	(10.2)
Operating profit/(loss) before tax	896	1,396	(35.8)
Tax expense or income related to profit or loss from continuing operations	(277)	(368)	(24.5)
Profit from continuing operations	619	1,028	(39.8)
Profit from corporate operations, net	-	-	-
Profit	619	1,028	(39.8)
Profit attributable to non-controlling interests	(173)	(307)	(43.7)
Profit attributable to parent company	446	721	(38.2)

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

In the year ended December 31, 2020, the Argentine peso, the Colombian peso and the Peruvian sol depreciated by 34.8% (considering the period-end exchange rates), 12.9% and 6.5%, respectively, against the euro in average terms, compared with the year ended December 31, 2019. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2020 and in the results of operations of the South America operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

As of December 31, 2020 and 2019 and for the years then ended, 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”). 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €2,701 million, a 15.5% decrease compared with the €3,196 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates against the euro. At constant exchange rates, there was a 0.9% increase. The net interest margin over total average assets of this operating segment amounted to 4.84% for the year ended December 31, 2020, compared with 5.71% for the year ended December 31, 2019.

137

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €484 million, a 13.1% decrease compared with the €557 million recorded for the year ended December 31, 2019,mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro. At a constant exchange rate, there was a 0.6% increase.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 were €407 million, a 29.3% decrease compared with the €576 million gain recorded for the year ended December 31, 2019, mainly due to the negative impact of changes in exchange rates on foreign currency positions and the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro, partially offset by the increased valuation of the BBVA Group’s stake in Prisma Medios de Pago, S.A. in Argentina. Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 was positively affected by the sale of the stake BBVA Argentina had in Prisma Medios de Pago S.A. in the first quarter of 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2020 was €459 million, a 20.9% decrease compared with the €580 million expense recorded for the year ended December 31, 2019, mainly driven by the adjustment for hyperinflation in Argentina and, to a lesser extent, the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2020 was €92 million, an 8.8% decrease compared with the €101 million net income recorded for the year ended December 31, 2019 as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro. At constant exchange rates, there was a 16.9% increase mainly explained by the increase in income related to life insurance in Colombia.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €1,219 million, a 13.1% decrease compared with the €1,403 million recorded for the year ended December 31, 2019, mainly as a result of the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro. At constant exchange rates, there was a 3.0% increase.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €154 million, a 10.3% decrease compared with the €171 million recorded for the year ended December 31, 2019, mainly due to the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro.

138

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2020 was a €864 million expense, an 11.3% increase compared with the €777 million expense recorded for the year ended December 31, 2019, mainly due to the deterioration in the macroeconomic scenario especially during the first half of 2020, caused by the impact of COVID-19 (which led to significant credit quality deterioration in the portfolio of financial assets measured at amortized cost (mainly loans and advances to customers)), in particular in Peru and Colombia. The increase was partially offset by the effect of payment deferrals and financing backed by public guarantees (by which lower quality loans were replaced with higher quality loans) granted by the Group to its customers and the depreciation of the currencies of the main countries where the BBVA Group operates within this operating segment against the euro and reversals in Argentina mainly driven by a CPI increase in the last quarter of 2020.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €93 million expense, compared with the €103 million expense recorded for the year ended December 31, 2019.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €896 million, a 35.8% decrease compared with the €1,396 million recorded for the year ended December 31, 2019.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was €277 million, a 24.5% decrease compared with the €368 million expense recorded for the year ended December 31, 2019, mainly as a result of the lower operating profit before tax. The effective tax rate amounted to 31.0% of operating profit before tax for the year ended December 31, 2020, and 26.3% for the year ended December 31, 2019, mainly driven by the increase in the applicable tax rate in Colombia, from 33% to 36%.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2020 amounted to €173 million, a 43.7% decrease compared with the €307 million recorded for the year ended December 31, 2019, due to the lower operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €446 million, a 38.2% decrease compared with the €721 million recorded for the year ended December 31, 2019.

139

REST OF EURASIA

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	214	175	22.4
Net fees and commissions	150	139	8.2
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	137	131	4.4
Other operating income and expense, net	3	4	(15.5)
Income and expense on insurance and reinsurance contracts	6	5	2.56
Gross income	510	454	12.3
Administration costs	(268)	(275)	(2.5)
Depreciation and amortization	(17)	(18)	(5.5)
Net margin before provisions (2)	225	161	39.8
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(38)	(4)	n.m. (3)
Provisions or reversal of provisions and other results	(2)	6	n.m. (3)
Operating profit/(loss) before tax	184	163	13.3
Tax expense or income related to profit or loss from continuing operations	(48)	(36)	33.3
Profit from continuing operations	137	127	7.6
Profit from corporate operations, net	-	-	-
Profit	137	127	7.6
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	137	127	7.6

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

Net interest income

Net interest income of this operating segment for the year ended December 31, 2020 amounted to €214 million, a 22.4% increase compared with the €175 million recorded for the year ended December 31, 2019 mainly due to increased transactional banking and investment activity, in particular during the last quarter of 2020. The net interest margin over total average assets of this operating segment amounted to 0.86% for the year ended December 31, 2020 compared with 0.84% for the year ended December 31, 2019.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2020 amounted to €150 million, an 8.2% increase compared with the €139 million recorded for the year ended December 31, 2019 mainly due to increased transactional banking and investment activity, in particular during the last quarter of 2020.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2020 were €137 million, a 4.4% increase compared with the €131 million net gain recorded for the year ended December 31, 2019.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2020 amounted to €268 million, a 2.5% decrease compared with the €275 million recorded for the year ended December 31, 2019.

140

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €17 million, compared with the €18 million recorded for the year ended December 31, 2019.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2020 amounted to an expense of €38 million compared with the €4 million expense recorded for the year ended December 31, 2019 mainly as result of higher loan loss allowances for certain specific wholesale customers.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2020 were a €2 million expense compared with the €6 million income recorded for the year ended December 31, 2019.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2020 was €184 million, a 13.3% increase compared with the €163 million recorded for the year ended December 31, 2019.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2020 was €48 million, a 33.3% increase compared with the €36 million expense recorded for the year ended December 31, 2019, mainly as a result of the higher operating profit before tax. 

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2020 amounted to €137 million, a 7.6% increase compared with the €127 million recorded for the year ended December 31, 2019.

141

CORPORATE CENTER

	For the Year Ended December 31,
	2020	2019	Change
	(In Millions of Euros)		(In %)
Net interest income	(149)	(233)	(36.0)
Net fees and commissions	(59)	(73)	(18.6)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	104	(54)	n.m. (2)
Other operating income and expense, net	64	41	54.2
Income and expense on insurance and reinsurance contracts	(17)	(20)	(16.2)
Gross income	(57)	(339)	(83.1)
Administration costs	(625)	(765)	(18.2)
Depreciation and amortization	(194)	(190)	1.7
Net margin before provisions (3)	(876)	(1,294)	(32.3)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	4	-	n.m. (2)
Provisions or reversal of provisions and other results	(1,938)	(1,481)	30.9
Operating profit/(loss) before tax	(2,810)	(2,775)	1.3
Tax expense or income related to profit or loss from continuing operations	174	258	(32.5)
Profit from continuing operations excluding corporate operations	(2,635)	(2,517)	4.7
Profit from corporate operations, net	-	-	-
Profit	(2,635)	(2,517)	4.7
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	(2,635)	(2,517)	4.7

(1)  Includes “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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

(2)   Not meaningful.

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

Net interest income / (expense)

Net interest expense of the Corporate Center for the year ended December 31, 2020 was €149 million, a 36.0% decrease compared with the €233 million net expense recorded for the year ended December 31, 2019, mainly due to the lower funding costs as a result of the reductions in reference interest rates. 

Net fees and commissions

Net fees and commissions of the Corporate Center for the year ended December 31, 2020 was an expense of €59 million, an 18.6% decrease compared with the €73 million expense recorded for the year ended December 31, 2019.

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

Net gains on financial assets and liabilities and exchange differences of the Corporate Center for the year ended December 31, 2020 were €104 million, compared with the €54 million net losses recorded for the year ended December 31, 2019, mainly as a result of the positive impact of changes in exchange rates on foreign currency positions.

Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2020 was €64 million compared with the €41 million of net income recorded for the year ended December 31, 2019.

142

Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2020 amounted to €625 million, an 18.2% decrease compared with the €765 million recorded for the year ended December 31, 2019, mainly as a result of the decrease in personnel expense and in certain other general expenses.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2020 was €194 million compared with the €190 million recorded for the year ended December 31, 2019.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of the Corporate Center for the year ended December 31, 2020 were a €1,938 million expense compared with the €1,481 million expense recorded for the year ended December 31, 2019, mainly as a result of the goodwill impairment losses recognized in the United States CGU. This impairment had a net negative impact on the “Profit attributable to parent company” of €2,084 million, and was mainly the result of the negative impact of the update of the macroeconomic scenario following the onset of COVID-19. For additional information, see “—Critical Accounting Policies—Goodwill in consolidation”. This expense was partially offset by the profit recognized from the transaction with Allianz Compañía de Seguros y Reaseguros, S.A. (see “Item 4. Information on the Company—History and Development of the Company—Capital Divestitures—2020”).

Operating profit / (loss) before tax

As a result of the foregoing, operating loss before tax of the Corporate Center for the year ended December 31, 2020 was €2,810 million compared with the €2,775 million loss recorded for the year ended December 31, 2019.

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

Tax income related to profit or loss from continuing operations of the Corporate Center for the year ended December 31, 2020 amounted to €174 million, a 32.5% decrease compared with the €258 million income recorded for the year ended December 31, 2019. 

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of the Corporate Center for the year ended December 31, 2019 was a loss of €2,635 million, compared with the €2,517 million loss recorded for the year ended December 31, 2019.

143

Results of Operations by Operating Segment for 2019 Compared with 2018

Consolidated financial information for the years ended December 31, 2019 and 2018 has been restated for comparative purposes. See “Presentation of Financial Information”.  

SPAIN

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	3,567	3,618	(1.4)
Net fees and commissions	1,751	1,682	4.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	239	529	(54.9)
Other operating income and expense, net	(419)	(425)	(1.5)
Income and expense on insurance and reinsurance contracts	518	485	6.7
Gross income	5,656	5,888	(4.0)
Administration costs	(2,777)	(3,027)	(8.2)
Depreciation and amortization	(476)	(308)	54.8
Net margin before provisions (2)	2,402	2,554	(5.9)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(138)	(303)	(54.5)
Provisions or reversal of provisions and other results	(386)	(410)	(5.9)
Operating profit/(loss) before tax	1,878	1,840	2.0
Tax expense or income related to profit or loss from continuing operations	(489)	(437)	12.0
Profit from continuing operations	1,389	1,403	(1.1)
Profit from corporate operations, net	-	-	-
Profit	1,389	1,403	(1.1)
Profit attributable to non-controlling interests	(3)	(3)	-
Profit attributable to parent company	1,386	1,400	(1.0)

 (1) Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

On October 10, 2018, after obtaining all the required authorizations, BBVA completed the transfer of an important part of the real estate business of BBVA in Spain to Divarian and the sale of an 80% stake in Divarian to Promontoria Marina, S.L.U., a company managed by Cerberus Capital Management, L.P. Additionally, on December 21, 2018, the Group sold its 25.24% stake in Testa Residencial SOCIMI, S.A. for €478 million. Moreover, on December 21, 2018, BBVA reached an agreement with Voyager (Anfora), for the transfer by us of a portfolio of credit rights which was mainly composed of non-performing and in-default mortgage credits. The transaction was completed during the third quarter of 2019. The completion of these transactions has affected the comparability of year-on-year results for this operating segment. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €3,567 million, a 1.4% decrease compared with the €3,618 million recorded for the year ended December 31, 2018, mainly as a result of the lower contribution from the ALCO portfolio. The net interest margin over total average assets of this operating segment amounted to 0.99% for the year ended December 31, 2019, compared with 1.06% for the year ended December 31, 2018.

144

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €1,751 million, a 4.1% increase compared with the €1,682 million recorded for the year ended December 31, 2018, mainly due to the increase of corporate banking transactions and the positive performance of asset management activities.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 was a net gain of €239 million, a 54.9% decrease compared with the €529 million net gain recorded for the year ended December 31, 2018, mainly as a result of uneven market conditions and lower portfolio sales in 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 amounted to €419 million, a 1.5% decrease compared with the €425 million expense recorded for the year ended December 31, 2018.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €518 million, a 6.7% increase compared with the €485 million recorded for the year ended December 31, 2018, mainly as a result of higher premiums collected and a lower claims ratio, partially offset by the lower insurance activity related to insurance-savings products (through BBVA Seguros).

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €2,777 million, an 8.2% decrease compared with the €3,027 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due tothe implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €476 million, a 54.8% increase compared with the €308 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 amounted to an expense of €138 million, a 54.5% decrease compared with the €303 million expense recorded for the year ended December 31, 2018, mainly as a result of the sale of non-performing and in-default mortgage credits and to lower loan loss provisions of real estate developer loans previously allocated to the former Non-Core Real Estate operating segment following the Anfora transaction (see “—Factors Affecting the Comparability of our Results of Operations and Financial Condition—Agreement with Voyager Investing UK Limited Partnership (Anfora)”). 

145

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €386 million expense, a 5.9% decrease compared with the €410 million expense recorded for the year ended December 31, 2018, mainly due to lower real estate related costs and other results, partially offset by higher pension and pre-early retirement provisions.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €1,878 million, a 2.0% increase compared with the €1,840 million recorded for the year ended December 31, 2018.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was an expense of €489 million, a 12.0% increase compared with the €437 million expense recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the higher dividends and capital gains exempt from taxation in 2018 (which included those recognized in the 2017 tax declaration presented in July 2018) and the higher operating profit before tax. Tax expense amounted to 26.0% of operating profit before tax for the year ended December 31, 2019 and 23.7% for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €1,386 million, a 1.0% decrease compared with the €1,400 million recorded for the year ended December 31, 2018.

146

THE UNITED STATES

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	2,395	2,276	5.2
Net fees and commissions	644	596	8.1
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	173	109	58.8
Other operating income and expense, net	12	9	31.7
Income and expense on insurance and reinsurance contracts	-	-	-
Gross income	3,223	2,989	7.8
Administration costs	(1,747)	(1,683)	3.8
Depreciation and amortization	(219)	(178)	23.1
Net margin before provisions (2)	1,257	1,129	11.4
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(550)	(225)	n.m. (3)
Provisions or reversal of provisions and other results	(2)	16	n.m. (3)
Operating profit/(loss) before tax	705	920	(23.4)
Tax expense or income related to profit or loss from continuing operations	(115)	(185)	(37.7)
Profit from continuing operations	590	736	(19.9)
Profit from corporate operations, net	-	-	-
Profit	590	736	(19.9)
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	590	736	(19.9)

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

In the year ended December 31, 2019 the U.S. dollar appreciated 5.5% against the euro in average terms, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2018 and in the results of operations of the United States operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €2,395 million, a 5.2% increase compared with the €2,276 million recorded for the year ended December 31, 2018, mainly due to the appreciation of the U.S. dollar, partially offset by higher funding costs. Additionally, while the Federal Reserve’s increase in interest rates in 2018 positively impacted net interest income, subsequent rate reductions in 2019 have negatively impacted results especially in the second half of 2019. The net interest margin over total average assets of this operating segment amounted to 2.78% for the year ended December 31, 2019, compared with 2.96% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €644 million, an 8.1% increase compared with the €596 million recorded for the year ended December 31, 2018, mainly due to higher service charges on deposit accounts, higher card and merchant processing fees, lower commissions paid and the appreciation of the U.S. dollar against the euro. 

147

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

Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 was a net gain of €173 million, a 58.8% increase compared with the €109 million gain recorded for the year ended December 31, 2018, mainly as a result of higher ALCO portfolio sales, the performance in the BBVA branch in New York and the appreciation of the U.S. dollar against the euro. 

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2019 amounted to €12 million, compared with the €9 million income recorded for the year ended December 31, 2018.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,747 million, a 3.8% increase compared with the €1,683 million recorded for the year ended December 31, 2018, mainly as a result of increased expenses relating to professional services, business development and deposit campaigns, partially offset by the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €219 million, a 23.1% increase compared with the €178 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”. 

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €550 million expense compared with the €225 million expense recorded for the year ended December 31, 2018, mainly as a result of higher loan loss allowances for specific commercial portfolio customers and losses within the consumer loan portfolios as well as an increase in the loss allowances for individually evaluated non-performing loans in the commercial, financial and agricultural loan portfolios and, to a lesser extent, the deterioration of macroeconomic conditions. In addition, the comparison is affected by the release of provisions in 2018 related to the hurricanes in the United States. 

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €705 million, a 23.4% decrease compared with the €920 million of operating profit recorded for the year ended December 31, 2018.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €115 million, a 37.7% decrease compared with the €185 million expense recorded for the year ended December 31, 2018, mainly as a result of the lower operating profit before tax. Tax expense amounted to 16.3% of operating profit before tax for the year ended December 31, 2019, compared with 20.1% for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €590 million, a 19.9% decrease compared with the €736 million recorded for the year ended December 31, 2018.

148

MEXICO

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	6,209	5,568	11.5
Net fees and commissions	1,298	1,205	7.8
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	310	223	38.7
Other operating income and expense, net	(267)	(236)	13.1
Income and expense on insurance and reinsurance contracts	479	433	10.6
Gross income	8,029	7,193	11.6
Administration costs	(2,299)	(2,139)	7.5
Depreciation and amortization	(346)	(253)	36.6
Net margin before provisions (2)	5,384	4,800	12.2
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(1,698)	(1,555)	9.2
Provisions or reversal of provisions and other results	5	24	(80.4)
Operating profit/(loss) before tax	3,691	3,269	12.9
Tax expense or income related to profit or loss from continuing operations	(992)	(901)	10.0
Profit from continuing operations	2,699	2,368	14.0
Profit from corporate operations, net	-	-	-
Profit	2,699	2,368	14.0
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	2,699	2,367	14.0

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

In the year ended December 31, 2019, the Mexican peso appreciated 5.3% against the euro in average terms compared with the year ended December 31, 2018, resulting in a positive exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Mexico operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €6,209 million, an 11.5% increase compared with the €5,568 million recorded for the year ended December 31, 2018, mainly as a result of increases in the volume of interest-earning assets in the retail portfolio and volumes and yields in the wholesale portfolio and, to a lesser extent, the appreciation of the Mexican peso against the euro. In particular, net interest income benefited from the increase in the average volume of loans and advances to customers, particularly to enterprises and households. The increase was partially offset by greater funding costs.

The net interest margin over total average assets of this operating segment amounted to 5.91% for the year ended December 31, 2019, compared with 5.81% for the year ended December 31, 2018.

149

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €1,298 million, a 7.8% increase compared with the €1,205 million recorded for the year ended December 31, 2018, mainly as a result of the increased use of credit and debit cards, as a result of the increased level of transactions during the period, and the appreciation of the Mexican peso, partially offset by the increase in commissions paid to other financial institutions in connection with the increased use of credit and debit cards.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 were €310 million, a 38.7% increase compared with the €223 million gain recorded for the year ended December 31, 2018, mainly as a result of higher income from the ALCO portfolio and higher securities sales, partially offset by the Global Markets unit’s performance during the period and the appreciation of the Mexican peso against the euro.

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2019 was a net expense of €267 million, a 13.1% increase compared with the €236 million net expense recorded for the year ended December 31, 2018, mainly as a result of the higher contribution to the Deposit Guarantee Fund and the appreciation of the Mexican peso. 

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €479 million, a 10.6% increase compared with the €433 million net income recorded for the year ended December 31, 2018, mainly as a result of the positive performance of savings products and the appreciation of the Mexican peso.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 were €2,299 million, a 7.5% increase compared with the €2,139 million recorded for the year ended December 31, 2018, mainly as a result of the increase in digital infrastructure costs, the increase in the contribution to the BBVA Mexico’s foundation and the appreciation of the Mexican peso, partially offset by the lower rent expense, due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 2.0%. Such increase was below Mexico’s inflation rate for the period.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €346 million, a 36.6% increase compared with the €253 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and the appreciation of the Mexican peso. 

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €1,698 million expense, a 9.2% increase compared with the €1,555 million expense recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 3.6% increase in allowances for loan losses driven by the operation of the contagion rules for retail exposures (‘pulling effect’) in the amortized cost portfolio. In addition, the deterioration of macroeconomic conditions and the change in the parameters used to estimate loan loss allowances for the retail portfolio have adversely affected the year-on-year comparison.

150

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 amounted to €5 million of income compared with the €24 million income recorded for the year ended December 31, 2018. During 2018, other income was recognized from the sale of the stake that BBVA Mexico held in certain real estate developments.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €3,691 million, a 12.9% increase compared with the €3,269 million of operating profit recorded for the year ended December 31, 2018.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €992 million, a 10.0% increase compared with the €901 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher operating profit before tax. The tax expense amounted to 26.9% of operating profit before tax for the year ended December 31, 2019, and 27.6% for the year ended December 31, 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €2,699 million, a 14.0% increase compared with the €2,367 million recorded for the year ended December 31, 2018.

151

TURKEY

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	2,814	3,135	(10.2)
Net fees and commissions	717	686	4.5
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	10	11	(11.7)
Other operating income and expense, net	(10)	23	n.m. (3)
Income and expense on insurance and reinsurance contracts	60	46	28.7
Gross income	3,590	3,901	(8.0)
Administration costs	(1,036)	(1,109)	(6.6)
Depreciation and amortization	(179)	(138)	29.3
Net margin before provisions (2)	2,375	2,654	(10.5)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(906)	(1,202)	(24.6)
Provisions or reversal of provisions and other results	(128)	(8)	n.m. (3)
Operating profit/(loss) before tax	1,341	1,444	(7.1)
Tax expense or income related to profit or loss from continuing operations	(312)	(293)	6.5
Profit from continuing operations	1,029	1,151	(10.6)
Profit from corporate operations, net	-	-	-
Profit	1,029	1,151	(10.6)
Profit attributable to non-controlling interests	(524)	(585)	(10.4)
Profit attributable to parent company	506	567	(10.7)

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

The Turkish lira depreciated 10.3% against the euro in average terms in the year ended December 31, 2019, resulting in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the Turkey operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €2,814 million, a 10.2% decrease compared with the €3,135 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 0.1% increase in net interest income. 

The net interest margin over total average assets of this operating segment amounted to 4.26% for the year ended December 31, 2019, compared with 4.35% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €717 million, a 4.5% increase compared with the €686 million recorded for the year ended December 31, 2018, mainly as a result of the positive performance of payment instruments and cash transfers, partially offset by the depreciation of the Turkish lira and the increase in commissions paid to other financial institutions in connection with the increased use of credit and debit cards.

152

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 amounted to €10 million, compared with the €11 million gain recorded for the year ended December 31, 2018, mainly as a result of the lower gains from derivatives and the Global Markets unit’s transactions due to uneven market conditions, which were partially offset by the positive impact of changes in foreign exchange rates on foreign currency positions. 

Other operating income and expense, net

Other operating income and expense, net of this operating segment for the year ended December 31, 2019 was a €10 million expense compared with the €23 million of net income recorded for the year ended December 31, 2018 mainly as a result of the higher contribution to the Deposit Guarantee Fund due to a modification in local regulations.

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €60 million a 28.7% increase compared with the €46 million income recorded for the year ended December 31, 2018, mainly as a result of higher sales in the insurance business. 

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,036 million, a 6.6% decrease compared with the €1,109 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira and, to a lesser extent, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”. At a constant exchange rate, administration costs increased by 4.2%, which was below Turkey’s inflation rate for the period, mainly as a result of higher technology and professional services expenses.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €179 million, a 29.3% increase compared with the €138 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”. 

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €906 million expense, a 24.6% decrease compared with the €1,202 million expense recorded for the year ended December 31, 2018, mainly as a result of lower impairments due to the improved macroeconomic prospects and the depreciation of the Turkish Lira.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €128 million expense compared with the €8 million expense recorded for the year ended December 31, 2018, mainly due to the increase in provisions for loan commitments and guarantees given in Turkey.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €1,341 million, a 7.1% decrease compared with the €1,444 million recorded for the year ended December 31, 2018. At a constant exchange rate, operating profit increased by 3.5%.

153

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €312 million, a 6.5% increase compared with the €293 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets. The effective tax rate amounted to 23.3% of the operating profit before tax for the year ended December 31, 2019, and 20.3% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €524 million, a 10.4% decrease compared with the €585 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

Profit attributable to parent company

Profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €506 million, a 10.7% decrease compared with the €567 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Turkish lira against the euro.

154

SOUTH AMERICA

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	3,196	3,009	6.2
Net fees and commissions	557	631	(11.9)
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	576	405	42.3
Other operating income and expense, net	(580)	(454)	27.7
Income and expense on insurance and reinsurance contracts	101	110	(8.1)
Gross income	3,850	3,701	4.0
Administration costs	(1,403)	(1,584)	(11.4)
Depreciation and amortization	(171)	(125)	36.7
Net margin before provisions (2)	2,276	1,992	14.3
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(777)	(638)	21.7
Provisions or reversal of provisions and other results	(103)	(65)	57.8
Operating profit/(loss) before tax	1,396	1,288	8.3
Tax expense or income related to profit or loss from continuing operations	(368)	(469)	(21.6)
Profit from continuing operations	1,028	819	25.5
Profit from corporate operations, net	-	-	-
Profit	1,028	819	25.5
Profit  attributable to non-controlling interests	(307)	(241)	27.4
Profit attributable to parent company	721	578	24.7

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

In the year ended December 31, 2019, the Argentine peso and the Colombian peso depreciated by 35.7% and 5.2%, respectively, against the euro in average terms, compared with the year ended December 31, 2018. On the other hand, the Peruvian sol appreciated by 3.9% against the euro in average terms. Overall, changes in exchange rates resulted in a negative exchange rate effect on our consolidated income statement for the year ended December 31, 2019 and in the results of operations of the South America operating segment for such period expressed in euros. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Trends in Exchange Rates”. 

As of December 31, 2019 and 2018 and for the years then ended, 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 addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―Sale of BBVA Chile”. 

155

Net interest income

Net interest income of this operating segment for the year ended December 31, 2019 amounted to €3,196 million, a 6.2% increase compared with the €3,009 million recorded for the year ended December 31, 2018, mainly as a result of the growth in the yield on interest-earning assets, particularly in Argentina, and the increase in the average volume of interest-earning assets in retail and corporate banking, mainly in Peru. Additionally, the average volume of consumer and mortgage loans in Colombia increased during 2019. These effects were partially offset by the depreciation of the Argentine peso against the euro. At constant exchange rates, there was a 10.5% year-on-year increase in net interest income. The net interest margin over total average assets of this operating segment amounted to 5.71% for the year ended December 31, 2019, compared with 4.65% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €557 million, an 11.9% decrease compared with the €631 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of  the Argentine peso. At a constant exchange rate, there was a 6.9% decrease mainly due to the sale of our stake in BBVA Chile.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 were €576 million, a 42.3% increase compared with the €405 million gain recorded for the year ended December 31, 2018. At a constant exchange rate, there was a 48.6% increase, mainly as a result of increased foreign-currency transactions in Argentina and Peru and the sale of BBVA’s 51% stake in Prisma Medios de Pago, S.A. in Argentina. Additionally, the remaining stake held by BBVA in this entity increased its value during 2019.

Other operating income and expense, net

Other net operating expense of this operating segment for the year ended December 31, 2019 was €580 million, a 27.7% increase compared with the €454 million expense recorded for the year ended December 31, 2018, mainly driven by certain non-income taxes which were previously accounted for under “Administration costs” in Argentina. 

Income and expense on insurance and reinsurance contracts

Net income on insurance and reinsurance contracts of this operating segment for the year ended December 31, 2019 was €101 million, an 8.1% decrease compared with the €110 million net income recorded for the year ended December 31, 2018. The year-on-year variation was mainly attributable to the depreciation of the Argentine peso against the euro in 2019 and the sale of the insurance business in Chile in 2018. At constant exchange rates, there was a 10.6% increase mainly explained by the positive performance in Argentina and Colombia.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €1,403 million, an 11.4% decrease compared with the €1,584 million recorded for the year ended December 31, 2018, mainly as a result of the depreciation of the Argentine peso and the Colombian peso, the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”, and the reclassification of certain non-income taxes to the heading “Other operating income and expense, net” in Argentina, which more than offset the impact of the high inflation registered in certain countries in the region. At constant exchange rates, there was a 4.2% decrease.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €171 million, a 36.7% increase compared with the €125 million recorded for the year ended December 31, 2018 mainly as a result of the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”, and higher expense related to software in Peru.

156

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 was a €777 million expense, a 21.7% increase compared with the €638 million expense recorded for the year ended December 31, 2018, mainly as a result of the credit quality deterioration in the portfolio measured at amortized cost, in particular in Peru, Colombia and Argentina, and the deterioration of macroeconomic conditions, partially offset by the depreciation of the Argentine peso and the Colombian peso against the euro.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €103 million expense, a 57.8% increase compared with the €65 million expense recorded for the year ended December 31, 2018, mainly as a result of the increase in provisions for various purposes, particularly in Argentina. 

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €1,396 million, an 8.3% increase compared with the €1,288 million recorded for the year ended December 31, 2018.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €368 million, a 21.6% decrease compared with the €469 million expense recorded for the year ended December 31, 2018, as a result in part of the recognition of the income tax deduction related to inflation in Argentina in 2019. Additionally, the tax expense related to the sale of BBVA Chile was recognized in 2018. Consequently, the effective tax rate amounted to 26.3% of operating profit before tax for the year ended December 31, 2019, and 36.4% for the year ended December 31, 2018.

Profit attributable to non-controlling interests

Profit attributable to non-controlling interests of this operating segment for the year ended December 31, 2019 amounted to €307 million, a 27.4% increase compared with the €241 million recorded for the year ended December 31, 2018, mainly due to the higher operating profit before tax.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €721 million, a 24.7% increase compared with the €578 million recorded for the year ended December 31, 2018.

157

REST OF EURASIA

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	175	175	-
Net fees and commissions	139	138	0.4
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	131	101	29.2
Other operating income and expense, net	4	-	n.m. (3)
Income and expense on insurance and reinsurance contracts	5	-	n.m. (3)
Gross income	454	414	9.7
Administration costs	(275)	(281)	(2.0)
Depreciation and amortization	(18)	(6)	194.2
Net margin before provisions (2)	161	127	26.5
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	(4)	24	n.m. (3)
Provisions or reversal of provisions and other results	6	(3)	n.m. (3)
Operating profit/(loss) before tax	163	148	9.9
Tax expense or income related to profit or loss from continuing operations	(36)	(52)	(31.3)
Profit from continuing operations	127	96	32.3
Profit from corporate operations, net	-	-	-
Profit	127	96	32.3
Profit attributable to non-controlling interests	-	-	-
Profit attributable to parent company	127	96	32.3

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

Net interest income

Net interest income of this operating segment for the years ended December 31, 2019 and 2018 amounted to €175 million. The net interest margin over total average assets of this operating segment amounted to 0.84% for the year ended December 31, 2019 compared with 0.94% for the year ended December 31, 2018.

Net fees and commissions

Net fees and commissions of this operating segment for the year ended December 31, 2019 amounted to €139 million, a 0.4% increase compared with the €138 million recorded for the year ended December 31, 2018.

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

Net gains on financial assets and liabilities and exchange differences of this operating segment for the year ended December 31, 2019 were €131 million, a 29.2% increase compared with the €101 million net gain recorded for the year ended December 31, 2018, due mainly to increased commercial activity in the Global Market’s unit.

158

Other operating income and expense, net

Other net operating income of this operating segment for the year ended December 31, 2019 was €9 million, compared with the nil other net operating income recorded for the year ended December 31, 2018, as a result of higher activity in the insurance business.

Administration costs

Administration costs of this operating segment for the year ended December 31, 2019 amounted to €275 million, a 2.0% decrease compared with the €281 million recorded for the year ended December 31, 2018, mainly as a result of the lower rent expense due to the implementation of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €18 million, compared with the €6 million recorded for the year ended December 31, 2018, mainly as a result of the implementation of IFRS 16 on January 1, 2019, which had the effect of accounting for the amortization of right-to-use assets under the heading “Right-of-use assets”.

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

Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the year ended December 31, 2019 amounted to a €4 million expense compared with the €24 million of income recorded for the year ended December 31, 2018.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of this operating segment for the year ended December 31, 2019 were a €6 million income compared with the €3 million expense recorded for the year ended December 31, 2018, mainly due to the positive results of investment joint ventures and associates.

Operating profit / (loss) before tax

As a result of the foregoing, operating profit before tax of this operating segment for the year ended December 31, 2019 was €163 million, a 9.9% increase compared with the €148 million recorded for the year ended December 31, 2018.

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

Tax expense related to profit from continuing operations of this operating segment for the year ended December 31, 2019 was €36 million, a 31.3% decrease compared with the €52 million expense recorded for the year ended December 31, 2018, mainly as a result of the change in the tax rate applicable to the deferred tax assets.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of this operating segment for the year ended December 31, 2019 amounted to €127 million, a 32.3% increase compared with the €96 million recorded for the year ended December 31, 2018.

159

CORPORATE CENTER

	For the Year Ended December 31,
	2019	2018	Change
	(In Millions of Euros)		(In %)
Net interest income	(233)	(269)	(13.4)
Net fees and commissions	(73)	(59)	24.0
Net gains (losses) on financial assets and liabilities and exchange differences, net (1)	(54)	(155)	(65.0)
Other operating income and expense, net	41	82	(49.3)
Income and expense on insurance and reinsurance contracts	(20)	(19)	7.2
Gross income	(339)	(420)	(19.3)
Administration costs	(765)	(672)	13.9
Depreciation and amortization	(190)	(200)	(4.6)
Net margin before provisions (2)	(1,294)	(1,291)	0.2
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	-	(2)	(98.4)
Provisions or reversal of provisions and other results	(1,481)	(36)	n.m. (3)
Operating profit/(loss) before tax	(2,775)	(1,329)	108.7
Tax expense or income related to profit or loss from continuing operations	258	350	(26.4)
Profit from continuing operations excluding corporate operations	(2,517)	(979)	157.1
Profit from corporate operations, net	-	633	-
Profit	(2,517)	(346)	n.m. (3)
Profit attributable to non-controlling interests	-	3	(91.8)
Profit attributable to parent company	(2,517)	(343)	n.m. (3)

(1)   Comprises the following income statement line items contained in the 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”, “Gains (losses) from hedge accounting, net” and “Exchange differences, net”.

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

(3)   Not meaningful.

Net interest income / (expense)

Net interest expense of the Corporate Center for the year ended December 31, 2019 was €233 million, a 13.4% decrease compared with the €269 million net expense recorded for the year ended December 31, 2018, mainly due to lower funding costs.

Net fees and commissions

Net fees and commissions of the Corporate Center for the year ended December 31, 2019 was an expense of €73 million, a 24.0% increase compared with the €59 million expense recorded for the year ended December 31, 2018, mainly as a result of the higher fees and commissions paid related to the issuance and placement of contingent convertible bonds in 2019.

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

Net losses on financial assets and liabilities and exchange differences of the Corporate Center for the year ended December 31, 2019 were €54 million, a 65.0% decrease compared with the €155 million net losses recorded for the year ended December 31, 2018, mainly as a result of updated valuations being made at current market values of certain investments.

160

Other operating income and expense, net

Other net operating income of the Corporate Center for the year ended December 31, 2019 was €41 million, compared with the €82 million of net income recorded for the year ended December 31, 2018, mainly as a result of the decreased dividends from Telefónica, S.A. (as it lowered its dividends from €0.4 per share to €0.2 per share) and the lower dividend income from investees accounted for under the equity method.

Administration costs

Administration costs of the Corporate Center for the year ended December 31, 2019 amounted to €765 million, a 13.9% increase compared with the €672 million recorded for the year ended December 31, 2018, mainly as a result of the increase in personnel expense, partially offset by the lower rent expense as a result of the entry into force of IFRS 16, which had the effect of accounting for the amortization of right-to-use assets under the heading “Depreciation and amortization”.

Depreciation and amortization

Depreciation and amortization for the year ended December 31, 2019 was €190 million, a 4.6% decrease compared with the €200 million recorded for the year ended December 31, 2018.

Provisions or reversal of provisions and other results

Provisions or reversal of provisions and other results of the Corporate Center for the year ended December 31, 2019 were a €1,481 million expense compared with the €36 million expense recorded for the year ended December 31, 2018, mainly as a result of the goodwill impairment losses recognized in the United States CGU. This impairment had a net negative impact on the “Profit attributable to parent company” of €1,318 million, 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.

Operating profit / (loss) before tax

As a result of the foregoing, operating loss before tax of the Corporate Center for the year ended December 31, 2019 was €2,775 million compared with the €1,329 million loss recorded for the year ended December 31, 2018.

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

Tax income related to profit or loss from continuing operations of the Corporate Center for the year ended December 31, 2019 amounted to €258 million, compared with the €350 million income recorded for the year ended December 31, 2018. Tax income related to profit or loss from continuing operations in 2019 was affected by the application of the amendment to IAS 12 in such year. In addition, tax income related to profit or loss from continuing operations in 2018 was affected by the recognition of the tax impact from the sale of BBVA’s stake in Chile in such year.

Profit from corporate operations, net

Profit from corporate operations of the Corporate Center was nil for the year ended December 31, 2019, compared with the €633 million recorded for the year ended December 31, 2018, which related to the sale of our stake in BBVA Chile in 2018.

Profit attributable to parent company

As a result of the foregoing, profit attributable to parent company of the Corporate Center for the year ended December 31, 2019 was a loss of €2,517 million, compared with the €343 million loss recorded for the year ended December 31, 2018.

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B.   Liquidity and Capital Resources

See Note 7.5 to our Consolidated Financial Statements for information on the BBVA Group’s liquidity. Certain additional information is provided below.

BBVA’s principal source of funds is its customer deposit base, which consists primarily of demand, savings and time deposits. In addition to relying on customer deposits, BBVA also accesses the interbank market (overnight and time deposits) and domestic and international capital markets for its additional liquidity requirements. To access the capital markets, BBVA has in place a series of domestic and international programs for the issuance of commercial paper and medium- and long-term debt. Another source of liquidity is the generation of cash flow from operations. Finally, BBVA supplements its funding requirements with borrowings from the Bank of Spain and from the ECB or the respective central banks of the countries where its subsidiaries are located. Recently, the liquidity programs implemented by the ECB have resulted in a much lower dependence on customer deposits, which has in turn lowered the level of competition for deposits in Spain.As of December 31, 2020, BBVA had drawn down €35,032 million under the TLTRO III and it intends to take up the remaining €3,468 million that is available to it thereunder in March 2021.

The following table shows the balances as of December 31, 2020, 2019 and 2018 of our principal sources of funds (including accrued interest, hedge transactions and issue expenses):

		As of December 31,
	2020	2019	2018
	(In Millions of Euros)
Deposits from central banks	51,454	33,585	37,792
Deposits from credit institutions	44,187	53,720	47,665
Customer deposits	353,224	394,924	388,682
Debt certificates	66,311	68,619	63,970
Other financial liabilities	17,975	18,168	16,003
Total	533,152	569,016	554,112

Customer deposits

Customer deposits (including “Financial liabilities at amortized cost - Customer deposits”, “Financial liabilities designated at fair value through profit or loss – Customer deposits” and “Financial liabilities held for trading – Customer deposits”) amounted to €353,224 million as of December 31, 2020 compared with €394,924 million as of December 31, 2019 (€388,682 million as of December 31, 2018), a 10.6% decrease, mainly attributable to the reclassification to “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet as of December 31, 2020 of the companies held for sale following the agreement BBVA reached on November 16, 2020 with The PNC Financial Services Group, Inc. and, to a lesser extent, the depreciation of the currencies of the main countries where the BBVA Group operates. See “Item 10. Additional Information—Material Contracts—Sale of BBVA USA to The PNC Financial Services Group”. 

Our customer deposits, excluding repurchase agreements, amounted to €343,608 million as of December 31, 2020 compared with €385,235 million as of December 31, 2019 (€377,216 million as of December 31, 2018).

Deposits from credit institutions and central banks

The following table shows amounts due to credit institutions and central banks as of December 31, 2020, 2019 and 2018:

	As of December 31,
	2020	2019	2018
	(In Millions of Euros)
Deposits from credit institutions	44,187	53,720	47,665
Deposits from central banks	51,454	33,585	37,792
Total	95,642	87,305	85,457

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Deposits from credit institutions and central banks amounted to €95,642 million as of December 31, 2020 compared with the €87,305 million as of December 31, 2019 (€85,457 million as of December 31, 2018). The increase as of December 31, 2020 compared to December 31, 2019 was mainly attributable to an increase in time deposits as a result of higher drawdowns under the TLTRO III facilities of the ECB. The increase as of December 31, 2019 compared to December 31, 2018 was mainly attributable to higher volumes of repurchase agreements with credit institutions in Spain.

Capital markets

We make debt issuances in the domestic and international capital markets in order to finance our activities. As of December 31, 2020 we had €45,304 million of debt certificates, comprising €43,419 million in bonds and debentures and €1,884 million in promissory notes and other securities, compared with €46,329 million, €44,381 million and €1,947 million outstanding, respectively, as of December 31, 2019, and €43,477 million, €39,973 million and €3,504 million outstanding, respectively, as of December 31, 2018 (see Note 22.4 to the Consolidated Financial Statements).

In addition, we had a total of €16,295 million in subordinated debt and subordinated deposits and €194 million in preferred securities outstanding as of December 31, 2020 compared with €17,859 million and €159 million, respectively, as of December 31, 2019 (€17,866 million and €181 million, respectively, as of December 31, 2018).

The following is a breakdown as of December 31, 2020of the maturities of our debt certificates (including bonds), subordinated debt, subordinated deposits and preferred securities. Regulatory equity instruments have been classified according to their contractual maturity:

	Demand	Up to 1 Month	1 to 3 Months	3 to 12 Months	1 to 5 Years	Over 5 Years	Total
	(In Millions of Euros)
Debt certificates (including bonds)	-	4,428	1,417	4,865	23,515	11,079	45,304
Subordinated debt, subordinated deposits and preferred securities	2	2	641	110	2,104	13,629	16,488
Total	2	4,430	2,057	4,976	25,619	24,708	61,792

Generation of Cash Flow

We operate in Spain, Mexico, Turkey, the United States and over 30 other countries, mainly in Europe, Latin America, and Asia. Our banking subsidiaries around the world are subject to supervision and regulation by a variety of regulatory bodies relating to, among other things, the satisfaction of different solvency, resolution and/or governance requirements. The obligation to satisfy such requirements may affect the ability of our banking subsidiaries to transfer funds to us in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where our subsidiaries are incorporated, dividends may only be paid out of funds legally available and, in certain cases, subject to the prior approval of the competent regulatory or supervisory authorities.

Even where any applicable requirements are met and funds are legally available, the relevant regulator could advise against the transfer of funds to us in the form of cash dividends, loans or advances, for prudence reasons or otherwise. For example, in response to the crisis caused by the COVID-19 pandemic, certain restrictions were adopted that affect the distribution and/or repatriation of dividends of some of the Group's subsidiaries. See “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”.

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

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

See Note 51 of the Consolidated Financial Statements for additional information on our consolidated statements of cash flows.

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Capital

As of December 31, 2020, 2019 and 2018, equity is calculated in accordance with current regulations on minimum capital base requirements for Spanish credit institutions on both an individual and consolidated basis. These regulations dictate how to calculate equity levels, as well as the various internal capital adequacy assessment processes they should have in place and the information such institutions should disclose to the market.

The minimum capital base requirements established by the current regulations are calculated according to the Group’s exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in these regulations and internal corporate governance obligations.

For information on our SREP requirements, our consolidated ratios as of December 31, 2020, 2019 and 2018, our RWAs, our MREL requirements and the capital issuances of Banco Bilbao Vizcaya Argentaria, S.A., see Note 32.1 to our Consolidated Financial Statements.

C.   Research and Development, Patents and Licenses, etc.

In 2020, we continued to foster the use of new technologies as a key component of our global development strategy. We explored new business and growth opportunities, focusing on three major areas: emerging technologies; digital banking; and data driven initiatives, in each case with the customer as the focal point of our banking business.

The BBVA Group is not materially dependent on the issuance of patents, licenses and industrial, mercantile or financial contracts or on new manufacturing processes in carrying out its business purpose.

D.   Trend Information

The European financial services sector is expected to remain competitive in the current challenging environment. See “Item 4. Information on the Company―Competition”. The COVID-19 pandemic may lead to further consolidation in the sector through mergers, acquisitions or alliances. Some banks have exited some lines of their non-core businesses and activities.

There are four main trends that are expected to shape the sector profitability in the future:

·the COVID-19 pandemic crisis and actions taken by governments in connection therewith. For a discussion on the impact of COVID-19 on the Group’s business and, more generally, economic conditions, see “―Factors Affecting the Comparability of our Results of Operations and Financial Condition―The COVID-19 Pandemic”and “―Operating Results―Operating Environment”;

·the low (or even negative) interest rate environment (especially in Spain). The impact of reductions of credit interest rates may not be fully offset by a contraction of the deposit rates as customers are not accustomed to negative deposit rates and deposits are crucial for the funding of banks. Interest rate cuts are particularly important in countries like Spain, where mortgages account for a significant proportion of credit (more than 40%) and nine out of 10 mortgages are estimated to be on variable rates;

·a more challenging competitive environment with the entry of non-bank digital financial services providers. Further, non-bank digital financial services providers are growing very fast in line with technological advances and becoming a very important competitor for the banking industry. These entities do not have to comply with a regulation scheme as strict as that applicable to banks. For additional information, see “Item 4. Information on the Company―Competition”; and

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·the completion and the implementation of the ongoing financial regulatory reforms. On one hand, when such reforms are applied locally, inconsistently and heterogeneously, regulatory fragmentation and the implementation by some countries of more flexible or stricter rules or regulations may put certain banks at a disadvantage. Conversely, it is possible that, in the framework of the banking union and in the capital markets union, regulatory changes and enhanced institutional architecture might contribute to a less fragmented, but more competitive, landscape. Moreover, regulatory changes, adopted or proposed, as well as their interpretation or application, have increased and may continue to substantially increase operating expenses and decrease margins. For information on certain significant supervision and regulatory matters which affect the Group, see “Item 4. Information on the Company—Business Overview—Supervision and Regulation”. 

In addition, there are new and evolving risks, such as the increased risk of money laundering (including as a result of the increase in remote account opening driven by the COVID-19 pandemic), market based and asset management activities, misconduct risks and the decline of correspondent banking, among others.

E.   Off-Balance Sheet Arrangements

Note 33 to the Consolidated Financial Statements provides information on loan commitments and financial guarantees given by the Group as of December 31, 2020, 2019 and 2018.

The following table provides information regarding assets under management as of the dates indicated:

	As of December 31,
	2020	2019	2018
	(In Millions of Euros)
Mutual funds	64,869	68,639	61,393
Pension funds	36,215	36,630	33,807
Other resources	1,863	2,534	2,949
Total assets under management	102,947	107,803	98,150

F.   Tabular Disclosure of Contractual Obligations

Our consolidated contractual obligations as of December 31, 2020based on when they are due, were as follows:

	Less Than One Year	One to Three Years	Three to Five Years	Over Five Years	Total
	(In Millions of Euros)
Debt certificates (including bonds)	10,710	13,898	9,617	11,079	45,304
Subordinated debt, subordinated deposits and preferred securities	755	1,602	502	13,629	16,488
Customer deposits	325,448	8,920	3,731	4,562	342,661
Lease obligations	244	430	397	1,602	2,674
Purchase obligations	36	-	-	-	36
Post-employment benefits (1)	683	1,119	860	1,810	4,473
Insurance commitments (2)	1,227	950	1,616	6,158	9,951
Total (3)	339,103	26,921	16,723	38,840	421,588

(1)   Represents the Group’s estimated aggregate amounts for pension commitments in defined-benefit plans and other post-employment commitments (such as early retirement and welfare benefits), based on certain actuarial assumptions. Post-employment benefits are detailed in Note 25 to the Consolidated Financial Statements.

(2)   Liabilities under insurance and reinsurance contracts.

(3)   The majority of senior and subordinated debt was issued at fixed rates (see Note 22.4 to the Consolidated Financial Statements). Floating-rate amounts were calculated based on the conditions prevailing as of December 31, 2020. The financial cost of such issuances for 2020, 2019 and 2018 is included in Note 37.2 to the Consolidated Financial Statements.

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ITEM 6.   DIRECTORS, SENIOR MANAGEMENT AND EMPLOYEES

We have a one-tier board system with a single collegiate body, the Board of Directors, that is collectively responsible for the highest functions of managing the Company and overseeing and controlling the management of the Company, all with the aim of achieving the Company’s purpose and best corporate interest.

Our Board of Directors is committed to ensuring a good corporate governance system in the design and operation of our corporate bodies in the best interests of the Company and our shareholders.

Our Board of Directors is subject to Board Regulations that reflect and implement the principles and elements of BBVA’s concept of corporate governance. These Board Regulations include standards for the internal management and operation of the Board and its Committees, as well as the rights and obligations of directors in the performance of their duties, which are contained in the Board Regulations.

General shareholders’ meetings are subject to their own set of regulations on issues such as how they operate and what rights shareholders have at such meetings. These establish the possibility of exercising or delegating votes over remote communication media.

Our Board of Directors has approved the annual report on corporate governance and a report on directors’ remuneration for 2020, according to the provisions established in the Spanish regulation for listed companies.

Shareholders and investors may find the documents referred to above on BBVA’s website (www.bbva.com), under the “Shareholders and Investors” and “Corporate Governance and Remuneration Policy” sections.

BBVA’s website was created to facilitate information and communication with shareholders and other stakeholders. It provides special direct access to all information considered relevant to BBVA’s corporate governance system in a user-friendly manner. In addition, all the information required by Article 539 of the Spanish Corporate Enterprises Act can be accessed on BBVA’s website (www.bbva.com).

A.   Directors and Senior Management

We are managed by a Board of Directors that is currently composed of 15 members, 13 of which are non-executive directors and two are executive directors.

Pursuant to Article 1 of the Board Regulations, Bank directorships may be executive or non-executive. Executive directors are those who perform management duties in the Bank or any of its Group companies, irrespective of the legal relationship they have with it. All other Board members will hold non-executive directorships, and may be proprietary, independent or other external directors.

Independent directors are those non-executive directors who have been appointed based on their personal and professional qualities and who may perform their duties without being constrained by their relationship with the Company, or its Group, its significant shareholders or managers. Under the Board Regulations, directors may not be considered independent in any of the following situations:

(a)   they have been employees or have been executive directors of Group companies in the last three or five years, respectively;

(b)   they receive from the Bank, or from Group companies, any amount or benefit for any item other than director’s remuneration, except for those which are not significant for such director. For the purposes of this item, neither dividends nor pension allowances received by directors relating to their previous professional or employment relations will be taken into account, provided that said allowances are unconditional in nature and, therefore, the company that provides said allowances may not suspend, modify or revoke their accrual at its discretion without breaching its obligations;

(c)   they are, or have been in the past three years, a partner of an external auditor or have been responsible during this time for the auditor’s report of the Company or any other company within its Group;

(d)   they are executive directors or senior managers of another company for which an executive director or senior manager of the Company is an external director;

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(e)   they have, or have had over the last year, a significant business relationship with the Bank or any company within its Group, whether in their own name or as a significant shareholder, director or senior manager of a company that has, or has had, such a relationship. Business relationships include supplying goods or services, including financial services, as well as acting as an adviser or consultant;

(f)   they are significant shareholders, executive directors or senior managers of a company that receives, or has received in the past three years, donations from the Company or from its Group. Those who are simply trustees of a foundation receiving donations will not be considered included in this item;

(g)   they are spouses, partners in a similar relationship of affection or relatives up to the second degree of an executive director or senior manager of the Company;

(h)   they have not been proposed for appointment or renewal by the Appointments and Corporate Governance Committee;

(i)   they have been directors for a continuous period of more than twelve years; or

(j)   in relation to a significant shareholder or shareholder represented on the Board of Directors, any of the circumstances referred to in items (a), (e), (f) or (g) above shall apply. In the event of the kinship relations referred to in item (g), the limitation will apply not only to the shareholder, but also to any proprietary directors of the company in which shares are held.

Directors with a shareholding in the Company may be considered independent provided that they do not meet the conditions above and, in addition, that their shareholding is not legally regarded as significant.

Regulations of the Board of Directors

The principles and elements comprising our corporate governance are set forth in our Board Regulations, which govern the internal procedures and the operation of the Board and its Committees, as well as directors’ rights and duties.

The full text of the Board Regulations and those of the Board committees can be found on BBVA’s website (www.bbva.com).

The following provides a brief description of several significant matters covered in the Regulations of the Board of Directors.

Performance of Directors’ Duties

Directors must fulfil the duties imposed by applicable law and the Bylaws with fidelity to the corporate interest, which is understood as the interest of the Company.

They will participate in the deliberations, discussions and debates on matters submitted for their consideration, and they should clearly express their opposition when they consider that any proposal submitted to the Bank’s corporate bodies may be contrary to the corporate interest and will be provided in advance with the information needed to form an opinion with respect to the matters within the remit of the Bank’s corporate bodies. They may ask for any additional information and advice required to perform their duties. They must devote to their duty the necessary time and effort to perform it effectively and are required to attend the meetings of the corporate bodies on which they sit, except for a justifiable reason.

The directors may also request the Board of Directors for external expert assistance for any matters submitted to their consideration whose special complexity or importance so requires.

Conflicts of Interest

The rules comprising the Board Regulations detail different situations in which conflicts of interest could arise between directors, their family members and/or organizations to which they are linked, and the BBVA Group. They set out procedures for such cases, in order to avoid conduct contrary to our best interests. The rules contained in the Board Regulations are in line with the specific regulations established in the Spanish Corporate Enterprises Act.

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These rules help ensure directors’ conduct reflects stringent ethical codes, in keeping with applicable standards and according to core values of the BBVA Group.

Incompatibilities

Directors are also subject to the rules on limitations and incompatibilities established under the applicable regulations at any time and, in particular, to the provisions of Spanish Law 10/2014 and Circular 2/2016, of the Bank of Spain, for credit institutions on supervision and solvency. A director of BBVA may not simultaneously hold more positions than those provided for in the following combinations: (i) one executive position and two non-executive positions; or (ii) four non-executive positions. Executive positions are understood to be those that undertake management duties irrespective of the legal bond attributed by those duties. The following will count as a single position: 1) executive or non-executive positions held within the same group; 2) executive or non-executive positions held within (i) entities that form part of the same institutional protection scheme or (ii) traded companies in which the entity holds a significant shareholding. Positions held in non-profit organizations or entities or companies pursuing non-commercial purposes will not count when determining the maximum number of positions. Nevertheless, the Bank of Spain may authorize members of the Board to hold an additional non-executive position if it deems that this would not interfere with the proper performance of the director’s activities in the credit institution.

In addition, pursuant to the provisions of Article 11 of Board Regulations, directors may not provide professional services to companies competing with the Bank or any of its Group companies, unless they have received express prior authorization from the Board of Directors or the general shareholders’ meeting, as appropriate, or unless these activities had been provided or conducted before the director joined the Bank, they had posed no effective competition and they had informed the Bank of such at that time.

Term of Directorships and Director Age Limit

Directors will stay in office for the term set out in our Bylaws (three years). If they have been co-opted, they will stay in office until the first general shareholders’ meeting is held. The general shareholders’ meeting may then ratify their appointment for the term of office established under our Bylaws.

BBVA’s Board Regulations establish an age limit for sitting on the Bank’s Board. Directors must submit their resignation at the first meeting of the Bank’s Board of Directors to be held after the general shareholders’ meeting approving the accounts for the financial year in which they reach the age of seventy-five years.

Appointment and Re-election of Directors

The proposals for appointment or re-election of directors submitted by the Board of Directors to the general shareholders’ meeting, as well as the appointments made directly to fill vacancies under its co-opting powers, will be approved at the proposal of the Appointments and Corporate Governance Committee for independent directors and prior report from this Committee for all other directors.

The proposal must be accompanied by an explanatory report by the Board of Directors assessing the skills, experience and merits of the candidate proposed, which will be added to the minutes of the general shareholders’ meeting or the Board of Directors meeting.

To such end, the Appointments and Corporate Governance Committee will evaluate the balance of knowledge, skills and experience of the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, assessing the dedication of time considered necessary to adequately carry out their duties, in view of the needs of the corporate bodies at any given time.

Directors’ Resignation and Dismissal

Furthermore, in the following circumstances, reflected in the Board Regulations, directors must offer their resignation to the Board of Directors and accept its decision regarding their continuity in office or not. Should the Board decide against their continuity, they are required to tender their resignation:

·when they are affected by circumstances of incompatibility or prohibition as defined under legislation in force, in the Bylaws or in the Board Regulations;

·when significant changes occur in their personal or professional situation that affect the status by virtue of which they were appointed as directors;

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·in the event of serious breach of their duties in the performance of their role as directors;

·when, for reasons attributable to the directors in their status as such, serious damage has been done to the Company’s equity, standing or reputation; or

·when they are no longer suitable to hold the status of director of the Bank.

Evaluation

Article 17 of the Board Regulations indicates that the Board of Directors will assess the quality and effectiveness of the operation of the Board of Directors, as well as will assess the performance of the duties of the Chairman of the Board, based in each case on the report submitted by the Appointments and Corporate Governance Committee (process which will be led by the Lead Director). Likewise, the Board will carry out the assessment of the operation of its Committees, based on the reports submit thereby. Furthermore, the Board of Directors will assess the performance of the Chief Executive Officer, based on the report submitted by the Appointments and Corporate Governance Committee, which will include the assessment made by the Executive Committee.

Moreover, Article 18 of the Board Regulations establishes that the Chairman will organize and coordinate the periodic assessment of the Board’s performance with the chairs of the relevant committees. Pursuant to the provisions of the Board Regulations, during the evaluation process conducted for 2020, the Board of Directors evaluated: (i) the quality and efficiency of the operation of the Board of Directors; (ii) the performance of the duties of the Chairman and the Chief Executive Officer; and (iii) the operation of the Board Committees.

The Board of Directors

As of the date of this Annual Report, our Board of Directors is comprised of 15 members, 13 of which are non-executive directors and two are executive directors.

The following table sets forth the names of the members of the Board of Directors as of the date of this Annual Report, their date of appointment and, if applicable, re-election, their current positions and their present principal outside occupation and main employment history.

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Name	Birth Year	Current Position	Date Nominated	Date Re-elected	Principal Business Activities and Employment History(*)
Carlos Torres Vila(1)(6)	1966	Group Executive Chairman	May 4, 2015	March 15, 2019	Chairman of the Board of Directors and Group Executive Chairman of BBVA. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 to December 2018. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.
Onur Genç (1)	1974	Chief Executive Officer	December 20, 2018	March 15, 2019	Chief Executive Officer of BBVA. Director of BBVA USA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. President and CEO of BBVA USA and BBVA’s Country Manager in the United States from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Vice President for retail and private banking at Garanti BBVA between 2012 and 2015.
José Miguel Andrés Torrecillas(1)(2)(3)(8)	1955	Deputy Chair; Independent Director	March 13, 2015	March 16, 2018	Deputy Chair of the BBVA Board of Directors since April 2019. Chair of the Appointments and Corporate Governance Committee. Director of Zardoya Otis, S.A. Chairman of Ernst & Young Spain from 2004 to 2014, where he was a partner since 1987 and also held a series of senior offices, including Managing Partner of the Banking Group from 1989 to 2004 and Managing Director of the Audit and Advisory practices at Ernst & Young Italy and Portugal from 2008 to 2013.
Jaime Félix Caruana Lacorte(1)(2)(5)	1952	Independent Director	March 16, 2018	Not applicable	Chair of the Audit Committee since April 2019. Member of the Group of Thirty (G-30) and Sponsor (patrono) of the Spanish Aspen Institute Foundation. General Manager of the Bank of International Settlements (BIS) between 2009 and 2017. Between 2006 and 2009 he was Head of the Monetary, Capital Markets Department and Financial Counselor and General Manager at the International Monetary Fund (IMF), between 2003 and 2006 he was Chairman of the Basel Committee on Banking Supervision, between 2000 and 2006 he was Governor of the Bank of Spain, and between 1999 and 2000 he was General Manager of Banking Supervision at the Bank of Spain.
Raúl Catarino Galamba de Oliveira (5) (6)	1964	Independent Director	March 13, 2020	Not applicable	Independent Chair of the Board of Directors of CTT – Correios de Portugal, S.A. and non-executive director of José de Mello Saúde and José de Mello Capital. His career path has been mainly linked to McKinsey & Company, where he was appointed partner in 1995, Director of the Portugal office in 2000, Managing Partner for Spain and Portugal between 2005 and 2011, Managing Partner of Global Risk practice between 2013 and 2016, member of the Global Shareholders Board from 2005 to 2011, member of the Partner Election and Evaluation Committees between 2001 and 2017, member of the Remuneration Committee from 2005 to 2013 and Chairman of the Global Learning Board from 2006 to 2011.

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Belén Garijo López(2)(3)(4)	1960	Independent Director	March 16, 2012	March 16, 2018	Chair of the Remunerations Committee. Member of the Executive Board of Merck Group and CEO of Merck Healthcare, member of the Board of Directors of L’Oréal and, since 2011, Chair of the International Senior Executive Committee (ISEC) of PhRMA, (Pharmaceutical Research and Manufacturers of America). Previously, she was President of Commercial Operations for Europe and Canada at Sanofi Aventis.
Sunir Kumar Kapoor(6)	1963	Independent Director	March 11, 2016	March 15, 2019	Operating partner at Atlantic Bridge Capital, independent director of Stratio Big Data and advisor to mCloud. President and CEO of UBmatrix Inc from 2005 to 2011. Executive Vice President and CMO of Cassatt Corporation from 2004 to 2005. Oracle Corporation, Vice President Collaboration Suite from 2002 to 2004. Founder and CEO of Tsola Inc from 1999 to 2001. President and CEO of E-Stamp Corporation from 1996 to 1999. Vice President of Strategy, Marketing and Planning of Oracle Corporation from 1994 to 1996.
Lourdes Máiz Carro(2)(4)	1959	Independent Director	March 14, 2014	March 13, 2020	Secretary of the Board of Directors and Director of Legal Services at Iberia, Líneas Aéreas de España from 2001 until 2016. Joined the Spanish State Counsel Corps (Cuerpo de Abogados del Estado) and from 1992 until 1993 she was Deputy to the Director in the Ministry of Public Administration. From 1993 to 2001 held various senior positions in the Public Administration, including Director of the Cabinet of the Assistant Secretary of Public Administration and General Director of the Sociedad Estatal de Participaciones Patrimoniales (SEPPA) within the Ministry of Economy and Finance.
José Maldonado Ramos(1)(3)	1952	External Director	January 28, 2000	March 16, 2018	Appointed Director and General Secretary of BBVA in January 2000. Took early retirement as Bank executive in December 2009. Previously, he was Board Secretary and Director of Legal Services for Empresa Nacional para el Desarrollo de la Industria Alimentaria, S.A. (Endiasa); Astilleros Españoles, S.A.; and Iberia, Líneas Aéreas de España, S.A.
Ana Cristina Peralta Moreno(2)(4)	1961	Independent Director	March 16, 2018	Not applicable	Independent member of the Board of Directors of Grenergy Renovables, S.A. and of Inmobiliaria Colonial, SOCIMI, S.A. She was an independent member of the Board of Directors of Deutsche Bank SAE from 2014 to 2018 and Banco Etcheverría, S.A. from 2013 to 2014. Chief Risk Officer and Member of the Management Committee of Banco Pastor, S.A. between 2008 and 2011. Before that, she held several positions at Bankinter, including Chief Risk Officer and was a member of the Management Committee between 2004 and 2008.
Juan Pi Llorens(3)(5)(6)(7)	1950	Independent Director	July 27, 2011	March 16, 2018	Lead Director of BBVA and Chairman of the Risk and Compliance Committee. Chairman of the Board of Directors of Ecolumber, S.A. and non-executive director of Oesía Networks, S.L. and of Tecnobit, S.L.U. Had a professional career at IBM holding various senior posts at a national and international level including Vice President for Sales at IBM Europe from 2005 to 2008, Vice President of Technology & Systems Group at IBM Europe from 2008 to 2010 and Vice President of the Finance Services Sector at GMU (Growth Markets Units) in China from 2009 to 2011. He was executive President of IBM Spain between 1998 and 2001.

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Ana Leonor Revenga Shanklin (5)	1963	Independent Director	March 13, 2020	Not applicable	Senior Fellow at the Brookings Institution and President of the Board at the ISEAK Foundation since 2018 and Associate Professor at the Walsh School of Foreign Service at Georgetown University since 2019.She has held several positions of responsibility at the World Bank, including Senior Director Global of the Poverty and Equity Practice between 2014 and 2016 and Deputy Chief Economist in 2016 and 2017.
Susana Rodríguez Vidarte(1)(3)(5)	1955	External Director	May 28, 2002	March 13, 2020	Professor of Strategy at the Faculty of Economics and Business Sciences at Universidad de Deusto. She was Dean of the faculty of Economics and Business Administration of the University of Deusto from 1996 to 2009, Director of the Instituto Internacional de Dirección de Empresas (INSIDE) from 2003 to 2008 and Director of the Postgraduate Area from 2009 to 2012. Doctor in Economic and Business Sciences from Universidad de Deusto.
Carlos Vicente Salazar Lomelín (4)	1951	External Director	March 13, 2020	Not applicable	Chairman of the Consejo Coordinador Empresarial de México (the Mexican Business Coordinating Council) since 2019 and independent director of Sukarne and Alsea since 2017 and 2019, respectively.Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. His career path has been linked to the Grupo Fomento Económico Mexicano S.A.B. de C.V. (Femsa) until 2019, having held roles such as General Manager of Cervecería Cuauhtémoc-Moctezuma and General Manager of Femsa from 2014 to 2017.
Jan Paul Marie Francis Verplancke(4)(6)	1963	Independent Director	March 16, 2018	Not applicable	Director, Chief Information Officer, Group Head of Technology and Banking Operations, of Standard Chartered Bank, between 2004 and 2015. Before that, he held Chief several positions in multinational companies, such as Vice President of Technology and Information Officer, in the EMEA region of Dell (1999-2004).
(*)   Where no date is provided, the position is currently held. (1)   Member of the Executive Committee. (2)   Member of the Audit Committee. (3)   Member of the Appointments and Corporate Governance Committee. (4)   Member of the Remunerations Committee. (5)   Member of the Risk and Compliance Committee. (6)   Member of the Technology and Cybersecurity Committee. (7)   Lead Director. (8)   Deputy Chair.

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 Senior Management

Our senior managers were each appointed for an indefinite term. Their positions as of the date of this Annual Report are as follows:

Name	Current Position	Present Principal Occupation and Employment History(*)
Carlos Torres Vila	Group Executive Chairman	Chairman of the Board of Directors and Group Executive Chairman of BBVA. Chairman of the Executive Committee and of the Technology and Cybersecurity Committee. Director of Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. Chief Executive Officer of BBVA from May 2015 to December 2018. He started at BBVA in September 2008 holding senior management posts such as Head of Digital Banking from March 2014 to May 2015 and BBVA Strategy & Corporate Development Director from January 2009 to March 2014.
Onur Genç	Chief Executive Officer	Chief Executive Officer of BBVA. Director of BBVA USA Bancshares, Inc., Grupo Financiero BBVA Bancomer, S.A. de C.V. and BBVA Bancomer S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer. President and CEO of BBVA USA and BBVA’s Country Manager in the United States from 2017 to December 2018. Deputy CEO at Garanti BBVA between 2015 and 2017 and Vice President for retail and private banking at Garanti BBVA between 2012 and 2015.
Domingo Armengol Calvo	General Secretary	General Secretary and Secretary of the Board of Directors of BBVA since 2009. Deputy Secretary of the Board from 2005 to 2009 and Head of the Institutional Legal Department of BBVA from 2000 to 2009.
María Jesús Arribas de Paz	Head of Legal	Head of Legal since December 2018. She held the position of Head of Corporate Legal Services between 2002 and 2018. Before that, she was head of Legal services and board secretary at Finanzia Banco de Crédito S.A. (1996-2002).
Pello Xabier Belausteguigoitia Mateache	Spain Country Manager	Spain Country Manager since December 2019. Director of BBVA Seguros, S.A. Seguros y Reaseguros. Head of Business Development BBVA Spain from 2017 to 2019, Director of BBVA Spain’s Northern Region from 2015 to 2017, Director of BBVA Spain’s Eastern Region from 2014 to 2015, Local Director at BBVA Spain’s Northwestern Region between 2011 and 2014 and Director of Commercial Businesses at BBVA Spain’s Northwestern Region from 2008 to 2011.
Carlos Casas Moreno	Head of Talent & Culture	Head of Talent & Culture since December 2018. He was Head of Compensation, Benefits & Key Roles from 2016 to December 2018, and was responsible for Organization Matters and Global Talent Management Policies in the Talent & Culture area between 2015 and 2016. Between 2010 and 2015, he worked on Process Re-engineering within the Innovation and Technology area. He worked at McKinsey & Company between 2000 and 2010, where he was an Associated Partner prior to leaving.
Victoria del Castillo Marchese	Head of Strategy & M&A	Head of Strategy & M&A since December 2018. She has held other relevant positions within the BBVA Group, such as Head of M&A for Europe and Turkey (2014 to December 2018), Director of Strategic Projects of the Finance Area (2009 to 2014) and Head of M&A for the USA (2006 to 2009).
José Luis Elechiguerra Joven (**)	Head of Engineering & Organization	Head of Engineering & Organization since December 2020. He has held other relevant positions within the BBVA Group such as Head of Client Solutions at BBVA USA during 2019, Global Director of Data Governance from 2017 to 2019 and Global Director of Organization & Business Process Engineering from 2015 to 2017, both positions at BBVA. Director of Business Transformation from 2013 to 2015, Director of Strategic & Financial Planning for the Retail Business from 2011 to 2013 and Director of Business Development & Strategic Planning for the Mortgage Business, all of them at BBVA México.
Ana Fernández Manrique	Head of Regulation & Internal Control	Head of Regulation & Internal Control since July 2019. She has held several relevant positions within the BBVA Group such as Director of Non-Financial Risks during 2018, Director of Strategy and Finance at BBVA Real Estate Area from 2014 to 2017, Director of Strategy and Finance at Global Retail Area from 2011 to 2014, and Strategy & M&A Managing Director between 2008 and 2011.

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María Luisa Gómez Bravo	Head of Corporate & Investment Banking	Head of Corporate & Investment Banking since December 2018. She has held several relevant positions within the BBVA Group such as Head of Investment & Cost Management (between 2017 and December 2018), Head of Investors & Shareholders Relations (between 2014 and 2017), Head of Transformation & Operations at BBVA Spain and Portugal (between 2012 and 2014), and Head of Asset Management (between 2008 and 2012), among others.
Joaquín Manuel Gortari Díez	Head of Internal Audit	Head of Internal Audit since December 2018. He has held several relevant positions within the BBVA Group, such as Chief of Staff to the Chairman (from 2010 to 2018), CFO in the Area of Technology and Operations (from 2008 to 2010), CFO of BBVA in the USA (from 2004 to 2008) and Deputy CFO of BBVA (from 2003 to 2004).
Ricardo Martín Manjón	Head of Data	Head of Data since April 2019. Director of BBVA Data & Analytics. Previously he was Global Head of Data Strategy & Data Science Innovation from 2017 to 2019, Head of Digital Transformation at BBVA Spain between 2013 and 2016, Marketing Director at BBVA Spain from 2011 to 2013. In addition, he held the position of Global Head of Digital Banking at Nordea between 2016 and 2017.
Eduardo Osuna Osuna	Mexico Country Manager	Mexico Country Manager since May 2015 and General Manager of BBVA Bancomer. Previously he was Head of Government and Corporate Banking of BBVA Bancomer from 2012 to 2015 and Head of Commercial Banking of BBVA Bancomer from 2010 to 2012.
David Puente Vicente	Head of Client Solutions	Head of Client Solutions since April 2019. Previously, he was Head of Data from 2017 to 2019, Head of Business Development Spain from May 2015 to 2017. Previously, he held others posts at BBVA such as Head of CEO’s Office from 2009 to 2012 and Head of New Business Models from 2004 to 2006. He was Senior Associate at McKinsey & Company from 2002 to 2004.
Jaime Sáenz de Tejada Pulido	Chief Financial Officer	Head of the Finance Area since May 2015 (which in December 2018 incorporated the Accounting Area). Director of Garanti BBVA. Head of Strategy and Finance from 2014 to 2015 and Head of Spain and Portugal from 2012 to 2014. Business Development Manager of Spain and Portugal at BBVA from 2011 to 2012. Central Area Manager of Madrid and Castilla La Mancha from 2007 to 2010.
Jorge Sáenz-Azcúnaga Carranza	Head of Country Monitoring	Head of Country Monitoring since July 2016. Director of BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer, of Grupo Financiero BBVA Bancomer, S.A. de C.V. and of BBVA USA Bancshares, Inc., and Vice President of Garanti BBVA. He joined BBVA in 1993 and he has held various senior posts such as Country Networks - Head of Business Monitoring Spain, USA and Turkey from 2015 to 2016, Head of Strategy and Planning, Spain & Portugal from 2008 to 2013 and Head of CEO Office from 2002 to 2005.
Rafael Salinas Martínez de Lecea	Head of Global Risk Management	Head of Global Risk Management since May 2015 and Director of Garanti BBVA. Prior to this post, he was Head of Risk and Portfolio Management from 2006 to 2015 and CFO of Banco de Crédito Local de España from 2003 to 2005.
(*)   Where no date is provided, positions are currently held. (**) The exercise of his duties as Senior Manager of the Bank is subject to his prior registration on the Registry of Senior Officers of the Bank of Spain.

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B.   Compensation

The provisions of BBVA’s Bylaws that relate to compensation of directors are in accordance with the relevant provisions of Spanish law. Furthermore, BBVA has a remuneration policy for BBVA directors (the “Directors’ Remuneration Policy”), which is aligned with the specific regulations applicable to credit institutions and best market practices.

Directors’ Remuneration Policy

The Directors’ Remuneration Policy for 2019, 2020 and 2021 was approved by the general shareholders’ meeting held on March 15, 2019, by a majority of 94.83%. This policy is available on our website (www.bbva.com). 

BBVA has defined its Directors’ Remuneration Policy on the basis of the general principles of the Group’s remuneration policy, taking into consideration compliance with legal requirements applicable to credit institutions and those applicable in the different sectors in which it operates, as well as alignment with best market practices, while including items devised to reduce exposure to excessive risks and to adjust remuneration to the targets, values and long-term interests of the Group.

On the basis of the principles of the Group’s remuneration policy, and pursuant to the statutory requirements established by applicable regulations, BBVA has devised a specific incentives system for staff whose professional activities have a significant impact on the Group’s risk profile (the “Identified Staff”), which includes BBVA executive directors and BBVA Senior Management, that is aligned with the regulations and recommendations applicable to the remuneration schemes for this staff. The result is a remuneration scheme for the Identified Staff based, inter alia, on the following basic characteristics, with the particularities set forth below for executive directors and BBVA Senior Management:

·Adequate balance between the fixed and variable components of total remuneration, in line with applicable regulations, designed to provide flexibility with regard to payment and amounts of the variable components, allowing for such components to be reduced, in part or in full, where appropriate. The proportion between the two components is established in accordance with the type of functions carried out by each beneficiary.

·The variable remuneration shall be based on effective risk management and linked to the level of achievement of financial and non-financial targets previously established and defined at the Group, area and individual levels, that take into account present and future risks assumed and the Group’s long-term interests.

·The variable remuneration for each year will not accrue, or will accrue in a reduced amount, should a certain level of profit and capital ratio not be achieved, and it shall be subject to ex ante adjustments, so that it shall be reduced at the time of the performance assessment in the event of a downturn in the Group’s results or other parameters such as the level of achievement of budgeted targets.

·The annual variable remuneration shall be calculated on the basis of: (i) annual performance indicators (financial and non-financial); (ii) scales of achievement, as per the weightings allocated to each indicator; and (iii) a target annual variable remuneration, representing the amount of annual variable remuneration if 100% of the pre-established targets are met. The resulting amount shall constitute the annual variable remuneration of each beneficiary.

·The annual variable remuneration shall be subject to a specific settlement and payment system, which includes the following rules:

·40% of the annual variable remuneration for members of the Identified Staff and 60% of the annual variable remuneration for executive directors, Senior Management and those members of the Identified Staff with particularly high variable remuneration amounts shall be deferred over a period of three years (for members of the Identified Staff) and for five years (for executive directors and Senior Management).

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·Both the upfront portion and the deferred portion of the annual variable remuneration for members of the Identified Staff shall be paid 50% in cash and 50% in BBVA shares. For executive directors and members of Senior Management, the upfront portion shall also be paid 50% in cash and 50% in BBVA shares and the deferred portion shall be paid 60% in BBVA shares and 40% in cash.

·Shares vested as annual variable remuneration shall be withheld for a one-year lock-up period after delivery, except for the transfer of those shares required to honor the payment of taxes.

·The deferred component of annual variable remuneration may be reduced, in part or in full, but never increased, based on the result of multi-year performance indicators aligned with the Group’s core risk management and control metrics, related to solvency, capital, liquidity, funding or profitability, or to share performance and recurring results of the Group, measured over a period of three years.

·The deferred component of annual variable remuneration for members of the Identified Staff, subject to the multi-year performance indicators, shall vest, if conditions are met, after the third year of deferral, except that, in the case of executive directors and Senior Management, it shall vest, if conditions are met, under the following schedule: 60% after the third year of deferral, 20% after the fourth year of deferral and 20% after the fifth year of deferral.

·Resulting cash portions of the deferred annual variable remuneration to be vested, after assessment of multi-year performance indicators, shall be updated according to the criteria established by the Board of Directors.

·No personal hedging strategies or insurance may be used in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management.

·The variable component of remuneration for a year shall be limited to a maximum amount of 100% of the fixed component of total remuneration, unless the general shareholders’ meeting resolves to increase this percentage up to a maximum of 200%.

·The entire annual variable remuneration shall be subject to “malus” and “clawback” arrangements during the whole deferral and lock-up period, as follows:

Up to 100% of the annual variable remuneration of each executive director corresponding to each year shall be subject to “malus” and “clawback” arrangements, both linked to a downturn in financial performance of the Bank as a whole, or of a specific unit or area, or of exposures generated by such executive director, when such downturn in financial performance arises from any of the following circumstances:

a)misconduct, fraud or serious infringement of the Code of Conduct and other applicable internal rules by such executive director;

b)regulatory sanctions or judicial convictions due to events that could be attributed to such executive director;

c)significant failure of risk management committed by the Bank or by a business or risk control unit, to which the willful misconduct or gross negligence of such executive director contributed; or

d)restatement of the Bank’s annual accounts, except where such restatement is due to a change in applicable accounting legislation.

For these purposes, the Bank will compare the performance assessment carried out for the relevant member of the Identified Staff with the ex post evolution of some of the criteria that contributed to the achievement of any targets. Both “malus” and “clawback” will apply to the annual variable remuneration of the year in which the event giving rise to application of the “malus” and/or “clawback” arrangements occurred, and they may be applied during the entire deferral and lock-up period applicable to the annual variable remuneration.

Notwithstanding the foregoing, in the event that these scenarios give rise to termination of contract of the member of the Identified Staff due to serious and guilty breach of duties, “malus” arrangements may apply to the entire deferred annual variable remuneration pending payment as of the date the termination decision is taken, in light of the extent of the damage caused.

In any case, the variable remuneration will be paid or vest only if it is sustainable according to the situation of the BBVA Group as a whole, and if justified on the basis of the Bank’s results, the business unit and of the executive director concerned.

Additionally, upon vesting of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value to twice their annual fixed remuneration for at least three years after their delivery.

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As regards non-executive directors, their remuneration system, in accordance with the Bank’s Bylaws and Directors’ Remuneration Policy, is based on the criteria of responsibility, dedication and incompatibilities inherent to their role, and consists entirely of fixed remuneration.

Remuneration received by non-executive directors in 2020

The remuneration paid to the non-executive members of the Board of Directors during 2020 is indicated below, individually and itemized for each non-executive director.

	Board of Directors	Executive Committee	Audit Committee		Risk and Compliance Committee	Remunerations Committee	Appointments and Corporate Governance Committee	Technology and Cybersecurity Committee	Other Functions (1)	Total
(thousands of euros)
José Miguel Andrés Torrecillas	129	111		66	36		115		50	507
Jaime Caruana Lacorte	129	167		165	107					567
Raúl Galamba de Oliveira (2)	107				71			32		211
Belén Garijo López	129			66		107	46			349
Sunir Kumar Kapoor	129							43		172
Lourdes Máiz Carro	129			66		43				238
José Maldonado Ramos	129	167					46			342
Ana Peralta Moreno	129			66		43				238
Juan Pi Llorens	129				214		46	43	80	512
Ana Revenga Shanklin (2)	97				71					168
Susana Rodríguez Vidarte	129	167			107		46			449
Carlos Salazar Lomelín (2)	97					29				125
Jan Verplancke	129					29		43		200
Total (3)	1,588	611		431	606	250	301	161	130	4,078

(1)   Includes amounts received during the 2020 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Director.

(2)   Directors appointed by the general shareholders’ meeting held on March 13, 2020. Remunerations paid based on the date on which the position was accepted.

(3)   Includes remuneration paid for membership on the Board and its various committees during the 2020 financial year. The composition of these committees changed following the resolution of the Board of Directors of April 29, 2020.

In addition, during the 2020 financial year, €95 thousand was paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors.

Moreover, Tomás Alfaro Drake and Carlos Loring Martínez de Irujo, who left their roles as directors on March 13, 2020, received a total remuneration of €54 thousand and €111 thousand, respectively, for their membership on the Board and the relevant committees thereof during the first quarter of 2020. The Bank also paid casualty and healthcare insurance premiums in an aggregate amount of €18 thousand in connection with such individuals.

Remuneration received by executive directors in 2020

During the 2020 financial year, the executive directors received the amount of the annual fixed remuneration corresponding to such financial year, established for each director in the Directors’ Remuneration Policy, which was approved by the general shareholders’ meeting held on March 15, 2019.

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In addition, the executive directors received the upfront portion of the annual variable remuneration for the 2019 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to such year, was due to be paid to them during the 2020 financial year.

Hence, in application of this settlement and payment system:

·40% of the 2019 annual variable remuneration for executive directors was paid in the 2020 financial year (the “upfront portion”), in equal parts in cash and in shares.

·The remaining 60% of the annual variable remuneration was deferred (40% in cash and 60% in shares) for a period of five years, and its accrual and payment will be subject to compliance with a series of multi-year indicators (the “deferred portion”). The application of these indicators, calculated over the first three years of deferral, may lead to a reduction of the deferred portion, even in its entirety, but in no event will the deferred portion be increased. Provided that the relevant conditions have been met, the resulting amount will then be paid, in cash and in BBVA shares, according to the following payment schedule: 60% in 2023, 20% in 2024 and the remaining 20% in 2025.

·All of the shares delivered to the executive directors as annual variable remuneration, including both as part of the upfront portion and the deferred portion, will be withheld for a one year lock-up period after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received.

·The deferred portion of the annual variable remuneration payable in cash will be subject to updating under the terms established by the Board of Directors.

·Executive directors may not use personal hedging strategies or insurance in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management.

·The variable component of the remuneration for executive directors corresponding to 2019 is limited to a maximum amount of 200% of the fixed component of the total remuneration, as agreed by the general shareholders’ meeting held during such financial year.

·Over the entire deferral and withholding period, the entire annual variable remuneration for the executive directors will be subject to “malus” and “clawback” arrangements.

Additionally, upon receipt of the shares, executive directors will not be allowed to transfer a number of shares equivalent in value to twice their annual fixed remuneration for at least three years after their delivery.

Moreover, during the 2020 financial year, in accordance with the applicable remuneration policies for 2016 and in application of the settlement and payment system of the annual variable remuneration for such financial year, the executive directors received the deferred portion of the annual variable remuneration for the 2016 financial year (50% of the annual variable remuneration), the vesting of which was due during the 2020 financial year after being adjusted downwards following the result of the multi-year performance indicators. This remuneration was paid in equal parts in cash and in shares, together with the corresponding update in cash, thus concluding payment of the annual variable remuneration to the executive directors for the 2016 financial year.

In accordance with the above, remunerations paid to executive directors during 2020 are indicated below, individually and itemized:

Annual Fixed Remuneration for 2020 (thousands of euros)
Group Executive Chairman	2,453
Chief Executive Officer	2,179
Total	4,632

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In addition, in accordance with the current Directors’ Remuneration Policy, during the 2020 financial year, the Chief Executive Officer (Consejero Delegado) received a corresponding amount of fixed remuneration in cash in lieu of pension (see “—Pension Commitments”), and for his mobility allowance. The Bank paid the Chief Executive Officer €654 thousand and €600 thousand, respectively, during the 2020 financial year.

Annual Variable Remuneration for 2019
	In cash (1)(thousands of euros)		In shares (1)
Group Executive Chairman	636	126,470
Chief Executive Officer	571	113,492
Total	1,207	239,962

(1)Represents remunerations corresponding to the upfront portion (40%) of the annual variable remuneration for the 2019 financial year (paid 50% in cash and 50% in BBVA shares).

Deferred Annual Variable Remuneration for 2016
	In cash (1) (thousands of euros)		In shares (1)
Group Executive Chairman	656	89,158
Chief Executive Officer	204	31,086
Total	861	120,244

 (1 ) Represents remunerations corresponding to deferred portion of the annual variable remuneration for the 2016 financial year (50% of the annual variable remuneration for 2016 in equal parts in cash and shares), payment of which was due during the 2020 financial year, together with its corresponding update in cash, and after its downward adjustment following the result of the multi-year performance indicators. In the case of both the Group Executive Chairman and the Chief Executive Officer, this remuneration is associated with their previous positions.

In addition, the executive directors received remuneration in kind during the 2020 financial year, including insurance premiums and others, amounting to a total of €360 thousand, of which €228 thousand was paid to the Group Executive Chairman and €132 thousand was paid to the Chief Executive Officer.

José Manuel González-Páramo Martínez-Murillo, former Head of Global Economics & Public Affairs (GE&PA), who ceased to be an executive director on March 13, 2020, received €168 thousand as annual fixed remuneration; €174 thousand and 28,353 BBVA shares corresponding to both the upfront portion (40%) of the annual variable remuneration for the 2019 financial year and the deferred portion of the annual variable remuneration for the 2016 financial year, including the corresponding cash update; as well as €33 thousand as remuneration in kind.

Remuneration received by Senior Management in 2020

During the 2020 financial year, the members of Senior Management, excluding executive directors, received the amount of the annual fixed remuneration corresponding to such financial year.

In addition, they received the upfront portion of the annual variable remuneration for the 2019 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable for such financial year, was due to be paid to them during the 2020 financial year.

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Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among others, that the upfront portion (40% of the annual variable remuneration) will be paid in the financial year following the year to which it corresponds, in equal parts in cash and in shares, and the deferred portion (60% of the annual variable remuneration) will be deferred (40% in cash and 60% in shares) over a five-year period, with its accrual and payment being subject to compliance with a series of multi-year indicators, applying the same payment schedule established for executive directors. Any shares received, including both as part of the upfront portion and the deferred portion, will be withheld for a one year lock-up period after delivery, except for shares transferred to honor the payment of taxes accruing on the shares received. Likewise, members of Senior Management may not use personal hedging strategies or insurance in connection with their remuneration and responsibility if such personal hedging strategies or insurance may undermine their incentives to align with sound risk management. The variable component of the remuneration for Senior Management corresponding to the 2019 financial year will be limited to a maximum amount of 200% of the fixed component of the total remuneration. Over the entire deferral and withholding period, the annual variable remuneration will be subject to “malus” and “clawback” arrangements.

Moreover, during the 2020 financial year, in accordance with the remuneration policy applicable to Senior Management in 2016 and in application of the settlement and payment system of the annual variable remuneration for such financial year, the members of Senior Management who were beneficiaries of such remuneration received the deferred portion of the annual variable remuneration for the 2016 financial year, after being adjusted downwards following the result of the multi-year performance indicators. This remuneration was paid in equal parts in cash and in shares, along with the corresponding update in cash, concluding the payment of this remuneration to the members of Senior Management for the 2016 financial year.

In accordance with the above, the remuneration paid during the 2020 financial year to members of the Senior Management as a whole, who held that position as of December 31, 2020 (15 members), excluding executive directors, is indicated and itemized below:

Annual Fixed Remuneration for 2020 (Thousands of Euros)
Senior Management Total	14,101

Annual Variable Remuneration for 2019
	In cash (thousands of euros) (1)	In shares (1)
Senior Management Total	1,402	280,055

(1) Represents remunerations corresponding to the upfront portion (40%) of the annual variable remuneration for the 2019 financial year (paid 50% in cash and 50% in BBVA shares), as well as the upfront portion of the retention plans for two members of the Senior Management.

Deferred Annual Variable Remuneration for 2016
	In cash(thousands of euros) (1)	In shares (1)
Senior Management Total	1,380	182,461

(1)   Represents remunerations corresponding to the deferred portion of annual variable remuneration for the 2016 financial year (50% of the annual variable remuneration for 2016 in equal parts in cash and in shares), payment of which was due during the 2020 financial year, together with its corresponding update in cash, and after its downward adjustment following the result of the multi-year performance indicators.

In addition, all of the members of Senior Management, excluding executive directors, received remuneration in kind during the 2020 financial year, including insurance premiums and others, amounting to a total of €1,086 thousand.

Remuneration to be received by executive directors in 2021 and subsequent financial years

Annual variable remuneration for executive directors for 2020

In view of the exceptional circumstances arising from the COVID-19 crisis, the executive directors have voluntarily waived their annual variable remuneration corresponding to the 2020 financial year, so they will not accrue any remuneration in this respect.

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Deferred annual variable remuneration for executive directors for 2017

Following the end of the 2020 financial year, the amount corresponding to the deferred portion of the annual variable remuneration of executive directors for the 2017 financial year was determined, with vesting, if conditions are met, during 2021, in accordance with the conditions set out in the remuneration policies applicable to the 2017 financial year and applicable to each executive director.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, the final amount of the deferred portion of the annual variable remuneration for the 2017 financial year was determined.

As a result, such remuneration was determined in an amount of €411 thousand and 83,692 BBVA shares, in the case of the Group Executive Chairman, and €307 thousand and 39,796 BBVA shares, in the case of the Chief Executive Officer, including in both cases the corresponding updates.

At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, the following amounts continued to be deferred and were pending determination and payment, if the applicable conditions are met: (i) 40% of the deferred portion of the annual variable remuneration for the 2017 financial year of the Group Executive Chairman, and (ii) 60% of the annual variable remuneration for the 2018 and 2019 financial years of both executive directors.

Remuneration to be received by Senior Management in 2021 and subsequent financial years

Annual variable remuneration for Senior Management for 2020

In view of the exceptional circumstances arising from the COVID-19 crisis, the members of Senior Management have, like the executive directors, voluntarily waived their annual variable remuneration corresponding to the 2020 financial year, so they will not accrue any remuneration in this respect.

Deferred annual variable remuneration of Senior Management for financial year 2017

Following the end of the 2020 financial year, the deferred portion of the annual variable remuneration of Senior Management (15 members as of December 31, 2020, excluding executive directors) for the 2017 financial year was determined, with vesting, if conditions are met, taking place during the 2021 financial year, subject to the conditions established for this purpose in the applicable remuneration policy.

Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2017 to calculate the deferred portion of this remuneration, and in application of the relevant scales of achievement and their corresponding targets and weightings, the final amount of the deferred portion of the annual variable remuneration for members of Senior Management for the 2017 financial year was determined. The aggregate total amount for the Senior Management, excluding executive directors, was determined to be €610 thousand and 107,740 BBVA shares, including the corresponding updates.

At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, the following amounts continued to be deferred and were pending determination and payment, if the applicable conditions are met: (i) 40% of the deferred portion of the annual variable remuneration for the 2017 financial year with respect to certain members of the Senior Management, and (ii) 60% of the annual variable remuneration for the 2018 and 2019 financial years.

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Fixed remuneration system in shares with deferred delivery for non-executive directors

BBVA has a fixed remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the general shareholders’ meeting held on March 18, 2006 and extended by resolutions of the general shareholders’ meetings held on March 11, 2011 and on March 11, 2016, respectively, for a further five-year period in each case.

This system is based on the annual allocation to non-executive directors of a number of “theoretical shares”, equivalent to 20% of the total remuneration in cash received by each director in the previous year, calculated according to the average closing prices of BBVA shares during the sixty trading sessions prior to the annual general shareholders’ meetings approving the corresponding financial statements for each financial year.

These shares will vest, where applicable, to each beneficiary after they leave directorship for any reason other than serious breach of their duties.

The number of “theoretical shares” allocated during the 2020 financial year to each non-executive director beneficiary of the remuneration system in “theoretical shares” with deferred delivery, corresponding to 20% of the total remuneration received in cash by such directors during the 2019 financial year, was as follows:

	Theoretical shares allocated in 2020	Theoretical shares accumulated as of December 31, 2020
José Miguel Andrés Torrecillas	20,252	75,912
Jaime Caruana Lacorte	22,067	31,387
Raúl Galamba de Oliveira	-	-
Belén Garijo López	14,598	62,126
Sunir Kumar Kapoor	7,189	22,915
Lourdes Máiz Carro	10,609	44,929
José Maldonado Ramos	14,245	108,568
Ana Peralta Moreno	10,041	15,665
Juan Pi Llorens	20,676	92,817
Ana Revenga Shanklin	-	-
Susana Rodríguez Vidarte	18,724	141,138
Carlos Salazar Lomelín	-	-
Jan Verplancke	7,189	12,392
Total (1)	145,590	607,849

(1)  Furthermore, 8,984 “theoretical shares” were assigned to Tomás Alfaro Drake and 18,655 “theoretical shares” were assigned to Carlos Loring Martínez de Irujo, who left their roles as directors on March 13, 2020. After leaving their roles, both directors received a number of BBVA shares equivalent to the total number of “theoretical shares” that each of them had accumulated until that date (102,571 and 135,046 BBVA shares, respectively) by application of the system.

Pension commitments with directors and Senior Management

The Bank does not have pension commitments with non-executive directors.

With regard to the Group Executive Chairman, the Directors’ Remuneration Policy establishes a pension framework whereby he is eligible, provided that he does not leave his position as a result of a serious breach of duties, to receive a retirement pension, paid as a lump sum or in installments, when he reaches the legally established retirement age. The amount of this pension will be determined by the annual contributions made by the Bank, together with their corresponding accumulated yields as of that date.

The annual contribution to cover the retirement contingency for the Group Executive Chairman’s defined-contribution system, as established in the Directors’ Remuneration Policy, was determined as a result of the conversion of his previous defined-benefit system into a defined-contribution system, in the annual amount of €1,642 thousand. The Board of Directors may update this amount during the term of the Directors’ Remuneration Policy, in the same way and under the same terms as it may update the annual fixed remuneration.

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15% of the aforementioned agreed annual contribution will be based on variable components and considered “discretionary pension benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations.

In the event the Group Executive Chairman’s contract terminates before reaching retirement age for reasons other than serious breach of duties, the retirement pension due to the Group Executive Chairman upon reaching the legally established retirement age will be calculated based on the funds accumulated through the contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event from the time of termination.

With respect to the commitments to cover the contingencies for death and disability benefits for the Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage of these contingencies.

In line with the above, during the 2020 financial year, the following amounts were recorded to meet the pension commitments for the Group Executive Chairman: €1,642 thousand with regard to the retirement contingency and €377 thousand for the payment of premiums for the death and disability contingencies, as well as the upwards adjustment of €15 thousand for “discretionary pension benefits” for the 2019 financial year, which were declared at the end of the 2019 financial year and had to be registered in the accumulated fund in the 2020 financial year.

As of December 31, 2020, the total accumulated amount of the fund to meet the retirement commitments for the Group Executive Chairman amounted to €23,057 thousand.

With regard to the agreed annual contribution to the retirement contingency corresponding to the 2020 financial year, 15% (€246 thousand) was registered in that financial year as “discretionary pension benefits”. Following the end of the 2020 financial year, this amount was adjusted applying the same criteria used to determine the annual variable remuneration for the rest of the Bank’s staff. Thus, the “discretionary pension benefits” for the 2020 financial year were determined in an amount of €148 thousand, following a downwards adjustment of €98 thousand. These “discretionary pension benefits” will be included in the accumulated fund for the 2021 financial year and will be subject to the conditions established for these benefits in the Directors’ Remuneration Policy.

With regard to the Chief Executive Officer, in accordance with the provisions of the current Directors’ Remuneration Policy and his contract, the Bank is not required to make any contributions to a retirement pension, although he is entitled to an annual cash sum instead of a retirement pension equal to 30% of his annual fixed remuneration. However, the Bank does have pension commitments to cover the death and disability contingencies, for which purpose the corresponding annual insurance premiums will be paid.

In accordance with the above, in the 2020 financial year the Bank paid the Chief Executive Officer the amount of fixed remuneration as cash in lieu of pension set out under “—Remuneration received by executive directors in 2020”. Furthermore, €253 thousand was recorded for the payment of the annual insurance premiums to cover the death and disability contingencies.

In the case of the former Head of GE&PA, as a former executive director, €89 thousand were registered as contributions to fulfil the pension commitments undertaken in proportion to the time he spent in office during the 2020 financial year. This corresponds to: (i) the sum of the annual contribution made to cover the retirement pension commitment and the adjustment made to the “discretionary pension benefits” for the 2019 financial year that became due in the 2020 financial year once the annual variable remuneration for the year 2019 had been determined (€52 thousand); and to the death and disability premiums (€37 thousand).

As of the date on which he left his position, the total accumulated fund to meet the retirement commitments for such former executive director amounted to €1,404 thousand, with no additional contributions to be made by the Bank from that point on.

“Discretionary pension benefits” for the 2020 financial year for such former executive director (which were calculated in proportion to the time he remained in office in 2020) were determined in accordance with the same criteria used for the Group Executive Chairman, in an amount of €5 thousand, following a downwards adjustment of €3 thousand, and will be included in the accumulated fund for the 2021 financial year subject to the conditions established in the Remuneration Policy for BBVA Directors.

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Furthermore, in the 2020 financial year, to meet the pension commitments for members of the Senior Management (15 members as of December 31, 2020, excluding executive directors), the following amounts were recorded: €2,739 thousand corresponding to the contribution to the retirement contingency and €978 thousand corresponding to premiums to cover the death and disability contingencies, as well as the upwards adjustment of €12 thousand for “discretionary pension benefits” for the 2019 financial year, which were declared at 2019 year-end and had to be registered in the accumulated fund in 2020.

At December 31, 2020, the total accumulated amount of the fund to meet the retirement commitments for members of Senior Management amounted to €22,156 thousand.

15% of the agreed annual contributions for members of the Senior Management to cover retirement contingencies will be based on variable components and considered “discretionary pension benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of the Senior Management.

Accordingly, with regard to the agreed annual contribution for the retirement contingency registered in the 2020 financial year, an amount of €405 thousand was registered as “discretionary pension benefits” during the 2020 financial year, and following the end of the 2020 financial year, this amount was adjusted applying the same criteria used to determine the annual variable remuneration for the rest of the Bank's staff, in the same way as for the Group Executive Chairman, but taking into account, as well, the area and individual results of each senior manager established to these effects.

Accordingly, the “discretionary pension benefits” for members of the Senior Management for the 2020 financial year were determined in an amount of €255 thousand, following a downwards adjustment of €150 thousand, which will be included in the accumulated fund for the 2021 financial year, subject to the conditions established for these benefits in the remuneration policy applicable to members of Senior Management, in accordance with the regulations applicable to BBVA on this matter.

Extinction of contractual relationship

In accordance with the Directors’ Remuneration Policy, the Bank has no commitments to pay severance benefits to any executive directors.

The contractual framework defined for the executive directors, in accordance with the Directors’ Remuneration Policy, establishes a post-contractual non-compete clause, effective for a period of two (2) years after they leave their role as BBVA executive directors, provided that they do not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the Bank shall award them remuneration of an amount equivalent to their annual fixed remuneration for each year of the non-compete agreement, which will be awarded monthly over the course of the two years.

Accordingly, the former Head of GE&PA, who left his role on March 13, 2020, received for this concept, €625 thousand during the 2020 financial year.

With regard to Senior Management, excluding executive directors, during the 2020 financial year, the Bank paid out a total of €2,185 thousand resulting from the extinction of the contractual relationship with one member of the Senior Management and in fulfilment of the provisions of such member’s contract (for the payment of legal severance benefits and notice). Such former member’s contract includes the right to receive the corresponding legal severance pay, provided that the member of Senior Management does not leave of his own will, for retirement, disability or due to a serious breach of duties, which will be calculated in accordance with the provisions of applicable labor regulations. Such contract also includes a notice clause. In addition, the contract establishes a non-compete clause, effective for a period of one (1) year after the member leaves the role as a senior manager of BBVA, provided that the member does not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the member of Senior Management received a total of €898 thousand during 2020.

These payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which members of Senior Management belong.

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C.    Board Practices

Committees

Our corporate governance system is based on the distribution of functions between the Board, the Executive Committee and the following other specialized Board Committees: the Audit Committee; the Appointments and Corporate Governance Committee; the Remunerations Committee; the Risk and Compliance Committee; and the Technology and Cybersecurity Committee.

Additional information on our Board Committees, including their current composition, is provided in the following sections.

Executive Committee

Our Board of Directors is assisted in fulfilling its responsibilities by the Executive Committee (Comisión Delegada Permanente) of the Board of Directors.

As of the date of this Annual Report, BBVA’s Executive Committee is comprised of two executive directors, two external directors and two independent director, who are the following:

Position (type of directorship)	Name
Chairman (Executive)	Mr. Carlos Torres Vila
Member (Executive)	Mr. Onur Genç
Member (Independent)	Mr. José Miguel Andrés Torrecillas
Member (Independent)	Mr. Jaime Félix Caruana Lacorte
Member (External)	Mr. José Maldonado Ramos
Member (External)	Mrs. Susana Rodríguez Vidarte

According to the Regulations of the Executive Committee, the Executive Committee will deal with matters delegated to it by the Board of Directors and, in particular, will have the following functions, among others:

Support functions to the Board of Directors in its decision-making:

·On strategy: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors in relation to the Bank’s Strategic Plan or other strategic decisions, including the Risk Appetite Framework; (ii) prior analysis of the strategic and financial aspects of the proposals submitted to the Board of Directors in relation to corporate transactions corresponding to its decision-making powers, in respect of which it will submit its report to the Board, accompanied, where necessary, by reports from the other Board committees on those matters within their respective remits.

·On budgets: (i) prior analysis of the proposals submitted to the Board of Directors in relation to the Bank’s budgets; (ii) adoption of the corresponding decisions for the implementation of the budget approved by the Board of Directors; (iii) analysis of deviations from the approved budget and, where appropriate, reporting such to the Board of Directors.

·On finances: (i) establishment of the bases and previous analysis of the proposals submitted to the Board of Directors relating to the Bank’s funding plan, its capital and liquidity structure, and its dividends policy; (ii) adoption of implementation decisions of mandates expressly conferred on it by the Board of Directors in these fields.

·Analysis of matters relating to business risk in the proposals and plans submitted to the Board of Directors.

·Analysis, assessment and management of matters relating to reputational risk.

Functions of prior reporting on policies submitted to the Board of Directors and approval of general Group and Company policies:

·Analyze, prior to their consideration by the Board of Directors, the general Group and Company policies that, in accordance with the law or internal regulations, must be approved by the Board of Directors, except for policies relating to issues within other Board committees’ remit, which will be approved or reported to the Board beforehand by the corresponding committee.

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Monitoring and control functions:

·The Committee will perform monitoring and control functions regarding the following matters, among others: (i) the Group’s activity and results; (ii) budget monitoring; (iii) progress of the Strategic Plan, through the key performance indicators established for this purpose; (iv) monitoring of the Group’s liquidity and funding plan and capital situation, as well as of the activity of the Assets and Liabilities Committee; (v) analysis of the markets in which the Group carries out its activities; (vi) progress of the projects and investments agreed upon within its remit.

Decision-making powers over the following issues, among others:

·Investments and divestments exceeding €50 million and not reaching €400 million, unless they are of a strategic nature due to their particular characteristics, in which case the decision will correspond to the Board of Directors.

·Plans and projects that are considered of importance to the Group and that arise from its activities, when they do not fall within the remit of the Board of Directors.

·The granting and revoking of the Bank’s powers of attorney.

·Proposals for the appointment and replacement of directors in the Bank’s subsidiaries or investee companies with more than €50 million in own funds.

The Executive Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Executive Committee met thirty (30) times.

Audit Committee

The Audit Committee shall perform the duties required under applicable law, Board regulations, our Bylaws and its specific Regulations. Essentially, its mission is to assist the Board in overseeing the preparation of the financial statements and public information, and the relationship with the external auditor and the Internal Audit function.

The Board Regulations establish that the Audit Committee will be composed of a minimum of four directors to be appointed by the Board of Directors, which will also appoint its Chair, who will be replaced every four years and may be re-elected one year after ceasing to hold the position. The Audit Committee will be composed exclusively of independent directors. The Board of Directors will endeavor to ensure that the members of the Committee have the knowledge and experience appropriate to the duties they are called upon to perform. In any event, at least one member will be appointed taking into account his or her knowledge and experience in accounting, auditing or both. See “Item 16.A. Audit Committee Financial Expert”.  

As of the date of this Annual Report, the Audit Committee is comprised of five independent directors, who are the following:

Position (type of directorship)	Name
Chairman (Independent)	Mr. Jaime Félix Caruana Lacorte
Member (Independent)	Mr. José Miguel Andrés Torrecillas
Member (Independent)	Mrs. Belén Garijo López
Member (Independent)	Mrs. Lourdes Máiz Carro
Member (Independent)	Mrs. Ana Cristina Peralta Moreno

According to its Regulations, the Audit Committee has the following functions:

·Inform the general shareholders’ meeting on the questions raised in relation to the matters that are within the remit of the Committee and, in particular, on the result of the audit, explaining how the audit has contributed to the integrity of the financial information and the function performed by the Committee in this process;

·Oversee the process of preparing and reporting financial information and submit recommendations or proposals to the Board of Directors aimed at safeguarding the integrity thereof.

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·Likewise, analyze, prior to their submission to the Board of Directors and in enough detail to guarantee their accuracy, reliability, sufficiency and clarity, the financial statements of the Bank and of its consolidated Group contained in the annual, six-monthly and quarterly reports, as well as in all other required financial and related non-financial information.

·Additionally, the Committee shall review the necessary consolidation perimeter, the correct application of accounting criteria, and all the relevant changes relating to the accounting principles used and to the presentation of the financial statements.

·Oversee the effectiveness of the Company’s internal control and risk management systems, in terms of the process of preparing and reporting financial information, including fiscal risks, and discuss with the auditor any significant weaknesses in the internal control system detected during the audit, without undermining its independence. For such purposes, and where appropriate, the Committee may submit recommendations or proposals to the Board of Directors, along with the deadline for their follow-up;

·With regard to the Internal Audit function:

a)Propose to the Board of Directors the selection, appointment, re-election and removal of the head of the Internal Audit function, based on candidates from within the executive level pre-selected by the Talent & Culture area.

b)Monitor the independence, effectiveness and operation of the Internal Audit function.

c)Analyze and establish objectives for the head of the Internal Audit function and assess his or her performance, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors.

d)Ensure that the Internal Audit function has the necessary material and human resources for the effective performance of its functions, in terms of personnel, as well as material elements, systems, procedures and operation manuals.

e)Analyze and, where appropriate, approve the annual work plan for the Internal Audit function, as well as any other occasional or specific plans to be implemented as a result of regulatory changes or as required for the organization of the Group’s business.

·Receive monthly information from the head of the Internal Audit function regarding the activities carried out by the Internal Audit function, as well as regarding any incidents and obstacles that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports.

·Be apprised of the audited units’ degree of compliance with corrective measures previously recommended by Internal Audit, and report to the Board on those cases that may involve a significant risk for the Group.

·Submit to the Board of Directors proposals for the selection, appointment, re-election and replacement of the external auditor, taking responsibility for the selection process in accordance with applicable regulations, as well as the hiring conditions of the external auditor, and to periodically obtain information from the external auditor on the external audit plan and its execution, in addition to preserving its independence in the performance of its functions;

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·Ensure the independence of the auditor in two senses: (i) avoiding that the auditor’s warnings, opinions or recommendations may be adversely influenced. To this end, ensuring that compensation for the auditor’s work does not compromise either its quality or independence, in compliance with the auditing legislation in force at any given moment; (ii) establishing incompatibility between the provision of audit and consulting services, unless they are tasks required by supervisors or the provision of which by the auditor is permitted by applicable legislation, and there are no alternatives on the market that are equal in terms of content, quality or efficiency to those provided by the auditor, in which case, conformity of the Committee will be required, and this decision may be delegated in advance to its Chair.

·Establish appropriate relations with the auditor in order to receive information on any matters that may jeopardize their independence and any other matters in connection with the auditing process, as well as those other communications provided for by law and in auditing standards. In any event, the Committee must receive from the external auditors, on an annual basis, a statement of their independence with regard to the Company or entities directly or indirectly associated with it, as well as detailed and individualized information on additional services of any kind provided and the corresponding fees received by the external auditor or by persons or entities associated with the external auditor, as provided for in auditing legislation;

·Where appropriate, authorize the provision of additional services other than prohibited services, by the auditor or associated persons or entities, the performance of which is required by applicable regulations in each case, under the terms provided for in auditing legislation.

·Issue, on an annual basis and before the audit report is issued, a report expressing an opinion on whether the auditor’s independence has been compromised. This report must, in all cases, contain a reasoned assessment of the provision of each and every additional service referred to in the preceding paragraph, considered individually and collectively, other than the legal audit, and relating to the framework of independence or the regulations on audit activity;

·Verify, with the appropriate frequency, that the external audit program is being carried out in accordance with the contract conditions and is thereby meeting the requirements of the competent official authorities and the corporate bodies. The Committee will also periodically – at least once per year – request from the auditor an evaluation of the quality of the internal control procedures regarding the preparation and reporting of the Group’s financial information;

·Ensure that the auditor holds an annual meeting with the full Board of Directors to inform it of the work carried out and the progress of the Company’s risks and accounting situations;

·Be apprised of any infringements, situations requiring adjustments, or anomalies that may be detected during the course of the external audit, provided that these are relevant;

·Be apprised of reports, documents or communications from external supervisory bodies related to the scope of the Committee’s functions in the terms set out above. The Committee will ensure that the instructions, requirements and recommendations received from the supervisory bodies are implemented in due time and form, in order to correct any irregularities, shortfalls or inadequacies that may be detected in the inspections performed, within the scope of their functions;

·Report on all matters within its remit as provided for in the law, the Bylaws and the Regulations of the Board of Directors prior to any decisions that the Board of Directors may be required to adopt regarding such matters, and in particular on: financial information that the Company is required to publish; economic conditions and accounting impact of relevant corporate transactions and structural modifications (modificaciones estructurales); the creation or acquisition of shares in special purpose vehicles or in entities domiciled in territories considered to be tax havens; and related-party transactions;

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The Audit Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Audit Committee met thirteen (13) times.

Executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, in particular, Accounting and Internal Audit areas and, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called. In any event, the Committee will endeavor to hold private meetings with the head of Internal Audit and with the external auditor, without the attendance of other persons and at appropriate intervals.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence.

Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

Appointments and Corporate Governance Committee

The Appointments and Corporate Governance Committee assists the Board of Directors in matters relating to the selection and appointment of members of the Board of Directors; the assessment of performance; the drafting of succession plans; the Bank’s corporate governance system; and the supervision of the conduct of directors and any conflicts of interest that may affect them.

In compliance with the Board Regulations, this Committee will be composed of a minimum of three directors who must be non-executive directors appointed by the Board of Directors, which will also appoint its Chair. The Chair and the majority of its members must be independent directors.

As of the date of this Annual Report, the Appointments and Corporate Governance Committee is composed of three independent directors, including its Chair, and of two external directors, who are the following:

Position (type of directorship)	Name
Chairman (Independent)	Mr. José Miguel Andrés Torrecillas
Member (Independent)	Mrs. Belén Garijo López
Member (External)	Mr. José Maldonado Ramos
Member (Independent)	Mr. Juan Pi Llorens
Member (External)	Mrs. Susana Rodríguez Vidarte

The functions of the Appointments and Corporate Governance Committee according to its Regulations are as follows:

·Submit proposals to the Board of Directors for the appointment, re-election or removal of independent directors and report on proposals for the appointment, re-election or removal of the remaining directors.

To this end, the Committee will evaluate the balance of knowledge, skills and experience of the Board of Directors, as well as the conditions that the candidates must meet to cover the vacancies that arise, assessing the dedication of time considered necessary to adequately carry out their duties, in view of the needs that the corporate bodies have at any given time.

The Committee will ensure that selection procedures are not implicitly biased in such a way that may entail any kind of discrimination and, in particular, that may hinder the selection of directors of the underrepresented gender, endeavoring that directors of said gender who display the professional profile sought are included amongst potential candidates.

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The Committee, when drafting the corresponding proposals for the appointment of directors, will take into consideration, in case they may be considered suitable, any requests that may be made by any member of the Board of Directors regarding potential candidates to fill the vacancies that have arisen;

·Submit proposals to the Board of Directors on policies on the selection and diversity of the members of the Board of Directors;

·Establish a target for representation of the underrepresented gender on the Board of Directors and draw up guidelines on how to reach that target;

·Analyze the structure, size and composition of the Board of Directors, at least once per year, when assessing its operation;

·Analyze the suitability of the members of the Board of Directors;

·Review the status of each director each year, so that this may be reflected in the Annual Corporate Governance Report;

·Report on proposals for the appointment of the Chairman of the Board and Secretary and, where appropriate, the Deputy Chair and the Deputy Secretary, as well as the Chief Executive Officer (Consejero Delegado);

·Submit to the Board of Directors proposals for the appointment, removal or re-election of the Lead Director;

·Determine the procedure for assessing the performance of the Chairman of the Board of Directors, the Chief Executive Officer, the Board of Directors as a whole and the Board’s committees, and to oversee its implementation;

·Report on the quality and efficiency of the performance of the Board of Directors.

·Report on the performance of the Chairman of the Board of Directors and of the Chief Executive Officer, integrating for the latter the assessment made in this regard by the Executive Committee, for the purpose of the periodic assessment of both by the Board of Directors;

·Examine and organize the succession of the Chairman of the Board of Directors, the Chief Executive Officer and, where applicable, the Deputy Chair, in coordination with the Lead Director in the case of the Chairman of the Board and, where appropriate, submit proposals to the Board of Directors to ensure that the succession takes place in an orderly and planned manner;

·Review the Board of Directors’ policy on the selection and appointment of members of the Senior Management, and submit recommendations to the Board when applicable;

·Report on proposals for the appointment and removal of senior managers;

·Regularly review and assess the Company’s corporate governance system and, where applicable, submit proposals to the Board of Directors, for approval or subsequent submission to the general shareholders’ meeting, on any amendments and updates that would contribute to its implementation and continuous improvement;

·Ensure compliance with the provisions applicable to directors contained in the Regulations of the Board of Directors or in the applicable legislation, as well as with the rules relating to conduct on the securities markets, and inform the Board of these if it deems it necessary; and

·Report, prior to any decisions that may be made by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and the Regulations of the Appointments and Corporate Governance Committee, and in particular on situations of conflict of interest of the directors.

In the performance of its duties, the Appointments and Corporate Governance Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

In accordance with the Regulations of the Appointments and Corporate Governance Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

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Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be provided by experts or technical staff within the Group on grounds of specialization or independence. Furthermore, the Committee may solicit personal cooperation and reports from any employee or member of the Senior Management if deemed necessary in order to comply with its functions in relevant matters.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Appointments and Corporate Governance Committee met four (4) times.

Remunerations Committee

The Remunerations Committee, in accordance with the Board of Directors Regulations, assists the Board of Directors in remuneration matters within its remit and, in particular, those relating to the remuneration of directors, senior managers and those employees whose professional activities have a significant impact on the Group’s risk profile.

Under the Board Regulations, the Committee will be composed of a minimum of three directors appointed by the Board of Directors. All the members must be non-executive directors, with a majority of independent directors, including the Chair.

As of the date of this Annual Report, the Remunerations Committee is composed of four independent directors, including its Chair, and of one external director, who are the following:

Position (type of directorship)	Name
Chairman (Independent)	Mrs. Belén Garijo López
Member (Independent)	Mrs. Lourdes Máiz Carro
Member (Independent)	Mrs. Ana Cristina Peralta Moreno
Member (External)	Mr. Carlos Salazar Lomelín
Member (Independent)	Mr. Jan Paul Marie Francis Verplancke

In accordance with the Regulations of the Remunerations Committee, the scope of the functions of the Remunerations Committee is as follows:

·Propose to the Board of Directors, for submission to the general shareholders’ meeting, the  remuneration policy for directors, and also submit its corresponding report, all in accordance with the terms established by applicable regulations at any given time;

·Determine the remuneration of non-executive directors, as provided for in the remuneration policy for directors, submitting the corresponding proposals to the Board;

·Determine the extent and amount of the individual remunerations, rights and other economic rewards, as well as the remaining contractual conditions for executive directors, so that these can be contractually agreed, in accordance with the remuneration policy for directors, submitting the corresponding proposals to the Board of Directors;

·Determine the objectives and criteria for measuring the variable remuneration of the executive directors and assess the degree of achievement thereof, submitting the corresponding proposals to the Board of Directors, which, in the case of the Chief Executive Officer (Consejero Delegado), will take into account the assessment made by the Executive Committee and, in the case of other executive directors who may report to the Group Executive Chairman or to the Chief Executive Officer, the assessment made by these;

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·Analyze, where appropriate, the need to make ex-ante or ex-post adjustments to variable remuneration, including the application of malus or clawback arrangements for variable remuneration, submitting the corresponding proposals to the Board of Directors, prior report of the corresponding committees in each case;

·Annually submit the proposal of the annual report on the remuneration of the Bank’s directors to the Board of Directors, which will then be submitted to the annual general shareholders’ meeting, in accordance with the provisions of the applicable law;

·Propose to the Board of Directors the remuneration policy for senior managers and employees whose professional activities have a significant impact on the Group’s risk profile. Likewise, oversee its implementation, including supervision of the process for identifying such employees;

·Submit a proposal to the Board of Directors, and supervise the implementation of, the Group’s remuneration policy, which may include the policy for senior managers and the policy for employees whose professional activities have a significant impact on the Group’s risk profile, stated in the previous paragraph;

·Submit to the Board of Directors the proposals for basic contractual conditions for senior managers, including their remuneration and severance indemnity in the event of termination;

·Directly oversee the remuneration of senior managers and determine, within the framework of the remuneration model applicable to Senior Management at any given time, the objectives and criteria for measuring variable remuneration of the heads of the Regulation and Internal Control function and of the Internal Audit function, submitting the corresponding proposals to the Board of Directors, on the basis of those submitted to it in this regard by the Risk and Compliance Committee and the Audit Committee, respectively;

·Ensure observance of the remuneration policies established by the Company and review them periodically, proposing, where appropriate, any modifications deemed necessary to ensure, amongst other things, that they are adequate for the purposes of attracting and retaining the best professionals, that they contribute to the creation of long-term value and adequate control and management of risks, and that they attend to the principle of pay equity. In particular, ensure that the remuneration policies established by the Company are subject to internal, central and independent review at least once a year;

·Verify the information on the remuneration of directors and senior managers contained in the various corporate documents, including the annual report on the remuneration of directors; and

·Oversee the selection of external advisers, whose advice or support is required for the performance of their functions in remuneration matters, ensuring that any potential conflicts of interest do not impair the independence of the advice provided.

In the performance of its duties, the Committee, through its Chair, will consult with the Chairman of the Board of Directors, particularly with respect to matters relating to executive directors and senior managers.

Pursuant to the Regulations of the Remunerations Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient. The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Remunerations Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. During 2020, the Remunerations Committee met on four (4) occasions.

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Risk and Compliance Committee

The Board’s Risk and Compliance Committee’s essential function is to assist the Board of Directors in the determination and monitoring of the Group’s risk control and management policy, including risk internal control and non-financial risks, with the exception of those related to internal financial control, which are within the Audit Committee’s remit; those related to technological risk, which are within the Technology and Cybersecurity Committee’s remit; and those related to business and reputational risk, which are within the Executive Committee’s remit. It will also assist the Board of Directors in the oversight of the Compliance functions and the implementation of a risk and compliance culture in the Group.

The Risk and Compliance Committee will consist of a minimum of three directors appointed by the Board of Directors, which will also appoint its Chair. All the members of this Committee must be non-executive directors and the majority, including the Chair, must be independent directors. The Board of Directors will endeavor to ensure that the members of the Committee possess the appropriate knowledge, ability and experience to understand and control the risk strategy.

As of the date of this Annual Report, the Risk and Compliance Committee is composed of four independent directors, including its Chair, and of one external director, who are the following:

Position (type of directorship)	Name
Chairman (Independent)	Mr. Juan Pi Llorens
Member (Independent)	Mr. Jaime Félix Caruana Lacorte
Member (Independent)	Mr. Raúl Catarino Galamba de Oliveira
Member (Independent)	Mrs. Ana Leonor Revenga Shanklin
Member (External)	Mrs. Susana Rodríguez Vidarte

Under the Regulations of the Risk and Compliance Committee, such Committee has the following duties:

·Based on the strategic elements established by either the Board of Directors or the Executive Committee at any given time, analyze and submit to the Board proposals regarding the Group’s risk strategy, management and control, identifying in particular:

a)The Group’s risk appetite; and

b)Determination of the level of risk considered acceptable in terms of risk profile and capital at risk, broken down by the Group’s businesses and areas of activity.

The foregoing will include the Bank’s Risk Appetite Framework, the internal capital and liquidity adequacy assessment processes, which the Committee will analyze and submit to the Board of Directors, based on the strategic-financial approaches determined by both the Board of Directors and the Executive Committee;

·Address, in a manner consistent with the Risk Appetite Framework established by the Board of Directors, the control and management policies for the different risks, including financial risks, and, to the extent that they do not correspond to another Board committee, non-financial risks, as well as information and internal control systems;

·Oversee the effectiveness of the Regulation and Internal Control function (integrated by the Regulation, Supervisors and Compliance areas, as well as the Risk Internal Control and the Non-Financial Risks areas), which will hierarchically report to the Board of Directors, through the Committee, and in particular:

a)propose to the Board of Directors the appointment and removal of the head of Regulation and Internal Control function, based on candidates from within the executive level pre-selected by the Talent & Culture area;

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b)analyze and establish objectives for the head of Regulation and Internal Control function and assess his or her performance, incorporating the assessment of the Chairman of the Board regarding the Regulation and Supervisors functions, submitting its proposal on both matters to the Remunerations Committee in order to ensure alignment with the remuneration model applicable to the Senior Management at any given time, submitting the corresponding proposals to the Board of Directors;

c)ensure that the Regulation and Internal Control function has the necessary material and human resources for the effective performance of its functions; and

d)analyze and, where appropriate, approve the annual work plan for the Regulation and Internal Control function, as well as its modifications, and monitor compliance thereof;

·Receive monthly information from the head of Regulation and Internal Control function regarding the activities carried out by this area, as well as regarding any incidents that may arise, and verify that the Senior Management takes into account the conclusions and recommendations of his or her reports. Notwithstanding the foregoing, the head of Regulation and Internal Control function will also report quarterly to the full Board of Directors.

The Committee will also receive periodic information, as often as appropriate, from the heads of the Compliance, Risk Internal Control and Non-Financial Risk areas, integrated in the Regulation and Internal Control function;

·Monitor the evolution of the Group’s risks and their degree of compatibility with established strategies and policies,  and with the Group’s Risk Appetite Framework, and oversee procedures, tools and risk measurement indicators established at Group level to obtain a global view of the Bank’s and the Group’s risks. Likewise, monitor compliance with prudential regulation and supervisory requirements regarding risks.

Furthermore, analyze, where appropriate, the measures envisaged to mitigate the impact of identified risks, should these materialize, to be adopted by the Executive Committee or the Board of Directors, as appropriate;

·Analyze, within its remit, the risks associated with projects that are considered strategic for the Group or with corporate transactions to be submitted to consideration by the Board of Directors or, where appropriate, to consideration by the Executive Committee and, where necessary, submit the corresponding report;

·Analyze, prior to their submission to the Board of Directors or to the Executive Committee those risk operations to be submitted to their consideration;

·Examine whether the prices of the assets and liabilities offered to customers fully take into account the Bank’s business model and risk strategy and, if not, submit a plan to the Board of Directors aimed at rectifying the situation;

·Participate in the process of establishing the remuneration policy, ascertaining that it is compatible with an adequate and effective risk management strategy and that it does not offer incentives to assume risks that exceed the level tolerated by the Bank;

·Verify that the Company and the Group have means, systems, structures and resources that are consistent with best practices that enable to implement their risk management strategy, ensuring that the Bank’s risk management mechanisms are adequate in relation thereto;

·Report, prior to any decisions that may have to be adopted by the Board of Directors, on all matters within its remit as provided for in the law, the Bylaws, the Regulations of the Board of Directors and these Regulations;

·Ensure compliance with applicable national or international regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to competition, and ensure that requests for information or action made by official authorities on these matters are dealt with in due time and in an appropriate manner;

·Be informed on any breach of the applicable internal or external regulations, as well as the relevant events that the areas reporting to the Committee may have identified within their oversight and control functions. Likewise, the Committee shall be informed on those issues related to legal risks which may arise in the course of Group’s activity;

· Examine draft codes of ethics and conduct and their respective modifications prepared by the corresponding area of the Group, and issue its opinion in advance of the proposals to be drawn up to the corporate bodies;

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·Be apprised of reports, documents or communications from external supervisory bodies, notwithstanding any communication made with the remaining committees with regard to their respective remits. Likewise, verify that the instructions, requirements and recommendations received from the supervisory bodies in order to correct the irregularities, shortfalls or inadequacies identified in the inspections performed are fulfilled in due time and appropriate manner.

·Ensure the promotion of risk culture across the Group;

·Supervise the Group’s criminal risk prevention model; and

·Review and supervise the systems under which Group professionals may confidentially report any possible irregularities in the field of financial information or other matters.

Pursuant to the Regulations of the Risk and Compliance Committee, executives responsible for the areas that manage matters within the Committee’s remit may be called to meetings, in particular, Regulation and Internal Control area and Risks area, and, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed convenient The Committee may also call any other Group employee or manager, and even arrange for them to attend without the presence of any other manager.

Notwithstanding the foregoing, it will seek to ensure that the presence of persons outside the Committee during these meetings, such as Bank managers and employees, be limited to those cases where it is necessary and to the items on the agenda for which they are called.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agendas. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. In 2020, it held twenty-three (23) meetings.

Technology and Cybersecurity Committee

The Technology and Cybersecurity Committee’s essential function is to assist the Board of Directors in the oversight of technological risk and cybersecurity management and in monitoring the Group’s technology strategy.

The Technology and Cybersecurity Committee will consist of a minimum of three directors appointed by the Board of Directors, which will also appoint its Chair. The Board of Directors will endeavor to ensure that the members of the Committee have the knowledge and experience appropriate to the duties they are called upon to perform.

As of the date of this Annual Report, the Technology and Cybersecurity Committee is composed of one executive director and four independent directors, who are the following:

Position (type of directorship)	Name
Chairman (Executive)	Mr. Carlos Torres Vila
Member (Independent)	Mr. Raúl Catarino Galamba de Oliveira
Member (Independent)	Mr. Sunir Kumar Kapoor
Member (Independent)	Mr. Juan Pi Llorens
Member (Independent)	Mr. Jan Paul Marie Francis Verplancke

Under its regulations, the Technology and Cybersecurity Committee has the following functions:

- Oversight of technological risk and cybersecurity management:

·Review the Group’s exposures to the main technological risks, including the risks related to information security and cybersecurity, as well as the procedures adopted by the executive area to monitor and control such exposures.

·Review the policies and systems for the assessment, control and management of the Group’s technological infrastructures and risks, including the response and recovery plans in the event of cyber-attacks.

·Be informed of business continuity plans in matters of technology and technological infrastructure.

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·Be informed, as appropriate, of:

a)compliance risks associated with information technologies;

b)procedures established to identify, assess, oversee, manage and mitigate these risks.

·Be informed of any relevant events that may have occurred with regard to cybersecurity, i.e. events that, either in isolation or as a whole, may cause significant impact or harm to the Group’s equity, results or reputation. In any case, such events will be communicated, as soon as they are identified, to the Chair of the Committee.

·Be informed, with the frequency required by the head of the Technological Security area, of the activities carried out thereby, as well as of any incidents that may arise.

- Monitoring the Technology Strategy:

·Be informed, as appropriate, of the technology strategy and trends that may affect the Group’s strategic plans, including the monitoring of general industry trends.

·Be informed, as appropriate, of the metrics established by the Group for the management and control in the technological field, including the Group’s developments and investments in this field.

·Be informed, as appropriate, of matters related to new technologies, applications, information systems and best practices that may affect the Group’s technology strategy or plans.

·Be informed, as appropriate, of the main policies, strategic projects and plans defined by the Engineering area.

·Report to the Board of Directors and, where appropriate, to the Executive Committee, on information technology-related matters falling within its remit.

For a better performance of its functions, appropriate coordination systems will be established between the Technology and Cybersecurity Committee and the Audit Committee to facilitate:

a)That the Committee is aware of the conclusions of the work carried out by the Internal Audit area in technology and cybersecurity matters.

b)That the Audit Committee is informed of the information technology related systems and processes that are related to or affect the Group’s internal control systems and other matters within its remit.

The Committee will meet whenever it is convened by its Chair, who is empowered to call the Committee meetings and to set their agenda. The Committee will endeavor to establish an annual calendar of meetings, considering the amount of time to be devoted to its different tasks. In 2020 it held seven (7) meetings.

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D.      Employees

As of December 31, 2020, we had 123,174 employees. Approximately 93% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

	As of December 31, 2020
Country	BBVA	Bank Subsidiaries	Non-bank Subsidiaries	Total
Spain	23,971	-	5,359	29,330
United Kingdom	118	-	-	118
France	68	-	-	68
Italy	49	-	2	51
Germany	42	1	-	43
Switzerland	-	113	-	113
Portugal	-	447	-	447
Belgium	22	-	-	22
“The Netherlands” (Holland)	-	236	-	236
Russia	1	-	-	1
Romania	-	1,199	-	1,199
Ireland	-	-	-	-
Luxembourg	-	-	-	-
Turkey	-	20,357	-	20,357
Malta	-	13	-	13
Cyprus	-	103	-	103
Finland	-	-	125	125
Total Europe	24,271	22,469	5,486	52,226
The United States	149	10,746	-	10,895
Argentina	-	6,052	-	6,052
Brazil	-		6	6
Colombia	-	6,592	-	6,592
Venezuela	-	2,012		2012
Mexico	-	36,699	154	36,853
Uruguay	-	590	-	590
Paraguay	-	430	-	430
Bolivia	-		476	476
Chile	-	696	-	696
Cuba	1		-	1
Peru	-	6,204	-	6,204
Total Latin America	1	59,275	636	59,912
Hong Kong	80	-	-	80
Japan	3	-	-	3
China	28	1	-	29
Singapore	10	-	-	10
India	2	-	-	2
South Korea	2	-	-	2
United Arab Emirates	2	-	-	2
Taiwan	11	-	-	11
Indonesia	2	-	-	2
Total Asia	140	1	-	141
Total	24,561	92,491	6,122	123,174

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As of December 31, 2019, we had 126,973 employees. Approximately 89% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

	As of December 31, 2019
Country	BBVA	Bank Subsidiaries	Non-bank Subsidiaries	Total
Spain	24,921	-	5,362	30,283
United Kingdom	120	-	-	120
France	71	-	-	71
Italy	49	-	2	51
Germany	43	1	-	44
Switzerland	-	116	-	116
Portugal	-	458	-	458
Belgium	23	-	-	23
“The Netherlands” (Holland)		247	-	247
Russia	3	-	-	3
Romania	-	1267	-	1,267
Ireland	-	-	-	-
Luxembourg	-	-	-	-
Turkey	-	20,634	-	20,634
Malta	-	14	-	14
Cyprus	-	111	-	111
Finland	-	-	112	112
Total Europe	25,230	22,848	5,476	53,554
The United States	148	10,677	-	10,825
Argentina	-	6,402	-	6,402
Brazil	-	-	6	6
Colombia	-	6,899	-	6,899
Venezuela	-	2,532	-	2,532
Mexico	-	37,724	81	37,805
Uruguay	-	576	-	576
Paraguay	-	428	-	428
Bolivia	-	-	424	424
Chile	-	956	-	956
Cuba	1	-	-	1
Peru	-	6,420	-	6,420
Total Latin America	1	61,937	511	62,449
Hong Kong	85	-	-	85
Japan	3	-	-	3
China	26	1	2	29
Singapore	9	-	-	9
India	2	-	-	2
South Korea	2	-	-	2
United Arab Emirates	2	-	-	2
Taiwan	11	-	-	11
Indonesia	2	-	-	2
Total Asia	142	1	2	145
Total	25,521	95,463	5,989	126,973

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As of December 31, 2018, we had 125,627 employees. Approximately 88% of our employees in Spain held technical, managerial and executive positions, while the remainder were clerical and support staff. The table below sets forth the number of BBVA employees by geographic area.

	As of December 31, 2018
Country	BBVA	Bank Subsidiaries	Non-bank Subsidiaries	Total
Spain	25,419	-	4,919	30,338
United Kingdom	126	-	-	126
France	72	-	-	72
Italy	50	-	2	52
Germany	41	-	-	41
Switzerland	-	122	-	122
Portugal	469	-	-	469
Belgium	24	-	-	24
“The Netherlands” (Holland)	-	256	-	256
Russia	3	-	-	3
Romania	-	1,313	-	1,313
Ireland	-	4	-	4
Luxembourg	-	-	-	-
Turkey	-	20,305	-	20,305
Malta	-	13	-	13
Cyprus	-	107	-	107
Finland	-	-	83	83
Total Europe	26,204	22,120	5,004	53,328
The United States	141	10,843	-	10,984
Argentina	-	6,262	-	6,262
Brazil	-	-	6	6
Colombia	-	6,803	-	6,803
Venezuela	-	3,384	-	3,384
Mexico	-	36,123	-	36,123
Uruguay	-	578	-	578
Paraguay	-	430	-	430
Bolivia	-	-	396	396
Chile	-	923	-	923
Cuba	1	-	-	1
Peru	-	6,267	-	6,267
Total Latin America	1	60,770	402	61,173
Hong Kong	89	-	-	89
Japan	3	-	-	3
China	23	-	2	25
Singapore	8	-	-	8
India	2	-	-	2
South Korea	2	-	-	2
United Arab Emirates	2	-	-	2
Taiwan	9	-	-	9
Indonesia	2	-	-	2
Total Asia	140	-	2	142
Total	26,017	94,202	5,408	125,627

The number of employees decreased by 3.0% during 2020, while it increased by 1.1% in 2019. The decrease in the number of employees in 2020 was mainly attributable to divestitures and restructuring plans.

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The terms and basic conditions of employment in private sector banks in Spain are negotiated with trade unions representing sector bank employees. Wage negotiations take place on an industry-wide basis. This process has historically produced collective bargaining agreements binding upon all Spanish banks and their employees. On June 15, 2016, the XXIII Banking Collective Bargaining Agreement (BCBA) was signed. This agreement became effective on January 1, 2015 and was due to expire on December 31, 2018. However the effectiveness of the XXIII BCBA has been extended until January 31, 2021 or, if earlier, the date on which a new collective bargaining agreement becomes effective. As of the date of this Annual Report, a new collective bargaining agreement is being negotiated among the Spanish Banking Association (AEB) and trade unions.

As of December 31, 2020, 2019 and 2018, we had 746, 1,212 and 1,305 temporary employees in Spain, respectively.

Employee Pension Plans

Under the relevant collective labor agreements, BBVA and some of its subsidiaries provide supplemental pension payments to certain active and retired employees and their beneficiaries. These payments supplement social security benefits from the Spanish government. See Note 2.2.12 and Note 25 to our Consolidated Financial Statements.

E.      Share Ownership

As of February 23, 2021, the members of the Board of Directors owned an aggregate of BBVA shares as shown in the table below:

Name	Directly owned shares	Indirectly owned shares	Total shares	% Capital Stock
Carlos Torres Vila	859,051	-	859,051	0.013
Onur Genç *	516,651	-	516,651	0.008
José Miguel Andrés Torrecillas	10,828	-	10,828	0.000
Jaime Caruana Lacorte	35,000	10,000	45,000	0.001
Raúl Galamba de Oliveira	20,000	-	20,000	0.000
Belén Garijo López	-	-	-	-
Sunir Kumar Kapoor *	10,000	-	10,000	0.000
Lourdes Máiz Carro	-	-	-	-
José Maldonado Ramos	38,761	-	38,761	0.001
Ana Peralta Moreno	-	-	-	-
Juan Pi Llorens	-	-	-	-
Ana Revenga Shanklin*	10,000	-	10,000	0.000
Susana Rodríguez Vidarte	26,980	-	26,980	0.000
Carlos Salazar Lomelín	260,929	-	260,929	0,004
Jan Verplancke	-	-	-	-
TOTAL	1,788,200	10,000	1,798,200	0.027

* Onur Genç, Sunir Kumar Kapoor and Ana Revenga Shanklin owned 31,326, 10,000 and 10,000 shares in the form of ADSs, respectively

BBVA has not granted options on its shares to any members of its administrative, supervisory or management bodies.

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As of February 23, 2021 the Senior Management (excluding executive directors) owned an aggregate of BBVA shares as shown in the table below:

Name	Directly owned shares	Indirectly owned shares	Total shares	% Capital Stock
Domingo Armengol Calvo	144,906	-	144,906	0.002
María Jesús Arribas de Paz	105,079	-	105,079	0.002
Pello Belausteguigoitia Mateache	98,933	-	98,933	0.002
Carlos Casas Moreno	52,695	-	52,695	0.001
Victoria del Castillo Marchese	30,572	-	30,572	0.000
José Luis Elechiguerra Joven	53,379	-	53,379	0.001
Ana Fernández Manrique	95,651	105,031	200,682	0.003
María Luisa Gómez Bravo	190,547	-	190,547	0.003
Joaquín Gortari Díez	79,816	-	79,816	0.001
Ricardo Martín Manjón	17,370	8,026	25,396	0.000
Eduardo Osuna Osuna	62,185	-	62,185	0.001
David Puente Vicente	144,637	-	144,637	0.002
Jaime Sáenz de Tejada Pulido	481,146	211	481,357	0.007
Jorge Sáenz-Azcúnaga Carranza	144,241	-	144,241	0.002
Rafael Salinas Martínez de Lecea	294,757	21,274	316,031	0.005
TOTAL	1,995,914	134,542	2,130,456	0.032

As of February 23, 2021 a total of 19,258 employees (excluding the members of the Senior Management and executive directors) owned 69,274,166 shares, which represented 1.04% of our capital stock.

 ITEM 7.      MAJOR SHAREHOLDERS AND RELATED PARTY TRANSACTIONS

A.Major Shareholders

On May 8, 2020, Norges Bank reported that it had voting power over 3.366% of BBVA’s common stock, of which 3.235% were voting rights attributed to shares, and 0.131% voting rights through financial instruments.

On January 28, 2021, Blackrock, Inc. reported to the SEC that it beneficially owned 5.8% of BBVA’s common stock.

On February 8, 2021, GQG Partners LLC reported that it directly had voting power over 3.090% of BBVA’s common stock (all voting rights were attributed to shares).

As of February 23, 2021, no other person, corporation or government beneficially owned, directly or indirectly, five percent or more of BBVA’s shares. BBVA’s major shareholders do not have voting rights which are different from those held by the rest of its shareholders. To the extent known to us, BBVA is not controlled, directly or indirectly, by any other corporation, government or any other natural or legal person. As of February 23, 2021, there were 870,540 registered holders of BBVA’s shares, with an aggregate of 6,667,886,580 shares, of which 729 shareholders with registered addresses in the United States held a total of 1,703,004,805 shares (including shares represented by American Depositary Shares evidenced by American Depositary Receipts (“ADRs”)). Since certain of such shares and ADRs are held by nominees, the foregoing figures are not representative of the number of beneficial holders.

B.      Related Party Transactions

BBVA subsidiaries engage, on a regular and routine basis, in a number of customary transactions with other BBVA subsidiaries, including overnight call deposits, time deposits, foreign exchange purchases and sales, derivative transactions (such as forward purchases and sales), money market fund transfers, letters of credit for imports and exports, financial guarantees and service level agreements.

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They also engage in other similar transactions within the scope of the ordinary course of the banking business, such as loans and other banking services, with our shareholders, employees, associates and family members of all the above and other BBVA non-banking subsidiaries or affiliates. These transactions are made in the ordinary course of business; on substantially the same terms, including interest rates and collateral, as those prevailing at the time for comparable transactions with other persons; and do not involve more than the normal risk of collectability or present other unfavorable features.

For information on these transactions as of December 31, 2020, 2019 and 2018, see Note 53 to our Consolidated Financial Statements.

C.      Interests of Experts and Counsel

Not Applicable.

ITEM 8.     FINANCIAL INFORMATION

A.      Consolidated Statements and Other Financial Information

Financial Information

See Item 18. 

Dividends

The table below sets forth the gross amount of interim, final and total cash dividends and distributions paid or expected to be paid by BBVA on its shares for the years 2016 to 2020. The rate used to convert euro amounts to U.S. dollars was the noon buying rate at the end of each year.

	Per Share
	First Interim		Second Interim		Third Interim		Final		Total
2016	€ 0.080	$ 0.084	(*)	(*)	€ 0.080	$ 0.084	(*)	(*)	€ 0.160	$ 0.169
2017	€ 0.090	$ 0.108	-	-	-	-	€ 0.150	$ 0.185	€ 0.240	$ 0.293
2018	€ 0.100	$ 0.115	-	-	-	-	€ 0.160	$ 0.183	€ 0.260	$ 0.298
2019	€ 0.100	$ 0.112	-	-	-	-	€ 0.160	$ 0.180	€ 0.260	$ 0.292
2020	-	-	-	-	-	-	€ 0.059	$ 0.072	€ 0.059	$ 0.072

(*)  In execution of the 2016 “Dividend Option” schemes approved by the shareholders in the respective general shareholders’ meetings, BBVA shareholders were given the option to receive their remuneration in newly issued ordinary shares or in cash.

On February 1, 2017, BBVA updated its shareholders’ remuneration policy in order to implement a fully in cash remuneration policy after the execution of the 2017 “Dividend Option”, which took place during April 2017. Under such policy, remuneration is expected to be composed, for each financial year, of an interim dividend and a final dividend, subject to any applicable restrictions and authorizations.

In accordance with 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 resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, never before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35.

 On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excludesdistributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.

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On January 29, 2021, it was announced that a cash distribution in the amount of €0.059 gross per share, as shareholder remuneration in relation to the Group’s result for the 2020 financial year, was expected to be submitted to the relevant governing bodies of BBVA for their consideration.

“Final” dividends for a year are proposed by the Board of Directors to be approved by the annual general shareholders’ meeting following the end of the year to which they relate. Additionally, the Board of Directors may approve the payment of “interim” dividends on account of the year’s end profits following the fulfilment of certain requirements under Spanish law, which payment is endorsed by the annual general shareholders’ meeting. Interim and final dividends are payable to shareholders of record on the record date for the dividend payment. Any unclaimed cash dividends revert to BBVA five years after declaration.

While we expect to declare and pay dividends on our shares in the future, the payment of dividends will depend upon the results of BBVA, market conditions, the regulatory framework, the recommendations or restrictions regarding dividends that may be adopted by domestic or European regulatory bodies or authorities and other factors. In particular, BBVA may not pay dividends except out of its annual results and its distributable reserves, after taking into account the applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction, if applicable. Capital adequacy requirements are applied on both a consolidated and individual basis. See “Item 4. Information on the Company— Business Overview—Supervision and Regulation—Capital Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”.  

Subject to the terms of the deposit agreement entered into with the Bank of New York Mellon, holders of ADSs are entitled to receive dividends (in cash or scrip, as applicable) attributable to the shares represented by the ADSs evidenced by ADRs to the same extent as if they were holders of such shares.

BBVA may not pay dividends except out of its annual results and its distributable reserves, after taking into account the applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction, if applicable. Capital adequacy requirements are applied on both a consolidated and individual basis. See “Item 4. Information on the Company— Business Overview—Supervision and Regulation—Capital Requirements” and “Item 5. Operating and Financial Review and Prospects—Liquidity and Capital Resources—Capital”. Under applicable capital adequacy requirements, we estimate that as of December 31, 2020, BBVA had approximately €13.1 billion of reserves in excess of applicable capital and reserve requirements (based on a 12.75% phased-in total capital minimum requirement).

Legal Proceedings

BBVA and its subsidiaries are involved in a number of legal and regulatory actions and proceedings, including legal claims and proceedings, civil and criminal regulatory proceedings, governmental investigations and proceedings, tax proceedings and other proceedings, in jurisdictions around the world. Legal and regulatory actions and proceedings are subject to many uncertainties, and their outcomes, including the timing thereof, the amount of fines or settlements or the form of any settlements, or changes in business practices we may need to introduce as a result thereof, any of which may be material, are often difficult to predict, particularly in the early stages of a particular legal or regulatory matter.

As of the date hereof, the Group is involved in a number of legal and regulatory actions and proceedings in various jurisdictions around the world (including, among others, Spain, Mexico and the United States), the adverse resolution of which may adversely impact the Group. See “Item 3. Key Information—Risk Factors—Regulatory, Tax and Reporting Risks—Legal Risks—The Group is party to a number of legal and regulatory actions and proceedings”, “Item 3. Key Information—Risk Factors—Legal Risks—The Spanish judicial authorities are carrying out a criminal investigation relating to possible bribery, revelation of secrets and corruption by the Bank” and “Item 3. Key Information—Risk Factors—Regulatory, Tax and Reporting Risk—Compliance Risks— The Group is exposed to compliance risks”. 

BBVA can provide no assurance that the legal and regulatory actions and proceedings to which it is subject, or to which it may become subject in the future or otherwise affected by, will not, if resolved adversely, result in a material adverse effect on the Group’s business, financial position, results of operations or liquidity.

B.      Significant Changes

No significant change has occurred since the date of the Consolidated Financial Statements other than those mentioned in this Annual Report or our Consolidated Financial Statements.

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ITEM 9.       THE OFFER AND LISTING

A.     Offer and Listing Details

BBVA’s shares are traded on the stock markets of Madrid, Barcelona, Bilbao and Valencia through the Sistema de Interconexión Bursátil Español (Mercado Continuo), as well as on the London and Mexico stock markets. BBVA’s ADSs are listed on the New York Stock Exchange and are also traded on the Lima (Peru) Stock Exchange, by virtue of an exchange agreement entered into between these two exchanges. Each ADS represents the right to receive one share. For information on BBVA’s shares and ADSs, see Note 26 to our Consolidated Financial Statements and “Item 7. Major Shareholders and Related Party Transactions—Major Shareholders”.  

Fluctuations in the exchange rate between the euro and the dollar will affect the dollar equivalent of the euro price of BBVA’s shares on the Spanish Stock Exchanges and the price of BBVA’s ADSs on the New York Stock Exchange. Cash dividends are paid by BBVA in euro, and exchange rate fluctuations between the euro and the dollar will affect the dollar amounts received by holders of ADRs on conversion by The Bank of New York Mellon (acting as depositary) of cash dividends on the shares underlying the ADSs evidenced by such ADRs.

From January 1, 2020 through December 31, 2020 the percentage of outstanding shares held by BBVA and its affiliates ranged between 0.008% and 0.464%, calculated on a daily basis. As of January 29, 2021, the percentage of outstanding shares held by BBVA and its affiliates was 0.242%.

Securities Trading in Spain

The Spanish securities market for equity securities consists of the Automated Quotation System and the four stock exchanges located in Madrid, Bilbao, Barcelona and Valencia. During 2020, the Automated Quotation System accounted for the majority of the total trading volume of equity securities on the Spanish Stock Exchanges.

Automated Quotation System. The Automated Quotation System (Sistema de Interconexión Bursátil) links the four local exchanges, providing those securities listed on it with a uniform continuous market that eliminates certain of the differences among the local exchanges. The principal feature of the system is the computerized matching of buy and sell orders at the time of entry of the order. Each order is executed as soon as a matching order is entered, but can be modified or canceled until executed. The activity of the market can be continuously monitored by investors and brokers. The Automated Quotation System is operated and regulated by Sociedad de Bolsas, S.A. (“Sociedad de Bolsas”), a corporation owned by the companies that manage the local exchanges. All trades on the Automated Quotation System must be placed through a bank, brokerage firm, an official stock broker or a dealer firm member of a Spanish Stock Exchange directly. Since January 1, 2000, Spanish banks have been allowed to place trades on the Automated Quotation System and have been allowed to become members of the Spanish Stock Exchanges. We are currently a member of the four Spanish Stock Exchanges and can trade through the Automated Quotation System.

Sociedad de Bolsas reinstated the Operating Rules of the Spanish Automated Quotation System by means of Sociedad de Bolsas Circular 1/2017, of December 18, which came into effect January 3, 2018 and which was further amended in September 2018, November 2019 and April and June 2020 with respect to the minimum variation of share prices, the incorporation of rules on retail liquidity providers, measures to prevent auto-execution of transactions, and Direct Market Access respectively. Changes introduced in such Operating Rules include changes to the way trading is technically undertaken (e.g. by introducing new types of orders such as “hidden orders” and “combined blocks”, VWAP trades and midpoint orders), the suppression of the New Market segment and the introduction of a Market Making scheme as per MiFID II standards. BBVA, as an active market member in the Spanish market has adapted its technical means and procedures to such changes.

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In a pre-opening session held from 8:30 a.m. to 9:00 a.m. each trading day, an opening price is established for each security traded on the Automated Quotation System based on orders placed at that time. The regime concerning opening prices was changed by an internal rule issued by the Sociedad de Bolsas. In this new regime all references to maximum changes in share prices are substituted by static and dynamic price ranges for each listed share, calculated on the basis of the most recent historical volatility of each share, and made publicly available and updated on a regular basis by the Sociedad de Bolsas. The computerized trading hours are from 9:00 a.m. to 5:30 p.m., during which time the trading price of a security is permitted to vary by up to the stated levels. If, during the open session, the quoted price of a share exceeds these static or dynamic price ranges, volatility auctions are triggered, resulting in new static or dynamic price ranges being set for the share object of the same. Between 5:30 p.m. and 5:35 p.m. a closing price is established for each security through an auction system similar to the one held for the pre-opening early in the morning.

Trading hours for block trades (i.e., operations involving a large number of shares previously agreed and executed out of the order book) are also from 9:00 a.m. to 5:30 p.m.

Between 5:30 p.m. and 8:00 p.m., special operations, whether “authorized” or “communicated”, can take place outside the computerized matching system of the Sociedad de Bolsas if they fulfill certain requirements. In such respect “communicated” special operations(those that do notneed the prior authorization of the Sociedad de Bolsas) can be traded if all of the following requirements are met: (i) the trade price of the share must be within the range of 5% above the higher of the weighted average price and closing price for the day and 5% below the lower of the weighted average price and closing price for the day; (ii) the market member executing the trade must have previously covered certain positions in securities and cash before executing the trade; (iii) the purchase and the sale shall be the result of only one order; and (iv) the size of the trade must involve at least €300,000 and represent at least a 20% of the average daily trading volume of the shares in the Automated Quotation System during the preceding three months. If any of the aforementioned requirements is not met, a special operation may still take place, but it will need to take the form of “authorized” special operation (i.e., those needing the prior authorization of the Sociedad de Bolsas). Such authorization will only be upheld if any of the following requirements are met:

·the trade involves more than €1.5 million and more than 40% of the average daily volume of the stock during the preceding three months;

·the transaction derives from a merger or spin-off process or from the reorganization of a group of companies;

·the transaction is executed for the purposes of settling a litigation or completing a complex group of contracts; or

·the Sociedad de Bolsas finds other justifiable cause.

Information with respect to the computerized trades between 9:00 a.m. and 5:30 p.m. is made public immediately, and information with respect to trades outside the computerized matching system is reported to the Sociedad de Bolsas by the end of the trading day and published in the Boletín de Cotización and in the computer system by the beginning of the next trading day.

Sociedad de Bolsas is also the manager of the IBEX 35® Index. This index is made up by the 35 most liquid securities traded on the Spanish Market and, technically, it is a price index that is weighted by capitalization and adjusted according to the free float of each company comprised in the index. Apart from its quotation on the four Spanish Exchanges, BBVA is also currently included in the IBEX 35® Index.

Clearing and Settlement System

On April 1, 2003, by virtue of Law 44/2002 and of Order ECO 689/2003 of March 27, 2003 approved by the Spanish Ministry of Economy, the integration of the two main existing book-entry settlement systems existing in Spain at the time (the equity settlement system Servicio de Compensación y Liquidación de Valores (“SCLV”) and the Public Debt settlement system Central de Anotaciones de Deuda del Estado (“CADE”)) took place. As a result of this integration,a single entity, known as Sociedad de Gestión de los Sistemas de Registro Compensación y Liquidación de Valores (“Iberclear”) assumed the functions formerly performed by SCLV and CADE according to the legal regime then stated in article 44 bis of the Spanish Securities Market Act (Law 24/1988).

Notwithstanding the above, rules concerning the book-entry settlement systems enacted before this date by SCLV and the Bank of Spain, as former manager of CADE, continued in force, but any reference to the SCLV or CADE was deemed to be substituted by Iberclear.

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In addition, and according to Law 41/1999, Iberclear currently manages the ARCO Securities settlement system (the “ARCO System”) for securities in book-entry form listed on the four Spanish Stock Exchanges, on the Spanish Public Debt Book-Entry Market, on “AIAF Mercado de Renta Fija”, or on other Multilateral Trading Facilities that have appointed Iberclear for such purposes. Cash settlement for all systems is managed through the TARGET2-Banco de España payment system.

Laws 32/2011 and 11/2015 amended the Spanish Securities Market Act and Royal Decree 878/2015 replaced Royal Decree 116/1992 from February 3, 2016, introducing changes to the Spanish clearing, settlement and book-entry registry procedures applicable to securities transactions to allow post-trading Spanish systems to integrate into the TARGET2 Securities System (T2S). The project to reform Spain’s clearing, settlement and registry system and connect it to the T2S (the “Reform”) introduced significant changes that affected all classes of securities and all post-trade activities.

The Reform was implemented in two phases:

The first phase took place from April 27, 2016 and involved setting up a new system for equities including all the changes envisaged in the Reform, encompassing the incorporation of central counterparty clearing (performed by, among others, BME Clearing, S.A.U.) in a post-trading scheme compatible with the T2S (including with respect to messages, account structure, definition of operations, etc.). Accordingly, the SCLV (Servicio de Compensación y Liquidación de Valores) platform was discontinued.

The T+3 settlement cycle for trades executed in trading venues, affecting mainly equities, was reduced to T+2 from October 2016, in line with what is set forth in European Regulation 909/2014, of July 23 on improving securities settlement in the European Union and on Central Securities Depositories (“CSDR”).

The CADE platform continued to operate unchanged until the last quarter of 2017, and cash settlements in the new system continue to be made through the TARGET2-Bank of Spain cash accounts.

The second phase started on September 18, 2017, when Iberclear successfully connected itself to T2S. At this time, fixed-income securities were transferred to the new system (being the CADE discontinued), as well as equity securities, with both types of securities beginning to be also settled in accordance with the procedures, formats and time periods of the T2S and under the ARCO System. The Reform culminated with the successful migration to T2S.

The latest amendments to Iberclear’s Rulebook reflecting the Reform were officially published in the Spanish Official Gazette (May 3 and August 18, 2016 and September 14, 2017) while each Spanish Stock Exchange has approved its respective new rulebook between April 2016 and December 2017.

During the last quarter of 2017, Iberclear filed for authorization as Central Securities Depository pursuant to CSDR. On September 23, 2019, Iberclear made public that it had been granted the authorization to continue providing services as a Central Securities Depositary.

Under Law 41/1999 and Royal Decree 878/2015 (which replaced Royal Decree 116/1992 on February 3, 2016), transactions carried out on the Spanish Stock Exchanges are cleared and settled through Iberclear and its participants (each an “entidad participante”), through the ARCO System. Only Iberclear participants to this ARCO System are entitled to use it, with participation restricted to credit entities, investment firms authorized to render custody services, certain public bodies, and Central Securities Depositories and Central Counterparties authorized under their respective European Union Regulations. BBVA is currently a participant in Iberclear. Iberclear and its participants are responsible for maintaining records of purchases and sales under the book-entry system. In order to be listed, shares of Spanish companies must be held in book-entry form. Iberclear, maintains a “two-step” book-entry registry reflecting the number of shares held by each of its participants as well as the amount of such shares held on behalf of beneficial owners. Each participant, in turn, maintains a registry of the owners of such shares. Spanish law considers the legal owner of the shares to be:

·the participant appearing in the records of Iberclear as holding the relevant shares in its own name, or

·the investor appearing in the records of the participant as holding the shares.

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Obtaining legal title to shares of a company listed on a Spanish Stock Exchange requires the participation of an investment firm, bank or other entity authorized under Spanish law to record the transfer of shares in book-entry form in its capacity as Iberclear participant for the equity securities settlement system. To evidence title to shares, at the owner’s request the relevant participant entity must issue a certificate of ownership. In the event the owner is a participant entity, Iberclear is in charge of the issuance of the certificate with respect to the shares held in the participant entity’s own name.

Brokers’ fees, to the extent charged, will apply upon transfer of title of our shares from the depositary to a holder of ADSs, and upon any later sale of such shares by such holder. Transfers of ADSs do not require the participation of a member of a Spanish Stock Exchange. The deposit agreement provides that holders depositing our shares with the depositary in exchange for ADSs or withdrawing our shares in exchange for ADSs will pay the fees of the official stockbroker or other person or entity authorized under Spanish law applicable both to such holder and to the depositary.

Securities Market Legislation

The Securities Markets Act was enacted in 1988 with the purpose of reforming the organization and supervision of the Spanish securities markets. This legislation and the regulation implementing it:

·established an independent regulatory authority, the Spanish Securities Market Commission (Comisión Nacional del Mercado de Valores or “CNMV”), to supervise the securities markets;

·established a framework for the regulation of trading practices, tender offers and insider trading;

·required stock exchange members to be corporate entities;

·required companies listed on a Spanish Stock Exchange to file annual audited financial statements and to make public quarterly financial information;

·established the legal framework for the Automated Quotation System;

·exempted the sale of securities from transfer and value added taxes;

·deregulated brokerage commissions; and

·provided for transfer of shares by book-entry or by delivery of evidence of title.

On February 14, 1992, Royal Decree No. 116/92 established the clearance and settlement system and the book-entry system, and required that all companies listed on a Spanish Stock Exchange adopt the book-entry system. On February 3, 2016 Royal Decree 878/2015 came into force and replaced Royal Decree 116/1992 (Royal Decree 827/2017, of September 1 and Royal Decree 1464/2018, of December 21, amended Royal Decree 878/2015 by reflecting certain aspects of the Reform and of MiFID II).

On April 12, 2007, the Spanish Congress approved Law 6/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/25/EC on takeover bids, and Directive 2004/109/EC on the harmonization of transparency requirements in relation to information about issuers whose securities are admitted to trading on a regulated market (amending Directive 2001/34/EC). Regarding the transparency of listed companies, Law 6/2007 amended the reporting requirements and the disclosure regime, and established changes in the supervision system. On the takeover bids side, Law 6/2007 has established the cases in which a company must launch a takeover bid and the ownership thresholds at which a takeover bid must be launched. It also regulates conduct rules for the board of directors of target companies and the squeeze-out and sell-out when a 90% of the share capital is held after a takeover bid. Additionally, Law 6/2007 was further developed by Royal Decree 1362/2007, on transparency requirements for issuers of listed securities, which was subsequently amended. See “—Trading by the Bank and its Affiliates in the Shares”.

On December 19, 2007, the Spanish Congress approved Law 47/2007, which amends the Securities Markets Act in order to adapt it to Directive 2004/37/EC on markets in financial instruments (MiFID), Directive 2006/49/EC on the capital adequacy of investment firms and credit institutions, and Directive 2006/73/EC implementing Directive 2004/39/EC with respect to organizational requirements and operating conditions for investment firms and defined terms for the purposes of that Directive. Further MiFID implementation was introduced by Royal Decree 217/2008. Royal Decree 217/2008 has been amended from time to time, including in 2018 by Royal Decree 1464/2018, of December 21, in order to adapt it to the MiFID II rules that became effective on January 3, 2018.

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The Regulation of the European Parliament and of the Council on short selling and certain aspects of credit default swaps (EU) No 236/2012 (Regulation) has been in force since March 25, 2012 and became directly effective in EU countries from November 1, 2012. This Regulation introduced a pan-European regulatory framework for dealing with short selling and requires persons to disclose short positions in relation to shares of EU listed companies and EU sovereign debt. For significant net short positions in shares of EU listed companies, these regulations create a two-tier reporting model: (i) when a net short position reaches 0.20% of an issuer’s share capital (and at every 0.1% thereafter), such position must be privately reported to the relevant regulator; and (ii) when such position reaches 0.50% (and at every 0.1% thereafter) of an issuer’s share capital, apart from being disclosed to the regulators, such position must be publicly reported to the market.

In response to COVID-19, on March 16, 2020 ESMA lowered the aforementioned threshold from 0.2% to 0.1%, requiring net short position holders to report positions of 0.1% and above. This measure was renewed on September 18, 2020 and on December 17, 2020 until March 19, 2021. Additionally, in line with other European supervisors, on March 16, 2020, the CNMV banned net short positions in shares admitted to trading to Spanish trading venues for which the CNMV is the competent authority as well as to all related instruments relevant for the calculation of the net short position. The CNMV ban became ineffective on May 18, 2020.

The Prospectus Regulation (EU) 2017/1129 of the European Parliament and of the Council, of October 14, which became effective on July 21, 2019, aims to achieve greater harmonization of prospectus rules throughout the European Union. Such rules are applicable to issuers which offer debt or equity securities to the public or which seek admission to trading on a regulated market in the EU.

Directive 2014/65/EU of the European Parliament and of the Council of May 15, 2014 on markets in financial instruments and amending Directive 2002/92/EC and Directive 2011/61/EU (MiFID II) and Regulation (EU) 600/2014 of the European Parliament and Council of May 15, 2014 on markets in financial instruments and amending Regulation (EU) 648/2012 (MiFIR), were published on June 12, 2014 and became applicable on January 3, 2018, affecting the Spanish securities market legislation, markets and infrastructures and implying higher compliance costs for financial institutions. MiFID II has been implemented into Spanish Law by Royal Decree-Law 21/2017, of December 29, by Royal Decree-Law 14/2018, of September 28, and by Royal Decree 1464/2018, of December 21.

Royal Legislative Decree 4/2015, of October 23, approved the reinstated text of the Securities Markets Act and it has also been affected and amended by the aforementioned MiFID II implementation rules.

Trading by the Bank and its Affiliates in the Shares

Trading by subsidiaries in their parent companies shares is restricted by the Corporate Enterprises Act.

Neither BBVA nor its affiliates may purchase BBVA’s shares unless the making of such purchases is authorized at a meeting of BBVA’s shareholders by means of a resolution establishing, among other matters, the maximum number of shares to be acquired and the authorization term, which cannot exceed five years. Restricted reserves equal to the purchase price of any shares that are purchased by BBVA or its subsidiaries must be made by the purchasing entity. The total number of shares held by BBVA and its subsidiaries may not exceed 10% of BBVA’s total share capital, as per the treasury stock limits set forth in the Corporate Enterprises Act (Royal Legislative Decree 1/2010). It is the practice of Spanish banking groups, including the BBVA Group, to establish subsidiaries to trade in their parent company’s shares in order to meet imbalances of supply and demand, to provide liquidity (especially for trades by their customers) and to modulate swings in the market price of their parent company’s shares.

Spanish Financial Transaction Tax Bill

The Financial Transaction Tax (FTT) was enacted by means of Law 5/2020, of October 15, 2020. The Spanish FTT is a new indirect tax, amounting to 0.2%, to be charged on acquisitions of shares in Spanish companies, regardless of the tax residence of the participants in such transactions, provided that such companies are listed and their respective market capitalization is above €1,000 million. Accordingly, any purchaser of BBVA’s shares not falling under an exemption will be subject to the Spanish FTT.

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Reporting Requirements

Royal Decree 1362/2007, as amended, requires that any person or entity which acquires or transfers shares and as a consequence the number of voting rights held exceeds, reaches or is below the thresholds of 3%, 5%, 10%, 15%, 20%, 25%, 30%, 35%, 40%, 45%, 50%, 60%, 70%, 75%, 80% and 90% of the capital stock of a company listed on a Spanish Stock Exchange must, within four stock exchange business days after that acquisition or transfer, report it to such company, and to the CNMV. This duty to report the holding of a significant stake is applicable not only to the acquisitions and transfers in the terms described above, but also to those cases in which in the absence of an acquisition or transfer of shares, the ratio of an individual’s voting rights exceeds, reaches or is below the thresholds that trigger the duty to report, as a consequence of an alteration in the total number of voting rights of an issuer.

In addition, any company listed on a Spanish Stock Exchange must report on a non-public basis to the CNMV, within four Stock Exchange business days, any acquisition by such company (or an affiliate) of the company’s own shares if such acquisition, together with any previous one from the date of the last communication, exceeds 1% of its capital stock, regardless of the balance retained. Members of the board of directors must report the ratio of voting rights held at the time of their appointment as members of the board, when they are ceased as members, and each time they transfer or acquire share capital of a company listed on the Spanish Stock Exchanges, regardless of the size of the transaction. Additionally, since we are a credit entity, any individual or company who intends to acquire a significant participation in BBVA’s share capital must obtain prior approval from the Bank of Spain in order to carry out the transaction. See “Item 10. Additional Information—Exchange Controls—Restrictions on Acquisitions of Shares”.  

Royal Decree 1362/2007 also establishes reporting requirements in connection with any entity acting from a tax haven or a country where no securities regulatory commission exists, in which case the threshold of three percent is reduced to one percent.

Royal Decree 1362/2007 was amended in 2015 in order to, among other matters, include some changes to the reporting requirements applicable to major shareholdings. In particular, cash settled instruments creating long positions on underlying listed shares shall be disclosed if the specified shareholding threshold is reached or exceeded; cash holdings and holdings as a result of financial instruments shall be aggregated for disclosure purposes and a disclosure exemption for shareholding positions held by financial entities in their trading books is available.

Regulation (EU) No 596/2014 of the European Parliament and of the Council of April 16, 2014 on market abuse (“MAR”) and its implementing regulations entered into force on July 3, 2016, involving a number of changes for BBVA as a listed issuer, including in relation to areas such as disclosure of inside information to the market, maintenance of insider lists and disclosure of restrictions on dealings by directors and persons discharging managerial responsibilities.

Through Royal Decree-Law 19/2018 of November 23, on payment services and other urgent financial measures, the consolidated text of the Securities Market Act was adapted to the European MAR framework, including the following changes:

·the Spanish legislator opted for certain solutions among those permitted by the European MAR framework in certain specific cases;

·several amendments were introduced in the sanctioning regime on market abuse (inside information and market manipulation); and

·some special provisions applicable to listed companies in this area which were not compatible with this European regulatory framework or not consistent with the objective of MAR of achieving full harmonization throughout the European Union were expressly repealed.

Organic Law 1/2019, of February 20, modifies, among other laws and regulations, the Spanish Criminal Code in order to implement in Spain Directive 2014/57/UE regarding applicable criminal sanctions related to market abuse, complementing the MAR framework.

Banks are required to inform the Bank of Spain of any acquisitions or disposals of holdings in their capital that cross any of the levels indicated in Articles 16 (at least 10% of the capital or of the voting rights of the credit institution), 17 (either the percentage of voting rights or capital held is equal to or greater than 20%, 30% or 50%, or the acquisition entails acquiring control of the credit institution) and 21 (the percentage of voting rights or of capital held falls below 20%, 30% or 50% or the disposal entails the loss of control of the credit institution) of Law 10/2014, of June 26, 2014.

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Tax Requirements

According to Law 10/2014, an issuer’s parent company (credit entity or listed company) is required, on an annual basis, to provide the Spanish tax authorities with the following: (i) disclosure of information regarding those investors with Spanish Tax residency obtaining income from securities and (ii) the amount of income obtained by them in each period.

B.Plan of distribution

Not Applicable.

C.      Markets

See “Item 9. The Offer and Listing”.

D.      Selling Shareholders

Not Applicable.

E.      Dilution

Not Applicable.

F.      Expenses of the Issue

Not Applicable.

ITEM 10.ADDITIONAL INFORMATION

A.   Share Capital

Not Applicable.

B.   Memorandum and Articles of Association

Spanish law and BBVA’s Bylaws are the main sources of regulation affecting the Company. All rights and obligations of BBVA’s shareholders are contained in BBVA’s Bylaws and in Spanish law. Pursuant to Royal Decree 84/2015 of February 13, implementing Law 10/2014, amendments of the bylaws of a bank are subject to notice or prior authorization of the Bank of Spain.

Registry and Company’s Objects and Purposes

BBVA is registered with the Commercial Registry of Bizkaia (Spain). Its registration number at the Commercial Registry of Bizkaia is volume 2,083, Company section folio 1, sheet BI-17-A, 1st entry. Its corporate purpose is to engage in all kinds of activities, operations, acts, contracts and services within the banking business or directly or indirectly related to it that are permitted or not prohibited by prevailing provisions and ancillary activities. Its corporate purpose also includes the acquisition, holding, utilization and divestment of securities, public offerings to buy and sell securities, and any kind of holdings in any company or enterprise. BBVA’s corporate purpose is contained in Article 3 of BBVA’s Bylaws.

Certain Powers of the Board of Directors

In general, provisions regarding directors are contained in our bylaws. Also, our Board Regulations govern the internal procedures and the operation of the Board of Directors and its committees and directors’ rights and duties as described in their charter. The referred Board Regulations establishes that directors must refrain from participating in deliberations and votes on resolutions or decisions in which they or a related party may have a direct or indirect conflict of interest and require retirement of directors at a certain age. Directors are not required to hold shares of BBVA in order to be appointed as such. As regards compensation in shares for executive directors, please see “Item 6. Directors, Senior Management and Employees—Compensation”. 

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Lastly, the Board Regulations contain a series of ethical standards. For more information please see “Item 6. Directors, Senior Management and Employees”. 

Certain Provisions Regarding Privileged Shares

Our Bylaws authorize us to issue ordinary, non-voting, redeemable and privileged shares. As of the date of the filing of this Annual Report, we have no non-voting, redeemable or privileged shares outstanding.

The Company may issue shares that confer some privilege over ordinary shares under legally established terms and conditions, complying with the formalities prescribed for amending our bylaws.

Redemption of shares may only occur according to the terms set forth when they are issued. Redeemable shares must be fully paid-up at the time of subscription. If the redemption right was attributed exclusively to the issuer, it may not be enforced until three years have elapsed since the issue. Redemption of redeemable shares must be charged to earnings or to free reserves or be made with the proceeds of a new share issuance made under a resolution from the general shareholders’ meeting or, as the case may be, from the Board of Directors, for the purpose of financing the redemption transaction. If the redemption of these shares is charged to earnings or to free reserves, the Company must set up a reserve for the amount of the nominal value of the shares redeemed. If the redemption is not charged to earnings or free reserves or made with the issuance of new shares, it may only be carried out under the requirements established for the reduction of share capital by refunding contributions.

Holders of non-voting shares, if issued, are entitled to receive a minimum fixed or variable annual dividend, as resolved by the general shareholders’ meeting and/or the Board of Directors at the time of deciding to issue the shares. Once the minimum dividend has been agreed upon, holders of non-voting shares will be entitled to the same dividend as holders of ordinary shares. If there are distributable earnings, the Company is obliged to agree to distribute the minimum divided mentioned above. If there are no distributable earnings or they are insufficient, the unpaid part of the minimum dividend will accumulate or not, pursuant to the terms agreed by the general shareholders’ meeting at the time of deciding to issue the shares. Holders of non-voting shares may exercise their pre-emptive subscription right should the general shareholders’ meeting and/or the Board of Directors so resolve at the time of issuing shares or share-convertible debentures. Recovery of voting rights must be resolved at the same time.

Certain Provisions Regarding Shareholders Rights

As of the date of the filing of this Annual Report, our capital is comprised of one class of ordinary shares, all of which have the same rights.

Once the allocation requirements established by law and in our Bylaws have been covered, dividends may be paid out to shareholders and charged to the year’s profit or to unrestricted reserves, in proportion to the capital they may have paid up, provided the value of the total net assets is not, or as a result of such distribution would not be, less than the share capital. In addition, BBVA must take into account any applicable capital adequacy requirements and any recommendations on payment of dividends, and any other required authorization or restriction that may be applicable. See “Item 4. Information on the Company—Business Overview—Supervision and Regulation—Dividends” and “Item 8. Financial Information—Consolidated Statements and Other Financial Information—Dividends”. Shareholders will participate in the distribution of corporate earnings in proportion to their capital paid-up. The right to collect a dividend lapses after five years as of the date in which it was first available to the shareholders. Shareholders also have the right to participate in proportion to their capital paid-up in any distribution of net assets resulting from our liquidation.

Each voting share will confer the right to one vote on the holder present or represented at the general shareholders’ meeting. However, unpaid shares with respect to which a shareholder is in default of the resolutions of the Board of Directors relating to their payment will not be entitled to vote. Our Bylaws contain no provisions regarding cumulative voting.

Our Bylaws do not contain any provisions relating to sinking funds or potential liability of shareholders to further capital calls by us.

Our Bylaws do not establish that special quorums are required to change the rights of shareholders. Under Spanish law, the rights of shareholders may only be changed by an amendment to the Bylaws that complies with the requirements explained below under “—Shareholders’ Meetings”, plus the affirmative vote of the majority of the shares of the class that will be affected by the amendment.

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Shareholders’ Meetings

The annual general shareholders’ meeting has its own set of regulations on issues such as how it operates and what rights shareholders enjoy regarding general meetings. These establish the possibility of voting or delegating votes over remote communication media.

General shareholders’ meetings may be annual or extraordinary. The annual general shareholders’ meeting is held within the first six months of each year. It will give approval, among other things and where applicable, to the corporate management of the Company and the financial statements for the previous year and resolve as to the allocation of profits or losses. Extraordinary general shareholders’ meetings are those meetings that are not ordinary. In any case, the requirements mentioned below for constitution and adoption of resolutions are applicable to both categories of general shareholders’ meetings.

General shareholders’ meetings will be called at the initiative of and according to the agenda determined by the Board of Directors, whenever it deems necessary or advisable for the Company’s interests, and in any case on the dates or in the periods determined by law and the Company Bylaws, or upon the request of one or several shareholders representing at least three percent of our share capital.

Our general shareholders’ meeting Regulations establish that annual and extraordinary general shareholders’ meetings must be called within the notice period required by law. This will be done by means of an announcement published by the Board of Directors or its proxy in the Official Gazette of the Companies Registry (“BORME”) or one of the most widely disseminated daily newspapers in Spain, as well as being disseminated on the CNMV (the Spanish Securities Market Commission) website and the Company website, except when legal provisions establish other media for disseminating the notice.

The Company’s general shareholders’ meetings may be attended by anyone owning the minimum number of shares established in our Bylaws (500), provided that their holding is registered in the corresponding accounting records five days before the meeting is scheduled and that they keep at least that same number of shares until the meeting is held. Holders of fewer shares may group together until they make up at least that number, appointing a representative.

General shareholders’ meetings will be validly constituted at first summons with the presence of at least 25% of our voting capital, either in person or by proxy. No minimum quorum is required to hold a general shareholders’ meeting at second summons. In either case, resolutions will be agreed by the majority of the votes. However, a general shareholders’ meeting will only be validly held with the presence of 50% of our voting capital at first summons or of 25% of the voting capital at second summons, in the case of resolutions concerning the following matters:

·debt issuances;

·share capital increases or decreases;

·the exclusion or limitation of the pre-emptive subscription rights over new shares;

·transformation, merger of BBVA or spin-off and global assignment of assets and liabilities;

·the off-shoring of domicile, and

·any other amendment to the Bylaws.

In these cases, resolutions may only be approved with the vote of the absolute majority of the shares if at least 50% of the voting capital is present or represented at the general shareholders’ meeting. If the voting capital present or represented at the meeting at second summons is less than 50% (but over 25%), then resolutions may only be adopted by two-thirds of the shares present or represented.

Additionally, our Bylaws state that, in order to adopt resolutions approving the replacement of the corporate purpose, the transformation, total spin-off, the winding up of BBVA and amending that paragraph of the relevant article of our Bylaws, two-thirds of the subscribed voting capital must attend the general shareholders’ meeting at first summons, or 60% of that capital at second summons.

Restrictions on the Ownership of Shares

Our Bylaws do not provide for any restrictions on the ownership of our ordinary shares. Spanish law, however, provides for certain restrictions which are described below under “—Exchange Controls—Restrictions on Acquisitions of Shares”.  

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Restrictions on Foreign Investments

Exchange controls and foreign investments are regulated under Law 19/2003, of July 4 (“Law 19/2003”), as amended pursuant to Royal Decree-Law 8/2020, of March 17, Royal Decree-Law 11/2020, of March 31 and Royal Decree-Law 34/2020, of November 17. Foreign investments are generally liberalized unless they fall within the scope of article 7 bis of Law 19/2003, enacted in March 2020, Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only with respect to investments in the defense sector—article 11 of Royal Decree 664/1999, of April 23.

Article 7 bis of Law 19/2003 establishes a screening mechanism for certain investments made by non-EU and non-EFTA residents (“foreign investors”), based on public order, public health and public security reasons (the “Screening Mechanism”). The Screening Mechanism aligns part of the Spanish foreign investment legal framework with Regulation (EU) 2019/452 of March 19, 2019 establishing a framework for the screening of foreign direct investments into the European Union. Certain provisions of Regulation (EU) 2019/452—such as the list of sectors affecting public order and public security or the definition of state-owned enterprises and other similar investors—are mirrored in the regulations establishing the Screening Mechanism.

In addition, and according to Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, effective November 19, 2020 and until June 30, 2021, the following persons will also be deemed to be foreign investors, provided they invest in listed companies or the investment value exceeds 500 million euros—for investments in private – non listed – companies:

• EU and EFTA residents in countries other than Spain, and
• Spanish residents beneficially owned by EU or EFTA residents in countries other than Spain, that is, those in which a EU or EFTA resident other than in Spain ultimately owns or controls more than 25% of the share capital or voting rights of, or otherwise exercises control over, the Spanish resident.

Foreign direct investments ("FDI") are:

• investments that result in a foreign investor reaching a stake of at least 10% of the share capital of a Spanish company; and
• any corporate transaction, business action or legal transaction which enables effective participation in the management or control of a Spanish company.

Not all foreign direct investments are subject to the Screening Mechanism. Investors are subject to the Screening Mechanism only if they qualify as FDI and the investment is made in one of the critical sectors mentioned in article 7 bis of Law 19/2003, is made pursuant to what is foreseen in Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only where the investor is a Non-UE or non-EFTA investor—by investors that meet certain subjective criteria regardless of the business of the target.

Foreign direct investments by the following “foreign investors” are also subject to the Screening Mechanism, regardless of the business of the target:

·Investors directly or indirectly controlled by the government, including state bodies or armed forces, of a non EU/EFTA country.

·Investors that have already made an investment affecting national security, public order or public health in another EU Member State, including an investment in any of the above-mentioned sectors.

·Investors subject to ongoing judicial or administrative proceedings for engaging in illegal or criminal activities.

Foreign direct investments by the following non-EU and non-EFTA investors are also subject to the Screening Mechanism, regardless of the business of the target:

·Investors directly or indirectly controlled by a non-EU and non-EFTA government, including state bodies, armed forces or sovereign wealth funds; the possibility of exercising decisive influence as a result of an agreement or through the ownership of shares or interests in another person (directly or indirectly) is deemed to constitute “control” for these purposes.

·Investors that have already made an investment affecting national security, public order or public health in another EU Member State, including an investment in any of the above-mentioned sectors.

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·If there is a serious risk that the investor engages in illegal or criminal activities affecting national security, public order or public health in Spain.

Foreign direct investments described above shall be subject to prior administrative authorization granted by the relevant Spanish Authority, in accordance with the administrative conditions established.

C.       Material Contracts

Sale of BBVA USA to The PNC Financial Services Group

On November 15, 2020, Banco Bilbao Vizcaya Argentaria, S.A. (“BBVA”) entered into a Stock Purchase Agreement (the “Stock Purchase Agreement”) with The PNC Financial Services Group, Inc. (“PNC”). Upon the terms and subject to the conditions set forth in the Stock Purchase Agreement, PNC will purchase from BBVA 100% of the issued and outstanding shares of BBVA USA Bancshares, Inc. (the “Stock Purchase”), a financial holding company (“BBVA USA Holdco”) conducting its business operations primarily through its U.S. banking subsidiary, BBVA USA, an Alabama-chartered bank (“BBVA USA Bank”), for $11.6 billion in cash on hand in a fixed price structure, subject to certain adjustments related to transaction expenses and tax matters. PNC is not acquiring BBVA Securities, Inc. (PNC will acquire BBVA Securities, Inc.’s retail brokerage business, but not the entity), Propel Venture Partners Fund I, L.P. and BBVA Processing Services, Inc. (the “Carve-Out Transactions”). In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York.

The completion of the Stock Purchase is subject to certain conditions, including, among others, the absence of any injunction or other legal prohibition on the completion of the Stock Purchase, the receipt of required governmental approvals and/or the expiration of certain waiting periods, the accuracy of the representations and warranties of the other party (generally subject to a material adverse effect standard), material compliance by the other party with its obligations under the Stock Purchase Agreement, and the completion of the Carve-Out Transactions prior to closing.

Under the Stock Purchase Agreement, BBVA has agreed to take or refrain from taking certain actions, including, among others, (i) to cause BBVA USA Holdco and its subsidiaries, including BBVA USA Bank, to operate in the ordinary course of business consistent with past practice and not to enter into certain types of transactions between the execution of the Stock Purchase Agreement and the closing of the Stock Purchase and (ii) subject to certain exceptions, not to (a) engage in a retail banking business in the U.S. for two years following the closing of the Stock Purchase, or (b) solicit or hire any employees of BBVA USA Holdco or its subsidiaries, including BBVA USA Bank, for one year following the closing of the Stock Purchase.

Under the Stock Purchase Agreement, PNC has agreed to take or refrain from taking certain actions, including, among others, (i) to use reasonable best efforts to obtain any necessary regulatory consents and (ii) subject to certain exceptions contained in the Stock Purchase Agreement, not to solicit or hire any BBVA employees retained by BBVA for one year following the closing of the Stock Purchase.

The Stock Purchase Agreement contains customary representations and warranties of BBVA and PNC. The Stock Purchase Agreement also contains certain indemnification obligations of each party with respect to breaches of representations, warranties and covenants and certain other specified matters.

The Stock Purchase Agreement contains certain termination rights for PNC and BBVA, as the case may be, applicable upon, among other events, (i) the Stock Purchase having not been completed on or prior to November 15, 2021 (subject to extension in certain circumstance), or (ii) a breach by the other party that is not or cannot be cured within 45 days’ notice of such breach or is not capable of being cured by November 15, 2021, which breach would result in the failure of the conditions to the terminating party’s obligations to complete the transactions contemplated by the Stock Purchase Agreement.

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The foregoing description of the Stock Purchase and the Stock Purchase Agreement does not purport to be complete and is qualified in its entirety by reference to the Stock Purchase Agreement, which is filed as Exhibit 2.1 hereto, and is incorporated into this report by reference. The Stock Purchase Agreement and the above description of the Stock Purchase Agreement have been included to provide investors and security holders with information regarding the terms of the Stock Purchase Agreement. It is not intended to provide any other factual information about PNC, BBVA or their respective subsidiaries and affiliates. The Stock Purchase Agreement contains representations and warranties of each of PNC, on the one hand, and BBVA, on the other hand, made solely for the benefit of the other. The assertions embodied in those representations and warranties are qualified by information in confidential disclosure schedules that the parties have exchanged in connection with signing the Stock Purchase Agreement. The disclosure schedules contain information that modifies, qualifies and creates exceptions to the representations and warranties set forth in the Stock Purchase Agreement. In addition, such representations and warranties may apply standards of materiality in a way that is different from what may be viewed as material by security holders of, or other investors in, PNC or BBVA. Moreover, the representations and warranties in the Stock Purchase Agreement were used for the purpose of allocating risk between PNC, on the one hand, and BBVA, on the other hand, and not necessarily for establishing matters as fact, and information concerning the subject matter of the representations, warranties and covenants may change after the date of the Stock Purchase Agreement, which subsequent information may or may not be fully reflected in the parties’ public disclosures. Security holders and investors are not third-party beneficiaries under the Stock Purchase Agreement. Accordingly, you should read the representations and warranties in the Stock Purchase Agreement not in isolation but only in conjunction with the other information about PNC and BBVA, or any of their respective subsidiaries or affiliates.

D.   Exchange Controls

In 1991, Spain adopted the EU Standards for free movement of capital and services. As a result, foreign investors may transfer invested capital, capital gains and dividends out of Spain without limitation as to amount, subject to applicable taxes. See “—Taxation”.  

Pursuant Royal Decree 664/1999, of April 23, on the Applicable rules to Foreign Investments, foreign investors may freely invest in shares of Spanish companies except in the case they fall within the scope of article 7 bis of Law 19/2003, enacted in March 2020, Sole Transitional Provision of Royal Decree-Law 34/2020, of November 17, or—only with respect to investments in the defense sector—article 11 of Royal Decree 664/1999, of April 23. For information on certain additional regulation applicable to foreign direct investments, see “Item 10. Additional Information—B. Memorandum and Articles of Association—Restrictions on Foreign Investments”. Likewise, Royal Decree 664/1999, of April 23, and Law 19/2003, on exchange controls and foreign transactions, require notification of all foreign investments in Spain and liquidations of such investments upon completion of such investments to the Investments Registry of the Ministry of Economy Affairs and Digital Transformation for administrative statistical and economical purposes. Shares in listed Spanish companies acquired or held by foreign investors must be reported to the Spanish Registry of Foreign Investments by the depositary bank or relevant Iberclear member. When a foreign investor acquires shares that are subject to the reporting requirements of the CNMV regarding significant stakes, notice must be given directly by the foreign investor to the relevant authorities.

Moreover, investments by foreigners domiciled in enumerated tax haven jurisdictions, under Royal Decree 1080/1991, are subject to special reporting requirements.

For information on certain additional regulation applicable to foreign direct investments, see “Item 10. Additional Information­—Memorandum and Articles of Association—Restrictions on Foreign Investments”. 

Restrictions on Acquisitions of Shares

Pursuant to Spanish Law 10/2014, any individual or corporation, acting alone or in concert with others, intending to directly or indirectly acquire a significant holding in a Spanish financial institution (as defined in article 16 of the aforementioned Law 10/2014) or to directly or indirectly increase its holding in one in such a way that either the percentage of voting rights or of capital owned were equal to or exceed 20%, 30% or 50%, or by virtue of the acquisition, might take control over the financial institution, must first notify the Bank of Spain.

For the purpose of this Law, a significant participation is considered 10% of the outstanding share capital of a financial institution or a lower percentage if such holding allows for the exercise of a significant influence.

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The Bank of Spain will be responsible for evaluating the proposed transaction, in accordance with the terms established by Royal Decree 84/2015, of February 13 (as stated in Article 25.1 of said Royal Decree 84/2015) in order to guarantee the sound and prudent operation on the target financial institution. The Bank of Spain will submit a proposition before the European Central Bank, which will be in charge of deciding upon the proposed transaction in the term of 60 working days after the date on which the notification was received.

Any acquisition without such prior notification, or before the period established in the Royal Decree 84/2015 has elapsed or against the objection of the Bank of Spain, will produce the following results:

·the acquired shares will have no voting rights;

·if considered appropriate, the target bank may be taken over or its directors replaced; and

·the sanctions established in Title IV of Law 10/2014.

Regarding the transparency of listed companies, such matter is mainly regulated in Spain in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act. The transparency requirements set out in such Act are further developed by Royal Decree 1362/2007 developing the Securities Market Act on transparency requirement for issuers of listed securities, which stipulates among other matters a communication threshold of 3% for significant stakes and extends the disclosure obligations to the acquisition or transfer of financial instruments that grant rights to acquire shares with voting rights. For more information see “Item 9. The Offer and Listing—Offer and Listing Details — Reporting Requirements”. 

Tender Offers

The Spanish legal regime concerning takeover bids, which reflects the related EU regulation (mainly Directive 2004/25/EC), is set forth in Royal Decree 4/2015, of October 23, approving the restated text of the Securities Market Act, and Royal Decree 1066/2007, of July 29, on takeover bids.

E.Taxation

Spanish Tax Considerations

The following is a summary of the material Spanish tax consequences to U.S. Residents (as defined below) of the acquisition, ownership and disposition of BBVA’s ADSs or ordinary shares as of the date of the filing of this Annual Report. This summary does not address all tax considerations that may be relevant to all categories of potential purchasers, some of whom (such as life insurance companies, tax-exempt entities, dealers in securities or financial institutions) may be subject to special rules. In particular, the summary deals only with U.S. Holders (as defined below) that will hold ADSs or ordinary shares as capital assets and who do not at any time own individually, and are not treated as owning, 10% or more of BBVA’s shares, including ADSs.

As used in this particular section, the following terms have the following meanings:

(1) “U.S. Holder” means a beneficial owner of BBVA’s ADSs or ordinary shares that is for U.S. federal income tax purposes:

·a citizen or an individual resident of the United States,

·a corporation or other entity treated as a corporation, created or organized under the laws of the United States, any state therein or the District of Columbia, or

·an estate or trust the income of which is subject to U.S. federal income tax without regard to its source.

(2) “Treaty” means the Convention between the United States and the Kingdom of Spain for the Avoidance of Double Taxation and the Prevention of Fiscal Evasion with Respect to Taxes on Income, together with a related Protocol.

(3) “U.S. Resident” means a U.S. Holder that is a resident of the United States for the purposes of the Treaty and entitled to the benefits of the Treaty, whose holding is not effectively connected with (1) a permanent establishment in Spain through which such holder carries on or has carried on business, or (2) a fixed base in Spain from which such holder performs or has performed independent personal services.

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Holders of ADSs or ordinary shares should consult their tax advisors, particularly as to the applicability of any tax treaty. The statements regarding Spanish tax laws set out below are based on interpretations of those laws in force as of the date of this Annual Report. Such statements also assume that each obligation in the Deposit Agreement and any related agreement will be performed in full accordance with the terms of those agreements.

Taxation of Dividends

Under Spanish law, cash dividends paid by BBVA to a holder of ordinary shares or ADSs who is not resident in Spain for tax purposes and does not operate through a permanent establishment in Spain, are subject to Spanish Non-Resident Income Tax, withheld at source at a 19% tax rate. For these purposes, upon distribution of the dividend, BBVA or its paying agent will withhold an amount equal to the tax due according to the rules set forth above (applying a withholding tax rate of 19%), transferring the resulting net amount to the depositary. However, in the case of cash distribution of share premium no withholding tax would be applicable.

However, under the Treaty, in cash dividends distributions, if you are a U.S. Resident, you are entitled to a reduced withholding tax rate of 15%. To benefit from the Treaty-reduced rate of 15%, if you are a U.S. Resident, you must provide to BBVA through our paying agent depositary, before the tenth day following the end of the month in which the dividends were payable, a certificate from the U.S. Internal Revenue Service (“IRS”) stating that, to the best knowledge of the IRS, you are a resident of the United States within the meaning of the Treaty and entitled to its benefits.

If the paying agent depositary provides timely evidence (i.e., by means of the IRS certificate) of your right to apply the Treaty-reduced rate it will immediately receive the surplus amount withheld, which will be credited to you. The IRS certificate is valid for a period of one year from issuance.

To help shareholders obtain such certificates, BBVA has set up an online procedure to make this as easy as possible.

If the certificate referred to in the above paragraph is not provided to us through our paying agent depositary within said term, you may afterwards obtain a refund of the amount withheld in excess of the rate provided for in the Treaty.

Spanish Refund Procedure

According to Spanish Regulations on Non-Resident Income Tax, approved by Royal Decree 1776/2004 dated July 30, 2004, as amended, a refund for the amount withheld in excess of the Treaty-reduced rate can be obtained from the relevant Spanish tax authorities. To pursue the refund claim, if you are a U.S. Resident, you are required to file:

·the corresponding Spanish tax form,

·the certificate referred to in the preceding section, and

·evidence of the Spanish Non-Resident Income Tax that was withheld with respect to you.

The refund claim must be filed within four years from the date in which the withheld tax was collected by the Spanish tax authorities, but not before February 1 of the following year.

U.S. Residents are urged to consult their own tax advisors regarding refund procedures and any U.S. tax implications thereof.

U.S. Holders should consult their tax advisors regarding the availability of, and the procedures to be followed in connection with, this exemption.

Taxation of Rights

Distribution of preemptive rights to subscribe for new shares made with respect to shares in BBVA will not be treated as income under Spanish law and, therefore, will not be subject to Spanish Non-Resident Income Tax. The exercise of such preemptive rights is not considered a taxable event under Spanish law and thus is not subject to Spanish tax. Capital gains derived from the disposition of preemptive rights received by U.S. Residents are generally not taxed in Spain provided that certain conditions are met (see “—Taxation of Capital Gains” below). 

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Taxation of Capital Gains

Under Spanish law, any capital gains derived from securities issued by persons residing in Spain for tax purposes are considered to be Spanish-source income and, therefore, are taxable in Spain. For Spanish tax purposes, gain recognized by U.S. Residents from the sale of BBVA’s ADSs or ordinary shares will be treated as capital gains. Spanish Non-Resident Income Tax is currently levied at a 19% tax rate, on capital gains recognized by persons who are not residents of Spain for tax purposes, who are not entitled to the benefit of any applicable treaty for the avoidance of double taxation and who do not operate through a fixed base or a permanent establishment in Spain.

Notwithstanding the discussion above, capital gains derived from the transfer of shares on an official Spanish secondary stock market by any holder who is resident in a country that has entered into a treaty for the avoidance of double taxation with an “exchange of information” clause (the Treaty contains such a clause) will be exempt from taxation in Spain. Additionally, capital gains realized by non-residents of Spain who are entitled to the benefit of an applicable treaty for the avoidance of double taxation will, in the majority of cases, not be taxed in Spain (since most tax treaties provide for taxation only in the taxpayer’s country of residence). Under the Treaty, U.S. Residents’ capital gains arising from the disposition of ordinary shares or ADSs will not be taxed in Spain. U.S. Residents will be required to establish that they are entitled to this exemption by providing to the relevant Spanish tax authorities a certificate of residence in the United States from the IRS (discussed above in “—Taxation of Dividends”), together with the corresponding Spanish tax form.

Spanish Inheritance and Gift Taxes

Transfers of BBVA’s shares or ADSs upon death or by gift to individuals are subject to Spanish inheritance and gift taxes (Spanish Law 29/1987), if the transferee is a resident in Spain for tax purposes, or if BBVA’s shares or ADSs are located in Spain, regardless of the residence of the transferee. In this regard, the Spanish tax authorities may argue that all shares of a Spanish corporation and all ADSs representing such shares are located in Spain for Spanish tax purposes. The applicable tax rate for individuals, after applying all relevant factors, ranges between approximately 7.65% and 81.6% under Spanish Law 29/1987. After determining the tax rate, multipliers that range from 1.0 to 2.4, are applied in order to assess the tax due. Those multipliers take into account the preexisting wealth of the inheritor / donee, and the kinship with the deceased / donor.

Corporations that are non-residents of Spain that receive BBVA’s shares or ADSs as a gift are subject to Spanish Non-Resident Income Tax at a 19% tax rate on the fair market value of such ordinary shares or ADSs as a capital gain tax. If the donee is a U.S. resident corporation, the exclusions available under the Treaty described in “—Taxation of Capital Gains” above will be applicable.

Spanish Transfer Tax

Transfers of BBVA’s ordinary shares or ADSs will be exempt from Transfer Tax (Impuesto sobre Transmisiones Patrimoniales) or Value-Added Tax. Additionally, no stamp duty will be levied on such transfers.

U.S. Tax Considerations

The following summary describes material U.S. federal income tax consequences of the ownership and disposition of ADSs or ordinary shares, but it does not purport to be a comprehensive description of all of the tax considerations that may be relevant to a particular person’s decision to hold the securities. The summary applies only to U.S. Holders that are eligible for the benefits of the Treaty (in each case, as defined under “Spanish Tax Considerations” above) and that hold ADSs or ordinary shares as capital assets for tax purposes. This discussion does not address all of the tax consequences that may be relevant to any particular U.S. Holder, including the potential application of the provisions of the Internal Revenue Code of 1986, as amended (the “Code”) known as the Medicare contribution tax, and tax consequences that may be relevant to holders subject to special rules, such as:

•    certain financial institutions;

•    dealers or traders in securities who use a mark-to-market method of accounting;

•   persons holding ADSs or ordinary shares as part of a hedging transaction, straddle, wash sale, conversion   transaction or integrated transaction or persons entering into a constructive sale with respect to the ADSs or ordinary shares;

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•     persons whose “functional currency” for U.S. federal income tax purposes is not the U.S. dollar;

•     persons liable for the alternative minimum tax;

•     tax-exempt entities;

•     partnerships or other entities classified as partnerships for U.S. federal income tax purposes;

•   persons holding ADSs or ordinary shares in connection with a trade or business conducted outside of the United States;

•   persons who acquired our ADSs or ordinary shares pursuant to the exercise of any employee stock option or otherwise as compensation; or

•     persons who own or are deemed to own 10% or more of our stock, by vote or value.

If an entity that is classified as a partnership for U.S. federal income tax purposes holds ADSs or ordinary shares, the U.S. federal income tax treatment of a partner will generally depend on the status of the partner and the activities of the partnership. Partnerships holding ADSs or ordinary shares and partners in such partnerships should consult their tax advisors as to the particular U.S. federal income tax consequences of holding and disposing of the ADSs or ordinary shares.

The summary is based upon the tax laws of the United States, including the Code, the Treaty, administrative pronouncements, judicial decisions and final, temporary and proposed Treasury regulations, all as of the date hereof. These laws are subject to change, possibly with retroactive effect. In addition, the summary is based in part on representations by the depositary and assumes that each obligation provided for in or otherwise contemplated by BBVA’s deposit agreement and any other related document will be performed in accordance with its terms. Prospective purchasers or owners of the ADSs or ordinary shares are urged to consult their tax advisors as to the U.S., Spanish or other tax consequences of the ownership and disposition of ADSs or ordinary shares in their particular circumstances, including the effect of any U.S. state or local tax laws.

In general, for United States federal income tax purposes, a U.S. Holder who owns ADSs will be treated as the owner of the underlying ordinary shares represented by those ADSs. Accordingly, no gain or loss will be recognized if a U.S. Holder exchanges ADSs for the underlying ordinary shares represented by those ADSs.

This discussion assumes that BBVA has not been, and will not become, a passive foreign investment company (“PFIC”) (as discussed below).

Taxation of Distributions

Distributions, before reduction for any Spanish income tax withheld by BBVA or its paying agent, made with respect to ADSs or ordinary shares (other than certain pro rata distributions of ordinary shares or rights to subscribe for ordinary shares of BBVA’s capital stock) will be includible in the income of a U.S. Holder as ordinary income, to the extent paid out of BBVA’s current or accumulated earnings and profits as determined in accordance with U.S. federal income tax principles. Because we do not maintain calculations of our earnings and profits under U.S. federal income tax principles, it is expected that distributions generally will be reported to U.S. Holders as dividends. The amount of such dividends will generally be treated as foreign-source dividend income and will not be eligible for the “dividends-received deduction” generally allowed to U.S. corporations under the Code. Subject to applicable limitations (including the satisfaction of a minimum holding period and certain other requirements), dividends paid to certain non-corporate U.S. Holders of ADSs will be taxable as “qualified dividend income” and therefore will be taxable at favorable rates applicable to long-term capital gains. U.S. Holders should consult their own tax advisors to determine the availability of these favorable rates in their particular circumstances.

The amount of dividend income will equal the U.S. dollar value of the euro received, calculated by reference to the exchange rate in effect on the date of receipt (which, for U.S. Holders of ADSs, will be the date such distribution is received by the depositary), whether or not the depositary or U.S. Holder in fact converts any euro received into U.S. dollars at that time. If the dividend is converted into U.S. dollars on the date of receipt, a U.S. Holder should not be required to recognize foreign currency gain or loss in respect of the dividend income. A U.S. Holder may have foreign currency gain or loss if the dividend is converted into U.S. dollars after the date of receipt.

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Subject to applicable limitations that vary depending upon a U.S. Holder’s circumstances, a U.S. Holder will be entitled to a credit against its U.S. federal income tax liability for Spanish income taxes withheld by BBVA or its paying agent at a rate not exceeding the rate the U.S. Holder is entitled to under Spanish domestic law or the Treaty. Spanish taxes withheld in excess of the rate applicable under Spanish domestic law or the Treaty will not be eligible for credit against the U.S. Holder’s U.S. federal income tax liability. See “Spanish Tax Considerations—Taxation of Dividends” for a discussion of how to obtain the Treaty rate. The rules governing foreign tax credits are complex and, therefore, U.S. Holders should consult their tax advisors regarding the availability of foreign tax credits in their particular circumstances. Instead of claiming a credit, the U.S. Holder may, at its election and subject to applicable limitations, deduct such Spanish taxes in computing its U.S. federal taxable income. An election to deduct foreign taxes instead of claiming foreign tax credits must apply to all taxes paid or accrued in the taxable year to foreign countries and possessions of the United States.

Sale or Other Disposition of ADSs or Shares

For U.S. federal income tax purposes, gain or loss realized by a U.S. Holder on the sale or other disposition of ADSs or ordinary shares will be capital gain or loss in an amount equal to the difference between the U.S. Holder’s tax basis in the ADSs or ordinary shares disposed of and the amount realized on the disposition, in each case as determined in U.S. dollars. Such gain or loss will be long-term capital gain or loss if the U.S. Holder held the ordinary shares or ADSs for more than one year at the time of disposition. Gain or loss, if any, will generally be U.S. source for foreign tax credit purposes. The deductibility of capital losses is subject to limitations.

Passive Foreign Investment Company Rules

Based upon certain proposed Treasury regulations, including those which are proposed to be effective for taxable years beginning after December 31, 1994 (“Proposed Regulations”), we believe that we were not a PFIC for U.S. federal income tax purposes for our 2020 taxable year. However, since our PFIC status depends upon the composition of our income and assets and the market value of our assets (including, among others, less than 25% owned equity investments) from time to time and since there is no guarantee that the Proposed Regulations will be adopted in their current form and because the manner of the application of the Proposed Regulations is not entirely clear, there can be no assurance that we will not be considered a PFIC for any taxable year.

If we were treated as a PFIC for any taxable year during which a U.S. Holder held ADSs or ordinary shares, gain recognized by such U.S. Holder on a sale or other disposition (including certain pledges) of an ADS or an ordinary share would be allocated ratably over the U.S. Holder’s holding period for the ADS or the ordinary share. The amounts allocated to the taxable year of the sale or other exchange and to any year before we became a PFIC would be taxed as ordinary income. The amount allocated to each other taxable year would be subject to tax at the highest rate in effect for individuals or corporations, as applicable for that taxable year, and an interest charge would be imposed on the amount of tax allocated to such taxable year. The same treatment would apply to any distribution received by a U.S. Holder on its ordinary shares or ADSs to the extent that such distribution exceeds 125% of the average of the annual distributions on the ordinary shares or ADSs received during the preceding three years or the U.S. Holder’s holding period, whichever is shorter. In addition, if we were a PFIC or, with respect to a particular U.S. Holder, were treated as a PFIC for the taxable year in which we paid a dividend or the prior taxable year, the favorable tax rates discussed above with respect to dividends paid to certain non-corporate U.S. Holders would not apply. Certain elections may be available (including a mark-to-market election) that may provide alternative tax treatments. U.S. Holders should consult their tax advisors regarding whether we are or were a PFIC, the potential application of the PFIC rules to their ownership and disposition of ordinary shares or ADSs, whether any of these elections for alternative treatment would be available and, if so, what the consequences of the alternative treatments would be in their particular circumstances. If we were a PFIC for any taxable year during which a U.S. Holder owned our shares, the U.S. Holder would generally be required to file IRS Form 8621 with their annual U.S. federal income tax returns, subject to certain exceptions.

Information Reporting and Backup Withholding

Information returns may be filed with the IRS in connection with payments of dividends on, and the proceeds from a sale or other disposition of, ADSs or ordinary shares. A U.S. Holder may be subject to U.S. backup withholding on these payments if the U.S. Holder fails to provide its taxpayer identification number to the paying agent and comply with certain certification procedures or otherwise establish an exemption from backup withholding. The amount of any backup withholding from a payment to a U.S. Holder will be allowed as a credit against the U.S. Holder’s U.S. federal income tax liability and may entitle the U.S. Holder to a refund, provided that the required information is timely furnished to the IRS.

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Certain U.S. Holders who are individuals or specified entities may be required to report information relating to securities of non-U.S. companies, or non-U.S. accounts through which they are held. U.S. Holders should consult their tax advisors regarding the effect, if any, of these rules on their ownership or disposition of ordinary shares or ADSs.

F.      Dividends and Paying Agents

Not Applicable.

G.      Statement by Experts

Not Applicable.

H.     Documents on Display

We are subject to the information requirements of the Exchange Act, except that as a foreign private issuer, we are not subject to the proxy rules or the short-swing profit disclosure rules of the Exchange Act. In accordance with these statutory requirements, we file or furnish reports and other information with the SEC. Reports and other information filed or furnished by BBVA with the SEC may be inspected and copied at the public reference facilities maintained by the SEC at 100 F Street, N.E., Washington, D.C. 20549. Copies of such material may also be inspected at the offices of the New York Stock Exchange, 11 Wall Street, New York, New York 10005, on which BBVA’s ADSs are listed. In addition, the SEC maintains a web site that contains information filed or furnished electronically with the SEC, which can be accessed over the internet at http://www.sec.gov. Except as otherwise expressly indicated herein, any such information does not form part of this Annual Report on Form 20-F.

I.       Subsidiary Information

Not Applicable.

ITEM 11.      QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK

For quantitative and qualitative disclosures about market risk, see Notes 7.3 and 7.4 to our Consolidated Financial Statements.

ITEM 12.DESCRIPTION OF SECURITIES OTHER THAN EQUITY SECURITIES

A.Debt Securities

Not Applicable.

B.      Warrants and Rights

Not Applicable.

C.      Other Securities

Not Applicable.

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D.American Depositary Shares

Our ADSs are listed on the New York Stock Exchange under the symbol “BBVA”. The Bank of New York Mellon is the depositary (the “Depositary”) issuing ADSs pursuant to an amended and restated deposit agreement dated June 29, 2007 among BBVA, the Depositary and the holders from time to time of ADSs (the “Deposit Agreement”). Each ADS represents the right to receive one share. The table below sets forth the fees payable, either directly or indirectly, by a holder of ADSs as of the date of this Annual Report.

Category	Depositary Actions	Associated Fee / By Whom Paid
(a) Depositing or substituting the underlying shares	Issuance of ADSs	Up to $5.00 for each 100 ADSs (or portion thereof) delivered (charged to person depositing the shares or receiving the ADSs)
(b) Receiving or distributing dividends	Distribution of cash dividends or other cash distributions; distribution of share dividends or other free share distributions; distribution of securities other than ADSs or rights to purchase additional ADSs	Not applicable
(c) Selling or exercising rights	Distribution or sale of securities	Not applicable
(d) Withdrawing an underlying security	Acceptance of ADSs surrendered for withdrawal of deposited securities	Up to $5.00 for each 100 ADSs (or portion thereof) surrendered (charged to person surrendering or to person to whom withdrawn securities are being delivered)
(e) Transferring, splitting or grouping receipts	Transfers, combining or grouping of depositary receipts	Not applicable
(f) General depositary services, particularly those charged on an annual basis	Other services performed by the Depositary in administering the ADSs	Not applicable
(g) Expenses of the Depositary	Expenses incurred on behalf of holders in connection with ·stock transfer or other taxes (including Spanish income taxes) and other governmental charges; ·cable, telex and facsimile transmission and delivery charges incurred at request of holder of ADS or person depositing shares for the issuance of ADSs; ·transfer, brokerage or registration fees for the registration of shares or other deposited securities on the share register and applicable to transfers of shares or other deposited securities to or from the name of the custodian; ·reasonable and customary expenses of the depositary in connection with the conversion of foreign currency into U.S. dollars	Expenses payable by holders of ADSs or persons depositing shares for the issuance of ADSs; expenses payable in connection with the conversion of foreign currency into U.S. dollars are payable out of such foreign currency

The Depositary may remit to us all or a portion of the fees charged for the reimbursement of certain of the expenses we incur in respect of the ADS program established pursuant to the Deposit Agreement upon such terms and conditions as we may agree from time to time. In the year ended December 31, 2020, the Depositary reimbursed us $502,122 with respect to certain fees and expenses. The table below sets forth the types of expenses that the Depositary has agreed to reimburse and the amounts reimbursed in 2020.

Category of Expenses	Amount Reimbursed in the Year Ended December 31, 2020
	(In Dollars)
NYSE Listing Fees	307,610
Investor Relations Marketing	4,833
Professional Services	40,590
Annual General Shareholders’ Meeting Expenses	149,089
Other	-

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PART II

ITEM 13.DEFAULTS, DIVIDEND ARREARAGES AND DELINQUENCIES

Not Applicable.

ITEM 14.MATERIAL MODIFICATIONS TO THE RIGHTS OF SECURITY HOLDERS AND USE OF PROCEEDS

Not Applicable.

ITEM 15.CONTROLS AND PROCEDURES

Conclusion Regarding the Effectiveness of Disclosure Controls and Procedures

As of December 31, 2020, BBVA, under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, performed an evaluation of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rule 13a-15(e) under the Exchange Act). There are inherent limitations to the effectiveness of any control system, including disclosure controls and procedures. Accordingly, even effective disclosure controls and procedures can provide only reasonable assurance of achieving their control objectives.

Based upon their evaluation, BBVA’s Group Executive Chairman, Chief Executive Officer and Chief Financial Officer concluded that BBVA’s disclosure controls and procedures are effective at a reasonable assurance level in ensuring that information relating to BBVA, including its consolidated subsidiaries, required to be disclosed in reports that it files under the Exchange Act is (1) recorded, processed, summarized and reported within the time periods specified in the SEC’s rules and forms, and (2) accumulated and communicated to the management, including principal financial officers, as appropriate to allow timely decisions regarding required disclosure.

Management’s Report on Internal Control Over Financial Reporting

The management of BBVA is responsible for establishing and maintaining adequate internal control over financial reporting as defined in Rule 13a-15(f) under the Exchange Act. BBVA’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles and includes those policies and procedures that:

·pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of BBVA;

·provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that our receipts and expenditures are being made only in accordance with authorizations of BBVA’s management and directors; and

·provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use or disposition of our assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

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Under the supervision and with the participation of BBVA’s management, including our Group Executive Chairman, Chief Executive Officer and Chief Financial Officer, we conducted an evaluation of the effectiveness of our internal control over financial reporting based on the criteria established in “Internal Control – Integrated Framework (2013)” issued by the Committee of Sponsoring Organizations of the Treadway Commission (“COSO”). Based on this assessment, our management concluded that, as of December 31, 2020, our internal control over financial reporting was effective based on those criteria.

Changes in Internal Control Over Financial Reporting

There have been no changes in BBVA’s internal control over financial reporting (as defined in Rule 13a-15(f) under the Exchange Act) which have materially affected or are reasonably likely to materially affect BBVA’s internal control over financial reporting during the year ended December 31, 2020.

Our internal control over financial reporting as of December 31, 2020 has been audited by KPMG Auditores S.L., an independent registered public accounting firm, as stated in their report which follows below.

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Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors

Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on Internal Control Over Financial Reporting

We have audited Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries’ (the Company) internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. In our opinion, the Company maintained, in all material respects, effective internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission. 

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the consolidated balance sheets of the Company as of December 31, 2020, 2019 and 2018, the related consolidated statements of income, recognized income and expense, changes in equity, and cash flows for the years then ended, and the related notes, included on pages F-4 through F-182 (collectively, the consolidated financial statements), and our report dated February 26, 2021 expressed an unqualified opinion on those consolidated financial statements.

Basis for Opinion

The Company’s management is responsible for maintaining effective internal control over financial reporting and for its assessment of the effectiveness of internal control over financial reporting, included in the accompanying Management’s Report on Internal Control Over Financial Reporting. Our responsibility is to express an opinion on the Company’s internal control over financial reporting based on our audit. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audit in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether effective internal control over financial reporting was maintained in all material respects. Our audit of internal control over financial reporting included obtaining an understanding of internal control over financial reporting, assessing the risk that a material weakness exists, and testing and evaluating the design and operating effectiveness of internal control based on the assessed risk. Our audit also included performing such other procedures as we considered necessary in the circumstances. We believe that our audit provides a reasonable basis for our opinion.

Definition and Limitations of Internal Control Over Financial Reporting

A company’s internal control over financial reporting is a process designed to provide reasonable assurance regarding the reliability of financial reporting and the preparation of financial statements for external purposes in accordance with generally accepted accounting principles. A company’s internal control over financial reporting includes those policies and procedures that (1) pertain to the maintenance of records that, in reasonable detail, accurately and fairly reflect the transactions and dispositions of the assets of the company; (2) provide reasonable assurance that transactions are recorded as necessary to permit preparation of financial statements in accordance with generally accepted accounting principles, and that receipts and expenditures of the company are being made only in accordance with authorizations of management and directors of the company; and (3) provide reasonable assurance regarding prevention or timely detection of unauthorized acquisition, use, or disposition of the company’s assets that could have a material effect on the financial statements.

Because of its inherent limitations, internal control over financial reporting may not prevent or detect misstatements. Also, projections of any evaluation of effectiveness to future periods are subject to the risk that controls may become inadequate because of changes in conditions, or that the degree of compliance with the policies or procedures may deteriorate.

/s/ KPMG Auditores, S.L.

Madrid, Spain

February 26, 2021

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ITEM 16.       [RESERVED]

ITEM 16A.AUDIT COMMITTEE FINANCIAL EXPERT

The Regulations of the Audit Committee establish that committee members will be appointed by the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their duties. In any event, at least one member will be appointed taking into account his or her knowledge and experience in accounting, auditing or both. As a whole, the Committee members will possess relevant technical knowledge in the financial sector.

We have determined that Mr. Jaime Félix Caruana Lacorte, current Chairman of the Audit Committee, and the Audit Committee members Mr. José Miguel Andrés Torrecillas, Mrs. Belén Garijo López and Mrs. Ana Cristina Peralta Moreno are “audit committee financial experts” as such term is defined by the SEC.

Mr. Jaime Félix Caruana Lacorte, Mr. José Miguel Andrés Torrecillas, Mrs. Belén Garijo López and Mrs. Ana Cristina Peralta Moreno are independent within the meaning of Rule 10A-3 under the Exchange Act.

ITEM 16B.CODE OF ETHICS

The BBVA Group Code of Conduct, which was updated by the Board of Directors on May 28, 2015, applies to all companies and persons which form part of the BBVA Group. This Code sets out the standards of behavior that should be adhered to so that the Group’s conduct towards its customers, colleagues and the society be consistent with BBVA’s values. The BBVA Group Code of Conduct can be found on BBVA’s website at www.bbva.com.

ITEM 16C.PRINCIPAL ACCOUNTANT FEES AND SERVICES

The following table provides information on the aggregate fees paid and payable to our principal accountants KPMG Auditores S.L. and its worldwide affiliates, by type of service rendered for the periods indicated.

	Year ended December 31,
Services Rendered	2020	2019
	(In Millions of Euros)
Audit Fees(1)	28.1	28.7
Audit-Related Fees(2)	1.2	1.3
Tax Fees(3)	-	-
All Other Fees(4)	0.1	-
Total	29.4	30.0

(1)       Aggregate fees paid and payable by BBVA for professional services rendered by our principal accountants and its worldwide affiliates for the audit of BBVA’s annual financial statements, review of interim financial statements, SEC regulatory filings or services that are normally provided by our principal accountants and its worldwide affiliates in connection with statutory and regulatory filings or engagements for the relevant fiscal year.

(2)       Aggregate fees paid and payable by BBVA for assurance and related services by our principal accountants  and  its worldwide affiliates that are reasonably related to the performance of the audit or review of BBVA’s financial statements and are not reported under (1) above. This includes work related to the corporate social responsibility report of certain Group entities and certain regulatory work rendered by the independent auditor.   

(3)       Aggregate fees paid and payable by BBVA for professional services rendered by our principal accountants and its worldwide affiliates for tax compliance, tax advice, and tax planning.

(4)       Aggregate fees paid and payable by BBVA for products and services provided by our principal accountants and its worldwide affiliates other than the services reported in (1), (2) and (3) above. Services in this category consisted primarily of consultancy and implementation of new regulation.

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The Audit Committee’s Pre-Approval Policies and Procedures

In order to assist in ensuring the independence of our external auditor, the regulations of our Audit Committee provides that our external auditor is generally prohibited from providing us with non-audit services, other than under the specific circumstance described below. For this reason, our Audit Committee has developed a pre-approval policy regarding the contracting of BBVA’s external auditor, or any affiliate of the external auditor, for professional services. The professional services covered by such policy include audit and non-audit services provided to BBVA or any of its subsidiaries reflected in agreements dated on or after May 6, 2003.

The pre-approval policy is as follows:

1.The hiring of BBVA’s external auditor or any of its affiliates is prohibited, unless there is no other firm available to provide the needed services at a comparable cost and that could deliver a similar level of quality.

2.In the event that there is no other firm available to provide needed services at a comparable cost and delivering a similar level of quality, the external auditor (or any of its affiliates) may be hired to perform such services, but only with the pre-approval of the Audit Committee.

3.The Chairman of the Audit Committee has been delegated the authority to approve the hiring of BBVA’s external auditor (or any of its affiliates). In such an event, however, the Chairman would be required to inform the Audit Committee of such decision at the Committee’s next meeting.

4.The hiring of the external auditor for any of BBVA’s subsidiaries must also be pre-approved by the Audit Committee.

ITEM 16D.EXEMPTIONS FROM THE LISTING STANDARDS FOR AUDIT COMMITTEES

Not Applicable.

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ITEM 16E.PURCHASES OF EQUITY SECURITIES BY THE ISSUER AND AFFILIATED PURCHASERS

The below table shows the purchases of BBVA shares made by or on behalf of BBVA or any affiliated purchaser during 2020. These purchases were made in open-market transactions and none of the shares were purchased under a publicly announced plan or program.

2020	Total Number of Ordinary Shares Purchased	Average Price Paid per Share (or Unit)in Euros	Total Number of Shares (or Units) Purchased as Part of Publicly Announced Plans or Programs	Maximum Number (or Approximate Dollar Value) of Shares (or Units) that May Yet Be Purchased Under the Plans or Programs
January	12,427,533	4.78	—	—
February	33,414,182	4.89	—	—
March	33,312,325	3.24	—	—
April	14,362,659	2.80	—	—
May	14,946,334	2.81	—	—
June	25,555,734	3.17	—	—
July	20,880,943	3.09	—	—
August	12,243,174	2.54	—	—
September	25,515,697	2.40	—	—
October	8,226,400	2.38	—	—
November	15,932,539	3.31	—	—
December	17,874,367	4.68	—	—
Total	234,691,887	3.44	—	—

During 2020, we sold a total of 232,956,244 shares for an average price of €3.56 per share.

ITEM 16F.CHANGE IN REGISTRANT’S CERTIFYING ACCOUNTANT

Not applicable.

ITEM 16G.         CORPORATE GOVERNANCE

Compliance with NYSE Listing Standards on Corporate Governance

On November 4, 2003, the SEC approved rules proposed by the New York Stock Exchange (the “NYSE”) intended to strengthen corporate governance standards for listed companies. In compliance therewith, the following is a summary of the significant differences between our corporate governance practices and those applicable to domestic issuers under the NYSE listing standards.

Independence of the Directors on the Board of Directors and Board Committees

Under the NYSE corporate governance rules, (i) a majority of a U.S. company’s board of directors must be composed of independent directors, (ii) all members of the audit committee must be independent and (iii) all U.S. companies listed on the NYSE must have a compensation committee and a nominations committee and all members of such committees must be independent. In each case, the independence of directors must be established pursuant to highly detailed rules promulgated by the NYSE and, in the case of the audit committee, the NYSE and the SEC.

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The Spanish Corporate Enterprises Act sets out a definition of what constitutes independence for the purpose of board or committee membership. Such definition is in line with the definition provided by our Board Regulations.

In addition, pursuant to the Spanish Corporate Enterprises Act, listed companies shall have, at least, an audit committee and an appointments and remuneration committee. This Act also establishes that such committees (i) shall be composed exclusively of non-executive directors, (ii) shall have a majority of independent directors (in the case of the audit committee) or at least two of their members shall be independent directors (in the case of the appointments and remuneration committee) and (iii) they shall be chaired by an independent director.

Likewise, Law 10/2014, which completes the transposition of CRD IV into Spanish legislation, includes rules on corporate governance, among others, as regards board committees and their membership, establishing that the remuneration committee, the appointments committee and risk committee shall be composed of non-executive directors and at least one third of their members shall be independent and, in any event, the Chairman of these committees shall also be an independent director.

Moreover, pursuant to the Good Governance Code for Listed Companies of the CNMV, which includes non-binding recommendations applicable to listed companies in Spain, under the comply or explain principle: (i) independent directors must represent, at least, half of the total board members; (ii) the majority of the members of the appointments and remuneration committee must be independent; and (iii) companies with high market capitalization must have two separate committees, an appointments committee and a remuneration committee.

Pursuant to Article 1 of our Board Regulations, BBVA considers that independent directors are non-executive directors appointed based on their personal and professional qualities and who may perform their duties without being constrained by their relationship with the Company, or its Group, significant shareholders or managers. Directors may not be considered independent in any of the following situations:

a)   they have been employees or have been executive directors of Group companies in the last three or five years, respectively;

b)  they receive from the Bank, or from Group companies, any amount or benefit for any item other than remuneration for the directorship, except those amounts which are not significant for the relevant director. For the purposes of this requirement, neither  dividends nor pension allowances received by directors relating to their previous professional or employment relations will be taken into account, provided that said allowances are unconditional in nature and, therefore, the company that provides said allowances may not suspend, modify or revoke their accrual at its discretion without breaching its obligations;

c)   they are, or have been in the past three years, a partner of an external auditor or have been responsible during this time for the auditor's report for the Company or any other company within its Group;

d)   they are executive directors or senior managers of another company for which an executive director or senior manager of the Company is an external director;

e)   they have, or have had over the last year, a significant business relationship with the Bank or any company within its Group, whether in their own name or as a significant shareholder, director or senior manager of a company that has, or has had, such a relationship. Business relationships include supplying goods or services, including financial services, as well as acting as an adviser or consultant;

f)   they are significant shareholders, executive directors or senior managers of a company that receives, or has received in the past three years, donations from the Company or from its Group. Those who are simply trustees of a foundation receiving donations will not be considered to be included in this category;

g)   they are spouses, partners in a similar relationship of affection or relatives up to the second degree of an executive director or senior manager of the Company;

h)   they have not been proposed for appointment or renewal by the Appointments and Corporate Governance Committee;

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i)   they have been directors for a continuous period of more than twelve years; or

j)   in relation to a significant shareholder or shareholder represented on the Board of Directors, any of the circumstances referred to in items (a), (e), (f) or (g) above shall apply. In the event of the kinship relations referred to in item (g), the limitation will apply not only to the shareholder, but also to any proprietary directors of the company in which shares are held.

The directors with a shareholding in the Company may be considered independent provided that they do not meet the conditions above and, in addition, that their shareholding is not legally regarded as significant.

As of the date of this Annual Report, 13 of the 15 members of our Board of Directors are non-executive directors and ten out of the 15 members of our Board are independent under the definition of independence described above, which is in line with the definition provided by the Spanish Corporate Enterprises Act.

In addition, our Audit Committee is composed exclusively of independent directors and the Committee chair has experience in accounting, auditing and technical knowledge in financial sector, in accordance with the specific regulations of the Audit Committee. Our Risk and Compliance Committee is composed exclusively of non-executive directors, the majority of whom (including its chairman) are independent directors. Also, in accordance with the Spanish Corporate Enterprises Act and with corporate governance non-binding recommendations, our Board of Directors has two separate committees: an Appointments and Corporate Governance Committee and a Remunerations Committee, which are composed exclusively of non-executive directors, the majority of whom (including their chairmen) are independent directors.

Separate Meetings for Independent Directors

In accordance with the NYSE corporate governance rules, independent directors must meet periodically outside of the presence of the executive directors. Under Spanish law, this requirement is not contemplated as such. We note, however, that our non-executive directors meet periodically outside the presence of our executive directors every time a Committee with oversight functions meets, since these Committees are comprised solely of non-executive directors. Furthermore, the Board of Directors has appointed a Lead Director with powers to coordinate and meet with the non-executive directors, among other faculties conferred by applicable law and in Article 21 of our Board Regulations. The Lead Director also maintains ongoing contact, holds meetings and has conversations with other Bank directors in order to seek their opinions on the corporate governance and operation of the Bank’s corporate bodies. In addition, in accordance with Article 37 of the Board Regulations, the Lead Director coordinated during 2020 various meetings with non-executive directors, which were held after each ordinary meeting of the Board of Directors.

Code of Ethics

The NYSE listing standards require U.S. companies to adopt a code of business conduct and ethics for directors, officers and employees, and promptly disclose any waivers of the code for directors or executive officers. For information with respect to BBVA’s code of business conduct and ethics see “Item 16 B. Code of Ethics”.

ITEM 16H.MINE SAFETY DISCLOSURE

Not Applicable.

PART III

ITEM 17.FINANCIAL STATEMENTS

We have responded to Item 18 in lieu of responding to this Item.

ITEM 18.FINANCIAL STATEMENTS

Please see pages F-1 through F-242.

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ITEM 19 EXHIBITS 

Exhibit Number	Description
1.1		Amended and Restated Bylaws (Estatutos) of the Registrant (English translation) (*)
2.1		Description of Registrant’s Securities Registered under Section 12 of the Exchange Act
4.1		Information on Compensation Plans (**)
8.1		Consolidated Companies Composing Registrant (see Appendix I to IX to our Consolidated Financial Statements included herein)
10.1		Share Purchase Agreement between Banco Bilbao Vizcaya Argentaria, S.A. and The PNC Financial Services Group of November 15, 2020
12.1		Section 302 Group Executive Chairman Certification
12.2		Section 302 Chief Executive Officer Certification
12.3		Section 302 Chief Financial Officer Certification
13.1		Section 906 Certification
15.1		Consent of Independent Registered Public Accounting Firm
101		Interactive Data File
(*) Incorporated by reference to BBVA’s Annual Report on Form 20-F for the year ended December 31, 2017. (**)Incorporated by reference to BBVA’s report on Form 6-K submitted on February 16, 2021 (SEC Accession No. 0001193125-21-043182). We will furnish to the Commission, upon request, copies of any unfiled instruments that define the rights of holders of our long-term debt.

231

SIGNATURES

Pursuant to the requirements of Section 12 of the Securities Exchange Act of 1934, the Registrant certifies that it meets all of the requirements for filing on Form 20-F and had duly caused this Annual Report to be signed on its behalf by the undersigned, thereto duly authorized.

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
By:	/s/ Jaime Sáenz de Tejada Pulido
Name:	Jaime Sáenz de Tejada Pulido
Title:	Chief Financial Officer

Date: February 26, 2021

232

Consolidated Financial Statements and Report of Independent Registered Public Accounting Firm for the years 2020, 2019 and 2018

Contents

CONSOLIDATED FINANCIAL STATEMENTS

Consolidated balance sheets	F-4
Consolidated income statements	F-7
Consolidated statements of recognized income and expenses	F-8
Consolidated statements of changes in equity	F-9
Consolidated statements of cash flows	F-12

NOTES TO THE ACCOMPANYING CONSOLIDATED FINANCIAL STATEMENTS

1.	Introduction, basis for the presentation of the Consolidated Financial Statements, Internal Control over Financial Reporting and other information	F-13
2.	Principles of consolidation, accounting policies and measurement bases applied and recent IFRS pronouncements	F-17
3.	BBVA Group	F-41
4.	Shareholder remuneration system	F-44
5.	Earnings per share	F-45
6.	Operating segment reporting	F-46
7.	Risk management	F-47
8.	Fair value of financial instruments	F-97
9.	Cash, cash balances at central banks and other demand deposits	F-108
10.	Financial assets and liabilities held for trading	F-109
11.	Non-trading financial assets mandatorily at fair value through profit or loss	F-110
12.	Financial assets and liabilities designated at fair value through profit or loss	F-110
13.	Financial assets at fair value through other comprehensive income	F-111
14.	Financial assets at amortized cost	F-114
15.	Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk	F-116
16.	Investments in joint ventures and associates	F-118
17.	Tangible assets	F-120
18.	Intangible assets	F-123
19.	Tax assets and liabilities	F-126
20.	Other assets and liabilities	F-130
21.	Non-current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale	F-130
22.	Financial liabilities at amortized cost	F-135
23.	Assets and liabilities under insurance and reinsurance contracts	F-141
24.	Provisions	F-142
25.	Post-employment and other employee benefit commitments	F-145
26.	Common stock	F-153
27.	Share premium	F-154
28.	Retained earnings, revaluation reserves and other reserves	F-154
29.	Treasury shares	F-156
30.	Accumulated other comprehensive income (loss)	F-157
31.	Non-controlling interest	F-158
32.	Capital base and capital management	F-159
33.	Commitments and guarantees given	F-163
34.	Other contingent assets and liabilities	F-163
35.	Purchase and sale commitments and future payment obligations	F-163
36.	Transactions on behalf of third parties	F-164
37.	Net interest income	F-164
38.	Dividend income	F-165
39.	Share of profit or loss of entities accounted for using the equity method	F-165
40.	Fee and commission income and expense	F-165
41.	Gains (losses) on financial assets and liabilities, hedge accounting and exchange differences, net	F-166
42.	Other operating income and expense	F-167
43.	Income and expense from insurance and reinsurance contracts	F-167
44.	Administration costs	F-168
45.	Depreciation and amortization	F-170
46.	Provisions or reversal of provisions	F-170
47.	Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	F-171
48.	Impairment or reversal of impairment of investments in joint ventures and associates	F-171
49.	Impairment or reversal of impairment on non-financial assets	F-171
50.	Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations	F-172
51.	Consolidated statements of cash flows	F-172
52.	Accountant fees and services	F-173
53.	Related-party transactions	F-174
54.	Remuneration and other benefits to the Board of Directors and to the members of the Bank’s Senior Management	F-176
55.	Other information	F-182
56.	Subsequent events	F-182

APPENDICES
APPENDIX I Additional information on subsidiaries and structured entities composing the BBVA Group as of December 31, 2020	F-184
APPENDIX II Additional information on investments joint ventures and associates in the BBVA Group as of December 31, 2020	F-192
APPENDIX III Changes and notification of participations in the BBVA Group in 2020	F-193
APPENDIX IV Fully consolidated subsidiaries with more than 10% owned by non-Group shareholders as of December 31, 2020	F-196
APPENDIX V BBVA Group’s structured entities in 2020. Securitization funds	F-197
APPENDIX VI Details of the outstanding subordinated debt and preferred securities issued by the Bank or entities in the Group consolidated as of December 31, 2020, 2019 and 2018	F-198
APPENDIX VII Consolidated balance sheets held in foreign currency as of December 31, 2020, 2019 and 2018	F-202
APPENDIX VIII. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012	F-204
APPENDIX IX Additional information on risk concentration	F-222

Report of Independent Registered Public Accounting Firm

To the Shareholders and Board of Directors
Banco Bilbao Vizcaya Argentaria, S.A.:

Opinion on the ConsolidatedFinancial Statements

We have audited the accompanying consolidated balance sheets of Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries (the Company) as of December 31, 2020, 2019 and 2018, the related consolidated statements of income, recognized income and expense, changes in equity, and cash flows for the years then ended, and the related notes, included on pages F-4 through F-182 (collectively, the consolidated financial statements). In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2020, 2019 and 2018, and the results of its operations and its cash flows for the years then ended, in conformity with International Financial Reporting Standards as issued by the International Accounting Standards Board.

We also have audited, in accordance with the standards of the Public Company Accounting Oversight Board (United States) (PCAOB), the Company’s internal control over financial reporting as of December 31, 2020, based on criteria established in Internal Control – Integrated Framework (2013) issued by the Committee of Sponsoring Organizations of the Treadway Commission, and our report dated February 26, 2021 expressedan unqualified opinion on the effectiveness of the Company’s internal control over financial reporting.

Sale of BBVA USA Bancshares, Inc.

As discussed in Notes 3 and 21 to the consolidated financial statements, during 2020 the Company reached an agreement to sell its USA subsidiary, BBVA USA Bancshares, Inc., as well as other companies in the United States with activities related to this banking business. As a result, the assets and liabilities of the companies included in the sale agreement have been classified under the headings Non-current assets and disposal groups classified as held for sale and  Liabilities included in disposal groups classified as held for sale in the consolidated balance sheet as of December 31, 2020, and the results of these companies have been classified under the heading Profit (loss) after tax from discontinued operations in the consolidated statements of income for each of the years ended December 31, 2020, 2019 and 2018.

Basis for Opinion

These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits. We are a public accounting firm registered with the PCAOB and are required to be independent with respect to the Company in accordance with the U.S. federal securities laws and the applicable rules and regulations of the Securities and Exchange Commission and the PCAOB.

We conducted our audits in accordance with the standards of the PCAOB. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free of material misstatement, whether due to error or fraud. Our audits included performing procedures to assess the risks of material misstatement of the consolidated financial statements, whether due to error or fraud, and performing procedures that respond to those risks. Such procedures included examining, on a test basis, evidence regarding the amounts and disclosures in the consolidated financial statements. Our audits also included evaluating the accounting principles used and significant estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that our audits provide a reasonable basis for our opinion.

Critical Audit Matters

The critical audit matters communicated below are matters arising from the current period audit of the consolidated financial statements that were communicated or required to be communicated to the audit committee and that: (1) relate to accounts or disclosures that are material to the consolidated financial statements and (2) involved our especially challenging, subjective, or complex judgments. The communication of critical audit matters does not alter in any way our opinion on the consolidated financial statements, taken as a whole, and we are not, by communicating the critical audit matters below, providing separate opinions on the critical audit matters or on the accounts or disclosures to which they relate.

Expected credit losses related to loans and advances

As discussed in Note 7 to the consolidated financial statements, the Company’s provision for expected credit losses (ECL) related to loans and advances was €12,105 million as of December 31, 2020.

F-1

We identified the assessment of the ECL related to loans and advances as a critical audit matter because it involved subjective and complex auditor judgment as well as specialized skills and knowledge due to significant measurement uncertainty. In addition, the COVID-19 pandemic has negatively affected the economy and business activities in the countries where the Company operates, which has significantly impacted the Company´s future forecasts and further increased measurement uncertainty associated with the significant assumptions used to estimate the ECL as of December 31, 2020.

Specifically, our assessment encompassed an evaluation of the Company´s overall methodology for estimating ECL related to loans and advances, inclusive of the methodologies and significant assumptions used to estimate the probability of default (PD), exposure at default (EAD) and loss given default (LGD), as well as certain future macroeconomic variables such as GDP, and the need for and measurement of qualitative adjustments to the collective ECL including those used to account for the impacts of COVID-19. Our assessment also included an evaluation of the significant assumptions used to estimate the ECL for certain individually evaluated loans, including the terminal value, cost of capital, and collateral values, if applicable. Our assessment also included an evaluation of the mathematical accuracy of the ECL calculations. In addition, auditor judgment was required to evaluate the sufficiency of audit evidence obtained.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s measurement of the ECL estimate, including controls related to (i) development and approval of the overall ECL methodology, (ii) validation of the PD, EAD, and LGD models, including the determination of the methodologies and assumptions used, (iii) determination of certain future macroeconomic variables such as GDP, (iv) determination of the need for and measurement of qualitative adjustments to the collective ECL, and (v) calculation of the ECL estimates.  This also included controls related to the significant assumptions used to estimate the ECL for individually evaluated loans, including the terminal value, cost of capital, and collateral values, if applicable.

We involved credit risk professionals with specialized skills and knowledge who assisted in (i) evaluating the Company’s ECL methodology for compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) assessing whether certain models used in calculating the PD, EAD, and LGD are suitable for their intended use by inspecting model documentation, assessing the conceptual soundness and ongoing performance, and assessing the methodologies used and certain assumptions, (iii) evaluating certain future macroeconomic variables such as GDP by comparing the Company´s forecasts against published external sources, and (iv) assessing the need for and measurement of qualitative adjustments to the ECL, including those used to account for the impacts of COVID-19, and (v) assessing the mathematical accuracy of the ECL calculation for a sample of loans.

We involved credit risk and valuation professionals with specialized skills and knowledge who assisted in testing the significant assumptions used to estimate the ECL for a sample of individually evaluated loans, including the terminal value, cost of capital and collateral values, if applicable.

We evaluated the collective results of the procedures performed to assess the sufficiency of the audit evidence obtained related to the Company´s ECL.

Measurement of fair value of certain difficult-to-value financial instruments

As discussed in Note 8 to the consolidated financial statements, the Company has recorded €186,004 million of financial assets measured at fair value (of which €84,143 million were classified as Level 2 and €3,445 million were classified as Level 3) and €98,856 million of financial liabilities measured at fair value (of which €68,853 million were classified as Level 2 and €2,363 million were classified as Level 3) as of December 31, 2020 (collectively, difficult-to-value financial instruments). 

We identified the assessment of the measurement of fair value of certain difficult-to-value financial instruments as a critical audit matter.  Specifically, there was a high degree of subjectivity and judgment involved in evaluating the models and methodologies used to estimate fair value of certain difficult-to-value financial instruments. Subjective auditor judgment was also required to evaluate the models’ significant inputs and/or assumptions which were not directly observable in financial markets, such as certain interest rates, recovery rates, issuer credit risk, correlations and volatility inputs.

The following are the primary procedures we performed to address the critical audit matter. We evaluated the design and tested the operating effectiveness of certain internal controls related to the critical audit matter. This included controls related to the Company’s process to measure fair value of certain difficult-to-value financial instruments, including controls over (i) the development and approval and/or reassessment of the Company´s valuation models and methodologies and (ii) the appropriateness, relevance and reliability of the significant inputs and/or assumptions used to estimate fair values for certain difficult-to-value financial instruments.

F-2

In addition, we involved valuation professionals with specialized skills and knowledge who assisted in (i) assessing the compliance of certain valuation models and methodologies with International Financial Reporting Standards as issued by the International Accounting Standards Board, (ii) testing the Company’s process to develop the fair value of certain difficult-to-value financial instruments, including evaluating whether the inputs and/or assumptions are appropriate, relevant and reliable, and/or (iii) developing an independent fair value estimate and comparing it to the Company’s fair value estimate for a sample of certain difficult-to-value financial instruments.

/s/ KPMG Auditores, S.L.

We have served as the Company’s auditor since 2017.

Madrid, Spain
February 26, 2021

F-3

Consolidated balance sheets for the years ended December 31, 2020, 2019 and 2018

ASSETS (Millions of Euros)
	Notes	2020	2019	2018
CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS	9	65,520	44,303	58,196
FINANCIAL ASSETS HELD FOR TRADING	10	108,257	101,735	89,103
Derivatives		40,183	32,232	29,523
Equity instruments		11,458	8,892	5,254
Debt securities		23,970	26,309	25,577
Loans and advances to central banks		53	535	2,163
Loans and advances to credit institutions		20,499	21,286	14,566
Loans and advances to customers		12,095	12,482	12,021
NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS	11	5,198	5,557	5,135
Equity instruments		4,133	4,327	3,095
Debt securities		356	110	237
Loans and advances to customers		709	1,120	1,803
FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	12	1,117	1,214	1,313
Debt securities		1,117	1,214	1,313
FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME	13	69,440	61,183	56,337
Equity instruments		1,100	2,420	2,595
Debt securities		68,308	58,731	53,709
Loans and advances to credit institutions		33	33	33
FINANCIAL ASSETS AT AMORTIZED COST	14	367,668	439,162	419,660
Debt securities		35,737	38,877	32,530
Loans and advances to central banks		6,209	4,275	3,941
Loans and advances to credit institutions		14,575	13,649	9,163
Loans and advances to customers		311,147	382,360	374,027
DERIVATIVES - HEDGE ACCOUNTING	15	1,991	1,729	2,892
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK	15	51	28	(21)
JOINT VENTURES AND ASSOCIATES	16	1,437	1,488	1,578
Joint ventures		149	154	173
Associates		1,288	1,334	1,405
INSURANCE AND REINSURANCE ASSETS	23	306	341	366
TANGIBLE ASSETS	17	7,823	10,068	7,229
Properties, plant and equipment		7,601	9,816	7,066
For own use		7,311	9,554	6,756
Other assets leased out under an operating lease		290	263	310
Investment properties		222	252	163
INTANGIBLE ASSETS	18	2,345	6,966	8,314
Goodwill		910	4,955	6,180
Other intangible assets		1,435	2,010	2,134
TAX ASSETS	19	16,526	17,083	18,100
Current tax assets		1,199	1,765	2,784
Deferred tax assets		15,327	15,318	15,316
OTHER ASSETS	20	2,513	3,800	5,472
Insurance contracts linked to pensions		-	-	-
Inventories		572	581	635
Other		1,941	3,220	4,837
NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE	21	85,987	3,079	2,001
TOTAL ASSETS	3, 6	736,176	697,737	675,675

The accompanying Notes are an integral part of the consolidated financial statements.

F-4

Consolidated balance sheets for the years ended December 31, 2020, 2019 and 2018

LIABILITIES AND EQUITY (Millions of Euros)
	Notes	2020	2019	2018
FINANCIAL LIABILITIES HELD FOR TRADING	10	86,488	88,680	79,761
Derivatives		41,680	34,066	30,801
Short positions		12,312	12,249	11,025
Deposits from central banks		6,277	7,635	10,511
Deposits from credit institutions		16,558	24,969	15,687
Customer deposits		9,660	9,761	11,736
Debt certificates		-	-	-
Other financial liabilities		-	-	-
FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS	12	10,050	10,010	6,993
Deposits from central banks		-	-	-
Deposits from credit institutions		-	-	-
Customer deposits		902	944	976
Debt certificates		4,531	4,656	2,858
Other financial liabilities		4,617	4,410	3,159
Memorandum item: Subordinated liabilities		-	-	-
FINANCIAL LIABILITIES AT AMORTIZED COST	22	490,606	516,641	509,185
Deposits from central banks		45,177	25,950	27,281
Deposits from credit institutions		27,629	28,751	31,978
Customer deposits		342,661	384,219	375,970
Debt certificates		61,780	63,963	61,112
Other financial liabilities		13,358	13,758	12,844
Memorandum item: Subordinated liabilities		16,488	18,018	18,047
DERIVATIVES - HEDGE ACCOUNTING	15	2,318	2,233	2,680
FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK	15	-	-	-
LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS	23	9,951	10,606	9,834
PROVISIONS	24	6,141	6,538	6,772
Pensions and other post employment defined benefit obligations		4,272	4,631	4,787
Other long term employee benefits		49	61	62
Provisions for taxes and other legal contingencies		612	677	686
Commitments and guarantees given		728	711	636
Other provisions		479	457	601
TAX LIABILITIES	19	2,355	2,808	3,276
Current tax liabilities		545	880	1,230
Deferred tax liabilities		1,809	1,928	2,046
OTHER LIABILITIES	20	2,802	3,742	4,301
LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE	21	75,446	1,554	-
TOTAL LIABILITIES		686,156	642,812	622,801

The accompanying Notes are an integral part of the consolidated financial statements.

F-5

Consolidated balance sheets for the years ended December 31, 2020, 2019 and 2018

LIABILITIES AND EQUITY (Continued) (Millions of Euros)
	Notes	2020	2019	2018
SHAREHOLDERS’ FUNDS		58,904	58,950	57,333
Capital	26	3,267	3,267	3,267
Paid up capital		3,267	3,267	3,267
Unpaid capital which has been called up		-	-	-
Share premium	27	23,992	23,992	23,992
Equity instruments issued other than capital		-	-	-
Other equity		42	56	50
Retained earnings	28	30,508	29,388	26,063
Revaluation reserves	28	-	-	3
Other reserves	28	(164)	(119)	(37)
Reserves or accumulated losses of investments in joint ventures and associates		(164)	(119)	(37)
Other		-	-	-
Less: treasury shares	29	(46)	(62)	(296)
Profit or loss attributable to owners of the parent		1,305	3,512	5,400
Less: interim dividends		-	(1,084)	(1,109)
ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS)	30	(14,356)	(10,226)	(10,223)
Items that will not be reclassified to profit or loss		(2,815)	(1,875)	(1,284)
Actuarial gains (losses) on defined benefit pension plans		(1,474)	(1,498)	(1,245)
Non-current assets and disposal groups classified as held for sale		(65)	3	-
Share of other recognized income and expense of investments joint ventures and associates		-	-	-
Fair value changes of equity instruments measured at fair value through other comprehensive income		(1,256)	(404)	(155)
Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income		-	-	-
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item)		-	-	-
Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument)		-	-	-
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk		(21)	24	116
Items that may be reclassified to profit or loss		(11,541)	(8,351)	(8,939)
Hedge of net investments in foreign operations (effective portion)		(62)	(896)	(218)
Foreign currency translation		(14,185)	(9,147)	(9,630)
Hedging derivatives. Cash flow hedges (effective portion)		10	(44)	(6)
Fair value changes of debt instruments measured at fair value through other comprehensive income		2,069	1,760	943
Hedging instruments (non-designated items)		-	-	-
Non-current assets and disposal groups classified as held for sale		644	(18)	1
Share of other recognized income and expense of investments in joint ventures and associates		(17)	(5)	(29)
MINORITY INTERESTS (NON-CONTROLLING INTERESTS)	31	5,471	6,201	5,764
Accumulated other comprehensive income (loss)		(6,949)	(5,572)	(5,290)
Other items		12,421	11,773	11,053
TOTAL EQUITY		50,020	54,925	52,874
TOTAL EQUITY AND TOTAL LIABILITIES		736,176	697,737	675,675
MEMORANDUM ITEM (OFF-BALANCE SHEET EXPOSURES) (Millions of Euros)
	Notes	2020	2019	2018
Loan commitments given	33	132,584	130,923	118,959
Financial guarantees given	33	10,665	10,984	16,454
Other commitments given	33	36,190	39,209	35,098

The accompanying Notes are an integral part of the consolidated financial statements.

F-6

Consolidated income statements for the years ended December 31, 2020, 2019 and 2018

CONSOLIDATED INCOME STATEMENTS (Millions of Euros)
	Notes	2020	2019 (*)	2018 (*)
Interest and other income	37.1	22,389	27,762	26,954
Interest expense	37.2	(7,797)	(11,972)	(11,669)
NET INTEREST INCOME		14,592	15,789	15,285
Dividend income	38	137	153	145
Share of profit or loss of entities accounted for using the equity method	39	(39)	(42)	(7)
Fee and commission income	40	5,980	6,786	6,462
Fee and commission expense	40	(1,857)	(2,284)	(2,059)
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net	41	139	186	191
Gains (losses) on financial assets and liabilities held for trading, net	41	777	419	640
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net	41	208	143	96
Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net	41	56	(98)	139
Gains (losses) from hedge accounting, net	41	7	55	69
Exchange differences, net	41	359	581	13
Other operating income	42	492	639	929
Other operating expense	42	(1,662)	(1,943)	(2,021)
Income from insurance and reinsurance contracts	43	2,497	2,890	2,949
Expense from insurance and reinsurance contracts	43	(1,520)	(1,751)	(1,894)
GROSS INCOME		20,166	21,522	20,936
Administration costs		(7,799)	(8,769)	(9,020)
Personnel expense	44.1	(4,695)	(5,351)	(5,205)
Other administrative expense	44.2	(3,105)	(3,418)	(3,816)
Depreciation and amortization	45	(1,288)	(1,386)	(1,034)
Provisions or reversal of provisions	46	(746)	(614)	(395)
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification	47	(5,179)	(3,552)	(3,681)
Financial assets measured at amortized cost		(5,160)	(3,470)	(3,680)
Financial assets at fair value through other comprehensive income		(19)	(82)	(1)
NET OPERATING INCOME		5,153	7,202	6,807
Impairment or reversal of impairment of investments in joint ventures and associates	48	(190)	(46)	-
Impairment or reversal of impairment on non-financial assets	49	(153)	(128)	(137)
Tangible assets		(125)	(94)	(4)
Intangible assets		(19)	(12)	(83)
Other assets		(9)	(23)	(50)
Gains (losses) on derecognition of non-financial assets and subsidiaries, net		(7)	(5)	80
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	50	444	23	815
PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS		5,248	7,046	7,565
Tax expense or income related to profit or loss from continuing operations	19	(1,459)	(1,943)	(2,042)
PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS		3,789	5,103	5,523
Profit (loss) after tax from discontinued operations	21	(1,729)	(758)	704
PROFIT FOR THE YEAR		2,060	4,345	6,227
ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS)	31	756	833	827
ATTRIBUTABLE TO OWNERS OF THE PARENT		1,305	3,512	5,400
(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).
	Notes	2020	2019 (*)	2018 (*)
EARNINGS PER SHARE (Euros)	5	0.14	0.47	0.75
Basic earnings (losses) per share from continued operations		0.40	0.58	0.64
Diluted earnings (losses) per share from continued operations		0.40	0.58	0.64
Basic earnings (losses) per share from discontinued operations		(0.26)	(0.11)	0.11
Diluted earnings (losses) per share from discontinued operations		(0.26)	(0.11)	0.11

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

The accompanying Notes are an integral part of the consolidated financial statements.

F-7

Consolidated statements of recognized income and expense for the years ended December 31, 2020, 2019 and 2018

CONSOLIDATED STATEMENTS OF RECOGNIZED INCOME AND EXPENSE (Millions of Euros)
	2020	2019 (*)	2018 (*)
PROFIT RECOGNIZED IN INCOME STATEMENT	2,060	4,345	6,227
OTHER RECOGNIZED INCOME (EXPENSE)	(5,375)	(286)	(2,605)
ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT	(822)	(584)	(141)
Actuarial gains (losses) from defined benefit pension plans	(88)	(364)	(79)
Non-current assets and disposal groups held for sale	17	2	-
Share of other recognized income and expense of entities accounted for using the equity method	-	-	-
Fair value changes of equity instruments measured at fair value through other comprehensive income, net	(796)	(229)	(172)
Gains (losses) from hedge accounting of equity instruments at fair value through other comprehensive income, net	-	-	-
Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk	4	(133)	166
Income tax related to items not subject to reclassification to income statement	40	140	(56)
ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT	(4,553)	298	(2,464)
Hedge of net investments in foreign operations (effective portion)	378	(687)	(244)
Valuation gains (losses) taken to equity	378	(687)	(244)
Transferred to profit or loss	-	-	-
Other reclassifications	-	-	-
Foreign currency translation	(4,873)	(104)	(2,186)
Translation gains (losses) taken to equity	(4,873)	(123)	(2,191)
Transferred to profit or loss	-	1	5
Other reclassifications	-	18	-
Cash flow hedges (effective portion)	230	(203)	(10)
Valuation gains (losses) taken to equity	230	(193)	(69)
Transferred to profit or loss	-	(10)	58
Transferred to initial carrying amount of hedged items	-	-	-
Other reclassifications	-	-	-
Debt securities at fair value through other comprehensive income	460	1,131	(860)
Valuation gains (losses) taken to equity	515	1,280	(725)
Transferred to profit or loss	(54)	(149)	(135)
Other reclassifications	-	-	-
Non-current assets and disposal groups held for sale	(492)	461	581
Valuation gains (losses) taken to equity	(472)	472	561
Transferred to profit or loss	(20)	-	20
Other reclassifications	-	(11)	-
Entities accounted for using the equity method	(13)	31	11
Income tax relating to items subject to reclassification to income statements	(243)	(332)	244
TOTAL RECOGNIZED INCOME/EXPENSE	(3,315)	4,060	3,622
Attributable to minority interest (non-controlling interests)	(606)	552	(443)
Attributable to the parent company	(2,709)	3,509	4,065

(*) Restated due to the sale of the stake in BBVA USA (see Notes 3 and 21).

The accompanying Notes are an integral part of the consolidated financial statements.

F-8

Consolidated statements of changes in equity for the years ended December 31, 2020, 2019 and 2018

CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)
	Capital (Note 26)	Share Premium (Note 27)	Equity instruments issued other than capital	Other Equity	Retained earnings (Note 28)	Revaluation reserves  (Note 28)	Other reserves (Note 28)	(-) Treasury shares (Note 29)	Profit or loss attributable to owners of the parent	(-) Interim dividends (Note 4)	Accumulated other comprehensive income (loss) (Note 30)	Non-controlling interest		Total
2020												Accumulated other comprehensive income (loss) (Note 31)	Other (Note 31)
Balances as of January 1, 2020 (*)	3,267	23,992	-	56	26,402	-	(125)	(62)	3,512	(1,084)	(7,235)	(3,526)	9,727	54,925
Effect of changes in accounting policies ( Note 1.3)	-	-	-	-	2,985	-	6	-	-	-	(2,992)	(2,045)	2,045	-
Adjusted initial balance	3,267	23,992	-	56	29,388	-	(119)	(62)	3,512	(1,084)	(10,226)	(5,572)	11,773	54,925
Total income/expense recognized	-	-	-	-	-	-	-	-	1,305	-	(4,013)	(1,362)	756	(3,315)
Other changes in equity	-	-	-	(14)	1,120	-	(45)	16	(3,512)	1,084	(116)	(16)	(107)	(1,590)
Issuances of common shares	-	-	-	-	-	-	-	-	-