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 July, 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)
		30-06-21				D %				30-06-20				31-12-20
Balance sheet (millions of euros)
Total assets			648,169				(13.9)				752,884				736,176
Loans and advances to customers (gross) (1)			327,372				(3.5)				339,342				323,252
Deposits from customers (1)			338,795				2.2				331,351				342,661
Total customer funds (1)			448,393				3.8				432,164				445,608
Total equity			49,944				0.8				49,555				50,020
Income statement (millions of euros)
Net interest income			6,955				(8.0)				7,561				14,592
Gross income			10,259				(3.6)				10,639				20,166
Operating income			5,661				(5.3)				5,980				11,079
Net attributable profit/(loss)			1,911				n.s.				(1,157	)			1,305
Net attributable profit or (loss) excluding non-recurring impacts (2)			2,327				145.6				947				2,729
The BBVA share and share performance ratios
Number of shares (million)			6,668				—				6,668				6,668
Share price (euros)			5.23				70.6				3.06				4.04
Earning per share (euros) (3)			0.26				n.s.				(0.20	)			0.14
Earning per share excluding non-recurring impacts (euros) (2)(3)			0.32				185.0				0.11				0.35
Book value per share (euros)			6.69				1.9				6.57				6.70
Tangible book value per share (euros)			6.34				8.0				5.87				6.05
Market capitalization (millions of euros)			34,860				70.6				20,430				26,905
Yield (dividend/price; %) (4)			1.1								8.5				4.0
Significant ratios (%)
Adjusted ROE (net attributable profit or (loss)/average shareholders’ funds +/- average accumulated other comprehensive income) (2)			10.4								4.1				6.1
Adjusted ROTE (net attributable profit or (loss)/average shareholders’ funds excluding average intangible assets +/- average accumulated other comprehensive income) (2)			11.0								4.4				6.5
Adjusted ROA (Profit or (loss) for the year/average total assets) (2)			0.89								0.40				0.54
Adjusted RORWA (Profit or (loss) for the year/average risk-weighted assets - RWA) (2)			1.90								0.83				1.16
Efficiency ratio			44.8								43.8				45.1
Cost of risk (5)			1.00								2.07				1.55
NPL Ratio (5)			4.2								4.1				4.2
NPL coverage ratio (5)			77								83				82
Capital adequacy ratios (%)
CET1 fully-loaded			14.17								11.22				11.73
CET1 phased-in (6)			14.37								11.63				12.15
Total ratio phased-in (6)			18.75								15.89				16.46
Other information
Number of clients (million) (7)			78.9				2.8				76.8				78.4
Number of shareholders			849,605				(4.7)				891,944				879,226
Number of employees			111,322				(11.0)				125,041				123,174
Number of branches			6,617				(14.1)				7,699				7,432
Number of ATMs			29,248				(9.5)				32,310				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 €400,764m, €402,184m and €502,997m, respectively, as of 30-06-20.

(2) Non-recurring impacts include: (I) profit/(loss) after tax from discontinued operations as of 30-06-21, 31-12-20 and 30-06-20; (II) the net cost related to the restructuring process as of 30-06-21; 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
Strategy developments			5
Other highlights information			8
Macro and industry trends			9
Group			12
Results			12
Balance sheet and business activity			18
Solvency			20
Risk management			23
Business areas			28
Spain			31
Mexico			34
Turkey			37
South America			40
Rest of Business			44
Corporate Center			47
Other information: Corporate & Investment Banking			48
Alternative Performance Measures (APMs)			51

		4

 

Highlights

Results and business activity

The BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €2,327m between January and June 2021, a year-on-year increase of +183.0% at constant exchange rates.

Including these non-recurring impacts —namely the €+280m profit generated by the Group’s businesses in the United States until the closing of its sale to PNC on June 1, 2021 and the €-696m net cost related to the restructuring process (which will affect 2,935 employees and will result in the closure of 480 offices in Spain)— the Group’s net attributable profit amounts to €+1,911m, which compares very positively with the €-1,157m in the same period of 2020, which was severely affected by the effects of the COVID-19 pandemic. For more information on these non-recurring impacts, see the “Other highlights” bullet at the end of this section.

In year-on-year terms and at constant exchange rates, it is worth highlighting the good performance of the gross income and especially the recurring income (i.e. net interest income and fees), which grew by 5.0%, and the positive evolution (+14.8%) 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 stake on industrial and financial portfolio.

Also worth mentioning is the continuous focus on efficiency and operating expenses control, which resulted in a 5.1% year-on-year growth in operating expenses at constant exchange rates, which is lower than the average inflation rate in the countries where BBVA operates.

Lastly, with respect to the Group results, the lower provisions for impairment on financial assets (-52.3% in year-on-year terms and at constant exchange rates), were mainly due to the strong impact of provisions for COVID-19 in the first half of 2020.

Loans and advances to customers (gross) registered an increase of 1.3% compared to the end of December 2020. In terms of business areas, the dynamic lending activity in Turkey, Spain and Mexico should be highlighted. By segments, new loan production in the retail segment, above the pre-pandemic levels, and the gradual recovery of commercial activity are notable.

Customer funds registered a slight increase of 0.6% compared to the end of December 2020, due to the performance of customer deposits, which contracted by 1.1% in the first half, and the positive performance (up 6.5%) of other customer funds, which managed to offset the deposits’ decline in the same period of time.

 

 

 

Business areas

Regarding the business areas it is worth mentioning:

 

•

Spain: BBVA in Spain generated a net attributable profit of €745m during the first half of 2021, well above the €108m achieved in the same period of the previous year, mainly due to the provisions for impairment on financial assets made between January and June 2020 due to the outbreak of COVID-19, the greater contribution of fees and commissions line and NTI, as well as lower operating expenses in 2021.

 

•

Mexico: BBVA in Mexico achieved a net attributable profit of €1,127m in the first half of 2021, i.e. an increase of 75.0% compared to the same period of the previous year, at constant exchange rate. This evolution is supported by a 5.8% growth (at constant exchange rates) in recurring income (net interest income and, net fees and commissions), as well as lower provisions for impairment on financial assets compared to the first half of 2020, which was greatly affected by the COVID-19 pandemic.

 

•

Turkey: The net attributable profit generated by Turkey in the first half of 2021 stood at €384m, 92.1% (at constant exchange rates) above the figure achieved in the same period of the previous year, which registered a strong increase in the impairment on financial assets derived from the outbreak of the COVID-19 pandemic in March 2020. Thus, the lower provisions for impairment on financial assets, together with the growth of net fees and commissions line and NTI, would explain the growth of the results of Turkey in the first half of 2021.

		5

 

•

South America: South America generated a cumulative net attributable profit of €218m between January and June 2021, which, at constant exchange rates and excluding BBVA Paraguay in 2020, represents a year-on-year variation of +110.1%, mainly due to the better evolution of recurring income and NTI between January and June 2021 (+17.8%) and lower provisions for impairment on financial assets than those registered in the first half of 2020, as a result of the outbreak of the pandemic in March 2020.

 

•

Other Businesses: At the end of the first half of 2021, the net attributable profit for the area stood at €145m (+36.7% 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 the first half 2021 was €708m, well below (-71.2%) the net attributable loss for the same period of the previous year, €2,454 m. 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 €292m (compared to €-350m in the first half of 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 €638m in the first half of 2021, which represents a 55.5% 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 the first half of 2020 due to the COVID-19 pandemic.

 

NET ATTRIBUTABLE PROFIT (MILLIONS OF EUROS)				NET ATTRIBUTABLE PROFIT BREAKDOWN (1) (PERCENTAGE. 1H21)
General note: excludes (I) BBVA USA and the rest of the Group’s companies in the United States sold to PNC on June 1, 2021, as of 1H21 and 1H20 and (II) the net cost related to the restructuring process as of 1H21.				(1) Excludes the Corporate Center.

(1) At constant exchange rates.

Strategy developments

BBVA’s strategy has been reinforced as a result of the acceleration of some of the trends caused by the COVID-19 pandemic, 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 promote progress in the execution of its six strategic priorities.

 

		6

 

In the first half of 2021, BBVA has continued to help its clients improve their financial health thanks to innovative solutions. The Group has made progress in developing an extensive catalog of experiences and digital tools that allow it to provide its clients with personalized, proactive and actionable advice for day-to-day control, debt management, savings or financial planning.

 

Advice that is appreciated by BBVA clients, which is reflected in a better Net Promoter Score among users of the financial health functionalities in Spain in the last quarter, which is 10 percentage points higher than that of other customers. Likewise, these financial advisory functionalities have been a key element for the contracting of products. Thus, in Spain, they have contributed 40% of all investment fund contracts, 28.6% of mortgage contracts or 12.7% of car loans in the first half of the year.

Likewise, the Group has reaffirmed its commitment to sustainability, to help its clients in the transition towards a sustainable future. Between 2018 and June 2021, BBVA has originated a total of €67,116m in sustainable financing. Among them, the issuance of the Central American Bank for Economic Integration (CABEI) stands out, for a total amount of 5,000 million Mexican pesos. It is the first COVID social bond and the largest social issue in the Mexican market, in which BBVA acted as a placement agent.

Sustainable financing by BBVA has grown 53% above forecast, well above the initial target. For this reason, in July 2021, BBVA announced that it doubles its objective of channeling sustainable financing to €200,000m.

But beyond financing, BBVA wants to provide a comprehensive support service to its retail and wholesale customers, including also advisory so that they can take advantage of investment opportunities in sustainability and the technologies of the future, and be more efficient and competitive. To this end, the Group has continued to promote the development of sustainable solutions. In April, BBVA achieved its goal of offering a sustainable alternative to its products in Spain, both for retail and wholesale.

Regarding the management of the impact of the activity and the integration of sustainability risk in the Bank’s processes, during the first half of 2021 BBVA announced two very relevant milestones:

 

•

It will reduce its exposure to coal-related activities to zero, ceasing to finance companies in these activities before 2030 in developed countries and before 2040 in the rest of the countries where BBVA Group operates.

 

•

It has adopted the commitment to be neutral in net greenhouse gas emissions by 2050, taking into account the emissions of its clients in addition to direct emissions, and has joined the Net Zero Banking Alliance promoted by the United Nations as a founding member. This is a very relevant milestone that implies alignment with the most ambitious scenario of the Paris Agreement, that is, limiting the increase in temperatures to 1.5ºC compared to levels prior to the industrial revolution. With this, BBVA anticipates in 20 years the base scenario of the Paris Agreement of 2ºC.

Likewise, in its commitment to the community, BBVA works to contribute to a more sustainable and inclusive development. In the first half of 2021, BBVA allocated €38m, from which more than 17 million people benefited, to support the inclusive growth of the societies in which the Group is present, with a focus on reducing inequality and supporting entrepreneurship, providing opportunities through education and promoting local knowledge and culture. Among the initiatives of the first half of 2021, the following stands out:

 

•

The “Educación conectada” project, promoted by BBVA and the Fundación de Ayuda contra la Drogadicción (FAD), whose priority is to alleviate the serious consequences of the COVID-19 crisis by reducing the digital divide.

		7

 

•

The celebration, in May 2021, of the 4th summit of the BBVA Center for Financial Education and Capacities (Edufin Summit), which had approximately 400 attendees from 40 countries.

 

•

The national call for the access to education program “Chavos que inspiran” in Mexico, aimed at students who require financial support to continue their high school studies.

For all this, 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.

 

                                           ⁺Cumulative origination until June 2021.

On the other hand, the Group has continued to grow in customers, especially through digital channels. The acquisition of customers through digital channels has increased by 45% in the last twelve months (comparing the data at the end of June 2021 and the end of June 2020), reaching 37% of new customers in the period. Something that has also been reflected in digital sales which, in cumulative terms and at the end of June, already represented 54% of the Group’s total sales in PRV¹.

BBVA’s commitment to innovative and globally scalable solutions also allows the Group to advance in operational excellence, such as the BBVA App, which is a leader and means that 62% of the Bank’s active customers already use mobile channels and that the Bank’s digital transactions have increased by 115% in Spain over the last two years. As a result, BBVA’s efficiency ratio stands at 45%, outperforming the average of its European competitors.

 

(1) Includes monetary and non-monetary transactions related to servicing, it excludes sales of financial products and information inquiries.				(2) European Peer Group: BARC, BNPP, CASA, CMZ, CS, DB, HSBC, ISP, LBG, NWG, SAN, SG, UBS, UCG. Peers data as of 3M21, BBVA data as of 6M21.

 

 

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

		8

 

The Group puts the best and most engaged team at the center of its strategic priorities. For this reason, BBVA is one of the 30 companies worldwide awarded with the acknowledgement “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.

And for all this, the Group relies on data and technology, on distinctive digital capabilities, which it has been working on for more than a decade and which have allowed it to be leader in the transformation of the financial industry. An example 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, or the increasing use of other technologies such as the cloud, blockchain or artificial intelligence.

Other highlights

 

•

On June 1, BBVA made public that, once the mandatory authorizations were obtained, the sale of 100% of the capital stock of BBVA USA Bancshares, Inc, the company that in turn owns all of the capital stock of the bank BBVA USA, was completed in favor of PNC (The PNC Financial Services Group, Inc). The accounting of the results generated by BBVA USA since the announcement of the operation in November 2020, as well as the closing of the sale on June 1, 2021, has generated a result net of taxes of €582m, which is included in the line “Profit/(loss) after tax from discontinued operations” of the consolidated income statement and of the Corporate Center income statement.

 

•

Regarding the collective layoff process in BBVA, S.A. in Spain, announced on April 13, 2021, on June 8 the Group made public that it has reached an agreement with the legal representation of the workers. The agreement takes into account the layoff of 2,935 employees, as well as the closure of 480 branches. The net cost related to this procedure has been recorded in the results of the second quarter of 2021 of the BBVA Group and have amounted to €-696m, of which, before taxes, €-754m correspond to the collective layoff and €-240m to the closing of offices.

For management information purposes, considered to be a strategic decision, these impacts have been assigned to the Corporate Center. This process will generate estimated savings of approximately €250m per year from 2022 before taxes, of which approximately €220m correspond to personnel expenses. In 2021 the estimated savings will be approximately €65m before taxes.

 

•

BBVA has voluntarily adhered to the Code of Good Practices approved by the Government of Spain on May 11 for clients who have benefited from financing with public endorsement since March 17, 2020. By joining this code, BBVA assumes, among other commitments, extend the expiration date of operations with public endorsement (normally from the Official Credit Institute, hereinafter ICO) that meet the established requirements, to continue supporting both companies and the self-employed.

 

•

Regarding shareholder remuneration, on July 23, 2021, the European Central Bank (hereinafter ECB) made public that it had approved a new recommendation replacing recommendation ECB/2020/62 and to be in force as of September 30, 2021. The ECB indicates in its latter recommendation, that it will assess the capital, dividend distribution and share buyback plans of each entity in the context of its ordinary supervisory process, replacing all the restrictions regarding dividends and share buybacks contained in recommendation ECB/2021/31. Once recommendation ECB/2021/31 has been released, BBVA intends to reintroduce its dividend policy announced on February 1, 2017 by the release of relevant information, that consist in the distribution of an annual payout of between 35% and 40% of the profits obtained in each financial year fully in cash in two different payments (expected for October and April, subject to the applicable authorizations) as from September 30, 2021.

‘		9

 

Macro and industry trends

The Global economy is recovering from the crisis caused by the COVID-19 pandemic, which resulted in a fall of around 3.2% of global GDP in 2020. Improved activity in the first half of 2021 was primarily due to the increasing rollout of coronavirus vaccines—which has allowed a relatively rapid reopening of the economy—as well as to strong monetary and fiscal stimuli. Similarly, recovery in global growth has been accompanied by higher pressure on prices than expected, mainly in the United States, where consumer inflation reached 5.4% in June 2021.

It is hoped that increased vaccination will enable greater control of the pandemic and that economic policy will remain focused on supporting economic activity. Economic recovery is therefore most likely to continue. According to BBVA Research, global GDP will increase by around 6.3% in 2021 and 4.7% in 2022, inflation will gradually moderate in the coming quarters as the supply of products and services reacts to the recent increase in demand, and monetary policy benchmark interest rates will remain at all-time lows in the United States, where growth will reach 6.7% in 2021 and 4.8% in 2022. Meanwhile, several factors, such as the United States Federal Reserve’s withdrawal of monetary stimuli, more persistent inflation, or new coronavirus variants, are contributing to uncertainty remaining exceptionally high and pose a risk to the expected economic recovery scenario.

With regard to the banking system, in an environment in which much of the economic activity has been at a partial standstill for several quarters, the services it provides have played an essential role. There are two main reasons for this: first, the banks have ensured the proper functioning of collections and payments for households and companies, thereby contributing to the maintenance of economic activity; second, the granting of new credit or the renewal of existing credit has reduced the impact of the economic slowdown on household and business incomes. The support provided by the banks over the months of lockdown and public guarantees have been essential in softening the impact of the crisis on companies’ liquidity and solvency, meaning that banking has become the main source of funding for most companies.

In terms of profitability, European banks (including Spanish banks) have deteriorated from the outset of the crisis, primarily because many entities made high allocations for provisions for financial asset impairment in the first half 2020 as a result of the worsening macroeconomic environment following the pandemic outbreak. However, the profitability of European banks recovered strongly in the first quarter of 2021. According to data published by the Risk Dashboard of the European Banking Authority (hereinafter “EBA”), the average ROE for the major EU banking groups (covering approximately 80% of the banking business in Europe) rose from 1.9% in 2020 to 7.6% in the first quarter of 2021, due to the widespread signs of economic recovery. Furthermore, the accumulation of capital by banks and the very low interest-rate environment we have found ourselves in for several years will continue to put pressure on bank profitability. Nevertheless, European entities are facing this situation from a healthy position and with solvency that has been constantly increasing since the 2008 crisis, with reinforced capital and liquidity buffers and, therefore, with a greater capacity to lend.

Europe

In the Eurozone, following a slight contraction of GDP in 1Q21, activity in the services sector and confidence are benefiting from eased restrictions and the increase in vaccination rates during 2Q21. Moreover, recovery in global demand should continue to support both manufacturing and exports. As a result, GDP is expected to see an upturn in 2Q21 and recovery is expected to increase in the coming quarters, supported by vaccine rollout, the European Recovery Fund (NGEU), and strong global growth. As a result, GDP could grow by 4.8% in 2021 and by 5% in 2022, after falling by 6.7% in 2020. Furthermore, national expansionary fiscal policies, the extension of support measures to the most affected sectors and support from the European Central Bank (hereinafter “ECB”) should avoid more-persistent negative effects.

With regard to the banking system, according to the EBA, the levels of capital adequacy of the main EU banking groups improved in the first quarter of 2021, showing a slight improvement in the average fully-loaded CET1 to 15.6%. With regard to monetary conditions, the ECB’s fundamental goal is to maintain favorable financial conditions. At its meeting in March, the monetary authority kept the interest rate for the main financing operations, and the interest rates for the marginal lending facility and the deposit facility unchanged at 0.00%, 0.25% and -0.50% respectively. It also announced a significant increase in asset purchases under the Pandemic Emergency Bond Purchase Program (hereinafter “PEPP”) for the third quarter of the year. However, BBVA Research considers that the PEPP provision (€1.85 trillion) is large enough to comfortably increase purchases over the coming months without the ECB having to increase its provision.

Spain

In terms of GDP growth, the Spanish economy contracted in the first quarter of 2021, as expected. Data for the second quarter point to an economic uptick due to improved health indicators, along with eased restrictions, which have reduced uncertainty and allowed for progress in private spending. Recovery in household consumption is mainly in services and, of these services, in those with a social purpose. Investment in machinery and equipment also continues to perform well. Looking forward, conditions for recovery remain favorable given the speed of vaccination, immunization of the most vulnerable groups and the current demand policies, at the expense of restrictions that may be introduced due to an increasing number of infections associated with new COVID-19 variants. The return of a significant number of foreign visitors during the tourism season will be key. European NGEU funds are also expected to arrive. Both factors should have a positive impact, especially on service exports, durable goods consumption and investment in construction. Growth is therefore expected to stand at 6.5% at year-end and at 7% in 2022. The main risks surrounding this scenario are linked to the pandemic, the impact of the crisis on employment and production capacity, and slow implementation of projects relating to the NGEU program.

With regards the banking system, according to the latest Bank of Spain data available, the total volume of lending to the private sector remained virtually unchanged in April 2021 compared to the same month in the previous year, after growing 2.6% in 2020 due to the effect of new business lending transactions within the framework of the public guarantee programs implemented by the government to combat COVID-19. Asset quality indicators remain contained (the NPL ratio stood at 4.51% at year-end, and 4.53% in April 2021). Following losses in 2020, the system’s profitability re-entered positive ground in the first quarter of 2021, with the system recording a record post-tax profit of €7,296m, of which €4,300m are attributable to negative goodwill from the merger between Caixabank and Bankia. Spanish entities maintain comfortable capital adequacy and liquidity levels, which allow them to weather the current environment.

		10

 

Mexico

Economic activity in the first quarter recovered beyond expectations and will allow Mexico’s GDP to return to pre-pandemic levels in 2022. The services sector benefited during the first quarter of the year from the lifting of pandemic-related restrictions and increased mobility. Investment also grew higher than initial estimates, with the manufacturing industry having the greatest positive effect thanks to higher growth in the United States. BBVA Research estimates that the Mexican economy will grow 6.3% in 2021 and moderate to 3% in 2022. Inflation was a positive surprise, reflecting the impact of some services reopening, as well as new gains on some goods. These surprises led Banxico to preventively raise its interest rate from 4% to 4.25%, and BBVA Research estimates that the central bank will continue to increase its benchmark interest rate to close out the year at 5% and will continue to act in line with the Fed.

With regard to the banking system, based on data from the National Banking and Securities Commission (CNBV) as of May 2021, loans decreased by 7.1% year-on-year, and an increase was observed only in the mortgage portfolio (up 9.3% year-on-year), while total deposits increased by 0.8% year-on-year. The NPL ratio increased year-on-year, reaching an NPL ratio of 2.52%, and capital indicators remain comfortable.

Turkey

The Turkish economy grew significantly in the first quarter of the year. Strong momentum so far, upward revisions to global growth forecasts, moderate growth in lending and the reopening of the economy have led BBVA Research to revise the GDP growth forecast upward from 5% to 9% in 2021, but to revise the forecast for 2022 downward slightly to 4% (previously 4.5%), due to negative base effects and higher interest rates over a longer period of time.

With regard to the banking system, the central bank (CBRT) kept its base rate at 19% in 2Q21. BBVA Research estimates that CBRT will start gradually cutting rates in 4Q21 to close out the year at 17.5%. Meanwhile, inflation estimates have been adjusted to 16% by the close of 2021. Based on data as of May 2021, the total volume of lending in the banking system increased by 22.0% year-on-year (up +20.7% in Turkish lira and +24.3% in foreign currency), while deposits increased 27.9%. These growth rates include the effect of inflation. The NPL ratio stood at 3.69% at the end of May 2021.

Argentina

In Argentina, a new wave of COVID-19 infections accompanied by new shocks in supply hindered recovery in activity in the first part of the year, despite the good pace of vaccine rollout and high commodity prices. Private consumption grew lower than expected, and government spending, although somewhat higher than estimated, was unable to offset this. BBVA Research estimates that growth will stand at 6.5% in 2021 and that the economy will recover to pre-pandemic levels in 2022, at which point it will grow by around 3.5%. Argentina reached an agreement with the Paris Club that will allow it to avoid defaulting on its payments and continue negotiations with the IMF to refinance its foreign debt, whereby an agreement is expected to be reached by early 2022. Recent data confirm BBVA Research’s forecast in terms of inflation, which we estimate will close the year at 50%, a level to be maintained in 2022.

In the banking system, the positive growth trend for both lending and deposits continued in May 2021, with growth of 29.8% and 46.0% respectively, both influenced by high inflation. The NPL ratio, however, fell slightly to 3.9% at the close of the first quarter in 2021.

Colombia

During the first months of 2021, economic activity in Colombia was higher than initially estimated, driven by global growth and higher oil prices. The third wave of the pandemic had limited effects on private consumption, despite protests in May relating to the Tax Reform. A new Tax Reform initiative with a fiscal consolidation rule will be presented in Congress in the new term and is expected to be approved without delay, which will have a positive impact on public finances. BBVA Research estimates that growth will reach 7.5% in 2021 and moderate to 4.4% in 2022. Worsening public finances, together with difficulty in ensuring long-term fiscal sustainability, caused Colombia to lose its investment grade. Inflation saw upward surprises related not only to the protests, but also to higher energy prices and economic recovery. This could lead the central bank to bring interest rate hikes forward; BBVA Research now expects the first interest rate hike by the third quarter of 2021, taking inflation to around 2.25% at year-end and 3.25% at the close of 2022.

Total lending in the banking system fell by 1.0% year-on-year in March 2021, mainly due to the moderate decrease in the commercial loan portfolio (-2.6%) despite government-approved letters of credit and guarantee programs during the pandemic. The system’s NPL ratio as of March 2021 stood at 4.91%. Meanwhile, total deposits increased by 4.2% year-on-year at the close of March 2021.

Peru

Despite the recovery in growth observed in the first quarter of the year, a third wave of infections has led to a substantial slowdown in activity, whereby pre-pandemic activity levels are estimated to be reached in the second half of 2022. This is in a context of higher global growth and high commodity prices. BBVA Research believes that the Peruvian economy will grow 9% in 2021 and 4.3% in 2022, influenced by the slowdown in domestic demand, which will feel the effects of the new wave of infections and political uncertainty. Inflation has been a positive surprise in recent months, and BBVA Research believes it will maintain close to the upper limit of the central bank’s target range (3%) in the second half of 2021 and 2022. This situation of higher inflation in an environment of economic recovery will probably lead the central bank to bring the beginning of the cycle of hardening its monetary policy forward to the third quarter of 2021.

		11

 

The banking system showed high year-on-year growth rates for lending and deposits (up +11.1% and +17.1% respectively, at the end of April 2021), due to strong stimulus from the Plan Reactiva Perú; the system showed lower profitability levels due to the COVID-19 crisis (ROE: 3.07% as of April 2021) but with contained NPLs (NPL ratio: 3.24% as of April 2021) due to the payment deferrals applied.

 

INTEREST RATES (PERCENTAGE)
		30-06-21		31-03-21		31-12-20		30-09-20		30-06-20
Official ECB rate		0.00		0.00		0.00		0.00		0.00
Euribor 3 months (1)		(0.54)		(0.54)		(0.54)		(0.49)		(0.38)
Euribor 1 year (1)		(0.48)		(0.49)		(0.50)		(0.41)		(0.15)
USA Federal rates		0.25		0.25		0.25		0.25		0.25
TIIE (Mexico)		4.25		4.00		4.25		4.25		5.00
CBRT (Turkey)		19.00		19.00		17.00		10.25		8.25
(1) Calculated as the month average.

The recovery led by the United States has favored the U.S. dollar, which has appreciated by 3.3% against the euro, compared to December 2020. The Mexican peso registered an appreciation of 3.6% against the euro, showing a good behavior and being reinforced by the interest rates increase carried by Banxico. The Turkish lira closes the quarter with a 11.7% depreciation against the euro, having been impacted since March by instability caused by the shifts in the central bank management. As to other foreign exchanges, Colombian peso (-5.7%) and Peruvian sol (-3.6%) depreciated against the Euro, due to political uncertainty in both regions. Chilean peso behavior against the Euro has been more stable, while the Argentine peso depreciated by 9.2%, registering a lower rhythm than the one shown in previous years.

For information on the BBVA Group’s exchange rate risk management policies, see the “Risk Management” chapter of this report.

 

EXCHANGE RATES (EXPRESSED IN CURRENCY/EURO)
		Year-end exchange rates						Average exchange rates
				D % on		D % on						D % on
		30-06-21		30-06-20		31-12-20		1H21				1H20
U.S. dollar		1.1884		(5.8)		3.3			1.2051			(8.6)
Mexican peso		23.5784		10.0		3.6			24.3235			(1.8)
Turkish lira		10.3210		(25.6)		(11.7)			9.5232			(24.9)
Peruvian sol		4.6146		(14.5)		(3.6)			4.4918			(16.2)
Argentine peso (1)		113.74		(30.7)		(9.2)			—			—
Chilean peso		873.81		4.6		(0.2)			867.87			3.2
Colombian peso		4,464.43		(5.7)		(5.7)			4,368.23			(6.9)
(1) According to IAS 29 “Financial information in hyperinflationary economies”, the year-end exchange rate is used for the conversion of the Argentina income statement.

		12

 

Group

Results

The BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €2,327m between January and June 2021, with a year-on-year increase of 145.6%. Including these impacts —namely €+280m from the results of discontinued operations and €-696m for the net cost related to the restructuring process— the Group’s net attributable profit amounts to €+1,911m, which compares very positively with the €-1,157m in the same period of the previous year, which was severely affected by the effects of the COVID-19 pandemic. With regards 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 Condensed Interim Consolidated Financial Statements.

Despite the complex environment and at constant exchange rates, good performance in recurring income (i.e. net interest income and fees), the evolution of net trading income (NTI) and lower provisions for impairment on financial assets were particularly notable.

 

CONSOLIDATED INCOME STATEMENT: QUARTERLY EVOLUTION (MILLIONS OF EUROS)
		2021												2020
		2Q				1Q								4Q				3Q				2Q				1Q
Net interest income			3,504				3,451								3,477				3,553				3,537				4,024
Net fees and commissions			1,182				1,133								1,042				1,023				934				1,124
Net trading income			503				581								175				357				470				544
Other operating income and expenses			(85)				(11)								(147)				46				(80)				86
Gross income			5,104				5,155								4,547				4,980				4,862				5,778
Operating expenses			(2,294)				(2,304)								(2,264)				(2,163)				(2,182)				(2,477)
Personnel expenses			(1,187)				(1,184)								(1,186)				(1,124)				(1,113)				(1,272)
Other administrative expenses			(800)				(812)								(766)				(725)				(754)				(860)
Depreciation			(307)				(309)								(312)				(315)				(316)				(345)
Operating income			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			(656)				(923)								(901)				(706)				(1,408)				(2,164)
Provisions or reversal of provisions			(23)				(151)								(139)				(88)				(219)				(300)
Other gains (losses)			(7)				(17)								(82)				(127)				(103)				(29)
Profit/(loss) before tax			2,124				1,759								1,160				1,895				950				807
Income tax			(591)				(489)								(337)				(515)				(273)				(204)
Profit/(loss) for the period			1,533				1,270								823				1,380				678				603
Non-controlling interests			(239)				(237)								(110)				(312)				(162)				(172)
Net attributable profit excluding non-recurring impacts			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)			701				1,210								1,320				1,141				636				(1,792)
Earning per share excluding non-recurring impacts (3)			0.18				0.14								0.09				0.15				0.06				0.05
Earning per share (euros) (3)			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 gain 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.

		13

 

CONSOLIDATED INCOME STATEMENT (MILLIONS OF EUROS)
										D % at  constant
		1H21				D %				exchange rates				1H20
Net interest income			6,955				(8.0)				0.9				7,561
Net fees and commissions			2,315				12.5				19.7				2,058
Net trading income			1,084				6.9				14.8				1,014
Other operating income and expenses			(95)				n.s.				n.s.				6
Gross income			10,259				(3.6)				4.9				10,639
Operating expenses			(4,598)				(1.3)				5.1				(4,660)
Personnel expenses			(2,371)				(0.6)				6.2				(2,385)
Other administrative expenses			(1,612)				(0.1)				6.4				(1,614)
Depreciation			(615)				(7.0)				(1.9)				(661)
Operating income			5,661				(5.3)				4.7				5,980
Impairment on financial assets not measured at fair value through profit or loss			(1,580)				(55.8)				(52.3)				(3,572)
Provisions or reversal of provisions			(174)				(66.4)				(65.1)				(518)
Other gains (losses)			(24)				(81.7)				(81.1)				(132)
Profit/(loss) before tax			3,883				120.9				164.1				1,757
Income tax			(1,080)				126.6				167.7				(477)
Profit/(loss) for the period			2,803				118.8				162.8				1,281
Non-controlling interests			(476)				42.7				94.8				(333)
Net attributable profit/(loss) excluding non-recurring impacts			2,327				145.6				183.0				947
Profit/(loss) after tax from discontinued operations (1)			280				n.s.				n.s.				(2,104)
Net cost related to the restructuring process			(696)				n.s.				n.s.				—
Net attributable profit/(loss)			1,911				n.s.				n.s.				(1,157)
Earning per share excluding non-recurring impacts (2)			0.32												0.11
Earning per share (euros) (2)			0.26												(0.20)

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. With regard to balance sheet and business activity amounts, the exchange rates at the close of the most recent period are used.

Gross income

Gross income experienced a year-on-year growth of 4.9%, underpinned by the favorable evolution of fees and NTI as well as the improved performance of net interest income between April and June 2021 (+3.9% in the quarter). In contrast, the other operating income and expenses line was down compared to the first half of 2020.

		14

 

		GROSS INCOME (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)
		(1) At current exchange rates:-3.6%

Net interest income as of June 30, 2021 closed slightly higher than in the same period of the previous year (+0.9%), due to the good performance in South America and Mexico, which offset the poorer performance in other areas.

The main geographical areas, with the exception of Rest of Business, showed good performance in the net fees and commissions line compared to the first half of 2020 (up 19.7%), when it was affected by lower activity due to lockdown measures during the second quarter of 2020 in the different countries where the Group operates, as well as cancellation of the collection of certain fees as a measure to support customers during the worst moments of the pandemic.

 

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.				(1) At current exchange rates: -3.6%

NTI showed a year-on-year increase of 14.8%, mainly due to the performance of the Global Markets unit in Spain and the revaluations of the Group stake on industrial and financial portfolio

The other operating income and expenses line closed the first half of the year at €-95m compared to €+6m in the same period last year, due to BBVA’s greater annual contribution in Spain to the Single Resolution Fund (hereinafter SRF), the higher adjustment for inflation in Argentina and the lower contribution of the insurance business in Spain, due to the bancassurance operation with Allianz, and in Mexico, due to increased claims as a result of the pandemic.

Operating income

Operating expenses grew by 5.1% year-on-year, with an increase in all geographical areas except Spain, where they decreased.

		15

 

		OPERATING EXPENSES (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)
		(1) At current exchange rates:-1.3%

As a result, operating income totaled €5,661m, representing a year-on-year growth of 4.7%.

The efficiency ratio stood at 44.8% as of June 30, 2021, in line with the ratio achieved in the first half of the previous year (44.7%), with an improvement of 73 basis points over the ratio as of the end of December 2020.

 

EFFICIENCY RATIO (PERCENTAGE)				OPERATING INCOME (MILLIONS OF EUROS AT
				CONSTANT EXCHANGE RATES)
				(1) At current exchange rates: -5.3%.

Provisions and other

Impairment on financial assets not measured at fair value through profit or loss (impairment on financial assets) closed the six-month period with a negative balance of €-1,580, significantly lower than the previous year (down 52.3%) mainly due to the negative impact of provisions for COVID-19 in the first half of 2020.

		16

 

		IMPAIRMENT ON FINANCIAL ASSETS (MILLIONS OF EUROS AT CONSTANT EXCHANGE RATES)
		(1) At current exchange rates: -55.8%

The provisions or reversal of provisions line (hereinafter “provisions”) closed the six-month period with a negative net balance of €-174m (down 65.1% compared to the net figure at the close of June last year), mainly due to provisions for potential claims in Spain and, to increased provisions for special funds and contingent risk and commitments in Turkey, in both cases registered in the first half of 2020.

The other gains (losses) line showed a negative balance of €24m at the end of June 2021, -81.1% below the figure reached the previous year (€-132m), mainly due to improved results achieved by Garanti BBVA’s subsidiaries in Turkey.

Results

As a result, the BBVA Group generated a net attributable profit, excluding non-recurring impacts, of €2,327m between January and June 2021, representing a year-on-year increase of 183.0%. These non-recurring impacts include:

 

•

The results generated by the Group’s business in the United States (the sale of which to PNC materialized on June 1, 2021) and classified as discontinued operations, which generated €+280m in 2021 until the closing of the sale, contrasting very positively with the negative result of €2,104m in the first half of 2020, which included the impact of the goodwill impairment in the country. 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 in Spain has amounted to €-696m, of which, before taxes, €-754m correspond to collective redundancies and €-240m to the closing of branches.

Taking into account both impacts, the Group’s net attributable profit in the first half of 2021 totaled €1,911m, comparing very positively with the negative result of €-1,157m 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 June 2021 for the various business areas that make up the Group were as follows: 745 in Spain, 1,127 in Mexico, 384 in Turkey, 218 in South America and 145 in Rest of Business.

		17

 

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:+145.6%

 

TANGIBLE BOOK VALUE PER SHARE AND DIVIDENDS (1) (EUROS)				EARNING PER SHARE (1) AND ADJUSTED EARNING PER SHARE (1) (EUROS)
(1) Replenishing dividends paid in the period.				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 sale to Allianz of the half plus one share of the company created to jointly promote non-life insurance business in Spain, excluding the health insurance line as of 4Q20. (1) Adjusted by additional Tier 1 instrument remuneration.

 

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, as of 1H21, 2020 and 1H20; (II) the net cost related to the restructuring process as of 1H21; and (III) the net capital gain from the sale to Allianz of the half plus one share of the company created to jointly promote non-life insurance business in Spain, excluding the health insurance line 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, as of 1H21, 2020 and 1H20; (II) the net cost related to the restructuring process as of 1H21; and (III) the net capital gain from the sale to Allianz of the half plus one share of the company created to jointly promote non-life insurance business in Spain, excluding the health insurance line as of 2020.

		18

 

Balance sheet and business activity

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

 

•

Loans and advances to customers (gross) registered an increase of 1.3% compared to the end of December 2020. In terms of business areas, the dynamic lending activity in Turkey, Spain and Mexico should be highlighted.

 

•

Customer funds registered a slight increase of 0.6% compared to the end of December 2020, due to the performance of customer deposits, which contracted by 1.1% in the first half, and the positive performance (up 6.5%) of other customer funds, i.e. mutual funds, pension funds and other off-balance sheet funds, which managed to offset the deposits’ decline in the same period of time.

 

•

Regarding 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 30-06-2021. 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 30-06-2020.

 

CONSOLIDATED BALANCE SHEET (MILLIONS OF EUROS)
		30-06-21				D %				31-12-20				30-06-20
Cash, cash balances at central banks and other demand deposits			61,687				(5.9)				65,520				55,023
Financial assets held for trading			105,523				(2.5)				108,257				117,329
Non-trading financial assets mandatorily at fair value through profit or loss			5,742				10.5				5,198				4,980
Financial assets designated at fair value through profit or loss			1,107				(0.9)				1,117				1,098
Financial assets at fair value through accumulated other comprehensive income			73,186				5.4				69,440				64,575
Financial assets at amortized cost			368,026				0.1				367,668				381,967
Loans and advances to central banks and credit institutions			16,947				(18.5)				20,784				19,584
Loans and advances to customers			315,752				1.5				311,147				326,818
Debt securities			35,327				(1.1)				35,737				35,565
Investments in subsidiaries, joint ventures and associates			1,400				(2.5)				1,437				1,366
Tangible assets			7,321				(6.4)				7,823				8,163
Intangible assets			2,303				(1.8)				2,345				2,487
Other assets			21,874				(79.6)				107,373				115,897
Total assets			648,169				(12.0)				736,176				752,884
Financial liabilities held for trading			82,862				(4.2)				86,488				107,554
Other financial liabilities designated at fair value through profit or loss			9,811				(2.4)				10,050				9,203
Financial liabilities at amortized cost			479,618				(2.2)				490,606				479,905
Deposits from central banks and credit institutions			71,645				(1.6)				72,806				73,709
Deposits from customers			338,795				(1.1)				342,661				331,351
Debt certificates			55,047				(10.9)				61,780				61,359
Other financial liabilities			14,132				5.8				13,358				13,485
Liabilities under insurance and reinsurance contracts			10,535				5.9				9,951				9,462
Other liabilities			15,398				(82.7)				89,061				97,205
Total liabilities			598,225				(12.8)				686,156				703,330
Non-controlling interests			5,428				(0.8)				5,471				5,836
Accumulated other comprehensive income			(15,348)				6.9				(14,356)				(12,822)
Shareholders’ funds			59,864				1.6				58,904				56,541
Total equity			49,944				(0.2)				50,020				49,555
Total liabilities and equity			648,169				(12.0)				736,176				752,884
Memorandum item:
Guarantees given			42,976				(0.7)				43,294				44,733

		19

 

LOANS AND ADVANCES TO CUSTOMERS (MILLIONS OF EUROS)
		30-06-21				D %				31-12-20				30-06-20
Public sector			19,645				1.5				19,363				21,670
Individuals			147,287				2.1				144,304				145,323
Mortgages			91,623				0.2				91,428				92,279
Consumer			30,852				4.3				29,571				29,345
Credit cards			12,194				1.5				12,016				11,375
Other loans			12,617				11.8				11,289				12,325
Business			145,427				0.4				144,912				157,484
Non-performing loans			15,013				2.3				14,672				14,864
Loans and advances to customers (gross)			327,372				1.3				323,252				339,342
Allowances (1)			(11,620	)			(4.0	)			(12,105	)			(12,523	)
Loans and advances to customers			315,752				1.5				311,147				326,818

(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 June 30, 2021, December 31, 2020 and June 30, 2020 the remaining amount was €301m, €363m and €399m, respectively.

 

LOANS AND ADVANCES TO CUSTOMERS (GROSS. BILLIONS OF EUROS)				CUSTOMER FUNDS (BILLIONS OF EUROS)
(1) At constant exchange rates: +2.6%				(1) At constant exchange rates: +1.5%

 

CUSTOMER FUNDS (MILLIONS OF EUROS)
		30-06-21				D %				31-12-20				30-06-20
Deposits from customers			338,795				(1.1	)			342,661				331,351
Current accounts			271,721				2.1				266,250				252,318
Time deposits			65,034				(14.0	)			75,610				78,684
Other deposits			2,039				154.5				801				349
Other customer funds			109,598				6.5				102,947				100,813
Mutual funds and investment companies			69,814				7.6				64,869				63,237
Pension funds			37,709				4.1				36,215				35,664
Other off-balance sheet funds			2,074				11.3				1,863				1,912
Total customer funds			448,393				0.6				445,608				432,164

		20

 

Solvency

Capital base

BBVA Group’s fully-loaded CET1 ratio stood at 14.17% at June 30, 2021 and includes the one-off effects of the sale of BBVA USA with an impact of +260 basis points on the capital position at the end of June 2021, and the impacts of the restructuring process of -25 basis points.

During the second quarter of 2021, the evolution of the consolidated fully-loaded CET 1 ratio continued to be supported by a high generation of earnings, with an impact of +38 basis points (which excludes the impact on the results of the two effects mentioned above), which mostly covers the prudential accrual for shareholder remuneration and the remuneration of Contingent Convertible bonds (hereinafter CoCos), -11 basis points as a whole, as well as the growth of organic risk-weighted assets (RWAs in the following) in the quarter which have detracted -6 basis points.

Apart from these effects, there is also an impact of -14 basis points that corresponds to the implementation of regulatory impacts on RWAs, among which the most notably is the entry into force of the new counterparty risk calculation framework. Finally, in the rest of the items that affect the evolution of the consolidated CET1 fully-loaded ratio, a negative impact of -13 basis points is recorded, mainly explained by a lower computation of non-controlling interests.

Consolidated fully-loaded RWAs decreased in the quarter by approximately €49,000m, which is explained by the exclusion of BBVA USA after the closing of the sale agreement to PNC on June 1. Excluding this singular effect, RWAs registered a slight increase of approximately €1,920m.

The consolidated fully-loaded additional Tier 1 capital (AT1) stood at 1.87% as of June 30, 2021, which results in a significant growth compared to the previous quarter of +25 basis points and which is supported by the reduction of RWA for the aforementioned exclusion of BBVA USA.

It should be noted that on April 14, BBVA carried out the early amortization of an issue of preferred securities that can be converted into BBVA ordinary shares (CoCos) dating from 2016 for €1,000m with a 8.875% coupon and whose impact was already included in the Group’s capital ratios as of March 31, 2021.

The consolidated fully-loaded Tier 2 ratio as of June 30, 2021 stood at 2.44%, its growth in the quarter (+20 basis points) is mainly explained by the effect of the RWA reduction due to the exclusion of BBVA USA.

The phased-in CET1 ratio, on consolidated terms, stood at 14.37% as of June 30, 2021, taking into account the transitory effect of the IFRS 9 standard. AT1 reached 1.86% and Tier 2 reached 2.52%, resulting in a total capital adequacy ratio of 18.75%.

Regarding shareholder remuneration, on April 29, 2021, a cash amount of €0.059 was distributed for each of the Bank’s shares, charged to BBVA’s share premium account, in accordance with what was approved in the General Shareholders’ Meeting of April 20, 2021. A cash distribution was also approved against the distribute items of BBVA of up to €533.4m, subject to the corresponding regulatory authorizations. Likewise, in order to be able to effectively implement a share buy-back program, the reduction of BBVA’s share capital was approved to a maximum corresponding to 10% of the current share capital through the amortization of treasury shares acquired through any mechanism with the objective of being amortized. The execution of the buyback program and the amortization of the shares acquired will be subject to the obtaining of the corresponding regulatory authorizations and being also subject, among other factors, to the price of the share. The European Central Bank (hereinafter ECB) published on July 23, 2021, a new recommendation ECB/2021/31 repealing recommendation ECB/2020/62 as of September 30, 2021. Recommendation ECB/2021/31 states that the ECB will assess banks’ capital trajectories and dividends or share buyback plans on an individual basis with a careful forward-looking assessment of capital plans in the context of the normal supervisory cycle, and repeals any further restrictions on dividends and share buybacks contained in recommendation ECB/2020/62. Once recommendation ECB/2021/31 has been released, BBVA intends to reintroduce its dividend policy announced on February 1, 2017 by the release of relevant information, that consist in the distribution of an annual payout of between 35% and 40% of the profits obtained in each financial year fully in cash in two different payments (expected for October and April, subject to the applicable authorizations) as from September 30, 2021.

 

SHAREHOLDER STRUCTURE (30-06-2021)
		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 500			349,964				41.2				65,616,409				1.0
501 to 5,000			393,255				46.3				689,014,893				10.3
5,001 to 10,000			57,020				6.7				401,131,352				6.0
10,001 to 50,000			44,434				5.2				849,915,229				12.7
50,001 to 100,000			3,208				0.4				218,437,393				3.3
100,001 to 500,000			1,437				0.2				259,744,818				3.9
More than 500,001			287				0.0				4,184,026,486				62.7
Total			849,605				100.0				6,667,886,580				100.0

		21

 

 

		FULLY-LOADED CAPITAL RATIOS (PERCENTAGE)

 

CAPITAL BASE (MILLIONS OF EUROS)

		CRD IV phased-in												CRD IV fully-loaded
		30-06-21 (1) (2)				31-12-20				30-06-20				30-06-21 (1) (2)				31-12-20				30-06-20
Common Equity Tier 1 (CET 1)			43,903				42,931				42,119				43,306				41,345				40,647
Tier 1			49,599				49,597				48,186				49,007				48,012				46,602
Tier 2			7,688				8,547				9,344				7,466				8,101				8,552
Total Capital (Tier 1 + Tier 2)			57,287				58,145				57,531				56,473				56,112				55,153
Risk-weighted assets			305,599				353,273				362,050				305,543				352,622				362,388
CET1 (%)			14.37				12.15				11.63				14.17				11.73				11.22
Tier 1 (%)			16.23				14.04				13.31				16.04				13.62				12.86
Tier 2 (%)			2.52				2.42				2.58				2.44				2.30				2.36
Total capital ratio (%)			18.75				16.46				15.89				18.48				15.91				15.22

(1) As of June 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 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 June 30, 2021, the MREL ratio in RWAs stands at 29.55%^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, mitigating the loss of eligibility of two senior preferred issues and one senior non-preferred issue issued during 2017 and reaching their maturity in 2021. It should be noted that after the closing of the sale of BBVA USA, BBVA’s position for MREL purposes has been strengthened.

Lastly, the Group’s leverage ratio as of June 30, 2021, stood at 7.4% fully-loaded (7.5% phased-in) with a significant increase in the quarter of +90 basis points, which is mainly explained by the lower exposure after the exclusion of BBVA USA. These figures include the effect of the temporary exclusion of certain positions with the central bank foreseen in the “CRR-Quick fix”.

 

 

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 June 30, 2021, 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 26.84% and 11.29%, respectively.