UNITED STATES SECURITIES AND EXCHANGE COMMISSION

WASHINGTON, D.C. 20549

 

 

FORM 6-K

 

 

REPORT OF FOREIGN ISSUER PURSUANT TO RULE 13a-16 OR 15d-16

UNDER THE SECURITIES EXCHANGE ACT OF 1934

For the month of October, 2021

Commission file number: 1-10110

 

 

BANCO BILBAO VIZCAYA ARGENTARIA, S.A.

(Exact name of Registrant as specified in its charter)

BANK BILBAO VIZCAYA ARGENTARIA, S.A.

(Translation of Registrant’s name into English)

 

 

Calle Azul 4,

28050 Madrid

Spain

(Address of principal executive offices)

 

 

Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:

Form 20-F             X                             Form 40-F

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):

Yes                                      No                 X

Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):

Yes                                     No                 X

 

 

 

 

BBVA Group main data

 

BBVA GROUP MAIN DATA (CONSOLIDATED FIGURES)
		30-09-21				D %				30-09-20				31-12-20
Balance sheet (millions of euros)
Total assets			651,834				(10.2)				725,895				736,176
Loans and advances to customers (gross) (1)			327,968				1.8				322,059				323,252
Deposits from customers (1)			340,828				4.4				326,447				342,661
Total customer funds (1)			452,443				6.1				426,487				445,608
Total equity			50,567				4.2				48,522				50,020
Income statement (millions of euros)
Net interest income			10,708				(3.7)				11,115				14,592
Gross income			15,589				(0.2)				15,620				20,166
Operating income			8,613				(2.1)				8,796				11,079
Net attributable profit/(loss)			3,311				n.s.				(15	)			1,305
Net attributable profit or (loss) excluding non-recurring impacts (2)			3,727				84.9				2,016				2,729
The BBVA share and share performance ratios
Number of shares (million)			6,668				—				6,668				6,668
Share price (euros)			5.72				141.0				2.37				4.04
Earning per share (euros) (3)			0.46				n.s.				(0.05	)			0.14
Earning per share excluding non-recurring impacts (euros) (2)(3)			0.52				99.4				0.26				0.35
Book value per share (euros)			6.76				4.0				6.50				6.70
Tangible book value per share (euros)			6.41				9.9				5.84				6.05
Market capitalization (millions of euros)			38,120				141.0				15,816				26,905
Yield (dividend/price; %) (4)			1.0								11.0				4.0
Significant ratios (%)
Adjusted ROE (net attributable profit or (loss)/average shareholders’ funds +/- average accumulated other comprehensive income) (2)			11.1								6.0				6.1
Adjusted ROTE (net attributable profit or (loss)/average shareholders’ funds excluding average intangible assets +/- average accumulated other comprehensive income) (2)			11.7								6.3				6.5
Adjusted ROA (Profit or (loss) for the year/average total assets) (2)			0.94								0.55				0.54
Adjusted RORWA (Profit or (loss) for the year/average risk-weighted assets - RWA) (2)			1.99								1.17				1.16
Efficiency ratio			44.7								43.7				45.1
Cost of risk (5)			0.92								1.68				1.55
NPL Ratio (5)			4.0								4.1				4.2
NPL coverage ratio (5)			80								85				82
Capital adequacy ratios (%)
CET1 fully-loaded			14.48								11.52				11.73
CET1 phased-in (6)			14.71								11.99				12.15
Total ratio phased-in (6)			19.17								16.66				16.46
Other information
Number of clients (million) (7)			80.1				3.3				77.6				78.4
Number of shareholders			836,979				(6.8)				898,240				879,226
Number of employees			113,117				(8.9)				124,110				123,174
Number of branches			6,344				(16.1)				7,565				7,432
Number of ATMs			28,920				(6.8)				31,037				31,000

General note: the results generated by BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, are presented in a single line as “Profit/(loss) after tax from discontinued operations”.

(1) Excluding the assets and liabilities figures from BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, classified as non-current assets and liabilities held for sale (NCA&L) as of 31-12-20. The figures related to “Loans and advances to customers (gross)”, “Deposits from customers” and “Total customer funds”, including BBVA USA, would stand at €379,018m, €395,132m and €495,171m, respectively, as of 30-09-20.

(2) Non-recurring impacts include: (I) profit/(loss) after tax from discontinued operations as of 30-09-21, 31-12-20 and 30-09-20; (II) the net costs related to the restructuring process as of 30-09-21; and (III) the net capital gain from the bancassurance operation with Allianz as of 31-12-20.

(3) Adjusted by additional Tier 1 instrument remuneration.

(4) Calculated by dividing shareholder remuneration over the last twelve months by the closing price of the period.

(5) Excluding BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021.

(6) Phased-in ratios include the temporary treatment on the impact of IFRS 9, calculated in accordance with Article 473 bis amendments of the Capital Requirements Regulation (CRR), introduced by the Regulation (EU) 2020/873.

(7) Excluding BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021 and BBVA Paraguay.

Contents

 

Highlights			4
Results and business activity			4
Solvency			5
Strategy developments			6
Other highlights			8
Macro trends			9
Group			10
Results			10
Balance sheet and business activity			16
Solvency			18
Risk management			20
Business areas			26
Spain			29
Mexico			32
Turkey			36
South America			40
Rest of Business			45
Corporate Center			48
Other information: Corporate & Investment Banking			50
Alternative Performance Measures (APMs)			53

		4

 

Highlights

Results and business activity

The BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €3,727m between January and September 2021, representing a year-on-year increase of +84.9%.

Including the non-recurring impacts —namely the €+280m corresponding to the profit generated by BBVA USA and the rest of Group’s companies included in the sale agreement to PNC until the closing date of the operation on June 1, 2021 and the €-696m of net costs related to the restructuring process— the Group’s net attributable profit amounts to €3,311m, which compares very positively with the €-15m in the same period of the previous year, which was severely affected by the effects of the COVID-19 pandemic.

In year-on-year terms and at constant exchange rates, it is worth highlighting the good performance of the gross income and especially of the recurring income, i.e. the sum of net interest income and fees, which grew by 6.1%, and the positive evolution (+13.7%) of net trading income (hereinafter NTI) mainly due to the good performance of the Global Markets unit in Spain and the revaluations of the Group stakes in Funds & Investment Vehicles in tech companies and the industrial and financial portfolio.

Operating expenses increased (+6.5% year-on-year) in all areas except Spain and Rest of Business. This growth is framed within an environment of activity recovery and high inflation, particularly in Mexico and Turkey.

Lastly, the lower provisions for impairment on financial assets stand out (-46.2% in year-on-year terms and at constant exchange rates), mainly due to the strong impact of provisions for COVID-19 in 2020.

Loans and advances to customers (gross) recorded an increase of 1.5% compared to the end of December 2020, strongly supported by the performance of individuals (+2.5%), with growth in almost all geographical areas, except Rest of Business, highlighting the increase of consumer loans and credit cards in Turkey, Spain and Mexico. Loans to business also increased slightly (+0.6% in the year), thanks to the positive evolution in Mexico and Spain.

Customer funds showed an increase of 1.5% compared to the end of December 2020, due to the favorable performance of demand deposits and off-balance sheet funds in all geographical areas (highlighting mutual funds in Spain and Mexico), which manage to offset the decline in time deposits (-16.5%) thanks to the lower balances recorded in Spain and, to a lesser extent, in Rest of Business.

 

 

 

Business areas

As for the business areas, in all of them, the provisions for impairment on financial assets decreased compared to 2020 due to the outbreak of the pandemic. In addition, in each of them it is worth mentioning:

 

•

Spain: BBVA in Spain achieved a net attributable profit of €1,223m between January and September 2021, +160.9% of the profit achieved in the same period of the previous year, mainly due to the increase in incurring income (thanks to the favorable evolution of fees) and in NTI and the reduction of operating expenses in 2021.

 

•

Mexico: BBVA in Mexico generated a net attributable profit of €1,811m between January and September 2021, representing an increase of 47.4% compared to the same period of the previous year, at constant exchange rate. This evolution is driven by a 5.9% growth (at constant exchange rate) in recurring income and by the strength of the net margin (+1.4%).

 

•

Turkey: The net attributable profit generated by Turkey between January and September 2021 stood at €583m, 48.4% (at constant exchange rate) above the figure achieved in the same period of the previous year, mainly due to the growth of net fees and commissions and NTI.

 

•

South America: South America generated a cumulative net attributable profit of €339m between January and September 2021, which at constant exchange rates and excluding BBVA Paraguay in 2020, represents a year-on-year variation of +35.6%, mainly due to a better evolution of recurring income and NTI between January and September 2021 (+18.8%), partially offset by a higher inflation adjustment in Argentina in 2021.

		5

 

•

Rest of Business: At the end of September 2021, the net attributable profit for the area stood at €205m (+32.1% year-on-year, at constant exchange rates). It is worth mentioning that this area mainly incorporates the wholesale business developed in Europe (excluding Spain) and in the United States, as well as the banking business developed through the 5 BBVA branches in Asia.

Corporate Center: The net attributable loss of the Corporate Center, including the aforementioned non-recurring impacts, at the close of September 2021 was €-849m, well below (-68.2%) the net attributable loss for the same period of the previous year, €-2,675m. In 2021, this result includes several non-recurring impacts: 1) the net attributable profit amounting to €280m generated by the Group’s businesses in the United States included in the sale agreement and 2) the net cost related to the restructuring process amounting to €-696m. Excluding these non-recurring impacts, the net attributable loss stood at €-433m (compared to the cumulative loss of €-644m at the end of September 2020).

Lastly and to allow a broader understanding of the Group’s activity and results, supplementary information is provided in the following for the wholesale business carried out by BBVA, Corporate & Investment Banking (CIB), in the countries where it operates. The wholesale business area generated a net attributable profit of €955m between January and September 2021, which represents a 42.1% increase in year-on-year terms, thanks to the growth in the recurring income and the NTI and lower provisions for impairment on financial assets, which increased significantly in 2020 due to the outbreak of the COVID-19 pandemic.

 

NET ATTRIBUTABLE PROFIT (MILLIONS OF EUROS)				NET ATTRIBUTABLE PROFIT BREAKDOWN (1) (PERCENTAGE. JAN.-SEP. 2021)
General note: (I) Excludes: BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021, as of Jan.-Sep.20 and Jan.-Sep.21 and (II) the net cost related to the restructuring process as of Jan.-Sep.21. (1) At constant exchange rates.				(1) Excludes the Corporate Center.

Solvency

The CET1 Fully-loaded ratio stood at 14.48% as of September 30, 2021, which means a strong capital generation in the quarter (31 basis points) and a large capital buffer, widely covering the capital requirements of the BBVA Group even after the share buyback. For more information on the Group’ share buyback program, please see “Other highlights” at the end of the current “Highlights” section.

		6

 

Strategy developments

BBVA’s strategy has been reinforced in 2021 as a result of the acceleration of some of the trends, such as digitization or the commitment to more sustainable and inclusive development. The anticipation of these trends in the Group strategy has allowed BBVA to progress in the execution of its six strategic priorities.

 

 

Between January and September 2021, BBVA has continued to help its clients improve their financial health by focusing on the development of new tools and functionalities.

In this regard, BBVA’s mobile banking app continues to lead the digital experience in Europe for the fifth consecutive year, according to the recent report “The Forrester Digital Experience Review^TM: European Mobile Banking Apps, Q3 2021”. BBVA has stood out especially for the experience it offers in financial health, which helps clients improve their financial well-being through tailored suggestions. This functionality also offers useful content that guides clients in managing their day-to-day finances with a clear and intuitive design.

Advice that is appreciated by BBVA clients, which is reflected in a better Net Promoter Score among users of the financial health tools in Spain in the last quarter, which is 39% higher than that of other customers. Likewise, these financial advisory tools have been a key element for the contracting of products. Thus, in Spain, in the first nine months of the year they have contributed 17% of all investment fund contracts, and 25% of mortgage contracts.

 

 

Furthermore, the Group has reaffirmed its commitment to sustainability in 2021 with a focus on combating climate change and inclusive growth. BBVA wants to help its clients in the transition towards a sustainable future not only with financing but also with advice and innovative sustainable solutions.

In terms of financing, BBVA has originated a total of €75,355m in sustainable financing between 2018 and September 2021. This type of financing has grown by 69% in the first nine months of 2021 compared to the same period of the previous year. A good example of

		7

 

the operations included in this type of financing is the €833m stake in a recent issuance of green debt from the Kingdom of Spain. The funds will be used to finance projects that promote ecological transition and adaptation to and mitigation of the impact of climate change.

BBVA aims to provide a comprehensive support service to its customers, individuals and companies, including also advisory so that they can take advantage of investment opportunities in sustainability and future technologies, and be more efficient and competitive. Thus, the Group continues being a pioneer in the development of innovative sustainable solutions. A good example is the recent launch in Spain of a tool for calculating the carbon footprint for retail customers, already developed for companies in 2020. This tools measures ^CO₂ emissions into the atmosphere, based on data collected from invoices and card payments in selected shops, and offers a series of tailored tips on how to reduce them. The global nature of this new development allows it to be implemented in other geographical areas.

But beyond the origination of sustainable financing, in terms of managing the impact of the activity and integrating the risk of sustainability into the Bank’s processes, in the first nine months of 2021, BBVA has announced very relevant milestones such as the commitment to channel €200 billion to sustainable financing between 2018 and 2025, twice the amount established in the initial target; the decision to stop financing companies with coal-related activities; or the Net Zero 2050 commitment, which implies zero net ^CO₂ emissions in that year, taking into account both the direct emissions of the Bank (where it has been neutral since 2020) and indirect emissions, i.e. those of the customers it finances. In this regard, BBVA is advancing in setting 2030 decarbonization goals in ^CO₂ intensive selected industries, which will be announced in the context of the COP26.

In addition, a new global Sustainability area has been created, which aims to position BBVA as the benchmark bank for customers in sustainability solutions. The new global area will design the strategic sustainability agenda, define and promote the lines of work in this area of the different global and transformation units (Risk, Finance, Talent and Culture, Data, Engineering, among others) and develop new sustainable products. In addition, this area will be in charge of developing specialized knowledge for differential clients advice.

Regarding the focus on inclusive growth, BBVA and its foundations have recently announced their Community Commitment 2025, a plan through which they will allocate €550m to social initiatives, supporting inclusive growth in the countries where they operate. This commitment aims to address the most important social challenges in each region and complements the previously announced commitment to channel sustainable financing in the period 2018-2025 amounting to €200 billion.

This commitment has three lines of action: reducing inequality and promoting entrepreneurship, providing opportunities for all through education and supporting research and culture.

Through various initiatives, BBVA will support 5 million entrepreneurs, help more than 3 million people have a quality education and train 1 million people in financial education. In addition, the BBVA Microfinance Foundation will provide more than €7 billion in microcredits. In total, these programs will reach 100 million people during the mentioned period.

 

For all the reasons mentioned above, BBVA is the most sustainable European bank, according to the Dow Jones Sustainability Index, and the second in the world. An acknowledgement shared by Euromoney, which has named BBVA the best bank in corporate social responsibility in Western Europe in 2021, recognizing BBVA’s commitment to improve social, economic and environmental conditions in the region.

On the other hand, BBVA seeks to accelerate its growth, positioning itself where its customers are, which requires a greater presence in digital channels, both own and third parties. BBVA considers that it is a great time to grow profitably and invest in value segments as well as other growth paths such as the entry into new markets, agreements with third parties or the digital acquisition of new customers. In this sense, the Group has recently announced the launch of a purely digital retail offer in Italy, with differential proposed value and customer experience. Besides, BBVA continues focusing on the acquisition of retail customers through its own digital channels, which, based on data as of the end of September 2021, has increased by 48% in the last twelve months, reaching

		8

 

37% of new customers in the period. This has also been reflected in digital sales which, in cumulative terms and at the end of September, already represented 55% of the Group’s total sales in PRV¹.

BBVA continues to make progress towards operational excellence. The Group aims to offer an excellent customer experience at an efficient cost through a relationship model leveraging digitalization. In this sense, 68% of the bank’s active customers already use digital channels and 64% use mobile channels. Thanks to this, BBVA stands out in terms of efficiency with a ratio of 44.7% compared to the average of its European peers.

The Group places the best and most committed team at the center of its strategic priorities. For this reason, BBVA is one of the 30 companies worldwide awarded with the recognition “Exceptional Workplace 2021” by the American consulting firm Gallup. This award distinguishes organizations committed to developing the human potential of their staff.

Likewise, the Group’s commitment to inclusion and diversity and the initiatives developed in this regard has led BBVA to be included for the fourth consecutive year in the Bloomberg Gender-Equality Index, a ranking that includes the 100 global companies with the best practices in gender diversity. BBVA is also a signee of the Charter of Diversity at the European level and the Women’s Empowerment Principles of the United Nations.

For all this, the Group considers data and technology as the main catalysts for innovation. Data has become a key differential factor and data management creates strong competitive advantages. An example of BBVA’s firm commitment to becoming a data-driven organization is the progress in the development of an integrated big data platform, in which more than 1,600 data scientists, developers and specialists are involved. BBVA is also committed to the increasing use of new technologies such as the cloud, blockchain or artificial intelligence.

Other highlights

 

•

On January 29, 2021, BBVA announced its intention to return in 2021 to its shareholder remuneration policy consisting in the distribution of an annual payout of between 35% and 40% of the profits obtained in each financial year, fully paid in cash, in two different payments (expected to take place in October and April and subject to the applicable authorizations), provided that recommendation ECB/2020/62 is revoked and there are no further restrictions or limitations. On July 23, 2021, the European Central Bank made public the approval of recommendation ECB/2021/31 replacing recommendation ECB/2020/62 and to be in force as of September 30, 2021, removing the restrictions on dividends and buyback programs contained in that recommendation. Accordingly, on September 30, 2021 BBVA announced that BBVA’s Board of Directors approved the payment in cash of €0.08 per BBVA share, as a gross interim dividend against 2021 results, which was paid on October 12, 2021.

 

•

On 26 October 2021, BBVA received the required authorization from the ECB for the buyback of up to 10% of its share capital for a maximum sum of €3,500m, in one or several tranches and over a maximum period of 12 months as from the communication by BBVA that the buyback of shares has effectively commenced (the “Authorization”).

Once the Authorization has been obtained the Board of Directors of BBVA, in its meeting held on 28 October 2021, agreed to carry out a program scheme for the buyback of own shares which will be executed in several tranches, for a maximum amount up to €3,500m, aimed at reducing BBVA’s share capital (the “Program Scheme”), notwithstanding the possibility to suspend or terminate the Program Scheme upon the occurrence of circumstances that makes it advisable.

Likewise, the Board of Directors agreed to carry out a first share buyback program which will have a maximum amount of €1,500m, a maximum number of shares to be acquired equal to 637,770,016 own shares, representing, approximately, 9.6% of the BBVA’s share capital, and a maximum term of 5 months as from its effective start, that will take place after 18 November 2021.

 

•

In June 2021, BBVA and the majority of the labor union representatives reached an agreement on the restructuring plan of BBVA S.A. in Spain, which includes redundancies of 2,935 employees in total (divided into 2,725 layoffs and 210 leaves of absence, about 10% of the Group’s total workforce in Spain) and an outplacement program for all interested employees. The agreement also includes the closing of 480 branches. The process has been characterized by an attitude of dialogue between the parties and it has been carried out with a clear interest in voluntary acceptance. As of September 30, 2021, a total of 1,674 employees have already signed the exit of BBVA S.A. (some of them did not effectively leave the Bank until October 1, 2021) and 260 branches have been closed. Additional employee departures from the branches are expected to occur during October and November, the volume of which will depend on the branches closures during both months, although the departure of some workers could be extended until March 31, 2022 for organizational reasons.

For management information purposes, as it is considered a strategic decision, the impacts of the process have been assigned to the Corporate Center. This process will generate estimated savings of approximately €250m per year, before taxes, from 2022 onwards, of which approximately €220m would correspond to personnel expenses. In 2021 the estimated savings will be approximately €65m before taxes, most of which will materialize in the last quarter of 2021, with the departure of employees starting July 18, 2021.

 

¹ Product Relative Value is a proxy used for the economic representation of the sale of units.

		9

 

Macro trends

In the third quarter of 2021, the global economy has continued to recover from the crisis caused by the COVID-19 pandemic, mainly thanks to progress in vaccine rollout against COVID-19 and the significant economic stimuli adopted by public authorities. Activity indicators show, however, that the economic recovery process has lost momentum in recent months, especially in countries such as the United States and China.

Furthermore, upward pressure on prices has recently increased more than expected. Consumer inflation remains at unusually high levels, well above average levels in 2010 and 2019. In September, annual inflation stood at 5.4% in the United States and 3.4% in the Eurozone.

Both the recent slowdown in growth and inflation rise in recent months are partly due to a series of problems in global supply chains, caused, among other factors, by the relative strength of demand versus supply, after the rapid reopening of the economy which was possible thanks to the drop of COVID-19 infections. Meanwhile, commodity prices have risen sharply in recent months, especially energy prices, reinforcing upward pressures on prices and downward pressures on economic activity.

In this context, the United States Federal Reserve is preparing to start the process of withdrawing monetary stimuli. Specifically, the rollback in its bond-buying program is probably to begin in the last quarter of 2021 and, in terms of monetary policy, it is likely that interest rates will be gradually adjusted upward starting the end of 2022. In any case, the approach of economic policy in the major regions is expected to settle in the coming quarters.

According to BBVA Research estimates, the recovery process of the global economy is expected to continue in the coming months, although at a slightly slower pace than expected three months ago and global GDP will expand around 6.1% in 2021. Also according to BBVA Research forecasts, growth will reach 5.9% in 2021 in the United States, 8% in China and 5.2% in the Eurozone. Furthermore, inflationary pressures are expected to remain relatively high, though they will most likely moderate next year as problems in global supply chains remedied.

		10

 

Group

Quarterly evolution of results

The BBVA Group’s results in the third quarter of 2021 stood at €1,400m, with a favorable performance compared to the previous quarter (+94.9% at constant exchange rate), highlighting the following trends:

 

•

Increase in recurring revenues in Turkey, Mexico and South America.

 

•

Decrease in NTI (-23.6% at constant exchange rate), due to lower results of the Global Markets unit and also affected by seasonality in certain geographical areas.

 

•

Favorable evolution of the other operating income and expenses line, due to the contribution made to the SRF by Spain in the second quarter of 2021. In addition, the comparison is affected by the lower dividend income recorded at the Corporate Center, as the previous quarters included, among others, the dividend of Telefónica and those from the Group’s investments in Funds & Investment Vehicles in tech companies.

 

•

Increase in operating expenses in Mexico and South America, in an environment of inflation and recovery of activity.

 

CONSOLIDATED INCOME STATEMENT: QUARTERLY EVOLUTION (MILLIONS OF EUROS)
		2021																2020
		3Q				2Q				1Q								4Q				3Q				2Q				1Q
Net interest income			3,753				3,504				3,451								3,477				3,553				3,537				4,024
Net fees and commissions			1,203				1,182				1,133								1,042				1,023				934				1,124
Net trading income			387				503				581								175				357				470				544
Other operating income and expenses			(13)				(85)				(11)								(147)				46				(80)				86
Gross income			5,330				5,104				5,155								4,547				4,980				4,862				5,778
Operating expenses			(2,378)				(2,294)				(2,304)								(2,264)				(2,163)				(2,182)				(2,477)
Personnel expenses			(1,276)				(1,187)				(1,184)								(1,186)				(1,124)				(1,113)				(1,272)
Other administrative expenses			(788)				(800)				(812)								(766)				(725)				(754)				(860)
Depreciation			(314)				(307)				(309)								(312)				(315)				(316)				(345)
Operating income			2,953				2,810				2,850								2,282				2,817				2,679				3,300
Impairment on financial assets not measured at fair value through profit or loss			(622)				(656)				(923)								(901)				(706)				(1,408)				(2,164)
Provisions or reversal of provisions			(50)				(23)				(151)								(139)				(88)				(219)				(300)
Other gains (losses)			19				(7)				(17)								(82)				(127)				(103)				(29)
Profit/(loss) before tax			2,299				2,124				1,759								1,160				1,895				950				807
Income tax			(640)				(591)				(489)								(337)				(515)				(273)				(204)
Profit/(loss) for the period			1,659				1,533				1,270								823				1,380				678				603
Non-controlling interests			(259)				(239)				(237)								(110)				(312)				(162)				(172)
Net attributable profit excluding non-recurring impacts			1,400				1,294				1,033								713				1,068				516				431
Profit/(loss) after tax from discontinued operations (1)			—				103				177								302				73				120				(2,224)
Corporate operations (2)			—				—				—								304				—				—				—
Net cost related to the restructuring process			—				(696)				—								—				—				—				—
Net attributable profit/(loss)			1,400				701				1,210								1,320				1,141				636				(1,792)
Earning per share excluding non-recurring impacts (3)			0.20				0.18				0.14								0.09				0.15				0.06				0.05
Earning per share (euros) (3)			0.20				0.09				0.17								0.18				0.16				0.08				(0.29)

General note: the results generated by BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, are presented in a single line as “Profit/(loss) after tax from discontinued operations”.

(1) Profit/(loss) after tax from discontinued operations includes the goodwill impairment in the United States registered in the first quarter of 2020 for an amount of €2,084m.

(2) Net capital gains from the sale to Allianz of the half plus one share of the company created to jointly develop the non-life insurance business in Spain, excluding the health insurance line.

(3) Adjusted by additional Tier 1 instrument remuneration.

		11

 

Year-on-year evolution of results

The BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €3,727m between January and September 2021, representing a year-on-year increase of +84.9%. Including these impacts—namely €+280m from the results of discontinued operations and €-696m from the net costs related to the restructuring process—the Group’s net attributable profit amounts to €3,311m, which compares very positively with the €-15m in the same period of the previous year, which was severely affected by the effects of the COVID-19 pandemic. With regard to the recording of these restructuring costs, it should be noted that, solely for management purposes and for the purpose of the comments provided in this report, these are included in the income statement line “Net cost related to the restructuring process”. The financial information is presented to the Group’s Senior Management using this approach. This report includes a reconciliation between the management approach and the BBVA Group’s Condensed Interim Consolidated Financial Statements.

Despite the complex environment and at constant exchange rates, good performance in recurring income, i.e. net interest income (which accelerated its year-on-year growth rate) and fees, the positive evolution of net trading income (NTI) and lower provisions for impairment on financial assets.

 

CONSOLIDATED INCOME STATEMENT (MILLIONS OF EUROS)
										D % at  constant
		Jan.-Sep.21				D %				exchange rates				Jan.-Sep.20
Net interest income			10,708				(3.7	)			2.5				11,115
Net fees and commissions			3,518				14.2				19.2				3,081
Net trading income			1,472				7.3				13.7				1,372
Other operating income and expenses			(108	)			n.s.				n.s.				53
Gross income			15,589				(0.2	)			5.6				15,620
Operating expenses			(6,976	)			2.2				6.5				(6,823	)
Personnel expenses			(3,647	)			4.0				8.7				(3,509	)
Other administrative expenses			(2,400	)			2.6				6.7				(2,338	)
Depreciation			(929	)			(4.9	)			(1.5	)			(976	)
Operating income			8,613				(2.1	)			4.9				8,796
Impairment on financial assets not measured at fair value through profit or loss			(2,202	)			(48.5	)			(46.2	)			(4,278	)
Provisions or reversal of provisions			(224	)			(63.0	)			(61.6	)			(607	)
Other gains (losses)			(5	)			(98.0	)			(98.0	)			(259	)
Profit/(loss) before tax			6,182				69.3				89.0				3,652
Income tax			(1,720	)			73.5				91.6				(991	)
Profit/(loss) for the period			4,462				67.7				88.1				2,661
Non-controlling interests			(735	)			13.8				46.1				(646	)
Net attributable profit excluding non-recurring impacts			3,727				84.9				99.3				2,016
Profit/(loss) after tax from discontinued operations (1)			280				n.s.				n.s.				(2,031	)
Net cost related to the restructuring process			(696	)			n.s.				n.s.				—
Net attributable profit/(loss)			3,311				n.s.				n.s.				(15	)
Earning per share excluding non-recurring impacts (2)			0.52												0.26
Earning per share (euros) (2)			0.46												(0.05	)

General note: the results generated by BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, are presented in a single line as “Profit/(loss) after tax from discontinued operations”.

(1) Profit/(loss) after tax from discontinued operations includes the goodwill impairment in the United States registered in the first quarter of 2020 for an amount of €2,084m.

(2) Adjusted by additional Tier 1 instrument remuneration.

Unless expressly indicated otherwise, to better understand the changes under the main headings of the Group’s income statement, the year-on-year rates of change provided below refer to constant exchange rates. When comparing two dates or periods in this report, the impact of exchange rate variations against the euro for the currencies of the countries in which BBVA operates is sometimes excluded, assuming that the exchange rates remain constant. In doing so, with regard to income statement amounts, average exchange rates of the most recent period are used for each currency in the geographic areas where the Group operates for both periods.

		12

 

Net interest income as of September 30, 2021 was higher than in the same period of the previous year (+2.5%), due to the good performance in South America and Mexico, which offset the poor evolution in Turkey, Spain and Rest of Business.

All areas, with the exception of Rest of Business, showed a positive performance in the net fees and commissions line compared to the accumulated balance between January and September 2020 (+19.2% in the Group), which is partly explained by lower activity and the removal of certain fees as a measure to support customers during the worst moments of the pandemic in 2020, as well as higher fees from payment systems, deposits and asset management in 2021.

 

NET INTEREST INCOME/ATAS(1) (PERCENTAGE)				NET INTEREST INCOME PLUS NET FEES AND COMMISSIONS (MILLIONS OF EUROS AT CONSTANT
				EXCHANGE RATES)
(1) Excluding BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021.

NTI showed a year-on-year increase of +13.7% as of September 30, 2021, mainly due to the good performance of the Global Markets unit in Spain and the revaluations of the Group stakes in Funds & Investment Vehicles in tech companies and the industrial and financial portfolio.

The other operating income and expenses line accumulated a negative result of €-108m as of September 30, 2021, compared to € +53m in the same period last year, due to BBVA’s greater annual contribution in Spain to the Single Resolution Fund (hereinafter SRF), the higher negative adjustment for inflation in Argentina and the lower contribution of the insurance business.

 

		GROSS INCOME (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)

Operating expenses increased (+6.5% year-on-year) in all areas except Spain and Rest of Business. This growth is framed within an environment of activity recovery and high inflation, particularly in Mexico and Turkey.

The efficiency ratio stood at 44.7% as of September 30, 2021, in line with the ratio achieved in the same period of the previous year (44.4%), with an improvement of 83 basis points over the ratio at the end of December 2020.

		13

 

OPERATING EXPENSES (MILLIONS OF EUROS AT				EFFICIENCY RATIO (PERCENTAGE)
CONSTANT EXCHANGE RATES)

Impairment on financial assets not measured at fair value through profit or loss (impairment on financial assets) closed September, 2021 with a negative balance of €2,202m, significantly lower than the previous year (-46.2%) and with a decrease in all geographical areas mainly due to the negative impact of provisions for COVID-19 in 2020.

 

OPERATING INCOME (MILLIONS OF EUROS AT				IMPAIRMENT ON FINANCIAL ASSETS (MILLIONS OF EUROS AT
CONSTANT EXCHANGE RATES)				CONSTANT EXCHANGE RATES)

The provisions or reversal of provisions line (hereinafter “provisions”) closed with a negative balance of €-224m as of September 30, 2021, -61.6% below the figure accumulated in the same period last year, mainly due to provisions to meet potential claims in Spain and to increased provisions for special funds and contingent risk and commitments in Turkey, in both cases registered in 2020.

With regard to other gains (losses) line, it closed September 2021 with a negative balance of €5m, an improvement on the figure reached the previous year (€-259m), mainly due to the impairment of investments in subsidiaries, joint ventures and associates in 2020 registered at the Corporate Center.

As a result of the above, the BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €3,727m between January and September 2021, representing a year-on-year increase of +99.3%. These non-recurring impacts include:

 

•

The results generated by BBVA USA and other companies included in the sale agreement to PNC and classified as discontinued operations, generated €280m in 2021 until the closing of the operation, contrasting very positively with the negative result of €-2,031m accumulated between January and September 2020, which included the impact of the goodwill impairment in the United States. These results are recorded in the “Profit/(loss) after tax from discontinued operations” line of the Corporate Center’s income statement.

 

•

The net cost related to the restructuring process of BBVA S.A. in Spain which amounted to €-696m, of which, before tax, €-754m correspond to the collective layoff and €-240m to branches closures.

		14

 

Taking into account both impacts, the Group’s net attributable profit between January and September 2021 amounts to €3,311m, which compares very positively with the €-15m in the same period of the previous year, which was severely affected by the effects of the COVID-19 pandemic.

The cumulative net attributable profits, in millions of euros, at the close of September 2021 for the various business areas that comprise the Group were as follows: €1,223m in Spain, €1,811m in Mexico, €583m in Turkey, €339m in South America and €205m in Rest of Business.

 

NET ATTRIBUTABLE PROFIT (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)				NET ATTRIBUTABLE PROFIT EXCLUDING NON-RECURRING IMPACTS (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)
				General note: non-recurring impacts include: (I) BBVA USA and the rest of the Group´s companies in the United States sold to PNC on June 1, 2021 in all periods; (II) the net cost related to the restructuring process as of 2Q21; and (III) the net capital gain from the bancassurance operation with Allianz as of 4Q20.   (1) At current exchange rates: +84.9%

 

TANGIBLE BOOK VALUE PER SHARE AND DIVIDENDS(1) (EUROS)				EARNING PER SHARE(1) AND ADJUSTED EARNING PER SHARE(1) (EUROS)
				General note: adjusted earning per share excludes: (I) BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021, in all periods; (II) the net cost related to the restructuring process as of 2Q21; and (III) the net capital gain from the bancassurance operation with Allianz as of 4Q20. (1) Adjusted by additional Tier 1 instrument remuneration.

		15

 

The Group’s profitability indicators improved, both on a year-to-year basis and compared to the end of December 2020, in line with the favorable performance of the results.

 

ROE AND ROTE (1) (PERCENTAGE)				ROA AND RORWA (1) (PERCENTAGE)
(1)  Excludes: (I) BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021 in all periods; (II) the net cost related to the restructuring process as of Jan.-Sep.21; and (III) the net capital gain from the bancassurance operation with Allianz as of 2020.				(1)  Excludes: (I) BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021 in all periods; (II) the net cost related to the restructuring process as of Jan.-Sep.21; and (III) the net capital gain from the bancassurance operation with Allianz as of 2020.

		16

 

Balance sheet and business activity

The most relevant aspects related to the evolution of the Group’s balance sheet and business activity as of September 30, 2021 are summarized below:

 

•

Loans and advances to customers (gross) recorded an increase of 1.5% compared to the end of December 2020, strongly supported by the performance of individuals (+2.5%), with growth in almost all geographical areas, except Rest of Business, highlighting the increase of consumer loans and credit cards in Turkey, Spain and Mexico. Loans to business also increased slightly (+0.6% in the year), thanks to the positive evolution in Mexico and Spain.

 

•

Customer funds showed an increase of 1.5% compared to the end of December 2020, due to the favorable performance of demand deposits and off-balance sheet funds in all geographical areas (highlighting mutual funds in Spain and Mexico), which manage to offset the decline in time deposits (-16.5%) thanks to the lower balances recorded in Spain and, to a lesser extent, in Rest of Business.

 

CONSOLIDATED BALANCE SHEET (MILLIONS OF EUROS)
		30-09-21				D %				31-12-20				30-09-20
Cash, cash balances at central banks and other demand deposits			63,232				(3.5	)			65,520				59,769
Financial assets held for trading			109,078				0.8				108,257				105,395
Non-trading financial assets mandatorily at fair value through profit or loss			5,874				13.0				5,198				5,123
Financial assets designated at fair value through profit or loss			1,137				1.8				1,117				1,117
Financial assets at fair value through accumulated other comprehensive income			69,963				0.8				69,440				66,877
Financial assets at amortized cost			370,217				0.7				367,668				363,708
Loans and advances to central banks and credit institutions			18,237				(12.3	)			20,784				18,759
Loans and advances to customers			316,499				1.7				311,147				309,766
Debt securities			35,481				(0.7	)			35,737				35,183
Investments in subsidiaries, joint ventures and associates			880				(38.7	)			1,437				1,241
Tangible assets			7,291				(6.8	)			7,823				7,844
Intangible assets			2,271				(3.1	)			2,345				2,326
Other assets			21,891				(79.6	)			107,373				112,494
Total assets			651,834				(11.5	)			736,176				725,895
Financial liabilities held for trading			83,359				(3.6	)			86,488				93,790
Other financial liabilities designated at fair value through profit or loss			9,726				(3.2	)			10,050				9,382
Financial liabilities at amortized cost			481,662				(1.8	)			490,606				470,764
Deposits from central banks and credit institutions			71,507				(1.8	)			72,806				67,834
Deposits from customers			340,828				(0.5	)			342,661				326,447
Debt certificates			55,397				(10.3	)			61,780				64,092
Other financial liabilities			13,930				4.3				13,358				12,390
Liabilities under insurance and reinsurance contracts			10,564				6.2				9,951				9,505
Other liabilities			15,957				(82.1	)			89,061				93,933
Total liabilities			601,268				(12.4	)			686,156				677,373
Non-controlling interests			5,628				2.9				5,471				5,404
Accumulated other comprehensive income			(15,684	)			9.3				(14,356	)			(14,552	)
Shareholders’ funds			60,622				2.9				58,904				57,669
Total equity			50,567				1.1				50,020				48,522
Total liabilities and equity			651,834				(11.5	)			736,176				725,895
Memorandum item:
Guarantees given			43,740				1.0				43,294				42,805

General note: the assets and liabilities of BBVA USA and the rest of the companies which the Group owned in the United States, they have been transferred to PNC after the sale materialized on June 1, 2021, and are therefore not included in the consolidated BBVA Group balance sheet as of 30-09-2021. As the applicable accounting regulation indicates, they are classified, respectively, as non-current assets and liabilities held for sale, inside the other assets/other liabilities line of the consolidated BBVA Group Balance sheet as of 31-12-2020. For management purposes only in order to make the information comparable, the assets and liabilities of BBVA USA and the rest of the Group´s companies in the United States included in the sale agreement singed with PNC are classified, respectively, in the other assets/other liabilities line of BBVA Group consolidated Balance sheet as of 30-09-2020.

		17

 

LOANS AND ADVANCES TO CUSTOMERS (MILLIONS OF EUROS)
		30-09-21				D %				31-12-20				30-09-20
Public sector			19,934				2.9				19,363				20,118
Individuals			147,982				2.5				144,304				141,992
Mortgages			91,811				0.4				91,428				90,796
Consumer			31,934				8.0				29,571				28,689
Credit cards			12,883				7.2				12,016				11,294
Other loans			11,354				0.6				11,289				11,213
Business			145,826				0.6				144,912				145,717
Non-performing loans			14,226				(3.0	)			14,672				14,232
Loans and advances to customers (gross)			327,968				1.5				323,252				322,059
Allowances (1)			(11,469	)			(5.3	)			(12,105	)			(12,293	)
Loans and advances to customers			316,499				1.7				311,147				309,766

(1) Allowances include the valuation adjustments for credit risk during the expected residual life of those financial instruments which have been acquired (mainly originated from the acquisition of Catalunya Banc, S.A.). As of September 30, 2021, December 31, 2020 and September 30, 2020 the remaining amount was €284m, €363m and €382m, respectively.

 

LOANS AND ADVANCES TO CUSTOMERS (GROSS. BILLIONS OF EUROS)				CUSTOMER FUNDS (BILLIONS OF EUROS)

 

CUSTOMER FUNDS (MILLIONS OF EUROS)
		30-09-21				D %				31-12-20				30-09-20
Deposits from customers			340,828				(0.5	)			342,661				326,447
Current accounts			276,129				3.7				266,250				251,927
Time deposits			63,163				(16.5	)			75,610				74,349
Other deposits			1,535				91.6				801				171
Other customer funds			111,615				8.4				102,947				100,040
Mutual funds and investment companies			71,321				9.9				64,869				62,912
Pension funds			38,257				5.6				36,215				35,393
Other off-balance sheet funds			2,037				9.3				1,863				1,735
Total customer funds			452,443				1.5				445,608				426,487

		18

 

Solvency

Capital base

BBVA Group’s fully-loaded CET1 ratio stood at 14.48% at September 30, 2021, which is an increase of +31 basis points above the previous quarter and amply covering the capital requirements of the BBVA Group (+588 basis points).

During the third quarter of 2021, the evolution of the consolidated fully-loaded CET1 ratio continued to be supported by recurrent organic capital generation, which net of dividends and remunerations of AT1 instruments, contribute up to +24 basis points. Apart from these items, the capital consumption due to organic activity evolution drained -3 basis points, while the evolution of the remaining components of the CET1 contributed +9 basis points. Among the latter, it is worth mentioning the positive contribution due to the parameters´update within the portfolios subject to the IRB credit risk method which has been partially offset by, among others, a negative evolution of market variables, in particular, the exchange rate.

The consolidated fully-loaded additional Tier 1 capital (AT1) stood at 1.91% as of September 30, 2021, which results in an increase of +4 basis points compared to the previous quarter.

The consolidated fully-loaded Tier 2 ratio as of September 30, 2021 stood at 2.47%, an increase of +3 basis points in the quarter.

The total fully-loaded capital adequacy ratio stands at 18.86%.

The phased-in CET1 ratio, on consolidated terms, stood at 14.71% as of September 30, 2021, considering the transitory effect of the IFRS 9 standard. AT1 reached 1.90% and Tier 2 reached 2.56%, resulting in a total capital adequacy ratio of 19.17%.

Regarding shareholder remuneration, after the lifting of the recommendations by the European Central Bank, on September 30, 2021, BBVA informed that the BBVA’s Board of Directors approved the payment in cash of €0.08 per BBVA share, as gross interim dividend against 2021 results. The dividend was paid on October 12, 2021. This dividend is already considered within the capital ratios of the Group.

 

SHAREHOLDER STRUCTURE (30-09-2021)
		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 500			345,689				41.3				64,765,704				1.0
501 to 5,000			386,593				46.2				678,331,454				10.2
5,001 to 10,000			56,209				6.7				395,267,622				5.9
10,001 to 50,000			43,639				5.2				835,142,199				12.5
50,001 to 100,000			3,148				0.4				214,561,513				3.2
100,001 to 500,000			1,402				0.2				252,447,748				3.8
More than 500,001			299				0.0				4,227,370,340				63.4
Total			836,979				100.0				6,667,886,580				100.0

 

		FULLY-LOADED CAPITAL RATIOS (PERCENTAGE)

		19

 

CAPITAL BASE (MILLIONS OF EUROS)

		CRD IV phased-in												CRD IV fully-loaded
		30-09-21 (1) (2)				31-12-20				30-09-20				30-09-21 (1) (2)				31-12-20				30-09-20
Common Equity Tier 1 (CET 1)			44,567				42,931				41,231				43,802				41,345				39,651
Tier 1			50,338				49,597				48,248				49,573				48,012				46,550
Tier 2			7,763				8,547				9,056				7,484				8,101				8,628
Total Capital (Tier 1 + Tier 2)			58,101				58,145				57,305				57,057				56,112				55,178
Risk-weighted assets			303,007				353,273				343,923				302,548				352,622				344,215
CET1 (%)			14.71				12.15				11.99				14.48				11.73				11.52
Tier 1 (%)			16.61				14.04				14.03				16.39				13.62				13.52
Tier 2 (%)			2.56				2.42				2.63				2.47				2.30				2.51
Total capital ratio (%)			19.17				16.46				16.66				18.86				15.91				16.03

(1) As of September 30, 2021, the difference between the phased-in and fully-loaded ratios arises from the temporary treatment of certain capital items, mainly of the impact of IFRS 9, to which the BBVA Group has adhered voluntarily (in accordance with article 473bis of the CRR and the subsequent amendments introduced by the Regulation (EU) 2020/873).

(2) Preliminary data.

With regard to MREL (Minimum Requirement for own funds and Eligible Liabilities) requirements, on May 31, 2021, BBVA made public that it had received a new communication from the Bank of Spain on its minimum requirement for own funds and admissible liabilities (MREL) established by the Single Resolution Board (hereinafter SRB), calculated taking into account the financial and supervisory information as of December 31, 2019.

This communication on MREL replaces the one previously received and according to it, BBVA must reach, by January 1, 2022, an amount of own funds and eligible liabilities equal to 24.78%2 of the total Risk Weighted Assets (hereinafter, RWAs) of its resolution group, at a sub-consolidated3 level (hereinafter, the “MREL in RWAs”). Also, of this MREL in RWAs, 13.50% of the total RWAs must be met with subordinated instruments (the “subordination requirement in RWAs”). This MREL in RWAs is equivalent to 10.25% in terms of the total exposure considered for the purposes of calculating the leverage ratio (the “MREL in LR”), while the subordination requirement in RWAs is equivalent to 5.84% in terms of the total exposure considered for calculating the leverage ratio (the “subordination requirement in LR”). In the case of BBVA, the requirement that is currently the most restrictive is that expressed by the MREL in RWAs. Given the structure of own funds and admissible liabilities of the resolution group, as of September 30, 2021, the MREL ratio in RWAs stands at 29.92%4,5, complying with the aforementioned MREL requirement.

With the aim of reinforcing compliance with these requirements, in March 2021, BBVA carried out an issue of senior preferred debt for an amount of €1,000m. Afterwards, in September 2021, BBVA carried out an issue of €1,000m under a floating rate senior preferred social bond, maturing in two years. Both issuances have mitigated the loss of eligibility of three issuances, two senior preferred issues and one senior non-preferred issue issued during 2017 and reaching their maturity in 2021.

Lastly, the Group’s leverage ratio stood at 7.5% fully-loaded (7.6% phased-in) as of September 30, 2021. These figures include the effect of the temporary exclusion of certain positions with the central banks of the different geographical areas where the Group operates, foreseen in the “CRR-Quick fix”.

Ratings

During the first nine months of 2021, BBVA’s rating has continued to demonstrate stability and all the rating agencies have confirmed its rating, maintaining it in the A category. Last June, in a joint review of several European banks, S&P changed the outlook of BBVA’s rating to stable from negative (confirming its A- rating), acknowledging both the benefits of the Group’s geographical diversification and the substantial capital reinforcement experienced after the BBVA USA sale.

The following table shows the credit ratings and outlook given by the agencies:

 

RATINGS

Rating agency		Long term (1)		Short term		Outlook
DBRS		A (high)		R-1 (middle)		Stable
Fitch		A-		F-2		Stable
Moody’s		A3		P-2		Stable
Standard & Poor’s		A-		A-2		Stable

(1) Ratings assigned to long term senior preferred debt. Additionally, Moody’s and Fitch assign A2 and A- rating respectively, to BBVA’s long term deposits.

 

 

² Pursuant to the new applicable regulation, the MREL in RWAs and the subordination requirement in RWAs do not include the combined requirement of capital buffers. For these purposes, the applicable combined capital buffer requirement would be 2.5%, without prejudice to any other buffer that may be applicable at any given time.

³ In accordance with the resolution strategy MPE (“Multiple Point of Entry”) of the BBVA Group, established by the SRB, the resolution group is made up of Banco Bilbao Vizcaya Argentaria, S.A. and subsidiaries that belong to the same European resolution group. As of December 31, 2019, the total RWAs of the resolution group amounted to €204,218m and the total exposure considered for the purpose of calculating the leverage ratio amounted to €422,376m.

⁴ Own resources and eligible liabilities to meet, both, MREL and the combined capital buffer requirement, which would be 2.5%, without prejudice to any other buffer that may be applicable at any given time.

⁵ As of September 30, 2021, both the MREL ratio in RWAs and the next ratios shown hereafter are provisional: the MREL ratio in LR stands at 12.43% and the subordination ratios in terms of RWAs and in terms of exposure of the leverage ratio, stand at 26.60% and 11.05%, respectively.

		20

 

Risk management

Credit risk

The local authorities of the countries in which the Group operates initiated economic support measures in 2020, after the outbreak of the pandemic, including the granting of relief measures in terms of temporary payment deferrals for customers affected by the pandemic, as well as the granting of loans covered by public guarantees, especially to companies and SMEs.

These measures are supported by the rules issued by the authorities of the geographical areas where the Group operates as well by certain industry agreements and should help to ease the temporary liquidity needs of the customers. The classification of the customers’ credit quality and the calculation of the expected credit loss, once the credit quality of those customers have been reviewed under the new circumstances, will depend on the effectiveness of these relief measures. In any case, the incorporation of public guarantees is considered to be a mitigating factor in the estimation of the expected credit losses. The possibility of benefiting from this type of temporary deferral measures has expired in the main geographical areas where the Group is currently present.

Regarding the public guarantee programs, in Spain, following the publication of the RDL 5/2021 and the Code of Good Practices, to which BBVA has voluntarily adhered, term extensions could be requested until October 15, 2021, whereas in Peru, due to a new extension of the Plan Reactiva, it is allowed until December 31, 2021, as additional three months have been extended by the Royal Urgency Decree Nº 091-2021 of September 29.

For the purposes of classifying exposures based on their credit risk, the Group has maintained a rigorous application of IFRS 9 at the time of granting the moratoriums and has reinforced the procedures to monitor credit risk both during their validity and upon their maturity. In this respect, additional indicators have been introduced to identify the significant increase in risk that may have occurred in some operations or a set of them and, where appropriate, proceed to classify it in the corresponding risk stage.

Likewise, the indications provided by the European Banking Authority (EBA) have been taken into account, to not consider as refinancing the moratoriums that meet a series of requirements, without prejudice to keep the exposure classified in the corresponding risk stage or its consideration as refinancing if it was previously so classified.

In relation to the temporary payment deferrals for customers affected by the pandemic, since the beginning BBVA worked on an anticipation plan with the goal of mitigating as much as possible the impact of these measures in the Group, due to the high concentration of its maturities over time. As of September 30, 2021, the payment deferrals granted by the Group following EBA criteria amounted to €1,036m.

Calculation of expected losses due to credit risk

To respond to the circumstances generated by the COVID-19 pandemic in the macroeconomic environment, characterized by a high level of uncertainty regarding its intensity, duration and speed of recovery, forward-looking information has been updated in the IFRS 9 models to incorporate the best information available at the date of the publication of this report. The estimation of the expected losses has been calculated for the different geographical areas in which the Group operates, with the best information available for each of them, considering both the macroeconomic perspectives and the effects on specific portfolios, sectors or specific debtors. The scenarios used consider the various economic measures that have been announced by governments as well as monetary, supervisory and macroprudential authorities around the world. However, the final magnitude of the impact of this pandemic on the Group’s business, financial situation and results, which could be material, will depend on future and uncertain events, including the intensity and persistence over time of the consequences derived from the pandemic in the different geographical areas in which the Group operates.

The expected losses calculated according to the methodology provided by the Group, including macroeconomic projections, have been supplemented with quantitative management adjustments in order to include issues that might imply a potential impairment which, due to its nature, is not included in the model, which will be assigned to specific operations in case this impairment materializes (e.g, sectors and collectives more affected by the crisis).

The classification of vulnerable activities to COVID-19 was established at the outbreak of the pandemic, in order to identify activities susceptible to further deterioration in the Group’s portfolio. Based on this classification, management measures were taken, with preventive rating adjustments and restrictive definition of risk appetite. Given the progress made during the course of the pandemic, which has led to the almost complete elimination of restrictions on mobility and the subsequent recovery from these restrictions, consideration is now being given to the specific characteristics of each client over and above their belonging to a particular sector. Therefore, maintaining this vulnerability classification is not considered necessary due to its low level of discrimination.

As of September 30, 2021, in order to incorporate those aspects not included in the impairment models, there are management adjustments to the expected losses amounting to €304m for the entire Group, €272m in Spain and €32m in Peru. As of June 30, 2021 this concept amounted to €348m in total, of which €315m were allocated to Spain and €32m to Peru. The variation in the quarter is therefore due to the use in Spain of €43m while the amount assigned to Peru remains unused.

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BBVA Group’s credit risk indicators

BBVA Group’s main risk indicators have behaved as follows between January and September 2021, as a result, among other reasons, of the situation generated by the pandemic:

 

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Credit risk has increased by 0.4% (+0.4% at constant exchange rates). There was a slight increase at Group level in the quarter at constant rates, with Turkey leading growth along with Rest of Business. Spain recorded a slight decline while Mexico and South America remained practically flat, the latter with increases in almost all countries in the region. Compared to December, credit risk increased by 1.3% (+2.0% at constant exchange rates) with generalized growth except for Chile and Peru.

 

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The balance of non-performing loans decreased in the third quarter of the year (-5.2% both in current and constant terms) in the main geographical areas. Compared to the end of 2020, the balance decreased by 3.8% (-2.8% at constant exchange rates) overall due to the good performance of underlying flows, with controlled inflows and positive recoveries, in a more favorable economic environment than in previous quarters.

 

NON-PERFORMING LOANS(1) AND PROVISIONS(1) (MILLIONS OF EUROS)

 

(1) Excludes BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021.

 

•

The NPL ratio stood at 4.0% as of September 2021 (4.2% in June, 2021), 21 basis points below the figure recorded in December 2020.

 

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Loan-loss provisions decreased by 5.6% compared to December 2020 (-1.1% in the quarter) due to the positive evolution of the non-performing loans and an increase in write-offs during the year.

 

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The NPL coverage ratio amounted to 80%, -149 basis points compared to the end of 2020. Compared to the previous quarter, the NPL ratio improved by 327 basis points as a result of the aforementioned good performance of the non-performing loans in the period.

 

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The cumulative cost of risk as of September 30, 2021 stood at 0.92% (-64 basis points below the end of 2020 and -9 basis points compared to June 2021). The loan-loss provisions carried out in the quarter were practically in line with those observed in the previous quarter, and were reflected in September in addition to the recurring flows of the month and the positive impact of the updated macroeconomic scenarios, partially mitigated by the effect of the annual recalibration on the Group’s provisioning models.

 

NPL(1) AND NPL COVERAGE(1) RATIOS AND COST OF RISK(1) (PERCENTAGE)

(1) Excluding BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021.

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CREDIT RISK(1) (MILLIONS OF EUROS)

 

		30-09-21				30-06-21				31-03-21				31-12-20				30-09-20
Credit risk			371,708				370,348				365,292				366,883				365,127
Non-performing loans			14,864				15,676				15,613				15,451				15,006
Provisions			11,895				12,033				12,612				12,595				12,731
NPL ratio (%)			4.0				4.2				4.3				4.2				4.1
NPL coverage ratio (%) (2)			80				77				81				82				85

General note: figures excluding BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, for the periods of 2021 and 2020, and the classification of BBVA Paraguay as non-current assets and liabilities held for sale for the periods of 2020.

(1) Includes gross loans and advances to customers plus guarantees given.

(2) The NPL coverage ratio includes the valuation adjustments for credit risk during the expected residual life of those financial instruments which have been acquired (mainly originated from the acquisition of Catalunya Banc, S.A.). Excluding these allowances, the NPL coverage ratio would stand at 78% as of September 30, 2021, 79% as of December 31, 2020 and 82% as of September 30, 2020.

 

NON-PERFORMING LOANS EVOLUTION (MILLIONS OF EUROS)

 

		3Q21 (1)				2Q21				1Q21				4Q20				3Q20
Beginning balance			15,676				15,613				15,451				15,006				15,594
Entries			1,445				2,321				1,915				2,579				1,540
Recoveries			(1,330)				(1,065)				(921)				(1,016)				(1,028)
Net variation			115				1,256				994				1,563				512
Write-offs			(848)				(1,138)				(796)				(1,149)				(510)
Exchange rate differences and other			(80)				(55)				(36)				31				(590)
Period-end balance			14,864				15,676				15,613				15,451				15,006
Memorandum item:
Non-performing loans			14,226				15,013				14,933				14,709				14,269
Non performing guarantees given			637				663				681				743				737

General note: figures excluding BBVA USA and the rest of Group’s companies in the United States sold to PNC on June 1, 2021, for the periods of 2021 and 2020, and the classification of BBVA Paraguay as non-current assets and liabilities held for sale for the periods of 2020.

(1) Preliminary data.

Structural risks

Liquidity and funding

Liquidity and funding management at BBVA 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 financing. In this context, it is important to notice that, given the nature of BBVA’s business, the funding of lending activity is fundamentally carried out through the use of stable customer funds.

Due to its subsidiary-based management model, BBVA is one of the few major European banks that follows the Multiple Point of Entry (MPE) resolution strategy: the parent company sets the liquidity policies, but the subsidiaries are self-sufficient and responsible for managing their own liquidity and funding (taking deposits or accessing the market with their own rating), without fund transfers or financing occurring between either the parent company and the subsidiaries or between the different subsidiaries. This strategy limits the spread of a liquidity crisis among the Group’s different areas, and ensures that the cost of liquidity and financing is correctly reflected in the price formation process.

In view of the initial uncertainty caused by the outbreak of COVID-19 in March 2020, the different central banks provided a joint response through specific measures and programs, whose extensions, in some cases, has been extended during 2021 to facilitate the financing of the real economy and the provision of liquidity in the financial markets, increasing liquidity buffers in almost all geographical areas.

The BBVA Group maintains a solid liquidity position in every geographical area in which it operates, with liquidity ratios well above the minimum required:

 

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The BBVA Group’s liquidity coverage ratio (LCR) remained comfortably above 100% throughout the first nine months of 2021, and stood at 170% as of September 30, 2021. For the calculation of this ratio, it is assumed that there is no transfer of liquidity among subsidiaries; i.e. no type of excess liquidity levels in foreign subsidiaries are considered in the calculation of the consolidated ratio. When considering these excess liquidity levels, the BBVA Group’s LCR would stand at 209%.

 

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The net stable funding ratio (NSFR), defined as the ratio between the amount of stable funding available and the amount of stable funding required, demands banks to maintain a stable funding profile in relation to the composition of their assets and off-balance sheet activities. This ratio should be at least 100% at all times. The BBVA Group’s NSFR ratio, calculated based on the criteria established in the Regulation (UE) 2019/876 of the European Parliament and the European Council, as of May 20, 2019; whose date of entry into force is June 2021, stood at 135% as of September 30, 2021.