Financial statements 2016
The environment of pressure on margins and excess liquidity remains unchanged.
Slight slowdown in lending, but a slowdown in the rate of decline in customer deposits.
Further improvement of results in the fourth-quarter, thanks to good management of market volatility
(Year-on-year change at constant exchange rates. Data as of 31-12-2016)
(Million euros at constant exchange rates)
(Percentage as of 31-12-2016)
(Percentage. Constant exchange rate)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
Risk aversion has declined on the financial markets following the elections in the United States, setting aside the ongoing political uncertainties still in place in Europe. Stock markets in the United States again posted record highs while the dollar gained value, which helped the bullish trend on European markets to gain traction. This behavior seems to be pricing in the potential positive economic effects of ramped up fiscal stimuli in the United States, together with stabilizing oil prices. Sovereign bond yields remain on the rise in nearly all countries, led by the United States, where they have been supported by rising inflation expectations and faster growth, together with prospects of a tighter monetary policy. In fact, the market has already priced in four 25-basis point interest-rate hikes in the United States over 2017 and 2018. Furthermore, the ECB also announced plans to scale back the pace of sovereign bond purchases.
All the comments below on rates of change, for both activity and earnings, will be given at constant exchange rate, unless expressly stated otherwise. These rates, together with changes at the current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.
The market context remains unchanged, with margins being squeezed (negative interest rates in Europe) and excess liquidity. In this situation, gross lending to customers ended the year slightly below last year’s level (down 1.2%). There was significant double-digit growth in Mexico, contrasting with declines in Europe and Asia.
The NPL ratio improved in the last quarter of the year. As of 31-Dec-2016 it stood at 1.0%, while the coverage ratio closed the year at 79% (1.4% and 83% respectively on 31-Sep-2016, and 1.4% and 86% on 31-Dec-2015).
There was a slowdown in the fall in customer deposits under management, which had been declining over the first nine months of 2016. At year-end these stood 5.3% lower than at the close of 2015, shaped by the performance in the United States (down 22.7%), Eurasia (down 16.3%) and Mexico (down 8.1%). This contrasts with significant growth in Spain (up 9.4%).
(Million euros and percentage)
| Income statement | 2016 | ∆% | ∆% (1) | 2015 |
|---|---|---|---|---|
| Net interest income | 1,283 | (12.2) | (5.7) | 1,463 |
| Net fees and commissions | 620 | (7.5) | (1.6) | 670 |
| Net trading income | 660 | 7.3 | 20.9 | 615 |
| Other income/expenses | 117 | 21.5 | 14.9 | 96 |
| Gross income | 2,680 | (5.7) | 1.6 | 2,844 |
| Operating expenses | (1,020) | 2.4 | 6.1 | (996) |
| Personnel expenses | (529) | 3.4 | 6.5 | (512) |
| General and administrative expenses | (391) | (2.6) | 1.8 | (402) |
| Depreciation | (100) | 20.0 | 23.1 | (83) |
| Operating income | 1,660 | (10.1) | (1.0) | 1,847 |
| Impairment on financial assets (net) | (231) | 85.5 | 90.0 | (125) |
| Provisions (net) and other gains (losses) | (65) | n.m. | n.m. | (9) |
| Income before tax | 1,364 | (20.4) | (11.8) | 1,713 |
| Income tax | (391) | (22.1) | (12.8) | (502) |
| Net income | 973 | (19.7) | (11.4) | 1,211 |
| Non-controlling interests | (112) | (23.0) | (6.6) | (145) |
| Net attributable profit | 861 | (19.2) | (11.9) | 1,066 |
| Major balance sheet items | 31-12-16 | ∆% | ∆% (1) | 31-12-15 |
|---|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 30,302 | (1.2) | 0.6 | 30,664 |
| Financial assets | 82,666 | (8.5) | (7.1) | 90,367 |
| Loans and advances to customers | 58,386 | 0.8 | 1.7 | 57,944 |
| Inter-area positions | - | - | - | - |
| Tangible assets | 35 | (22.0) | (16.0) | 45 |
| Other assets | 2,492 | (35.0) | (36.1) | 3,837 |
| Off-balance sheet funds | 173,882 | (4.9) | (3.6) | 182,856 |
| Deposits from central banks and credit institutions | 43,705 | (19.6) | (17.1) | 54,362 |
| Deposits from customers | 47,765 | (9.6) | (8.3) | 52,851 |
| Debt certificates | (26) | (28.9) | (36.0) | (36) |
| Subordinated liabilities | 2,264 | 9.1 | 19.7 | 2,075 |
| Inter-area positions | 17,504 | 83.0 | 78.0 | 9,568 |
| Financial liabilities held for trading | 54,782 | (0.9) | (1.1) | 55,274 |
| Other liabilities | 3,813 | (9.4) | (7.2) | 4,207 |
| Economic capital allocated | 4,074 | (10.6) | (8.3) | 4,557 |
| Relevant business indicators | 31-12-16 | ∆% | ∆% (1) | 31-12-15 |
|---|---|---|---|---|
| Loans and advances to customers (gross) (2) | 53,118 | (2.1) | (1.2) | 54,281 |
| Customer deposits under management (2) | 40,545 | (6.7) | (5.3) | 43,478 |
| Off-balance sheet funds (3) | 1,157 | 6.7 | 8.9 | 1,084 |
| Efficiency ratio (% | 38.1 | 35.0 | ||
| NPL ratio (%) | 1.0 | 1.4 | ||
| NPL coverage ratio (%)) | 79 | 86 | ||
| Cost of risk (%)) | 0.12 | 0.21 |
CIB posted a cumulative net attributable profit at the close of 2016 of €861m, of which €116m were in the first quarter, €206m in the second, €236m in the third and €304m in the fourth, making the latter the best quarter of the year under this heading. The most significant aspects of the CIB income statement are as follows:
Gross income in the fourth quarter was higher than the previous quarter (up 14.0%), due to good management of market volatility by the Global Markets teams. In year-on-year terms, the cumulative amount in 2016 is 1.6% higher than in the previous year, despite low market activity, with little new production in the purely banking business and a lack of one-off transactions, particularly in Europe.
One of the actions taken by the CIB to address this market reality was the Deep Blue plan, which has had very positive results since its launch. This cross-cutting initiative is designed to involve several CIB teams in visits to clients (more than 60 visits in Europe, the United States and Latin America) to offer them the solutions that best fit their needs. Underwriting instructions worth €40.000m have been submitted as a result of this plan, which are being monitored on a recurrent basis.
The Global Markets unit posted an outstanding performance, particularly in the fourth quarter of 2016, generating gross income that was 35.8% higher than in the third quarter, thanks to good management of market volatility, particularly in the United States and Mexico following the United States elections and interest rate hikes in both geographic areas. In cumulative terms, gross income from the unit has risen by 4.0% in the last twelve months.
As regards Corporate Finance, the final part of the year has been marked by low levels of activity in the Spanish primary market and political uncertainty in Mexico. During the fourth quarter the unit continued its busy marketing efforts, which have seen it win two mandates to manage IPOs for corporate clients in Spain (planned for the first quarter 2017). As for mergers & acquisitions (M&A) activity, during the fourth quarter the pipeline of operations continued to grow, largely driven by interest in countries such as Spain and Mexico. BBVA was one of the busiest M&A consultants in Spain in 2016, according to the rankings prepared by Thomson Reuters, Mergermarket, Dealogic and Bloomberg.
Cumulative operating expenses were up 6.1% against 2015, chiefly due to technology costs associated with investment plans.
Lastly, significant provisions were made during the year for impairment losses on financial assets, mainly because of the rating downgrades (particularly in the first quarter of 2016) affecting some companies in the United States operating in the energy (exploration & production) and metals & mining (basic materials) sectors. This is the main reason for the increase in this heading over the last twelve months.
Presented below is the reconciliation between the consolidated income statement and the management income statement, which is shown throughout this management report for the year 2015. The main difference between both is the method used for integrating Garanti’s earnings. In the management income statement, the Group’s earnings were presented by consolidating Garanti in the proportion corresponding to the percentage held by BBVA Group in the Turkish bank until the first half of 2015 (25,01%), versus the integration using the equity method in the consolidated income statement. The “results from corporate operations” heading in the management income statement for the year 2015 includes the capital gains from the various sale operations equivalent to 6.34% of BBVA Group’s stake in CNCB, the badwill from the CX operation, the effect of the valuation at fair value of the 25,01% initial stake held by BBVA in Garanti and the impact of the sale of BBVA’s 29.68% stake in CIFH. In the consolidated income statement, these earnings are included under profit from continuing operations.
(Million euros)
| Adjustments | ||||||
|---|---|---|---|---|---|---|
| Consolidated income statements | Garanti integrated proportionally | Garanti by the equity method | Corporate operations (1) | Management income statements | ||
| Interest and similar income | 24,783 | 1,062 | 25,845 | Financial income | ||
| GInterest and similar expenses | (8,761) | (658) | (9,419) | Financial expenses | ||
| Net interest income | 16,022 | 404 | 16,426 | Net interest income | ||
| Dividend income | 415 | 415 | Dividend income | |||
| Share of profit or loss of entities accounted for using the equity method | 174 | 1 | (167) | 8 | Share of profit or loss of entities accounted for using the equity method | |
| Fee and commission income | 6,340 | |||||
| Fee and commission expenses | (1,729) | |||||
| 4,611 | 94 | 4,705 | Net fees and commissions | |||
| Gains or (-) losses on financial assets and liabilities designated at fair value through profit or loss, net | (409) | |||||
| Gains or (-) losses on financial assets and liabilities held for trading, net | 126 | |||||
| Gains or (-) losses on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 1,055 | |||||
| Gains or losses from hedge accounting, net | 93 | |||||
| Exchange differences (net) | 1,165 | |||||
| 2,030 | (21) | 2,009 | Net trading income | |||
| Other operating income and expenses | (970) | |||||
| Income on insurance and reinsurance contracts | 1,079 | |||||
| 109 | 8 | 117 | Other operating income and expenses | |||
| Gross income | 23,362 | 485 | (167) | 23,680 | Gross income | |
| Administration expenses | (10,836) | (12,317) | Operating expenses | |||
| Personnel expenses | (6,273) | (104) | (6,377) | Personnel expenses | ||
| Other general and administrative expenses | (4,563) | (87) | (4,650) | General and administrative expenses | ||
| Depreciation | (1,272) | (18) | (1,290) | Depreciation | ||
| 11,254 | 276 | (167) | 11,363 | Operating income | ||
| Provisions or reversal of provisions | (731) | (2) | (733) | Provisions (net) | ||
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss | (4,272) | (67) | (4,339) | Impairment on financial assets (net) | ||
| Net operating income | 6,251 | 40 | 6,291 | |||
| Impairment or reversal of impairment on non-financial assets | (273) | |||||
| Gains (losses) on derecognized assets not classified as non-current assets held for sale | (2,135) | |||||
| Negative goodwill recognised in profit or loss | 26 | |||||
| Profit or (-) loss from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 734 | |||||
| (1,648) | 2 | 1,234 | (412) | Other gains (losses) | ||
| Profit from continuing operations | 4,603 | 5,879 | Income before tax | |||
| Tax expense or income related to profit or loss from continuing operation | (1,274) | (43) | (124) | (1,441) | Income tax | |
| Profit from continuing operations | 3,328 | 1,109 | 4,438 | Net income from ongoing operations | ||
| Profit from discontinued operations (net) | - | - | Net income from discontinued operations | |||
| (1,109) | Results from corporate operations (1) | |||||
| Profit | 3,328 | 3,328 | Net income | |||
| Attributable to minority interest (non-controlling interests) | (686) | (686) | Non-controlling interests | |||
| Attributable to owners of the parent | 2,642 | 2,642 | Net attributable profit | |||