Financial statements 2016
This section presents and analyzes the most relevant aspects of the Group’s different business areas. Specifically, it shows a summary of the income statement and balance sheet, the business activity figures and the most significant ratios in each of them.
In 2016 the reporting structure of BBVA Group’s business areas remains basically the same as in 2015:
Banking activity in Spain includes, as in previous years, the Retail Network in Spain, Corporate and Business Banking (CBB), Corporate & Investment Banking (CIB), BBVA Seguros and Asset Management units in Spain. It also includes the portfolios, finance and structural interest-rate positions of the euro balance sheet.
Real-estate activity in Spain covers specialist management of real-estate assets in the country (excluding buildings for own use), including: foreclosed real-estate assets from residential mortgages and developers; as well as lending to developers.
The United States includes the Group’s business activity in the country through the BBVA Compass group and the BBVA New York branch.
Turkey includes the activity of the Garanti Group. BBVA’s stake in Garanti (39.9% since the third quarter of 2015) has been incorporated into the Group’s financial statements since then by the full integration method. The above has had an impact on the year-on-year rates of change in the earnings of this area due to the change in the scope of consolidation. In order to make the comparison against 2015 easier, rates of change are shown by taking into account the stake in Garanti on an equivalent basis, i.e. including the stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015 (Turkey in comparable terms).
Mexico includes all the banking, real-estate and insurance businesses carried out by the Group in the country.
South America basically includes BBVA’s banking and insurance businesses in the region.
The rest of Eurasia includes business activity in the rest of Europe and Asia, i.e. the Group’s retail and wholesale businesses in the area.
In addition to the above, all the areas include a remainder made up basically of other businesses and a supplement that includes deletions and allocations not assigned to the units making up the above areas.
Lastly, the Corporate Center is an aggregate that contains the rest of the items that have not been allocated to the business areas, as it basically corresponds to the Group’s holding function. It includes: the costs of the head offices that have a corporate function; management of structural exchange-rate positions; specific issues of equity instruments to ensure adequate management of the Group’s global solvency; portfolios and their corresponding results, whose management is not linked to customer relations, such as industrial holdings; certain tax assets and liabilities; funds due to commitments with employees; goodwill and other intangibles. It also comprises the result from certain corporate operations carried out by the Group in 2015.
In addition to this geographical breakdown, supplementary information is provided for all the wholesale businesses carried out by BBVA, i.e. Corporate & Investment Banking (CIB), in all the geographical areas where it operates. This aggregate business is considered relevant to better understand the Group because of the characteristics of the customers served, the type of products offered and the risks assumed.
Lastly, as usual, in the case of the Americas, Turkey and CIB areas, the results of applying constant exchange rates are given in addition to the year-on-year variations at current exchange rates.
The information by areas is based on units at the lowest level and/or companies making up the Group, which are assigned to the different areas according to the geographical area in which they carry out their activity.
(Million euros)
| Business areas | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| BBVA Group (1) | Banking activity in Spain | Real-estate activity in Spain | The United States | Turkey (1) | Mexico | South America | Rest of Eurasia | Σ Business areas | Corporate Center | |
| 2016 | ||||||||||
| Net interest income | 17,059 | 3,883 | 60 | 1,953 | 3,404 | 5,126 | 2,930 | 166 | 17,521 | (461) |
| Gross income | 24,653 | 6,445 | (6) | 2,706 | 4,257 | 6,766 | 4,054 | 491 | 24,713 | (60) |
| Operating income | 11,862 | 2,846 | (130) | 863 | 2,519 | 4,371 | 2,160 | 149 | 12,778 | (916) |
| Income before tax | 6,392 | 1,278 | (743) | 612 | 1,906 | 2,678 | 1,552 | 203 | 7,486 | (1,094) |
| Net attributable profit | 3,475 | 912 | (595) | 459 | 599 | 1,980 | 771 | 151 | 4,276 | (801) |
| 2015 | ||||||||||
| Net interest income | 16,426 | 4,001 | 71 | 1,811 | 2,194 | 5,387 | 3,202 | 183 | 16,850 | (424) |
| Gross income | 23,680 | 6,804 | (28) | 2,631 | 2,434 | 7,081 | 4,477 | 473 | 23,872 | (192) |
| Operating income | 11,363 | 3,358 | (154) | 825 | 1,273 | 4,459 | 2,498 | 121 | 12,380 | (1,017) |
| Income before tax | 5,879 | 1,548 | (716) | 685 | 853 | 2,772 | 1,814 | 111 | 7,066 | (1,187) |
| Net attributable profit | 2,642 | 1,085 | (496) | 517 | 371 | 2,094 | 905 | 75 | 4,552 | (1,910) |
(2016. Percentage)
| Banking activity in Spain | Spain (2) | The United States | Turkey | Mexico | South America | Rest of Eurasia | |
|---|---|---|---|---|---|---|---|
| Gross income | 26.1 | 26.1 | 10.9 | 17.2 | 27.4 | 16.4 | 2.0 |
| Operating income | 22.3 | 21.3 | 6.8 | 19.7 | 34.2 | 16.9 | 1.2 |
| Net attributable profit | 21.3 | 7.4 | 10.7 | 14.0 | 46.3 | 18.0 | 3.5 |
(Million euros)
| Business areas | ||||||||||
|---|---|---|---|---|---|---|---|---|---|---|
| BBVA Group | Banking activity in Spain | Real-estate activity in Spain | The United States | Turkey | Mexico | South America | Rest of Eurasia | Σ Business areas | Corporate Center | |
| 31-12-16 | ||||||||||
| Loans and advances to customers | 414,500 | 181,243 | 5,946 | 61,159 | 55,612 | 46,474 | 48,718 | 15,199 | 414,350 | 150 |
| Deposits from customers | 401,465 | 177,149 | 24 | 65,760 | 47,244 | 50,571 | 47,921 | 12,796 | 401,465 | - |
| Off-balance sheet funds | 91,287 | 56,147 | 8 | - | 3,753 | 19,111 | 11,902 | 366 | 91,287 | - |
| Risk-weighted assets | 388,760 | 113,048 | 10,988 | 65,445 | 70,337 | 47,881 | 57,394 | 15,196 | 380,289 | 8,471 |
| 31-12-15 | ||||||||||
| Loans and advances to customers | 414,165 | 184,115 | 8,228 | 59,796 | 55,182 | 47,534 | 43,596 | 15,579 | 414,028 | 137 |
| Deposits from customers | 403,362 | 185,484 | 131 | 63,715 | 47,199 | 49,553 | 42,227 | 15,053 | 403,362 | - |
| Off-balance sheet funds | 89,748 | 54,504 | 6 | 0 | 3,620 | 21,557 | 9,729 | 331 | 89,748 | - |
| Risk-weighted assets | 401,277 | 121,889 | 14,606 | 60,092 | 73,207 | 50,330 | 56,563 | 15,356 | 392,043 | 9,234 |
Once the composition of each business area has been defined, certain management criteria are applied, of which the following are particularly important:
Risk adjusted return. Calculation of risk adjusted return per transaction, customer, product, segment, unit and/or business area is sustained on ERC, which is based on the concept of unexpected loss at a specific confidence level, depending on the Group’s capital adequacy targets. The calculation of the ERC combines credit risk, market risk, structural balance-sheet risk, equity positions, operational risk, fixed-asset risk and technical risks in the case of insurance companies. These calculations are carried out using internal models that have been defined following the guidelines and requirements established under the Basel III capital accord.
Internal transfer prices. BBVA Group has a transfer prices system whose general principles apply in the Bank’s different entities, business areas and units. Within each geographical area, internal transfer rates are established to calculate the net interest income of its businesses, under both the asset and liability headings. These rates consist of a reference rate (an index whose use is generally accepted on the market) that is applied based on the transaction’s revision period or maturity, and a liquidity premium, i.e. a spread that is established based on the conditions and outlook of the financial markets. Additionally, there are agreements for the allocation of earnings between the product-generating units and the distribution units.
Allocation of operating expenses. Both direct and indirect costs are allocated to the business areas, except where there is no clearly defined relationship with the businesses, i.e. when they are of a clearly corporate or institutional nature for the Group as a whole.
Cross-selling. In some cases, adjustments are required to eliminate shadow accounting entries that are registered in the earnings of two or more units as a result of cross-selling incentives.
(Quarterly averages. Percentage)
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | |
| Official ECB rate | 0.00 | 0.00 | 0.00 | 0.04 | 0.05 | 0.05 | 0.05 | 0.05 |
| Euribor 3 months | (0.31) | (0.30) | (0.26) | (0.19) | (0.09) | (0.03) | (0.01) | 0.05 |
| Euribor 1 year | (0.07) | (0.05) | (0.02) | 0.01 | 0.09 | 0.16 | 0.17 | 0.25 |
| USA Federal rates | 0.55 | 0.50 | 0.50 | 0.50 | 0.33 | 0.25 | 0.25 | 0.25 |
| TIIE (Mexico) | 5.45 | 4.60 | 4.08 | 3.80 | 3.35 | 3.32 | 3.30 | 3.30 |
| CBRT (Turkey) | 7.98 | 7.99 | 8.50 | 8.98 | 8.78 | 8.66 | 8.26 | 7.99 |
(Expressed in currency/euro)
| Year-end exchange rates | Average exchange rates | ||||
|---|---|---|---|---|---|
| 31-12-16 | Δ% on 31-12-15 | Δ% on 30-09-16 | 2016 | Δ% on 2015 | |
| Mexican peso | 21.7718 | (13.1) | (12.8) | 20.6637 | (14.8) |
| U.S. dollar | 1.0541 | 3.3 | 6.3 | 1.1069 | 0.2 |
| Argentine peso | 16.5846 | (14.8) | (36.4) | 16.3348 | (37.2) |
| Chilean peso | 703.23 | 9.5 | 12.2 | 748.50 | (3.0) |
| Colombian peso | 3,164.56 | 8.2 | 10.5 | 3,378.38 | (9.8) |
| Peruvian sol | 3.5310 | 5.0 | 2.1 | 3.7333 | (5.4) |
| Venezuelan bolivar | 1,893.94 | (75.2) | (88.2) | 1,893.94 | (75.2) |
| Turkish lira | 3.7072 | (14.3) | (8.5) | 3.3427 | (9.5) |
Decline in lending, but good performance of the more liquid deposits and off-balance sheet funds.
Earnings affected by the allocation of a provision related to the so called “mortgage floor clauses”.
Revenues impacted by the current interest-rate environment and lower activity in the markets.
Positive figures for operating expenses and impairment losses on financial assets.
Risk indicators continue to improve.
(Year-on-year change. Data as of 31-12-2016)
(Million euros)
(Percentage as of 31-12-2016)
(Percentage)
(Million euros)
(Percentage as of 31-12-2016)
The Spanish economy grew by 0.7% in the third quarter of 2016, maintaining the stabilization in growth at a year-on-year rate of 3.2%. Domestic demand continues to be solid.
The family and corporate deleveraging process continues in the financial system, although at a slower pace than in previous years. According to data as of October 2016, total domestic private-sector loans fell by 4.8% in year-on-year terms. Nevertheless, the trend for growth in new loan operations to families and SMEs starting in January 2014 continues, and the amount increased by 5.2% on November 2015. However, the total amount of new operations fell by 13.3% between January and November 2016, due to the fall in new loans to large companies. The asset quality indicators in the system continue to improve. The NPL ratio in the sector stood at 9.3% in October, 0,85 percentage points below the figure at the close of 2015, due to the significant reduction in non-performing loans (down 16.3% year-on-year and 40% since the high in December 2013). The environment of all-time low interest rates continues to put pressure on profitability in the system, with a ROE of 4.8% as of September 2016. Finally, use of Eurosystem liquidity by Spanish entities is relatively stable: €135,987m as of November 2016, practically the same figure as one year earlier.
Gross customer lending has declined, in year-on-year terms, by 3.7%, closely linked to the reduction in the mortgage and public-sector portfolios and the balance of non-performing loans. However, it should be noted that new loan production has been positive over the year, showing year-on-year growth of 5.5% in mortgages (a rise not sufficient to increase stock, which is still declining at rates similar to previous quarters, down 4.0% year-on-year) and 36.2% in consumer finance (a portfolio whose final volume has grown by 18.0% as of 31-Dec-2016).
As regards asset quality, the reduction in the NPL ratio continues: down 12 basis points over the last quarter and 86 basis points in the last twelve months. The coverage ratio closed the year above 53%.
Customer deposits under management have grown by 2.5% in year-on-year terms in 2016, largely due to the good performance of current and savings accounts (up 21.8%). Time deposit balances have declined by 14.4% as a result of the reduced remuneration in this kind of deposits.
Finally, off-balance sheet funds have grown by 3.0% year-on-year, most notably in the fourth quarter (up 2.6% on the previous quarter). Mutual funds grew by 3.7% and pensions funds by 2.4%.
(Million euros and percentage)
| Income statement | 2016 | ∆% | 2015 |
|---|---|---|---|
| Net interest income | 3,883 | (2.9) | 4,001 |
| Net fees and commissions | 1,500 | (6.5) | 1,605 |
| Net trading income | 787 | (22.3) | 1,013 |
| Other income/expenses | 275 | 48.6 | 185 |
| Gross income | 6,445 | (5.3) | 6,804 |
| Operating expenses | (3,599) | 4.4 | (3,446) |
| Personnel expenses | (2,011) | 5.5 | (1,907) |
| Other administrative expenses | (1,268) | 8.4 | (1,170) |
| Depreciation | (319) | (13.3) | (368) |
| Operating income | 2,846 | (15.2) | 3,358 |
| Impairment on financial assets (net) | (763) | (42.7) | (1,332) |
| Provisions (net) and other gains (losses) | (805) | 68.6 | (478) |
| Income before tax | 1,278 | (17.5) | 1,548 |
| Income tax | (363) | (20.4) | (456) |
| Net income | 915 | (16.2) | 1,092 |
| Non-controlling interests | (3) | (52.9) | (6) |
| Net attributable profit | 912 | (16.0) | 1,085 |
| Major balance sheet items | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 45,590 | 32.9 | 34,298 |
| Financial assets | 100,394 | (14.7) | 117,631 |
| Loans and advances to customers | 181,243 | (1.6) | 184,115 |
| Inter-area positions | 1,996 | 188.3 | 692 |
| Tangible assets | 788 | 12.2 | 702 |
| Other assets | 2,632 | 12.6 | 2,338 |
| Total assets/liabilities and equity | 332,642 | (2.1) | 339,775 |
| Deposits from central banks and credit institutions | 66,029 | 11.1 | 59,456 |
| Deposits from customers | 177,149 | (4.5) | 185,484 |
| Debt certificates | 35,980 | (13.1) | 41,422 |
| Subordinated liabilities | 2,365 | 0.8 | 2,347 |
| Inter-area positions | - | - | - |
| Financial liabilities held for trading | 39,829 | (0.3) | 39,955 |
| Other liabilities | 1,881 | 1.4 | 1,854 |
| Economic capital allocated | 9,409 | 1.6 | 9,259 |
| Relevant business indicators | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Loans and advances to customers (gross) (1) | 180,707 | (3.7) | 187,719 |
| Customer deposits under management (1) | 171,210 | 2.5 | 167,026 |
| Off-balance sheet funds (2) | 56,147 | 3.0 | 54,504 |
| Risk-weighted assets | 113,048 | (7.3) | 121,889 |
| Efficiency ratio (%) | 55.8 | 50.6 | |
| NPL ratio (%) | 5.8 | 6.6 | |
| NPL coverage ratio (%) | 53 | 59 | |
| Cost of risk (%) | 0.32 | 0.71 |
Earnings in the area are affected by the recognition of the provision to cover the possible future claims that customers could file related to the judgment by the CJEU on “mortgage floor clauses” in loans with consumers. Apart from this, the most relevant aspects of the account in 2016 are:
The decline in yield on loans is still not offset by cheaper funding, whether retail (reduced cost of deposits) or wholesale. The above, combined with lower volume of loans, explains the year-on-year decrease of 2.9% in cumulative net interest income for 2016, despite the fact that it grew slightly in the last quarter (up 0.3%).
In a complex environment such as that of 2016, income from fees and commissions declined by 6.5%. This fall is closely linked to market movements and reduced activity in securities and investment banking.
The contribution of NTI is lower than in 2015, due mainly to lower sales of ALCO portfolios. The Global Markets unit has performed particularly well, above all in the last quarter of the year. As a result, the year-on-year decline in this heading is below that in the cumulative figure through the third quarter of 2016.
Other income/expenses have grown by 48.6% year-on-year, partly due to the positive performance of income from insurance activities in the last twelve months and a reduced annual contribution to the Single Resolution Fund (–€117m before tax) booked in the second quarter of the year compared with the 2015 figure (in 2015 it was booked in the fourth quarter). The contribution to the Deposit Guarantee Fund in the fourth quarter is in line with that made in the same period last year.
Operating expenses have fallen in the fourth quarter by 2.4% as a result of the synergies generated by the operational integration of CX. These synergies will be consolidated and become more visible over 2017. The behavior of this line in the cumulative figure for 2016 shows a year-on-year increase of 4.4%, very closely linked to the inclusion of CX in April 2015, and related integration costs.
The continued improvement in asset quality has resulted in more limited impairment losses on financial assets (down 42.7% year-on-year). As a result, the cumulative cost of risk through December stands at 0.32%, a fall of 39 basis points on the previous year.
Provisions (net) and other gains (losses) increased in 2016 year-on-year by 68.6%, due basically to the provision of €577m before tax to cover the contingency related to the aforementioned “mortgage floor clauses” (€404m after tax). This item also includes the costs resulting from the transformation process.
As a result, the net attributable profit generated by banking activity in Spain in 2016 stands at €912m, a year-on-year reduction of 16.0%. Not including the provision for “mortgage floor clauses” mentioned above, there would have been an increase of 21.2% to €1,316m.
The growing trend in demand, prices and activity in the mortgage market continues.
Further reduction in net exposure and NPLs in the area.
Increased coverage for real-estate assets.
According to the latest available information as of November 2016 from the General Council of Spanish Notaries, a total of 408,973 homes were sold in the first eleven months of the year, a year-on-year rise of 12.9%. This performance is slightly above the BBVA Research forecast, which initially estimated a year-on-year growth in sales in 2016 of around 10%.
With respect to the latest data published by the National Institute for Statistics (INE) in the third quarter of 2016, the price of homes has grown 4.0% year-on-year. This is a similar rate to that of the previous quarter (up 3.9%), changing the moderation that began in the second quarter of 2016. Once more, the year-on-year rise in the price of new construction (up 7.3%) is far greater than that of existing homes (up 3.5%).
The mortgage market is still strong, thanks to increased sales in a context of low cost of finance, as interest rates remain at record low levels. The volume of new residential mortgage loans granted to families picked up to a year-on-year growth of 6.7% in November. Not including transactions whose conditions were renegotiated, new loans for homes in November posted a year-on-year rise of 19.3%. In the first eleven months of 2016 they grew by 21.5% on the figure for the same period in 2015.
The figures related to construction activity show the number of construction permits approved in the first ten months of the year is 33.2% up on the same period in 2015.
(Million euros)
(Million of euros as of 31-12-16)
| Risk amount | Provision | % Coverage over risk | |
|---|---|---|---|
| NPL | 5,095 | 2,888 | 57 |
| Foreclosed real-estate and other assets | 14,205 | 8,884 | 63 |
| From real-estate developers | 8,017 | 5,290 | 66 |
| From dwellings | 4,332 | 2,588 | 60 |
| Other | 1,856 | 1,006 | 54 |
| Subtotal | 19,300 | 11,772 | 61 |
| Performing | 2,835 | 56 | 2 |
| With collateral | 2,469 | 48 | 2 |
| Finished properties | 1,800 | 33 | 2 |
| Construction in progress | 427 | 6 | 1 |
| Land | 242 | 9 | 4 |
| Without collateral and other | 366 | 8 | 2 |
| Real-estate exposure | 22,135 | 11,828 | 53 |
BBVA continues with its strategy of reducing its net exposure to the real-estate sector in Spain, both in the developer segment (lending to real-estate developers plus foreclosed assets derived from those loans) and in foreclosed real-estate assets from retail mortgage loans. As of 31-Dec-2016, the amount stood at €10.307m (in accordance with the scope of transparency stipulated by Bank of Spain Circular 5/2011 dated November 30), a fall of 16.8% since December 2015. It has declined by 7.0% with respect to the figure for September 2016.
Total real-estate exposure, including outstanding loans to developers, foreclosures and other assets, reflects a coverage ratio of 53% at the close of the fourth quarter of 2016, which represents an improvement of 3,2 percentage points with respect to the figure for 31-Dec-2015, and 2,1 percentage points against the ratio for 30-Sep-2016.
Non-performing loans have fallen again in the fourth quarter and in the last twelve months, with new additions to NPL declining over the period and a coverage ratio of 57%.
Sales of real-estate assets in the fourth quarter amounted to 3.340 units, and a total sales price of €340m. In the cumulative total for the year, the real-estate units sold increased by 37% with respect to 2015. The main levers in 2016 have been the implementation of commercial plans and actions designed to speed up sales and reduce the stock of product that has been on the Entity’s balance sheet for the longest time.
This business area posted a cumulative loss in 2016 of €595m, compared with a loss of €496m in 2015. In the fourth quarter of 2016, there was an increased allocation to provisions (net) and other gains (losses), due to a greater need for real-estate provisions, which has been partially offset by a lower figure for impairment losses on financial assets. Not including this effect, earnings in the area have improved due to the more favorable cost of funding in the asset portfolios and lower financed volumes as a result of reduced exposure.
(Million euros)
| Income statement | 2016 | ∆% | 2015 |
|---|---|---|---|
| Net interest income | 60 | (16.2) | 71 |
| Net fees and commissions | 6 | 138.9 | 2 |
| Net trading income | (3) | n.m. | 4 |
| Other income/expenses | (68) | (35.0) | (105) |
| Gross income | (6) | (76.5) | (28) |
| Operating expenses | (124) | (1.8) | (126) |
| Personnel expenses | (66) | 1.7 | (64) |
| Other administrative expenses | (31) | (16.5) | (37) |
| Depreciation | (27) | 11.2 | (25) |
| Operating income | (130) | (15.2) | (154) |
| Impairment on financial assets (net) | (138) | (23.1) | (179) |
| Provisions (net) and other gains (losses) | (475) | 23.9 | (383) |
| Income before tax | (743) | 3.8 | (716) |
| Income tax | 148 | (33.2) | 221 |
| Net income | (595) | 20.3 | (495) |
| Non-controlling interests | (0) | (84.9) | (1) |
| Net attributable profit | (595) | 20.1 | (496) |
| Major balance sheet items | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 9 | 77.7 | 5 |
| Financial assets | 575 | 35.1 | 425 |
| Loans and advances to customers | 5,946 | (27.7) | 8,228 |
| Inter-area positions | - | - | - |
| Tangible assets | 464 | (64.3) | 1,302 |
| Other assets | 6,719 | (6.2) | 7,162 |
| Total assets/liabilities and equity | 13,713 | (19.9) | 17,122 |
| Deposits from central banks and credit institutions | - | - | - |
| Deposits from customers | 24 | (81.5) | 131 |
| Debt certificates | - | - | - |
| Subordinated liabilities | 834 | (2.7) | 857 |
| Inter-area positions | 9,520 | (25.1) | 12,708 |
| Financial liabilities held for trading | 0 | n.m. | - |
| Other liabilities | (0) | n.m. | - |
| Economic capital allocated | 3,335 | (2.7) | 3,427 |
| Pro memoria: | |||
| Risk-weighted assets | 10,988 | (24.8) | 14,606 |
Focus on selective and profitable growth continues.
Good performance of deposits, especially in the fourth quarter.
Improvement of risk indicators along the year.
(Year-on-year change at constant exchange rate. Data as of 31-12-2016)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
(Percentage. Constant exchange rate)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
(Million euros and percentage)
| Income statement | 2016 | ∆% | ∆% (1) | 2015 |
|---|---|---|---|---|
| Net interest income | 1,953 | 7.9 | 7.6 | 1,811 |
| Net fees and commissions | 638 | 3.5 | 3.2 | 616 |
| Net trading income | 142 | (23.6) | (23.9) | 186 |
| Other income/expenses | (27) | n.m. | n.m. | 18 |
| Gross income | 2,706 | 2.8 | 2.5 | 2,631 |
| Operating expenses | (1,843) | 2.0 | 1.7 | (1,806) |
| Personnel expenses | (1,073) | 3.9 | 3.6 | (1,032) |
| Other administrative expenses | (580) | 1.8 | 1.4 | (570) |
| Depreciation | (190) | (6.7) | (6.9) | (204) |
| Operating income | 863 | 4.6 | 4.3 | 825 |
| Impairment on financial assets (net) | (221) | 56.0 | 55.8 | (142) |
| Provisions (net) and other gains (losses) | (30) | n.m. | n.m. | 1 |
| Income before tax | 612 | (10.6) | (10.9) | 685 |
| Income tax | (153) | (8.8) | (8.9) | (168) |
| Net income | 459 | (11.2) | (11.5) | 517 |
| Non-controlling interests | (0) | (60.0) | (60.1) | (0) |
| Net attributable profit | 459 | (11.2) | (11.5) | 517 |
| Major balance sheet items | 31-12-16 | ∆% | ∆% (1) | 31-12-15 |
|---|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 9,766 | 9.1 | 5.6 | 8,953 |
| Financial assets | 14,581 | 0.8 | (2.4) | 14,468 |
| Loans and advances to customers | 61,159 | 2.3 | (1.0) | 59,796 |
| Inter-area positions | - | - | - | - |
| Tangible assets | 787 | 0.9 | (2.3) | 780 |
| Other assets | 2,609 | 6.2 | 2.8 | 2,457 |
| Total assets/liabilities and equity | 88,902 | 2.8 | (0.4) | 86,454 |
| Deposits from central banks and credit institutions | 3,473 | (43.1) | (44.9) | 6,100 |
| Deposits from customers | 65,760 | 3.2 | (0.1) | 63,715 |
| Debt certificates | 952 | 3.4 | 0.1 | 921 |
| Subordinated liabilities | 1,494 | 2.4 | (0.9) | 1,459 |
| Inter-area positions | 4,875 | 218.8 | 208.7 | 1,529 |
| Financial liabilities held for trading | 2,901 | (24.5) | (26.9) | 3,844 |
| Other liabilities | 6,068 | 6.1 | 2.7 | 5,718 |
| Economic capital allocated | 3,379 | 6.7 | 3.3 | 3,167 |
| Relevant business indicators | 31-12-16 | ∆% | ∆% (1) | 31-12-15 |
|---|---|---|---|---|
| Loans and advances to customers (gross) (2) | 62,000 | 2.3 | (0.9) | 60,599 |
| Customer deposits under management (2) | 63,195 | 5.0 | 1.7 | 60,173 |
| Off-balance sheet funds (3) | - | - | - | - |
| Risk-weighted assets | 65,445 | 8.9 | 5.4 | 60,092 |
| Efficiency ratio (%) | 68.1 | 68.6 | ||
| NPL ratio (%) | 1.5 | 0.9 | ||
| NPL coverage ratio (%) | 94 | 151 | ||
| Cost of risk (%) | 0.37 | 0.25 |
U.S. GDP grew slightly above 3% in annualized terms in the third quarter of 2016, after a relatively weak first half of the year (at around an annualized average of 1%), but progress has continued at dual speed, with strong consumption but moderate investment. Private consumption is expected to continue to increase at a similar pace, supported by employment growth, easy credit, more limited inflationary pressures, and despite the important role that deleveraging will play. With respect to investment, lower earnings from companies and the adjustment in the energy and mining sector will continue to weigh on corporate decisions.
In the currencies market, the uncertainty in the wake of the U.S. presidential elections and the FED’s normalization process led to a reversal of the depreciation of the dollar that had begun in the first quarter of the year. The dollar gained 3.3% against the euro over the last twelve months, in accordance with the year-end exchange rate as of 31-Dec-2016. It still has some room to continue to appreciate, given the FED’s steady normalization and the maintenance of an accommodative monetary policy in the Eurozone.
Overall, the financial system continues to be in good shape, despite the environment of low interest rates. The NPL ratio in the sector is continuing its downward trend begun in 2010. Based on data at the end of the third quarter of 2016 it stands at 2.05%. According to the latest available information for November 2016, lending is growing at a year-on-year rate of 3.2%, with household and commercial loans growing at a similar rate. The behavior of deposits in the system has been more volatile. As of November they increased at 4.9% in year-on-year terms.
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 current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.
Gross lending to customers in the United States in 2016 continues the moderation which began in the second half of 2015, for two complementary reasons; first, the strategy in the area focused on selective growth in the most profitable portfolios and segments and thus represent a more efficient capital consumption; and second, portfolio sales in the residential mortgage segment, made basically in the second half of 2016. As a result, this heading has fallen by 0.9% over the year. By portfolios, the growth is focused on secured loans and credit cards for the large corporates and the commercial segment.
With regard to the asset quality of the portfolio, the NPL ratio at the end of 2016 is 1.5%, an improvement on that reported at 30-Sep-2016 (1.7%). The coverage ratio closed 2016 at 94% (compared with 87% at the close of September). BBVA in the United States maintains a conservative and prudent policy of extending credit and collateral requirements to companies in the energy sector. The exploration & production portfolio accounts for 2.9% of the total BBVA Compass portfolio.
Customer deposits under management performed better in the final part of the year (up 1.8% in the fourth quarter), leading to a year-on-year growth of 1.7%. This growth is strongly influenced by the increase in both current and savings accounts (up 1.8% quarterly) and time deposits (up 1.6% in the last three months). In year-on-year terms, current and savings accounts have risen by 4.7%, while time deposits have declined by 7.8%.
The United States generated a net attributable profit for 2016 of €459m. There was outstanding performance in this area, particularly in the last quarter, when growth was 29.7% compared to the third quarter. As a result the cumulative year-on-year decline slowed to 11.5%. In addition, the most relevant aspects are:
The good performance of net interest income has improved further, increasing as a cumulative total by 7.6% year-on-year, due mainly to the rise in interest rates and good management of customer spreads.
Income from fees and commissions increased by 3.2% over the year, basically due to the improvement in asset management fees, card and merchant processing fees and money transfers.
NTI fell by 23.9% on the previous year as a result of the difficult market situation and lower sales of ALCO portfolios compared with 2015.
The rate of increase in operating expenses has moderated to a 1.7% year-on-year.
Lastly, impairment losses on financial assets have grown by 55.8%, basically due to an increase in provisions following the impact of the deterioration of the energy sector in the first quarter the year. The amount has steadily declined in the following quarters. The cumulative cost of risk in the area in 2016 is 0.37%, a clear improvement with respect to the peak in the first quarter (0.63%) and compared with the figure for the first nine months of 2016 (0.44%).
Strong lending activity, heavily concentrated on loans in Turkish lira, and growth in deposits.
Positive trend in net interest income.
Growth in expenses in line with inflation.
Risk metrics reflects good management in a complex environment.
(Year-on-year change at constant exchange rate with Turkey in comparable terms. Data as of 31-12-2016)
(Million euros at constant exchange rate and year-on-year change with Turkey in comparable terms)
(Percentage as of 31-12-2016)
(Percentage. Constant exchange rate)
(Million euros at constant exchange rate and year-on-year change with Turkey in comparable terms)
(Percentage as of 31-12-2016)
Following the significant slowdown in Turkey’s economic growth in the first half of 2016, GDP contracted in the third quarter by 1.8% in annualized terms. Inflation rose again in the final part of 2016, reversing the moderate figures posted since half-way through the year, as a result of weak domestic demand. This upward trend will probably continue, boosted by the depreciation of the Turkish lira and higher energy prices.
The Central Bank of Turkey (CBRT) increased interest rates slightly in November 2016 and January 2017, interrupting the series of cuts since March 2016 in the upper end of the interest-rate corridor.
The Turkish financial sector is maintaining the trend shown in recent quarters. The year-on-year rise in lending, adjusted for the effect of the depreciation of the Turkish lira, was 10.4% according to the latest data at the close of 2016, supported by 11% growth in consumer finance. Deposit gathering has maintained its strength along the year, with growth of 12% year-on-year, according to end-of-year data adjusted for the exchange-rate impact. Of particular note is the growth in Turkish lira deposits (up 18% year-on-year), which contrasts with the fall of 4% in foreign-currency deposits. The NPL ratio in the system stands at 3.2%, according to the latest available information at the end of 2016. As regards solvency, the sector continues to enjoy high capitalization ratios, with a capital adequacy ratio (CAR) of 15.3% as of November.
BBVA’s stake in Garanti Bank has been 39.9% since the third quarter of 2015, when Garanti was incorporated into the Group’s financial statements by the full integration method. Due to this, the year-on-year rates of change in the earnings of this area have been affected by the change in the scope of consolidation. Therefore, to make comparison against 2015 easier, rates of change are shown taking into account the stake in Garanti on an equivalent basis, i.e. including it as if it were incorporated by the full integration method since January 1, 2015 (hereinafter, “Turkey in comparable terms”).
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 the changes at the current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.
The year-on-year growth of gross lending to customers in the area accelerated in the last quarter of the year. As of 31-Dec-2016, it grew 17.1% over the balance at 31-Dec-2015. This boost comes from loans in Turkish lira, which are more profitable and on which the bank has focused. In Garanti Bank they have grown at rates above those in the sector (up 18.3% year-on-year compared with growth of 12.0% in the sector). By segment, all loans have made a positive contribution, particularly business banking loans (which is also performing better than the sector average) and loans to private individuals. Of particular note in the latter type of loans in the area is the better performance in the last quarter of the year of general-purpose loans, basically consumer loans (up 5.2%), which have grown above the rate of mortgage loans (up 3.4%) and closed 2016 with a year-on-year increase of 15.6% compared with 15.2% in mortgage loans. Loans in foreign currency continue their quarterly decline. Garanti Bank closed the year with a year-on year change of –5.2%. It should be noted that this contraction has been partially offset by the increase already mentioned in business banking loans in Turkish lira.
With regard to asset quality in the area, the main risk indicators have improved on the previous quarters, also with a better performance than the average in the sector. The NPL ratio has fallen to 2.7% from 2.9% as of 30-Sep-2016 (2.8% at the close of 2015), thanks to the reduction in NPL balances derived from portfolio sales. The coverage ratio stands at 124% (compared with the figure of 125% at the close of September 2016, and 129% as of 31-Dec-2015).
Growth in customer deposits under management has also accelerated in the area in the last quarter of the year to 4.6% above the balance as of 30-Sep-2016 (up 14.6% in year-on-year terms), with low-cost transactional items growing above time deposits (up 7.4% versus 3.8% respectively). Over 2016 as a whole, the growth of demand deposits (up 14.5% year-on-year) has been similar to that of time deposits (up 14.6%).
(Million euros and percentage)
| Income statement | 2016 | ∆%(1) | ∆%(1.2) | 2015 |
|---|---|---|---|---|
| Net interest income | 3,404 | (1.9) | 10.6 | 2,194 |
| Net fees and commissions | 731 | (4.5) | 7.8 | 471 |
| Net trading income | 77 | n.m. | n.m. | (273) |
| Other income/expenses | 46 | (33.2) | (24.6) | 42 |
| Gross income | 4,257 | 7.4 | 21.2 | 2,434 |
| Operating expenses | (1,738) | (4.4) | 7.8 | (1,160) |
| Personnel expenses | (889) | (0.5) | 12.1 | (565) |
| Other administrative expenses | (635) | (15.4) | (4.6) | (478) |
| Depreciation | (214) | 23.3 | 38.7 | (118) |
| Operating income | 2,519 | 17.3 | 32.6 | 1,273 |
| Impairment on financial assets (net) | (520) | (18.1) | (7.8) | (422) |
| Provisions (net) and other gains (losses) | (93) | n.m. | n.m. | 2 |
| Income before tax | 1,906 | 25.8 | 42.4 | 853 |
| Income tax | (390) | 30.0 | 47.3 | (166) |
| Net income | 1,515 | 24.8 | 41.2 | 687 |
| Non-controlling interests | (917) | 24.2 | 41.6 | (316) |
| Net attributable profit | 599 | 25.6 | 40.5 | 371 |
| Major balance sheet items | 31-12-16 | ∆% | ∆%(2) | 31-12-15 |
|---|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 11,927 | (18.4) | (4.7) | 14,608 |
| Financial assets | 13,670 | (8.9) | 6.3 | 15,006 |
| Loans and advances to customers | 55,612 | 0.8 | 17.6 | 55,182 |
| Tangible assets | 1,430 | 1.7 | 18.7 | 1,406 |
| Other assets | 2,229 | (20.4) | (7.1) | 2,801 |
| Total assets/liabilities and equity | 84,866 | (4.6) | 11.3 | 89,003 |
| Deposits from central banks and credit institutions | 13,490 | (19.8) | (6.4) | 16,823 |
| Deposits from customers | 47,244 | 0.1 | 16.8 | 47,199 |
| Debt certificates | 7,907 | (0.6) | 16.0 | 7,954 |
| Subordinated liabilities | - | 99.8 | 99.8 | - |
| Financial liabilities held for trading | 1,009 | 19.7 | 39.7 | 843 |
| Other liabilities | 12,887 | (11.3) | 3.6 | 14,521 |
| Economic capital allocated | 2,330 | 40.1 | 63.5 | 1,663 |
| Relevant business indicators | 31-12-16 | ∆% | ∆%(2) | 31-12-15 |
|---|---|---|---|---|
| Loans and advances to customers (gross)(3) | 57,941 | 0.3 | 17.1 | 57,768 |
| Customer deposits under management(3) | 42,612 | (1.8) | 14.6 | 43,393 |
| Off-balance sheet funds(4) | 3,753 | 3.7 | 21.0 | 3,620 |
| Risk-weighted assets | 70,337 | (3.9) | 12.1 | 73,207 |
| Efficiency ratio (%) | 40.8 | 47.7 | ||
| NPL ratio (%) | 2.7 | 2.8 | ||
| NPL coverage ratio (%) | 124 | 129 | ||
| Cost of risk (%) | 0.87 | 1.11 |
Turkey generated a net attributable profit of €599m in 2016, up 40.5% on 2015. The figure for the fourth quarter is 4.2% up on the previous quarter. The following are the key facts that explain the account:
Positive trend in net interest income, which in 2016 grew 10.6% year-on-year, due to the positive effects derived from cheaper sources of finance (due to the CBRT monetary policy and lower cost of swaps), and maintenance of customer spreads (via the management of deposit costs), together with a greater volume of activity (mainly from loans denominated in Turkish lira and the increase in the proportion of lower-cost deposits as a proportion of total customer deposits under management).
Favorable figures from income from fees and commissions, which increased 7.8% year-on-year. It is worth noting the positive impact of the reduction in the recognized provision for the miles paid to Turkish Airlines, given the lower oil price and the good performance of credit card fees. The above, together with the adequate diversification of these revenues, has offset the negative impacts of the depreciation of the Turkish lira (which has made the fees paid in U.S. dollars more expensive), and the suspension of the collection of account maintenance and administration fees imposed by the Turkish Council of State in January 2016.
The last quarter of the year was negative in terms of NTI. This can be mainly explained by the changes in the price of the Turkish lira, leading to losses due to exchange-rate differences, which have not been offset by the rest of the items. Even so, the results for this item amounted to €77m in 2016, which compares very favorably to the negative €303m in 2015. This has been possible thanks to the positive performance of the Global Markets unit, the capital gains from the divestment of ALCO portfolios and the booking in the second quarter of the VISA operation. In addition, it should be noted that in 2015, NTI was affected negatively by the volatility of the wholesale markets.
Operating expenses grew 7.8% year-on-year, in line with inflation. Disciplined cost control has partially offset the negative impacts of the depreciation in the Turkish lira on the cost headings denominated in foreign currency, higher costs derived from investments made in the upgrading, modernization and digitalization of traditional channels, as well as the 30% increase in the minimum wage since January 2016. As a result, the area has improved its efficiency ratio to 40.8%, from 47.7% in 2015.
Impairment losses on financial assets in 2016 stood at €520m, 7.8% below the figure for 2015. In the fourth quarter, there was a reduction of 62.4%. As a result of the above, the cost of risk in the area has fallen to 0.87% from 1.05% as of 30-Sep-2016 (1.11% in 2015).
Finally, provisions (net) and other gains/losses basically include a higher amount due to contingent exposures and commitments, and a capital gain of €8m for the sale of the Moscow subsidiary.
Activity continues strong.
Operating expenses still growing below gross income.
Double-digit year-on-year growth in net attributable profit.
Stability in risk indicators, as expected.
(Year-on-year change at constant exchange rate. Data as of 31-12-2016)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
(Percentage. Constant exchange rate)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
(Million euros and percentage)
| Income statement | 2016 | ∆% | ∆%(1) | 2015 |
|---|---|---|---|---|
| Net interest income | 5,126 | (4.9) | 11.6 | 5,387 |
| Net fees and commissions | 1,149 | (6.1) | 10.2 | 1,223 |
| Net trading income | 222 | 12.3 | 31.8 | 198 |
| Other income/expenses | 270 | (1.1) | 16.0 | 273 |
| De los que resultados netos de seguros | 507 | (4.9) | 11.5 | 533 |
| Gross income | 6,766 | (4.4) | 12.1 | 7,081 |
| Operating expenses | (2,396) | (8.6) | 7.2 | (2,622) |
| Personnel expenses | (1,048) | (6.6) | 9.6 | (1,122) |
| Other administrative expenses | (1,101) | (14.0) | 0.9 | (1,281) |
| Depreciation | (247) | 12.6 | 32.1 | (219) |
| Operating income | 4,371 | (2.0) | 15.0 | 4,459 |
| Impairment on financial assets (net) | (1,626) | (0.5) | 16.8 | (1,633) |
| Provisions (net) and other gains (losses) | (67) | 25.6 | 47.4 | (53) |
| Income before tax | 2,678 | (3.4) | 13.3 | 2,772 |
| Income tax | (697) | 2.7 | 20.5 | (678) |
| Net income | 1,981 | (5.4) | 11.0 | 2,094 |
| Non-controlling interests | (1) | 4.7 | 22.9 | (1) |
| Net attributable profit | 1,980 | (5.4) | 11.0 | 2,094 |
| Major balance sheet items | 31-12-16 | ∆% | ∆%(1) | 31-12-15 |
|---|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 6,714 | (44.6) | (36.2) | 12,115 |
| Financial assets | 31,273 | (5.5) | 8.8 | 33,097 |
| Loans and advances to customers | 46,474 | (2.2) | 12.5 | 47,534 |
| Tangible assets | 1,957 | (8.1) | 5.8 | 2,130 |
| Other assets | 6,900 | 46.2 | 68.3 | 4,719 |
| Total assets/liabilities and equity | 93,318 | (6.3) | 7.9 | 99,594 |
| Deposits from central banks and credit institutions | 5,923 | (53.8) | (46.8) | 12,817 |
| Deposits from customers | 50,571 | 2.1 | 17.5 | 49,553 |
| Debt certificates | 4,050 | (22.2) | (10.4) | 5,204 |
| Subordinated liabilities | 4,561 | 2.8 | 18.3 | 4,436 |
| Financial liabilities held for trading | 8,283 | 16.1 | 33.6 | 7,134 |
| Other liabilities | 15,619 | 3.8 | 19.5 | 15,045 |
| Economic capital allocated | 4,311 | (20.2) | (8.2) | 5,404 |
| Relevant business indicators | 31-12-16 | ∆% | ∆%(1) | 31-12-15 |
|---|---|---|---|---|
| Loans and advances to customers (gross)(2) | 47,865 | (1.9) | 12.9 | 48,784 |
| Customer deposits under management(2) | 41,989 | (3.1) | 11.5 | 43,332 |
| Off-balance sheet funds(3) | 19,111 | (11.3) | 2.0 | 21,557 |
| Risk-weighted assets | 47,881 | (4.9) | 9.5 | 50,330 |
| Efficiency ratio (%) | 35.4 | 37.0 | ||
| NPL ratio (%) | 2.3 | 2.6 | ||
| NPL coverage ratio (%) | 127 | 120 | ||
| Cost of risk (%) | 3.40 | 3.28 |
Mexico’s GDP growth slowed in the first three quarters of 2016, primarily due to a decline in investment starting in the second quarter. It also reflects deteriorating exports since the end of 2015, linked to the economic slowdown in the United States. This trend looks set to continue, with exports still showing no clear signs of recovery, despite the support provided by a depreciating peso. Private consumption may be curbed further, with confidence faltering as a result of slower job growth and real wages being kept in check.
The Mexican Central Bank (Banxico) has been raising interest rates since the end of 2015 (around 50 basis points in each of the first three quarters and 100 basis points in the final quarter) to 5.75% in December. Banxico’s forthcoming decisions are likely to remain in line with this trend, to counteract upward inflationary pressure and anchor expectations given the depreciation of the Mexican peso against the dollar (down 13.1% year-on-year against the euro in 2016).
The Mexican financial system maintains comfortable capital adequacy and asset quality indicators. The capital adequacy ratio has risen slightly to 15.2%, while the NPL ratio is down to 2.3%, according to November figures released by the National Securities Banking Commission (CNBV). Also in November, lending to the private sector grew at a nominal pace of 14.6% year-on-year, similar to that in the rest of the year. All loan portfolios contributed to this good performance. Traditional deposit gathering (demand and time deposits) was up 14.7% year-on-year in nominal terms (November 2016 figures), with similar performance for both components.
All rates of change given below, for both activity and earnings, will be at constant exchange rate, unless expressly stated otherwise. These rates, together with changes at current exchange rate, can be seen in the attached tables of financial statements and relevant business indicators.
According to data at the close of 2016, BBVA in Mexico continues to perform well in lending, which has increased by 12.9% in year-on-year terms. As a result, BBVA Bancomer has retained its leading position, with a market share for its current portfolio of 23.5% (according to local information from the CNBV for the close of November 2016).
Year-end figures indicate that the wholesale and retail portfolios are of equal weight, each representing approximately 50% of the total. The wholesale portfolio has increased 16.1% year-on-year. There was a good performance in business loans, including loans to corporate clients and mid-sized companies, which increased by 18.4% over the year and 6.2% in the fourth quarter. Within the loan book, lending to housing developers has been positive for the sixth quarter in a row, with a year-on-year increase of 34.2% (up 11.6% in the fourth quarter).
The retail portfolio has grown by 10.8% since the close of 2015, and 1.9% in the last three months. It is still buoyed by loans to SMEs and consumer finance, which were up 18.7% and 16.5% respectively. Credit cards continued their positive trend of previous quarters. As of 31-Dec-2016, year-on-year growth stood at 6.4%, boosted by new production (up 14.5% year-on-year according to accumulated figures at the close of 2016). Finally, residential mortgage new production also performed well, with a year-on-year increase of 12.8% in the cumulative figure for 2016. The maturity of this portfolio continues to determine growth in its balance, which is less dynamic than for other retail segments (up 6.4% in the last twelve months).
With regard to asset quality the main risk indicators are following a pattern of stability, in accordance with expectations. Thus, the NPL and coverage ratios closed the month of December at 2.3% and 127% respectively.
Total customer funds (customer deposits under management, mutual funds, pension funds and other off-balance sheet funds) posted year-on-year growth of 8.4% (up 0.4% in the last quarter). All products performed positively: current and savings accounts were up 10.8% in the year, and time deposits grew by 15.2%. Thanks to this trend, BBVA in Mexico can maintain a profitable funding mix in which lower-cost items account for around 80% of total customer deposits under management. Off-balance sheet customer funds saw year-on-year growth ease to 2.0%.
BBVA in Mexico posted a cumulative net attributable profit through December 2016 of €1,980m, with a year-on-year rate of growth of 11.0%, underpinned by:
An increase of 11.6% in net interest income, boosted mainly by higher volumes of activity.
Good performance of income from fees and commissions, with year-on-year growth of 10.2%, supported by a greater volume of transactions with credit card customers and fees from online banking.
Growth in NTI (up 31.8%) thanks to a good performance from the Global Markets unit, above all toward the end of the year.
A positive performance in the other income/expenses heading (up 16.0%), primarily thanks good revenue from insurance activities, and supported by the booking of the reserves released by changes in estimates affecting the system of calculation.
Increase in operating expenses (up 7.2%) below the growth of gross income in the area (up 12.1%) and also below the cumulative figure through the third quarter of 2016 (up 7.9%). This helped to improve the efficiency ratio, which in 2016 stood at 35.4% (compared with 37.0% in 2015). The indicator is well below the sector average not including BBVA Bancomer (56.4% according to local information from the CNBV for the close of November 2016).
Impairment losses on financial assets up year-on-year by 16.8%. As a result, the cumulative cost of risk for the area stands at 3,40%, below the year-end forecast of 3,50%.
Lastly, provisions (net) and other gains (losses) includes restructuring costs associated to the Group’s transformation process, which aims to forge a simpler, closer and more efficient organization. As a result, this heading grew a cumulative 47.4% year-on-year.
Growth in lending activity in the region slows, in line with moderation in the macroeconomic environment.
Good performance of customer deposits.
Positive trend in revenues.
Costs influenced by high inflation in some countries and the adverse effect of exchange rates.
Credit risk metrics behavior as expected: slight deterioration due to macro environment.
(Year-on-year change at constant exchange rate. Data as of 31-12-2016)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
(Percentage. Constant exchange rate)
(Million euros at constant exchange rate)
(Percentage as of 31-12-2016)
The weak economic cycle and political factors in several countries have undermined economic confidence in the region, in turn negatively affecting consumption and investment, albeit to significantly varying degrees in each country. However, expectations are now more upbeat, boosted by recovering oil and commodity prices. This is reflected in sustained capital inflows, fueled by investors seeking profitability and low levels of volatility.
Given the weak activity and moderate inflation, most central banks (with the exception of Colombia) are adopting more accommodative monetary policies. While exchange rates for the Argentine peso and the Venezuelan bolivar depreciated against the euro in 2016, the Chilean and Colombian pesos and the Peruvian sol have all gained. The FED’s monetary normalization may lead to future depreciation, but it is likely to be far more moderate than in 2015.
As regards the financial systems within BBVA’s regional footprint, key profitability and capital adequacy indicators are high, while NPL ratios remain in check in aggregate terms (with some differences between the countries). In addition, there has been sustained growth in lending and deposits.
Unless expressly stated otherwise, all the comments below on rates of change, for both activity and earnings, are expressed at constant exchange rates. These rates, together with changes at current exchange rates, can be seen in the attached tables of financial statements and relevant business indicators.
Gross lending to customers closed 2016 with quarter-on-quarter growth of 3.6% and yearon-year growth of 7.9%. All countries reported growth, spearheaded by Argentina (up 33.5%), Colombia (up 8.3%) and Chile (up 5.1%). By products, there was a standout performance from the retail portfolios, particularly credit cards (up 17.9%), consumer finance (up 10.8%) and residential mortgages (up 8.3%).
As regards asset quality, the macroeconomic situation continues to influence the NPL and coverage ratios, which closed the year at 2.9% and 103% respectively.
Customer funds closed the year at a yearon-year growth of 14.2%, with a positive contribution from all products and geographic areas. By product, the best performance was in off-balance sheet funds (up 18.2%) and term deposits (up 16.3%), while by country there was significant growth in Argentina (up 57.0%) and Colombia (up 14.1%).
(Million euros and percentage)
| Income statement | 2016 | ∆% | ∆%(1) | 2015 |
|---|---|---|---|---|
| Net interest income | 2,930 | (8.5) | 11.4 | 3,202 |
| Net fees and commissions | 634 | (11.6) | 8.2 | 718 |
| Net trading income | 464 | (22.0) | 9.7 | 595 |
| Other income/expenses | 25 | n.m. | (30.7) | (38) |
| Gross income | 4,054 | (9.5) | 10.3 | 4,477 |
| Operating expenses | (1,894) | (4.3) | 17.5 | (1,979) |
| Operating expenses | (982) | (3.8) | 17.7 | (1,022) |
| Other administrative expenses | (811) | (5.0) | 17.0 | (853) |
| Depreciation | (100) | (3.3) | 19.0 | (104) |
| Operating income | 2,160 | (13.5) | 4.7 | 2,498 |
| Impairment on financial assets (net) | (526) | (14.2) | (2.9) | (614) |
| Provisions (net) and other gains (losses) | (82) | 15.2 | 163.9 | (71) |
| Income before tax | 1,552 | (14.4) | 4.1 | 1,814 |
| Income tax | (487) | (13.8) | 13.8 | (565) |
| Net income | 1,065 | (14.7) | 0.2 | 1,248 |
| Non-controlling interests | (294) | (14.2) | (2.1) | (343) |
| Net attributable profit | 771 | (14.9) | 1.1 | 905 |
| Million euros and percentage | ||||
|---|---|---|---|---|
| Major balance sheet items | 31-12-16 | ∆% | ∆%(1) | 31-12-15 |
| Cash and balances with central banks, credit institutions and others | 15,925 | 5.2 | 6.1 | 15,135 |
| Financial assets | 10,739 | 12.3 | 9.1 | 9,561 |
| Loans and advances to customers | 48,718 | 11.7 | 7.7 | 43,596 |
| Tangible assets | 807 | 12.4 | 18.5 | 718 |
| Other assets | 1,729 | 4.7 | 3.6 | 1,652 |
| Total assets/liabilities and equity | 77,918 | 10.3 | 7.6 | 70,661 |
| Deposits from central banks and credit institutions | 6,656 | (17.5) | (22.4) | 8,070 |
| Deposits from customers | 47,921 | 13.5 | 11.9 | 42,227 |
| Debt certificates | 5,643 | 17.4 | 9.6 | 4,806 |
| Subordinated liabilities | 1,850 | 4.8 | (2.6) | 1,765 |
| Financial liabilities held for trading | 2,585 | (22.6) | (28.5) | 3,342 |
| Other liabilities | 10,561 | 35.0 | 36.2 | 7,825 |
| Economic capital allocated | 2,703 | 2.9 | 4.5 | 2,626 |
| Million euros and percentage | ||||
|---|---|---|---|---|
| Relevant business indicators | 31-12-16 | ∆% | ∆%(1) | 31-12-15 |
| Loans and advances to customers (gross)(2) | 50,316 | 11.9 | 7.9 | 44,970 |
| Customer deposits under management(2) | 48,334 | 15.0 | 13.3 | 42,032 |
| Off-balance sheet funds(3) | 11,902 | 22.3 | 18.2 | 9,729 |
| Risk-weighted assets | 57,394 | 1.5 | 0.5 | 56,563 |
| Efficiency ratio (%) | 46.7 | 44.2 | ||
| NPL ratio (%) | 2.9 | 2.3 | ||
| NPL coverage ratio (%) | 103 | 123 | ||
| Cost of risk (%) | 1.15 | 1.26 | ||
South America ended 2016 with a net attributable profit of €771m, a year-on-year increase of 1.1%. The most relevant aspects of the income statement over the last twelve months in the area are as follows:
Gross income grew by 10.3%, thanks to the high capacity to generate revenues in the area, boosted chiefly by increased activity. Net interest income is up 11.4% and fees and commissions have grown by 8.2%. NTI also performed very well (up 9.7%), influenced by the lifting of the “exchange clamp” in Argentina and the sale of holdings in Colombia. Finally, in the other income/expenses heading, insurance activities performed well, with net earnings in the region rising by 17.6%. The increase was driven by good figures from both net claims and premiums, mainly in the non-life segment.
The increase in operating expenses slowed compared with previous quarters, to a year-on-year growth of 17.5%. High inflation in some of the countries in the region and changes in the exchange rate against the dollar have had a negative impact on items denominated in the U.S. currency, and were largely responsible for the year-on-year increase of this heading.
Impairment losses on financial assets fell by 2.9%, putting the cumulative cost of risk in 2016 at 1.15% (1.13% in September 2016 and 1.26% in 2015).
Finally, the provisions (net) and other gains (losses) heading chiefly includes restructuring costs associated to the Group’s transformation process.
By country, Argentina has performed well in all its margins thanks to strong activity, thus offsetting expenses linked to inflation. Earnings in Chile have been affected by higher loanloss provisions than in the 2015. In Colombia the positive performance of gross income has been boosted by good income from fees and commissions and NTI, and good figures from impairment losses on financial assets. In Peru, net interest income and income from fees and commissions grew at a higher rate than activity, which was affected by slower growth in NTI and higher loan-loss provisions.
(Million euros)
| Argentina | Chile | Colombia | Peru | Venezuela | ||||||
|---|---|---|---|---|---|---|---|---|---|---|
| 31-12-16 | 31-12-15 | 31-12-16 | 31-12-15 | 31-12-16 | 31-12-15 | 31-12-16 | 31-12-15 | 31-12-16 | 31-12-15 | |
| Loans and advances to customers (gross)(1, 2) | 4,619 | 3,460 | 14,721 | 14,011 | 12,731 | 11,750 | 14,561 | 14,005 | 533 | 206 |
| Customer deposits under management(1, 3) | 6,872 | 4,547 | 10,094 | 9,626 | 12,710 | 11,218 | 13,394 | 12,762 | 1,136 | 345 |
| Off-balance sheet funds(1, 4) | 1,097 | 529 | 1,499 | 1,455 | 742 | 575 | 1,522 | 1,377 | 0 | 0 |
| Risk-weighted assets | 8,712 | 9,115 | 14,288 | 13,915 | 12,152 | 11,019 | 17,400 | 17,484 | 1,360 | 1,788 |
| Efficiency ratio (%) | 53.8 | 51.3 | 49.1 | 47.0 | 38.9 | 38.9 | 35.8 | 34.9 | 103.2 | 33.3 |
| NPL ratio (%) | 0.8 | 0.6 | 2.6 | 2.3 | 3.5 | 2.3 | 3.4 | 2.8 | 0.5 | 0.6 |
| NPL coverage ratio (%) | 391 | 517 | 66 | 72 | 105 | 137 | 106 | 124 | 515 | 457 |
| Cost of risk (%) | 1.48 | 1.52 | 0.74 | 1.05 | 1.34 | 1.55 | 1.31 | 1.40 | 1.97 | 0.43 |
(Million euros)
| Operating income | Net attributable profit | |||||||
|---|---|---|---|---|---|---|---|---|
| Country | 2016 | Δ% | Δ% at constant exchange rates | 2015 | 2016 | Δ% | Δ% at constant exchange rates | 2015 |
| Argentina | 504 | (19.1) | 29.0 | 623 | 211 | (20.4) | 26.7 | 265 |
| Chile | 352 | (6.0) | (3.0) | 374 | 145 | (3.9) | (0.9) | 151 |
| Colombia | 534 | (3.7) | 6.7 | 554 | 222 | (15.6) | (6.5) | 263 |
| Peru | 698 | (4.9) | 0.5 | 734 | 167 | (9.1) | (3.9) | 184 |
| Venezuela | (2) | n.m. | n.m. | 119 | (3) | n.m. | n.m. | 1 |
| Other countries(1) | 74 | (21.5) | (14.0) | 94 | 29 | (30.8) | (24.1) | 42 |
| Total | 2,160 | (13.5) | 4.7 | 2,498 | 771 | (14.9) | 1.1 | 905 |
The loan book recovered its upward path in the fourth quarter of the year.
Reduction in the balance of deposits, strongly impacted by the branches in Europe.
Significant progress in earnings, supported by good revenues and reduction in costs.
The Eurozone has grown at a moderate and relatively stable pace over the last six months (a quarterly 0.3% in the second and third quarter) and has resisted the uncertainty prevailing since the middle of the year relatively well. However, some events at the end of the year (the constitutional referendum in Italy) and the beginning of 2017 (start of the Brexit negotiations) make it difficult to think that growth will pick up over the coming quarters. The domestic support for growth is still in place and economic policies continue to foster recovery. Fiscal policy in 2017 will be somewhat less expansive in the area as a whole than in 2016, while the European Central Bank (ECB) continues with its commitment to maintain a very expansive monetary policy until there are clear indications that the movement of inflation toward its target is clearly sustainable.
In China growth stabilized at a year-on-year 6.7% in the third quarter of the year, supported by solid consumption and increased credit, thanks to monetary expansion and, above all, fiscal measures. These measures have led to a slight increase in total investment, although private investment continues to slow, suggesting the deleveraging process in the private sector is still underway. This outlook and the recent increase in housing prices will lead the Central Bank to delay interest-rate cuts until 2017, at least until it can see how effective the macroprudential measures implemented are. Thus doubts about a significant slowdown in the economy have been eased.
The area’s loan book recovered its upward path in the fourth quarter of the year. It has grown by 5.7% in the last three months of the year, strongly supported by the positive trend recorded in Asia (up 20.3%) and to a lesser extent in the rest of Europe (up 2.5%). However, the figure for the last twelve months declined by 2.7%, due to the bad performance in Asia in the first three quarters of 2016.
With regard to the main credit risk indicators, and despite a slight deterioration against the close of 2015, they are maintained at very limited levels (NPL ratio at 2.7% and coverage at 84%).
Total customer funds (customer deposits under management and pension funds) closed 2016 at 14.4% below the figure at the end of 2015. In this case, the fall can be explained by a decline in the branches in Europe (down 24.6%).
With respect to earnings, gross income increased significantly in the fourth quarter of the year (up 39.2%), thanks to increased earnings in all the CIB business lines. This has offset the decline of the cumulative figure in the area, with the result that this heading increased in 2016 by 4.0% compared with the figure for 2015. The year has been positive in terms of the performance of the earnings distribution procedure, income from fees and commissions, and the payment of the CNCB dividend (which was not received in the second quarter of 2015). The above has been offset by lower net interest income, impacted by macroeconomic reality in the Eurozone, with negative interest rates that have led to fewer transactions, and a negative performance of NTI (although they posted a significant advance of 82.0% in the fourth quarter). Operating expenses continue to slow, with a year-on-year decline of 2.7%. Of note has been a significant improvement in personnel expenses (down 6.9%), impairment losses on financial assets, and provisions (net) and other gains (losses). Overall, Eurasia has contributed a net attributable profit of €151m in 2016, double the 2015 figure with a year-on-year increase of 100.1%.
(Million euros and percentage)
| Income statement | 2016 | ∆% | 2015 |
|---|---|---|---|
| Net interest income | 166 | (9.7) | 183 |
| Net fees and commissions | 194 | 13.8 | 170 |
| Net trading income | 87 | (30.3) | 125 |
| Other income/expenses | 45 | n.m. | (6) |
| Gross income | 491 | 4.0 | 473 |
| Operating expenses | (342) | (2.7) | (352) |
| Personnel expenses | (181) | (6.9) | (194) |
| Other administrative expenses | (149) | 4.6 | (143) |
| Depreciation | (12) | (18.7) | (15) |
| Operating income | 149 | 23.6 | 121 |
| Impairment on financial assets (net) | 30 | n.m. | (4) |
| Provisions (net) and other gains (losses) | 23 | n.m. | (6) |
| Income before tax | 203 | 83.2 | 111 |
| Income tax | (52) | 47.0 | (35) |
| Net income | 151 | 100.1 | 75 |
| Non-controlling interests | - | - | - |
| Net attributable profit | 151 | 100.1 | 75 |
| Major balance sheet items | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | 1,587 | (13.3) | 1,829 |
| Financial assets | 1,787 | (4.4) | 1,868 |
| Loans and advances to customers | 15,199 | (2.4) | 15,579 |
| Inter-area positions | - | 100.0 | 3,790 |
| Tangible assets | 38 | (9.2) | 42 |
| Other assets | 369 | 2.5 | 360 |
| Total assets/liabilities and equity | 18,980 | (19.1) | 23,469 |
| Deposits from central banks and credit institutions | 2,670 | (50.2) | 5,364 |
| Deposits from customers | 12,796 | (15.0) | 15,053 |
| Debt certificates | 0 | 100.0 | 0 |
| Subordinated liabilities | 315 | (0.7) | 317 |
| Inter-area positions | 1,296 | n.m. | - |
| Financial liabilities held for trading | 67 | (21.0) | 85 |
| Other liabilities | 577 | (58.3) | 1,381 |
| Economic capital allocated | 1,259 | (0.7) | 1,269 |
| Relevant business indicators | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Loans and advances to customers (gross)(1) | 15,709 | (2.7) | 16,143 |
| Customer deposits under management(1) | 12,723 | (14.9) | 14,959 |
| Off-balance sheet funds(2) | 366 | 10.5 | 331 |
| Risk-weighted assets | 15,196 | (1.0) | 15,356 |
| Efficiency ratio (%) | 69.6 | 74.4 | |
| NPL ratio (%) | 2.7 | 2.5 | |
| NPL coverage ratio (%) | 84 | 96 | |
| Cost of risk (%) | (0.22) | 0.02 |
The most significant aspects of the Corporate Center’s income statement for 2016 are as follows:
Greater contribution from NTI compared with 2015, mainly as a result of the capital gains registered from the partial sales on the market of BBVA Group’s stake in CNCB.
The other income/expenses heading basically includes the dividends from Telefónica (paid in the second and fourth quarters).
Year-on-year increase of 3.7%, in operating expenses, due to higher depreciation charges. Personnel costs have only increased by 0.3%.
Lack of corporate operations. The results from corporate operations in 2015, a loss of €1.109m, included: €705m in capital gains after tax from the various sale operations equivalent to 6.34% of BBVA Group’s stake in CNCB (€583m in the first quarter from the sale of 5.6% and €122m in the second quarter from the sale of 0.8%); €26m (also after tax) from the badwill generated by the CX deal; a negative €1.840m from the valuation at fair value of the initial 25.01% stake held by BBVA in Garanti (third quarter), following the acquisition of an additional 14.89% stake in the Turkish entity; and the practically neutral impact of the sale of the 29.68% stake in CIFH (third quarter).
Overall, the Corporate Center posted a negative cumulative result of €801m, which compares with a loss of €1.910m in 2015 (–€800m excluding corporate operations).
(Million euros)
| Income statement | 2016 | ∆% | 2015 |
|---|---|---|---|
| Net interest income | (461) | 8.7 | (424) |
| Net fees and commissions | (133) | 32.3 | (100) |
| Net trading income | 356 | 120.6 | 161 |
| Other income/expenses | 178 | 3.7 | 172 |
| Gross income | (60) | (68.7) | (192) |
| Operating expenses | (856) | 3.7 | (826) |
| Personnel expenses | (472) | 0.3 | (471) |
| Other administrative expenses | (69) | (41.8) | (118) |
| Depreciation | (315) | 33.1 | (237) |
| Operating income | (916) | (10.0) | (1,017) |
| Impairment on financial assets (net) | (37) | 178.8 | (13) |
| Provisions (net) and other gains (losses) | (140) | (10.4) | (157) |
| Income before tax | (1,094) | (7.9) | (1,187) |
| Income tax | 296 | (27.2) | 407 |
| Net income from ongoing operations | (798) | 2.2 | (781) |
| Results from corporate operations(1) | - | - | (1,109) |
| Net income | (798) | (57.8) | (1,890) |
| Non-controlling interests | (3) | (83.9) | (19) |
| Net attributable profit | (801) | (58.1) | (1,910) |
| Net attributable profit excluding corporate operations | (801) | 0.1 | (800) |
| Major balance sheet items | 31-12-16 | ∆% | 31-12-15 |
|---|---|---|---|
| Cash and balances with central banks, credit institutions and others | (2) | n.m. | 2 |
| Financial assets | 1,675 | (41.9) | 2,886 |
| Loans and advances to customers | 150 | 9.9 | 137 |
| Inter-area positions | - | - | - |
| Tangible assets | 2,671 | (6.7) | 2,864 |
| Other assets | 19,017 | (15.0) | 22,370 |
| Total assets/liabilities and equity | 23,512 | (16.8) | 28,258 |
| Deposits from central banks and credit institutions | - | - | - |
| Deposits from customers | - | - | - |
| Debt certificates | 4,855 | (17.1) | 5,857 |
| Subordinated liabilities | 5,570 | 20.1 | 4,636 |
| Inter-area positions | (13,696) | 40.4 | (9,755) |
| Financial liabilities held for trading | - | - | - |
| Other liabilities | 2,705 | (46.1) | 5,021 |
| Economic capital allocated | 50,803 | 3.0 | 49,315 |
| Capital y reservas | (26,726) | (0.3) | (26,814) |