This section presents and analyzes the most relevant aspects of the Group’s different areas. Specifically, it shows the income statement, the balance sheet, the business activity and the most significant ratios in each of them: performing loans, customer funds (on and off-balance-sheet), efficiency ratio, NPA ratio, coverage ratio and risk premium.
In the first quarter of 2013 changes were made to the geographical reporting structure of the BBVA Group’s business areas. Consequently, banking activity in Spain includes the portfolios, finance and structural euro balance-sheet positions managed by ALCO that were previously reported in Corporate Activities. In addition, because of the particular nature of their management, the assets and results pertaining to the real-estate business in Spain are presented separately. This covers lending to real-estate developers (previously integrated in Spain) and foreclosed real-estate assets which were included in Corporate Activities in the years prior to 2013.
As a result, the composition of the business areas in 2013 is different from that presented in 2012, and is now as follows:
- Banking activity in Spain (from now on, Spain), which as in previous years includes: The Retail Network, with the segments of individual customers, private banking, and small businesses; Corporate and Business Banking (CBB), which handles the SMEs, corporations and institutions in the country; Corporate & Investment Banking (CIB), which includes business with large corporations and multinational groups and the trading floor and distribution business in the same geographical area; and other units, among them BBVA Seguros and Asset Management (management of mutual and pension funds in Spain). In addition, starting in 2013 it also includes the portfolios, finance and structural interest-rate positions of the euro balance sheet.
- Real-estate activity in Spain. This new area has been set up with the aim of providing specialized and structured management of the assets of the real-estate area accumulated by the Group as a result of the crisis in Spain. Therefore, it mainly includes loans to real-estate developers (previously reported in Spain) and foreclosed real-estate assets (previously reported in Corporate Activities).
- The United States encompasses the Group’s businesses in the United States. The historical series in this area has been reconstructed to exclude the business in Puerto Rico, which was sold in December 2012, and include it in the Corporate Center.
- Eurasia, which as in 2012 includes the business carried out in the rest of Europe and Asia, i.e. the retail and wholesale businesses of the Group in the area. It also includes BBVA’s stakes in the Turkish bank Garanti and the Chinese banks CNCB and CIFH. The equity-accounted income of CNCB (excluding the dividends) has been reclassified from Eurasia to the Corporate Center under the heading ‘Results from corporate operations’.
- Mexico, which includes the banking and insurance businesses in the country (the pensions business was sold in the first quarter of 2013 and its earnings were registered in the Corporate Center under the heading ‘Results from corporate operations’).
- South America includes the banking and insurance businesses that BBVA carries out in the region. In the first half of 2013 it closed the sale of its stake in the pension fund administrators in Colombia and Peru, while in the last quarter it completed the sale of Provida Chile and BBVA Panama, whose earnings have been registered in the Corporate Center under the heading ‘Results from corporate operations’.
In addition to the above, all the areas include a remainder made up of other businesses and of 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 groups together the costs of the headquarter that have a corporate function; management of structural exchange-rate positions, carried out by the Financial Area; specific issues of capital 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 pensioners; goodwill and other intangibles. In addition, it also comprises the result from certain corporate operations carried out over this and previous years, such as that from the pension business in Latin America, including the capital gains from the sale of the businesses in Mexico (first quarter), Colombia and Peru (second quarter) and Chile (fourth quarter), those resulting from the sale of BBVA Panama (fourth quarter); the effect of the repricing of the stake in CNCB to market value following the signing in the fourth quarter of the new agreement with CITIC Group, that includes the sale of 5.1% of the stake in CNCB. It also includes the equity-accounted earnings from CNCB (excluding the dividends) for the years 2013, 2012 and 2011. Lastly, the data for the previous years includes the financial statements of BBVA Puerto Rico until its sale, which was completed in December 2012.
In addition to this geographical breakdown, supplementary information is provided for all the global businesses carried out by BBVA: Retail Banking (retail business) and CIB (wholesale business).
The figures corresponding to 2012 and 2011 have been restated according to the same criteria and the same structure of areas as explained above in order to offer homogeneous year-on-year comparisons.
Lastly, as usual, in the case of the Americas and Eurasia (basically Garanti), the results of applying constant exchange rates are given in addition to the year-on-year variations at current exchange rates.
The Group compiles information by areas based on units at the same level, and all the accounting data related to the business managed are recorded in full. These basic units are then aggregated in accordance with the organizational structure established by the Group for higher-level units and, finally, the business areas themselves. Similarly, all the companies making up the Group are also assigned to the different units according to the geographical area of their activity.
Once the composition of each business area has been defined, certain management criteria are applied, of which the following are particularly important:
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Capital. Capital is allocated to each business according to economic risk capital (ERC) criteria. This 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 II capital accord, with economic criteria prevailing over regulatory ones.
ERC is risk-sensitive and thus linked to the management policies of the businesses themselves. It standardizes capital allocation between them in accordance with the risks incurred. In other words, it is calculated in a way that is standard and integrated for all kinds of risks and for each operation, balance or risk position, allowing its risk-adjusted return to be assessed and an aggregate to be calculated for profitability by client, product, segment, unit or business area. - Internal transfer prices. Within each geographical area, internal transfer rates are applied to calculate the net interest income of its businesses, under both the asset and liability headings. These rates are composed of a market rate that depends on the operation’s revision period, and a liquidity premium that aims to reflect the conditions and outlook for the financial markets in each area. Earnings are distributed across revenue-generating and distribution units (e.g., in asset management products) at market prices.
- 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, consolidation adjustments are required to eliminate shadow accounting entries in the earnings of two or more units as a result of cross-selling incentives.
Mayor income statements items by business area
(Million euros)
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BBVA Group(1) |
Spain | Real-estate activity in Spain |
The United States |
Eurasia(1) | Mexico | South America |
∑ Business Areas |
Corporate Center |
| 2013 |
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| Net interest income | 14,613 | 3,830 | (3) | 1,407 | 911 | 4,484 | 4,703 | 15,332 | (719) |
| Gross income | 21,397 | 6,095 | (38) | 2,101 | 1,721 | 6,201 | 5,630 | 21,711 | (314) |
| Operating income | 10,196 | 3,081 | (190) | 627 | 987 | 3,865 | 3,244 | 11,614 | (1,419) |
| Income before tax | 2,750 | 222 | (1,840) | 534 | 593 | 2,362 | 2,387 | 4,257 | (1,507) |
| Net attributable profit | 2,228 | 583 | (1,254) | 390 | 454 | 1,805 | 1,249 | 3,227 | (999) |
| 2012 |
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| Net interest income | 15,122 | 4,748 | (20) | 1,551 | 851 | 4,178 | 4,288 | 15,596 | (473) |
| Gross income | 21,892 | 6,665 | (84) | 2,243 | 1,665 | 5,756 | 5,360 | 21,604 | 288 |
| Operating income | 11,106 | 3,778 | (211) | 737 | 886 | 3,590 | 3,066 | 11,847 | (741) |
| Income before tax | 749 | 1,652 | (5,705) | 619 | 508 | 2,229 | 2,271 | 1,575 | (826) |
| Net attributable profit | 1,676 | 1,162 | (4,044) | 443 | 404 | 1,689 | 1,199 | 853 | 823 |
| 2011 |
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| Net interest income | 13,152 | 4,248 | 104 | 1,518 | 806 | 3,782 | 3,159 | 13,618 | (465) |
| Gross income | 19,528 | 6,246 | 124 | 2,182 | 1,467 | 5,323 | 4,099 | 19,440 | 88 |
| Operating income | 9,791 | 3,408 | 23 | 762 | 821 | 3,392 | 2,215 | 10,621 | (830) |
| Income before tax | 2,946 | 1,515 | (1,216) | (1,053) | 722 | 2,153 | 1,677 | 3,798 | (852) |
| Net attributable profit | 3,004 | 1,075 | (809) | (713) | 563 | 1,638 | 898 | 2,653 | 351 |
Recurrent economic profit by business area
(January-December 2013. Million euros)
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Adjusted net attributable profit | Economic profit (EP) |
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| Spain | 1,149 | 124 |
| Real-estate activity in Spain | (39) | (159) |
| The United States | 240 | (19) |
| Eurasia | 451 | (142) |
| Mexico | 1,939 | 1,384 |
| South America | 1,008 | 579 |
| Corporate Center | (339) | (442) |
| Total Group | 4,409 | 1,324 |
