Financial statements 2016
Year-on-year figures are affected by changes in the Group’s scope of consolidation in the second and third quarter of 2015 (Catalunya Banc -CX- and Garanti, respectively).
Negative effect of exchange rates against the euro (except for the dollar).
Taking into account the stake in Garanti in comparable terms, i.e. including it as if it had been incorporated by the full integration method since January 1, 2015, if the impact of corporate operations in 2015 is excluded, and if the exchange-rate impact is isolated, the most relevant aspects in terms of 2016 earnings are as follows:
– The favorable performance of the most recurring revenues continues, thanks to growth in activity in emerging economies and maintenance of customer spreads.
– Positive contribution from NTI, due basically to the capital gains registered by the VISA Europe transaction (in the second quarter), the partial sale on the market of shares held by BBVA Group in China Citic Bank (CNCB) and the good performance of the Global Markets unit, particularly towards the latter part of the year.
– Moderation in operating expenses and improvement in the efficiency ratio.
– Impact of €404m after tax of the provision to cover possible future claims by customers as a result of the judgment of the Court of Justice of the European Union (CJEU) on “mortgage floor clauses” in mortgage loans with customers.
(Million Euros)
(Percentage 2016)
Negative effect of exchange rates, above all of the Mexican peso and Turkish lira against the euro.
Strength of the loan book in emerging economies (particularly Turkey and Mexico), and fall in Spain (due to the public-sector and mortgage portfolios) and the United States (which continues with its selective growth strategy in more profitable segments).
Non-performing loans continue to perform very favorably, thanks to the positive trend in almost all geographical areas, mainly in Spain.
Customer deposits under management have performed well for the more liquid items.
Off-balance sheet customer funds improved its performance in the last quarter, and increased at a year-on-year rate of 3.1% at constant exchange rates.
Capital position above regulatory requirements, despite the negative effect caused by the allocation of a provision related to the so called “mortgage floor clauses”. At the close of December 2016, the fully-loaded CET1 ratio stood at 10.9%, thanks to the generation of recurring earnings for the Group in a highly volatile market environment and the control on growth of risk-weighted assets (RWA).
The fully-loaded leverage ratio closed at 6.5%, which compares very favorably with the rest of the peer group.
(Percentage as of 31-12-2016)
(Percentage)
(Euros)
BBVA Group’s earnings for 2016 are affected by:
Changes in the scope of consolidation in the second and third quarters of 2015 (CX and Garanti, respectively).
The negative impact of year-on-year changes in average exchange rates against the euro of the main currencies that have an influence on the Entity’s financial statements (except for the U.S. dollar).
Lack of corporate operations.
In order to make the year-on-year comparison easier, the end of this section includes an income statement with rates of change that take into account Turkey in comparable terms; i.e. including BBVA’s stake in Garanti as if it had been incorporated by the full integration method since January 1, 2015.
BBVA Group generated a net attributable profit of €3.475m in 2016. The most relevant aspects of the year-on-year changes in the income statement are:
Positive performance of revenues.
Limited growth of operating expenses, which have grown below the rate of increase in gross income, thus improving the efficiency ratio.
Reduction in impairment losses on financial assets.
(Million of euros)
| 2016 | 2015 | |||||||
|---|---|---|---|---|---|---|---|---|
| 4Q | 3Q | 2Q | 1Q | 4Q | 3Q | 2Q | 1Q | |
| Net interest income | 4,385 | 4,310 | 4,213 | 4,152 | 4,415 | 4,490 | 3,858 | 3,663 |
| Net fees and commissions | 1,161 | 1,207 | 1,189 | 1,161 | 1,263 | 1,225 | 1,140 | 1,077 |
| Net trading income | 379 | 577 | 819 | 357 | 451 | 133 | 650 | 775 |
| Dividend income | 131 | 35 | 257 | 45 | 127 | 52 | 194 | 42 |
| Share of profit or loss of entities accounted for using the equity method | 7 | 17 | (6) | 7 | (16) | 3 | 18 | 3 |
| Other operating income and expenses | 159 | 52 | (26) | 66 | (94) | 76 | 62 | 73 |
| Gross income | 6,222 | 6,198 | 6,445 | 5,788 | 6,146 | 5,980 | 5,922 | 5,632 |
| Operating expenses | (3,243) | (3,216) | (3,159) | (3,174) | (3,292) | (3,307) | (2,942) | (2,776) |
| Personnel expenses | (1,698) | (1,700) | (1,655) | (1,669) | (1,685) | (1,695) | (1,538) | (1,460) |
| Other administrative expenses | (1,180) | (1,144) | (1,158) | (1,161) | (1,268) | (1,252) | (1,106) | (1,024) |
| Depreciation | (365) | (372) | (345) | (344) | (340) | (360) | (299) | (291) |
| Operating income | 2,980 | 2,982 | 3,287 | 2,614 | 2,853 | 2,673 | 2,980 | 2,857 |
| Impairment on financial assets (net) | (687) | (1,004) | (1,077) | (1,033) | (1,057) | (1,074) | (1,089) | (1,119) |
| Provisions (net) | (723) | (201) | (81) | (181) | (157) | (182) | (164) | (230) |
| Other gains (losses) | (284) | (61) | (75) | (62) | (97) | (127) | (123) | (66) |
| Income before tax | 1,285 | 1,716 | 2,053 | 1,338 | 1,544 | 1,289 | 1,604 | 1,442 |
| Income tax | (314) | (465) | (557) | (362) | (332) | (294) | (429) | (386) |
| Net income from ongoing operations | 971 | 1,251 | 1,496 | 976 | 1,212 | 995 | 1,175 | 1,056 |
| Results from corporate operations (2) | - | - | - | - | 4 | (1,840) | 144 | 583 |
| Net income | 971 | 1,251 | 1,496 | 976 | 1,215 | (845) | 1,319 | 1,639 |
| Non-controlling interests | (293) | (286) | (373) | (266) | (275) | (212) | (97) | (103) |
| Net attributable profit | 678 | 965 | 1,123 | 709 | 940 | (1,057) | 1,223 | 1,536 |
| Attributable profit without corporate transactions | 678 | 965 | 1,123 | 709 | 936 | 784 | 1,078 | 953 |
| Earning per share (euros) (3) | 0.09 | 0.14 | 0.16 | 0.10 | 0.13 | (0.17) | 0.18 | 0.23 |
| Earning per share (excluding corporate operations; euros) (3) | 0.09 | 0.14 | 0.16 | 0.10 | 0.13 | 0.11 | 0.15 | 0.14 |
(Million euros)
| 2016 | ∆% | ∆% at constant exchange rates | 2015 | |
|---|---|---|---|---|
| Net interest income | 17,059 | 3.9 | 14.9 | 16,426 |
| Net fees and commissions | 4,718 | 0.3 | 8.5 | 4,705 |
| Net trading income | 2,132 | 6.1 | 16.2 | 2,009 |
| Dividend income | 467 | 12.4 | 13.5 | 415 |
| Share of profit or loss of entities accounted for using the equity method | 25 | n.m. | n.m. | 8 |
| Other operating income and expenses | 252 | 114.5 | 86.5 | 117 |
| Gross income | 24,653 | 4.1 | 14.2 | 23,680 |
| Operating expenses | (12,791) | 3.9 | 11.9 | (12,317) |
| Personnel expenses | (6,722) | 5.4 | 12.6 | (6,377) |
| Other administrative expenses | (4,644) | (0.1) | 9.5 | (4,650) |
| Depreciation | (1,426) | 10.5 | 16.6 | (1,290) |
| Operating income | 11,862 | 4.4 | 16.9 | 11,363 |
| Impairment on financial assets (net) | (3,801) | (12.4) | (4.6) | (4,339) |
| Provisions (net) | (1,186) | 61.9 | 73.5 | (733) |
| Other gains (losses) | (482) | 17.0 | 16.6 | (412) |
| Income before tax | 6,392 | 8.7 | 26.2 | 5,879 |
| Income tax | (1,699) | 17.9 | 43.1 | (1,441) |
| Net income from ongoing operations | 4,693 | 5.7 | 21.0 | 4,438 |
| Results from corporate operations (2) | - | - | - | (1,109) |
| Net income | 4,693 | 41.0 | 69.5 | 3,328 |
| Non-controlling interests | (1,218) | 77.5 | 98.4 | (686) |
| Net attributable profit | 3,475 | 31.5 | 61.2 | 2,642 |
| Attributable profit without corporate transactions | 3,475 | (7.4) | 6.4 | 3,752 |
| Earning per share (euros) (3) | 0.50 | 0.37 | ||
| Earning per share (excluding corporate operations; euros) (3) | 0.50 | 0.54 |
Increase in allocation to provisions, strongly affected by the booking of the provisions covering the contingency of possible future claims by customers as a result of the judgment of the CJEU on “mortgage floor clauses” in loans with consumers.
Reduction in other gains (losses), mainly as a result of increased provisioning requirements for properties.
Unless expressly indicated otherwise, to better understand the changes in the main headings of the Group’s income statement, the year-on-year percentage changes given below refer to constant exchange rates.
The Group’s cumulative gross income was €24.653m, 14.2% more than in 2015 (up 7.7% with Turkey in comparable terms). More recurring revenues performed outstandingly, in particular net interest income, and earnings from the Group’s insurance activity in practically all the geographical areas.
(Million euros)
Net interest income continues to grow. It rose by 3.9% in the fourth quarter, giving a cumulative increase of 14.9% from the previous year (up 7.0% with Turkey in comparable terms).
This positive trend is once more explained by growth in activity, mainly in emerging economies, and maintenance of customer spreads. By business areas there has been a positive performance in Mexico (up 11.6%), South America (up 11.4%), Turkey (up 10.6%) and the United States (up 7.6%). In Spain and the rest of Eurasia net interest income declined as a result of the current very low interest-rate environment, which has led to narrowed spreads and lower business volumes (reduction of lending in both geographic areas and of customer deposits under management in Eurasia).
(Percentage)
Income from fees and commissions declined in the fourth quarter (down 2.6%), linked closely to market trends and reduced activity in securities and investment banking. However, they have grown in the cumulative figure by 8.5% year-on-year (up 2.5% with Turkey in comparable terms), strongly supported by the good performance of the United States, Turkey, Mexico, South America and Eurasia.
As a result, more recurring revenues (net interest income plus income from fees and commissions) in 2016 has increased year-on-year by 13.4%, or 6.0% with Turkey in comparable terms.
(Million euros)
The contribution from NTI in the fourth quarter is down on the figure for the third, due mainly to unfavorable exchange rates against the euro and dollar (above all of the Turkish lira and Mexican peso), leading to foreign exchange losses that have not been offset by the rest of the items. In the cumulative figure for 2016 there has been a year-on-year increase of 16.2% (up 19.8% with Turkey in comparable terms), due basically to: the capital gains from the VISA Europe operation in the second quarter (On June 21, 2016, VISA Inc. completed the acquisition process of VISA Europe Ltd. This transaction has meant the recognition of a capital gain before tax and minority interests of €225m.), the partial sale on the market of shares held by BBVA Group in CNCB and the good performance of Global Markets, particularly towards the latter part of the year.
The dividend income heading mainly includes dividends from the Group’s stakes in Telefónica and CNCB. The 2016 figure is 13.5% higher than in 2015, strongly influenced by the payment in the second quarter of the CNCB dividend (which was not booked in 2015).
Finally, other operating income and expenses have increased by 86.5% (up 63.8% with Turkey in comparable terms), strongly influenced by positive income from insurance activities. In fact, the net contribution of the insurance business has increased by 15.7% year-on-year (up 13.4% with Turkey in comparable terms), due to its good performance in all geographical areas and the positive effect in Mexico of the change in the insurance industry regulations affecting the calculation of the mathematical reserves.
There has been a further slowdown in the year-on-year increase in operating expenses, which in the cumulative figure through December 2016 rose by 11.9% (up 6.6% with Turkey in comparable terms), despite the inclusion of expenses associated with the integration of CX for the whole year (in 2015 they were included from April 24), the high level of inflation in some geographical areas where BBVA operates, and the negative effect that currency depreciation has had on cost items denominated in dollars and euros.
(Million euros)
(1) At constant exchange +11.9%
(Million euros)
| 2016 | ∆% | 2015 | |
|---|---|---|---|
| Personnel expenses | 6,722 | 5.4 | 6,377 |
| Wages and salaries | 5,267 | 4.4 | 5,047 |
| Employee welfare expenses | 938 | 13.5 | 827 |
| Training expenses and other | 516 | 2.4 | 504 |
| Other administrative expenses | 4,644 | (0.1) | 4,650 |
| Premises | 1,080 | 2.4 | 1,054 |
| IT | 968 | 9.9 | 880 |
| Communications | 294 | 1.9 | 289 |
| Advertising and publicity | 398 | 1.4 | 393 |
| Corporate expenses | 104 | (8.4) | 114 |
| Other expenses | 1,367 | (5.3) | 1,444 |
| Levies and taxes | 433 | (9.1) | 476 |
| Administration expenses | 11,366 | 3.1 | 11,027 |
| Depreciation | 1,426 | 10.5 | 1,290 |
| Operating expenses | 12,791 | 3.9 | 12,317 |
| Gross income | 24,653 | 4.1 | 23,680 |
| Efficiency ratio (operating expenses/gross income; %) | 51.9 | 52.0 |
The Group’s effort to reduce costs has led to expenses increasing at a lower rate than gross income. Thus there was a slight improvement in the efficiency ratio, which closed the year at 51.9% (52.0% in 2015). Operating income increased by 16.9% (up 8.9% with Turkey in comparable terms).
(Million euros)
Impairment losses on financial assets have continued the positive trend observed along the year. As a result, the cumulative year-on-year amount fell by 4.6% (down 8.8% with Turkey in comparable terms). The above is a result of the improvement in asset quality, particularly in Spain. In the case of Mexico and South America, the evolution along the year has been stable, as was expected. In the United States, the negative performance in the first quarter impacted by the oil & gas portfolio has been gradually corrected as 2016 advanced and closed the fourth quarter with an amount lower than expected. Finally in Turkey, this line includes in the last three months of 2016 the allocation to contingent liabilities; this does not imply a change in trend over the average of previous quarters.
(Million euros)
The rise in provisions can be explained by the inclusion in the fourth quarter of a charge of €577m (€404m after tax) to cover the contingency linked to the judgment of the CJEU on “mortgage floor clauses”, as mentioned above.
Finally, other gains (losses), which in 2016 have risen by 16.6% compared with 2015 (up 18.2% with Turkey in comparable terms) includes the increased provisioning requirements for properties and foreclosed assets.
As a result of the above, the Group’s cumulative cost of risk in 2016 (0.84%) is below both the cumulative figure through September (0.92%) and for 2015 (1,06%). Overall cost of risk (which includes impairment losses on financial assets plus provisions for real estate and foreclosed assets) was stable (0.92% in 2016) relative to that reported in the first nine months of the year (0.96%).
As a result of the above, net income from ongoing operations grew by 21.0% in year-on-year terms (up 8.4% with Turkey in comparable terms).
(Million euros)
Without taking into account corporate operations for 2015, the Group’s net attributable profit posted growth of 6.4% (up 3.6% with Turkey in comparable terms), despite the difficult macroeconomic environment during the year and the need for a provision for “mortgage floor clauses” (as explained above).
(Million euros)
(Excluding corporate operations. Euros)
(Percentage)
(1) The ROE and ROTE ratios include in the denomitator the Group’s average shareholders’ equity, but do not take into account the captio within total equity named “Accumulated other comprehensive income” with an average balance of -€2,448m in 2014, -€1,1339m in 2015 and -€4,492m in 2016.
(Percentage)
By business area, banking activity in Spain has generated €912m, real-estate activity in Spain generated a loss of €595m, the United States contributed €459m, Turkey €599m, Mexico €1.980m, South America €771m, and the Rest of Eurasia €151m.
To ensure comparable figures, the Group’s income statement with year-on-year rates of change and Turkey in comparable terms is presented below (to isolate the effects of the purchase of an additional 14.89% stake in Garanti).
(Million euros)
| 2016 | ∆% | ∆% at constant exchange rates | |
|---|---|---|---|
| Net interest income | 17,059 | (3.6) | 7.0 |
| Net fees and commissions | 4,718 | (5.6) | 2.5 |
| Net trading income | 2,132 | 9.7 | 19.8 |
| Other income/expenses | 744 | 31.1 | 31.1 |
| Gross income | 24,653 | (2.2) | 7.7 |
| Operating expenses | (12,791) | (1.4) | 6.6 |
| Operating income | 11,862 | (3.1) | 8.9 |
| Impairment on financial assets (net) | (3,801) | (16.5) | (8.8) |
| Provisions (net) and other gains (losses) | (1,669) | 46.0 | 52.3 |
| Income before tax | 6,392 | (2.3) | 13.5 |
| Income tax | (1,699) | 7.8 | 30.5 |
| Net income from ongoing operations | 4,693 | (5.5) | 8.4 |
| Results from corporate operations (2) | - | - | - |
| Net income | 4,693 | 21.7 | 45.7 |
| Non-controlling interests | (1,218) | 9.9 | 24.9 |
| Net attributable profit | 3,475 | 26.5 | 54.7 |
| Attributable profit without corporate transactions | 3,475 | (9.9) | 3.6 |
The year-on-year rates of change of BBVA Group’s balance sheet and business activity balances at 31-Dec-2016 were, again, negatively affected by the depreciation of exchange rates against the euro. The most notable factors behind the key balance sheet and activity figures are:
Gross lending to customers has declined slightly by 0.6% year-on-year. Despite the good performance from new production, the domestic sector reports a reduction of 4.3% chiefly due to more sluggish activity with institutions, and because repayments in the mortgage segment continue to outstrip new production. The figure for the non-domestic sector is up 3.3%, despite the negative impact of exchange rates, as the trend remains one of strong lending, particularly in emerging geographical areas (Turkey, Mexico and South America).
Non-performing loans have maintained the declining trend of previous quarters, particularly in the domestic sector (banking and real-estate activity in Spain), Turkey and Mexico. The balance of non-performing loans also declined in the United States over the last quarter.
(Million euros)
| 31-12-16 | ∆% | 31-12-15 | 30-09-16 | |
|---|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 40,039 | 36.7 | 29,282 | 28,958 |
| Financial assets held for trading | 74,950 | (4.3) | 78,326 | 75,569 |
| Other financial assets designated at fair value through profit or loss | 2,062 | (10.8) | 2,311 | 2,104 |
| Available-for-sale financial assets | 79,221 | (30.2) | 113,426 | 86,673 |
| Loans and receivables | 465,977 | (1.2) | 471,828 | 459,554 |
| Loans and advances to central banks and credit institutions | 40,268 | (14.6) | 47,147 | 42,487 |
| Loans and advances to customers | 414,500 | 0.1 | 414,165 | 406,124 |
| Debt securities | 11,209 | 6.6 | 10,516 | 10,943 |
| Held-to-maturity investments | 17,696 | n.m. | - | 19,094 |
| Investments in subsidiaries, joint ventures and associates | 765 | (13.0) | 879 | 751 |
| Tangible assets | 8,941 | (10.1) | 9,944 | 9,470 |
| Intangible assets | 9,786 | (2.7) | 10,052 | 9,503 |
| Other assets | 32,418 | (4.1) | 33,807 | 32,951 |
| Total assets | 731,856 | (2.4) | 749,855 | 724,627 |
| Financial liabilities held for trading | 54,675 | (1.0) | 55,202 | 55,226 |
| Other financial liabilities designated at fair value through profit or loss | 2,338 | (11.7) | 2,649 | 2,436 |
| Financial liabilities at amortized cost | 589,210 | (2.8) | 606,113 | 581,593 |
| Deposits from central banks and credit institutions | 98,241 | (9.6) | 108,630 | 106,557 |
| Deposits from customers | 401,465 | (0.5) | 403,362 | 385,348 |
| Debt certificates | 76,375 | (6.8) | 81,980 | 76,363 |
| Other financial liabilities | 13,129 | 8.1 | 12,141 | 13,325 |
| Memorandum item: subordinated liabilities | 17,230 | 7.0 | 16,109 | 17,156 |
| Liabilities under insurance contracts | 9,139 | (2.8) | 9,407 | 9,274 |
| Other liabilities | 21,066 | (0.6) | 21,202 | 20,207 |
| Total liabilities | 676,428 | (2.6) | 694,573 | 668,736 |
| Non-controlling interests | 8,064 | 0.9 | 7,992 | 8,324 |
| Accumulated other comprehensive income | (5,458) | 63.0 | (3,349) | (4,681) |
| Shareholders’ funds | 52,821 | 4.3 | 50,639 | 52,248 |
| Total equity | 55,428 | 0.3 | 55,282 | 55,891 |
| Total equity and liabilities | 731,856 | (2.4) | 749,855 | 724,627 |
| Memorandum item: | ||||
| Collateral given | 50,540 | 1.3 | 49,876 | 49,969 |
(Million euros)
| 31-12-16 | ∆% | 31-12-15 | 30-09-16 | |
|---|---|---|---|---|
| Domestic sector | 168,527 | (4.3) | 176,090 | 171,775 |
| Public sector | 18,326 | (14.6) | 21,471 | 20,621 |
| Other domestic sectors | 150,201 | (2.9) | 154,620 | 151,153 |
| Secured loans | 93,339 | (4.6) | 97,852 | 94,210 |
| Other loans | 56,862 | 0.2 | 56,768 | 56,944 |
| Non-domestic sector | 239,032 | 3.3 | 231,432 | 227,481 |
| Secured loans | 108,432 | 5.3 | 103,007 | 105,822 |
| Other loans | 130,600 | 1.7 | 128,425 | 121,659 |
| Non-performing loans | 22,915 | (9.5) | 25,333 | 23,589 |
| Domestic sector | 16,388 | (16.0) | 19,499 | 16,874 |
| Non-domestic sector | 6,527 | 11.9 | 5,834 | 6,715 |
| Loans and advances to customers (gross) | 430,474 | (0.6) | 432,855 | 422,844 |
| Loan-loss provisions | (15,974) | (14.5) | (18,691) | (16,720) |
| Loans and advances to customers | 414,500 | 0.1 | 414,165 | 406,124 |
(Billion de euros)
The Group’s deposits from customers ended the year at very similar levels to 31-Dec-2015 (down 0.5%). In the domestic sector the performance was shaped by a significant fall in balances from the public sector (down 55.0%) and a decline in time deposits (down 19.0%) as a result of the drop in remuneration on these deposits in a context of very low interest rates. In contrast, current and savings accounts performed positively (up 21.7%). In the non-domestic sector there was an increase in all deposit lines, particularly the most liquid and lower-cost ones.
Off-balance sheet funds ended the year with balances practically matching those at year-end 2015 (up 0.2%). There was a positive performance in Spain, while in the rest of the world the main impact was the adverse exchange-rate effect mentioned above.
(Million of euros)
| 31-12-16 | ∆% | 31-12-15 | 30-09-16 | |
|---|---|---|---|---|
| Deposits from customers | 401,465 | (0.5) | 403,362 | 385,348 |
| Domestic sector | 164,075 | (6.3) | 175,142 | 159,580 |
| Public sector | 6,914 | (55.0) | 15,368 | 6,152 |
| Other domestic sectors | 157,161 | (1.6) | 159,774 | 153,429 |
| Current and savings accounts | 95,568 | 21.7 | 78,502 | 88,126 |
| Time deposits | 56,120 | (19.0) | 69,326 | 60,474 |
| Assets sold under repurchase agreement and other | 5,473 | (54.2) | 11,947 | 4,828 |
| Non-domestic sector | 237,147 | 4.0 | 227,927 | 225,522 |
| Current and savings accounts | 128,692 | 3.9 | 123,854 | 119,119 |
| Time deposits | 99,409 | 0.8 | 98,596 | 99,611 |
| Assets sold under repurchase agreement and other | 9,046 | 65.2 | 5,477 | 6,791 |
| Subordinated liabilities | 243 | (17.2) | 293 | 246 |
| Other customer funds | 132,092 | 0.2 | 131,822 | 130,833 |
| Spain | 80,565 | 1.7 | 79,181 | 78,159 |
| Mutual funds | 32,655 | 3.7 | 31,490 | 31,566 |
| Pension funds | 23,448 | 2.4 | 22,897 | 23,103 |
| Other off-balance sheet funds | 51 | (58.3) | 123 | 50 |
| Customer portfolios | 24,410 | (1.1) | 24,671 | 23,440 |
| Rest of the world | 51,527 | (2.1) | 52,641 | 52,674 |
| Mutual funds and investment companies | 22,382 | (2.4) | 22,930 | 22,989 |
| Pension funds | 9,970 | 15.3 | 8,645 | 9,525 |
| Other off-balance sheet funds | 2,780 | (24.1) | 3,663 | 3,106 |
| Customer portfolios | 16,395 | (5.8) | 17,404 | 17,054 |
| Total customer funds | 533,557 | (0.3) | 535,184 | 516,181 |
(Billion euros)
BBVA Group closed 2016 with a fully-loaded CET1 ratio of 10.9%. This represents a rise of 58 basis points on the figure of 10.3% at the close of 2015, thanks once more to the Group’s generation of recurring earnings and the reduction in RWA. In the fourth quarter, the fully-loaded CET1 ratio fell by 10 basis points as a result of the impact of the evolution of the markets. In addition, there were two additional impacts in the last quarter of 2016: first, the so called “mortgage floor clauses” has had a negative effect of 16 basis points; and second, the European Commission’s decision to include Turkey on its list of countries that comply with the supervisory and regulatory requirements equivalent to European standards allowed the Group to improve its capital adequacy ratios by 15 basis points.
Another relevant aspect linked to the changes in the capital base is the implementation of a new “dividend-option” program in October. Owners of 87.85% of the free allocation rights opted to receive bonus BBVA shares. A total of 86,3 million ordinary shares were issued.
(Percentage)
In phased-in terms, the CET1 ratio was 12.2% as of 31-Dec-2016, the Tier 1 ratio was 12.9% and the total capital ratio was 15.1% These levels are above the requirements established by the ECB in its SREP letter and the systemic buffers applicable to BBVA Group for the CET1 ratio in 2016 (9.75%). Starting on January 1, 2017, this requirement has been established for the phased-in CET1 ratio (7,625%) and the total capital ratio (11,125%). Thus the current ratios are also above the ECB regulatory requirements applicable to 2017.
The Group maintains a high leverage ratio: 6.5% under fully-loaded criteria (6.7% phased-in), which continues to compare very favorably with the rest of its peer group.
In 2016, BBVA’s ratings have not changed; they remain at the same levels as at the close of 2015. The last update was on April 13, when DBRS modified BBVA’s outlook from positive to stable, as a result of a similar change in Spain’s sovereign rating outlook.
| Rating agency | Long term | Short term | Outlook |
|---|---|---|---|
| DBRS | A | R-1 (low) | Stable |
| Fitch | A- | F-2 | Stable |
| Moody's (1) | Baa1 | P-2 | Stable |
| Scope Ratings | A | S-1 | Stable |
| Standard & Poor's | BBB+ | A-2 | Stable |
(Million euros)
| CRD IV phased-in | 31-12-16 (2) | 30-09-16 | 30-06-16 | 31-03-16 | 31-12-15 |
|---|---|---|---|---|---|
| Common Equity Tier 1 (CET1) | 47,343 | 47,801 | 47,559 | 46,471 | 48,554 |
| Tier 1 | 50,057 | 50,545 | 50,364 | 48,272 | 48,554 |
| Tier 2 | 8,810 | 11,635 | 11,742 | 11,566 | 11,646 |
| Total Capital (Tier 1+Tier 2) | 58,867 | 62,180 | 62,106 | 59,838 | 60,200 |
| Risk-weighted assets | 388,760 | 389,814 | 395,085 | 399,270 | 401,277 |
| CET1 (%) | 12.2 | 12.3 | 12.0 | 11.6 | 12.1 |
| Tier 1 (%) | 12.9 | 13.0 | 12.7 | 12.1 | 12.1 |
| Tier 2 (%) | 2.3 | 3.0 | 3.0 | 2.9 | 2.9 |
| Total capital ratio (%) | 15.1 | 15.9 | 15.7 | 15.0 | 15.0 |
BBVA Group has closed 2016 with a very positive trend in the main asset quality indicators.
Credit risk increased by 1.7% over the quarter, and was down 0.4% since the close of December 2015 (up 2.0% and 2.4% respectively, at constant exchange rates). Credit activity has continued to be strong in Mexico, South America and Turkey. In contrast, credit risk is still declining in Spain and in the United States it shows a slight reduction, as this area is focused on selective and profitable growth.
Non-performing loans have once more performed very well. Over the last three months of the year the balance fell again by 2.7% (down 9.2% year-on-year), thanks to the improvement in practically all the geographical areas, above all Banking Activity in Spain (down 1.6% over the quarter and 14.7% over the year), Real-Estate Activity in Spain (down 6.0% and 17.3% respectively), Turkey (down 8.4% and 3.3%, respectively), Mexico (down 2.9% and 10.2% respectively) and the United States (down 9.0%, although over the last twelve months they have risen by 67.0% as a result of the downgrade in ratings, basically in the first quarter, of some companies operating in the oil & gas sector). In South America, there was an increase of 12.8% over the quarter and 39.4% over the last twelve months.
The Group’s NPL ratio has improved again (down 22 basis points over the last three months and down 48 basis points since the start of the year) to 4.9% at the close of the year.
(Million euros)
(Million euros)
| 31-12-16 | 30-09-16 | 30-06-16 | 30-03-16 | 31-12-15 | |
|---|---|---|---|---|---|
| Non-performing loans and contingent liabilities | 23,595 | 24,253 | 24,834 | 25,473 | 25,996 |
| Credit risks | 480,720 | 472,521 | 483,169 | 478,429 | 482,518 |
| Provisions | 16,573 | 17,397 | 18,264 | 18,740 | 19,405 |
| NPL ratio (%) | 4.9 | 5.1 | 5.1 | 5.3 | 5.4 |
| NPL coverage ratio (%) | 70 | 72 | 74 | 74 | 74 |
(Million euros)
| 4Q16(1) | 3Q16 | 2Q16 | 1Q16 | 4Q15 | |
|---|---|---|---|---|---|
| Beginning balance | 24,253 | 24,834 | 25,473 | 25,996 | 26,395 |
| Entries | 3,000 | 2,588 | 2,947 | 2,421 | 2,944 |
| Recoveries | (2,141) | (1,784) | (2,189) | (1,519) | (2,016) |
| Net variation | 859 | 804 | 758 | 902 | 928 |
| Write-offs | (1,403) | (1,220) | (1,537) | (1,432) | (1,263) |
| Exchange rate differences and other | (115) | (165) | 140 | 6 | (63) |
| Period-end balance | 23,595 | 24,253 | 24,834 | 25,473 | 25,996 |
| Memorandum item: | |||||
| Non-performing loans | 22,915 | 23,589 | 24,212 | 24,826 | 25,333 |
| Non-performing contingent liabilities | 680 | 665 | 622 | 647 | 664 |
Loan-loss provisions have fallen by 4.7% on the figure for the close of September (down 14.6% year-on-year), due mainly to declines in Turkey (exchange-rate effect) and Spain.
As a result, the Group’s coverage ratio stands at 70%.
Lastly, the cumulative cost of risk through December has fallen once more to 0.84% (0.92% cumulative as of the third quarter of 2016 and 1,06% in 2015).
Management of liquidity and funding aims to finance the recurring growth of the banking business at suitable maturities and costs, using a wide range of instruments that provide access to a large number of alternative sources of finance, always in compliance with current regulatory requirements.
A core principle in BBVA’s management of the Group’s liquidity and funding is the financial independence of its banking subsidiaries abroad. This principle prevents the propagation of a liquidity crisis among the Group’s different areas and ensures that the cost of liquidity is correctly reflected in the price formation process.
In 2016 liquidity and funding conditions remained comfortable across BBVA Group’s global footprint.
The financial soundness of the Group’s banks is based on the funding of lending activity, fundamentally through the use of customer funds.
In Spain and the United States, total deposits have shown a positive trend, despite the current interest-rate environment over the year as a whole and in the last quarter. The trend has also been positive in Mexico, South America and Turkey.
The European Central Bank (ECB) has adopted a number of measures over the year, most notably the following: the interest-rate cut in March, the extension of the asset purchase program announced in December, and the new round of liquidity injection through the targeted longer-term refinancing operations (TLTROs) with a maturity of four years. BBVA participated in the program’s June auction, increasing its net take-up by €10 billion.
In Mexico, the liquidity position continues to be sound, despite the market volatility following the U.S. elections. There is relatively little dependence on wholesale funding, which is basically linked to securities portfolios. The positive performance of customer funds has meant that wholesale markets could be used less, and this use was limited to the local market.
In the United States, the narrowing credit gap over the year has allowed the cancellation of one issue and a reduction in wholesale funding, with the liquidity position in 2016 remaining comfortable.
In Turkey, despite the geopolitical tension and Moody’s downgrade of its credit rating, the domestic environment has remained stable, without pressure on the sources of funding, supported by the measures adopted by the Central Bank of Turkey (CBRT).
In the rest of the franchises, the liquidity and funding situation in both local currency and dollars has also remained stable.
Over the year BBVA S.A. has accessed the wholesale markets for a total of €6.350m, using a diversified range of debt instruments, including senior debt, mortgage-covered bonds, Additional Tier 1 (AT1) and securitization. In particular, over the last quarter of the year a successful issue of mortgage-covered bonds for €1 billion captured the attention of major investors.
The long-term wholesale funding markets have remained stable in the other geographical areas where the Group operates. There have been no international securities issues. Access to stable finance in Turkey is evident from the increase in long-term wholesale funding (up €400m), the renewal of the total volume of syndicated loans (€2.400m), and foreign-currency issues (€610m) which matured in 2016.
Short-term funding has also continued to perform positively, in a context marked by a high level of liquidity.
With respect to the LCR liquidity ratio, BBVA Group keeps levels over 100%, clearly higher than demanded by regulations (over 70% in 2016), both at Group level and in all its banking subsidiaries.
Foreign-exchange risk management of BBVA’s long-term investments, basically stemming from its franchises abroad, aims to preserve the Group’s capital adequacy ratios and ensure the stability of its income statement.
The year 2016 was marked mainly by the electoral process in the U.S. and its impact on the dollar and Mexican peso, the ECB’s quantitative easing (QE) measures, the delay in interest hikes by the Federal Reserve (FED) until December, the result of the Brexit referendum and uncertainty in Turkey.
Against this background, BBVA has maintained a policy of actively hedging its main investments in emerging economies: the hedge on average covers between 30% and 50% of the earnings expected for the following year and around 70% of the excess of the CET1 ratio (what is not naturally covered by the ratio itself). In accordance with this policy, at the close of December 2016 the sensitivity of the CET1 ratio to a depreciation of 10% of the main emerging currencies (Mexican peso or Turkish lira) against the euro would be limited to less than 2 basis points, and the coverage level of the expected earnings for the next year in these two countries would be 50% in Mexico and 70% in Turkey.
The aim of managing interest-rate risk is to maintain a sustained growth of net interest income in the short and medium term, irrespective of interest-rate fluctuations, while controlling the impact on the capital adequacy ratio through the valuation of the portfolio of available-for-sale assets.
In 2016, the results of this management have been satisfactory, with limited risk strategies in all the Group’s banks aimed at improving profitability. The amount of NTI generated in Europe and the United States is the result of prudent portfolio management strategies, particularly of sovereign debt, in a context marked by low interest rates. Portfolios are also held in Mexico, Turkey and South America, mainly of sovereign debt, to manage the balance-sheet structure.
Finally, the political uncertainties generated by Brexit and the U.S. elections have had a limited impact on the debt markets. No major increases have been observed in either the sovereign debt spreads or those of BBVA, so their effect on NTI and the valuation of the ALCO portfolios has been limited. In Mexico, the Central Bank (Banxico) has tried to contain inflation and protect the peso by five interest-rate hikes totaling 250 basis points over 2016, leaving the monetary policy rate at 5.75%, the highest since 2009. In Turkey, the markets have shown resilience despite the volatility, mainly due to geopolitical factors. As a result, the year has closed with a risk premium in line with the close of 2015. The CBRT, which had been lowering rates for the first three quarters of 2016, raised them in November, in response to the slight slowdown in growth and the weakness of the Turkish lira.
Attributable economic risk capital (ERC) consumption at the close of December stood at €37.665m in consolidated terms, a year-on-year decline of 6.9% (1). This performance is mainly the result of the depreciation against the euro of some local currencies (mainly the Turkish Lira, Mexican and Argentine pesos and Venezuelan bolivar). In constant terms, the year-on-year decline is 3.4%. The decline is mainly focused on fixed-income (spread) and equity ERC, due to the reduction in the “available-for-sale” portfolio, as well as market risk. In contrast, there were increases over the year in ERC in structural exchange-rate risk and operational risk.
(Percentage as of December 2016)
Global growth improved in the second half of 2016 (estimated at 0.8% for the third quarter and 0.9% for the fourth). Developed countries are speeding up their growth thanks to improved confidence and a stronger industrial sector, which is also having an effect on the Chinese economy. The performance of the rest of the emerging economies is uneven, but in general the trend is for recovery. The improvement in global trade also appears to be confirmed, after a weak first half of the year.
Against this backdrop, the performance of the main stock-market indices has varied greatly over the last twelve months. The Stoxx 50 lost 2.9%, while in the Eurozone the Euro Stoxx 50 gained 0.7% and in Spain, the Ibex 35 fell by 2.0%. The S&P 500, which tracks the share prices of U.S. companies, closed the year up 9.5%, most of the gain being in the second half of the year.
In the banking sector, the Stoxx Banks index of European banks, including those in the United Kingdom, slowed its decline of the first half of the year, and closed 2016 with a decline of 6.8%. The same trend is reflected in the Eurozone bank index, the Euro Stoxx Banks, which lost 8.0%. In the United States, the S&P Regional Banks sector index gained 32.4% in 2016, with the growth focused at the end the year following the results of the U.S. elections.
The BBVA share performed relatively better in 2016 than the European banking system as a whole. As of December 31, 2016, the BBVA share price was €6,41, a rise over the quarter of 19.2% and a year-on-year decline of 4.8%.
(Base indice 100=31-12-05)
| 31-12-16 | 31-12-15 | |
|---|---|---|
| Number of shareholders | 935,284 | 934,244 |
| Number of shares issued | 6,566,615,242 | 6,366,680,118 |
| Daily average number of shares traded | 47,180,855 | 46,641,017 |
| Daily average trading (million euros) | 272 | 393 |
| Maximum price (euros) | 6.88 | 9.77 |
| Minimum price (euros) | 4.50 | 6.70 |
| Closing price (euros) | 6.41 | 6.74 |
| Book value per share (euros) | 7.22 | 7.47 |
| Tangible book value per share (euros) | 5.73 | 5.88 |
| Market capitalization (million euros) | 42,118 | 42,905 |
| Yield (dividend/price; %) (1) | 5.8 | 5.5 |
As regards shareholder remuneration, two cash dividends have been paid for a gross €0,08 per share each. These payments were made on July 11, 2016 and January 12, 2017. The Board of Directors of BBVA also decided at its meetings on March 31 and September 28, 2016, to carry out two capital increases against voluntary reserves to implement the “dividend-option” system, in accordance with the terms agreed at the Annual General Meeting of March 11, 2016. In the first increase, the holders of 82.13% of the rights opted to receive new shares, while in the second, the figure was 87.85%. These percentages once more confirm the popularity of this remuneration system among BBVA shareholders.
(Euros-gross/share)
The number of BBVA shares as of 31-Dec-2016 is 6.566.615.242. The number of shareholders is 935.284. Residents in Spain hold 45.4% of the share capital, while the percentage owned by non-resident shareholders stands at 54.6%.
(31-12-2016)
| Shareholders | Shares | |||
|---|---|---|---|---|
| Number of shares | Number | % | Number | % |
| Up to 150 | 195,708 | 20.9 | 13,968,109 | 0.2 |
| 151 a 450 | 193,919 | 20.7 | 52,751,281 | 0.8 |
| 451 a 1,800 | 293,155 | 31.3 | 283,143,322 | 4.3 |
| 1,801 a 4,500 | 132,489 | 14.2 | 377,585,913 | 5.8 |
| 4,501 a 9,000 | 61,532 | 6.6 | 387,861,188 | 5.9 |
| 9,001 a 45,000 | 51,748 | 5.5 | 902,063,600 | 13.7 |
| More than 45,001 | 6733 | 0.7 | 4,549,241,829 | 69.3 |
| Total | 935,284 | 100.0 | 6,566,615,242 | 100.0 |
BBVA shares are traded on the Continuous Market of the Spanish Stock Exchanges and also on the stock exchanges in London and Mexico. BBVA American Depositary Shares (ADS) are traded on the New York Stock Exchange and also on the Lima Stock Exchange (Peru) under an exchange agreement between these two markets. Among the main stock-market indices, BBVA shares are included on the Ibex 35, Euro Stoxx 50 and Stoxx 50, with a weighting of 8.70%, 1.90% and 1.21% respectively. They are also listed on several sector indices, such as the Stoxx Banks, with a weighting of 4.39%, and the Euro Stoxx Banks, with a weighting of 9.29%.
Lastly, BBVA maintains a significant presence on a number of international sustainability indices or ESG (environmental, social and governance), which evaluate the performance of companies in this area, as summarized in the table below.
BBVA’s responsible banking model seeks to boost financial inclusion and literacy and support scientific research and culture. The Group operates with the highest level of integrity, a long-term focus, and a balanced relationship with customers, contributing to the development of the communities in which it is present. All this is in line with the Bank’s Purpose: “to bring the age of opportunity to everyone”.
The highlights in 2016 in responsible banking are summarized below.
BBVA puts customers at the core of its business. The “TCR Communication” project helps customers make informed decisions, ensuring that BBVA’s relationship with them is transparent, clear and responsible in each interaction. In this way we strengthen the relationship of trust and we gain their loyalty, so they recommend us to other potential customers.
In 2016 we have worked in three areas. We have continued to expand the number of products and services that have TCR leaflets, we have worked on making contracts TCR and we have made sure that the language used in online banking conversations and in the replies to their complaints is in line with these principles. We have also continued to work on digital projects hand in hand with the development and usability teams.
Clarity and transparency are not only achieved through the “TCR Communication” project. The Commitment and Transparency Foundation (Fundación Compromiso y Transparencia) has also ranked BBVA second on the list of companies that best inform of their fiscal responsibility in the Ibex 35 index.
BBVA and the European Investment Bank (EIB) have joined forces for the third time to boost funding for small and medium-sized enterprises, provide liquidity and help them with their investments.
Moreover, BBVA is committed to sustainable funding strategies and is incorporating environmental and social criteria into its products to generate a positive impact. This commitment is reflected in the Bloomberg ranking, where BBVA is the first Spanish financial institution as issuer of green bonds.
In Spain, the fifth edition of the Territorios Solidarios project has taken place. This initiative offers the Bank’s employees the chance to put forward non-profit organizations which are then voted by the rest of staff and can win up to 10.000 euros to fund a project within their area of activity. This year, 1.650.000 euros have been distributed.
The 8th Integra Awards have also been held to recognize the innovative initiatives that generate quality employment for people with disabilities in Spain. A total of €3m have been granted in the seven years of the awards so far, 700 jobs have been created for people with disabilities and a further 4.000 jobs have been maintained.
Meanwhile, BBVA Bancomer and Seguros Bancomer have received from the Mexican Center for Philanthropy (Cemefi) the “Socially Responsible Company” recognition, which is awarded to all leading companies in the field of social responsibility that have certifiable standards in community involvement and support for the populations over which they have an influence. This recognition was awarded for the first time in 2000. BBVA Bancomer has been the only bank to receive this recognition for more than fifteen years.
Lastly, as regards housing, an agreement was signed in July between BBVA Group and the Regional Government of Catalonia for the implementation of a social housing project. BBVA will transfer 1.800 homes to the Regional Government for families in a situation of social vulnerability. The Regional Government will implement a social insertion plan as part of this agreement.
The Institute for Financial Literacy, a non-governmental organization based in the United States, has awarded the recognition Excellence in Financial Literacy Education to BBVA Bancomer for the approach and the results of its financial literacy program “Adelante con tu futuro” (Forward with your future), in the “Organization of the Year” category.
With the aim of raising awareness of the importance of financial literacy in the lives of people, and helping to train consumers to be more aware and better informed about banking products, BBVA Chile has just implemented its new web site. educacionfinancierabbva.cl. Over 10.300 young people in Chile, of whom 60% live in remote regions far from the capital, have taken part this year in Liga de Educación Financiera BBVA (BBVA Financial Literacy League), a program designed to teach good financial habits to students aged 14 to 17.
For the second year in a row, the BBVA Provincial Foundation has held the ceremony for the presentation of its “Adelante con la educación” (Forward with education) awards. Their aim is to recognize students and teachers who participate in its educational programs.
The “Acción Magistral 2016” (Teacher Action) Awards, organized by the FAD, the Spanish Commission for Cooperation Responsible banking with UNESCO and BBVA, have once more recognized the best teaching projects that provide education in values. The registration period has been opened for these awards, which offer an incentive to teachers who want to go beyond their daily obligations and make an effort to instill in their classrooms values such as solidarity and respect for others.
The BBVA Foundation Frontiers of Knowledge Awards have recognized, once more, the most prominent researchers in their respective fields, some of them focused on social and environmental issues.
The BBVA Foundation has launched a call for new aid for “Scientific Research Teams and Cultural Researchers and Creators”. The aim is to support the development of projects that are characterized by an innovative spirit in areas such as ecology and big data.
Fundéu BBVA continues to be a benchmark in the world of letters. In 2016, in partnership with Molino de Ideas, it studied the development of printed press in Spain from 1914 to 2014 as part of the Aracne project. Its work will boost the use of Spanish and offer a complete picture of how society changes through language.
BBVA Bancomer has opened the first Innovation Center in the banking sector in Mexico as a meeting point for the country’s innovation ecosystem (entrepreneurs, developers and startups). The BBVA Innovation Centers were launched four years ago in Madrid, Colombia and the United States. Their success is reflected in three main figures: over 20.000 visits received, 200 events in BBVA CIB, Madrid, a website with more than a million visits and 100.000 followers on Facebook.
The Microfinance Foundation has continued to give access to financial products for the most disadvantaged groups, with special emphasis on women as generators of wealth in Latin American countries. 61% of the entrepreneurs it supports with loans and advice are women. In 2016, the Foundation’s commitment to the Sustainable Development Goals Fund (SDG-F) was renewed until 2019. It has also participated in the United Nations high-level panel on women’s economic empowerment in Latin America. The event revolved around the economic gap between men and women in Latin America and the Caribbean.
To show all the efforts made, the BBVA Microfinance Foundation has presented its 2015 Social Performance Report Measuring What Really Matters at the Institute of International Finance in Washington.
Over the year, the Foundation has received many recognitions for its work. Worth mentioning are the ECOFIN Awards as the best “International Brand-Image of Spain” in 2016.