Dear Shareholder:
Although the macroeconomic situation in 2013 was difficult, it improved during the year.
The emerging markets where BBVA operates grew strongly, at 6.2%, a rate similar to that of 2012. Despite recent increased volatility, these economies have great potential and everything suggests that they will continue to drive global growth in 2014.
The United States grew by 1.8%, slightly below the rate posted in 2012, but it consolidated a positive growth trend that accelerated in the latter part of 2013 and will continue in 2014.
Although growth was negative in Europe, the trend shifted over 2013 and the prospects for 2014 suggest a 1.1% increase in the Eurozone’s gross domestic product.
In Spain, 2013 was a difficult year, but the country initiated a recovery in the latter part of the year and we believe that in 2014 GDP will grow by around 1%, or even more if the positive trends are confirmed.
“The more recurring revenue performed exceptionally well and we continue to apply prudent cost management that is tailored to each business and forward-looking. As a result, we have maintained our leadership in profitability and retain our position among the top three in the efficiency ranking”
In this context, BBVA’s net attributable profit in 2013 amounted to €2,228m, up 33% in current euros on the previous year, or 55% after adjusting for the exchange-rate effect. This is the result of good management of our business model, which is based on geographical diversification, customer focus and prudent management based on our corporate principles.
During this crisis, not all financial institutions behaved the same way and achieved the same results. BBVA has managed to maintain a trend of good results and is one of the few large banks in the world that did not have to resort to state aid. This can be summed up in a single concept: our principles.
In 2013 BBVA’s earnings were affected by a series of external factors, such as the environment of very low interest rates in the United States and Europe, and hyperinflation and devaluation in Venezuela. In Spain, such factors included the court decision on floor clauses in mortgage loan contracts, the classification of refinanced loans and an extraordinary contribution to the Deposit Guarantee Fund.
In addition, in 2013 we adopted measures affecting the structure of our balance sheet in order to rearrange our business portfolio: the sale of non-strategic assets, such as the pension fund administrators in Latin America and BBVA Panama, the reinsurance operation on the individual life and accident insurance portfolio in Spain and the new agreement signed with the CITIC Group, which included the sale of part of our stake in CNCB.
Despite all this, the more recurring revenue, namely net interest income plus income from fees and commissions, performed exceptionally well and amounted to over €19,000m, while gross income was €21,397m. Excluding the exchange-rate effect, net interest income plus income from fees and commissions would have increased by 3.5% and gross income by 2.6%. Gross income originated in emerging markets increased by 16% and already accounts for 60% of the total amount generated by all of the Group’s business areas. Very few banks in the world can boast such a well-diversified geographical profile with such growth potential.
At the same time, we continue to apply prudent, forward looking cost management, tailored to each business. Expenses increased by 3.8%, compared with an average inflation rate of 6.4% in the markets where we operate.
“In terms of solvency, BBVA is stronger than ever and we are well prepared for the upcoming stress test”
BBVA generated operating income of nearly €10,200m, which enabled it to maintain its leadership in profitability, measured as operating income over average total assets, and retain its position among the top three banks in the efficiency ranking within its peer group.
Risk indicators began to return to normal. At the close of the year the NPA ratio, excluding real-estate activity in Spain, stood at 4.6%, with a coverage ratio of 59%, and the risk premium at 1.5%.
To sum up, in 2013 BBVA posted good results that reveal a balanced and efficient business model, managed actively to maximize its future growth potential.
As for solvency, BBVA is stronger than ever. The BIS III fully-loaded core capital ratio was 9.8% at the close of the year, while the core capital ratio under the BIS II regulations stood at 11.6%, compared with 10.8% in 2012. We are thus well prepared for the upcoming stress test.
In 2013 BBVA made two relevant decisions concerning dividends. The first one was not to pay the interim dividend against 2013 earnings that would have been paid in January 2014 and increase the shareholders remuneration to be paid in April 2014 to €0.17 per share, through the remuneration scheme called “dividend option”. The second decision refers to the announcement of BBVA’s intention to replace the current shareholder remuneration policy with another one fully in cash and linked to the Group’s earnings. The goal is to pay out every year between 35% and 40% of each year’s earnings, in a process that is planned to be implemented gradually over the next few years depending on market and regulatory circumstances.
As a result of the above and of the improvement in the financial markets, the price of the BBVA share rose by 28.6% in 2013. Including the dividend, total shareholder return was 36.3% over the year, higher than the average for the peer group.
In 2013 we continued to work for a better future for people, strengthening BBVA’s distinctive responsible banking model, a model based on best practices that includes all the stakeholders.
A new Responsible Business Plan was launched during the year, with three priorities: education, with particular emphasis on finance; transparent, clear and responsible communication with our customers; and the development of products with a high social impact.
2013 was a very busy year due to the many initiatives carried out by the BBVA Foundation, the Microfinance Foundation and the Bank itself in the social, economic, cultural, artistic, scientific, environmental and research areas worldwide. All these initiatives reaffirm our commitment to the United Nations Global Compact.
In 2013 we also continued to make progress in our transformation.
“In 2013 we continued to work for a better future for people, strengthening BBVA’s distinctive responsible banking model”
The financial sector is at a crossroads. Our industry is being reshaped by demanding changes in regulation, the shift of economic weight toward emerging markets and, above all, an unprecedented technological revolution.
We are already witnessing the emergence of new digital competitors; others, much bigger, will no doubt arrive. Banks that are not prepared to compete with fully integrated technological platforms, with an innovative range of digital products and services and with a distinctive and improved customer experience, face an uncertain future.
“In 2013 we continued to make progress in our transformation. BBVA is reinventing itself, building on the three pillars of our strategy, Principles, People and Innovation, and underpinned by a diversified business model, with growth potential and prudent management. It is changing from an analog bank to a 21st-century digital knowledge services company”
As of today, the new entrants are more flexible and efficient; but banks have a significant advantage: a vast amount of information originated by their activity. The great challenge is to turn this information into knowledge and give customers what they demand. Digital customers want to operate in real time from any mobile device and access new contents and products seamlessly across the various channels. This requires Big/Smart Data technologies and large processing capabilities.
To tackle all these demands, banks need to design new platforms, built and developed under today’s new paradigms, such as the one we have already built at BBVA. In 2013 these platforms enabled us to launch new digital products, such as BBVA Wallet and Wizzo and develop new ones, currently in the pilot stage, with a planned 2014 launch date.
BBVA is reinventing itself, building on the three pillars of our strategy, Principles, People and Innovation, and underpinned by a diversified business model, with growth potential and prudent management. It is changing from an analog bank that is highly efficient and profitable by 20th century standards to a 21st-century digital knowledge services company. We have made great progress, but we still have a long way to go.
I would like to thank the nearly 110,000 BBVA employees for their efforts, and I encourage them to continue working with the same dedication, enthusiasm and responsibility that make BBVA a distinctive bank.
And to you, shareholders, thank you very much once again for your support. I assure you that the Group will continue to work hard to improve every day in order to build the best universal bank in the world.
March 1, 2014
Francisco González Rodríguez
