Banco Bilbao Vizcaya Argentaria Group (the “Group” or “BBVA Group”) is a global financial services group founded in 1857, with a customer-centric vision. Present in 35 countries, it is a solid leader in Spain, and the biggest financial institution in Mexico; it has leading franchises in South America and the Sunbelt region of the United States; and is the largest shareholder in the Turkish bank Garanti.
The Group has a significant presence in traditional retail banking, wholesale banking, asset management and private banking. It also operates in the sectors of insurance, real estate, operating leases, and various others.
Its diversified business is biased on high-growth markets and it sees technology as a key sustainable competitive advantage.
BBVA Group is immersed in a transformation process necessary to adapt to the new environment for the financial industry and preserve its leadership. Success in this new environment requires redefining the value proposition and adapting the universal banking business model to one that is more selective.
In this context, the goal of BBVA Group’s transformation strategy is to strengthen its relationship with its customers. This strategy is structured around a Purpose and six Strategic Priorities, which are the pillars buttressing not only the strategic plans across all the Group’s regions and areas but also the culture of the Organization as a whole.
In 2016 BBVA Group has made significant progress on its Transformation Journey: The Entity’s new strategy has been reinforced with particular focus on digitalization and customer experience, and the organizational structure has been simplified.
Digitalization is making an impact on the financial industry, as it can satisfy the new customer demands in a variety of ways.
Firstly, the advent of mobile devices has led to changes in the distribution model. They have become the main channel of contact.
In addition, new developments in technology (big data, artificial intelligence, Blockchain, the cloud, data processing, biometry, etc.) represent a major advance in customer experience.
New technologies foster the democratization of financial services: everyone will be able to gain access to better and more sophisticated services that were up to now only available for high-value segments.
Additionally, new, specialized players are entering the financial industry and successfully tackling parts of the value chain (payments, financing, asset management, insurance, etc.). Their disruptive proposals are primarily based on enhanced customer experience and greater specialization in certain products. These players include FinTech companies and large digital corporations (Google, Amazon, etc.), which are now competing with banks in the new environment.
To sum up, traditional banking has to respond by becoming more competitive and providing value-added solutions, with greater focus on customer experience and the development of its digital offering.
b) Shift in consumer behavior
Customers are asking for a new type of banking relationship and have begun demanding new services based on their new needs. We are faced with an environment in which consumers are permanently connected, accustomed to digital experiences and use multiple devices and applications. They also demand greater transparency and trust in their banking relationship, in addition to enhanced customization, accessibility and convenience in financial services in order to achieve their own goals in life.
Another aspect to be considered is the socio-demographic shift that is underway. The Millennial Generation is clearly digital and is becoming a new consumer segment requiring services. Digitalization is also reaching the adult population, and the middle classes in emerging countries are increasing their digital potential.
In this context, the main objective of BBVA Group’s transformation strategy, is to strengthen the relationship with our customers. We want to help our customers make the best decisions (banking and non-banking) by offering an attractive experience (clear, simple, transparent, and based on fair conditions, prudence and integrity) and appropriate help and advice that cover all their financial needs.
We have taken great strides in 2016 to fulfill our Purpose: “To bring the age of opportunity to everyone.” We want to help our customers achieve their goals in life. We want to go beyond being a bank and become a vehicle for opportunities with a positive impact on the lives of people and on the business of companies.
Significant steps have also been taken to develop the Group’s six Strategic Priorities in line with our Purpose, and thus make headway in our transformation process.
For more information about the Group’s Strategic Priorities, please see the Management Report which is attached to BBVA Group’s Consolidated Financial Statements.
In 2016 the year-on-year rates of variation in earnings have been impacted mainly by two factors: changes in the Group’s scope of consolidation in the second and third quarters of 2015 (Catalunya Banc - CX and Garanti, respectively); and the negative effect of the general depreciation in exchange rates against the euro (except for the dollar).
Taking into account the stake in Garanti in comparable terms (including it as if it had been incorporated by the global integration method since January 1, 2015), excluding the impact of corporate operations in 2015 and isolating for the exchange-rate impact, the earnings figures for 2016 continue the positive trend in more recurring revenues and moderation in operating expenses, with an improved efficiency ratio, thus strengthening its solvency position in the markets.
With respect to liquidity and funding, the Group’s target performance is measured through the Liquidity Coverage Ratio (LCR) and the Loan-to-Stable Customer Deposits (LtSCD) ratio. In 2016 BBVA Group has maintained LCR levels of over 100% and a LtSCD of 113% (weighted average).
Thus the LCR and LtSCD figures reflect that BBVA Group maintains a robust and diversified funding structure, clearly retail in nature, in which customer funds represent the main source of funding; and all the Liquidity Management Units (UGLs) formed by the parent and banking subsidiaries in each geographic area, in addition to the branches that depend on them, maintain levels of self-funding with stable customer funds above requirements.
The Group’s performance with respect to credit risk management has been very favorable, with non-performing loans and the NPL ratio continuing to decline.
As regards solvency, BBVA Group closed 2016 with capital levels above the minimum required both in phased-in (12.18%) and fully-loaded (10.90%) terms, and a phased-in leverage ratio of 6.70% (6.49% fully loaded). This continues to compare very favorably with the rest of its peer group, thanks once more to the Group’s recurring generation of earnings and efficient capital management and allocation, in line with its strategic objectives.
On the regulatory front, BBVA Group has published its prudential capital requirements applicable to the Entity following the Supervisory Review and Evaluation Process (SREP), which establishes that BBVA must maintain a phased-in core capital ratio of 7.625% at consolidated level and 7.25% at individual level, and a total phased-in capital ratio of 11.125% at consolidated level and 10.75% at individual level.
The following sections present details related to the Group’s solvency. The Management Report, which is attached to the BBVA Group Consolidated Financial Statements, presents the main indicators of the Group’s activity and profitability.