Solvency

Capital base

BBVA Group had a fully-loaded CET1 ratio stood at 11.1% at the end of June 2017, above the target of 11%. This ratio has increased by 20 basis points so far this year, primarily due to organic earnings generation and a reduction in RWAs.

The ratio is affected by transactions carried out during the quarter, in particular the acquisition of an additional 9.95% stake in Garanti and the sale of 1.7% in CNCB. Both transactions have had a joint negative impact on this ratio of 13 basis points.

RWAs declined to June 30, 2017 relative to December 2016, largely explained by depreciation of currencies against the euro (especially the Turkish lira and the U.S. dollar) and an improvement in the risk profile of the Group's portfolio, especially the Spanish portfolio. Particularly notable in this regard was the €3,000m synthetic securitization agreed on June 2, which covers potential losses on a portfolio of around 15,000 loans to Spanish SMEs. This was arranged through a mezzanine guarantee facility provided by the European Investment Fund (EIF, a subsidiary of the supranational European Investment Bank). This operation enabled the Group to free up €683m in RWAs with a corresponding positive impact on the capital base.

During the first half of 2017, BBVA S.A issues €500m in preferred securities at a coupon of 5.875%. This is classified as additional Tier 1 capital (contingent convertible) under solvency regulation, capable of converting into ordinary BBVA shares, and contributed 13 basis points to the total capital ratio. In addition, BBVA S.A. has undertaken various subordinate capital issues worth a nominal amount close to €1,500m (of which €168m were issued in the second quarter). Meanwhile, Garanti in Turkey issued $750m in the second quarter. These issues compute as tier 2 capital, having a 50 basis point impact on the total capital ratio during the first half of the year on a phased-in basis (similar in fully-loaded terms).

Finally, the last "dividend-option" program was completed in April, with holders of 83.28% of free allocation rights choosing to receive new BBVA shares. 101,271,338 shares were ultimately issued.

The phased-in CET1 ratio stood at 11.8% at the end of June 2017, with the Tier 1 ratio reaching 13.0% and the Tier 2 ratio at 2.5%, resulting in a total capital ratio of 15.5%. These levels are above the requirements established by the ECB in its SREP letter and the systemic buffers applicable to BBVA Group for 2017 (7.625% for the phased-in CET1 ratio and 11.125% for the total capital ratio).

Finally, the Group maintains a sound leverage ratio: 6.8% under fully-loaded criteria (6.9% phased-in), which compares very favorably with the rest of its peer group.

Evolution of fully-loaded capital ratios (Percentage)

Capital base ⁽¹⁾ Million euros

Ratings

On April 3, 2017, Standard & Poor's (S&P) raised its outlook for BBVA to positive from stable as a result of a similar improvement in Spain's sovereign rating outlook (on March 31), with both ratings being maintained at BBB+. Furthermore, on July 25, Scope Ratings raised its rating for BBVA by one notch from A to A+, with a stable outlook. So far this year the remaining credit rating agencies have not changed either their rating or outlook for BBVA.

Ratings