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 January, 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

 

 

 

Results 2020 4Q20

#You Are The Vaccine We address the challenges faced by banks with a sound CET 1 fully-loaded (*) LCR / NSFR capital and liquidity position reinforced by the sale agreement of our subsidiary in the United States 14.58% 149% / 127% (*) Pro-forma: including the positive impact from the sale of BBVA USA. We support the community to protect We use technology to promote the health and wellbeing of all new ways of working Hybrid model more Fiexible +€35M +€11M against Donated the for pandemic the Fight Donated by customers and employees Onsite Remote working 123,174 working employees We over Financial support to to our customers to relief We rely on employees committed with our Purpose, their Financial burden and to help them in their recovery to bring the age of opportunities to everyone, and with our values Deferrals and repayment Fiexibility More funding and liquidity and loans with government support Customer We think We are Continuous drive of digital channels comes First big one team € We help our clients transition We have digital advisory tools to help our customers to improve their Financial health toward a sustainable future Pledge 2025 To mobilize €100 Billion Companies Individual customers Mobilized Lo €50,000M approx. We help our customers in cumulated since 2018 their lives and in their businesses Digital Mobile Digital customers customers sales 63% 59% 64% Another milestone in our commitment to sustainability (% penetration) (% penetration) (% of total unit sold) We face 2021 with an unparalleled position of strength to invest in growth and to increase shareholder distributions We create opportunities together

Contents

 

BBVA Group main data			2
Highlights			3
Group information			8
Macro and industry trends			8
Results			12
Balance sheet and business activity			17
Solvency			19
Risk management			22
Sustainability and Responsible Banking			28
Business areas			30
Spain			33
The United States			36
Mexico			39
Turkey			42
South America			45
Rest of Eurasia			49
Corporate Center			51
Other information: Corporate & Investment Banking			53
Appendix			56

Translation of the Quarterly Report 4Q20 originally issued in Spanish. In the event of a discrepancy, the Spanish-language version prevails.

		2

 

BBVA Group main data

 

BBVA GROUP MAIN DATA (CONSOLIDATED FIGURES)
		31-12-20				D%				31-12-19				31-12-18
Balance sheet (millions of euros)
Total assets			736,258				5.5				697,737				675,675
Loans and advances to customers (gross)			378,139				(4.5)				396,012				386,225
Deposits from customers			409,122				6.1				385,686				375,970
Total customer funds			512,068				3.8				493,488				474,085
Total equity			50,020				(8.9)				54,925				52,874
Income statement (millions of euros)
Net interest income			16,801				(7.3)				18,124				17,511
Gross income			22,974				(6.1)				24,463				23,667
Operating income			12,219				(2.7)				12,561				11,965
Net attributable profit/(loss)			1,305				(62.9)				3,512				5,400
Adjusted net attributable profit or (loss) (1)			3,084				(36.1)				4,830				4,703
The BBVA share and share performance ratios
Number of shares (million)			6,668				-				6,668				6,668
Share price (euros)			4.04				(19.0)				4.98				4.64
Earning per share (euros) (2)			0.14				(70.4)				0.47				0.75
Adjusted earning per share (euros) (1) (2)			0.41				(38.9)				0.66				0.64
Book value per share (euros)			6.70				(8.5)				7.32				7.12
Tangible book value per share (euros)			6.05				(3.6)				6.27				5.86
Market capitalization (millions of euros)			26,905				(19.0)				33,226				30,909
Yield (dividend/price; %) (3)			4.0								5.2				5.4
Significant ratios (%)
ROE (net attributable profit or (loss)/average shareholders’ funds +/- average accumulated other comprehensive income) (1)			6.9								9.9				10.2
ROTE (net attributable profit or (loss)/average shareholders’ funds excluding average intangible assets +/- average accumulated other comprehensive income) (1)			7.8								11.9				12.5
ROA (Profit or (loss) for the year/average total assets) (1)			0.53								0.82				0.81
RORWA (Profit or (loss) for the year/average risk-weighted assets—RWA) (1)			1.07								1.57				1.56
Efficiency ratio			46.8								48.7				49.4
Cost of risk			1.51								1.02				0.99
NPL ratio			4.0								3.8				3.9
NPL coverage ratio			81								77				73
Capital adequacy ratios (%)
CET1 fully-loaded			11.73								11.74				11.34
CET1 phased-in (4)			12.15								11.98				11.58
Total ratio phased-in (4)			16.46								15.92				15.71
Other information
Number of clients (million)			80.7				3.6				77.9				74.6
Number of shareholders			879,226				0.6				874,148				902,708
Number of employees			123,174				(3.0)				126,973				125,627
Number of branches			7,432				(4.0)				7,744				7,963
Number of ATMs			31,000				(5.1)				32,658				32,502

General note: as a result of the interpretation issued by the International Financial Reporting Standards Interpretations Committee (IFRIC) regarding the collecting of interests of written-off financial assets for the purpose of IFRS 9, those collections are presented as reduction of the credit allowances and not as a higher interest income, recognition method applied until December 2019. Therefore, and in order to make the information comparable, the information of the 2019 and 2018 income statements has been restated.

(1) Excluding the net capital gain from the bancassurance transaction in 2020 and BBVA Chile in 2018 and the goodwill impairments in the United States registered in the first quarter of 2020 and the last quarter of 2019.

(2) Adjusted by additional Tier 1 instrument remuneration.

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

(4) 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.

		3

 

Highlights

COVID-19 pandemic

 

●

The appearance of the COVID-19 virus in China and its global expansion to a large number of countries, caused the viral outbreak to be classified as a global pandemic by the World Health Organization since March 11, 2020. The pandemic has affected and continues to adversely the world economy and the activity and economic conditions, leading many countries into economic recession. The governments of the different countries in which the Group operates have adopted different measures that have conditioned the evolution of 2020, as explained below.

Results

The BBVA Group generated a net attributable profit of €1,305m during 2020, in a year marked by several factors that influenced the income statement:

 

●

First, the outbreak of the COVID-19 pandemic, the main impacts of which were increased impairment on financial assets and higher provisions.

 

●

Secondly, the goodwill impairment in the United States in the first quarter of 2020, amounting to €2,084m, also as a result of the pandemic. In relation to this business area, the sale agreement reached by the Group is detailed later in this section. It should be noted that the Group’s results in this report are shown from a management’s business perspective, that is, with the United States business area in continuity. Financial information is being presented to the senior management of the Group with this management’s business perspective, and this report includes a conciliation between the management’s business perspective and the Consolidated Financial Statements of the Group.

 

●

Lastly, and to a lesser extent, the execution in the fourth quarter of 2020 of the bancassurance agreement reached with Allianz in Spain, once all required authorizations were received, which has represented a net capital gain of €304m, registered in the line of corporate operations of the Group.

Despite the complexity of the environment, the operating income registered an 11.7% year-on-year increase at constant exchange rates at the end of 2020, driven by the net trading income (NTI) and the operating expenses reduction.

The Group’s adjusted net attributable profit, excluding the goodwill impairment in the United States and the results from corporate operations in 2020, stood at €3,084m, that is a 36.1% below the 2019 result, also excluding the goodwill impairment in the United States in the last quarter of 2019

 

NET ATTRIBUTABLE PROFIT (1)   (MILLIONS OF EUROS)				NET ATTRIBUTABLE PROFIT BREAKDOWN (1) (PERCENTAGE 2020)
(1)  Excluding the goodwill impairment in the United States, registered in 2019 and 2020 and the net capital gain from the bancassurance operation in 2020.				(1) Excludes the Corporate Center.

Balance sheet and business activity

 

●

The figure for loans and advances to customers (gross) fell by 4.5% compared to the end of the previous year, with deleveraging in all portfolios in the last quarter of 2020, with the exception of consumer and credit cards.

 

●

Customer funds grew by 3.8% during 2020, mainly as a result of customers placing larger liquidity in demand deposits.

		4

 

Liquidity

 

●

The availability of substantial liquidity buffers in each of the geographical areas in which the BBVA Group operates and their management, have allowed internal and regulatory ratios to be maintained well above the minimums required.

Solvency

 

●

From 2021 onwards the BBVA Group sets the target to keep the CET1 fully-loaded ratio between 11.5%-12.0%, increasing the distance to the minimum requirement (currently at 8.59%) to 291-341 basis points. As of December 31, 2020, the CET1 fully-loaded ratio stood at 11.73%, already within the target range. This ratio does not include the positive impact of the sale of BBVA USA and other companies in the United States with activities related to its banking business, which according to the current estimate and taking by reference the capital base in 2020, would place the CET1 fully-loaded ratio at 14.58%. Additionally, it does not include the effect of the closing of the sale of BBVA Paraguay, which would have a positive impact of approximately +6 basis points, which will be registered in the first quarter of 2021.

 

		CAPITAL AND LEVERAGE RATIOS (PERCENTAGE AS OF 31-12-20)

Shareholder remuneration

Regarding shareholder remuneration, the European Central Bank (hereinafter ECB) issued on December 15, 2020 a new recommendation on dividend distribution during the COVID-19 pandemic, that will be maintained until the end of September 2021 and repeals the previous recommendation. Following the recommendation from de ECB (for more information see later in this section the “Pronouncements of regulatory bodies and supervisors” paragraph), it is expected to be proposed for the consideration of the competent government bodies the intention to pay out €0.059 (gross) per share to its shareholders. The maximum amount distributed will be approximately €393m corresponding to the 15% consolidated profit for 2020 (excluding among others, the goodwill impairment in the United States, the capital gain from corporate operations and the remuneration of additional Tier 1 capital-AT1-), following the recommendation of the ECB.

Risk management

 

●

The calculation of expected credit losses accumulated in 2020 incorporates:

 

o

The update of the forward-looking information in the IFRS 9 models in order to reflect the circumstances created by the COVID-19 pandemic.

 

o

The granting of relief measures in the form of temporary payment deferrals for customers affected by the pandemic, as well as the option to grant lending with a public guarantee facility. In relation to said payments deferrals and in order to mitigate as much as possible the impact of these measures for the Group, due to the high concentration in the time of their maturities, an anticipation plan has been worked out.

 

●

The behaviour of the main credit risk indicators of the Group at the end of 2020 were:

 

o

The NPL ratio stood at 4.0% at the end of December 2019, 17 basis points above the end of the previous year.

 

o

The NPL coverage ratio closed at 81%, with a relevant improvement compared to the end of 2019.

 

o

The cumulative cost of risk at the end of December stood at 1.51%, after the rebound experienced in the first quarter of 2020 and the subsequent correction throughout the year.

		5

 

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

Agreement for the sale of the United States

The BBVA Group announced, on November 16, 2020, that it has reached an agreement with The PNC Financial Services Group, Inc. (hereinafter PNC) for the sale of 100% of the shareholders’ equity of its subsidiary BBVA USA Bancshares, Inc., which in turn owns, all of the shareholders’ equity of the bank BBVA USA, as well as other companies of the BBVA Group in the United States with activities related to this banking business. The agreement reached does not include the sale of the institutional business of the BBVA Group developed through its broker dealer BBVA Securities Inc. or the participation in Propel Venture Partners US Fund I, L.P. Likewise, BBVA will continue to develop the wholesale business that it currently conducts through its New York branch. The price of the transaction amounts to aproximately USD 11,600m, which will be paid entirely in cash. It is estimated that the operation will generate a positive impact on the CET1 fully-loaded ratio of the BBVA Group of approximately 294 basis points and a net of taxes attributable profit of approximately €580m (calculated with a rate of 1.29 euros/U.S dollar) of which at the end of the financial year 2020, are already collected approximately €300m (corresponding to the results generated by the companies for sale from the signing of the transaction to the end of the year, and that there are recorded in the consolidated Financial Statements on 31 December, 2020) and approximately 9 basis points of positive impact in the CET1 fully-loaded ratio. As usual, the closing of the operation is subject to obtaining regulatory authorizations from the competent authorities and it is estimated that it will take place in mid-2021.

Sale of BBVA Paraguay

The BBVA Group announced on 22 January 2021 that, once the regulatory authorizations were obtained, it has completed the sale of its direct and indirect stake of 100% of the Shareholders’ equity of the Banco Bilbao Vizcaya Argentaria Paraguay S.A. (hereinafter, BBVA Paraguay) to the Banco GNB Paraguay S.A. The total amount received after the closing of the operation amounts to approximately USD 250m and has generated a capital loss, net of taxes, of approximately €9m. Likewise, this transaction will have a positive impact on BBVA Group’s Common Equity Tier 1 (fully-loaded) of approximately +6 basis points. This impact will be reflected in the first quarter of 2021’s capital base of BBVA Group.

Security, business continuity and support measures taken by BBVA

From the outset, BBVA has adopted a series of measures to support its main stakeholders. The main business continuity measures taken are:

 

●

In order to serve customers, and since financial services are legally considered an essential service in most of the countries in which the Group operates, the branch network remained operational, with dynamic management of the network considering the evolution of the pandemic and activity. In addition, the use of digital channels and remote managers was encouraged. The data indicates that the COVID-19 crisis is accelerating digitization: At Group level, and in cumulative terms, digital sales (measured in units) rebounded in March, and in April it reached 67.4%, with restrictions on the opening of branches in some of the countries where the Group operates, and in December 2020 they stood at 64.0%, which compares very positively with the 59.9% in February. Also at the end of the year, BBVA’s digital customers accounted for 63% of the total and customers operating with the bank through their mobile phones accounted for 59% across the entire Group.

		6

 

		DIGITAL AND MOBILE CUSTOMERS (MILLIONS)

 

●

With employees, recommendations from health authorities have been followed, including taking an early stance on promoting working from home. The priority in BBVA’s return plan is to protect the health of the employees, customers and society in general. The return plan is being carried out following five principles: 1) cautiousness; 2) gradual return; 3) work shifts; 4) strict hygiene and safety measures; 5) creation of early identification protocols. The crisis is being handled dynamically; adapting the procedures in each geographical area which the Group is present to the current situation, based on the latest data available regarding the evolution of the pandemic, the business and the level of customer service, in addition to the guidelines set by local authorities.

 

●

In terms of cybersecurity, the increase in remote work and digital transactions as a result of the coronavirus crisis has led to an increase in the risk of cyber attacks. To ensure data and corporate information protection, BBVA has established the appropriate measures and continues to strengthen its prevention and monitoring efforts, thus mitigating the possible associated risks.

The banks are a key part of the solution to the COVID-19 crisis. Among other support and responsibility measures, they include:

 

●

BBVA has activated support initiatives with a focus on the most affected customers, regardless of whether they are companies, SMEs, self-employed workers or private individuals, and which includes, among others:

 

o

In Spain, support for SMEs, self-employed workers and companies through credit lines and lines guaranteed by the Spanish Instituto de Crédito Oficial (ICO), grace periods on loans to affected individuals (up to 12 months in residential mortgages for primary residence and up to 6 months in consumer lending), and moratorium of 3 months for citizens in social rental housing under the Social Housing Fund;

 

o

In the United States, flexibility in the repayment of loans for small business and for consumer finance has been extended, and certain fees and commissions for individual customers have been eliminated;

 

o

In Mexico, BBVA granted various supports with personalized characteristics based on the needs of each of the customer segments, offers personalized solutions in a wide variety of products ranging from a lack of 6 months in capital and/or interest in various lending products until the suspension of Point of Sale (POS) fees to support retailers with lower turnover, as well as different support plans aimed at each situation for larger business customers;

 

o

In Turkey, delay until June 2021 of loan repayments, interests and amortizations until December 31, 2020, without any penalty for private customers and extension of up to 6 months in the payment of principal on credits to companies.

 

o

In South America, Argentina has provided micro-SMEs and SMEs with access to credit facilities to purchase teleworking equipment, funding facilities for payroll payments; Colombia has frozen the repayment of loans for individuals and companies for up to six months, and is offering a special working capital facility for companies; and in Peru, various measures were approved in order to support SMEs and customers with consumer loans or credit cards, including rescheduling of debts, extending the payment term.

 

●

To support society in this fight against the COVID-19 pandemic, BBVA donated more than €35m to purchase medical supplies, support vulnerable groups and promote research. This donation was completed with more than €11m contributed by customers and employees.

		7

 

Pronouncements of regulatory bodies and supervisors

 

●

With the aim of mitigating the impact of COVID-19, various European and international bodies have made pronouncements aimed at allowing greater flexibility in the implementation of the accounting and prudential frameworks. The BBVA Group has taken these pronouncements into consideration when preparing this report.

 

●

On December 2, 2020, the European Banking Authority (EBA) recognizing the exceptional circumstances of the second wave of COVID-19, it expanded the deadline to apply beneficial regulatory treatment to moratoriums, to March 31, 2021, updating the guidelines on legislative and non-legislative moratoriums on loan repayments, applied in light of the COVID-19 crisis and including additional safeguards against the risk of an excessive increase in unrecognized losses on banks’ balance sheets.

 

●

With regard to the payment of dividends, the ECB approved on December 15, 2020, given the persistent uncertainty about the economic impact of the COVID-19 pandemic, a new recommendation which will be maintained until the end of September 2021. The decision continues the line of recommending to the credit institutions exercise extreme prudence in the distribution of profits, either through the payment of dividends or through conducting share buy-backs, remaining this remuneration below 15% of the cumulative profit for 2019 and 2020 financial years, and in any case, not higher than 20 basis points of the Common Equity Tier 1 (CET1).

 

●

In terms of solvency, the European Parliament and the European Council adopted Regulation 2020/873 (known as the “CRR Quick Fix”), which amends both Regulation (EU) 575/2013 (Capital Requirement Regulation (CRR)) and Regulation 2019/876 (Capital Requirement Regulation 2 (CRR2)), which will apply from June 27, 2020. Its main impacts on the BBVA Group as of December 31, 2020, involve the extension of the transitional treatment of IFRS 9 (only affects the phased-in ratios) the bringing forward of the application of the SME and infrastructure support factor, and the advance in the non-deductibility of the software.

		8

 

Group information

Macro and industry trends

The Global economy is being severely affected by the COVID-19 pandemic. Supply, demand and financial factors caused an unprecedented fall in GDP in the first half of 2020. Supported by strong fiscal and monetary policy measures, as well as greater control over the spread of the virus, global growth rebounded more than expected in the third quarter, before slowing down in the fourth, when the number of infections rose again in many regions, mainly in the United States and Europe. As for 2021, the unfavorable evolution of the pandemic is expected to adversely affect activity in the short term, while new fiscal and monetary stimuli, as well as the administering of coronavirus vaccines, are expected to support recovery from mid-year onwards.

Following the massive fiscal and monetary stimuli to support economic activity and reduce financial tensions, government debt has increased across the board and interest rates have been cut, and are now at historical low levels. Additional countercyclical measures may be required. Similarly, a significant reduction in current stimuli is not expected, at least until the recovery takes hold.

Tensions in the financial markets have moderated rapidly since the end of March 2020, following the decisive actions taken by the main central banks and the fiscal packages announced in many countries. In recent months, the markets have shown relative stability and, at certain times, risk-taking movements. Likewise, progress related to the development of COVID-19 vaccines and prospects for economic recovery should pave the way for financial volatility to persist at relatively low levels in general going forward.

BBVA Research estimates that global GDP contracted by around 2.6% in 2020 and will expand by around 5.3% in 2021 and 4.1% in 2022. Activity will recover gradually and heterogeneously among countries. Various epidemiological, financial and geopolitical factors are also contributing to the persistent exceptionally high uncertainty.

With regard to the banking system, in an environment in which much of the economic activity has been at a stand still for several months, the services provided have played an essential role, basically for two reasons: firstly, the banks have ensured the proper functioning of collections and payments for households and companies, thereby contributing to the maintenance of economic activity; secondly, the granting of new lending or the renewal of existing lending has reduced the impact of the economic slowdown on household and business income. 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 its main source of funding for most companies.

In terms of profitability, European and Spanish banking have deteriorated, primarily because many entities recorded high provisions for impairment on financial assets in the first two quarters of 2020 as a result of the worsening macroeconomic environment following the pandemic outbreak. Pre-pandemic profitability levels remained far from the levels prior to the previous financial crisis. This is in addition to the accumulation of capital since the previous crisis and the very low interest rate environment that we have been experiencing for several years. Nevertheless, the banks 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 lending capacity.

Europe

In Europe, the European Commission (hereinafter EC) approved the European Recovery Fund (Next Generation EU, hereinafter NGEU) in the amount of €750,000m (5.4% of EU GDP), through subsidies and loans to support investment and reforms. The NGEU is an important step in supporting the recovery that could increase the EU GDP between about 1.5 and 2% above the trajectory predicted for 2024, according to EC estimates, but also poses a challenge in terms of absorbing resources and investing in effective projects. Furthermore, the extension of support measures by countries to the most affected sectors is expected to continue in the first quarter of 2021 at the least. For its part, the European Central Bank (hereinafter the ECB) approved a package of accommodative measures at its December meeting. In particular, it expanded the pandemic emergency purchase program (PEPP) and extended the purchasing timeline until at least March 2022, readjusted the conditions of the TLTRO III liquidity auctions, and expanded the measures to relax eligibility criteria for collateral. In terms of growth, following a rebound in the Eurozone GDP of up 12.5% quarterly in the third quarter of 2020, the resurgence of COVID-19 infections since the fall, and the consequent stricter social restrictions in general, are negatively affecting activity in the fourth quarter of 2020 and are likely to extend into the first half of 2021. The new lockdown measures are, however, more selective, and both manufacturing and exports appear to be more resilient, which is also thanks to recovery in global demand, especially from China. This could partially offset the sharp decline in activity in the consumer and service sectors. BBVA Research expects Eurozone’s GDP to contract around 2.5% in the fourth quarter of 2020, resulting in an annual fall in GDP of 7.3% in 2020, while weaker stimulus in the first half of 2021 should result in slower-than-expected recovery for the year as a whole (4.1%), though vaccine distribution and the EU fiscal program should underpin growth from the second half of 2021 and in 2022 (4.4%). Moreover, national fiscal policies, the extension of support measures to the most affected sectors and support from the ECB should prevent more-persistent negative effects, which could arise in supply, but also in weaker demand or increased financial tensions.

		9

 

Spain

In terms of growth, according to BBVA Research estimates, Spanish GDP could contract 11.0% in 2020 and grow by 5.5% in 2021. With regard to 2020, performance in the third quarter was somewhat better than expected in terms of activity, but Spain’s GDP was close to stagnation in the fourth quarter. BBVA Research predicts that accelerated economic activity in the second half of this year will lead to 7% GDP growth in 2022, assuming that both private consumption and investment (public and private) benefit from the mass vaccination campaign, from expansionary fiscal policy and from favorable financing conditions. Mass vaccinations will result in reduced health uncertainty, eased restrictions on the mobility of workers and families, and will allow businesses in the service sector to open. These factors will be key to boosting consumption and reducing savings accumulated during the crisis period. The funds associated with NGEU will have an increasing impact over time, especially on investment, which will also contribute to economic acceleration. Estimates of the impact that these funds will have on the economy continue to point to a significant effect in 2021 and the next two years (1.5 percentage points on average per year).

As regards the banking system, according to the latest Bank of Spain data available, the total volume of lending to the private sector recovered slightly in October 2020 (up +2.4% year-on-year) as a result of the growth of new business lending transactions since April, within the framework of the public guarantee programs launched by the government to combat COVID-19. For their part, asset quality indicators have continued to improve (the NPL ratio was 4.57% in October 2020). Profitability entered negative ground in the first nine months of 2020 due to the increase in provisions resulting from the coronavirus crisis and, more importantly, the extraordinary negative results recorded in the first half of the year associated with the deterioration of goodwill in some entities. In addition, the low interest rate environment has kept profitability under pressure. Spanish institutions maintain comfortable levels of capital adequacy and liquidity.

The United States

After contracting by 9.0% in the second quarter of the year compared to the previous quarter, GDP increased by 7.4% in the third quarter, above expectations. Activity indicators suggest that the recovery process slowed significantly in the fourth quarter of 2020, in an environment of a sharp increase in COVID-19 infections. In 2021 the progressive vaccination of the population and the highly expansionary fiscal and monetary policies are expected to provide increasing support for economic activity. The Federal Reserve will most likely remain committed to supporting financial stability and the recovery process, mainly through its zero interest rate policy and asset purchase program. Counter-cyclical fiscal measures, which already amount to around 23% of GDP, could soon be expanded. According to BBVA Research estimates, GDP could expand by 3.6% in 2021 and 2.4% in 2022, after falling by around 3.6% in 2020. Meanwhile, the unemployment rate is expected to reach 5.4% at this year end and 4.8% at next year end, well below the 14.7% rate recorded in April 2020 after the first wave of COVID-19 infections impacted the economy, though still above the average unemployment rate of 3.7% observed in 2019. Likewise, GDP and unemployment could improve more than expected if the newly elected Administration and Congress adopt additional fiscal stimulus measures.

In the banking system as a whole, the most recent activity data provided by the Fed (November 2020) shows the effects of the programs launched to combat COVID-19, with year-on-year lending and deposit growth rates of 3.63% and 20.37% respectively for the system. NPLs remain under control, with the NPL ratio standing at 1.58% in the third quarter of 2020.

Mexico

Following a rebound in growth during the third quarter of the year, Mexico’s economic recovery slowed in the last quarter, which was also influenced by the announcement of new mobility restrictions during November and December. BBVA Research estimates that the Mexican economy will contract by 9.1% in 2020 and will grow by 3.2% in 2021. In this sense, the lack of sufficient fiscal stimuli can result in slow recovery. On the other hand, Mexico has acquired vaccine doses from different suppliers, which implies an impetus for economic activities to resume. In terms of inflation, this will remain close to the center of the Bank of Mexico’s target range, and BBVA Research estimates that the central bank will continue with the decreasing cycle of monetary policy rate gradually in February from the current 4.25% to 3.5% in May 2021.

Regarding the banking system, according to CNBV data as of November 2020, loans decreased by 0.79%, whereby an increase was only observed in the mortgage portfolio, while deposits increased by 11.4% year-on-year (demand and term deposits). The NPL ratio increased year-on-year (4.01% in November 2020) and capital indicators were comfortable.

Turkey

For Turkey, BBVA Research estimates that GDP grew by 1% in 2020, and is expected to increase by 5.0% in 2021 and by 4.5% in 2022. GDP in the third quarter of 2020 grew more than expected and the services sector contributed positively, while other key sub-sectors also showed a strong rebound. The central bank (CBRT) continued to tighten its monetary policy through various different channels in the third quarter of 2020. But in November, at its monetary policy meeting following the appointment of a new governor, CBRT raised the official interest rate (one-week repo) by 475 basis points to 15% and reinforced this stance at the December monetary policy meeting by raising the policy rate another 200 basis points to 17%. BBVA Research predicts that CBRT will start to lower rates gradually in the fourth quarter of 2021. Inflation estimates have been adjusted to 10.5% for 2021.

		10

 

Based on data from November 2020, the total volume of lending in the banking system increased by 38.4% year-on-year. These growth rates include the effect of inflation. The NPL ratio stood at 3.97% at the close of November 2020.

Argentina

In Argentina, GDP in the third quarter of the year was a positive surprise, driven by eased mobility restrictions, with moderation observed in the last quarter of 2020. BBVA Research estimates that GDP has contracted by 11% in 2020 and will partially recover to around 6% in 2021. Inflation closed the year at 36.1%, and BBVA Research believes that 2021 will see authorities maintain the preference for avoiding abrupt exchange rate adjustments, the freezing of public service fees and the extension of closures to contain the pandemic, though they will be partial. Therefore BBVA Research estimates that inflation will close the year at 50%. With regard to fiscal policy, some savings measures were implemented at the end of 2020 so that the primary deficit would close the year at around 6.5% of GDP, significantly below our previous estimates. BBVA Research believes that an agreement will be reached with the IMF by the second quarter to refinance loans in excess of USD 50,000m.

In the banking system, the positive trend for both lending and deposit growth has continued in 2020, although notably influenced by high inflation. Based on data from October 2020, profitability indicators have deteriorated significantly (ROE: 15.0% and ROA: 2.2%) due to the effect of COVID-19, after reaching record highs at the end of 2019. For its part, the NPL ratio fell slightly to 4.3% in October 2020

Colombia

BBVA Research estimates a contraction of 7.2% in 2020 and a partial recovery of 4.8% in 2021. The growth dynamic this year will be driven by housing construction, which is one of the pillars of the government’s recovery policies. Recovery will, however, be limited due to the effect of new closures given the outbreaks of the pandemic and due to the effect of the probable tax reform, which could entail a higher VAT. In terms of inflation, prices recorded their lowest change since the 50s, closing 2020 at 1.6%, resulting from low demand and the low level of exchange rate transfer to prices. By 2021, BBVA Research estimates that inflation will remain low until April, with a significant rebound thereafter, to around 2.8% at year end. BBVA Research believes that with inflation under control and activity beginning to normalize, the Central Bank could keep the monetary policy interest rate stable at its current level of 1.75% until the second quarter of 2022.

Total lending in the banking system grew by 5.95% year-on-year at the end of September 2020, due to the growth in the commercial portfolio driven by government-approved letters of lending and guarantee programs during the pandemic. The system’s NPL ratio as of October 2020 was 5.04%. Total deposits increased by 15.47% year-on-year in the same period.

Peru

Peru’s GDP was a positive surprise in the last quarter of 2020 with a contraction of close to 3.3%, much lower than estimated. This improved dynamic was the result of the continued reopening of the economy following the lockdown measures adopted to limit the spread of the pandemic. BBVA Research estimates that the GDP contracted by 11.5% in 2020. For 2021, BBVA Research estimates that growth will stand at 10%, and that the mining and construction sectors will drive this recovery. Meanwhile, the political tensions experienced at the end of the year have diminished, but the elections scheduled for April will bring about political uncertainty, at least during the first part of the year. In terms of inflation, it closed the year at 2%, within the central bank’s target. BBVA Research expects a declining profile in the coming months, influenced by weak demand and closing the year at 1.6%. The Central Bank has reduced the monetary policy rate to the lowest level in history, 0.25%. BBVA Research estimates that this interest rate level will remain throughout the year and predicts that the first increase to the interest rate will not occur until the first half of 2022.

The banking system showed high year-on-year growth rates for lending and deposits (up 14.0% and up 23.6% respectively, at the end of November 2020), due to the strong momentum of the Plan Reactiva Perú; the system presented lower profitability levels due to the current crisis (ROE: 5.39% as of November 2020) but with contained NPLs (NPL ratio: 3.22% as of November 2020) due to the payment deferrals applied.

		11

 

INTEREST RATES (PERCENTAGE)
		31-12-20				30-09-20				30-06-20				31-03-20				31-12-19				30-09-19				30-06-19
Official ECB rate			0.00				0.00				0.00				0.00				0.00				0.00				0.00
Euribor 3 months (1)			(0.54)				(0.49)				(0.38)				(0.42)				(0.39)				(0.42)				(0.33)
Euribor 1 year (1)			(0.50)				(0.41)				(0.15)				(0.27)				(0.26)				(0.34)				(0.19)
USA Federal rates			0.25				0.25				0.25				0.25				1.75				2.00				2.50
TIIE (Mexico)			4.25				4.25				5.00				6.50				7.25				7.75				8.25
CBRT (Turkey)			17.00				10.25				8.25				9.75				12.00				16.50				24.00
(1) Calculated as the month average.

Foreign exchanges have also been subject to volatility in other markets as a result of the COVID-19 outbreak. The strong monetary and fiscal response at the global level, in addition to idiosyncratic factors in some of the geographic areas in which the Group operates, have conditioned the performance of currencies. The euro has generally appreciated against major currencies. The Mexican peso suffered a sharp depreciation following the COVID-19 outbreak in the first quarter of the year, but has subsequently recovered ground, closing the year with a depreciation of 13.1% against the euro. The U.S. dollar has also weakened in the second part of the year and closed 2020 with a 8.5% decline against the euro. The Turkish lira has ended with a negative variation by 26.7%. Other currencies depreciated against the euro as follows: Colombian peso (down 12.6%), Peruvian sol (down 16.3%), Chilean peso (down 3.6%) and Argentine peso (down 34.8%).

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
		31-12-20				31-12-19				30-09-20				2020				2019
U.S. dollar			1.2271				(8.5)				(4.6)				1.1418				(2.0)
Mexican peso			24.4160				(13.1)				7.2				24.5301				(12.1)
Turkish lira			9.1131				(26.7)				(0.2)				8.0501				(21.0)
Peruvian sol			4.4470				(16.3)				(5.3)				3.9923				(6.5)
Argentine peso (1)			103.2543				(34.8)				(13.7)				-				-
Chilean peso			872.41				(3.6)				5.3				903.06				(12.9)
Colombian peso			4,212.02				(12.6)				7.8				4,216.81				(12.9)
(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

 

Results

The BBVA Group generated a net attributable profit of €1,305m during 2020, in a year marked by several factors that influenced the income statement:

 

●

First, the outbreak of the COVID-19 pandemic, the main impacts of which were the increased impairment on financial assets and higher provisions.

 

●

Secondly, the goodwill impairment in the United States recorded in the first quarter of 2020, amounting to €2,084m, also as a result of the pandemic.

 

●

Lastly, and to a lesser extent, the execution of the agreement reached with Allianz, once all required authorizations were received, which had a net capital gain of €304m.

 

CONSOLIDATED INCOME STATEMENT: QUARTERLY EVOLUTION (MILLIONS OF EUROS)
		2020																2019
		4Q				3Q				2Q				1Q				4Q				3Q				2Q				1Q
Net interest income			4,038				4,109				4,097				4,556				4,709				4,473				4,544				4,398
Net fees and commissions			1,173				1,143				1,043				1,258				1,290				1,273				1,256				1,214
Net trading income			213				372				512				594				490				351				116				426
Other operating income and expenses			(157)				38				(91)				75				(89)				22				(18)				8
Gross income			5,266				5,663				5,561				6,484				6,400				6,120				5,897				6,046
Operating expenses			(2,674)				(2,570)				(2,594)				(2,918)				(3,082)				(2,946)				(2,952)				(2,922)
Personnel expenses			(1,420)				(1,356)				(1,342)				(1,532)				(1,637)				(1,572)				(1,578)				(1,553)
Other administrative expenses			(892)				(848)				(884)				(988)				(1,039)				(971)				(976)				(977)
Depreciation			(362)				(366)				(369)				(397)				(406)				(403)				(398)				(392)
Operating income			2,593				3,093				2,967				3,566				3,317				3,174				2,945				3,124
Impairment on financial assets not measured at fair value through profit or loss			(834)				(928)				(1,571)				(2,575)				(1,169)				(1,172)				(731)				(1,001)
Provisions or reversal of provisions			(144)				(60)				(228)				(312)				(243)				(113)				(117)				(144)
Other gains (losses)			(83)				(128)				(101)				(29)				(126)				(4)				(3)				(22)
Profit/(loss) before tax			1,532				1,978				1,066				649				1,778				1,886				2,095				1,957
Income tax			(407)				(524)				(269)				(186)				(430)				(488)				(595)				(541)
Profit/(loss) after tax			1,125				1,454				798				463				1,349				1,398				1,500				1,416
Goodwill impairment in the United States and corporate operations (1)			304				-				-				(2,084)				(1,318)				-				-				-
Profit/(loss) for the year			1,430				1,454				798				(1,621)				31				1,398				1,500				1,416
Non-controlling interests			(110)				(312)				(162)				(172)				(186)				(173)				(241)				(234)
Net attributable profit/(loss)			1,320				1,141				636				(1,792)				(155)				1,225				1,260				1,182
Earning per share (euros) (2)			0.18				0.16				0.08				(0.29)				(0.04)				0.17				0.17				0.16
Net attributable profit/(loss) excluding the goodwill impairment in the United States and corporate operations (1)			1,015				1,141				636				292				1,163				1,225				1,260				1,182
Earning per share excluding the goodwill impairment in the United States and corporate operations (euros) (1) (2)			0.14				0.16				0.08				0.03				0.16				0.17				0.17				0.16

General note: as a result of the interpretation issued by the International Financial Reporting Standards Interpretations Committee (IFRIC) regarding the collecting of interests of written-off financial assets for the purpose of IFRS 9, those collections are presented as reduction of the credit allowances and not as a higher interest income, recognition method applied until December 2019. Therefore, and in order to make the information comparable, the quarterly information of the 2019 income statements has been restated.

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

(2) Adjusted by additional Tier 1 instrument remuneration.

		13

 

CONSOLIDATED INCOME STATEMENT (MILLIONS OF EUROS)
		D % at constant
		2020				D %				exchange rates				2019
Net interest income			16,801				(7.3)				3.6				18,124
Net fees and commissions			4,616				(8.3)				(0.4)				5,033
Net trading income			1,692				22.3				37.6				1,383
Other operating income and expenses			(135)				76.2				46.3				(77)
Gross income			22,974				(6.1)				4.5				24,463
Operating expenses			(10,755)				(9.6)				(2.6)				(11,902)
Personnel expenses			(5,650)				(10.9)				(4.4)				(6,340)
Other administrative expenses			(3,612)				(8.9)				(0.8)				(3,963)
Depreciation			(1,494)				(6.6)				0.0				(1,599)
Operating income			12,219				(2.7)				11.7				12,561
Impairment on financial assets not measured at fair value through profit or loss			(5,908)				45.1				67.3				(4,073)
Provisions or reversal of provisions			(744)				20.7				33.0				(617)
Other gains (losses)			(341)				119.4				117.0				(155)
Profit/(loss) before tax			5,225				(32.3)				(21.9)				7,716
Income tax			(1,385)				(32.5)				(22.4)				(2,053)
Profit/(loss) after tax			3,840				(32.2)				(21.7)				5,663
Goodwill impairment in the United States and corporate operations (1)			(1,780)				35.0				35.0				(1,318)
Profit/(loss) for the year			2,060				(52.6)				(42.6)				4,345
Non-controlling interests			(756)				(9.3)				13.0				(833)
Net attributable profit/(loss)			1,305				(62.9)				(55.3)				3,512
Earning per share (euros) (2)			0.14												0.47
Net attributable profit/(loss) excluding the goodwill impairment in the United States and corporate operations (1)			3,084				(36.1)				(27.2)				4,830
Earning per share excluding the goodwill impairment in the United States and corporate operations (euros) (1) (2)			0.41												0.66

General note: as a result of the interpretation issued by the International Financial Reporting Standards Interpretations Committee (IFRIC) regarding the collecting of interests of written-off financial assets for the purpose of IFRS 9, those collections are presented as reduction of the credit allowances and not as a higher interest income, recognition method applied until December 2019. Therefore, and in order to make the information comparable, the information of the 2019 income statements has been restated.

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

(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 percentage changes provided below refer to constant exchange rates.

Gross income

Gross income grew 4.5% year-on-year, supported by the favorable evolution of net interest income and NTI, which offset the flat performance of fees and commissions and a greater negative impact of the other operating income and expenses line compared to 2019.

 

		GROSS INCOME (MILLIONS OF EUROS)
		(1) At constant exchange rates: +4.5%.

		14

 

Net interest income grew by 3.6% year-on-year, supported by the good performance, mainly, from Turkey and the Rest of Eurasia and, to a lesser extent, South America, which offset the smaller contribution from the United States and Mexico, as a result of the cuts in the benchmark interest rates by the banking authorities in these countries. Spain was also affected by an environment of falling rates and showed flat performance.

Net fees and commissions were affected by the lower activity as a result of the pandemic. The areas that showed year-on-year reductions were Mexico and Turkey; the latter was also affected by changes in regulations on fees and commissions charged, which have been in application since March 2020. In Spain, the United States, Rest of Eurasia and South America, the net fees and commissions showed year-on-year increase, despite not charging certain fees and commissions as a measure to support customers during the worst moments of the pandemic.

 

NET INTEREST INCOME/ATAS (PERCENTAGE)				NET INTEREST INCOME PLUS NET FEES AND COMMISSIONS (MILLIONS OF EUROS)
				(1) At constant exchange rates: +2.7%.

The NTI was up 37.6% year-on-year, primarily due to the exchange rate hedging gains, recorded in the Corporate Center and the increase in the results generated throughout the year by all the business areas, except for South America, due to the positive effect from selling the stake in Prisma Medios de Pago S.A. on the results of the previous year, and except for Spain, where the negative results generated in the fourth quarter hindered positive evolution throughout the year.

The other operating income and expenses line posted €-135m in 2020 compared to the €-77m posted 12 months earlier. This unfavorable evolution is due to a lower contribution by the insurance business in Spain and Mexico, as well as BBVA’s increased contributions to the public bank deposit protection schemes in said countries. Both effects offset the positive impact of Argentina’s lower hyperinflation adjustment.

Operating income

Operating expenses fell by 2.6% year-on-year as a result of the containment plans implemented by all business areas and also due to the lesser execution of some discretionary expenses since the beginning of the pandemic. The expenses reduction is remarkable in Spain and the Corporate Center.

 

		OPERATING EXPENSES (MILLIONS OF EUROS)
		(1) At constant exchange rates: -2.6%.

As a result, the efficiency ratio stood at 46.8% as of December 31, 2020, significantly below the level recorded one year earlier (50.2%), and operating income recorded a year-on-year growth of 11.7%.

		15

 

EFFICIENCY RATIO (PERCENTAGE)				OPERATING INCOME (MILLIONS OF EUROS)
				(1) At constant exchange rates: +11.7%.

Provisions and other

The impairment on financial assets not measured at fair value through profit and loss (impairment on financial assets) closed December 67.3% above the figure recorded in the previous year, as a result of the negative impacts of COVID-19, mainly due to the worsening macroeconomic scenario.

 

		IMPAIRMENT ON FINANCIAL ASSETS (MILLIONS OF EUROS)
		(1) At constant exchange rates: +67.3%.

Provisions or reversal of provisions (hereinafter provisions) closed December with a cumulative negative balance of €744m, 33.0% higher than the loss recorded in the previous year, mainly due to higher provisions in Spain.

The other gains (losses) line was 117.0% more negative compared to the previous year.

Results

As a result of the above, the cumulative net attributable profit of the BBVA Group in 2020 was €1,305m, which includes results from corporate operations derived from the net capital gain of €304m, generated by the transfer to Allianz of half plus one share of the company created to jointly develop the non-life insurance business in Spain, excluding the health insurance line, and the goodwill impairment in the United States of €2,084m. This result is 55.3% less than the €3,512m posted the previous year in a comparison also influenced by the goodwill impairment in the United States in 2019.

The Group’s net attributable profit, when adjusted to exclude the goodwill impairment in the United States and the results from corporate operations in 2020, stood at €3,084m, which is 27.2% lower than the result in 2019, also excluding the goodwill impairment in the United States.

		16

 

NET ATTRIBUTABLE PROFIT (MILLIONS OF EUROS)				NET ATTRIBUTABLE PROFIT EXCLUDING THE UNITED STATES GOODWILL IMPAIRMENT AND CORPORATE OPERATIONS(2) (MILLIONS OF EUROS)
(1) At constant exchange rates: -55.3%.				(1) Net profit before tax because of the sale to Allianz of half plus one share of the company created to jointly promote non-life insurance business in Spain, excluding the health insurance line. (2) At constant exchange rates: -27.2%.

The cumulative net attributable profits, in millions of euros at the close of December 2020 for the different business areas that make up the Group were: 606 in Spain, 429 in the United States, 1,759 in Mexico, 563 in Turkey, 446 in South America and 137 in the Rest of Eurasia.

 

TANGIBLE BOOK VALUE PER SHARE AND DIVIDENDS (1) (EUROS)				EARNING PER SHARE (1) (EUROS)
(1) Replenishing dividends paid in the period.				(1) Adjusted by additional Tier 1 instrument remuneration (2) Excluding the goodwill impairment in the United States in 4Q19 and 1Q20 and the net capital gain from the insurance operation in 4Q20.

 

ROE AND ROTE (1) (PERCENTAGE)				ROA AND RORWA (1) (PERCENTAGE)
(1) Ratios excluding BBVA Chile in 2018, the goodwill impairment in the United States in 2019 and 2020 and the net capital gain from the bancassurance operation in 2020 .				(1) Ratios excluding BBVA Chile in 2018, the goodwill impairment in the United States in 2019 and 2020 and the net capital gain from the bancassurance operation in 2020.

		17

 

Balance sheet and business activity

The most relevant aspects related to the evolution of the Group’s balance sheet and business activity in 2020, are summarized below:

 

●

Loans and advances to customers (gross) decreased by 4.5% compared to the end of the previous year, with deleveraging in all the portfolios in the last quarter of 2020, with the exception of consumer and credit cards, which showed some dynamism thanks to the recovery of economic activity in the new normal environment. In the comparison with December 2019, the mortgage portfolio registered the greatest reduction in absolute terms, despite the good origination data in several geographical areas.

 

●

Non-performing loans were lower than at the end of December of the previous year, despite the increase in the last quarter of the year, mainly due to the entries of non-performing loans in the retail portfolios in Mexico.

 

●

Customer deposits closed December 2020 6.1% above December 2019 balances, strongly supported by the good performance of demand deposits (up 14.0%), where customers have deposited the available liquidity to face the pandemic and which more than offset the reduction in time deposits.

 

●

Off-balance sheet funds recovered in the quarter (up 2.9%) although it continued to show a negative growth rate compared to December 2019 (down 4.5%), mainly due to the unfavorable evolution of the markets during the first quarter of the year.

 

●

Regarding intangible assets, the balance sheet figures as of December 31, 2020 and December 31, 2019 include the goodwill impairments in the United States registered in the last quarter of 2019 and the first quarter of 2020, with no effect on the tangible net equity, solvency or liquidity of the BBVA Group.

 

CONSOLIDATED BALANCE SHEET (MILLIONS OF EUROS)
		31-12-20				D%				31-12-19
Cash, cash balances at central banks and other demand deposits			77,303				73.1				44,666
Financial assets held for trading			109,288				7.4				101,735
Non-trading financial assets mandatorily at fair value through profit or loss			5,211				(6.2)				5,557
Financial assets designated at fair value through profit or loss			1,117				(8.0)				1,214
Financial assets at fair value through accumulated other comprehensive income			74,416				21.6				61,186
Financial assets at amortized cost			430,260				(2.3)				440,430
Loans and advances to central banks and credit institutions			20,821				16.2				17,924
Loans and advances to customers			365,006				(4.8)				383,565
Debt securities			44,434				14.1				38,940
Investments in subsidiaries, joint ventures and associates			1,437				(3.5)				1,488
Tangible assets			8,629				(14.4)				10,077
Intangible assets			4,297				(38.4)				6,970
Other assets			24,301				(0.5)				24,413
Total assets			736,258				5.5				697,737
Financial liabilities held for trading			86,689				(2.2)				88,680
Other financial liabilities designated at fair value through profit or loss			10,050				0.4				10,010
Financial liabilities at amortized cost			565,085				9.1				518,182
Deposits from central banks and credit institutions			77,513				41.6				54,722
Deposits from customers			409,122				6.1				385,686
Debt certificates			64,591				0.9				64,004
Other financial liabilities			13,860				0.6				13,771
Liabilities under insurance and reinsurance contracts			9,951				(6.2)				10,606
Other liabilities			14,463				(5.7)				15,333
Total liabilities			686,239				6.8				642,812
Non-controlling interests			5,471				(11.8)				6,201
Accumulated other comprehensive income			(14,356)				40.4				(10,226)
Shareholders’ funds			58,904				(0.1)				58,950
Total equity			50,020				(8.9)				54,925
Total liabilities and equity			736,258				5.5				697,737
Memorandum item:
Guarantees given			43,294				(5.8)				45,952

General note: figures without considering the classification of BBVA Paraguay as Non-current Assets and Liabilities Held for Sale as of 31-12-2020 and 31-12-2019 and BBVA USA and the rest of Group’s companies in the United States included in the sale agreement signed with PNC as Non-current Assets and Liabilities Held For Sale as of 31-12-2020.

		18

 

LOANS AND ADVANCES TO CUSTOMERS (MILLIONS OF EUROS)
		31-12-20				D %				31-12-19
Public sector			24,273				(14.0)				28,226
Individuals			163,460				(6.5)				174,867
Mortgages			103,922				(6.0)				110,534
Consumer			34,256				(6.1)				36,500
Credit cards			12,742				(14.6)				14,925
Other loans			12,540				(2.8)				12,907
Business			174,492				(1.4)				176,920
Non-performing loans			15,914				(0.5)				16,000
Loans and advances to customers (gross)			378,139				(4.5)				396,012
Allowances (1)			(13,133)				5.5				(12,447)
Loans and advances to customers			365,006				(4.8)				383,565

General note: figures without considering the classification of BBVA Paraguay as Non-current Assets and Liabilities Held for Sale as of 31-12-2020 and 31-12-2019 and BBVA USA and the rest of Group’s companies in the United States included in the sale agreement signed with PNC as Non-current Assets and Liabilities Held For Sale as of 31-12-2020.

(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 December 31, 2020 and December 31, 2019 the remaining amount was €363m and €433m, respectively.

 

LOANS AND ADVANCES TO CUSTOMERS (GROSS. BILLIONS OF EUROS)				CUSTOMER FUNDS (BILLIONS OF EUROS)
(1) At constant exchange rates: +3.5%.				(1) At constant exchange rates: +11.9%.

 

CUSTOMER FUNDS (MILLIONS OF EUROS)
		31-12-20				D%				31-12-19
Deposits from customers			409,122				6.1				385,686
Current accounts			320,685				14.0				281,270
Time deposits			80,007				(17.7)				97,170
Other deposits			8,430				16.3				7,246
Other customer funds			102,947				(4.5)				107,803
Mutual funds and investment companies			64,869				(5.5)				68,639
Pension funds			36,215				(1.1)				36,630
Other off-balance sheet funds			1,863				(26.5)				2,534
Total customer funds			512,068				3.8				493,488

General note: figures without considering the classification of BBVA Paraguay as Non-current Assets and Liabilities Held for Sale as of 31-12-2020 and 31-12-2019 and BBVA USA and the rest of Group’s companies in the United States included in the sale agreement signed with PNC as Non-current Assets and Liabilities Held For Sale as of 31-12-2020.

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Solvency

Capital base

BBVA’s fully-loaded CET1 ratio stood at 11.73% at the end of December 2020. From 2021 onwards the BBVA Group sets the target to keep the CET1 fully-loaded ratio between 11.5%-12.0% increasing the distance to the minimum requirement (currently at 8.59%) to 291-341 basis points. At the end of 2020 financial year the CET1 fully-loaded ratio is already within this target management range.

In the last quarter of 2020, the CET1 fully-loaded ratio stood 21 basis points above the previous quarter. This increase includes a positive impact of +7 basis points due to the execution of the agreement reached with Allianz to jointly boost the non-life insurance business in Spain, excluding the health insurance line. The corresponding amount to €0.059 (gross) per share as shareholder remuneration allowed by the ECB recommendation has been already deduced from the capital base. This ratio does not include the positive impact of the sale of BBVA USA and other companies in the United States with activities related to said banking business, which, according to the current estimate and using as a reference the capital level in December 2020, would place the fully-loaded CET1 ratio at 14.58%. Additionally, it does not include the effect from the closing of the BBVA Paraguay sale, which would have a positive impact of approximately +6 basis points and which will be registered in the first quarter of 2021.

Furthermore, the profit generated in the period, excluding the gains generated by the operation with Allianz, has contributed +30 basis points, while the other elements of the capital ratios has contributed to a total net impact of -16 points, being the most significant component the growth in risk-weighted assets, and, conversely, the good market performance recorded in equity instruments measured at fair value through accumulated other comprehensive income. It also includes the positive effect on the regulatory deduction of software, following the publication of Delegated Regulation 2020/2176 on December 22 concerning the prudential treatment of software.

Fully-loaded additional Tier 1 capital (AT1) stood at 1.89% at the end of December 2020. In this regard, the world’s first green CoCo for a financial institution was issued in July 2020 for €1,000m, a coupon of 6% and with an early amortization option from five and a half years, allowing all requirements at this tier to be fulfilled, including those from the tiering of Pillar 2 and therefore the distance to MDA to be increased. Moreover, a CoCo of €1,500m (coupon of 6.75%) was amortized in February, on the first date of the early amortization option; in January 2021, the early amortization options were implemented for two preferential issuances, issued by BBVA International Preferred and Caixa Sabadell Preferents for 31 million pounds sterling and €90m respectively; and finally, for a third preferential issuance issued by Caixa Terrassa Societat de Participacions Preferents, the bondholders’ meeting has approved its early amortization on January 29, 2021 (versus the amortization option date of August 10, 2021). As of December 31, 2020, these issuances do not form part of the Group’s capital adequacy ratios.

The fully-loaded Tier 2 ratio stood at 2.30% on December 31. Two Tier 2 issuances were issued in 2020: an issuance of €1,000m in January, with a maturity of 10 years and an amortization option from the fifth year, with a coupon of 1%; and another issuance of 300 million pounds sterling in July, with a maturity of 11 years and with an early amortization option from the sixth year, with a coupon of 3.104%, thereby diversifying the investment base and improving the price compared to an equivalent issuance in euros.

The phased-in CET1 ratio stood at 12.15% at the end of December 2020, taking into account the transitory effect of the IFRS 9 standard. AT1 stood at 1.89% and Tier 2 at 2.42%, resulting in a total capital adequacy ratio of 16.46%.

Regarding shareholder remuneration, on April 9, 2020, a cash payment was made for a supplementary dividend for the 2019 financial year for the gross amount of €0.16 per share, according to the approved at the General Shareholders’ Meeting on March 13, 2020. This amounted to €1,067m. Thus, the total dividend for the 2019 financial year amounts to €0.26 gross per share. This distribution had no impact on the evolution of the capital adequacy ratio since it had already accrued at the end of 2019

BBVA has announced its intention to return in 2021 to its shareholders remuneration policy, communicated through a relevant event on February 1, 2017, consisting of distributing annually between 35% and 40% of the profits resulting of each financial year entirely in cash through two distributions (predictably in October and April and subject to relevant approvals) when the current ECB recommendation applicable on the date of publication of this report is revoked and there are no additional restrictions or limitations. (For more information see the “Pronouncements of regulatory bodies and supervisors” paragraph, included in the “Highlights” section).

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SHAREHOLDER STRUCTURE (31-12-2020)
		Shareholders								Shares
Number of shares		Number				%				Number				%
Up to 500			361,681				41.1				67,754,273				1.0
501 to 5,000			406,886				46.3				710,105,474				10.6
5,001 to 10,000			59,129				6.7				416,320,737				6.2
10,001 to 50,000			46,362				5.3				888,242,755				13.3
50,001 to 100,000			3,366				0.4				229,327,509				3.4
100,001 to 500,000			1,513				0.2				273,726,222				4.1
More than 500,001			289				0.0				4,082,409,610				61.2
Total			879,226				100.0				6,667,886,580				100.0

 

		FULLY-LOADED CAPITAL RATIOS (PERCENTAGE)

 

 

CAPITAL BASE (MILLIONS OF EUROS)

		CRD IV phased-in												CRD IV fully-loaded
		31-12-20 (1) (2)				30-09-20				31-12-19				31-12-20 (1) (2)				30-09-20				31-12-19
Common Equity Tier 1 (CET 1)			42,931				41,231				43,653				41,368				39,651				42,856
Tier 1			49,597				48,248				49,701				48,035				46,550				48,775
Tier 2			8,549				9,056				8,304				8,103				8,628				7,464
Total Capital (Tier 1 + Tier 2)			58,147				57,305				58,005				56,138				55,178				56,240
Risk-weighted assets			353,272				343,923				364,448				352,679				344,215				364,942
CET1 (%)			12.15				11.99				11.98				11.73				11.52				11.74
Tier 1 (%)			14.04				14.03				13.64				13.62				13.52				13.37
Tier 2 (%)			2.42				2.63				2.28				2.30				2.51				2.05
Total capital ratio (%)			16.46				16.66				15.92				15.92				16.03				15.41

(1) As of December 31, 2020, 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.

Regarding the MREL (Minimum Requirement for own funds and Eligible Liabilities) requirements, BBVA has continued its issuance plan during 2020 by closing two public issuances of non-preferred senior debt, one in January 2020 for €1,250m with a maturity of seven years and a coupon of 0.5%, and another in February 2020 for CHF 160m with a maturity of six and a half years and a coupon of 0.125%. In May 2020, the first issuance of a COVID-19 social bond by a private financial institution in Europe was completed. This is a five-year senior preferred bond, for €1,000m and a coupon of 0.75%. Finally, in order to optimize the MREL requirement, in September BBVA issued preferred senior debt of USD 2,000m in two tranches, with maturities of three and five years, for USD 1,200m and USD 800m and coupons of 0.875% and 1.125% respectively.

The Group estimates that, following the entry into force of Regulation (EU) No. 2019/877 of the European Parliament and of the Council of May 20 (which, among other matters, establishes the MREL in terms of RWAs and new periods for said requirement’s transition and implementation), the current structure of shareholders’ funds and admissible liabilities enables compliance with the MREL.

Finally, the Group’s leverage ratio maintained a solid position, at 6.5% fully-loaded (6.7% phased-in). These figures include the effect of the temporary exclusion of certain positions with the central bank provided for in the “CRR-Quick fix.”

		21

 

Ratings

In a year marked by the COVID-19 pandemic, BBVA’s has maintained its rating during 2020 in the single A space for senior preferred debt granted by all agencies. DBRS confirmed BBVA’s rating at A (high) with a stable outlook on April 1, and on April 29 S&P confirmed BBVA’s rating (A-) and its outlook (negative) in a joint action with the rest of the Spanish banks, in which the agency also assigned a negative outlook to the majority of the Spanish banks. In the month of July, as a consequence of the economic uncertainty caused by COVID-19 in the countries where BBVA is present, the rating agency Fitch downgraded its rating by one notch to A- with a stable outlook. For its part, Moody’s has maintained BBVA’s rating at A3 with a stable outlook. These ratings, together with their corresponding outlooks, are shown in the following table:

 

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		Negative

(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.