Annual Report (ESEF) • Feb 12, 2021
Preview not available for this file type.
Download Source File2020-01-01 to 2020-12-31
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
| Period | Value |
|---|---|
| 2020-12-31 | |
| 2020-01-01 |
2019-01-01 to 2019-12-31
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
| Period | Value |
|---|---|
| 2019-12-31 | |
| 2019-01-01 |
2018-01-01 to 2018-12-31
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
| Period | Value |
|---|---|
| 2018-12-31 | |
| 2018-01-01 |
CONSOLIDATED FINANCIAL STATEMENTS
P.2 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Notes | 2020 | 2019 (*) | 2018 (*) | |
|---|---|---|---|---|
| CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS | 9 | 65,520 | 44,303 | 58,196 |
| FINANCIAL ASSETS HELD FOR TRADING | 10 | 108,257 | 101,736 | 89,103 |
| Derivatives | 40,182 | 32,232 | 29,522 | |
| Equity instruments | 11,458 | 8,892 | 5,254 | |
| Debt securities | 23,970 | 26,309 | 25,577 | |
| Loans and advances to central banks | 53 | 535 | 2,163 | |
| Loans and advances to credit institutions | 20,499 | 21,286 | 14,566 | |
| Loans and advances to customers | 12,095 | 12,482 | 12,021 | |
| NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS | 11 | 5,198 | 5,557 | 5,135 |
| Equity instruments | 4,133 | 4,327 | 3,095 | |
| Debt securities | 356 | 110 | 237 | |
| Loans and advances to customers | 709 | 1,120 | 1,803 | |
| FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 1,117 | 1,214 | 1,313 |
| Debt securities | 1,117 | 1,214 | 1,313 | |
| FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 13 | 69,440 | 61,183 | 56,337 |
| Equity instruments | 1,100 | 2,420 | 2,595 | |
| Debt securities | 68,307 | 58,730 | 53,709 | |
| Loans and advances to credit institutions | 33 | 33 | 33 | |
| FINANCIAL ASSETS AT AMORTIZED COST | 14 | 367,668 | 439,162 | 419,660 |
| Debt securities | 35,737 | 38,877 | 32,530 | |
| Loans and advances to central banks | 6,209 | 4,275 | 3,941 | |
| Loans and advances to credit institutions | 14,575 | 13,650 | 9,162 | |
| Loans and advances to customers | 311,147 | 382,360 | 374,027 | |
| DERIVATIVES - HEDGE ACCOUNTING | 15 | 1,991 | 1,729 | 2,892 |
| FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | 15 | 51 | 28 | (21) |
| JOINT VENTURES AND ASSOCIATES | 16 | 1,436 | 1,488 | 1,578 |
| Joint ventures | 149 | 154 | 173 | |
| Associates | 1,287 | 1,334 | 1,405 | |
| INSURANCE AND REINSURANCE ASSETS | 23 | 306 | 341 | 366 |
| TANGIBLE ASSETS | 17 | 7,823 | 10,068 | 7,229 |
| Properties, plant and equipment | 7,601 | 9,816 | 7,066 | |
| For own use | 7,311 | 9,553 | 6,756 | |
| Other assets leased out under an operating lease | 290 | 263 | 310 | |
| Investment properties | 222 | 252 | 163 | |
| INTANGIBLE ASSETS | 18 | 2,345 | 6,966 | 8,314 |
| Goodwill | 910 | 4,955 | 6,180 | |
| Other intangible assets | 1,435 | 2,011 | 2,134 | |
| TAX ASSETS | 19 | 16,526 | 17,083 | 18,100 |
| Current tax assets | 1,199 | 1,765 | 2,784 | |
| Deferred tax assets | 15,327 | 15,318 | 15,316 | |
| OTHER ASSETS | 20 | 2,512 | 3,800 | 5,472 |
| Insurance contracts linked to pensions | - | - | - | |
| Inventories | 572 | 580 | 635 | |
| Other | 1,940 | 3,220 | 4,837 | |
| NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE | 21 | 85,986 | 3,079 | 2,001 |
| TOTAL ASSETS | 3, 6 | 736,176 | 697,737 | 675,675 |
(*) Presented for comparison purposes only (Note 1.3). The accompanying Notes and Appendices are an integral part of the consolidated balance sheet as of December 31, 2020.
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Notes | 2020 | 2019 (*) | 2018 (*) | |
|---|---|---|---|---|
| FINANCIAL LIABILITIES HELD FOR TRADING | 10 | 86,487 | 88,680 | 79,760 |
| Derivatives | 41,680 | 34,066 | 30,801 | |
| Short positions | 12,312 | 12,249 | 11,025 | |
| Deposits from central banks | 6,277 | 7,635 | 10,511 | |
| Deposits from credit institutions | 16,558 | 24,969 | 15,687 | |
| Customer deposits | 9,660 | 9,761 | 11,736 | |
| Debt certificates | - | - | - | |
| Other financial liabilities | - | - | - | |
| FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 12 | 10,050 | 10,010 | 6,993 |
| Deposits from central banks | - | - | - | |
| Deposits from credit institutions | - | - | - | |
| Customer deposits | 902 | 944 | 976 | |
| Debt certificates | 4,531 | 4,656 | 2,858 | |
| Other financial liabilities | 4,617 | 4,410 | 3,159 | |
| Memorandum item: Subordinated liabilities | - | - | - | |
| FINANCIAL LIABILITIES AT AMORTIZED COST | 22 | 490,606 | 516,641 | 509,185 |
| Deposits from central banks | 45,177 | 25,950 | 27,281 | |
| Deposits from credit institutions | 27,629 | 28,751 | 31,978 | |
| Customer deposits | 342,661 | 384,219 | 375,970 | |
| Debt certificates | 61,780 | 63,963 | 61,112 | |
| Other financial liabilities | 13,359 | 13,758 | 12,844 | |
| Memorandum item: Subordinated liabilities | 16,488 | 18,018 | 18,047 | |
| DERIVATIVES - HEDGE ACCOUNTING | 15 | 2,318 | 2,233 | 2,680 |
| FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | 15 | - | - | - |
| LIABILITIES UNDER INSURANCE AND REINSURANCE CONTRACTS | 23 | 9,951 | 10,606 | 9,834 |
| PROVISIONS | 24 | 6,141 | 6,538 | 6,772 |
| Pensions and other post employment defined benefit obligations | 4,272 | 4,631 | 4,787 | |
| Other long term employee benefits | 49 | 61 | 62 | |
| Provisions for taxes and other legal contingencies | 612 | 677 | 686 | |
| Commitments and guarantees given | 728 | 711 | 636 | |
| Other provisions | 480 | 458 | 601 | |
| TAX LIABILITIES | 19 | 2,355 | 2,808 | 3,276 |
| Current tax liabilities | 545 | 880 | 1,230 | |
| Deferred tax liabilities | 1,810 | 1,928 | 2,046 | |
| OTHER LIABILITIES | 20 | 2,802 | 3,742 | 4,301 |
| LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE | 21 | 75,446 | 1,554 | - |
| TOTAL LIABILITIES | 6 | 686,156 | 642,812 | 622,801 |
(*) Presented for comparison purposes only (Note 1.3). The accompanying Notes and Appendices are an integral part of the consolidated balance sheet as of December 31, 2020.# Consolidated balance sheets for the years ended December 31, 2020, 2019 and 2018
(Millions of Euros)
| LIABILITIES AND EQUITY (Continued) | Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|---|
| SHAREHOLDERS’ FUNDS | 58,904 | 58,950 | 57,333 | |
| Capital | 26 | 3,267 | 3,267 | 3,267 |
| Paid up capital | 3,267 | 3,267 | 3,267 | |
| Unpaid capital which has been called up | - | - | - | |
| Share premium | 27 | 23,992 | 23,992 | 23,992 |
| Equity instruments issued other than capital | - | - | - | |
| Other equity | 42 | 56 | 50 | - |
| Retained earnings | 28 | 30,508 | 29,388 | 26,063 |
| Revaluation reserves | 28 | - | - | 3 |
| Other reserves | 28 | (164) | (119) | (37) |
| Reserves or accumulated losses of investments in joint ventures and associates | (164) | (119) | (37) | |
| Other | - | - | - | |
| Less: treasury shares | 29 | (46) | (62) | (296) |
| Profit or loss attributable to owners of the parent | 1,305 | 3,512 | 5,400 | |
| Less: interim dividends | - | (1,084) | (1,109) | |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 30 | (14,356) | (10,226) | (10,223) |
| Items that will not be reclassified to profit or loss | (2,815) | (1,875) | (1,284) | |
| Actuarial gains (losses) on defined benefit pension plans | (1,473) | (1,498) | (1,245) | |
| Non-current assets and disposal groups classified as held for sale | (65) | 3 | - | |
| Share of other recognized income and expense of investments joint ventures and associates | - | - | - | |
| Fair value changes of equity instruments measured at fair value through other comprehensive income | (1,256) | (404) | (155) | |
| Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item) | - | - | - | |
| Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument) | - | - | - | |
| Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | (21) | 24 | 116 | |
| Items that may be reclassified to profit or loss | (11,541) | (8,351) | (8,939) | |
| Hedge of net investments in foreign operations (effective portion) | (62) | (897) | (218) | |
| Foreign currency translation | (14,185) | (9,147) | (9,630) | |
| Hedging derivatives. Cash flow hedges (effective portion) | 10 | (44) | (6) | - |
| Fair value changes of debt instruments measured at fair value through other comprehensive income | 2,069 | 1,760 | 943 | |
| Hedging instruments (non-designated items) | - | - | - | |
| Non-current assets and disposal groups classified as held for sale | 644 | (18) | 1 | |
| Share of other recognized income and expense of investments in joint ventures and associates | (17) | (5) | (29) | |
| MINORITY INTERESTS (NON-CONTROLLING INTERESTS) | 31 | 5,472 | 6,201 | 5,764 |
| Accumulated other comprehensive income (loss) | (6,949) | (5,572) | (5,290) | |
| Other items | 12,421 | 11,773 | 11,054 | |
| TOTAL EQUITY | 50,020 | 54,925 | 52,874 | |
| TOTAL EQUITY AND TOTAL LIABILITIES | 736,176 | 697,737 | 675,675 |
(Millions of Euros)
| Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|
| Loan commitments given | 33 | 132,584 | 130,923 |
| Financial guarantees given | 33 | 10,665 | 10,984 |
| Other commitments given | 33 | 36,190 | 39,209 |
(*) Presented for comparison purposes only (Note 1.3).
The accompanying Notes and Appendices are an integral part of the consolidated balance sheet as of December 31, 2020. P.7
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
(Millions of Euros)
| Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|
| Interest and other income | 37.1 | 22,389 | 27,761 |
| Interest expense | 37.2 | (7,797) | (11,972) |
| NET INTEREST INCOME | 14,592 | 15,789 | |
| Dividend income | 38 | 137 | 153 |
| Share of profit or loss of entities accounted for using the equity method | 39 | (39) | (42) |
| Fee and commission income | 40 | 5,980 | 6,785 |
| Fee and commission expense | 40 | (1,857) | (2,284) |
| Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 41 | 139 | 186 |
| Gains (losses) on financial assets and liabilities held for trading, net | 41 | 777 | 419 |
| Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 41 | 208 | 143 |
| Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 41 | 56 | (98) |
| Gains (losses) from hedge accounting, net | 41 | 7 | 55 |
| Exchange differences, net | 41 | 359 | 581 |
| Other operating income | 42 | 492 | 639 |
| Other operating expense | 42 | (1,662) | (1,943) |
| Income from insurance and reinsurance contracts | 43 | 2,497 | 2,890 |
| Expense from insurance and reinsurance contracts | 43 | (1,520) | (1,751) |
| GROSS INCOME | 20,166 | 21,522 | |
| Administration costs | (7,799) | (8,769) | |
| Personnel expense | 44.1 | (4,695) | (5,351) |
| Other administrative expense | 44.2 | (3,104) | (3,418) |
| Depreciation and amortization | 45 | (1,289) | (1,385) |
| Provisions or reversal of provisions | 46 | (746) | (614) |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | 47 | (5,179) | (3,552) |
| Financial assets measured at amortized cost | (5,160) | (3,470) | |
| Financial assets at fair value through other comprehensive income | (19) | (82) | |
| NET OPERATING INCOME | 5,153 | 7,202 | |
| Impairment or reversal of impairment of investments in joint ventures and associates | 48 | (190) | (46) |
| Impairment or reversal of impairment on non-financial assets | 49 | (153) | (128) |
| Tangible assets | (125) | (94) | |
| Intangible assets | (19) | (12) | |
| Other assets | (9) | (22) | |
| Gains (losses) on derecognition of non-financial assets and subsidiaries, net | (7) | (5) | |
| Negative goodwill recognized in profit or loss | - | - | |
| Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 50 | 445 | 23 |
| PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 5,248 | 7,046 | |
| Tax expense or income related to profit or loss from continuing operations | 19 | (1,459) | (1,943) |
| PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS | 3,789 | 5,103 | |
| Profit (loss) after tax from discontinued operations | 21 | (1,729) | (758) |
| PROFIT FOR THE YEAR | 2,060 | 4,345 | |
| ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS) | 31 | 755 | 833 |
| ATTRIBUTABLE TO OWNERS OF THE PARENT | 1,305 | 3,512 |
| Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|
| EARNINGS PER SHARE (Euros) | 5 | 0.14 | 0.47 |
| Basic earnings (losses) per share from continued operations | 0.40 | 0.58 | |
| Diluted earnings (losses) per share from continued operations | 0.40 | 0.58 | |
| Basic earnings (losses) per share from discontinued operations | (0.26) | (0.11) | |
| Diluted earnings (losses) per share from discontinued operations | (0.26) | (0.11) |
(*) Presented for comparison purposes only (Note 1.3).
The accompanying Notes and Appendices are an integral part of the consolidated income statement as of December 31, 2020. P.8
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
(Millions of Euros)
| 2020 | 2019 (*) | 2018 (*) |
|---|---|---|
| 2,060 | 4,345 | 6,227 |
| (5,375) | (285) | (2,605) |
| (822) | (584) | (141) |
| Actuarial gains (losses) from defined benefit pension plans | (87) | (364) |
| Non-current assets and disposal groups held for sale | 17 | 2 |
| Share of other recognized income and expense of entities accounted for using the equity method | - | - |
| Fair value changes of equity instruments measured at fair value through other comprehensive income, net | (796) | (229) |
| Gains (losses) from hedge accounting of equity instruments at fair value through other comprehensive income, net | - | - |
| Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | 4 | (133) |
| Income tax related to items not subject to reclassification to income statement | 40 | 140 |
| (4,553) | 299 | (2,464) |
| Hedge of net investments in foreign operations (effective portion) | 378 | (687) |
| Valuation gains (losses) taken to equity | 378 | (687) |
| Transferred to profit or loss | - | - |
| Other reclassifications | - | - |
| Foreign currency translation | (4,873) | (104) |
| Translation gains (losses) taken to equity | (4,873) | (123) |
| Transferred to profit or loss | - | 1 |
| Other reclassifications | - | 18 |
| Cash flow hedges (effective portion) | 230 | (203) |
| Valuation gains (losses) taken to equity | 230 | (193) |
| Transferred to profit or loss | - | (10) |
| Transferred to initial carrying amount of hedged items | - | - |
| Other reclassifications | - | - |
| Debt securities at fair value through other comprehensive income | 460 | 1,131 |
| Valuation gains (losses) taken to equity | 514 | 1,280 |
| Transferred to profit or loss | (54) | (149) |
| Other reclassifications | - | - |
| Non-current assets and disposal groups held for sale | (492) | 461 |
| Valuation gains (losses) taken to equity | (472) | 472 |
| Transferred to profit or loss | (20) | - |
| Other reclassifications | - | (11) |
| Entities accounted for using the equity method | (13) | 33 |
| Income tax relating to items subject to reclassification to income statements | (243) | (332) |
| TOTAL RECOGNIZED INCOME/EXPENSE | (3,315) | 4,060 |
| Attributable to minority interest (non-controlling interests) | (606) | 551 |
| Attributable to the parent company | (2,709) | 3,509 |
(*) Presented for comparison purposes only (Note 1.3).
The accompanying Notes and Appendices are an integral part of the consolidated statement of recognized income and expense as of December 31, 2020.# CONSOLIDATED STATEMENTS OF CHANGES IN EQUITY (Millions of Euros)
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (loss) (Note 30) | Non-controlling interest | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | Accumulated other comprehensive income (loss) (Note 31) | Other (Note 31) | ||||||||||
| Balances as of January 1, 2020 (*) | 3,267 | 23,992 | - | 56 | 26,402 | - | (125) | (62) | 3,512 | (1,084) | (7,234) | (3,527) |
| Effect of changes in accounting policies (Note 1.3) | - | - | - | - | 2,986 | - | 6 | - | - | (2,992) | (2,045) | 2,045 |
| Adjusted initial balance | 3,267 | 23,992 | - | 56 | 29,388 | - | (119) | (62) | 3,512 | (1,084) | (10,226) | (5,572) |
| Total income/expense recognized | - | - | - | - | - | - | - | - | 1,305 | - | (4,014) | (1,361) |
| Other changes in equity | - | - | - | (14) | 1,120 | - | (45) | 16 | (3,512) | 1,084 | (116) | (16) |
| Issuances of common shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - |
| Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - |
| Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - |
| Dividend distribution | - | - | - | - | (1,066) | - | - | - | - | - | - | (124) |
| Purchase of treasury shares | - | - | - | - | - | - | (807) | - | - | - | - | - |
| Sale or cancellation of treasury shares | - | - | - | - | - | - | 823 | - | - | - | - | - |
| Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - |
| Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Transfers within total equity (see Note 2.2.19) | - | - | - | - | 2,585 | - | (41) | - | (3,512) | 1,084 | (116) | (16) |
| Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - |
| Share based payments | - | - | - | (22) | - | - | - | - | - | - | - | - |
| Other increases or (-) decreases in equity | - | - | - | 8 | (399) | - | (4) | - | - | - | - | 1 |
| Balances as of December 31, 2020 | 3,267 | 23,992 | - | 42 | 30,508 | - | (164) | (46) | 1,305 | - | (14,356) | (6,949) |
(*) Balances as of December 31, 2019 as originally reported in the consolidated Financial Statements for the year 2019. The accompanying Notes and Appendices are an integral part of the consolidated statement of changes in equity as of December 31, 2020.
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (loss) (Note 30) | Non-controlling interest | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | Accumulated other comprehensive income (loss) (Note 31) | Other (Note 31) | ||||||||||
| Balances as of January 1, 2019 ()** | 3,267 | 23,992 | - | 50 | 23,017 | 3 | (56) | (296) | 5,324 | (975) | (7,216) | (3,236) |
| Effect of changes in accounting policies (Note 1.3) | - | - | - | - | 3,046 | - | 19 | - | 76 | (134) | (3,007) | (2,054) |
| Adjusted initial balance | 3,267 | 23,992 | - | 50 | 26,063 | 3 | (37) | (296) | 5,400 | (1,109) | (10,223) | (5,290) |
| Total income/expense recognized | - | - | - | - | - | - | - | - | 3,512 | - | (3) | (282) |
| Other changes in equity | - | - | - | 6 | 3,325 | (3) | (82) | 234 | (5,400) | 25 | - | (114) |
| Issuances of common shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - |
| Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - |
| Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - |
| Dividend distribution | - | - | - | - | (1,063) | - | - | - | - | (1,084) | - | (142) |
| Purchase of treasury shares | - | - | - | - | - | - | (1,088) | - | - | - | - | - |
| Sale or cancellation of treasury shares | - | - | - | - | 13 | - | 1,322 | - | - | - | - | - |
| Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - |
| Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Transfers within total equity (see Note 2.2.19) | - | - | - | - | 4,364 | (3) | (70) | - | (5,400) | 1,109 | - | - |
| Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - |
| Share based payments | - | - | - | (4) | - | - | - | - | - | - | - | - |
| Other increases or (-) decreases in equity | - | - | - | 10 | 11 | (12) | - | - | - | - | 28 | 37 |
| Balances as of December 31, 2019 | 3,267 | 23,992 | - | 56 | 29,388 | - | (119) | (62) | 3,512 | (1,084) | (10,226) | (5,572) |
() Presented for comparison purposes only (Note 1.3).
(*) Balances as of December 31, 2018 as originally reported in the consolidated Financial Statements for the year 2018. The accompanying Notes and Appendices are an integral part of the consolidated statement of changes in equity as of December 31, 2020.
| Capital (Note 26) | Share Premium (Note 27) | Equity instruments issued other than capital | Other Equity | Retained earnings (Note 28) | Revaluation reserves (Note 28) | Other reserves (Note 28) | (-) Treasury shares (Note 29) | Profit or loss attributable to owners of the parent | (-) Interim dividends (Note 4) | Accumulated other comprehensive income (loss) (Note 30) | Non-controlling interest | Total |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2018 | Accumulated other comprehensive income (loss) (Note 31) | Other (Note 31) | ||||||||||
| Balances as of January 1, 2018 ()** | 3,267 | 23,992 | - | 54 | 25,474 | 12 | (44) | (96) | 3,519 | (1,043) | (8,792) | (3,378) |
| Effect of changes in accounting policies (Note 1.3) | - | - | - | - | 348 | - | 31 | - | (5) | (129) | (1,192) | (1,181) |
| Adjusted initial balance | 3,267 | 23,992 | - | 54 | 25,822 | 12 | (13) | (96) | 3,514 | (1,172) | (9,984) | (4,559) |
| Total income/expense recognized | - | - | - | - | - | - | - | - | 5,400 | - | (1,335) | (1,270) |
| Other changes in equity | - | - | - | (4) | 241 | (9) | (24) | (200) | (3,514) | 63 | 1,096 | 539 |
| Issuances of common shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - |
| Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - |
| Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - |
| Dividend distribution | - | - | - | - | (996) | - | - | - | - | (1,109) | - | (378) |
| Purchase of treasury shares | - | - | - | - | - | - | (1,684) | - | - | - | - | - |
| Sale or cancellation of treasury shares | - | - | - | - | (24) | - | 1,484 | - | - | - | - | - |
| Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - |
| Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - |
| Transfers within total equity (see Note 2.2.19) | - | - | - | - | 1,278 | (9) | (23) | - | (3,514) | 1,172 | 1,096 | 539 |
| Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - |
| Share based payments | - | - | - | (19) | - | - | - | - | - | - | - | - |
| Other increases or (-) decreases in equity | - | - | - | 15 | (17) | (1) | - | - | - | - | (423) | (426) |
| Balances as of December 31, 2018 | 3,267 | 23,992 | - | 50 | 26,063 | 3 | (37) | (296) | 5,400 | (1,109) | (10,223) | (5,290) |
() Presented for comparison purposes only (Note 1.3).
(*) Balances as of December 31, 2017 as originally reported in the consolidated Financial Statements for the year 2017. The accompanying Notes and Appendices are an integral part of the consolidated statement of changes in equity as of December 31, 2020.
| 2020 | 2019 (*) | 2018 (*) | |
|---|---|---|---|
| A) CASH FLOWS FROM OPERATING ACTIVITIES (1 + 2 + 3 + 4 + 5) | 39,349 | (10,654) | 13,436 |
| 1. Profit for the year | 2,060 | 4,345 | 6,227 |
| 2. Adjustments to obtain the cash flow from operating activities | 11,653 | 9,582 | 7,619 |
| Depreciation and amortization | 1,288 | 1,386 | 1,034 |
| Other adjustments | 10,365 | 8,196 | 6,585 |
| 3. Net increase/decrease in operating assets | (57,483) | (39,247) | (7,762) |
| Financial assets held for trading | (10,463) | (11,724) | 1,524 |
| Non-trading financial assets mandatorily at fair value through profit or loss | (241) | (318) | (643) |
| Other financial assets designated at fair value through profit or loss | 97 | 99 | 349 |
| Financial assets at fair value through other comprehensive income | (16,649) | (3,755) | (206) |
| Financial assets at amortized cost | (30,212) | (26,559) | (7,880) |
| Other operating assets | (15) | 3,010 | (906) |
| 4. | |||
| ## For the year ended December 31, 2020 (Millions of Euros) |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Net increase/decrease in operating liabilities | 85,074 | 16,268 | 10,141 |
| Financial liabilities held for trading | 361 | 8,121 | (611) |
| Other financial liabilities designated at fair value through profit or loss | 647 | 2,680 | 1,338 |
| Financial liabilities at amortized cost | 84,853 | 8,016 | 10,481 |
| Other operating liabilities | (787) | (2,549) | (1,067) |
| Collection/Payments for income tax | (1,955) | (1,602) | (2,789) |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 1. Investment | (1,185) | (1,494) | (2,154) |
| Tangible assets | (632) | (852) | (943) |
| Intangible assets | (491) | (528) | (552) |
| Investments in joint ventures and associates | (62) | (114) | (150) |
| Other business units | - | - | (20) |
| Non-current assets classified as held for sale and associated liabilities | - | - | (489) |
| Other settlements related to investing activities | - | - | - |
| 2. Divestments | 1,148 | 1,591 | 9,670 |
| Tangible assets | 558 | 128 | 731 |
| Intangible assets | - | - | - |
| Investments in joint ventures and associates | 307 | 98 | 558 |
| Subsidiaries and other business units | - | 5 | 4,268 |
| Non-current assets classified as held for sale and associated liabilities | 283 | 1,198 | 3,917 |
| Other collections related to investing activities | - | 162 | 196 |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 1. Payments | (5,316) | (7,418) | (8,995) |
| Dividends | (1,065) | (2,147) | (2,107) |
| Subordinated liabilities | (2,820) | (3,571) | (4,825) |
| Treasury stock amortization | - | - | - |
| Treasury stock acquisition | (807) | (1,088) | (1,686) |
| Other items relating to financing activities | (624) | (612) | (377) |
| 2. Collections | 3,247 | 4,716 | 3,903 |
| Subordinated liabilities | 2,425 | 3,381 | 2,451 |
| Treasury shares increase | - | - | - |
| Treasury shares disposal | 822 | 1,335 | 1,452 |
| Other items relating to financing activities | - | - | - |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| (4,658) | (634) | (344) |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 32,585 | (13,893) | 15,516 |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 44,303 | 58,196 | 42,680 |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| 76,888 | 44,303 | 58,196 |
| Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|
| Cash | 6,447 | 7,060 | 6,346 |
| Balance of cash equivalent in central banks | 53,079 | 31,755 | 43,880 |
| Other financial assets | 5,994 | 5,488 | 7,970 |
| Less: Bank overdraft refundable on demand | - | - | - |
| TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 65,520 | 44,303 | 58,196 |
| TOTAL CASH AND CASH EQUIVALENTS CLASSIFIED AS NON-CURRENT ASSETS AND DISPOSABLE GROUPS CLASSIFIED AS HELD FOR SALE IN THE UNITED STATES | 21 | 11,368 | - | - |
(*) Presented for comparison purposes only (Note 1.3). The accompanying Notes and Appendices are an integral part of the consolidated statement of cash flows as of December 31, 2020.
P.13 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Banco Bilbao Vizcaya Argentaria, S.A. (hereinafter “the Bank”, “BBVA" or “BBVA, S.A. ”) is a private-law entity subject to the laws and regulations governing banking entities operating in Spain. It carries out its activity through branches and agencies across the country and abroad. The Bylaws and other public information are available for inspection at the Bank’s registered address (Plaza San Nicolás, 4 Bilbao) as noted on its web site (www.bbva.com).
In addition to the activities it carries out directly, the Bank heads a group of subsidiaries, joint ventures and associates which perform a wide range of activities and which together with the Bank constitute the Banco Bilbao Vizcaya Argentaria Group (hereinafter, the “Group” or the “BBVA Group”). In addition to its own separate financial statements, the Bank is required to prepare Consolidated Financial Statements comprising all consolidated subsidiaries of the Group.
As of December 31, 2020, the BBVA Group had 269 consolidated entities and 48 entities accounted for using the equity method (see Notes 3 and 16 and Appendix I to V). The Consolidated Financial Statements of the BBVA Group for the year ended December 31, 2019 were approved by the shareholders at the Annual General Meetings (“AGM”) held on March 13, 2020. BBVA Group’s Consolidated Financial Statements and the Financial Statements for the Bank and the majority of the remaining entities within the Group have been prepared as of December 31, 2020, and are pending approval by their respective AGMs. Notwithstanding, the Board of Directors of the Bank understands that said financial statements will be approved without changes.
The BBVA Group’s Consolidated Financial Statements are presented in compliance with IFRS-IASB (International Financial Reporting Standards as issued by the International Accounting Standards Board), as well as in accordance with the International Financial Reporting Standards endorsed by the European Union (hereinafter, “EU-IFRS”) applicable as of December 31, 2020, considering the Bank of Spain Circular 4/2017, and with any other legislation governing financial reporting which is applicable and with the format and mark-up requirements established in the EU Delegated Regulation 2019/815 of the European Commission.
The BBVA Group’s accompanying Consolidated Financial Statements for the year ended December 31, 2020 were prepared by the Group’s Directors (through the Board of Directors meeting held on February 8, 2021) by applying the principles of consolidation, accounting policies and valuation criteria described in Note 2, so that they present fairly the Group’s total consolidated equity and financial position as of December 31, 2020, together with the consolidated results of its operations and cash flows generated during the year ended December 31, 2020. These Consolidated Financial Statements were prepared on the basis of the accounting records kept by the Bank and each of the other entities in the Group. Moreover, they include the adjustments and reclassifications required to harmonize the accounting policies and valuation criteria used by the Group (see Note 2.2).
All effective accounting standards and valuation criteria with a significant effect in the Consolidated Financial Statements were applied in their preparation. The amounts reflected in the accompanying Consolidated Financial Statements are presented in millions of euros, unless it is more appropriate to use smaller units. Some items that appear without a balance in these Consolidated Financial Statements are due to how the units are expressed. Also, in presenting amounts in millions of euros, the accounting balances have been rounded up or down. It is therefore possible that the totals appearing in some tables are not the exact arithmetical sum of their component figures. The percentage changes in amounts have been calculated using figures expressed in thousands of euros.
The information included in the accompanying consolidated financial statements for the years ended December 31, 2019 and December 31, 2018, is presented in accordance with the applicable regulation, for the purpose of comparison with the information for the year ended December 31, 2020.
P.14 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As mentioned in Note 3, in 2020 BBVA reached an agreement to sell its entire stake in BBVA USA Bancshares, Inc., parent company of the Group companies engaged in the banking business in the United States. As required by IFRS 5 "Non-current assets held for sale and discontinued operations", the balances of assets and liabilities corresponding to said companies for sale have been reclassified from their corresponding accounting headings to the headings "Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” respectively, from the consolidated balance sheet as of December 31, 2020. Similarly, as required by the aforementioned IFRS 5, the results generated by these companies during the financial year 2020 are presented in the heading “Profit (loss) after taxes from discontinued operations” of the consolidated income statement for such year, and in the heading "Non-current assets and disposal groups classified as held for sale" in the consolidated statements of recognized income and expense for such year.
Additionally, the results corresponding to the years 2019 and 2018 have been reclassified, to facilitate the comparison between years, to that same section of the respective consolidated income statements and consolidated statements of recognized income and expense for both years. Finally, in the consolidated statements of cash flows, the balances corresponding to cash and cash equivalents have been reclassified to the heading "Total cash and cash equivalents classified as non-current assets and disposal groups classified as held for sale" as of and for the year ended December 31, 2020.
Note 21 includes the condensed consolidated balance sheets, the condensed consolidated income statements and the condensed consolidated cash flow statements of the companies for sale in the United States as of and for the years 2020, 2019 and 2018.# Hyperinflationary economies
Considering the interpretation issued by the International Financial Reporting Interpretations Committee (IFRIC) in its “IFRIC Update” of March 2020 on IAS 29 “Financial information in hyperinflationary economies”, the Group made an accounting policy change which involves recording the differences generated when translating the restated financial statements of the subsidiaries in hyperinflationary economies into euros in the line item “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Foreign currency translation” of our consolidated balance sheet net equity. In order to make the information as of December 31, 2019 and 2018 comparable with information as of December 31, 2020, such information has been restated by reclassifying €2,985 million and €2,987 million, respectively, from “Shareholders’ funds – Retained earnings” and €6 million and €20 million, respectively, from “Shareholders’ funds – Other reserves” to the headings “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Foreign currency translation and “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Share of other recognized income and expense of investments in joint ventures and associates” as of December 31, 2019 and 2018, respectively. The reclassifications corresponding to January 1, 2020 and 2019 are included as "Effect of changes in accounting policies" in the Consolidated Total Statements of Changes in Equity corresponding to the years ended December 31, 2019 and 2018, respectively.
As a consequence of the application of the interpretation issued by the IFRIC in its “IFRIC Update” of March 2019 regarding the collection of interest on impaired financial assets under IFRS 9, such collections are presented since 2020 as reductions in credit-related write-offs whereas previously they were included as interest income. In order to make the information comparable, the consolidated income statement information for the years ended December 31, 2019 and 2018 has been restated by recognizing a €78 and €80 million reduction in the heading “Interest and other income”, respectively against the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification”. This reclassification has had no net impact on the profit for the years ended December 31, 2019 and 2018, respectively, nor on the consolidated net equity as of December 31, 2019 and 2018, respectively.
Information as of and for the year ended December 31, 2020 has been subject to certain non-significant presentation modifications, in the balance sheet related to the derivative activity. In order to make the information as of and for the years ended December 31, 2019 and 2018 comparable with the information as of and for the year ended December 31, 2020, figures as of and for the years ended December 31, 2019 and 2018 have been restated by recognizing a €953 million and a €1,013 million reduction in the Total Assets and Total Liabilities, respectively.
The nature of the most significant activities carried out by the BBVA Group’s entities is mainly related to typical activities carried out by financial institutions, and are not significantly affected by seasonal factors within the same year.
The appearance of the Coronavirus COVID-19 in China and its global expansion to a large number of countries, motivated the viral outbreak to be classified as a global pandemic by the World Health Organization since last March 11, 2020. The pandemic has affected and continues to adversely affect the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession. The governments of the different countries in which the Group operates have adopted different measures that have conditioned the evolution of the year (see Note 7.2).
P.15 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In this pandemic situation, BBVA has focused its attention on ensuring the continuity of the business operational security as a priority and monitoring the impacts on the business and on the risks of the Group (such as the impacts on results, capital or liquidity). Additionally, BBVA adopted from the beginning a series of measures to support its main interest groups. In this sense, the purpose and the Group's long-term strategic priorities remain the same and are even reinforced, with a commitment to technology and data-driven decision-making. 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 these consolidated financial statements (see Note 7.2.1).
The main impacts of COVID-19 pandemic in the BBVA Group's consolidated Financial Statements are detailed in the following Notes:
* Note 1.6 includes information on the consideration of the COVID-19 pandemic in the estimates made.
* Note 4 mentions the amendment of the Group’s shareholder remuneration policy, in accordance with the recommendation issued by the European Central Bank, which no longer pays any amount as a dividend for the financial year 2020 until as long as the uncertainties generated by the pandemic remain.
* Note 7.1 details the main risks associated with the pandemic as well as the impacts that have occurred both in the operations and in the consolidated financial statements for the year ended December 31, 2020. Information on the impact of COVID-19 is included in the macroeconomic forecasts and in the calculation of expected losses.
* Note 7.2 includes information related to the initiatives carried out by the Group to help the most affected clients, jointly with the corresponding governments. Likewise, it contains, among others, information regarding the level of activity and the amount corresponding to moratorium measures, both public and private, granted by the Group worldwide.
* Note 7.5 presents information regarding the impact on liquidity and financing risk.
* Note 18.1 includes information concerning the impairment of the goodwill in the United States carried out during the first quarter of 2020, mainly due to the impact of COVID-19 in updating the macroeconomic scenario and the expected evolution of interest rates.
* Note 32 includes information with regard to the impact on the Group's capital.
* Note 47 includes information on the impact of the update of the macroeconomic scenario affected by the COVID-19 pandemic.
The information contained in the BBVA Group’s Consolidated Financial Statements is the responsibility of the Group’s Directors. Estimates were required to be made at times when preparing these Consolidated Financial Statements in order to calculate the recorded or disclosed amount of some assets, liabilities, income, expense and commitments. These estimates relate mainly to the following:
* Loss allowances on certain financial assets (see Notes 7, 12, 13, 14 and 16).
* The assumptions used to quantify certain provisions (see Notes 23 and 24) and for the actuarial calculation of post-employment benefit liabilities and commitments (see Note 25).
* The useful life and impairment losses of tangible and intangible assets (see Notes 17, 18, 20 and 21).
* The valuation of goodwill and price allocation of business combinations (see Note 18).
* The fair value of certain unlisted financial assets and liabilities (see Notes 7, 8, 10, 11, 12 and 13).
* The recoverability of deferred tax assets (see Note 19).
As mentioned before, on March 11, 2020, COVID-19 was declared as a global pandemic by the World Health Organization (see Note 1.5). The great uncertainty associated to the unprecedented nature of this pandemic entails a greater complexity of developing reliable estimations and applying judgment. Therefore, these estimates were made on the basis of the best available information on the matters analyzed, as of December 31, 2020. However, it is possible that events may take place in the future which could make it necessary to amend these estimations (upward or downward), which would be carried out prospectively, recognizing the effects of the change in estimation in the corresponding consolidated income statement. During 2020 there have been no relevant changes in the assumptions and estimates made as of December 31, 2019 and 2018, with the exception of those indicated in these consolidated Financial Statements.
BBVA Group’s Consolidated Financial Statements are prepared under an Internal Control over Financial Reporting Model (ICFR). It provides reasonable assurance with respect to the reliability and the integrity of the consolidated financial statements. It is also aimed to ensure that the transactions are processed in accordance with the applicable laws and regulations.
P.16 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The ICFR is in accordance with the control framework established in 2013 by the “Committee of Sponsoring Organizations of the Treadway Commission” (hereinafter, "COSO").# Internal Control Over Financial Reporting (ICFR)
The COSO 2013 framework sets five components that constitute the basis of the effectiveness and efficiency of the internal control systems:
* The establishment of an appropriate control framework.
* The assessment of the risks that could arise during the preparation of the financial information.
* The design of the necessary controls to mitigate the identified risks.
* The establishment of an appropriate system of information to detect and report system weaknesses.
* The monitoring activities over the controls to ensure they perform correctly and are effective over time.
The ICFR is a dynamic model that evolves continuously over time to reflect the reality of the BBVA Group’s businesses and processes, as well as the risks and controls designed to mitigate them. It is subject to a continuous evaluation by the internal control units located in the different entities of BBVA Group. These internal control units are integrated within the BBVA internal control model, defined and led by Regulation & Internal Control, and which is based in two pillars:
A control system organized into three lines of defense that has been updated and strengthened in 2020, as described below:
A committee structure in the Group, called Corporate Assurance, which enables the escalation of possible weaknesses and internal control issues to the management at a Group level and also in each of the countries where the Group operates.
The internal control units within Finance comply with a common and standard methodology established at the Group level, as set out in the following diagram:
The ICFR Model is subject to annual evaluations by the Group’s Internal Audit Unit. It is also supervised by the Audit Committee of the Bank’s Board of Directors.
The BBVA Group is also required to comply with the Sarbanes-Oxley Act (hereafter “SOX”) for Consolidated Financial Statements as a listed company with the U.S. Securities and Exchange Commission (“SEC”). The main senior executives of the Group are involved in the design, compliance and implementation of the internal control model to make it effective and to ensure the quality and accuracy of the financial information.
The description of the ICFR is included in the Corporate Governance Annual Report within the Management Report attached to the consolidated financial statements for the year ended December 31, 2020.
P.17 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The Glossary includes the definition of some of the financial and economic terms used in Note 2 and subsequent Notes of the accompanying consolidated Financial Statements.
In terms of its consolidation, in accordance with the criteria established by IFRS, the BBVA Group is made up of four types of entities: subsidiaries, joint ventures, associates and structured entities, defined as follows:
Subsidiaries are entities controlled by the Group (for definition of control, see Glossary). The financial statements of the subsidiaries are fully consolidated with those of the Bank. The share of non-controlling interests from subsidiaries in the Group’s consolidated total equity is presented under the heading “Minority interests (Non-controlling interests)” in the consolidated balance sheet. Their share in the profit or loss for the period or year is presented under the heading “Attributable to minority interest (non-controlling interests)” in the accompanying consolidated income statement (see Note 31). Note 3 includes information related to the main subsidiaries in the Group as of December 31, 2020. Appendix I includes other significant information on all entities.
Joint ventures are those entities for which there is a joint arrangement to joint control with third parties other than the Group (for definitions of joint arrangement, joint control and joint venture, refer to Glossary). The investments in joint ventures are accounted for using the equity method (see Note 16). Appendix II shows the main figures for joint ventures accounted for using the equity method as of December 31, 2020.
Associates are entities in which the Group is able to exercise significant influence (for definition of significant influence, see Glossary). Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly, unless it can be clearly demonstrated that this is not the case. However, certain entities in which the Group owns 20% or more of the voting rights are not included as Group associates, since the Group does not have the ability to exercise significant influence over these entities. Investments in these entities, which do not represent material amounts for the Group, are classified as “Financial assets at fair value through other comprehensive income” or “Non-trading financial assets mandatorily at fair value through profit or loss”. In contrast, some investments in entities in which the Group holds less than 20% of the voting rights are accounted for as Group associates, as the Group is considered to have the ability to exercise significant influence over these entities. As of December 31, 2020, these entities are not significant to the Group. Appendix II shows the most significant information related to the associates (see Note 16), which are accounted for using the equity method.
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when the voting rights relate to administrative matters only and the relevant activities are directed by means of contractual arrangements (see Glossary). In those cases where the Group sets up entities or has a holding in such entities, in order to allow its customers access to certain investments, to transfer risks or for other purposes, in accordance with internal criteria and procedures and with applicable regulations, the Group determines whether control over the entity in question actually exists and therefore whether it should be subject to consolidation. Such methods and procedures determine whether there is control by the Group, considering how the decisions are made about the relevant activities, assessing whether the Group has control over the relevant elements, exposure to variable returns from involvement with the investee and the ability to use control over the investee to affect the amount of the investor’s returns.
To determine if a structured entity is controlled by the Group, and therefore should be consolidated into the Group, the existing contractual rights (different from the voting rights) are analyzed. For this reason, an analysis of the structure and purpose of each investee is performed and, among others, the following factors will be considered:
P.18 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
These types of entities include cases where the Group has a high exposure to variable returns and retains decision-making power over the investee, either directly or through an agent. The main structured entities of the Group are the asset securitization funds, to which the BBVA Group transfers loans and advances, and other vehicles, which allow the Group’s customers to gain access to certain investments or to allow for the transfer of risks or for other purposes (see Appendices I and V). The BBVA Group maintains the decision-making power over the relevant activities of these vehicles and financial support through securitized market standard contracts. The most common ones are: investment positions in equity note tranches, funding through subordinated debt, credit enhancements through derivative instruments or liquidity lines, management rights of defaulted securitized assets, “clean-up” call derivatives, and asset repurchase clauses by the grantor.# 2.2 Accounting principles and policies and applied valuation methods
The accounting principles and policies and the valuation methods applied in the preparation of the consolidated financial statements may differ from those used, at the individual level, by some of the entities that are part of the BBVA Group; This is why, in the consolidation process, the necessary adjustments and reclassifications are made to standardize such principles and criteria among themselves and bring them into line with the IFRS-EU.
In preparing the accompanying consolidated Annual Accounts, the following accounting principles and policies and assessment criteria have been applied:
P.19 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
IFRS 9 became effective as of January 1, 2018 and replaced IAS 39 regarding the classification and measurement of financial assets and liabilities, the impairment of financial assets and hedge accounting. However, the Group has chosen to continue applying IAS 39 for accounting for hedges, until the completion of the macro-hedging project of IFRS 9 as permitted by IFRS 9.
IFRS 9 contains three main categories for financial assets classification: measured at amortized cost, measured at fair value with changes through other comprehensive income, and measured at fair value through profit or loss.
The classification of financial instruments in the categories of amortized cost or fair value depends on the business model with which the entity manages the assets and the contractual characteristics of the cash flows, commonly known as the "solely payments of principle and interest" criterion (hereinafter, the SPPI).
The assessment of the business model should reflect the way the Group manages groups of financial assets and does not depend on the intention for an individual instrument. Thus, for each entity within the BBVA Group there are different business models for managing assets. In order to determine the business model, the following aspects are taken into account:
Regarding the SPPI test, the analysis of the cash flows aims to determine whether the contractual cash flows of the assets correspond only to payments of principal and interest on the principal amount outstanding at the beginning of the transaction. Interest is understood here as the consideration for the time value of money; and for the credit risk associated with the principal amount outstanding during a specific period; and for financing and structure costs, plus a profit margin.
The most significant judgments used by the Group in evaluating compliance with the conditions of the SPPI test are the following:
For these reasons, the loans and receivable portfolios related to the vast majority of the securitizations carried out by the Bank or Group subsidiaries are not derecognized in the books of said entity and the issuances of the related debt securities are recorded as liabilities within the Group’s consolidated balance sheet. For additional information on the accounting treatment for the transfer and derecognition of financial instruments, see Note 2.2.2. “Transfers and derecognition of financial assets and liabilities”.
Non-consolidated structured entities
The Group owns other vehicles also for the purpose of allowing customers access to certain investments, to transfer risks, and for other purposes, but without the Group having control of the vehicles, which are not consolidated in accordance with IFRS 10 – “Consolidated Financial Statements”. The balance of assets and liabilities of these vehicles is not m aterial in relation to the Group’s Consolidated Financial Statements. As of December 31, 2020, there was no material financial support from the Bank or its subsidiaries to unconsolidated structured entities.
The Group does not consolidate any of the mutual funds it manages since the necessary control conditions are not met. Particularly, the BBVA Group does not act as arranger but as agent since it operates the mutual funds on behalf and for the benefit of investors or parties (arranger or arrangers) and, for this reason it does not control the mutual funds when exercising its authority for decision making. The mutual funds managed by the Group are not considered structured entities (generally, retail funds without corporate identity over which investors have participations which gives them ownership of said managed equity). These funds are not dependent on a capital structure that could prevent them from carrying out activities without additional financial support, being in any case insufficient as far as the activities themselves are concerned. Additionally, the risk of the investment is absorbed by the fund participants, and the Group is only exposed when it becomes a participant, and as such, there is no other risk for the Group.
In all cases, the operating results of equity method investees acquired by the BBVA Group in a particular period only include the period from the date of acquisition to the financial statements date. Similarly, the results of entities disposed of during any year only include the period from the start of the year to the date of disposal.
The consolidated financial statements of subsidiaries, associates and joint ventures used in the preparation of the Consolidated Financial Statements of the Group have the same presentation date as the Consolidated Financial Statements. If financial statements at those same dates are not available, the most recent will be used, as long as these are not older than three months, and adjusted to take into account the most significant transactions. As of December 31, 2020, financial statements as of December 31 of all Group entities were utilized except for the case of the consolidated financial statements of 6 associates deemed non-significant for which financial statements as of November 30, 2020 were used.
Separate financial statements
The separate financial statements of the parent company of the Group are prepared under Spanish regulations (Circular 4/2017 of the Bank of Spain, and following other regulatory requirements of financial information applicable to the Bank). The Bank uses the cost method to account in its separate financial statements for its investments in subsidiaries, associates and joint venture entities, which are consistent with the requirements of Bank of Spain Circular 4/2017 and IAS 27 “Consolidated and Separate Financial Statements”. Appendix IX shows BBVA’s financial statements as of and for the years ended December 31, 2020 and 2019.# Non-recourse financial instruments:
In the case of debt instruments that are repaid primarily with the cash flows of specific assets or projects and the debtor has no legal responsibility, the underlying assets or cash flows are evaluated to determine whether the contractual cash flows of the instrument are consistent with payments of principal and interest on the principal amount outstanding. P.20 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A look-through analysis is carried out in the case of transactions that are set through the issuance of multiple financial instruments forming tranches that create concentrations of credit risk in which there is an order of priority that specifies how the flows of cash generated by the underlying set of financial instruments are allocated to the different tranches. The debt tranches of the instrument will comply with the requirement that their cash flows represent only payment of principal and interest on the outstanding principal if:
a) the contractual terms of the tranche being assessed for classification (without looking through to the underlying pool of financial instruments) give rise to cash flows that are solely payments of principal and interest on the principal amount outstanding
b) the underlying pool of financial instruments comprises instruments with cash flow that are solely payments of principal and interest on the principal amount outstanding, and
c) the exposure to credit risk in the underlying pool of financial instruments inherent in the tranche is equal to or lower than the exposure to credit risk of the underlying pool of financial instruments (for example, the credit rating of the tranche being assessed for classification is equal to or higher than the credit rating that would apply to a single tranche that funded the underlying pool of financial instruments)
In any event, the contractual conditions that, at the time of the initial recognition, have a minimal effect on cash flows or depend on the occurrence of exceptional and highly unlikely events do not prevent compliance with the conditions of the SPPI test.
Based on the above characteristics, financial assets will be classified and valued as described below.
A debt instrument will be classified in the amortized cost portfolio if the two following conditions are fulfilled:
A debt instrument will be classified in the portfolio of financial assets at fair value with changes through other comprehensive income if the two following conditions are fulfilled:
A debt instrument will be classified at fair value with changes in profit and loss provided that the entity's business model for their management or the contractual characteristics of its cash flows do not require classification into one of the portfolios described above.
In general, equity instruments will be measured at fair value through profit or loss. However the Group may make an irrevocable election, at initial recognition to present subsequent changes in the fair value through “other comprehensive income”.
Financial assets will only be reclassified when BBVA Group decides to change the business model. In this case, all of the financial assets assigned to this business model will be reclassified. The change of the objective of the business model should occur before the date of the reclassification.
All financial instruments are initially recognized at fair value, plus, those transaction costs which are directly attributable to the issue of the particular instrument, with the exception of those financial assets which are classified at fair value through profit or loss.
All changes in the value of financial assets due to the interest accrual and similar items are recorded in the headings "Interest income and other similar income" or "Interest expenses", of the consolidated income statement of the year in which the accrual occurred (see Note 37), except for trading derivatives that are not economic and accounting hedges.
The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial assets.
Financial assets are recorded under the heading “Financial assets held for trading” if the objective of the business model is to generate gains by buying and selling these financial instruments or generate short-term results.
The financial assets recorded in the heading “Non- trading financial assets mandatorily at fair value through profit or loss” are assigned to a business model which objective is to obtain the contractual cash flows and / or to sell those instruments but its contractual cash flows do not comply with the requirements of the SPPI test.
Financial assets are classified in “Financial assets designated at fair value through profit or loss” only if it eliminates or significantly reduces a measurement or recognition inconsistency (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or financial liabilities, or recognizing gains or losses on them, on different bases. P.21 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The assets recognized under these headings of the consolidated balance sheet are measured upon acquisition at fair value and changes in the fair value (gains or losses) are recognized as their net value under the headings “Gains (losses) on financial assets and liabilities held for trading, net”, “Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net” and “Gains (losses) on financial assets designated at fair value through profit or loss, net” in the accompanying consolidated income statement (see Note 41).
Changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Exchange differences, net” in the accompanying consolidated income statements (Note 41).
Assets recognized under this heading in the consolidated balance sheets are measured at their fair value. This category of valuation implies the recognition of the information in the income statement as if it were an instrument valued at amortized cost, while the instrument is valued at fair value in the balance sheet. Thus, both interest income on these instruments and the exchange differences and impairment that arise in their case are recorded in the profit and loss account, while subsequent changes in its fair value (gains or losses) are recognized temporarily (by the amount net of tax effect) under the heading “Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - Fair value changes of debt instruments measured at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).
The amounts recognized under the headings “Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - Fair value changes of financial assets measured at fair value through other comprehensive income” continue to form part of the Group's consolidated equity until the corresponding asset is derecognized from the consolidated balance sheet or until a loss allowance is recognized on the corresponding financial instrument.
If these assets are sold, these amounts are derecognized and included under the headings “Gains (losses) on financial assets and liabilities, net” (see Note 41).
The net loss allowances in “Financial assets at fair value through other comprehensive income” over the year are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification - Financial assets at fair value through other comprehensive income” (see Note 48) in the consolidated income statement for that period.
Interest income on these instruments are recorded in the consolidated profit and loss account (see Note 37).
Changes in foreign exchange rates are recognized under the heading “Exchange differences, net" in the accompanying consolidated income statements (see Note 41).# Equity instruments
At the time of initial recognition of specific investments in equity instruments, the BBVA Group may make the irrevocable decision to present subsequent changes in fair value in other comprehensive income. Subsequent changes in this valuation will be recognized in "Other accumulated comprehensive income - Items that will not be reclassified in results - Changes in the fair value of equity instruments measured at fair value with changes in other comprehensive income". Dividends received from these investments are recorded in the heading "Dividend income" in the consolidated income statement (see Note 38). These instruments are not subject to the impairment model of IFRS 9.
The assets under this category are subsequently measured at amortized cost, using the effective interest rate method. Net loss allowances of assets recorded under these headings arising in each period are recognized under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification – financial assets measured at amortized cost” in the consolidated income statement for such period (see Note 47).
Under IFRS 9, financial liabilities are classified in the following categories:
Financial liabilities are initially recorded at fair value, less transaction costs that are directly attributable to the issuance of instruments, except for financial instruments that are classified at fair value through profit or loss.
P.22 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Variations in the value of financial liabilities due to the interest accrual and similar items are recorded in the headings “Interest income and other similar income” or “Interest expense”, of the consolidated income statement for the period in which the accrual occurred (see Note 37), except for trading derivatives that are not economic and accounting hedges. The changes in fair value after the initial recognition, for reasons other than those mentioned in the preceding paragraph, are treated as described below, according to the categories of financial liabilities.
The subsequent changes in the fair value (gains or losses) of the liabilities recognized under these headings of the consolidated balance sheets are recognized as their net value under the headings “Gains (losses) on financial assets and liabilities held for trading, net” and “Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net” in the accompanying consolidated income statements (see Note 41). Nevertheless, the changes in the own credit risk of the liabilities designated under the fair value option is presented in “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk”, unless this treatment brings about or increases an asymmetry in the income statement. However, changes in fair value resulting from variations in foreign exchange rates are recognized under the heading “Exchange differences, net” in the accompanying consolidated income statements (Note 41).
The liabilities under this category are subsequently measured at amortized cost, using the “effective interest rate” method.
When a financial liability contains an embedded derivative, the Group analyzes whether the economic characteristics and risks of the embedded derivative and the host instrument are closely related. If the characteristics and risks of the host and the derivative are closely related, the instrument as a whole will be classified and measured according to the general rules for financial liabilities. If, on the other hand, the economic characteristics and risks of the embedded derivative are not closely related to the economic characteristics and risks of the host, its terms meet the definition of a derivative and the hybrid contract is not measured at fair value with changes in fair value recognized in profit or loss, the embedded derivative shall be separated from the host and accounted for as a derivative separately at fair value with changes in profit and loss and the host instrument will be classified and measured according to its nature.
The Group uses financial derivatives as a tool for managing financial risks, mainly interest rates and exchange rates (See Note 7). When these transactions meet certain requirements, they are considered "hedging". Changes occurring subsequent to the designation of the hedging relationship in the measurement of financial instruments designated as hedged items as well as financial instruments designated as hedge accounting instruments are recognized as follows:
In fair value hedges, the changes in the fair value of the derivative and the hedged item a ttributable to the hedged risk are recognized under the heading “Gains (losses) from hedge accounting, net” in the consolidated income statement, with a corresponding offset under the headings where hedging items ("Hedging derivatives") and the hedged items are recognized, as applicable, except for interest-rate risks hedges (which are almost all of the hedges used by the Group), for which the valuation changes are recognized under the headings “Interest and other income” or “Interest expense”, as appropriate, in the accompanying consolidated income statement (see Note 37).
In fair value hedges of interest rate risk of a portfolio of financial instruments (portfolio-hedges), the gains or losses that arise in the measurement of the hedging instrument are recognized in the consolidated income statement, with the corresponding offset on the headings “Derivatives-Hedge Accounting” and the gains or losses that arise from the change in the fair value of the hedged item (attributable to the hedged risk) are also recognized in the consolidated income statement (in both cases under the heading “Gains (losses) from hedge accounting, net”, using, as a balancing item, the headings "Fair value changes of the hedged items in portfolio hedges of interest rate risk" in the consolidated balance sheets, as applicable).
In cash flow hedges, the gain or loss on the hedging instruments relating to the effective portion are recognized temporarily under the heading “Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - Hedging derivatives. Cash flow hedges (effective portion)” in the consolidated balance sheets, with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences are recognized under the headings “Interest and other income” or “Interest expense” at the time when the gain or loss in the hedged instrument affects profit or loss, when the forecast transaction is executed or at the maturity date of the hedged item (see Note 37). Differences in the measurement of the hedging items corresponding to the ineffective portions of cash flow hedges are recognized directly in the heading “Gains (losses) from hedge accounting, net” in the consolidated income statement (see Note 41).
P.23 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In the hedges of net investments in foreign operations, the differences attributable to the effective portions of hedging items are recognized temporarily under the heading "Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss – Hedging of net investments in foreign operations (effective portion)" in the consolidated balance sheets with a balancing entry under the heading “Hedging derivatives” of the Assets or Liabilities of the consolidated balance sheets as applicable. These differences in valuation are recognized under the heading “Exchange differences, net" in the consolidated income statement when the investment in a foreign operation is disposed of or derecognized (see Note 41).# Loss allowances on financial assets
The “expected losses” impairment model is applied to financial assets valued at amortized cost, to debt instruments valued at fair value with changes in other accumulated comprehensive income, to financial guarantee contracts and other commitments. All financial instruments valued at fair value through profit or loss are excluded from the impairment model.
The standard classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized (Stage 1); the second comprises the financial assets for which a significant increase in credit risk has been identified since its initial recognition (Stage 2) and the third one, the impaired financial assets (Stage 3). The calculation of the provisions for credit risk in each of these three categories must be done differently. In this way, expected loss up to 12 months for the financial assets classified in the first of the aforementioned categories must be recorded, while expected losses estimated for the remaining life of the financial assets classified in the other two categories must be recorded. Thus, IFRS 9 differentiates between the following concepts of expected loss:
Both, the modeling for expected losses estimates and the factors affecting such losses forecasts require considerable judgment, which must be carried out on a weighted probability basis.
The Group has applied a definition of default for financial instruments that is consistent with that used in internal credit risk management, and coherent with the definition applied by the Group within the prudential context. The Group has considered the existence of default when one of the following situations occurs:
In accordance with IFRS 9, the 90-day past-due stipulation may be waived in cases where the entity considers it appropriate, based on reasonable and documented information that it is appropriate to use a longer term. As of December 31, 2020, the Group has not considered periods higher than 90 days for any significant portfolio. These criteria are aligned in all the geographies where the Group operates, being only minor differences kept in order to facilitate management adoption al a national level. In this sense, national criteria are permitted, within the Group standards and searching for consistency and coherence between the geographies, easing the adoption of the default definition management.
An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events:
It may not be possible to identify a single discrete event. Instead, the combined effect of several events may cause financial assets to become credit-impaired.
P.24 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The definition of impaired financial assets in the Group is aligned with the definition of default explained in the above paragraphs. Credit risk management for wholesale counterparties is carried out at the customer (or group) level. For this reason, the classification of any of a client's exposures as impaired, whether due to more than 90 days of default or due to any of the subjective criteria, implies the classification as impaired of all the client's exposures. There may be some justified exception that, in any case, are not significant. Regarding retail clients, which are managed at the operation level, the scoring systems review their score, among other reasons, in the event of a breach in any of their transactions which also triggers the necessary recovery actions. These include refinancing measures that, where appropriate, may lead to all customer transactions being considered impaired. Furthermore, given the granularity of the retail portfolios, the differential behavior of these clients in relation to their products and collateral provided, as well as the time necessary to find the best solution, the Group has established as an indicator that when a transaction of a retail client has default in excess of 90 days and this represents more than 20% of the client's total balance, all its transactions are considered impaired, this without prejudice to the fact that lower limits have been established due to management practices in some geography.
The objective of the impairment requirements is to recognize lifetime expected credit losses for financial instruments for which there have been significant increases in credit risk since initial recognition considering all reasonable and supportable information, including that which is forward-looking.
The model developed by the Group for assessing the significant increase in credit risk has a two-prong approach that is applied globally (for more detail on the methodology used, see Note 7.2.1):
Although the standard introduces a series of operational simplifications, also known as practical solutions, for analyzing the increase in significant risk, the Group does not use them as a general rule. However, for high-quality assets, mainly related to certain government institutions and bodies, the standard allows for considering that their credit risk has not increased significantly because they have a low credit risk at the presentation date. This possibility is limited to those financial instruments that are classified as having high credit quality and high liquidity to comply with the liquidity coverage ratio (“LCR”). This does not prevent these assets from being assigned the credit risk coverage that corresponds to their classification as Stage 1 based on their credit rating and macroeconomic expectations.
The classification of financial instruments subject to impairment under IFRS 9 is as follows:
In accordance with IFRS 9, the measurement of expected losses must reflect:
Expected losses are measured both individually and collectively
The individualized estimate of credit losses results from calculating the difference between the expected cash flows discounted at the effective interest rate of the transaction and the carrying amount of the instrument (See Note 7.2.1).
For the collective measurement of expected losses the instruments are classified into groups of assets based on their risk characteristics. Exposure within each group is segmented according to credit risk common characteristics, which indicate the payment capacity of the borrower according to the contractual conditions. These risk characteristics have to be relevant in estimating the future flows of each group. The characteristics of credit risk may consider, among others, the following factors (see Note 7):
The estimated losses are derived from the following parameters:
At the BBVA Group, the calculated expected credit losses are based on internal models developed for all portfolios within the IFRS 9 scope, except for the cases that are subject to individual analysis. The calculation and recognition of expected losses includes exposures with governments and credit institutions, for which, despite having a reduced number of defaults in the information databases, internal models have been developed, considering, as sources of information, the data provided by external rating agencies or other observed in the market, such as changes in bond yields, prices of credit default swaps or any other public information on them.
IFRS 9 requires incorporation of present, past and future information to detect any significant increase in risk and measure expected loss. The standard does not require identification of all possible scenarios for measuring expected loss. However, the probability of a loss event occurring and the probability it will not occur have to be considered, even though the possibility of a loss may be very low. To achieve this, the Group generally evaluates the linear relationship between its estimated loss parameters (PD, GDP, EAD) with the historical and future forecasts of the macroeconomic scenarios. Additionally, when there is no linear relation between the different future economic scenarios and their associated expected losses, more than one future economic scenario must be used for the measurement.
The approach used by the Group consists of using a methodology based on the use of three scenarios. The first is the most probable scenario (base scenario) that is consistent with that used in the Group's internal management processes, and two additional ones, one P.26
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
more positive and the other more negative. The combined outcome of these three scenarios is calculated considering the weight given to each of them. The main macroeconomic variables that are valued in each of the scenarios for each of the geographies in which the Group operates are the Gross Domestic Product (GDP), the real estate price index, interest rates and the unemployment rate, although, in the first place, the main goal is seeking the greatest predictive capacity with respect to the former two (see Note 7.2.1).
The accounting treatment of transfers of financial assets is determined by the form in which risks and benefits associated with the financial assets involved are transferred to third parties. Thus the financial assets are only derecognized from the consolidated balance sheet when the cash flows that they generate are extinguished, when their implicit risks and benefits have been substantially transferred to third parties or when the control of financial asset is transferred even in case of no physical transfer or substantial retention of such assets. In the latter case, the financial asset transferred is derecognized from the consolidated balance sheet, and any right or obligation retained or created as a result of the transfer is simultaneously recognized.
Similarly, financial liabilities are derecognized from the consolidated balance sheet only if their obligations are extinguished or acquired (with a view to subsequent cancellation or renewed placement).
The Group is considered to have transferred substantially all the risks and benefits if such risks and benefits account for the majority of the risks and benefits involved in ownership of the transferred financial assets.
If substantially all the risks and benefits associated with the transferred financial asset are retained:
The securitizations to which the Group entities transfer their credit portfolios are consolidated entities of the Group. For more information, refer to Note 2.1 “Principles of consolidation”.
The Group considers that the risks and benefits of the securitizations are substantially retained if the subordinated bonds are held and/or if subordination funding has been granted to those securitization funds, which means that the credit loss risk of the securitized assets will be assumed. Consequently, the Group is not derecognizing those transferred loan portfolios.
On the other hand, the Group has carried out synthetic securitizations, which are transactions where risk is transferred through derivatives or financial guarantees and in which the exposure of these securitizations remains in the balance sheet of the Group. The Group has established the synthetic securitizations through received financial guarantees. As for the commissions paid, they are accrued during the term of the financial guarantee.
Financial guarantees are considered to be those contracts that require their issuer to make specific payments to reimburse the holder of the financial guarantee for a loss incurred when a specific borrower breaches its payment obligations on the terms – whether original or subsequently modified – of a debt instrument, irrespective of the legal form it may take. Financial guarantees may take the form of a deposit, bank guarantee, insurance contract or credit derivative, among others.
In their initial recognition, financial guarantees are recognized as liabilities in the consolidated balance sheet at fair value, which is generally the present value of the fees, commissions and interest receivable from these contracts over the term thereof, and the Group simultaneously recognizes a corresponding asset in the consolidated balance sheet for the amount of the fees and commissions received at the inception of the transactions and the amounts receivable at the present value of the fees, commissions and interest outstanding.
Financial guarantees, irrespective of the guarantor, instrumentation or other circumstances, are reviewed periodically so as to determine the credit risk to which they are exposed and, if appropriate, to consider whether a provision is required for them. The credit risk is determined by application of criteria similar to those established for quantifying loss allowances on debt instruments measured at amortized cost (see Note 2.2.1).## 2.2.4 Non-current assets and disposal groups classified as held for sale and liabilities included in disposal groups classified as held for sale
The heading “Non-current assets and disposal groups classified as held for sale” in the consolidated balance sheet includes the carrying amount of individual items or items integrated in a group ("disposal group") or that form part of a significant business line or geographic area that it is intended to be disposed of (“discontinued operation”) whose sale is highly probable that it will take place under the conditions in which such assets are currently located within a period of one year from the date to which the financial statements refer. Additionally, assets that were expected to be disposed of within a year but which disposal is delayed and is caused by events and circumstances beyond the control of the Group can be classified as held for sale (see Note 21). Symmetrically, the heading “Liabilities included in disposal groups classified as held for sale” in the consolidated balance sheet reflects the balances payable arising from disposal groups and discontinued operations.
The heading "Non-current assets and disposal groups as held for sale" includes the assets received by the subsidiaries for the satisfaction, in whole or in part, of the payment obligations of their debtors (foreclosed or received in payment of debt or recoveries from financial leasing transactions, unless the Group has decided to make continued use of those assets). The BBVA Group has specific units focused on real estate management and sale of these types of assets.
Non-current assets and disposal groups classified as held for sale are measured, at the acquisition date and at any later date deemed necessary, at either their carrying amount or the fair value of the property (less costs to sell), whichever is lower. An impairment or reversal of impairment for the difference is recognized if applicable. When the amount of the sale less estimated costs of sale is higher than the carrying value, the gain is not recognized until the moment of disposal and derecognition from the balance sheet.
Non-current assets and disposal groups held for sale groups classified as held for sale are not depreciated while included under the heading “Non-current assets and disposal groups classified as held for sale”.
In the case of real estate assets foreclosed or received in payment of debts, they are initially recognized at the lower of: the restated carrying amount of the financial asset and the fair value at the time of the foreclosure or receipt of the asset less estimated sales costs. The carrying amount of the financial asset is updated at the time of the foreclosure, treating the real property received as a secured collateral and taking into account the credit risk coverage that would correspond to it according to its classification prior to the delivery. For these purposes, the collateral will be valued at its current fair value (less sale costs) at the time of foreclosure. This carrying amount will be compared with the previous carrying amount and the difference will be recognized as a provision increase, if applicable.
On the other hand, the fair value of the foreclosed assets is based mainly on appraisals or valuations carried out by independent experts on an annual basis or more frequently if there are indications of impairment by appraisal, evaluating the need to apply a discount on the asset derived from the specific conditions of the asset or the market situation for these assets and in any case, deducting the company’s estimated sale costs.
Gains and losses generated on the disposal of assets and liabilities classified as non-current held for sale, and liabilities included in disposal groups classified as held for sale as well as impairment losses and, where pertinent, the related recoveries, are recognized in “Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations” in the consolidated income statement (see Note 50). The remaining income and expense items associated with these assets and liabilities are classified within the relevant consolidated income statement headings.
Income and expense for discontinued operations, whatever their nature, generated during the year, even if they have occurred before their classification as discontinued operations, are presented net of the tax effect as a single amount under the heading “Profit (loss) after tax from discontinued operations” in the consolidated income statement (see Note 1.3 and 21). This heading includes the earnings from their sale or other disposal (net of tax effects).
This heading includes the assets under ownership or acquired under lease terms (right to use), intended for future or current use by the BBVA Group and that it expects to hold for more than one year. It also includes tangible assets received by the consolidated entities in full or partial settlement of financial assets representing receivables from third parties which are expected to be held for continuing use. For more information regarding the accounting treatment of right to use assets under lease terms, see Note 2.2.18 "Leases".
Property, plant and equipment for own use are presented in the consolidated balance sheets at acquisition cost, less any accumulated depreciation and, where appropriate, any estimated impairment losses resulting from comparing the net carrying amount of each item with its corresponding recoverable amount (see Note 17). Depreciation is calculated using the straight-line method, during the useful life of the asset, on the basis of the acquisition cost of the assets less their residual value; the land is considered to have an indefinite life and is therefore not depreciated.
The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45) and are based on the application of the following depreciation rates (determined on the basis of the average years of estimated useful life of the various assets):
| Type of assets | Annual Percentage |
|---|---|
| Buildings for own use | 1% - 4% |
| Furniture | 8% - 10% |
| Fixtures | 6% - 12% |
| Office supplies and hardware | 8% - 25% |
| Lease use rights | The lesser of the lease term or the useful life of the underlying asset |
At each reporting date, the Group entities analyze whether there are internal or external indicators that a tangible asset may be impaired. When there is evidence of impairment, the Group analyzes whether this impairment actually exists by comparing the asset’s net carrying amount with its recoverable amount (defined as the higher between its recoverable amount less disposal costs and its value in use). When the carrying amount exceeds the recoverable amount, the carrying amount is written down to the recoverable amount and depreciation charges going forward are adjusted to reflect the asset’s remaining useful life.
Similarly, if there is any indication that the value of a previously impaired tangible asset is now recoverable, the consolidated entities will estimate the recoverable amounts of the asset and recognize it in the consolidated income statement, recording the reversal of the impairment loss recognized in previous years and thus adjusting future depreciation charges. Under no circumstances may the reversal of an impairment loss on an asset raise its carrying amount above that which it would have if no impairment losses had been recognized in prior years.
In the BBVA Group, most of the buildings held for own use are assigned to the different Cash-Generating-Units (CGU) to which they belong. The corresponding impairment analyses are performed for these CGUs to check whether sufficient cash flows are generated to support the value of the assets comprised within.
Operating and maintenance expense relating to tangible assets held for own use are recognized as an expense in the year they are incurred and recognized in the consolidated income statements under the heading "Administration costs - Other administrative expense - Property, fixtures and materials" (see Note 44.2).# Other assets leased out under an operating lease
The criteria used to recognize the acquisition cost of assets leased out under operating leases, to calculate their depreciation and their respective estimated useful lives and to recognize the impairment losses on them, are the same as those described in relation to tangible assets for own use.
The heading “Tangible assets - Investment properties” in the consolidated balance sheets reflects the net values (purchase cost minus the corresponding accumulated depreciation and, if appropriate, estimated impairment losses) of the land, buildings and other structures that are held either to earn rentals or for capital appreciation through sale and that are neither expected to be sold off in the ordinary course of business nor are destined for own use (see Note 17). The criteria used to recognize the acquisition cost of investment properties, calculate their depreciation and their respective estimated useful lives and recognize the impairment losses on them, are the same as those described in relation to tangible assets held for own use. The BBVA Group determines periodically the fair value of its investment properties in such a way that, at the end of the financial year, the fair value reflects the market conditions of investment property assets’ market at such date. This fair value will be determined taking as references the valuations performed by independent experts.
A business combination is a transaction, or any other deal, by which the Group obtains control of one or more businesses. It is accounted for by applying the “acquisition method”. According to this method, the acquirer has to recognize the assets acquired and the liabilities and contingent liabilities assumed, including those that the acquired entity had not recognized in the accounts. The method involves the measurement of the consideration received for the business combination and its allocation to the assets, liabilities and contingent liabilities measured according to their fair value, at the purchase date, as well as the recognition of any non-controlling participation (minority interests) that may arise from the transaction.
In a business combination achieved in stages, the acquirer shall measure its previously held equity interest in the acquiree at its acquisition-date fair value and recognize the resulting gain or loss, if any, in profit or loss under the heading “Gains (losses) on derecognition of non-financial assets and subsidiaries, net” of the consolidated income statements. In prior reporting periods, the acquirer may have recognized changes in the value of its equity interest in the acquiree in other comprehensive income. If so, the amount that was recognized in other comprehensive income shall be recognized on the same basis as would be required if the acquirer had disposed directly of the previously held equity interest.
In addition, the acquirer shall recognize an asset in the consolidated balance sheet under the heading “Intangible asset - Goodwill” if on the acquisition date there is a positive difference between:
* the sum of the consideration transferred, the amount of all the non-controlling interests and the fair value of stock previously held in the acquired business; and
* the net fair value of the assets acquired and liabilities assumed.
If this difference is negative, it shall be recognized directly in the income statement under the heading “Negative goodwill recognized in profit or loss”.
Non-controlling interests in the acquired entity may be measured in two ways: either at their fair value; or at the proportional percentage of net assets identified in the acquired entity. The method of valuing non-controlling interest may be elected in each business combination. BBVA Group has always elected for the second method.
Goodwill represents a portion of consideration transferred in advance by the acquiring entity for the future economic benefits from assets that cannot be individually identified and separately recognized. Goodwill is never amortized. It is subject periodically to an impairment analysis, and is written off if there has been impairment (see Note 18).
Goodwill is assigned to one or more CGUs that expect to be the beneficiaries of the synergies derived from the business combinations. The CGUs represent the Group’s smallest identifiable asset groups that generate cash flows for the Group and that are largely independent of the flows generated from the Group’s other assets or groups of assets. Each unit or units to which goodwill is allocated:
* Is the lowest level at which the entity manages goodwill internally.
* Is not larger than an operating segment.
The cash generating units to which goodwill has been allocated are tested for impairment (including the allocated goodwill in their carrying amount). This analysis is performed at least annually or more frequently if there is any indication of impairment.
For the purpose of determining the impairment of a cash-generating unit to which a part of goodwill has been allocated, the carrying amount of that cash-generating unit, adjusted by the theoretical amount of the goodwill attributable to the non-controlling interests, in the event they are not valued at fair value, is compared with its recoverable amount. The recoverable amount of a cash-generating unit is equal to the fair value less sale costs or its value in use, whichever is greater. Value in use is calculated as the discounted value of the cash flow projections that the unit’s management estimates and is based on the latest budgets approved for the coming years. The main assumptions used in its calculation are: a growth rate to extrapolate the cash flows indefinitely, and the discount rate used to discount the cash flows, which is equal to the cost of the capital assigned to each cash-generating unit, and equivalent to the sum of the risk-free rate plus a risk premium inherent to the cash-generating unit being evaluated for impairment.
If the carrying amount of the cash-generating unit exceeds the related recoverable amount, the Group recognizes an impairment loss; the resulting loss is apportioned by reducing, first, the carrying amount of the goodwill allocated to that unit and, second, if there are still impairment losses remaining to be recognized, the carrying amount of the remainder of the assets. This is done by allocating the remaining loss in proportion to the carrying amount of each of the assets in the unit. In the event the non-controlling interests are measured at fair value, the deterioration of goodwill attributable to non-controlling interests will be recognized. In any case, an impairment loss recognized for goodwill shall not be reversed in a subsequent period. Goodwill impairment losses are recognized under the heading "Impairment or reversal of impairment on non-financial assets – Intangible assets” (see Note 49).
These assets may have an indefinite useful life if, based on an analysis of all relevant factors, it is concluded that there is no foreseeable limit to the period over which the asset is expected to generate net cash flows for the consolidated entities. In all other cases they have a finite useful life (see Note 18).
Intangible assets with a finite useful life are amortized according to the duration of this useful life, using methods similar to those used to depreciate tangible assets. The defined useful life intangible asset is made up mainly of IT applications acquisition costs which have a useful life of 3 to 5 years. The amortization charge of these assets is recognized in the accompanying consolidated income statements under the heading "Depreciation and amortization" (see Note 45). The consolidated entities recognize any impairment losses on the carrying amount of these assets with charge to the heading “Impairment or reversal of impairment on non-financial assets- Intangible assets” in the accompanying consolidated income statements (see Note 49).
The criteria used to recognize the impairment losses on these assets and, where applicable, the recovery of impairment losses recognized in prior years, are similar to those used for tangible assets.
The assets and liabilities of the BBVA Group’s insurance subsidiaries are recognized according to their nature under the corresponding headings of the consolidated balance sheets, and the initial recognition and valuation is carried out according to the criteria set out in IFRS 4.
The heading “Insurance and reinsurance assets” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance subsidiaries are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the reinsurer´s share of the technical provisions recognized by the consolidated insurance subsidiaries.
The heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets includes the technical provisions for direct insurance and inward reinsurance recognized by the consolidated insurance subsidiaries to cover claims arising from insurance contracts open at period-end (see Note 23).# BBVA GROUP
The income or expense reported by the BBVA Group’s consolidated insurance subsidiaries on their insurance activities is recognized, in accordance with their nature, in the corresponding items of the consolidated income statements. The consolidated insurance entities of the BBVA Group recognize the amounts of the premiums written and a charge for the estimated cost of the claims that will be incurred at their final settlement to their consolidated income statements. At the close of each year the amounts collected and unearned, as well as the costs incurred and unpaid, are accrued. The most significant provisions recorded by consolidated insurance entities with respect to insurance policies issued by them are set out by their nature in Note 23.
According to the type of product, the provisions may be as follows:
Represents the value of the net obligations undertaken with the life insurance policyholder. These provisions include:
This reflects the total amount of the outstanding obligations arising from claims incurred prior to year-end. Insurance subsidiaries calculate this provision as the difference between the total estimated or certain cost of the claims not yet reported, settled or paid, and the total amounts already paid in relation to these claims.
This provision includes the amount of the bonuses accruing to policyholders, insurees or beneficiaries and the premiums to be returned to policyholders or insurees, as the case may be, based on the behavior of the risk insured, to the extent that such amounts have not been individually assigned to each of them.
Calculated by applying the criteria indicated above for direct insurance, taking account of the assignment conditions established in the open reinsurance contracts.
Insurance entities have recognized provisions to cover the probable mismatches in the market reinvestment interest rates with respect to those used in the valuation of the technical provisions.
P.31 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The BBVA Group controls and monitors the exposure of the insurance subsidiaries to financial risk and, to this end, uses internal methods and tools that enable it to measure credit risk and market risk and to establish the limits for these risks.
Expenses on corporate income tax applicable to the BBVA Group’s Spanish entities and on similar income taxes applicable to consolidated foreign entities are recognized in the consolidated income statement, except when they result from transactions on which the profits or losses are recognized directly in equity, in which case the related tax effect is also recognized in equity. The total corporate income tax expense is calculated by aggregating the current tax arising from the application of the corresponding tax rate as per the tax base for the year (after deducting the tax credits or discounts allowable for tax purposes) and the change in deferred tax assets and liabilities recognized in the consolidated income statement. Deferred tax assets and liabilities include temporary differences, defined as the amounts to be payable or recoverable in future years arising from the differences between the carrying amount of assets and liabilities and their tax bases (the “tax value”), and tax loss and tax credit or discount carry forwards. These amounts are calculated by applying to each temporary difference the tax rates that are expected to apply when the asset is realized or the liability settled (see Note 19).
The "Tax Assets" line item in the accompanying consolidated balance sheets includes the amount of all the assets of a tax nature, broken down into: "Current” (amounts of tax recoverable in the next twelve months) and "Deferred" (which includes the amount of tax to be recovered in future years, including those arising from tax losses or credits for deductions or rebates that can be compensated).
The "Tax Liabilities" line item in the accompanying consolidated balance sheets includes the amount of all the liabilities of a tax nature, except for provisions for taxes, broken down into: "Current” (income tax payable on taxable profit for the year and other taxes payable in the next twelve months) and "Deferred" (the amount of corporate tax payable in subsequent years).
Deferred tax liabilities attributable to taxable temporary differences associated with investments in subsidiaries, associates or joint venture entities are recognized as such, except where the Group can control the timing of the reversal of the temporary difference and it is unlikely that it will reverse in the future. Deferred tax assets are recognized to the extent that it is probable that the consolidated entities will generate enough taxable profits to make deferred tax assets effective and do not correspond to those from initial recognition (except in the case of business combinations), which also does not affect the fiscal outcome. The deferred tax assets and liabilities recognized are reassessed by the consolidated entities at each balance sheet date in order to ascertain whether they still qualify as deferred tax assets and liabilities, and the appropriate adjustments are made on the basis of the findings of the analyses performed.
In those circumstances in which it is unclear how a specific requirement of the tax law applies to a particular transaction or circumstance, and the acceptability of the definitive tax treatment depends on the decisions taken by the relevant taxation authority in future, the entity recognizes current and deferred tax liabilities and assets considering whether it is probable or not that a taxation authority will accept an uncertain tax treatment. Thus, if the entity concludes that it is not probable that the taxation authority will accept an uncertain tax treatment, the entity uses the amount expected to be paid to (recovered from) the taxation authorities. The income and expense directly recognized in consolidated equity that do not increase or decrease taxable income are accounted for as temporary differences.
The heading “Provisions” in the consolidated balance sheets includes amounts recognized to cover the BBVA Group’s current obligations arising as a result of past events. These are certain in terms of nature but uncertain in terms of amount and/or settlement date. The settlement of these obligations is deemed likely to entail an outflow of resources embodying economic benefits (see Note 24). The obligations may arise in connection with legal or contractual provisions, valid expectations formed by Group entities relative to third parties in relation to the assumption of certain responsibilities or through virtually certain developments of particular aspects of the regulations applicable to the operation of the entities; and, specifically, future legislation to which the Group will certainly be subject.
The provisions are recognized in the consolidated balance sheets when each and every one of the following requirements is met:
Among other items, these provisions include the commitments made to employees by some of the Group entities mentioned in Note 2.2.11, as well as provisions for tax and legal litigation.
Contingent assets are possible assets that arise from past events and whose existence is conditional on, and will be confirmed only by, the occurrence or non-occurrence of events beyond the control of the Group. Contingent assets are not recognized in the consolidated balance sheet or in the consolidated income statement; however, they will be disclosed, should they exist, in the Notes to the Consolidated Financial Statements, provided that it is probable will give rise to an increase in resources embodying economic benefits.
Contingent liabilities are possible obligations of the Group that arise from past events and whose existence is conditional on the occurrence or non-occurrence of one or more future events beyond the control of the Group.# P.32 Translation of the Consolidated Financial Statements
originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. when it is not probable that an outflow of resources embodying economic benefits will be required to settle them; or when, in extremely rare cases, their amount cannot be measured with sufficient reliability. Contingent liabilities are not recognized in the consolidated balance sheet or the income statement (excluding contingent liabilities from businesses combinations) but are disclosed in the Notes to the Consolidated Financial Statements, unless the possibility of an outflow of resources embodying economic benefits is remote.
Below we provide a description of the most significant accounting policies relating to post-employment and other employee benefit commitments assumed by BBVA Group entities (see Note 25).
Benefits for current active employees which are accrued and settled during the year and for which a provision is not required in the entity´s accounts. These include wages and salaries, social security charges and other personnel expense. Costs are charged and recognized under the heading “Administration costs – Personnel expense – Other personnel expense” of the consolidated income statement (see Note 44.1).
The Group sponsors defined-contribution plans for the majority of its active employees. The amount of these benefits is established as a percentage of remuneration and/or as a fixed amount. The contributions made to these plans in each year by BBVA Group entities are charged and recognized under the heading “Administration costs – Personnel expense– Defined-contribution plan expense” of the consolidated income statement (see Note 44.1).
Some Group entities maintain pension commitments with employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. These commitments are covered by insurance contracts, pension funds and internal provisions. In addition, some of the Spanish entities have offered certain employees the option to retire before their normal retirement age, recognizing the necessary provisions to cover the costs of the associated benefit commitments, which include both the liability for the benefit payments due as well as the contributions payable to external pension funds during the early retirement period. Furthermore, certain Group entities provide welfare and medical benefits which extend beyond the date of retirement of the employees entitled to the benefits. All of these commitments are quantified based on actuarial valuations, with the amounts recorded under the heading “Provisions – Provisions for pensions and similar obligations” in the consolidated balance sheet and determined as the difference between the value of the defined-benefit commitments and the fair value of plan assets at the date of the Consolidated Financial Statements (see Note 25). Current service cost is charged and recognized under the heading “Administration costs – Personnel expense – Defined-benefit plan expense” of the consolidated income statement (see Note 44.1). Interest credits/charges relating to these commitments are charged and recognized in net terms under the headings “Interest and other income” or, where appropriated, “Interest expense” of the consolidated income statement (see Note 37). Past service costs arising from benefit plan changes as well as early retirements granted during the year are recognized under the heading “Provisions or reversals of provisions” of the consolidated income statement (see Note 46).
In addition to the above commitments, certain Group entities provide long-term service awards to their employees, consisting of monetary amounts or periods of vacation granted upon completion of a number of years of qualifying service. These commitments are quantified based on actuarial valuations and the amounts recorded under the heading “Provisions – Other long- term employee benefits” of the consolidated balance sheet (see Note 24).
The present value of these commitments is determined based on individual member data. Active employee costs are determined using the “projected unit credit” method, which treats each period of service as giving rise to an additional unit of benefit and values each unit separately.
originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In establishing the actuarial assumptions we take into account that:
The BBVA Group recognizes actuarial gains (losses) relating to early retirement benefits, long service awards and other similar items under the heading “Provisions or reversal of provisions” of the consolidated income statement for the period in which they arise (see Note 46). Actuarial gains (losses) relating to pension and medical benefits are directly charged and recognized under the heading "Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss – Actuarial gains (losses) on defined benefit pension plans" of equity in the consolidated balance sheet (see Note 30).
Equity –settled share-based payment transactions, provided they constitute the delivery of such equity instruments once completion of a specific period of services has occurred, are recognized as an expense for services being provided by employees, by way of a balancing entry under the heading “Shareholders’ funds – Other equity instruments” in the consolidated balance sheet. These services are measured at fair value for the employees services received, unless such fair value cannot be calculated reliably. In such case, they are measured by reference to the fair value of the equity instruments granted, taking into account the date on which the commitments were granted and the terms and other conditions included in the commitments. When the initial compensation agreement includes what may be considered market conditio ns among its terms, any changes in these conditions will not be reflected in the consolidated income statement, as these have already been accounted for in calculating the initial fair value of the equity instruments. Non-market vesting conditions are not taken into account when estimating the initial fair value of equity instruments, but they are taken into account when determining the number of equity instruments to be issued. This will be recognized on the consolidated income statement with the corresponding increase in total consolidated equity.
Termination benefits are recognized in the financial statements when the BBVA Group agrees to terminate employment contracts with its employees and has established a detailed plan.
The value of common stock issued by the BBVA Group’s entities and held by them - basically, shares and derivatives on the Bank’s shares held by some consolidated entities that comply with the requirements to be recognized as equity instruments - are recognized as a decrease to net equity, under the heading "Shareholders’ funds - Treasury stock" in the consolidated balance sheets (see Note 29). These financial assets are recognized at acquisition cost, and the gains or losses arising on their disposal are credited or debited, as appropriate, to the heading “Shareholders’ funds - Retained earnings” in the consolidated balance sheets (see Note 28).
The BBVA Group’s functional currency, and thus the currency in which the Consolidated Financial Statements are presented, is the euro. As such, all balances and transactions denominated in currencies other than the euro are deemed to be denominated in “foreign currency”. Conversion to euros of the balances held in foreign currency is performed in two consecutive stages:
Transactions denominated in foreign currencies carried out by the consolidated entities (or entities accounted for using the equity method) are initially accounted for in their respective currencies. Subsequently, the monetary balances in foreign currencies are converted to their respective functional currencies using the exchange rate at the close of the financial year.# In addition, Non-monetary items valued at their historical cost are converted to the functional currency at the exchange rate applicable on the purchase date. Non-monetary items valued at their fair value are converted at the exchange rate in force on the date on which such fair value was determined. P.34 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. Monetary items are converted to the functional currency at the closing exchange rate. Income and expense are converted at the period’s average exchange rates for all the operations carried out during the year. When applying this criterion the BBVA Group considers whether significant variations have taken place in exchange rates during the year which, owing to their impact on the statements as a whole, may require the application of exchange rates as of the date of the transaction instead of such average exchange rates. The exchange differences produced when converting the balances in foreign currency to the functional currency of the consolidated entities are generally recognized under the heading "Exchange differences, net" in the consolidated income statements (see Note 41). However, the exchange differences in non-monetary items measured at fair value are recorded to equity under the heading “ Accumulated other comprehensive income (loss) - Items that will not be reclassified to profit or loss - Fair value changes of equity instruments measured at fair value through other comprehensive income” in the consolidated balance sheets (see Note 30).
The balances in the financial statements of consolidated entities whose functional currency is not the euro are converted to euros as follows:
The exchange differences arising from the conversion to euros of balances in the functional currencies of the consolidated entities whose functional currency is not the euro are recognized under the heading “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss - Foreign currency translation” in the consolidated balance sheets (Notes 30 and 31 respectively). Meanwhile, the differences arising from the conversion to euros of the financial statements of entities accounted for by the equity method are recognized under the heading “Accumulated other comprehensive income (loss) - Items that may be reclassified to profit or loss - of other recognized income and expense of investments in joint ventures and associates" (Note 30) until the item to which they relate is derecognized, at which time they are recognized in the income statement.
The financial statements of companies of hyperinflationary economies are restated for the effects of changes in prices before their conversion to euros following the provisions of IAS 29 "Financial information in hyperinflationary economies" (see Note 2.2.19). Both these adjustments for inflation and the exchange differences that arise when converting the financial statements of companies into hyperinflationary economies are accounted for in “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss - Foreign currency translation”.
The breakdown of the main consolidated balances in foreign currencies, with reference to the most significant foreign currencies, is set forth in Appendix VII.
Local financial statements of the Group subsidiaries in Venezuela are expressed in Venezuelan Bolivar, and converted into euros for the consolidated financial statements. Venezuela is a country with strong exchange restrictions that has different rates officially published, and, since December 31, 2015, the Board of Directors considers that the use of these exchanges rates for converting bolivars into euros in preparing the Consolidated Financial Statements does not reflect the true picture of the financial statements of the Group and the financial position of the Group subsidiaries in this country. Therefore, since the year ended December 31, 2015, the exchange rate for converting bolivars into euros is an estimation taking into account the evolution of the estimated inflation in Venezuela. As of December 31, 2020, 2019 and 2018, the impact on the financial statements that would have resulted by applying the last published official exchange rate instead of the exchange rate estimated by BBVA Group was not significant (see Note 2.2.19).
The most significant policies used by the BBVA Group to recognize its income and expense are as follows.
As a general rule, interest income and expense and similar items are recognized on the basis of their period of accrual using the effective interest rate method. They shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates the income or expense:
The financial fees and commissions that arise on the arrangement of loans and advances (basically origination and analysis fees) are deferred and recognized in the income statement over the expected life of the loan. From that amount, the transaction costs P.35 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. identified as directly attributable to the arrangement of the loans and advances will be deducted. These fees are part of the effective interest rate for the loans and advances.
Once a debt instrument has been impaired, interest income is recognized applying the effective interest rate used to discount the estimated recoverable cash flows on the carrying amount of the asset.
Dividends shall be recognized within the consolidated income statement according to the following criteria, independently from the financial instruments’ portfolio which generates this income:
Income and expense relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to the nature of such items. The most significant items in this connection are:
These are recognized for accounting purposes on an accrual basis.
These are recognized for accounting purposes at the amount resulting from discounting the expected cash flows at market rates.
The heading “Other operating income” in the consolidated income statements includes the proceeds of the sales of assets and income from the services provided by the Group entities that are not financial institutions. In the case of the Group, these entities are mainly real estate and service entities (see Note 42).
Effective January 1, 2019, IFRS 16 replaced IAS 17 “Leases”. The single lessee accounting model requires the lessee to record assets and liabilities for all lease contracts. The standard provides two exceptions to the recognition of lease assets and liabilities that can be applied in the case of short-term contracts and those in which the underlying assets have low value. BBVA elected to apply both exceptions.# A lessee is required to recognize a right-of-use asset representing its right to use the underlying leased asset, which is recorded under the headings ‘‘Tangible assets – Property plants and equipment’’ and ‘‘Tangible assets – Investment properties’’ of the consolidated balance sheet (see Note 17) and a lease liability representing its obligation to make lease payments which is recorded under the heading ‘‘ Financial liabilities at amortized cost – Other financial liabilities’’ in the consolidated balance sheet (see Note 22.5). At the initial date of the lease, the lease liability represents the present value of all lease unpaid payments. The liabilities registered under this heading of the consolidated balance sheets are measured after their initial recognition at amortized cost, this being determined in accordance with the “effective interest rate” method. The right to use assets are initially recorded at cost. This cost consists of the initial measurement of the lease liability, any payment made before the initial date less any lease incentives received, all direct initial expenses incurred, as well as an estimate of the expenses to be incurred by the lessee, such as expenses related to the removal and dismantling of the underlying asset. The right to use assets recorded under this heading of the consolidated balance sheets are measured after their initial recognition at cost less: The accumulated depreciation and accumulated impairment Any remeasurement of the lease liability. P.36 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. The interest expense on the lease liability is recorded in the consolidated income statements under the heading “Interest expense” (see note 37). Variable payments not included in the initial measurement of the lease liability are recorded under the heading “Administration costs – Other administrative expense” (see Note 44). Amortization is calculated using the straight-line method over the lifetime of the lease contract, on the basis of the cost of the assets. The tangible asset depreciation charges are recognized in the accompanying consolidated income statements under the heading "Depreciation and Amortization" (see Note 45). In case of electing one of the exceptions in order not to recognize the corresponding right to use and the liability in the consolidated balance sheets, payments related to the corresponding lease are recognized in the consolidated income statements, over the contract period, lineally, or in the way that best represents the structure of the lease operation, under the heading "Other operating expense” (see Note 42). Operating lease and sublease incomes are recognized in the consolidated income statements under the headings “Other operating income” (see Note 42). As a lessor, lease contracts are classified as finance leases from the inception of the transaction if they substantially transfer all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. Leases other than finance leases are classified as operating leases. When the consolidated entities act as the lessor of an asset under finance leases, the aggregate present values of the lease payments receivable from the lessee plus the guaranteed residual value (normally the exercise price of the lessee’s purchase option on expiration of the lease agreement) are recognized as financing provided to third parties and, therefore, are included under the heading “Loans and advances” in the accompanying consolidated balance sheets (see Note 14). When the consolidated entities act as lessors of an asset in operating leases, the acquisition cost of the leased assets is recognized under "Tangible assets – Property, plant and equipment – Other assets leased out under an operating lease" in the consolidated balance sheets (see Note 17). These assets are depreciated in line with the criteria adopted for items of tangible assets for own use, while the income arising from the lease arrangements is recognized in the consolidated income statements on a straight-line basis within “Other operating income” and "Other operating expense" (see Note 42). If a fair value sale and leaseback results in a lease, the profit or loss generated from the effectively transferred part of the sale is recognized in the consolidated income statement at the time of sale (only for the effectively transmitted part). The assets leased out under operating lease contracts to other entities in the Group are treated in the Consolidated Financial Statements as for own use, and thus rental expense and income is eliminated in consolidation and the corresponding depreciation is recognized.
In accordance with the EU-IFRS criteria, to determine whether an economy has a high inflation rate the country's economic situation is examined, analyzing whether certain circumstances are fulfilled, such as whether the population prefers to keep its wealth or savings in non-monetary assets or in a relatively stable foreign currency, whether prices can be set in that currency, whether interest rates, wages and prices are pegged to a price index or whether the accumulated inflation rate over three years reaches or exceeds 100%. The fact that any of these circumstances is fulfilled will not be a decisive factor in considering an economy hyperinflationary, but it does provide some reasons to consider it as such.
Since 2018, the economy of Argentina has been considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Argentina have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “Financial reporting in hyperinflationary economies“. During 2020, 2019 and 2018, the increase in the reserves of Group entities located in Argentina der ived from the re-expression for hyperinflation (IAS 29) amounts to €343, €470 and €703 million, respectively, of which €228, €313 and €463 million, respectively, have been recorded within “Equity – Accumulated other comprehensive income /(loss)” and €115, €157 and €240 million, respectively, within “Minority interests – Accumulated other comprehensive income/(loss)”. Furthermore, during 2020, 2019 and 2018 the decrease in the reserves of Group entities located in Argentina derived from the conversion (IAS 21) amounted to €482, €460 and €773 million, respectively, of which €320, €305 and €515 million, respectively, have been recorded within “Equity – Accumulated other comprehensive income/(loss)”, and €162, €155 and €258 million, respectively, within “Minority interests – Accumulated other comprehensive income/(loss)”. The net impact of both effects is presented under the caption “Other increases or (-) decreases in equity” in the consolidated statement of changes in equity for the years ended December 31, 2020, 2019 and 2018. The net loss in the profit attributable to the parent company of the Group in 2020, 2019 and 2018 derived from the application of IAS 29 amounted to €148, €190 and €209 million, respectively. In addition, there is a net loss in the profit attributable to the parent company of the Group in 2020, 2019 and 2018 derived from the application of IAS 21 which amounted to €26, €34 and €57 million, respectively. P.37 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the General Price Index (“GPI”) and the inflation index used as of December 31, 2020 for the inflation of the financial statements of the Group companies located in Argentina is as follows:
| 2020 | |
|---|---|
| General Price Index | 387 |
| Average GPI | 331 |
| Inflation of the period | 36.5% |
Since 2009, the economy of Venezuela has been considered hyperinflationary under the above criteria. As a result, the financial statements of the BBVA Group’s entities located in Venezuela have therefore been adjusted to correct for the effects of inflation in accordance with IAS 29 “Financial reporting in hyperinflationary economies“. The losses recognized under the heading “Profit attributable to the parent company” in the accompanying consolidated income statement as a result of the adjustment for inflation on net monetary position of the Group entities in Venezuela amounted to €5, €8 and €12 million in 2020, 2019 and 2018, respectively (see Note 2.2.15).
The following amendments to the IFRS standards or their interpretations (hereinafter “IFRIC”) became effective in 2020.
The amendments clarify the definition of “material” in the preparation of the financial statements by aligning the definition of the Conceptual Framework, IAS 1 and IAS 8 (which, before such amendment, contained similar but not identical definitions). The new definition of material is as follows: “information is material if its omission, misrepresentation or obscuration can reasonably be expected to influence the decisions made by the primary users of a specific entity’s general purpose financial statements, based on those financial statements.” The implementation of this standard has had no significant impact on the Group´s consolidated financial statements.
The amendment clarifies the difference between “acquiring a business” or “acquiring a group of assets” for accounting purposes.To determine whether a transaction is the acquisition of a business, an entity has to evaluate and conclude that the following two conditions are met: The fair value of the assets acquired is not in a single asset or group of similar assets. The set of acquired activities and assets includes, as a minimum, an input and a substantive process that together contribute to the ability to create products. The implementation of this standard has had no significant impact on the Group´s consolidated financial statements.
The IBOR Reform (Phase 1) refers to the amendments issued by the IASB on IFRS 9, IAS 39 and IFRS 7 to avoid that some accounting hedges have to be discontinued in the period before the reform of the reference rates becomes effective. BBVA Group applies IAS 39 for hedge accounting, and therefore the amendments to IFRS 9 referred to in this section do not apply.
In some cases, and/or jurisdictions, there may exist uncertainty about the future of some reference rates or their impact on the entity’s contracts, which directly causes uncertainty about the timing or amounts of cash flows of the hedged instrument or the hedging instrument. Due to such uncertainties, some entities may be forced to discontinue an accounting hedge, or not be able to designate new hedging relationships.
Consequently, the amendments include several temporary simplifications of the requirements for the application of hedge accounting which apply to all hedging relationships that are affected by the uncertainty arising from the Reform. A hedging relationship is affected by the reform if it generates uncertainty about the timing or amount of cash flows of the hedged financial instrument or the hedge linked to the specific benchmark. The simplifications refer to the requirements on the highly probable future transaction in cash flow hedges, on prospective and retrospective effectiveness (exemption from compliance with the 80%-125% effectiveness ratio) and on the need to separately identify the risk component.
As the amendments aim is to provide temporary exceptions to the application of certain specific hedge accounting requirements, these exceptions should terminate once the uncertainty is resolved or the hedge ceases to exist.
P.38 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The Group also has cash flow and fair value hedge accounting relationships which are exposed to different IBORS, predominantly EURIBOR, LIBOR in US dollars and to a much lesser degree Sterling LIBOR and other benchmark interest rates. The Group considers that the amendments to IAS 39 and IFRS 7 are applicable when there is uncertainty about future cash flows. The nominal amount of the hedging instruments directly affected by the IBOR reform as of December 31, 2020 is the following:
| Millions of Euros | LIBOR USD | LIBOR GBP | Other - TIIE (*) | TOTAL |
|---|---|---|---|---|
| Cash flow hedges | 9,084 | - | 574 | 9,658 |
| Fair value hedges | 10,608 | 266 | 1,477 | 12,351 |
(*) Equilibrium Interbank Interest Rate used in Mexico.
As of December 31, 2020, the Group considers that, in general, there is no uncertainty regarding EURIBOR as it has been replaced by the hybrid EURIBOR which uses a methodology that meets the standards required by the various international organizations. In the case of accounting hedges which are referenced to other benchmark interest rates, despite the uncertainty, based on the simplifications provided by the standard, the hedging relationships for the annual period that ended on December 31, 2020, will not be affected by the IBOR reform.
On May 28, 2020, the IASB approved an amendment to IFRS 16 to include a practical expedient to the accounting treatment for rent concessions (payment deferrals and temporary rent reductions) that occur due to a direct consequence of COVID-19 (see Note 1.5). The amendment permits lessees to account for rent concessions as if they were not lease modifications to the initial ones. It is applicable to rent concessions related to COVID-19, which reduces lease payments before June 30, 2021. This amendment is effective from June 1, 2020. The implementation of this standard has had no significant impact on the Group´s consolidated financial statements.
The following new International Financial Reporting Standards together with their Interpretations had been published at the date of preparation of the accompanying consolidated financial statements, but are not mandatory as of December 31, 2020. Although in some cases the International Accounting Standards Board (“IASB”) allows early adoption before their effective date, the BBVA Group has not proceeded with this option for any such new standards.
On August 27, 2020, the IASB issued the second phase of the IBOR reform that involves the introduction of amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 and IFRS 16, to ensure that the financial statements reflect the economic effects of the IBOR reform. The amendments focus on the accounting for financial instruments once a new benchmark has been introduced. Such modifications introduce the practical simplification of accounting for changes in the cash flows of the financial instruments directly caused by the IBOR reform and, if they take place under an “economically equivalent” context, through the effective interest rate of the financial instrument update.
Similarly, a practical simplification will be applied to IFRS 16 “Lea ses” for leases, when accounting for modifications in lease agreements as a consequence of the IBOR reform. Additionally, some exemptions to the hedging requirements are introduced so as not to discontinue certain hedging relationships. However, similar to the phase 1 amendments, these phase 2 amendments do not provide exceptions to the valuation requirements applicable to hedged items and hedging instruments in accordance with IFRS 9 or IAS 39. Thus, once the new benchmark has been implemented, the hedged items and hedging instruments must be valued according to the new index, and any possible ineffectiveness that may exist in the hedge will be recognized in profit or loss. On the other hand, new disclosures are introduced.
The IBOR transition is considered to be a complex initiative, which affects BBVA Group in different geographical areas and business lines, as well as in a multitude of products, systems and processes. Therefore, BBVA Group has established an IBOR transition program, provided with a robust governance structure by means of an Executive Steering Committee, with representation from senior management of the affected areas, which reports directly to the Group's Global Leadership Team. At the local level, each geography has defined a local governance structure with the participation of senior management. The coordination between geographies is realized through the Project Management Office (PMO) and the Global Working Groups that incorporate a multi-geographic and transversal view on the areas of Legal, Risk, Regulatory, Engineering, Finance and Accounting. The project also involves both Corporate Assurance of the different geographies and business lines and Global Corporate Assurance of the Group. The IBOR transition project within BBVA Group takes into account the different approaches and timings of transition to the new RFRs (risk- free rate) when evaluating the economic, operational, legal, financial, reputational or compliance risks associated with the transition, as well
P.39 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
as defining the lines of action to mitigate them. A relevant aspect of this transition is its impact on contracts referenced to LIBOR (mainly dollar) and EONIA rates that mature after 2021. In this regard, in the case of the EONIA, BBVA aims to carry out a novation of the contracts maturing after 2021 (it should be noted that these exposures are immaterial in the Group) and has already begun, proactively, the renegotiation of collateral contracts to adapt them to the operations against clearing houses homogeneously which already migrated last July. The Group already has new fallbacks in place which incorporate the €STR as a replacement rate, as well as language to incorporate this benchmark as the main reference rate in new contracts.
In the case of LIBOR, BBVA Group has identified the stock of contracts expiring after 2021 and is working on the implementation of tools/systems that will allow the stock to be migrated to solutions such as those proposed by ISDA (Group entities are either already adhering to the ISDA protocol or in the process of doing so). Likewise, BBVA Group continues to work on adapting all its systems and processes to deal with alternative Risk Free Rates, such as SOFR and SONIA.
In the case of EURIBOR, the European authorities have encouraged amendments of its methodology so that it complies with the requirements of the European Regulation on Benchmarks. BBVA actively participates in various working groups, including the EURO RFR WG which works specifically, amongst others, on the definition of fallbacks in contracts, in anticipation of an option to change the index in the future.
BBVA Group has a significant number of financial assets and liabilities referenced to IBOR rates, especially EURIBOR, which are used, among others, in loans, deposits, debt issuances and financial derivatives.Furthermore, although the exposure to EONIA is lower in the banking book, this benchmark interest rate is used in financial derivatives in the trading book, as well as in the collateral agreements and most are booked in Spain. In the case of LIBOR, the USD is the most relevant currency for both cash products and financial derivatives in the banking book and the trading book. Other LIBOR currencies (CHF, GBP and JPY) have a much lower specific weight. These modifications introduced in the second phase of the reform will be mandatory as of January 2021, with possible early adoption. In this sense, based on the progress of the transition to the new indices in the Group, the BBVA Group has considered that it is not necessary to early adopt IBOR reform phase 2 in the BBVA Group in 2020. On January 13, 2021, the European Commission has endorsed the aforementioned modifications.
IFRS 17 establishes the principles for the accounting for insurance contracts and supersedes IFRS 4. The new standard introduces a single accounting model for all insurance contracts and requires the entities to use updated assumptions. An entity shall divide the contracts into groups and recognize and measure groups of insurance contracts at the total of: the fulfilment cash flows, that comprises the estimate of future cash flows, an adjustment to reflect the time value of money and the financial risk associated with the future cash flows and a risk adjustment for non-financial risk; and the contractual service margin that represents the unearned profit. The amounts recognized in the consolidated income statement shall be disaggregated into insurance revenue, insurance service expenses and insurance finance income or expenses. Insurance revenue and insurance service expenses shall exclude any investment components. Insurance revenue shall be recognized over the period the entity provides insurance coverage and in proportion to the value of the provision of coverage that the insurer provides in the period. This Standard will be applied to the accounting years starting on or after January 1, 2023. In 2019, the Group established an IFRS 17 implementation project with the objective of harmonizing the criteria in the Group and with the participation of all the affected areas.
The amendment to IFRS 4 includes a deferral in the temporary exception option regarding the application of IFRS 9 for entities whose business model is predominantly an insurance model until January 1, 2023, aligning it with the entry into force of the IFRS 17 Insurance Contracts rule. This modification will be applicable from January 1, 2021, although it will not have an impact on the Group since the Bank will not take such option.
The BBVA Group is an international diversified financial group with a significant presence in retail banking, wholesale banking and asset management. The Group also operates in the insurance sector. The following information is detailed in the appendices of these consolidated financial statements of the Group for the year ended December 31, 2020:
P.40 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The following table sets forth information related to the Group’s total assets as of December 31, 2020, 2019 and 2018, broken down by the Group’s entities according to their activity:
| Entities by main activities | 2020 | 2019 | 2018 |
|---|---|---|---|
| Banking and other financial services | 705,683 | 666,366 | 646,199 |
| Insurance and pension fund managing companies | 28,667 | 29,300 | 26,684 |
| Other non-financial services | 1,826 | 2,071 | 2,793 |
| Total | 736,176 | 697,737 | 675,675 |
The total assets and results of operations broken down by operating segments are included in Note 6.
The BBVA Group’s activities are mainly located in Spain, Mexico, South America, the United States and Turkey, with active presence in other countries, as shown below:
On November 15, 2020, BBVA reached an agreement with The PNC Financial Services Group, Inc. for the sale of 100% of the capital stock of its subsidiary BBVA USA Bancshares, Inc., which in turn owns all the capital stock 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.
P.41 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The agreement reached does not include the sale of the institutional business of the BBVA Group developed through its broker dealer BBVA Securities Inc. nor the participation in Propel Venture Partners US Fund I, L.P. which will be transferred by BBVA USA Bancshares, Inc. to entities of the BBVA Group prior to the closing of the transaction. In addition, BBVA will continue to develop the wholesale business that it currently carries out through its branch in New York.
The price of the transaction amounts to approximately $11,600 million. The price will be fully paid in cash. It is expected that the transaction would result in a positive impact on BBVA Group’s Common Equity Tier 1 ratio (fully loaded) of approximately 294 basis points and positive results (net of taxes) of approximately €580 million (calculated at an exchange rate 1.20 EUR /USD).
During the year ended December 31, 2020, approximately €300 million has been recognized for the entities to be disposed of (which corresponds to the results of the entities to be disposed of recognized in the caption Profit (loss) after tax from discontinued operations excluding the impacts of the impairment of goodwill), as well as an approximately positive impact of 9 basis points of Common Equity Tier I (fully loaded). The closing of the transaction is subject to obtaining regulatory authorizations from the competent authorities. It is estimated that the closing of the transaction would take place in mid 2021. Note 21 shows, among other information the condensed balance sheets of the entities to be disposed of as of December 31, 2020, 2019 and 2018 and the related condensed income statements as of and for the years ended December 31, 2020, 2019 and 2018.
On April 27, 2020, BBVA reached an agreement with Allianz, Compañía de Seguros y Reaseguros, S.A. to create a bancassurance joint venture in order to develop the non-life insurance business in Spain, excluding the health insurance line of the business. On December 14, 2020, once the required authorizations had been obtained, BBVA completed the operation and announced the transfer to Allianz, Compañía de Seguros y Reaseguros, S.A. of half plus one share of the company BBVA Allianz Seguros y Reaseguros SA, for which it received €274 million euros, without taking into account a variable part of the price (up to 100 million euros depending on certain objectives and planned milestones). This operation has resulted in a profit net of taxes of 304 million euros and a positive impact on the fully loaded CET1 of the BBVA Group of 7 basis points.# Significant transactions in the Group in 2019
On August 7, 2019, BBVA reached an agreement with Banco GNB Paraguay, S.A., an affiliate of Grupo Financiero Gilinski, for the sale of its wholly-owned subsidiary Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). BBVA owned, directly and indirectly, 100% of its share capital in BBVA Paraguay. On January 22, 2021 and after obtaining all required authorizations, BBVA has completed the sale to Banco GNB Paraguay, S.A., an affiliate of Grupo Gilinski, of its 100% direct and indirect stake share capital in Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The amount received by BBVA amounts to approximately USD250 million (approximately €210 million). The transaction results in a capital loss of approximately €9 million net of taxes. A positive impact on BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points is estimated to be recognized during the first quarter of 2021 (see Note 56).
On November 28, 2017, BBVA received a binding offer (the “Offer”) from The Bank of Nova Scotia group (“Scotiabank”) for the acquisition of BBVA’s stake in Banco Bilbao Vizcaya Argentaria Chile, S.A. (“BBVA Chile”) as well as in other companies of the Group in Chile with operations that are complementary to the banking business (amongst them, BBVA Seguros Vida, S.A.). BBVA owned approximately, directly and indirectly, 68.19% of BBVA Chile share capital. On December 5, 2017, BBVA accepted the Offer and entered into a sale and purchase agreement and the sale was completed on July, 6, 2018. The consideration received in cash by BBVA as consequence of the referred sale amounted to, approximately, USD 2,200 million. The transaction resulted in a capital gain, net of taxes, of €633 million, which was recognized in 2018.
On November 29, 2017, BBVA reached an agreement with a subsidiary of Cerberus Capital Management, L.P. (“Cerberus”) for the creation of a “joint venture” to which an important part of the real estate business of BBVA in Spain was transferred (the “Business”).
P.42
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The Business comprises: (i) foreclosed real estate assets (the “REOs”), with a gross book value of approximately €13,000 million, taking as starting point the position of the REOs as of June 26, 2017; and (ii) the necessary assets and employees to manage the Business in an autonomous manner. For the purpose of the agreement with Cerberus, the whole Business was valued at approximately €5,000 million. On October 10, 2018, after obtaining all required authorizations, BBVA completed the transfer of the real estate business in Spain. Closing of the transaction has resulted in the sale of 80% of the share capital of the company Divarian Propiedad, S.A. to an entity managed by Cerberus. Divarian is the company to which the BBVA Group has contributed the Business. The transaction did not have a significant impact on BBVA Group’s attributable profit of 2018 or the Common Equity Tier 1 (fully loaded) as of December 31, 2018.
Throughout 2018, 2019 and 2020, BBVA’s Board of Directors approved the payment of the following dividends (interim or final dividends) fully in cash, recorded in “Total Equity- Interim Dividends” and “Total Equity – Retained earnings” of the consolidated balance sheet of the relevant year:
The Annual General Meeting of BBVA held on March 16, 2018 approved, under item 1 of the Agenda, the payment of a final dividend for 2017, in addition to other dividends previously paid, in cash for an amount equal to €0.15 (€0.1215 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2018, after deducting treasury shares held by the Group’s companies, amounted to €996 million and is recognized under heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2018.
The Board of Directors, at its meeting held on September 26, 2018, approved the payment in cash of €0.10 (€0.081 net of withholding tax) per BBVA share, as gross interim dividend against 2018 results. The total amount paid to shareholders on October 10, 2018, after deducting treasury shares held by the Group's companies, amounted to €663 million and is recognized under the heading “Total equity- Interim dividends” of the consolidated balance sheet as of December 31, 2018.
The Annual General Meeting of BBVA held on March 15, 2019, approved, under item 1 of the Agenda, the payment of a final dividend for 2018, in addition to other dividends previously paid, in cash for an amount equal to €0.16 (€0.1296 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 10, 2019, after deducting treasury shares held by the Group’s Companies, amounted to €1,064 million and is recognized under the heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2019.
The Board of Directors, at its meeting held on October 2, 2019, approved the payment in cash of €0.10 (€0.081 net of withholding tax) per BBVA share, as gross interim dividend based on 2019 results. The total amount paid to shareholders on October 15, 2019, after deducting treasury shares held by the Group´s companies, amounted to €665 million and is recognized under the heading “Total equity- Interim dividends” of the consolidated balance sheet as of December 31, 2019.
The Annual General Meeting of BBVA held on March 13, 2020, approved, under item 1 of the Agenda, the payment of a final dividend for 2019, in addition to other dividends previously paid, in cash for an amount equal to €0.16 (€0.1296 net of withholding tax) per BBVA share. The total amount paid to shareholders on April 9, 2020, after deducting treasury shares held by the Group’s Companies, amounted to €1,065 million and is recognized under the heading “Total equity- Retained earnings” of the consolidated balance sheet as of December 31, 2020.
In accordance with recommendation ECB/2020/19 issued by the ECB on March 27, 2020 on dividend distributions during the COVID-19 pandemic, the Board of Directors of BBVA resolved to modify for the financial year corresponding to 2020 the dividend policy of the Group, announced on February 1, 2017, determining as new policy for 2020 not to pay any dividend amount corresponding to 2020 until the uncertainties caused by COVID-19 disappear and, in any case, not before the end of such fiscal year. On July 27, 2020, the ECB prolonged this recommendation until January 1, 2021 by adopting recommendation ECB/2020/35. On December 15, 2020 the ECB issued recommendation ECB/2020/62, repealing recommendation ECB/2020/35 and recommending that significant credit institutions exercise extreme prudence when deciding on or paying out dividends or performing share buy-backs aimed at remunerating shareholders. Recommendation ECB/2020/62 circumscribes prudent distributions to results of 2019 and 2020 but excluding distributions regarding 2021 until September 30, 2021, when the ECB will reevaluate the economic situation. BBVA intends to reinstate its dividend policy of the Group announced on February 1, 2017 once the recommendation ECB/2020/62 is repealed and there are no additional restrictions or limitations.
The Board of Directors will submit for the approval of the Ordinary General Shareholders’ Meeting the proposal to apply the result of Banco Bilbao Vizcaya Argentaria, S.A. for the 2020 financial year amounting to €2,182 million of losses to the prior years’ losses account. Furthermore, the offsetting of the prior years’ losses will likewise be submitted for approval, the amount of which amounts to €2,182 million, after the application of the 2020 financial year results in accordance with the previous paragraph, against the voluntary reserves account under the "Retained earnings" heading.
P.43
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
On January 29, 2021, it was announced that a cash distribution in the amount of €0.059 gross per share as shareholder remuneration in relation to the Group’s result in the 2020 financial year was expected to be submitted to the relevant governing bodies of BBVA for consideration (see Note 56).
Basic and diluted earnings per share are calculated in accordance with the criteria established by IAS 33. For more information see Glossary of terms.The calculation of earnings per share is as follows:
Basic and Diluted Earnings per Share
| 2020 | 2019 (**) | 2018 (**) | |
|---|---|---|---|
| Numerator for basic and diluted earnings per share (millions of euros) | |||
| Profit attributable to parent company | 1,305 | 3,512 | 5,400 |
| Adjustment: Additional Tier 1 securities (1) | (387) | (419) | (447) |
| Profit adjusted (millions of euros) (A) | 917 | 3,093 | 4,953 |
| Of which: profit from discontinued operations (net of non-controlling interest) (B) (See Note 21) | (1,729) | (758) | 704 |
| Denominator for basic earnings per share (number of shares outstanding) | |||
| Weighted average number of shares outstanding (2) | 6,668 | 6,668 | 6,668 |
| Weighted average number of shares outstanding x corrective factor (3) | 6,668 | 6,668 | 6,668 |
| Adjusted number of shares - Basic earnings per share (C) | 6,655 | 6,648 | 6,636 |
| Adjusted number of shares - diluted earnings per share (D) | 6,655 | 6,648 | 6,636 |
| Earnings (losses) per share (*) | 0.14 | 0.47 | 0.75 |
| Basic earnings (losses) per share from continued operations (Euros per share) A-B/C | 0.40 | 0.58 | 0.64 |
| Diluted earnings (losses) per share from continued operations (Euros per share) A-B/D | 0.40 | 0.58 | 0.64 |
| Basic earnings (losses) per share from discontinued operations (Euros per share) B/C | (0.26) | (0.11) | 0.11 |
| Diluted earnings (losses) per share from discontinued operations (Euros per share) B/D | (0.26) | (0.11) | 0.11 |
(1) Remuneration in the year related to contingent convertible securities, recognized in equity (see Note 22.4).
(2) Weighted average number of shares outstanding (millions of euros), excluding weighted average of treasury shares during the year.
(3) Corrective factor, due to the capital increase with pre-emptive subscription right, applied for the previous years.
() In 2020, 2019 and 2018 the weighted average number of shares outstanding was 6,668 million and the adjustment of additional Tier 1 securities amounted to €387 million (€419 and €447 million in 2019 and 2018, respectively).
(*) Amounts in December 2019 and 2018 have been restated (see Note 1.3).
As of December 31, 2020, 2019 and 2018, there were no other financial instruments or share option commitments to employees that could potentially affect the calculation of the diluted earnings per share for the years presented. For this reason, basic and diluted earnings per share are the same.
Operating segment reporting represents a basic tool in the oversight and management of the BBVA Group’s various activities. The BBVA Group compiles reporting information on disaggregated business activities. These business activities are then aggregated in accordance with the organizational structure determined by the BBVA Group and, ultimately, into the reportable operating segments themselves.
As of December 31, 2020, the structure of the information by operating segments of the BBVA Group remains basically the same as that of the financial year ended 2019, although BBVA reached agreements that, in some cases, could affect its structure.
Due to the agreement reached for the sale of the Group's entire stake in BBVA US A Bancshares, Inc., parent company of the Group companies related to the banking business in the United States, the balance sheet items of the companies for sale and the gains and losses generated by them have been classified in accordance with IFRS 5 “Non-current assets held for sale and discontinued operations” (see Notes 2.2.4 and 21). Likewise, in accordance with IFRS 8 “Operating Segments”, information on the United States operating segment including the balances of the companies for sale continues to be provided for the years 2020, 2019 and 2018.
The BBVA Group's operating segments and the agreements reached are summarized below:
P.44
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Includes mainly the banking and insurance business that the Group carries out in Spain, including the results of the new company BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3).
Includes the business activity of BBVA USA, comprising the Group's wholesale business through the New York branch, the stake in Propel Venture Partners and the business developed through its broker dealer BBVA Securities Inc. None of the aforementioned activities has been included in the sale agreement reached with PNC. Regarding this agreement, it includes BBVA USA and other subsidiaries in the United States with activities related to the banking activity (see Notes 1.3, 3 and Note 21).
Includes banking and insurance businesses in this country as well as the activity of BBVA Mexico in Houston.
Reports the activity of Garanti BBVA group that is mainly carried out in this country and, to a lesser extent, in Romania and the Netherlands.
Primarily includes the Group´s banking and insurance businesses in the region. In relation to the sale of BBVA Paraguay, the closing of the transaction took place in January 2021 (see Note 3).
Includes the banking business activity carried out by the Group in Europe and Asia, excluding Spain.
Lastly, Corporate Center performs centralized Group functions, including: the costs of the head offices with a corporate function; management of structural exchange rate positions; some equity instruments issuances to ensure an adequate management of the Group's global solvency. It also includes portfolios whose management is not linked to customer relationships, such as industrial holdings, certain tax assets and liabilities; funds due to commitments to employees; goodwill and other intangible assets.
The breakdown of the BBVA Group’s total assets by operating segments as of December 31, 2020, 2019 and 2018, is as follows:
Total assets by operating segments (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Spain | 405,878 | 364,427 | 353,923 |
| The United States | 93,953 | 88,529 | 82,057 |
| Mexico | 110,224 | 109,079 | 97,432 |
| Turkey | 59,585 | 64,416 | 66,250 |
| South America | 55,435 | 54,996 | 54,373 |
| Rest of Eurasia | 22,881 | 23,257 | 18,845 |
| Subtotal assets by operating segments | 747,957 | 704,703 | 672,880 |
| Corporate Center and adjustments | (11,781) | (6,967) | 2,796 |
| Total assets BBVA Group | 736,176 | 697,737 | 675,675 |
P.45
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The following table sets forth certain summarized information relating to results of each operating segment and Corporate Center for the years ended December 31, 2020, 2019 and 2018:
| BBVA Group | Spain | The United States | Mexico | Turkey | South America | Rest of Eurasia | Corporate Center | Adjustments (***) | |
|---|---|---|---|---|---|---|---|---|---|
| 2020 | |||||||||
| Net interest income | 14,592 | 3,553 | 2,284 | 5,415 | 2,783 | 2,701 | 214 | (149) | (2,209) |
| Gross income | 20,166 | 5,554 | 3,152 | 7,017 | 3,573 | 3,225 | 510 | (57) | (2,808) |
| Operating income | 11,079 | 2,515 | 1,281 | 4,677 | 2,544 | 1,853 | 225 | (876) | (1,140) |
| Operating profit /(loss) before tax | 5,248 | 809 | 502 | 2,472 | 1,522 | 896 | 184 | (1,160) | 22 |
| Profit (loss) after tax from discontinued operations | (1,729) | - | - | - | - | - | - | - | (1,729) |
| Net attributable profit (loss) (**) | 1,305 | 606 | 429 | 1,759 | 563 | 446 | 137 | (2,635) | - |
| 2019 | |||||||||
| (*) Net interest income | 15,789 | 3,567 | 2,395 | 6,209 | 2,814 | 3,196 | 175 | (233) | (2,335) |
| Gross income | 21,522 | 5,656 | 3,223 | 8,029 | 3,590 | 3,850 | 454 | (339) | (2,941) |
| Operating income | 11,368 | 2,402 | 1,257 | 5,384 | 2,375 | 2,276 | 161 | (1,294) | (1,193) |
| Operating profit /(loss) before tax | 7,046 | 1,878 | 705 | 3,691 | 1,341 | 1,396 | 163 | (1,457) | (670) |
| Profit (loss) after tax from discontinued operations | (758) | - | - | - | - | - | - | - | (758) |
| Net attributable profit (loss) (**) | 3,512 | 1,386 | 590 | 2,699 | 506 | 721 | 127 | (2,517) | - |
| 2018 | |||||||||
| (*) Net interest income | 15,285 | 3,618 | 2,276 | 5,568 | 3,135 | 3,009 | 175 | (269) | (2,227) |
| Gross income | 20,936 | 5,888 | 2,989 | 7,193 | 3,901 | 3,701 | 415 | (420) | (2,731) |
| Operating income | 10,883 | 2,554 | 1,129 | 4,800 | 2,654 | 1,992 | 128 | (1,291) | (1,083) |
| Operating profit /(loss) before tax | 7,565 | 1,840 | 920 | 3,269 | 1,444 | 1,288 | 147 | (1,329) | (15) |
| Profit (loss) after tax from discontinued operations | 704 | - | - | - | - | - | - | - | 704 |
| Net attributable profit (loss) (**) | 5,400 | 1,400 | 736 | 2,367 | 567 | 578 | 96 | (343) | - |
() The figures corresponding to 2019 and 2018 have been restated (see Note 1.3).
() See Note 55.
(**) It includes the reclassification as “Profit (loss) after tax from discontinued operations” of the balances from companies for sale in BBVA USA (see Note 21).
The accompanying Consolidated Management Report presents the consolidated income statements and the balance sheets by operating segments.
BBVA Group has processes in place for identifying risks and analyzing scenarios in order to enable the Group to manage risks in a dynamic and proactive way. The risk identification processes are forward looking to seek the identification of emerging risks and take into account the concerns of both the business areas, which are close to the reality of the different geographical areas, and the corporate areas and senior management. Risks are identified and measured consistently using the methodologies deemed appropriate in each case. Their measurement includes the design and application of scenario analyses and stress testing and considers the controls to which the risks are subjected. As part of this process, a forward projection of the risk appetite framework variables in stress scenarios is conducted in order to identify possible deviations from the established thresholds. If any such deviations are detected, appropriate measures are taken to keep the variables within the target risk profile. In this context, there are a number of emerging risks that could affect the evolution of the Group's business.# Risk Factors
The risks and uncertainties described below, together with the other information included in this annual report, including the consolidated financial statements and notes thereto, could materially adversely affect our business, financial condition, results of operations and prospects.
The coronavirus (COVID-19) pandemic is adversely affecting the world economy and economic activity and conditions in the countries in which the Group operates, leading many of them to economic recession in 2020 and relatively moderate activity growth in 2021, so that probably only from 2022 will the GDP levels observed before the crisis recover. Among other challenges, these countries are experiencing widespread increases in unemployment levels and falls in production, while public debt has increased significantly due to support and spending measures implemented by government authorities. In addition, there is an increase in defaults on debts by both companies and individuals, volatility in financial markets, including exchange rates, and falls in the value of assets and investments, all of which have had a negative impact on the Group's in the year 2020 and is expected to continue to affect in the future.
P.46 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Furthermore, the Group may be affected by the measures adopted by regulatory authorities in the banking sector, including but not limited to, the recent reductions in reference interest rates, the relaxation of prudential requirements, the suspension of dividend payments, the adoption of payment deferrals measures for bank clients (such as those included in Royal Decree Law 11/2020 in Spain, as well as in the CECA-AEB agreement to which BBVA has adhered and which, among other things, allows loan debtors to extend maturities and defer interest payments) and facilities to grant credit through a line of guarantees or public guarantees, especially to companies and the self-employed individuals, as well as any changes in the financial asset purchase programs.
Since the outbreak of COVID-19 pandemic, the Group has experienced a decline in its activity. For example, the granting of new loans to individuals has significantly decreased since the beginning of mobility restriction measures approved in certain countries in which the Group operates. In addition, the Group faces several risks, such as a greater risk of impairment of the value of its assets (including financial instruments valued at fair value, which may undergo significant fluctuations) and of the securities held for liquidity reasons, a possible significant increase in non-performing loans and a negative impact on the cost of the Group's financing and its access to financing (especially in an environment where credit ratings are affected).
Furthermore, in several of the countries in which the Group operates, including Spain, the Group has temporarily closed a significant number of its offices and reduced opening hours to the public, and the teams that provide central services have been working remotely. Although these measures have been gradually reversed due to the continued expansion of the COVID -19 pandemic, it is unclear how long it will take until normal operations can fully resume.
On the other hand, the pandemic could adversely affect the business and operations of third parties that provide critical services to the Group and, in particular, the higher demand and / or lower availability of certain resources could in some cases make it more difficult to maintain the service levels. In addition, the generalization of remote work has increased the risks related to cybersecurity, as the use of non-corporate networks has increased.
As a result of the above, the COVID-19 pandemic has had an adverse effect on the Group's results and capital base. During the first half of the year the main accumulated impacts were:
(i) an increase in the cost of risk associated with the lending activity, mainly due to the deterioration of the macroeconomic environment, which has had a negative impact of €2,009 million in the Group (including the initial adverse effect of the payment deferral) and provisions for credit risk and contingent commitments for €95 million, (see Notes 7.2, 46 and 47); and
(ii) a deterioration in the goodwill of the Group's subsidiary in the United States, mainly due to the deterioration of the macroeconomic scenario in the United States, which has had a net negative impact of €2,084 million on the Group's attributed profit in this period (although this impact does not affect the tangible book value, nor the solvency or the liquidity of the Group) (see Notes 18.1 and 49).
From June 30, 2020 on, and as a consequence of the general deterioration of the global macroeconomic scenario, its specific effects cannot be isolated, affecting all of the Group's consolidated Financial Statements.
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
P.47 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
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.
The BBVA Group has a General Risk Management and Control Model appropriate to its business model, its organization, the countries in which it operates and its corporate governance system, which allows it to carry out its activity within the framework of the risk management and control strategy and policy defined by the corporate bodies. This model deals with management in global form adapting itself to the circumstances of each moment. This Model is applied integrally in the Group. In this sense, from the beginning of the crisis, the BBVA Group implemented specific measures for the proper management of these associated risks, establishing different global initiatives that define the risk management strategy during the crisis, with common action protocols that should be implemented and adapted, when needed, to local needs.# BBVA GROUP
The BBVA Group global risk unit - Global Risk Management (hereinafter, “GRM”) - has increased the frequency and intensity of the evaluation of potential impacts on the different groups and clients, in order to prevent their future evolution, and carried out appropriate adjustments and reclassifications, reinforcing its processes, governance and teams in Holding and countries to act in a coordinated manner, focusing priority on crisis management Over the past year, it has been found that the pandemic has a global impact, affecting to a greater extent the sectors in which there is a high level of human interaction (transport, especially air transport, leisure, especially hotel establishments, as well as industries and activities dependent on them), regardless of the regional area in question. For this reason, the Bank's risk management has clearly been intensified by sectorial vectors over other conditioning factors such as geographic.
Financial institutions are exposed to a complex and ever -changing regulatory environment defined by governments and regulators. This can affect their ability to grow and the capacity of certain businesses to develop, and result in stricter liquidity and capital requirements with lower profitability ratios. The Group constantly monitors changes in the regulatory framework that allow for anticipation and adaptation to them in a timely manner, adopt industry practices and more efficient and rigorous criteria in its implementation. The financial sector is under ever closer scrutiny by regulators, governments and society itself. In the course of activities, situations which might cause relevant reputational damage to the entity could raise and might affect the regular course of business. The attitudes and behaviors of the Group and its members are governed by the principles of integrity, honesty, long-term vision and industry practices through, inter alia, the internal control model, the Code of Conduct, the Corporate Principles in tax matters and Responsible Business Strategy of the Group.
New technologies and forms of customer relationships: Developments in the digital world and in information technologies pose significant challenges for financial institutions, entailing threats (new competitors, disintermediation, etc.) but also opportunities (new framework of relations with customers, greater ability to adapt to their needs, new products and distribution channels, etc.). Digital transformation is a priority for the Group as it aims to lead digital banking of the future as one of its objectives.
Technological risks and security breaches: The Group is exposed to new threats such as cyber-attacks, theft of internal and customer databases, fraud in payment systems, etc. that require major investments in security from both the technological and human point of view. The Group gives great importance to the active operational and technological risk management and control.
The financial sector faces an environment of increasing regulatory and litigious pressure, and thus, the various Group entities are usually party to individual or collective judicial proceedings (including class actions) resulting from their activity and operations, as well as arbitration proceedings. The Group is also party to other government procedures and investigations, such as those carried out by the antitrust authorities in certain countries which, among other things, have in the past and could in the future result into sanctions, as well as lead to claims by customers and others. In addition, the regulatory framework, in the jurisdictions in which the Group operates, is evolving towards a supervisory approach more focused on the opening of sanctioning proceedings while some regulators are focusing their attention on consumer protection and behavioral risk. In Spain and in other jurisdictions where the Group operates, legal and regulatory actions and proceedings against financial institutions, prompted in part by certain judgments in favor of consumers handed down by national and supranational courts, have increased significantly in recent years and this trend could continue in the future. The legal and regulatory actions and proceedings faced by other financial institutions in relation to these and other matters, P.48 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. especially if such actions or proceedings result in favorable resolutions for the consumer, could also adversely affect the Group. All of the above may result in a significant increase in operating and compliance costs or even a reduction of revenues, and it is possible that an adverse outcome in any proceedings (depending on the amount thereof, the penalties imposed or the procedural or management costs for the Group) could damage the Group's reputation, generate a knock-on effect or otherwise adversely affect the Group. It is difficult to predict the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and those that may arise in the future, including actions and proceedings relating to former Group subsidiaries or in respect of which the Group may have indemnification obligations, but such outcome could be significantly adverse to the Group. In addition, a decision in any matter, whether against the Group or against another credit entity facing similar claims as those faced by the Group, could give rise to other claims against the Group. In addition, these actions and proceedings attract resources from the Group and may occupy a great deal of attention on part of the Group's management and employees.
As of December 31, 2020, the Group had €612 million in provisions for the proceedings it is facing (included in the line "Provisions for litigation and pending tax cases" in the consolidated balance sheet) (see Note 25), of which €574 million correspond to legal contingencies and €38 million to tax related matters. However, the uncertainty arising from these proceedings (including those for which no provisions have been made, either because it is not possible to estimate them or for other reasons) makes it impossible to guarantee that the possible losses arising from these proceedings will not exceed, where applicable, the amounts that the Group currently has provisioned and, therefore, could affect the Group's consolidated results in a given period. As a result of the above, legal and regulatory actions and proceedings currently faced by the Group or to which it may become subject in the future or otherwise affected by, individually or in the aggre gate, if resolved in whole or in part adversely to the Group ́ s interests, could have a material adverse effect on the Group’s business, financial condition and results of operations.
Spanish judicial authorities are investigating the activities of Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). Such investigation includes the provision of services by Cenyt to the Bank. On 29th July, 2019, the Bank was named as an official suspect (investigado) in a criminal judicial investigation (Preliminary Proceeding No. 96/2017 – Piece No. 9, Central Investigating Court No. 6 of the National High Court) for alleged facts which could be constitutive of bribery, revelation of secrets and corruption. On February 3, 2020, the Bank was notified by the Central Investigating Court No. 6 of the National High Court of the order lifting the secrecy of the proceedings. Certain current and former officers and employees of the Group, as well as former directors have also been named as official suspects in connection with this investigation. The Bank has been and continues to proactively collaborate with the Spanish judicial authorities, including sharing with the courts the relevant information obtained in the internal investigation hired by the entity in 2019 to contribute to the clarification of the facts. As of the date of the approval of the consolidated financial statements, no formal accusation against the Bank has been made. This criminal judicial proceeding is at the pre -trial phase. Therefore, it is not possible at this time to predict the scope or duration of such proceeding or any related proceeding or its or their possible outcomes or implications for the Group, including any fines, damages or harm to the Group’s reputation caused thereby.
Credit risk arises from the probability that one party to a financial instrument will fail to meet its contractual obligations for reasons of insolvency or inability to pay and cause a financial loss for the other party. The general principles governing credit risk management in the BBVA Group are:
The main criterion when granting credit risks is the capability of the borrower or obligor to fulfill on a timely basis all financial obligations with its business income or source of income without depending upon guarantors, bondsmen or pledged assets.# Improve the financial health of our clients, help them in their decision making and in the daily management of their finances based on personalized advice. Help our clients in the transition towards a sustainable future, with a focus on climate change and inclusive and sustainable social development.
P.49
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Credit risk management in the Group has an integrated structure for all its functions, allowing decisions to be taken objectively and independently throughout the life cycle of the risk. At Group level: frameworks for action and standard rules of conduct are defined for handling risk, specifically, the channels, procedures, structure and supervision. At the business area level: they are responsible for adapting the Group's criteria to the local realities of each geographical area and for direct management of risk according to the decision-making channel:
The risk function has a decision-making process supported by a structure of committees with a solid governance scheme, which describes their purposes and functioning for a proper performance of their tasks.
This governance scheme has been fundamental in managing the COVID-19 crisis in all the geographies where the Group operates, where both, assessing the flow of necessary funds for the economies with the rigor in the analysis and monitoring of the credit quality of the exposures. Since the beginning of the pandemic, the Group has offered payment deferral to its customers (retail, SMEs and wholesale) in all the geographies where it operates. These moratoriums have been both legislative (based on national laws) and non-legislative (based on sectorial or individual schemes), aimed at mitigating the effects of COVID -19. Depending on the cases, the payment of principal and / or interest has been postponed, maintaining the original contract. Generally, these deferrals have been given for a period of less than one year. This measure has been extended to different sectors, being Leisure, Real Estate and Auto the main users. The deadline to qualify for the moratorium has been extended in some geographies in recent months, having already come to an end in Mexico and Argentina. In the others, where this measure is still in force, this period ends in the first quarter of 2021, except Turkey (in May 2021), Colombia (in July 2021) and the USA (in January 2022).
Specifically, the Group's participation in the following moratorium or public guarantee measures by geography stands out:
P.50
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The amount of payment deferrals (existing and completed) and the financing granted with public guarantees given at a Group level, as well as the number of customers of both measures, as of December 31, 2020 are as follows:
Amount of payment deferral and financing with public guarantees as of December 31, 2020 (Millions of Euros)
| Payment deferral | Financing with public guarantees | ||
|---|---|---|---|
| Existing | Completed | Total | |
| Group | 6,803 | 27,025 | 33,828 |
| Payment deferral and guarantees (%) | 271,870 | 52,446 | 13.1% |
The amount of payment deferrals (existing and completed) and financing granted with public guarantees given at a Group level, broken down by segment, as of December 31, 2020 are as follows:
Amount of payment deferral and financing with public guarantees as of December 31, 2020 (Millions of Euros)
| Payment deferral | Financing with public guarantees | |
|---|---|---|
| Existing | Completed | |
| Group | 6,803 | 27,025 |
| Customers | 4,657 | 16,676 |
| Of which: | ||
| Mortgages | 3,664 | 8,723 |
| SMEs | 1,031 | 5,056 |
| Non-financial corporations | 1,055 | 5,095 |
| Other | 60 | 198 |
Amount of payment deferral by stages as of December 31, 2020 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| Group | 21,670 | 9,761 | 2,397 | 33,828 |
| Customers | 13,608 | 5,920 | 1,805 | 21,333 |
| Of which: | ||||
| Mortgages | 8,310 | 3,163 | 914 | 12,387 |
| SMEs | 4,326 | 1,461 | 299 | 6,087 |
| Non-financial corporations | 3,495 | 2,362 | 293 | 6,150 |
| Other | 240 | 17 | - | 258 |
The payment deferral measures for bank customers result in the temporary suspension, total or partial, of the contractual obligations with a deferral for a specific period of time. Considering that the payment deferrals granted in connection with COVID -19 provide temporary relief to debtors and that the economic value of the affected loans has not been significantly impacted, the payment deferral measures granted have not been considered substantial contractual modifications and, therefore, modified loans are accounted for as a continuation of the originals.When a payment deferral does not generate interest collection rights, a temporary loss of value is triggered for the transaction, which is calculated as the difference between the current value of the original and the modified cash flows, both discounted at the effective interest rate of the original transaction. The difference is recognized at the initial time in the income statement under the heading “Impairment or (reversal) of impairment on financial assets not measured at fair value through profit or loss or net gains by modification” in the balance sheet as a reduction of the asset value of the loans. From that point on, said correction accrues as net interest income at the original effective interest rate within the period of the payment deferral. Thus, at the end of the moratorium period, the impact on net attributed profit is basically neutral.
As of December 31, 2020, the temporary value loss of the payment deferral included in the consolidated income statements amounted to €304 million, from which €300 million have already been recognized as a higher interest margin as of that date.
Regarding the classification of exposures according to their credit risk, the Group has maintained a rigorous application of IFRS 9 when granting the payment deferrals and has reinforced the procedures for monitoring credit risk both throughout the life of the transactions and at their maturity. This means that the payment deferrals granting does not imply in itself an automatic trigger for a significant increase in risk and that the transactions subject to the payment deferrals are initially classified in the stage they had previously, unless, based on their risk profile, they should be classified in a worse stage.
On the other hand, as evidence of payment has ceased to exist or has been reduced, the Group has introduced additional indicators or segmentations to identify the significant increase in credit risk that may have occurred in some transactions or a set of them and, where appropriate, it has been classified in Stage 2. Furthermore, the indications provided by the European Banking Authority (EBA) have been taken into account to not consider forbearance the payment deferrals that meet a series of requirements. All this without prejudice to maintaining its consideration as a forbearance if it was previously qualified as such or classifying the exposure in the corresponding stage previously stated.
On the other hand, the treatment planned for the payment deferrals that expire and may require additional support will be in accordance with the updated evaluation of the customer's credit quality and the characteristics of the solution granted. If applicable, they will be treated as Refinancing or Restructuring as described in Note 7.2.7 of the Financial Statements.
Regarding public support for the loans’ lending, it does not affect the evaluation of the significant increase in risk since it is valued through the credit quality of the instrument. However, in estimating the expected loss, the existence of the guarantor implies a possible reduction in the level of provisions necessary since, for the hedged part, the loss that would be incurred in the foreclosure of the guarantee is taken into account. The public guarantees granted in the different geographies in which the Group operates have been considered as an integral part of the terms and conditions of the loans granted under the consideration that the guarantees are granted at the same time that the financing is granted to the client and in a way inseparable from it.
IFRS 9 requires determining the expected credit loss (ECL) of a financial instrument in a way that reflects an unbiased estimation removing any conservatism or optimism, including the time value of money and a forward-looking perspective (including the economic forecast), all this based on the information that is available at a certain point in time and that is reasonable and bearable with respect to future economic conditions. Therefore, the recognition and measurement of expected credit losses is highly complex and involves the use of significant analysis and estimation including formulation and incorporation of forward-looking economic conditions into the ECL model.
The modeling of the ECL calculation is subject to a governance system that is common to the entire Group. Within this common framework, each geography makes the necessary adaptations to capture its particularities. The methodology, assumptions and observations used by each geography are reviewed annually, and after a validation and approval process, the outcome of this review is incorporated into the ECL calculations.
Expected losses can be estimated both individually and collectively. Regarding the collective estimate, the instruments are distributed in homogeneous groups (segments) that share similar risk characteristics. Following the guidelines established by the Group for the development of models under IFRS 9, each geography performs the grouping based on the information available, its representativeness or relevance and compliance with the necessary statistical requirements.
Depending on the portfolio or the parameter being estimated, one risk driver or another will apply and different segments will reflect differences in PDs and LGDs. Thus, in each segment, changes in the level of credit risk will respond to the impact of changing conditions on the common range of credit risk drivers. The effect on the group’s credit risk in response to changes in forward-looking information will be considered as well.
Macroeconomic modeling for each segment is carried out using some of the shared risk characteristics. These segments share credit risk characteristics such that changes in credit risk in a part of the portfolio are not concealed by the performance of other parts of the portfolio. In that sense, the methodology developed for ECL estimation indicates the risk drivers that have to be taken into account for PD segmentation purposes, depending on whether the estimation is for retail or wholesale portfolios.
As an example of the variables that can be taken into consideration to determine the final models, the following stand out:
In the BBVA Group, the expected losses calculated are based on the internal models developed for all the Group's portfolios, unless clients are subject to individualized estimates. Exposures with other credit institutions, sovereign debt or with public administrations are characterized by a low number of defaults, so the Group's historical bases do not contain sufficiently representative information to build impairment models based on them. However, there are external sources of information that, based on broader observations, are capable of providing the necessary inputs to develop models of expected losses. Therefore, based on the rating assigned to these exposures and taking into account the inputs obtained from these sources, the calculations of expected losses are developed internally, including their projection based on the macroeconomic perspectives.
The Group periodically and individually reviews the situation and credit rating of its customers, regardless of their classification, taking into consideration the information deemed necessary to do so. It also has procedures in place within the risk management framework to identify the factors that may lead to increased risk and, consequently, to a greater need for provisions.
The monitoring model established by the Group consists of continuously monitoring the risks to which it is exposed, which guarantees their proper classification in the different categories of IFRS 9. The original analysis of the exposures is reviewed through the procedures for updating the rating tools (rating and scoring), which periodically review the financial situation of clients, influencing the classification by stages of exposures.## Credit Risk Management
Within this credit risk management framework, the Group has procedures that guarantee the review, at least annually, of all its wholesale counterparties through the so-called financial programs, which include the current and proposed positioning of the Group with the customer in terms of credit risk. This review is based on a detailed analysis of the client's up-to-date financial situation, which is complemented by other information available in relation to individual perspectives on business performance, industry trends, macroeconomic prospects or other public data. As a result of this analysis, the preliminary rating of the client is obtained, which, after undergoing the internal procedure, can be revised down if deemed appropriate (for example, general economic environment or evolution of the sector). These factors in addition to the information that the client can provide are used to review the ratings even before the scheduled financial plan reviews are conducted if circumstances warrant.
Additionally, the Group has established procedures to identify wholesale customers in the internal Watch List category, which is defined as that risk in which, derived from an individualized credit analysis, an increase in credit risk is observed, either due to economic or financial difficulties or because they have suffered, or are expected to suffer, adverse situations in their environment, without meeting the criteria for classification as impaired risk. Under this procedure, all a customer's Watch List exposures are considered Stage 2 regardless of when they originated, if as a result of the analysis the customer is considered to have significantly increased risk.
Finally, the Group has so-called Workout Committees, both local and corporate, which analyze not only the situation and evolution of significant clients in Watch List and doubtful situations, but also those significant clients in which, without having still rated on Watch List, they may present some Stage 2 rated exposure for a quantitative reason (PD comparison from origination). This analysis is carried out in order to decide if, derived from this situation, all the client's exposures should be considered in the Watch List category, which would imply the migration of all the client's operations to Stage 2 regardless of the date on which they originated.
With this, the Group ensures an individualized review of the credit quality of its wholesale counterparties, identifying the situations in which a change in the risk profile of these clients may have occurred and proceeding, where appropriate, to estimate individualized credit losses. Along with this review, the Group individually estimates the expected losses of those clients whose total exposure exceeds certain thresholds, including those that part of their operations may be classified in stage 1 and part in stage 2.
In setting thresholds, each geography determines the minimum amount of a client's exposure whose expected losses must be estimated individually taking into account the following:
P.53 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Regarding the methodology for the individual estimation of expected losses, it should be mentioned, firstly, that these are measured as the difference between the asset’s carrying amount and the estimated future cash flows discounted at the financial asset’s effective interest. The estimated recoverable amount should correspond to the amount calculated under the following method:
The estimated future cash flows depend on the type of approach applied, which can be:
When the entity has updated and reliable information about the solvency and ability of payment of the holders or guarantors. The operating cash flows of the debtor, or the guarantor, continue and can be used to repay the financial debt to all creditors. In addition, collateral may be exercised to the extent it does not influence operating cash flows. The following aspects should be taken into account:
When the entity does not have updated and reliable information, it should consider that the estimation of loan receivable flows is of high uncertainty. Estimation should be carried out through the estimation of recoverable amounts from the effective real guarantees received. It will not be admissible as effective guarantees, those whose effectiveness depends substantially on the creditworthiness of the debtor or economic group in which it takes part.
Under a gone concern scenario, the collateral is exercised and the operating cash flows of the debtor cease. This could be the case if:
As indicated in Note 2.2, the criteria for identifying the significant increase in risk are applied consistently throughout the Group, distinguishing between quantitative reasons or by comparison of probabilities of default and qualitative reasons (more than 30 days of default, watch list consideration or non-impaired refinancing).
To manage credit risk, the Group uses all relevant information that is available and that may affect the credit quality of the exposures. This information may come mainly from the internal processes of admission, analysis and monitoring of operations, from the strategy defined by the Group regarding the price of operations or distribution by geographies, products or sectors of activity, from the observance of the macroeconomic environment, from market data such as interest rate curves, or prices of the different financial instruments, or from external sources of credit rating.
This set of information is the basis for determining the rating and scoring (see note 7.1.4 for more information on rating and scoring systems) corresponding to each of the exposures and which are assigned a probability of default (PD) that, as already mentioned, it undergoes an annual review process that assesses its representativeness (backtesting) and is updated with new observations. Furthermore, the projection of these PDs over time has been modeled based on macroeconomic expectations, which allows obtaining the probabilities of default throughout the life of the operations.
P.54 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.Based on this common methodology, and in accordance with the provisions of IFRS 9 and the EBA guidelines on credit risk management practices (EBA / GL / 2017/06), each geography has established absolute and relative thresholds for identifying whether the expected changes in the probabilities of default have increased significantly compared to the initial moment, adapted to the particularities of each one of them in terms of origination levels, product characteristics, distribution by sectors or portfolios, and macroeconomic situation. To establish the aforementioned thresholds, a series of general principles are considered, such as:
The identification of the significant increase in risk from the comparison of the probabilities of default should be the main reason why exposures in stage 2 are recognized. Specifically, a contract will be transferred to stage 2 when the following two conditions are met by comparing the current PD values and the origination PD values:
Current PD – Origination PD > Absolute threshold (pbs)
These absolute and relative thresholds are consistently established for each geography and for each portfolio, taking into account their particularities and based on the principles described. The thresholds set by each geography are included within the annual review process and, generally speaking, are in the range of 30% to 250% for the relative threshold and from 10 to 150 basis points for the absolute threshold. The establishment of absolute and relative thresholds, as well as their different levels, comply with the provisions of IFRS 9 when it indicates that a certain change, in absolute terms, in the risk of a default will be more significant for a financial instrument with a lower initial risk of default compared to a financial instrument with higher initial risk of default. For existing contracts before the implementation of IFRS 9, given the limitations in the information available on them, the thresholds are calibrated based on the PDs obtained from the prudential or economic models for calculating capital.
Expected Credit Loss must include forward looking information, in accordance with IFRS 9, which states that the comprehensive credit risk information must incorporate not only historical information but also all relevant credit information, including forward-looking macroeconomic information. BBVA Group uses the classical credit risk parameters PD, LGD and EAD in order to calculate the ECL for the credit portfolios. BBVA Group ´s methodological approach in order to incorporate the forward looking information aims to determine the relation between macroeconomic variables and risk parameters following three main steps:
The forward looking component is added to the calculation of the ECL through the introduction of macroeconomic scenarios as an input. Inputs highly depend on the particular combination of region and portfolio, so inputs are adapted to available data regarding each of them.
P.55 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Based on economic theory and analysis, the main indicators most directly relevant for explaining and forecasting the selected risk parameters (PD, LGD and EAD) are:
BBVA Group approximates these variables by using a proxy indicator from the set included in the macroeconomic scenarios provided by the economic research department. Only a single specific indicator for each of the three categories can be used and only one of the following core macroeconomic indicators should be chosen as first option:
Real GDP growth is given priority over any other indicator not only because it is the most comprehensive indicator of income and economic activity but also because it is the central variable in the generation of macroeconomic scenarios.
IFRS 9 requires calculating an unbiased probability weighted measurement of expected credit losses (“ECL”) by evaluating a range of possible outcomes, including forecasts of future economic conditions. The BBVA Research teams within the BBVA Group produce forecasts of the macroeconomic variables under the baseline scenario, which are used in the rest of the related processes of the Group, such as budgeting, ICAAP and risk appetite framework, stress testing, etc. Additionally, the BBVA Research teams produced alternative scenarios to the baseline scenario so as to meet the requirements under the IFRS 9 standard.
For each of the macro-financial variables, BBVA Research produces three scenarios. BBVA Research tracks, analyzes and forecasts the economic environment to provide a consistent forward looking assessment about the most likely scenario and risks that impact BBVA’s footprint. To build economic scenarios, BBVA Research combines official data, econometric techniques and expert knowledge. Each of these scenarios corresponds to the expected value of a different area of the probabilistic distribution of the possible projections of the economic variables.
The non-linearity overlay is defined as the ratio between the probability-weighted ECL under the alternative scenarios and the baseline scenario, where the scenario’s probability depends on the distance of the alternative scenarios from the base one. BBVA Group establishes equally weighted scenarios, being the probability 34% for the baseline scenario, 33% for the worst alternative scenario and 33% for the best alternative scenario. The approach in BBVA Group consists on using the scenario that is the most likely scenario, which is the baseline scenario, consistent with the rest of internal processes (ICAAP, Budgeting…) and then applying an overlay adjustment that is calculated by taking into account the weighted average of the ECL determined by each of the scenarios. This effect is calculated taking into account the weighted weight of the expected loss determined for each scenario. It is important to note that in general, it is expected that the effect of the overlay is to increase the ECL. It is possible to obtain an overlay that does not have that effect, whenever the relationship between macro scenarios and losses is linear. However, the overlay is not expected to reduce the ECL
On the other hand, the BBVA Group also takes into account the range of possible scenarios when defining its significant increase in credit risk. Thus, the PDs used in the quantitative process to identify the significant increase in credit risk will be those that result from making a weighted average of the PDs calculated under the three scenarios.
The COVID-19 pandemic has generated a macroeconomic uncertainty situation with a direct impact on credit risk of the entities, particularly, on the expected credit losses under IFRS 9.Even though the situation is unclear and of an unforeseeable time length, the expectation is that this situation will provoke a severe recession followed by an economic recovery, which will not achieve the pre-crisis GDP levels in the short-term, supported by the measures issued by governments and monetary authorities.
Originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
This situation has allowed the accounting authorities and the banking supervisors to adopt measures in order to mitigate the impacts that this crisis could imply on the calculation of expected credit losses under IFRS 9 as well as on solvency, urging: the entities to evaluate all the available information, weighing more the long-term forecasts against the short-term economic situation; the governments to adopt measures to avoid the effects of impairment; the entities to develop managerial measures as the design of specific products adapted to the situation which could occur during this crisis.
Almost all accounting and prudential authorities have issued recommendations or measures within the COVID-19 crisis framework regarding the estimation of the expected losses under IFRS 9 in a coordinated manner. The common denominator of all of these recommendations is that, given the difficulty of establishing reliable macroeconomic forecasts, the transitory term of the economic shock and the need to incorporate the effect of the mitigating measures issued by the governments, a review of the automatic application of the models in order to increase the weight of the long-term macroeconomic forecasts in the calculation of the expected losses is needed. As a result thereof, the expected outcome over the lifetime of the transactions will have more weight than the short-term macroeconomic impact.
In this respect, the BBVA Group has taken into account those recommendations in the calculation of the expected credit losses under IFRS 9, considering that the economic situation caused by the COVID-19 pandemic is transitory and will be followed by a recovery, even if there is uncertainty over the level and the time period of such recovery. As a consequence, different scenarios have been taken into consideration in the calculation of expected losses, resulting in the model management believes suits best the current economic situation and the combined recommendations issued by the authorities. In addition to the outcome of the calculation of the scenarios, individual analysis of exposures which could be most affected by the circumstances caused by the COVID-19, have been taken into account.
The estimate for the next five years of the Gross Domestic Product (GDP), of the variation in the unemployment rate and of the House Price Index (HPI), for the most relevant countries where it represents a significant factor, is determined by BBVA Research and it has been used at the time of the calculation of the expected credit loss as of December 31, 2020:
| Date | GDP | Unemployment | HPI | GDP | Unemployment | HPI | GDP | Unemployment |
|---|---|---|---|---|---|---|---|---|
| 2020 | (11.20%) | 16.44% | (1.44%) | (8.85%) | 4.57% | 1.71% | 2.07% | 13.45% |
| 2021 | 6.63% | 16.03% | (3.28%) | 4.58% | 5.40% | (1.23%) | 9.08% | 12.60% |
| 2022 | 6.27% | 12.72% | 4.56% | 3.80% | 5.17% | 0.32% | 5.30% | 11.58% |
| 2023 | 2.95% | 10.82% | 5.79% | 1.62% | 5.04% | 0.31% | 4.13% | 11.58% |
| 2024 | 2.07% | 9.58% | 3.66% | 1.47% | 4.91% | 1.01% | 4.11% | 11.19% |
| 2025 | 2.01% | 8.55% | 3.57% | 1.47% | 4.76% | 1.72% | 4.10% | 10.85% |
| Date | GDP | Unemployment | GDP | Unemployment | GDP | Unemployment |
|---|---|---|---|---|---|---|
| 2020 | (11.74%) | 12.75% | (10.64%) | 13.60% | (6.80%) | 18.14% |
| 2021 | 12.56% | 10.29% | 9.95% | 14.39% | 6.80% | 16.14% |
| 2022 | 5.25% | 10.00% | 3.52% | 11.88% | 3.70% | 14.53% |
| 2023 | 3.68% | 8.73% | 2.08% | 8.99% | 3.15% | 14.28% |
| 2024 | 3.58% | 7.23% | 2.11% | 7.69% | 3.27% | 12.49% |
| 2025 | 3.35% | 6.88% | 2.14% | 6.78% | 3.60% | 12.28% |
| Date | GDP | Unemployment | HPI | GDP | Unemployment | HPI | GDP | Unemployment |
|---|---|---|---|---|---|---|---|---|
| 2020 | (11.48%) | 16.95% | (1.98%) | (9.25%) | 4.62% | 1.81% | (0.01%) | 13.98% |
| 2021 | 5.99% | 17.51% | (5.08%) | 3.71% | 5.57% | (1.32%) | 5.52% | 14.05% |
| 2022 | 6.04% | 14.35% | 3.48% | 3.53% | 5.35% | 0.15% | 4.53% | 12.58% |
| 2023 | 2.93% | 12.41% | 5.44% | 1.55% | 5.19% | 0.31% | 4.01% | 11.95% |
| 2024 | 2.07% | 11.14% | 3.20% | 1.45% | 5.03% | 1.02% | 3.99% | 11.38% |
| 2025 | 2.01% | 9.99% | 3.12% | 1.46% | 4.88% | 1.71% | 3.98% | 11.03% |
| Date | GDP | Unemployment | GDP | Unemployment | GDP | Unemployment |
|---|---|---|---|---|---|---|
| 2020 | (13.04%) | 12.80% | (13.00%) | 13.98% | (7.51%) | 18.23% |
| 2021 | 10.05% | 10.48% | 5.54% | 15.40% | 5.48% | 16.40% |
| 2022 | 4.52% | 10.23% | 2.54% | 12.80% | 3.46% | 14.83% |
| 2023 | 3.69% | 8.93% | 1.98% | 9.60% | 3.15% | 14.57% |
| 2024 | 3.58% | 7.41% | 1.98% | 8.18% | 3.27% | 12.78% |
| 2025 | 3.35% | 7.06% | 2.01% | 7.28% | 3.60% | 12.55% |
| Date | GDP | Unemployment | HPI | GDP | Unemployment | HPI | GDP | Unemployment |
|---|---|---|---|---|---|---|---|---|
| 2020 | (11.76%) | 17.44% | (2.60%) | (9.64%) | 4.67% | 1.89% | (2.10%) | 14.49% |
| 2021 | 5.37% | 18.94% | (6.69%) | 2.84% | 5.75% | (1.48%) | 1.75% | 15.51% |
| 2022 | 5.82% | 15.92% | 2.49% | 3.25% | 5.53% | (0.06%) | 3.56% | 13.64% |
| 2023 | 2.88% | 13.99% | 4.94% | 1.48% | 5.34% | 0.17% | 3.92% | 12.33% |
| 2024 | 2.03% | 12.70% | 2.45% | 1.41% | 5.17% | 0.99% | 3.91% | 11.56% |
| 2025 | 1.97% | 11.45% | 2.36% | 1.41% | 5.02% | 1.70% | 3.91% | 11.20% |
| Date | GDP | Unemployment | GDP | Unemployment | GDP | Unemployment |
|---|---|---|---|---|---|---|
| 2020 | (14.33%) | 12.85% | (15.28%) | 14.34% | (8.25%) | 18.31% |
| 2021 | 7.53% | 10.69% | 0.89% | 16.38% | 4.16% | 16.66% |
| 2022 | 3.78% | 10.48% | 1.33% | 13.69% | 3.16% | 15.10% |
| 2023 | 3.69% | 9.15% | 1.86% | 10.19% | 3.15% | 14.84% |
| 2024 | 3.57% | 7.62% | 1.83% | 8.63% | 3.27% | 13.04% |
| 2025 | 3.35% | 7.27% | 1.86% | 7.75% | 3.60% | 12.80% |
The estimate for the next five years of the Gross Domestic Product (GDP), is determined by BBVA Research and it has been used at the time of the calculation of the expected credit loss as of December 31, 2019:
| Date | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario |
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2019 | 0.96% | 1.54% | 2.15% | (0.58%) | 0.23% | 1.06% | (0.60%) | 3.32% | 7.06% | 1.16% | 2.12% | 3.13% |
| 2020 | 1.35% | 1.87% | 2.42% | 0.93% | 1.66% | 2.39% | (0.68%) | 2.48% | 5.27% | 1.00% | 1.81% | 2.62% |
| 2021 | 2.01% | 2.10% | 2.19% | 2.05% | 2.14% | 2.23% | 4.60% | 4.74% | 4.91% | 1.84% | 1.92% | 2.03% |
| 2022 | 1.85% | 1.89% | 1.88% | 2.07% | 2.14% | 2.19% | 4.28% | 4.38% | 4.47% | 1.83% | 1.86% | 1.91% |
| 2023 | 1.81% | 1.85% | 1.85% | 2.11% | 2.15% | 2.17% | 4.31% | 4.38% | 4.50% | 1.88% | 1.91% | 1.94% |
| Date | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario | GDP negative scenario | GDP base scenario | GDP positive scenario |
|---|---|---|---|---|---|---|---|---|---|
| 2019 | 0.34% | 2.92% | 5.43% | (7.41%) | (2.47%) | 2.40% | 1.93% | 3.29% | 4.58% |
| 2020 | 0.32% | 2.46% | 4.56% | (6.62%) | (2.57%) | 0.85% | 1.71% | 2.73% | 3.74% |
| 2021 | 3.07% | 3.28% | 3.49% | 2.08% | 2.30% | 2.51% | 3.61% | 3.61% | 3.61% |
| 2022 | 3.39% | 3.39% | 3.39% | 1.64% | 1.78% | 1.88% | 3.59% | 3.59% | 3.59% |
| 2023 | 3.86% | 3.86% | 3.86% | 1.95% | 2.10% | 2.23% | 3.59% | 3.59% | 3.59% |
Originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A sensitivity exercise has been carried out on the expected losses due to variations in the key hypotheses as they are the ones that introduce the greatest uncertainty in estimating such losses. As a first step, GDP and House Prices have been identified as the most relevant variables. These variables have been subjected to shocks of +/- 100 bps in their entire projection window. Independent sensitivities have been assessed, under the assumption of assigning a 100% probability to each determined scenario with these independent shocks. Variation in provisions is determined both by re-staging (that is: in worse scenarios due to the recognition of lifetime credit losses for additional operations that are transferred to stage 2 from stage 1 where 12 months of losses are valued: or vice versa in improvement scenarios) as well as variations in the collective risk parameters (PD and LGD) of each financial instrument due to the changes defined in the macroeconomic forecasts of the scenario.
| BBVA Group | Spain | Mexico | Turkey | |
|---|---|---|---|---|
| Total Portafolio | Mortgages | Wholesaler | Fixed income | |
| -100pb | 3.55% | 3.47% | 3.72% | 3.91% |
| +100pb | (3.25%) | (3.14%) | (3.03%) | (3.69%) |
| Housing price -100pb | 5.41% | 0.79% | 3.13% | |
| Housing price +100pb | (5.35%) | (0.77%) | (4.47%) |
In addition to what is described on individualized and collective estimates of expected losses and macroeconomic estimates, the Group may supplement the expected losses if it deems it necessary to collect the effects that may not be included, either by considering risk drivers or by the incorporation of sectorial particularities or that may affect a set of operations or borrowers. These adjustments should be temporary, until the reasons that motivated them disappear or materialize. For this reason, the expected losses have been supplemented with additional amounts that have been considered necessary to collect the particular characteristics of borrowers, sectors or portfolios and that may not be identified in the general process.# 7.2.2 Credit risk exposure
In accordance with IFRS 7 “Financial instruments: Disclosures”, the BBVA Group’s credit risk exposure by headings in the balance sheets as of December 31, 2020, 2019 and 2018 is provided below. It does not consider the loss allowances and the availability of collateral or other credit enhancements to guarantee compliance with payment obligations. The details are broken down by financial instruments and counterparties:
| Notes | December 2020 | Stage 1 | Stage 2 | Stage 3 |
|---|---|---|---|---|
| Financial assets held for trading | ||||
| Debt securities | 10 | 23,970 | ||
| Equity instruments | 10 | 11,458 | ||
| Loans and advances | 10 | 32,647 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss | ||||
| Loans and advances | 11 | 709 | ||
| Debt securities | 11 | 356 | ||
| Equity instruments | 11 | 4,133 | ||
| Financial assets designated at fair value through profit or loss | 12 | 1,117 | ||
| Derivatives (trading and hedging) | 46,302 | |||
| Financial assets at fair value through other comprehensive income | ||||
| Debt securities | 68,404 | 67,995 | 410 | |
| Equity instruments | 13 | 1,100 | ||
| Loans and advances to credit institutions | 13 | 33 | 33 | - |
| Financial assets at amortized cost | 379,857 | 334,552 | 30,607 | |
| Loans and advances to central banks | 6,229 | 6,229 | - | |
| Loans and advances to credit institutions | 14,591 | 14,565 | 20 | |
| Loans and advances to customers | 323,252 | 277,998 | 30,581 | |
| Debt securities | 35,785 | 35,759 | 6 | |
| Total financial assets risk | 570,084 | - | - | |
| Total loan commitments and financial guarantees | 179,440 | 165,726 | 12,682 | |
| Loan commitments given | 33 | 132,584 | 124,104 | 8,214 |
| Financial guarantees given | 33 | 10,665 | 9,208 | 1,168 |
| Other commitments given | 33 | 36,190 | 32,414 | 3,300 |
| Total maximum credit exposure | 749,524 |
| Notes | December 2019 | Stage 1 | Stage 2 | Stage 3 |
|---|---|---|---|---|
| Financial assets held for trading | ||||
| Debt securities | 10 | 26,309 | ||
| Equity instruments | 10 | 8,892 | ||
| Loans and advances | 10 | 34,303 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss | ||||
| Loans and advances | 11 | 1,120 | ||
| Debt securities | 11 | 110 | ||
| Equity instruments | 11 | 4,327 | ||
| Financial assets designated at fair value through profit or loss | 12 | 1,214 | ||
| Derivatives (trading and hedging) | 39,462 | |||
| Financial assets at fair value through other comprehensive income | ||||
| Debt securities | 58,841 | 58,590 | 250 | |
| Equity instruments | 13 | 2,420 | ||
| Loans and advances to credit institutions | 13 | 33 | 33 | - |
| Financial assets at amortized cost | 451,640 | 402,024 | 33,624 | |
| Loans and advances to central banks | 4,285 | 4,285 | - | |
| Loans and advances to credit institutions | 13,664 | 13,500 | 158 | |
| Loans and advances to customers | 394,763 | 345,449 | 33,360 | |
| Debt securities | 38,930 | 38,790 | 106 | |
| Total financial assets risk | 628,670 | |||
| Total loan commitments and financial guarantees | 181,116 | 169,663 | 10,452 | |
| Loan commitments given | 33 | 130,923 | 123,707 | 6,945 |
| Financial guarantees given | 33 | 10,984 | 9,804 | 955 |
| Other commitments given | 33 | 39,209 | 36,151 | 2,552 |
| Total maximum credit exposure | 809,786 |
| Notes | December 2018 | Stage 1 | Stage 2 | Stage 3 |
|---|---|---|---|---|
| Financial assets held for trading | ||||
| Debt securities | 10 | 25,577 | ||
| Equity instruments | 10 | 5,254 | ||
| Loans and advances | 10 | 28,750 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss | ||||
| Loans and advances | 11 | 1,803 | ||
| Debt securities | 11 | 237 | ||
| Equity instruments | 11 | 3,095 | ||
| Financial assets designated at fair value through profit or loss | 12 | 1,313 | ||
| Derivatives (trading and hedging) | 38,249 | |||
| Financial assets at fair value through other comprehensive income | ||||
| Debt securities | 53,737 | 53,734 | 3 | |
| Equity instruments | 13 | 2,595 | ||
| Loans and advances to credit institutions | 13 | 33 | 33 | - |
| Financial assets at amortized cost | 431,927 | 384,632 | 30,902 | |
| Loans and advances to central banks | 3,947 | 3,947 | - | |
| Loans and advances to credit institutions | 9,175 | 9,131 | 34 | |
| Loans and advances to customers | 386,225 | 339,204 | 30,673 | |
| Debt securities | 32,580 | 32,350 | 195 | |
| Total financial assets risk | 592,571 | |||
| Total loan commitments and financial guarantees | 170,511 | 161,404 | 8,120 | |
| Loan commitments given | 33 | 118,959 | 113,403 | 5,308 |
| Financial guarantees given | 33 | 16,454 | 14,902 | 1,220 |
| Other commitments given | 33 | 35,098 | 33,099 | 1,591 |
| Total maximum credit exposure | 763,082 |
The maximum credit exposure presented in the table above is determined by type of financial asset as explained below:
In the case of financial instruments recognized in the consolidated balance sheets, exposure to credit risk is considered equal to its carrying amount (not including loss allowances) with the only exception of trading and hedging derivatives. The maximum credit risk exposure on financial commitments and guarantees granted is the maximum that the Group would be liable for if these guarantees were called in, or the higher amount pending to be disposed from the customer in the case of commitments. The calculation of risk exposure for derivatives is based on the sum of two factors: the derivatives fair value and their potential risk (or "add-on").
The breakdown by geographical location and Stage of the maximum credit risk exposure, the accumulated allowances recorded and the carrying amount of the loans and advances to customers as of December 31, 2020, 2019 and 2018 is shown below:
| Gross exposure | Accumulated allowances | Carrying amount | |
|---|---|---|---|
| Total | 323,252 | (12,105) | 311,147 |
| Stage 1 | 277,998 | (2,005) | 275,993 |
| Stage 2 | 30,581 | (2,287) | 28,294 |
| Stage 3 | 14,672 | (7,813) | 6,860 |
| Spain (*) | 195,983 | (5,679) | 190,304 |
| Stage 1 | 171,397 | (753) | 170,644 |
| Stage 2 | 16,387 | (849) | 15,538 |
| Stage 3 | 8,199 | (4,077) | 4,122 |
| Mexico | 52,211 | (2,211) | 50,000 |
| Stage 1 | 46,373 | (685) | 45,688 |
| Stage 2 | 4,071 | (442) | 3,628 |
| Stage 3 | 1,767 | (1,083) | 684 |
| Turkey (**) | 39,633 | (2,338) | 37,295 |
| Stage 1 | 30,832 | (246) | 30,586 |
| Stage 2 | 5,806 | (535) | 5,272 |
| Stage 3 | 2,995 | (1,557) | 1,438 |
| South America (***) | 34,499 | (1,870) | 32,629 |
| Stage 1 | 28,484 | (320) | 28,165 |
| Stage 2 | 4,312 | (460) | 3,852 |
| Stage 3 | 1,703 | (1,090) | 612 |
| Others | 925 | (7) | 918 |
| Stage 1 | 912 | (1) | 911 |
| Stage 2 | 5 | - | 4 |
| Stage 3 | 8 | (6) | 2 |
| Of which: individual | (2,611) | ||
| Stage 1 | (10) | ||
| Stage 2 | (479) | ||
| Stage 3 | (2,122) | ||
| Of which: collective | (9,494) | ||
| Stage 1 | (1,995) | ||
| Stage 2 | (1,808) | ||
| Stage 3 | (5,691) |
() Spain includes all countries where BBVA, S.A. operates.
() Turkey includes all countries in which Garanti BBVA operates.
() In South America, BBVA Group operates mainly in Argentina, Colombia, Peru and Uruguay.
(*) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2020, the remaining balance was €363 million). These valuation adjustments are recognized in the consolidated income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.
| Gross exposure | Accumulated allowances | Carrying amount | |
|---|---|---|---|
| Total | 394,763 | (12,402) | 382,360 |
| Stage 1 | 345,449 | (2,129) | 343,320 |
| Stage 2 | 33,360 | (2,181) | 31,179 |
| Stage 3 | 15,954 | (8,093) | 7,861 |
| Spain (*) | 197,058 | (5,311) | 191,747 |
| Stage 1 | 173,843 | (712) | 173,131 |
| Stage 2 | 14,599 | (661) | 13,939 |
| Stage 3 | 8,616 | (3,939) | 4,677 |
| The United States | 57,387 | (688) | 56,699 |
| Stage 1 | 49,744 | (165) | 49,580 |
| Stage 2 | 7,011 | (342) | 6,670 |
| Stage 3 | 632 | (182) | 450 |
| Mexico | 60,099 | (2,013) | 58,087 |
| Stage 1 | 54,748 | (697) | 54,052 |
| Stage 2 | 3,873 | (404) | 3,469 |
| Stage 3 | 1,478 | (912) | 566 |
| Turkey (**) | 43,113 | (2,613) | 40,500 |
| Stage 1 | 34,536 | (189) | 34,347 |
| Stage 2 | 5,127 | (450) | 4,677 |
| Stage 3 | 3,451 | (1,974) | 1,477 |
| South America (***) | 36,265 | (1,769) | 34,497 |
| Stage 1 | 31,754 | (366) | 31,388 |
| Stage 2 | 2,742 | (323) | 2,419 |
| Stage 3 | 1,769 | (1,079) | 690 |
| Others | 839 | (8) | 832 |
| Stage 1 | 824 | (1) | 823 |
| Stage 2 | 7 | (1) | 6 |
| Stage 3 | 9 | (6) | 2 |
| Of which: individual | (2,795) | ||
| Stage 1 | (6) | ||
| Stage 2 | (347) | ||
| Stage 3 | (2,441) | ||
| Of which: collective | (9,608) | ||
| Stage 1 | (2,123) | ||
| Stage 2 | (1,834) | ||
| Stage 3 | (5,652) |
() Spain includes all countries where BBVA, S.A. operates.
() Turkey includes all countries in which Garanti BBVA operates.
() In South America, BBVA Group operates mainly in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.
(*) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2019 the remaining balance was €433 million). These valuation adjustments are recognized in the consolidated income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.December 2018 (Millions of Euros)
| Gross exposure | Accumulated allowances | Carrying amount |
|---|---|---|
| Total | Stage 1 | Stage 2 |
| Spain (*) | 195,447 | 172,599 |
| The United States | 57,321 | 50,665 |
| Mexico | 52,858 | 48,354 |
| Turkey (**) | 43,718 | 34,883 |
| South America (***) | 36,098 | 31,947 |
| Others | 783 | 756 |
| Total (****) | 386,225 | 339,204 |
| Of which: individual | ||
| Of which: collective |
() Spain includes all countries where BBVA, S.A. operates.
() Turkey includes all countries in which Garanti BBVA operates.
() In South America, BBVA Group operates mainly in Argentina, Chile, Colombia, Peru, Uruguay and Venezuela.
(*) The amount of the accumulated impairment includes the provisions recorded for credit risk over the remaining expected lifetime of purchased financial instruments. Those provisions were determined at the moment of the Purchase Price Allocation and were originated mainly in the acquisition of Catalunya Banc S.A. (as of December 31, 2018 the remaining balance was €540 million). These valuation adjustments are recognized in the consolidated income statement during the residual life of the operations or are applied to the value corrections when the losses materialize.
P.62 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown by counterparty of the maximum credit risk exposure, the accumulated allowances recorded, as well as the carrying amount by stages of loans and advances to customers as of December 31, 2020, 2019 and 2018 is shown below:
| Gross exposure | Accumulated allowances | Net amount |
|---|---|---|
| Total | Stage 1 | Stage 2 |
| Public administrations | 19,439 | 19,163 |
| Other financial corporations | 9,856 | 9,747 |
| Non-financial corporations | 142,547 | 119,891 |
| Individuals | 151,410 | 129,196 |
| Loans and advances to customers | 323,252 | 277,998 |
| Gross exposure | Accumulated allowances | Net amount |
|---|---|---|
| Total | Stage 1 | Stage 2 |
| Public administrations | 28,281 | 27,511 |
| Other financial corporations | 11,239 | 11,085 |
| Non-financial corporations | 173,254 | 148,768 |
| Individuals | 181,989 | 158,085 |
| Loans and advances to customers | 394,763 | 345,449 |
| Gross exposure | Accumulated allowances | Net amount |
|---|---|---|
| Total | Stage 1 | Stage 2 |
| Public administrations | 28,632 | 27,740 |
| Other financial corporations | 9,490 | 9,189 |
| Non-financial corporations | 169,764 | 145,875 |
| Individuals | 178,339 | 156,400 |
| Loans and advances to customers | 386,225 | 339,204 |
The breakdown by counterparty and product of loans and advances, net of loss allowances, as well as the gross carrying amount by type of product, classified in different headings of the assets, as of December 31, 2020, 2019 and 2018 is shown below:
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Gross carrying amount | |
|---|---|---|---|---|---|---|---|---|
| On demand and short notice | - | 7 | - | 502 | 1,798 | 528 | 2,835 | 3,021 |
| Credit card debt | - | - | - | 2 | 1,485 | 11,605 | 13,093 | 14,220 |
| Commercial debtors | 898 | - | 317 | 14,262 | 67 | 15,544 | 15,796 | |
| Finance leases | - | 197 | - | 6 | 7,125 | 322 | 7,650 | 8,013 |
| Reverse repurchase loans | 472 | - | 1,914 | - | 71 | - | 2,457 | 2,463 |
| Other term loans | 5,690 | 18,111 | 3,972 | 5,799 | 111,141 | 132,603 | 277,317 | 287,467 |
| Advances that are not loans | 48 | 260 | 8,721 | 3,191 | 1,084 | 473 | 13,777 | 13,833 |
| LOANS AND ADVANCES | 6,209 | 19,475 | 14,608 | 9,817 | 136,966 | 145,598 | 332,672 | 344,813 |
| By secured loans | ||||||||
| Of which: mortgage loans collateralized by immovable property | 372 | - | 209 | 22,091 | 94,147 | 116,819 | 120,194 | |
| Of which: other collateralized loans | 472 | 952 | - | 317 | 3,763 | 2,059 | 7,562 | 7,776 |
| By purpose of the loan | ||||||||
| Of which: credit for consumption | 39,799 | 39,799 | 43,037 | |||||
| Of which: lending for house purchase | 94,098 | 94,098 | 95,751 | |||||
| By subordination | ||||||||
| Of which: project finance loans | 10,721 | 10,721 | 11,032 |
P.63 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Gross carrying amount | |
|---|---|---|---|---|---|---|---|---|
| On demand and short notice | - | 9 | - | 118 | 2,328 | 595 | 3,050 | 3,251 |
| Credit card debt | - | 10 | 1 | 3 | 1,940 | 14,401 | 16,355 | 17,608 |
| Commercial debtors | 971 | - | 230 | 15,976 | 99 | 17,276 | 17,617 | |
| Finance leases | - | 227 | - | 6 | 8,091 | 387 | 8,711 | 9,095 |
| Reverse repurchase loans | - | - | 1,817 | - | 26 | - | 1,843 | 1,848 |
| Other term loans | 4,240 | 26,734 | 4,121 | 7,795 | 137,934 | 160,223 | 341,047 | 351,230 |
| Advances that are not loans | 35 | 865 | 7,743 | 3,056 | 951 | 506 | 13,156 | 13,214 |
| LOANS AND ADVANCES | 4,275 | 28,816 | 13,682 | 11,208 | 167,246 | 176,211 | 401,438 | 413,863 |
| By secured loans | ||||||||
| Of which: mortgage loans collateralized by immovable property | 1,067 | 15 | 261 | 23,575 | 111,085 | 136,003 | 139,317 | |
| Of which: other collateralized loans | - | 10,447 | 93 | 2,106 | 29,009 | 6,893 | 48,548 | 49,266 |
| By purpose of the loan | ||||||||
| Of which: credit for consumption | 46,356 | 46,356 | 49,474 | |||||
| Of which: lending for house purchase | 110,178 | 110,178 | 111,636 | |||||
| By subordination | ||||||||
| Of which: project finance loans | 12,259 | 12,259 | 12,415 |
| Central banks | General governments | Credit institutions | Other financial corporations | Non-financial corporations | Households | Total | Gross carrying amount | |
|---|---|---|---|---|---|---|---|---|
| On demand and short notice | - | 10 | - | 151 | 2,833 | 648 | 3,641 | 3,834 |
| Credit card debt | - | 8 | 1 | 2 | 2,328 | 13,108 | 15,446 | 16,495 |
| Commercial debtors | 948 | - | 195 | 16,190 | 103 | 17,436 | 17,716 | |
| Finance leases | - | 226 | - | 3 | 8,014 | 406 | 8,650 | 9,077 |
| Reverse repurchase loans | - | 293 | 477 | - | - | - | 770 | 772 |
| Other term loans | 3,911 | 26,839 | 2,947 | 7,030 | 133,573 | 157,760 | 332,060 | 342,264 |
| Advances that are not loans | 29 | 1,592 | 5,771 | 2,088 | 984 | 498 | 10,962 | 11,025 |
| LOANS AND ADVANCES | 3,941 | 29,917 | 9,196 | 9,468 | 163,922 | 172,522 | 388,966 | 401,183 |
| By secured loans | ||||||||
| Of which: mortgage loans collateralized by immovable property | 1,056 | 15 | 219 | 26,784 | 111,809 | 139,883 | 144,005 | |
| Of which: other collateralized loans | - | 7,179 | 285 | 1,389 | 31,393 | 6,835 | 47,081 | 47,855 |
| By purpose of the loan | ||||||||
| Of which: credit for consumption | 40,124 | 40,124 | 42,736 | |||||
| Of which: lending for house purchase | 111,007 | 111,007 | 112,952 | |||||
| By subordination | ||||||||
| Of which: project finance loans | 13,973 | 13,973 | 14,286 |
In most cases, maximum credit risk exposure is reduced by collateral, credit enhancements and other actions which mitigate the Group’s exposure. The BBVA Group applies a credit risk hedging and mitigation policy deriving from a banking approach focused on relationship banking. The existence of guarantees could be a necessary but not sufficient instrument for accepting risks, as the assumption of risks by the Group requires prior evaluation of the debtor’s capacity for repayment, or that the debtor can generate sufficient resources to allow the amortization of the risk incurred under the agreed terms. The policy of accepting risks is therefore organized into three different levels in the BBVA Group:
P.64 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.Additionally, the necessary tasks for the constitution of guarantees must be carried out - in any of the generally accepted forms (collaterals, personal guarantees and financial hedge instruments) - appropriate to the risk assumed. The procedures for the management and valuation of collateral are set out in the corporate general policies (retail and wholesale), which establish the basic principles for credit risk management, including the management of collaterals assigned in transactions with customers. The criteria for the systematic, standardized and effective treatment of collateral in credit transaction procedures in BBVA Group’s wholesale and retail banking are included in the Specific Collateral Rules. The methods used to value the collateral are in line with the best market practices and imply the use of appraisal of real-estate collateral, the market price in market securities, the trading price of shares in mutual funds, etc. All the collaterals received must be correctly assigned and entered in the corresponding register. They must also have the approval of the Group’s legal units. The valuation of the collateral is taken into account in the calculation of the expected losses. The Group has developed internal models to estimate the realization value of the collaterals received, the time that elapses until then, the costs for their acquisition, maintenance and subsequent sale, from real observations based on its own experience. This modeling is part of the LGD estimation processes that are applied to the different segments, and is included within the annual review and validation procedures.
The following is a description of the main types of collateral for each financial instrument class:
The disclosure of impaired loans and advances at amortized cost covered by collateral (see Note 7.2.6), by type of collateral, as of December 31, 2020, 2019 and 2018, is the following:
December 2020 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral | Residential properties | Commercial properties | Cash | Others | Financial | |
|---|---|---|---|---|---|---|---|
| Impaired loans and advances at amortized cost | 14,678 | 2,717 | 789 | 18 | 52 | 575 | |
| Total | 14,678 | 2,717 | 789 | 18 | 52 | 575 |
December 2019 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral | Residential properties | Commercial properties | Cash | Others | Financial | |
|---|---|---|---|---|---|---|---|
| Impaired loans and advances at amortized cost | 15,959 | 3,396 | 939 | 35 | 221 | 542 | |
| Total | 15,959 | 3,396 | 939 | 35 | 221 | 542 |
P.65 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2018 (Millions of Euros)
| Maximum exposure to credit risk | Of which secured by collateral | Residential properties | Commercial properties | Cash | Others | Financial | |
|---|---|---|---|---|---|---|---|
| Impaired loans and advances at amortized cost | 16,359 | 3,484 | 1,255 | 13 | 317 | 502 | |
| Total | 16,359 | 3,484 | 1,255 | 13 | 317 | 502 |
The value of guarantees received as of December 31, 2020, 2019 and 2018, is the following:
Guarantees received (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Value of collateral | 116,900 | 152,454 | 158,268 |
| Of which: guarantees normal risks under special monitoring | 11,296 | 14,623 | 14,087 |
| Of which: guarantees non-performing risks | 3,577 | 4,590 | 5,068 |
| Value of other guarantees | 47,012 | 35,464 | 16,897 |
| Of which: guarantees normal risks under special monitoring | 4,045 | 3,306 | 1,519 |
| Of which: guarantees non-performing risks | 575 | 542 | 502 |
| Total value of guarantees received | 163,912 | 187,918 | 175,165 |
The maximum credit risk exposure of impaired financial guarantees and other commitments at December 31, 2020, 2019 and 2018 amounts to €1,032, €1,001 and €987 million, respectively (see Note 7.2.2).
The BBVA Group has tools that enable it to rank the credit quality of its transactions and customers based on an assessment and its correspondence with the probability of default (“PD”) scales. To analyze the performance of PD, the Group has a series of tracking tools and historical databases that collect the pertinent internally generated information. These tools can be grouped together into scoring and rating models.
Scoring is a decision-making model that contributes to both the arrangement and management of retail loans: consumer loans, mortgages, credit cards for individuals, etc. Scoring is the tool used to decide to originate a loan, what amount should be originated and what strategies can help establish the price, because it is an algorithm that sorts transactions by their credit quality. This algorithm enables the BBVA Group to assign a score to each transaction requested by a customer, on the basis of a series of objective characteristics that have statistically been shown to discriminate between the quality and risk of this type of transactions. The advantage of scoring lies in its simplicity and homogeneity: all that is needed is a series of objective data for each customer, and this data is analyzed automatically using an algorithm.
There are three types of scoring, based on the information used and on its purpose:
Rating tools, as opposed to scoring tools, do not assess transactions but focus on the rating of customers instead: companies, corporations, SMEs, general governments, etc. A rating tool is an instrument that, based on a detailed financial study, helps determine a customer’s ability to meet his/her financial obligations. The final rating is usually a combination of various factors: on one hand, quantitative factors, and on the other hand, qualitative factors. It is a middle road between an individual analysis and a statistical analysis. The main difference between ratings and scorings is that the latter are used to assess retail products, while ratings use a wholesale banking customer approach. Moreover, scorings only include objective variables, while ratings add qualitative information. And although both are based on statistical studies, adding a business view, rating tools give more weight to the business criterion compared to scoring tools.
P.66 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
For portfolios where the number of defaults is low (sovereign risk, corporates, financial entities, etc.) the internal information is supplemented by “benchmarking” of the external rating agencies (Moody’s, Standard & Poor’s and Fitch). To this end, each year the PDs compiled by the rating agencies at each level of risk rating are compared, and the measurements compiled by the various agencies are mapped against those of the BBVA master rating scale. Once the probability of default of a transaction or customer has been calculated, a "business cycle adjustment" is carried out.This is a means of establishing a measure of risk that goes beyond the time of its calculation. The aim is to capture representative information of the behavior of portfolios over a complete economic cycle. This probability is linked to the Master Rating Scale prepared by the BBVA Group to enable uniform classification of the Group’s various asset risk portfolios. The table below shows the abridged scale used to classify the BBVA Group’s outstanding risk as of December 31, 2020:
| External rating | Internal rating | Probability of default (basis points) |
|---|---|---|
| List | Reduced List (22 groups) | |
| Average | Minimum | |
| from >= | Maximum | |
| AAA | AAA | 1 |
| AA+ | AA+ | 2 |
| AA | AA | 3 |
| AA- | AA- | 4 |
| A+ | A+ | 5 |
| A | A | 8 |
| A- | A- | 10 |
| BBB+ | BBB+ | 14 |
| BBB | BBB | 20 |
| BBB- | BBB- | 31 |
| BB+ | BB+ | 51 |
| BB | BB | 88 |
| BB- | BB- | 150 |
| B+ | B+ | 255 |
| B | B | 441 |
| B- | B- | 785 |
| CCC+ | CCC+ | 1,191 |
| CCC | CCC | 1,500 |
| CCC- | CCC- | 1,890 |
| CC+ | CC+ | 2,381 |
| CC | CC | 3,000 |
| CC- | CC- | 3,780 |
These different levels and their probability of default were calculated by using as a reference the rating scales and default rates provided by the external agencies Standard & Poor’s and Moody’s. These calculations establish the levels of probability of default for the BBVA Group’s Master Rating Scale. Although this scale is common to the entire Group, the calibrations (mapping scores to PD sections/Master Rating Scale levels) are carried out at tool level for each country in which the Group has tools available.
The table below outlines the distribution by probability of default within 12 months and stages of the gross carrying amount of loans and advances to customers in percentage terms of the BBVA Group as of December 31, 2020, 2019 and 2018:
| Probability of default (basis points) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Subject to 12 month ECL ( Stage 1) | Subject to lifetime ECL ( Stage 2) | Subject to 12 month ECL ( Stage 1) | |
| % | % | % | |
| 0 to 2 | 4.0 | - | 5.5 |
| 2 to 5 | 10.2 | 0.1 | 6.3 |
| 5 to 11 | 7.7 | 0.1 | 14.6 |
| 11 to 39 | 26.8 | 0.5 | 24.5 |
| 39 to 194 | 24.0 | 2.3 | 24.5 |
| 194 to 1,061 | 15.1 | 3.4 | 14.0 |
| 1,061 to 2,121 | 1.5 | 1.2 | 1.4 |
| > 2,121 | 0.6 | 2.5 | 0.4 |
| Total | 89.9 | 10.1 | 91.0 |
P.67
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of loans and advances, within financial assets at amortized cost, non-performing and accumulated impairment, as well as the gross carrying amount, by counterparties as of December 31, 2020, 2019 and 2018 is as follows:
| Gross carrying amount | Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total | |
|---|---|---|---|---|
| Central banks | 6,229 | - | (20) | - |
| General governments | 19,439 | 76 | (48) | 0.4% |
| Credit institutions | 14,591 | 6 | (16) | - |
| Other financial corporations | 9,856 | 14 | (39) | 0.1% |
| Non-financial corporations | 142,547 | 7,477 | (6,123) | 5.2% |
| Agriculture, forestry and fishing | 3,438 | 132 | (108) | 3.8% |
| Mining and quarrying | 4,349 | 47 | (59) | 1.1% |
| Manufacturing | 33,771 | 1,486 | (1,129) | 4.4% |
| Electricity, gas, steam and air conditioning supply | 13,490 | 591 | (509) | 4.4% |
| Water supply | 899 | 17 | (15) | 1.9% |
| Construction | 10,019 | 1,397 | (722) | 13.9% |
| Wholesale and retail trade | 24,594 | 1,456 | (1,223) | 5.9% |
| Transport and storage | 8,117 | 489 | (368) | 6.0% |
| Accommodation and food service activities | 8,337 | 358 | (294) | 4.3% |
| Information and communications | 5,764 | 73 | (60) | 1.3% |
| Financial and insurance activities | 5,298 | 123 | (132) | 2.3% |
| Real estate activities | 10,025 | 617 | (494) | 6.2% |
| Professional, scientific and technical activities | 2,886 | 177 | (124) | 6.1% |
| Administrative and support service activities | 3,955 | 142 | (192) | 3.6% |
| Public administration and defense; compulsory social security | 129 | 5 | (4) | 3.5% |
| Education | 665 | 54 | (43) | 8.1% |
| Human health services and social work activities | 1,812 | 67 | (59) | 3.7% |
| Arts, entertainment and recreation | 1,131 | 46 | (65) | 4.1% |
| Other services | 3,871 | 198 | (523) | 5.1% |
| Households | 151,410 | 7,106 | (5,895) | 4.7% |
| LOANS AND ADVANCES | 344,072 | 14,678 | (12,141) | 4.3% |
P.68
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Gross carrying amount | Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total | |
|---|---|---|---|---|
| Central banks | 4,285 | - | (9) | - |
| General governments | 28,281 | 88 | (60) | 0.3% |
| Credit institutions | 13,664 | 6 | (15) | - |
| Other financial corporations | 11,239 | 17 | (31) | 0.2% |
| Non-financial corporations | 173,254 | 8,467 | (6,465) | 4.9% |
| Agriculture, forestry and fishing | 3,758 | 154 | (124) | 4.1% |
| Mining and quarrying | 4,669 | 100 | (86) | 2.1% |
| Manufacturing | 39,517 | 1,711 | (1,242) | 4.3% |
| Electricity, gas, steam and air conditioning supply | 12,305 | 684 | (575) | 5.6% |
| Water supply | 900 | 14 | (16) | 1.6% |
| Construction | 10,945 | 1,377 | (876) | 12.6% |
| Wholesale and retail trade | 27,467 | 1,799 | (1,448) | 6.6% |
| Transport and storage | 9,638 | 507 | (392) | 5.3% |
| Accommodation and food service activities | 8,703 | 279 | (203) | 3.2% |
| Information and communications | 6,316 | 95 | (65) | 1.5% |
| Financial and insurance activities | 6,864 | 191 | (140) | 2.8% |
| Real estate activities | 19,435 | 782 | (527) | 4.0% |
| Professional, scientific and technical activities | 4,375 | 167 | (140) | 3.8% |
| Administrative and support service activities | 3,415 | 118 | (134) | 3.4% |
| Public administration and defense, compulsory social security | 282 | 5 | (6) | 1.7% |
| Education | 903 | 41 | (38) | 4.5% |
| Human health services and social work activities | 4,696 | 66 | (55) | 1.4% |
| Arts, entertainment and recreation | 1,396 | 47 | (39) | 3.4% |
| Other services | 7,671 | 331 | (360) | 4.3% |
| Households | 181,989 | 7,381 | (5,847) | 4.1% |
| LOANS AND ADVANCES | 412,711 | 15,959 | (12,427) | 3.9% |
P.69
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Gross carrying amount | Non-performing loans and advances | Accumulated impairment | Non-performing loans and advances as a % of the total | |
|---|---|---|---|---|
| Central banks | 3,947 | - | (6) | - |
| General governments | 28,198 | 128 | (84) | 0.4% |
| Credit institutions | 9,175 | 10 | (12) | 0.1% |
| Other financial corporations | 9,490 | 11 | (22) | 0.1% |
| Non-financial corporations | 170,182 | 8,372 | (6,260) | 4.9% |
| Agriculture, forestry and fishing | 3,685 | 122 | (107) | 3.3% |
| Mining and quarrying | 4,952 | 96 | (70) | 1.9% |
| Manufacturing | 36,772 | 1,695 | (1,134) | 4.6% |
| Electricity, gas, steam and air conditioning supply | 13,853 | 585 | (446) | 4.2% |
| Water supply | 1,061 | 19 | (15) | 1.8% |
| Construction | 11,899 | 1,488 | (1,007) | 12.5% |
| Wholesale and retail trade | 25,833 | 1,624 | (1,259) | 6.3% |
| Transport and storage | 9,798 | 459 | (374) | 4.7% |
| Accommodation and food service activities | 7,882 | 315 | (204) | 4.0% |
| Information and communications | 5,238 | 113 | (72) | 2.1% |
| Financial and insurance activities | 6,929 | 147 | (128) | 2.1% |
| Real estate activities | 17,272 | 834 | (624) | 4.8% |
| Professional, scientific and technical activities | 5,096 | 204 | (171) | 4.0% |
| Administrative and support service activities | 3,162 | 128 | (125) | 4.0% |
| Public administration and defense, compulsory social security | 319 | 5 | (7) | 1.6% |
| Education | 912 | 31 | (31) | 3.4% |
| Human health services and social work activities | 4,406 | 63 | (63) | 1.4% |
| Arts, entertainment and recreation | 1,323 | 59 | (41) | 4.5% |
| Other services | 9,791 | 386 | (382) | 3.9% |
| Households | 178,355 | 7,838 | (5,833) | 4.4% |
| LOANS AND ADVANCES | 399,347 | 16,359 | (12,217) | 4.1% |
P.70
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The changes during the years 2020, 2019 and 2018 of impaired financial assets and contingent risks are as follow:
Changes in impaired financial assets and contingent risks (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Balance at the beginning | 16,770 | 17,134 | 20,590 |
| Additions | 9,533 | 9,857 | 9,792 |
| Decreases (*) | (5,024) | (5,874) | (6,909) |
| Net additions | 4,509 | 3,983 | 2,883 |
| Amounts written-off | (3,603) | (3,803) | (5,076) |
| Exchange differences and other | (968) | (544) | (1,264) |
| Balance at the end | 16,708 | 16,770 | 17,134 |
(*) Reflects the total amount of impaired loans derecognized from the consolidated balance sheet throughout the year as a result of mortgage foreclosures and real estate assets received in lieu of payment as well as monetary recoveries.
P.71
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The changes during the years 2020, 2019 and 2018 in financial assets derecognized from the accompanying consolidated balance sheet as their recovery is considered unlikely ("write-offs"), is shown below:
Changes in impaired financial assets written-off from the balance sheet (Millions of Euros)
| Notes | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Balance at the beginning | 26,245 | 32,343 | 30,139 | |
| Companies held for sale (*) | (4,646) | - | - | |
| Increase | 3,440 | 4,712 | 6,164 | |
| Decrease: | (2,715) | (11,039) | (4,210) | |
| Re-financing or restructuring | (7) | (2) | (10) | |
| Cash recovery | 47 | (339) | (919) | |
| Foreclosed assets | (479) | (617) | (625) | |
| Sales (**) | (1,223) | (8,325) | (1,805) | |
| Debt forgiveness | (607) | (493) | (889) | |
| Time-barred debt and other causes | (60) | (682) | (292) | |
| Net exchange differences | (323) | 230 | 250 | |
| Balance at the end | 22,001 | 26,245 | 32,343 |
() Amount in 2020 is mainly due to the sale of the stake in BBVA USA (see Notes 3 and 21).
(*) Includes principal and interest.
As indicated in Note 2.2.1, although they have been derecognized from the consolidated balance sheet, the BBVA Group continues to attempt to collect on these written-off financial assets, until the rights to receive them are fully extinguished, either because it is a time- barred financial asset, the financial asset is forgiven, or other reason.# 7.2.6 Loss allowances
Movements in gross accounting balances and accumulated allowances for loan losses during 2020 and 2019 are recorded on the accompanying consolidated balance sheet as of December 31, 2020 and 2019, in order to cover the estimated loss allowances in loans and advances and debt securities measured at amortized cost.
P.71 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
2020 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| Opening balance | 363,234 | 33,518 | 15,959 | 412,711 |
| Transfers of financial assets: | (11,935) | 8,807 | 3,128 | - |
| Transfers from stage 1 to Stage 2 | (15,843) | 15,843 | - | - |
| Transfers from stage 2 to Stage 1 | 5,107 | (5,107) | - | - |
| Transfers to Stage 3 | (1,701) | (2,659) | 4,359 | - |
| Transfers from Stage 3 | 502 | 729 | (1,231) | - |
| Net annual origination of financial assets | 16,119 | (827) | 102 | 15,395 |
| Becoming write-offs | (3) | (2) | (2,944) | (2,949) |
| Changes in model / methodology | - | - | - | - |
| Foreign exchange | (21,472) | (2,342) | (1,157) | (24,970) |
| Modifications that do not result in derecognition | (204) | 827 | 511 | 1,134 |
| Other | (283) | (190) | 270 | (204) |
| Discontinued operations | (46,664) | (9,190) | (1,192) | (57,045) |
| Closing balance | 298,793 | 30,601 | 14,678 | 344,072 |
2020 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| Opening balance | (2,149) | (2,183) | (8,094) | (12,427) |
| Transfers of financial assets: | 184 | (511) | (1,806) | (2,133) |
| Transfers from stage 1 to Stage 2 | 156 | (923) | - | (766) |
| Transfers from stage 2 to Stage 1 | (50) | 253 | - | 202 |
| Transfers to Stage 3 | 81 | 218 | (1,950) | (1,652) |
| Transfers from Stage 3 | (3) | (59) | 144 | 83 |
| Net annual origination of allowances | (872) | (795) | (1,329) | (2,996) |
| Becoming write-offs | - | - | 2,567 | 2,568 |
| Changes in model / methodology | - | - | - | - |
| Foreign exchange | 227 | 256 | 721 | 1,204 |
| Modifications that do not result in derecognition | 12 | (118) | (177) | (283) |
| Other | 160 | 618 | 25 | 803 |
| Discontinued operations | 401 | 444 | 278 | 1,123 |
| Closing balance | (2,037) | (2,289) | (7,815) | (12,141) |
2019 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| Opening balance | 352,282 | 30,707 | 16,359 | 399,347 |
| Transfers of financial assets: | (9,021) | 6,279 | 2,741 | - |
| Transfers from stage 1 to Stage 2 | (13,546) | 13,546 | - | - |
| Transfers from stage 2 to Stage 1 | 5,656 | (5,656) | - | - |
| Transfers to Stage 3 | (1,571) | (2,698) | 4,269 | - |
| Transfers from Stage 3 | 440 | 1,087 | (1,527) | - |
| Net annual origination of financial assets | 20,296 | (2,739) | 246 | 17,804 |
| Becoming write-offs | (152) | (349) | (3,407) | (3,908) |
| Changes in model / methodology | - | - | - | - |
| Foreign exchange | 1,611 | 35 | 16 | 1,662 |
| Modifications that do not result in derecognition | (1) | (27) | 15 | (13) |
| Other | (1,782) | (388) | (11) | (2,180) |
| Closing balance | 363,234 | 33,518 | 15,959 | 412,711 |
P.72 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
2019 (Millions of Euros)
| Stage 1 | Stage 2 | Stage 3 | Total | |
|---|---|---|---|---|
| Opening balance | (2,082) | (2,375) | (7,761) | (12,217) |
| Transfers of financial assets: | 176 | (227) | (1,574) | (1,626) |
| Transfers from stage 1 to Stage 2 | 126 | (649) | - | (523) |
| Transfers from stage 2 to Stage 1 | (38) | 273 | - | 235 |
| Transfers to Stage 3 | 89 | 234 | (1,810) | (1,487) |
| Transfers from Stage 3 | (1) | (86) | 236 | 149 |
| Net annual origination of allowances | (542) | (116) | (1,711) | (2,370) |
| Becoming write-offs | 130 | 337 | 2,789 | 3,256 |
| Changes in model / methodology | - | - | - | - |
| Foreign exchange | (30) | (18) | 69 | 20 |
| Modifications that do not result in derecognition | (15) | (149) | (89) | (254) |
| Other | 215 | 366 | 183 | 764 |
| Closing balance | (2,149) | (2,183) | (8,094) | (12,427) |
The following are the movements produced during 2018 in the value adjustments recorded in the accompanying balance sheets to cover the impairment or reversal of the estimated impairment of financial assets at amortized cost:
December 2018 (Millions of Euros)
| Not credit-impaired Stage 1 | Credit-impaired Stage 2 | Loss allowances (collectively assessed) Stage 3 | Loss allowances (individually assessed) | Total Loss allowances | |
|---|---|---|---|---|---|
| Opening balance | (2,237) | (1,827) | (525) | (9,371) | (13,960) |
| Transfers of financial assets: | 131 | (155) | 328 | (1,794) | (1,490) |
| Transfers from Stage 1 to Stage 2 (not credit-impaired) | 208 | (930) | (218) | - | (940) |
| Transfers from Stage 2 (not credit - impaired) to Stage 1 | (125) | 619 | 50 | - | 544 |
| Transfers to Stage 3 | 55 | 282 | 564 | (2,127) | (1,226) |
| Transfers from Stage 3 to Stage 1 or 2 | (7) | (126) | (68) | 333 | 132 |
| Changes without transfers between Stages | 358 | (53) | (260) | (3,775) | (3,730) |
| New financial assets originated | (1,072) | (375) | (244) | - | (1,692) |
| Purchased | - | - | - | - | - |
| Disposals | 2 | 3 | - | 110 | 115 |
| Repayments | 641 | 432 | 118 | 1,432 | 2,623 |
| Write-offs | 13 | 14 | 2 | 4,433 | 4,461 |
| Changes in model/ methodology | - | - | - | - | - |
| Foreign exchange | (84) | 72 | (93) | 343 | 239 |
| Modifications that result in derecognition | 5 | 10 | 25 | 98 | 138 |
| Modifications that do not result in derecognition | 3 | (8) | 1 | (362) | (366) |
| Other | 135 | 133 | 20 | 1,111 | 1,399 |
| Closing balance | (2,106) | (1,753) | (628) | (7,777) | (12,264) |
Of which: Loans and advances (12,217)
Of which: Debt certificates (46)
Refinancing and restructuring transactions (see definition in the Glossary) are carried out with customers who have requested such a transaction in order to meet their current loan payments if they are expected, or may be expected, to experience financial difficulty in making the payments in the future. The basic aim of a refinancing and restructuring transaction is to provide the customer with a situation of financial viability over time by adapting repayment of the loan incurred with the Group to the customer’s new situation of fund generation. The use of refinancing and restructuring for other purposes, such as to delay loss recognition, is contrary to BBVA Group policies.
The BBVA Group’s refinancing and restructuring policies are based on the following general principles:
Refinancing and restructuring is authorized according to the capacity of customers to pay the new installments. This is done by first identifying the origin of the payment difficulties and then carrying out an analysis of the customers’ viability, including an updated analysis of their economic and financial situation and capacity to pay and generate funds. If the customer is a company, the analysis also covers the situation of the industry in which it operates.
P.73 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
With the aim of increasing the solvency of the transaction, new guarantees and/or guarantors of demonstrable solvency are obtained where possible. An essential part of this process is an analysis of the effectiveness of both the new and original guarantees. This analysis is carried out from the overall customer or group perspective. Refinancing and restructuring transactions do not in general increase the amount of the customer’s loan, except for the expense inherent to the transaction itself. The capacity to refinance and restructure a loan is not delegated to the branches, but decided on by the risk units. The decisions made are reviewed from time to time with the aim of evaluating full compliance with refinancing and restructuring policies. These general principles are adapted in each case according to the conditions and circumstances of each geographical area in which the Group operates, and to the different types of customers involved.
In the case of retail customers (private individuals), the main aim of the BBVA Group’s policy on refinancing and restructuring a loan is to avoid default arising from a customer’s temporary liquidity problems by implementing structural solutions that do not increase the balance of the customer’s loan. The solution required is adapted to each case and the loan repayment is made easier, in accordance with the following principles:
In the case of non-retail customers (mainly companies, enterprises and corporates), refinancing/restructuring is authorized according to an economic and financial viability plan based on:
In accordance with the Group’s policy, the conclusion of a loan refinancing and restructuring transaction does not mean the loan is reclassified from "impaired" or "significant increase in credit risk" to normal risk.The reclassification to "significant increase in credit risk" or normal risk categories must be based on the analysis mentioned earlier of the viability, upon completion of the probationary periods described below. The Group maintains the policy of including risks related to refinanced and restructured loans as either: "Impaired assets", as although the customer is up to date with payments, they are classified as unlikely to pay when there are significant doubts that the terms of their refinancing may not be met; or "Significant increase in credit risk" until the conditions established for their consideration as normal risk are met. The assets classified as "Impaired assets" should comply with the following conditions in order to be reclassified to "Significant increase in credit risk": The customer has to have paid a significant part of the pending exposure. At least one year must have elapsed since its classification as "Impaired asset". The customer does not have past due payments and objective criteria, demonstrating the borrower´s ability to pay, have been verified. The conditions established for assets classified as “Significant increase in credit risk” to be reclassified out of this category are as follows: The customer must have paid past-due amounts (principal and interest) since the date of the renegotiation or restructuring of the loan or other objective criteria, demonstrating the borrower´s ability to pay, have been verified; none of its exposures is more than 30 days past-due. At least two years must have elapsed since completion of the renegotiation or restructuring of the loan and regular payments must have been made during at least half of this probation period; and It is unlikely that the customer will have financial difficulties and, therefore, it is expected that the customer will be able to meet its loan payment obligations (principal and interest) in a timely manner. P.74 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. The economic impact caused by the Covid-19 pandemic has required the adaptation of the repayment schedule of a large volume of loans in all geographies and portfolios. In general, this support has been conducted through the concession of deferrals that comply with the principles established by the EBA, which has allowed for the application of a differential accounting and prudential treatment. Renewals and renegotiations will be classified as normal risk, provided that there is no significant increase in risk. This classification is applicable at the initial moment, and in the event of any deterioration, the criteria established in the existing governance are followed. In this sense, the aforementioned conditions are considered, including, among others, no facility with more than 30 days delinquency and not being identified as 'unlikely to pay'. The BBVA Group’s refinancing and restructuring policy provides for the possibility of two modifications in a 24 month period for loans that are not in compliance with the payment schedule. The internal models used to determine allowances for loan losses consider the restructuring and renegotiation of a loan, as w ell as re- defaults on such a loan, by assigning a lower internal rating to restructured and renegotiated loans than the average internal rating assigned to non-restructured/renegotiated loans. This downgrade results in an increase in the probability of default (PD) assigned to restructured/renegotiated loans (with the resulting PD being higher than the average PD of the non - renegotiated loans in the same portfolios). For quantitative information on refinancing and restructuring transactions see Appendix XI.
In order to prevent the build-up of excessive risk concentrations at the individual, sector, portfolio and geography levels, BBVA Group maintains updated maximum permitted risk concentration indices which are tied to the various observable variables related to concentration risk. Together with the limits for individual concentration, the Group uses the Herfindahl index to measure the concentration of the Group's portfolio and the banking group's subsidiaries. At the BBVA Group level, the index reached implies a "very low" degree of concentration. The limit on the Group’s exposure or financial commitment to a specific customer therefore depends on the customer’s credit rating, the nature of the risks involved, and the Group’s presence in a given market, based on the following guidelines: The aim is, as much as possible, to reconcile the customer's credit needs (commercial/financial, short-term/long-term, etc.) with the interests of the Group. Any legal limits that may exist concerning risk concentration are taken into account (relationship between risks with a customer and the capital of the shareholder´s entity that assumes them), the markets, the macroeconomic situation, etc.
The breakdown of the main figures in the most significant foreign currencies in the accompanying consolidated balance sheets is set forth in Appendix XII.
The risk associated with the transactions involving sovereign risk is identified, measured, controlled and tracked by a centralized unit integrated in the BBVA Group’s Risk Area. Its basic functions involve the preparation of reports in the countries where sovereign risk exists (called “financial programs”), tracking such risks, assigning ratings to these countries and, in general, supporting the Group in terms of reporting requirements for any transactions involving sovereign risk. The risk policies established in the financial programs are approved by the relevant risk committees. The country risk unit tracks the evolution of the risks associated with the various countries to which the Group are exposed (including sovereign risk) on an ongoing basis in order to adapt its risk and mitigation policies to any macroeconomic and political changes that may occur. Moreover, it regularly updates its internal ratings and forecasts for these countries. The methodology is based on the assessment of quantitative and qualitative parameters which are in line with those used by certain multilateral organizations such as the International Monetary Fund (IMF) and the World Bank, rating agencies and export credit organizations. For additional information on sovereign risk in Europe see Appendix XII.
The relative weight of the investment in Real Estate developments has dramatically decreased during the last years, especially since 2014 and during 2018, when doubtful assets exited the balance sheet and recovery of the sector concluded. A corporate sales policy has been rolled out to eliminate those real estate assets from the balance sheet which have been most difficult to commercialize. The sales of 80% P.75 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. of the Group’s share in Divarian and of other performing and NPL wholesale portfolios to Funds and specialized investors have been some of the most relevant transactions (see Note 3).
BBVA Group has teams specializing in the management of the Real Estate Sector risk, given its economic importance and specific technical component. This specialization is not only in risk teams, but throughout the handling, commercial, problem risks and legal, etc. It also includes the research department of the BBVA Group (BBVA Research), which helps determine the medium/long-term vision needed to manage this portfolio. The policies established to address the risks related to the developer and real-estate sector, aim to accomplish, among others, the following objectives: to avoid concentration in terms of customers, products and regions; to estimate the risk profile for the portfolio; and to anticipate possible worsening of the portfolio within a sector is highly cyclical.
In the analysis of new transactions, the assessment of the commercial operation in terms of the economic and financial viability of the project has been one of the constant. The monitoring of the work, sales prospects and the legal situation of the project are essential aspects for the admission and follow -up of new real estate transactions. With regard the participation of the Risk Acceptance teams, they have a direct link and participate in the committees of areas such as Valuation, Legal, Research and Recoveries. This guarantees coordination and exchange of information in all the processes. In this context, and within the current Real Estate cycle, the strategy with clients is subject to an As set Allocation limit and to an action framework that allows defining a target portfolio, both in volume and in credit quality.
The base information for analyzing the real estate portfolios is updated monthly. There is a systematic monitoring of developments under close monitoring with the evolution of works and sales. Since 2013, there are no threats of new defaults in the portfolio.
The internal Rules on Real Estate Financing, which establish recommendations for financing a new housing development business, are reviewed and updated annually.# 7.3 Market risk
Market risk originates from the possibility of experiencing losses in the value of positions held as a result of movements in market variables that affect the valuation of financial assets and liabilities. Market risk in the Group's trading portfolios stems mainly from the portfolios originated by Global Markets valued at fair value and held for the purpose of trading and generating short-term results. Market risk in the field of banking book is clearly and distinctly addressed and can be broken down into structural risks relating to interest rate, exchange rate and equity (see Note 7.4).
The main risks in the trading portfolios can be classified as follows:
Interest-rate risk: This arises as a result of exposure to movements in the different interest-rate curves involved in trading. Although the typical products that generate sensitivity to the movements in interest rates are money-market products (deposits, interest-rate futures, call money swaps, etc.) and traditional interest-rate derivatives (swaps and interest-rate options such as caps, floors, swaptions, etc.), practically all the financial products are exposed to interest-rate movements due to the effect that such movements have on the valuation of the financial discount.
Equity risk: This arises as a result of movements in share prices. This risk is generated in spot positions in shares or any derivative products whose underlying asset is a share or an equity index. Dividend risk is a sub-risk of equity risk, arising as an input for any equity option. Its variation may affect the valuation of positions and it is therefore a factor that generates risk on the books.
Exchange-rate risk: This is caused by movements in the exchange rates of the different currencies in which a position is held. As in the case of equity risk, this risk is generated in spot currency positions, and in any derivative product whose underlying asset is an exchange rate. In addition, the quanto effect (operations where the underlying asset and the instrument itself are denominated in different currencies) means that in certain transactions in which the underlying asset is not a currency, an exchange-rate risk is generated that has to be measured and monitored.
P.76 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Credit-spread risk: Credit spread is an indicator of an issuer's credit quality. Spread risk occurs due to variations in the levels of spread of both corporate and government issues, and affects positions in bonds and credit derivatives.
Volatility risk: This occurs as a result of changes in the levels of implied price volatility of the different market instruments on which derivatives are traded. This risk, unlike the others, is exclusively a component of trading in derivatives and is defined as a first-order convexity risk that is generated in all possible underlying assets in which there are products with options that require a volatility input for their valuation.
The metrics developed to control and monitor market risk in the BBVA Group are aligned with market practices and are implemented consistently across all the local market risk units. Measurement procedures are established in terms of the possible impact of negative market conditions on the trading portfolio of the Group's Global Markets units, both under ordinary circumstances and in situations of heightened risk factors. The standard metric used to measure market risk is Value at Risk (“VaR”), which indicates the maximum loss that may occur in the portfolios at a given confidence level (99%) and time horizon (one day). This statistic value is widely used in the market and has the advantage of summing up in a single metric the risks inherent to trading activity, taking into account how they are related and providing a prediction of the loss that the trading book could sustain as a result of fluctuations in equity prices, interest rates, foreign exchange rates and credit spreads. The market risk analysis considers various risks, such as credit spread risk, basis risk, as well as volatility and correlation risk.
With respect to the risk measurement models used by the BBVA Group, the Bank of Spain has authorized the use of the internal market risk model to determine bank capital requirements deriving from risk positions on the BBVA S.A. and BBVA Mexico trading book, which jointly accounted for around 72%, 72% and 76% of the Group’s trading-book market risk as of December 31, 2020, 2019 and 2018. For the rest of the geographical areas where the Group operates (applicable mainly to the Group´s South America subsidiaries, Garanti BBVA and BBVA USA), bank capital for the risk positions in the trading book is calculated using the Standardized Approach defined by the Basel Committee on Banking Supervision (which is referred to herein as the "standard model”).
The current management structure includes the monitoring of market-risk limits, consisting of a scheme of limits based on VaR, economic capital (based on VaR measurements) and VaR sub-limits, as well as stop-loss limits for each of the Group’s business units. The model used estimates VaR in accordance with the historical simulation methodology, which involves estimating losses and gains that would have taken place in the current portfolio if the changes in market conditions that took place over a specific period of time in the past were repeated. Based on this information, it predicts the maximum expected loss of the current portfolio within a given confidence level. This model has the advantage of reflecting precisely the historical distribution of the market variables and not assuming any specific distribution of probability. The historical period used in this model is two years.
VaR figures are estimated with the following methodologies:
The use of VaR by historical simulation methodology as a risk metric has many advantages, but also certain limitations, among which it is worth highlighting:
To mitigate this limitation, different stress exercises are also performed, as described later. At the same time, and following the guidelines established by the Spanish and European authorities, BBVA incorporates metrics in addition to VaR with the aim of meeting the Bank of Spain's regulatory requirements with respect to the calculation of bank capital for the trading book. Specifically, the measures incorporated in the Group since December 2011 (stipulated by Basel 2.5) are:
P.77 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
model. The scope of the correlation portfolios refers to the First To Default (FTD)-type market operation and/or tranches of market CDOs and only for positions with an active market and hedging capacity. Validity tests are performed regularly on the risk measurement models used by the Group.# 7.3.1 Market Risk
They estimate the maximum loss that could have been incurred in the assessed positions with a certain level of probability (backtesting), as well as measurements of the impact of extreme market events on risk positions (stress testing). As an additional control measure, backtesting is conducted at a trading desk level in order to enable more specific monitoring of the validity of the measurement models.
The Group’s market risk related to its trading portfolio remained at low levels compared to other risks managed by BBVA, particularly credit risk. This is due to the nature of the business. In 2020 the average VaR was €27 million, above the figure of 2019, with a maximum level in the year reached on the day May 14, 2020 of €39 million. The evolution in the BBVA Group’s market risk during 2020, measured as VaR without smoothing (see Glossary) with a 99% confidence level and a 1-day horizon (shown in millions of Euros) is as follows:
By type of market risk assumed by the Group's trading portfolio, the main risk factor for the Group continued to be that linked to interest rates, with a weight of 56% of the total at December 31, 2020 (this figure includes the spread risk). The relative weight of this risk has increased compared with the close of 2019 (58%). Exchange-rate risk accounted for 22% of the total risk, increasing its weight with respect to December 2019 (13%), while equity, volatility and correlation risk has decreased, with a weight of 22% at the close of 2020 (vs. 29% at the close of 2019).
P.78 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, 2019 and 2018 the VaR was €32 million, €20 million and €17 million, respectively. The total VaR figures for 2020, 2019 and 2018 can be broken down as follows:
| Interest/Spread risk | Currency risk | Stock-market risk | Vega/Correlation risk | Diversification effect(*) | Total | |
|---|---|---|---|---|---|---|
| 2020 | ||||||
| VaR average in the year | 29 | 12 | 4 | 11 | (28) | 27 |
| VaR max in the year | 39 | 20 | 10 | 20 | (14) | 39 |
| VaR min in the year | 20 | 3 | 1 | 6 | (39) | 18 |
| End of period VaR | 32 | 12 | 2 | 11 | (29) | 28 |
| 2019 | ||||||
| VaR average in the year | 21 | 6 | 4 | 9 | (20) | 19 |
| VaR max in the year | 28 | 6 | 3 | 9 | (21) | 25 |
| VaR min in the year | 13 | 5 | 5 | 9 | (18) | 14 |
| End of period VaR | 24 | 5 | 5 | 8 | (22) | 20 |
| 2018 | ||||||
| VaR average in the year | 20 | 6 | 4 | 9 | (20) | 21 |
| VaR max in the year | 23 | 7 | 6 | 11 | (21) | 26 |
| VaR min in the year | 17 | 6 | 4 | 7 | (18) | 16 |
| End of period VaR | 19 | 5 | 3 | 7 | (17) | 17 |
(*) The diversification effect is the difference between the sum of the average individual risk factors and the total VaR figure that includes the implied correlation between all the variables and scenarios used in the measurement.
The internal market risk model is validated on a regular basis by backtesting in both, BBVA, S.A. and Global Markets Mexico (in BBVA Mexico). The aim of backtesting is to validate the quality and precision of the internal market risk model used by BBVA Group to estimate the maximum daily loss of a portfolio, at a 99% level of confidence and a 250-day time horizon, by comparing the Group's results and the risk measurements generated by the internal market risk model. These tests showed that the internal market risk model of both , BBVA, S.A. and Global Markets Mexico is adequate and precise.
Two types of backtesting have been carried out in 2020, 2019 and 2018:
In addition, each of these two types of backtesting was carried out at a risk factor or business type level, thus making a deeper comparison of the results with respect to risk measurements.
For the period between the year ended December 31, 2019 and the year ended December 31, 2020, the backtesting of the internal VaR calculation model was carried out, comparing the daily results obtained to the risk level estimated by the internal VaR calculation model. In that period, there were no negative exceptions in BBVA S.A., while in BBVA Mexico there were a total of 3 exceptions.
The COVID-19 epidemic together with the fall in the oil price resulted in a sharp depreciation of the local currency, a considerable spike in stock market volatility, a breakdown of the correlation between different curves and an abrupt movement in local interest rate curves. At the end of the year the comparison showed the internal VaR calculation model was working correctly, within the "green" zone (0-4 exceptions), thus validating the internal VaR calculation model, as has been the case each year since the internal market risk model was approved for the Group.
A number of stress tests are carried out on the BBVA Group's trading portfolios. First, global and local historical scenarios are used that replicate the behavior of an extreme past event, such as for example the collapse of Lehman Brothers or the "Tequilazo" crisis. These stress tests are complemented with simulated scenarios, where the aim is to generate scenarios that have a significant impact on the different portfolios, but without being anchored to any specific historical scenario. Finally, for some portfolios or positions, fixed stress tests are also carried out that have a significant impact on the market variables affecting these positions .
P.79 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The historical benchmark stress scenario for the BBVA Group is Lehman Brothers, whose sudden collapse in September 2008 led to a significant impact on the behavior of financial markets at a global level. The following are the most relevant effects of this historical scenario:
Unlike the historical scenarios, which are fixed and therefore not suited to the composition of the risk portfolio at all times, the scenario used for the exercises of economic stress is based on resampling methodology. This methodology is based on the use of dynamic scenarios that are recalculated periodically depending on the main risks affecting the trading portfolios. On a data window wide enough to collect different periods of stress (data are taken from January 1, 2008 until the date of the assessment), a simulation is performed by resampling of historic observations, generating a distribution of losses and gains that serve to analyze the most extreme of births in the selected historical window. The advantage of this methodology is that the period of stress is not predetermined, but depends on the portfolio maintained at each time, and making a large number of simulations (10,000 simulations) allows a greater richness of information for the analysis of expected shortfall than what is available in the scenarios included in the calculation of VaR. The main features of this approach are: a) the generated simulations respect the correlation structure of the data, b) there is flexibility in the inclusion of new risk factors and c) it allows the introduction of a lot of variability in the simulations (desirable for considering extreme events).
The impact of the stress test under multivariable simulation of the risk factors of the portfolio based on the expected shortfall (expected shortfall calculated at a 95% confidence level, 20 days) as of December 31, 2020 is as follows:
| Europe | Mexico | Peru | Venezuela | Argentina | Colombia | Turkey | |
|---|---|---|---|---|---|---|---|
| Expected shortfall | (121) | (69) | (8) | - | (8) | (4) | (8) |
Financial assets and liabilities may be netted in certain cases. In particular, they are presented for a net amount on the consolidated balance sheet only when the Group's entiti es satisfy the provisions of IAS 32-Paragraph 42, so they have both the legal right to net recognized amounts, and the intention of settling the net amount or of realizing the asset and simultaneously paying the liability. In addition, the Group has presented as gross amounts assets and liabilities on the consolidated balance sheet for which there are master netting arrangements in place, but for which there is no intention of settling the net amount. The most common types of events that trigger the netting of reciprocal obligations are bankruptcy of the entity, surpassing certain level of indebtedness threshold, failure to pay, restructuring and dissolution of the entity. In the current market context, derivatives are contracted under different framework contracts being the most widespread the ones developed by the International Swaps and Derivatives Association (“ISDA”) and, for the Spanish market, the Framework Agreement on Financial Transactions (“CMOF”).Almost all portfolio derivative transactions have been concluded under these framework contracts, including in them the netting clauses mentioned in the preceding paragraph as "Master Netting Agreement", greatly reducing the credit exposure on these instruments. Additionally, in contracts signed with counterparties, the collateral agreement annexes called Credit Support Annex (“CSA”) are included, thereby minimizing exposure to a potential default of the counterparty. Moreover, many of the transactions involving assets purchased or sold under a repurchase agreement are transacted through clearing houses that articulate mechanisms to reduce counterparty risk, as well as through the signing of various master agreements for bilateral transactions, the most widely used being the Global Master Repurchase Agreement (GMRA), published by the International Capital Market Association (“ICMA”), to which the clauses related to the collateral exchange are usually added within the text of the master agreement itself.
P.80
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A summary of the effect of offsetting (via netting and collateral) for derivatives and securities operations is presented below as of December 31, 2020, 2019 and 2018:
| Gross amounts recognized (A) | Gross amounts offset in the consolidated balance sheets (B) | Net amount presented in the consolidated balance sheets (C=A- B) | Gross amounts not offset in the consolidated balance sheets (D) | Notes | Cash collateral received/ pledged | Net amount (E=C-D) | |
|---|---|---|---|---|---|---|---|
| Financial instruments | |||||||
| Trading and hedging derivatives | 47,862 | 5,688 | 42,173 | 33,842 | 10, 15 | 9,018 | (686) |
| Reverse repurchase, securities borrowing and similar agreements | 34,500 | - | 34,500 | 35,141 | 161 | (802) | |
| Total assets | 82,362 | 5,688 | 76,674 | 68,983 | 9,178 | (1,488) | |
| Trading and hedging derivatives | 49,720 | 5,722 | 43,998 | 33,842 | 10, 15 | 9,435 | 721 |
| Repurchase, securities lending and similar agreements | 43,950 | - | 43,950 | 44,677 | 1,619 | (2,346) | |
| Total liabilities | 93,670 | 5,722 | 87,948 | 78,519 | 11,054 | (1,624) |
| Gross amounts recognized (A) | Gross amounts offset in the consolidated balance sheets (B) | Net amount presented in the consolidated balance sheets (C=A- B) | Gross Amounts Not Offset in the Consolidated Balance Sheets (D) | Notes | Cash collateral received/ pledged | Net amount (E=C-D) | |
|---|---|---|---|---|---|---|---|
| Financial instruments | |||||||
| Trading and hedging derivatives | 36,349 | 2,388 | 33,961 | 25,020 | 10, 15 | 8,210 | 731 |
| Reverse repurchase, securities borrowing and similar agreements | 35,805 | 21 | 35,784 | 35,618 | 204 | (39) | |
| Total assets | 72,154 | 2,409 | 69,744 | 60,637 | 8,415 | 692 | |
| Trading and hedging derivatives | 38,693 | 2,394 | 36,299 | 25,020 | 10, 15 | 10,613 | 667 |
| Repurchase, securities lending and similar agreements | 45,977 | 21 | 45,956 | 45,239 | 420 | 297 | |
| Total liabilities | 84,670 | 2,414 | 82,256 | 70,259 | 11,033 | 964 |
| Gross amounts recognized (A) | Gross amounts offset in the consolidated balance sheets (B) | Net amount presented in the consolidated balance sheets (C=A- B) | Gross amounts not offset in the consolidated balance sheets (D) | Notes | Cash collateral received/ pledged | Net amount (E=C-D) | |
|---|---|---|---|---|---|---|---|
| Financial instruments | |||||||
| Trading and hedging derivatives | 48,895 | 16,480 | 32,415 | 24,011 | 10, 15 | 7,790 | 613 |
| Reverse repurchase, securities borrowing and similar agreements | 28,074 | 42 | 28,032 | 28,022 | 169 | (159) | |
| Total assets | 76,969 | 16,522 | 60,447 | 52,033 | 7,959 | 454 | |
| Trading and hedging derivatives | 50,583 | 17,101 | 33,481 | 24,011 | 10, 15 | 6,788 | 2,682 |
| Repurchase, securities lending and similar agreements | 43,035 | 42 | 42,993 | 42,877 | 34 | 82 | |
| Total liabilities | 93,618 | 17,143 | 76,474 | 66,888 | 6,822 | 2,765 |
The amount of recognized financial instruments within derivatives includes the effect in case of compensation with counterparties with which the Group holds netting agreements, while, for repos, it reflects the market value of the collateral associated with the transaction.
P.81
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The structural risks are defined, in general terms, as the possibility of sustaining losses due to adverse movements in market risk factors as a result of mismatches in the financial structure of an entity´s balance sheet. In the Group, the following types of structural risks are defined, according to the nature and the following market factors: interest rate, exchange rate and equity. The scope of structural risks in the Group is limited to the banking book, excluding market risks in the trading book that are clearly delimited and separated and make up the Market Risks.
The Assets and Liabilities Committee (ALCO) is the main responsible body for the management of structural risks regarding liquidity/ funding interest rate, currency, equity and solvency. Every month, with the participation of the CEO and representatives from the areas of Finance, Risks and Business Areas; this committee monitors the structural risks and is presented with proposals with regard to action plans related with its management for its approval. These management proposals are made by the Finance area with a forward-looking focus, maintaining the alignment with the risk appetite framework, trying to guarantee the recurrence of results and financial stability, as well as to preserve the solvency of the entity. All balance management units have a local ALCO, which is permanently attended by members of the corporate center, and there is a corporate ALCO where management strategies are monitored and presented in the Group's subsidiaries.
GRM area acts as an independent unit, ensuring adequate separation between the management and risk control functions, and is responsible for ensuring that the structural risks in the Group are managed according to the strategy approved by the Board of Directors. Consequently, GRM deals with the identification, measurement, monitoring and control of those risks and their reporting to the corresponding corporate bodies.
Through the Global Risk Management Committee (GRMC), it performs the function of control and risk assessment and is responsible for developing the strategies, policies, procedures and infrastructure necessary to identify, evaluate, measure and manage the significant risks that the BBVA Group faces. To this end, GRM, through the corporate unit of Structural Risks, proposes a scheme of limits and alerts that defines the risk appetite set for each of the relevant structural risk types, both at Group level and by management units, which will be reviewed annually, reporting the situation periodically to the Group's corporate bodies as well as to the GRMC.
Within the three lines of defense scheme in which BBVA's internal control model is established according to the most advanced standards in terms of internal control, the first line of defense is composed by the Finance area, which is responsible for managing the structural risk. While GRM, as a second line of defense, is in charge of identifying risks, and establishing policies and control models, periodically evaluating their effectiveness. In the second line of defense, there are also the Internal Risk Control units, which independently review the Structural Risk control, and Internal Financial Control, which carry out a review on the design and effectiveness of the operational controls over structural risk management. The third line of defense is represented by the Internal Audit area, which, with total independence, is responsible for reviewing specific controls and processes.
The structural interest-rate risk (“IRRBB”) is related to the potential impact that variations in market interest rates have on an entity's net interest income and equity. In order to properly measure IRRBB, BBVA takes into account the main sources that generate this risk: repricing risk, yield curve risk, option risk and basis risk, which are analyzed with an integral vision, combining two complementary points of view: net interest income (short term) and economic value (long term).
The exposure of a financial entity to adverse interest rates movements is a risk inherent to the development of the banking business, which is also, in turn, an opportunity to create economic value. Therefore, interest rate risk must be effectively managed so that it is limited in accordance with the entity’s equity and in line with the expected economic result. This function falls to the Global ALM (Asset & Liability Management) unit, within the Finance area, who, through ALCO, aims to guarantee the recurrence of results and preserve the solvency of the entity, always adhering to the risk profile defined by the management bodies of the BBVA Group.
The interest rate risk management of the balance sheet aims to promote the stability of the net interest income and book value with respect to changes in market interest rates, types of markets in the different balance-sheets, while respecting solvency and internal limits, as well as complying with current and future regulatory requirements. Likewise, a specific monitoring of the banking book instruments registered at market value (fair value) is developed, which due to their accounting treatment have an impact on results and / or equity. In this regard, the BBVA Group maintains an exposure to fluctuations on interest rates according to its objective strategy and risk profile, being carried out in a decentralized and independent manner in each of the banking entities that compose its structural balance-sheet.# Management of Interest Rate Risk in the Banking Book
The management is carried out in accordance with the guidelines established by the European Banking Authority (EBA), with a monitoring of interest rate risk metrics, with the aim of analyzing the potential impact that could be derived from the range of scenarios in the different balance-sheets of the Group.
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Repricing risk arises due to the difference between the repricing or maturity terms of the assets and liabilities, and represents the most frequent interest rate risk faced by financial entities. However, other sources of risk as changes in the slope and shape of the yield curve, the reference to different indexes and the optionality risk embedded in certain banking transactions, are also taken into account by the risk control system.
BBVA's structural interest-rate risk management process is formed from a set of metrics and tools that enables the capture of additional sources to properly monitor the risk profile of the Group, backed-up by an assumptions set that aims to characterize the behavior of the balance sheet items with the maximum accuracy. The IRRBB measurement is carried out on a monthly basis, and includes probabilistic measures based on methods of scenario simulation, which enables to capture additional sources of risk to the parallel shifts, as the changes in slope shape and the basis of yield curves. Additionally, sensitivity analysis to multiple parallel shocks of different magnitude are also assessed on a regular basis. The process is run separately for each currency to which the Group is exposed, considering, at a later stage, the diversification effect among currencies and business units.
The risk measurement model is complemented by the assessment of ad-hoc scenarios and stress tests. As stress testing has become more relevant during the recent years, the evaluation of extreme scenarios of rupture of historical interest rates levels, correlations and volatility has continued to be enhanced, while assessing, also, BBVA Research market scenarios, and incorporating the set of scenarios defined according to EBA guidelines.
During 2020, the Group worked to improve the control and management model in accordance with the guidelines established by the EBA on the management of interest rate risk in the banking book. It is worth highlighting, among other aspects, the reinforcement of the stress analysis, including the evaluation of the impacts on the main balance sheet accounts of the Group that could derive from the range of interest rate scenarios defined according to the EBA guidelines mentioned above.
In order to measure structural interest rate risk, the setting of assumptions on the evolution and behavior of certain balance sheet items is particularly relevant, especially those related to products without an explicit or contractual maturity. The assumptions that characterize these balance sheet items must be understandable for the areas and bodies involved in risk management and control and remain duly justified and documented. The modeling of these assumptions must be conceptually reasonable and consistent with the evidence based on historical experience, reviewed at least once a year.
In view of the heterogeneity of the financial markets and the availability of historical data, each one of the entities of the Group is responsible for determining the behavior assumptions to be applied to the balance sheet items, always under the guidelines and the applicability of the corporate models existing in the Group. Among the balance sheet assumptions stand out those established for the treatment of items without contractual maturity, mainly for demand customer deposits, and those related to the expectations on the exercise of interest rate options, especially those relating to loans and deposits subject to prepayment risk.
For the modeling of demand deposits, a segmentation of the accounts in several categories is previously carried out depending on the characteristics of the customer (retail / wholesale) and the product (type of account / transactionality / remuneration), in order to outline the specific behavior of each segment. In order to establish the remuneration of each segment, the relationship between the evolution of market interest rates and the interest rates of managed accounts is analyzed, with the aim of determining the translation dynamic (percentages and lags) of interest rates variations to the remuneration of the accounts. The behavior assigned to each category of accounts is determined by an analysis of the historical evolution of the balances and the probability of cancellation of the accounts. For this, the volatile part of the balance assigned to a short-term maturity is isolated, thus avoiding fluctuations in the level of risk caused by specific variations in the balances and promoting stability in the management of the balance. Once the stable part is identified, a medium / long term maturity model is applied through a decay distribution based on the average term of the accounts and the conditional cancellation probabilities throughout the life of the product. Additionally, the relationship of the evolution of the balance of deposits with the levels of market interest rates is taken into account, where appropriate, including the potential migration between the different types of deposits (on demand / time deposits) in the different interest rate scenarios.
Equally relevant is the treatment of early cancelation options embedded in credit loans, mortgage portfolios and customer deposits. The evolution of market interest rates may condition, along with other variables, the incentive that customers have to prepay loans or deposits, modifying the future behavior of the balance amounts with respect to the forecasted contractual maturity schedule.
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The detailed analysis of the historical information related to prepayment data, both partial and total prepayment, combined with other variables such as interest rates, allows estimating future amortizations and, where appropriate, their behavior linked to the evolution of such variables.
The approval and updating of the risk behavior models of structural interest rate risk are subject to corporate governance under the scope of GRM-Analytics. In this way, the models must be properly inventoried and cataloged and comply with the requirements established in the internal procedures for their development, updating and management of the changes. The models are also subject to the corresponding internal validations based on their relevance and the established monitoring requirements.
The table below shows the profile of average interest rate risk in terms of sensitivities of the main currencies in the BBVA Group in 2020:
Sensitivity to interest-rate analysis - December 2020
| Impact on net interest income (*) | Impact on economic value (**) | |
|---|---|---|
| 100 basis-point increase | 100 basis-point decrease (***) | |
| EUR | [1.5% , 3.5%] | [-1.5% , -0.5%] |
| MXN | [0.5% , 1.5%] | [-1.5% , -0.5%] |
| TRY | [-0.5% , 0.5%] | [-0.5% , 0.5%] |
| Other | [-0.5% , 0.5%] | [-0.5% , 0.5%] |
| BBVA Group | [3.5% , 5.5%] | [-3.5% , -1.5%] |
() Percentage of "1 year" net interest income forecast for each unit.
() Percentage of Core Capital for each unit.
(**) In EUR and USD, negative interest rates scenarios are allowed up to plausible levels lower than current rates.
During 2020, central banks and governments have carried out monetary stimulus measures to mitigate the economic impact caused by the COVID-19 pandemic, which has significantly affected the global economy, spreading to most countries. In Europe, the monetary stimulus measures of the European Central Bank have continued, and the Euribor have fallen, reaching historical low records. In the United States, the reference rates (Libor) have maintained a downward trend, in line with the cuts made by the Federal Reserve in the first quarter of the year. Also in Mexico, the monetary policy rate has fallen significantly during the year. In Turkey, although it initially showed a downward trend in interest rates, aggressive increases have been registered since August, reversing the declines of previous quarters, ending the year with an increase of 500 basis points above December's level of 2019. In South America, monetary policy has been expansionary, with a reduction in reference rates in the economies of Colombia and Peru, reaching historical low records, affected by the contraction in activity. On the other hand, in Argentina there is a strongly restrictive monetary policy, with a high increase in interest rates in the second half of the year, due to the strong volatility of the markets, affected by the devaluation of the exchange rate.
The BBVA Group, at an aggregate level, continues to maintain a moderate risk profile, in accordance with the established objective, showing a favorable position to a rise in interest rates on net interest income.# 7.4.1 Interest Rate Risk on the Balance Sheet
Effective management of the balance sheet structural risk has mitigated the negative impact of the downward trend in interest rates and the volatility experienced as a result of the effects of COVID-19, and is reflected in the strength and recurrence of the margin of interests:
In Europe and the United States, the downward trend in interest rates remains limited by current levels, preventing extremely adverse scenarios from occurring. Both balance sheets are characterized by a loan portfolio with a high proportion referenced to a variable interest rate (mainly mortgages in Spain and loans to companies in both countries) and a liability composed mainly of customer deposits. The COAP portfolios act as hedging of the bank balance, mitigating its sensitivity to interest rate movements. This profile has remained stable during 2020 on both balance sheets.
In Spain, the sensitivity of the interest margin has increased in the year due to the maintenance of higher balances of sensitive liquid assets as a result of the generation of liquidity on the balance sheet and the additional financing of TLTRO III (see Note 22), and due to maturity of a part of the coverage of the mortgage portfolio. In the United States, the sensitivity has been reduced due to the balance sheet hedges carried out in late 2019 and early 2020.
In Mexico, a balance has been maintained between balances referenced to fixed and variable interest rates. Among the assets most sensitive to interest rate movements, the wholesale portfolio stands out, while consumer and mortgages are mostly at a fixed rate. The COAP portfolio is used to balance the longer term of customer deposits. The sensitivity of the interest margin remains limited and stable during 2020, considering the new interest rate scenario that emerged in March, with a downward trend in rates benchmark throughout 2020.
In Turkey, the interest rate risk on the balance sheet increased during 2020, as a result of regulatory requirements (such as the Asset Ratio, applied by the Banking Regulation Supervision Agency (BRSA) and the Good Bank, established by the Central Bank of Turkey (CBRT)) that encourage loan growth. As a result of the establishment of these Regulations, the growth of loans, mostly at a fixed rate, together with the increase in the COAP portfolio, negatively affected sensitivity, being offset by inflation-linked bonds and floating bonds, as well as due to the increase in deposits in the liability side.
P.84 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In South America, the risk profile on interest rates continues to be low, as most of the countries in the area have a composition of fixed / variable and very similar maturities between assets and liabilities, showing a sensitivity of the margin interest rate limited and with slight variations throughout 2020. Likewise, in countries with balances in several currencies, interest rate risk is also managed for each of the currencies, showing a very low level of risk. The measures promoted by central banks and governments have contributed to raising deposits and excess liquidity in Colombia and Peru, as well as their positions in monetary assets, generating a slight positive variation in margin sensitivity.
Structural exchange rate risk, inherent to the business of international banking groups that develop their activities in different geographies and currencies, is defined as the possibility of impacts on solvency, equity value and results driven by fluctuations in the exchange rates due to exposures in foreign currencies.
In the BBVA Group, structural exchange-rate risk arises from the consolidation of holdings in subsidiaries with functional currencies other than the euro. Its management is centralized in order to optimize the joint management of permanent foreign currency exposures, taking diversification into account. The corporate Global ALM unit, through ALCO, designs and executes hedging strategies with the main purpose of preserving the stability of consolidated capital ratios and income flows generated in a currency other than the euro in the BBVA Group, keeping a value generation perspective to preserve the Group’s equity in the long term.
To this end, a dynamic management strategy is carried out, considering hedge transactions according to market expectations and their costs. The risk monitoring metrics included in the framework of limits, in line with the Risk Appetite Framework, are integrated into management and supplemented with additional assessment indicators. At the corporate level they are based on probabilistic metrics that measure the maximum deviation in the Group’s Capital, CET1 (“Common Equity Tier 1”) ratio, and net attributable profit. The probabilistic metrics make it possible to estimate the joint impact of exposure to different currencies taking into account the different variability in exchange rates and their correlations. The suitability of these risk assessment metrics is reviewed on a regular basis through back-testing exercises. The final element of structural exchange-rate risk control is the stress and scenario analysis aimed to assess the vulnerabilities of foreign currency structural exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions. The scenarios are based both on historical situations simulated by the risk model and on the risk scenarios provided by BBVA Research.
As of December 31, 2020, the main currencies of the geographies where the Group operates have depreciated against the euro during the year: Mexican peso (-13.1%), US Dollar (-8.5%), Turkish lira (-26.7%), Colombian peso (-12.6%), Peruvian sol (-16.3%) and Argentine peso (-34.8%). The Group's structural exchange-rate risk exposure level has in some cases increased due to the restrictions related to dividend payments from the subsidiaries which have offset the reduction in risk due to the depreciation of the currencies. The hedging policy intends to keep low levels of sensitivity to movements in the exchange rates of emerging markets currencies against the euro. The risk mitigation level in the capital ratio due to the book value of the BBVA Group's holdings in foreign emerging markets currencies stood at around 65% and, as of the end of 2020, CET1 ratio sensitivity to the depreciation of 10% in the euro exchange rate for each currency is estimated: USD +9 bps; Mexican peso -5 bps; Turkish lira -2 bps; other currencies -1 bp (excluding hyperinflation economies). On the other hand, hedging of emerging markets currency denominated earnings in 2020 reached 65%, concentrated in Mexican peso, Turkish lira and the main Latin American currencies.
For the years 2020, 2019 and 2018, the estimated sensitivities of the result attributable to the parent company are shown below, taking into account the coverage against depreciations and appreciations of 1% of the average rate in the main currencies. To the extent that hedging positions are periodically modulated, the sensitivity estimate attempts to reflect an average (or effective) sensitivity in the year:
| Sensitivity to 1% (Millions of Euros) | Currency | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Mexican peso | 4.9 | 12.7 | 13.0 | |
| Turkish lira | 4.5 | 3.1 | 3.0 | |
| Peruvian sol | 0.4 | 1.9 | 1.3 | |
| Chilean peso | 0.3 | 0.5 | 0.7 | |
| Colombian peso | 1.4 | 2.6 | 1.9 | |
| Argentinian peso | 0.9 | 1.3 | (0.3) | |
| US Dollar | 4.3 | 5.9 | 7.3 |
P.85 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Structural equity risk refers to the possibility of suffering losses in the value of positions in shares and other equity instruments held in the banking book with long or medium term investment horizons due to fluctuations in the value of equity indexes or shares. BBVA Group's exposure to structural equity risk arises largely from minority shareholdings held on industrial and financial companies. This exposure is modulated in some portfolios with positions held on derivative instruments on the same underlying assets, in order to adjust the portfolio sensitivity to potential changes in equity prices.
The management of structural equity portfolios is a responsibility of Global ALM and other Group's units specialized in this area. Their activity is subject to the risk management corporate policy on structural equity risk management, complying with the defined management principles and Risk Appetite Framework. The structural equity risk metrics, designed by GRM according to the corporate model, contribute to the effective monitoring of the risk by estimating the sensitivity and the capital necessary to cover the possible unexpected losses due to changes in the value of the shareholdings in the Group's investment portfolio, with a level of confidence that corresponds to the objective rating of the entity, taking into account the liquidity of the positions and the statistical behavior of the assets to be considered
In order to analyze the risk profile in depth, stress tests and scenario analysis of sensitivity to different simulated scenarios are carried out. They are based on both past crisis situations and forecasts made by BBVA Research. These analyses are carried out regularly to assess the vulnerabilities of structural equity exposure not contemplated by the risk metrics and to serve as an additional tool when making management decisions. Backtesting is carried out on a regular basis on the risk measurement model used. Global Equity markets have been severely affected by the outbreak of the coronavirus in the first quarter.## 7.5 Liquidity and funding risk
Liquidity and funding risk is defined as the incapacity of a bank in meeting its payment commitments due to lack of funds or that, to face those commitments, should have to make use of funding under burdensome terms.
The BBVA Group is a multinational financial institution whose business is focused mainly on retail and commercial banking activities. In addition to the retail business model, which forms its core business, the Group engages in corporate and investment banking, through the global CIB (Corporate & Investment Banking) division.
Liquidity and funding risk management aims to maintain a solid balance sheet structure which allows a sustainable business model. The Group’s liquidity and funding strategy is based on the following pillars:
Liquidity and Financing Risk Management aim s, in the short term, to prevent an entity from having difficulties in meeting its payment commitments in due time and form or that, to meet them, it has to resort to obtaining funds in burdensome conditions that deteriorate the image or reputation of the entity. P.86 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In the medium term, its objective is to ensure the suitability of the Group's financial structure and its evolution, within the framework of the economic situation, the markets and regulatory changes. This management of structural and liquidity funding is based on the principle of financial self-sufficiency of the entities that comprise it. This approach helps prevent and limit liquidity risk by reducing the Group’s vulnerability during periods of high risk. This decentralized management prevents possible contagion from a crisis affecting only one or a few Group entities, which must act independently to meet their liquidity requirements in the markets where they operate.
Within this strategy, the BBVA Group is organized into eleven LMUs compose of the parent company and the bank subsidiaries in each geography, plus the branches that depend on them. In addition, the policy for managing liquidity and funding risk is also based on the model’s robustness and on the planning and integration of risk management into the budgeting process of each LMU, according to the financing risk appetite that it decides to assume in its business.
Liquidity and funding planning is part of the strategic processes for the Group’s budgetary and business planning. This objective is to allow a recurrent growth of the banking business with suitable maturities and costs within the established risk tolerance levels by using a wide range of instruments which allow the diversification of the funding sources and the maintenance of a high volume of available liquid assets.
The responsibility for liquidity and funding management in the development of normal business activity lies with the Finance area as a first line of defense in managing the risks inherent to this activity, in accordance with the principles established by the European Banking Authority (EBA) and in line with the most demanding standards, policies, procedures and controls in the framework established by the governing bodies. Finance, through the Balance-Sheet Management area, plans and executes the funding of the structural long-term gap of each LMU and proposes to the Assets and Liabilities Committee (ALCO) the actions to be taken on this matter, in accordance with the policies established by the Risk Committee in line with the metrics of the Risk Appetite Framework approved by the Board of Directors. Finance is also responsible for preparing the regulatory reporting of liquidity, coordinating with the responsible areas in each LGU the necessary processes to cover the requirements at corporate and regulatory level, ensuring the integrity of the information provided.
GRM is responsible for ensuring that the liquidity and financing risk in the Group is managed in accordance with the framework established by governing bodies. It also deals with the identification, measurement, monitoring and control of such risks and their communication to the relevant corporate bodies. In order to carry out this task properly, the risk function in the Group has been configured as a single, global function, independent of the management areas. Additionally, the Group has, in its second line of defense, an Internal Risk Control unit, which performs an independent review of the control of Liquidity and Financing Risk, and a Financial Internal Control Unit that reviews the design and effectiveness of the controls operations on liquidity management and reporting. As the third line of defense of the Group's internal control model, Internal Audit is in charge of reviewing specific controls and processes in accordance with a work plan that is drawn up annually.
The Group’s fundamental objectives regarding the liquidity and funding risk are determined through the Liquidity Coverage Ratio (LCR) and through the Loan-to-Stable Customer Deposits (LtSCD) ratio. The LCR ratio is a regulatory metric that aims to guarantee the resilience of entities in a scenario of liquidity tension within a time horizon of 30 days. Within its risk appetite framework and system of limits and alerts, BBVA has established a required LCR compliance level for the entire Group and for each individual LMU. The internal levels required are aimed at efficiently meeting the regulatory requirement, at a widely level above 100%.
The LtSCD ratio measures the relationship between net lending and stable customer funds. The aim is to preserve a stable funding structure in the medium term for each of the LMUs which make up the BBVA Group, taking into account that maintaining an adequate volume of stable customer funds is key to achieving a sound liquidity profile. In geographical areas with dual-currency balances, the indicator is also controlled by currency to manage the mismatches that might occur.
Stable customer funds are considered to be the financing obtained and managed from the LMUs among their target customers. Those funds are characterized by their low sensitivity to market changes and by their less volatile behavior at aggregated level per operation due to the loyalty of the customer to the entity. The stable resources are calculated by applying to each identified customer segment a haircut determined by the analysis of the stability if the balances by which different aspects are evaluated (concentration, stability, level of loyalty). The main source of stable resources arises from wholesale funding and retail customer funds. In order to establish the target (maximum) levels of LtSCD in each LMU and provide an optimal funding structure reference in terms of risk appetite, the corporate Structural Risks unit of GRM identifies and assesses the economic and financial variables that condition the funding structures in the different geographical areas. P.87 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Additionally, liquidity and funding risk management aims to achieve a proper diversification of the funding structure, avoiding excessive dependence on short-term funding by establishing a maximum level for the short-term funds raised, including both wholesale financing and the least stable proportion of customer funds. In relation to long-term financing, the maturity profile does not present significant concentrations, which makes it possible to adapt the schedule of the planned issuance plan to the best financial conditions in the markets. Lastly, concentration risk is monitored at LMU level, with the aim of ensuring a correct diversification of both the counterparty and type of instrument.# ITEM 7. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS
One of the fundamental metrics within the general management framework of the liquidity and funding risk is the maintenance of a liquidity buffer consisting of high quality assets free of charges which can be sold or offered as collateral to obtain funding, either under normal market conditions or in stress situations. The Finance is responsible for the collateral management and determining the liquidity buffer within the BBVA Group. According to the principle of auto-sufficiency of the Group's subsidiaries, each LMU is responsible for maintaining a buffer of liquid assets which complies with the regulatory requirements applicable under each jurisdiction. In addition, the liquidity buffer of each LMU must be aligned with the liquidity and funding risk tolerance as well as the management limits set and approved for each case. In this context, the short-term resistance of the liquidity risk profile is promoted, ensuring that each LMU has sufficient collateral to deal with the risk of the closure of wholesale markets. Basic capacity is the internal metric for the management and control of short-term liquidity risk, which is defined as the relationship between the explicit assets available and the maturities of wholesale liabilities and volatile resources, at different time periods up to the year, with special relevance at 30 and 90 days, with the objective of preserving the survival period above 3 months with the available buffer, without considering the balance inflows.
As a fundamental element of the liquidity and financing risk monitoring scheme, stress tests are carried out. They enable to anticipate deviations from the liquidity targets and the limits set in the appetite, and to establish tolerance ranges in the different management areas. They also play a major role in the design of the Liquidity Contingency Plan and the definition of specific measures to be adopted to rectify the risk profile if necessary. For each scenario, it is checked whether BBVA has a sufficient stock of liquid assets to guarantee its capacity to meet the liquidity commitments/outflows in the different periods analyzed. The analysis considers four scenarios: one central and three crisis-related (systemic crisis; unexpected internal crisis with a considerable rating downgrade and/or affecting the ability to issue in wholesale markets and the perception of business risk by the banking intermediaries and the entity’s clients; and a mixed scenario, as a combination of the two aforementioned scenarios). Each scenario considers the following factors: existing market liquidity, customer behavior and sources of funding, the impact of rating downgrades, market values of liquid assets and collateral, and the interaction between liquidity requirements and the development of BBVA's credit quality.
The stress tests conducted on a regular basis by GRM reveal that BBVA maintains a sufficient buffer of liquid assets to deal with the estimated liquidity outflows in a scenario resulting from the combination of a systemic crisis and an unexpected internal crisis, during a period of longer than 3 months in general for the different LMUs (with the exception of Turkey where despite closing the year above 3 months, the regulatory requirements have led to non-compliance during certain periods), including in the scenario of a significant downgrade of the Bank’s rating by up to three notches.
Together with the results of the stress tests and the risk metrics, the early warning indicators play an important role within the corporate model and the Liquidity Contingency Plan. They are mainly indicators of the funding structure, in relation to asset encumbrance, counterparty concentration, flights of customer deposits, unexpected use of credit facilities, and of the market, which help anticipate possible risks and capture market expectations.
Finance is the area responsible for the elaboration, monitoring, execution and update of the liquidity and funding plan and of the market access strategy to guarantee and improve the stability and diversification of the wholesale funding sources. In order to implement and establish management in an anticipated manner, limits are set on an annual basis for the main management metrics that form part of the budgeting process for the liquidity and funding plan. This framework of limits contributes to the planning of the joint future performance of:
P.88 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As a result of these funding needs, the BBVA Group plans the target wholesale funding structure according to the tolerance set in each LMU target. Thus, once the structural gap has been identified and after resorting to wholesale markets, the amount and composition of wholesale structural funding is established in subsequent years, in order to maintain a diversified funding mix and guarantee that there is not a high reliance on short-term funding (short-term wholesale funding plus volatile customer funds).
In practice, the execution of the principles of planning and self-funding at the different LMUs results in the Group’s main source of funding being customer deposits, which consist mainly of demand deposits, savings deposits and time deposits. As sources of funding, customer deposits are complemented by access to the interbank market and the domestic and international capital markets in order to address additional liquidity requirements, implementing domestic and international programs for the issuance of commercial paper and medium and long-term debt.
The process of analysis and assessment of the liquidity and funding situation and of the inherent risks is a process carried out on an ongoing basis in the BBVA Group, with the participation of all the Group areas involved in liquidity and funding risk management. This process is carried out at both local and corporate level. It is incorporated into the decision- making process for liquidity and funding management, with integration between the risk appetite strategy and establishment and the planning process, the funding plan and the limits scheme.
During 2020, the BBVA Group has maintained a robust and dynamic funding structure with a predominantly retail nature, where customer resources represent the main source of funding. During 2020, liquidity conditions have remained comfortable in all the countries where the BBVA Group operates. Since the beginning of March, the global crisis caused by COVID-19 has had a significant impact on financial markets. The effects of this crisis on the Group's balance sheets materialized fundamentally at first, through greater provision of credit lines by wholesale clients in view of the worsening financing conditions in the markets, with no significant effect on the retail world. These provisions were largely paid off over the following quarters.
Dealing with this situation of initial uncertaint y, the different central banks provided a joint response through specific measures and programs to facilitate the financing of the real economy and the provision of liquidity in financial markets, increasing liquidity buffers in almost all areas with BBVA presence Thus, the performance of the indicators show that the robustness of the funding structure remained steady during 2020, 2019 and 2018, in the sense that all LMUs held self-funding levels with stable customer resources above the requirements.
| LtSCD by LMU | 2020 | 2019 | 2018 |
|---|---|---|---|
| Group (average) | 95% | 108% | 106% |
| Eurozone | 97% | 108% | 101% |
| BBVA USA | 92% | 111% | 119% |
| BBVA Mexico | 98% | 116% | 114% |
| Garanti BBVA | 95% | 99% | 110% |
| Other LMUs | 86% | 103% | 99% |
With respect to LCR, the Group has maintained a liquidity buffer at both a consolidated and individual level in 2020. As a result, the ratio has remained comfortably above 100%, with the consolidated ratio as of December 31, 2020 standing at 149%. Although this requirement is only established at a Group level, for banks in the Eurozone, the minimum level required is comfortably exceeded in all subsidiaries. It should be noted that the calculation of the Consolidated LCR does not allow the transfer of liquidity between subsidiaries, so no excess liquidity may be transferred from these entities for the purpose of calculating the consolidated ratio. If the impact of these highly liquid assets was considered, the LCR would be 185%, or +36 basis points above the required level.The NSFR of BBVA Group and its main LMUs at December 31, 2020 and 2019, calculated based on the Basel requirements, was the following:
| NSFR main LMU | 2020 | 2019 |
|---|---|---|
| Group | 127% | 120% |
| BBVA Eurozone | 121% | 113% |
| BBVA Mexico | 138% | 130% |
| BBVA USA | 126% | 116% |
| Garanti BBVA | 154% | 151% |
P.90 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Below is a matrix of residual maturities by contractual periods based on supervisory prudential reporting as of December 31, 2020, 2019 and 2018:
December 2020. Contractual maturities (Millions of Euros)
| 0 Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||
| Cash, cash balances at central banks and other demand deposits | 42,518 | 32,741 | - | - | - | - | - | - | - | - | 75,258 |
| Deposits in credit entities | - | 3,616 | 677 | 921 | 356 | 461 | 117 | 120 | 2 | 39 | 6,309 |
| Deposits in other financial institutions | - | 2,202 | 855 | 797 | 734 | 543 | 1,251 | 721 | 515 | 500 | 8,119 |
| Reverse repo, securities borrowing and margin lending | - | 20,033 | 4,757 | 1,351 | 364 | 368 | 3,320 | 1,849 | 891 | 1,089 | 34,021 |
| Loans and advances | 279 | 16,939 | 24,280 | 23,012 | 15,579 | 17,032 | 46,182 | 38,851 | 51,709 | 110,173 | 344,036 |
| Securities' portfolio settlement | - | 3,896 | 6,680 | 6,557 | 5,084 | 13,014 | 9,858 | 15,494 | 17,231 | 50,045 | 127,859 |
December 2020. Contractual maturities (Millions of Euros)
| 0 Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| LIABILITIES | |||||||||||
| Wholesale funding | - | 4,750 | 2,618 | 3,963 | 1,283 | 1,543 | 10,573 | 7,505 | 12,793 | 23,839 | 68,868 |
| Deposits in financial institutions | 8,838 | 7,859 | 254 | 741 | 152 | 726 | 825 | 189 | 166 | 371 | 20,120 |
| Deposits in other financial institutions and international agencies | 12,735 | 4,324 | 2,694 | 588 | 353 | 272 | 957 | 337 | 459 | 870 | 23,589 |
| Customer deposits | 308,360 | 39,978 | 13,416 | 6,808 | 4,526 | 4,366 | 3,361 | 1,213 | 869 | 799 | 383,694 |
| Security pledge funding | - | 41,239 | 5,301 | 1,643 | 1,192 | 368 | 11,304 | 28,510 | 3,740 | 1,516 | 94,812 |
| Derivatives, net | - | (722) | 15 | (961) | (85) | 134 | (400) | (157) | (264) | (159) | (2,599) |
P.91 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2019. Contractual maturities (Millions of Euros)
| Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||
| Cash, cash balances at central banks and other demand deposits | 20,954 | 20,654 | - | - | - | - | - | - | - | - | 41,608 |
| Deposits in credit entities | - | 3,591 | 283 | 488 | 585 | 503 | 189 | 24 | 120 | 432 | 6,216 |
| Deposits in other financial institutions | - | 1,336 | 1,120 | 796 | 589 | 991 | 1,420 | 1,072 | 672 | 2,089 | 10,084 |
| Reverse repo, securities borrowing and margin lending | - | 21,612 | 3,858 | 2,287 | 561 | 808 | 4,121 | 1,838 | 411 | 803 | 36,299 |
| Loans and advances | 157 | 22,015 | 25,056 | 24,994 | 15,777 | 16,404 | 42,165 | 35,917 | 54,772 | 122,098 | 359,354 |
| Securities' portfolio settlement | - | 1,622 | 3,873 | 6,620 | 2,017 | 7,292 | 21,334 | 6,115 | 13,240 | 46,022 | 108,136 |
December 2019. Contractual maturities (Millions of Euros)
| Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| LIABILITIES | |||||||||||
| Wholesale funding | 1 | 1,393 | 1,714 | 4,208 | 1,645 | 4,386 | 8,328 | 10,608 | 10,803 | 27,840 | 70,927 |
| Deposits in financial institutions | 7,377 | 7,608 | 493 | 1,122 | 172 | 1,514 | 386 | 614 | 206 | 510 | 20,004 |
| Deposits in other financial institutions and international agencies | 10,177 | 3,859 | 867 | 381 | 367 | 257 | 982 | 503 | 499 | 952 | 18,843 |
| Customer deposits | 271,638 | 43,577 | 18,550 | 10,013 | 7,266 | 6,605 | 3,717 | 2,062 | 854 | 1,039 | 365,321 |
| Security pledge funding | - | 45,135 | 3,202 | 15,801 | 1,456 | 653 | 3,393 | 7,206 | 759 | 1,308 | 78,914 |
| Derivatives, net | - | (66) | (25) | 29 | (11) | 1,097 | (830) | (278) | (333) | (420) | (838) |
P.92 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2018. Contractual maturities (Millions of Euros)
| Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||
| Cash, cash balances at central banks and other demand deposits | 9,550 | 40,599 | - | - | - | - | - | - | - | - | 50,149 |
| Deposits in credit entities | 801 | 3,211 | 216 | 141 | 83 | 152 | 133 | 178 | 27 | 1,269 | 6,211 |
| Deposits in other financial institutions | 1 | 1,408 | 750 | 664 | 647 | 375 | 1,724 | 896 | 1,286 | 2,764 | 10,515 |
| Reverse repo, securities borrowing and margin lending | - | 21,266 | 1,655 | 1,158 | 805 | 498 | 205 | 1,352 | 390 | 210 | 27,539 |
| Loans and advances | 132 | 19,825 | 25,939 | 23,265 | 15,347 | 16,433 | 42,100 | 32,336 | 53,386 | 120,571 | 349,334 |
| Securities' portfolio settlement | - | 1,875 | 4,379 | 5,990 | 2,148 | 6,823 | 8,592 | 12,423 | 11,533 | 42,738 | 96,501 |
December 2018. Contractual maturities (Millions of Euros)
| Demand | Up to 1 month | 1 to 3 months | 3 to 6 months | 6 to 9 months | 9 to 12 months | 1 to 2 years | 2 to 3 years | 3 to 5 years | Over 5 years | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|
| LIABILITIES | |||||||||||
| Wholesale funding | 1 | 2,678 | 1,652 | 2,160 | 2,425 | 2,736 | 7,225 | 8,578 | 16,040 | 26,363 | 69,858 |
| Deposits in financial institutions | 7,107 | 5,599 | 751 | 1,992 | 377 | 1,240 | 1,149 | 229 | 196 | 904 | 19,544 |
| Deposits in other financial institutions and international agencies | 10,680 | 4,327 | 1,580 | 458 | 302 | 309 | 781 | 304 | 825 | 1,692 | 21,258 |
| Customer deposits | 252,630 | 44,866 | 18,514 | 10,625 | 6,217 | 7,345 | 5,667 | 2,137 | 1,207 | 1,310 | 350,518 |
| Security pledge funding | 40 | 46,489 | 2,219 | 2,274 | 114 | 97 | 22,911 | 526 | 218 | 1,627 | 76,515 |
| Derivatives, net | - | (75) | (523) | (68) | (5) | (117) | 498 | (91) | (67) | (392) | (840) |
With regard to the financing structure, the loan portfolio is mostly financed by retail deposits. The “demand” maturity bucket mainly contains the retail customer sight accounts whose behavior historically showed a high level of stability and little concentration. According to a behavior analysis which is done every year in every entity, this type of account is considered to be stable and for liquidity risk purposes receive a better treatment.
The liquidity situation of the Group's main management units is detailed below:
In the Euro Liquidity Management Unit (UGL), the liquidity and financing situation remains solid and comfortable with a large high-quality liquidity buffer that has been increased during the year as a result of the growth in customer deposits and the actions taken by the European Central Bank, which have meant an injection of liquidity in the system. As a result of the COVID-19 crisis, there was initially a greater demand for credit through the increase in the use of credit lines by the Corporate & Investment Banking wholesale business, which was also accompanied by a growth in customer deposits.Subsequently, there were partial refunds of those lines while deposits have continued to grow. In addition, it is important to note the measures implemented by the ECB to deal with this crisis, which have included different actions such as: the expansion of asset purchase programs, especially through the PEPP (Pandemic Emergency Purchase Program) for 750,000 million of euros in a first tranche announced in March and expanded with a second tranche for an additional 600,000 million euros until June 2021 or until the ECB considers that the crisis has ended, the coordinated action of central banks for the provision of US dollars, a temporary package of measures to make flexible the collateral eligible for financing operations, the relaxation and improvement of the conditions of the TLTRO III program and the creation of the new program of long-term refinancing operations without specific emergency objective (PELTRO). In this regard, BBVA attended the TLTRO III program windows in March and June (with an amount drawn down at the end of December of 35,032 million euros) due to its favorable conditions in terms of cost and term, amortizing the corresponding part of the TLTRO II program (see Note 22).
In the United States there is a comfortable liquidity situation with significant growth in deposits during the year, driven mainly by stimulus measures from the American government and the Federal Reserve. This has led to an increase in the liquidity buffer and the liquidity and financing indicators are comfortable. As in the euro zone, during the end of the first quarter of 2020 there was an increase in loans stemmed P.93 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. mainly from an increase in the use of credit lines by wholesale clients and the stimulus program of the American government aimed at SMEs and freelances (Paycheck Protection Program). Subsequently, there were repayments that bring the percentage of use of credit lines to levels prior to the pandemic.
In Mexico, the liquidity position has remained solid during the year due to the increase in deposits driven by the success of the commercial actions carried out by the entity, especially in the second semester, as well as by the stimulus measures implemented by Banxico throughout the year to provide liquidity to the financial system, which made it possible to offset the increase in the use of credit lines as a result of the COVID-19 crisis. This good performance in deposits, together with the normalization in credit growth, has reduced the credit gap, resulting in the entity being in a comfortable situation in liquidity and financing ratios.
At Garanti BBVA, the liquidity situation remained comfortable during 2020, with a contraction of loans and a growth of deposits in foreign currency, as well as a higher growth in loans than deposits in local currency. As a result of the COVID-19 crisis, the Turkish regulator established the so-called asset ratio to mainly increase loans and discourage the accumulation of deposits, causing an increase in the credit gap, which was covered with the excess liquidity that the entity had. Subsequently, the asset ratio requirement was reduced in the third quarter (from 100% to 90%) and was eliminated in December. All in all, Garanti BBVA has shown a solid liquidity buffer.
In South America, an adequate liquidity situation is maintained throughout the region, favored by the support of the different central banks and governments that, with the aim of mitigating the impact of the COVID-19 crisis, have implemented measures for stimulating economic activity and providing greater liquidity to financial systems.
In Argentina, the outflow of deposits in US dollars in the banking system slowed down during 2020, and even showed some growth in the fourth quarter. BBVA Argentina continues to maintain a solid liquidity position.
BBVA Colombia, after the actions carried out to adjusting excess liquidity by reducing wholesale deposits, continues to show a comfortable liquidity position.
BBVA Peru has seen its comfortable liquidity situation strengthened as a result of the continuous increase in the volume of deposits during the second semester, as well as the funds from the Central Bank's support programs.
The wholesale financing markets in which the Group operates, after the first two months of 2020 of great stability were followed by a strong correction derived from the COVID-19 crisis and limited access to the primary market. This situation has been stabilizing due to the evolution of the pandemic, the development of vaccines, various geopolitical events and the actions of the Central Banks. Secondary market volumes ended the year reaching the levels of January 2020, while primary market volumes have been reactivated, lowering the issue premiums.
The main transactions carried out by the companies that form part of the BBVA Group in 2020 were:
During the first quarter of 2020 BBVA, S.A. made 2 senior non-preferred securities issues for a total of 1,400 million euros and another Tier 2 for 1,000 million euros (for further information, see “Solvency” section of the Consolidated Management Report).
In the second quarter of 2020, an issuance of senior preferred securities for 1,000 million euros was executed as a social-COVID-19 bond, the first of its kind for a private financial entity in Europe (for further information, see “Solvency” and “Responsible Banking” sections of the Consolidated Management Report).
In the third quarter, three public issues were made: the first is the first green convertible bond of a financial institution world-wide for an amount of 1,000 million euros; the second is a Tier 2 subordinated securities issue denominated in pound sterling, for an amount of 300 million pounds; and the third is an issuance of preferred securities registered with the US SEC (Securities Exchange Commission) in two tranches with maturities of three and five years, for a total of 2,000 million dollars.
On the other hand, in February 2020, BBVA exercised the call option of a convertible bond of 1,500 million euros, and in January 2021, the entity has early amortized three preferred issuances (for more information on these transactions see the section “Solvency” of this report).
In 2020, BBVA México successfully carried out a local senior issuance of 15,000 million Mexican pesos (614 million euros) in three tranches (two tranches in Mexican pesos at 3 and 5 years and another tranche in US dollars at 3 years), in order to advance the refinancing of maturities in the year taking advantage of the good market moment. It also carried out an international issue of senior unsecured securities for an amount of 500 million US dollars of 5 years with a rate of 1.875%, which represents the lowest in history for a financial institution in Mexico and for any private financial institutions in Latin America. Furthermore, within the measures adopted by Banxico throughout the year, BBVA Mexico has participated in auctions of US dollars with credit institutions (swap line with the Fed) initially for an amount of 1,250 million US dollars, partially renewing that position from June to September, for an amount of US $ 700 million. Likewise, it has participated in the so-called Banxico facilities 7 and 8 (measures to transfer funds to micro, small and medium-sized companies, as well as to individuals affected by the pandemic).
In Turkey, Garanti BBVA carried out a Tier 2 issuance for TRY 750 million in the first quarter of 2020. In the second quarter of 2020, Garanti BBVA renewed a syndicated loan by issuing the first green syndicated loan indexed to sustainability criteria, and in whose renovation the EBRD -European Bank for Reconstruction and Development- and the IFC -International Finance Corporation- have participated. And in the fourth quarter, Garanti BBVA partially renewed a syndicated loan for an amount of $ 636 million.
The liquidity position of the rest of subsidiaries has continued to be sound, maintaining a solid liquidity position in all the jurisdictions in which the Group operates. In this context, BBVA has maintained its objective of strengthening the funding structure of the different Group entities based on growing their self-funding from stable customer funds, while guaranteeing a sufficient buffer of fully available liquid assets, diversifying the various sources of funding available, and optimizing the generation of collateral available for dealing with stress situations in the markets. P.94 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, 2019 and 2018, the encumbered (those provided as collateral for certain liabilities) and unencumbered assets are broken down as follows:
| Encumbered assets | Non-encumbered assets |
|---|---|
| Book value | Market value |
| Assets | 121,999 |
| Equity instruments | 2,134 |
| Debt securities | 29,379 |
| Loans and advances and other assets | 90,486 |
| Encumbered assets | Non-encumbered assets |
|---|---|
| Book value | Market value |
| Assets | 101,792 |
| Equity instruments | 3,526 |
| Debt Securities | 29,630 |
| Loans and Advances and other assets | 68,636 |
| Encumbered assets | Non-encumbered assets |
|---|---|
| Book value | Market value |
| Assets | 107,950 |
| Equity instruments | 1,864 |
| Debt Securities | 31,157 |
| Loans and Advances and other assets |
As of December 31, 2020, 2019 and 2018, collateral pledges received mainly due to repurchase agreements and securities lending, and those which could be committed in order to obtain funding are provided below:
P.95
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2020. Collateral received (Millions of euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance | |
|---|---|---|---|
| Collateral received | 30,723 | 8,652 | 1,071 |
| Equity instruments | 239 | 204 | - |
| Debt securities | 30,484 | 8,448 | 1,071 |
| Loans and advances and other assets | - | - | - |
| Own debt securities issued other than own covered bonds or ABSs | 3 | 94 | - |
December 2019. Collateral received (Millions of Euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance | |
|---|---|---|---|
| Collateral received | 38,496 | 9,208 | 48 |
| Equity instruments | 65 | 70 | - |
| Debt securities | 38,431 | 9,130 | 38 |
| Loans and advances and other assets | - | 8 | 10 |
| Own debt securities issued other than own covered bonds or ABSs | - | 82 | - |
December 2018. Collateral received (Millions of euros)
| Fair value of encumbered collateral received or own debt securities issued | Fair value of collateral received or own debt securities issued available for encumbrance | Nominal amount of collateral received or own debt securities issued not available for encumbrance | |
|---|---|---|---|
| Collateral received | 27,474 | 5,633 | 319 |
| Equity instruments | 89 | 82 | - |
| Debt Securities | 27,385 | 5,542 | 300 |
| Loans and Advances and other assets | - | 8 | 19 |
| Own debt securities issued other than own covered bonds or ABSs | 78 | 87 | - |
The guarantees received in the form of reverse repurchase agreements or security lending transactions are committed by their use in repurchase agreements, as is the case with debt securities.
P.96
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, 2019 and 2018, financial liabilities issued related to encumbered assets in financial transactions as well as their book value were as follows:
Sources of encumbrance (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Matching liabilities, contingent liabilities or securities lent | Assets, collateral received and own debt securities issued other than covered bonds and ABSs encumbered | Matching liabilities, contingent liabilities or securities lent | |
| Book value of financial liabilities | 131,352 | 147,523 | 124,252 |
| Derivatives | 16,611 | 16,348 | 19,066 |
| Loans and advances | 98,668 | 111,726 | 87,906 |
| Outstanding subordinated debt | 16,073 | 19,449 | 17,280 |
| Other sources | 653 | 5,202 | 449 |
P.97
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
8. Fair value of financial instruments
Framework and processes control
As part of the process established in the Group for determining the fair value in order to ensure that financial assets and liabilities are properly following the IFRS 13 principles: Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants in the principal market or most advantageous market, at the measurement date.
BBVA has established, at a geographic level, a structure of Risk Operational Admission and Product Governance Committees responsible for validating and approving new products or types of financial assets and liabilities before being contracted. Local management responsible for valuation, which are independent from the business (see Management Report - Risk) are members of these committees. These areas are required to ensure, prior to the approval stage, the existence of not only technical and human resources, but also adequate informational sources to measure the fair value of these financial assets and liabilities, in accordance with the rules established by the valuation global area and using models that have been validated and approved by the responsible areas.
Fair value hierarchy
All financial instruments, both assets and liabilities are initially recognized at fair value, which at that point is equivalent to the transaction price, unless there is evidence to the contrary in the market. Subsequently, depending on the type of financial instrument, it may continue to be recognized at amortized cost or fair value through adjustments in the consolidated income statement or equity.
When possible, the fair value is determined as the market price of a financial instrument. However, for many of the financial assets and liabilities of the Group, especially in the case of derivatives, there is no market price available, so its fair value is estimated on the basis of the price established in recent transactions involving similar instruments or, in the absence thereof, by using mathematical measurement models that are sufficiently tried and trusted by the international financial community. The estimates of the fair value derived from the use of such models take into consideration the specific features of the asset or liability to be measured and, in particular, the various types of risk associated with such asset or liability. However, the limitations inherent in the measurement models and possible inaccuracies in the assumptions and parameters required by these models may mean that the estimated fair value of an asset or liability does not exactly match the price for which the asset or liability could be exchanged or settled on the date of its measurement. Additionally, for financial assets and liabilities that show significant uncertainty in inputs or model parameters used for valuation, criteria is established to measure said uncertainty and activity limits are set based on these. Finally, these measurements are compared, as much as possible, against other sources such as the measurements obtained by the business teams or those obtained by other market participants.
The process for determining the fair value requires the classification of the financial assets and liabilities according to the measurement processes used as set forth below:
As of December 31, 2020, the affected instruments at fair value accounted for approximately 0.55% of financial assets and 0.40% of the Group’s financial liabilities. Model selection and validation is undertaken by control areas outside the business areas.
P.98
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
8.1 Fair value of financial instruments
The fair value of the Group’s financial instruments in the accompanying consolidated balance sheets and its corresponding carrying amounts, as of December 31, 2020, 2019 and 2018 are presented below:
Fair Value and carrying amount (Millions of euros)
| Notes | 2020 | 2019 | 2018 | ||||
|---|---|---|---|---|---|---|---|
| Carrying amount | Fair value | Carrying amount | Fair value | Carrying amount | Fair value | ||
| ASSETS | |||||||
| Cash, cash balances at central banks and other demand deposits | 9 | 65,520 | 65,520 | 44,303 | 44,303 | 58,196 | 58,196 |
| Financial assets held for trading | 10 | 108,257 | 108,257 | 101,735 | 101,735 | 89,103 | 89,103 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 11 | 5,198 | 5,198 | 5,557 | 5,557 | 5,135 | 5,135 |
| Financial assets designated at fair value through profit or loss | 12 | 1,117 | 1,117 | 1,214 | 1,214 | 1,313 | 1,313 |
| Financial assets at fair value through other comprehensive income | 13 | 69,440 | 69,440 | 61,183 | 61,183 | 56,337 | 56,337 |
| Financial assets at amortized cost | 14 | 367,668 | 374,267 | 439,162 | 442,788 | 419,660 | 419,857 |
| Hedging derivatives | 15 | 1,991 | 1,991 | 1,729 | 1,729 | 2,892 | 2,892 |
| LIABILITIES | |||||||
| Financial |
Not all financial assets and liabilities are recorded at fair value, so below we provide the information on financial instruments recorded at fair value and subsequently the information of those recorded at amortized cost (including their fair value although this value is not used when accounting for these instruments).
Below are the different elements used in the valuation technique of financial instruments.
Active Market
BBVA considers active market as a market that allows the observation of bid and offer prices representative of the levels to which the market participants are willing to negotiate an asset, with sufficient frequency and volume. By default, BBVA would consider all internally approved “Organized Markets” as active markets, without considering this an unchangeable list. Furthermore, BBVA would consider as traded in an “Organized Market” quotations for assets or liabilities from Over The Counter (OTC) markets when they are obtained from independent sources, observable on a daily basis and fulfil certain conditions.
P.99
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The following table shows the financial instruments carried at fair value in the accompanying consolidated balance sheets, broken down by level used to determine their fair value as of December 31, 2020, 2019 and 2018:
Fair value of financial instruments by levels (Millions of Euros)
| 2020 | 2020 | 2020 | 2019 | 2019 | 2019 | 2018 | 2018 | 2018 | |
|---|---|---|---|---|---|---|---|---|---|
| Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | |
| ASSETS | |||||||||
| Financial assets held for trading | 32,555 | 73,856 | 1,847 | 31,135 | 69,092 | 1,508 | 26,730 | 61,969 | 404 |
| Loans and advances | 2,379 | 28,659 | 1,609 | 697 | 32,321 | 1,285 | 47 | 28,642 | 60 |
| Debt securities | 12,790 | 11,123 | 57 | 18,076 | 8,178 | 55 | 17,884 | 7,494 | 199 |
| Equity instruments | 11,367 | 31 | 60 | 8,832 | - | 59 | 5,194 | - | 60 |
| Derivatives | 6,019 | 34,043 | 121 | 3,530 | 28,593 | 109 | 3,605 | 25,833 | 85 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 3,826 | 381 | 992 | 4,305 | 92 | 1,160 | 3,127 | 78 | 1,929 |
| Loans and advances | 210 | - | 499 | 82 | - | 1,038 | 25 | - | 1,778 |
| Debt securities | 4 | 324 | 28 | - | 91 | 19 | 90 | 71 | 76 |
| Equity instruments | 3,612 | 57 | 465 | 4,223 | 1 | 103 | 3,012 | 8 | 75 |
| Financial assets designated at fair value through profit or loss | 939 | 178 | - | 1,214 | - | - | 1,313 | - | - |
| Loans and advances | - | - | - | - | - | - | - | - | - |
| Debt securities | 939 | 178 | - | 1,214 | - | - | 1,313 | - | - |
| Equity instruments | - | - | - | - | - | - | - | - | - |
| Financial assets at fair value through other comprehensive income | 60,976 | 7,866 | 598 | 50,896 | 9,203 | 1,084 | 45,824 | 9,323 | 1,190 |
| Loans and advances | 33 | - | - | 33 | - | - | 33 | - | - |
| Debt securities | 59,982 | 7,832 | 493 | 49,070 | 9,057 | 604 | 43,788 | 9,211 | 711 |
| Equity instruments | 961 | 34 | 105 | 1,794 | 146 | 480 | 2,003 | 113 | 479 |
| Derivatives – Hedge accounting | 120 | 1,862 | 8 | 44 | 1,685 | - | 7 | 2,882 | 3 |
| LIABILITIES | |||||||||
| Financial liabilities held for trading | 27,587 | 58,045 | 856 | 26,266 | 61,588 | 827 | 22,932 | 56,560 | 269 |
| Deposits | 8,381 | 23,495 | 621 | 9,595 | 32,121 | 649 | 7,989 | 29,945 | - |
| Trading derivatives | 7,402 | 34,046 | 232 | 4,425 | 29,466 | 175 | 3,919 | 26,615 | 267 |
| Other financial liabilities | 11,805 | 504 | 3 | 12,246 | 1 | 2 | 11,024 | - | 1 |
| Financial liabilities designated at fair value through profit or loss | - | 8,558 | 1,492 | - | 8,629 | 1,382 | - | 3,149 | 3,844 |
| Customer deposits | - | 902 | - | - | 944 | - | - | 976 | - |
| Debt certificates (*) | - | 3,038 | 1,492 | - | 3,274 | 1,382 | - | 1,529 | 1,329 |
| Other financial liabilities | - | 4,617 | - | - | 4,410 | - | - | 643 | 2,515 |
| Derivatives – Hedge accounting | 53 | 2,250 | 15 | 30 | 2,192 | 11 | 223 | 2,454 | 3 |
(*) The information for the years 2019 and 2018 has been subject to certain modifications, related to some issuances of Garanti Group
The following table sets forth the main valuation techniques, hypothesis and inputs used in the estimation of fair value of the financial instruments classified under Levels 2 and 3, based on the type of financial asset and liability and the corresponding balances as of December 31, 2020, 2019 and 2018:
P.100
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Fair value of financial Instruments by levels. December 2020 (Millions of euros)
| 2020 | 2020 | 2019 | 2019 | 2018 | 2018 | |
|---|---|---|---|---|---|---|
| Level 2 | Level 3 | Level 2 | Level 3 | Level 2 | Level 3 | |
| Valuation technique(s) | Observable inputs | Unobservable inputs | Observable inputs | Unobservable inputs | Observable inputs | Unobservable inputs |
| ASSETS | ||||||
| Financial assets held for trading | 73,856 | 1,847 | 69,092 | 1,508 | 61,969 | 404 |
| - Issuer´s credit risk - Current market interest rates - Funding interest rates observed in the market or in consensus services - Exchange rates - Prepayment rates |
- Issuer´s credit risk - Recovery rates - Funding interest rates not observed in the market or in consensus services |
- Issuer´s credit risk - Current market interest rates - Funding interest rates observed in the market or in consensus services - Exchange rates - Prepayment rates |
- Issuer´s credit risk - Recovery rates - Funding interest rates not observed in the market or in consensus services |
- Issuer´s credit risk - Current market interest rates - Funding interest rates observed in the market or in consensus services - Exchange rates - Prepayment rates |
- Issuer´s credit risk - Recovery rates - Funding interest rates not observed in the market or in consensus services |
|
| Loans and advances | 28,659 | 1,609 | 32,321 | 1,285 | 28,642 | 60 |
| Present-value method (Discounted future cash flows) | Present-value method (Discounted future cash flows) | Present-value method (Discounted future cash flows) | ||||
| Debt securities | 11,123 | 57 | 8,178 | 55 | 7,494 | 199 |
| Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Non active markets prices - Prepayment rates |
Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Recovery rates - Prepayment rates |
Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Recovery rates - Prepayment rates |
|
| Equity instruments | 31 | 60 | - | 59 | - | 60 |
| Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV not published |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV not published |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV not published |
|
| Derivatives | 34,043 | 121 | 28,593 | 109 | 25,833 | 85 |
| Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant Maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant Maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant Maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local Volatility, Momentum adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations - Implicit dividends and long term repos Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment - Volatility of volatility - Implicit assets correlations - Long term implicit correlations Credit Credit Derivatives: Default model and Gaussian copula - Correlation default - Credit spread - Recovery rates - Interest rate yield - Default volatility Commodities Commodities: Momentum adjustment and discounted cash flows |
|
| Non-trading financial assets mandatorily at fair value through profit or loss | 381 | 992 | 92 | 1,160 | 78 | 1,929 |
| Loans and advances | - | 499 | - | 1,038 | - | 1,778 |
| Specific liquidation criteria regarding losses of the EPA proceedings PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings | - Discounted future cash flows - Prepayment rates - Business plan of the underlying asset, WACC, macro scenario - Property valuation |
Specific liquidation criteria regarding losses of the EPA proceedings PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings | - Discounted future cash flows - Prepayment rates - Business plan of the underlying asset, WACC, macro scenario - Property valuation |
Specific liquidation criteria regarding losses of the EPA proceedings PD and LGD of the internal models, valuations and specific criteria of the EPA proceedings | - Discounted future cash flows - Prepayment rates - Business plan of the underlying asset, WACC, macro scenario - Property valuation |
|
| Debt securities | 324 | 28 | 91 | 19 | 71 | 76 |
| Present-value method (Discounted future cash flows) | - Issuer credit risk - Current market interest rates - Prepayment rates |
Present-value method (Discounted future cash flows) | - Issuer credit risk - Recovery rates - Prepayment rates |
Present-value method (Discounted future cash flows) | - Issuer credit risk - Recovery rates - Prepayment rates |
|
| Equity instruments | 57 | 465 | 1 | 103 | 8 | 75 |
| Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
|
| Financial assets designated at fair value through profit or loss | 178 | - | - | - | - | - |
| Present-value method (Discounted future cash flows) | Present-value method (Discounted future cash flows) | Present-value method (Discounted future cash flows) | ||||
| Debt securities | 178 | - | - | - | - | - |
| - Issuer credit risk - Current market interest rates |
- Issuer credit risk - Current market interest rates |
- Issuer credit risk - Current market interest rates |
||||
| Financial assets at fair value through other comprehensive income | 7,866 | 598 | 9,203 | 1,084 | 9,323 | 1,190 |
| Debt securities | 7,832 | 493 | 9,057 | 604 | 9,221 | 711 |
| Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Current market interest rates - Non active market prices - Prepayment rates |
Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Recovery rates - Prepayment rates |
Present-value method (Discounted future cash flows) Observed prices in non active markets |
- Issuer´s credit risk - Recovery rates - Prepayment rates |
|
| Equity instruments | 34 | 105 | 146 | 480 | 113 | 479 |
| Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
Comparable pricing (Observable price in a similar market) Net asset value |
- Brokers quotes - Market operations - NAVs published - NAV provided by the administrator of the fund |
|
| Hedging derivatives | 1,862 | 8 | 1,685 | - | 2,882 | 3 |
| Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
Interest rate Interest rate products (Interest rate Swaps, Call money Swaps and FRA): Discounted cash flows Caps/Floors: Black, Hull-White and SABR Bond options: Black Swaptions: Black, Hull-White and LGM Other Interest rate Options: Black, Hull-White and LGM Constant maturity Swaps: SABR - Exchange rates - Market quoted future prices - Market interest rates - Underlying assets prices: shares, funds, commodities - Market observable volatilities - Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
- Issuer credit spread levels - Quoted dividends - Market listed correlations - Beta - Implicit correlations between tenors - interest rates volatility Equity Future and Equity Forward: Discounted future cash flows Equity Options: Local volatility, Momentum adjustment Foreign exchange and gold Future and Equity Forward: Discounted future cash flows Foreign exchange Options: Local volatility, moments adjustment Credit Credit Derivatives: Default model and Gaussian copula Commodities Commodities: Momentum adjustment and Discounted cash flows |
Fair Value of financial Instruments by Levels.(Millions of Euros)
P.101
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56).# Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The main techniques used for the assessment of the majority of the financial instruments classified in Level 3, and its main unobservable inputs, are described below:
The net present value (net present value method): This technique uses the future cash flows of each financial instrument, which are established in the different contracts, and discounted to their present value. This technique often includes many observable inputs, but may also include unobservable inputs, as described below:
Quantitative information of unobservable inputs used to calculate Level 3 valuations is presented below as of December 31, 2020, 2019 and 2018:
| Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units |
|---|---|---|---|---|---|---|
| Debt Securities | Present value method | Credit Spread | 4.32 | 47.01 | 564.22 | p.b. |
| Recovery Rate | 0.0% | 37.06% | 40.00% | % | ||
| Equity/Fund instruments (*) | Net Asset Value | 0.10% | 99.92% | 143.87% | % | |
| Comparable Pricing Security Finance | Present value method | Repo funding curve | (1.18%) | (0.25%) | 0.74% | Abs |
| Credit Derivatives | Gaussian Copula | Correlation Default | 30.40% | 44.87% | 60.95% | % |
| Equity Derivatives | Black 76 Price Volatility - Vegas | Dividends (**) | ||||
| Option models on equities, baskets of equity, funds | Correlations | (77%) | 51% | 98% | % | |
| Volatility | 6.52 | 29.90 | 141.77 | Vegas | ||
| FX Derivatives | Option models on FX underlyings | Volatility | 4.11 | 10.00 | 16.14 | Vegas |
| IR Derivatives | Option models on IR underlyings | Beta | 0.25 | 2.00 | 18.00 | % |
| Correlation Rate/Credit | (100) | 100 | % | |||
| Credit Default Volatility | Vegas |
(*) Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them.
(**) The range of unobservable dividends is too wide range to be relevant.
| Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units |
|---|---|---|---|---|---|---|
| Loans and advances | Present value method | Repo funding curve | (6) | 16 | 100 | p.b. |
| Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units |
|---|---|---|---|---|---|---|
| Debt securities | Comparable pricing | Credit spread | 18 | 83 | 504 | p.b. |
| Recovery rate | 0.00% | 28.38% | 40.00% | % | ||
| 0.01% | 98.31% | 135.94% | % | |||
| Equity instruments (*) | Comparable pricing | Net asset value | ||||
| Credit option | Gaussian Copula Correlation default | 19.37% | 44.33% | 61.08% | % | |
| Corporate Bond option | Black 76 | Price volatility | - | - | - | |
| Equity OTC option | Heston | Forward volatility skew | 35.12 | 35.12 | 35.12 | |
| Local volatility | Dividends (**) | 2.49 | 23.21 | 60.90 | ||
| FX OTC options | Black Scholes/Local Vol | Volatility | 3.70 | 6.30 | 10.05 | |
| Interest rate options | Libor Market Model | Beta | 0.25 | 2.00 | 18.00 | % |
| Correlation rate/Credit | (100) | 100 | % | |||
| Credit default | Volatility | - | - | - |
() Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them.
(*) The range of unobservable dividends is too wide range to be relevant.
P.104 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Financial instrument | Valuation technique(s) | Significant unobservable inputs | Min | Average | Max | Units |
|---|---|---|---|---|---|---|
| Debt securities | Comparable pricing | Credit spread | 37 | 152 | 385 | p.b. |
| Recovery rate | 0.00% | 32.06% | 40.00% | % | ||
| 1.00% | 88.00% | 275.00% | % | |||
| Equity instruments (*) | Comparable pricing | Net asset value | ||||
| Credit option | Gaussian Copula Correlation default | 0.00% | 37.98% | 60.26% | % | |
| Corporate Bond option | Black 76 | Price volatility | - | - | - | |
| Equity OTC option | Heston | Forward volatility skew | 47.05 | 47.05 | 47.05 | |
| Local volatility | Dividends (**) | 13.79 | 27.24 | 65.02 | ||
| FX OTC options | Black Scholes/Local Vol | Volatility | 5.05 | 7.73 | 9.71 | |
| Interest rate options | Libor Market Model | Beta | 0.25 | 9.00 | 18.00 | % |
| Correlation rate/Credit | (100) | 100 | % | |||
| Credit default | Volatility | - | - | - |
() Due to the diversity of valuation models of equity valuations, we would not include all the unobservable inputs or the quantitative ranges of them.
(*) The range of unobservable dividends is too wide range to be relevant.
Under IFRS 13 the credit risk valuation adjustments must be considered in the classification of assets and liabilities within fair value hierarchy, because of the absence of observable data of probabilities of default and recoveries used in the calculation. These adjustments are calculated by estimating Exposure At Default, Probability of Default and Loss Given Default, which are based on the recovery levels for all derivative products on any instrument, deposits and repos at the legal entity level (all counterparties under a same master agreement), in which BBVA has exposure.
Credit Valuation Adjustment (hereinafter “CVA”) and Debit Valuation Adjustments (hereinafter “DVA”) are included in the valuation of derivatives, both assets and liabilities, to reflect the impact on the fair value of the counterparty credit risk and its own, respectively. The Group incorporates in its valuation, for all exposures classified in any of the categories valued at fair value, both the counterparty credit risk and its own. In the trading portfolio, and in the specific case of derivatives, credit risk is recognized through such adjustments.
As a general rule, the calculation of CVA is the sum of the expected positive exposure in time t, the probability of default between t-1 and t, and the Loss Given Default of the counterparty. Consequently, the DVA is calculated as the sum of the expected negative exposure in time t, the probability of default of BBVA between t-1 and t, and the Loss Given Default of BBVA. Both calculations are performed throughout the entire period of potential exposure. The calculation of the expected positive and negative exposure is done through a Montecarlo simulation of the market variables involved in all trades’ valuation under the same legal netting set.
The information needed to calculate the probability of default and the loss given default of a counterparty comes from the credit markets. The counterparty’s Credit Default Swaps are used if liquid quotes are available. If a market price is not available, BBVA has implemented a mapping process based on the sector, rating and geography of the counterparty to assign probabilities of default and loss given default calibrated directly to market.
The amounts recognized in the consolidated balance sheet as of December 31, 2020, 2019 and 2018 related to the valuation adjustments to the credit assessment of the derivative asset as “Credit Valuation Adjustments” (“CVA”) was €-142 million, €-106 and €-163 million respectively, and the valuation adjustments to the derivative liabilities as “Debit Valuation Adjustment” (DVA) was €124 million, €117 and €214 million, respectively. The impact recorded under “Gains or (-) losses on financial assets and liabilities held for trading, net” in the consolidated income statement as of December 31, 2020, 2019 and 2018 corresponding to the mentioned adjustments was a net impact of €-29 million, €67 and €-24 million respectively. Additionally, as of December 31, 2020, 2019 and 2018, €-9, €-8 and €-12 million related to the “Funding Valuation Adjustments” (“FVA”) were recognized in the consolidated balance sheet, being the impact on results €-1 million, €4 and €-2 million, respectively.
P.105 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The changes in the balance of Level 3 financial assets and liabilities included in the accompanying consolidated balance sheets are as follows:
| Changes in the year (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Assets Liabilities | Assets Liabilities | Assets Liabilities | |
| Balance at the beginning | 3,754 2,220 | 3,527 4,115 | 835 1,386 |
| Changes in fair value recognized in profit and loss (*) | 609 293 | 112 71 | (167) (28) |
| Changes in fair value not recognized in profit and loss | (89) (4) | 2 - | (4) - |
| Acquisitions, disposals and liquidations (**) | (699) (393) | 5 595 | 2,102 2,710 |
| Net transfers to Level 3 | 549 287 | 77 (2,751) | 761 47 |
| Exchange differences and others | (160) (35) | 31 189 | - - |
| Discontinued operations (***) | (518) (5) | - - | - - |
| Balance at the end | 3,446 2,363 | 3,754 2,219 | 3,527 4,115 |
(*) Profit or loss that is attributable to gains or losses relating to those financial assets and liabilities held as of December 31, 2020, 2019 and 2018. Valuation adjustments are recorded under the heading “Gains (losses) on financial assets and liabilities (net)”.
(**) Of which, in 2020, the assets roll forward is comprised of €326 million of acquisitions, €1,014 million of disposals and €11 million of liquidations. The liabilities roll forward is comprised of €115 million of acquisitions, €449 million of sales and €11 million of liquidations.
(***) Amount in 2020 are mainly due to the stake in BBVA USA (see Notes 3 and 21).
During the 2020 financial year, the level of significance of the unobservable inputs used to determine the fair value hierarchy of loans and advances to customers at amortized cost has been reviewed, resulting in a greater exposure classified as Level 3. This review has been carried out in the context of availability of new information, more adjusted to the changes that have occurred both in market conditions and in the composition of the credit portfolio. The effect on the consolidated results and solvency ratios, resulting from this review, does not represent any change (see Note 8.2).
During 2019, certain interest rate yields were adapted to those observable in the market, which mainly affected the valuation of certain deposit classes recorded under “Financial liabilities at amortized cost” and certain insurance products recorded under “Financial liabilities designated at fair value through profit or loss - Other financial liabilities”, and, as a result thereof, their classification changed from Level 3 to Level 2. Additionally, €1,285 million in assets held for trading and €649 million in liabilities held for trading were classified in Level 3, mainly due to certain reverse repurchase and repurchase agreements, due to the non-observability and liquidity in the interest rate yield for the financing of assets applied in the calculation of their fair value.
As of December 31, 2020, 2019 and 2018, the profit/loss on sales of financial instruments classified as Level 3 recognized in the accompanying consolidated income statement was not material.
The Global Valuation Area, in collaboration with the Group, has established the rules for an appropriate financial instruments held for trading classification according to the fair value hierarchy defined by IFRS. On a monthly basis, any new assets added to the portfolio are classified, according to this criterion, by the subsidiaries. Then, there is a quarterly review of the portfolio in order to analyze the need for a change in classification of any of these assets.
P.106 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The financial instruments transferred between the different levels of measurement for the years ended December 31, 2020, 2019 and 2018 are at the following amounts in the accompanying consolidated balance sheets as of December 31, 2020, 2019 and 2018:
| From: | Level 1 | Level 2 | Level 3 | To: | Level 2 | Level 3 | Level 1 | Level 3 | Level 1 | Level 2 |
|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | ||||||||||
| Financial assets held for trading | 1,460 | 11 | 203 | 548 | 4 | 98 | ||||
| Non-trading financial assets mandatorily at fair value through profit or loss | 9 | 11 | 4 | - | - | 17 | ||||
| Financial assets designated at fair value through profit or loss | 143 | - | - | - | - | - | ||||
| Financial assets at fair value through other comprehensive income | 484 | - | 135 | 96 | - | 6 | ||||
| Derivatives – Hedge accounting | - | - | - | 8 | - | - | ||||
| Total | 2,096 | 23 | 342 | 652 | 4 | 122 | ||||
| LIABILITIES | ||||||||||
| Financial liabilities held for trading | 8 | 3 | - | 268 | - | 13 | ||||
| Financial liabilities designated at fair value through profit or loss | - | - | - | 56 | - | 27 | ||||
| Derivatives – Hedge accounting | - | - | - | - | - | - | ||||
| Total | 8 | 3 | - | 324 | - | 40 |
| From: | Level 1 | Level 2 | Level 3 | To: | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 | Level 1 | Level 2 | Level 3 |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| ASSETS | |||||||||||||
| Financial assets held for trading | 74 | - | 1,119 | 502 | 1 | 160 | 1,171 | 2 | 2 | 6 | 2 | ||
| Non-trading financial assets mandatorily at fair value through profit or loss | - | - | 23 | 2 | - | 44 | - | - | 9 | 67 | - | ||
| Financial assets designated at fair value through profit or loss | - | - | - | - | 1 | - | - | - | - | - | - | ||
| Financial assets at fair value through other comprehensive income | 6 | 6 | 4 | 209 | - | 454 | 134 | 72 | - | 515 | - | ||
| Derivatives – Hedge accounting | - | - | - | 26 | - | 10 | - | - | - | 52 | 118 | ||
| Total | 79 | 6 | 1,145 | 739 | 2 | 667 | 1,305 | 74 | 11 | 641 | 118 | ||
| LIABILITIES | |||||||||||||
| Financial liabilities held for trading | 1 | - | - | - | - | - | - | - | 138 | - | 37 | ||
| Financial liabilities designated at fair value through profit or loss | - | - | - | 27 | - | 2,679 | - | - | - | - | - | ||
| Derivatives – Hedge accounting | - | - | - | 27 | - | 125 | - | - | - | - | - | ||
| Total | 1 | - | - | 54 | - | 2,804 | - | - | 138 | - | 37 |
The amount of financial instruments that were transferred between levels of valuation during the year ended December 31, 2020, is not material relative to the total portfolios, and corresponds to the above changes in the classification between levels these financial instruments modified some of their features, specifically: Transfers between Levels 1 and 2 represent mainly debt securities and equity instruments, which are either no longer listed on an active market (transfer from Level 1 to 2) or have just started to be listed (transfer from Level 2 to 1). Transfers from Level 2 to Level 3 are mainly due to transactions of financial assets held for trading, non-trading financial assets mandatorily valued at fair value, hedging derivatives, financial liabilities held for trading and financial liabilities designated at fair value through profit or loss. Transfers from Level 3 to Level 2 generally affect derivative and debt securities transactions, for which inputs observable in the market have been obtained.
Sensitivity analysis is performed on financial instruments with significant unobservable inputs (financial instruments included in level 3), in order to obtain a reasonable range of possible alternative valuations. This analysis is carried out on a monthly basis, based on the criteria defined by the Global Valuation Area taking into account the nature of the methods used for the assessment and the reliability and availability of inputs and proxies used. In order to establish, with a sufficient degree of certainty, the valuation risk that is incurred in such assets without applying diversification criteria between them.
P.107 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, the effect on profit for the year and total equity of changing the main unobservable inputs used for the measurement of Level 3 financial instruments for other reasonably possible unobservable inputs, taking the highest (most favorable input) or lowest (least favorable input) value of the range deemed probable, would be as follows:
| Potential impact on consolidated income statement | Potential impact on other comprehensive income | |
|---|---|---|
| Most favorable hypothesis | Least favorable hypothesis | |
| ASSETS | ||
| Financial assets held for trading | 10 | (40) |
| Loans and Advances | 1 | (1) |
| Debt securities | 5 | (5) |
| Equity instruments | 1 | (31) |
| Derivatives | 3 | (3) |
| Non-trading financial assets mandatorily at fair value through profit or loss | 229 | (60) |
| Loans and advances | 204 | (29) |
| Debt securities | 15 | (15) |
| Equity instruments | 9 | (16) |
| Financial assets designated at fair value through profit or loss | - | - |
| Financial assets at fair value through other comprehensive income | - | - |
| Total | 239 | (101) |
The valuation technique used to calculate the fair value of financial assets and liabilities carried at cost are presented below:
Financial assets
Financial liabilities
P.108 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The following table presents the fair value of key financial instruments carried at amortized cost in the accompanying consolidated balance sheets as of December 31, 2020, 2019 and 2018, broken down according to the method of valuation used for the estimation:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Level 1 | Level 2 | Level 3 | |
| ASSETS | |||
| Cash, cash balances at central banks and other demand deposits | 65,355 | - | 165 |
| Financial assets at amortized cost | 35,196 | 15,066 | 324,005 |
| LIABILITIES | |||
| Financial liabilities at amortized cost | 90,839 | 255,278 | 144,889 |
The main valuation techniques and inputs used to estimate the fair value of financial instruments accounted for at cost and classified in levels 2 and 3 is shown below. These are broken down by type of financial instrument and the balances correspond to those as of December 31, 2020, 2019 and 2018:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Level 2 | Level 3 | Level 2 | |
| Valuation technique(s) | |||
| Main inputs used | |||
| ASSETS | |||
| Financial assets at amortized cost | 15,066 | 324,005 | 217,279 |
| Present-value method (Discounted future cash flows) | |||
| Central banks | - | - | - |
| Credit spread | - | - | |
| Prepayment rates | - | - | |
| Interest rate yield | - | - | |
| Loans and advances to credit institutions | 1,883 | 12,641 | 9,049 |
| Credit spread | - | - | |
| Prepayment rates | - | - | |
| Interest rate yield | - | - | |
| Loans and advances to customers | 3,904 | 310,924 | 194,897 |
| Credit spread | - | - | |
| Prepayment rates | - | - | |
| Interest rate yield | - | - | |
| Debt securities | 9,279 | 440 | 13,333 |
| Credit spread | - | - | |
| Interest rate yield | - | - | |
| LIABILITIES | |||
| Financial liabilities at amortized cost | 255,278 | 144,889 | 289,599 |
| Present-value method (Discounted future cash flows) | |||
| Deposits from central banks | - | 207 | 129 |
| Issuer´s credit risk | - | - | |
| Prepayment rates | - | - | |
| Interest rate yield | - | - | |
| Deposits from credit institutions | 22,914 | 4,633 | 21,575 |
| Deposits from customers | 210,097 | 129,525 | 245,720 |
| Debt certificates | 14,413 | 4,848 | 14,194 |
| Other financial liabilities | 7,854 | 5,676 | 7,981 |
| 9. |
The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:
| Financial assets and liabilities held for trading (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| ASSETS | ||||
| Derivatives (*) | 40,183 | 32,232 | 29,523 | |
| Equity instruments | 7.2.2 | 11,458 | 8,892 | 5,254 |
| Credit institutions | 633 | 1,037 | 880 | |
| Other sectors | 10,824 | 7,855 | 4,374 | |
| Debt securities | 7.2.2 | 23,970 | 26,309 | 25,577 |
| Issued by central banks | 1,011 | 840 | 1,001 | |
| Issued by public administrations | 19,942 | 23,918 | 22,950 | |
| Issued by financial institutions | 1,479 | 679 | 790 | |
| Other debt securities | 1,538 | 872 | 836 | |
| Loans and advances | 7.2.2 | 32,647 | 34,303 | 28,750 |
| Loans and advances to central banks | 53 | 535 | 2,163 | |
| Reverse repurchase agreement (**) | 53 | 535 | 2,163 | |
| Loans and advances to credit institutions | 20,499 | 21,286 | 14,566 | |
| Reverse repurchase agreement (**) | 20,491 | 21,219 | 13,305 | |
| Loans and advances to customers | 12,095 | 12,482 | 12,021 | |
| Reverse repurchase agreement (**) | 11,493 | 12,187 | 11,794 | |
| Total assets | 8.1 | 108,257 | 101,735 | 89,103 |
| LIABILITIES | ||||
| Derivatives (*) | 41,680 | 34,066 | 30,801 | |
| Short positions | 12,312 | 12,249 | 11,025 | |
| Deposits | 32,496 | 42,365 | 37,934 | |
| Deposits from central banks | 6,277 | 7,635 | 10,511 | |
| Repurchase agreement (**) | 6,277 | 7,635 | 10,511 | |
| Deposits from credit institutions | 16,558 | 24,969 | 15,687 | |
| Repurchase agreement (**) | 16,217 | 24,578 | 14,839 | |
| Customer deposits | 9,660 | 9,761 | 11,736 | |
| Repurchase agreement (**) | 9,616 | 9,689 | 11,466 | |
| Total liabilities | 8.1 | 86,488 | 88,680 | 79,761 |
(*) The variation in 2020 is mainly due to the evolution of exchange rate derivatives at BBVA, S.A. The information for 2019 and 2018 has been subject to certain modifications related to the operation of non-significant cross currency swaps in order to improve comparability with the figures for 2020.
(**) See Note 35. As of December 31, 2020, 2019 and 2018 “Short positions” include €11,696, €11,649 and €10,255 million, respectively, held with general governments.
The derivatives portfolio arises from the Group’s need to manage the risks it is exposed to in the normal course of business and also to market products amongst the Group’s customers. As of December 31, 2020, 2019 and 2018, trading derivatives were mainly contracted in over-the-counter (OTC) markets, with counterparties, consisting primarily of foreign credit institutions and other financial corporations, and are related to foreign-exchange, interest-rate and equity risk.
Below is a breakdown of the net positions by transaction type of the fair value and notional amounts of derivatives recognized in the accompanying consolidated balance sheets, divided into organized and OTC markets:
| Derivatives by type of risk and by product or by type of market (Millions of Euros) | |||||||||
|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |
| Assets | Liabilities | Notional amount - Total | Assets | Liabilities | Notional amount - Total | Assets | Liabilities | Notional amount - Total | |
| Interest rate | 26,451 | 26,028 | 3,252,066 | 21,004 | 20,378 | 3,024,794 | 18,546 | 18,169 | 2,929,371 |
| OTC | 26,447 | 26,020 | 3,233,718 | 21,004 | 20,377 | 2,997,443 | 18,546 | 18,169 | 2,910,016 |
| Organized market | 3 | 8 | 18,348 | - | 1 | 27,351 | - | - | 19,355 |
| Equity instruments | 2,626 | 4,143 | 72,176 | 2,263 | 3,499 | 84,140 | 2,799 | 2,956 | 114,184 |
| OTC | 584 | 1,836 | 42,351 | 353 | 1,435 | 40,507 | 631 | 463 | 39,599 |
| Organized market | 2,042 | 2,307 | 29,825 | 1,910 | 2,065 | 43,633 | 2,168 | 2,492 | 74,586 |
| Foreign exchange and gold | 10,952 | 11,216 | 461,898 | 8,608 | 9,788 | 472,194 | 7,942 | 9,280 | 432,283 |
| OTC | 10,942 | 11,216 | 457,180 | 8,571 | 9,782 | 463,662 | 7,931 | 9,225 | 426,952 |
| Organized market | 10 | - | 4,719 | 37 | 6 | 8,532 | 11 | 55 | 5,331 |
| Credit | 153 | 292 | 23,411 | 353 | 397 | 29,077 | 232 | 393 | 25,452 |
| Credit default swap | 146 | 156 | 21,529 | 338 | 283 | 26,702 | 228 | 248 | 22,791 |
| Credit spread option | - | - | - | - | 2 | 150 | 2 | - | 500 |
| Total return swap | 7 | 136 | 1,882 | 14 | 113 | 2,225 | 2 | 145 | 2,161 |
| Other | - | - | - | - | - | - | - | - | - |
| Commodities | 1 | 1 | 26 | 4 | 4 | 64 | 3 | 3 | 67 |
| Other | - | - | - | - | - | - | - | - | - |
| DERIVATIVES | 40,183 | 41,680 | 3,809,577 | 32,232 | 34,066 | 3,610,269 | 29,523 | 30,801 | 3,501,358 |
| Of which: OTC - credit institutions | 24,432 | 27,244 | 958,017 | 19,962 | 22,973 | 1,000,243 | 16,305 | 18,055 | 897,384 |
| Of which: OTC - other financial corporations | 8,211 | 8,493 | 2,663,978 | 6,028 | 6,089 | 2,370,988 | 7,136 | 7,522 | 2,355,784 |
| Of which: OTC - other | 5,484 | 3,627 | 134,690 | 4,294 | 2,932 | 159,521 | 3,902 | 2,677 | 148,917 |
The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:
| Non-trading financial assets mandatorily at fair value through profit or loss (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Equity instruments | 7.2.2 | 4,133 | 4,327 | 3,095 |
| Debt securities | 7.2.2 | 356 | 110 | 237 |
| Loans and advances to customers | 7.2.2 | 709 | 1,120 | 1,803 |
| Total | 8.1 | 5,198 | 5,557 | 5,135 |
The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:
| Financial assets and liabilities designated at fair value through profit or loss (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| ASSETS | ||||
| Debt securities | 7.2.2 | 1,117 | 1,214 | 1,313 |
| LIABILITIES | ||||
| Customer deposits | 902 | 944 | 976 | |
| Debt certificates | 4,531 | 4,656 | 2,858 | |
| Other financial liabilities: Unit-linked products | 4,617 | 4,410 | 3,159 | |
| Total liabilities | 8.1 | 10,050 | 10,010 | 6,993 |
Within “Financial liabilities designated at fair value through profit or loss”, liabilities linked to insurance products where the policyholder bears the risk (" Unit-Link ") are recorded. Since the liabilities linked to insurance products in which the policyholder assumes the risk are valued the same way as the assets associated to these insurance products, there is no credit risk component borne by the Group in relation to these liabilities. In addition, the assets and liabilities are included in these headings to reduce inconsistencies (asymmetries) in the valuation of those operations and those used to manage their risk.
The breakdown of the balance by the main financial instruments in the accompanying consolidated balance sheets is as follows:
| Financial assets at fair value through other comprehensive income (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Equity instruments | 7.2.2 | 1,100 | 2,420 | 2,595 |
| Debt securities (*) | 68,308 | 58,731 | 53,709 | |
| Loans and advances to credit institutions | 7.2.2 | 33 | 33 | 33 |
| Total | 8.1 | 69,440 | 61,183 | 56,337 |
| Of which: loss allowances of debt securities | (97) | (110) | (28) |
(*) The variation corresponds mainly to the increase in financial assets issued by governments in BBVA, S.A. During financial years 2020 and 2019, there have been no significant reclassifications from “Financial assets at fair value through other comprehensive income” to other headings or from other headings to “Financial assets at fair value through other comprehensive income”.
The breakdown of the balance under the heading "Equity instruments" of the accompanying consolidated financial statements as of December 31, 2020, 2019 and 2018 is as follows:
| Financial assets at fair value through other comprehensive income. Equity instruments. (Millions of Euros) | ||||||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | 2020 | 2019 | 2018 | |
| Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value | |
| Equity instruments Spanish companies shares | 2,182 | - | (1,309) | 873 | 2,181 | - | (507) | 1,674 | 2,172 | - | (210) | 1,962 |
| Foreign companies shares | 100 | 38 | (17) | 121 | 136 | 87 | (11) | 213 | 90 | 43 | (12) | 121 |
| The United States | 27 | - | - | 27 | 30 | 47 | - | 78 | 20 | 17 | - | 37 |
| Mexico | 1 | 33 | - | 34 | 1 | 33 | - | 34 | 1 | 25 | - | 26 |
| Turkey | 2 | 4 | - | 6 | 3 | 2 | - | 5 | 3 | - | (1) | 2 |
| Other countries | 70 | 1 | (17) | 54 | 102 | 5 | (11) | 96 | 66 | 1 | (11) | 56 |
| Subtotal equity instruments listed | 2,282 | 38 | (1,326) | 995 | 2,317 | 87 | (518) | 1,886 | 2,262 | 43 | (222) | 2,083 |
| Equity instruments Spanish companies shares | 5 | 1 | - | 5 | 5 | 1 | - | 5 | 6 | 1 | - | 7 |
| Foreign companies shares | 58 | 43 | (1) | 100 | 450 | 79 | (1) | 528 | 453 | 54 | (1) | 506 |
| The United States | - | - | - | - | 387 | 32 | - | 419 | 388 | 23 | - | 411 |
| Mexico | - | - | - | - | - | - | - | - | - | - | - | - |
| Turkey | 5 | - | - | 5 | 5 | 4 | - | 9 | 6 | 4 | - | 10 |
| Other countries | 52 | 43 | (1) | 94 | 57 | 43 | (1) | 99 | 59 | 27 | (1) | 85 |
| Subtotal unlisted equity instruments | 62 | 44 | (1) | 105 | 454 | 80 | (1) | 533 | 459 | 55 | (1) | 513 |
| Total | 2,344 | 82 | (1,327) | 1,100 | 2,772 | 167 | (519) | 2,420 | 2,721 | 98 | (223) | 2,595 |
The breakdown of the balance under the heading “Debt securities” of the accompanying consolidated financial statements as of December 31, 2020, 2019 and 2018, broken down by issuers, is as follows:
Financial assets at fair value through other comprehensive income. Debt securities (Millions of Euros)
| Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value |
| :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- | :--- |
| 2020 | 2019 | 2018 |
| Domestic debt securities | | | | | | | | | | | |
| Government and other government agency debt securities | 28,582 | 801 | (16) | 29,367 | 20,740 | 830 | (20) | 21,550 | 17,205 | 661 | (9) | 17,857 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 1,363 | 76 | (0) | 1,439 | 959 | 65 | - | 1,024 | 793 | 63 | - | 855 |
| Other issuers | 867 | 40 | (1) | 906 | 907 | 40 | - | 947 | 804 | 37 | (1) | 841 |
| Subtotal | 30,811 | 917 | (17) | 31,712 | 22,607 | 935 | (21) | 23,521 | 18,802 | 761 | (10) | 19,553 |
| Foreign debt securities | | | | | | | | | | | | |
| Mexico | 9,107 | 291 | (3) | 9,395 | 7,790 | 22 | (26) | 7,786 | 6,299 | 6 | (142) | 6,163 |
| Government and other government agency debt securities | 8,309 | 271 | (1) | 8,579 | 6,869 | 18 | (19) | 6,868 | 5,286 | 4 | (121) | 5,169 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 113 | 5 | - | 118 | 77 | 2 | - | 78 | 35 | - | (1) | 34 |
| Other issuers | 685 | 15 | (2) | 698 | 843 | 2 | (6) | 840 | 978 | 2 | (20) | 961 |
| The United States | 4,642 | 52 | (3) | 4,691 | 11,376 | 68 | (51) | 11,393 | 14,507 | 47 | (217) | 14,338 |
| Government securities | 2,307 | 9 | (1) | 2,315 | 8,570 | 42 | (12) | 8,599 | 11,227 | 37 | (135) | 11,130 |
| Treasury and other government agencies | 2,307 | 9 | (1) | 2,315 | 5,595 | 32 | (2) | 5,624 | 7,285 | 29 | (56) | 7,258 |
| States and political subdivisions | - | - | - | - | 2,975 | 10 | (10) | 2,975 | 3,942 | 8 | (79) | 3,872 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 186 | 3 | - | 188 | 122 | 2 | - | 124 | 49 | 1 | - | 50 |
| Other issuers | 2,149 | 40 | (2) | 2,187 | 2,684 | 24 | (39) | 2,670 | 3,231 | 9 | (82) | 3,158 |
| Turkey | 3,456 | 90 | (73) | 3,473 | 3,752 | 38 | (76) | 3,713 | 4,164 | 20 | (269) | 3,916 |
| Government and other government agency debt securities | 3,456 | 90 | (73) | 3,473 | 3,752 | 38 | (76) | 3,713 | 4,007 | 20 | (256) | 3,771 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | - | - | - | - | - | - | - | - | 157 | - | (13) | 145 |
| Other issuers | - | - | - | - | - | - | - | - | - | - | - | - |
| Other countries | 18,340 | 739 | (42) | 19,037 | 11,870 | 554 | (106) | 12,318 | 9,551 | 319 | (130) | 9,740 |
| Other foreign governments and other government agency debt securities | 10,458 | 502 | (17) | 10,943 | 6,963 | 383 | (78) | 7,269 | 4,510 | 173 | (82) | 4,601 |
| Central banks | 1,599 | 21 | (8) | 1,611 | 1,005 | 9 | (4) | 1,010 | 987 | 2 | (4) | 986 |
| Credit institutions | 2,521 | 116 | (8) | 2,629 | 1,795 | 109 | (12) | 1,892 | 1,856 | 111 | (20) | 1,947 |
| Other issuers | 3,762 | 100 | (8) | 3,854 | 2,106 | 53 | (12) | 2,147 | 2,197 | 33 | (25) | 2,206 |
| Subtotal | 35,545 | 1,172 | (120) | 36,596 | 34,788 | 681 | (259) | 35,210 | 34,521 | 392 | (758) | 34,157 |
| Total | 66,356 | 2,089 | (137) | 68,308 | 57,395 | 1,617 | (280) | 58,731 | 53,323 | 1,153 | (768) | 53,709 |
P.114
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The credit ratings of the issuers of debt securities as of December 31, 2020, 2019 and 2018 are as follows:
| Fair value (Millions of Euros) | % | Fair value (Millions of Euros) | % | Fair value (Millions of Euros) | % | |
|---|---|---|---|---|---|---|
| 2020 | 2019 | 2018 | ||||
| AAA | 4,345 | 6.4% | 3,669 | 6.2% | 531 | 1.0% |
| AA+ | 595 | 0.9% | 7,279 | 12.4% | 13,100 | 24.4% |
| AA | 449 | 0.7% | 317 | 0.5% | 222 | 0.4% |
| AA- | 406 | 0.6% | 265 | 0.5% | 409 | 0.8% |
| A+ | 5,912 | 8.7% | 3,367 | 5.7% | 632 | 1.2% |
| A | 2,112 | 3.1% | 12,895 | 22.0% | 687 | 1.3% |
| A- | 31,614 | 46.3% | 10,947 | 18.6% | 18,426 | 34.3% |
| BBB+ | 8,629 | 12.6% | 9,946 | 16.9% | 9,195 | 17.1% |
| BBB | 4,054 | 5.9% | 2,966 | 5.1% | 4,607 | 8.6% |
| BBB- | 5,116 | 7.5% | 1,927 | 3.3% | 1,003 | 1.9% |
| BB+ or below | 4,731 | 6.9% | 4,712 | 8.0% | 4,453 | 8.3% |
| Unclassified | 345 | 0.5% | 441 | 0.8% | 445 | 0.8% |
| Total | 68,308 | 100.0% | 58,731 | 100.0% | 53,709 | 100.0% |
The changes in the gains/losses (net of taxes) in December 31, 2020, 2019 and 2018 of debt securities recognized under the equity heading “Accumulated other comprehensive income (loss) – Items that may be reclassified to profit or loss – Fair value changes of debt instruments measured at fair value through other comprehensive income” and equity instruments recognized under the equity heading “Accumulated other comprehensive income (loss) – Items that will not be reclassified to profit or loss –Fair value changes of equity instruments measured at fair value through other comprehensive income” in the accompanying consolidated balance sheets are as follows:
| Debt securities | Equity instruments | |
|---|---|---|
| 2020 | 2019 | |
| Balance at the beginning | 1,760 | 943 |
| Effect of changes in accounting policies (IFRS 9) | (58) | (40) |
| Valuation gains and losses | 489 | 1,267 |
| Amounts transferred to income | (72) | (119) |
| Amounts transferred to Reserves | - | - |
| Income tax and other | (107) | (331) |
| Balance at the end | 30 | 2,069 |
In 2020, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €19 million (see Note 47).
In 2019, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €82 million (see Note 47) as a result of the decrease in the rating of debt securities in Argentina during the last quarter of 2019.
In 2018, the debt securities impaired recognized in the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification– Financial assets at fair value through other comprehensive income” in the accompanying consolidated income statement amounted to €1 million (see Note 47).
In 2020, equity securities presented a decrease of 876 million euros in the heading “Gains and losses from valuation - Accumulated other comprehensive income - Items that will not be reclassified to profit and loss - Fair value changes of equity instruments measured at fair value through other comprehensive income”, mainly due to the Telefónica quotation.
During 2020, 2019 and 2018 there has been no significant impairment recorded in equity instruments under the heading “Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification- Financial assets at fair value through other comprehensive income” (see Note 47).
P.115
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the nature of the financial instrument, is as follows:
Financial assets at amortized cost (Millions of Euros)
| | Notes | 2020 | 2019 | 2018 |
| :------------- | :------------- | :------------- | :------------- | :------------- |
| Debt securities | | 35,737 | 38,877 | 32,530 |
| Government | | 28,727 | 31,526 | 25,014 |
| Credit institutions | | 783 | 719 | 644 |
| Other financial corporations | | 5,027 | 5,254 | 5,421 |
| Non-financial corporations | | 1,200 | 1,379 | 1,451 |
| Loans and advances to central banks | | 6,209 | 4,275 | 3,941 |
| Loans and advances to credit institutions | | 14,575 | 13,649 | 9,163 |
| Reverse repurchase agreements () | | 1,914 | 1,817 | 478 |
| Other loans and advances | | 12,661 | 11,832 | 8,685 |
| Loans and advances to customers () | | 311,147 | 382,360 | 374,027 |
| Government | | 19,391 | 28,222 | 28,114 |
| Other financial corporations | | 9,817 | 11,207 | 9,468 |
| Non-financial corporations | | 136,424 | 166,789 | 163,922 |
| Other | | 145,515 | 176,142 | 172,522 |
| Total | 8.1 | 367,668 | 439,162 | 419,660 |
| Of which: impaired assets of loans and advances to customers () | | 14,672 | 15,954 | 16,349 |
| Of which: loss allowances of loans and advances (*) | | (12,141) | (12,427) | (12,217) |
| Of which: loss allowances of debt securities | | (48) | (52) | (51) |
() See Note 7.2
() See Note 35.
(**) Amount in 2020 is mainly due to the stake in BBVA USA (see Note 21).
During financial years 2020, 2019 and 2018, there have been no significant reclassifications neither from “Financial assets at amortized cost” to other headings or from other headings to “Financial assets at amortized cost”.
P.116
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under the heading “Debt securities” in the accompanying consolidated balance sheets, according to the issuer of the debt securities, is as follows:
Financial assets at amortized cost: Debt securities.(Millions of Euros)
| | 2020 | 2019 | 2018 |
| :----------------------------------------- | :--------------- | :--------------- | :--------------- |
| | Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value | Amortized cost | Unrealized gains | Unrealized losses | Fair value |
| Domestic debt securities | | | | | | | | | | | | |
| Government and other government agencies | 13,656 | 1,212 | - | 14,868 | 12,755 | 630 | (21) | 13,363 | 10,953 | 458 | (265) | 11,146 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | - | - | - | - | 26 | - | - | 26 | 53 | - | - | 53 |
| Other issuers | 4,835 | 59 | (7) | 4,887 | 4,903 | 38 | (10) | 4,931 | 5,014 | 41 | (25) | 5,030 |
| Subtotal | 18,492 | 1,271 | (7) | 19,756 | 17,684 | 668 | (31) | 18,320 | 16,019 | 499 | (290) | 16,228 |
| Foreign debt securities | | | | | | | | | | | | |
| Mexico | | | | | | | | | | | | |
| Government and other government agencies debt securities | 7,771 | 534 | (16) | 8,289 | 6,374 | 168 | (18) | 6,525 | 5,148 | 10 | - | 5,157 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 632 | 55 | - | 687 | 526 | 2 | - | 529 | 350 | 1 | - | 351 |
| Other issuers | 176 | - | (16) | 160 | 272 | - | (18) | 254 | 227 | - | - | 227 |
| The United States | | | | | | | | | | | | |
| Government securities | 52 | - | (26) | 26 | 6,125 | 111 | (20) | 6,217 | 2,559 | 15 | (3) | 2,570 |
| Treasury and other government agencies | 14 | - | - | 14 | 1,161 | 50 | (17) | 1,193 | 118 | - | - | 118 |
| States and political subdivisions | - | - | - | - | 4,530 | 61 | (1) | 4,590 | 1,952 | - | - | 1,952 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 23 | - | (16) | 7 | 25 | - | (1) | 25 | 23 | 9 | (2) | 30 |
| Other issuers | 15 | - | (10) | 5 | 410 | - | (1) | 409 | 466 | 6 | (1) | 470 |
| Turkey | 3,628 | 95 | (25) | 3,698 | 4,113 | 48 | (65) | 4,097 | 4,062 | - | (261) | 3,801 |
| Government and other government agencies debt securities | 3,621 | 95 | (25) | 3,691 | 4,105 | 47 | (65) | 4,088 | 4,054 | - | (261) | 3,793 |
| Central banks | - | - | - | - | - | - | - | - | - | - | - | - |
| Credit institutions | 6 | - | - | 6 | 7 | 1 | - | 8 | 7 | - | - | 7 |
| Other issuers | 1 | - | - | 1 | 1 | - | - | 1 | 1 | - | - | 1 |
| Other countries | 5,795 | 505 | (1) | 6,299 | 4,581 | 82 | (26) | 4,637 | 4,741 | 32 | (152) | 4,622 |
| Other foreign governments and other government agency debt securities | 4,473 | 467 | (1) | 4,939 | 3,400 | 82 | (22) | 3,459 | 3,366 | 27 | (152) | 3,242 |
| Central banks | - | - | - | - | - | - | - | - | 64 | - | - | 64 |
| Credit institutions | 122 | - | - | 122 | 135 | - | - | 135 | 147 | - | - | 147 |
| Other issuers | 1,200 | 38 | - | 1,238 | 1,047 | - | (4) | 1,043 | 1,164 | 5 | - | 1,169 |
| Subtotal | 17,245 | 1,134 | (68) | 18,311 | 21,194 | 409 | (129) | 21,476 | 16,510 | 57 | (416) | 16,150 |
| Total | 35,737 | 2,405 | (75) | 38,067 | 38,877 | 1,077 | (160) | 39,796 | 32,530 | 556 | (706) | 32,378 |
P.117
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, 2019 and 2018, the credit ratings of the issuers of debt securities classified as follows:
Debt securities by rating
| 2020 | % | 2019 | % | 2018 | % | |
|---|---|---|---|---|---|---|
| Carrying amount (Millions of Euros) | Carrying amount (Millions of Euros) | Carrying amount (Millions of Euros) | ||||
| AAA | 151 | 0.4% | 39 | 0.1% | 49 | 0.2% |
| AA+ | 74 | 0.2% | 6,481 | 16.7% | 1,969 | 6.1% |
| AA | 64 | 0.2% | 14 | - | 62 | 0.2% |
| AA- | 48 | 0.1% | 713 | 1.8% | - | - |
| A+ | 42 | 0 | - | - | 607 | 1.9% |
| A | 590 | 1.7% | 16,806 | 43.2% | 21 | 0.1% |
| A- | 16,736 | 46.8% | 607 | 1.6% | 6,117 | 18.8% |
| BBB+ | 7,919 | 22.2% | 3,715 | 9.6% | 13,894 | 42.7% |
| BBB | 942 | 2.6% | 551 | 1.4% | 1,623 | 5.0% |
| BBB- | 4,499 | 12.6% | 3,745 | 9.6% | 2,694 | 8.3% |
| BB+ or below | 3,928 | 11.0% | 5,123 | 13.2% | 4,371 | 13.4% |
| Unclassified | 743 | 2.1% | 1,083 | 2.8% | 1,123 | 3.5% |
| Total | 35,737 | 100.0% | 38,877 | 100.0% | 32,530 | 100.0% |
14.3 Loans and advances to customers
The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to their nature, is as follows:
Loans and advances to customers (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| On demand and short notice | 2,835 | 3,050 | 3,641 |
| Credit card debt | 13,093 | 16,354 | 15,445 |
| Trade receivables | 15,544 | 17,276 | 17,436 |
| Finance leases | 7,650 | 8,711 | 8,650 |
| Reverse repurchase agreements | 71 | 26 | 294 |
| Other term loans | 267,031 | 332,160 | 324,767 |
| Advances that are not loans | 4,924 | 4,784 | 3,794 |
| Total | 311,147 | 382,360 | 374,027 |
The heading “Financial assets at amortized cost – Loans and advances to customers” in the accompanying consolidated balance sheets also includes certain secured loans that, as mentioned in Appendix X and pursuant to the Mortgage Market Act, are linked to long-term mortgage covered bonds.
The following table sets forth a breakdown of the gross carrying amount "Loans and advances to customers" with maturity greater than one year by fixed and variable rate as of December 31, 2020:
Interest sensitivity of outstanding loans and advances maturing in more than one year (Millions of Euros)
| 2020 Dom. | 2020 For. | 2020 Total | 2019 Dom. | 2019 For. | 2019 Total | |
|---|---|---|---|---|---|---|
| Fixed rate | 46,104 | 66,444 | 112,548 | 55,920 | 68,915 | 124,835 |
| Variable rate | 86,710 | 41,452 | 128,162 | 79,329 | 97,765 | 177,095 |
| Total | 132,814 | 107,895 | 240,710 | 135,249 | 166,680 | 301,929 |
As of December 31, 2020, 2019 and 2018, 47%, 41% and 38%, respectively, of "Loans and advances to customers" with maturity greater than one year have fixed-interest rates and 53%, 59% and 62%, respectively, have variable interest rates.
P.118
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
This heading also includes some loans that have been securitized. The balances recognized in the accompanying consolidated balance sheets corresponding to these securitized loans are as follows:
Securitized loans (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Securitized mortgage assets | 23,953 | 26,169 | 26,556 |
| Other securitized assets | 6,144 | 4,249 | 3,221 |
| Total | 30,098 | 30,418 | 29,777 |
15. Hedging derivatives and fair value changes of the hedged items in portfolio hedges of interest rate risk
The balance of these headings in the accompanying consolidated balance sheets is as follows:
Derivatives – Hedge accounting and fair value changes of the hedged items in portfolio hedge of interest rate risk (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| ASSETS | |||
| Derivatives - Hedge accounting | 1,991 | 1,729 | 2,892 |
| Fair value changes of the hedged items in portfolio hedges of interest rate risk | 51 | 28 | (21) |
| LIABILITIES | |||
| Hedging derivatives | 2,318 | 2,233 | 2,680 |
| Fair value changes of the hedged items in portfolio hedges of interest rate risk | - | - | - |
As of December 31, 2020, 2019 and 2018, the main positions hedged by the Group and the derivatives designated to hedge those positions were:
P.119
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The details of the net positions by hedged risk of the fair value of the hedging derivatives recognized in the accompanying consolidated balance sheets are as follows:
Derivatives - Hedge accounting breakdown by type of risk and type of hedge. (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Assets | Liabilities | Assets | |
| Interest rate | 989 | 525 | 920 |
| OTC | 989 | 525 | 920 |
| Organized market | - | - | - |
| Equity | - | - | 3 |
| OTC | - | - | 3 |
| Organized market | - | - | - |
| Foreign exchange and gold | 435 | 350 | 420 |
| OTC | 435 | 350 | 420 |
| Organized market | - | - | - |
| Credit | - | - | - |
| Commodities | - | - | - |
| Other | - | - | - |
| FAIR VALUE HEDGES | 1,424 | 874 | 1,341 |
| Interest rate | 154 | 1,055 | 224 |
| OTC | 154 | 1,041 | 224 |
| Organized market | - | 15 | - |
| Equity | - | - | - |
| Foreign exchange and gold | 225 | 55 | 115 |
| OTC | 225 | 50 | 115 |
| Organized market | - | 5 | - |
| Credit | - | - | - |
| Commodities | - | - | - |
| Other | - | - | - |
| CASH FLOW HEDGES | 379 | 1,111 | 339 |
| HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION | 166 | 139 | 12 |
| PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK | 18 | 170 | 37 |
| PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK | 3 | 23 | 1 |
| DERIVATIVES -HEDGE ACCOUNTING | 1,991 | 2,318 | 1,729 |
| of which: OTC - credit institutions | 1,718 | 1,965 | 1,423 |
| of which: OTC - other financial corporations | 273 | 333 | 306 |
| of which: OTC - other | - | - | - |
P.120
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Below there is a breakdown of the items covered by fair value hedges:
Hedged items in fair value hedges.December 2020 (Millions of Euros)
Carrying amount
Hedge adjustments included in the carrying amount of assets/liabilities
Remaining adjustments for discontinued micro hedges including hedges of net positions
Hedged items in portfolio hedge of interest rate risk
ASSETS
Financial assets measured at fair value through other comprehensive income
| | 28091 | -99 | 12 | - |
|:---------------------------------------------------------------|--------:|------:|------:|:----|
| Interest rate | 28059 | | | |
| Other | 33 | | | |
Financial assets measured at amortized cost | 11177 | 386 | 3 | 2500 |
| Interest rate | 11177 | | | |
LIABILITIES
Financial liabilities measured at amortized costs | 23546 | -576 | 2 | - |
| Interest rate | 23543 | | | |
Equity
| Foreign exchange and gold | 3 | | | |
The following is the calendar of the notional maturities of the hedging instruments as of December 31, 2020:
Calendar of the notional maturities of the hedging instruments (Millions of Euros)
| | Up to 3 months | From 3 months to 1 year | From 1 to 5 years | More than 5 years | Total |
|:---------------------------------------------------------|-----------------:|--------------------------:|--------------------:|--------------------:|--------:|
| FAIR VALUE HEDGES | 3581 | 10945 | 28487 | 18656 | 61668 |
| Of which: Interest rate | 3569 | 10879 | 26946 | 18609 | 60003 |
| CASH FLOW HEDGES | 10495 | 2808 | 2576 | 6972 | 22852 |
| Of which: Interest rate | 6756 | 154 | 1816 | 6600 | 15326 |
| HEDGE OF NET INVESTMENTS IN A FOREIGN OPERATION | 1853 | 2910 | - | - | 4763 |
| PORTFOLIO FAIR VALUE HEDGES OF INTEREST RATE RISK | 299 | 576 | 1533 | 1029 | 3437 |
| PORTFOLIO CASH FLOW HEDGES OF INTEREST RATE RISK | 101 | 11 | 1049 | - | 1161 |
| DERIVATIVES -HEDGE ACCOUNTING | 15933 | 17340 | 33984 | 26623 | 93881 |
In 2020, 2019 and 2018, there was no reclassification in the accompanying consolidated income statements of any amount corresponding to cash flow hedges that was previously recognized in equity (see Note 41). The amount for derivatives designated as accounting hedges that did not pass the effectiveness test in December 31, 2020, 2019 and 2018 were not material.
P.121
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance of “Investments in joint ventures and associates” in the accompanying consolidated balance sheets is as follows:
Joint ventures and associates. Breakdown by entities (Millions of Euros)
| | 2020 | 2019 | 2018 |
|:-----------------------------------------|-------:|-------:|-------:|
| Joint ventures | | | |
| Altura Markets, S.V., S.A. | 77 | 73 | 69 |
| RCI Colombia | 36 | 37 | 32 |
| Desarrollo Metropolitanos del Sur, S.L. | 17 | 14 | 13 |
| Other | 19 | 30 | 59 |
| Subtotal | 149 | 154 | 173 |
| Associates | | | |
| Divarian Propiedad, S.A.U. | 567 | 630 | 591 |
| Metrovacesa, S.A. | 285 | 443 | 508 |
| BBVA Allianz Seguros y Reaseguros, S.A. | 250 | - | - |
| ATOM Bank PLC | 64 | 136 | 138 |
| Solarisbank AG | 39 | 36 | 37 |
| Cofides | 25 | 23 | 22 |
| Redsys servicios de procesamiento, S.L. | 14 | 14 | 12 |
| Servicios Electrónicos Globales S.A. de CV | 11 | 11 | 9 |
| Other | 33 | 41 | 88 |
| Subtotal | 1288 | 1334 | 1405 |
| Total | 1437 | 1488 | 1578 |
Details of the joint ventures and associates as of December 31, 2020 are shown in Appendix II.
The following is a summary of the changes in the in December 31, 2020, 2019 and 2018 under this heading in the accompanying consolidated balance sheets:
Joint ventures and associates. Changes in the year (Millions of Euros)
| Notes | 2020 | 2019 | 2018 |
|:--------|-------:|-------:|-------:|
| Balance at the beginning | 1488 | 1578 | 1588 |
| Acquisitions and capital increases | 257 | 161 | 309 |
| Disposals and capital reductions | (47) | (149) | (516) |
| Transfers and changes of consolidation method | (7) | (27) | 211 |
| Share of profit and loss | 39 | (39) | (7) |
| Exchange differences | (27) | 10 | 2 |
| Dividends, valuation adjustments and others | (188) | (43) | (8) |
| Balance at the end | 1437 | 1488 | 1578 |
During the year 2020, the most significant changes in the heading “Investments in joint ventures and associates” correspond to the valuation of Metrovacesa and BBVA Allianz Seguros y Reaseguros, S.A. During the year 2019, there was no significant change in the heading “Investment in joint ventures and associates”. The variation during the year 2018 was mainly explained by the decrease of BBVA Group stakes in Testa Residencial, S.A., Metrovacesa Suelo y Promoción, S.A. and the contribution of assets and subsequent sale to Cerberus of 80% of the capital stake in Divarian Propiedad, S.A.U., (see Note 3 and Appendix III). Appendix III provides notifications on acquisitions and disposals of holdings in subsidiaries, joint ventures and associates, in compliance with article 155 of the Corporations Act and article 125 of the Securities Market Act 4/2015.
P.122
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
If these entities had been consolidated rather than accounted for using the equity method, the change in each of the lines of balance sheet and the consolidated income statement would not be significant. As of December 31, 2020, 2019 and 2018 there was no financial support agreement or other contractual commitment to associates and joint ventures entities from the holding or the subsidiaries that are not recognized in the financial statements (see Note 53.2). As of December 31, 2020, 2019 and 2018 there was no contingent liability in connection with the investments in joint ventures and associates (see Note 53.2).
As described in IAS 36, the book value of the associates and joint venture entities has been compared with their recoverable amount, being the latter calculated as the higher between the value in use and the fair value minus the cost of sale. For the year ended December 31, 2020, €158 million have been recorded in the Group’s consolidated income statement due to impairment. For the year ended December 31, 2019, €46 million were recorded due to impairment. There were no impairments recognized in 2018 (see Note 48).
P.123
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown and movement of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:
Tangible assets: Breakdown by type of assets and changes in the year 2020. (Millions of Euros)
| | Notes | Land and buildings | Work in progress | Furniture, fixtures and vehicles | Own use Investment properties | Investment properties Assets leased out under an operating lease | Right to use asset | Total |
|:---|:---|---:|---:|---:|---:|---:|---:|---:|
| Cost | | | | | | | | |
| Balance at the beginning | | 6,001 | 56 | 6,351 | 3,516 | 101 | 216 | 337 | 16,578 |
| Additions | | 157 | 54 | 255 | 183 | - | 2 | - | 651 |
| Retirements | | (10) | (23) | (294) | (157) | - | (3) | (11) | (498) |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Companies held for sale () | | (925) | (31) | (366) | (294) | - | - | - | (1,616) |
| Transfers | | (248) | (2) | (5) | (60) | 25 | 18 | - | (272) |
| Exchange difference and other | | (595) | (2) | (426) | (127) | - | (24) | 8 | (1,166) |
| Balance at the end | | 4,380 | 52 | 5,515 | 3,061 | 123 | 201 | 345 | 13,677 |
| Accrued depreciation | | | | | | | | |
| Balance at the beginning | | 1,253 | - | 4,344 | 370 | 11 | 15 | 74 | 6,067 |
| Additions | | 45 | 83 | - | 370 | 312 | 12 | 3 | 781 |
| Additions transfer to discontinued operations () | | 24 | - | 20 | 32 | - | - | - | 76 |
| Retirements | | (2) | - | (248) | (10) | - | - | - | (260) |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Companies held for sale () | | (373) | - | (321) | (71) | - | - | - | (765) |
| Transfers | | (42) | - | (12) | (9) | 4 | 1 | - | (58) |
| Exchange difference and other | | (110) | - | (294) | (42) | - | (3) | (21) | (470) |
| Balance at the end | | 833 | - | 3,859 | 582 | 27 | 16 | 54 | 5,371 |
| Impairment | | | | | | | | |
| Balance at the beginning | | 212 | - | - | 191 | 14 | 26 | - | 443 |
| Additions | | 49 | 18 | - | 26 | 68 | 12 | 1 | 125 |
| Retirements | | - | - | - | - | - | - | - | - |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Companies held for sale () | | (8) | - | - | - | - | - | - | (8) |
| Transfers | | (68) | - | - | 10 | 7 | - | - | (51) |
| Exchange difference and other | | (5) | - | (26) | 5 | - | - | - | (26) |
| Balance at the end | | 149 | - | - | 274 | 26 | 34 | - | 483 |
| Net tangible assets | | | | | | | | |
| Balance at the beginning | | 4,536 | 56 | 2,007 | 2,955 | 76 | 175 | 263 | 10,068 |
| Balance at the end | | 3,398 | 52 | 1,656 | 2,205 | 70 | 151 | 291 | 7,823 |
(*) Amount is mainly due to the stake in BBVA USA (see Note 3).
P.124
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Tangible assets. Breakdown by type of assets and changes in the year 2019 (Millions of Euros)
| | Notes | Land and buildings | Work in progress | Furniture, fixtures and vehicles | Own use Investment properties | Investment properties Assets leased out under an operating lease | Right to use asset | Total |
|:---|:---|---:|---:|---:|---:|---:|---:|---:|
| Cost | | | | | | | | |
| Balance at the beginning | | 5,939 | 70 | 6,314 | - | - | 201 | 386 | 12,910 |
| Additions | | 90 | 63 | 335 | 3,574 | 101 | 12 | - | 4,175 |
| Retirements | | (44) | (20) | (302) | (57) | - | (10) | - | (433) |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Disposal of entities in the year | | - | - | - | - | - | - | - | - |
| Transfers | | (41) | (51) | (8) | (1) | - | 13 | - | (88) |
| Exchange difference and other | | 57 | (6) | 12 | - | - | (49) | 14 | 14 |
| Balance at the end | | 6,001 | 56 | 6,351 | 3,516 | 101 | 216 | 337 | 16,578 |
| Accrued depreciation | | | | | | | | |
| Balance at the beginning | | 1,138 | - | 4,212 | - | - | 11 | 76 | 5,437 |
| Additions | | 45 | 92 | - | 431 | 338 | 11 | 4 | 876 |
| Additions transfer to discontinued operations () | | 34 | - | 26 | 43 | - | - | - | 103 |
| Retirements | | (38) | - | (255) | (3) | - | - | - | (296) |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Disposal of entities in the year | | - | - | - | - | - | - | - | - |
| Transfers | | (16) | - | (13) | (1) | - | - | - | (30) |
| Exchange difference and other | | 43 | - | (57) | (7) | - | (2) | (23) | (23) |
| Balance at the end | | 1,253 | - | 4,344 | 370 | 11 | 15 | 74 | 6,067 |
| Impairment | | | | | | | | |
| Balance at the beginning | | 217 | - | - | - | - | 27 | - | 244 |
| Additions | | 49 | 14 | - | 20 | 60 | - | - | 94 |
| Retirements | | (3) | - | - | - | - | - | - | (3) |
| Acquisition of subsidiaries in the year | | - | - | - | - | - | - | - | - |
| Disposal of entities in the year | | - | - | - | - | - | - | - | - |
| Transfers | | (16) | - | - | 127 | 14 | (4) | - | 121 |
| Exchange difference and other | | - | - | (20) | 4 | 3 | - | (13) | (13) |
| Balance at the end | | 212 | - | - | 191 | 14 | 26 | - | 443 |
| Net tangible assets* | | | | | | | | |
| Balance at the beginning | | 4,536 | 56 | 2,007 | 2,955 | 76 | 175 | 263 | 10,068 |
| Balance at the end | | 4,536 | 56 | 2,007 | 2,955 | 76 | 175 | 263 | 10,068 |
P.125
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.# 4,584 70 2,102 - - 163 310 7,229 Balance at the end 4,536 56 2,007 2,955 76 175 263 10,068
(*) Amount in 2019 is mainly due to the stake in BBVA USA (see Note 3). The right to use asset consists mainly of the rental of commercial real estate premises for central services and the network branches located in the countries where the Group operates whose average term is between 5 and 20 years. The clauses included in rental contracts correspond to a large extent to rental contracts under normal market conditions in the country where the property is rented.
P.125
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
(Millions of Euros)
| For own use | Total tangible asset of own use | Investment properties | Assets leased out under an operating lease | Total | Notes |
|---|---|---|---|---|---|
| Land and buildings | Work in progress | Furniture, fixtures and vehicles | Cost | ||
| Balance at the beginning | 5,490 | 234 | 6,628 | 12,352 | 228 |
| Additions | 445 | 78 | 404 | 927 | 11 |
| Retirements | (98) | (17) | (492) | (607) | (149) |
| Acquisition of subsidiaries in the year | - | - | - | - | - |
| Disposal of entities in the year | - | - | - | - | - |
| Transfers | 64 | (177) | (12) | (125) | (5) |
| Exchange difference and other | 38 | (48) | (214) | (224) | 116 |
| Balance at the end | 5,939 | 70 | 6,314 | 12,323 | 201 |
| Accrued depreciation | |||||
| Balance at the beginning | 1,076 | - | 4,380 | 5,456 | 13 |
| Additions | 45 | 86 | - | 442 | 528 |
| Additions transfer to discontinued operations (*) | 34 | - | 27 | 61 | - |
| Retirements | (36) | - | (403) | (439) | (8) |
| Acquisition of subsidiaries in the year | - | - | - | - | - |
| Disposal of entities in the year | (3) | - | - | (3) | - |
| Transfers | (31) | - | (22) | (53) | (2) |
| Exchange difference and other | 12 | - | (212) | (200) | 3 |
| Balance at the end | 1,138 | - | 4,212 | 5,350 | 11 |
| Impairment | |||||
| Balance at the beginning | 315 | - | - | 315 | 20 |
| Additions | 49 | 29 | - | 29 | (25) |
| Additions transfer to discontinued operations (*) | 1 | - | - | 1 | - |
| Retirements | - | - | - | - | (27) |
| Acquisition of subsidiaries in the year | - | - | - | - | - |
| Disposal of entities in the year | - | - | - | - | - |
| Transfers | (77) | - | - | (77) | (3) |
| Exchange difference and other | (51) | - | - | (51) | 62 |
| Balance at the end | 217 | - | - | 217 | 27 |
| Net tangible assets | |||||
| Balance at the beginning | 4,099 | 234 | 2,248 | 6,581 | 195 |
| Balance at the end | 4,584 | 70 | 2,102 | 6,756 | 163 |
(*) Amount is mainly due to the stake in BBVA USA (see Note 3).
As of December 31, 2020, 2019 and 2018, the cost of fully amortized tangible assets that remained in use were €2,299, €2,658 and €2,624 million respectively while its recoverable residual value was not significant.
As of December 31, 2020, 2019 and 2018 the amount of tangible assets under financial lease schemes on which the purchase option is expected to be exercised was not material.
The main activity of the Group is carried out through a network of bank branches located geographically as shown in the following table:
P.126
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Spain | 2,482 | 2,642 | 2,840 |
| Mexico | 1,746 | 1,860 | 1,836 |
| South America | 1,514 | 1,530 | 1,543 |
| The United States | 639 | 643 | 646 |
| Turkey | 1,021 | 1,038 | 1,066 |
| Rest of Eurasia | 30 | 31 | 32 |
| Total | 7,432 | 7,744 | 7,963 |
The following table shows the detail of the net carrying amount of the tangible assets corresponding to Spanish and foreign subsidiaries as of December 31, 2020, 2019 and 2018:
(Millions of euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| BBVA and Spanish subsidiaries | 4,294 | 4,865 | 2,705 |
| Foreign subsidiaries | 3,529 | 5,203 | 4,524 |
| Total | 7,823 | 10,068 | 7,229 |
P.127
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading in the accompanying consolidated balance sheets, according to the cash-generating unit (hereinafter “CGU”) to which goodwill has been allocated, is as follows:
(Millions of Euros)
| The United States | Mexico | Turkey | Colombia | Chile | Other | Total | |
|---|---|---|---|---|---|---|---|
| Balance as of December 31, 2017 | 4,837 | 493 | 509 | 168 | 32 | 23 | 6,062 |
| Additions | - | - | - | - | - | - | - |
| Exchange difference | 229 | 26 | (127) | (7) | (3) | - | 118 |
| Impairment | - | - | - | - | - | - | - |
| Other | - | - | - | - | - | - | - |
| Balance as of December 31, 2018 | 5,066 | 519 | 382 | 161 | 29 | 23 | 6,180 |
| Additions | - | - | - | - | - | - | - |
| Exchange difference | 98 | 31 | (36) | 3 | (2) | (1) | 93 |
| Impairment | (1,318) | - | - | - | - | - | (1,318) |
| Other | - | - | - | - | - | - | - |
| Balance as of December 31, 2019 | 3,846 | 550 | 346 | 164 | 27 | 22 | 4,955 |
| Additions | - | - | - | - | - | - | - |
| Exchange difference | (22) | (72) | (92) | (21) | - | (1) | (208) |
| Impairment | (2,084) | - | - | - | - | (13) | (2,097) |
| Companies held for sale | (1,740) | - | - | - | - | - | (1,740) |
| Other | - | - | - | - | - | - | - |
| Balance as of December 31, 2020 | - | 478 | 254 | 143 | 27 | 8 | 910 |
As of December 31, 2020, the remaining goodwill of the United States CGU was reclassified to the heading “Non-current assets and disposal groups classified as held for sale” of the consolidated balance sheet, whereas the impairment was reclassified to the heading “Profit (loss) after tax from discontinued operations” of the consolidated income statements (see Notes 1.3, 3 and 21).
There were no significant business combinations during 2020, 2019 and 2018.
As mentioned in Note 2.2.8, the CGUs to which goodwill has been allocated, are periodically tested for impairment by including the allocated goodwill in their carrying amount. This analysis is performed at least annually and whenever there is any indication of impairment. Furthermore, it is analyzed whether certain changes in the valuation assumptions used could give rise to differences in the result of the impairment test.
The BBVA Group performs estimations on the recoverable amount of certain CGU´s by calculating the value in use through the discounted value of future cash flows method. The main hypotheses used for the value in use calculation are the following:
P.128
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The focus used by the Group's management to determine the values of the assumptions is based both on its projections and past experience. These values are verified and use external sources of information, wherever possible. Additionally, the valuation of the goodwill of the CGU of Turkey has been reviewed by independent experts (not the Group's external auditors).
As of December 31, 2020, as a result of the CGU´s assessment, the Group concluded there is no evidence of further indicators of impairment losses that requires recognizing significant additional impairment losses in any of the CGUs where goodwill that the Group has recognized in the consolidated balance sheet is allocated.
As of March 31, 2020, the Group identified an indicator of impairment of goodwill in the United States CGU and as a result of the goodwill impairment test, the Group estimated impairment in the United States CGU, of €2,084 million, which was mainly due to the negative impact of the update of the macroeconomic scenario following the COVID-19 pandemic (see Note 1.5) and the expected evolution of interest rates. This recognition did not affect the tangible book value nor the liquidity nor the solvency ratio of the BBVA Group.
As of December 31, 2019, the Group estimated impairment losses in the United States CGU of €1,318 million, which was mainly as a result of the negative evolution of interest rates, especially in the second half of the year, which accompanied by the slowdown of the economy caused the expected evolution of results below the previous estimation. This recognition did not affect the tangible book value nor the liquidity nor the solvency ratio of the BBVA Group.
As of December 31, 2018, no impairment had been identified in any of the main CGUs.
As of December 31, 2020, the remaining goodwill corresponding to the United States CGU has been reclassified to the heading "Non- current assets and disposal groups classified as held for sale" in the consolidated balance sheets (see Notes 1.3, 3 and 21). Pursuant to IFRS 5.15, the CGU must be measured at the lower of fair value less costs to sell and the carrying amount.Given the price agreed in the sale agreement, the fair value less costs to sell is higher than carrying amount of the assets and liabilities of the CGU, which means that as of December 31, 2020 these will remain valued at their carrying amount (included goodwill) on the reclassification date. The most significant assumptions used in the latest impairment tests of such CGU are:
| CGU goodwill - United States | March 2020 | December 2019 | December 2018 |
|---|---|---|---|
| Discount rate (*) | 10.3% | 10.0% | 10.5% |
| Sustainable growth rate | 3.0% | 3.5% | 4.0% |
(*) Post-tax discount rates. In accordance with paragraph 33.c of IAS 36, as of March 31, 2020, the Group used a constant growth rate of 3.0%, based on the real GDP growth rate of the United States, the expected inflation and the potential growth of the banking sector in the United States. The assumptions that carry the most weight and whose volatility could affect the most in determining the present value of cash flows from the fifth year on are the discount rate and the growth rate. The following shows the amount that would increase (or decrease) the recoverable value of the CGU, as a consequence of a reasonably possible variation (in basis points, “bp”) of each of the key assumptions as of March 31, 2020:
| Increase of 50 basis points (*) | Decrease of 50 basis points (*) | |
|---|---|---|
| Discount rate | (755) | 869 |
| Sustainable growth rate | 270 | (235) |
(*) The use of very different discount or growth rates would be inconsistent with the macroeconomic assumptions under which the Unit builds its business plan, such as inflation assumptions or interest rate curves used to determine cash flows.
P.129 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The Group’s most significant goodwill corresponds to the CGU in Mexico, the main significant assumptions used in the impairment test of this mentioned CGU as of December 31, 2020, 2019 and 2018:
| CGU goodwill in Mexico | 2020 | 2019 | 2018 |
|---|---|---|---|
| Discount rate (*) | 15.3% | 14.8% | 14.8% |
| Sustainable growth rate | 5.7% | 5.9% | 5.6% |
(*) Post-tax discount rates. In accordance with paragraph 33.c of IAS 36, as of December 31, 2020, the Group used a growth rate of 5.7% based on the real GDP growth rate of Mexico, the expected inflation and the potential growth of the banking sector in Mexico. The assumptions with a greater relative weight and whose volatility could have a greater impact in determining the present value of the cash flows starting on the fourth year are the discount rate and the growth rate. Below, in a simplified way, is shown the increased (or decreased) amount of the CGU recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions, considered in isolation as of December 31, 2020, where, in any case, the value in use would continue to exceed their book value:
| Impact of an increase of 50 basis points (*) | Impact of a decrease of 50 basis points (*) | |
|---|---|---|
| Discount rate | (1,043) | 1,156 |
| Growth rate | 688 | (620) |
(*) Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.
The main significant assumptions used in the impairment test of the CGU of Turkey as of December 31, 2020, 2019 and 2018 are:
| CGU goodwill in Turkey | 2020 | 2019 | 2018 |
|---|---|---|---|
| Discount rate (*) | 21.0% | 17.4% | 24.3% |
| Growth rate | 7.0% | 7.0% | 7.0% |
(*) Post-tax discount rates. Given the potential growth of the sector in Turkey, in accordance with paragraph 33.c of IAS 36, as of December 31, 2020, 2019 and 2018 the Group used a steady growth rate of 7.0% based on the real GDP growth rate of Turkey and expected inflation. The assumptions with a greater relative weight and whose volatility could affect more in determining the present value of the cash flows starting on the fifth year are the discount rate and the growth rate. Below, in a simplified way, is shown the increased (or decreased) amount of the recoverable amount as a result of a reasonable variation (in basis points) of each of the key assumptions, considered in isolation as of December 31, 2020, where, in any case, the value in use would continue to exceed their book value:
| Impact of an increase of 50 basis points (*) | Impact of a decrease of 50 basis points (*) | |
|---|---|---|
| Discount rate | (164) | 175 |
| Growth rate | 29 | (26) |
(*) Based on historical changes, the use of 50 basis points to calculate the sensitivity analysis would be a reasonable variation with respect to the observed variations over the last five years.
P.130 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Considering the uncertainty caused by the current economic situation, the Group has carried out additional sensitivities on other variables such as the net interest income and the cost of risk forecasts, not having detected any modification on the result of the impairment test on the CGU. As of March 31, 2020, a goodwill impairment test of the Turkey CGU was carried out due to the identification of indicators of impairment. As a result of such test, the Group determined that there was no impairment in this CGU.
The sensitivity analysis on the main assumptions carried out for the rest of the CGUs of the Group indicate that their value in use would continue to exceed their book value.
The breakdown of the balance and changes of this heading in the accompanying consolidated balance sheets, according to the nature of the related items, is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Computer software | 1,202 | 1,598 | 1,605 |
| acquisition expense | |||
| Other intangible assets with an infinite useful life | 12 | 11 | 11 |
| Other intangible assets with a definite useful life | 221 | 401 | 518 |
| Total | 1,435 | 2,010 | 2,134 |
The changes of this heading in December 31, 2020, 2019 and 2018, are as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Computer software | Other intangible assets | Total of intangible assets | |
| Balance at the beginning | 1,598 | 412 | 2,010 |
| Additions | 452 | 8 | 460 |
| Amortization in the year | (45) | (448) | (59) |
| Amortization transfer to discontinued operations (*) | (77) | (3) | (80) |
| Exchange differences and other | (38) | (91) | (129) |
| Impairment | (6) | - | (6) |
| Decreases by companies held for sale (*) | (279) | (34) | (313) |
| Balance at the end | 1,202 | 233 | 1,435 |
(*) Amount is mainly due to the stake in BBVA USA (see Note 3). As of December 31, 2020, 2019 and 2018, the cost of fully amortized intangible assets that remained in use were €2,622 million, €2,702 million, €2,412 million respectively, while their recoverable value was not significant.
Pursuant to current legislation, BBVA consolidated tax group in Spain includes the Bank (as the parent company) and its Spanish subsidiaries that meet the requirements provided for under Spanish legislation regulating the taxation regime for the consolidated profit of corporate groups. The Group’s non-Spanish banks and subsidiaries file tax returns in accordance with the tax legislation in force in each country.
P.131 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
At 31 December 2020, the BBVA consolidated tax group in Spain is currently under inspection for the years 2014 to 2016 inclusive for the main taxes applicable to it. The remainder of the Spanish consolidated entities in general have the last four years open for inspection by the tax authorities for the main taxes applicable, except for those in which there has been an interruption of the limitation period due to the start of an inspection. On the other hand, in relation to the main jurisdictions in which the Group is present and carries out its activity, in the case of Mexico, BBVA Bancomer S.A., is currently under inspection by the Mexican Tax Authorities for the years 2016 and 2017 corresponding to Corporate Income Tax and Value Added Tax. In addition, in the case of Turkey, the head entity in this country, Garanti BBVA A.S., is currently under inspection by the Tax Authorities of that country for all the taxes applicable to it corresponding to the years 2017 and 2018. In view of the varying interpretations that can be made of some applicable tax legislation, the outcome of the tax inspections of the open years that may be conducted by the tax authorities in the future may give rise to contingent tax liabilities which cannot be reasonably estimated at the present time. However, the Group considers that the possibility of these contingent liabilities becoming actual liabilities is remote and, in any case, the tax charge which might arise therefore would not materially affect the Group’s accompanying consolidated financial statements.# 19.3 Reconciliation
The reconciliation of the Group’s corporate income tax expense resulting from the application of the Spanish corporation income tax rate and the income tax expense recognized in the accompanying consolidated income statements is as follows:
(Millions of Euros)
| Amount | 2020 | 2019 | 2018 |
|---|---|---|---|
| Profit or (-) loss before tax | 3,576 | 6,398 | 8,446 |
| From continuing operations | 5,248 | 7,046 | 7,565 |
| From discontinued operations | (1,672) | (648) | 881 |
| Taxation at Spanish corporation tax rate 30% | 1,073 | 1,920 | 2,534 |
| Lower effective tax rate from foreign entities (*) | (181) | (381) | (234) |
| Mexico (32) 29% | (32) | (112) | (78) |
| Chile (2) 23% | (2) | (2) | (18) |
| Colombia 3 31% | 3 | 6 | 10 |
| Peru (7) 28% | (7) | (12) | (12) |
| Turkey (73) 25% | (73) | (86) | (132) |
| USA (75) 16% | (75) | (97) | (97) |
| Others 5 | 5 | (78) | 93 |
| Revenues with lower tax rate (dividends/capital gains) | (49) | (49) | (57) |
| Equity accounted earnings | 12 | 18 | 3 |
| Other effects (**) | 661 | 545 | (27) |
| Income tax | 1,516 | 2,053 | 2,219 |
| Of which: Continuing operations | 1,459 | 1,943 | 2,042 |
| Of which: Discontinued operations | 57 | 110 | 177 |
() Calculated by applying the difference between the tax rate in force in Spain and the one applied to the Group’s earnings in each jurisdiction.
(*) This amount is generated in 2020 and 2019 mainly as a result of the impact of the goodwill impairment of The United States' CGU.
P.132
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The effective income tax rate for the Group in the years ended December 31, 2020, 2019 and 2018 is as follows:
(Millions of Euros)
| Income from: | 2020 | 2019 | 2018 |
|---|---|---|---|
| Consolidated tax group in Spain | 259 | (718) | 1,482 |
| Other Spanish entities | 7 | 7 | 33 |
| Foreign entities | 4,982 | 7,757 | 6,050 |
| Gains (losses) before taxes from continuing operations | 5,248 | 7,046 | 7,565 |
| Tax expense or income related to profit or loss from continuing operations | 1,459 | 1,943 | 2,042 |
| Effective tax rate | 27.8% | 27.6% | 27.0% |
In the year 2020, in the main countries in which the Group has presence, there has been no changes in the nominal tax rate on corporate income tax except for Colombia, where the applicable tax rate is 36% compared to the tax rate applicable last year 33%. In the year 2019, there has been no changes in the nominal tax rate on corporate income tax, except for Colombia where the applicable tax rate has been 33% compared to the initially forecasted 37%.
In addition to the income tax expense recognized in the accompanying consolidated income statements, the Group has recognized the following income tax charges for these items in the consolidated total equity:
(Millions of Euros)
| Charges to total equity | 2020 | 2019 | 2018 |
|---|---|---|---|
| Debt securities and others | (230) | (130) | (87) |
| Equity instruments | (43) | (40) | (56) |
| Subtotal | (273) | (170) | (143) |
| Total | (273) | (170) | (143) |
The balance under the heading "Tax assets" in the accompanying consolidated balance sheets includes current and deferred tax assets. The balance under the “Tax liabilities” heading includes the Group’s various current and deferred tax liabilities. The details of the mentioned tax assets and liabilities are as follows:
(Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Tax assets | |||
| Current tax assets | 1,199 | 1,765 | 2,784 |
| Deferred tax assets | 15,327 | 15,318 | 15,316 |
| Pensions | 439 | 456 | 405 |
| Financial Instruments | 1,292 | 1,386 | 1,401 |
| Loss allowances | 1,683 | 1,636 | 1,375 |
| Other | 1,069 | 1,045 | 1,292 |
| Secured tax assets | 9,361 | 9,363 | 9,363 |
| Tax losses | 1,483 | 1,432 | 1,480 |
| Total | 16,526 | 17,083 | 18,100 |
| Tax liabilities | |||
| Current tax liabilities | 545 | 880 | 1,230 |
| Deferred tax liabilities | 1,809 | 1,928 | 2,046 |
| Financial Instruments | 908 | 1,014 | 1,136 |
| Other | 901 | 914 | 910 |
| Total | 2,355 | 2,808 | 3,276 |
P.133
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The most significant variations of the deferred assets and liabilities in the years 2020, 2019 and 2018 derived from the followings causes:
(Millions of Euros)
| 2020 | 2019 | 2018 | ||||
| Deferred assets | Deferred liabilities | Deferred assets | Deferred liabilities | Deferred assets | Deferred liabilities | |
| Balance at the beginning | 15,318 | 1,928 | 15,316 | 2,046 | 14,725 | 2,184 |
| Pensions | (17) | - | 51 | - | 10 | - |
| Financials instruments | (94) | (106) | (15) | (122) | (52) | (291) |
| Loss allowances | 47 | - | 261 | - | 370 | - |
| Others | 24 | (13) | (247) | 4 | 65 | 153 |
| Guaranteed tax assets | (2) | - | - | - | (70) | - |
| Tax losses | 51 | - | (48) | - | 268 | - |
| Balance at the end | 15,327 | 1,809 | 15,318 | 1,928 | 15,316 | 2,046 |
With respect to the changes in assets and liabilities due to deferred tax in 2020 contained in the above table, the following should be pointed out: Secured tax assets maintain a very similar balance to that of the previous year. The increase in tax assets due to tax loss arises as a result of the generation of tax losses and deductions in the year. The evolution of deferred tax assets (other than those guaranteed and those linked to tax losses) net of deferred tax liabilities is due to the agreement to sell the US business unit (its deferred tax assets and liabilities in 2020 are shown under "Non-current assets or liabilities and disposal groups classified as held for sale"), the effect of exchange rates, especially in the case of Mexico and Turkey, and the operation of corporate income tax, where the differences between accounting and taxation give rise to constant movements in deferred taxes.
On the deferred tax assets and liabilities contained in the table above, those included in section 19.4 above have been recognized against the entity's equity, and the rest against earnings for the year or reserves.
As of December 31, 2020, 2019 and 2018, the estimated amount of temporary differences associated with investments in subsidiaries, joint ventures and associates, which were not recognized deferred tax liabilities in the accompanying consolidated balance sheets, amounted to 106 million euros, 473 million euros and 443 million euros, respectively.
Of the deferred tax assets contained in the above table, the detail of the items and amounts guaranteed by the Spanish government, broken down by the items that originated those assets is as follows:
(Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Pensions | 1,924 | 1,924 | 1,924 |
| Loss allowances | 7,437 | 7,439 | 7,439 |
| Total | 9,361 | 9,363 | 9,363 |
As of December 31, 2020, non-guaranteed net deferred tax assets of the above table amounted to €4,156 million (€4,027 and €3,907 million as of December 31, 2019 and 2018 respectively), which broken down by major geographies is as follows:
P.134
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Based on the information available as of December 31, 2020 , including historical levels of benefits and projected results available to the Group for the coming 15 years, the Group has carried out an analysis of its recovery of deferred tax assets and liabilities taking into account the impact of COVID-19 pandemic (see Note 1.5). It is considered that sufficient taxable income will be generated for the recovery of above mentioned unsecured deferred tax assets when they become deductible according to the tax laws. On the other hand, the Group has not recognized certain negative tax bases and deductions for which, in general, there is no legal period for offsetting, amounting to approximately € 2,156 million euros, which are mainly originated by Catalunya Banc.
The composition of the balance of these captions of the accompanying consolidated balance sheets is:
Other assets and liabilities (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| ASSETS | |||
| Inventories | 572 | 581 | 635 |
| Transactions in progress | 160 | 138 | 249 |
| Accruals | 756 | 804 | 702 |
| Other items | 1,025 | 2,277 | 3,886 |
| Total | 2,513 | 3,800 | 5,472 |
| LIABILITIES | |||
| Transactions in progress | 75 | 39 | 39 |
| Accruals | 1,584 | 2,456 | 2,558 |
| Other items | 1,144 | 1,247 | 1,704 |
| Total | 2,802 | 3,742 | 4,301 |
The composition of the balances under the headings “Non-current assets and disposal groups classified as held for sale” and “liabilities included in disposal groups classified as held for sale” in the accompanying consolidated balance sheets, broken down by the origin of the assets, is as follows:
Non-current assets and disposal groups classified as held for sale. Breakdown by items (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Foreclosures and recoveries (*) | 1,398 | 1,647 | 2,210 |
| Assets from tangible assets | 480 | 310 | 433 |
| Companies held for sale (**) | 84,792 | 1,716 | 29 |
| Accrued amortization (***) | (89) | (51) | (44) |
| Impairment losses | (594) | (543) | (628) |
| Total non-current assets and disposal groups classified as held for sale | 85,987 | 3,079 | 2,001 |
| Companies held for sale (**) | 75,446 | 1,554 | - |
| Total liabilities included in disposal groups classified as held for sale | 75,446 | 1,554 | - |
() 2018 figures correspond mainly to the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).
() 2020 figures correspond mainly to the sale of BBVA´s stake in BBVA USA (see Note 3). 2019 figures correspond mainly to the BBVA´s stake in BBVA Paraguay (see Note 3).
(**) Corresponds to the accumulated depreciation of assets before their classification as "Non-current assets and disposal groups classified as held for sale".
As mentioned in Note 3, in 2020 the agreement for the sale of the BBVA subsidiary in the United States was announced. The assets and liabilities corresponding to the companies for sale were reclassified to the headings “Non-current assets and disposal groups classified as held for sale” and “Liabilities included in disposal groups classified as held for sale” of the consolidated balance sheet as of December 31, 2020; and the earnings of these companies for the years ended December 31, 2020, 2019 and 2018 were classified under the heading "Profit (loss) after tax from discontinued operations" of the accompanying consolidated income statements (see Note 1.3).
P.135 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The condensed consolidated balance sheets, condensed consolidated income statements and condensed consolidated statements of cash flow of the companies for sale in the United States subsidiary for the years 2020, 2019 and 2018 are provided below:
CONDENSED ASSETS (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Cash, cash balances at central banks and other demand deposits | 11,368 | 5,678 | 2,326 |
| Financial assets held for trading | 821 | 513 | 228 |
| Non-trading financial assets mandatorily at fair value through profit or loss | 13 | 18 | 18 |
| Financial assets at fair value through other comprehensive income | 4,974 | 6,834 | 10,030 |
| Financial assets at amortized cost | 61,558 | 62,860 | 59,302 |
| Derivatives - hedge accounting | 9 | 10 | 23 |
| Tangible assets | 799 | 900 | 665 |
| Intangible assets | 1,949 | 4,183 | 5,438 |
| Tax assets | 360 | 263 | 446 |
| Other assets | 1,390 | 1,463 | 1,401 |
| Non-current assets and disposal groups classified as held for sale | 16 | 31 | 30 |
| TOTAL ASSETS | 83,257 | 82,751 | 79,908 |
CONDENSED LIABILITIES (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Financial liabilities held for trading | 98 | 94 | 114 |
| Financial liabilities at amortized cost | 73,132 | 70,438 | 66,635 |
| Derivatives - hedge accounting | 2 | 11 | 21 |
| Provisions | 157 | 186 | 172 |
| Tax liabilities | 201 | 87 | 249 |
| Other liabilities | 492 | 464 | 497 |
| TOTAL LIABILITIES | 74,082 | 71,279 | 67,688 |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Actuarial gains (losses) on defined benefit pension plans | (66) | (80) | (69) |
| Hedge of net investments in foreign operations (effective portion) | (432) | (432) | (432) |
| Foreign currency translation | 801 | 1,576 | 1,337 |
| Hedging derivatives. Cash flow hedges (effective portion) | 250 | 81 | 5 |
| Fair value changes of debt instruments measured at fair value through other comprehensive income | 70 | (11) | (130) |
| ACCUMULATED OTHER COMPREHENSIVE INCOME (LOSS) | 622 | 1,134 | 710 |
P.136 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
CONDENSED INCOME STATEMENTS (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Interest and other income | 2,638 | 3,221 | 2,797 |
| Interest expense | (429) | (887) | (570) |
| NET INTEREST INCOME | 2,209 | 2,335 | 2,227 |
| Dividend income | 4 | 10 | 13 |
| Fee and commission income | 677 | 736 | 670 |
| Fee and commission expense | (183) | (205) | (194) |
| Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 19 | 54 | 25 |
| Gains (losses) on financial assets and liabilities held for trading, net | 90 | 30 | 66 |
| Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 8 | - | - |
| Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 5 | 3 | 3 |
| Gains (losses) from hedge accounting, net | 4 | 4 | 3 |
| Exchange differences, net | 19 | 5 | (22) |
| Other operating income | 19 | 32 | 20 |
| Other operating expense | (63) | (64) | (79) |
| GROSS INCOME | 2,808 | 2,941 | 2,731 |
| Administration costs | (1,462) | (1,534) | (1,474) |
| Depreciation and amortization | (205) | (214) | (174) |
| Provisions or reversal of provisions | 2 | (3) | 22 |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (729) | (521) | (221) |
| NET OPERATING INCOME | 413 | 670 | 884 |
| Impairment or reversal of impairment on non-financial assets | (2,084) | (1,318) | (1) |
| Gains (losses) on derecognition of non-financial assets and subsidiaries, net | (3) | 2 | (2) |
| Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations | 2 | (2) | - |
| PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | (1,671) | (648) | 881 |
| Tax expense or income related to profit or loss from continuing operations | (57) | (110) | (177) |
| PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS | (1,729) | (758) | 704 |
| Profit (loss) after tax from discontinued operations | - | - | - |
| PROFIT (LOSS) FOR THE PERIOD | (1,729) | (758) | 704 |
| ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTEREST) | - | - | - |
| ATTRIBUTABLE TO OWNERS OF THE PARENT | (1,729) | (758) | 704 |
CONDENSED STATEMENTS OF CASH FLOWS (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| A) CASH FLOWS FROM OPERATING ACTIVITIES | 6,874 | 3,888 | (228) |
| B) CASH FLOWS FROM INVESTING ACTIVITIES | (145) | (133) | (123) |
| C) CASH FLOWS FROM FINANCING ACTIVITIES | (65) | (468) | (256) |
| D) EFFECT OF EXCHANGE RATE CHANGES | (974) | 65 | 84 |
| (INCREASE/DECREASE) NET CASH AND CASH EQUIVALENTS (A+B+C+D) | 5,690 | 3,352 | (522) |
P.137 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The changes in the balances of “Non-current assets and disposal groups classified as held for sale” in 2020, 2019 and 2018 are as follows:
| Notes | Foreclosed assets | Property, Plant and Equipment (*) | Companies held for sale (**) | Total | |
|---|---|---|---|---|---|
| Cost (1) | |||||
| Balance at the beginning | 1,648 | 258 | 1,716 | 3,622 | |
| Additions | 285 | - | 83,266 | 83,551 | |
| Contributions from merger transactions | - | - | - | - | |
| Retirements (sales and other decreases) | (288) | (45) | (190) | (523) | |
| Transfers, other movements and exchange differences | (**) | (228) | 180 | - | (48) |
| Disposals by companies held for sale | (19) | (2) | - | (21) | |
| Balance at the end | 1,398 | 391 | 84,792 | 86,581 | |
| Impairment (2) | |||||
| Balance at the beginning | 411 | 132 | - | 543 | |
| Additions | 50 | 74 | 29 | 103 | |
| Additions transfer to discontinued operations | - | - | - | - | |
| Contributions from merger transactions | - | - | - | - | |
| Retirements (sales and other decreases) | (56) | (13) | - | (69) | |
| Other movements and exchange differences | (42) | 60 | - | 18 | |
| Disposals by companies held for sale | (1) | - | - | (1) | |
| Balance at the end | 386 | 208 | - | 594 | |
| Balance at the end of net carrying value (1)-(2) | 1,012 | 183 | 84,792 | 85,987 |
() Net of accumulated amortization until assets were reclassified as “Non-current assets and disposal groups classified as held for sale”
(*) The variation corresponds mainly to the agreement for the sale of BBVA USA (see Note 3).
| Notes | Foreclosed assets | Property, Plant and Equipment (*) | Companies held for sale (**) | Total |
|---|---|---|---|---|
| Cost (1) | ||||
| Balance at the beginning | 2,211 | 389 | 29 | 2,629 |
| Additions | 665 | 10 | 1,676 | 2,351 |
| Contributions from merger transactions | 2 | - | - | 2 |
| Retirements (sales and other decreases) | (1,023) | (206) | - | (1,229) |
| Transfers, other movements and exchange differences (**) | (207) | 65 | 11 | (131) |
| Balance at the end | 1,648 | 258 | 1,716 | 3,622 |
| Impairment (2) | ||||
| Balance at the beginning | 504 | 124 | - | 628 |
| Additions | 50 | 67 | 5 | 72 |
| Additions transfer to discontinued operations | 5 | - | - | 5 |
| Contributions from merger transactions | - | - | - | - |
| Retirements (sales and other decreases) | (164) | (22) | - | (186) |
| Other movements and exchange differences | (1) | 25 | - | 24 |
| Balance at the end | 411 | 132 | - | 543 |
| Balance at the end of net carrying value (1)-(2) | 1,237 | 126 | 1,716 | 3,079 |
() Net of accumulated amortization until assets were reclassified as “Non-current assets and disposal groups classified as held for sale”
(* ) The variation corresponds mainly to the BBVA’s stake in BBVA Paraguay (see Note 3).
P.138
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Notes | Foreclosed assets | From own use assets (*) | Companies held for sale (**) | Total |
|---|---|---|---|---|
| Cost (1) | ||||
| Balance at the beginning | 6,207 | 371 | 18,623 | 25,201 |
| Additions | 692 | 4 | - | 696 |
| Contributions from merger transactions | - | - | - | - |
| Retirements (sales and other decreases) | (4,489) | (227) | (18,594) | (23,310) |
| Transfers, other movements and exchange differences (**) | (199) | 241 | - | 42 |
| Balance at the end | 2,211 | 389 | 29 | 2,629 |
| Impairment (2) | ||||
| Balance at the beginning | 1,154 | 194 | - | 1,348 |
| Additions | 50 | 204 | 2 | 206 |
| Additions transfer to discontinued operations | 2 | - | - | 2 |
| Contributions from merger transactions | - | - | - | - |
| Retirements (sales and other decreases) | (830) | (101) | - | (931) |
| Other movements and exchange differences | (26) | 29 | - | 3 |
| Balance at the end | 504 | 124 | - | 628 |
| Balance at the end of net carrying value (1)-(2) | 1,707 | 265 | 29 | 2,001 |
() Net of accumulated amortization until assets were reclassified as “Non-current assets and disposal groups classified as held for sale”
(* ) The variation corresponds mainly to the BBVA’s stake in BBVA Chile and the agreement with Cerberus to transfer the "Real Estate" business in Spain (see Note 3).
As indicated in Note 2.2.4, “Non-current assets and disposal groups held for sale” and “Liabilities included in disposal groups classified as held for sale” are valued at the lower amount between its fair value less costs to sell and its carrying amount. As of December 31, 2020, 2019 and 2018 practically all of the carrying amount of the assets recorded at fair value on a non-recurring basis coincides with their fair value.
As of December 31, 2020, 2019 and 2018, assets from foreclosures and recoveries, net of impairment losses, by nature of the asset, amounted to €747, €871 and €1,072 million in assets for residential use; €215, €259 and €182 million in assets for tertiary use (industrial, commercial or office) and €21, €28 and €19 million in assets for agricultural use, respectively. In December 31, 2020, 2019 and 2018, the average sale time of assets from foreclosures or recoveries was between 2 and 3 years. During the years 2020, 2019 and 2018, some of the sale transactions for these assets were financed by Group companies. The amount of loans granted to the buyers of these assets in those years amounted to €78, €79 and €82 million, respectively; with an average financing of 28.3% of the sales price during 2020. As of December 31, 2020, 2019 and 2018, the amount of the profits arising from the sale of assets financed by Group companies that are not recognized in the consolidated income statement amounted to €1 million.
P.139
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:
Financial liabilities measured at amortized cost (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Deposits | 415,467 | 438,919 | 435,229 |
| Deposits from central banks | 45,177 | 25,950 | 27,281 |
| Demand deposits | 163 | 23 | 20 |
| Time deposits and other | 38,274 | 25,101 | 26,885 |
| Repurchase agreements (*) | 6,740 | 826 | 375 |
| Deposits from credit institutions | 27,629 | 28,751 | 31,978 |
| Demand deposits | 7,196 | 7,161 | 8,370 |
| Time deposits and other | 16,079 | 18,896 | 19,015 |
| Repurchase agreements (*) | 4,354 | 2,693 | 4,593 |
| Customer deposits (**) | 342,661 | 384,219 | 375,970 |
| Demand deposits | 266,250 | 280,391 | 260,573 |
| Time deposits and other | 75,666 | 103,293 | 114,188 |
| Repurchase agreements (*) | 746 | 535 | 1,209 |
| Debt certificates | 61,780 | 63,963 | 61,112 |
| Other financial liabilities | 13,358 | 13,758 | 12,844 |
| Total | 490,606 | 516,641 | 509,185 |
() See Note 35.
(*) Amount in 2020 is mainly due to the stake in BBVA USA (see Note 21).
The amount recorded in Deposits from central banks - Time deposits includes the provisions of the TLTRO III facilities of the European Central Bank, mainly BBVA S.A. amounting to €35,032 million as of December 31, 2020, that basically explains the change compared to the previous year (see Note 7.5).
On April 30, 2020, the European Central Bank modified some of the terms and conditions of the TLTRO III facilities in order to support the continued access of companies and households to bank credit in the face of interruptions and temporary shortages of funds associated with the COVID -19 pandemic. Entities whose eligible net lending exceeds 0% between March 1, 2020 and March 31, 2021 will pay an interest rate 0.5% lower than the average rate of the deposit facilities during the period that includes from June 24, 2020 to June 23, 2021. This means that the interest rate applicable to the facilities drawn down is -1%. Outside of this period, the average interest rate of the deposit facilities will be applied (currently -0.5%) provided that the financing objectives are met according to the conditions of the European Central Bank. The Group is reasonably certain about the fulfillment of these financing objectives. Therefore, the effective interest rate of each facility is - 0.5% and the accounting registration of the discount in the interest rate associated with the COVID-19 pandemic is recognized during the annual period from June 24, 2020 to June 23, 2021. The positive remuneration currently being generated by the drawdowns of the TLTRO III facilities is recorded under the heading of "Interest income and other similar income – other income" in the consolidated income statements and amounts to €211 million as of December 31, 2020 (See Note 37.1).
P.140
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown by geographical area and the nature of the related instruments of this heading in the accompanying consolidated balance sheets is as follows:
Deposits from credit institutions. December 2020 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 345 | 1,405 | 1 | 1,751 |
| Mexico | 689 | 672 | 188 | 1,549 |
| Turkey | 8 | 580 | 28 | 617 |
| South America | 557 | 1,484 | - | 2,041 |
| Rest of Europe | 2,842 | 4,531 | 4,070 | 11,444 |
| Rest of the world | 2,755 | 7,406 | 67 | 10,228 |
| Total | 7,196 | 16,079 | 4,354 | 27,629 |
(*) Subordinated deposits are included amounting €12 million.
Deposits from credit institutions. December 2019 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 2,104 | 1,113 | 1 | 3,218 |
| The United States | 2,082 | 4,295 | - | 6,377 |
| Mexico | 432 | 1,033 | 168 | 1,634 |
| Turkey | 302 | 617 | 4 | 924 |
| South America | 394 | 2,285 | 161 | 2,840 |
| Rest of Europe | 1,652 | 5,180 | 2,358 | 9,190 |
| Rest of the world | 194 | 4,374 | - | 4,568 |
| Total | 7,161 | 18,896 | 2,693 | 28,751 |
(*) Subordinated deposits are included amounting €195 million.
Deposits from credit institutions. December 2018 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 1,981 | 2,527 | 55 | 4,563 |
| The United States | 1,701 | 2,677 | - | 4,379 |
| Mexico | 280 | 286 | - | 566 |
| Turkey | 651 | 669 | 4 | 1,323 |
| South America | 442 | 1,892 | - | 2,335 |
| Rest of Europe | 3,108 | 6,903 | 4,534 | 14,545 |
| Rest of the world | 207 | 4,061 | - | 4,268 |
| Total | 8,370 | 19,015 | 4,593 | 31,978 |
(*) Subordinated deposits are included amounting €191 million.
P.141
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown by geographical area of this heading in the accompanying consolidated balance sheets, by type of instrument is as follows:
Customer deposits. December 2020 (Millions of Euros)
| Demand deposits | Time deposits and other | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 168,690 | 20,065 | 2 | 188,757 |
| Mexico | 43,768 | 10,514 | 117 | 54,398 |
| Turkey | 17,906 | 16,707 | 8 | 34,621 |
| South America | 25,730 | 11,259 | - | 36,989 |
| Rest of Europe | 8,435 | 12,373 | 619 | 21,427 |
| Rest of the world | 1,720 | 4,748 | - | 6,468 |
| Total | 266,250 | 75,666 | 746 | 342,661 |
Customer deposits. December 2019 (Millions of Euros)
| Demand deposits | Time deposits and other | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 171,006 | 23,681 | 1 | 194,688 |
| Mexico | 33,920 | 10,296 | 123 | 44,339 |
| Turkey | 15,801 | 14,468 | 7 | 30,276 |
| South America | 23,368 | 11,193 | - | 34,561 |
| Rest of Europe | 7,043 | 10,188 | 332 | 17,563 |
| Rest of the world | 33,053 | 33,567 | - | 66,620 |
| Total | 284,191 | 103,393 | 463 | 388,047 |
Customer deposits.## Customer Deposits
December 2019 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 146,651 | 24,958 | 2 | 171,611 |
| The United States | 46,372 | 19,810 | - | 66,181 |
| Mexico | 43,326 | 12,714 | 523 | 56,564 |
| Turkey | 13,775 | 22,257 | 10 | 36,042 |
| South America | 22,748 | 13,913 | - | 36,661 |
| Rest of Europe | 6,610 | 8,749 | - | 15,360 |
| Rest of the world | 909 | 892 | - | 1,801 |
| Total | 280,391 | 103,293 | 535 | 384,219 |
(*) Subordinated deposits are included amounting to €189 million. Customer deposits.
December 2018 (Millions of Euros)
| Demand deposits | Time deposits and other (*) | Repurchase agreements | Total | |
|---|---|---|---|---|
| Spain | 138,236 | 28,165 | 3 | 166,403 |
| The United States | 41,222 | 21,317 | - | 62,539 |
| Mexico | 38,383 | 11,837 | 770 | 50,991 |
| Turkey | 10,856 | 22,564 | 7 | 33,427 |
| South America | 23,811 | 14,159 | - | 37,970 |
| Rest of Europe | 7,233 | 14,415 | 429 | 22,077 |
| Rest of the world | 831 | 1,731 | - | 2,563 |
| Total | 260,573 | 114,188 | 1,209 | 375,970 |
(*) Subordinated deposits are included amounting to €220 million.
P.142 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading, by financial instruments and by currency, is as follows:
Debt certificates (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| In Euros | |||
| Promissory bills and notes | 42,462 | 40,185 | 37,436 |
| Non-convertible bonds and debentures | 860 | 737 | 267 |
| Covered bonds (*) | 14,538 | 12,248 | 9,638 |
| Hybrid financial instruments (**) | 13,274 | 15,542 | 15,809 |
| Securitization bonds | 355 | 518 | 814 |
| Wholesale funding | 2,538 | 1,354 | 1,630 |
| Subordinated liabilities | 2,331 | 1,817 | 142 |
| Convertible perpetual certificates | 8,566 | 7,968 | 9,136 |
| Convertible subordinated debt | 4,500 | 5,000 | 5,490 |
| Non-convertible preferred stock | - | - | - |
| Other non-convertible subordinated liabilities | 159 | 83 | 107 |
| In foreign currencies | 3,907 | 2,885 | 3,540 |
| Promissory bills and notes | 19,318 | 23,778 | 23,676 |
| Non-convertible bonds and debentures | 1,024 | 1,210 | 3,237 |
| Covered bonds (*) | 8,691 | 10,587 | 9,335 |
| Hybrid financial instruments (**) | 217 | 362 | 569 |
| Securitization bonds | 455 | 1,156 | 1,455 |
| Wholesale funding | 4 | 17 | 38 |
| Subordinated liabilities | 1,016 | 780 | 544 |
| Convertible perpetual certificates | 7,911 | 9,666 | 8,499 |
| Convertible subordinated debt | 1,633 | 1,782 | 873 |
| Non- convertible preferred stock | - | - | - |
| Other non-convertible subordinated liabilities | 35 | 76 | 74 |
| Total | 6,243 | 7,808 | 7,552 |
| 61,780 | 63,963 | 61,112 |
() Including mortgage-covered bonds (see Appendix X).
(*) Corresponds to the issuance of structured notes whose underlying risk differs from the underlying risk of the derivative. Most of the foreign currency issues are denominated in U.S. dollars.
The breakdown of this heading, is as follows:
Memorandum item: Subordinated liabilities at amortized cost
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Subordinated deposits | 12 | 384 | 411 |
| Subordinated certificates | 16,476 | 17,635 | 17,635 |
| Preferred stock | 194 | 159 | 181 |
| Compound convertible financial instruments | 6,133 | 6,782 | 6,363 |
| Other non-convertible subordinated liabilities (*) | 10,149 | 10,693 | 11,092 |
| Total | 16,488 | 18,018 | 18,047 |
(*) Subordinated issues of BBVA Paraguay as of December 31, 2020 and 2019 are recorded in the consolidated balance sheet under the heading “Liabilities included in disposal groups classified as held for sale" amounting to €37 and €40 million, respectively. The subordinated issues of BBVA USA as of December 31, 2020 are recognized in the consolidated balance sheet under the heading “Liabilities included in disposal groups classified as held for sale" amounting to €735 million (see Note 21). The issuances of BBVA International Preferred, S.A.U., Ltd., Caixa Terrassa Societat de Participacions Preferents, S.A.U. and CaixaSabadell Preferents, S.A.U. are jointly, severally and irrevocably guaranteed by the Bank.
P.143 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The balance variances are mainly due to the following transactions:
The AGM held on March 17, 2017, resolved, under agenda item five, to confer authority to the Board of Directors to issue securities convertible into newly issued BBVA shares, on one or several occasions, within the maximum term of five years to be counted from the approval date of the authorization, up to a maximum overall amount of €8 billion or its equivalent in any other currency. Likewise, the AGM resolved to confer to the Board of Directors the authority to totally or partially exclude shareholders’ pre-emptive subscription rights within the framework of a specific issue of convertible securities, although this power was limited to ensure the nominal amount of the capital increases resolved or effectively carried out for conversion of mandatory convertible issuances made under this authority (without prejudice to anti-dilution adjustments), with exclusion of pre-emptive subscription rights and of those likewise resolved or carried out with exclusion of pre-emptive subscription rights in use of the authority to increase the share capital conferred by the AGM held on March 17, 2017, under agenda item four, do not exceed the maximum nominal amount, overall, of 20% of the share capital of BBVA at the time of the authorization, this limit not being applicable to contingent convertible issues.
Under that delegation, BBVA made the following issuances that qualify as additional tier 1 capital of the Bank and the Group in accordance with Regulation (EU) 575/2013:
In May and November 2017, BBVA carried out two issues of perpetually convertible securities (additional Tier 1 capital instruments) excluding shareholders' pre-emptive rights, for a nominal amount of 500 million euros and 1,000 million U.S. dollars, respectively. These issues are listed on the Global Exchange Market of Euronext Dublin of the Irish Stock Exchange and were directed only to qualified investors and foreign private banking clients, and cannot be placed or subscribed in Spain or among investors resident in Spain.
In September 2018 and March 2019, BBVA carried out both issuances of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €1 billion each. These issuances are listed in the AIAF Fixed Income Securities Market and were targeted only at professional clients and eligible counterparties, not being offered or sold to any retail clients.
On September 5, 2019, BBVA carried out an issuance of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of $1 billion. This issuance is listed in the Global Exchange Market of Euronext Dublin and was targeted only at qualified investors, not being offered to, and not being subscribed for, in Spain or by Spanish residents.
On July 15, 2020, BBVA carried out an issuance of perpetual contingent convertible securities (additional tier 1 instruments), with exclusion of pre-emptive subscription rights of shareholders, for a total nominal amount of €1 billion. This issuance is listed in the AIAF Fixed Income Securities Market and was targeted only at professional clients and eligible counterparties, not being offered or sold to any retail clients.
Additionally, an issue of perpetually convertible securities (additional Tier 1 capital instruments) is outstanding, which was carried out in April 2016, for an amount of 1,000 million euros, by virtue of previous delegations of the shareholders' meeting. This issue was directed only to qualified investors and foreign private banking clients, and cannot be placed or subscribed in Spain or among investors residing in Spain. This issue is listed on the Global Exchange Market of Euronext Dublin of the Irish Stock Exchange and is computed as additional Tier 1 capital of the Bank and the Group, in accordance with Regulation (EU) 575/2013.
These perpetual securities will be converted into newly issued ordinary shares of BBVA if the CET 1 ratio of the Bank or the Group is less than 5.125%, in accordance with their respective terms and conditions. These issuances may be fully redeemed at BBVA’s option only in the cases contemplated in their respective terms and conditions and, in any case, in accordance with the provisions of the applicable legislation.
In particular:
On May 9, 2018, the Bank early redeemed the issuance of contingently convertible preferred securities (additional tier 1 instruments) carried out by the Bank on May 9, 2013, for an amount of $1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator had been obtained.
On February 19, 2019 the Bank early redeemed the issuance of contingently convertible preferred securities (additional tier 1 instruments), carried out by the Bank on February 19, 2014, for a total amount of €1.5 billion and once the prior consent from the Regulator had been obtained.
On February 18, 2020, the Bank early redeemed the issuance of contingently convertible preferred securities (additional tier 1 instruments) carried out by the Bank on February 18, 2015, for an amount of €1.5 billion on the First Reset Date of the issuance and once the prior consent from the Regulator had been obtained.
P.144 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.# Preferred securities
The breakdown by issuer of the balance under this heading in the accompanying consolidated balance sheets is as follows:
| Preferred securities by issuer (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| BBVA International Preferred, S.A.U. (1) | 35 | 37 | 35 |
| Unnim Group (2) | 159 | 83 | 98 |
| BBVA USA | - | 19 | 19 |
| BBVA Colombia | - | 20 | 19 |
| Other | - | - | 9 |
| Total | 194 | 159 | 181 |
(1) Call exercised.
(2) Unnim Group: Issuances prior to the acquisition by BBVA. These issuances were fully subscribed at the moment of the issue by qualified/institutional investors outside the Group and are redeemable, totally or partially, at the issuer’s option after five years from the issue date, depending on the terms of each issuance and with the prior consent from the Bank of Spain or the relevant authority.
In connection with the above, once the necessary authorization from the European Central Bank was received and in conformity with its authority to redeem:
The Extraordinary and Universal General Meeting of Caixasabadell Preferents, S.A. Unipersonal, at its meeting held on December 11, 2020, decided to delegate on the company’s Board of Directors the authority to agree on the total early redemption of its only live issuance, subject to the applicable legal provisions and having previously obtained all necessary authorisations. In use of such delegation, having satisfied all legal and contractual formalities required and having obtained all relevant authorizations, the company’s Board of Directors, on the same date, agreed to carry out the early redemption of the total nominal amount of the issuance on January 14, 2021. As a result, once all necessary communications were released, on January 14, 2021 the total early redemption of the issuance took place.
The Extraordinary and Universal General Meeting of BBVA International Preferred, S.A. Unipersonal, at its meeting held on December 11, 2020, decided to delegate on the company’s Board of Directors the authority to agree on the total early redemption of its only live issuance, subject to the applicable legal provisions and having previously obtained all necessary authorisations. In use of such delegation, having satisfied all legal and contractual formalities required and having obtained all relevant authorizations, the company’s Board of Directors, on the same date, agreed to carry out the early redemption of the total nominal amount of the issuance on January 19, 2021. As a result, once all necessary communications were released, on January 19, 2021 the total early redemption of the issuance took place.
The Extraordinary and Universal General Meeting of Caixa Terrassa Societat de Participacions Preferents, S.A. Unipersonal, at its meeting held on December 11, 2020, decided to delegate on the company’s Board of Directors the implementation of all necessary actions in order to modify its only live issuance so as to include a new clause regarding the early redemption of the preferred securities. In use of the delegated authority and having obtained all necessary authorizations, the company’s Board of Directors, on the same date, agreed to modify the relevant issuance in order to include a new clause for the total early redemption of the preferred securities on January 29, 2021, therefore convening the relevant meeting of noteholders of the issuance to be held in Bilbao, on January 14, 2021, at first call, or on January 15, 2021, at second call. Having satisfied all applicable legal requirements, the noteholders’ meeting was held at first call and passed, with the necessary majority of votes, among other resolutions, the inclusion of a new total early redemption clause. As a result, on January 29, 2021 the total early redemption of the issuance took place.
The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:
| Other financial liabilities (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Lease liabilities | 2,674 | 3,335 | - |
| Creditors for other financial liabilities | 2,408 | 2,623 | 2,891 |
| Collection accounts | 3,275 | 3,306 | 4,305 |
| Creditors for other payment obligations | 5,000 | 4,494 | 5,648 |
| Total | 13,358 | 13,758 | 12,844 |
P.145 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A breakdown of the maturity of the lease liabilities, due after December 31, 2020 is provided below:
| Maturity of future payment obligations (Millions of Euros) | Up to 1 year | 1 to 3 years | 3 to 5 years | Over 5 years | Total |
|---|---|---|---|---|---|
| Leases | 244 | 430 | 397 | 1,602 | 2,674 |
The Group has insurance subsidiaries mainly in Spain and Latin America (mostly in Mexico). The main product offered by the insurance subsidiaries is life insurance to cover the risk of death (risk insurance) and life-savings insurance. Within life and accident insurance, a distinction is made between freely sold products and those offered to customers who have taken mortgage or consumer loans, which cover the principal of those loans in the event of the customer’s death. There are two types of savings products: individual insurance, which seeks to provide the customer with savings for retirement or other events, and group insurance, which is taken out by employers to cover their commitments to their employees.
The insurance business is affected by different risks, including those that are related to the BBVA Group such as credit risk, market risk, liquidity risk and operational risk and the methodology for risk measurement applied in the insurance activity is similar (see Note 7 and Management Report - Risk), although it has a differentiated management due to the particular characteristics of the insurance business, such as the coverage of contracted obligations and the long term of the commitments.
Additionally, the insurance business generates certain specific risks, of a probabilistic nature:
The insurance industry is highly regulated in each country. In this regard, it should be noted that the insurance industry is undergoing a gradual regulatory transformation through new risk-based capital regulations, which have already been published in several countries.
The heading “Assets under reinsurance and insurance contracts” in the accompanying consolidated balance sheets includes the amounts that the consolidated insurance entities are entitled to receive under the reinsurance contracts entered into by them with third parties and, more specifically, the share of the reinsurer in the technical provisions recognized by the consolidated insurance subsidiaries. As of December 31, 2020, 2019 and 2018, the balance under this heading amounted to €306 million, €341 million and €366 million respectively.
The most significant provisions recognized by consolidated insurance subsidiaries with respect to insurance policies issued by them are under the heading “Liabilities under insurance and reinsurance contracts” in the accompanying consolidated balance sheets. The breakdown of the balance under this heading is as follows:
| Technical reserves (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Mathematical reserves | 8,731 | 9,247 | 8,504 |
| Individual life insurance (1) | 6,268 | 6,731 | 6,201 |
| Savings | 5,431 | 5,906 | 5,180 |
| Risk | 836 | 825 | 1,021 |
| Group insurance (2) | 2,463 | 2,517 | 2,303 |
| Savings | 2,298 | 2,334 | 2,210 |
| Risk | 165 | 182 | 93 |
| Provision for unpaid claims reported | 672 | 641 | 662 |
| Provisions for unexpired risks and other provisions | 548 | 718 | 668 |
| Total | 9,951 | 10,606 | 9,834 |
(1) Provides coverage in the event of death or disability.
(2) The insurance policies purchased by employers (other than BBVA Group) on behalf of its employees
P.146 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The cash flows of those “Liabilities under insurance and reinsurance contracts” are shown below:
| Maturity (Millions of euros). Liabilities under insurance and reinsurance contracts | Up to 1 year | 1 to 3 years | 3 to 5 years | Over 5 years | Total |
|---|---|---|---|---|---|
| 2020 | 1,227 | 950 | 1,616 | 6,158 | 9,951 |
| 2019 | 1,571 | 1,197 | 1,806 | 6,032 | 10,606 |
| 2018 | 1,686 | 1,041 | 1,822 | 5,285 | 9,834 |
The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are actuarial and financial methods and modeling techniques approved by the respective country’s insurance regulator or supervisor. The most important insurance entities are located in Spain and Mexico (which together account for approximately 96% of the insurance revenues), where the modeling methods and techniques are reviewed by the insurance regulator in Spain (General Directorate of Insurance) and Mexico (National Insurance and Bonding Commission), respectively. The modeling methods and techniques used to calculate the mathematical reserves for the insurance products are compliant with IFRS and primarily involve the valuation of the estimated future cash flows, discounted at the technical interest rate for each policy. To ensure this technical interest rate, asset-liability management is carried out, acquiring a portfolio of securities that generate the cash flows needed to cover the payment commitments assumed with the customers.The table below shows the key assumptions as of December 31, 2020, used in the calculation of the mathematical reserves for insurance products in Spain and Mexico, respectively:
| Mathematical reserves | 2020 | 2019 | 2018 |
|---|---|---|---|
| Spain | Mexico | Spain | |
| Mortality table | Average technical interest type | Mortality table | |
| Average technical interest type | Mortality table | Average technical interest type | |
| Mortality table | Average technical interest type | Mortality table | |
| Average technical interest type | Mortality table | Average technical interest type | |
| Spain | Mexico | Spain | |
| Mortality table | Average technical interest type | Mortality table | |
| Average technical interest type | Mortality table | Average technical interest type | |
| Spain | Mexico | Spain | |
| Mortality table | Average technical interest type | Mortality table | |
| Average technical interest type | Mortality table | Average technical interest type | |
| Individual life insurance (1) | GRMF 80-2, GKM 80 / GKMF 95, PASEM, GKMF 80/95, PERFM 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000- individual | 0.25% | - |
| 2.87% | 2.5% | GRMF 80-2, GKMF 80/95. PASEM, PERMF 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000- individual | |
| 0.25% | - | 2.91% | |
| 2.50% | GRMF 80-2, GKM 80 / GKMF 95 PERMF 2000 PASEM Tables of the Comisión Nacional de Seguros y Fianzas 2000- individual | 0.26% | |
| - | 3.27% | 2.50% | |
| Group insurance (2) | PERFM 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000- grupo | Depending on the related portfolio | 5.5% |
| PERMF 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000- grupo | Depending on the related portfolio | 5.50% | |
| PERMF 2000 Tables of the Comisión Nacional de Seguros y Fianzas 2000- grupo | Depending on the related portfolio | 5.50% |
(1) Provides coverage in the case of one or more of the following events: death and disability.
(2) Insurance policies purchased by companies (other than BBVA Group entities) on behalf of their employees.
P.147 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading in the accompanying consolidated balance sheets, based on type of provisions, is as follows:
Provisions. Breakdown by concepts (Millions of Euros)
| Notes | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Provisions for pensions and similar obligations | 25 | 4,272 | 4,631 | 4,787 |
| Other long term employee benefits | 25 | 49 | 61 | 62 |
| Provisions for taxes and other legal contingencies | 612 | 677 | 686 | |
| Provisions for contingent risks and commitments | 728 | 711 | 636 | |
| Other provisions (*) | 479 | 457 | 601 | |
| Total | 6,141 | 6,538 | 6,772 |
(*) Individually insignificant provisions or contingencies, for various concepts in different geographies.
The change in provisions for pensions and similar obligations for the years ended December 31, 2020, 2019 and 2018 is as follows:
Provisions for pensions and similar obligations. Changes over the year (Millions of Euros)
| Notes | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Balance at the beginning | 4,631 | 4,787 | 5,407 | |
| Add Charges to income for the year | 298 | 327 | 125 | |
| Interest expense and similar charges | 44 | 63 | 77 | |
| Personnel expense | 44.1 | 49 | 49 | 58 |
| Provision expense | 205 | 215 | (10) | |
| Charges to equity (1) | 191 | 329 | 41 | |
| Transfers and other changes (2) | (71) | (29) | 96 | |
| Less Benefit payments | 25 | (654) | (718) | (779) |
| Employer contributions | 25 | (124) | (65) | (103) |
| Balance at the end | 4,272 | 4,631 | 4,787 |
(1) Correspond to actuarial losses (gains) arising from certain post-employment defined-benefit commitments for pensions recognized in “Equity” (see Note 2.2.12).
(2) It includes the amount of the sale of BBVA´s U.S. subsidiary (see Notes 1.3, 3 and 21).
Provisions for taxes, legal contingencies and other provisions. Changes over the year (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Balance at beginning | 1,134 | 1,286 | 1,425 |
| Additions | 555 | 396 | 455 |
| Acquisition of subsidiaries | - | - | - |
| Unused amounts reversed during the year | (215) | (96) | (184) |
| Amount used and other variations (*) | (383) | (453) | (410) |
| Balance at the end | 1,091 | 1,134 | 1,286 |
The financial sector faces an environment of increased regulatory pressure and litigation. In this environment, the various Group entities are often sued on lawsuits and are therefore involved in individual or collective legal proceedings and litigation arising from their activity and operations, including proceedings arising from their lending activity, from their labor relations and from other commercial, regulatory or tax issues, as well as in arbitration. On the basis of the information available, the Group considers that, as of December 31, 2020, the provisions made in relation to judicial proceedings and arbitration, where so required, are adequate and reasonably cover the liabilities that might arise, if any, from such
P.148 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
proceedings. Furthermore, on the basis of the information available and with the exceptions indicated in Note 7.1 "Risk factors", BBVA considers that the liabilities that may arise from such proceedings will not have, on a case-by-case basis, a significant adverse effect on the Group's business, financial situation or results of operations.
In relation to consumer mortgage loan contracts linked to the interest rate index known as IRPH (average rate for mortgage loans over three years for the acquisition of free housing), the Spanish Supreme Court issued on 14 December 2017 its judgment 669/2017 confirming that it was not possible to determine the lack of transparency of the interest rate of the loan merely by reference to one or other of the official indexes nor, therefore, was it abuse according to Directive 93/13. In a separate legal proceeding, albeit concerning the same clause, the matter was referred to the Court of Justice of the European Union (the EU Court of Justice), raising a preliminary question in which the application of the above referred IRPH index and the decision of the Supreme Court on the matter was questioned again. On March 3, 2020, the EU Court of Justice resolved the referred question for a preliminary ruling. In that resolution, the EU Court of Justice concluded that the fact that the main elements relating to the calculation of the saving banks IRPH index used by the bank to which the question referred (Bankia, S.A.) were provided in the Bank of Spain Regulation (Circular 8/1990), published in the Spanish Official Gazette, which allowed consumers to understand the calculation of such index. In addition, the EU Court of Justice indicated that the national court shall determine whether the bank that is party to this proceeding complied with the applicable information obligations under national legislation. In the event that the entity had not complied with the applicable transparency regulations, the EU Court of Justice decision does not declare the contract null and void but provides that the national court could replace the IRPH index applied in the case under trial for a substitute index. The resolution sets forth that, in the absence of an agreement to the contrary of the parties to the contract, the referred substitute index could be the IRPH index for credit entities in Spain (as established in the fifteenth additional provision of Law 14/2013, of September 27, 2013). On November 13, 2020, the Supreme Court has issued new judgments on which it has again analyzed the legality of the above referred clause after the EU Court of Justice ruling which indicated that it was up to the national judge to rule on its transparency and possible abuse. In the particular cases analyzed, the Supreme Court has ruled that, even if the entity had not adequately complied with some regulatory requirement of transparency, such as reporting the evolution of the index in the past, this would not mean that the clause was abusive. In short, it considers that the control rules are different from transparency and abuse, so that if the clause is not abusive, the possible breach of any obligation of transparency cannot have legal consequences. Following these rulings, the Supreme Court is rejecting the appeals on the grounds of the existence of case law on the matter and lack of interest in the case. Therefore, BBVA considers that the ruling of the EU Court of Justice and these recent rulings of the Supreme Court should not have significant effects on the Group's business, financial situation or results of operations.
There are also claims before the Spanish courts challenging the application of certain interest rates and other mandatory regulations to certain revolving credit card contracts. On March 4, 2020, the Supreme Court issued a ruling (number 149/2020) confirming the nullity of a revolving credit card agreement entered into by another entity (Wizink Bank) on the grounds that the interest applied to the card was usurious. In that ruling, the Supreme Court recognized that the reference to the "normal interest on money" to be used for this product must be the average interest applicable to credit transactions by means of credit and revolving cards published in the Bank of Spain's statistics, which is slightly higher than 20% annually. The Supreme Court also considered usurious a rate of 26.82% annually, when compared to such average rate. The Supreme Court concluded that for an interest rate to be usurious, it must be "manifestly disproportionate to the circumstances of the case", and therefore the ruling limits its effects to the case under analysis, and the marketing by credit entities of this product must be analyzed on a case-by-case basis. BBVA considers that this ruling of the Supreme Court should not have a significant effect on the Group's business, financial situation or results of operations.
P.149 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As stated in Note 2.2.11, the Group has assumed commitments with employees including short-term employee benefits (see Note 44.1), defined contribution and defined benefit plans (see Glossary), healthcare and other long-term employee benefits. The Group sponsors defined-contribution plans for the majority of its active employees with the plans in Spain and Mexico being the most significant. Most defined benefit plans are closed to new employees with liabilities relating largely to retired employees, the most significant being those in Spain, Mexico and Turkey. In Mexico, the Group provides medical benefits to a closed group of employees and their family members, both active service and in retirees.
The breakdown of the net defined benefit liability recorded on the balance sheet as of December 31, 2020, 2019 and 2018 is provided below:
| Net defined benefit liability (asset) on the consolidated balance sheet (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Pension commitments | 4,539 | 5,050 | 4,678 | |
| Early retirement commitments | 1,247 | 1,486 | 1,793 | |
| Medical benefits commitments | 1,562 | 1,580 | 1,114 | |
| Other long term employee benefits | 49 | 61 | 62 | |
| Total commitments | 7,398 | 8,177 | 7,647 | |
| Pension plan assets | 1,608 | 1,961 | 1,694 | |
| Medical benefit plan assets | 1,484 | 1,532 | 1,146 | |
| Total plan assets (1) | 3,092 | 3,493 | 2,840 | |
| Total net liability / asset | 4,305 | 4,684 | 4,807 | |
| Of which: Net asset on the consolidated balance sheet (2) | (16) | (8) | (41) | |
| Of which: +Net liability on the consolidated balance sheet for provisions for pensions and similar obligations (3) | 24 | 4,272 | 4,631 | |
| Of which: Net liability on the consolidated balance sheet for other long term employee benefits (4) | 24 | 49 | 61 |
(1) In Turkey, the foundation responsible for managing the benefit commitments holds an additional asset of €125 million as of December 31, 2020 which, in accordance with IFRS regarding the asset ceiling, has not been recognized in the Consolidated Financial Statements, because although it could be used to reduce future pension contributions it could not be immediately refunded to the employer.
(2) Recorded under the heading “Other Assets - Other” of the consolidated balance sheet (see Note 20).
(3) Recorded under the heading “Provisions - Provisions for pensions and similar obligations” of the consolidated balance sheet.
(4) Recorded under the heading “Provisions – Other long-term employee benefits” of the consolidated balance sheet.
The impact relating to benefit commitments charged to consolidated income statement for the years 2020, 2019 and 2018 is as follows:
| Consolidated income statement impact (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Interest and other expense | 44 | 63 | 77 | |
| Interest expense | 265 | 293 | 282 | |
| Interest income | (220) | (230) | (206) | |
| Personnel expense | 121 | 143 | 130 | |
| Defined contribution plan expense | 44.1 | 72 | 95 | 72 |
| Defined benefit plan expense | 44.1 | 49 | 49 | 58 |
| Provisions or (reversal) of provisions | 46 | 210 | 213 | 125 |
| Early retirement expense | 224 | 190 | 141 | |
| Past service cost expense | (8) | 18 | (33) | |
| Remeasurements (*) | (11) | 7 | (10) | |
| Other provision expense | 4 | (1) | 28 | |
| Total impact on consolidated income statement: debit (credit) | 375 | 419 | 332 |
(*) Actuarial losses (gains) on remeasurement of the net defined benefit liability relating to early retirements in Spain and other long-term employee benefits that are charged to the income statements (see Note 2.2.12).
P.150
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The amounts relating to post-employment benefits charged to the consolidated balance sheet correspond to the actuarial gains (losses) on remeasurement of the net defined benefit liability relating to pension and medical commitments before income taxes as of December 31 2020, 2019 and 2018 are as follows:
| Equity impact (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Defined benefit plans | 161 | 254 | 81 |
| Post-employment medical benefits | 30 | 74 | (47) |
| Total impact on equity: debit (credit) | 191 | 329 | 34 |
In 2020, the aggregate impact of this heading amounted to €191 million euros driven by, first of all, the variation in interest rates, €91 million euros losses on commitments in Mexico and €68 million euros in Spain, and secondly due to updating of the mortality tables in Spain (€49 million euros losses). These amounts are partially offset by the effect in other geographies and experience. In 2019, this heading amounted to €329 million euros mainly due to the variation in two geographies. Firstly, as a consequence of the €231 million euros increase in actuarial losses on commitments in Spain, due to the variation in discount rates from 1.75% to 1%. Secondly, driven by the €83 million euros increase in actuarial losses on commitments in Mexico, due to the decrease in discount rates from 10.45% to 9.04%.
Defined benefit commitments relate mainly to employees who have already retired or taken early retirement, certain closed groups of active employees still accruing defined benefit pensions, and in-service death and disability benefits provided to most active employees. For the latter, the Group pays the required premiums to fully insure the related liability.
The change in these pension commitments during the years ended December 31 2020, 2019 and 2018 is presented below:
Defined benefits (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Defined benefit obligation | Plan assets | Net liability (asset) | |
| Balance at the beginning | 8,116 | 3,493 | 4,622 |
| Current service cost | 53 | - | 53 |
| Interest income/expense | 261 | 219 | 42 |
| Contributions by plan participants | 4 | 4 | - |
| Employer contributions | - | 124 | (124) |
| Past service costs (1) | 219 | - | 219 |
| Remeasurements: | 364 | 176 | 187 |
| Return on plan assets (2) | - | 176 | (176) |
| From changes in demographic assumptions | 57 | - | 57 |
| From changes in financial assumptions | 276 | - | 276 |
| Other actuarial gains and losses | 30 | - | 30 |
| Benefit payments | (839) | (185) | (654) |
| Settlement payments | - | - | - |
| Business combinations and disposals (*) | (371) | (327) | (44) |
| Effect on changes in foreign exchange rates | (459) | (409) | (50) |
| Conversions to defined contributions | - | - | - |
| Other effects | 1 | (3) | 4 |
| Balance at the end | 7,348 | 3,092 | 4,256 |
| Of which: Spain | 4,288 | 249 | 4,039 |
| Of which: Mexico | 2,219 | 2,122 | 97 |
| Of which: The United States | - | - | - |
| Of which: Turkey | 367 | 282 | 85 |
(*) The amount in 2020 in mainly due to the stake in BBVA USA (see Note 3).
(1) Including gains and losses arising from settlements.
(2) Excluding interest, which is recorded under "Interest income or expense".
The balance under the heading “Provisions - Pensions and other post-employment defined benefit obligations” of the accompanying consolidated balance sheet as of December 31, 2020 includes €356 million relating to post-employment benefit commitments to former members of the Board of Directors and the Bank’s Management (see Note 54).
P.151
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The most significant commitments are those in Spain and Mexico and, to a lesser extent, in Turkey. The remaining commitments are located mostly in Portugal and South America. Unless otherwise required by local regulation, all defined benefit plans have been closed to new entrants, who instead are able to participate in the Group´s defined contribution plans.
Both the costs and the present value of the commitments are determined by independent qualified actuaries using the “projected unit credit” method. In order to guarantee the good governance of these plans, the Group has established specific benefits committees. These benefit committees include members from the different areas of the business to ensure that all decisions are made taking into consideration all of the associated impacts.
The following table sets out the key actuarial assumptions used in the valuation of these commitments as of December 31, 2020, 2019 and 2018:
Actuarial assumptions (%)
| 2020 | 2019 | 2018 | |||||||||
|---|---|---|---|---|---|---|---|---|---|---|---|
| Spain | Mexico | Turkey | Spain | Mexico | The United States | Turkey | Spain | Mexico | The United States | Turkey | |
| Discount rate | 0.53% | 8.37% | 13.00% | 0.68% | 9.04% | 3.24% | 12.50% | 1.28% | 10.45% | 4.23% | 16.30% |
| Rate of salary increase | - | 4.00% | 11.20% | - | 4.75% | - | 9.70% | - | 4.75% | - | 14.00% |
| Rate of pension increase | - | 1.94% | 9.70% | - | 2.47% | - | 8.20% | - | 2.51% | - | 12.50% |
| Medical cost trend rate | - | 7.00% | 13.90% | - | 7.00% | - | 12.40% | - | 7.00% | - | 16.70% |
| Mortality tables | PER 2020 | EMSSA09 | CSO2001 | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 | PERM/F 2000P | EMSSA09 | RP 2014 | CSO2001 |
In Spain, the discount rate shown as of December, 31, 2020, corresponds to the weighted average rate, the actual discount rates used are 0% and 0.75% depending on the type of commitment. In Mexico, the discount rate shown as of December 31, 2020, corresponds to the weighted average rate, with the discount rates between 6.84% and 8.76% depending on the plan. Discount rates used to value future benefit cash flows have been determined by reference to high quality corporate bonds (Note 2.2.12) denominated in Euro in the case of Spain and Mexican peso for Mexico, and government bonds denominated in Turkish Lira for Turkey.The expected return on plan assets has been set in line with the adopted discount rate. Assumed retirement ages have been set by reference to the earliest age at which employees are entitled to retire, the contractually agreed age in the case of early retirements in Spain or by using retirement rates. Changes in the main actuarial assumptions may affect the valuation of the commitments. The table below shows the sensitivity of the benefit obligations to changes in the key assumptions:
Sensitivity analysis (Millions of Euros)
| Basis points change | 2020 Increase | 2020 Decrease | 2019 Increase | 2019 Decrease | 2018 Increase | 2018 Decrease |
|---|---|---|---|---|---|---|
| Discount rate 50 | (354) | 390 | (367) | 405 | (298) | 332 |
| Rate of salary increase 50 | 4 | (4) | 3 | (3) | 3 | (3) |
| Rate of pension increase 50 | 29 | (27) | 27 | (26) | 19 | (18) |
| Medical cost trend rate 50 | 145 | (129) | 169 | (133) | 115 | (91) |
| Change in obligation from each additional year of longevity - | 211 | - | 137 | - | 108 | - |
The sensitivities provided above have been determined at the date of these consolidated financial statements, and reflect solely the impact of changing one individual assumption at a time, keeping the rest of the assumptions unchanged, thereby excluding the effects which may result from combined assumption changes.
In addition to the commitments to employees shown above, the Group has other less material long-term employee benefits. These include long-service awards, which consist of either an established monetary award or some vacation days granted to certain groups of employees when they complete a given number of years of service. As of December 31, 2020, 2019 and 2018, the actuarial liabilities for the outstanding awards amounted to €50, €61 million and €62 million, respectively. These commitments are recorded under the heading "Provisions - Other long-term employee benefits" of the accompanying consolidated balance sheet (see Note 24).
These commitments relate mostly to pension payments, and which have been determined based on salary and years of service. For most plans, pension payments are due on retirement, death and long term disability.
P.152 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In addition, during the year 2020, Group entities in Spain offered certain employees the option to take retirement or early retirement (that is, earlier than the age stipulated in the collective labor agreement in force). This offer was accepted by 781 employees (616 and 489 during years 2019 and 2018, respectively). These commitments include the compensation and indemnities due as well as the contributions payable to external pension funds during the early retirement period. As of December 31, 2020, 2019 and 2018, the value of these commitments amounted to €1,247, €1,486 million and €1,793 million, respectively.
The change in the benefit plan obligations and plan assets during the year ended December 31, 2020 was as follows:
| 2020 (Millions of Euros) | Spain | Mexico | The United States | Turkey | Rest of the world |
|---|---|---|---|---|---|
| Defined benefit obligation | |||||
| Balance at the beginning | 4,592 | 664 | 375 | 444 | 460 |
| Current service cost | 5 | 5 | 1 | 18 | 3 |
| Interest income or expense | 30 | 50 | 12 | 45 | 7 |
| Contributions by plan participants | - | - | - | 4 | - |
| Employer contributions | - | - | - | - | - |
| Past service costs (1) | 224 | (1) | - | 2 | 3 |
| Remeasurements: | 136 | 93 | 31 | (4) | 12 |
| Return on plan assets (2) | - | - | - | - | - |
| From changes in demographic assumptions | 60 | - | (3) | - | - |
| From changes in financial assumptions | 79 | (19) | 34 | 54 | 17 |
| Other actuarial gains and losses (3) | 112 | - | (59) | (5) | - |
| Benefit payments | (703) | (58) | (15) | (15) | (12) |
| Settlement payments | - | - | - | - | - |
| Business combinations and disposals | - | - | (371) | - | - |
| Effect on changes in foreign exchange rates | - | (87) | (32) | (126) | (9) |
| Conversions to defined contributions | - | - | - | - | - |
| Other effects | (3) | 3 | - | (1) | - |
| Balance at the end | 4,288 | 666 | - | 367 | 465 |
| Of which: Vested benefit obligation relating to current employees | 4198 | ||||
| Of which: Vested benefit obligation relating to retired employees | 90 | ||||
| Plan assets | |||||
| Balance at the beginning | 266 | 592 | 323 | 359 | 422 |
| Current service cost | - | - | - | - | - |
| Interest income or expense | 2 | 44 | 10 | 37 | 6 |
| Contributions by plan participants | - | - | - | 4 | - |
| Employer contributions | - | 86 | - | 14 | 1 |
| Past service costs (1) | - | - | - | - | - |
| Remeasurements: | 41 | 31 | 35 | (23) | 26 |
| Return on plan assets (2) | 41 | 31 | 35 | (23) | 26 |
| From changes in demographic assumptions | - | - | - | - | - |
| From changes in financial assumptions | - | - | - | - | - |
| Other actuarial gains and losses | - | - | - | - | - |
| Benefit payments | (60) | (57) | (13) | (8) | (11) |
| Settlement payments | - | - | - | - | - |
| Business combinations and disposals | - | 19 | (327) | - | - |
| Effect on changes in foreign exchange rates | - | (77) | (27) | (100) | (5) |
| Conversions to defined contributions | - | - | - | - | - |
| Other effects | (3) | - | - | (1) | - |
| Balance at the end | 249 | 638 | - | 282 | 439 |
| Net liability (asset) | |||||
| Balance at the beginning | 4,326 | 72 | 52 | 86 | 38 |
| Current service cost | 5 | 5 | 1 | 18 | 3 |
| Interest income or expense | 28 | 6 | 2 | 8 | 1 |
| Contributions by plan participants | - | - | - | - | - |
| P.153 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. |
| Employer contributions | - | (86) | - | (14) | (1) |
|---|---|---|---|---|---|
| Past service costs (1) | 224 | (1) | - | 2 | 3 |
| Remeasurements: | 95 | 62 | (4) | 18 | (14) |
| Return on plan assets (2) | (41) | (31) | (35) | 23 | (26) |
| From changes in demographic assumptions | 60 | - | (3) | - | - |
| From changes in financial assumptions | 79 | (19) | 34 | 54 | 17 |
| Other actuarial gains and losses (3) | 112 | - | (59) | (5) | - |
| Benefit payments | (643) | (1) | (2) | (6) | (1) |
| Settlement payments | - | - | - | - | - |
| Business combinations and disposals | - | (19) | (44) | - | - |
| Effect on changes in foreign exchange rates | - | (10) | (5) | (26) | (4) |
| Conversions to defined contributions | - | - | - | - | - |
| Other effects | (3) | 3 | - | - | - |
| Balance at the end | 4,039 | 28 | - | 85 | 27 |
(1) Including gains and losses arising from settlements.
(2) Excluding interest, which is recorded under "Interest income or expense".
The change in net liabilities (assets) during the years ended 2019 and 2018 was as follows:
| 2019: Net liability (asset) | 2018: Net liability (asset) | |
|---|---|---|
| Spain | Mexico | |
| Balance at the beginning | 4,547 | 71 |
| Current service cost | 4 | 4 |
| Interest income or expense | 42 | 9 |
| Contributions by plan participants | - | - |
| Employer contributions | - | (47) |
| Past service costs (1) | 190 | 15 |
| Remeasurements: | 231 | 9 |
| Return on plan assets (2) | (67) | (90) |
| From changes in demographic assumptions | - | - |
| From changes in financial assumptions | 239 | 87 |
| Other actuarial gains and losses | 59 | 12 |
| Benefit payments | (702) | (1) |
| Settlement payments | - | - |
| Business combinations and disposals | - | 7 |
| Effect on changes in foreign exchange rates | - | 5 |
| Conversions to defined contributions | - | - |
| Other effects | 14 | - |
| Balance at the end | 4,326 | 72 |
(1) Includes gains and losses from settlements.
(2) Excludes interest which is reflected in the line item “Interest income and expense”.
In Spain, local regulation requires that pension and death benefit commitments must be funded, either through a qualified pension plan or an insurance contract. In the Spanish entities these commitments are covered by insurance contracts which meet the requirements of the accounting standard regarding the non-recoverability of contributions. However, a significant number of the insurance contracts are with BBVA Seguros, S.A. – a consolidated subsidiary and related party – and consequently these policies cannot be considered plan assets under IAS 19. For this reason, the liabilities insured under these policies are fully recognized under the heading "Provisions – Pensions and other postemployment defined benefit obligations" of the accompanying consolidated balance sheet (see Note 24), while the related assets held by the insurance company are included within the Group´s consolidated assets (recorded according to the classification of the corresponding financial instruments). As of December 31, 2020 the value of these separate assets was €2,572 million, (€2,620 and €2,543 million as of December 31, 2019 and 2018, respectively) representing direct rights of the insured employees held in the consolidated balance sheet, hence these benefits are effectively fully funded. On the other hand, some pension commitments have been funded through insurance contracts with insurance companies not related to the Group. In this case the accompanying consolidated balance sheet reflects the value of the obligations net of the fair value of the qualifying insurance policies. As of December 31, 2020, 2019 and 2018, the value of the aforementioned insurance policies (€249, €266 and €260 million, respectively) exactly match the value of the corresponding obligations and therefore no amount for this item has been recorded in the accompanying consolidated balance sheet.
P.154 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Pension benefits are paid by the insurance companies with whom BBVA has insurance contracts and to whom all insurance premiums have been paid.# 25. EMPLOYEE BENEFIT COMMITMENTS
The premiums are determined by the insurance companies using “cash flow matching” techniques to ensure that benefits can be met when due, guaranteeing both the actuarial and interest rate risk. In Mexico, there is a defined benefit plan for employees hired prior to 2001. Other employees participate in a defined contribution plan. External funds/trusts have been constituted locally to meet benefit payments as required by local regulation. In 2008, the Turkish government passed a law to unify the different existing pension systems under a single umbrella Social Security system. Such system provides for the transfer of the various previously established funds. The financial sector is in this stage at present, maintaining these pension commitments managed by external pension funds (foundations) established for that purpose. The foundation that maintains the assets and liabilities relating to employees of Garanti BBVA in Turkey, as per the local regulatory requirements, has registered an obligation amounting to €250 million as of December 31, 2020 pending future transfer to the Social Security system. Furthermore, Garanti BBVA has set up a defined benefit pension plan for employees, additional to the social security benefits, reflected in the consolidated balance sheet.
The change in defined benefit obligations and plan assets during the years 2020, 2019 and 2018 was as follows:
| Medical benefits commitments | 2020 | 2019 | 2018 |
|---|---|---|---|
| Defined benefit obligation | Plan assets | Net liability (asset) | |
| Defined benefit obligation | Plan assets | Net liability (asset) | |
| Defined benefit obligation | Plan assets | Net liability (asset) | |
| Balance at the beginning | 1,580 | 1,532 | 48 |
| Current service cost | 21 | - | 21 |
| Interest income or expense | 117 | 120 | (3) |
| Contributions by plan participants | - | - | - |
| Employer contributions | - | 22 | (22) |
| Past service costs | (1) | (8) | - |
| Remeasurements: | 95 | 66 | 30 |
| Return on plan assets (2) | - | 66 | (66) |
| From changes in demographic assumptions | - | - | - |
| From changes in financial assumptions | 110 | - | 110 |
| Other actuarial gain and losses | (15) | - | (15) |
| Benefit payments | (37) | (37) | - |
| Settlement payments | - | - | - |
| Business combinations and disposals | - | (19) | 19 |
| Effect on changes in foreign exchange rates | (207) | (201) | (6) |
| Other effects | - | - | - |
| Balance at the end | 1,562 | 1,484 | 77 |
(1) Including gains and losses arising from settlements.
(2) Excluding interest, which is recorded under "Interest income or expense".
In Mexico, there is a medical benefit plan for employees hired prior to 2007. New employees from 2007 are covered by a medical insurance policy. An external trust has been constituted locally to fund the plan, in accordance with local legislation and Group policy. In Turkey, employees are currently provided with medical benefits through a foundation in collaboration with the Social Security system, although local legislation prescribes the future unification of this and similar systems into the general Social Security system itself. The valuation of these benefits and their accounting treatment follow the same methodology as that employed in the valuation of pension commitments.
P.155 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
As of December 31, 2020, the estimated benefit payments over the next ten years for all the entities in Spain, Mexico and Turkey are as follows:
| Estimated benefit payments (Millions of Euros) | 2021 | 2022 | 2023 | 2024 | 2025 | 2026-2030 |
|---|---|---|---|---|---|---|
| Commitments in Spain | 556 | 474 | 388 | 313 | 257 | 856 |
| Commitments in Mexico | 111 | 110 | 114 | 121 | 129 | 774 |
| Commitments in Turkey | 16 | 18 | 16 | 18 | 22 | 180 |
| Total | 683 | 602 | 518 | 452 | 408 | 1,810 |
The majority of the Group´s defined benefit plans are funded by plan assets held in external funds/trusts legally separate from the Group sponsoring entity. However, in accordance with local regulation, some commitments are not externally funded and covered through internally held provisions, principally those relating to early retirements. Plan assets are those assets which will be used to directly settle the assumed commitments and which meet the following conditions: they are not part of the Group sponsoring entities assets, they are available only to pay post-employment benefits and they cannot be returned to the Group sponsoring entity. To manage the assets associated with defined benefit plans, BBVA Group has established investment policies designed according to criteria of prudence and minimizing the financial risks associated with plan assets. The investment policy consists of investing in a low risk and diversified portfolio of assets with maturities consistent with the term of the benefit obligation and which, together with contributions made to the plan, will be sufficient to meet benefit payments when due, thus mitigating the plans‘ risks. In those countries where plan assets are held in pension funds or trusts, the investment policy is developed consistently with local regulation. When selecting specific assets, current market conditions, the risk profile of the assets and their future market outlook are all taken into consideration. In all the cases, the selection of assets takes into consideration the term of the benefit obligations as well as short-term liquidity requirements. The risks associated with these commitments are those which give rise to a deficit in the plan assets. A deficit could arise from factors such as a fall in the market value of plan assets, an increase in long-term interest rates leading to a decrease in the fair value of fixed income securities, or a deterioration of the economy resulting in more write-downs and credit rating downgrades. The table below shows the allocation of plan assets of the main companies of the BBVA Group as of December 31, 2020, 2019 and 2018:
| Plan assets breakdown (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Cash or cash equivalents | 38 | 56 | 26 |
| Debt securities (government bonds) | 2,707 | 2,668 | 2,080 |
| Mutual funds | 1 | 2 | 2 |
| Insurance contracts | 140 | 142 | 132 |
| Total | 2,887 | 2,869 | 2,241 |
| Of which: Bank account in BBVA | 4 | 4 | 3 |
| Of which: Debt securities issued by BBVA | - | - | - |
| Of which: Property occupied by BBVA | - | - | - |
In addition to the above there are plan assets relating to the previously mentioned insurance contracts in Spain and the foundation in Turkey.
P.156 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The following table provides details of investments in listed securities (Level 1) as of December 31, 2020, 2019 and 2018:
| Investments in listed markets | 2020 | 2019 | 2018 |
|---|---|---|---|
| Cash or cash equivalents | 38 | 56 | 26 |
| Debt securities (Government bonds) | 2,707 | 2,668 | 2,080 |
| Mutual funds | 1 | 2 | 2 |
| Total | 2,747 | 2,727 | 2,109 |
| Of which: Bank account in BBVA | 4 | 4 | 3 |
| Of which: Debt securities issued by BBVA | - | - | - |
| Of which: Property occupied by BBVA | - | - | - |
The remainders of the assets are mainly invested in Level 2 assets in in accordance with the classification established under IFRS 13 (mainly insurance contracts). As of December 31, 2020, almost all of the assets related to employee commitments corresponded to fixed income securities.
Certain Group entities sponsor defined contribution plans. Some of these plans allow employees to make contributions which are then matched by the employer. Contributions are recognized as and when they are accrued, with a charge to the consolidated income statement in the corresponding year. No liability is therefore recognized in the accompanying consolidated balance sheet (see Note 44.1).
As of December 31, 2020, 2019 and 2018, BBVA’s common stock amounted to €3,267,264,424.20 divided into 6,667,886,580 fully subscribed and paid-up registered shares, all of the same class and series, at €0.49 par value each, represented through book-entries. All of the Bank shares carry the same voting and dividend rights, and no single stockholder enjoys special voting rights. Each and every share is part of the Bank’s common stock. The Bank’s shares are traded on the stock markets of Madrid, Barcelona, Bilbao and Valencia through the Sistema de Interconexión Bursátil Español (Mercado Continuo), as well as on the London and Mexico stock markets. BBVA American Depositary Shares (ADSs) traded on the New York Stock Exchange under the ticker “BBVA”. Additionally, as of December 31, 2020, the shares of Banco BBVA Peru, S.A., BBVA Banco Provincial, S.A., Banco BBVA Colombia, S.A., Banco BBVA Argentina, S.A., and Garanti BBVA A.S., were listed on their respective local stock markets. Banco BBVA Argentina, S.A. was also quoted in the Latin American market (Latibex) of the Madrid Stock Exchange and the New York Stock Exchange. Also, the Depositary Receipts (“DR”) of Garanti BBVA, A.S. are listed in the London Stock Exchange. BBVA is also currently included, amongst other indexes, in the IBEX 35® Index, which is made up by the 35 most liquid securities traded on the Spanish Market and, technically, it is a price index that is weighted by capitalization and adjusted according to the free float of each company comprised in the index. As of December 31, 2020, State Street Bank and Trust Co., The Bank of New York Mellon SA NV and Chase Nominees Ltd in their capacity as international custodian/depositary banks, held 10.94%, 1.31%, and 8.36% of BBVA common stock, respectively.Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of BBVA common stock outstanding. On April 18, 2019, Blackrock, Inc. reported to the Spanish Securities and Exchange Commission (CNMV) that, it had an indirect holding of BBVA common stock totaling 5.917%, of which 5.480% are voting rights attributed to shares and 0.437% are voting rights through financial instruments. On February 3, 2020, Norges Bank reported to the Spanish Securities and Exchange Commission (CNMV) that it had an indirect holding of BBVA S.A. common stock totaling 3.366%, of which 3.235% are voting rights attributed to shares, and 0.131% are voting rights through financial instruments. On the other hand, BBVA is not aware of any direct or indirect interests through which control of the Bank may be exercised. Furthermore, BBVA has not received any information on stockholder agreements including the regulation of the exercise of voting rights at its annual general meetings or restricting or placing conditions on the free transferability of BBVA shares. No agreement is known that could give rise to changes in the control of the Bank. BBVA banking subsidiaries, associates and joint ventures worldwide, are subject to supervision and regulation from a variety of regulatory bodies in relation to, among other aspects, the satisfaction of minimum capital requirements. The obligation to satisfy such capital requirements may affect the ability of such entities to transfer funds in the form of cash dividends, loans or advances. In addition, under the laws of the various jurisdictions where such entities are incorporated, dividends may only be paid out through funds legally available for P.157 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. such purpose. Even when the minimum capital requirements are met and funds are legally available, the relevant regulators or other public administrations could discourage or delay the transfer of funds to the Group in the form of cash, dividends, loans or advances for prudential reasons.
BBVA’s AGM held on March 17, 2017 resolved, under agenda item four, to confer authority on the Board of Directors to increase Bank’s share capital, on one or several occasions, within the legal term of five years of the approval date of the authorization, up to the maximum amount corresponding to 50% of Bank’s share capital at the time on which the resolution was adopted, likewise conferring authority to the Board of Directors to totally or partially exclude shareholders’ pre-emptive subscription rights over any specific issue that may be made under such authority. However, the power to exclude pre-emptive subscription rights was limited, such that the nominal amount of the capital increases resolved or effectively carried out with the exclusion of pre-emptive subscription rights in use of the referred authority and those that may be resolved or carried out to cover the conversion of mandatory convertible issues that may also be made with the exclusion of pre-emptive subscription rights in use of the authority to issue convertible securities conferred by the AGM held on March 17, 2017, under agenda item five (without prejudice to the anti-dilution adjustments and this limit not being applicable to contingent convertible issues) shall not exceed the nominal maximum overall amount of 20% of the share capital of BBVA at the time of the authorization. As of the date of this document, the Bank’s Board of Directors has not exercised the authority conferred by the AGM.
Note 22.4 introduces the details of the convertible and/or exchangeable securities.
As of December 31 2020, 2019 and 2018, the balance under this heading in the accompanying consolidated balance sheets was €23,992 million. The amended Spanish Corporation Act expressly permits the use of the share premium balance to increase capital and establishes no specific restrictions as to its use (see Note 26).
The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:
Retained earnings, revaluation reserves and other reserves. Breakdown by concepts (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Legal reserve | 653 | 653 | 653 |
| Restricted reserve | 120 | 124 | 133 |
| Reserves for regularizations and balance revaluations | - | - | 3 |
| Voluntary reserves | 8,117 | 8,331 | 8,010 |
| Total reserves holding company (*) | 8,890 | 9,108 | 8,799 |
| Consolidation reserves attributed to the Bank and subsidiary consolidated companies. | 21,454 | 20,161 | 18,018 |
| Total | 30,344 | 29,269 | 26,028 |
(*) Total reserves of BBVA, S.A. (See Appendix IX).
P.158 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Under the amended Spanish Corporations Act, 10% of any profit made each year must be transferred to the legal reserve. The transfer must be made until the legal reserve reaches 20% of the common stock. The legal reserve can be used to increase the common stock provided that the remaining reserve balance does not fall below 10% of the increased capital. While it does not exceed 20% of the common stock, it can only be allocated to offset losses exclusively in the case that there are not sufficient reserves available.
As of December 31, 2020, 2019 and 2018, the Bank’s restricted reserves are as follows:
Restricted reserves. Breakdown by concepts (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Restricted reserve for retired capital | 88 | 88 | 88 |
| Restricted reserve for parent company shares and loans for those shares | 30 | 34 | 44 |
| Restricted reserve for redenomination of capital in euros | 2 | 2 | 2 |
| Total | 120 | 124 | 133 |
The restricted reserve for retired capital resulted from the reduction of the nominal par value of the BBVA shares made in April 2000. The second heading corresponds to restricted reserves related to the amount of shares issued by the Bank in its possession at each date, as well as the amount of customer loans outstanding at those dates that were granted for the purchase of, or are secured by, the parent company shares. Finally, pursuant to Law 46/1998 on the Introduction of the Euro, a restricted reserve is recognized as a result of the rounding effect of the redenomination of the parent company common stock in euros.
P.159 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown, by company or corporate group, under the headings “Retained earnings”, “Revaluation reserves” and “other reserves” in the accompanying consolidated balance sheets is as follows:
Retained earnings, revaluation reserves and other reserves. Breakdown by company or corporate group (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Retained earnings (losses) and revaluation reserves | |||
| Holding Company | 15,014 | 16,623 | 14,698 |
| BBVA Bancomer Group | 12,890 | 10,645 | 10,014 |
| Garanti BBVA Group | 2,509 | 1,985 | 1,415 |
| BBVA Banco Provincial Group | 1,731 | 1,736 | 1,745 |
| BBVA Argentine Group | 1,302 | 1,148 | 1,220 |
| BBVA Colombia Group | 1,287 | 1,130 | 998 |
| Corporación General Financiera S.A. | 920 | 932 | 1,084 |
| BBVA Perú Group | 984 | 848 | 756 |
| BBVA Chile Group | 619 | 597 | 168 |
| BBVA Paraguay | 160 | 130 | 119 |
| Pecri Inversión S.L. | 114 | (50) | (74) |
| Bilbao Vizcaya Holding, S.A. | 77 | 62 | 49 |
| Compañía de Cartera de Inversiones, S.A. | 59 | 47 | 108 |
| Gran Jorge Juan, S.A. | 42 | 27 | (33) |
| Banco Industrial de Bilbao, S.A. | (12) | (13) | - |
| BBVA Seguros, S.A. | (35) | (99) | (127) |
| BBVA Suiza, S.A. | (47) | (52) | (53) |
| BBVA Portugal Group | (52) | (59) | (66) |
| Anida Grupo Inmobiliario | (594) | (587) | 363 |
| Sociedades inmobiliarias Unnim | (617) | (594) | (587) |
| BBVA USA Bancshares Group | (1,078) | (317) | (586) |
| Anida Operaciones Singulares, S.A. | (5,409) | (5,375) | (5,317) |
| Other | 644 | 624 | 172 |
| Subtotal | 30,508 | 29,388 | 26,066 |
| Other reserves or accumulated losses of investments in joint ventures and associates | |||
| ATOM Bank PLC | (91) | (56) | (28) |
| Metrovacesa, S.A. | (84) | (75) | (61) |
| Other | 11 | 12 | 51 |
| Subtotal | (164) | (119) | (38) |
| Total | 30,344 | 29,269 | 26,028 |
For the purpose of allocating the reserves and accumulated losses to the consolidated entities and to the parent company, the transfers of reserves arising from the dividends paid and transactions between these entities are taken into account in the period in which they took place.
P.160 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In the years ended December 31, 2020, 2019 and 2018 the Group entities performed the following transactions with shares issued by the Bank:
Treasury shares (Millions of euros)
| Number of Shares | Millions of Euros | Number of Shares | Millions of Euros | Number of Shares | Millions of Euros | |
|---|---|---|---|---|---|---|
| 2020 | 2020 | 2019 | 2019 | 2018 | 2018 | |
| Balance at beginning | 12,617,189 | 62 | 47,257,691 | 296 | 13,339,582 | 96 |
| + Purchases | 234,691,887 | 807 | 214,925,699 | 1,088 | 279,903,844 | 1,683 |
| - Sales and other changes | (232,956,244) | (830) | (249,566,201) | (1,298) | (245,985,735) | (1,505) |
| +/- Derivatives on BBVA shares | - | 7 | - | (23) | - | 23 |
| +/- Other changes | - | - | - | - | - | - |
| Balance at the end | 14,352,832 | 46 | 12,617,189 | 62 | 47,257,691 | 296 |
Of which: Held by BBVA, S.A.592,832 9 - - - - Held by Corporación General Financiera, S.A. 13,760,000 37 12,617,189 62 47,257,691 296 Held by other subsidiaries - - - - - - Average purchase price in Euros 3.44 - 5.06 - 6.11 - Average selling price in Euros 3.63 - 5.20 - 6.25 - Net gains or losses on transactions (Shareholders' funds-Reserves) - 13 (24) The percentages of treasury shares held by the Group in the years ended December 31, 2020, 2019 and 2018 are as follows: Treasury Stock 2020 2019 2018 Min Max Closing Min Max Closing Min Max Closing % treasury stock 0.008% 0.464% 0.215% 0.138% 0.746% 0.213% 0.200% 0.850% 0.709% The number of BBVA shares accepted by the Group in pledge of loans as of December 31, 2020, 2019 and 2018 is as follows: Shares of BBVA accepted in pledge 2020 2019 2018 Number of shares in pledge 39,407,590 43,018,382 61,632,832 Nominal value 0.49 0.49 0.49 % of share capital 0.59% 0.65% 0.92% The number of BBVA shares owned by third parties but under management of a company within the Group as of December 31, 2020, 2019 and 2018 is as follows: Shares of BBVA owned by third parties but managed by the Group 2020 2019 2018 Number of shares owned by third parties 18,266,509 23,807,398 25,306,229 Nominal value 0.49 0.49 0.49 % of share capital 0.27% 0.36% 0.38%
P.161
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading in the accompanying consolidated balance sheets is as follows:
| Accumulated other comprehensive income (loss) (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Items that will not be reclassified to profit or loss | (2,815) | (1,875) | (1,284) | |
| Actuarial gains (losses) on defined benefit pension plans | (1,474) | (1,498) | (1,245) | |
| Non-current assets and disposal groups classified as held for sale | (65) | 3 | - | |
| Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates | - | - | - | |
| Fair value changes of equity instruments measured at fair value through other comprehensive income | 13.4 | (1,256) | (404) | (155) |
| Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income | - | - | - | |
| Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | (21) | 24 | 116 | |
| Items that may be reclassified to profit or loss | (11,541) | (8,351) | (8,939) | |
| Hedge of net investments in foreign operations (effective portion) | (62) | (896) | (218) | |
| Of which: US Dollar | - | (432) | (432) | |
| Of which: Mexican peso | (362) | (588) | (78) | |
| Of which: Turkish lira | 317 | 163 | 322 | |
| Of which: other exchanges | (18) | (38) | (29) | |
| Foreign currency translation | (14,185) | (9,147) | (9,630) | |
| Of which: US Dollar | (16) | 1,565 | 1,326 | |
| Of which: Mexican peso | (5,220) | (3,557) | (4,205) | |
| Of which: Turkish lira | (4,960) | (3,750) | (3,326) | |
| Of which: Argentine peso | (1,247) | (1,124) | (1,118) | |
| Of which: Venezuelan Bolívar | (1,860) | (1,854) | (1,862) | |
| Of which: other exchanges | (882) | (427) | (445) | |
| Hedging derivatives. Cash flow hedges (effective portion) | 10 | (44) | (6) | - |
| Fair value changes of debt instruments measured at fair value through other comprehensive income | 13.4 | 2,069 | 1,760 | 943 |
| Hedging instruments (non-designated items) | - | - | - | |
| Non-current assets and disposal groups classified as held for sale (*) | 644 | (18) | 1 | |
| Share of other recognized income and expense of investments in subsidiaries, joint ventures and associates | (17) | (5) | (29) | |
| Total | (14,356) | (10,226) | (10,223) |
(*) The variation for the year 2020 corresponds, mainly, to the BBVA USA sale agreement (see Notes 21). The balances recognized under these headings are presented net of tax. The main changes in 2020 are explained as a result of the depreciation of the main currencies of the geographies where the Group operates against the euro. The main depreciations against the euro have been: US dollar (-8.5%), Mexican peso (-13.1%), Turkish lira (-26.7%), Peruvian sol (-16.3%), Colombian peso (-12.6%) and Argentine peso (-34.8%).
P.162
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The table below is a breakdown by groups of consolidated entities of the balance under the heading “Minority interests (non -controlling interest)” of total equity in the accompanying consolidated balance sheets is as follows:
Non-controlling interests: breakdown by subgroups (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Garanti BBVA | 3,692 | 4,240 | 4,058 |
| BBVA Peru | 1,171 | 1,334 | 1,167 |
| BBVA Argentina | 416 | 422 | 352 |
| BBVA Colombia | 70 | 76 | 67 |
| BBVA Venezuela | 65 | 71 | 67 |
| Other entities | 56 | 57 | 53 |
| Total | 5,471 | 6,201 | 5,764 |
These amounts are broken down by groups of consolidated entities under the heading “Attributable to minority interests (non -controlling interests)” in the accompanying consolidated income statements:
Profit attributable to non-controlling interests (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Garanti BBVA | 579 | 524 | 585 |
| BBVA Peru | 126 | 236 | 227 |
| BBVA Argentina | 38 | 60 | (18) |
| BBVA Colombia | 6 | 11 | 9 |
| BBVA Venezuela | 2 | (1) | (5) |
| Other entities | 5 | 4 | 30 |
| Total | 756 | 833 | 827 |
Dividends distributed to non-controlling interest of the Group during the year 2020 are: BBVA Banco Continental Group €79 million, BBVA Garanti Group €31 million, BBVA Colombia Group €4 million, and other Group entities accounted for €4 million.
As of December 31, 2020, 2019 and 2018, own funds is calculated in accordance to the applicable regulation of each year on minimum capital requirements for Spanish credit institutions –both as individual entities and as consolidated group– that establish how to calculate them, as well as the various internal capital adequacy assessment processes they should have in place and the information they should disclose to the market. With respect to the capital requirement the ECB, in its announcement on March 12, 2020, in reaction to COVID-19, has allowed the banks to use additional Tier 1 or Tier 2 capital instruments to meet partially the Pillar II (P2R) requirements for 2021, which is known as "Pillar 2 tiering." This measure has been reinforced by the relaxation of the Countercyclical Capital Buffer (CCyB) announced by various national macroprudential authorities and by other complementary measures published by the ECB. All of this has resulted in a reduction of 66 basis points in the fully-loaded CET1 requirement for BBVA, with that requirement standing at 8.59% and the requirement in terms of total capital at 12.75%, both requirements at consolidated level. The reduction in the requirement at the total ratio level is only around 2 basis points, as a result of the lower applicable countercyclical buffer From 2021 onwards, the BBVA Group has set the objective of maintaining a fully-loaded CET1 ratio at a consolidated level of between 11.5% -12.0%, increasing the target distance to the minimum requirement (currently at 8.59 %) at 291-341 basis points. At closing of the financial year 2020, the fully-loaded CET1 ratio is within this target management range.
P.163
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A reconciliation of the main figures between the accounting and regulatory own funds as of December 31, 2020, 2019 and 2018 is shown below:
Eligible capital resources (Millions of Euros)
| Notes | 2020 (*) | 2019 (**) | 2018 (**) |
|---|---|---|---|
| Capital | 26 | 3,267 | 3,267 |
| Share premium | 27 | 23,992 | 23,992 |
| Retained earnings, revaluation reserves and other reserves | 28 | 30,344 | 29,269 |
| Other equity instruments, net | 42 | 56 | 50 |
| Treasury shares | 29 | (46) | (62) |
| Profit (loss) attributable to the parent company | 6 | 1,305 | 3,512 |
| Interim dividend | - | (1,084) | |
| Total equity | 58,904 | 58,950 | |
| Accumulated other comprehensive income (loss) | 30 | (14,356) | (10,226) |
| Non-controlling interest | 31 | 5,471 | 6,201 |
| Shareholders' equity | 50,020 | 54,925 | |
| Goodwill and other intangible assets | (3,455) | (6,803) | |
| Indirect and synthetic treasury shares | (320) | (422) | |
| Deductions | (3,774) | (7,225) | |
| Differences from solvency and accounting perimeter | (186) | (215) | |
| Equity not eligible at solvency level | (186) | (215) | |
| Other adjustments and deductions | (1) | (3,129) | (3,832) |
| Common Equity Tier 1 (CET 1) | 42,931 | 43,653 | |
| Additional Tier 1 before Regulatory Adjustments | 6,667 | 6,048 | |
| Total Regulatory Adjustments to Additional Tier 1 | - | - | |
| Tier 1 | 49,597 | 49,701 | |
| Tier 2 | 8,549 | 8,304 | |
| Total Capital (Total Capital=Tier 1 + Tier 2) | 58,147 | 58,005 | |
| Total Minimum equity required | 45,042 | 46,540 |
() Provisional data.
(*) December 31, 2019 and 2018 figures have been restated for comparative purposes (see note 1.3)
(1) Other adjustments and deductions includes the amount of minority interest not eligible as capital, amount of dividends not distributed and other deductions and filters set by the CRR. In addition it includes other remuneration to shareholders (see Note 4)
P.164
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.The Group’s own funds in accordance with the aforementioned applicable regulation as of December 31, 2020, 2019 and 2018 are shown below:
| Amount of capital CC1 (Millions of Euros) | 2020 (*) | 2019 (**) | 2018 (**) |
|---|---|---|---|
| Capital and share premium | 27,259 | 27,259 | 27,259 |
| Retained earnings and equity instruments | 29,974 | 29,127 | 25,896 |
| Other accumulated income and other reserves | (14,023) | (10,133) | (10,130) |
| Minority interests | 3,656 | 4,404 | 3,809 |
| Net interim attributable profit | 1,253 | 1,316 | 3,188 |
| Common Equity Tier I (CET1) before other regulatory adjustments | 48,119 | 51,974 | 50,022 |
| Goodwill and intangible assets | (3,455) | (6,803) | (8,199) |
| Direct and indirect holdings in own Common Equity Tier I instruments | (366) | (484) | (432) |
| Deferred tax assets | (1,478) | (1,420) | (1,463) |
| Other deductions and filters (***) | 110 | 386 | 386 |
| Total common equity Tier 1 regulatory adjustments | (5,189) | (8,321) | (9,709) |
| Common equity TIER 1 (CET1) | 42,931 | 43,653 | 40,313 |
| Capital instruments and share premium accounts classified as liabilities and qualifying as Additional Tier I | 6,130 | 5,400 | 5,005 |
| Qualifying Tier 1 capital included in consolidated AT1 capital issued by subsidiaries and held by third parties | 537 | 648 | 629 |
| Additional Tier 1 (CET 1) before regulatory adjustments | 6,667 | 6,048 | 5,634 |
| Transitional CET 1 adjustments | - | - | - |
| Total regulatory adjustments to additional Tier 1 | - | - | - |
| Additional Tier 1 (AT1) | 6,667 | 6,048 | 5,634 |
| Tier 1 (Common equity TIER 1+ additional TIER 1) | 49,597 | 49,701 | 45,947 |
| Capital instruments and share premium accounted as Tier 2 | 4,540 | 3,242 | 3,768 |
| Qualifying Tier 2 capital included in consolidated T2 capital issued by subsidiaries and held by third parties | 3,410 | 4,512 | 4,409 |
| Credit risk adjustments | 606 | 631 | 579 |
| Tier 2 before regulatory adjustments | 8,556 | 8,385 | 8,756 |
| Tier 2 regulatory adjustments | (7) | (82) | - |
| Tier 2 | 8,549 | 8,304 | 8,756 |
| Total capital (Total capital=Tier 1 + Tier 2) | 58,147 | 58,005 | 54,703 |
| Total RWA's | 353,272 | 364,448 | 348,264 |
| CET 1 (phased-in) | 12.2% | 12.0% | 11.6% |
| Tier 1 (phased-in) | 14.0% | 13.6% | 13.2% |
| Total capital (phased -in) | 16.5% | 15.9% | 15.7% |
(*) Provisional data.
(**) According to EBA Standards published in June 2020 (EBA / ITS / 2020/04), the table has been adapted according to the format established by the EBA in those rows that are applicable to the date of the report, between which is the transitory impact by IFRS 9 in CET1, which has been reclassified from the row "Common Equity Tier 1 before regulatory adjustments" as a regulatory adjustment of Common Equity Tier 1 capital, within the row "Other deductions and filters ". Likewise, the information corresponding to December 2019 and December 2018 has been restated for comparative purposes (see Note 1.3)
(***) Additionally, it includes other shareholder remuneration (see Note 4)
As of December 2020 Common Equity Tier 1 (CET1) phased-in ratio stood at 12.15% which represented and in increase of +17 basis points with respect to 2019. In terms of CET1 fully loaded, the consolidated ratio stood at 11.73% (which represents a reduction of 1 basis point compared to 2019). The difference is mainly explained by the effect of the transitory adjustments for the treatment in the solvency ratios of the impacts of IFRS 9 and subsequent modifications in response to the COVID-19 pandemic. This evolution had been affected by the positive BBVA´s organic profit generation which has it made possible to cover the growth of risk weighted assets (RWA) and the relative stabilization of the financial markets during the second half of the year, largely motivated by the P.165 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. measures to stimulate the economy and the announced guaranteed programs by the different national and supranational authorities and the approval by the Parliament and the European Council of regulation 2020/873 (known as CRR quick fix).
Regarding the shareholder remuneration proposal in relation to the Group's 2020 result, explained in Note 4, this amount has been anticipated as a prudential buffer in the Group's capital ratios, with an impact of 11 basis points.
Phased-in additional Tier 1 capital (AT1) stood at 1, 89% at the end of December 2020, an improvement of +23 basis points compared to the previous year. In this respect, in July 2020, the first green CoCo from a financial institution worldwide was issued for an amount of €1,000 million, with a coupon of 6% and an option for early amortization in five and a half years. Moreover, a CoCo of €1,500 million (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 BBV A 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 phased-in Tier 2 ratio stood at 2.42%, an increase of +14 basis points over the previous years. Two Tier 2 issuances were issued in 2020: an issuance of €1,000 million 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%.
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 €1,000 million and a coupon of 0.75%. Finally, in order to optimize the MREL requirement, in September BBVA issued preferred senior debt of USD 2,000 million in two tranches, with maturities of three and five years, for USD 1,200 million and USD 800 million 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.
The leverage ratio (LR) is a regulatory measure complementing capital designed to guarantee the soundness and financial strength of institutions in terms of indebtedness. This measurement can be used to estimate the percentage of the assets and off-balance sheet arrangements financed with Tier 1 capital, being the carrying amount of the assets used in this ratio adjusted to reflect the bank’s current or potential leverage of a given balance-sheet position (Leverage ratio exposure).
Breakdown of leverage ratio as of December 31, 2020, 2019 and 2018, calculated according to CCR, is as follows:
| Leverage ratio | 2020 (*) | 2019 | 2018 |
|---|---|---|---|
| Tier 1 (millions of euros) (a) | 49,597 | 49,701 | 45,947 |
| Exposure (millions of euros) (b) | 735,697 | 731,087 | 705,299 |
| Leverage ratio (a)/(b) (percentage) | 6.74% | 6.80% | 6.51% |
(*) Provisional data.
The aim of capital management within BBVA and the Group is to ensure that both BBVA and the Group have the necessary capital at any given time to develop the corporate strategy reflected in the Strategic Plan, in line with the risk profile set out in the Group Risk Appetite Framework (RAF). In this regard, BBVA's capital management is also part of the most relevant forward-looking strategic decisions in the Group's management and monitoring, which include the Annual Budget and the Liquidity and Funding Plan, with which it is coordinated — all with the aim of achieving the Group's overall strategy.
Capital must be allocated optimally in order to meet the need to preserve the solvency of BBVA and the Group at all times. Together with the Group's solvency risk profile included in the RAF, this optimal allocation serves as a guide for the Group's capital management and means a continuous need for a solid capital position that makes it possible to:
The areas involved in capital management in the Group shall follow and respect the following principles in their respective areas of responsibility: Ensuring that capital management is integrated and consistent with the Group's Strategic Plan, RAF, Annual Budget and other strategic-prospective processes, to help achieve the Group's long-term sustainability.# 33. Commitments and guarantees given
The breakdown of the balance under these headings in the accompanying consolidated balance sheets is as follows:
Commitments and guarantees given (Millions of Euros)
| Notes | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| 7.2.2 | Loan commitments given | 132,584 | 130,923 | 118,959 |
| Of which: defaulted | 265 | 270 | 247 | |
| Central banks | - | - | - | |
| General governments | 2,919 | 3,117 | 2,318 | |
| Credit institutions | 11,426 | 11,742 | 9,635 | |
| Other financial corporations | 5,862 | 4,578 | 5,664 | |
| Non-financial corporations | 71,011 | 65,475 | 58,405 | |
| Households | 41,366 | 46,011 | 42,936 | |
| 7.2.2 | Financial guarantees given | 10,665 | 10,984 | 16,454 |
| Of which: defaulted (*) | 290 | 224 | 332 | |
| Central banks | 1 | - | 2 | |
| General governments | 132 | 125 | 159 | |
| Credit institutions | 339 | 995 | 1,274 | |
| Other financial corporations | 587 | 583 | 730 | |
| Non-financial corporations | 9,376 | 8,986 | 13,970 | |
| Households | 231 | 295 | 319 | |
| 7.2.2 | Other commitments given | 36,190 | 39,209 | 35,098 |
| Of which: defaulted (*) | 477 | 506 | 408 | |
| Central banks | 124 | 1 | 1 | |
| General governments | 199 | 521 | 248 | |
| Credit institutions | 5,285 | 5,952 | 5,875 | |
| Other financial corporations | 2,902 | 2,902 | 2,990 | |
| Non-financial corporations | 27,496 | 29,682 | 25,723 | |
| Households | 182 | 151 | 261 | |
| 7.2.2 | Total | 179,440 | 181,116 | 170,511 |
(*) Non-performing financial guarantees given amounted to €767, €731 and €740 million, respectively, as of December 31, 2020, 2019 and 2018.
As of December 31, 2020, the provisions for loan commitments given, financial guarantees given and other commitments given, recorded in the consolidated balance sheet amounted €280 million, €182 million and 266€ million, respectively (see Note 24).
Since a significant portion of the amounts above will expire without any payment being made by the consolidated entities, the aggregate balance of these commitments cannot be considered to be the actual future requirement for financing or liquidity to be provided by the BBVA Group to third parties.
In the years 2020, 2019 and 2018, no issuance of debt securities carried out by associates of the BBVA Group, joint venture entities or non-Group entities have been guaranteed.
As of December, 2020, 2019 and 2018 there were no material contingent assets or liabilities other than those disclosed in the accompanying Notes to the consolidated financial statements.
The purchase and sale commitments of the BBVA Group are disclosed in Notes 10, 14 and 22. Future payment obligations mainly correspond to leases payable derived from operating lease contracts, as detailed in Note 22.5, and estimated employee benefit payments, as detailed in Note 25.1.3.
As of December 31, 2020, 2019 and 2018 the details of the relevant transactions on behalf of third parties are as follows:
Transactions on behalf of third parties. Breakdown by concepts (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Financial instruments entrusted to BBVA by third parties | 357,022 | 693,497 | 689,157 |
| Conditional bills and other securities received for collection | 10,459 | 13,133 | 13,484 |
| Securities lending | 5,285 | 7,129 | 4,866 |
| Total | 372,766 | 713,759 | 707,508 |
The breakdown of the interest and other income recognized in the accompanying consolidated income statement is as follows:
Interest and other income. Breakdown by origin (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Financial assets held for trading | 1,189 | 2,037 | 2,055 |
| Financial assets designated at fair value through profit or loss | 8 | 5 | 4 |
| Financial assets at fair value through other comprehensive income | 1,392 | 1,629 | 1,620 |
| Financial assets at amortized cost | 18,357 | 22,741 | 22,029 |
| Insurance activity | 1,021 | 1,079 | 1,141 |
| Adjustments of income as a result of hedging transactions | (112) | (72) | (162) |
| Other income (*) | 534 | 343 | 268 |
| Total | 22,389 | 27,762 | 26,954 |
(*) Includes accrued interest following TLTRO III transactions in 2020 and 2019 (see Note 22).
The amounts recognized in consolidated equity in connection with hedging derivatives for the years ended December 31, 2020, 2019 and 2018 and the amounts derecognized from the consolidated equity and taken to the consolidated income statements during those years are included in the accompanying “Consolidated statements of recognized income and expenses”.
The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:
Interest expense. Breakdown by origin (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Financial liabilities held for trading | 742 | 1,229 | 1,210 |
| Financial liabilities designated at fair value through profit or loss | 61 | 6 | 41 |
| Financial liabilities at amortized cost | 6,346 | 9,953 | 9,757 |
| Adjustments of expense as a result of hedging transactions | (413) | (250) | (351) |
| Insurance activity | 721 | 753 | 832 |
| Cost attributable to pension funds | 57 | 85 | 71 |
| Other expense | 284 | 196 | 108 |
| Total | 7,797 | 11,972 | 11,669 |
The balances for this heading in the accompanying consolidated income statements correspond to dividends on shares and equity instruments other than those from shares in entities accounted for using the equity method (see Note 39), as can be seen in the breakdown below:
Dividend income (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Non-trading financial assets mandatorily at fair value through profit or loss | 15 | 26 | 19 |
| Financial assets at fair value through other comprehensive income | 122 | 126 | 126 |
| Total | 137 | 153 | 145 |
Results from “Share of profit or loss of entities accounted for using the equity method” resulted in a negative impact of €39 million as of December 31, 2020, compared with the negative impact of €42 and the negative impact of €7 million recorded as of December 31, 2019 and 2018, respectively.
The breakdown of the balance under these headings in the accompanying consolidated income statements is as follows:
Fee and commission income. Breakdown by origin (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Bills receivables | 27 | 39 | 39 |
| Demand accounts | 322 | 301 | 249 |
| Credit and debit cards and ATMs | 2,089 | 2,862 | 2,690 |
| Checks | 136 | 198 | 188 |
| Transfers and other payment orders | 555 | 623 | 595 |
| Insurance product commissions | 159 | 158 | 169 |
| Loan commitments given | 185 | 187 | 183 |
| Other commitments and financial guarantees given | 349 | 377 | 374 |
| Asset management | 1,100 | 1,026 | 986 |
| Securities fees | 367 | 294 | 301 |
| Custody securities | 135 | 123 | 123 |
| Other fees and commissions | 556 | 599 | 564 |
| Total | 5,980 | 6,786 | 6,462 |
The breakdown of fee and commission expense under these heading in the accompanying consolidated income statements is as follows:
Fee and commission expense. Breakdown by origin (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Demand accounts | 5 | 6 | 11 |
| Credit and debit cards | 1,130 | 1,566 | 1,403 |
| Transfers and other payment orders | 97 | 81 | 36 |
| Commissions for selling insurance | 54 | 54 | 48 |
| Custody securities | 52 | 30 | 29 |
| Other fees and commissions | 519 | 548 | 531 |
| Total | 1,857 | 2,284 | 2,059 |
The breakdown of the balance under this heading, by source of the related items, in the accompanying consolidated income statement is as follows:
Gains (losses) on financial assets and liabilities, hedge accounting and exchange differences, net.# Breakdown by heading (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 139 | 186 | 191 |
| Financial assets at amortized cost | 106 | 44 | 37 |
| Other financial assets and liabilities | 33 | 141 | 155 |
| Gains (losses) on financial assets and liabilities held for trading, net | 777 | 419 | 640 |
| Reclassification of financial assets from fair value through other comprehensive income | - | - | - |
| Reclassification of financial assets from amortized cost | - | - | - |
| Other gains (losses) | 777 | 419 | 640 |
| Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 208 | 143 | 96 |
| Reclassification of financial assets from fair value through other comprehensive income | - | - | - |
| Reclassification of financial assets from amortized cost | - | - | - |
| Other gains (losses) | 208 | 143 | 96 |
| Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 56 | (98) | 139 |
| Gains (losses) from hedge accounting, net | 7 | 55 | 69 |
| Subtotal gains (losses) on financial assets and liabilities | 1,187 | 705 | 1,136 |
| Exchange differences, net | 359 | 581 | 13 |
| Total | 1,546 | 1,286 | 1,148 |
The breakdown of the balance (excluding exchange rate differences) under this heading in the accompanying income statements by the nature of financial instruments is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Debt instruments | 848 | 945 | 354 |
| Equity instruments | (28) | 1,336 | (253) |
| Trading derivatives and hedge accounting | 277 | (1,133) | 858 |
| Loans and advances to customers | 128 | 78 | (190) |
| Customer deposits | (79) | (26) | 239 |
| Other | 42 | (497) | 127 |
| Total | 1,187 | 705 | 1,136 |
P.171
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance of the impact of the derivatives (trading and hedging) under this heading in the accompanying consolidated income statements is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Derivatives | - | - | - |
| Interest rate agreements | 269 | (85) | 61 |
| Securities agreements | (36) | (1,072) | 298 |
| Commodity agreements | 1 | 5 | (2) |
| Credit derivative agreements | (89) | 74 | (109) |
| Foreign-exchange agreements | 88 | (75) | 565 |
| Other agreements | 37 | (35) | (24) |
| Subtotal | 270 | (1,187) | 790 |
| Hedging derivatives ineffectiveness | - | - | - |
| Fair value hedges | 5 | 55 | 68 |
| Hedging derivative | (151) | (36) | (135) |
| Hedged item | 156 | 91 | 203 |
| Cash flow hedges | 2 | - | 1 |
| Subtotal | 7 | 55 | 69 |
| Total | 277 | (1,133) | 858 |
In addition, in the years ended December 31, 2020, 2019 and 2018, under the heading “Exchange differences, net" in the accompanying consolidated income statements negative amounts of €57 million, €225 million and €113 million, respectively, were recognized for transactions with foreign exchange trading derivatives.
The breakdown of the balance under the heading “Other operating income” in the accompanying consolidated income statements is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Gains from sales of non-financial services | 244 | 258 | 458 |
| Hyperinflation adjustment (*) | 94 | 146 | 120 |
| Other operating income | 154 | 235 | 351 |
| Total | 492 | 639 | 929 |
(*) See Note 2.2.19.
The breakdown of the balance under the heading “Other operating expense” in the accompanying consolidated income statements is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Change in inventories | 124 | 107 | 292 |
| Contributions to guaranteed banks deposits funds | 800 | 746 | 670 |
| Hyperinflation adjustment (*) | 348 | 538 | 494 |
| Other operating expense | 390 | 551 | 565 |
| Total | 1,662 | 1,943 | 2,021 |
(*) See Note 2.2.19.
P.172
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The detail of the headings “Income and expense from insurance and reinsurance contracts” in the accompanying consolidated income statements is as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Income from insurance and reinsurance contracts | 2,497 | 2,890 | 2,949 |
| Expense from insurance and reinsurance contracts | (1,520) | (1,751) | (1,894) |
| Total | 977 | 1,138 | 1,055 |
The table below shows the contribution of each insurance product to the Group´s income for the years ended December 31, 2020, 2019 and 2018:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Life insurance | 497 | 631 | 682 |
| Individual | 439 | 477 | 486 |
| Savings | 92 | 116 | 56 |
| Risk | 346 | 361 | 430 |
| Group insurance | 59 | 154 | 196 |
| Savings | 5 | 26 | 39 |
| Risk | 54 | 127 | 157 |
| Non-Life insurance | 480 | 508 | 373 |
| Home insurance | 91 | 90 | 110 |
| Other non-life insurance products | 389 | 418 | 263 |
| Total | 977 | 1,138 | 1,055 |
The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:
| Notes | 2020 | 2019 | 2018 | |
|---|---|---|---|---|
| Wages and salaries | 3,610 | 4,103 | 4,031 | |
| Social security costs | 671 | 725 | 670 | |
| Defined contribution plan expense | 25 | 72 | 95 | 72 |
| Defined benefit plan expense | 25 | 49 | 49 | 58 |
| Other personnel expense | 293 | 379 | 373 | |
| Total | 4,695 | 5,351 | 5,205 |
The amounts recognized under the heading “Administration costs - Personnel expense - Other personnel expense” in the consolidated income statements for the year ended December 31, 2020 , 2019 and 2018, corresponding to the remuneration plans based on equity instruments in each year, amounted to €16 million, €31 million and €29 million, respectively. These amounts have been recognized with a corresponding entry under the heading “Shareholders’ funds - Other equity instruments” in the accompanying consolidated balance sheets, net of tax effect. The characteristics of the Group's remuneration plans based on equity instruments are described below.
P.173
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
BBVA has a specific remuneration system applicable to those employees whose professional activities may have a material impact on the risk profile of the Group (hereinafter “Identified Staff”), designed within the framework of applicable regulations to credit institutions and considering best practices and recommendations at the local and international levels in this matter. In 2020, this remuneration scheme is reflected in the following remuneration policies:
The Annual Variable Remuneration for the Identified Staff members is subject to specific rules for settlement and payment established in their corresponding remuneration policies, specifically:
Variable remuneration for Identified Staff members for each financial year will be subject to ex ante adjustments, so that it shall be reduced at the time of the performance assessment in the event of negative performance of the Group’s results or other parameters such as the level of achievement of budgeted targets, and it shall not accrue or it will accrue in a reduced amount, should certain level of profits and capital ratios not be achieved.
60% of the Annual Variable Remuneration will be paid, if conditions are met, in the year following that to which it corresponds (the “Upfront Portion”). For executive directors, members of the Senior Management and Identified Staff members with particularly high variable remuneration, the Upfront Portion will be 40% of the Annual Variable Remuneration. The remaining portion will be deferred in time (hereinafter, the “Deferred Component”) for a 5 year-period for executive directors and members of the Senior Management, and 3 years for the remaining Identified Staff.
50% of the Annual Variable Remuneration, both the Upfront Portion and the Deferred Component, shall be established in BBVA shares. As regards executive directors and Senior Management, 60% of the Deferred Component shall be established in shares. Shares received as Annual Variable Remuneration shall be withheld for a one-year period after delivery, except for the transfer of those shares required to honor the payment taxes.
The Deferred Component of the Annual Variable Remuneration may be reduced in its entirety, but never increased, based on the result of multi-year performance indicators aligned with the Group’s core risk management and control metrics related to the solvency, capital, liquidity, profitability or to the share performance and the recurring results of the Group. Resulting cash portions of the Deferred Component of Annual Variable Remuneration and subject to the multi-year performance indicators, finally delivered, shall be updated following the Consumer Price Index (CPI), measured as the year-on-year change prices, as agreed by the Board of Directors.The entire Annual Variable Remuneration shall be subject to malus and clawback arrangements during the whole deferral and withholding period, both linked to a downturn in the financial performance of the Bank as a whole, of a specific unit or area, or of exposure generated by an Identified Staff member, when such a downturn in financial performance arises from any of the circumstances expressly named in the remuneration policies. No personal hedging strategies or insurances shall be used in connection with remuneration or liability that may undermine the effects of alignment with sound risk management. The variable component of the remuneration for a financial year shall be limited to a maximum amount of 100% of the fixed component of the total remuneration, unless the General Meeting resolves to increase this percentage up to a maximum of 200%. In this regard, the General Meeting held on March, 13, 2020 resolved to increase this limit to a maximum level of 200% of the fixed component of the total remuneration for a given number of the Identified Staff members, in the terms indicated in the report issued for this purpose by the Board of Directors dated February 10, 2020. According to the settlement and payment scheme indicated, during 2020, a total amount of 5,754,101 BBVA shares corresponding to the Upfront Portion of 2019 Annual Variable Remuneration has been delivered to the Identified Staff. Additionally, according to the Remuneration Policy applicable in 2016, during 2020 a total amount of 4,220,900 BBVA shares corresponding to the Deferred Component of 2016 Variable Remuneration has been delivered to the Identifies Staff. This amount has been subject to a downward adjustment due to multi-year performance indicators evaluation. Likewise, the aforesaid policy established that the deferred amounts in shares of the Annual Variable Remuneration finally vested, subject to multi-year performance indicators, will be updated in cash, based on the terms established by the Board of Directors. In this regard, during 2020 a total amount of 3,085,476 euros has been delivered to the Identified Staff as updates of the corresponding shares of the Deferred Component of 2016 Annual Variable Remuneration. P.174 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. Detailed information on the delivery of shares to executive directors and Senior Management is included in Note 54. Lastly, in line with specific regulation applicable in Portugal and Brazil, BBVA IFIC and BBVA Brazil Banco de Investimento have identified respectively the staff in these countries whose Annual Variable Remuneration should be subject to a specific settlement and payment scheme, more specifically: A percentage of the Annual Variable Remuneration is subject to a three years deferral that shall be paid yearly over the mentioned period. 50% of the Annual Variable Remuneration, both the Upfront Portion and Deferred Component, shall be established in BBVA Shares. In BBVA IFIC, resulting cash portions of the Deferred Component of Annual Variable Remuneration and subject to multi-year performance indicators, finally delivered, shall be updated following the Consumer Price Index (CPI) measured as year-on-year price variation. In BBVA Brasil Banco de Investimento, both the cash amounts and share amounts of the Deferred Component may be subject to update adjustments in cash. According to this remuneration scheme, during financial year 2020 a total of 18,879 BBVA shares corresponding to the Upfront Portion of 2019 Annual Variable Remuneration have been delivered to this staff in Portugal and Brazil. Additionally, during 2020 there have been delivered to this staff in Portugal and Brazil a total of 5,083 BBVA shares corresponding to the first third of the Deferred Component of 2018 Annual Variable Remuneration, as well as 1,323 euros as adjustments for updates. A total of 9,558 BBVA shares corresponding to the second third of the Deferred Component of 2017 Annual Variable Remuneration and 4,873 euros as adjustments for updates; and a total of 12,142 BBVA shares corresponding to the last third of the Deferred Component of 2016 Annual Variable Remuneration and 8,873 euros as adjustments for updates.
The breakdown of the balance under this heading in the accompanying consolidated income statements is as follows:
| Other administrative expense (Millions of Euros) | 2020 | 2019 | 2018 |
|---|---|---|---|
| Technology and systems | 1,088 | 1,060 | 1,000 |
| Communications | 172 | 181 | 193 |
| Advertising | 186 | 250 | 265 |
| Property, fixtures and materials | 404 | 477 | 865 |
| Taxes other than income tax | 344 | 378 | 395 |
| Surveillance and cash courier services | 161 | 188 | 177 |
| Other expense | 749 | 885 | 921 |
| Total | 3,105 | 3,418 | 3,816 |
P.175 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The breakdown of the balance under this heading in the accompanying consolidated income statements for the years ended December 2020, 2019 and 2018 is as follows:
| Depreciation and amortization (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Tangible assets | 17 | 781 | 876 | 533 |
| For own use | 453 | 523 | 529 | |
| Right-of-use assets | 324 | 349 | ||
| Investment properties and other | 3 | 3 | 5 | |
| Intangible assets | 18.2 | 507 | 510 | 500 |
| Total | 1,288 | 1,386 | 1,034 |
For the years ended December 31, 2020, 2019 and 2018, the net provisions recognized in this income statement line item were as follows:
| Provisions or reversal of provisions (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Pensions and other post employment defined benefit obligations | 25 | 210 | 213 | 125 |
| Commitments and guarantees given (*) | 192 | 96 | (27) | |
| Pending legal issues and tax litigation | 208 | 171 | 135 | |
| Other provisions | 136 | 133 | 162 | |
| Total | 746 | 614 | 395 |
(*) In 2020, the amount of commitments and guarantees given includes the negative impact of the update of the macroeconomic scenario following the COVID-19 pandemic (see Notes 1.5 and 7.2).
The breakdown of impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification by the nature of those assets in the accompanying consolidated income statements is as follows:
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification (Millions of Euros) | Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|---|
| Financial assets at fair value through other comprehensive income - Debt securities | 19 | 82 | 1 | |
| Financial assets at amortized cost (*) | 5,160 | 3,470 | 3,680 | |
| Of which: recovery of written-off assets | 7.2.5 | (339) | (919) | (589) |
| Total | 5,179 | 3,552 | 3,681 |
(*) In 2020, the amount includes the negative impact of the update of the macroeconomic scenario following the COVID-19 pandemic (see Notes 1.5 and 7.2).
P.176 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The heading “Impairment or reversal of the impairment of investments in joint ventures or associates" resulted in a loss of €190 and 46 million euros for the years ended December 31, 2020 and 2019. There was no impairment recorded for the year ended December 31, 2018 (see Note 16.3).
The impairment losses on non-financial assets broken down by the nature of those assets in the accompanying consolidated income statements are as follows:
| Impairment or reversal of impairment on non-financial assets (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Tangible assets | 17 | 125 | 94 | 4 |
| Intangible assets | 19 | 12 | 83 | |
| Others | 9 | 23 | 50 | |
| Total | 153 | 128 | 137 |
The main items included in the balance under this heading in the accompanying consolidated income statements are as follows:
| Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations (Millions of Euros) | Notes | 2020 | 2019 | 2018 |
|---|---|---|---|---|
| Gains on sale of real estate | 116 | 86 | 126 | |
| Impairment of non-current assets held for sale | 21 | (103) | (72) | (206) |
| Gains (losses) on sale of investments classified as non-current assets held for sale (*) | 431 | 10 | 894 | |
| Gains on sale of equity instruments classified as non-current assets held for sale | - | - | - | |
| Total | 444 | 23 | 815 |
(*) The variation in year 2020 is mainly due to the transfer of half plus one share in BBVA Allianz Seguros y Reaseguros, S.A. (see Note 3). The variation in year 2018 is mainly due to the sale of the BBVA stake in BBVA Chile (see Note 3).
The mapping of the heading cash and equivalents in the consolidated statement of cash flows has been modified, and this modification is not relevant to the consolidated condensed interim financial statements as a whole. In order for the information to be comparable, the information for the 2019 and 2018 financial years has been restated.
P.177 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.## 52. Accountant fees and services
The details of the fees for the services contracted by entities of the BBVA Group for the years ended December 31, 2020, 2019 and 2018 with their respective auditors and other audit entities are as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Audits of the companies audited by firms belonging to the KPMG worldwide organization and other reports related with the audit (*) | 27.7 | 28.1 | 26.1 |
| Other reports required pursuant to applicable legislation and tax regulations issued by the national supervisory bodies of the countries in which the Group operates, reviewed by firms belonging to the KPMG worldwide organization | 1.3 | 1.5 | 1.5 |
| Fees for audits conducted by other firms | 0.2 | 0 | 0.1 |
(*) Including fees pertaining to annual legal audits (€23.6, €24.1 and €22.4 million as of December 31, 2020, 2019 and 2018, respectively).
(**) Regardless of the billed year.
In the years ended December 31, 2020, 2019 and 2018, certain entities in the BBVA Group contracted other services (other than audits) as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Firms belonging to the KPMG worldwide organization | 0.4 | 0.3 | 0.3 |
This total of contracted services includes the detail of the services provided by KPMG Auditores, S.L. to BBVA, S.A. or its controlled companies at the date of preparation of these consolidated financial statements as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Legal audit of BBVA,S.A. or its companies under control | 6.5 | 6.5 | 6.7 |
| Other audit services of BBVA, S.A. or its companies under control | 5.4 | 5.5 | 5.9 |
| Limited Review of BBVA, S.A. or its companies under control | 0.9 | 0.9 | 1.1 |
| Reports related to issuances | 0.3 | 0.3 | 0.3 |
| Assurance services and other required by the regulator | 0.9 | 0.8 | 0.9 |
| Other | 0 | 0 | 0 |
(*) Services provided by KPMG Auditores, S.L. to companies located in Spain, to the branch of BBVA in New York and to the branch of BBVA in London.
The services provided by the auditors meet the independence requirements of the external auditor established under Audit of Accounts Law (Law 22/2015) and under the Sarbanes-Oxley Act of 2002 adopted by the Securities and Exchange Commission (SEC).
As financial institutions, BBVA and other entities in the Group engage in transactions with related parties in the normal course of their business. These transactions are not relevant and are carried out under normal market conditions. As of December 31, 2020, 2019 and 2018 the following are the transactions with related parties:
As of December 31, 2020, 2019 and 2018, there were no shareholders considered significant (see Note 26).
The balances of the main captions in the accompanying consolidated balance sheets arising from the transactions carried out by the BBVA Group with associates and joint venture entities accounted for using the equity method are as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Assets | |||
| Loans and advances to credit institutions | 148 | 26 | 132 |
| Loans and advances to customers | 1,743 | 1,682 | 1,866 |
| Liabilities | |||
| Deposits from credit institutions | 0 | 3 | 2 |
| Customer deposits | 791 | 453 | 521 |
| Debt certificates | 0 | 0 | 0 |
| Memorandum accounts | |||
| Financial guarantees given | 132 | 166 | 152 |
| Other contingent commitments given | 1,400 | 1,042 | 1,358 |
| Loan commitments given | 11 | 106 | 78 |
The balances of the main aggregates in the accompanying consolidated income statements resulting from transactions with associates and joint venture entities that are accounted for under the equity method are as follows:
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Income statement | |||
| Interest and other income | 20 | 19 | 55 |
| Interest expense | 1 | 1 | 2 |
| Fee and commission income | 5 | 4 | 5 |
| Fee and commission expense | 34 | 53 | 48 |
There were no other material effects in the consolidated financial statements arising from dealings with these entities, other than the effects from using the equity method (see Note 2.1) and from the insurance policies to cover pension or similar commitments (see Note 25) and the derivatives transactions arranged by BBVA Group with these entities, associates and joint ventures.
In addition, as part of its normal activity, the BBVA Group has entered into agreements and commitments of various types with shareholders of subsidiaries and associates, which have no material effects on the accompanying consolidated financial statements.
The amount and nature of the transactions carried out with members of the Board of Directors and Senior Management of BBVA, as well as their respective related parties is given below. All of these transactions belong to the Bank's normal course of business, are not material and have being carried out under normal market conditions.
As of December 31, 2020, there were no loans or credits granted by the Group’s entities to the members of the Board of Directors.
As of December 2019 and 2018, the amount availed against the loans and credits granted by the Group’s entities to the members of the Board of Directors amounted to €607 and €611 thousand, respectively. On those same dates, there were no loans or credits granted to parties related to the members of the Board of Directors.
As of December 31, 2020, 2019 and 2018, the amount availed against the loans granted by the Group’s entities to the members of Senior Management (excluding executive directors) amounted to €5,349, €4,414 and €3,783 thousand, respectively. On those same dates, the amount availed against the loans granted by the Group’s entities to parties related to members of Senior Management amounted to €580, €57 and €69 thousand, respectively.
As of December 31, 2020, 2019 and 2018 no guarantees had been granted to any member of the Board of Directors or their related parties.
The amount availed against guarantees arranged with members of Senior Management as of December 31, 2020, 2019 and 2018 amounted to €10, €10, and €38 thousand, respectively.
As of December 31, 2020 and 2019, the amount availed against guarantees and commercial loans arranged with parties related to the members of the Bank’s Board of Directors and Senior Management amounted to €25 thousand, on both dates. As of December 31, 2018, no guarantees and commercial loans have been granted to parties related to the members of Senior Management.# 54. Remuneration and other benefits for the Board of Directors and members of the Bank's Senior Management
The remuneration paid to non-executive members of the Board of Directors during the 2020 financial year is indicated below, individualized and itemized:
Remuneration for non-executive directors (thousands of euro)
| Board of Directors | Executive Committee | Audit Committee | Risk and Compliance Committee | Remunerations Committee | Appointments and Corporate Governance Committee | Technology and Cybersecurity Committee | Other positions (1) | Total |
|---|---|---|---|---|---|---|---|---|
| José Miguel Andrés Torrecillas | 129 | 111 | 66 | 36 | 115 | 50 | 507 | |
| Jaime Caruana Lacorte | 129 | 167 | 165 | 107 | 567 | |||
| Raúl Galamba de Oliveira (2) | 107 | 71 | 32 | 211 | ||||
| Belén Garijo López | 129 | 66 | 107 | 46 | 349 | |||
| Sunir Kumar Kapoor | 129 | 43 | 172 | |||||
| Lourdes Máiz Carro | 129 | 66 | 43 | 238 | ||||
| José Maldonado Ramos | 129 | 167 | 46 | 342 | ||||
| Ana Peralta Moreno | 129 | 66 | 43 | 238 | ||||
| Juan Pi Llorens | 129 | 214 | 46 | 43 | 80 | 512 | ||
| Ana Revenga Shanklin (2) | 97 | 71 | 168 | |||||
| Susana Rodríguez Vidarte | 129 | 167 | 107 | 46 | 449 | |||
| Carlos Salazar Lomelín (2) | 97 | 29 | 125 | |||||
| Jan Verplancke | 129 | 29 | 43 | 200 | ||||
| Total (3) | 1,588 | 611 | 431 | 606 | 250 | 301 | 161 | 4,078 |
(1) Amounts received during the 2020 financial year by José Miguel Andrés Torrecillas, in his capacity as Deputy Chair of the Board of Directors, and by Juan Pi Llorens, in his capacity as Lead Director.
(2) Directors appointed by the General Shareholders’ Meeting held on 13 March 2020. Remunerations paid based on the date on which the position was accepted.
(3) Includes remuneration paid for membership on the Board and its various committees during the 2020 financial year. The composition of these committees was amended by resolution of the Board of Directors dated 29 April 2020. Also, during 2020 financial year, €95 thousand was paid out in casualty and healthcare insurance premiums for non-executive members of the Board of Directors. In addition, Tomás Alfaro Drake and Carlos Loring Martínez de Irujo, who left their roles as directors on 13 March 2020, received a total of €54 thousand and €111 thousand, respectively, for their membership of the Board and of the various Board Committees during the first quarter of the financial year. The Bank has also paid out a total of €18 thousand in casualty and healthcare insurance premiums.
During the 2020 financial year, the executive directors received the amount of the Annual Fixed Remuneration corresponding to such financial year, established for each director in the Remuneration Policy for BBVA Directors, which was approved by the General Shareholders’ Meeting held on 15 March 2019. In addition, the executive directors received their Annual Variable Remuneration (“AVR”) for the 2019 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable to such year, was due to be paid to them during the 2020 financial year.
In application of this settlement and payment system:
In 2020, the Group Executive Chairman and the Chief Executive Officer likewise received the deferred portion of their Annual Variable Remuneration due that year for the 2016 financial year (50% of the Annual Variable Remuneration), after being adjusted downwards following the results of the multi-year performance indicators. This remuneration was paid in equal parts in cash and in shares, together with the corresponding update in cash, thus concluding the payment of the Annual Variable Remuneration to the executive directors for the 2016 financial year.
In accordance with the above, the remunerations paid to executive directors during the 2020 financial year are indicated below, individualized and itemized:
Annual Fixed Remuneration for 2020 (thousands of euro)
| Group Executive Chairman |
| Chief Executive Officer |
| Total |
In addition, in accordance with the current Remuneration Policy for BBVA Directors, during the 2020 financial year, the Chief Executive Officer has received €654 thousand for the cash in lieu of pension item (equivalent to 30% of his Annual Fixed Remuneration)—given that he does not have a retirement pension (see the Pension commitments section of this Note)—and €600 thousand for the mobility allowance item.
2019 Annual Variable Remuneration (Upfront payment)
| In cash (1) (thousands of euro) | In shares (1) | |
|---|---|---|
| Group Executive Chairman | 636 | 126,470 |
| Chief Executive Officer | 571 | 113,492 |
| Total | 1,207 | 239,962 |
(1) Remuneration corresponding to the Upfront Portion (40%) of the AVR for the 2019 financial year (50% in cash and 50% in BBVA shares).
2016 Deferred Annual Variable Remuneration (Deferred Portion)
| In cash (1) (thousands of euro) | In shares (1) | |
|---|---|---|
| Group Executive Chairman | 656 | 89,158 |
| Chief Executive Officer | 204 | 31,086 |
| Total | 861 | 120,244 |
(1) Remunerations corresponding to deferred AVR for the 2016 financial year (50% of the AVR for 2016, in equal parts in cash and shares), payment of which was due in 2020, together with its corresponding update in cash, and after a downwards adjustment following the results of the multi-year performance indicators. In the case of both the Chairman and Chief Executive Officer, this remuneration is associated with their previous positions.
In addition, the executive directors received remuneration in kind during the 2020 financial year, including insurance and other premiums, amounting to a total of €360 thousand of which €228 thousand corresponds to the Group Executive Chairman and €132 thousand to the Chief Executive Officer.
As Head of Global Economics & Public Affairs (Head of GE&PA), former executive director José Manuel González -Páramo Martínez- Murillo, who left his role of director on 13 March 2020, received €168 thousand as fixed remuneration; €174 thousand and 28,353 BBVA shares corresponding to the Upfront Portion (40%) of the AVR for the 2019 financial year and to the Deferred Portion of the AVR for the 2016 financial year, payment of which was due in the 2020 financial year, including the corresponding cash update; as well as €33 thousand as remuneration in kind.
During the 2020 financial year, the members of Senior Management, excluding executive directors, received the amount of the Annual Fixed Remuneration corresponding to such financial year.In addition, they received the Annual Variable Remuneration for the 2019 financial year, which, in accordance with the settlement and payment system set out in the remuneration policy applicable for such financial year, was due to be paid to them during the 2020 financial year. Under this settlement and payment system, the same rules as set out above for executive directors are applicable. These include, among other things: 40% of the Annual Variable Remuneration, in equal parts cash and in BBVA shares, will be paid in the financial year following the year to which it corresponds (the Upfront Portion), and the remaining 60% will be deferred (40% in cash and 60% in shares) for a five- year period, with its accrual and payment being subject to compliance with a series of multi-year indicators (the Deferred Portion), applying the same payment schedule established for executive directors. The shares received will be withheld for a one year lock-up period (this will not apply to those shares transferred to honor the payment of taxes arising therefrom). Likewise, senior management may not use personal hedging strategies or insurance in connection with the remuneration; the variable component of the remuneration for senior management corresponding to the 2019 financial year will be limited to a maximum amount of 200% of the fixed component of the total remuneration; and over the entire deferral and withholding period, the Annual Variable Remuneration will be subject to reduction and recovery (malus and clawback) arrangements.
Similarly, in accordance with the remuneration policy for this group applicable in 2016 and in application of the settlement and payment system of the Annual Variable Remuneration for said financial year, the members of Senior Management who were beneficiaries of such remuneration received in 2020 the deferred portion of the Annual Variable Remuneration for the 2016 financial year, after being adjusted downwards following the results of the multi-year performance indicators. This remuneration has been paid in equal parts in cash and in shares, along with its update in cash, concluding the payment of this remuneration to the members of Senior Management for the 2016 financial year.
In accordance with the above, the remuneration paid during the 2020 financial year to all members of Senior Management as a whole, who held that position as of 31 December, 2020 (15 members, excluding executive directors), is indicated and itemized below:
| Annual Fixed Remuneration for 2020 (thousands of euro) | 2019 Annual Variable Remuneration (Upfront Portion) | 2016 Annual Variable Remuneration (Deferred Portion) | |||
|---|---|---|---|---|---|
| Senior Management total | 14,101 | In cash (thousands of euro) | In shares | In cash (thousands of euro) | |
| Senior Management total | 1,402 | 280,055 (1) | 1,380 | 182,461 (1) | |
| (1) | Remuneration corresponding to the Upfront Portion (40%) of the AVR for the 2019 financial year (paid 50% in cash and 50% in BBVA shares), as well as the upfront portion of the retention plans for two members of Senior Management. | Remuneration corresponding to deferred AVR for the 2016 financial year (50% of the AVR for 2016, in equal parts in cash and in shares), payment of which was due in 2020, together with its corresponding update in cash, and after being adjusted downwards following the results of the multi-year performance indicators. |
In addition, all members of Senior Management, excluding executive directors, have received remuneration in kind during the 2020 financial year, including insurance and other premiums, amounting to a total of €1,086 thousand.
P.183 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In view of the exceptional circumstances arising from the COVID-19 crisis, the two executive directors have voluntarily waived the generation of the whole of the Annual Variable Remuneration corresponding to the 2020 financial year, so they will not accrue any remuneration in this respect.
Following the end of 2020 financial year, the amount corresponding to the deferred Annual Variable Remuneration of executive directors for the 2017 financial year has been determined, with delivery in 2021, if conditions are met in accordance with the conditions set out in the remuneration policies applicable to the 2017 financial year and applicable to each of them. Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, the final amount of the deferred Annual Variable Remuneration for the 2017 financial year has been determined.
As a result, the remuneration has been determined in an amount of €411 thousand and 83,692 BBVA shares, in the case of the Group Executive Chairman and €307 thousand and 39,796 BBVA shares, in the case of the Chief Executive Officer, which includes in both cases the corresponding updates.
At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, in addition to 40% of the 2017 deferred AVR of the Group Executive Chairman, 60% of the Annual Variable Remuneration corresponding to financial years 2018 and 2019 of both executive directors, remains deferred and is pending payment to them, and will be received in future years if the applicable conditions are met.
In view of the exceptional circumstances arising from the COVID-19 crisis, the members of Senior Management have, like the executive directors, voluntarily waived the generation of the whole of the Annual Variable Remuneration corresponding to the 2020 financial year, so they will not accrue any remuneration in this respect.
Following the end of the 2020 financial year, the amount corresponding to the deferred Annual Variable Remuneration of members of Senior Management (15 members as at 31 December, 2020, excluding executive directors) for the 2017 financial year has been determined, with delivery in 2021, if conditions are met, in accordance with the payment schedule set out in the remuneration policies applicable to the 2017 financial year and applicable to each of them. Thus, based on the result of each of the multi-year performance indicators set by the Board of Directors in 2017 to calculate the deferred portion of this remuneration, and in application of the corresponding scales of achievement and their corresponding targets and weightings, the amount of the deferred portion of the 2017 Annual Variable Remuneration for members of Senior Management, with delivery in 2021, has been determined in the aggregate total amount, excluding executive directors, of €610 thousand and 107,740 BBVA shares, including the corresponding updates.
At year-end 2020, in accordance with the conditions established in the remuneration policies applicable in previous years, in addition to 40% of the 2017 deferred AVR in the case of some members of Senior Management, 60% of the Annual Variable Remuneration corresponding to financial years 2018 and 2019 remains deferred and is pending payment to all members of Senior Management, and will be received in future years if the applicable conditions are met.
BBVA has a fixed remuneration system in shares with deferred delivery for its non-executive directors, which was approved by the General Shareholders' Meeting held on 18 March 2006 and extended by resolutions of the General Shareholders' Meetings held on 11 March 2011 and 11 March 2016 for a further five year period in each case. This system is based on the annual allocation to non-executive directors of a number of "theoretical shares" of BBVA equivalent to 20% of the total remuneration in cash received by each director in the previous financial year, calculated according to the average closing prices of BBVA shares during the 60 trading sessions prior to the dates of the Annual General Shareholders' Meetings approving the corresponding financial statements for each financial year. These shares will be delivered to each beneficiary, where applicable, after they leave directorship for any reason other than serious breach of their duties.
P.184 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.The “theoretical shares” allocated to non-executive directors who are beneficiaries of the remuneration system in shares with deferred delivery in the 2020 financial year, corresponding to 20% of the total remuneration received in cash by each of them in the 2019 financial year, were as follows:
| Theoretical shares allocated in 2020 | Theoretical shares accumulated as at 31 December 2020 |
|---|---|
| José Miguel Andrés Torrecillas 20,252 | 75,912 |
| Jaime Félix Caruana Lacorte 22,067 | 31,387 |
| Raúl Galamba de Oliveira - | - |
| Belén Garijo López 14,598 | 62,126 |
| Sunir Kumar Kapoor 7,189 | 22,915 |
| Lourdes Máiz Carro 10,609 | 44,929 |
| José Maldonado Ramos 14,245 | 108,568 |
| Ana Peralta Moreno 10,041 | 15,665 |
| Juan Pi Llorens 20,676 | 92,817 |
| Ana Revenga Shanklin - | - |
| Susana Rodríguez Vidarte 18,724 | 141,138 |
| Carlos Salazar Lomelín - | - |
| Jan Verplancke 7,189 | 12,392 |
| Total (1) 145,590 | 607,849 |
(1) Furthermore, 8,984 “theoretical shares” were assigned to Tomás Alfaro Drake and 18,655 “theoretical shares” were assigned Carlos Loring Martínez de Irujo, who left their roles as directors on 13 March 2020. After leaving their roles, both directors received a number of BBVA shares equivalent to the total number of “theoretical shares” that each of them had accumulated until that date (102,571 and 135,046 BBVA shares, respectively) by application of the system.
The Bank has not made pension commitments with non-executive directors. With regard to the Group Executive Chairman, the Remuneration Policy for BBVA Directors establishes a pension framework whereby he is eligible, provided that he does not leave his position as a result of a serious breach of his duties, to receive a retirement pension, paid as a lump sum or in instalments, when he reaches the legally established retirement age. The amount of this pension will be determined by the annual contributions made by the Bank, together with their corresponding accumulated yields at that date. The annual contribution to cover the retirement contingency for the Group Executive Chairman's defined-contribution system, as established in the Remuneration Policy for BBVA Directors approved by the General Shareholders’ Meeting in 2019, was determined as a result of the conversion of his previous defined-benefit rights into a defined-contribution system, in the annual amount of €1,642 thousand. The Board of Directors may update this amount during the term of the Policy, in the same way and under the same terms as it may update the Annual Fixed Remuneration. 15% of the aforementioned agreed annual contribution will be based on variable components and considered “discretionary pension benefits”, and therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations. In the event the Group Executive Chairman’s contract terminates before reaching retirement age for reasons other than serious breach of duties, the retirement pension due to the Group Executive Chairman upon reaching the legally established age will be calculated based on the funds accumulated through the contributions made by the Bank under the terms set out, up to that date, plus the corresponding accumulated yield, with no additional contributions to be made by the Bank in any event from the time of termination. With respect to the commitments to cover the contingencies for death and disability benefits for the Group Executive Chairman, the Bank will undertake the payment of the corresponding annual insurance premiums in order to top up the coverage of these contingencies. In line with the above, during the 2020 financial year, the following amounts have been recorded to meet the pension commitments for the Group Executive Chairman: an amount of €1,642 thousand with regard to the retirement contingency and an amount of €377 thousand for the payment of premiums for the death and disability contingencies, as well as an upwards adjustment of €15 thousand for “discretionary pension benefits” for the 2019 financial year, which were declared at such financial year-end and had to be registered in the accumulated fund in 2020. As of 31 December, 2020, the total accumulated amount of the fund to meet the retirement commitments for the Group Executive Chairman amounts to €23,057 thousand. With regard to the agreed annual contribution to the retirement contingency corresponding to the 2020 financial year, 15% (€246 thousand) was registered in this financial year as “discretionary pension benefits”. Following year-end, the amount was adjusted applying the same criteria used to determine the Annual Variable Remuneration for the rest of the Bank's staff. Thus, the “discretionary pension benefits” for the 2020 financial year were determined in an amount of €148 thousand, following a downwards adjustment of €98 thousand. These “discretionary pension benefits” will be included in the accumulated fund in the 2021 financial year and will be subject to the conditions established for these benefits in the Remuneration Policy for BBVA Directors.
P.185 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
With regard to the Chief Executive Officer, in accordance with the provisions of the current Remuneration Policy for BBVA Directors approved by the General Shareholders’ Meeting and his contract, the Bank is not required to make any contributions to a retirement pension, although he is entitled to an annual cash sum instead of a retirement pension equal to 30% of his Annual Fixed Remuneration. However, the Bank does have pension commitments to cover the death and disability contingencies, for which purpose the corresponding annual insurance premiums are paid. In accordance with the above, in the 2020 financial year, the Bank paid the Chief Executive Officer the fixed-remuneration amount set out for cash in lieu of pension in the 'Remuneration received by executive directors in 2020' section of this Note and furthermore, €253 thousand was recorded for the payment of the annual insurance premiums to cover the death and disability contingencies.
In the case of the former executive director, the Head of GE&PA, €89 thousand were registered as contributions to fulfil the pension commitments undertaken in proportion to the time he spent in office during the 2020 financial year. This corresponds to: the sum of the annual contribution made to cover the retirement pension and the adjustment made to the “discretionary pension benefits`” for the 2019 financial year that fell due in the 2020 financial year once the AVR for the year 2019 had been determined (€52 thousand); and to the death and disability premiums (€37 thousand). As of the date on which he left his position, the total accumulated fund to meet the retirement commitments for the former executive director Head of GE&PA amounted to €1,404 thousand, with no additional contributions to be made by the Bank from that point on. In accordance with the same criteria used in the case of the Group Executive Chairman, the “discretionary pension benefits” for the 2020 financial year of the former executive director Head of GE&PA (calculated in proportion to the time he remained in office in 2020) were determined in an amount of €5 thousand, following a downwards adjustment of €3 thousand, and will be included in the accumulated fund in the 2021 financial year, subject to the conditions established in the Remuneration Policy for BBVA Directors.
Furthermore, in the 2020 financial year, to meet the pension commitments for members of Senior Management (15 members holding that position as at 31 December, 2020, excluding executive directors) it was recorded an amount of €2,739 thousand corresponding to the contribution to the retirement contingency and of €978 thousand corresponding to premiums to cover the death and disability contingencies, as well as an upwards adjustment of €12 thousand for “discretionary pension benefits” for the 2019 financial year, which were declared at 2019 year-end and had to be registered in the accumulated fund in 2020. As at 31 December, 2020, the total accumulated amount of the fund to meet the retirement commitments for members of Senior Management amounts to €22,156 thousand. As for the executive directors, 15% of the agreed annual contributions for members of Senior Management to cover retirement contingencies will be based on variable components and considered “discretionary pension benefits”, and are therefore subject to the conditions regarding delivery in shares, retention and clawback established in the applicable regulations, as well as any other conditions concerning variable remuneration that may be applicable in accordance with the remuneration policy applicable to members of Senior Management. For this purpose, with regard to the annual contribution for the retirement contingency registered in the 2020 financial year, an amount of €405 thousand was registered in the 2020 financial year as “discretionary pension benefits” and, following the end of the 2020 financial year, as for the Group Executive Chairman, this amount was adjusted applying the same criteria used to determine the Annual Variable Remuneration for the rest of the Bank's staff, taking into account as well the area and individual results of each senior manager established to this effects by the executive area. Accordingly, the “discretionary pension benefits” for such financial year, corresponding to all members of Senior Management, were determined to amount to a total of €255 thousand, following a downwards adjustment of €150 thousand.These “discretionary pension benefits” will be included in the accumulated fund in the 2021 financial year, and will be subject to the conditions established for these benefits in the remuneration policy applicable to members of Senior Management, in accordance with the regulations applicable to BBVA on this matter.
Payments for the extinction of the contractual relationship
In accordance with the Remuneration Policy for BBVA Directors, the Bank has no commitments to pay severance benefits to executive directors. The contractual framework defined for the executive directors, in accordance with the Remuneration Policy for BBVA Directors, establishes a post-contractual non-compete clause for executive directors, effective for a period of two (2) years after they leave their role as BBVA executive directors, provided that they do not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the Bank shall award them remuneration of an amount equivalent to their Annual Fixed Remuneration for each year of the non-compete agreement, which will be awarded monthly over the course of the two years. Accordingly, the former executive director Head of GE&PA, who left his role on 13 March 2020, received for this concept, €625 thousand during the 2020 financial year.
With regard to Senior Management, excluding executive directors, during the 2020 financial year, the Bank paid out a total of €2,185 thousand resulting from the extinction of the contractual relationship with one member of Senior Management and in fulfilment of the provisions of the member’s contract (for the payment of legal severance benefits and notice). This contract includes the right to receive the corresponding legal severance pay, provided that the member of Senior Management does not leave of his own will, for retirement, disability or due to a serious breach of duties, which will be calculated in accordance with the provisions of applicable labor regulations, and a notice clause. In addition, the contract establishes a non-compete clause, effective for a period of one (1) year after the member leaves the role as a senior manager of BBVA, provided that the member does not leave due to retirement, disability or serious breach of duties. In compensation for this agreement, the member of Senior Management received a total of €898 thousand during 2020. These payments comply with the conditions set out in the regulations applicable to the group of employees with a material impact on the Group's risk profile, to which members of Senior Management belong.
Given the activities BBVA Group entities engage in, the Group has no environmental liabilities, expenses, assets, provisions or contingencies that could have a significant effect on its consolidated equity, financial situation and profits. Consequently, as of December 31, 2020, there is no item included that requires disclosure in an environmental information report pursuant to Ministry JUS/318/2018, of March 21, by which the new model for the presentation in the Commercial Register of the consolidated annual accounts of the subjects obliged to its publication is approved.
The table below presents the dividends per share paid in cash during 2020, 2019 and 2018 (cash basis dividend, regardless of the year in which they were accrued). See Note 4 for a complete analysis of all remuneration awarded to the shareholders in 2020, 2019 and 2018.
| Dividends paid | 2020 | 2019 | 2018 | |||
|---|---|---|---|---|---|---|
| % Over nominal | Euros per share | Amount (Millions of Euros) | % Over nominal | Euros per share | Amount (Millions of Euros) | |
| Ordinary shares | 32.65% | 0.16 | 1,067 | 53.06% | 0.26 | 1,734 |
| Rest of shares | - | - | - | - | - | - |
| Total dividends paid in cash | 32.65% | 0.16 | 1,067 | 53.06% | 0.26 | 1,734 |
| Dividends with charge to income | 32.65% | 0.16 | 1,067 | 53.06% | 0.26 | 1,734 |
| Dividends with charge to reserve or share premium | - | - | - | - | - | - |
| Dividends in kind | - | - | - | - | - | - |
| Flexible payment | - | - | - | - | - | - |
The detail of the consolidated ordinary income and profit for each operating segment is as follows as of December 2020 and 2019:
| Ordinary income and attributable profit by operating segment (Millions of Euros) | Income from ordinary activities (1) | Profit/ (loss) (2) |
|---|---|---|
| 2020 | 2019 | |
| Spain | 8,564 | 9,736 |
| The United States (3) | 3,941 | 4,516 |
| Mexico | 11,026 | 13,131 |
| Turkey | 6,594 | 8,868 |
| South America | 5,621 | 6,786 |
| Rest of Eurasia | 642 | 685 |
| Subtotal operating segments | 36,387 | 43,721 |
| Corporate Center | (241) | (696) |
| Total | 36,146 | 43,026 |
(1) The line comprises interest income; dividend income; fee and commission income; gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net; gains (losses) on financial assets and liabilities held for trading, net; gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net; gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net; gains (losses) from hedge accounting, net; other operating income; and income from insurance and reinsurance contracts.
(2) See Note 6.
(3) In accordance with IFRS 5, information on the operating segment of The United States (classified as non-current asset held for sale) is presented following IFRS 8 “Operating Segments” (see Note 6).
The breakdown of the balance of “Interest income and similar income” in the accompanying consolidated income statements by geographical area is as follows:
| Interest income. Breakdown by geographical area (Millions of Euros) | Notes | 2020 | 2019 (*) | 2018 (*) |
|---|---|---|---|---|
| Domestic | 4,677 | 4,884 | 4,872 | |
| Foreign | 17,712 | 22,878 | 22,082 | |
| European Union | 400 | 470 | 509 | |
| Eurozone | 243 | 304 | 391 | |
| Not Eurozone | 157 | 166 | 117 | |
| Other countries | 17,312 | 22,408 | 21,573 | |
| Total | 37.1 | 22,389 | 27,762 | |
| (*) Amounts in December 2019 and 2018 have been restated (see Note 1.3). |
The detail of the average number of employees is as follows as of December 2020, 2019 and 2018:
| Average number of employees | 2020 | 2019 | 2018 |
|---|---|---|---|
| Men | 57,814 | 58,365 | 59,547 |
| Women | 67,076 | 67,778 | 69,790 |
| Total | 124,891 | 126,143 | 129,336 |
The breakdown of the average number of employees in the BBVA Group as of December 31, 2020, 2019 and 2018 is as follows:
| Average number of employees | 2020 | 2019 | 2018 |
|---|---|---|---|
| Spanish banks | |||
| Management Team | 1,013 | 1,049 | 1,047 |
| Other line personnel | 20,955 | 21,438 | 21,840 |
| Clerical staff | 2,192 | 2,626 | 2,818 |
| Branches abroad | 979 | 1,000 | 589 |
| Subtotal | 25,138 | 26,114 | 26,294 |
| Companies abroad | |||
| Mexico | 33,753 | 33,377 | 31,655 |
| The United States | 9,758 | 9,712 | 9,786 |
| Turkey | 21,946 | 22,026 | 22,322 |
| Venezuela | 2,227 | 2,806 | 3,631 |
| Argentina | 6,048 | 6,193 | 6,074 |
| Colombia | 5,326 | 5,301 | 5,185 |
| Peru | 6,149 | 5,976 | 5,879 |
| Other | 1,612 | 1,605 | 3,767 |
| Subtotal | 86,819 | 86,995 | 88,299 |
| Pension fund managers | 435 | 396 | 395 |
| Other non-banking companies | 12,499 | 12,638 | 14,349 |
| Total | 124,891 | 126,143 | 129,336 |
The breakdown of the number of employees in the BBVA Group as of December 31, 2020, 2019 and 2018 by category and gender is as follows:
| Number of employees at the year end. Professional category and gender | 2020 | 2019 | 2018 | |||
|---|---|---|---|---|---|---|
| Male | Female | Male | Female | Male | Female | |
| Management team | 2,195 | 1,015 | 2,200 | 989 | 1,197 | 339 |
| Other line personnel | 34,518 | 34,240 | 37,337 | 39,108 | 37,461 | 38,918 |
| Clerical staff | 20,268 | 30,938 | 19,194 | 28,145 | 19,315 | 28,397 |
| Total | 56,981 | 66,193 | 58,731 | 68,242 | 57,973 | 67,654 |
The information on “Mortgage market policies and procedures” (for the granting of mortgage loans and for debt issues secured by such mortgage loans) required by Bank of Spain Circular 5/2011, applying Royal Decree 716/2009, dated April 24 (which developed certain aspects of Act 2/1981, dated March 25, on the regulation of the mortgage market and other mortgage and financial market regulations), can be found in Appendix X.
On January 22, 2021 and after obtaining all required authorizations, BBVA has completed the sale to Banco GNB Paraguay, S.A., an affiliate of Grupo Gilinski, of its 100% direct and indirect stake share capital in Banco Bilbao Vizcaya Argentaria Paraguay, S.A. (“BBVA Paraguay”). The amount received by BBVA amounts to approximately USD250 million (€210 million). The transaction results in a capital loss of approximately €9 million net of taxes. A positive impact on BBVA Group’s Common Equity Tier 1 (fully loaded) of approximately 6 basis points is estimated to be recognized during the first half of 2021 (see Note 3).
On January 29, 2021, it was announced that a cash distribution in the amount of €0.059 gross per share as shareholder remuneration in relation to the Group’s result in the 2020 financial year was expected to be submitted to the relevant governing bodies of BBVA for consideration (see Note 4).From January 1, 2021 to the date of preparation of these consolidated financial statements, no other subsequent events not mentioned above in these financial statements have taken place that could significantly affect the Group’s earnings or its equity position.
These accompanying consolidated financial statements are presented on the basis of IFRS, as adopted by the European Union. Certain accounting practices applied by the Group that conform to EU-IFRS may not conform to other generally accepted accounting principles.
P.189 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Appendices
P.190 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Company | Location | Activity | % share of participation (**) | Millions of Euros (*) | ||
|---|---|---|---|---|---|---|
| Direct | Indirect | Total | Net carrying amount | |||
| ACTIVOS MACORP SL | SPAIN | REAL ESTATE | 50.63 | 49.37 | 100.00 | 21 |
| ADQUIRA MEXICO SA DE CV | MEXICO | COMMERCIAL | - | 100.00 | 100.00 | 3 |
| ALCALA 120 PROMOC. Y GEST.IMMOB. S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 15 |
| ANIDA GRUPO INMOBILIARIO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 1,464 |
| ANIDA INMOBILIARIA, S.A. DE C.V. | MEXICO | INVESTMENT COMPANY | - | 100.00 | 100.00 | 71 |
| ANIDA OPERACIONES SINGULARES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1,341 |
| ANIDA PROYECTOS INMOBILIARIOS, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 27 |
| ANIDAPORT INVESTIMENTOS IMOBILIARIOS, UNIPESSOAL, LTDA | PORTUGAL | REAL ESTATE | - | 100.00 | 100.00 | 27 |
| ANTHEMIS BBVA VENTURE PARTNERSHIP LLP | UNITED KINGDOM | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 |
| APLICA NEXTGEN OPERADORA S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - |
| APLICA NEXTGEN SERVICIOS S.A. DE C.V | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 |
| APLICA TECNOLOGIA AVANZADA SA DE CV | MEXICO | SERVICES | 100.00 | - | 100.00 | 203 |
| ARIZONA FINANCIAL PRODUCTS, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 799 |
| ARRAHONA AMBIT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 12 |
| ARRAHONA IMMO, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 53 |
| ARRAHONA NEXUS, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 58 |
| ARRELS CT FINSOL, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 64 |
| ARRELS CT LLOGUER, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 |
| ARRELS CT PATRIMONI I PROJECTES, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 22 |
| ARRELS CT PROMOU SA | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 28 |
| AZLO BUSINESS, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | - |
| BAHIA SUR RESORT S.C. | SPAIN | INACTIVE | 99.95 | - | 99.95 | - |
| BANCO BBVA ARGENTINA S.A. | ARGENTINA | BANKING | 39.97 | 26.59 | 66.55 | 157 |
| BANCO BILBAO VIZCAYA ARGENTARIA URUGUAY SA | URUGUAY | BANKING | 100.00 | - | 100.00 | 110 |
| BANCO INDUSTRIAL DE BILBAO SA | SPAIN | BANKING | - | 99.93 | 99.93 | 48 |
| BANCO OCCIDENTAL SA | SPAIN | BANKING | 49.43 | 50.57 | 100.00 | 17 |
| BANCO PROVINCIAL OVERSEAS NV | CURAÇAO | BANKING | - | 100.00 | 100.00 | 49 |
| BANCO PROVINCIAL SA - BANCO UNIVERSAL | VENEZUELA | BANKING | 1.46 | 53.75 | 55.21 | 33 |
| BBV AMERICA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 79 |
| BBVA (SUIZA) SA | SWITZERLAND | BANKING | 100.00 | - | 100.00 | 98 |
| BBVA AGENCIA DE SEGUROS COLOMBIA LTDA | COLOMBIA | INSURANCES SERVICES | - | 100.00 | 100.00 | - |
| BBVA ASSET MANAGEMENT SA SAF | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 9 |
| BBVA ASSET MANAGEMENT SA SGIIC | SPAIN | OTHER INVESTMENT COMPANIES | 100.00 | - | 100.00 | 43 |
| BBVA ASSET MANAGEMENT SA SOCIEDAD FIDUCIARIA (BBVA FIDUCIARIA) | COLOMBIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 28 |
| BBVA AUTOMERCANTIL COMERCIO E ALUGER DE VEICULOS AUTOMOVEIS LDA. | PORTUGAL | FINANCIAL SERVICES | 100.00 | - | 100.00 | 6 |
| BBVA BANCO CONTINENTAL SA (1) | PERU | BANKING | - | 46.12 | 46.12 | 972 |
| BBVA BANCOMER GESTION, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 19 |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
(1) Full consolidation method is used according to accounting rules (see Glossary)
P.191 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Company | Location | Activity | % share of participation (**) | Millions of Euros (*) | ||
|---|---|---|---|---|---|---|
| Direct | Indirect | Total | Net carrying amount | |||
| BBVA BANCOMER OPERADORA SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 20 |
| BBVA BANCOMER SA INSTITUCION DE BANCA MULTIPLE GRUPO FINANCIERO | MEXICO | BANKING | - | 100.00 | 100.00 | 9,920 |
| BBVA BANCOMER SEGUROS SALUD SA DE CV | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 8 |
| BBVA BANCOMER SERVICIOS ADMINISTRATIVOS, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 49 |
| BBVA BOLSA SOCIEDAD AGENTE DE BOLSA S.A. | PERU | SECURITIES DEALER | - | 100.00 | 100.00 | 4 |
| BBVA BRASIL BANCO DE INVESTIMENTO SA | BRAZIL | BANKING | 100.00 | - | 100.00 | 16 |
| BBVA BROKER ARGENTINA SA | ARGENTINA | INSURANCES SERVICES | - | 99.96 | 99.96 | - |
| BBVA BROKER CORREDURIA DE SEGUROS Y REASEGUROS SA | SPAIN | FINANCIAL SERVICES | 99.94 | 0.06 | 100.00 | - |
| BBVA COLOMBIA SA | COLOMBIA | BANKING | 77.41 | 18.06 | 95.47 | 355 |
| BBVA CONSOLIDAR SEGUROS SA | ARGENTINA | INSURANCES SERVICES | 87.78 | 12.22 | 100.00 | 9 |
| BBVA CONSUMER FINANCE ENTIDAD DE DESARROLLO A LA PEQUEÑA Y MICRO EMPRESA EDPYME SA (BBVA CONSUMER FINANCE - EDPYME) | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 24 |
| BBVA DATA & ANALYTICS SL | SPAIN | SERVICES | - | 100.00 | 100.00 | 6 |
| BBVA DISTRIBUIDORA DE SEGUROS S.R.L. | URUGUAY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 4 |
| BBVA FINANCIAL CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 210 |
| BBVA FINANZIA SPA | ITALY | IN LIQUIDATION | 100.00 | - | 100.00 | 3 |
| BBVA FOREIGN EXCHANGE INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 26 |
| BBVA FRANCES ASSET MANAGMENT S.A. SOCIEDAD GERENTE DE FONDOS COMUNES DE INVERSIÓN. | ARGENTINA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 14 |
| BBVA FUNDOS S.GESTORA FUNDOS PENSOES SA | PORTUGAL | PENSION FUND MANAGEMENT | 100.00 | - | 100.00 | 8 |
| BBVA GLOBAL FINANCE LTD | CAYMAN ISLANDS | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | - |
| BBVA GLOBAL MARKETS BV | NETHERLANDS | FINANCIAL SERVICES | 100.00 | - | 100.00 | - |
| BBVA GLOBAL SECURITIES, B.V. | NETHERLANDS | OTHER ISSUERS COMPANIES | 100.00 | - | 100.00 | - |
| BBVA HOLDING CHILE SA | CHILE | INVESTMENT COMPANY | 61.22 | 38.78 | 100.00 | 139 |
| BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SPAIN | SERVICES | 76.00 | - | 76.00 | 1 |
| BBVA INSTITUIÇAO FINANCEIRA DE CREDITO SA | PORTUGAL | FINANCIAL SERVICES | 49.90 | 50.10 | 100.00 | 39 |
| BBVA INSURANCE AGENCY, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 48 |
| BBVA INTERNATIONAL PREFERRED SOCIEDAD ANONIMA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - |
| BBVA IRELAND PLC ( IN LIQUIDATION) | IRELAND | FINANCIAL SERVICES | 100.00 | - | 100.00 | 2 |
| BBVA LEASING MEXICO SA DE CV | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 51 |
| BBVA MEDIACION OPERADOR DE BANCA-SEGUROS VINCULADO, S.A. | SPAIN | FINANCIAL SERVICES | - | 100.00 | 100.00 | 10 |
| BBVA MORTGAGE CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 2,799 |
| BBVA NEXT TECHNOLOGIES OPERADORA, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - |
| BBVA NEXT TECHNOLOGIES SLU | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 37 |
| BBVA NEXT TECHNOLOGIES, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 |
| BBVA OP3N S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | - |
| BBVA OPEN PLATFORM INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 2 |
| BBVA PARAGUAY SA | PARAGUAY | BANKING | 100.00 | - | 100.00 | 23 |
| BBVA PENSIONES SA ENTIDAD GESTORA DE FONDOS DE PENSIONES | SPAIN | PENSION FUNDS MANAGEMENT | 100.00 | - | 100.00 | 13 |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 11 59/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
P.192 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.## Additional information on subsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)
| Company | Location | Activity | % share of participation (**) Direct | Indirect | Total | Millions of Euros (*) Net carrying amount | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| BBVA PERU HOLDING SAC | PERU | INVESTMENT COMPANY | 100.00 | - | 100.00 | 124 | 902 | 76 |
| BBVA PLANIFICACION PATRIMONIAL SL | SPAIN | FINANCIAL SERVICES | 80.00 | 20.00 | 100.00 | - | 1 | - |
| BBVA PREVISION AFP SA ADM.DE FONDOS DE PENSIONES | BOLIVIA | PENSION FUNDS MANAGEMENT | 75.00 | 5.00 | 80.00 | 1 | 4 | 9 |
| BBVA PROCESSING SERVICES INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| BBVA PROCUREMENT SERVICES AMERICA DEL SUR SpA, IN LIQUIDATION | CHILE | IN LIQUIDATION | - | 100.00 | 100.00 | 4 | 6 | (1) |
| BBVA RE INHOUSE COMPAÑIA DE REASEGUROS, S.E. | SPAIN | INSURANCES SERVICES | - | 100.00 | 100.00 | 39 | 47 | 12 |
| BBVA REAL ESTATE MEXICO, S.A. DE C.V. | MEXICO | IN LIQUIDATION | - | 100.00 | 100.00 | - | - | - |
| BBVA SECURITIES INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 223 | 186 | 37 |
| BBVA SEGUROS COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 10 | 13 | 10 |
| BBVA SEGUROS DE VIDA COLOMBIA SA | COLOMBIA | INSURANCES SERVICES | 94.00 | 6.00 | 100.00 | 14 | 104 | 26 |
| BBVA SEGUROS SA DE SEGUROS Y REASEGUROS | SPAIN | INSURANCES SERVICES | 99.96 | - | 99.96 | 713 | 462 | 594 |
| BBVA SERVICIOS, S.A. | SPAIN | COMMERCIAL | - | 100.00 | 100.00 | - | - | - |
| BBVA SOCIEDAD TITULIZADORA S.A. | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| BBVA TRADE, S.A. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 13 | 13 | - |
| BBVA TRANSFER HOLDING INC | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 104 | 87 | 18 |
| BBVA TRANSFER SERVICES INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 77 | 66 | 11 |
| BBVA USA | UNITED STATES | BANKING | - | 100.00 | 100.00 | 8,687 | 10,394 | (1,707) |
| BBVA USA BANCSHARES, INC. | UNITED STATES | INVESTMENT COMPANY | 100.00 | - | 100.00 | 9,018 | 11,136 | (1,632) |
| BBVA VALORES COLOMBIA SA COMISIONISTA DE BOLSA | COLOMBIA | SECURITIES DEALER | - | 100.00 | 100.00 | 10 | 9 | - |
| BBVA WEALTH SOLUTIONS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 15 | 10 | 4 |
| BILBAO VIZCAYA HOLDING SA | SPAIN | INVESTMENT COMPANY | 89.00 | 11.00 | 100.00 | 67 | 132 | (77) |
| CAIXA MANRESA IMMOBILIARIA ON CASA SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | - |
| CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 1 | (1) |
| CAIXASABADELL PREFERENTS SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | 1 | - |
| CARTERA E INVERSIONES SA CIA DE | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 92 | 127 | (3) |
| CASA DE BOLSA BBVA BANCOMER SA DE CV | MEXICO | SECURITIES DEALER | - | 100.00 | 100.00 | 39 | 20 | 19 |
| CATALONIA GEBIRA, S.L. (IN LIQUIDATION) | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | - | - | - |
| CATALONIA PROMODIS 4, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | - |
| CATALUNYACAIXA IMMOBILIARIA SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 315 | 314 | - |
| CATALUNYACAIXA SERVEIS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 2 | 2 | - |
| CDD GESTIONI S.R.L. | ITALY | REAL ESTATE | 100.00 | - | 100.00 | - | - | - |
| CETACTIUS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 1 | 1 | - |
| CIDESSA DOS, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 15 | 15 | - |
| CIERVANA SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 53 | 54 | (2) |
| COMERCIALIZADORA CORPORATIVA SAC | PERU | FINANCIAL SERVICES | - | 50.00 | 50.00 | - | - | - |
| COMERCIALIZADORA DE SERVICIOS FINANCIEROS, S.A. | COLOMBIA | SERVICES | - | 100.00 | 100.00 | 5 | 4 | 2 |
| COMPAÑIA CHILENA DE INVERSIONES SL | SPAIN | INVESTMENT COMPANY | 99.97 | 0.03 | 100.00 | 221 | 249 | 10 |
| COMPASS CAPITAL MARKETS, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,866 | 6,799 | 67 |
| COMPASS GP, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 41 | 41 | - |
| COMPASS INSURANCE TRUST | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| COMPASS LIMITED PARTNER, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,027 | 5,960 | 66 |
| COMPASS LOAN HOLDINGS TRS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 68 | 68 | - |
| COMPASS MORTGAGE FINANCING, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| COMPASS SOUTHWEST, LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 4,973 | 4,925 | 48 |
| COMPASS TEXAS MORTGAGE FINANCING, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| CONSOLIDAR A.F.J.P SA | ARGENTINA | IN LIQUIDATION | 46.11 | 53.89 | 100.00 | 1 | 1 | - |
| CONTENTS AREA, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 4 | 4 | - |
| CONTINENTAL DPR FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| CONTRATACION DE PERSONAL, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 8 | 7 | 1 |
| CORPORACION GENERAL FINANCIERA SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 510 | 1,453 | 9 |
| COVAULT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | - | 3 | (2) |
| DALLAS CREATION CENTER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 2 | 2 | - |
| DATA ARCHITECTURE AND TECHNOLOGY MEXICO SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| DATA ARCHITECTURE AND TECHNOLOGY S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | 3 | - |
| DATA ARQUITECTURE AND TECHNOLOGY OPERADORA SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | - |
| DENIZEN FINANCIAL, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| DISTRITO CASTELLANA NORTE, S.A. | SPAIN | REAL ESTATE | - | 75.54 | 75.54 | 107 | 153 | (4) |
| ECASA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 30 | 24 | 6 |
| EMPRENDIMIENTOS DE VALOR S.A. | URUGUAY | PAYMENT ENTITIES | - | 100.00 | 100.00 | 2 | 2 | - |
| ENTRE2 SERVICIOS FINANCIEROS E.F.C SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 9 | 9 | - |
| EUROPEA DE TITULIZACION SA SGFT. | SPAIN | FINANCIAL SERVICES | 88.24 | - | 88.24 | 2 | 17 | 3 |
| F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION(1) | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | - | 1 | - |
| F/253863 EL DESEO RESIDENCIAL | MEXICO | REAL ESTATE | - | 65.00 | 65.00 | - | 1 | - |
| FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 3 | 2 | - |
| FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 48 | 45 | 4 |
| FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | - | - | - |
| FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 4 | 1 | 3 |
| FIDEICOMISO INMUEBLES CONJUNTO RESIDENCIAL HORIZONTES DE VILLA CAMPESTRE | COLOMBIA | REAL ESTATE | - | 100.00 | 100.00 | - | 1 | - |
| FIDEICOMISO LOTE 6.1 ZARAGOZA | COLOMBIA | REAL ESTATE | - | 59.99 | 59.99 | - | 2 | - |
| FIDEICOMISO SCOTIABANK INVERLAT S A F100322908 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER | MEXICO | IN LIQUIDATION | - | 100.00 | 100.00 | 5 | 4 | - |
| FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. IN LIQUIDATION | SPAIN | IN LIQUIDATION | - | 60.00 | 60.00 | - | - | - |
| FORUM COMERCIALIZADORA DEL PERU SA | PERU | SERVICES | - | 100.00 | 100.00 | - | - | - |
| FORUM DISTRIBUIDORA DEL PERU SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 6 | 5 | - |
| FORUM DISTRIBUIDORA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 43 | 39 | 1 |
| FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 244 | 208 | 25 |
| FUTURO FAMILIAR, S.A. DE C.V. |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
P.193 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Company | Location | Activity | % share of participation (**) Direct | Indirect | Total | Millions of Euros (*) Net carrying amount | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| COMPASS CAPITAL MARKETS, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,866 | 6,799 | 67 |
| COMPASS GP, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 41 | 41 | - |
| COMPASS INSURANCE TRUST | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| COMPASS LIMITED PARTNER, INC. | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | 6,027 | 5,960 | 66 |
| COMPASS LOAN HOLDINGS TRS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 68 | 68 | - |
| COMPASS MORTGAGE FINANCING, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| COMPASS SOUTHWEST, LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 4,973 | 4,925 | 48 |
| COMPASS TEXAS MORTGAGE FINANCING, INC | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| CONSOLIDAR A.F.J.P SA | ARGENTINA | IN LIQUIDATION | 46.11 | 53.89 | 100.00 | 1 | 1 | - |
| CONTENTS AREA, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 4 | 4 | - |
| CONTINENTAL DPR FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| CONTRATACION DE PERSONAL, S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 8 | 7 | 1 |
| CORPORACION GENERAL FINANCIERA SA | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 510 | 1,453 | 9 |
| COVAULT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | - | 3 | (2) |
| DALLAS CREATION CENTER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 2 | 2 | - |
| DATA ARCHITECTURE AND TECHNOLOGY MEXICO SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| DATA ARCHITECTURE AND TECHNOLOGY S.L. | SPAIN | SERVICES | - | 51.00 | 51.00 | - | 3 | - |
| DATA ARQUITECTURE AND TECHNOLOGY OPERADORA SA DE CV | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | - |
| DENIZEN FINANCIAL, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1859 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| DEUTSCHE BANK MEXICO SA FIDEICOMISO F/1860 | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| DISTRITO CASTELLANA NORTE, S.A. | SPAIN | REAL ESTATE | - | 75.54 | 75.54 | 107 | 153 | (4) |
| ECASA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 30 | 24 | 6 |
| EMPRENDIMIENTOS DE VALOR S.A. | URUGUAY | PAYMENT ENTITIES | - | 100.00 | 100.00 | 2 | 2 | - |
| ENTRE2 SERVICIOS FINANCIEROS E.F.C SA | SPAIN | FINANCIAL SERVICES | 100.00 | - | 100.00 | 9 | 9 | - |
| EUROPEA DE TITULIZACION SA SGFT. | SPAIN | FINANCIAL SERVICES | 88.24 | - | 88.24 | 2 | 17 | 3 |
| F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION(1) | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | - | 1 | - |
| F/253863 EL DESEO RESIDENCIAL | MEXICO | REAL ESTATE | - | 65.00 | 65.00 | - | 1 | - |
| FIDEICOMISO 28991-8 TRADING EN LOS MCADOS FINANCIEROS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 3 | 2 | - |
| FIDEICOMISO F/29764-8 SOCIO LIQUIDADOR DE OPERACIONES FINANCIERAS DERIVADAS | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | 48 | 45 | 4 |
| FIDEICOMISO F/403112-6 DE ADMINISTRACION DOS LAGOS | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | - | - | - |
| FIDEICOMISO HARES BBVA BANCOMER F/ 47997-2 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 4 | 1 | 3 |
| FIDEICOMISO INMUEBLES CONJUNTO RESIDENCIAL HORIZONTES DE VILLA CAMPESTRE | COLOMBIA | REAL ESTATE | - | 100.00 | 100.00 | - | 1 | - |
| FIDEICOMISO LOTE 6.1 ZARAGOZA | COLOMBIA | REAL ESTATE | - | 59.99 | 59.99 | - | 2 | - |
| FIDEICOMISO SCOTIABANK INVERLAT S A F100322908 | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| FINANCIERA AYUDAMOS S.A. DE C.V., SOFOMER | MEXICO | IN LIQUIDATION | - | 100.00 | 100.00 | 5 | 4 | - |
| FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. IN LIQUIDATION | SPAIN | IN LIQUIDATION | - | 60.00 | 60.00 | - | - | - |
| FORUM COMERCIALIZADORA DEL PERU SA | PERU | SERVICES | - | 100.00 | 100.00 | - | - | - |
| FORUM DISTRIBUIDORA DEL PERU SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 6 | 5 | - |
| FORUM DISTRIBUIDORA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 43 | 39 | 1 |
| FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 244 | 208 | 25 |
| FUTURO FAMILIAR, S.A. DE C.V. |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
(1) Full consolidation method is used according to accounting rules (see Glossary)
P.194 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Company | Location | Activity | % share of participation (**) Direct | Indirect | Total | Millions of Euros (*) Net carrying amount | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| FORUM COMERCIALIZADORA DEL PERU SA | PERU | SERVICES | - | 100.00 | 100.00 | - | - | - |
| FORUM DISTRIBUIDORA DEL PERU SA | PERU | FINANCIAL SERVICES | - | 100.00 | 100.00 | 6 | 5 | - |
| FORUM DISTRIBUIDORA, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 43 | 39 | 1 |
| FORUM SERVICIOS FINANCIEROS, S.A. | CHILE | FINANCIAL SERVICES | - | 100.00 | 100.00 | 244 | 208 | 25 |
| FUTURO FAMILIAR, S.A. DE C.V. |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.## Additional information on subsidiaries and structured entities composing the BBVA Group as of December 31, 2020 (Continued)
| Affiliate entity data | Company | Location | Activity | % share of participation (**) | Millions of Euros (*) | Net carrying amount 31.12.20 | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| MEXICO IN LIQUIDATION | 100.00 | 100.00 | 1 | 1 | - | - | ||
| NETHERLANDS BV NETHERLANDS INVESTMENT COMPANY | 100.00 | 100.00 | 340 | 282 | (3) | - | ||
| GARANTI BANK SA | ROMANIA | BANKING | 100.00 | 100.00 | 258 | 316 | 17 | |
| GARANTI BBVA AS(1) | TURKEY | BANKING | 49.85 | - | 49.85 | 4,679 | 6,228 | 775 |
| GARANTI BBVA EMEKLILIK AS | TURKEY | INSURANCES SERVICES | - | 84.91 | 84.91 | 105 | 63 | 59 |
| GARANTI BBVA FACTORING AS | TURKEY | FINANCIAL SERVICES | - | 81.84 | 81.84 | 19 | 17 | 6 |
| GARANTI BBVA FILO AS | TURKEY | SERVICES | - | 100.00 | 100.00 | 1 | 3 | 39 |
| GARANTI BBVA LEASING AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 126 | 108 | 18 |
| GARANTI BBVA PORTFOY AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 22 | 14 | 8 |
| GARANTI BBVA YATIRIM AS | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | 89 | 28 | 61 |
| GARANTI BILISIM TEKNOLOJISI VE TIC TAS | TURKEY | SERVICES | - | 100.00 | 100.00 | 11 | 12 | 1 |
| GARANTI DIVERSIFIED PAYMENT RIGHTS FINANCE COMPANY | CAYMAN ISLANDS | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | (16) | (17) |
| GARANTI FILO SIGORTA ARACILIK HIZMETLERI A.S. | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| GARANTI HOLDING BV | NETHERLANDS | INVESTMENT COMPANY | - | 100.00 | 100.00 | 280 | 340 | - |
| GARANTI KONUT FINANSMANI DANISMANLIK HIZMETLERI AS (GARANTI MORTGAGE) | TURKEY | SERVICES | - | 100.00 | 100.00 | - | - | - |
| GARANTI KULTUR AS | TURKEY | SERVICES | - | 100.00 | 100.00 | - | - | - |
| GARANTI ODEME SISTEMLERI AS (GOSAS) | TURKEY | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 2 | - |
| GARANTI YATIRIM ORTAKLIGI AS(1)(2) | TURKEY | INVESTMENT COMPANY | - | 3.61 | 3.61 | - | 4 | - |
| GARANTIBANK BBVA INTERNATIONAL N.V. | NETHERLANDS | BANKING | - | 100.00 | 100.00 | 595 | 585 | 7 |
| GARRAF MEDITERRANIA, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| GESCAT GESTIO DE SOL SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 11 | 11 | - |
| GESCAT LLEVANT, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 3 | 3 |
| GESCAT LLOGUERS SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 3 | 4 | - |
| GESCAT VIVENDES EN COMERCIALITZACIO SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 89 | 89 | - |
| GESTION DE PREVISION Y PENSIONES SA | SPAIN | PENSION FUND MANAGEMENT | 60.00 | - | 60.00 | 9 | 15 | 7 |
| GESTION Y ADMINISTRACION DE RECIBOS, S.A. - GARSA | SPAIN | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| GRAN JORGE JUAN SA | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 424 | 423 | 14 |
| GRUPO FINANCIERO BBVA BANCOMER SA DE CV | MEXICO | FINANCIAL SERVICES | 99.98 | - | 99.98 | 6,678 | 9,374 | 1,747 |
| GUARANTY BUSINESS CREDIT CORPORATION | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 30 | 30 | - |
| GUARANTY PLUS HOLDING COMPANY | UNITED STATES | INVESTMENT COMPANY | - | 100.00 | 100.00 | - | - | - |
| HOLVI PAYMENT SERVICE OY | FINLAND | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 27 | (17) |
| HUMAN RESOURCES PROVIDER, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 302 | 299 | 3 |
| HUMAN RESOURCES SUPPORT, INC | UNITED STATES | SERVICES | - | 100.00 | 100.00 | 296 | 294 | 2 |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
(1) Full consolidation method is used according to accounting rules (see Glossary)
(2) The percentage of voting rights owned by the Group entities in this company is 99.97%
P.195 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Affiliate entity data | Company | Location | Activity | % share of participation (**) | Millions of Euros (*) | Net carrying amount 31.12.20 | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| INMESP DESARROLLADORA, S.A. DE C.V. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 17 | 16 | 1 |
| INMUEBLES Y RECUPERACIONES CONTINENTAL SA | PERU | REAL ESTATE | - | 100.00 | 100.00 | 39 | 37 | 2 |
| INPAU, S.A. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 25 | 25 | - |
| INVERAHORRO SL | SPAIN | INVESTMENT COMPANY | 100.00 | - | 100.00 | 100 | 107 | (7) |
| INVERPRO DESENVOLUPAMENT, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 4 | 9 | 1 |
| INVERSIONES ALDAMA, C.A. | VENEZUELA | PENSION FUNDS MANAGEMENT | - | 100.00 | 100.00 | - | - | - |
| INVERSIONES BANPRO INTERNATIONAL INC NV(1) | CURAÇAO | INVESTMENT COMPANY | 48.00 | - | 48.01 | 16 | 43 | 2 |
| INVERSIONES BAPROBA CA | VENEZUELA | FINANCIAL SERVICES | 100.00 | - | 100.00 | - | - | - |
| INVERSIONES P.H.R.4, C.A. | VENEZUELA | INACTIVE | - | 60.46 | 60.46 | - | - | - |
| IRIDION SOLUCIONS IMMOBILIARIES SL | SPAIN | REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | - |
| JALE PROCAM, S.L. (IN LIQUIDATION) | SPAIN | IN LIQUIDATION | - | 50.00 | 50.00 | - | (57) | (4) |
| LIQUIDITY ADVISORS LP | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1,071 | 1,055 | 16 |
| MADIVA SOLUCIONES, S.L. | SPAIN | SERVICES | - | 100.00 | 100.00 | 9 | 2 | - |
| MISAPRE, S.A. DE C.V. | MEXICO | FINANCIAL SERVICES | - | 100.00 | 100.00 | - | - | - |
| MOMENTUM SOCIAL INVESTMENT HOLDING, S.L. | SPAIN | INVESTMENT COMPANY | - | 100.00 | 100.00 | 7 | 7 | 1 |
| MOTORACTIVE IFN SA | ROMANIA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 35 | 27 | 3 |
| MOTORACTIVE MULTISERVICES SRL | ROMANIA | SERVICES | - | 100.00 | 100.00 | - | 2 | - |
| MULTIASISTENCIA OPERADORA S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | - |
| MULTIASISTENCIA SERVICIOS S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | - | - | - |
| MULTIASISTENCIA, S.A. DE C.V. | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 32 | 24 | 8 |
| NOVA TERRASSA 3, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | - |
| OPCION VOLCAN, S.A. | MEXICO | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| OPENPAY COLOMBIA SAS | COLOMBIA | PAYMENT ENTITIES | - | 100.00 | 100.00 | 1 | 1 | - |
| OPENPAY S.A. DE C.V. | MEXICO | PAYMENT ENTITIES | - | 100.00 | 100.00 | 18 | 2 | 2 |
| OPENPAY SERVICIOS S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | - | - | - |
| OPERADORA DOS LAGOS S.A. DE C.V. | MEXICO | SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| OPPLUS OPERACIONES Y SERVICIOS SA | SPAIN | SERVICES | 100.00 | - | 100.00 | 1 | 2 | 17 |
| OPPLUS SAC (IN LIQUIDATION) | PERU | IN LIQUIDATION | - | 100.00 | 100.00 | 1 | 1 | - |
| P.I. HOLDINGS NO. 3, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| PARCSUD PLANNER, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | - |
| PECRI INVERSION SL | SPAIN | OTHER INVESTMENT COMPANIES | 100.00 | - | 100.00 | 264 | 260 | 5 |
| PENSIONES BBVA BANCOMER, S.A. DE C.V., GRUPO FINANCIERO BBVA BANCOMER | MEXICO | INSURANCES SERVICES | - | 100.00 | 100.00 | 281 | 213 | 68 |
| PHOENIX LOAN HOLDINGS, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 258 | 256 | 2 |
| PI HOLDINGS NO. 1, INC. | UNITED STATES | FINANCIAL SERVICES | - | 100.00 | 100.00 | 77 | 77 | - |
| PORTICO PROCAM, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 26 | 26 | - |
| PROMOCIONES Y CONSTRUCCIONES CERBAT, S.L.U. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 8 | 8 | - |
| PROMOTORA DEL VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 51 | 36 | 16 |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
(1) Full consolidation method is used according to accounting rules (see Glossary)
P.196 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Affiliate entity data | Company | Location | Activity | % share of participation (**) | Millions of Euros (*) | Net carrying amount 31.12.20 | Equity excluding profit (loss) 31.12.20 | Profit (loss) 31.12.20 |
|---|---|---|---|---|---|---|---|---|
| PROMOU CT 3AG DELTA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | - |
| PROMOU CT EIX MACIA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 4 | 4 | - |
| PROMOU CT GEBIRA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| PROMOU CT OPENSEGRE, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 5 | 5 | 1 |
| PROMOU CT VALLES, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 2 | 2 | - |
| PROMOU GLOBAL, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 17 | 18 | - |
| PRONORTE UNO PROCAM, S.A. | SPAIN | PAYMENT ENTITIES | - | 100.00 | 100.00 | - | - | - |
| PROPEL VENTURE PARTNERS BRAZIL S.L. | SPAIN | PAYMENT ENTITIES | - | 99.80 | 99.80 | 10 | 11 | (1) |
| PROPEL VENTURE PARTNERS GLOBAL, S.L | SPAIN | FINANCIAL SERVICES | - | 99.50 | 99.50 | 59 | 87 | - |
| PROPEL VENTURE PARTNERS US FUND I, L.P. | UNITED STATES | VENTURE CAPITAL | - | 100.00 | 100.00 | 144 | 122 | 22 |
| PRO-SALUD, C.A. | VENEZUELA | INACTIVE | - | 58.86 | 58.86 | - | - | - |
| PROVINCIAL DE VALORES CASA DE BOLSA CA | VENEZUELA | SECURITIES DEALER | - | 90.00 | 90.00 | 1 | 1 | - |
| PROVINCIAL SDAD.ADMIN.DE ENTIDADES DE INV.COLECTIVA CA | VENEZUELA | FINANCIAL SERVICES | - | 100.00 | 100.00 | 1 | 1 | - |
| PROV-INFI-ARRAHONA, S.L. | SPAIN | REAL ESTATE | - | 100.00 | 100.00 | 6 | 6 | - |
| PROVIVIENDA ENTIDAD RECAUDADORA Y ADMIN.DE APORTES, S.A. | BOLIVIA | PENSION FUND MANAGEMENT | - | 100.00 | 100.00 | 2 | 2 | - |
| PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 50.00 | 50.00 | 8 | 11 | 4 |
| PUERTO CIUDAD LAS PALMAS, S.A. | SPAIN | REAL ESTATE | - | 96.64 | 96.64 | - | (26) | (1) |
| QIPRO SOLUCIONES S.L. |
| Affiliate entity data | Company | Location | Activity | % Legal share of participation (**) | Millions of Euros (*) | |||
|---|---|---|---|---|---|---|---|---|
| Direct | Indirect | Total | Net carrying amount | Equity excluding profit (loss) | ||||
| 31.12.20 | 31.12.20 | |||||||
| SPAIN SERVICES | 100.00 | 100.00 | 3 | 3 | ||||
| RALFI IFN SA ROMANIA FINANCIAL SERVICES | 100.00 | 100.00 | 37 | 17 | ||||
| RPV COMPANY CAYMAN ISLANDS FINANCIAL SERVICES | 100.00 | 100.00 | - | (1) | ||||
| RWHC, INC UNITED STATES FINANCIAL SERVICES | 100.00 | 100.00 | 719 | 706 | ||||
| SAGE OG I, INC UNITED STATES FINANCIAL SERVICES | 100.00 | 100.00 | - | - | ||||
| SAGE OG2, LLC UNITED STATES FINANCIAL SERVICES | 100.00 | 100.00 | - | - | ||||
| SATICEM GESTIO SL SPAIN REAL ESTATE | 100.00 | - | 100.00 | 4 | 4 | |||
| SATICEM HOLDING SL SPAIN REAL ESTATE | 100.00 | - | 100.00 | 5 | 5 | |||
| SATICEM IMMOBILIARIA SL SPAIN REAL ESTATE | 100.00 | - | 100.00 | 16 | 16 | |||
| SATICEM IMMOBLES EN ARRENDAMENT SL SPAIN REAL ESTATE | 100.00 | - | 100.00 | 2 | 2 | |||
| SEGUROS BBVA BANCOMER SA DE CV GRUPO FINANCIERO BBVA BANCOMER MEXICO INSURANCES SERVICES | 100.00 | 100.00 | 373 | 177 | ||||
| SEGUROS PROVINCIAL CA VENEZUELA INSURANCES SERVICES | 100.00 | 100.00 | 9 | 11 | ||||
| SERVICIOS CORPORATIVOS BANCOMER, S.A. DE C.V. MEXICO SERVICES | 100.00 | 100.00 | 5 | 5 | ||||
| SERVICIOS CORPORATIVOS DE SEGUROS, S.A. DE C.V. MEXICO SERVICES | 100.00 | 100.00 | 3 | 2 | ||||
| SERVICIOS EXTERNOS DE APOYO EMPRESARIAL, S.A DE C.V. MEXICO SERVICES | 100.00 | 100.00 | 15 | 14 | ||||
| SIMPLE FINANCE TECHNOLOGY CORP. UNITED STATES FINANCIAL SERVICES | 100.00 | 100.00 | 40 | 67 | ||||
| SOCIEDAD DE ESTUDIOS Y ANALISIS FINANCIERO SA SPAIN SERVICES | 100.00 | - | 100.00 | 63 | 71 | |||
| SOCIEDAD GESTORA DEL FONDO PUBLICO DE REGULACION DEL MERCADO HIPOTECARIO SA SPAIN PENSION FUNDS MANAGEMENT | 77.20 | - | 77.20 | - | - | |||
| SPORT CLUB 18 SA SPAIN INVESTMENT COMPANY | 100.00 | - | 100.00 | 9 | 10 | |||
| TEXAS LOAN SERVICES LP UNITED STATES FINANCIAL SERVICES | 100.00 | 100.00 | 1,089 | 1,070 | ||||
| TMF HOLDING INC. UNITED STATES INVESTMENT COMPANY | - | 100.00 | 100.00 | 15 | 15 | |||
| TRIFOI REAL ESTATE SRL ROMANIA REAL ESTATE | - | 100.00 | 100.00 | 1 | 1 | |||
| TUCSON LOAN HOLDINGS, INC. UNITED STATES FINANCIAL SERVICES | - | 100.00 | 100.00 | 16 | 15 | |||
| UNIVERSALIDAD TIPS PESOS E-9 COLOMBIA FINANCIAL SERVICES | - | 100.00 | 100.00 | - | 26 | |||
| UNNIM SOCIEDAD PARA LA GESTION DE ACTIVOS INMOBILIARIOS SA SPAIN REAL ESTATE | 100.00 | - | 100.00 | 623 | 523 | |||
| UPTURN FINANCIAL INC UNITED STATES FINANCIAL SERVICES | - | 100.00 | 100.00 | 2 | 6 | |||
| URBANIZADORA SANT LLORENC SA SPAIN INACTIVE | 60.60 | - | 60.60 | - | - | |||
| VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. SPAIN SERVICES | - | 51.00 | 51.00 | 1 | 3 | |||
| VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA ARGENTINA BANKING | - | 51.00 | 51.00 | 13 | 19 |
(*) Amount without considering the interim dividends of the year, according to the provisional financial statements of each company, generally as of December 31, 2020. In the carrying amount (net of provision), the Group´s ownership percentage has been applied, without considering the impairment of goodwill. Information on foreign companies at exchange rate as of December 31, 2020.
(**) In accordance with Article 3 of Royal Decree 1159/2010, of September 17, in order to determine the state, the voting power relating to subsidiaries was added to the voting power directly held by the parent. Therefore, the number of votes corresponding to the parent company (including indirect control subsidiaries), corresponds to each subsidiary holding a direct ownership interest.
This Appendix is an integral part of Note 3 of the consolidated financial statements for the year ended December 31, 2020.
P.198
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Acquisitions or increases of interest ownership in consolidated subsidiaries Most significant companies are included, which together represent 99% of the total investment in this group.
| Affiliate entity data | Company | Location | Activity | % Legal share of participation | Millions of Euros (*) | |||
|---|---|---|---|---|---|---|---|---|
| Direct | Indirect | Total | Net carrying amount | Assets 31.12.20 | ||||
| ASSOCIATES | ADQUIRA ESPAÑA, S.A. | SPAIN | COMMERCIAL | - | 44.44 | 44.44 | 4 | 19 |
| ATOM BANK PLC | UNITED KINGDOM | BANKING | 39.02 | - | 39.02 | 64 | 3,253 | |
| AUREA, S.A. (CUBA) | CUBA | REAL ESTATE | - | 49.00 | 49.00 | 4 | 9 | |
| BBVA ALLIANZ SEGUROS Y REASEGUROS, S.A. | SPAIN | INSURANCES SERVICES | - | 50.00 | 50.00 | 250 | 753 | |
| COMPAÑIA ESPAÑOLA DE FINANCIACION DEL DESARROLLO SA | SPAIN | PUBLIC ENTITIES AND INSTITUTIONS | 16.67 | - | 16.67 | 25 | 155 | |
| DIVARIAN PROPIEDAD, S.A.U. | SPAIN | REAL ESTATE | 20.00 | - | 20.00 | 567 | 2,976 | |
| FIDEICOMISO F/00185 FIMPE - FIDEICOMISO F/00185 PARA EXTENDER A LA SOCIEDAD LOS BENEFICIOS DEL ACCESO A LA INFRAESTRUCTURA DE LOS MEDIOS DE PAGO ELECTRONICOS | MEXICO | FINANCIAL SERVICES | - | 28.50 | 28.50 | 1 | 5 | |
| METROVACESA SA | SPAIN | REAL ESTATE | 9.44 | 11.41 | 20.85 | 285 | 2,910 | |
| REDSYS SERVICIOS DE PROCESAMIENTO SL | SPAIN | FINANCIAL SERVICES | 20.00 | - | 20.00 | 14 | 103 | |
| ROMBO COMPAÑIA FINANCIERA SA | ARGENTINA | BANKING | - | 40.00 | 40.00 | 7 | 91 | |
| SERVICIOS ELECTRONICOS GLOBALES SA DE CV | MEXICO | SERVICES | 46.14 | 46.14 | 11 | 23 | ||
| SERVIRED SOCIEDAD ESPAÑOLA DE MEDIOS DE PAGO SA | ESPAÑA | FINANCIAL SERVICES | 28.72 | - | 28.72 | 8 | 45 | |
| SOLARISBANK AG (2) | GERMANY | BANKING | - | 17.59 | 17.59 | 39 | 1,434 | |
| TELEFONICA FACTORING ESPAÑA SA | SPAIN | FINANCIAL SERVICES | 30.00 | - | 30.00 | 4 | 81 | |
| TF PERU SAC | PERU | FINANCIAL SERVICES | - | 24.30 | 24.30 | 1 | 5 | |
| JOINT VENTURES | ALTURA MARKETS SOCIEDAD DE VALORES SA | SPAIN | SECURITY DEALER | 50.00 | - | 50.00 | 77 | 3,122 |
| COMPAÑIA MEXICANA DE PROCESAMIENTO SA DE CV | MEXICO | SERVICES | - | 50.00 | 50.00 | 8 | 16 | |
| CORPORACION IBV PARTICIPACIONES EMPRESARIALES, (1) | SPAIN | INVESTMENT COMPANY | - | 50.00 | 50.00 | 29 | 63 | |
| DESARROLLOS METROPOLITANOS DEL SUR, S.L. | SPAIN | REAL ESTATE | - | 50.00 | 50.00 | 17 | 81 | |
| FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA (1) | MEXICO | REAL ESTATE | - | 44.09 | 44.09 | 15 | 158 | |
| FIDEICOMISO F/402770-2 ALAMAR | MEXICO | REAL ESTATE | - | 42.40 | 42.40 | 7 | 16 | |
| PROMOCIONS TERRES CAVADES, S.A. | SPAIN | REAL ESTATE | - | 39.11 | 39.11 | 4 | 15 | |
| RCI COLOMBIA SA COMPAÑIA DE FINANCIAMIENTO | COLOMBIA | FINANCIAL SERVICES | - | 49.00 | 49.00 | 36 | 571 | |
| VITAMEDICA ADMINISTRADORA, S.A. DE C.V (1) | MEXICO | SERVICES | - | 51.00 | 51.00 | 5 | 18 |
(*) In foreign companies the exchange rate of December 31, 2020 is applied.
(1) Classified as Non-current asset in seld.
(2) The percentage of voting rights owned by the Group entities in this company is 22.22%
This Appendix is an integral part of Notes 3 and 16.1 of the consolidated financial statements for the year ended December 31, 2020.
P.199
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Acquisitions or increases of interest ownership in consolidated subsidiaries
| Company | Type of transaction | Total voting rights controlled after the disposal | Effective Date for the Transaction (or Notification Date) |
|---|---|---|---|
| ADQUIRA MEXICO SA DE CV | ACQUISITION | 100.00 | 30-Sep-20 |
| PROPEL VENTURE PARTNERS BRAZIL S.L. | CONSTITUTION | 99.80 | 28-May-20 |
| BBVA GLOBAL SECURITIES, B.V. | CONSTITUTION | 100.00 | 07-Dec-20 |
(*) Variations of less than 0.1% have not been considered due to immateriality
P.200
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Changes and notifications of participations in the BBVA Group in 2020 (continued)
Disposals or reduction of interest ownership in consolidated subsidiaries
| Company | Type of transaction | Effective date for the transaction (or notification date) |
|---|---|---|
| CIDESSA UNO SL | MERGER | 24-Nov-20 |
| EL ENCINAR METROPOLITANO, S.A. | LIQUIDATION | 1-Aug-20 |
| DENIZEN GLOBAL FINANCIAL SAU | LIQUIDATION | 25-Nov-20 |
| FIDEICOMISO N.989 EN THE BANK OF NEW YORK MELLON SA INSTITUCION DE BANCA MULTIPLE FIDUCIARIO (FIDEIC.00989 6 EMISION) | MERGER | 30-Sep-20 |
| FIDEICOMISO Nº 847 EN BANCO INVEX SA INSTITUCION DE BANCA MULTIPLE INVEX GRUPO FINANCIERO FIDUCIARIO (FIDEIC. INVEX 4ª EMISION) | MERGER | 30-Jun-20 |
| BBVA CONSULTING ( BEIJING) LIMITED | LIQUIDATION | 2-Dec-20 |
| EL MILANILLO, S.A. | LIQUIDATION | 27-Oct-20 |
| F/403035-9 BBVA HORIZONTES RESIDENCIAL | DISPOSAL | 31-Oct-20 |
| HOLAMUNO AGENTE DE SEGUROS VINCULADO, S.L.U. IN LIQUIDATION | LIQUIDATION | 14-Feb-20 |
| HOLVI DEUTSCHLAND SERVICE GMBH (IN LIQUIDATION) | LIQUIDATION | 14-Feb-20 |
| ARRAHONA RENT, S.L.U. | ||
| Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails. |
Changes and notifications of participations in the BBVA Group in 2020 (continued)
Business combinations and other acquisitions or increases of interest ownership in associates and joint-ventures accounted for under the equity method
| Company | (*) Type of transaction | Total voting rights controlled after the disposal | Effective date for the transaction (or notification date) |
|---|---|---|---|
| ADQUIRA ESPAÑA, S.A. | CAPITAL REDUCTION | 44.44 | 31-Mar-20 |
| FIDEICOMISO 1729 INVEX ENAJENACION DE CARTERA | ACQUISITION | 44.09 | 18-Aug-20 |
| BBVA ALLIANZ SEGUROS Y REASEGUROS, S.A. | CONSTITUTION | 50.00 | 05-May-20 |
| PLAY DIGITAL SA | CONSTITUTION | 33.33 | 27-May-20 |
(*) Variations of less than 0.1% have not been considered due to immateriality.
P.202
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Changes and notifications of participations in the BBVA Group in 2020 (continued)
Disposal or reduction of interest ownership in associates and joint-ventures companies accounted for under the equity method
| Company | (*) Type of transaction | Total voting rights controlled after the disposal | Effective date for the transaction (or notification date) |
|---|---|---|---|
| CAJA DE EMI. CON GAR. DE ANUALIDADES DEBIDA POR EL ESTADO SA | LIQUIDATION | - | 13-Oct-20 |
| BATEC MOBILITY, S.L. | DISPOSAL | - | 28-Jan-20 |
| CAPIPOTA PRODUCTIONS S.L. | DISPOSAL | - | 10-Dec-20 |
| FIDEICOMISO DE ADMINISTRACION REDETRANS | DISPOSAL | - | 18-Sep-20 |
| SOCIEDADE ALTITUDE SOFTWARE-SISTEMA E SERVIÇOS SA | DISPOSAL | - | 30-Dec-20 |
| SOLARISBANK AG(1) | CAPITAL INCREASE | 17.59 | 30-Sep-20 |
| PLAY DIGITAL SA | DILUTION | 13.00 | 15-Dec-20 |
| NOVA LLAR SANT JOAN, S.A. IN LIQUIDATION | LIQUIDATION | - | 03-Apr-20 |
(*) Variations of less than 0.1% have not been considered due to immateriality.
(1) The percentage of voting rights owned by the Group entities in this company is 22.22%.
This Appendix is an integral part of Notes 3 and 16.1 of the consolidated financial statements for the year ended December 31, 2020.
P.203
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Company | Activity | % of voting rights controlled by the Bank | Direct | Indirect | Total |
|---|---|---|---|---|---|
| BBVA BANCO CONTINENTAL SA | BANKING | - | 46.12 | 46.12 | |
| BANCO PROVINCIAL SA - BANCO UNIVERSAL | BANKING | 1.46 | 53.75 | 55.21 | |
| INVERSIONES BANPRO INTERNATIONAL INC NV | INVESTMENT COMPANY | 48.00 | - | 48.01 | |
| PRO-SALUD, C.A. | NO ACTIVITY | - | 58.86 | 58.86 | |
| INVERSIONES P.H.R.4, C.A. | NO ACTIVITY | - | 60.46 | 60.46 | |
| BBVA PREVISION AFP SA | ADM.DE FONDOS DE PENSIONES | 75.00 | 5.00 | 80.00 | |
| COMERCIALIZADORA CORPORATIVA SAC | FINANCIAL SERVICES | - | 50.00 | 50.00 | |
| DISTRITO CASTELLANA NORTE, S.A. | REAL ESTATE | - | 75.54 | 75.54 | |
| GESTION DE PREVISION Y PENSIONES SA | PENSION FUND MANAGEMENT | 60.00 | - | 60.00 | |
| F/253863 EL DESEO RESIDENCIAL | REAL ESTATE | - | 65.00 | 65.00 | |
| DATA ARCHITECTURE AND TECHNOLOGY S.L. | SERVICES | - | 51.00 | 51.00 | |
| VOLKSWAGEN FINANCIAL SERVICES COMPAÑIA FINANCIERA SA | BANKING | - | 51.00 | 51.00 | |
| FIDEICOMISO LOTE 6.1 ZARAGOZA | REAL ESTATE | - | 59.99 | 59.99 | |
| F/11395 FIDEICOMISO IRREVOCABLE DE ADMINISTRACION CON DERECHO DE REVERSION | REAL ESTATE | - | 42.40 | 42.40 | |
| VERIDAS DIGITAL AUTHENTICATION SOLUTIONS S.L. | SERVICES | - | 51.00 | 51.00 | |
| GARANTI BBVA EMEKLILIK AS | SERVICES | - | 84.91 | 84.91 | |
| FOMENTO Y DESARROLLO DE CONJUNTOS RESIDENCIALES S.L. IN LIQUIDATION | IN LIQUIDATION | - | 60.00 | 60.00 | |
| BBVA INFORMATION TECHNOLOGY ESPAÑA SL | SERVICES | 76.00 | - | 76.00 | |
| JALE PROCAM, S.L. (IN LIQUIDATION) | IN LIQUIDATION | - | 50.00 | 50.00 | |
| PSA FINANCE ARGENTINA COMPAÑIA FINANCIERA SA | BANKING | - | 50.00 | 50.00 |
This Appendix is an integral part of Note 3 of the consolidated financial statements for the year ended December 31, 2020.
P.204
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Millions of Euros
| Securitization fund (consolidated) | Company | Origination date | Total securitized exposures at the origination date | Total securitized exposures as of December 31, 2020 (*) |
|---|---|---|---|---|
| TDA 27 MIXTO, FTA | BBVA, S.A. | Dec-06 | 275 | 71 |
| BBVA RMBS 16 FT | BBVA, S.A. | May-16 | 1,600 | 1,151 |
| HIPOCAT 9 FTA | BBVA, S.A. | Nov-05 | 1,016 | 150 |
| TDA TARRAGONA 1 FTA | BBVA, S.A. | Nov-07 | 397 | 85 |
| BBVA RMBS15 FT | BBVA, S.A. | May-15 | 4,000 | 2,725 |
| BBVA RMBS 5 FTA | BBVA, S.A. | May-08 | 5,000 | 2,043 |
| TDA 22 MIXTO, FTA (UNNIM) | BBVA, S.A. | Dec-04 | 592 | 19 |
| HIPOCAT 10 FTA | BBVA, S.A. | Jul-06 | 1,526 | 220 |
| BBVA VELA SME 2020-1 | BBVA, S.A. | Jun-20 | 1,245 | 957 |
| TDA 19 MIXTO, FTA | BBVA, S.A. | Feb-04 | 600 | 18 |
| BBVA CONSUMER AUTO 2020-1 | BBVA, S.A. | Jun-20 | 1,100 | 1,100 |
| BBVA RMBS 10 FTA | BBVA, S.A. | Jun-11 | 1,600 | 993 |
| HIPOCAT 8 FTA | BBVA, S.A. | May-05 | 1,500 | 196 |
| AYT HIP MIXTO V | BBVA, S.A. | Jul-06 | 120 | 26 |
| BBVA RMBS 2 FTA | BBVA, S.A. | Mar-07 | 5,000 | 1,485 |
| BBVA RMBS 18 FT | BBVA, S.A. | Nov-17 | 1,800 | 1,475 |
| TDA 20 MIXTO, FTA | BBVA, S.A. | Jun-04 | 100 | 10 |
| TDA 23 MIXTO, FTA | BBVA, S.A. | Mar-05 | 860 | 34 |
| BBVA CONSUMO 9 FT | BBVA, S.A. | Mar-17 | 1,375 | 582 |
| BBVA RMBS 14 FTA | BBVA, S.A. | Nov-14 | 700 | 406 |
| AYT HIPOTECARIO MIXTO IV, FTA | BBVA, S.A. | Jun-05 | 100 | 13 |
| BBVA RMBS 9 FTA | BBVA, S.A. | Apr-10 | 1,295 | 725 |
| BBVA LEASING 2 FT | BBVA, S.A. | Jul-20 | 2,100 | 1,941 |
| BBVA EMPRESAS 4 FTA | BBVA, S.A. | Jul-10 | 1,700 | 20 |
| TDA 28 MIXTO, FTA | BBVA, S.A. | Jul-07 | 250 | 71 |
| HIPOCAT 6 FTA | BBVA, S.A. | Sep-03 | 850 | 81 |
| TDA 18 MIXTO, FTA | BBVA, S.A. | Nov-03 | 91 | 9 |
| BBVA RMBS 3 FTA | BBVA, S.A. | Jul-07 | 3,000 | 1,222 |
| BBVA CONSUMO 10 FT | BBVA, S.A. | Jul-19 | 2,000 | 1,945 |
| BBVA LEASING 1 FTA | BBVA, S.A. | Jun-07 | 2,500 | 14 |
| BBVA RMBS 11 FTA | BBVA, S.A. | Jun-12 | 1,400 | 875 |
| BBVA RMBS 13 FTA | BBVA, S.A. | Jul-14 | 4,100 | 2,707 |
| BBVA CONSUMO 8 FT | BBVA, S.A. | Jul-16 | 700 | 222 |
| BBVA RMBS 12 FTA | BBVA, S.A. | Dec-13 | 4,350 | 2,735 |
| BBVA CONSUMER AUTO 2018-1 | BBVA, S.A. | Jun-18 | 800 | 557 |
| BBVA RMBS 1 FTA | BBVA, S.A. | Feb-07 | 2,500 | 799 |
| BBVA RMBS 19 FT | BBVA, S.A. | Nov-19 | 2,000 | 1,852 |
| BBVA-6 FTPYME FTA | BBVA, S.A. | Jun-07 | 1,500 | 5 |
| GAT VPO (UNNIM) | BBVA, S.A. | Jun-09 | 780 | 48 |
| HIPOCAT 11 FTA | BBVA, S.A. | Mar-07 | 1,628 | 237 |
| BBVA RMBS 17 FT | BBVA, S.A. | Nov-16 | 1,800 | 1,340 |
| HIPOCAT 7 FTA | BBVA, S.A. | Jun-04 | 1,400 | 165 |
(*) Solvency scope.
P.205
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Outstanding as of December 31, 2020, 2019 and 2018 of subordinated issues
Millions of Euros
| Issuer entity and issued date | Currency | December 2020 | December 2019 | December 2018 | Prevailing Interest Rate as of December 31, 2020 | Maturity Date |
|---|---|---|---|---|---|---|
| Issues in Euros | ||||||
| BANCO BILBAO VIZCAYA ARGENTARIA S.A. | ||||||
| March-08 | EUR | 125 | 125 | 125 | 6.03% | 03-Mar-33 |
| July-08 | EUR | 100 | 100 | 100 | 6.20% | 04-Jul-23 |
| February-14 | EUR | - | - | 1,500 | 7.00% | Perpetual |
| April-14 | EUR | - | - | 1,494 | 3.50% | 11-Apr-24 |
| February-15 | EUR | - | 1,500 | 1,500 | 6.75% | Perpetual |
| April-16 | EUR | 1,000 | 1,000 | 1,000 | 8.88% | Perpetual |
| February-17 | EUR | 1,000 | 1,000 | 1,000 | 3.50% | 10-Feb-27 |
| February-17 | EUR | 165 | 165 | 165 | 4.00% | 24-Feb-32 |
| May-17 | EUR | 150 | 150 | 150 | 2.54% | 24-May-27 |
| May-17 | EUR | 500 | 500 | 500 | 5.88% | Perpetual |
| September-18 | EUR | 1,000 | 1,000 | 990 | 5.88% | Perpetual |
| February-19 | EUR | 750 | 750 | - | 2.58% | 22-Feb-29 |
| March-19 | EUR | 1,000 | 1,000 | - | 6.00% | Perpetual |
| January-20 | EUR | 994 | - | - | 1.00% | 16-Jan-30 |
| July-20 | EUR | 1,000 | - | - | 6.00% | Perpetual |
| Different issues | EUR | 330 | 379 | 384 | ||
| Subtotal EUR | 8,113 | 7,668 | 8,906 | |||
| Total issued in Euros | 8,113 | 7,668 | 8,906 |
(*) The issuances of BBVA Subordinated Capital, S.A.U. are jointly, severally and unconditionally guaranteed by the Bank.
P.206
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Outstanding as of December 31, 2020, 2019 and 2018 of subordinated issues (continued)
Millions of Euros
| Issuer entity and issued date | Currency | December 2020 | December 2019 | December 2018 | Prevailing Interest Rate as of December 31, 2020 | Maturity Date |
|---|---|---|---|---|---|---|
| Issues in foreign currency | ||||||
| BANCO BILBAO VIZCAYA ARGENTARIA S.A. | ||||||
| March-17 | USD | 98 | 107 | 105 | 5.70% | 31-Mar-32 |
| November-17 | USD | 815 | 890 | 873 | 6.13% | Perpetual |
| May-18 | USD | 243 | 265 | 260 | 5.25% | 29-May-33 |
| September-19 | USD | 815 | 890 | - | 6.50% | Perpetual |
| Subtotal USD | 1,970 | 2,152 | 1,238 | |||
| May-17 | CHF | 19 | 18 | 18 | 1.60% | 24-May-27 |
| Subtotal CHF | 19 | 18 | 18 | |||
| July-20 | GBP | 334 | - | - | 3.10% | 15-Jul-31 |
| Subtotal GBP | 334 | - | - | |||
| BBVA GLOBAL FINANCE LTD | ||||||
| December-95 | USD | 162 | 177 | 169 | 7.00% | 01-Dec-25 |
| Subtotal USD | 162 | 177 | 169 | |||
| BBVA BANCOMER S.A. |
| Issuer entity and issued date | Currency | December 2020 | December 2019 | December 2018 | Prevailing Interest Rate as of December 31, 2020 | Maturity Date |
|---|---|---|---|---|---|---|
| BBVA COLOMBIA S.A. | ||||||
| September-11 | COP | 25 | 29 | 28 | 4.45% | 19-Sep-21 |
| September-11 | COP | 37 | 42 | 42 | 4.70% | 19-Sep-26 |
| February-13 | COP | 47 | 54 | 53 | 3.60% | 19-Feb-23 |
| February-13 | COP | 39 | 45 | 44 | 3.89% | 19-Feb-28 |
| November-14 | COP | 21 | 24 | 24 | 4.38% | 26-Nov-29 |
| November-14 | COP | 30 | 34 | 43 | 4.50% | 26-Nov-34 |
| Subtotal COP | 200 | 229 | 234 | |||
| April-15 | USD | 324 | 333 | 332 | 4.88% | 21-Apr-25 |
| Subtotal USD | 324 | 333 | 332 | |||
| BBVA BANCO CONTINENTAL S.A. | ||||||
| June-07 | PEN | 18 | 22 | 20 | 3.47% | 18-Jun-32 |
| November-07 | PEN | 16 | 19 | 18 | 3.56% | 19-Nov-32 |
| July-08 | PEN | 15 | 17 | 16 | 3.06% | 08-Jul-23 |
| September-08 | PEN | 16 | 18 | 17 | 3.09% | 09-Sep-23 |
| December-08 | PEN | 9 | 11 | 10 | 4.19% | 15-Dec-33 |
| Subtotal PEN | 74 | 87 | 82 | |||
| May-07 | USD | 16 | 18 | 17 | 6.00% | 14-May-27 |
| February-08 | USD | 17 | 18 | 18 | 6.47% | 28-Feb-28 |
| October-13 | USD | 37 | 41 | 40 | 6.53% | 02-Oct-28 |
| September-14 | USD | 257 | 269 | 252 | 5.25% | 22-Sep-29 |
| Subtotal USD | 327 | 346 | 328 | |||
| GARANTI BBVA AS | ||||||
| May-17 | USD | 607 | 664 | 652 | 6.13% | 24-May-27 |
| Subtotal USD | 607 | 664 | 652 | |||
| October-19 | TRY | 28 | 38 | - | 16.00% | 07-Oct-29 |
| February-20 | TRY | 82 | - | - | 17.95% | 14-Feb-30 |
| Subtotal TRY | 110 | 38 | - |
Total issues in other currencies (million euros): 8,217 9,376 8,292
P.208
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Outstanding as of December 31, 2020, 2019 and 2018 of subordinated issues (Millions of euros)
| December 2020 | December 2019 | December 2018 | |
|---|---|---|---|
| Issuer entity and issued date | Currency | Amount Issued | Currency |
| BBVA COLOMBIA S.A. | |||
| December-93 | COP | - | COP |
| BBVA International Preferred, S.A.U. | |||
| July-07 | GBP | 35 | GBP |
| PHOENIX LOAN HOLDINGS INC. | |||
| November-00 | USD | 17 | USD |
| CAIXA TERRASSA SOCIETAT DE PARTICIPACIONS PREFERENTS SAU | |||
| August-05 | EUR | 74 | EUR |
| CAIXASABADELL PREFERENTS S.A. | |||
| July-06 | EUR | 85 | EUR |
P.209
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| USD | Mexican pesos | Turkish lira | Other foreign currencies | Total foreign currencies | |
|---|---|---|---|---|---|
| Assets | |||||
| Cash, cash balances at central banks and other demand deposits | 16,615 | 4,847 | 772 | 4,130 | 26,365 |
| Financial assets held for trading | 5,114 | 22,154 | 359 | 6,112 | 33,740 |
| Non- trading financial assets mandatorily at fair value through profit or loss | 883 | 3,369 | 7 | 291 | 4,549 |
| Financial assets at fair value through comprehensive income | 7,073 | 7,723 | 2,489 | 8,087 | 25,373 |
| Financial assets at amortized cost | 39,841 | 53,184 | 26,810 | 38,036 | 157,871 |
| Joint ventures and associates | 5 | 14 | - | 246 | 265 |
| Tangible assets | 15 | 1,819 | 858 | 852 | 3,544 |
| Other assets | 83,406 | 2,053 | 1,191 | 2,009 | 88,658 |
| Total | 152,953 | 95,163 | 32,486 | 59,764 | 340,366 |
| Liabilities | |||||
| Financial liabilities held for trading | 4,562 | 18,489 | 471 | 772 | 24,295 |
| Financial liabilities at amortized cost | 67,165 | 54,429 | 18,930 | 43,468 | 183,993 |
| Other liabilities | 78,724 | 6,662 | 687 | 7,393 | 93,466 |
| Total | 150,452 | 79,580 | 20,088 | 51,633 | 301,753 |
| USD | Mexican pesos | Turkish lira | Other foreign currencies | Total foreign currencies | |
|---|---|---|---|---|---|
| Assets | |||||
| Cash, cash balances at central banks and other demand deposits | 16,930 | 4,414 | 499 | 5,330 | 27,173 |
| Financial assets held for trading | 5,549 | 18,543 | 242 | 5,257 | 29,591 |
| Non- trading financial assets mandatorily at fair value through profit or loss | 900 | 3,509 | 4 | 116 | 4,529 |
| Financial assets at fair value through comprehensive income | 14,269 | 6,178 | 2,748 | 5,541 | 28,735 |
| Financial assets at amortized cost | 107,865 | 56,963 | 29,125 | 35,906 | 229,859 |
| Joint-ventures and associates | 5 | 20 | - | 252 | 277 |
| Tangible assets | 921 | 2,214 | 1,050 | 1,026 | 5,211 |
| Other assets | 1,946 | 2,147 | 1,174 | 5,508 | 10,775 |
| Total | 148,384 | 93,989 | 34,842 | 58,934 | 336,149 |
| Liabilities | |||||
| Financial liabilities held for trading | 4,063 | 16,064 | 170 | 2,465 | 22,762 |
| Financial liabilities at amortized cost | 136,661 | 54,733 | 20,681 | 36,758 | 248,834 |
| Other liabilities | 5,555 | 6,757 | 881 | 8,172 | 21,365 |
| Total | 146,280 | 77,555 | 21,732 | 47,394 | 292,961 |
P.210
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| USD | Mexican Pesos | Turkish Lira | Other Foreign Currencies | Total Foreign Currencies | |
|---|---|---|---|---|---|
| Assets | |||||
| Cash, cash balances at central banks and other demand deposits | 15,184 | 6,869 | 476 | 5,547 | 28,076 |
| Financial assets held for trading | 3,133 | 15,500 | 366 | 3,614 | 22,614 |
| Non- trading financial assets mandatorily at fair value through profit or loss | 650 | 2,303 | 3 | 58 | 3,014 |
| Financial assets at fair value through comprehensive income | 16,566 | 4,704 | 3,031 | 2,931 | 27,232 |
| Financial assets at amortized cost | 101,366 | 47,550 | 28,094 | 34,075 | 211,085 |
| Joint-ventures and associates | 5 | 54 | - | 267 | 326 |
| Tangible assets | 670 | 1,964 | 1,007 | 850 | 4,490 |
| Other assets | 3,444 | 2,911 | 1,361 | 2,879 | 10,595 |
| Total | 141,019 | 81,856 | 34,336 | 50,221 | 307,433 |
| Liabilities | |||||
| Financial liabilities held for trading | 2,372 | 13,626 | 360 | 1,507 | 17,864 |
| Financial liabilities at amortized cost | 136,307 | 48,169 | 20,878 | 37,342 | 242,696 |
| Other liabilities | 3,874 | 6,081 | 750 | 7,200 | 17,904 |
| Total | 142,552 | 67,876 | 21,987 | 46,049 | 278,464 |
This Appendix is an integral part of Notes 2.2.15 of the consolidated financial statements for the year ended December 31, 2020.
P.211
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| Six months ended June 30, 2020 | Six months ended December 31, 2020 | Six months ended June 30, 2019 | Six months ended December 31, 2019 | |
|---|---|---|---|---|
| Interest and other income | 11,828 | 10,561 | 14,009 | 13,753 |
| Interest expense | (4,267) | (3,530) | (6,256) | (5,716) |
| NET INTEREST INCOME | 7,561 | 7,031 | 7,752 | 8,037 |
| Dividend income | 74 | 63 | 97 | 56 |
| Share of profit or loss of entities accounted for using the equity method | (17) | (22) | (19) | (23) |
| Fee and commission income | 2,987 | 2,993 | 3,296 | 3,490 |
| Fee and commission expense | (929) | (928) | (1,089) | (1,196) |
| Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 202 | (63) | 48 | 137 |
| Gains (losses) on financial assets and liabilities held for trading, net | 270 | 508 | 161 | 259 |
| Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 129 | 79 | 98 | 45 |
| Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | 203 | (147) | (5) | (93) |
| Gains (losses) from hedge accounting, net | 35 | (28) | 69 | (14) |
| Exchange differences, net | 176 | 183 | 132 | 449 |
| Other operating income | 221 | 271 | 324 | 315 |
| Other operating expense | (814) | (848) | (961) | (981) |
| Income from insurance and reinsurance contracts | 1,307 | 1,190 | 1,547 | 1,342 |
| Expense from insurance and reinsurance contracts | (765) | (755) | (983) | (769) |
| GROSS INCOME | 10,639 | 9,527 | 10,470 | 11,052 |
| Administration costs | (3,999) | (3,800) | (4,332) | (4,437) |
| Personnel expense | (2,385) | (2,310) | (2,642) | (2,709) |
| Other administrative expense | (1,614) | (1,491) | (1,689) | (1,728) |
| Depreciation and amortization | (661) | (627) | (683) | (703) |
| Provisions or reversal of provisions | (518) | (228) | (249) | (364) |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (3,572) | (1,607) | (1,444) | (2,108) |
| Financial assets measured at amortized cost | (3,502) | (1,658) | (1,440) | (2,030) |
| Financial assets at fair value through other comprehensive income | (70) | 51 | (5) | (78) |
| NET OPERATING INCOME | 1,889 | 3,264 | 3,761 | 3,440 |
| Impairment or reversal of impairment of investments in joint ventures and associates | (60) | (130) | - | (46) |
| Impairment or reversal of impairment on non-financial assets | (65) | (88) | (44) | (85) |
| Tangible assets | (62) | (63) | (30) | (64) |
| Intangible assets | (3) | (16) | (1) | (10) |
| Other assets | - | (9) | (12) | (11) |
| Gains (losses) on derecognition of non-financial assets and subsidiaries, net | 3 | (10) | 5 | (10) |
| Negative goodwill recognized in profit or loss | - | - | - | - |
| Gains (losses) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued | ||||
| # PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS |
| operations (10) | 454 | 11 | 12 | |
| PROFIT (LOSS) BEFORE TAX FROM CONTINUING OPERATIONS | 1,757 | 3,491 | 3,734 | |
| Tax expense or income related to profit or loss from continuing operations | (477) | (982) | (1,080) | |
| PROFIT (LOSS) AFTER TAX FROM CONTINUING OPERATIONS | 1,281 | 2,508 | 2,654 | |
| Profit (loss) after tax from discontinued operations | (2,104) | 375 | 262 | |
| PROFIT (LOSS) FOR THE YEAR | (823) | 2,883 | 2,916 | |
| ATTRIBUTABLE TO MINORITY INTEREST (NON-CONTROLLING INTERESTS) | 333 | 423 | 475 | |
| ATTRIBUTABLE TO OWNERS OF THE PARENT | (1,157) | 2,462 | 2,442 |
| Six months ended June 30, 2020 | Six months ended December 31, 2020 | Six months ended June 30, 2019 | Six months ended December 31, 2019 |
|---|---|---|---|
| EARNINGS PER SHARE (Euros) | |||
| (0.20) | 0.34 | 0.34 | 0.13 |
| Basic earnings (losses) per share from continued operations | 0.11 | 0.29 | 0.30 |
| Diluted earnings (losses) per share from continued operations | 0.11 | 0.29 | 0.30 |
| Basic earnings (losses) per share from discontinued operations | (0.32) | 0.06 | 0.04 |
| Diluted earnings (losses) per share from discontinued operations | (0.32) | 0.06 | 0.04 |
P.212 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 (*) | |
|---|---|---|
| CASH, CASH BALANCES AT CENTRAL BANKS AND OTHER DEMAND DEPOSITS | 44,107 | 18,419 |
| FINANCIAL ASSETS HELD FOR TRADING | 87,677 | 83,841 |
| Derivatives | 36,545 | 31,987 |
| Equity instruments | 10,682 | 8,205 |
| Debt securities | 9,983 | 10,213 |
| Loans and advances to central banks | 53 | 484 |
| Loans and advances to credit institutions | 19,472 | 20,688 |
| Loans and advances to customers | 10,941 | 12,263 |
| NON-TRADING FINANCIAL ASSETS MANDATORILY AT FAIR VALUE THROUGH PROFIT OR LOSS | 409 | 855 |
| Equity instruments | 183 | 125 |
| Debt securities | 142 | 128 |
| Loans and advances to customers | 84 | 602 |
| FINANCIAL ASSETS DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | - | - |
| FINANCIAL ASSETS AT FAIR VALUE THROUGH OTHER COMPREHENSIVE INCOME | 37,528 | 24,905 |
| Equity instruments | 881 | 1,749 |
| Debt securities | 36,648 | 23,156 |
| FINANCIAL ASSETS AT AMORTIZED COST | 225,914 | 225,369 |
| Debt securities | 23,241 | 21,496 |
| Loans and advances to central banks | 7 | 5 |
| Loans and advances to credit institutions | 8,762 | 8,049 |
| Loans and advances to customers | 193,903 | 195,819 |
| DERIVATIVES - HEDGE ACCOUNTING | 1,011 | 953 |
| FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | 51 | 28 |
| INVESTMENTS IN SUBSIDIARIES, JOINT VENTURES AND ASSOCIATES | 18,380 | 30,563 |
| Subsidiaries | 17,547 | 29,445 |
| Joint ventures | 54 | 54 |
| Associates | 780 | 1,065 |
| TANGIBLE ASSETS | 3,915 | 4,467 |
| Properties, plant and equipment | 3,836 | 4,384 |
| For own use | 3,836 | 4,384 |
| Other assets leased out under an operating lease | - | - |
| Investment properties | 80 | 83 |
| INTANGIBLE ASSETS | 840 | 905 |
| Goodwill | - | - |
| Other intangible assets | 840 | 905 |
| TAX ASSETS | 12,764 | 13,760 |
| Current tax assets | 633 | 1,443 |
| Deferred tax assets | 12,131 | 12,317 |
| OTHER ASSETS | 2,837 | 2,600 |
| Insurance contracts linked to pensions | 2,074 | 2,096 |
| Inventories | - | - |
| Other | 763 | 504 |
| NON-CURRENT ASSETS AND DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE | 9,978 | 967 |
| TOTAL ASSETS | 445,411 | 407,632 |
(*) Presented for comparison purposes only.
P.213 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 (*) | |
|---|---|---|
| FINANCIAL LIABILITIES HELD FOR TRADING | 69,514 | 73,362 |
| Derivatives | 35,396 | 31,501 |
| Short positions | 9,625 | 9,956 |
| Deposits from central banks | 1,256 | 1,867 |
| Deposits from credit institutions | 16,083 | 24,425 |
| Customer deposits | 7,154 | 5,612 |
| Debt certificates | - | - |
| Other financial liabilities | - | - |
| FINANCIAL LIABILITIES DESIGNATED AT FAIR VALUE THROUGH PROFIT OR LOSS | 3,267 | 2,968 |
| Deposits from central banks | - | - |
| Deposits from credit institutions | - | - |
| Customer deposits | 3,267 | 2,968 |
| Debt certificates | - | - |
| Other financial liabilities | - | - |
| Memorandum item: Subordinated liabilities | - | - |
| FINANCIAL LIABILITIES AT AMORTIZED COST | 331,189 | 285,260 |
| Deposits from central banks | 37,903 | 24,390 |
| Deposits from credit institutions | 22,106 | 18,201 |
| Customer deposits | 217,360 | 191,461 |
| Debt certificates | 43,692 | 40,845 |
| Other financial liabilities | 10,127 | 10,362 |
| Memorandum item: Subordinated liabilities | 11,096 | 10,362 |
| DERIVATIVES - HEDGE ACCOUNTING | 1,510 | 1,471 |
| FAIR VALUE CHANGES OF THE HEDGED ITEMS IN PORTFOLIO HEDGES OF INTEREST RATE RISK | - | - |
| PROVISIONS | 4,449 | 4,616 |
| Pensions and other post employment defined benefit obligations | 3,544 | 3,810 |
| Other long term employee benefits | 18 | 25 |
| Provisions for taxes and other legal contingencies | 439 | 359 |
| Commitments and guarantees given | 270 | 235 |
| Other provisions | 177 | 188 |
| TAX LIABILITIES | 1,071 | 1,120 |
| Current tax liabilities | 173 | 149 |
| Deferred tax liabilities | 898 | 972 |
| OTHER LIABILITIES | 1,543 | 1,645 |
| LIABILITIES INCLUDED IN DISPOSAL GROUPS CLASSIFIED AS HELD FOR SALE | - | - |
| TOTAL LIABILITIES | 412,543 | 370,444 |
(*) Presented for comparison purposes only.
P.214 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 (*) | |
|---|---|---|
| SHAREHOLDERS’ FUNDS | 33,992 | 37,570 |
| Capital | 3,267 | 3,267 |
| Paid up capital | 3,267 | 3,267 |
| Unpaid capital which has been called up | - | - |
| Share premium | 23,992 | 23,992 |
| Equity instruments issued other than capital | - | - |
| Equity component of compound financial instruments | - | - |
| Other equity instruments issued | - | - |
| Other equity | 34 | 48 |
| Retained earnings | 8,859 | 9,107 |
| Revaluation reserves | - | - |
| Other reserves | 31 | 1 |
| Less: treasury shares | (9) | - |
| Profit or loss attributable to owners of the parent | (2,182) | 2,241 |
| Less: interim dividends | - | (1,086) |
| ACCUMULATED OTHER COMPREHENSIVE INCOME | (1,124) | (381) |
| Items that will not be reclassified to profit or loss | (1,376) | (520) |
| Actuarial gains (losses) on defined benefit pension plans | (61) | (75) |
| Non-current assets and disposal groups classified as held for sale | - | - |
| Fair value changes of equity instruments measured at fair value through other comprehensive income | (1,294) | (469) |
| Hedge ineffectiveness of fair value hedges for equity instruments measured at fair value through other comprehensive income | - | - |
| Fair value changes of equity instruments measured at fair value through other comprehensive income (hedged item) | - | - |
| Fair value changes of equity instruments measured at fair value through other comprehensive income (hedging instrument) | - | - |
| Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | (21) | 24 |
| Items that may be reclassified to profit or loss | 252 | 138 |
| Hedge of net investments in foreign operations (effective portion) | - | - |
| Foreign currency translation | - | - |
| Hedging derivatives. Cash flow hedges (effective portion) | (100) | (196) |
| Fair value changes of debt instruments measured at fair value through other comprehensive income | 352 | 335 |
| Hedging instruments (non-designated items) | - | - |
| Non-current assets and disposal groups classified as held for sale | - | - |
| TOTAL EQUITY | 32,867 | 37,189 |
| TOTAL EQUITY AND TOTAL LIABILITIES | 445,411 | 407,632 |
| 2020 | 2019 (*) | |
|---|---|---|
| Loan commitments given | 80,959 | 73,582 |
| Financial guarantees given | 8,745 | 9,086 |
| Other commitments given | 25,711 | 28,151 |
(*) Presented for comparison purposes only.
P.215 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 (*) | |
|---|---|---|
| Interest income | 4,629 | 4,933 |
| Financial assets at fair value through other comprehensive income | 253 | 285 |
| Financial assets at amortized cost | 3,839 | 4,295 |
| Other interest income | 536 | 353 |
| Interest expense | (1,115) | (1,548) |
| NET INTEREST INCOME | 3,514 | 3,385 |
| Dividend income | 1,360 | 2,853 |
| Fee and commission income | 2,125 | 2,144 |
| Fee and commission expense | (358) | (447) |
| Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net | 87 | 107 |
| Financial assets at amortized cost | 100 | 35 |
| Other financial assets and liabilities | (13) | 72 |
| Gains (losses) on financial assets and liabilities held for trading, net | 353 | 375 |
| Reclassification of financial assets from fair value through other comprehensive income | - | - |
| Reclassification of financial assets from amortized cost | - | - |
| Other profit or loss | 353 | 375 |
| Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net | 28 | 35 |
| Reclassification of financial assets from fair value through other comprehensive income | - | - |
| Reclassification of financial assets from amortized cost | - | - |
| Other profit or loss | 28 | 35 |
| Gains (losses) on financial assets and liabilities designated at fair value through profit or loss, net | (69) | (101) |
| Gains (losses) from hedge accounting, net | 13 | 21 |
| Exchange differences, net | (29) | (133) |
| Other operating income | 142 | 125 |
| Other operating expense | (529) | (487) |
| GROSS INCOME | 6,637 | 7,877 |
| Administrative expense | (3,553) | (3,881) |
| Personnel expense | (2,144) | (2,394) |
| Other administrative expense | (1,409) | (1,487) |
| Depreciation and amortization | (663) | (673) |
| Provisions or reversal of provisions | (475) | (391) |
| Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification | (1,232) | (175) |
| Financial assets measured at amortized cost | (1,228) | (176) |
| Financial assets at fair value through other comprehensive income | (4) | 1 |
| NET OPERATING INCOME | 715 | 2,757 |
| Impairment or reversal of impairment of investments in subsidiaries, joint ventures and associates | (319) | (610) |
| Impairment or reversal of impairment on non-financial assets | ||
| ```## STATEMENTS OF RECOGNIZED INCOME AND EXPENSE |
(Millions of Euros)
| 2020 | 2019 (*) | |
|---|---|---|
| PROFIT RECOGNIZED IN INCOME STATEMENT | (2,182) | 2,241 |
| OTHER RECOGNIZED INCOME (EXPENSE) | (643) | (373) |
| ITEMS NOT SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT | (757) | (367) |
| Actuarial gains (losses) from defined benefit pension plans | 13 | 3 |
| Non-current assets and disposal groups classified as held for sale | - | - |
| Fair value changes of equity instruments measured at fair value through other comprehensive income | (786) | (271) |
| Gains (losses) from hedge accounting of equity instruments at fair value through other comprehensive income, net | - | - |
| Fair value changes of financial liabilities at fair value through profit or loss attributable to changes in their credit risk | 4 | (133) |
| Other valuation adjustments | - | - |
| Income tax related to items not subject to reclassification to income statement | 12 | 34 |
| ITEMS SUBJECT TO RECLASSIFICATION TO INCOME STATEMENT | 114 | (6) |
| Hedge of net investments in foreign operations (effective portion) | - | - |
| Foreign currency translation | - | - |
| Translation gains (losses) taken to equity | - | - |
| Transferred to profit or loss | - | - |
| Other reclassifications | - | - |
| Cash flow hedges (effective portion) | 92 | (115) |
| Valuation gains (losses) taken to equity | 92 | (115) |
| Transferred to profit or loss | - | - |
| Transferred to initial carrying amount of hedged items | - | - |
| Other reclassifications | - | - |
| Hedging instruments (non-designated elements) | - | - |
| Valuation gains (losses) taken to equity | - | - |
| Transferred to profit or loss | - | - |
| Other reclassifications | - | - |
| Debt securities at fair value through other comprehensive income | 25 | 107 |
| Valuation gains (losses) taken to equity | 86 | 173 |
| Transferred to profit or loss | (61) | (66) |
| Other reclassifications | - | - |
| Non-current assets and disposal groups held for sale | - | - |
| Income tax relating to items subject to reclassification to income statements | (3) | 2 |
| TOTAL RECOGNIZED INCOME/EXPENSE | (2,825) | 1,868 |
(*) Presented for comparison purposes only.
P.217
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Statement of changes in equity for the year ended December 31, 2020 of BBVA, S.A.
(Millions of Euros)
| | 2020 | Capital | Share Premium | Equity instruments issued other than capital | Other Equity | Retained earnings | Revaluation reserves | Other reserves (-) | Treasury shares | Profit or loss attributable to owners of the parent | Interim dividends | Accumulated other comprehensive income | Total |
| :--- | ---: | ---: | ---: | --- | ---: | ---: | ---: | ---: | ---: | ---: | ---: | ---: |
| Balances as of January 1, 2020 | | 3,267 | 23,992 | - | 48 | 9,107 | - | 1 | (2,241) | (1,086) | (381) | 37,189 |
| Total income/expense recognized | | - | - | - | - | - | - | - | - | (2,182) | - | (643) | (2,825) |
| Other changes in equity | | - | - | - | (14) | (248) | - | 30 | (9) | (2,241) | 1,086 | (101) | (1,497) |
| Issuances of common shares | | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuances of preferred shares | | - | - | - | - | - | - | - | - | - | - | - | - |
| Issuance of other equity instruments | | - | - | - | - | - | - | - | - | - | - | - | - |
| Settlement or maturity of other equity instruments issued | | - | - | - | - | - | - | - | - | - | - | - | - |
| Conversion of debt on equity | | - | - | - | - | - | - | - | - | - | - | - | - |
| Common Stock reduction | | - | - | - | - | - | - | - | - | - | - | - | - |
| Dividend distribution | | - | - | - | - | (1,067) | - | - | - | - | - | - | (1,067) |
| Purchase of treasury shares | | - | - | - | - | - | - | (688) | - | - | - | - | (688) |
| Sale or cancellation of treasury shares | | - | - | - | - | - | - | (5) | 679 | - | - | - | 674 |
| Reclassification of other equity instruments to financial liabilities | | - | - | - | - | - | - | - | - | - | - | - | - |
| Reclassification of financial liabilities to other equity instruments | | - | - | - | - | - | - | - | - | - | - | - | - |
| Transfers within total equity | | - | - | - | (2) | 1,206 | - | 51 | (2,241) | 1,086 | (100) | - |
| Increase/Reduction of equity due to business combinations | | - | - | - | - | - | - | - | - | - | - | - | - |
| Share based payments | | - | - | - | - | - | - | - | - | - | - | - | - |
| Other increases or (-) decreases in equity | | - | - | - | (12) | (387) | - | (16) | - | - | - | - | (415) |
| Balances as of December 31, 2020 | | 3,267 | 23,992 | - | 34 | 8,859 | - | 31 | (9) | (2,182) | - | (1,124) | 32,867 |
P.218
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Statement of changes in equity for the year ended December 31, 2019 of BBVA, S.A.
(Millions of Euros)
| 2019 (*) | Capital | Share Premium | Equity instruments issued other than capital | Other Equity | Retained earnings | Revaluation reserves | Other reserves (-) | Treasury shares | Profit or loss attributable to owners of the parent | Interim dividends | Accumulated other comprehensive income | Total | |
|---|---|---|---|---|---|---|---|---|---|---|---|---|---|
| Balances as of January 1, 2019 | 3,267 | 23,992 | - | 46 | 8,829 | - | (30) | (23) | 2,450 | (1,114) | (8) | 37,409 | |
| Effect of changes in accounting policies | - | - | - | - | - | - | 1 | - | - | - | - | 1 | |
| Adjusted initial balance | 3,267 | 23,992 | - | 46 | 8,829 | - | (29) | (23) | 2,450 | (1,114) | (8) | 37,410 | |
| Total income/expense recognized | - | - | - | - | - | - | - | - | 2,241 | - | (373) | 1,868 | |
| Other changes in equity | - | - | - | 1 | 278 | - | 29 | 23 | (2,450) | 28 | - | (2,089) | |
| Issuances of common shares | - | - | - | - | - | - | - | - | - | - | - | - | |
| Issuances of preferred shares | - | - | - | - | - | - | - | - | - | - | - | - | |
| Issuance of other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | |
| Settlement or maturity of other equity instruments issued | - | - | - | - | - | - | - | - | - | - | - | - | |
| Conversion of debt on equity | - | - | - | - | - | - | - | - | - | - | - | - | |
| Common Stock reduction | - | - | - | - | - | - | - | - | - | - | - | - | |
| Dividend distribution | - | - | - | - | (1,067) | - | - | - | (1,086) | - | (2,153) | (2,153) | |
| Purchase of treasury shares | - | - | - | - | - | - | - | (933) | - | - | - | (933) | |
| Sale or cancellation of treasury shares | - | - | - | - | - | - | 36 | 956 | - | - | - | 993 | |
| Reclassification of other equity instruments to financial liabilities | - | - | - | - | - | - | - | - | - | - | - | - | |
| Reclassification of financial liabilities to other equity instruments | - | - | - | - | - | - | - | - | - | - | - | - | |
| Transfers within total equity | - | - | - | (1) | 1,345 | - | (8) | - | (2,450) | 1,114 | - | - | |
| Increase/Reduction of equity due to business combinations | - | - | - | - | - | - | - | - | - | - | - | - | |
| Share based payments | - | - | - | - | - | - | - | - | - | - | - | - | |
| Other increases or (-) decreases in equity | - | - | - | 2 | - | - | 1 | - | - | - | - | 3 | |
| Balances as of December 31, 2019 | 3,267 | 23,992 | - | 48 | 9,107 | - | 1 | - | 2,241 | (1,086) | (381) | 37,189 |
(*) Presented for comparison purposes only.
P.219
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
(Millions of Euros)
| 2020 | 2019 (*) | |
|---|---|---|
| A) CASH FLOWS FROM OPERATING ACTIVITIES (1+2+3+4+5) | 25,890 | (10,032) |
| 1.Profit (loss) for the year | (2,182) | 2,241 |
| 2.Adjustments to obtain the cash flow from operating activities: | 3,320 | 1,755 |
| Depreciation and amortization | 663 | 673 |
| Other adjustments | 2,657 | 1,082 |
| 3.Net increase/decrease in operating assets | (16,183) | (19,739) |
| Financial assets held for trading | (3,836) | (9,751) |
| Non-trading financial assets mandatorily at fair value through profit or loss | 447 | 871 |
| Other financial assets designated at fair value through profit or loss | - | - |
| Financial assets at fair value through other comprehensive income | (12,623) | (5,632) |
| Financial assets at amortized cost | (683) | (6,514) |
| Other operating assets | 512 | 1,287 |
| 4.Net increase/decrease in operating liabilities | 40,338 | 5,802 |
| Financial liabilities held for trading | (3,848) | 6,242 |
| Other financial liabilities designated at fair value through profit or loss | 298 | 1,222 |
| Financial liabilities at amortized cost | 45,202 | (968) |
| Other operating liabilities | (1,314) | (693) |
| 5.Collection/Payments for income tax | 598 | (92) |
| B) CASH FLOWS FROM INVESTING ACTIVITIES (1+2) | (125) | (102) |
| 1.Investment | (430) | (633) |
| Tangible assets | (96) | (119) |
| Intangible assets | (251) | (317) |
| Investments in subsidiaries, joint ventures and associates | (84) | (196) |
| Other business units | - | - |
| Non-current assets classified as held for sale and associated liabilities | - | - |
| Other collections related to investing activities | - | - |
| 2.Divestments | 306 | 531 |
| Tangible assets | 29 | 10 |
| Intangible assets | - | - |
| Investments in subsidiaries, joint ventures and associates | 70 | 103 |
| Other business units | - | - |
| Non-current assets and disposal groups classified as held for sale and associated liabilities | 206 | 418 |
| Other collections related to investing activities | - | - |
| C) CASH FLOWS FROM FINANCING ACTIVITIES (1 + 2) | (662) | (2,314) |
| 1. Payments | (3,686) | (6,114) |
| Dividends | (1,067) | (2,153) |
| Subordinated liabilities | (1,937) | (3,005) |
| Treasury stock amortization | - | - |
| Treasury stock acquisition | (682) | (956) |
| Other items relating to financing activities | - | - |
| 2. | - | - |
| Subordinated liabilities | 2,334 | 2,640 |
| Common stock increase | - | - |
| Treasury stock disposal | 674 | 993 |
| Other items relating to financing activities | 17 | 167 |
| D) EFFECT OF EXCHANGE RATE CHANGES | 584 | (54) |
|---|---|---|
| E) NET INCREASE/DECREASE IN CASH OR CASH EQUIVALENTS (A+B+C+D) | 25,688 | (12,503) |
| F) CASH AND CASH EQUIVALENTS AT BEGINNING OF THE YEAR | 18,419 | 30,922 |
| G) CASH AND CASH EQUIVALENTS AT END OF THE YEAR (E+F) | 44,107 | 18,419 |
| 2020 | 2019 | |
|---|---|---|
| Cash | 972 | 1,046 |
| Balance of cash equivalent in central banks | 40,485 | 15,417 |
| Other financial assets | 2,650 | 1,956 |
| Less: Bank overdraft refundable on demand | - | - |
| TOTAL CASH AND CASH EQUIVALENTS AT END OF THE YEAR | 44,107 | 18,419 |
(*) Presented for comparison purposes only. This Appendix is an integral part of Notes 2.1 of the consolidated financial statements for the year ended December 31, 2020. P.220
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The Bank has implemented policies and procedures for its activities in the mortgage market and in the financing of exportation of goods and services or the process of internationalization of companies, which allow ensuring compliance with the applicable regulations of the mortgage market and for the issuance of bonds.
Information required pursuant to Circular 5/2011 of the Bank of Spain is indicated as follows. The mortgage origination policy is based on principles focused on assessing the adequate ratio between the amount of the loan, and the payments, and the income of the applicant. Applicants must in all cases prove sufficient repayment ability (present and future) to meet their repayment obligations, for both the mortgage debt and for other debts detected in the financial system. Therefore, the applicant’s repayment ability is a key aspect within the credit decision- making tools and retail risk acceptance manuals, and has a high weighting in the final decision. During the mortgage risk transaction analysis process, documentation supporting the applicant’s income (payroll, etc.) is required, and the applicant’s position in the financial system is checked through automated database queries (internal and external). This information is used for calculation purposes in order to determine the level of indebtedness/compliance with the remainder of the system. This documentation is kept in the transaction’s file. In addition, the mortgage origination policy assesses the adequate ratio between the amount of the loan and the appraisal value of the mortgaged asset. The policy also establishes that the property to be mortgaged be appraised by an independent appraisal company as established by Circular 3/2010 and Circular 4/2016. BBVA selects those companies whose reputation, standing in the market and independence ensure that their appraisals adapt to the market reality in each region. Each appraisal is reviewed and checked before the loan is granted and, in those cases where the loan is finally granted, it is kept in the transaction’s file. As for issues related to the mortgage market, the Finance area annually defines the strategy for wholesale finance issues, and more specifically mortgage bond issues, such as mortgage covered bonds or mortgage securitization. The Assets and Liabilities Committee tracks the budget monthly. The volume and type of assets in these transactions is determined in accordance with the wholesale finance plan, the trend of the Bank’s “Loans and advances” outstanding balances and the conditions in the market. The Board of Directors of the Bank authorizes each of the issues of Mortgage Transfer Certificates and/or Mortgage Participations issued by BBVA to securitize the credit rights derived from loans and mortgage loans. Likewise, the Board of Directors authorizes the establishment of a Base Prospectus for the issuance of fixed-income securities through which the mortgage-covered bonds are implemented. As established in article 24 of Royal Decree 716/2009, of April, 24, by virtue of which certain aspects of Law 2/1981, of 25 March, of regulation of the mortgage market and other rules of the mortgage and financial system are developed, “the volume of outstanding mortgage-covered bonds issued by a bank may not exceed 80% of a calculation base determined by adding the outstanding principal of all the loans and mortgage loans in the bank’s portfolio that are eligible” and which are not covered by the issue of mortgage bonds, mortgage participations or mortgage transfer certificates. For these purposes, in accordance with the aforementioned Royal Decree 716/2009, in order to be eligible, loans and mortgage loans, on a general basis: (i) must be secured by a first mortgage on the freehold; (ii) the loan’s amount may not exceed 80% of the appraisal value for residential mortgages, and 60% for other mortgage lending; (iii) must be established on assets exclusively and wholly owned by the mortgagor; (iv) must have been appraised by an independent appraisal company unrelated to the Group and authorized by the Bank of Spain; and (v) the mortgaged property must be covered at least by a current damage insurance policy. The Bank has set up a series of controls for mortgage covered bonds, which regularly control the total volume of issued mortgage covered bonds issued and the remaining eligible collateral, to avoid exceeding the maximum limit set by Royal Decree 716/2009, and outlined in the preceding paragraph. In the case of securitizations, the preliminary portfolio of loans and mortgage loans to be securitized is checked according to an agreed procedures engagement, by the Bank’s external auditor as required by the Spanish Securities and Exchange Commission. There is also a series of filters through which some mortgage loans and credits are excluded in accordance with legal, commercial and risk concentration criteria. P.221
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The quantitative information on activities in the mortgage market required by Bank of Spain Circular 5/2011 as of December 31, 2020 and 2019 is shown below.
Mortgage loans. Eligibility for the purpose of the mortgage market (Millions of Euros)
| 2020 | 2019 | |
|---|---|---|
| Nominal value of outstanding loans and mortgage loans | 88,753 | 92,757 |
| Minus: Nominal value of all outstanding loans and mortgage loans that form part of the portfolio, but have been mobilized through mortgage bond holdings or mortgage transfer certificates. | (27,549) | (30,173) |
| Nominal value of outstanding loans and mortgage loans, excluding securitized loans | 61,204 | 62,584 |
| Of which: Loans and mortgage loans which would be eligible if the calculation limits set forth in Article 12 of Spanish Royal Decree 716/2009 were not applied. | 44,854 | 44,759 |
| Minus: Loans and mortgage loans which would be eligible but, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, cannot be used to collateralize any issuance of mortgage bonds. | (1,169) | (1,191) |
| Eligible loans and mortgage loans that, according to the criteria set forth in Article 12 of Spanish Royal Decree 716/2009, can be used as collateral for the issuance of mortgage bonds | 43,685 | 43,568 |
| Issuance limit: 80% of eligible loans and mortgage loans that can be used as collateral | 34,948 | 34,854 |
| Issued Mortgage-covered bonds | 32,069 | 32,422 |
| Outstanding Mortgage-covered bonds | 12,559 | 14,832 |
| Capacity to issue mortgage-covered bonds | 2,879 | 2,432 |
| Memorandum items: | - | - |
| Percentage of overcollateralization across the portfolio | 191% | 193% |
| Percentage of overcollateralization across the eligible used portfolio | 136% | 134% |
| Nominal value of available sums (committed and unused) from all loans and mortgage loans. | 5,549 | 5,841 |
| Of which: Potentially eligible | 4,885 | 4,935 |
| Of which: Ineligible | 664 | 906 |
| Nominal value of all loans and mortgage loans that are not eligible, as they do not meet the thresholds set in Article 5.1 of Spanish Royal Decree 716/2009, but do meet the rest of the eligibility requirements indicated in Article 4 of the Royal Decree. | 9,006 | 9,989 |
| Nominal value of the replacement assets subject to the issue of mortgage-covered bonds. | - | - |
Mortgage loans. Eligibility for the purpose of the mortgage market (Millions of Euros)
| 2020 | 2019 | |
|---|---|---|
| Total loans (1) | 88,753 | 92,757 |
| Issued mortgage participations (2) | 4,114 | 4,494 |
| Of which: recognized on the balance sheet | 2,928 | 3,213 |
| Issued mortgage transfer certificates (3) | 23,435 | 25,679 |
| Of which: recognized on the balance sheet | 21,098 | 22,899 |
| Mortgage loans as collateral of mortgages bonds (4) | - | - |
| Loans supporting the issuance of mortgage-covered bonds 1-2-3-4 | 61,204 | 62,584 |
| Non eligible loans | 16,350 | 17,825 |
| Comply requirements to be eligible except the limit provided for under the article 5.1 of the Spanish Royal Decree 716/2009 | 9,006 | 9,989 |
| Other | 7,344 | 7,836 |
| Eligible loans | 44,854 | 44,759 |
| That can not be used as collateral for issuances | 1,169 | 1,191 |
| That can be used as collateral for issuances | 43,685 | 43,568 |
| Loans used to collateralize mortgage bonds | - | - |
| Loans used to collateralize mortgage-covered bonds | 43,685 | 43,568 |
P.222
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
| 2020 | 2019 | |
|---|---|---|
| Total mortgage loans | Eligible Loans(*) | |
| TOTAL | 61,204 | 44,854 |
| By source of the operations | - | - |
| Originated by the bank | 56,593 | 40,975 |
| Subrogated by other institutions | 763 | 589 |
| Rest | 3,848 | 3,290 |
| By Currency | - | - |
| In Euros | 61,033 | 44,742 |
| In foreign currency | 171 | 112 |
| By payment situation | - | - |
| Normal payment | 54,197 | 42,245 |
| Other situations | 7,007 | 2,609 |
| By residual maturity | - | - |
| Up to 10 years | 13,031 | 10,037 |
| 10 to 20 years | 25,898 | 22,116 |
| 20 to 30 years | 18,713 | 11,718 |
| Over 30 years | 3,562 | 983 |
| By Interest rate | - | - |
| Fixed rate | 13,412 | 9,318 |
| Floating rate | 47,792 | 35,536 |
| Mixed rate | - | - |
| By target of operations | - | - |
| For business activity | 10,699 | 6,598 |
| Of which: public housing | 2,215 | 1,555 |
| Of which: For households | 50,505 | 38,256 |
| By type of guarantee | - | - |
| Secured by completed assets/buildings | 59,190 | 43,696 |
| Residential use | 52,145 | 39,454 |
| Of which: public housing | 3,791 | 3,078 |
| Commercial | 7,015 | 4,233 |
| Other | 30 | 9 |
| Secured by assets/buildings under construction | 1,303 | 942 |
| Residential use | 1,004 | 734 |
| Of which: public housing | 1 | - |
| Commercial | 299 | 208 |
| Other | - | - |
| Secured by land | 711 | 216 |
| Urban | 275 | 88 |
| Non-urban | 436 | 128 |
() Not taking into account the thresholds established by article 12 of Spanish Royal Decree 716/2009.
(*) Taking into account the thresholds established by article 12 of Spanish Royal Decree 716/2009.
P.223
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2020. Nominal value of the total mortgage loans (Millions of Euros)
| Loan to Value (Last available appraisal risk) | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% | Total |
|---|---|---|---|---|---|
| Home mortgages | 13,665 | 14,339 | 12,211 | - | 40,215 |
| Other mortgages | 2,351 | 2,288 | 4,639 | - | 9,278 |
| Total | 16,016 | 16,627 | 12,211 | - | 49,493 |
December 2019. Nominal value of the total mortgage loans (Millions of Euros)
| Loan to Value (Last available appraisal risk) | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% | Total |
|---|---|---|---|---|---|
| Home mortgages | 13,713 | 14,821 | 11,562 | - | 40,096 |
| Other mortgages | 2,484 | 2,179 | 4,663 | - | 9,326 |
| Total | 16,197 | 17,000 | 11,562 | - | 49,422 |
Eligible and non eligible mortgage loans. Changes of the nominal values in the period (Millions of Euros)
| 2020 | 2019 | |||
|---|---|---|---|---|
| Eligible (*) | Non eligible | Eligible (*) | Non eligible | |
| Balance at the beginning | 44,759 | 17,825 | 45,664 | 22,074 |
| Retirements | 6,429 | 4,535 | 7,447 | 8,498 |
| Held-to-maturity cancellations | 3,918 | 736 | 4,363 | 1,062 |
| Anticipated cancellations | 1,913 | 930 | 2,231 | 2,054 |
| Subrogations to other institutions | 48 | 19 | 22 | 10 |
| Rest | 550 | 2,850 | 831 | 5,372 |
| Additions | 6,524 | 3,060 | 6,542 | 4,249 |
| Originated by the bank | 3,740 | 2,396 | 3,219 | 3,235 |
| Subrogations to other institutions | 3 | 1 | 4 | 2 |
| Rest | 2,781 | 664 | 3,319 | 1,012 |
| Balance at the end | 44,854 | 16,350 | 44,759 | 17,825 |
(*) Not taking into account the thresholds established by Article 12 of Spanish Royal Decree 716/2009.
Mortgage loans supporting the issuance of mortgage-covered bonds. Nominal value (Millions of Euros)
| 2020 | 2019 | |
|---|---|---|
| Potentially eligible | 4,885 | 4,935 |
| Ineligible | 664 | 906 |
| Total | 5,549 | 5,841 |
P.224
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
b.2) Liabilities operations
Issued Mortgage Bonds (Millions of Euros)
| 2020 | Average residual maturity | 2019 | Average residual maturity | |
|---|---|---|---|---|
| Mortgage bonds | - | - | - | - |
| Mortgage-covered bonds | 32,069 | 32,422 | ||
| Of which: non recognized as liabilities on balance | 19,510 | 17,590 | ||
| Of Which: outstanding | 12,559 | 14,832 | ||
| Debt securities issued through public offer | 10,450 | 12,501 | ||
| Residual maturity up to 1 year | 2,750 | 2,051 | ||
| Residual maturity over 1 year and less than 2 years | 1,250 | 2,750 | ||
| Residual maturity over 2 years and less than 3 years | 2,250 | 1,250 | ||
| Residual maturity over 3 years and less than 5 years | 3,000 | 3,250 | ||
| Residual maturity over 5 years and less than 10 years | 1,000 | 3,000 | ||
| Residual maturity over 10 years | 200 | 200 | ||
| Debt securities issued without public offer | 19,605 | 17,662 | ||
| Residual maturity up to 1 year | 1,500 | 50 | ||
| Residual maturity over 1 year and less than 2 years | 2,000 | 1,500 | ||
| Residual maturity over 2 years and less than 3 years | 9,000 | 2,000 | ||
| Residual maturity over 3 years and less than 5 years | 4,000 | 9,000 | ||
| Residual maturity over 5 years and less than 10 years | 3,105 | 5,112 | ||
| Residual maturity over 10 years | - | - | ||
| Deposits | 2,014 | 2,260 | ||
| Residual maturity up to 1 year | 425 | 246 | ||
| Residual maturity over 1 year and less than 2 years | 368 | 425 | ||
| Residual maturity over 2 years and less than 3 years | 100 | 368 | ||
| Residual maturity over 3 years and less than 5 years | 371 | 100 | ||
| Residual maturity over 5 years and less than 10 years | 100 | 471 | ||
| Residual maturity over 10 years | 650 | 650 | ||
| Mortgage participations | 2,928 | 257 | 3,213 | 267 |
| Issued through public offer | 2,928 | 257 | 3,213 | 267 |
| Issued without public offer | - | - | - | - |
| Mortgage transfer certificates | 21,098 | 257 | 22,899 | 267 |
| Issued through public offer | 21,098 | 257 | 22,899 | 267 |
| Issued without public offer | - | - | - | - |
Given the characteristics of the type of covered bonds issued by the Bank, there is no substituting collateral related to these issues. The Bank does not hold any derivative financial instruments relating to mortgage bond issues, as defined in the aforementioned Royal Decree.
c) Quantitative information on internationalization covered bonds
Below is the quantitative information of BBVA, S.A. internationalization covered bonds required by Bank of Spain Circular 4/2017 as of December 31, 2020 and 2019:
c.1) Assets operations
Principal outstanding payment of loans (Millions of Euros)
| Nominal value 2020 | Nominal value 2019 | |
|---|---|---|
| Eligible loans according to article 34.6 and 7 of the Law 14/2013 | 3,284 | 3,621 |
| Minos: Loans that support the issuance of internationalization bonds | - | - |
| Minos: NPL to be deducted in the calculation of the issuance limit, according to Article 13 del Royal Decree 579/2014 | 8 | 1 |
| Total Loans included in the base of all issuance limit | 3,276 | 3,620 |
P.225
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
c.2) Liabilities operations
Internationalization covered bonds (Millions of Euros)
| 2020 | 2019 | ||
|---|---|---|---|
| (1) Debt securities issued through public offer (a) | 1,500 | 1,500 | |
| Of which: Treasury shares | 1,500 | 1,500 | |
| Residual maturity up to 1 year | - | - | |
| Residual maturity over 1 year and less than 2 years | 1,500 | - | |
| Residual maturity over 2 years and less than 3 years | - | 1,500 | |
| Residual maturity over 3 years and less than 5 years | - | - | |
| Residual maturity over 5 years and less than 10 years | - | - | |
| Residual maturity over 10 years | - | - | |
| (2) Debt securities issued without public offer (a) | - | - | |
| Of which: Treasury shares | - | - | |
| Residual maturity up to 1 year | - | - | |
| Residual maturity over 1 year and less than 2 years | - | - | |
| Residual maturity over 2 years and less than 3 years | - | - | |
| Residual maturity over 3 years and less than 5 years | - | - | |
| Residual maturity over 5 years and less than 10 years | - | - | |
| Residual maturity over 10 years | - | - | |
| (3) Deposits (b) | - | - | |
| Residual maturity up to 1 year | - | - | |
| Residual maturity over 1 year and less than 2 years | - | - | |
| Residual maturity over 2 years and less than 3 years | - | - | |
| Residual maturity over 3 years and less than 5 years | - | - | |
| Residual maturity over 5 years and less than 10 years | - | - | |
| Residual maturity over 10 years | - | - | |
| TOTAL: (1) + (2) + (3) | 1,500 | 1,500 | |
| Percentage | Percentage | ||
| Coverage ratio of internationalization covered bonds on loans (c ) | 46% | 41% |
(a) Balance that includes all internationalization covered bonds issued by the entity pending amortization, although they are not recognized in the liability (because they have not been placed to third parties or have been repurchased).
(b) Nominative bonds.
(c) Percentage that results from the value of the quotient between the nominal value of the issued and non-overdue bonds, even if they are not recognized in the liability, and the nominal value balance pending collection of the loans that serve as guarantee.
Given the characteristics of the Bank's internationalization covered bonds, there are no substitute assets assigned to these issuances.
d) Territorial bonds
d.1) Assets operations
December 2020. Loans that serves as collateral for the territorial bonds
| Nominal Value(a) | Total | Spanish Residents | Residents in other countries of the European Economic Area | |
|---|---|---|---|---|
| Central governments | 1,505 | 1,396 | 109 | |
| Regional governments | 7,633 | 7,605 | 28 | |
| Local governments | 3,665 | 3,665 | - | |
| Total loans | 12,803 | 12,666 | 137 |
(a) Principal pending payment of loans.
P.226
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2019.| Loans that serves as collateral for the territorial bonds | Nominal Value(a) | Total | Spanish Residents | Residents in other countries of the European Economic Area |
| :-------------------------------------------------- | :--------------- | :---- | :---------------- | :------------------------------------------------------- |
| Central Governments | | 1,473 | 1,345 | 128 |
| Regional Governments | | 7,691 | 7,662 | 29 |
| Local Governments | | 4,151 | 4,151 | - |
| Total loans | | 13,315 | 13,158 | 157 |
(a) Principal pending payment of loans.
d.2) Liabilities operations
| Territorial bonds (Millions of Euros) | Nominal value 2020 | Nominal value 2019 |
|---|---|---|
| Territorial bonds issued (a) | 6,540 | 8,040 |
| Issued through a public offering | 6,540 | 8,040 |
| Of which: Treasury stock | 6,040 | 7,540 |
| Residual maturity up to 1 year | 2,000 | 4,500 |
| Residual maturity over 1 year and less than 2 years | 840 | 2,000 |
| Residual maturity over 2 years and less than 3 years | 200 | 840 |
| Residual maturity over 3 years and less than 5 years | 3,500 | 700 |
| Residual maturity over 5 years and less than 10 years | - | - |
| Residual maturity over 10 years | - | - |
| Other issuances | - | - |
| Of which: Treasury stock | - | - |
| Residual maturity over 1 year and less than 2 years | - | - |
| Residual maturity over 2 years and less than 3 years | - | - |
| Residual maturity over 3 years and less than 5 years | - | - |
| Residual maturity over 5 years and less than 10 years | - | - |
| Residual maturity over 10 years | - | - |
| Percentage | ||
| Percentage Coverage ratio of the territorial bonds on loans (b) | 51% | 60% |
(a) Includes the nominal value of all loans that serve as collateral for the territorial bonds, regardless of the item in which they are included in the balance sheet. Principal pending payment of loans. The territorial bonds include all the instruments issued by the entity pending amortization, although they are not recognized in the liability (because they have not been placed to third parties or have been repurchased).
(b) Percentage that results from the value of the quotient between the nominal value of the issued and non-overdue bonds, even if they are not recognized in the liability, and the nominal value balance pending collection of the loans that serve as guarantee.
This Appendix is an integral part of Notes 14.3 and 22.4 of the consolidated financial statements for the year ended December 31, 2020.
P.227
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
APPENDIX XI. Quantitative information on refinancing and restructuring operations and other requirement under Bank of Spain Circular 6/2012
a) Quantitative information on refinancing and restructuring operations
The breakdown of refinancing and restructuring operations as of December 31, 2020, 2019 and 2018 is as follows:
DECEMBER 2020 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 67 | 77 | 69 | 62 |
| Other financial corporations and individual entrepreneurs (financial business) | 519 | 10 | 22 | 2 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 111.648 | 5,592 | 11.343 | 3,182 |
| Of which: financing the construction and property (including land) | 624 | 500 | 1,081 | 622 |
| Other households (*) | 261,097 | 1,782 | 86,643 | 5,992 |
| Total | 373,331 | 7,460 | 98,077 | 9,239 |
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 39 | 36 | 29 | 20 |
| Other financial corporations and individual entrepreneurs (financial business) | 283 | 5 | 11 | 1 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 67.588 | 3,470 | 6.880 | 1,939 |
| Of which: financing the construction and property (including land) | 469 | 216 | 674 | 408 |
| Other households (*) | 113,013 | 765 | 37,063 | 2,805 |
| Total | 180,923 | 4,274 | 43,983 | 4,765 |
| 3 | 33 | 3,128 | |
|---|---|---|---|
| 2 | - | 4 | |
| 1,911 | 33 | 3,128 | |
| 370 | 8 | 420 | |
| 4,379 | 27 | 1,712 | |
| 6,337 | 60 | 4,859 | |
| 14 | - | 12 | |
| 1 | - | 3 | |
| 916 | 21 | 2,727 | |
| 197 | 8 | 311 | |
| 1,820 | 8 | 1,358 | |
| 2,750 | 30 | 4,100 |
(*) Number of operations does not include Garanti BBVA. Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.
P.228
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
DECEMBER 2019 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 73 | 93 | 64 | 64 |
| Other financial corporations and individual entrepreneurs (financial business) | 387 | 8 | 62 | 4 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 68,121 | 5,085 | 18,283 | 3,646 |
| Of which: financing the construction and property (including land) | 1.131 | 400 | 1,314 | 688 |
| Other households (*) | 173,403 | 1,510 | 67,513 | 5,827 |
| Total | 241,984 | 6,696 | 85,922 | 9,541 |
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 45 | 41 | 30 | 21 |
| Other financial corporations and individual entrepreneurs (financial business) | 241 | 6 | 30 | 2 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 39.380 | 3,148 | 11.706 | 2,466 |
| Of which: financing the construction and property (including land) | 819 | 321 | 790 | 445 |
| Other households (*) | 96,429 | 758 | 34,463 | 2,908 |
| Total | 136,095 | 3,954 | 46,229 | 5,396 |
| 178 | 3,252 | |
|---|---|---|
| 393 | 32 | |
| 4,414 | 33 | |
| 6,276 | 211 | |
| 16 | - | |
| 1 | - | |
| 1,020 | 50 | |
| 210 | 4 | |
| 2,096 | 17 | |
| 3,044 | 67 |
(*) Number of operations does not include Garanti BBVA. Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.
P.229
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
DECEMBER 2018 BALANCE OF FORBEARANCE (Millions of Euros)
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 75 | 111 | 46 | 64 |
| Other financial corporations and individual entrepreneurs (financial business) | 252 | 13 | 29.360 | 5 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 44.271 | 4,483 | 15,493 | 4,177 |
| Of which: financing the construction and property (including land) | 734 | 258 | 1,627 | 962 |
| Other households (*) | 193.061 | 1,326 | 355.466 | 6,990 |
| Total | 237,659 | 5,933 | 400,365 | 11,236 |
| TOTAL | Unsecured loans | Secured loans | ||
|---|---|---|---|---|
| Number of operations | Gross carrying amount | Number of operations | Gross carrying amount | |
| Real estate mortgage secured | ||||
| Accumulated impairment or accumulated losses in fair value due to credit risk | Maximum amount of secured loans that can be considered | Rest of secured loans | ||
| Credit institutions | - | - | - | - |
| General Governments | 46 | 65 | 12 | 16 |
| Other financial corporations and individual entrepreneurs (financial business) | 133 | 4 | 29.320 | 4 |
| Non-financial corporations and individual entrepreneurs (corporate non-financial activities) | 25.420 | 2,723 | 9,922 | 2,777 |
| Of which: financing the construction and property (including land) | 631 | 200 | 1,145 | 656 |
| Other households (*) | 116.916 | 741 | 42,403 | 3,673 |
| Total | 142,515 | 3,533 | 81,657 | 6,470 |
| 3 | 6 | 4,885 | |
|---|---|---|---|
| 2,200 | 221 | 3,148 | |
| 501 | 12 | 517 | |
| 5,083 | 150 | 1,716 | |
| 7,338 | 371 | 4,885 | |
| 8 | - | 10 | |
| 2 | - | 5 | |
| 1,192 | 100 | 2,773 | |
| 254 | 1 | 477 | |
| 2,435 | 26 | 1,414 | |
| 3,636 | 126 | 4,202 |
(*) Number of operations does not include Garanti BBVA. Includes mortgage-backed real estate operations with loan to value ratio of greater than 1, and secured operations, other than transactions secured by real estate mortgage regardless of their loan to value ratio.
In addition to the restructuring and refinancing transactions mentioned in this section, loans that were not considered impaired or renegotiated have been modified based on the criteria set out in the accounting regulation that applies. These loans have not been classified as renegotiated or impaired, since they were modified for commercial or competitive reasons (for instance, to improve relationships with clients) rather than for economic or legal reasons relating to the borrower's financial situation.
P.230
Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.The table below provides a breakdown by segments of the forbearance operations (net of provisions) as of December 31, 2020, 2019 and 2018:
| December 2020 | December 2019 | December 2018 | |
|---|---|---|---|
| Credit institutions | - | - | - |
| Central governments | 124 | 147 | 160 |
| Other financial corporations and individual entrepreneurs (financial activity) | 8 | 6 | 13 |
| Non-financial corporations and individual entrepreneurs (non- financial activity) | 5,645 | 5,479 | 5,512 |
| Of which: Financing the construction and property development (including land) | 701 | 660 | 702 |
| Households | 6,062 | 5,818 | 6,600 |
| Total carrying amount | 11,840 | 11,450 | 12,284 |
| Financing classified as non-current assets and disposal groups held for sale | 858 | 42 | - |
P.231 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
NPL ratio by type of renegotiated loan
The non-performing ratio of the renegotiated portfolio is defined as the impaired balance of renegotiated loans that shows signs of difficulties as of the closing of the reporting period, divided by the total payment outstanding in that portfolio. As of December 31, 2020 and December 31, 2019, the non-performing ratio for each of the portfolios of renegotiated loans is as follows:
December 2020.
NPL ratio renegotiated loan portfolio
| Ratio of impaired loans - past due | |
|---|---|
| General governments | 40% |
| Commercial | 62% |
| Of which: Construction and developer | 56% |
| Other consumer | 46% |
December 2019.
NPL ratio renegotiated loan portfolio
| Ratio of impaired loans - past due | |
|---|---|
| General governments | 39% |
| Commercial | 64% |
| Of which: Construction and developer | 70% |
| Other consumer | 50% |
P.232 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
b) Qualitative information on the concentration of risk by activity and guarantees
Loans and advances to customers by activity (carrying amount)
December 2020 (Millions of Euros)
| Loans to customers. | Total (*) | Mortgage loans | Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100% |
|---|---|---|---|---|---|---|---|---|
| General governments | 19,718 | 372 | 1,451 | 390 | 546 | 135 | 714 | 39 |
| Other financial institutions and individual entrepreneurs | 17,662 | 200 | 9,596 | 166 | 1,585 | 2,610 | 5,146 | 289 |
| Non-financial institutions and individual entrepreneurs | 143,693 | 23,686 | 4,082 | 8,294 | 7,162 | 4,467 | 3,200 | 4,646 |
| Of which: Construction and property development | 4,379 | 3,244 | 82 | 1,048 | 1,015 | 678 | 263 | 321 |
| Construction of civil works | 6,810 | 641 | 279 | 274 | 194 | 97 | 48 | 306 |
| Other purposes | 132,504 | 19,801 | 3,721 | 6,972 | 5,953 | 3,691 | 2,888 | 4,019 |
| Large companies | 79,595 | 6,648 | 1,920 | 2,561 | 1,811 | 1,242 | 1,012 | 1,943 |
| SMEs (**) and individual entrepreneurs | 52,909 | 13,154 | 1,801 | 4,411 | 4,142 | 2,449 | 1,877 | 2,076 |
| Rest of households and NPISHs (***) | 137,870 | 92,555 | 1,836 | 19,606 | 24,126 | 27,130 | 15,463 | 8,066 |
| Of which: Housing | 94,098 | 90,756 | 131 | 18,743 | 23,719 | 26,817 | 13,960 | 7,648 |
| Consumption | 39,442 | 418 | 1,521 | 246 | 190 | 139 | 1,245 | 118 |
| Other purposes | 4,331 | 1,381 | 184 | 617 | 216 | 174 | 257 | 301 |
| TOTAL | 318,943 | 116,813 | 16,966 | 28,456 | 33,419 | 34,343 | 24,522 | 13,039 |
| MEMORANDUM ITEM: Forbearance operations (***) | 11,840 | 7,271 | 74 | 1,350 | 1,408 | 1,587 | 1,165 | 1,834 |
() The amounts included in this table are net of loss allowances.
() Small and medium enterprises.
() Nonprofit institutions serving households.
(**) Net of provisions.
P.233 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2019 (Millions of Euros)
| Loans to customers. | Total (*) | Mortgage loans | Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100% |
|---|---|---|---|---|---|---|---|---|
| General governments | 29,257 | 1,067 | 10,886 | 4,914 | 1,510 | 1,077 | 3,651 | 801 |
| Other financial institutions and individual entrepreneurs | 23,114 | 281 | 13,699 | 1,856 | 219 | 103 | 11,688 | 115 |
| Non-financial institutions and individual entrepreneurs | 176,474 | 26,608 | 30,313 | 22,901 | 10,082 | 8,478 | 5,270 | 10,190 |
| Of which: Construction and property development | 15,171 | 4,497 | 2,114 | 2,313 | 1,765 | 1,476 | 457 | 600 |
| Construction of civil works | 7,146 | 756 | 468 | 499 | 248 | 152 | 106 | 219 |
| Other purposes | 154,157 | 21,355 | 27,731 | 20,089 | 8,069 | 6,850 | 4,707 | 9,371 |
| Large companies | 104,661 | 8,665 | 19,058 | 12,647 | 3,620 | 3,828 | 2,727 | 4,901 |
| SMEs (**) and individual entrepreneurs | 49,496 | 12,690 | 8,673 | 7,442 | 4,449 | 3,022 | 1,980 | 4,470 |
| Rest of households and NPISHs (***) | 167,117 | 108,031 | 5,582 | 23,057 | 27,714 | 32,625 | 20,529 | 9,688 |
| Of which: Housing | 110,178 | 104,796 | 2,332 | 20,831 | 26,639 | 31,707 | 18,701 | 9,250 |
| Consumption | 46,356 | 507 | 2,075 | 450 | 316 | 174 | 1,502 | 140 |
| Other purposes | 10,583 | 2,728 | 1,175 | 1,776 | 759 | 744 | 326 | 298 |
| TOTAL | 395,962 | 135,987 | 60,480 | 52,728 | 39,525 | 42,283 | 41,138 | 20,794 |
| MEMORANDUM ITEM: Forbearance operations (***) | 11,450 | 7,396 | 256 | 1,547 | 1,427 | 1,572 | 1,247 | 1,859 |
() The amounts included in this table are net of loss allowances.
() Small and medium enterprises
() Nonprofit institutions serving households.
(**) Net of provisions.
P.234 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
December 2018 (Millions of Euros)
| Loans to customers. | Total (*) | Mortgage loans | Secured loans | Less than or equal to 40% | Over 40% but less than or equal to 60% | Over 60% but less than or equal to 80% | Over 80% but less than or equal to 100% | Over 100% |
|---|---|---|---|---|---|---|---|---|
| General governments | 30,488 | 1,056 | 7,750 | 1,729 | 1,856 | 1,119 | 3,514 | 588 |
| Other financial institutions and individual entrepreneurs | 20,802 | 233 | 12,549 | 1,167 | 221 | 93 | 11,209 | 92 |
| Non-financial institutions and individual entrepreneurs | 173,493 | 29,001 | 32,371 | 25,211 | 11,121 | 9,793 | 5,087 | 10,160 |
| Of which: Construction and property development | 14,323 | 5,226 | 2,539 | 1,979 | 2,556 | 2,140 | 486 | 605 |
| Construction of civil works | 7,775 | 1,082 | 620 | 703 | 285 | 195 | 200 | 319 |
| Other purposes | 151,394 | 22,694 | 29,212 | 22,529 | 8,281 | 7,459 | 4,401 | 9,235 |
| Large companies | 97,132 | 9,912 | 19,069 | 13,918 | 3,979 | 4,019 | 2,245 | 4,820 |
| SMEs (**) and individual entrepreneurs | 54,262 | 12,782 | 10,143 | 8,611 | 4,302 | 3,440 | 2,156 | 4,416 |
| Rest of households and NPISHs (***) | 163,068 | 109,578 | 5,854 | 21,974 | 27,860 | 33,200 | 21,490 | 10,908 |
| Of which: Housing | 111,007 | 105,817 | 2,419 | 19,981 | 26,384 | 32,122 | 19,345 | 10,404 |
| Consumption | 40,124 | 522 | 2,600 | 489 | 587 | 306 | 1,597 | 142 |
| Other purposes | 11,938 | 3,239 | 835 | 1,505 | 888 | 772 | 547 | 362 |
| TOTAL | 387,850 | 139,868 | 58,524 | 50,082 | 41,058 | 44,206 | 41,300 | 21,747 |
| MEMORANDUM ITEM: Forbearance operations (***) | 12,284 | 8,325 | 523 | 1,508 | 1,421 | 1,769 | 1,527 | 2,623 |
() The amounts included in this table are net of loss allowances.
() Small and medium enterprises
() Nonprofit institutions serving households.
(**) Net of provisions.
P.235 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
c) Information on the concentration of risk by activity and geographical areas
December 2020 (Millions of Euros)
| TOTAL(*) | Spain | European Union | Other America | Other | |
|---|---|---|---|---|---|
| Credit institutions | 142,475 | 44,287 | 31,005 | 39,897 | 27,286 |
| General governments | 125,311 | 61,944 | 12,660 | 37,756 | 12,951 |
| Of which: Central Administration | 103,104 | 46,614 | 12,324 | 31,477 | 12,689 |
| Other | 22,207 | 15,330 | 336 | 6,279 | 262 |
| Other financial institutions | 48,434 | 14,727 | 11,773 | 15,640 | 6,294 |
| Non-financial institutions and individual entrepreneurs | 202,708 | 74,560 | 23,783 | 60,245 | 44,120 |
| Of which: Construction and property development | 8,182 | 3,384 | 202 | 1,899 | 2,697 |
| Construction of civil works | 10,385 | 5,275 | 1,349 | 1,183 | 2,578 |
| Other purposes | 184,141 | 65,901 | 22,232 | 57,163 | 38,845 |
| Large companies | 125,847 | 39,272 | 21,610 | 37,904 | 27,061 |
| SMEs and individual entrepreneurs | 58,294 | 26,629 | 622 | 19,259 | 11,784 |
| Other households and NPISHs | 138,544 | 88,633 | 2,882 | 36,690 | 10,339 |
| Of which: Housing | 94,098 | 73,383 | 1,747 | 16,262 | 2,706 |
| Consumer | 39,442 | 12,117 | 719 | 19,264 | 7,342 |
| Other purposes | 5,004 | 3,133 | 416 | 1,164 | 291 |
| TOTAL | 657,472 | 284,151 | 82,103 | 190,228 | 100,990 |
(*) The definition of risk for the purpose of this statement includes the following items on the public balance sheet: “Loans and advances to credit institutions”, “Loans and advances”, “Debt securities”, “Equity instruments”, “Other equity securities”, “Derivatives and hedging derivatives”, “Investments in subsidiaries, joint ventures and associates” and “Guarantees given and contingent risks”. The amounts included in this table are net of loss allowances.
P.236 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.# APPENDIX XII. Additional information on risk concentration
The table below provides a breakdown of exposure to financial assets (excluding derivatives and equity instruments), as of December 31, 2020, 2019 and 2018 by type of counterparty and the country of residence of such counterparty. The below figures do not take into account accumulated other comprehensive income, loss allowances or loan-loss provisions:
| Sovereign risk | December 2020 | December 2019 | December 2018 |
|---|---|---|---|
| Spain | 60,916 | 55,575 | 52,970 |
| Italy | 10,270 | 7,810 | 9,249 |
| Turkey | 7,578 | 7,999 | 7,998 |
| Portugal | 1,067 | 924 | 529 |
| Germany | 342 | 224 | 362 |
| France | 108 | 93 | 122 |
| Netherlands | - | 1 | 9 |
| Romania | 459 | 480 | 493 |
| Rest of Europe | 244 | 185 | 248 |
| Subtotal Europe | 80,984 | 73,291 | 71,981 |
| Mexico | 31,237 | 32,630 | 26,562 |
| The United States | 14,217 | 19,802 | 18,645 |
| Colombia | 1,466 | 1,828 | 2,577 |
| Argentina | 1,539 | 1,557 | 628 |
| Peru | 706 | 582 | 750 |
| Venezuela | 21 | 7 | 1 |
| Rest of countries | 5,559 | 3,726 | 955 |
| Subtotal rest of countries | 54,746 | 60,131 | 50,118 |
| Total exposure to financial instruments | 135,729 | 133,421 | 122,099 |
The exposure to sovereign risk set out in the above table includes positions held in government debt securities in countries where the Group operates. They are used for ALCO’s management of the interest-rate risk on the balance sheets of the Group’s entities in these countries, as well as for hedging of pension and insurance commitments by insurance entities within the BBVA Group.
The table below provides a breakdown of the exposure of the Group’s credit institutions to sovereign risk as of December 31, 2020 by type of financial instrument and the country of residence of the counterparty, under EBA (European Banking Authority) requirements:
| Debt securities | Loans and advances | Derivatives | Total | % | |
|---|---|---|---|---|---|
| Notional value | Fair value + | Fair value - | |||
| Spain | 33,689 | 12,712 | 419 | 19 | (10) |
| Italy | 7,612 | 112 | - | - | (1,550) |
| Portugal | (230) | 130 | - | - | (53) |
| Germany | 159 | - | - | - | 295 |
| France | (747) | 26 | - | - | 773 |
| Netherlands | - | - | - | - | - |
| Romania | 459 | - | - | - | - |
| Rest of European Union | (573) | 35 | 285 | 1 | (5) |
| Total Exposure to Sovereign Counterparties (European Union) | 40,369 | 13,014 | 704 | 20 | (68) |
| Mexico | 19,215 | 4,671 | 2,798 | 3 | (148) |
| The United States | 14,133 | - | 25 | 2 | - |
| Turkey | 7,366 | 181 | - | - | - |
| Rest of other countries | 6,974 | 2,161 | - | 11 | - |
| Total other countries | 47,688 | 7,012 | 2,823 | 16 | (148) |
| Total | 88,057 | 20,026 | 3,527 | 36 | (216) |
This table shows sovereign risk balances with EBA criteria. Therefore, sovereign risk of European countries of the Group’s insurance companies (€10,917 million as of December 31, 2020) is not included. Includes credit derivatives CDS (Credit Default Swaps) shown at fair value.
Quantitative information on activities in the real-estate market in Spain Lending for real estate development of the loans as of December 31, 2020, 2019 and 2018 is shown below:
| Gross amount | Drawn over the guarantee value | Accumulated impairment | |
|---|---|---|---|
| Financing to construction and real estate development (including land) (Business in Spain) | 2,565 | 650 | (281) |
| Of which: Impaired assets | 473 | 213 | (230) |
| Memorandum item: Write-offs | 2,288 | ||
| Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) (book value) | 162,600 | ||
| Total consolidated assets (total business) (book value) | 736,176 | ||
| Impairment and provisions for normal exposures | (4,909) |
| Gross amount | Drawn over the guarantee value | Accumulated impairment | |
|---|---|---|---|
| Financing to construction and real estate development (including land) (Business in Spain) | 2,649 | 688 | (286) |
| Of which: Impaired assets | 567 | 271 | (252) |
| Memorandum item: Write-offs | 2,265 | ||
| Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) (book value) | 185,893 | ||
| Total consolidated assets (total business) (book value) | 697,737 | ||
| Impairment and provisions for normal exposures | (4,934) |
| Gross amount | Drawn over the guarantee value | Accumulated impairment | |
|---|---|---|---|
| Financing to construction and real estate development (including land) (Business in Spain) | 3,183 | 941 | (537) |
| Of which: Impaired assets | 875 | 440 | (463) |
| Memorandum item: Write-offs | 2,619 | ||
| Memorandum item: Total loans and advances to customers, excluding the General Governments (Business in Spain) (book Value) | 183,196 | ||
| Total consolidated assets (total business) (book value) | 675,675 | ||
| Impairment and provisions for normal exposures | (4,938) |
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Without secured loan | 372 | 298 | 324 |
| With secured loan | 2,193 | 2,351 | 2,859 |
| Terminated buildings | 1,307 | 1,461 | 1,861 |
| Homes | 991 | 1,088 | 1,382 |
| Other | 316 | 373 | 479 |
| Buildings under construction | 614 | 545 | 432 |
| Homes | 430 | 348 | 408 |
| Other | 184 | 197 | 24 |
| Land | 272 | 345 | 566 |
| Urbanized land | 143 | 240 | 364 |
| Rest of land | 129 | 105 | 202 |
| Total | 2,565 | 2,649 | 3,183 |
As of December 31, 2020, 2019 and 2018, 51.0% 55.2% and 58.5%, of loans to developers were guaranteed with buildings (75.8%, 74.5% and 74.3% are homes), and only 10.6%, 13.0%, and 17.8% by land, of which 52.6% 69.6%, and 64.3% are in urban locations, respectively.
The table below provides the breakdown of the financial guarantees given as of December 31, December 31, 2020, 2019 and 2018:
Financial guarantees given (Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Houses purchase loans | 58 | 44 | 48 |
| Without mortgage | 5 | 5 | 24 |
P.242 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The information on the retail mortgage portfolio risk (housing mortgage) as of December 31, December 31, 2020, 2019 and 2018 is as follows:
December 2020. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of euros)
| Gross amount | Of which: impaired loans | |
|---|---|---|
| Houses purchase loans | 74,689 | 2,841 |
| Without mortgage | 1,693 | 20 |
| With mortgage | 72,996 | 2,821 |
December 2019. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of Euros)
| Gross amount | Of which: impaired loans | |
|---|---|---|
| Houses purchase loans | 76,961 | 2,943 |
| Without mortgage | 1,672 | 22 |
| With mortgage | 75,289 | 2,921 |
December 2018. Financing allocated by credit institutions to construction and Real Estate development and lending for house purchase. (Millions of Euros)
| Gross amount | Of which: impaired loans | |
|---|---|---|
| Houses purchase loans | 80,159 | 3,852 |
| Without mortgage | 1,611 | 30 |
| With mortgage | 78,548 | 3,822 |
The loan to value (LTV) ratio of the above portfolio is as follows:
LTV breakdown of mortgage to households for the purchase of a home (business in Spain) (Millions of Euros)
| Total | Gross amount | Of which: Impaired loans | Gross amount | Of which: Impaired loans | Gross amount | Of which: Impaired loans |
|---|---|---|---|---|---|---|
| 2020 | 15,197 | 170 | 18,891 | 294 | 20,716 | 426 |
| 2019 | 15,105 | 182 | 19,453 | 313 | 20,424 | 506 |
| 2018 | 14,491 | 204 | 18,822 | 323 | 21,657 | 507 |
| Risk over the amount of the last valuation available (Loan to value-LTV) | ||||||
| Less than or equal to 40% | 15,197 | 170 | 15,105 | 182 | 14,491 | 204 |
| Over 40% but less than or equal to 60% | 18,891 | 294 | 19,453 | 313 | 18,822 | 323 |
| Over 60% but less than or equal to 80% | 20,716 | 426 | 20,424 | 506 | 21,657 | 507 |
| Over 80% but less than or equal to 100% | 10,624 | 470 | 11,827 | 544 | 13,070 | 610 |
| Over 100% | 7,568 | 1,461 | 8,480 | 1,376 | 10,508 | 2,178 |
| Total | 72,996 | 2,821 | 75,289 | 2,921 | 78,548 | 3,822 |
Outstanding home mortgage loans as of December 31, 2020, 2019 and 2018 had an average LTV of 46% 47% and 49% respectively.
The breakdown of foreclosed, acquired, purchased or exchanged assets from debt from loans relating to business in Spain, as well as the holdings and financing to non-consolidated entities holding such assets is as follows:
P.243 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Information about assets received in payment of debts (Business in Spain) (Millions of Euros)
December 2020
| Gross Value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying amount | |
|---|---|---|---|---|
| Real estate assets from loans to the construction and real estate development sectors in Spain. | 913 | (486) | (234) | 427 |
| Terminated buildings | 363 | (144) | (60) | 219 |
| Homes | 212 | (75) | (33) | 137 |
| Other | 151 | (69) | (27) | 82 |
| Buildings under construction | 30 | (21) | (10) | 9 |
| Homes | 29 | (20) | (10) | 9 |
| Other | 1 | (1) | - | - |
| Land | 520 | (321) | (164) | 199 |
| Urbanized land | 485 | (303) | (150) | 182 |
| Rest of land | 35 | (18) | (14) | 17 |
| Real estate assets from mortgage financing for households for the purchase of a home | 1,128 | (593) | (163) | 535 |
| Rest of foreclosed real estate assets | 481 | (259) | (48) | 222 |
| Equity instruments, investments and financing to non- consolidated companies holding said assets | 1,310 | (450) | (412) | 860 |
| Total | 3,832 | (1,788) | (857) | 2,044 |
Information about assets received in payment of debts (Business in Spain) (Millions of Euros)
December 2019
| Gross Value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying amount | |
|---|---|---|---|---|
| Real estate assets from loans to the construction and real estate development sectors in Spain. | 1,048 | (555) | (266) | 493 |
| Terminated buildings | 378 | (150) | (58) | 228 |
| Homes | 221 | (81) | (33) | 140 |
| Other | 157 | (69) | (25) | 88 |
| Buildings under construction | 79 | (44) | (24) | 35 |
| Homes | 78 | (43) | (24) | 35 |
| Other | 1 | (1) | - | - |
| Land | 591 | (361) | (184) | 230 |
| Urbanized land | 547 | (338) | (167) | 209 |
| Rest of land | 44 | (23) | (17) | 21 |
| Real estate assets from mortgage financing for households for the purchase of a home | 1,192 | (612) | (153) | 580 |
| Rest of foreclosed real estate assets | 451 | (233) | (37) | 218 |
| Equity instruments, investments and financing to non-consolidated companies holding said assets | 1,380 | (293) | (255) | 1,087 |
| Total | 4,071 | (1,693) | (711) | 2,378 |
Information about assets received in payment of debts (Business in Spain) (Millions of Euros)
December 2018
| Gross value | Provisions | Of which: Valuation adjustments on impaired assets, from the time of foreclosure | Carrying amount | |
|---|---|---|---|---|
| Real estate assets from loans to the construction and real estate development sectors in Spain. | 2,165 | (1,252) | (828) | 913 |
| Finished buildings | 991 | (445) | (274) | 546 |
| Homes | 588 | (245) | (144) | 343 |
| Other | 403 | (200) | (130) | 203 |
| Buildings under construction | 209 | (131) | (96) | 78 |
| Homes | 194 | (117) | (85) | 77 |
| Other | 15 | (14) | (11) | 1 |
| Land | 965 | (676) | (458) | 289 |
| Urbanized land | 892 | (633) | (421) | 259 |
| Rest of land | 73 | (43) | (37) | 30 |
| Real estate assets from mortgage financing for households for the purchase of a home | 1,797 | (932) | (331) | 865 |
| Rest of foreclosed real estate assets | 348 | (192) | (40) | 156 |
| Foreclosed equity instruments | 1,345 | (234) | (234) | 1,111 |
| Total | 5,655 | (2,610) | (1,433) | 3,045 |
P.244 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Additionally, in December 2018, there was an increase of BBVA, S.A.’s stake in Garanti Yatirim Ortakligi AS through its contribution to the capital increase carried out by the latter entity.
As of December 31, 2020, 2019 and 2018, the gross book value of the Group’s real-estate assets from corporate financing of real-estate construction and development was €913, €1,048 and €2,165 million, respectively, with an average coverage ratio of 53.2%, 53.0%, and 57.8% respectively.
The gross book value of real-estate assets from mortgage lending to households for home purchase as of December 31, 2020, 2019 and 2018, amounted to €1,128, €1,192 and €1,797 million, respectively, with an average coverage ratio of 52.6%, 51.3%, and 51.9%.
As of December 31, 2020, 2019 and 2018, the gross book value of the BBVA Group’s total real-estate assets (business in Spain), including other real-estate assets received as debt payment, was €2,522, €2,691 and €4,310 million, respectively. The coverage ratio was 53.1%, 52.0% and 55.1%, respectively.
This Appendix is an integral part of Note 7 of the consolidated financial statements for the year ended December 31, 2020.
P.245 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish- language version prevails.
c) Concentration of risk by geography
Below is a breakdown of the balances of financial instruments registered in the accompanying consolidated balance sheets by their concentration in geographical areas and according to the residence of the customer or counterparty. As of December 31, 2020, 2019 and 2018 it does not take into account loss allowances or loan-loss provisions:
Risks by geographical areas. December 2020 (Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | Turkey | South America | Other | Total | |
|---|---|---|---|---|---|---|---|---|
| Derivatives | 8,419 | 17,811 | 2,292 | 8,350 | 349 | 2,162 | 800 | 40,183 |
| Equity instruments (*) | 2,196 | 9,627 | 3,197 | 925 | 65 | 260 | 420 | 16,690 |
| Debt securities | 56,552 | 18,932 | 29,392 | 5,097 | 7,466 | 5,907 | 6,287 | 129,632 |
| Central banks | - | - | - | - | - | 2,535 | 100 | 2,635 |
| General governments | 48,765 | 12,320 | 26,567 | 2,412 | 7,449 | 2,547 | 4,641 | 104,701 |
| Credit institutions | 1,680 | 2,383 | 1,542 | 214 | 14 | 205 | 681 | 6,718 |
| Other financial corporations | 5,466 | 1,804 | 404 | 897 | 2 | 439 | 163 | 9,175 |
| Non-financial corporations | 641 | 2,426 | 879 | 1,574 | 0 | 180 | 702 | 6,402 |
| Loans and advances | 168,849 | 53,038 | 57,787 | 8,335 | 40,373 | 39,081 | 9,996 | 377,459 |
| Central banks | 1,301 | 37 | 235 | 204 | 3,408 | 1,060 | 37 | 6,282 |
| General governments | 12,712 | 328 | 4,671 | - | 181 | 1,401 | 732 | 20,026 |
| Credit institutions | 644 | 25,273 | 2,888 | 1,477 | 217 | 830 | 3,794 | 35,122 |
| Other financial corporations | 3,742 | 11,024 | 2,489 | 946 | 1,165 | 756 | 723 | 20,845 |
| Non-financial corporations | 55,314 | 13,078 | 22,878 | 5,670 | 23,963 | 18,215 | 4,573 | 143,691 |
| Households | 95,136 | 3,298 | 24,626 | 38 | 11,439 | 16,819 | 137 | 151,493 |
| Total risk in financial assets | 236,016 | 99,408 | 92,667 | 22,706 | 48,253 | 47,410 | 17,503 | 563,964 |
| Loan commitments given | 35,096 | 32,327 | 15,748 | 33,644 | 7,691 | 6,530 | 1,548 | 132,584 |
| Financial guarantees given | 850 | 3,302 | 24 | 714 | 4,415 | 1,013 | 348 | 10,665 |
| Other commitments given | 15,474 | 8,224 | 1,618 | 1,922 | 3,403 | 2,883 | 2,666 | 36,190 |
| Off-balance sheet exposures | 51,419 | 43,853 | 17,391 | 36,280 | 15,508 | 10,425 | 4,563 | 179,440 |
| Total risks in financial instruments | 287,436 | 143,261 | 110,058 |
(Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | Turkey | South America | Other | Total | |
|---|---|---|---|---|---|---|---|---|
| Derivatives | 5,241 | 16,603 | 1,328 | 6,354 | 189 | 1,788 | 729 | 32,232 |
| Equity instruments (*) | 3,745 | 6,184 | 3,829 | 1,311 | 55 | 268 | 247 | 15,639 |
| Debt securities | 48,806 | 13,283 | 28,053 | 17,733 | 7,934 | 5,383 | 4,210 | 125,403 |
| Central banks | - | - | - | - | - | 1,785 | 70 | 1,855 |
| General governments | 41,510 | 9,403 | 25,852 | 14,465 | 7,921 | 2,732 | 2,846 | 104,728 |
| Credit institutions | 1,237 | 1,672 | 658 | 150 | 9 | 263 | 611 | 4,600 |
| Other financial corporations | 5,643 | 1,001 | 317 | 2,085 | 3 | 433 | 136 | 9,619 |
| Non-financial corporations | 416 | 1,207 | 1,226 | 1,034 | 1 | 170 | 548 | 4,602 |
| Loans and advances | 171,668 | 52,027 | 63,505 | 65,044 | 45,874 | 40,787 | 9,264 | 448,166 |
| Central banks | 14 | - | - | - | 3,647 | 684 | 475 | 4,820 |
| General governments | 14,477 | 394 | 6,820 | 5,342 | 111 | 1,536 | 637 | 29,316 |
| Credit institutions | 6,621 | 20,544 | 2,050 | 648 | 1,996 | 1,012 | 2,112 | 34,982 |
| Other financial corporations | 3,103 | 13,351 | 1,611 | 2,313 | 1,248 | 704 | 752 | 23,082 |
| Non-financial corporations | 50,718 | 14,215 | 24,823 | 34,960 | 26,099 | 17,963 | 5,130 | 173,907 |
| Households | 96,735 | 3,523 | 28,201 | 21,781 | 12,773 | 18,888 | 158 | 182,059 |
| Total risk in financial assets | 229,460 | 88,097 | 96,715 | 90,442 | 54,052 | 48,226 | 14,450 | 621,440 |
| Loan commitments given | 33,146 | 26,687 | 17,361 | 35,185 | 8,665 | 8,060 | 1,819 | 130,923 |
| Financial guarantees given | 3,182 | 1,605 | 656 | 754 | 3,170 | 911 | 705 | 10,984 |
| Other commitments given | 16,204 | 9,125 | 1,534 | 2,075 | 5,065 | 2,808 | 2,397 | 39,209 |
| Off-balance sheet exposures | 52,532 | 37,417 | 19,551 | 38,014 | 16,900 | 11,779 | 4,922 | 181,116 |
| Total risks in financial instruments | 281,992 | 125,514 | 116,266 | 128,456 | 70,952 | 60,005 | 19,372 | 802,556 |
(*) Equity instruments are shown net of valuation adjustment.
(Millions of Euros)
| Spain | Europe, excluding Spain | Mexico | The United States | Turkey | South America | Other | Total | |
|---|---|---|---|---|---|---|---|---|
| Derivatives | 3,927 | 15,277 | 1,473 | 6,993 | 161 | 1,142 | 549 | 29,522 |
| Equity instruments (*) | 3,228 | 3,669 | 2,459 | 1,139 | 29 | 212 | 207 | 10,944 |
| Debt securities | 43,777 | 14,908 | 23,134 | 16,991 | 8,048 | 5,274 | 1,312 | 113,445 |
| Central banks | - | - | - | - | - | 1,982 | 71 | 2,052 |
| General governments | 36,553 | 10,675 | 20,891 | 13,276 | 7,887 | 2,431 | 164 | 91,877 |
| Credit institutions | 1,130 | 1,821 | 573 | 74 | 155 | 297 | 463 | 4,514 |
| Other financial corporations | 5,769 | 1,048 | 227 | 2,595 | 5 | 432 | 114 | 10,190 |
| Non-financial corporations | 325 | 1,364 | 1,443 | 1,046 | 1 | 132 | 500 | 4,812 |
| Loans and advances | 177,077 | 43,034 | 55,248 | 62,193 | 45,285 | 40,007 | 7,089 | 429,933 |
| Central banks | 294 | 112 | - | - | 3,688 | 342 | 1,674 | 6,110 |
| General governments | 16,671 | 329 | 5,727 | 5,369 | 99 | 1,923 | 453 | 30,572 |
| Credit institutions | 5,422 | 13,600 | 1,476 | 696 | 956 | 984 | 639 | 23,774 |
| Other financial corporations | 4,616 | 10,893 | 1,303 | 2,255 | 766 | 637 | 304 | 20,773 |
| Non-financial corporations | 51,942 | 14,317 | 22,426 | 32,480 | 26,813 | 18,518 | 3,852 | 170,349 |
| Households | 98,131 | 3,783 | 24,316 | 21,393 | 12,963 | 17,602 | 168 | 178,355 |
| Total risk in financial assets | 228,009 | 76,888 | 82,314 | 87,316 | 53,523 | 46,635 | 9,157 | 583,844 |
| Loan commitments given | 32,582 | 21,983 | 14,503 | 32,136 | 7,914 | 8,590 | 1,252 | 118,959 |
| Financial guarantees given | 3,242 | 1,708 | 1,528 | 796 | 6,900 | 989 | 1,291 | 16,454 |
| Other commitments given | 15,995 | 9,229 | 532 | 2,118 | 2,230 | 2,782 | 2,213 | 35,098 |
| Off-balance sheet exposures | 51,819 | 32,920 | 16,563 | 35,050 | 17,043 | 12,360 | 4,756 | 170,511 |
| Total risks in financial instruments | 279,828 | 109,808 | 98,877 | 122,366 | 70,566 | 58,995 | 13,913 | 754,355 |
(*) Equity instruments are shown net of valuation adjustment.
(Millions of Euros)
| 2020 | 2019 | 2018 | |
|---|---|---|---|
| Spain | 8,199 | 8,616 | 10,025 |
| Rest of Europe | 118 | 175 | 225 |
| Mexico | 1,767 | 1,478 | 1,138 |
| South America | 1,703 | 1,769 | 1,715 |
| The United States (*) | - | 632 | 733 |
| Turkey | 2,889 | 3,289 | 2,520 |
| Rest of the world | 2 | 2 | 2 |
| IMPAIRED RISKS | 14,678 | 15,959 | 16,359 |
(*) The balance corresponds to the stake in BBVA USA (see Notes 3 and 21).
This Appendix is an integral part of Note 7.2.8 of the consolidated financial statements for the year ended December 31, 2020.
| Country | CIT payments cash basis | CIT expense consol | PBT consol | Gross income | Nº Employees (*) | Activity | Main Entity |
|---|---|---|---|---|---|---|---|
| Mexico | 1,250 | 721 | 2,491 | 6,798 | 36,853 | Finance, banking and insurance services | BBVA Bancomer S.A. |
| Spain (1)(2) | (699) | (7) | (2,108) | 5,732 | 29,330 | Finance, banking and insurance services | BBVA S.A. |
| Turkey | 348 | 362 | 1,394 | 3,298 | 20,357 | Finance, banking and insurance services | Garanti BBVA AS |
| United States | 118 | 85 | 551 | 3,165 | 10,883 | Finance and banking services | BBVA USA |
| Peru | 156 | 91 | 325 | 1,149 | 6,204 | Finance and banking services | BBVA Perú |
| Colombia | 104 | 77 | 249 | 911 | 6,592 | Finance, banking and insurance services | BBVA Colombia S.A. |
| Argentina | 137 | 81 | 205 | 732 | 6,052 | Finance, banking and insurance services | Banco BBVA Argentina S.A. |
| Uruguay | 12 | 8 | 37 | 146 | 590 | Finance and banking services | BBVA Uruguay S.A. |
| Chile | 19 | 8 | 32 | 132 | 696 | Financial services | Forum Servicios Financieros, S.A. |
| Romania | 8 | 4 | 27 | 103 | 1,199 | Finance and banking services | GBR Garanti Bank SA |
| Portugal | 5 | 14 | 42 | 100 | 447 | Finance and banking services | BBVA - Portugal Branch Office |
| Italy | 8 | 20 | 65 | 77 | 51 | Banking services | BBVA - Milan Branch Office |
| United Kingdom | 5 | 3 | 40 | 76 | 118 | Banking services | BBVA - London Branch Office |
| Paraguay | 3 | 3 | 26 | 68 | 430 | Finance and banking services | BBVA Paraguay S.A. |
| France | 13 | 3 | 14 | 64 | 68 | Banking services | BBVA - Paris Branch Office |
| Malta | 8 | 4 | 66 | 83 | 13 | Banking services | Garanti – Valletta Brach Office |
| The Netherlands | 7 | 7 | 23 | 59 | 236 | Finance and banking services | Garantibank BBVA International N.V. |
| Hong Kong | 8 | 5 | 31 | 55 | 80 | Banking services | BBVA - Hong Kong Branch Office |
| Venezuela | - | 7 | 8 | 44 | 1,996 | Finance, banking and insurance services | BBVA Banco Provincial S.A. |
| Switzerland | 9 | 3 | 11 | 42 | 113 | Finance and banking services | BBVA (Switzerland) S.A. |
| Germany | 26 | 8 | 24 | 40 | 43 | Banking services | BBVA - Frankfurt Branch Office |
| Bolivia | 3 | 3 | 12 | 28 | 476 | Pensions | BBVA Previsión AFP SA |
| Singapore | 1 | 2 | 11 | 14 | 10 | Banking services | BBVA - Singapore Branch Office |
| Cyprus | 7 | 4 | 16 | 28 | 103 | Banking services | Garanti - Nicosia Branch Office |
| Belgium | - | - | 4 | 7 | 22 | Banking services | BBVA - Brussels Branch Office |
| Curaçao | - | - | 2 | 5 | 16 | Finance and banking services | Banco Provincial Overseas N.V. |
| Taiwan | - | - | 1 | 5 | 11 | Banking services | BBVA - Taipei Branch Office |
| Brazil | - | - | 2 | 4 | 6 | Financial services | BBVA Brasil Banco de Investimento, S.A. |
| China | - | - | 1 | 4 | 26 | Banking services | BBVA - Shanghai Branch Office |
| Finland | - | - | (26) | 3 | 125 | Financial services | Holvi Payment Service OY |
| Japan | - | - | - | 1 | 3 | Banking services | BBVA - Tokyo Branch Office |
| Ireland | - | - | - | - | - | Financial services | BBVA Ireland PCL |
| Total | 1,556 | 1,516 | 3,576 | 22,973 | 123,149 |
(1) The balance of "Profit before tax", "Corporate tax expense" and "Gross Margin" includes €413, €57 and €2,807 million respectively from the banking business in the United States classified under the heading "Profit (loss) after taxes from discontinued operations”.
(2) The balance of "Profit (loss) before taxes" includes in Spain the impairment of Goodwill in the United States for €2,084 million, which in the income statement is classified under the heading of "Profit (loss) after taxes from discontinued operations".
() Full time employees. The 15 employees of representative offices are not included in the total number.
(*) In “CIT payments cash basis”, the methodology for calculating advance payments of the annual tax return provided for in Corporate Income Tax legislation, may lead to differences between the advance payments made in the current year and the refund of those advance payments made in previous years resulting once the annual corporate income tax return has been submitted. As a result of these differences, there has been a net cash refund.
The amount of “Profit before taxes includes Corporate Center (see Note 6). The results of this breakdown of the branches are integrated in the financial statements of the parent companies on which they depend. As of December 31, 2020, the return of the Group’s assets calculated by dividing the “Profit” between “Total Assets” is 0.28%. In 2020 (*), BBVA group has not received public aid for the financial sector which has the aim of promoting the carrying out of banking activities and which is significant.
This statement is made for the purposes of article 89 of Directive 2013/36/EU of the European Parliament and of the Council of June 26 (on access to the activity of credit institutions and the prudential supervision of credit institutions and investment firms) and its transposition to Spanish legislation by means of Law 10/2014 on Monitoring, Supervision and Solvency of Credit Institutions of June 26.# Glossary
Additional Tier 1 Capital
Includes: Preferred stock and convertible perpetual securities and deductions.
Adjusted acquisition cost
The acquisition cost of the securities less accumulated amortizations, plus interest accrued, but not net of any other valuation adjustments.
Amortized cost
The amortized cost of a financial asset or financial liability is the amount at which the financial asset or financial liability is measured at initial recognition minus the principal repayments, plus or minus, the cumulative amortization using the effective interest rate method of any difference between the initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.
Associates
Companies in which the Group has a significant influence, without having control. Significant influence is deemed to exist when the Group owns 20% or more of the voting rights of an investee directly or indirectly.
Baseline macroeconomic scenarios
IFRS 9 requires that an entity must evaluate a range of possible outcomes when estimating provisions and measuring expected credit losses, through macroeconomic scenarios. The baseline macroeconomic scenario presents the situation of the particular economic cycle.
Basic earnings per share
Calculated by dividing “Profit attributable to Parent Company” corresponding to ordinary shareholders of the entity by the weighted average number of shares outstanding throughout the year (i.e. excluding the average number of treasury shares held over the year).
Basis risk
Risk arising from hedging exposure to one interest rate with exposure to a rate that reprices under slightly different conditions.
Business combination
A business combination is a transaction, or any other event, through which a single entity obtains the control of one or more businesses.
Business Model
The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). Financial assets are classified on the basis of its business model for managing the financial assets. The Group’s business models shall be determined at a level that reflects how groups of financial assets are managed together to achieve a particular business objective and generate cash flows.
Cash flow hedges
Those that hedge the exposure to variability in cash flows attributable to a particular risk associated with a recognized asset or liability or a highly probable forecast transaction and could affect profit or loss.
Commissions
Income and expenses relating to commissions and similar fees are recognized in the consolidated income statement using criteria that vary according to their nature. The most significant income and expense items in this connection are:
* Fees and commissions relating linked to financial assets and liabilities measured at fair value through profit or loss, which are recognized when collected.
* Fees and commissions arising from transactions or services that are provided over a period of time, which are recognized over the life of these transactions or services.
* Fees and commissions generated by a single act are accrued upon execution of that act.
Consolidated statements of cash flows
The indirect method has been used for the preparation of the consolidated statement of cash flows. This method starts from the entity’s consolidated profit and adjusts its amount for the effects of transactions of a non-cash nature, any deferrals or accruals of past or future operating cash receipts or payments, and items of income or expense associated with cash flows classified as investment or finance. As well as cash, short-term, highly liquid investments subject to a low risk of changes in value, such as cash and deposits in central banks, are classified as cash and equivalents. When preparing these financial statements the following definitions have been used:
* Cash flows: Inflows and outflows of cash and equivalents.
* Operating activities: The typical activities of credit institutions and other activities that cannot be classified as investment or financing activities.
* Investing activities: The acquisition, sale or other disposal of long-term assets and other investments not included in cash and cash equivalents or in operating activities.
* Financing activities: Activities that result in changes in the size and composition of the Group’s equity and of liabilities that do not form part of operating activities.
Consolidated statements of changes in equity
The consolidated statements of changes in equity reflect all the movements generated in each year in each of the headings of the consolidated equity, including those from transactions undertaken with shareholders when they act as such, and those due to changes in accounting criteria or corrections of errors, if any. The applicable regulations establish that certain categories of assets and liabilities are recognized at their fair value with a charge to equity. These charges, known as “Valuation adjustments”, are included in the Group’s total consolidated equity net of tax effect, which has been recognized as deferred tax assets or liabilities, as appropriate.
Consolidated statements of recognized income and expenses
The consolidated statements of recognized income and expenses reflect the income and expenses generated each year. Such statement distinguishes between income and expenses recognized in the consolidated income statements and “Other recognized income (expenses)” recognized directly in consolidated equity. “Other recognized income (expenses)” include the changes that have taken place in the year in the “Valuation adjustments” broken down by item. The sum of the changes to the heading “Other comprehensive income” of the consolidated total equity and the consolidated profit for the year comprise the “Total recognized income/expenses of the year”.
Consolidation method
Method used for the consolidation of the accounts of the Group’s subsidiaries. The assets and liabilities of the Group entities are incorporated line-by-line on the consolidate balance sheets, after conciliation and the elimination in full of intragroup balances, including amounts payable and receivable. Group entity income statement income and expense headings are similarly combined line by line into the consolidated income statement, having made the following consolidation eliminations:
a) income and expenses in respect of intragroup transactions are eliminated in full.
b) profits and losses resulting from intragroup transactions are similarly eliminated.
The carrying amount of the parent's investment and the parent's share of equity in each subsidiary are eliminated.
Contingencies
Current obligations of the entity arising as a result of past events whose existence depends on the occurrence or non-occurrence of one or more future events independent of the will of the entity.
Contingent commitments
Possible obligations of the entity that arise from past events and whose existence depends on the occurrence or non-occurrence of one or more future events independent of the entity’s will and that could lead to the recognition of financial assets.
Control
An investor controls an investee when it is exposed, or has rights, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. An investor controls an investee if and only if the investor has all the following:
a) Power; An investor has power over an investee when the investor has existing rights that give it the current ability to direct the relevant activities, i.e. the activities that significantly affect the investee’s returns.
b) Returns; An investor is exposed, or has rights, to variable returns from its involvement with the investee when the investor’s returns from its involvement have the potential to vary as a result of the investee’s performance. The investor’s returns can be only positive, only negative or both positive and negative.
c) Link between power and returns; An investor controls an investee if the investor not only has power over the investee and exposure or rights to variable returns from its involvement with the investee, but also has the ability to use its power to affect the investor’s returns from its involvement with the investee.
Correlation risk
Correlation risk is related to derivatives whose final value depends on the performance of more than one underlying asset (primarily, stock baskets) and indicates the existing variability in the correlations between each pair of assets.
Countercyclical Capital Buffer (CCyB)
The countercyclical capital buffer (CCyB) is part of a set of macroprudential instruments, designed to help counter pro-cyclicality in the financial system. Capital should be accumulated when cyclical systemic risk is judged to be increasing, creating buffers that increase the resilience of the banking sector during periods of stress when losses materialize. This will help maintain the supply of credit and dampen the downswing of the financial cycle.# P.253 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
The CCyB can also help dampen excessive credit growth during the upswing of the financial cycle CRR (Capital Requirements Regulation) Solvency regulation on prudential requirements of credit institutions and investment firms (EU Regulation 575/2013). Credit Valuation Adjustment (CVA) An adjustment to the valuation of OTC derivative contracts to reflect the creditworthiness of OTC derivative counterparties. Current service cost Current service cost is the increase in the present value of a defined benefit obligation resulting from employee service in the current period. Current tax assets Taxes recoverable over the next twelve months. Current tax liabilities Corporate income tax payable on taxable profit for the year and other taxes payable in the next twelve months. Debit Valuation Adjustment (DVA) An adjustment made by an entity to the valuation of OTC derivative liabilities to reflect within fair value the entity’s own credit risk. Debt certificates Obligations and other interest-bearing securities that create or evidence a debt on the part of their issuer, including debt securities issued for trading among an open group of investors, that accrue interest, implied or explicit, whose rate, fixed or benchmarked to other rates, is established contractually, and take the form of securities or book-entries, irrespective of the issuer. Default An asset will be considered as defaulted whenever it is more than 90 days past due. Deferred tax assets Taxes recoverable in future years, including loss carry forwards or tax credits for deductions and tax rebates pending application. Deferred tax liabilities Income taxes payable in subsequent years. Defined benefit plans Post-employment obligation under which the entity, directly or indirectly via the plan, retains the contractual or implicit obligation to pay remuneration directly to employees when required or to pay additional amounts if the insurer, or other entity required to pay, does not cover all the benefits relating to the services rendered by the employees when insurance policies do not cover all of the corresponding post-employees benefits. Defined contribution plans Defined contribution plans are retirement benefit plans under which amounts to be paid as retirement benefits are determined by contributions to a fund together with investment earnings thereon. The employer's obligations in respect of its employees current and prior years' employment service are discharged by contributions to the fund. Deposits from central banks Deposits of all classes, including loans and money market operations, received from the Bank of Spain and other central banks. Deposits from credit institutions Deposits of all classes, including loans and money market operations received, from credit entities. Deposits from customers Redeemable cash balances received by the entity, with the exception of debt certificates, money market operations through counterparties and subordinated liabilities, which are not received from either central banks or credit entities. This category also includes cash deposits and consignments received that can be readily withdrawn. Derivatives The fair value in favor (assets) or again (liabilities) of the entity of derivatives not designated as accounting hedges. Derivatives - Hedging derivatives Derivatives designated as hedging instruments in an accounting hedge. The fair value or future cash flows of those derivatives is expected to offset the differences in the fair value or cash flows of the items hedged. Diluted earnings per share Calculated by using a method similar to that used to calculate basic earnings per share; the weighted average number of shares outstanding, and the profit attributable to the parent company corresponding to ordinary shareholders of the entity, if appropriate, is adjusted to take into account the potential dilutive effect of certain financial instruments that could generate the issue of new Bank shares (share option commitments with employees, warrants on parent company shares, convertible debt instruments, etc.). Dividends and retributions Dividend income collected announced during the year, corresponding to profits generated by investees after the acquisition of the stake. Domestic activity Domestic balances are those of BBVA´s Group entities domiciled in Spain, which reflect BBVA´s domestic activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for. Early retirements Employees that no longer render their services to the entity but which, without being legally retired, remain entitled to make economic claims on the entity until they formally retire. Economic capital Methods or practices that allow banks to consistently assess risk and attribute capital to cover the economic effects of risk-taking activities. Effective interest rate (EIR) Discount rate that exactly equals the value of a financial instrument with the cash flows estimated over the expected life of the instrument based on its contractual period as well as its anticipated amortization, but without taking the future losses of credit risk into consideration. Employee expenses All compensation accrued during the year in respect of personnel on the payroll, under permanent or temporary contracts, irrespective of their jobs or functions, irrespective of the concept, including the current costs of servicing pension plans, own share based compensation schemes and capitalized personnel expenses. Amounts reimbursed by the state Social Security or other welfare entities in respect of employee illness are deducted from personnel expenses. Equity The residual interest in an entity's assets after deducting its liabilities. It includes owner or venturer contributions to the entity, at incorporation and subsequently, unless they meet the definition of liabilities, and accumulated net profits or losses, fair value adjustments affecting equity and, if warranted, non- controlling interests. Equity instruments An equity instrument that evidences a residual interest in the assets of an entity, that is after deducting all of its liabilities. Equity instruments issued other than capital Includes equity instruments that are financial instruments other than “Capital” and “Equity component of compound financial instruments”.
Equity Method Is a method of accounting whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the investor’s share of the investee’s net assets. The investor’s profit or loss includes its share of the investee’s profit or loss and the investor’s other comprehensive income includes its share of the investee’s other comprehensive income. Exchange/translation differences Exchange differences (P&L): Includes the differences arising on translating monetary items denominated in foreign currency to the functional currency. Exchange differences (valuation adjustments): those recorded due to the translation of the financial statements in foreign currency to the functional currency of the Group and others recorded against equity. Expected Credit Loss (ECL) Expected credit losses are a probability -weighted estimate of credit losses over the expected life of the financial instrument. Hence, credit losses are the present value of expected cash shortfalls. The measurement and estimate of these expected credit losses should reflect: 1. An unbiased and probability-weighted amount. 2. The time value of money by discounting this amount to the reporting date using a rate that approximates the EIR of the asset, and 3. Reasonable and supportable information that is available without undue cost or effort. The expected credit losses must be measured as the difference between the asset’s gross carrying amount and the present value of estimated future cash flows discounted at the financial asset’s original effective interest rate or an approximation thereof (forward looking). Exposure at default EAD is the amount of risk exposure at the date of default by the counterparty. Fair value The price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. Fair value hedges Derivatives that hedge the exposure to changes in the fair value of assets and liabilities or firm commitments that have not be recognized, or of an identified portion of said asset s, liabilities or firm commitments, attributable to a specific risk, provided it could affect the income statement. Financial Assets at Amortized Cost Financial assets that do not meet the definition of financial assets designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity. Financial Assets at fair value through other comprehensive income Financial instruments with determined or determinable cash flows and in which the entire payment made by the entity will be recovered, except for reasons attributable to the solvency of the debtor. This category includes both the investments from the typical lending activity as well as debts contracted by the purchasers of goods, or users of services, that form part of the entity’s business. It also includes all finance lease arrangements in which the consolidated subsidiaries act as lessors.## Financial Guarantees
Contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs when a specified debtor fails to make payment when due in accordance with the original or modified terms of a debt instrument, irrespective of its instrumentation. These guarantees may take the form of deposits, technical or financial guarantees, insurance contracts or credit derivatives.
Transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts.
A financial instrument is any contract that gives rise to a financial asset of one entity and to a financial liability or equity instrument of another entity.
Financial liabilities that do not meet the definition of financial liabilities designated at fair value through profit or loss and arise from the financial entities' ordinary activities to capture funds, regardless of their instrumentation or maturity.
International balances are those of BBVA´s Group entities domiciled outside of Spain, which reflect our foreign activities, being the allocation of assets and liabilities based on the domicile of the Group entity at which the relevant asset or liability is accounted for.
Goodwill acquired in a business combination represents a payment made by the acquirer in anticipation of future economic benefits from assets that are not able to be individually identified and separately recognized.
P.255 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Foreign currency hedge of a net investment in a foreign operation.
Financial assets and liabilities acquired or incurred primarily for the purpose of profiting from variations in their prices in the short term. This category also includes financial derivatives not qualifying for hedge accounting, and in the case of borrowed securities, financial liabilities originated by the firm sale of financial assets acquired under repurchase agreements or received on loan (“short positions”).
An asset is credit-impaired according to IFRS 9 if one or more events have occurred and they have a detrimental impact on the estimated future cash flows of the asset. Evidence that a financial asset is credit-impaired includes observable data about the following events: a) significant financial difficulty of the issuer or the borrower, b) a breach of contract (e.g. a default or past due event), c) a lender having granted a concession to the borrower – for economic or contractual reasons relating to the borrower’s financial difficulty – that the lender would not otherwise consider, d) it becoming probable that the borrower will enter bankruptcy or other financial reorganization, e) the disappearance of an active market for that financial asset because of financial difficulties, or f) the purchase or origination of a financial asset at a deep discount that reflects the incurred credit losses.
Dividends and income on equity instruments collected or announced during the year corresponding to profits generated by investees after the ownership interest is acquired. Income is recognized gross, i.e. without deducting any withholdings made, if any.
The fair value of insurance contracts written to cover pension commitments.
Assets, other than financial instruments, under production, construction or development, held for sale during the normal course of business, or to be consumed in the production process or during the rendering of services. Inventories include land and other properties held for sale at the real estate development business.
Investment property is property (land or a building—or part of a building—or both) held (by the owner or by the lessee under a finance lease) to earn rentals or for capital appreciation or both, rather than for own use or sale in the ordinary course of business.
An arrangement of which two or more parties have joint control.
The contractually agreed sharing of control of an arrangement, which exists only when decisions about the relevant activities require the unanimous consent of the parties sharing control.
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the assets of the arrangement and obligations for the liabilities. A joint venturer shall recognize the following for its participation in a joint operation: a) its assets, including any share of the assets of joint ownership; b) its liabilities, including any share of the liabilities incurred jointly; c) income from the sale of its share of production from the joint venture; d) its share of the proceeds from the sale of production from the joint venturer; and e) its expenses, including any share of the joint expenses. A joint venturer shall account for the assets, liabilities, income and expenses related to its participation in a joint operation in accordance with IFRS applicable to the assets, liabilities, income and expenses specific question.
A joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. A joint venturer shall recognize its interest in a joint venture as an investment and shall account for that investment using the equity method in accordance with IAS 28 Investments in Associates and Joint Ventures.
P.256 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A lease is an agreement whereby the lessor conveys to the lessee in return for a payment or series of payments the right to use an asset for an agreed period of time, a stream of cash flows that is essentially equivalent to the combination of principal and interest payments under a loan agreement. a) A lease is classified as a finance lease when it substantially transfers all the risks and rewards incidental to ownership of the asset forming the subject-matter of the contract. b) A lease will be classified as operating lease when it is not a financial lease.
Lease that represents the lessee’s obligation to make lease payments during the lease term.
The balance of liabilities directly associated with assets classified as non-current assets held for sale, including those recognized under liabilities in the entity's balance sheet at the balance sheet date corresponding to discontinued operations.
The technical reserves of direct insurance and inward reinsurance recorded by the consolidated entities to cover claims arising from insurance contracts in force at period-end.
Loans and receivables, irrespective of their type, granted to third parties that are not credit entities.
The ratio of the amount borrowed to the appraised value or market value of the underlying collateral, usually taken into consideration in relation to loans for real estate financing.
It is the estimate of the loss arising in the event of default. It depends mainly on the characteristics of the counterparty, and the valuation of the guarantees or collateral associated with the asset.
Financial asset or security created from mortgage loans and backed by the guarantee of the mortgage loan portfolio of the entity.
Minimum requirement of own funds and eligible liabilities. New requirement faced by European banks, which aims to create a buffer of solvency that absorbs the losses of a financial entity in the event of resolution without jeopardizing taxpayers' money. The level of this buffer is determined individually for each banking group based on their level of risk and other particular characteristics.
The balance of non-performing risks, whether for reasons of default by customers or for other reasons, for financial guarantees given. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.
The balance of non-performing risks, whether for reasons of default by customers or for other reasons, for exposures on balance loans to customers. This figure is shown gross: in other words, it is not adjusted for value corrections (loan loss reserves) made.
The net amount of the profit or loss and net assets of a subsidiary attributable to associates outside the group (that is, the amount that is not owned, directly or indirectly, by the parent), including that amount in the corresponding part of the consolidated earnings for the period.
A non-current asset or disposal group, whose carrying amount is expected to be realized through a sale transaction, rather than through continuing use, and which meets the following requirements: a) it is immediately available for sale in its present condition at the balance sheet date, i.e. only normal procedures are required for the sale of the asset. b) the sale is considered highly probable.# Glossary
Assets and liabilities that do not provide any right to receive or deliver a determined or determinable amount of monetary units, such as tangible and intangible assets, goodwill and ordinary shares subordinate to all other classes of capital instruments.
Risks arising from options, including embedded options.
P.257 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Instruments designated by the entity from the inception at fair value with changes in profit or loss. An entity may only designate a financial instrument at fair value through profit or loss, if doing so more relevant information is obtained, because:
a) It eliminates or significantly reduces a measurement or recognition inconsistency (sometimes called "accounting mismatch") that would otherwise arise from measuring assets or liabilities or recognizing the gains and losses on them on different bases. It might be acceptable to designate only some of a number of similar financial assets or financial liabilities if doing so a significant reduction (and possibly a greater reduction than other allowable designations) in the inconsistency is achieved.
b) The performance of a group of financial assets or financial liabilities is managed and evaluated on a fair value basis, in accordance with a documented risk management or investment strategy, and information about the group is provided internally on that basis to the entity´s key management personnel.
These are financial assets managed jointly with “Liabilities under insurance and reinsurance contracts” measured at fair value, in combination with derivatives written with a view to significantly mitigating exposure to changes in these contracts' fair value, or in combination with financial liabilities and derivatives designed to significantly reduce global exposure to interest rate risk. These headings include customer loans and deposits effected via so-called unit-linked life insurance contracts, in which the policyholder assumes the investment risk.
This heading is broken down as follows:
i) Reserves or accumulated losses of investments in subsidiaries, joint ventures and associate: include the accumulated amount of income and expenses generated by the aforementioned investments through profit or loss in past years.
ii) Other: includes reserves different from those separately disclosed in other items and may include legal reserve and statutory reserve.
Includes the amount of compensation plans to employee’s long term.
The amount of own equity instruments held by the entity.
It is the change in the present value of the defined benefit obligation for employee service in prior periods, resulting in the current period from the introduction of, or changes to, post-employment benefits or other long-term employee benefits.
Retirement benefit plans are arrangements whereby an enterprise provides benefits for its employees on or after termination of service.
It is the probability of the counterparty failing to meet its principal and/or interest payment obligations. The PD is associated with the rating/scoring of each counterparty/transaction.
Buildings, land, fixtures, vehicles, computer equipment and other facilities owned by the entity or acquired under finance leases.
Provisions include amounts recognized to cover the Group’s current obligations arising as a result of past events, certain in terms of nature but uncertain in terms of amount and/or cancellation date.
Provisions recorded to cover exposures arising as a result of transactions through which the entity guarantees commitments assumed by third parties in respect of financial guarantees granted or other types of contracts, and provisions for contingent commitments, i.e. irrevocable commitments which may arise upon recognition of financial assets.
P.258 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Constitutes all provisions recognized to cover retirement benefits, including commitments assumed vis-à- vis beneficiaries of early retirement and analogous schemes.
Provisions recognized during the year, net of recoveries on amounts provisioned in prior years, with the exception of provisions for pensions and contributions to pension funds which constitute current or interest expense.
An operation which is totally or partially brought up to date with its payments as a result of a refinancing operation made by the entity itself or by another company in its group.
An operation which, irrespective of the holder or guarantees involved, is granted or used for financial or legal reasons related to current or foreseeable financial difficulties that the holder(s) may have in settling one or more operations granted by the entity itself or by other companies in its group to the holder(s) or to another company or companies of its group, or through which such operations are totally or partially brought up to date with their payments, in order to enable the holders of the settled or refinanced operations to pay off their loans (principal and interest) because they are unable, or are expected to be unable, to meet the conditions in a timely and appropriate manner.
An operation whose financial conditions are modified when the borrower is not experiencing financial difficulties, and is not expected to experience them in the future, i.e. the conditions are modified for reasons other than restructuring. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.
Risks related to the timing mismatch in the maturity and repricing of assets and liabilities and off-balance sheet short and long-term positions.
An operation whose financial conditions are modified for economic or legal reasons related to the holder's (or holders') current or foreseeable financial difficulties, in order to enable payment of the loan (principal and interest), because the holder is unable, or is expected to be unable, to meet those conditions in a timely and appropriate manner, even if such modification is provided for in the contract. In any event, the following are considered restructured operations: operations in which a haircut is made or assets are received in order to reduce the loan, or in which their conditions are modified in order to extend their maturity, change the amortization table in order to reduce the amount of the installments in the short term or reduce their frequency, or to establish or extend the grace period for the principal, the interest or both; except when it can be proved that the conditions are modified for reasons other than the financial difficulties of the holders and, are similar to those applied on the market on the modification date for operations granted to customers with a similar risk profile. In any case, these definitions are adapted to the local terminology, so that they are integrated into the management.
Accumulated net profits or losses recognized in the income statement in prior years and retained in equity upon distribution.
Asset that represents the lessee’s right to use an underlying asset during the lease term.
Risk exposure of the entity weighted by a percentage derived from the applicable standard (standardized approach) or internal models
A fund that is configured as a separate equity and administered by a management company. An entity that would like funding sells certain assets to the securitization fund, which, in turn, issues securities backed by said assets.
The amount paid in by owners for issued equity at a premium to the shares' nominal value.
Contributions by stockholders, accumulated earnings recognized in the income statement and the equity components of compound financial instruments.
Financial liabilities arising as a result of the final sale of financial assets acquired under repurchase agreements or received on loan.
P.259 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
In order to determine whether there has been a significant increase in credit risk for lifetime expected losses recognition, the Group has develop a two-prong approach:
a) Quantitative criterion : based on comparing the current expected probability of default over the life of the transaction with the original adjusted expected probability of default. The thresholds used for considering a significant increase in risk take into account special cases according to geographic areas and portfolios.
b) Qualitative criterion: most indicators for detecting significant risk increase are included in the Group's systems through rating/scoring systems or macroeconomic scenarios, so quantitative analysis covers the majority of circumstances.## Significant influence
Is the power to participate in the financial and operating policy decisions of the investee but is not control or joint control of those policies. If an entity holds, directly or indirectly (i.e. through subsidiaries), 20 per cent or more of the voting power of the investee, it is presumed that the entity has significant influence, unless it can be clearly demonstrated that this is not the case. Conversely, if the entity holds, directly or indirectly (i.e. through subsidiaries), less than 20 per cent of the voting power of the investee, it is presumed that the entity does not have significant influence, unless such influence can be clearly demonstrated. A substantial or majority ownership by another investor does not necessarily preclude an entity from having significant influence. The existence of significant influence by an entity is usually evidenced in one or more of the following ways: a) representation on the board of directors or equivalent governing body of the investee; b) participation in policy-making processes, including participation in decisions about dividends or other distributions; c) material transactions between the entity and its investee; d) interchange of managerial personnel; or e) Provision of essential technical information.
The Single Resolution Board (SRB) is the new European Banking Union's resolution authority. It is a key element of the Banking Union and its Single Resolution Mechanism. Its mission is to ensure the orderly resolution of failing banks, with as little impact as possible on the real economy and public finances of the participating EU countries and others.
The assessment as to how an asset shall be classified is made on the basis of both the business model for managing the financial asset and the contractual cash flow characteristic of the financial asset (SPPI Criterion). To determine whether a financial asset shall be classified as measured at amortized cost or FVOCI, a Group assesses (apart from the business model) whether the cash flows from the financial asset represent, on specified dates, solely payments of principal and interest on the principal amount outstanding (SPPI).
IFRS 9 classifies financial instruments into three categories, which depend on the evolution of their credit risk from the moment of initial recognition. The first category includes the transactions when they are initially recognized - without significant increase in credit risk (Stage 1); the second comprises the operations for which a significant increase in credit risk has been identified since its initial recognition - significant increase in credit risk (Stage 2) and the third one, the impaired operations Impaired (Stage 3). The transfer logic is defined in a symmetrical way, whenever the condition that triggered a transfer to Stage 2 is no longer met, the exposure will be transferred to Stage 1. In the case of forbearances transferred to stage 2, as long as the loan is flagged as forbearance it will keep its status as Stage 2. However, when the loan is not flagged as forbearance it will be transferred back to Stage 1.
Special financial instrument backed by other instruments building a subordination structure.
P.260 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
A structured entity is an entity that has been designed so that voting or similar rights are not the dominant factor in deciding who controls the entity, such as when any voting rights relate to administrative tasks only and the relevant activities are directed by means of contractual arrangements. A structured entity often has some or all of the following features or attributes:
a) restricted activities.
c) a narrow and well-defined objective, such as to effect a tax-efficient lease, carry out research and development activities, provide a source of capital or funding to an entity or provide investment opportunities for investors and passing on risks and rewards associated with the assets of the structured entity to investors.
d) insufficient equity to permit the structured entity to finance its activities without subordinated financial support.
e) financing in the form of multiple contractually linked instruments to investors that create concentrations of credit or other risks (tranches).
Financing received, regardless of its instrumentation, which ranks after the common creditors in the event of a liquidation.
Companies over which the Group exercises control. An entity is presumed to have control over another when it possesses the right to oversee its financial and operational policies, through a legal, statutory or contractual procedure, in order to obtain benefits from its economic activities. Control is presumed to exist when the parent owns, directly or indirectly through subsidiaries, more than one half of an entity's voting power, unless, exceptionally, it can be clearly demonstrated that ownership of more than one half of an entity's voting rights does not constitute control of it. Control also exists when the parent owns half or less of the voting power of an entity when there is:
a) an agreement that gives the parent the right to control the votes of other shareholders;
b) power to govern the financial and operating policies of the entity under a statute or an agreement; power to appoint or remove the majority of the members of the board of directors or equivalent governing body and control of the entity is by that board or body;
c) power to cast the majority of votes at meetings of the board of directors or equivalent governing body and control of the entity is by that board or body.
Tangible Book Value represents the tangible equity's value for the shareholders as it does not include the intangible assets and the minority interests (non-controlling interests). It is calculated by discounting intangible assets, that is, goodwill and the rest of consolidated intangibles recorded under the public balance sheet (goodwill and intangible assets of companies accounted for by the equity method or companies classified as non-current assets for sale are not subtracted). It is also shown as ex-dividends
All tax related liabilities except for provisions for taxes.
Financial assets or fixed asset security issued with the guarantee of portfolio loans of the public sector of the issuing entity.
Mainly includes: Common stock, parent company reserves, reserves in consolidated companies, non- controlling interests, deductions and others and attributed net income.
Mainly includes: Subordinated, preferred shares and non- controlling interest.
This is life insurance in which the policyholder assumes the risk. In these policies, the funds for the technical insurance provisions are invested in the name of and on behalf of the policyholder in shares of Collective Investment Institutions and other financial assets chosen by the policyholder, who bears the investment risk.
When the recovery of any recognized amount is considered to be remote, this amount is removed from the consolidated balance sheet, without prejudice to any actions taken by the consolidated entities in order to collect the amount until their rights extinguish in full through expiry, forgiveness or for other reasons.
P.261 Translation of the Consolidated Financial Statements originally issued in Spanish and prepared in accordance with EU-IFRS, as adopted by the European Union (see Notes 1 to 56). In the event of a discrepancy, the Spanish-language version prevails.
Value at Risk (VaR) is the basic variable for measuring and controlling the Group’s market risk. This risk metric estimates the maximum loss that may occur in a portfolio’s market positions for a particular time horizon and given confidence level VaR figures are estimated following two methodologies:
a) VaR without smoothing, which awards equal weight to the daily information for the immediately preceding last two years. This is currently the official methodology for measuring market risks vis-à-vis limits compliance of the risk.
b) VaR with smoothing, which weighs more recent market information more heavily. This is a metric which supplements the previous one. VaR with smoothing adapts itself more swiftly to the changes in financial market conditions, whereas VaR without smoothing is, in general, a more stable metric that will tend to exceed VaR with smoothing when the markets show less volatile trends, while it will tend to be lower when they present upturns in uncertainty.
Risks arising from changes in the slope and the shape of the yield curve.
213 ANNUAL CORPORATE GOVERNANCE REPORT OF LISTED COMPANIES
214 ANNUAL CORPORATE GOVERNANCE REPORT OF LISTED COMPANIES# OWNERSHIP STRUCTURE
| Date of last modification | Share capital (EUR) | Number of shares | Number of voting rights |
|---|---|---|---|
| 24/04/2017 | 3,267,264,424.20 | 6,667,886,580 | 6,667,886,580 |
Indicate if there are different share classes with different rights associated with them: No
| Name or corporate name of the shareholder | % of voting rights attached to shares | % of voting rights through financial instruments | Total % of voting rights |
|---|---|---|---|
| Blackrock, Inc. | 5.48% | 0.44% | 5.92% |
| Norges Bank | 3.24% | 0.13% | 3.37% |
| Name or corporate name of indirect shareholder | Name or corporate name of direct shareholder | % of voting rights attached to shares | % of voting rights through financial instruments | Total % of voting rights |
|---|---|---|---|---|
Indicate the most significant changes in the shareholder structure during the financial year:
State Street Bank and Trust Co., The Bank of New York Mellon S.A.N.V. and Chase Nominees Ltd., as international custodian/depositary banks, hold, as of 31 December 2020, 10.94%, 1.31% and 8.36% of BBVA's share capital, respectively. Of said positions held by the custodian banks, BBVA is not aware of any individual shareholders with direct or indirect holdings greater than or equal to 3% of the BBVA share capital.
Communication of significant shareholdings to the Spanish National Securities Market Commission (CNMV):
On 18 April 2019, Blackrock, Inc. informed the CNMV that it had an indirect holding of 5.917% of BBVA's share capital, through the company Blackrock, Inc.
Communication of significant shareholdings to the CNMV:
On 11 May 2020, Norges Bank informed the CNMV that it had a direct holding of 3.366% of BBVA's share capital.
| Name or corporate name of the director | % of voting rights attached to shares | % of voting rights through financial instruments | Total % of voting right | % of voting rights that can be transferred through financial instruments |
|---|---|---|---|---|
| Direct | Indirect | Direct | Indirect | |
| Carlos Torres Vila | 0.01 | 0.00 | 0.00 | 0.00 |
| Onur Genç | 0.01 | 0.00 | 0.00 | 0.00 |
| José Miguel Andrés Torrecillas | 0.00 | 0.00 | 0.00 | 0.00 |
| Jaime Félix Caruana Lacorte | 0.00 | 0.00 | 0.00 | 0.00 |
| Raúl Catarino Galamba de Oliveira | 0.00 | 0.00 | 0.00 | 0.00 |
| Belén Garijo López | 0.00 | 0.00 | 0.00 | 0.00 |
| Sunir Kumar Kapoor | 0.00 | 0.00 | 0.00 | 0.00 |
| Lourdes Máiz Carro | 0.00 | 0.00 | 0.00 | 0.00 |
| José Maldonado Ramos | 0.00 | 0.00 | 0.00 | 0.00 |
| Ana Cristina Peralta Moreno | 0.00 | 0.00 | 0.00 | 0.00 |
| Juan Pi Llorens | 0.00 | 0.00 | 0.00 | 0.00 |
| Ana Leonor Revenga Shanklin | 0.00 | 0.00 | 0.00 | 0.00 |
| Susana Rodríguez Vidarte | 0.00 | 0.00 | 0.00 | 0.00 |
| Carlos Vicente Salazar Lomelín | 0.00 | 0.00 | 0.00 | 0.00 |
| Jan Paul Marie Francis Verplancke | 0.00 | 0.00 | 0.00 | 0.00 |
| Total % of voting rights held by the board of directors | 0.02% |
| Name or corporate name of the director | Name or corporate name of direct shareholder | % of voting rights attached to shares | % of voting rights through financial instruments | Total % of voting rights | % of voting rights that can be transferred through financial instruments |
|---|---|---|---|---|---|
| Name of related person or company | Type of relationship | Brief description |
|---|---|---|
| Name of related person or company | Type of relationship | Brief description |
|---|---|---|
| Name or corporate name of linked director or representative | Name or corporate name of linked holder of significant shareholdings | Name of the company of the significant shareholder's group | Description of relationship/position | Remarks |
|---|---|---|---|---|
No
Indicate whether the company is aware of the existence of concerted actions by its shareholders. If so, describe them briefly:
No
If there has been any amendment or breaking-off of said pacts or agreements or concerted actions in the financial year, indicate this expressly:
No
At financial year-end:
| Number of direct shares | Number of indirect shares (*) | Total % of share capital |
|---|---|---|
| 592,832 | 13,760,000 | 0.22% |
(*) Through:
| Name or corporate name of direct holder of shareholding | Number of direct shares |
|---|---|
| Corporación General Financiera, S.A. | 13,760,000 |
| Total: | 13,760,000 |
Give details of any significant changes that have occurred during the financial year:
Explain the significant changes
In 2020, five communications regarding treasury shares were sent to the CNMV, as the acquisitions had exceeded the 1% threshold. The communications were as follows:
* Communication date: 21/01/2020. A total of 2,834,633 direct shares and 13,930,924 indirect shares, representing a total of 0.251% of the share capital.
* Communication date: 01/04/2020. A total of 3,332,105 direct shares and 4,165,426 indirect shares, representing a total of 0.112% of the share capital.
* Communication date: 12/06/2020. A total of 2,173,039 direct shares and 3,563,872 indirect shares, representing a total of 0.086% of the share capital.
* Communication date: 07/09/2020. A total of 1,333,849 direct shares and 15,542,111 indirect shares, representing a total of 0.253% of the share capital.
* Communication date: 09/12/2020. A total of 1,268,461 direct shares and 15,844,930 indirect shares, representing a total of 0.257% of the share capital.
219
| % Estimated floating capital |
|---|
| 90.48% |
Remarks
This estimated floating BBVA capital has been calculated by deducting, from the share capital, the capital held by the direct and indirect holders of significant shares (Section A.2), the members of the Board of Directors (Section A.3) and the capital held in treasury shares (Section A.9), all as of 31 December 2020, in accordance with the instructions for completing the Annual Corporate Governance Report
Yes
Description of the restrictions
Regarding the exercise of the right to vote, there are no legal or statutory restrictions on this. Thus, in accordance with Article 31 of the Bylaws, each voting share will confer the right to one vote on the holder, whether present or represented at the General Shareholders' Meeting, regardless of its disbursement. There are also no statutory restrictions on the acquisition or transfer of shares in the company's share capital. As for the legal restrictions on the acquisition or transfer of holdings in the company's share capital, Spanish Act 10/2014, of 26 June, on the regulation, supervision and solvency of credit institutions (the LOSS) establishes that the direct or indirect acquisition of a significant holding (as defined in Article 16 of that Act) in a credit institution is subject to assessment by the Bank of Spain as set out in Articles 16 et seq. of that Act. Additionally, Article 25 of Royal Decree 84/2015, implementing the LOSS, establishes that the Bank of Spain shall evaluate proposals for acquisitions of significant shares and submit a proposal to the European Central Bank regarding whether to oppose this acquisition or not. This same article establishes the criteria that should be considered during said evaluation and the applicable timelines.
No
If so, explain the measures approved and the terms under which the restrictions would be rendered effective:
Explain the measures approved and the terms under which such limitations would cease to apply
220
Yes
Where applicable, indicate the different share classes, and the rights and obligations that each share class confers. Indicate the different share classes
All the shares in BBVA's share capital have the same class and series, and confer the same political and economic rights. There are no different voting rights for any shareholder. There are no shares that do not represent capital. The Bank's shares are admitted to trade on the stock exchanges in Madrid, Barcelona, Bilbao and Valencia, through the Spanish Stock Exchange Interconnection System (Continuous Market), as well as on the stock exchanges in London and Mexico. BBVA's American Depositary shares (ADS) are traded on the New York stock exchange.
Yes
| Quorum on first call | Quorum on second call | |
|---|---|---|
| % required for quorum if different to that set out in Art. 193 of the CEA for general circumstances | 0.00% | 0.00% |
| % required for quorum if different to that set out in Art. 194 of the CEA for special circumstances | 66.66% | 60.00% |
Description of the differences
Article 194 of the Corporate Enterprises Act establishes that in order for a general meeting (whether ordinary or extraordinary) to validly resolve to increase or reduce capital or make any other amendment to the bylaws, bond issuance, the suppression or limitation of pre-emptive subscription rights over new shares, or the transformation, merger or spin-off of the company or global assignment of assets and liabilities or the offshoring of domicile, the shareholders present and represented on first calling must own at least 50% of the subscribed capital with voting rights. On second calling, 25% of said capital will be sufficient. Notwithstanding the foregoing, Article 25 of the BBVA Bylaws requires a super quorum of two thirds of the subscribed capital with voting rights on first calling, and 60% of the subscribed capital on second calling, for the valid adoption of resolutions on the following matters: change of the corporate purpose; the transformation, total spin-off or winding up of the Company; and the modification of the statutory article defining this super quorum.
No
Article 30 of the BBVA Company Bylaws establishes that the General Shareholders' Meeting is empowered to amend the Company Bylaws and to confirm or rectify the manner in which they are interpreted by the Board of Directors. To such end, the rules established under Articles 285 et seq. of the Corporate Enterprises Act shall apply.## B.4 Attendance at General Meetings
| Date of general meeting | % physically present | % present by proxy | % distance voting | Total | Electronic vote | Other |
|---|---|---|---|---|---|---|
| 13/03/2020 | 0.06% | 47.76% | 4.34% | 14.67% | 66.83% | |
| Of which is floating capital: | 0.04% | 38.48% | 4.34% | 14.67% | 57.53% | |
| 15/03/2019 | 1.77% | 38.95% | 0.92% | 22.79% | 64.43% | |
| Of which is floating capital: | 1.75% | 33.03% | 0.92% | 22.79% | 58.49% | |
| 16/03/2018 | 1.71% | 40.47% | 0.23% | 22.13% | 64.54% | |
| Of which is floating capital: | 1.62% | 34.53% | 0.23% | 22.13% | 58.51% |
No
Yes
Remarks
Article 23 of the BBVA Bylaws establishes that holders of 500 shares or more may attend ordinary and extraordinary General Shareholders' Meetings, provided that their shares are registered at least five days prior to such a meeting, in the corresponding accounting record, in accordance with the Securities Exchange Act and other applicable provisions. Holders of fewer shares may group together until they have at least that number, and name a representative. However, there is no minimum number of shares required to vote remotely.
Pursuant to the provisions of Article 8 of BBVA's Regulations of the General Shareholders' Meeting, shareholders may vote by proxy, by post, electronically or by any other means of remote communication, provided that the voter’s identity is duly guaranteed. In terms of the constitution of the General Shareholders' Meeting, shareholders who vote remotely will be counted as present.
No
Information relating to corporate governance and the Company's general meetings can be accessed via the Banco Bilbao Vizcaya Argentaria, S.A. company website, www.bbva.com, in the Shareholders and Investors – Corporate Governance and Remuneration Policy section (https://shareholdersandinvestors.bbva.com/corporate-governance-and-remuneration-policy/).
Remarks
In accordance with the provisions of Article 34, Paragraph 2 of the Bylaws, the General Shareholders' Meeting, held on 13 March 2020, resolved to set the total number of directors on the BBVA Board of Directors at 15.
| Name or corporate name of the director | Representative | Directorship type | Position on the board | Date of first appointment | Date of most recent appointment | Election procedure |
|---|---|---|---|---|---|---|
| Carlos Torres Vila | Executive | Chairman | 04/05/2015 | 15/03/2019 | Resolution of the General Shareholders' Meeting | |
| Onur Genç | Executive | Chief Executive Officer | 20/12/2018 | 15/03/2019 | Resolution of the General Shareholders' Meeting | |
| José Miguel Andrés Torrecillas | Independent | Deputy Chair | 13/03/2015 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Jaime Félix Caruana Lacorte | Independent | Director | 16/03/2018 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Raúl Catarino Galamba de Oliveira | Independent | Director | 13/03/2020 | 13/03/2020 | Resolution of the General Shareholders' Meeting | |
| Belén Garijo López | Independent | Director | 16/03/2012 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Sunir Kumar Kapoor | Independent | Director | 11/03/2016 | 15/03/2019 | Resolution of the General Shareholders' Meeting | |
| Lourdes Máiz Carro | Independent | Director | 14/03/2014 | 13/03/2020 | Resolution of the General Shareholders' Meeting | |
| José Maldonado Ramos | Other external | Director | 28/01/2000 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Ana Cristina Peralta Moreno | Independent | Director | 16/03/2018 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Juan Pi Llorens | Independent | Lead Director | 27/07/2011 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Ana Leonor Revenga Shanklin | Independent | Director | 13/03/2020 | 13/03/2020 | Resolution of the General Shareholders' Meeting | |
| Susana Rodríguez Vidarte | Other external | Director | 28/05/2002 | 13/03/2020 | Resolution of the General Shareholders' Meeting | |
| Carlos Vicente Salazar Lomelín | Other external | Director | 13/03/2020 | 13/03/2020 | Resolution of the General Shareholders' Meeting | |
| Jan Paul Marie Francis Verplancke | Independent | Director | 16/03/2018 | 16/03/2018 | Resolution of the General Shareholders' Meeting | |
| Total number of directors | ||||||
| 15 |
| Name or corporate name of the director | Position within the company's organisation structure | Profile |
|---|---|---|
| Carlos Torres Vila | Chairman | Chairman of the BBVA Board of Directors. He was Chief Executive Officer of BBVA from May 2015 to December 2018, Head of Digital Banking from 2014 to 2015 and Head of Strategy and Corporate Development from 2008 to 2014. In addition, he previously held positions of responsibility in other companies, with his roles as Chief Financial Officer, Corporate Director of Strategy and member of the Executive Committee of Endesa being of particular note, as well as partner at McKinsey & Company. He completed his studies in Electrical Engineering (BSc) at the Massachusetts Institute of Technology (MIT), where he also received a degree in Business Administration. He holds a master's degree in Management (MSc) from the MIT Sloan School of Management and also a Law degree from the National Distance Education University (UNED). |
| Onur Genç | Chief Executive Officer | Chief Executive Officer of BBVA. He served as Chairman and CEO of BBVA Compass and as BBVA Country Manager in the U.S. from 2017 to December 2018, and served as Deputy CEO and Executive Vice President of retail and private banking at Garanti BBVA between 2012 and 2017. He has also held positions of responsibility in different McKinsey & Company offices, having also been a Senior Partner and Manager of its Turkish office. He holds a degree in Electrical Engineering (BSc) from the University of Boğaziçi in Turkey and a master's degree in Business Administration (MSIA/MBA) from Carnegie Mellon University in the USA. |
Total number of executive directors: 2
% of all directors: 13%
| Name or corporate name of the director | Name or corporate name of the significant shareholder whom they represent or who has proposed their appointment | Profile |
|---|---|---|
Total number of proprietary directors: 225
| Name or corporate name of the director | Profile |
|---|---|
| José Miguel Andrés Torrecillas | Deputy Chairman of the BBVA Board of Directors. His developed his professional career at Ernst & Young, where he has been General Managing Partner of Audit and Advisory Services and Chairman of Ernst & Young Spain until 2014. He is a member of the Board of Directors of Zardoya Otis, S.A. He has been a member of various organisations such as the ROAC (Registro Oficial de Auditores de Cuentas — official registry of auditors), the REA (Registro de Economistas Auditores — registry of accounting auditors), the Junta Directiva del Instituto Español de Analistas Financieros (Spanish Institute of Financial Analysts Management Board), Fundación Empresa y Sociedad (the Business and Society Foundation), Instituto de Censores Jurados de Cuentas de España (Spanish Institute of Chartered Accountants), Consejo Asesor del Instituto de Auditores Internos (the Advisory Board of the Institute of Internal Auditors) and the Institute of Chartered Accountants in England & Wales (ICAEW). He holds a degree in Economic and Business Sciences from the Complutense University of Madrid and has studied at post-graduate level in Management Programs from IESE, Harvard and IMD. |
| Jaime Félix Caruana Lacorte | He has been General Manager of the Bank of International Settlements (BIS), Director of the Monetary and Capital Markets Department and Financial Counsellor and General Manager of the International Monetary Fund (IMF), Chairman of the Basel Committee on Banking Supervision, Governor of the Bank of Spain and member of the Governing Council of the ECB, among other positions. He is a member of the Group of Thirty (G-30) and Trustee of the Spanish Aspen Institute Foundation. He holds a degree in Telecommunications Engineering from the Escuela Técnica Superior de Ingenieros de Telecomunicación (ETSIT) of the Universidad Politécnica de Madrid and is a Commercial Technician and State Economist. |
| Raúl Catarino Galamba de Oliveira | He is the Chairman (independent) of the Board of Directors of CTT - Correios de Portugal, S.A. and a non-executive director of José de Mello Saúde and José de Mello Capital. His career has been linked to McKinsey & Company, where he was appointed Partner in 1995 and Senior Partner in 2000, and where he was Managing Partner for Spain and Portugal (2005–2011), Managing Partner for Global Risk Practice (2013–2016), Member of the Global Shareholders' Council (2005–2011), Member of the Global Partner Nomination and Evaluation Committees (2001–2017), Member of the Remuneration Committee (2005–2013) and Chairman of the Global Learning Board (2006–2011). He holds a BSc in Mechanical Engineering and an MSc in Systems Engineering from the Instituto Superior Técnico (IST) in Portugal, and an MBA from the Nova School of Business Economics, also in Portugal. |
| Belén Garijo López | She is Vice Chair of the Executive Board and Deputy CEO of the Merck Group since 2020, and on 1 May 2021 she will be Chair of the Executive Board and CEO of the Merck Group. She is also a member of the Board of Directors of L'Oréal and Chair of the International Senior Executive Committee (ISEC) of Pharmaceutical Research and Manufacturers of America. She has held various positions of responsibility at Abbot Laboratories (1989–1996), Rhône-Poulenc (1996–1999), Aventis Pharma (1999–2004), Sanofi Aventis (2004–2011) and Merck (since 2011). She is a graduate in Medicine from the University of Alcalá de Henares in Madrid and a specialist in Clinical Pharmacology at Hospital de la Paz , Autonomous University of Madrid. She also holds a master's degree in Business and Management from the Ashridge Management School (UK). |
| Sunir Kumar Kapoor | He is involved in a range of technology companies in Silicon Valley and Europe, and is an Operating Partner at Atlantic Bridge Capital, an independent director at Stratio and an mCloud consultant. He has been Manager of Business Enterprise EMEA for Microsoft Europe and Director of Worldwide Business Strategy for the Microsoft Corporation. Among other roles, she was previously the Executive Vice President and Chief Marketing Officer (CMO) of Cassatt Corporation and Chair and CEO of UBmatrix Incorporated. He holds a Bachelor's in Physics from the University of Birmingham and a Master's in Computer Systems from Cranfield Institute of Technology. |
| Lourdes Máiz Carro | She was Secretary of the Board of Directors and Director of Legal Services at Iberia, Líneas Aéreas de España until April 2016. She has also been a director of several companies, including Renfe, GIF (Gerencia de Infraestructuras Ferroviarias — Railway Infrastructure Administrator, now ADIF), the ICO (Instituto de Crédito Oficial — Official Credit Institution), Aldeasa and Banco Hipotecario. She worked in Research, giving classes in Metaphysics and Theory of Knowledge at the Complutense University of Madrid for five years. She became State Attorney and held various positions of responsibility in Public Administration, including General Director of Administrative Organisation, Job Positions and I.T. (Ministry of Public Administrations), General Director of the Sociedad Estatal de Participaciones Patrimoniales (SEPPA) at the Ministry of Economy and Finance and Technical General Secretariat of the Ministry of Agriculture, Fisheries and Food. She holds degrees in Law and Philosophy and Education Sciences as well as a Ph.D. in Philosophy. |
| Ana Cristina Peralta Moreno | She is an independent director at Grenergy Renovables and an independent director at Inmobiliaria Colonial, SOCIMI, S.A. She was previously Chief Risk Officer and a member of the Bankinter Management Committee, and Chief Risk Officer and member of the Banco Pastor Management Committee. She has also held various positions at a number of financial organisations, notably serving as an independent director at Deutsche Bank SAE, independent director at Banco Etcheverría, independent director at Grupo Lar Holding Residencial, S.A.U., and Senior Advisor at Oliver Wyman Financial Services. She is a graduate in Economic and Business Sciences from Complutense University of Madrid. She also has a master's degree in Economic-Financial Management from the Centro de Estudios Financieros (CEF), Program for Management Development (PMD) at Harvard Business School and PADE (Programa de Alta Dirección de Empresas – senior management programme) at IESE. |
| Juan Pi Llorens | Lead Director of BBVA. He is currently non-executive Chair of Ecolumber, S.A., non-executive director at Oesia Networks, S.L. and Tecnobit, S.L.U. (Grupo Oesía). He has had a professional career at IBM holding various senior positions at a national and international level, including Vice President of Sales at IBM Europe, Vice President of Technology & Systems at IBM Europe and Vice President of the Financial Services Sector in the Growth Markets Units (GMU) in China. He was also Executive Chairman of IBM Spain. He holds a degree in Industrial Engineering from the Universidad Politécnica de Barcelona and completed the PDG (Programa en Dirección General – general management programme) at IESE. |
| Ana Leonor Revenga Shanklin | Senior Fellow at the Brookings Institution, Associate Professor at the Walsh School of Foreign Service at Georgetown University and Chair of the Board of Trustees at the ISEAK Foundation. Her career has been linked mainly to the World Bank, where, after holding several technical and management positions in East Asia and the Pacific, Europe and Central Asia, Latin America and the Caribbean, she has held several leadership positions, including Senior Director of Global Poverty & Equity (2014–2016) and Deputy Chief Economist (2016–2017). She holds a BA in Economics and Mathematics, magna cum laude, from Wellesley College (USA), an MA and PhD in Economics from Harvard University (USA), and a Certificate in Human Rights from the Faculty of Law at the University of Geneva (Switzerland). |
| Jan Paul Marie Francis Verplancke | His roles have included Chief Information Officer (CIO) and Group Head of Technology and Banking Operations at Standard Chartered Bank, Vice President of Technology and Chief Information Officer (CIO) for EMEA at Dell, as well as Vice President and Chief of Architecture and Vice President of Information of the Youth Category at Levi Strauss. He is currently an advisor to the internal advisory board at Abdul Latif Jameel. He holds a bachelor's degree in Science, specialising in Computer Science, from the Programming Centre of the North Atlantic Treaty Organization (NATO) in Belgium. |
Total number of independent directors: 10
% of all directors: 67%
Indicate whether any director considered an independent director is receiving from the company or from its group any amount or benefit under any item that is not the remuneration for their directorship, or maintains or has maintained over the last financial year a business relationship with the company or any company in its group, whether in their own name or as a significant shareholder, director or senior manager of an entity that maintains or has maintained such a relationship. Where applicable, include a reasoned statement from the board with the reasons why it deems that this director can perform their duties as an independent director.# OTHER EXTERNAL DIRECTORS
Identify all other external directors and explain why these cannot be considered proprietary or independent directors, and detail their relationships with the company, its executives or shareholders:
| Name or corporate name of the director | Reasons | Company, executive or shareholder to which related | Profile |
|---|---|---|---|
| José Maldonado Ramos | He has been a director for a continuous period of more than 12 years. | Banco Bilbao Vizcaya Argentaria, S.A. | Over the course of his professional career, he has held the positions of Secretary of the Board of Directors at a number of companies, most notably as Corporate General Secretary of Argentaria, before taking up the position of Corporate Secretary of BBVA. He took early retirement as a Bank executive in December 2009. He holds a Law degree from Complutense University of Madrid. In 1978, he became State Attorney. |
| Susana Rodríguez Vidarte | She has been a director for a continuous period of more than 12 years. | Banco Bilbao Vizcaya Argentaria, S.A. | She has been Professor of Strategy at the Faculty of Economics and Business Administration at the University of Deusto and a non-practising member of the Institute of Accounting and Accounts Auditing. She was Dean of the Faculty of Economics and Business Administration at the University of Deusto, Director of the Postgraduate Area and Director of the Instituto Internacional de Dirección de Empresas (INSIDE). She holds a PhD in Economic and Business Administration from the University of Deusto. |
| Carlos Vicente Salazar Lomelín | Applying a criterion of prudence in the interpretation of the applicable law, Mr Salazar Lomelín has been assigned the status of external director to Banco Bilbao Vizcaya Argentaria, S.A., in view of his membership of the management bodies of companies related to BBVA Mexico for more than 15 years. | Grupo Financiero BBVA Bancomer, S.A. de C.V. | Non-executive director of Grupo Financiero BBVA Bancomer, S.A. de C.V.; non-executive director of BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer; non-executive director of Seguros BBVA Bancomer, S.A. de C.V., Grupo Financiero BBVA Bancomer; non-executive director of Pensiones BBVA Bancomer, S.A. de C.V., Grupo Financiero BBVA Bancomer; and non-executive director of BBVA Bancomer Seguros Salud, S.A. de C.V., Grupo Financiero BBVA Bancomer. He is also the Chairman of Mexico's Business Coordinating Council (since 2019) and an independent director at Sukarne (since 2017) and Alsea (since 2019). His career has been linked mainly to Grupo Fomento Económico Mexicano S.A.B. de C.V. (Femsa), where he was General Manager of Cervecería Cuauhtémoc- Moctezuma and then Chief Executive Officer of Femsa (2014– 2017). He holds a degree in Economics and has completed postgraduate studies in Business Administration at Instituto Tecnológico y de Estudios Superiores de Monterrey (Monterrey Institute of Technology and Higher Education). |
Total number of other external directors: 3
% of all directors: 20%
Indicate any changes that may have occurred during the period in the directorship type of each director:
| Name or corporate name of the director | Date of change | Previous type | Current type |
|---|---|---|---|
Fill in the following table with information regarding the number of female directors over the last four financial years and their directorship types:
| Financial year | 2020 | 2019 | 2018 | 2017 | 2020 | 2019 | 2018 | 2017 |
|---|---|---|---|---|---|---|---|---|
| Number of female directors | ||||||||
| Executive | 0 | 0 | 0 | 0 | ||||
| Proprietary | 0 | 0 | 0 | 0 | ||||
| Independent | 4 | 3 | 3 | 2 | ||||
| Other external | 1 | 1 | 1 | 1 | ||||
| Total: | 5 | 4 | 4 | 3 | ||||
| % of all directors of each type | 2020 | 2019 | 2018 | 2017 | ||||
| Executive | 0.00% | 0.00% | 0.00% | 0.00% | ||||
| Proprietary | 0.00% | 0.00% | 0.00% | 0.00% | ||||
| Independent | 40% | 37.5% | 37.5% | 33.33% | ||||
| Other external | 33.33% | 25% | 25% | 25% | ||||
| Total: | 33.33% | 26.67% | 26.67% | 23.08% |
Indicate whether the company has diversity policies for the company's board of directors with regard to issues such as age, gender, disabilities, or professional training and experience.
Yes
If yes, please outline these diversity policies, their objectives, their measures, the way in which they have been applied and the results thereof in this financial year. Any specific measures adopted by the board of directors and the appointments committee to attain a balanced and diverse representation of directors must also be indicated. If the company does have a diversity policy, explain the reason for this.
The Bank has a Policy on the selection, suitability and diversity of the BBVA Board of Directors (the Selection Policy), the current text of which was revised and approved at the end of 2020 by the Board of Directors, at the proposal of the Appointments and Corporate Governance Committee, in both cases, in accordance with their respective regulatory powers, taking into account the recommendations included in the Good Governance Code of Listed Companies of the CNMV and local and international best practices and recommendations.
This Selection Policy sets out the principles and criteria governing the process for the selection, appointment and renewal of the members of the BBVA Board of Directors, as well as the legal requirements that directors must meet, including suitability requirements. The Policy also provides for elements and objectives concerning the composition of the corporate bodies, including diversity, which will be attended to ensure that the corporate bodies properly exercise their functions and to guarantee their effective functioning. All the foregoing in the Bank's best corporate interest.
In this sense, with regard to diversity, the Selection Policy states that the BBVA Board of Directors will promote diversity in the composition of the Bank's corporate bodies by encouraging the inclusion of people with different profiles, qualities, knowledge, training and experience. To ensure that the corporate bodies have an adequate and balanced composition, the refreshment and selection processes will encourage diversity of their members, based on the needs of the Bank at all times.
In particular, they will strive to ensure that the Board of Directors has a balanced representation of men and women. To this end, the Appointments and Corporate Governance Committee has set a target for representation of the lesser-represented gender, namely to endeavour that female directors should represent at least 40% of the Board of Directors by the end of the 2022 financial year and beyond, not dropping below 30% prior to this.
Additionally, the composition of the Board of Directors shall seek to feature an adequate balance between the different types of director, for non-executive directors to represent an ample majority over executive directors and for the number of independent directors to account for at least 50% of the total seats. The corporate bodies shall also seek to combine individuals who have experience and knowledge of the Group, its businesses and the financial sector in general, with others who have training, skills, knowledge and experience in other areas and sectors relevant to the Bank.
In any case, BBVA's corporate bodies may take any other diversity factor into consideration that is relevant at any given moment to accommodate the composition of the corporate bodies to the needs of the Bank, including criteria such as gender diversity, academic profile, professional experience, knowledge, disability, origin or age, thus being able to achieve an adequate balance aimed at ensuring that the corporate bodies can properly and effectively exercise their functions.
In line with the foregoing, the composition of the BBVA Board of Directors brings together directors with broad experience and knowledge of the financial and banking sector with other directors who have experience and knowledge in the other areas of interest to the Bank and its Group, such as audit, risk management, sustainability, corporate governance, the legal and academic field, multinational enterprise, public institutions and digital business and technology, both at the national and international level. Together with this diversity of profiles and expertise, the Board has members with broad experience on the Board of Directors, which gives them in-depth knowledge of the Bank and its businesses at both the national and international level. It also ensures that the process of ongoing refreshment of the corporate bodies, which entails the inclusion of new profiles with lesser knowledge of the Group, is carried out without affecting the proper functioning of the Board. Thus, the Board, as a whole, has suitable balance in its composition and suitable knowledge of the Bank and Group's environment, activities, strategies and risks, which contributes to bettering its functioning.
In addition, as a result of the Board refreshment process that has taken place in recent years, in 2020: (i) the appropriate balance between the different types of director has been strengthened and the majority of non-executive directors on the Board has increased (to 86.67%); (ii) the majority of independent directors has been increased (to 66.67%); and (iii) the target for female representation established in the Selection Policy applicable to 2020, i.e. for 30% of directors to be female by 2020, has been achieved (specifically, women represent 33.33% of the Board).## C.1.6 Explain any measures that have been agreed by the Appointments Committee to ensure that the selection procedures are free from implicit biases that could hinder the selection of female directors, and to ensure that the company includes and makes a conscious effort to find potential female candidates who match the professional profile, in order to achieve a balanced representation of men and women. Also indicate whether these measures include encouraging the company to have a significant number of female senior managers:
As stated in Section C.1.5, the Board of Directors has a Selection Policy that establishes that, with respect to the selection processes for new Bank directors, as part of the process of progressive and systematic refreshment of the corporate bodies, the Appointments and Corporate Governance Committee will ensure that they promote diversity and that, in general, they are not impaired by implicit biases that may lead to any form of discrimination.
Furthermore, the Committee will ensure that these selection processes facilitate the selection of a sufficient number of female directors so as to guarantee a balanced representation of women and men, endeavouring to ensure that women with the relevant professional profile are included amongst potential candidates. To this end, the Appointments and Corporate Governance Committee has set a target for representation of the lesser-represented gender, namely to endeavour that female directors represent at least 40% of the Board by the end of the 2022 financial year and beyond, not dropping below 30% prior to this.
In light of the foregoing, BBVA has developed director selection processes in recent years, through which it has ensured compliance with the above principles, as they applied at any given time. In particular, the presence of women on the Board has been increasing. At the end of the year, one third of all Board members and 40% of independent directors were female. As of the date of this report, BBVA has five women on its Board and they are members of five of the Committees. Furthermore, the majority of the members of the Audit Committee and the Remunerations Committee are women, including the Chair of the Remunerations Committee. This means it is meeting the target established in the Selection Policy, which is aligned with the provisions of the CNMV Good Governance Code, for at least 30% of directors to be female in 2020.
Furthermore, in accordance with the provisions of Article 540 of the Spanish Corporate Enterprises Act, which stipulates that a brief description of the diversity policy, with regard to members of management, must be provided, BBVA has a selection and appointment policy for members of Senior Management that has been approved by the Board. Said policy is designed to ensure that individuals in Senior Management positions at BBVA have the capacity to properly exercise the responsibilities conferred upon them.
Thus, members of BBVA Senior Management must have top-level academic and technical qualifications, professional skills— underpinned by their professional careers to date—applicable to the responsibilities associated with the role to be fulfilled, a recognised honourable business and professional reputation, and commitment to BBVA's values.
Pursuant to the provisions of this policy, for the assessment of internal talent, performance is assessed in terms of the achievement of objectives, potential to assume greater responsibilities in the future, and individuals' professional capabilities and skills. These assessments may be supported by means of review sessions during which members of Senior Management analyse the profiles of certain employees and share their opinions on the achievements and strengths of each individual. Moreover, for the selection of external candidates for senior management positions, references and top-level executive search firms are used. The Talent & Culture area ensures that external candidates possess top-level academic and technical qualifications, that their professional careers to date adequately encompass the responsibilities associated with the roles to be fulfilled, that they have recognised business and professional reputations, and that, during their careers at other organisations, they have demonstrated a high level of alignment with BBVA's values.
The candidates identified through the company's external selection process are considered alongside internal candidates, in order to select the individual that best fits the role to be fulfilled. Moreover, in accordance with the Regulations of the Board, the functions of this body include appointing members of Senior Management based on a report from the Appointments and Corporate Governance Committee. Prior to the proposal and appointment, the Bank follows a selection process for members of Senior Management which is governed by the principles and criteria outlined in the selection and appointment policy for members of Senior Management. This process involves analysing the functions and candidate profiles, confirming the suitability of the selected candidate, submitting the proposal for the consideration of the Appointments and Corporate Governance Committee, which drafts a preliminary report for the Board, and, finally, submitting the proposal to the Board for approval, which must be supported by a favourable preliminary report from the Appointments and Corporate Governance Committee.
Appointment of senior managers will be made on the proposal of the Group Executive Chairman for those who report thereto, and of the proposal of the Chief Executive Officer (Consejero Delegado), for those who report instead thereto, prior information to the Group Executive Chairman. The Board of Directors will be responsible for the appointment and dismissal of the head of the Internal Audit area, based on a proposal from the Audit Committee, and the Head of Regulation & Internal Control, on a proposal from the Risk and Compliance Committee, as well as the determination of their objectives and assessment of their performance, on a proposal from the corresponding committee.
Following the implementation of this policy, the number of women in Senior Management has increased, and 27% of senior managers were women at the end of the financial year.
As part of the annual performance assessment of the Board carried out for 2020, the Appointments and Corporate Governance Committee, in accordance with its Regulations, has analysed the structure, size and composition of the corporate bodies, taking into account that these must remain balanced and adapted to their needs at all times, and that the Board as a whole must have the right knowledge, skills and experience to understand the business, activities and main risks of BBVA and its Group, thereby also ensuring that it has the effective capacity to carry out its functions in the Bank's best corporate interest.
This analysis is carried out in the context of the Board's ongoing and systematic refreshment of the corporate bodies, whereby people with different profiles and experiences are introduced at appropriate intervals, thus increasing diversity and ensuring adequate rotation of the Board members, thereby guaranteeing a balanced representation of directors with a range of experience. The analysis also takes into account the forecasts and objectives regarding the structure, size and composition of the Board as set out in applicable legislation, the Regulations of the corporate bodies and the Selection Policy, as well as the end of the statutory terms each director, where appropriate in each year.
The Committee also takes into account the functioning and performance of the corporate bodies in recent years. In 2020, it took into account, in particular, how they have operated during the COVID-19 crisis, during which the directors have shown a great deal of dedication to the Bank as well as demonstrating flexibility and an ability to adapt to the current circumstances, and during which their knowledge of the landscape and the Group itself has not only enabled the corporate bodies to adequately carry out their functions, it has also contributed to the Group being able to tackle the crisis from a position of strength.
Furthermore, the Committee takes into account the areas and subjects that are of particular relevance to the performance of the corporate bodies' functions, in particular the Group's current and future activities, business and strategy. Among the information used by the Committee to carry out its work, of particular note is the skills and diversity matrix of the Board of Directors, which is developed to help to identify the Board's skills, characteristics and experience, as well as those areas that needed to be improved in the future. The matrix also includes areas, sectors and matters related to banking and finance, as well as others that are of particular relevance to the Group's strategy and activities. The matrix includes areas such as banking and financial services; accounting and auditing; risk management; innovation and information technology; macroeconomic strategy and environment; human resources and compensation; institutions, legal and regulations; and corporate governance and sustainability.## C.1.8 Proprietary Directors Appointed at the Behest of Shareholders
Where applicable, explain why proprietary directors have been appointed at the behest of shareholders whose holding is less than 3% of the capital:
| Name or corporate name of the shareholder | Justification |
|---|---|
Indicate whether formal petitions for a seat on the board have been denied if such request has come from shareholders whose holding is equal to or greater than that of others at whose behest proprietary directors were appointed. Where applicable, explain why these petitions were not granted:
No
Where applicable, indicate the powers and faculties delegated by the board of directors to directors or to board committees:
| Name or corporate name of the director or committee | Brief description |
|---|---|
| Carlos Torres Vila | He holds the widest-ranging representative and management powers in line with his duties as Chairman of the Company. |
| Onur Genç | He holds the widest-ranging representative and management powers in line with his duties as Chief Executive Officer of the Company. |
| Executive Committee | Pursuant to Article 30 of BBVA's Regulations of the Board of Directors and Article 1.2 of the Regulations of the Executive Committee, the Executive Committee will be made aware of matters delegated to it by the Board of Directors, in accordance with the law, the Bylaws, the Regulations of the Board or the Regulations of the Executive Committee. |
Where applicable, identify any members of the board who hold positions as directors, representatives of directors or executives in other companies that belong to the same group as the listed company:
| Name or corporate name of the director | Corporate name of the group's entity | Position | Does the director have executive duties? |
|---|---|---|---|
| Carlos Torres Vila | BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer | Director | No |
| Carlos Torres Vila | Grupo Financiero BBVA Bancomer, S.A. de C.V. | Director | No |
| Onur Genç | BBVA USA Bancshares, Inc. | Director | No |
| Onur Genç | BBVA Bancomer, S.A. Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer | Director | No |
| Onur Genç | Grupo Financiero BBVA Bancomer, S.A. de C.V. | Director | No |
| Carlos Vicente Salazar Lomelín | Grupo Financiero BBVA Bancomer, S.A. de C.V. | Director | No |
| Carlos Vicente Salazar Lomelín | BBVA Bancomer, S.A., Institución de Banca Múltiple, Grupo Financiero BBVA Bancomer | Director | No |
| Carlos Vicente Salazar Lomelín | Seguros BBVA Bancomer, S.A. de C.V. Grupo Financiero BBVA Bancomer | Director | No |
| Carlos Vicente Salazar Lomelín | Pensiones BBVA Bancomer, S.A. de C.V. Grupo Financiero BBVA Bancomer | Director | No |
| Carlos Vicente Salazar Lomelín | BBVA Bancomer Seguros Salud, S.A. de C.V. Grupo Financiero BBVA Bancomer | Director | No |
Where applicable, provide details of any company directors (or representatives of corporate directors) who also serve as directors (or representatives of corporate directors) on the boards of other entities that are listed on regulated markets and do not form part of the company group, of which the company has been informed:
| Name or corporate name of the director | Corporate name of the listed entity | Position |
|---|---|---|
| José Miguel Andrés Torrecillas | Zardoya Otis, S.A. | Director |
| Raúl Catarino Galamba de Oliveira | CTT- Correios de Portugal, S.A. | Chairman |
| Belén Garijo López | L’Oréal Société Anonyme | Director |
| Ana Cristina Peralta Moreno | Grenergy Renovables, S.A. | Director |
| Ana Cristina Peralta Moreno | Inmobiliaria Colonial, SOCIMI S.A. | Director |
| Juan Pi Llorens | Ecolumber, S,A. | Chairman |
| Carlos Vicente Salazar Lomelín | Alsea, S.A.B. de C.V. | Director |
Indicate and, where applicable, explain whether the company has any agreed rules on the maximum number of company boards on which its directors may sit, detailing, where applicable, where such rules have been set out:
Yes
Explanation of the rules and where they are set out:
Article 11 of the Regulations of the Board of Directors establishes that, in the performance of their duties, directors will be subject to the rules on limitations and incompatibilities established under the current applicable regulations, and in particular, to the provisions of Act 10/2014 on the regulation, supervision and solvency of credit institutions (the LOSS).
In this regard, Article 26 of the LOSS stipulates that the directors of credit institutions may not simultaneously hold more positions than those provided for in the following combinations: (i) one executive position and two non-executive positions; or (ii) four non-executive positions. Executive positions are understood to be those that undertake management duties irrespective of the legal bond attributed by those duties.
In this respect, the following will count as a single position:
1) executive or non-executive positions held within the same group;
2) executive or non-executive positions held within (i) entities that form part of the same institutional protection scheme or (ii) trading companies in which the entity holds a significant shareholding.
Positions held in non-profit organisations or entities or companies pursuing non-commercial purposes will not count when determining the maximum number of positions.
Nevertheless, the Bank of Spain may authorise members of the Board of Directors to hold an additional non-executive position if it deems that this would not interfere with the proper performance of the director's activities in the credit institution.
In addition, pursuant to the provisions of Article 11 of BBVA's Regulations of the Board of Directors, directors may not:
Indicate the amounts of the following items relating to the total remuneration of the board of directors:
| Item | Amount (thousands of euro) |
|---|---|
| Remuneration of the board of directors accrued during the financial year | 14,828 |
| Amount of entitlements accrued by current directors in regard to pensions | 23,057 |
| Amount of entitlements accrued by former directors in regard to pensions | 73,157 |
Remarks:
The remuneration included in the first item of this section includes the fixed remuneration received by all directors in 2020, as well as, in the case of executive directors, the amount corresponding to the payment of the Deferred Portion of the Annual Variable Remuneration for the 2017 financial year to vest in 2021, in cash and in shares, together with its corresponding update. The amounts of the Deferred Portion of the Annual Variable Remuneration for 2017 have been determined in 2021, following the result of the Multi-Year Performance Indicators to which said remuneration was subject, and will be paid in the first quarter of 2021, providing that the conditions to that effect are met. To calculate the amount in Euros of the Deferred Portion of 2017 Annual Variable Remuneration of the Chief Executive Officer, associated to his previous role as President & CEO de BBVA Compass (currently BBVA USA), the closing exchange rate for January 2021 has been used (USD/EUR 1.2136). It is noted that executive directors have not accrued any Annual Variable Remuneration for the 2020 financial year, since they have voluntarily waived it in view of the exceptional circumstances arising from the COVID-19 crisis.## C.1.14 Identify the members of senior management who are not also executive directors, and indicate the total remuneration accrued by them throughout the financial year:
| Name or corporate name | Position(s) |
|---|---|
| María Luisa Gómez Bravo | Global Head of Corporate & Investment Banking |
| Jorge Sáenz-Azcúnaga Carranza | Country Monitoring |
| Pello Xabier Belausteguigoitia Mateache | Country Manager Spain |
| Eduardo Osuna Osuna | Country Manager Mexico |
| David Puente Vicente | Global Head of Client Solutions |
| Jaime Sáenz de Tejada Pulido | Global Head of Finance |
| Rafael Salinas Martínez de Lecea | Global Head of Global Risk Management |
| José Luis Elechiguerra Joven | Global Head of Engineering & Organization |
| Carlos Casas Moreno | Global Head of Talent & Culture |
| Ricardo Martín Manjón | Global Head of Data |
| Victoria del Castillo Marchese | Global Head of Strategy & M&A |
| María Jesús Arribas de Paz | Global Head of Legal |
| Domingo Armengol Calvo | General Secretary |
| Ana Fernández Manrique | Global Head of Regulation and Internal Control |
| Joaquín Manuel Gortari Díez | Global Head of Internal Audit |
Number of women in senior management: 4
Percentage out of all senior management members: 26.67%
Total remuneration of senior management (thousands of euro): 16,241
Remarks:
No
Selection, appointment and re-appointment procedure:
The General Meeting is responsible for appointing and re-appointing members of the Board of Directors, though the Board has the authority to co-opt members if a seat falls vacant, in accordance with the regulations, the Bylaws, the Regulations of the Board and the Selection Policy described in Sections C.1.5 and C.1.6. The persons proposed to be appointed or re-appointed as members of the Board of Directors must meet the requirements set out in current legislation, in the specific regulations applicable to credit institutions, in the Bylaws, in the Regulations of the Board and in the Selection Policy.
Proposals for appointment or re-appointment of directors submitted by the Board of Directors to the General Meeting, as well as appointments made directly to fill vacancies under its co-opting authority, will be approved at the proposal of the Appointments and Corporate Governance Committee for independent directors and subject to a report from this Committee for all other directors. Furthermore, proposals for appointment and re-appointment submitted to the General Meeting must be accompanied by an explanatory report from the Board of Directors assessing the skills, experience and merits of the proposed candidate. Proposals for the appointment or re-appointment of non- independent directors must also be accompanied by a report from the Appointments and Corporate Governance Committee.
To this end, said Committee will assess the balance of knowledge, skills and experience on the Board of Directors, as well as the conditions that the candidates must meet to cover vacancies (applicable legal and suitability requirements, inter alia), evaluating the time commitment considered necessary so that they can carry out their duties, according to the needs of the corporate bodies. Thus, the Appointments and Corporate Governance Committee will develop renewal and selection processes for directors as part of the process of progressive and systematic refreshment of the corporate bodies, with a view to ensuring that the structure and composition of the Board remains balanced and in line with the needs of the Bank at all times, having directors with different profiles, knowledge, training, experience and qualities.
Within these processes, the Committee will ensure that diversity is promoted and that, in general, there are no implicit biases that may lead to any form of discrimination. It shall also ensure that these processes facilitate the selection of a sufficient number of female directors to guarantee a balanced representation of men and women, with the aim that female directors represent at least 40% of the Board by the end of the 2022 financial year and beyond, with the figure not dropping below 30% prior to this, while endeavouring to ensure that women who match the professional profile sought are included amongst potential candidates.
Additionally, the aim is for the composition of the Board of Directors to feature an appropriate balance between the different types of director, for non-executive directors to represent an ample majority over executive directors and for the number of independent directors to account for at least 50% of the total seats. The corporate bodies will also be assessed to ensure that they have a mix of individuals who have experience and knowledge of the Bank, the Group, its businesses and the financial sector in general, as well as others who have training, skills, knowledge and experience in other areas and sectors relevant to the Bank. In any case, BBVA's corporate bodies may take any other relevant diversity factor into consideration to adapt the composition of the corporate bodies to the needs of the Bank, taking into account criteria such as gender diversity, academic profile, professional experience, knowledge, disability, origin or age, thus being able to achieve an adequate balance.
In the performance of its functions, the Appointments and Corporate Governance Committee may employ external services to select potential candidates, when it deems this necessary or appropriate.
Duration of mandate and termination:
The directors will hold their position for the term set out in the company Bylaws (three years, after which they may be reappointed one or more times for an additional three- year term) or, if they have been co-opted, until the first General Shareholders' Meeting has been held. They will leave their positions when the term for which they were appointed expires, unless they are re-appointed.
Directors must also inform the Board of Directors of any circumstances affecting them that could harm the company's standing and reputation, and any circumstances that may have an impact on their suitability for their role. Directors must offer their resignation to the Board and accept the Board's decision regarding their continuity in office. Should the Board decide against their continuity, they are required to tender their resignation, in the circumstances listed in section C.1.19 below.
In any event, directors will resign from their posts upon reaching 75 years of age and must submit their resignation at the first meeting of the Bank's Board of Directors held after the General Shareholders' Meeting approving the accounts for the financial year in which they reach said age.
Description of the amendments
Article 17 of the Regulations of the Board of Directors states that the Board will assess the quality and efficiency of the operation of the Board of Directors, based on the report submitted to it by the Appointments and Corporate Governance Committee. This procedure was followed in the 2020 financial year, and certain measures (indicated below) were undertaken and consolidated, as part of the ongoing process of developing and adapting BBVA's Corporate Governance System to the needs of the corporate bodies, to the environment in which it carries out its activities and to regulatory requirements and best practices. Accordingly, the BBVA Board of Directors has carried out their self-assessment process for the 2020 financial year, having carried out an analysis of its Corporate Governance System, which took into consideration, as a starting point, the self-assessment process for the 2019 financial year.
Within the evaluation process for the 2020 financial year, the following is highlighted:
In all of this, the Bank's corporate bodies sought to keep BBVA's Corporate Governance System adapted to the reality, circumstances and needs of the Bank and, consequently, to emphasise the importance attributed to ensuring its solidity and resilience under all circumstances.
Describe the evaluation process and the areas evaluated by the board of directors (assisted, where applicable, by an external consultant) to assess the operation and composition of the board, its committees and any other area or aspect that was evaluated.
In accordance with Article 17 of the Regulations of the Board of Directors, the Board assesses the quality and efficiency of its operation, as well as the performance of the functions of the Chairman of the Board, based, in each case, on the report submitted to it by the Appointments and Corporate Governance Committee. The Board of Directors also assesses the performance of the Chief Executive Officer, based on the report by the Appointments and Corporate Governance Committee, which includes the assessment performed by the Executive Committee. Finally, the Board of Directors also assesses the operation of its committees, on the basis of the reports submitted to it by the latter.
The evaluation process carried out in relation to the 2020 financial year consisted of a thorough analysis and evaluation of the quality and efficiency of the operation of the corporate bodies and the performance of the Chairman and the Chief Executive Officer. This evaluation was carried out by the Appointments and Corporate Governance Committee, taking into account several aspects, such the Board's self-assessment for the 2019 financial year, the directors' view of the operation of the Board, and the various reports issued, described below.
In line with the foregoing, the Board of Directors evaluated:
(i) the quality and efficiency of the operation of the Board of Directors;
(ii) the performance of the duties of the Chairman and the Chief Executive Officer; and
(iii) the operation of the Board Committees;
as detailed below:
The Board of Directors analysed the quality and efficiency of its operation during the 2020 financial year, on the basis of the report by the Appointments and Corporate Governance Committee on the quality and efficiency of the Board's operation and on its structure, size and composition. This report contained a detailed analysis of the following: the structure, size and composition of the Board of Directors, as per Sections C.1.5, C.1.6 and C.1.7; the organisation, preparation and conducting of the meetings of the Board; the independence and suitability of directors, and the degree of commitment the Bank requires of Board members (in particular, the chair of each of the committees) to ensure the proper execution of the duties of director and the proper operation of the corporate bodies. This analysis was performed on the basis of the needs of the corporate bodies at any given time and taking into account the Selection Policy.
The assessment of the performance of the functions of the Chairman of the Board of Directors, which was led by the Lead Director in accordance with Article 21 of the Regulations of the Board, was carried out by the Board on the basis of the report by the Appointments and Corporate Governance Committee (in accordance with Article 5 of the Regulations of the Appointments and Corporate Governance Committee) which details the key elements of the Chairman's performance for the 2020 financial year.
The assessment of the performance of the duties of the Chief Executive Officer was carried out by the Board on the basis of the report by the Appointments and Corporate Governance Committee, including the assessment carried out in this respect by the Executive Committee (in accordance with Article 17 of the Regulations of the Board) which details the key elements of the Chief Executive Officer's performance for the 2020 financial year.
In addition, the Board assessed the quality and efficiency of the functioning of each Committee on the basis of the reports submitted by their respective Chairs, as described in Section H of this Report.
For those financial years in which an external consultant provided assistance for the evaluation, provide details of any ongoing business relationships that the consultant or any entity in their group maintains with this company or any company in this group.
The assessment carried out by the Board of Directors in the 2020 financial year regarding its quality and operation, its Committees and the performance of the functions of the Chairman of the Board and the Chief Executive Officer was carried out without the support of an independent expert.
Indicate the circumstances under which directors are obliged to resign.
In addition to the circumstances established in applicable law, directors will cease to hold office when the term for which they were appointed expires, unless they are re-appointed. Accordingly, as set forth in Article 12 of the Regulations of the Board of Directors, directors must offer their resignation to the Board of Directors and accept the Board's decision regarding their continuity in office. Should the Board decide against their continuity, they are required to tender their resignation, in the following circumstances:
Are supermajorities, other than those provided for in law, required for any type of decision?: No
Where applicable, describe the differences.
Explain whether there are specific requirements, other than those relating to directors, to be appointed chairman of the board of directors.
No
Indicate whether the bylaws or regulations of the board establish an age limit for directors: Yes
| Age limit | |
|---|---|
| Chairman | |
| Chief Executive Officer | |
| Director | 75 |
Remarks: As stipulated in Article 4 of the BBVA Regulations of the Board of Directors, directors will resign from their positions, in any event, upon reaching 75 years of age, and must submit their resignation at the first meeting of the Bank's Board of Directors held after the General Shareholders' Meeting approving the accounts for the financial year in which they reach said age.
Indicate whether the bylaws or regulations of the board of directors establish a limited mandate or other stricter requirements for independent directors in addition to those provided for in law:
No
Indicate whether the bylaws or the regulations of the board of directors establish specific rules for proxy voting within the board of directors for other directors, how this is carried out and, in particular, the maximum number of proxies that a director may have and whether there are any restrictions as to what categories may be appointed as a proxy, beyond the limitations provided for in law. Where applicable, provide a brief description of these rules.
Article 5 of the BBVA Regulations of the Board of Directors establishes that directors are required to attend meetings of the corporate bodies of which they form part, unless they have a justifiable reason for not doing so. Directors will participate in the deliberations, discussions and debates on matters submitted for their consideration and must personally attend the meetings held. However, as set forth in Article 26 of the Regulations of the Board of Directors, if it is not possible for a director to attend a meeting of the Board of Directors, this director may authorise another director to act as their proxy and cast votes on their behalf, by sending a letter or email to the Company with the information needed by the proxy director to follow the absent director's instructions. Applicable legislation states that non- executive directors may only grant proxy to another non-executive director. The same applies to attendance at meetings of Board Committees.
Indicate the number of meetings that the board of directors has held during the financial year. Where applicable, indicate how many times the board has met without the chairman in attendance. The chairman will be considered to have been in attendance if represented by a proxy provided with specific instructions.
| Number of board meetings | 15 |
|---|---|
| Number of board meetings without the chairman in attendance | 0 |
Indicate how many meetings were held by the lead director with the other board members, without any executive director in attendance or represented:
| Number of meetings | 63 |
|---|---|
Remarks: BBVA's Board of Directors has a Lead Director who performs the functions set forth in the applicable legislation, as well as those stipulated by Article 21 of the Regulations of the Board of Directors. In the performance of the functions assigned, during the financial year the Lead Director maintained ongoing contact, held recurring meetings and had conversations with other directors of the Bank in order to seek their opinions on the corporate governance and operation of the Bank's corporate bodies. In addition, in accordance with Article 37 of the Regulations of the Board, the Lead Director held and coordinated various meetings of non-executive directors, which took place following the meetings of the Board of Directors.# C.1.26 Board and Committee Meetings
Indicate how many meetings of the board committees were held during the financial year:
| Committee | Number of Meetings |
|---|---|
| Executive committee | 30 |
| Audit committee | 13 |
| Appointments and Corporate Governance Committee | 4 |
| Remunerations Committee | 4 |
| Risk and Compliance Committee | 23 |
| Technology and Cybersecurity Committee | 7 |
Indicate how many meetings were held by the board of directors during the financial year and provide details on the attendance of its members:
Remarks
The Board of Directors holds ordinary meetings on a monthly basis, in accordance with the annual calendar of ordinary meetings drawn up before the beginning of the financial year, and holds extraordinary meetings as often as deemed necessary. Furthermore, following the declaration of a state of alarm in Spain and due to the situation created by the coronavirus and the measures taken in this respect by the authorities, Board meetings were held entirely remotely in such a way that enabled the recognition of attendees and made it possible for attendees to interact and for each of them to address the meeting in real time, maintaining the unity of the event, in accordance with the applicable regulations and the Regulations of the Board.
Indicate whether the individual or consolidated annual financial statements that are presented to the board for approval are certified beforehand:
No
Where appropriate, identify the person(s) who has/have certified the company's individual and consolidated annual financial statements prior to board approval:
Explain the mechanisms, if any, established by the board of directors to ensure that the annual financial statements presented by the board of directors to the general shareholders' meeting are drawn up in accordance with accounting regulations.
Article 32 of the Regulations of the BBVA Board of Directors specifies that the main task of the Audit Committee, which is composed exclusively of independent directors, is to assist the Board of Directors in supervising the preparation of the financial statements and public information, as well the relationship with the external auditor and the Internal Audit area. In this regard, in accordance with Article 5 of the Regulations of the Audit Committee, it is the responsibility of the Audit Committee to oversee the process of preparing and reporting financial information and submit recommendations or proposals on safeguarding the integrity thereof to the Board of Directors. It is also the responsibility of the Audit Committee to analyse all financial information and any related non-financial information contained in the annual financial statements of both the Bank and its consolidated Group, prior to their submission to the Board of Directors and in enough detail to guarantee their accuracy, reliability, sufficiency and clarity. It is also the Committee's responsibility to review the correct application of accounting criteria, as well as all relevant changes relating to the accounting principles used and the presentation of the financial statements, including the accurate consolidation perimeter.
Similarly, in accordance with Article 5 of the Regulations of the Audit Committee, said Committee is responsible for monitoring the effectiveness of the Company's internal control and risk management systems in the preparation and reporting of financial information, including tax-related risks. In the performance of these functions, the Audit Committee maintains direct and ongoing contact with the heads of the area in the Group responsible for Accounting functions through monthly meetings, monitoring the evolution of the main figures on the Balance Sheet and the Income Statement of the Bank and its Group each month; overseeing the accounting policies, practices and principles and the valuation criteria followed by the Bank and the Group during the process of preparing and submitting financial information; and analysing changes made in relation to the main applicable accounting regulations, as well as the main impacts that their incorporation has had on the financial information of the Bank and its Group. To this end, the Committee had all of the information that it required, with the level of aggregation deemed appropriate.
In addition, given that the external audit is one of the core elements in the chain of control mechanisms established to ensure the quality and integrity of the financial information, in accordance with the Regulations of the Audit Committee, it is the Committee's responsibility to check, at appropriate intervals, that the external audit schedule of work is being conducted under the agreed conditions, and that this satisfies the requirements of the competent authorities and the corporate bodies. Moreover, it will require the auditor to periodically—at least once a year— provide an evaluation of the quality of the internal control procedures regarding the preparation and reporting of the Group's financial information, discussing with the auditor any weaknesses in the internal control system identified during the audit, without undermining its independence, to then be able to submit recommendations or proposals to the Board of Directors, along with the deadline for their follow-up. The Committee will also be apprised of any infringements, situations requiring adjustments or anomalies that may be detected during the external audit and are material in nature, i.e. those that, in isolation or as a whole, could cause significant and substantive harm to the Group's equity, earnings or reputation, and discernment of such matters will be at the discretion of the Internal Audit area which, in the presence of doubt, must report these. These matters are carefully considered by the Audit Committee, which maintains direct and ongoing contact with the external auditors through monthly meetings not attended by the Bank's executives. At these meetings, the auditors provide detailed information on their work and the results thereof, which enables the Committee to continuously monitor said work and the conclusions thereof, ensuring that it is performed under optimal conditions and without interference from management.
Is the secretary of the board a director?
No
If the Secretary is not a director, complete the following table:
| Name or Corporate Name of the Secretary | Representative |
|---|---|
| Domingo Armengol Calvo |
Indicate the specific mechanisms established by the company to preserve the independence of the external auditors, and, if any, the mechanisms to preserve the independence of financial analysts, investment banks and rating agencies, including how legal measures have been implemented in practice.
As set forth in the Regulations of the Audit Committee, one of the Committee's functions, described in Section C.2.1, is to ensure the independence of the auditor through a dual approach:
This matter is carefully considered by the Audit Committee, which holds meetings with the auditor's representatives at each of the monthly meetings it has, without Bank executives in attendance, to gain a detailed understanding of any issues that may hinder the audit process, the progress and quality of the work carried out, and to confirm independence in the performance of its work. The Committee also continually oversees the engagement of additional services to ensure compliance with the Regulations of the Audit Committee and with applicable legislation and thus the independence of the auditor, in accordance with the Bank's internal procedure. Moreover, in accordance with the provisions of Point f), Section 4 of Article 529 quaterdecies of the Spanish Corporate Enterprises Act and Article 5 of the Regulations of the Audit Committee, each year before the audit report is issued, the Committee must issue a report expressing its opinion on whether or not the independence of the auditor has been compromised.# C.1.30 Independent Auditor's Independence
This report must, in all cases, contain a reasoned assessment of the provision of each and every kind of additional service provided to the Group companies, considered individually and collectively, except the legal audit and those relating to independence or the regulations on audit activity. Each year, the auditor must issue a report confirming its independence via-à-vis BBVA or entities linked to BBVA, either directly or indirectly, with detailed and itemised information on any kind of additional services provided to these entities by the external auditor, or by the individuals or entities linked to it, as set forth in the consolidated text of the Spanish Account Auditing Act.
In compliance with the legislation in force, the relevant auditor and Audit Committee reports confirming the auditor's independence were issued in the 2020 financial year. In addition, as BBVA's shares are listed on the New York Stock Exchange, it is subject to compliance with the Sarbanes Oxley Act and its implementing regulations.
The Board of Directors also has a policy in place for communication and contacts with shareholders and investors. The policy is governed by the principle of equal treatment for all shareholders and investors, who are in the same position in terms of information, participation and the exercise of their rights as shareholders and investors, inter alia. Moreover, this policy contains the principles and channels established in relation to shareholders and investors, which govern, where applicable, BBVA relations with other stakeholders, such as financial analysts, Bank share management companies and custodians, and proxy advisors, among others.
Indicate whether the Company has changed its external auditor during the financial year. If so, identify the incoming and outgoing auditors:
No
If there were any disagreements with the outgoing auditor, explain these disagreements:
No
Indicate whether the auditing firm does any other work for the company and/or its group other than the audit. If so, declare the amount of fees received for such work and the percentage that the aforementioned amount represents of the total fees billed to the company and/or its group for audit work:
Yes
| Company | Group companies | Total | |
|---|---|---|---|
| Amount of non-audit work (thousands of euro) | 0 | 362 | 362 |
| Amount of non-audit work/total amount billed by the auditing firm (%) | 0.00% | 2.22% | 1.23% |
Indicate whether the audit report on the annual financial statements for the previous financial year contained qualifications. If so, indicate the reasons given by the chair of the audit committee to the shareholders at the General Meeting to explain the content and scope of such qualifications.
No
Explanation of the reasons and direct link to the document made available to the shareholders at the time of the calling in relation to this matter
Indicate the number of consecutive financial years during which the current audit firm has been auditing the annual financial statements for the company. Likewise, indicate the total number of financial years audited by the current audit firm as a percentage of the total number of years in which the annual financial statements have been audited:
| Individual | Consolidated | |
|---|---|---|
| Number of consecutive financial years | 4 | 4 |
| Number of financial years audited by the current audit firm/ Number of financial years the company or its group have been audited (%) | 20% | 20% |
Indicate whether there is a procedure in place (and provide details, where applicable) whereby directors are provided with the information they need with sufficient time to be able to prepare for meetings of the management bodies:
Yes
Details of the procedure
As set forth in Article 5 of the Regulations of the Board of Directors, prior to the meetings, directors will be provided with the information needed to form an opinion with respect to the matters within the remit of the Bank's corporate bodies, and may ask for any additional information and advice required to perform their duties. They may also ask the Board of Directors for external expert help for any matters put to their consideration whose special complexity or importance so requires. These rights will be exercised through the Chairman or Secretary of the Board of Directors, who will attend to requests by providing the information directly or by establishing suitable arrangements within the organisation for this purpose, unless a specific procedure has been established in the regulations governing the Board of Directors' committees. Furthermore, as set forth in Article 28 of the Regulations of the Board of Directors, the directors will be provided with such information or clarifications as deemed necessary or appropriate with regards to the matters to be discussed at the meeting, either before or after the meetings are held.
In addition, BBVA implements an information model that ensures that decisions are made on the basis of complete, comprehensive, appropriate and consistent information, prepared in accordance with common principles so that analyses carried out by the corporate bodies are based on the correct data, thus allowing directors to perform their duties to the best of their ability. Thus, the Bank's corporate bodies have a procedure in place for checking the information submitted for consideration, coordinated by the Board's Secretariat with the departments responsible for the information, in order to provide directors with complete, comprehensive, appropriate and consistent information in sufficient time for the meetings of the Bank's various corporate bodies. Prior to such meetings, information is made available to the Bank's corporate bodies via an online system, to which all members of the Board have access.
Indicate and, where applicable, provide details of whether the company has set out rules that require directors to report and, where applicable, resign in the event that they are affected by circumstances that, whether or not related to their actions at the company itself, could harm the company's standing and reputation:
Yes
Explanation of the rules
As set forth in Article 12 of the Regulations of the Board of Directors, directors must also inform the Board of Directors of any circumstances that may affect them and harm the Company's standing and reputation, and any circumstances that may have an impact on their suitability to perform their role. Directors must offer their resignation to the Board of Directors and accept its decision regarding their continuity in office. Should the Board decide against their continuing, they are required to tender their resignation when, for reasons attributable to the directors in their status as such, serious damage has been done to the Company's equity, standing or reputation or when they are no longer suitable to hold the status of director at the Bank, among other circumstances referred to in Section C.1.19 of this report.
Indicate, unless there have been special circumstances recorded in the minutes, whether the board was informed or otherwise came to know of any situation concerning a director, whether or not related to their role in the company itself, that could harm the company's standing and reputation:
No
Detail any significant agreements reached by the Company that are coming into force, or were amended or concluded as a result of a change in the control of the company stemming from a public takeover bid, and its effects.
The Company has not reached any significant agreements that are coming into force, or were amended or concluded as a result of a change in the control of the Company stemming from a public takeover bid.
Identify on an individual basis, when referring to directors, and in aggregate form for all other cases, and indicate in detail any agreements between the Company and its directors, managers or employees that provide for severance pay (guarantee or golden parachute clauses) for when such persons resign or are wrongfully dismissed or if the contractual relationship comes to an end owing to a public takeover bid or other kinds of transactions.
| Number of beneficiaries | Beneficiary type | Description of the agreement |
|---|---|---|
| 66 | 66 managers and other employees | The Bank has no commitments to provide severance pay to directors. As at 31 December 2020, in accordance with the provisions of their contracts, 66 managers and employees are entitled to receive severance pay in the event of departure on grounds other than their own will, retirement, disability or serious dereliction of duties. Its amount will be calculated by factoring in the fixed elements of the Bank employee's salary and length of service and will not, under any circumstances, be paid in the event of lawful dismissal at the employer's decision on grounds of the employee's serious dereliction of duties. |
Indicate whether, in addition to the circumstances provided for by law, the corporate bodies of the company or group must be notified of and/or approve these contracts. If so, specify the procedures, the circumstances provided for and the nature of the bodies responsible for approval or notification:
| Board of Directors | General meeting | Body that authorises the clauses | |
|---|---|---|---|
| Yes | Yes | No | |
| No | YES | ||
| Is the general meeting informed of these clauses? | X |
Remarks
The Board of Directors approves resolutions relating to the basic contractual conditions of members of Senior Management, pursuant to the provisions of Article 17 of the Regulations of the Board, which are hereby notified to the General Shareholders' Meeting through this Report and through the information contained in the Annual Financial Statements, but does not approve the conditions applicable to other employees.# C.2 Committees of the board of directors
| Name | Position | Category |
|---|---|---|
| Carlos Torres Vila | Chairman | Executive |
| Onur Genç | Member | Executive |
| José Miguel Andrés Torrecillas | Member | Independent |
| Jaime Félix Caruana Lacorte | Member | Independent |
| José Maldonado Ramos | Member | Other external |
| Susana Rodríguez Vidarte | Member | Other external |
Explain the functions that have been delegated or assigned to this committee, other than those that have already been described in Section C.1.9, and describe both the procedures and organisational and operational rules of the committee. For each of these functions, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the functions attributed to it, whether in law, in the bylaws or in other corporate resolutions.
Pursuant to Article 30 of BBVA's Regulations of the Board of Directors and Article 1.2 of its own Regulations, the Executive Committee will be made aware of matters that the Board, as required by law, the Bylaws, the Regulations of the Board or its own Regulations, resolves to delegate to it. In particular, in accordance with the powers conferred on it by Article 5 of the Regulations of the Executive Committee, the Committee performs the following functions:
The Regulations of the Executive Committee set out the operational principles of the Committee and lay down the basic rules of its organisation and operation. The Regulations of the Executive Committee specifically provide that the Committee will meet whenever it is called to do so by its Chair, who is empowered to call the Committee and to set the agenda, and also set out the procedure for calling ordinary and extraordinary meetings. For the proper performance of its functions, the Committee will have available, where necessary, the reports of the relevant Board committees on matters within their remits, and may request as a matter of relevance the attendance of the chairs of those committees at its own meetings where such reports are to be dealt with. Other aspects of the organisation and operation of the Committee shall be subject to the Regulations of the Committee itself. All other matters not provided for in the aforementioned Regulations will be subject to the Regulations of the Board, insofar as they are applicable.
The most significant actions carried out by the Executive Committee in the 2020 financial year are detailed in Section H of this Report.
| Name | Position | Category |
|---|---|---|
| Jaime Félix Caruana Lacorte | Chairman | Independent |
| José Miguel Andrés Torrecillas | Member | Independent |
| Belén Garijo López | Member | Independent |
| Lourdes Máiz Carro | Member | Independent |
| Ana Cristina Peralta Moreno | Member | Independent |
Explain the functions assigned to this committee, including, where appropriate, any that are in addition to those provided for by law, and describe both the procedures and organisational and operational rules of the committee. For each of these functions, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the functions attributed to it, whether in law, in the bylaws or in other corporate resolutions.
The main task of the Audit Committee is to assist the Board of Directors in overseeing the preparation of the financial statements and public information, and the relationship with the external auditor and the Internal Audit area. More specifically, in accordance with the powers assigned to it by Article 5 of the Regulations of the Audit Committee, and notwithstanding any other functions assigned to it by law, by the Bank's internal regulations or by resolution of the Board the Audit Committee is entrusted with the following functions, inter alia:
In relation to overseeing the financial statements and public information:
In relation to the Internal Audit function:
The most significant actions carried out by the Audit Committee in the 2020 financial year, as well as its organisational and operational rules, are detailed in Section H of this Report.
| Names of the directors with experience | Date of appointment of the chair to the post |
|---|---|
| Jaime Félix Caruana Lacorte | 29 April 2019 |
| José Miguel Andrés Torrecillas | |
| Belén Garijo López | |
| Lourdes Máiz Carro | |
| Ana Cristina Peralta Moreno |
| Name | Position | Category |
|---|---|---|
| José Miguel Andrés Torrecillas | Chairman | Independent |
| Belén Garijo López | Member | Independent |
| José Maldonado Ramos | Member | Other external |
| Juan Pi Llorens | Member | Independent |
| Susana Rodríguez Vidarte | Member | Other external |
The main task of the Appointments and Corporate Governance Committee is to assist the Board of Directors in matters relating to the selection and appointment of members of the Board of Directors; the assessment of their performance; the drafting of succession plans; the Bank's Corporate Governance System; and the oversight of the conduct of directors and any conflicts of interest that may affect them.
More specifically, in accordance with the powers assigned to it by Article 5 of the Regulations of the Appointments and Corporate Governance Committee, and notwithstanding any other functions assigned to it by law, by the Bank's internal regulations or by resolution of the Board of Directors, the Appointments and Corporate Governance Committee is entrusted with the following functions:
The organisational and operational rules and the most significant actions carried out by the Appointments and Corporate Governance Committee in the 2020 financial year are detailed in Section H of this Report.
| Name | Position | Category |
|---|---|---|
| Belén Garijo López | Chair | Independent |
| Lourdes Máiz Carro | Member | Independent |
| Ana Cristina Peralta Moreno | Member | Independent |
| Carlos Vicente Salazar Lomelín | Member | Other external |
| Jan Paul Marie Francis Verplancke | Member | Independent |
The main task of the Remunerations Committee is to assist the Board of Directors in remuneration matters within its remit and, in particular, those relating to the remuneration of directors, senior managers and those employees whose professional activities have a significant impact on the risk profile of the Group (hereinafter, the Identified Staff), ensuring that the established remuneration policies are observed. More specifically, in accordance with the powers assigned to it by Article 5 of the Regulations of the Remunerations Committee, and notwithstanding any other functions assigned to it by law, by the Bank's internal regulations or by resolution of the Board, the Remunerations Committee broadly performs the following functions:
The organisational and operational rules and the most significant actions carried out by the Remunerations Committee in the 2020 financial year are detailed in Section H of this Report.
| Name | Position | Category |
|---|---|---|
| Juan Pi Llorens | Chairman | Independent |
| Jaime Félix Caruana Lacorte | Member | Independent |
| Raúl Catarino Galamba de Oliveira | Member | Independent |
| Ana Leonor Revenga Shanklin | Member | Independent |
| Susana Rodríguez Vidarte | Member | Other external |
% of proprietary directors | 0%
% of independent directors | 80%
% of other external directors | 20%
Explain the functions assigned to this committee and describe both the procedures and organisational and operational rules of the committee. For each of these functions, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the functions attributed to it, whether in law, in the bylaws or in other corporate resolutions.
The main task of the Risk and Compliance Committee is to assist the Board of Directors in the determination and monitoring of the Group's risk control and management policy, including internal risk control and non-financial risks, with the exception of those related to internal financial control, which are the responsibility of the Audit Committee; those related to technological risk, which are the responsibility of the Technology and Cybersecurity Committee; and those related to business and reputational risk, which are the responsibility of the Executive Committee. It also assists the Board in monitoring the Compliance function and implementing a risk and compliance culture in the Group.
More specifically, in accordance with Article 5 of the Regulations of the Risk and Compliance Committee, and notwithstanding any other functions assigned to it by law, by the Bank's internal regulations or by resolution of the Board, the Risk and Compliance Committee performs the following functions:
Report, prior to any decisions that may be made by the Board of Directors, on all matters within its remit as provided for by law or internal regulations.Ensure compliance with applicable regulations on matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to competition, and ensure that any requests for action or information made by official authorities on these matters are dealt with in due time and in an appropriate manner.
Obtain information on all violations of regulations and any significant events detected by the areas reporting to it during its monitoring and control operations. The Committee shall also be notified about significant issues relating to legal risks that may arise during the Group's operations.
Examine draft codes of ethics and conduct and their modifications prepared by the corresponding area of the Group, and give its opinion in advance of the proposals to be made to the corporate bodies.
Have knowledge of the reports, submissions or communications from external supervisory bodies, and confirm that the instructions, requirements and recommendations received from the supervisory bodies are implemented in order to correct any irregularities, deficiencies or inadequacies detected.
Ensure the promotion of the risk culture across the Group.
Supervise the Group's criminal risk prevention model.
Review and supervise the systems under which employees may report any irregularities in terms of financial information or other matters. The organisational and operational rules and the most significant actions carried out by the Risk and Compliance Committee in the 2020 financial year are detailed in Section H of this Report.
| Name | Position | Category |
|---|---|---|
| Carlos Torres Vila | Chairman | Executive |
| Raúl Catarino Galamba de Oliveira | Member | Independent |
| Sunir Kumar Kapoor | Member | Independent |
| Juan Pi Llorens | Member | Independent |
| Jan Paul Marie Francis Verplancke | Member | Independent |
258
Explain the functions assigned to this committee and describe both the procedures and organisational and operational rules of the committee. For each of these functions, indicate its most significant actions during the financial year and how it has, in practice, exercised each of the functions attributed to it, whether in law, in the bylaws or in other corporate resolutions.
The main task of the Technology and Cybersecurity Commit tee is to assist the Board of Directors in overseeing technological risk, in managing cybersecurity and in monitoring the Group's technological strategy. Specifically, in accordance with the powers assigned to it by Article 5 of the Regulations of the Technology and Cybersecurity Committee, and notwithstanding any other functions assigned to it by law, by the Bank's internal regulations or by resolution of the Board, the Technology and Cybersecurity Committee performs the following functions, which fall into two categories:
Being informed about any relevant events that may have occurred with regard to cybersecurity, i.e. events that, either individually or as a whole, may cause significant impact or harm to the Group's equity, results or reputation.
Functions related to the Technology Strategy:
The organisational and operational rules and the most significant actions carried out by the Technology and Cybersecurity Committee during the 2020 financial year are detailed in Section H of this Report.
259
Fill in the following table with information on the number of female directors sitting on the committees of the board of directors at the close of the last four financial years:
| Financial year 2020 | Financial year 2019 | Financial year 2018 | Financial year 2017 | |
|---|---|---|---|---|
| Number % | Number % | Number % | Number % | |
| Executive Committee | 1 16.66% | 1 16.66% | 1 16.66% | 1 16.66% |
| Audit Committee | 3 60% | 3 60% | 3 60% | 2 40% |
| Appointments and Corporate Governance Committee | 2 40% | 2 40% | 3 60% | 2 40% |
| Remunerations Committee | 3 60% | 3 60% | 3 60% | 2 40% |
| Risk and Compliance Committee | 2 40% | 1 20% | 1 20% | 1 20% |
| Technology and Cybersecurity Committee | - - | - - | - - | - - |
Indicate, where applicable, if there are regulations for the board committees, where they can be consulted and any amendments made to them during the financial year. Indicate whether an annual report on the activities of each committee has been prepared voluntarily.
All the committees of the Board of Directors have their own regulations, approved by the Board and available on the Bank's corporate website ( www.bbva.com ), under “Shareholders and Investors”, “Corporate Governance and Remuneration Policy”, in the “Board Committees” section. The regulations were not amended during the 2020 financial year. In addition, within the framework of the annual performance process, all the committees of the Board have prepared and submitted a report to the Board of Directors detailing the activity carried out by each of them in the exercise of their functions during the 2020 financial year, which are described in Sections C.1.17 and C.2.1 above.
Explain the procedure and competent bodies, if any, for approving related-party and intra-group transactions.
Article 17.1.e) (iii) of the Regulations of the Board of Directors establishes that the Board is responsible for approving, where applicable, transactions conducted by the Company or Group companies with directors or with shareholders that, individually or together with others, hold a significant stake, including shareholders represented in the Board of Directors of the Company or of other Group companies or with individuals related to them, with the exceptions provided for by law. Moreover, Article 8.6 of the Regulations of the Board of Directors establishes that approval of the transactions conducted by the Company or by Group companies with directors, the approval of which is the responsibility of the Board of Directors, will be granted subject to a prior report by the Audit Committee, where appropriate. The only exceptions to this approval will be transactions that simultaneously meet the three following specifications: (i) they are carried out under contracts with standard terms and are applied en masse to a large number of customers; (ii) they are executed at market rates or prices set in general by the party acting as supplier of the goods or services; and (iii) they are worth less than 1% of the Company's annual revenues.
260
Detail transactions deemed to be significant given their amount or content carried out between the company or its group companies and the company's significant shareholders:
| Name or corporate name of the significant shareholder | Name or corporate name of the company or group company | Nature of the relationship | Type of transaction | Amount (thousands of euro) |
|---|---|---|---|---|
Detail any transactions deemed to be significant for their amount or content carried out between the company or its group companies and the directors or executives of the company:
| Name or corporate name of the directors or executives | Name or corporate name of the company or group company | Relationship | Nature of the transaction | Amount (thousands of euro) | Remarks |
|---|---|---|---|---|---|
Detail the significant transactions in which the company has engaged with other companies belonging to the same group, except those that are eliminated in the process of drawing up the consolidated financial statements and that do not form part of the company's usual trade with respect to its objects and conditions. In any event, provide information on any intra-group transactions with companies established in countries or territories considered tax havens:
| Corporate name of the Group Company | Brief description of the transaction | Amount (thousands of euro) |
|---|---|---|
| BBVA GLOBAL FINANCE LTD. | Current account deposits | 2,356 |
| BBVA GLOBAL FINANCE LTD. | Term account deposits | 5,542 |
| BBVA GLOBAL FINANCE LTD. | Issue-linked subordinated liabilities | 163,178 |
Detail any significant transactions between the company or its group companies and other related parties, which have not been listed in the previous entries.# D.6 Detail the mechanisms established to detect, determine and resolve possible conflicts of interest between the company and/or its group, and its directors, executives or significant shareholders.
Articles 7 and 8 of BBVA's Regulations of the Board of Directors regulate issues relating to possible conflicts of interest, in summary, as follows:
Article 7: Directors must adopt necessary measures to avoid incurring in situations where their interests, whether on their own account or for that of others, may enter into conflict with the corporate interest and with their duties with respect to the Company, unless the Company has granted its consent under the terms established in applicable legislation and in the Regulations of the Board of Directors.
Likewise, they must refrain from participating in deliberations and votes on resolutions or decisions in which they or a related party may have a direct or indirect conflict of interest, unless these decisions relate to the appointment or removal of positions on the management body. Directors must notify the Board of Directors of any situation of direct or indirect conflict that they or parties related to them may have with respect to the Company's interests.
Article 8: The duty of avoiding situations of conflicts of interest referred to in Article 7 above obliges the directors to refrain from, in particular:
The above provisions will also apply should the beneficiary of the prohibited acts or activities described in the previous sections be a related party to the director.
However, the Company may dispense with the aforementioned prohibitions in specific cases, authorising a director or a related party to carry out a certain transaction with the Company, to use certain corporate assets, to take advantage of a specific business opportunity or to obtain an advantage or remuneration from a third party. When the authorisation is intended to dispense with the prohibition against obtaining an advantage or remuneration from third parties, or affects a transaction whose value is over 10% of the corporate assets, it must necessarily be agreed by the General Shareholders' Meeting. The obligation not to compete with the Company may only be dispensed with when no damage is expected to the Company or when any damage that is expected is compensated by the benefits that are foreseen from the dispensation. The dispensation will be conferred under an express and separate resolution of the General Shareholders' Meeting.
In other cases, the authorisation may also be resolved by the Board of Directors, provided that the independence of the members conferring it is guaranteed with respect to the director receiving the dispensation. Moreover, it will be necessary to ensure that the authorised transaction will not do harm to the corporate equity or, where applicable, that it is carried out under market conditions and that the process is transparent. Approval by the Board of Directors of the transactions of the Bank or companies within its Group with directors will be granted, where appropriate, after receiving a report from the Audit Committee. The only exceptions to this approval will be transactions that simultaneously meet the three following specifications:
1) they are carried out under contracts with standard terms and are applied en masse to a large number of customers;
2) they are executed at market rates or prices set in general by the party acting as supplier of the goods or services; and
3) they are worth less than 1% of the Company's annual revenues.
Since BBVA is a credit institution, it is subject to the provisions of Spanish Act 10/2014 of 26 June, on the regulation, supervision and solvency of credit institutions (the LOSS), whereby the directors and general managers or similar may not obtain credits, bonds or guarantees from the Bank on whose board or management they work, above the limit and under the terms established in Article 35 of Royal Decree 84/2015, implementing the LOSS, unless expressly authorised by the Bank of Spain.
Continued in Section H of this Report.
No
The BBVA Group has a general risk management and control model (hereinafter, the Model) adapted to its business model, its organisation, the countries in which it operates and its Corporate Governance System. This allows the BBVA Group to operate within the framework of the risk control and management strategy and policy defined by the Bank's corporate bodies and to adapt to the changing economic and regulatory environment, addressing risk management on a global level in a manner adapted to the circumstances at any moment.
This Model, which is the responsibility of the Chief Risk Officer (CRO) and which must be updated or reviewed at least annually, is applied comprehensively in the Group and is made up of the basic elements set out below:
I. Governance and organisation
II. Risk Appetite Framework
III. Evaluation, monitoring and reporting
IV. Infrastructure
The Group promotes the development of a risk culture that ensures consistent application of the Model within the Group, and that guarantees that the risk function is understood and internalised at all levels of the organisation. The Model applies to the management and control of all financial and non-financial risks of the Group, including tax risks, without prejudice to the fact that, with regard to tax, in addition to the management of this type of risk as a non-financial risk, BBVA has a tax risk management policy based on an adequate control environment, a risk identification system and a process for the monitoring and continuous improvement of the effectiveness of the established controls. This management model is revised and assessed by an independent expert. For more information on the basic elements of the Model, see "General risk management and control model" in the "Risk management" chapter of the individual and consolidated Management Reports for financial year 2020.
With regard to risks, the Board of Directors' responsibilities are those relating to establishing the policy for controlling and managing risk and the oversight and control of its implementation. In addition, and for a proper discharge of its functions, the Board of Directors is assisted by the Risk and Compliance Committee in the matters specified below. It is also assisted by the Executive Committee, which focuses on strategy, finance and business-related matters in an integrated manner, in order to monitor the Group's risks.
In particular, the Board of Directors establishes the Group's risk strategy and, in the discharge of this function, determines the risk control and management policy, which is set out in:
Furthermore, in parallel with the function of defining the risk strategy and within the scope of its risk monitoring, supervision and control functions, the Board of Directors monitors the evolution of the BBVA Group's risks as well as the risks of each of its main geographical and/or business areas, ensuring their compliance with the BBVA Group's Risk Appetite Framework, and also overseeing internal information and control systems.
At the executive level, the Group’s Chief Risk Officer (the Head of Global Risk Management) is responsible for managing all of the Group's financial risks with the independence, authority, rank, experience, knowledge and resources required. They are responsible for ensuring, within their scope of functions, that the BBVA Group's risks are managed according to the established model.# E.3 Indicate the primary risks, including tax-related risks and, where significant, risk derived from corruption (the latter can be understood to be within the scope of Royal Decree Law 18/2017) that could prevent business targets from being met.
BBVA has processes to identify risks and analyse scenarios, enabling dynamic and advance risk management. These processes are forward-looking to ensure the identification of emerging risks, and take into account the concerns of both the business and corporate areas, as well as those of Senior Management. Risks are identified and measured in a consistent manner and in line with approved methodologies. Their measurement includes scenario analyses and stress testing, and considers the controls to which the risks are subject. In this regard, there are a number of emerging risks that could impact the Group's business performance. These risks are organised into the following large blocks:
For more information on these risks, see "Risk factors" in the "Risk management" chapter of the individual and consolidated Management Reports for financial year 2020, and "Other non-financial risks" chapter of the Non-Financial Information Statement, included in said Management Reports.
Likewise, amongst the possible crimes included in the criminal prevention model are those related to corruption and bribery, since there are a number of risks that could manifest in a company with characteristics such as those of BBVA. For more information, see "Other standards of conduct" and “Criminal prevention model” in the "Compliance system" section, which is included in the "Ethical behaviour" chapter of the Non-Financial Information Statement in the individual and consolidated Management Reports for the 2020 financial year.
On the other hand, and not having the consideration of significant risk referred to in this section, the Spanish judicial authorities are investigating the activities of the company Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt). The investigation includes services provided to the Bank. In relation to this, on 29 July 2019, the Bank was served the notice from Central Magistrates Court No. 6 of the Spanish High Court, citing the Bank as an investigated legal entity in the preliminary proceedings 96/2017 — investigation piece number 9 — for alleged events that could be constitutive of bribery, revelation of secrets and corruption in business. On 3 February 2020, the Bank was notified that the Central Magistrates Court No. 6 of the Spanish High Court lifted the secrecy of the proceedings. Certain Group managers and employees, both current and former, as well as some former directors, are also under investigation in relation to this case. The Bank has been and continues to proactively cooperate with judicial authorities and has shared with them the relevant documentation arising from the forensic investigation hired by the Bank in 2019 to help to clarify the events. As of the date of this document, no indictment has been filed against BBVA for any crime. The above-mentioned criminal proceedings are in the pre-trial phase. It is therefore impossible at this time to predict their scope or duration, their possible outcome or the possible implications for the Group, including potential fines and losses and damage to the Group's reputation.
Continued in Section H of this Report.
The Group's Risk Appetite Framework, approved by the Board of Directors, determines the risks and the associated risk levels that the Group is prepared to assume to achieve its objectives, considering the organic development pattern of the business. These are expressed in terms of solvency, liquidity and funding, and profitability and recurrence of revenue, which are reviewed not only periodically but also if there are any substantial changes in the business strategy or relevant corporate transactions. The Risk Appetite Framework is expressed through the following elements:
In addition to this Framework, there is a level of management limits that is defined and managed by the areas responsible for managing each type of risk. This is to ensure that anticipatory risk management respects this structure and, in general, the established Risk Appetite Framework.
Each significant geographical area has its own Risk Appetite Framework consisting of its local Risk Appetite statement, core metrics and statements, statements and metrics by type of risk, which should be consistent with those set at the Group level, but adapted to their reality and approved by the corresponding corporate bodies of each entity. This Risk Appetite Framework has a limit structure in line and consistent with the above. The corporate Risk area works together with the various geographical and/or business areas to define their Risk Appetite Framework, so that it is coordinated with and integrated into the Group's Risk Appetite Framework, making sure that its profile is in line with the one defined. Also, for local monitoring purposes, the Chief Risk Officer for the geographical and/or business area will periodically report on the evolution of the local Risk Appetite Framework metrics to its corporate bodies, as well as, where appropriate, to the appropriate local top-level committees, following a scheme similar to that of the Group, in accordance with its own corporate governance systems. For more information on the Risk Appetite Framework described above and on its monitoring and management integration, see "Risk Appetite framework" in the "General Risk management and control model" section within the "Risk management" chapter of the individual and consolidated Management Reports for financial year 2020.
Risk is inherent to financial activity, and the occurrence of minor and major risks is therefore an inseparable part of the Group's activities. BBVA therefore offers detailed information on the evolution of risks which, by their nature, continuously affect the Group in carrying out its activity. This information is provided in its annual financial statements (notes 7 and 19 on risk management and tax risks, respectively, in the BBVA Group's Consolidated Annual Financial Statements; and notes 5 and 17, on the same subject matters, in BBVA's Individual Annual Financial Statements, both for financial year 2020) and in the individual and consolidated Management Reports, both for financial year 2020 (the "Risk management" chapter and "Other non-financial risks" chapter of the Non-Financial Information Statement).# E.6 Explain the response and oversight plans for the primary risks faced by the company, including tax- related risks, and the procedures followed by the company to ensure that the board of directors responds to any new challenges.
The BBVA Group's internal control system for operational risks is based on the best practices developed both in the COSO (Committee of Sponsoring Organizations of the Treadway Commission) Enterprise Risk Management — Integrated Framework and in the Framework for Internal Control Systems in Banking Organisations drawn up by the Basel Bank for International Settlements (BIS). The control model has a system comprising three lines of defence:
● The Group's business and support units constitute the first line of defence. They are responsible for primary management of current and emerging risks, and implementing control procedures for risk mitigation. They are also responsible for reporting to their business/support unit.
● The second line of defence is comprised of specialised control units in different areas of risk: Compliance, Legal, Finance, People, Physical security, Technological security, Information and Data Security, Suppliers, Internal Risk Control and Processes. This line defines the control frameworks in its specialist field, across the entire Entity, and provides training to areas exposed to risk. It also checks the identification of current and emerging risks carried out by the different business and support units, and assesses the adequacy and effectiveness of the control environments implemented by them. With regard to operational risk, the control activity of the first and second lines of defence is coordinated by the Non-Financial Risks Unit, which is responsible for providing the units with a common internal control methodology and global tools. This second line of defence is in place in all geographical areas in which the Group is present and acts in accordance with standardised practices that come from the corporate units in each of the fields. The Group's Head of Non-Financial Risks is responsible for the function and, together with the Chief Compliance Officer and the Head of Internal Risk Control, reports on its activity to the Global Head of Regulation & Internal Control and to the Risk and Compliance Committee, assisting the latter in any matters where requested.
● The third line of defence is made up of the Internal Audit unit, for which the Group assumes the guidelines of the Basel Committee on Banking Supervision and of the Institute of Internal Auditors. Its function is to independently and objectively assess the first and second lines of defence, evaluating the efficiency and effectiveness of internal control policies and systems, risk management and the governance processes and policies established by the Group.
As part of the second line of defence, the Group has a specific Internal Risk Control unit, within the area of Regulation & Internal Control, which, among other tasks, independently checks and monitors regulations and governance structure, in terms of financial risks, and the application and operation thereof in the area of Global Risk Management, as well as checking the development and implementation of financial risk management and control processes. It is also responsible for the validation of risk models. The Group's Head of Internal Risk Control is responsible for the function and reports on its activities and work plans to the Head of Regulation & Internal Control and to the Risk and Compliance Committee, assisting the Committee in any matters where requested, and in particular checking that the GRM reports presented to the Committee comply with the established criteria at all times. In addition, the Internal Risk Control function is global and transversal, covering all types of financial risks and having specific units in all geographical and/or business areas, with functional dependency on the Group's Head of Internal Risk Control.
As far as tax risk is concerned, the Tax Department, located within the Finance area, is responsible for establishing the policies and controls necessary to ensure compliance at all times with the current tax regulations and the tax strategy approved by the Board of Directors. The Internal Financial Control Unit, as a second line of defence against financial, accounting and tax risks, is responsible for assessing the quality of the design and effectiveness of the control model operating in tax processes, as detailed in Section F of this document.
In order to meet the new challenges that arise, the BBVA Group has a governance system that allows the Board of Directors to be informed of the real and potential risks that affect or may affect the Group at any time. Thus, in addition to the work carried out by the Bank's different areas of control (Risk, Regulation & Internal Control and Internal Audit), as well as other areas of the Bank, such as the legal and finance areas, and the corresponding Board committees (such as the Risk and Compliance Committee or the Audit Committee), there is also the monitoring and supervision carried out by the Technology and Cybersecurity Committee. Its work allows the Board of Directors to be informed of the main technological risks to which the Group is exposed—including those relating to information security risks, information technology compliance risks and cybersecurity risks—as well as of current technological trends and strategies, business continuity plans in matters of technology and relevant cybersecurity events affecting the Group or which might affect it in the future, among other functions.
Describe the mechanisms comprising the risk management and control systems for financial reporting (ICFR) in your entity.
Give information on the key features of at least:
(i) the existence and maintenance of an adequate and effective ICFR;
(ii) its implementation and
(iii) its supervision.
Pursuant to Article 17 of its Regulations, the Board of Directors approves the financial information that BBVA is required to publish periodically as a listed company. The Board of Directors has an Audit Committee whose main task, among others, is to assist the Board in monitoring the preparation of financial statements and public information, as well as monitoring internal financial control. In this regard, the Rules of Procedure of BBVA's Audit Committee establish that one of the Committee's functions is to monitor the effectiveness of the Company's internal control and the risk management systems in the process of drawing up and presenting financial information, including tax risks, as well as discussing with the statutory auditor the significant weaknesses of the internal control system detected during the audit.
The BBVA Group complies with the requirements imposed by the Sarbanes Oxley Act (SOX) for each financial year's consolidated financial statements due to its status as a publicly traded company listed with the United States Securities Exchange Commission (SEC). The main Group executives are involved in the design, compliance and maintenance of an effective internal control model that guarantees the quality and veracity of the financial information. The Finance area has been responsible during 2020 for producing the consolidated annual financial statements and maintaining the control model for financial information generation. Specifically, this function is performed by the Financial Internal Control area, which is integrated within the Group's general internal control model, which is briefly outlined below:
The BBVA Group works continuously to bolster its internal control model, which comprises two key elements. The first is the control structure organised into three lines of defence, which is described in Section E.6 above; and the second is a governance scheme called Corporate Assurance, which establishes a framework for monitoring the internal control model and bringing the main aspects of the Group's internal control to the attention of Senior Management. Corporate Assurance establishes a committee structure, both at the local and corporate levels, that provides Senior Management with a comprehensive and homogeneous view of the main non-financial risks and relevant situations as regards the control environment. The aim is to facilitate fast and proactive decision-making in relation to the mitigation or assumption of major risks. These committees are formed by the main executives responsible for the business and support areas, as well as those responsible for the second line of defence (RCS).
The effectiveness of this internal control system is assessed periodically for those risks that may affect the correct compilation of the Group's financial statements. The assessment is coordinated by the Internal Financial Control area and involves risk control specialists (RCS), as the second line of defence, and risk control assurers (RCA) for the main processes, in both business areas and support areas. The Group's Internal Audit area also performs its own assessment of the internal control system with regard to the generation of financial information. In addition, the external auditor of the BBVA Group issues an opinion every year on the effectiveness of internal control over financial reporting based on criteria established by COSO (Committee of Sponsoring Organizations of the Treadway Commission) and in accordance with PCAOB (the US Public Company Accounting Oversight Board) standards. This opinion appears in Form 20-F, which is filed every year with the SEC.
The result of the annual internal assessment of the System of Internal Control over Financial Reporting, conducted by Internal Audit and Internal Financial Control, is reported to the Audit Committee by the heads of Internal Financial Control.## F.1.2 Whether, especially in the process of drawing up financial information, the following elements exist:
Financial information is produced in the local Financial Management Units of the BBVA Group banks in the different countries where it maintains a presence. The consolidation work is carried out in the Corporate Centre, in the Finance Department, which has overall responsibility for the preparation and issuance of the Group's financial and regulatory information. BBVA's organisational structure clearly defines lines of action and responsibility for the areas involved in the generation of financial information, both at the individual entity level and consolidated Group level; provides the channels and circuits necessary for the proper communication of the financial information; and provides a procedure for the dissemination of the annual financial statements. The units responsible for drawing up these financial statements have a suitable distribution of tasks and the necessary segregation of functions to draw up these statements in an appropriate operational and control framework. Additionally, there is an accountability model aimed at extending the culture of, and commitment to, internal control. Those in charge of the design and operation of the processes that have an impact on financial reporting certify that all the controls associated with its operation under their responsibility are sufficient and have worked correctly.
BBVA has a Code of Conduct that is approved by the Board of Directors and reflects BBVA's concrete commitments with regard to one of the principles of its Corporate Culture: Integrity in the consideration and undertaking of its business. This Code likewise establishes the corresponding whistleblowing channel regarding possible infringements of the Code. It is the subject of training and refresher programmes that include key personnel in the financial function. Following the update to the Code in 2015, communication campaigns to share its new content have been in place since 2016, making use of new formats and digital channels. In addition, a training plan has been developed at a global level, reaching the entire workforce of the Group. The Code of Conduct can be accessed on the Bank's website (www.bbva.com) and on the employees' website (Intranet). Additionally, Group members undertake personally and individually to observe its principles and rules in an express declaration of awareness and adhesion. One of the functions of the Risk and Compliance Committee is to examine draft codes of ethics and conduct and their respective modifications prepared by the corresponding area of the Group, and give its opinion in advance of the proposals to be drafted to the corporate bodies. Additionally, BBVA has adopted a structure of Corporate Integrity Management Committees (with individual powers at jurisdiction or Group entity levels, as applicable). Their joint scope of action covers all the Group businesses and activities and their main function is to ensure effective application of the Code of Conduct. There is also a Corporate Integrity Management Committee, whose scope of responsibility extends throughout BBVA. The main mission of this committee entails ensuring uniform application of the Code in BBVA. The Compliance Unit in turn independently and objectively promotes and supervises to ensure that BBVA acts with integrity, particularly in areas such as money-laundering prevention, conduct with customers, security market conduct, corruption prevention, and other areas that could entail a reputational risk for BBVA. The unit's duties include fostering the knowledge and application of the Code of Conduct, promoting the drafting and distribution of its implementing standards, assisting in the resolution of any concern that may arise regarding the interpretation of the Code, and managing the Whistleblowing Channel.
Preservation of the Corporate Integrity of BBVA transcends merely personal accountability for individual actions, it calls for all employees to have zero tolerance for activities that do not comply with the Code of Conduct or that could harm the reputation or good name of BBVA. This attitude is reflected in everyone's commitment to whistle-blowing, by timely communication, of situations that, even when unrelated to their activity or area of responsibility, could be infringe regulations or contradict the values and guidelines of the Code. The Code of Conduct itself and contemplates a Whistleblowing Channel, whereby BBVA employees, as well as other parties not part of BBVA, may communicate, in a confidential manner and, if they wish, anonymously, any behaviours that may not comply with the Code or that may infringe applicable regulation. Complaints are handled promptly and diligently, guaranteeing the confidentiality of the investigations and the prohibition of retaliation or adverse consequences in light of communications made in good faith. Telephone lines and email inboxes have been set up in each jurisdiction for these communications. The Whistleblowing Channel is available 24 hours 365 days. As described in the previous section, BBVA has adopted a structure of Corporate Integrity Management Committees (with individual powers at jurisdiction or Group entity levels, as applicable), whose joint scope of action covers all the Group businesses and activities and whose functions and responsibilities (explained in greater detail in their corresponding regulations) include:
* Driving and monitoring global initiatives to foster and promote a culture of ethics and integrity among members of the Group.
* Ensuring the uniform application of the Code.
* Promoting and monitoring the functioning and effectiveness of the Whistleblowing Channel.
* In cases where they are not already included among the members of the Committee, informing Senior Management and/or the person responsible for preparing the financial statements of any events and circumstances from which significant risks might arise for BBVA.
Also, through the Compliance area, periodic reports are made to the Risk and Compliance Committee, which, pursuant to its own Regulations, monitors and controls the proper functioning of the Whistleblowing Channel.
The Finance area has a specific programme of courses and seminars, run in both its classroom and virtual campus, which complement the general training of all employees of the BBVA Group, in line with their roles and responsibilities. Specific training and periodic refresher courses are given on accounting and tax regulations, internal control and risk management, particularly for teams in the areas involved in preparing and reviewing the financial and tax-related information and in evaluating the internal control system, to help them perform their functions correctly. These courses are taught by professionals from the area and renowned external providers. Additionally, the BBVA Group has a personal development plan for all employees, which forms the basis of a personalised training programme to deal with the areas of knowledge necessary to perform their functions.
Give information on at least:
The ICFR was developed by the Group Management in accordance with international standards set forth by the Committee of Sponsoring Organizations of the Treadway Commission (COSO), which establishes five components on which the effectiveness and efficiency of internal control systems must be based:
* Establishing an adequate control environment for monitoring all these activities.
* Assessing the risks that may be incurred by an entity in drawing up its financial information.
* Designing the necessary controls to mitigate the most critical risks.
* Establishing the adequate information circuits to detect and communicate the system's weaknesses or inefficiencies.
* Monitoring such controls to ensure that they are operational and to guarantee their effectiveness over time.
In order to identify the risks with a greater potential impact on the generation of financial information, the processes through which such information is generated are analysed and documented, and an analysis of the risks, errors or inaccuracies that may arise in each is later conducted. Based on the corporate internal control methodology, the risks are categorised by type, including process errors and fraud, and their probability of occurrence and possible impact are analysed.# F.2 Internal Control Over Financial Reporting (ICFR)
The process of identifying risk in the preparation of Financial Statements, including risks of error, falsehood or omission, is carried out by the first line of defence: those responsible for each of the processes that contribute to the preparation of financial information and those responsible for their control. This risk identification is performed taking into account the theoretical risk model and the mitigation and control framework previously defined by the specialists for each type of risk (within the second line of defence) which, in the case of Finance, is the Internal Financial Control unit (tax and financial reporting risk specialist), who, in addition, challenges the functioning and effectiveness of the controls implemented. Whether the assessment of their controls is annual, quarterly or monthly is determined based on the significance of the risks, this ensuring coverage of the risks considered critical for the financial statements. The assessment of the aforementioned risks and the design and effectiveness of their controls begins with the understanding of and insight into the analysed operating process, considering criteria of quantitative materiality, likelihood of occurrence and economic impact, in addition to qualitative criteria associated with the type, complexity and nature of the risks or of the business or process structure itself. 271
The system for identifying and assessing the risks of internal control over financial reporting is dynamic. It evolves continuously, always reflecting the reality of the Group's business, changes in operating processes, the regulations applicable at all times, the risks affecting them and the controls that mitigate them. All this is documented in a corporate management tool developed and managed by the Non-Financial Risk area (STORM). This tool documents all the risks and controls, by process, that are managed by the different risk specialists, including the Financial Internal Control unit.
Whether the process covers all of the objectives of financial reporting (existence and occurrence; completeness; valuation; presentation, breakdown and comparability; and rights and obligations), whether the information is updated and how frequently. Each of the processes identified in the BBVA Group for drawing up financial information aim to record all financial transactions, value the assets and liabilities in accordance with applicable accounting regulations and provide a breakdown of the information in accordance with regulatory requirements and market needs. The financial information control model analyses each of the phases of the processes mentioned above (from procedural governance, documentation, criteria setting, decision making, information provision, application operation, monitoring generated information, and reporting), in order to ensure that the risks identified in each process are adequately covered by controls that operate efficiently. The control model is updated when changes arise in the relevant processes or support tools for producing financial information.
The existence of a process for identifying the consolidation perimeter, taking into account aspects including the possible existence of complex corporate structures, or instrumental or special purpose vehicles. The Finance area includes a department responsible for the Group's financial consolidation, which carries out a monthly process of identification, analysis and updating of the perimeter of the Group's consolidated companies. In addition, the information from the consolidation department on new companies set up by the Group's different units and the changes made to existing companies is compared with the data analysed by a specific committee at corporate level, whose objective is to analyse and document the changes in the composition of the corporate group and optimise its corporate structure (Corporate Structure Committee — CSC). In addition, the Finance area of the Bank, in controlling special purpose entities, makes a periodic report to the Audit Committee on the structure of the Group of companies.
Whether the process takes into account the effects of other types of risks (operational, technological, financial, legal, tax-related, reputational, environmental etc.) insofar as they impact the financial statements. The model of internal control over financial reporting applies to processes for directly drawing up such financial information and to all operational or technical processes that could have a relevant impact on the financial, accounting, tax-related or management information. As mentioned above, the Group has an internal control model coordinated by the Regulation & Internal Control area, which uses a single methodology to assess all the Group's non-financial risks (mainly operational, technological, financial, legal, tax-related, reputational, third party and compliance). All the specialist risk areas and heads of control use a common tool (STORM) to document the identification of the risks, the controls that mitigate those risks and the assessment of their effectiveness. There are control assurers in all the operational or support areas, and therefore any type of risk that may affect the Group's operations is analysed under that methodology and is included in the ICFR insofar as it may have an impact on the financial information. 272
Which of the entity's governing bodies supervises the process. The process for identifying risks and assessing the design, effectiveness and suitability of the controls for generating financial information is documented at least once a year, and is overseen by the Internal Audit area. Moreover, the Group's head of Internal Financial Control reports annually to the Audit Committee on analysis work that has been carried out, on the conclusions of the assessment of the control model relating to the generation of financial information, and on the process for downstream certification of the effectiveness of the control model. This process is undertaken by the financial officers of the main entities and holding control specialists. This work follows the SOX methodology in compliance with the legal requirements, under the regulation, on systems of internal control over financial reporting, and is included in Form 20-F, submitted annually to the SEC, as indicated in Section F.1 above.
Give information on the main features, if at least the following exist:
All of the processes relating to the generation of financial information are documented, as is the corresponding control model, including potential risks associated with each process and the controls put in place to mitigate them. As explained in Section F.2.1, the aforementioned risks and controls are recorded in the corporate tool STORM, which also includes the result of the assessment of the effectiveness of the controls and the degree of risk mitigation. In particular, the main processes relating to the generation of financial information are found in the Finance area, and they are: accounting, consolidation, financial reporting, financial planning and monitoring, and financial and tax management. The analysis of these processes, their risks and their controls is also supplemented by that of all other critical risks, in the processes of the various business areas or other support areas, that may have a financial impact on the financial statements. In the aforementioned review procedures, special attention is paid, from a control point of view, to the financial and tax-related information disseminated to the securities markets, including the specific review of controls on relevant judgements, estimates and projections used in the preparation of the above-mentioned information.
As noted in the annual financial statements themselves, it is occasionally necessary to make estimates to determine the amount at which some assets, liabilities, income, expenses and commitments should be recorded. These estimates are mainly related to:
273
These estimates are made based on the best information available on the financial statement closing date and, together with the other relevant issues for the closing of the annual and six-monthly financial statements, are analysed and authorised by a Technical Committee.
The Group's current internal control model has expanded the catalogue of technological risks managed as non-financial risks to three distinct categories:
✔ Physical Security: Covers risks from inadequate management of the physical security of assets (including technology) and individuals due to the damage and deterioration of such assets.# F.3.2. Technological and Information Security
✔ Technological Security: Covers risks from inadequate management of technology changes, IT system failures, risk from low IT availability and performance, IT system integrity risk, application tampering fraud, and logical impersonation.
✔ Information and Data Security: Covers risks from unauthorised access, modification or destruction of data infrastructure, loss, theft or misuse of information and cyber attacks that affect the privacy, confidentiality, availability and integrity of information.
The internal control models therefore include procedures and controls regarding the operation of information and access security systems, the segregation of functions, and the development and modification of computer applications used to generate financial information. Both types of control are identified in the model of internal control over financial reporting and are analysed and assessed periodically, in order to guarantee the integrity and reliability of the information drawn up.
With all these mechanisms, the BBVA Group can confirm that adequate management of access control is maintained, the correct and necessary steps are taken to put applications into production as well as ensuring their subsequent support, the creation of backup copies, and assurance of continuity in the processing and recording of operations.
In summary, the entire process of preparing and publishing financial information has established and documented the procedures and control models for technology and IT systems necessary to provide reasonable assurance of the correctness of the BBVA Group's public financial information.
The internal control model sets out specific controls and procedures for the management of subcontracted activities or those aspects of evaluation, calculation and assessment of assets or liabilities outsourced to independent experts.
There is a specialist area of risk arising in third-party operations, a standard and a committee for non-financial risk admission, which also analyses outsourcing operations and which establishes and supervises the requirements to be fulfilled at the Group level for the activities to be subcontracted.
There are procedural manuals for the outsourced financial processes that identify the procedures to be followed and the controls to be applied by the service provider units and outsourcing units. The controls established in the outsourced processes concerning the generation of financial information are also tested by the Internal Financial Control area.
The valuations from independent experts used for matters relevant for generating financial information are included within the standard circuit of review procedures executed by internal control, internal auditing and external auditing.
Give information on the main features, if at least the following exist:
The Finance area and in particular the Accounting & Regulatory Reporting area have robust governance systems which include two Technical Committees: one for Accounting and one for Capital. The purpose of these committees is to analyse, study and issue standards that may affect the compilation of the Group's financial and regulatory information, to determine the accounting and solvency criteria required to ensure that transactions are booked correctly, and to calculate capital requirements within the framework of the applicable standards.
The Group also has an Accounting Policies Manual, which is updated and made available to all Group units by mean s of the Intranet. This Manual is the tool that guarantees that all the decisions related to accounting policies or specific accounting criteria to be applied in the Group are supported and are standardised. This Manual is approved by the Technical Accounting Committee and is continuously documented and updated for use and analysis by all the Group's entities.
The BBVA Group's Finance area and the countries' financial management units are responsible for the processes for preparing financial statements in accordance with the current accounting and consolidation manuals. There is also a consolidation computer application that collects the accounting information of the various companies within the Group and performs the consolidation processes, including the standardisation of accounting criteria, aggregation of balances and consolidation adjustments.
Control measures have also been implemented in each of the aforementioned processes, both locally and at consolidated level, to ensure that all the data supplying the financial information is collected in a comprehensive, exact and timely manner.
There is also a single and standardised financial reporting system that is applicable to and used by all the Group units and supports the main financial statements and the explanatory notes. There are also control measures and procedures to ensure that the information disclosed to the markets contains a breakdown that is tailored to regulatory requirements and sufficient so as to enable investors and other users of the financial information to unders tand and interpret it.
Give information on the key features of at least:
The internal control units of the business areas and of the support areas conduct a preliminary assessment of the internal control model, assess the risks identified in the processes, the effectiveness of controls, and the degree of mitigation of the risks, as well as identifying possible weaknesses and designing, implementing and monitoring the mitigation measures and action plans.
The first assessment of the effectiveness of the risk controls for the financial information preparation process is carried out by the RCA (Risk Control Assurer), who is responsible for control in the first line of defence, and layer by the RCS (Risk Control Specialist — second line of defence) who must challenge the design and operation of the controls in order to issue a conclusion on the operation of the control model on the risks covered by his field of expertise.
BBVA also has an Internal Audit unit that supports the Audit Committee with regard to the independent supervision of the internal financial information control system. The Internal Audit function is entirely independent of the units that draw up the financial information.
All the weaknesses in controls, mitigation measures and specific action plans are documented in the corporate tool STORM and submitted to the internal control and operational risk committees of the areas, as well as to the local or global Corporate Assurance Committees, based on the significance of the detected issues. Both the weaknesses identified by the internal control units and those detected by the internal or external auditor have an action plan in place to correct or mitigate risk.
During the 2020 financial year, the areas responsible for Internal Control conducted a full assessment of the system for internal control over financial reporting, and, to date, no material or significant weakness having any impact on the preparation of financial information have been revealed therein.
Additionally, in compliance with the SOX, the Group's Internal Control and Internal Auditing areas annually assesses the effectiveness of the model of internal control over financial reporting on a group of risks (within the perimeter of SOX companies) that could affect the drawing up of financial statements at local and consolidated levels. This perimeter incorporates risks and controls in Finance and other specialisms that are not directly financial (technology, risks, operational processes, human resources, procurement, legal etc.). The results of this assessment are reported annually to the Audit Committee.
The internal control units of the business areas and of the support areas conduct a preliminary assessment of the internal control model, assess the risks identified in the processes, the effectiveness of controls, and the degree of mitigation of the risks, as well as identifying possible weaknesses and designing, implementing and monitoring the mitigation measures and action plans.
The first assessment of the effectiveness of the risk controls for the financial information preparation process is carried out by the RCA (Risk Control Assurer), who is responsible for control in the first line of defence, and layer by the RCS (Risk Control Specialist — second line of defence) who must challenge the design and operation of the controls in order to issue a conclusion on the operation of the control model on the risks covered by his field of expertise.
BBVA also has an Internal Audit unit that supports the Audit Committee with regard to the independent supervision of the internal financial information control system. The Internal Audit function is entirely independent of the units that draw up the financial information.
All the weaknesses in controls, mitigation measures and specific action plans are documented in the corporate tool STORM and submitted to the internal control and operational risk committees of the areas, as well as to the local or global Corporate Assurance Committees, based on the significance of the detected issues. Both the weaknesses identified by the internal control units and those detected by the internal or external auditor have an action plan in place to correct or mitigate risk.
During the 2020 financial year, the areas responsible for Internal Control conducted a full assessment of the system for internal control over financial reporting, and, to date, no material or significant weakness having any impact on the preparation of financial information have been revealed therein.
Additionally, in compliance with the SOX, the Group's Internal Control and Internal Auditing areas annually assesses the effectiveness of the model of internal control over financial reporting on a group of risks (within the perimeter of SOX companies) that could affect the drawing up of financial statements at local and consolidated levels. This perimeter incorporates risks and controls in Finance and other specialisms that are not directly financial (technology, risks, operational processes, human resources, procurement, legal etc.). The results of this assessment are reported annually to the Audit Committee.As described in section (F.5.1) above, the Group has a procedure in place whereby the internal auditor and the heads of Internal Financial Control report to the Audit Committee any significant internal control weaknesses detected in the course of their work. Any significant or material weaknesses, if present, will likewise be reported. Similarly, there is a procedure whereby the external auditor reports to the Audit Committee the result of their work assessing the system for internal control over financial information. Since BBVA is listed with the SEC, the BBVA Group's external auditor annually issues its opinion on the effectiveness of the internal control over financial reporting contained in the Group's consolidated annual financial statements on 31 December each year, under PCAOB (Public Company Accounting Oversight Board) standards, with a view to filing the financial information with the SEC on Form 20-F. The latest report issued on the financial information for the 2019 financial year is available at www.sec.gov and www.bbva.com. All control weaknesses detected by the Internal Control, Internal Audit and External Audit areas have an action plan for resolution and are reported to the Internal Control Committees of each area, to the Corporate Assurance Committees (local or global, depending on the severity of the weaknesses) and also to the Audit Committee. The internal control oversight carried out by the Audit Committee, described in the Regulations of the Audit Committee published on the Group website, www.bbva.com, includes the following activities:
The external auditor and the head of Internal Audit attend all regular meetings of the Audit Committee to report on the matters dealt with within their respective remits.
277
Report on:
The information related to the BBVA Group's internal control over financial reporting described in this report is reviewed by the external auditor, which issues its opinion on the control system and on its effectiveness in relation to the accounts published at the close of each financial year. On 28 February 2020, the BBVA Group, as a private foreign issuer in the United States, filed the Annual Report (Form 20-F) for the financial year ending on 31 December 2019, which was published on the SEC website on that same date. In accordance with the requirements set out in Section 404 of the Sarbanes-Oxley Act of 2002 by the Securities and Exchange Commission (SEC), the aforementioned Annual Report (Form 20-F) included certification of the Group's executive principles with regard to the establishment, maintenance and assessment of the Group's system of internal control over financial reporting. The Form 20-F report also included the opinion of the external auditor regarding the effectiveness of the Company's system of internal control over financial reporting at the close of the 2019 financial year.
Indicate the extent of the company's compliance with the recommendations of the Good Governance Code of Listed Companies. If any recommendations are not being followed or are only being followed in part, a detailed explanation of these reasons should be given so that shareholders, investors and the market in general have sufficient information to assess the actions of the company. General explanations will not be acceptable.
The bylaws of listed companies should not place an upper limit on the votes that can be cast by a single shareholder, or impose other obstacles to the takeover of the company by means of share purchases on the market.
✔ COMPLIANT
When the listed company is controlled, pursuant to the meaning established in Article 42 of the Commercial Code, by another listed or non-listed entity, and has, directly or through its subsidiaries, business relationships with that entity or any of its subsidiaries (other than those of the listed company) or carries out activities related to the activities of any of them, this is reported publicly, with specific information about:
a) The respective areas of activity and possible business relationships between, on the one hand, the listed company or its subsidiaries and, on the other, the parent company or its subsidiaries.
b) The mechanisms established to resolve any conflicts of interest that may arise.
NOT APPLICABLE
During the annual general meeting the chairman of the board of directors should verbally inform shareholders in sufficient detail of the most relevant aspects of the company's corporate governance, supplementing the written information circulated in the annual corporate governance report. In particular:
a) Changes that have occurred since the previous annual general meeting.
b) The specific reasons for the company not following a given Corporate Governance Code recommendation, and any alternative procedures followed in its stead.
✔ COMPLIANT
The company should define and promote a policy for communication and contact with shareholders and institutional investors within the framework of their involvement in the company, as well as with proxy advisors, that complies in full with the rules on market abuse and gives equal treatment to shareholders who are in the same position. The company should make said policy public through its website, including information regarding the way in which it has been implemented and the parties involved or those responsible its implementation.
Further, without prejudice to the legal obligations of disclosure of inside information and other regulated information, the company should also have a general policy for the communication of economic-financial, non-financial and corporate information through the channels it considers appropriate (media, social media or other channels) that helps maximise the dissemination and quality of the information available to the market, investors and other stakeholders.
✔ COMPLIANT
The board of directors should not make a proposal to the general meeting for the delegation of powers to issue shares or convertible securities without pre-emptive subscription rights for an amount exceeding 20% of capital at the time of such delegation. When a board of directors approves the issuance of shares or convertible securities without pre-emptive subscription rights, the company should immediately post a report on its website explaining the exclusion as envisaged in company legislation.
PARTIALLY COMPLIANT
The General Shareholders' Meeting on 17 March 2017 delegated to the Board of Directors a power to increase share capital and issue convertible securities, along with the power to wholly or partially exclude pre-emptive subscription rights in respect of capital increases and issues of convertible securities carried out using such delegated power. The power to exclude pre-emptive subscription rights is limited, overall, to 20% of share capital as it stood at the time of the delegation, except for the issuance of contingently convertible securities, the conversion of which is intended to satisfy regulatory solvency requirements as to eligibility as capital instruments in accordance with applicable regulations, because such instruments do not dilute the interests of shareholders.
Listed companies drawing up the following reports on a voluntary or compulsory basis should publish them on their website well in advance of the annual general shareholders’ meeting, even if their distribution is not obligatory:
a) Report on auditor independence.
b) Reports on the operation of the audit committee and the nomination and remuneration committee.
c) Audit committee report on related-party transactions.
✔ COMPLIANT
The company should broadcast its general shareholders' meetings live on its website.The company should have mechanisms that allow the delegation and exercise of votes by electronic means and even, in the case of large-cap companies and, to the extent that it is proportionate, attendance and active participation in the general shareholders’ meeting. PARTIALLY COMPLIANT The Company broadcasts, live on its website, its General Shareholders' Meetings; and has mechanisms that allow for proxy voting and remote voting by its shareholders. It is also expected that, for the 2021 General Shareholders' Meeting, mechanisms will be in place to allow remote attendance and active participation by shareholders.
The audit committee should strive to ensure that the financial statements that the board of directors presents to the general shareholders’ meeting are drawn up in accordance to accounting legislation. And in those cases where the auditors includes any qualification in its report, the chairman of the audit committee should give a clear explanation at the general meeting of their opinion regarding the scope and content, making a summary of that opinion available to the shareholders at the time of the publication of the notice of the meeting, along with the rest of proposals and reports of the board. ✔ COMPLIANT
The company should disclose its conditions and procedures for admitting share ownership, the right to attend the general shareholders' meeting and the exercise or delegation of voting rights, and display them permanently on its website. Such conditions and procedures should encourage shareholders to attend and exercise their rights and be applied in a non-discriminatory manner. ✔ COMPLIANT
When an accredited shareholder exercises the right to supplement the agenda or submit new proposals prior to the general shareholders' meeting, the company should:
a) Immediately circulate the supplementary items and new proposals.
b) Disclose the model of attendance card or proxy appointment or remote voting form duly modified so that new agenda items and alternative proposals can be voted on in the same terms as those submitted by the board of directors.
c) Put all these items or alternative proposals to the vote applying the same voting rules as for those submitted by the board of directors, with particular regard to presumptions or deductions about the direction of votes.
d) After the general shareholders' meeting, disclose the breakdown of votes on such supplementary items or alternative proposals. NOT APPLICABLE
In the event that a company plans to pay for attendance at the general shareholders' meeting, it should first establish a general, long-term policy in this respect. NOT APPLICABLE
The board of directors should perform its duties with unity of purpose and independent judgement, according the same treatment to all shareholders in the same position. It should be guided at all times by the company’s best interest, understood as the creation of a profitable business that promotes its sustainable success over time, while maximising its economic value. In pursuing the corporate interest, it should not only abide by laws and regulations and conduct itself according to principles of good faith, ethics and respect for commonly accepted customs and good practices, but also strive to reconcile its own interests with the legitimate interests of its employees, suppliers, clients and other stakeholders, as well as with the impact of its activities on the broader community and the natural environment. ✔ COMPLIANT
The board of directors should have an optimal size to promote its efficient functioning and maximise participation. The recommended range is accordingly between five and fifteen members. ✔ COMPLIANT
The board of directors should approve a policy aimed at promoting an appropriate composition of the board of directors and that:
a) Is concrete and verifiable;
b) Ensures that appointment or re-election proposals are based on a prior analysis of the competences required by the board; and
c) Favours s diversity of knowledge, experience, age and gender. Therefore, measures that encourage the company to have a significant number of female senior managers are considered to favour gender diversity. The results of the prior analysis of competences required by the board should be written up in the nomination committee’s explanatory report, to be published when the general shareholders’ meeting is convened that will ratify the appointment and re-election of each director. The appointments committee should run an annual check on compliance with the policy and set out its findings in the annual corporate governance report. ✔ COMPLIANT
Proprietary and independent directors should constitute an ample majority on the board of directors, while the number of executive directors should be the minimum practical bearing in mind the complexity of the corporate group and the ownership interests they control. Further, the number of female directors should account for at least 40% of the members of the board of directors before the end of 2022 and thereafter, and not less than 30% previous to that. ✔ COMPLIANT
The percentage of proprietary directors out of all non-executive directors should be no greater than the proportion between the ownership stake of the shareholders they represent and the remainder of the company's capital. This criterion can be relaxed:
a) In large cap companies where few or no equity stakes attain the legal threshold for significant shareholdings.
b) In companies with a plurality of shareholders represented on the board of directors but not otherwise related. ✔ COMPLIANT
Independent directors should be at least half of all board members. However, when the company is not highly capitalised or is highly capitalised but has one or more shareholders acting in concert and controlling more than 30% of the share capital, the minimum number of independent directors should be at least one third of the total. ✔ COMPLIANT
Companies should disclose the following director particulars on their websites and keep them regularly updated:
a) Background and professional experience.
b) Directorships held in other companies, listed or otherwise, and other paid activities they engage in, of whatever nature.
c) Statement of the director class to which they belong, in the case of proprietary directors indicating the shareholder they represent or have links with.
d) Date of their first appointment as a board member and subsequent re-appointments.
e) Shares held in the company, and any options on the same. ✔ COMPLIANT
Following verification by the nomination committee, the annual corporate governance report should disclose the reasons for the appointment of proprietary directors at the urging of shareholders controlling less than 3% of capital; and explain any rejection of a formal request for a board place from shareholders whose equity stake is equal to or greater than that of others applying successfully for a proprietary directorship. NOT APPLICABLE
Proprietary directors should resign when the shareholders they represent dispose of their ownership interest in its entirety. If such shareholders reduce their stakes, thereby losing some of their entitlement to proprietary directors, the latter number should be reduced accordingly. NOT APPLICABLE
The board of directors should not propose the removal of independent directors before the expiry of their tenure as mandated by the bylaws, except where they find just cause, based on a proposal from the nomination committee. In particular, just cause will be presumed when directors take up new posts or responsibilities that prevent them allocating sufficient time to the work of a board member, or are in breach of their fiduciary duties or come under one of the disqualifying grounds for classification as independent enumerated in the applicable legislation. The removal of independent directors may also be proposed when a takeover bid, merger or similar corporate transaction alters the company’s capital structure, provided the changes in board membership ensue from the proportionality criterion set out in recommendation 16. ✔ COMPLIANT
Companies should establish rules obliging directors to disclose any circumstance that might harm the organisation’s name or reputation, related or not to their actions within the company, and tendering their resignation as the case may be, and, in particular, to inform the board of any criminal charges brought against them and the progress of any subsequent trial. When the board is informed or becomes aware of any of the situations mentioned in the previous paragraph, the board of directors should examine the case as soon as possible and, attending to the particular circumstances, decide, based on a report from the nomination and remuneration committee, whether or not to adopt any measures such as opening of an internal investigation, calling on the director to resign or proposing his or her dismissal. The board should give a reasoned account of all such determinations in the annual corporate governance report, unless there are special circumstances that justify otherwise, which must be recorded in the minutes. This is without prejudice to the information that the company must disclose, if appropriate, at the time it adopts the corresponding measures. ✔ COMPLIANT
Directors should express their clear opposition when they feel a proposal submitted for the board’s approval might damage the corporate interest. In particular, independents and other directors not subject to potential conflicts of interest should strenuously challenge any decision that could harm the interests of shareholders lacking board representation. When the board makes material or reiterated decisions about which a director has expressed serious reservations, then he or she must draw the pertinent conclusions.Directors resigning for such causes should set out their reasons in the letter referred to in the next recommendation. The terms of this recommendation also apply to the secretary of the board, even if he or she is not a director.
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
The evaluation of board committees should start from the reports they send the board of directors, while that of the board itself should start from the report of the nomination committee. Every three years, the board of directors should engage an external facilitator to aid in the evaluation process. Any business dealings that the facilitator or members of its corporate group maintain with the company or members of its corporate group should be detailed in the annual corporate governance report. The process followed and areas evaluated should be detailed in the annual corporate governance report.
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
✔ COMPLIANT
The audit committee should have the following functions over and above those legally assigned:
With respect to internal control and reporting systems:
a) Monitor and evaluate the preparation process and the integrity of the financial and non-financial information, as well as the control and management systems for financial and non-financial risks related to the company and, where appropriate, to the group – including operating, technological, legal, social, environmental, political and reputational risks or those related to corruption – reviewing compliance with regulatory requirements, the accurate demarcation of the consolidation perimeter, and the correct application of accounting principles.
b) Monitor the independence of the unit handling the internal audit function; propose the selection, appointment and removal of the head of the internal audit service; propose the service’s budget; approve or make a proposal for approval to the board of the priorities and annual work programme of the internal audit unit, ensuring that it focuses primarily on the main risks the company is exposed to (including reputational risk); receive regular report-backs on its activities; and verify that senior management are acting on the findings and recommendations of its reports.
c) Establish and supervise a mechanism that allows employees and other persons related to the company, such as directors, shareholders, suppliers, contractors or subcontractors, to report irregularities of potential significance, including financial and accounting irregularities, or those of any other nature, related to the company, that they notice within the company or its group. This mechanism must guarantee confidentiality and enable communications to be made anonymously, respecting the rights of both the complainant and the accused party.
d) In general, ensure that the internal control policies and systems established are applied effectively in practice.
With regard to the external auditor:
a) Investigate the issues giving rise to the resignation of the external auditor, should this come about.
b) Ensure that the remuneration of the external auditor does not compromise its quality or independence.
c) Ensure that the company notifies any change of external auditor to the CNMV as a material event, accompanied by a statement of any disagreements arising with the outgoing auditor and the reasons for the same.
d) Ensure that the external auditor has a yearly meeting with the board in full to inform it of the work undertaken and developments in the company’s risk and accounting positions.
e) Ensure that the company and the external auditor adhere to current regulations on the provision of non-audit services, limits on the concentration of the auditor’s business and other requirements concerning auditor independence.
✔ COMPLIANT# PART I
Certain functions contained in this recommendation, in particular in paragraph 1(a), on the monitoring of risk control and management systems; paragraph 1(c), on the monitoring of a mechanism for the reporting of irregularities of particular importance; and paragraph 1(d), on the monitoring of the implementation of internal control policies and systems, are assigned, in accordance with the provisions of the Regulations of the Board of Directors, to the Risk and Compliance Committee, composed exclusively of non-executive directors, most of them being independent directors, as well as its Chairman. Within the framework of BBVA's Corporate Governance System, this Committee assists the Board in determining and monitoring the policy for control and management of all risks (financial and non-financial) of the Group, with the exception of the functions that correspond to internal financial control, that are the responsibility of the Audit Committee; those of technological risk, which correspond to the Technology and Cybersecurity Committee; and those of business and reputational risk, which correspond to the Executive Committee. It also carries out monitoring of the information and internal control systems, the Regulation & Internal Control function (which includes, among other units, the Compliance Unit) and implementation within the Group of risk and compliance culture. Notwithstanding the foregoing, the Audit Committee may, where appropriate, receive information on the above, within the framework of its responsibilities and under the inter-committee coordination mechanism provided for in the Regulations of the Board, for the best exercise of its functions.
The audit committee should be empowered to meet with any company employee or manager, even ordering their appearance without the presence of another senior officer.
✔ COMPLIANT
The audit committee should be informed of any fundamental changes or corporate transactions the company is planning, so the committee can analyse the operation and report to the board beforehand on its economic conditions and accounting impact and, when applicable, the exchange ratio proposed.
✔ COMPLIANT
Risk control and management policy should identify at least:
a) The different types of financial and non-financial risk the company is exposed to (including operational, technological, financial, legal, social, environmental, political and reputational risks, and risks relating to corruption), with the inclusion under financial or economic risks of contingent liabilities and other off-balance-sheet risks.
b) A risk control and management model based on different levels, of which a specialised risk committee will form part when sector regulations provide or the company deems it appropriate.
c) The level of risk that the company considers acceptable.
d) The measures in place to mitigate the impact of identified risk events should they occur.
e) The internal control and reporting systems to be used to control and manage the above risks, including contingent liabilities and off-balance sheet risks.
✔ COMPLIANT
Companies should establish a risk control and management function in the charge of one of the company’s internal department or units and under the direct supervision of the audit committee or some other dedicated board committee. This function should be expressly charged with the following responsibilities:
a) Ensure that risk control and management systems are functioning correctly and, specifically, that major risks the company is exposed to are correctly identified, managed and quantified.
b) Participate actively in the preparation of risk strategies and in key decisions about their management.
c) Ensure that risk control and management systems are mitigating risks effectively in the frame of the policy drawn up by the board of directors.
✔ COMPLIANT
Appointees to the nomination and remuneration committee – or of the nomination committee and remuneration committee, if separately constituted – should have the right balance of knowledge, skills and experience for the functions they are called on to discharge. The majority of their members should be independent directors.
✔ COMPLIANT
Large cap companies should operate separately constituted nomination and remuneration committees.
✔ COMPLIANT
The nomination committee should consult with the company’s chairman and chief executive, especially on matters relating to executive directors. When there are vacancies on the board, any director may approach the nomination committee to propose candidates that it might consider suitable.
✔ COMPLIANT
The remuneration committee should operate independently and have the following functions in addition to those assigned by law:
a) Propose to the board the standard conditions of senior management contracts.
b) Monitor compliance with the remuneration policy established by the company.
c) Periodically review the remuneration policy for directors and senior officers, including share-based remuneration systems and their application, and ensure that their individual compensation is proportionate to the amounts paid to other directors and senior officers in the company.
d) Ensure that conflicts of interest do not undermine the independence of any external advice the committee engages.
e) Verify the information on director and senior officers’ pay contained in corporate documents, including the annual directors’ remuneration statement.
✔ COMPLIANT
The remuneration committee should consult with the company’s chairman and chief executive, especially on matters relating to executive directors and senior officers.
✔ COMPLIANT
The rules of performance and membership of supervision and control committees should be set out in the board of directors’ regulations and aligned with those governing legally mandatory board committees as specified in the preceding sets of recommendations. They should include:
a) Committees should be formed exclusively by non-executive directors, with a majority of independents.
b) They should be chaired by independent directors.
c) The board should the members of such committees with regard to the knowledge, skills and experience of its directors and each committee’s terms of reference; discuss their proposals and reports; and provide report-backs on their activities and work at the first board plenary following each committee meeting.
d) They may engage external advice, when they feel it necessary for the discharge of their functions.
e) Meeting proceedings should be minuted and a copy made available to all board members.
✔ COMPLIANT
The task of supervising compliance with the policies and rules of the company in the environmental, social and corporate governance areas, and internal rules of conduct, should be assigned to one board committee or split between several, which could be the audit committee, the nomination committee, a committee specialised in sustainability or corporate social responsibility, or a dedicated committee established by the board under its powers of self-organisation. Such a committee should be made up solely of non-executive directors, the majority being independent and specifically assigned the following minimum functions.
The responsibility of supervising compliance with the Bank’s policies and rules in the area of environmental, social and corporate governance, as well as internal codes of conduct, and other matters referred to in Recommendation 54, is shared between several Board Committees: namely, the Appointments and Corporate Governance Committee, the Audit Committee and the Risk and Compliance Committee, composed exclusively of non-executive directors; and also the Executive Committee. In particular, regarding environmental and social matters, the Executive Committee and the Risk and Compliance Committee play a more active role in assisting the Board on such matters, each within the limits of their powers. The Executive Committee, which is comprised of a majority non-executive directors, is established to support the Board in the area of strategy and finance and oversees, on a recurrent basis, the integration of sustainability into the Group's business processes and activity, in line with the strategic priorities set out by the Bank. This Committee also oversees the implementation of the Bank’s Sustainability Policy, approved by the Board, as well as the implementation of the Corporate Social Responsibility Policy, also approved by the Board. In turn, the Risk and Compliance Committee, composed of a large majority of independent directors and without the presence of executive directors, monitors and supervises the integration of sustainability into the Group's risk analysis and management, from the perspectives of both risk planning and risk management. This Committee’s functions also include to examine draft codes of ethics and conduct and their respective modifications, and matters related to money laundering, conduct on the securities markets, data protection and the scope of Group activities with respect to competition. Finally, the Appointments and Corporate Governance Committee, composed of a majority of independent directors, is responsible for regularly reviewing and assessing BBVA’s corporate governance system; and the Audit Committee, composed exclusively of independent directors, is responsible for overseeing the process of preparing and reporting financial and related non-financial information.
The minimum functions referred to in the above recommendation are as follows:
a) Monitor compliance with the company’s internal codes of conduct and corporate governance rules, and ensure that the corporate culture is aligned with its purpose and values.b) Monitor the implementation of the general policy regarding the disclosure of economic-financial, non-financial and corporate information, as well as communication with shareholders and investors, proxy advisors and other stakeholders. Similarly, the way in which the entity communicates and relates with small and medium-sized shareholders should be monitored.
c) Periodically evaluate the effectiveness of the company’s corporate governance system and environmental and social policy, to confirm that it is fulfilling its mission to promote the corporate interest and catering, as appropriate, to the legitimate interests of remaining stakeholders.
d) Ensure the company’s environmental and social practices are in accordance with the established strategy and policy.
e) Monitor and evaluate the company’s interaction with its stakeholder groups.
✔ COMPLIANT
Environmental and social sustainability policies should identify and include at least:
a) The principles, commitments, objectives and strategy regarding shareholders, employees, clients, suppliers, social welfare issues, the environment, diversity, fiscal responsibility, respect for human rights and the prevention of corruption and other illegal conducts.
b) The methods or systems for monitoring compliance with policies, associated risks and their management.
c) The mechanisms for supervising non-financial risk, including that related to ethical aspects and business conduct.
d) Channels for stakeholder communication, participation and dialogue.
e) Responsible communication practices that prevent the manipulation of information and protect the company’s honour and integrity.
✔ COMPLIANT
286
Director remuneration should be sufficient to attract individuals with the desired profile and compensate the commitment, abilities and responsibility that the post demands, but not so high as to compromise the independent judgement of non-executive directors.
✔ COMPLIANT
Variable remuneration linked to the company and the director’s performance, the award of shares, options or any other right to acquire shares or to be remunerated on the basis of share price movements, and membership of long-term savings schemes such as pension plans, retirement schemes and other savings schemes, should be confined to executive directors. The company may consider the share-based remuneration of non-executive directors provided they retain such shares until the end of their mandate. This condition, however, will not apply to shares that the director must dispose of to defray costs related to their acquisition.
✔ COMPLIANT
In the case of variable awards, remuneration policies should include limits and technical safeguards to ensure they reflect the professional performance of the beneficiaries and not simply the general progress of the markets or the company’s sector, or circumstances of that kind. And, in particular, variable remuneration items should meet the following conditions:
a) Be subject to predetermined and measurable performance criteria that factor the risk assumed to obtain a given outcome.
b) Promote the long-term sustainability of the company and include nonfinancial criteria that are relevant for the company’s long-term value creation, such as compliance with its internal rules and procedures and its risk control and management policies.
c) Be focused on achieving a balance between the delivery of short, medium and long-term objectives, such that performance-related pay rewards ongoing achievement, maintained over sufficient time to appreciate its contribution to long-term value creation. This will ensure that performance measurement is not based solely on one-off, occasional or extraordinary events.
✔ COMPLIANT
The payment of the variable components of remuneration is subject to sufficient verification that previously established performance, or other, conditions have been effectively met. Entities should include in their annual directors’ remuneration report the criteria relating to the time required and methods for such verification, depending on the nature and characteristics of each variable component. Additionally, entities should consider establishing a reduction clause (‘malus’) based on deferral for a sufficient period of the payment of part of the variable components that implies total or partial loss of this remuneration in the event that prior to the time of payment an event occurs that makes this advisable.
✔ COMPLIANT
Remuneration linked to company earnings should bear in mind any qualifications stated in the external auditor’s report that reduce their amount.
✔ COMPLIANT
A major part of executive directors’ variable remuneration should be linked to the award of shares or financial instruments whose value is linked to the share price.
✔ COMPLIANT
Following the award of shares, options or financial instruments corresponding to the remuneration schemes, executive directors should not be able to transfer their ownership or exercise them until a period of at least three years has elapsed. Except for the case in which the director maintains, at the time of the transfer or exercise, a net economic exposure to the variation in the price of the shares for a market value equivalent to an amount of at least twice his or her fixed annual remuneration through the ownership of shares, options or other financial instruments. The foregoing shall not apply to the shares that the director needs to dispose of to meet the costs related to their acquisition or, upon favourable assessment of the nomination and remuneration committee to address an extraordinary situation.
✔ COMPLIANT
287
Contractual arrangements should include provisions that permit the company to reclaim variable components of remuneration when payment was out of step with the director’s actual performance or based on data subsequently found to be misstated.
✔ COMPLIANT
Termination payments should not exceed a fixed amount equivalent to two years of the director’s total annual remuneration and should not be paid until the company confirms that he or she has met the predetermined performance criteria. For the purposes of this recommendation, payments for contractual termination include any payments whose accrual or payment obligation arises as a consequence of or on the occasion of the termination of the contractual relationship that linked the director with the company, including previously unconsolidated amounts for long-term savings schemes and the amounts paid under post-contractual non-compete agreements.
✔ COMPLIANT
The data in this report refers to the financial year ending 31 December 2020, except in those cases when another reference date is specifically stated.
Further to Section A.3, BBVA has a fixed remuneration system with deferred share delivery for its non-executive directors, as approved by the General Meeting. This consists of the annual allocation to each non-executive director of a number of BBVA “theoretical shares” equivalent to 20% of the total cash compensation received by each non-executive director in the previous year. This will be delivered as appropriate, after their termination as a director for any reason other than serious dereliction of duties. Details on the annual allocation made by the Board and the accumulated theoretical shares can be found in Notes 54 and 49 on “Remuneration and other benefits to the Board of Directors and to members of the Bank's Senior Management” within the notes to the annual financial statements corresponding to BBVA's Consolidated and Individual Annual Accounts for the 2020 financial year, respectively, as well as in BBVA's Annual Report on the Remuneration of Directors.
The remuneration system for executive directors includes, among other elements, an annual variable remuneration whose settlement and payment system includes a share portion and deferral periods. The details of the shares that correspond to each executive director as part of this remuneration are also set out in Notes 54 and 49 on “Remuneration and other benefits to the Board of Directors and to members of the Bank's Senior Management” of the notes to the annual financial statements for the BBVA Consolidated and Individual Annual Accounts the 2020 financial year, respectively, and in BBVA's Annual Report on the Remuneration of Directors.
Further to Section A.9, relating to income from treasury-share trading, Ru le 21 of Circular 4/2017 and IAS 32, Paragraph 33, expressly prohibit the recognition, in the income statement, of gains or losses made through transactions carried out with own capital instruments, including their issuance and redemption. Said profits and losses are directly booked against the company's net equity.
In the table of significant variations, the date of entry of CNMV Model IV into the registries of that body.# C.1.2. Board of Directors and its Committees
This model is related to communications with treasury shares and contains the reason for such communication. For the purpose of clarifying the information contained in Section C.1.2, it is indicated that Jaime Félix Caruana Lacorte accepted his appointment on 4 June 2018; Ana Cristina Peralta Moreno accepted her appointment on 28 May 2018; Ana Leonor Revenga Shanklin and Carlos Vicente Salazar Lomelín accepted their appointments on 1 April 2020, with the date of appointment by the corresponding General Meeting set out in Section C.1.2.
Further to section C.1.7, the Committee observed that independent directors contribute to the suitable composition of both the Board of Directors and its committees and, in particular, those that assist the Board in its supervision and control functions. These Committees must have a significant number of independent directors, from among which the chairs of these committees must also be appointed.
Finally, the current composition of the Board complies with the provisions of the applicable legislation, the Regulations of the corporate bodies and the objectives of the Selection Policy in this regard.
In addition to the foregoing paragraphs, it is worth noting that:
i. there is adequate balance between the different types of director;
ii. non-executive directors comprise 86.67% of the total directors (thus meeting the objective of there being a majority of non-executive directors);
iii. independent directors make up two thirds of the Board (thus meeting the objective of having at least 50% independent directors); and
iv. women currently represent one third of directors (thus meeting the specific target for 2020 of having at least 30% female directors).
In light of the above, it is the view of the Committee that the Board of Directors as a whole has an adequate and diverse composition, with extensive knowledge of the environment, strategy, activities, business and risks of the Bank and its Group, and which is balanced and suited to current needs, thus helping the corporate bodies to perform their functions in the Bank's best corporate interest.
Further to Section C.1.9, the various Board Committees with oversight and control functions also have certain functions delegated by the Board of Directors, which are set forth in their corresponding regulations and are available on the Bank's website.
Further to the information included in section C.1.13:
The amount included in the item "Remuneration of the Board of Directors accrued during the financial year" corresponds, based on the instructions of this Report, with the amount declared as total remuneration accrued according to Table C) "Summary of remunerations" of section 3.4 (Statistical appendix) of BBVA's Annual Report on the Remuneration of Directors, which includes: the fixed and in-kind remuneration of the executive and non-executive directors received during the 2020 financial year; the payment of the deferred portion of the Annual Variable Remuneration for the 2017 financial year, in cash and monetised shares, together with its corresponding update, payable in 2021 if the corresponding conditions are met; as well as the remuneration paid as a result of the non-compete agreement to the former executive director Head of Global Economics & Public Affairs, who ceased as director on 13 March 2020, and the consolidated amounts of rights to savings system corresponding to this director.
The consolidated amount of rights to savings system indicated in the Annual Report of Remunerations for Directors corresponds to the total of the accumulated funds to meet the retirement commitments made by the Bank to the former executive director Head of Global Economics & Public Affairs, which, in accordance to BBVA Directors’ Remuneration Policy and the conditions established in his contract, he will be entitled to receive, paid as a lump sum or in instalments, when he reaches the legally established retirement age, without the Bank having to make any additional contributions since the termination.
The amount included in the item "Remuneration of the Board of Directors accrued during the financial year" does not include the initial portion of the Annual Variable Remuneration of the executive directors for the 2020 financial year since it has not accrued due to the executive directors waiving its generation in light of the exceptional circumstances arising from the COVID-19 crisis.
These concepts are detailed, individually for each director, in Notes 54 and 49 of the notes to the annual financial statements corresponding to BBVA's Annual Consolidated and Individual Accounts for the 2020 financial year, respectively.
For the purposes of calculating the cash value of the shares corresponding to the Deferred Portion of the 2017 Annual Variable Remuneration, to be paid in 2021, and bearing in mind that these shares had not yet been delivered to their beneficiaries as of the date of this report, the average closing price of BBVA's share price for the stock exchanges between 15 December 2020 and 15 January 2021 inclusive has been taken as a reference. This price stood at EUR 4.12 per share. The price used to initially determine the number of shares of the deferred part of the 2017 Annual Variable Remuneration in accordance with the policy applicable in that financial year was the average closing price of BBVA's share for trading sessions between 15 December 2017 and 15 January 2018, which was EUR 7.254 per share.
With regard to the "Amount of entitlements accrued by current directors in regard to pensions" indicated in section C.1.13 of this Report, during the 2020 financial year, the Bank made pension commitments to the Chairman to cover the contingencies of retirement, disability and death in accordance with the provisions of the Bylaws, the BBVA Directors’ Remuneration Policy and his contract entered into with the Bank.
For the Chief Executive Officer, the Bank has no pension commitments, although it does have commitments to cover the contingencies for disability and death, in accordance with the BBVA Directors’ Remuneration Policy and the contract entered into with the Bank.
The main characteristics of the pension system of the Chairman to cover the retirement contingency are detailed in the BBVA Directors’ Remuneration Policy, and include, inter alia, the following: it is a defined contribution system; no provision for receiving the retirement pension in advance; and 15% of the agreed contribution is considered "discretionary pension benefits", in accordance with the requirements of the applicable regulations.
They are also included in Notes 54 and 49 of the Annual Report corresponding to the annual financial statements for BBVA's Consolidated and Individual Annual Financial Statements for the 2020 financial year, respectively, which include the amounts of the entitlements accrued by the Chairman as at 31 December 2020.
The balance of the item "Provisions — Funds for pensions and similar obligations" on the Group's consolidated balance sheet at 31 December 2020 includes EUR 73 million as post-employment provision commitments maintained with former members of the Board of Directors.
Further to the information included in section C.1.14:
The item "Total remuneration of Senior Management" includes the remuneration of the members of Senior Management (15 members as at 31 December 2020, excluding the executive directors), which includes: the annual and in-kind fixed remuneration received during the 2020 financial year; the payment of the Deferred Portion of the Annual Variable Remuneration for the 2017 financial year, in cash and monetised shares, together with its corresponding update, payable in 2021, if the corresponding conditions are met. The monetised shares stood at the same value as that indicated in the case of the executive directors (i.e. EUR 4.12 per share; see Section C.1.13).
As in the case of the executive directors, this item does not include the Annual Variable Remuneration for the 2020 financial year as it has not been accrued since the members of the Senior Management waived its generation in light of the exceptional circumstances arising from the COVID-19 crisis.
The main characteristics of the pension systems for this group are, inter alia, the following: defined contributions; no provision for receiving the retirement pension in advance; and 15% of the agreed contributions are considered "discretionary pension benefits", in accordance with the requirements of the applicable regulations.
The above concepts are detailed in Notes 54 and 49 of the annual financial statements corresponding to BBVA's Consolidated and Individual Annual Financial Statements for the 2020 financial year, respectively.
The balance of the item "Provisions — Funds for pensions and similar obligations" on the Group's consolidated balance sheet at 31 December 2020 includes EUR 282 million as post-employment provision commitments maintained with former members of the Bank's Senior Management.
In addition, it is indicated that, on 22 December 2020, José Luis Elechiguerra was appointed Head of Engineering & Organization; as at the date of this report, his position as Senior Manager of Banco Bilbao Vizcaya Argentaria, S.A. was pending registration in the Bank of Spain's Register of Senior Officers, in accordance with the applicable regulations.
Further to Section C.1.17, set out below is the assessment carried out by the Board of Directors of its committees' operation, based on reports submitted by their respective Chairs:
With regard to Section C.1.27, as BBVA shares are listed on the New York Stock Exchange, it is subject to the supervision of the Securities and Exchange Commission (SEC) and, thus, to compliance with the Sarbanes Oxley Act and its implementing regulations, and for this reason each year the Group Executive Chairman, the Chief Executive Officer and the executive tasked with preparing the Accounts sign and submit the certifications described in sections 302 and 906 of this Act, related to the content of the Annual Financial Statements. These certificates are contained in the annual registration statement (Form 20-F) which the Company files with this authority for the official record.
Further to Section C.2.1, the following is a brief indication of what the regulations establish with regard to the composition and functions of each of the remaining Board Committees:
● Executive Committee: Article 30 of the Regulations of the Board and the Regulations of the Executive Committee establishes that the Board of Directors may, in accordance with the Bylaws and with the favourable vote of two-thirds of its members, appoint an Executive Committee, composed of a minimum of four directors appointed by the Board of Directors, ensuring that there is a majority of non-executive directors over executive directors. The Chairman of the Board of Directors will be an ex-officio member of the Committee. The Secretary of the Board of Directors will hold the same position on the Committee. If absent, the Secretary will be replaced by the Deputy Secretary or the person appointed by the attendees of the relevant meeting.
● Audit Committee: The Regulations of the Audit Committee establish that it shall consist of a minimum of four directors, all of them independent directors. Committee members will be appointed by the Board 291 of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their roles. In any event, at least one member will be appointed taking into account their knowledge and experience in accounting, auditing or both. As a whole, the Committee members will possess relevant technical expertise in the financial sector. The Board will, from amongst its members, appoint the Chair of this Committee, who must be replaced every four years and may be re-appointed one year after the end of their term of office. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Secretary of the Board of Directors or, on behalf thereof, the Deputy Secretary of the Board of Directors, will act as Secretary for the Committee.
● Appointments and Corporate Governance Committee: The Regulations of the Appointments and Corporate Governance Committee establish that it shall consist of a minimum of three directors, all of them non-executive and most of them independent, as well as its Chairman. Committee members will be appointed by the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their roles. The Board of Directors will appoint the Chair of the Committee from amongst its independent members. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Secretary of the Board of Directors or, on behalf thereof, the Deputy Secretary of the Board of Directors, will act as Secretary for the Committee.
● Remunerations Committee: The Regulations of the Remunerations Committee establishes that it must be comprised of a minimum of three non-executive directors and the majority, including the Chair, must be independent directors. Committee members will be appointed by the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their roles. The Board of Directors will appoint the Chair of the Committee from amongst its independent members. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Secretary of the Board of Directors or, on behalf thereof, the Deputy Secretary of the Board of Directors, will act as Secretary for the Committee.
● Risk and Compliance Committee: The Regulations of the Risk and Compliance Committee establishes that it will consist of a minimum of three directors, appointed by the Board of Directors, who possess the appropriate knowledge, skills and experience to understand and control the Bank's risk strategy. All the members of the Committee must be non-executive directors, with its Chair and a majority of members being independent directors. The Board will appoint the Chair of the Committee from amongst its independent members. When the Chair cannot be present, meetings will be chaired by the longest-serving independent director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Secretary of the Board of Directors or, on behalf thereof, the Deputy Secretary of the Board of Directors, will act as Secretary for the Committee.
● Technology and Cybersecurity Committee: The Regulations of the Technology and Cybersecurity Committee establish that the Committee shall consist of a minimum of three directors, most of whom shall be non-executive directors. Committee members will be appointed by the Board of Directors, seeking to ensure that they possess the necessary dedication, skills and experience to carry out their roles. The Board will appoint the Chair of the Committee from amongst its members. When the Chair cannot be present, meetings will be chaired by the longest-serving director on the Committee, and, where multiple directors have equal length of service, by the eldest. The Secretary of the Board of Directors or, on behalf thereof, the Deputy Secretary of the Board of Directors, will act as Secretary for the Committee.# C.2.2. Board Committees
Also, following the most important activities of the Board Committees and their organisational and operational rules as set out in paragraph C.2.1:
The most noteworthy actions carried out by the Committee during the 2020 financial year included the monitoring of the monthly evolution of the Group and its business areas' activity and results, its crucial role in ensuring the integrity, coordination, consistency and coherence of the Group's strategic and prospective processes, such as the Strategic Plan, the RAF, the ICAAP, the ILAAP, the Budget and planning of capital, liquidity and funding, taking into account aspects common to all processes, and driving the integration of the strategic bases established by the Board into all processes.
In addition, the Committee has played a key role in monitoring and controlling the measures implemented in BBVA for the management of the health and economic crisis caused by COVID -19, with intensive monitoring of the Bank's businesses and activities adapted to the needs of the Bank and the environment, in a changing and uncertain context, and prioritising matters that required increased monitoring and control as well as those with the greatest impact on BBVA, including the Bank's main management measures, the impacts of the crisis on activity, results and organisation, the capital situation, liquidity and solvency, and the development of risk management.
Furthermore, the Committee has ensured the coherence and alignment of RAF with the strategy established by the Board of Directors and has reviewed and proposed the bases for the proposals upon which RAF has been drafted, which were submitted to the Board by the Risk and Compliance Committee. The Committee has also supported the Board in analysing and monitoring the drafting of the Budget, the Capital Plan and the Liquidity and Funding Plan prior to submission to the Board.
The Committee also undertook work to oversee, monitor and control the Group's risk management. It monitored the evolution of the risk profile and metrics; the most significant aspects relating to changes in the macroeconomic environment and other factors that impacted the Group's management and activities over the course of the financial year; as well as any developments in BBVA share prices.
In addition, it has analysed progress in the corporate transaction processes, the competence to decide on which rested with the Board, including their strategic and financial aspects, in advance of their consideration by the Board, as well as other issues and projects relating to the development of the Strategic Plan, like the Group's progress in terms of sustainability (including in environmental and social matters), or the day-to-day management of business.
Finally, particularly noteworthy is the work carried out by the Committee on the prior reporting of policies submitted to the Board, except for policies relating to issues handled by other Board committees; as well as the Group's authorisation to appoint directors in subsidiaries or investee companies, and the granting of the powers vested in the Group.
Regarding organisational and operational rules, the operational principles of the Audit Committee are indicated in its Regulations, which lay down the basic rules of its organisation and operation. In particular, the Audit Committee's Regulations stipulate that, inter alia, the Committee shall meet whenever it is called by its Chair, who is empowered to convene the Committee and to set the agenda for its meeting. The Regulations contain the procedure for the calling of ordinary and extraordinary meetings.
Executives responsible for the areas that manage matters within their remits may be called to meetings, in particular Accounting and Internal Auditing areas, and, at the request of the heads of these, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed appropriate. The Committee may also call on any other Group employee or manager, and even arrange for them to appear without the presence of any other manager, while ensuring that the presence of non-Committee members at its meetings is limited to those cases where it is necessary and to the items of the agenda for which they are called.
The Committee may, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. Other aspects of the organisation and operation of the Committee will be subject to the Regulations of the Committee. All matters not provided for in the aforementioned Regulations will adhere to the Regulations of the Board of Directors, insofar as they are applicable.
In terms of the most significant actions carried out by the Audit Committee during the 2020 financial year, in the performance of the functions established to it by law, it has analysed the following matters, submitting the corresponding reports and proposals to the Board for approval, where appropriate.
It analysed and oversaw the process of preparing and presenting financial and non-financial information related to the Bank as well as its consolidated Group from the annual, half-yearly and quarterly reports, in order to determine its accuracy, reliability, adequacy and clarity, prior to its submission to the Board.
These financial information supervision functions were performed through a continuous process throughout the year, in which it has monitored the monthly development of the balance sheet and income statement, the quarterly and semi-annual financial reports, the closing results of each period and the preparation process for the corresponding financial information, paying special attention to the accounting criteria applied and any changes therein, as well as accounting regulations and the changes in the Group's scope of consolidation.
In addition, following the health crisis caused by COVID-19, the Committee has continuously monitored and analysed the impacts that would affect the business, balance sheet and income statement of the Bank and its Group from an accounting perspective. Particularly noteworthy are the analysis and monitoring performed on (i) the extraordinary update made to the macroeconomic information required for the calculation of expected losses due to credit risk in application of the accounting standard IFRS 9; (ii) the results corresponding to the impairment test carried out on the goodwill recorded in the Group's accounts, in compliance with International Accounting Standard (IAS) 36, and the methodology used for this assessment; (iii) the scope and impact of the moratorium measures agreed upon, whether by public initiative or initiative of the Group itself; (iv) the extraordinary provisions applied as a result of the COVID-19 crisis; and (v) changes made to policies or the accounting criteria applied, among others.
Hence, prior to their drafting and/or approval by the Board, the Committee oversaw the preparation of the individual and consolidated annual financial statements for the financial year, the half-yearly and quarterly financial statements, as well as other relevant financial information, including the CNMV Universal Registration Document, US SEC Form 20-F of the Securities and Exchange Commission (SEC), and the Prudential Relevance Report, among others, submitting to the Board the corresponding reports and/or opinions of the Committee on the financial information of the Bank and its Group.
In addition, within the financial information monitoring process, the Committee oversaw the sufficiency, suitability and effective functioning of the internal control systems established for the preparation of financial information, including tax-related systems, as well as learning from the internal reports and the reports by the executive areas of the Bank and the external auditor on the effectiveness of the internal financial control, submitting to the Board the Committee's reports on the sufficiency of the internal control systems established by the Group for the generation of financial information.
Similarly, at the same time as overseeing the main financial information of the Bank and its Group, the Committee analysed the Group's main tax figures, monitoring, inter alia, the real tax rate, total tax risk, the tax position on capital, as well as the main criteria used, the main decisions adopted and the impact on the financial information.
The Committee has maintained appropriate relationships with the heads of the external auditor, during each of the monthly meetings it has held, in order to ascertain the planning, stage and progress of the Annual Plan established for performing its work in connection with the audit of the Bank and Group annual financial statements, of the interim financial statements, and of other financial information subject to review during the account auditing. It also received and analysed the opinion reports and communications required by account auditing legislation, from the external auditor, among which: the work carried out on the Group's financial information, other regulatory work of the External Auditor, such as the supplementary report to the Bank's Annual Financial Statements, as well as confirmations of its independence with regard to the Bank and other companies within its group.
Similarly, in relation to the independence of the external auditor, the Committee has ensured that internal procedures are implemented to safeguard against situations that may give rise to independence conflicts.# It has also opposed declarations made by the external auditor concerning confirmation of its independence with regard to BBVA and its Group, and issued the corresponding reports in accordance with applicable legislation. In addition, the Committee has analysed the proposal for External Auditor's fees for the 2020 financial year, prior to it being submitted to the Board for consideration, as well as the quality of the work carried out by the external auditor during the financial year. It agreed to submit to the Board of Directors the proposal for the re-appointment of KPMG Auditors S.L. as auditor of the Bank and its Group for the 2021 financial year, which is submitted for approval by the next 2021 General Meeting. 294 With regards to Internal Audit tasks, the Committee has ensured that the Internal Audit area has the necessary material and human resources for effective performance of its functions, overseeing the efficiency and operation of the role as well as its independence from other areas of the Bank for such purpose. As such, the Committee analysed and approved the Annual Internal Audit Plan for the 2020 financial year, overseeing its development and regularly monitoring the activity and reports issued by the area during its monthly meetings. It was also notified of the result of its most relevant work, weaknesses and opportunities for improvement identified, and the recommendations made by the Internal Audit as a result of its review work. The Committee has also been made aware of the adjustments made to the Annual Internal Audit Plan for the financial year, resulting from the contingency situation caused by COVID-19. It has analysed the extraordinary measures taken in the area to ensure the continuity of its activity in all geographies, changes made to the working methodology, the re-planning of work and the design of new alternative work based on the risk analysis review, which had the prior agreement of the Committee. Similarly, the Committee has analysed the proposed update to the regulations of the Group's Internal Audit Function Charter, evaluating the main envisaged changes to its regulations and content, having expressed its agreement with the proposed amendments prior to the Charter's submission to the Board of Directors for consideration. With regard to the Strategic Plan established by the Internal Audit Area for the 2020–2024 period, the Committee was informed of and monitored its progress during the financial year, analysing the development of all projects established for each of the strategic priorities defined, as well as the degree of implementation of the improvements identified following the review process of the Internal Audit function by an independent external expert. The Committee also reviewed the changes to the structure of the Group of companies over the financial year, as well as the Group's governance for the control, oversight and management of its corporate structure. Similarly, the Committee has been informed of major corporate operations planned by the Group, monitoring the economic conditions and the main accounting impacts foreseen in the Group's financial statements, and issuing, prior to the decisions that the Board should take, the Committee's report on the operation. The Committee also analysed, prior to submission for consideration by the Board, the Bank's general policy for the disclosure of economic -financial, non-financial and corporate information, drawn up in accordance with the new recommendation set out in June 2020 by the CNMV's new Good Governance Code of Listed Companies. Lastly, during the Bank's General Shareholders' Meeting held in 2020, the Committee informed shareholders of the main issues related to the matters within its remit, including overseeing the process of preparing Bank and Group financial information, which had been provided to shareholders for their approval, the result of the account auditing and of the function that it had carried out in this matter, as well as the main issues related to the matters described in this section and other issues that were handled by the Committee.
The Regulations of the Appointments and Corporate Governance Committee set out the operational principles of the Committee and lay down the basic rules of its organisation and operation. The Regulations of the Appointments and Corporate Governance Committee specifically provide that the Committee will meet whenever it is called to do so by its Chair, who is empowered to call the Committee and to set the agenda for its meetings, and set out the procedure for calling ordinary and extraordinary meetings. Executives responsible for the areas that manage matters within their remits may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meetin g is deemed appropriate. The Committee may also call on any other Group employee or manager, and even arrange for them to appear 295 without the presence of any other manager, while ensuring that the presence of non-Committee members at its meetings is limited to those cases where it is necessary and to the items of the agenda for which they are called. The Committee may also, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. Other aspects of the organisation and operation of the Committee shall be subject to the Regulations of the Committee. All other matters not provided for in the aforementioned Regulations will be subject to the Regulations of the Board of Directors, insofar as they are applicable.
With respect to the Appointments and Corporate Governance Committee's most significant actions in 2020, in performing the functions assigned to it, of particular note were: the Committee's continuous analysis of the structure, size and composition of the Board of Directors, ensuring that they are suitable for the corporate bodies to best perform their functions; and the analysis of the directors' compliance with the independence and suitability criteria and the absence of any conflicts of interest for the performance of their duties, among other matters. Taking this analysis into account, and the process of ongoing refreshment of the Board described above and the director selection processes led by the Committee, the Committee carried out the corresponding proposals and reports on the appointment and re-appointment of directors to the Board, for subsequent submission to the Company's General Meeting in 2020. The committee also carried out an analysis of the assessment of the operation of the Board and the performance of the functions of the Chairman of the Board and the Chief Executive Officer, submitting the corresponding reports for consideration by the Board. In addition, in 2020 the Committee reviewed and proposed an update to the Selection Policy, including, among many other matters, the new target for representation of the underrepresented gender, as indicated above. Furthermore, following Committee's assumption of new functions relating to the Bank's Corporate Governance System in 2019, it worked intensively on this matter in 2020, and in this regard, has monitored and supervised the progress made in the Bank's Corporate Governance System during the financial year, reviewed the draft annual corporate governance report for 2019 and the amendments to certain recommendations of the CNMV Good Governance Code. It has also received information on the result of the Corporate Governance Roadshow, where meetings were held with the Bank's main institutional investors and proxy advisors over the last months of 2020. In light of the foregoing, the Committee analysed and reviewed the proposed new Corporate Governance General Policy for the BBVA Group, which sets out the general principles, objectives and main characteristics of corporate governance for the Group and its internal organisation, including the relationship model between BBVA and the entities comprising its Group; issuing its favourable opinion prior to submission to the Board for approval. The Committee verified that the circumstances set out in the BBVA Directors’ Remuneration Policy for the application of malus and clawback clauses elated to the conduct of executive directors, had not occurred, for the purpose of payment of the variable remuneration accrued in previous years. Finally, the Committee analysed the appointment and dismissal of senior managers that were proposed during the 2020 financial year, in view of the selection and appointment policy of the members of the Senior Management; The Committee reviewed and verified the suitability of the proposed new senior managers, submitting their corresponding reports to the Board.
The Regulations of the Remunerations Committee set out the operational principles of the Committee and lay down the basic rules of its organisation and functioning. The Regulations of the Remunerations Committee specifically provide, amongst other things, that the Remunerations Committee will meet whenever it is called to do so by its Chair, who is empowered to 296 call the Committee and to set the agenda for its meetings, and set out the procedure for calling ordinary and extraordinary meetings. Executives responsible for the areas that manage matters within their remits may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed appropriate. The Committee may also call any other Group employee or manager, and even arrange for them to appear without the presence of any other manager.It will, however, seek to ensure that the presence of persons outside the Committee during its meetings be limited to those cases where it is necessary and to the items on the agenda for which they had been called. The Committee may also, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. Other aspects of the organisation and operation of the Committee shall be subject to the Regulations of the Committee. All other matters not provided for in the aforementioned Regulations will be subject to the Regulations of the Board of Directors, insofar as they are applicable.
With regard to the most important activities carried out by the Remunerations Committee during the 2020 financial year, the activity of the Committee has been focused on performing the functions assigned to it by Article 5 of its Regulations, as well as the development of the framework established in the BBVA Directors Remuneration Policy, approved by the General Meeting held in March 2019, and in the BBVA Group Remuneration Policy, approved by the Board of Directors in November 2017, which is generally applicable to all BBVA staff and which includes the Remuneration Policy for the Identified Staff. These policies focus on the recurring generation of value for the Group, and also seek to align the interests of its employees and shareholders with prudent risk management. Therefore, the Remunerations Committee carried out the actions detailed below during the 2020 financial year to perform its functions and implement the aforementioned remuneration policies, submitting the corresponding proposals to the Board of Directors for approval, where appropriate.
However, as detailed below, the activities of the Remunerations Committee in the 2020 financial year have been affected by the crisis caused by the COVID-19 pandemic, as has the activity of the other corporate bodies of the Bank. During the first few months of the 2020 financial year, the Committee carried out its usual activity in the area of remuneration. Thus, the Committee submitted necessary proposals to the Board for determining the amount of the Annual Variable Remuneration of executive directors for the 2019 financial year, as well as the scales of achievement for the multi-year performance indicators that would apply to the Deferred Portion of 2019 Annual Variable Remuneration and the TSR (Total Shareholder Return) indicator reference group; determining the amount of the Deferred Portion of the Annual Variable Rate for the 2016 financial year, which was to be paid to executive directors in 2020, and the updated amount; and determining the annual and multi-year performance indicators, and their corresponding weightings, used for the calculation of the Annual Variable Remuneration of executive directors for the 2020 financial year. The Remunerations Committee was informed of the remuneration conditions for directors as established in 2019, in accordance with the BBVA Directors’ Remuneration Policy, and resolved not to submit a proposal to the Board for their amendment.
With regard to those matters relating to Senior Management, the Committee established, for its proposal to the Board and in line with the basic contractual framework for Senior Management, the basic contractual conditions applicable to members of the Bank's Senior Management who were appointed by the Board on 19 December 2019, effective from 1 January 2020; as well as the salary review of certain senior managers, also within said contractual framework. Similarly, the Committee reviewed the Annual Variable Remuneration of members of Senior Management for the 2019 financial year, as well as the Deferred Portion of the 2016 Annual Variable Remuneration for Senior Managers who receive such remuneration, both to be paid in 2020.
297
Similarly, the Committee determined the 2019 Annual Variable Remuneration for the heads of Regulation & Internal Control and Internal Audits (under the direct authority of the Board), for its proposal to the Board, on the basis of the approach taken by the Risk and Compliance and Audit Committees, respectively, in relation to the assessment of their objectives. Regarding matters relating to the Identified Staff, which includes Senior Management, the Committee established that the scales of achievement for the multi-year indicators for the deferred 2019 Annual Variable Remuneration, as well as the TSR indicator reference group, were the same as those set for the executive directors. The Committee also established that the multi-year indicators for the 2020 Annual Variable Remuneration determined for the executive directors were also applicable to the Identified Staff.
Also in 2020, as in every year, the Committee submitted to the Board, for its approval and subsequent submission to a vote at the General Meeting:
In March 2020, after the General Meeting, the health crisis caused by COVID-19 began, which largely determined the activity of the Remunerations Committee for the remainder of the financial year. In particular, at this time, in view of the exceptional circumstances arising from the COVID-19 crisis and as a gesture of responsibility and commitment toward customers, shareholders, employees and society in general, 330 members of the Identified Staff, including the executive directors and members of the Senior Management, waived generation of the Annual Variable Remuneration for the 2020 financial year.
In this context, the Remunerations Committee analysed the waiver of the Annual Variable Remuneration for the 2020 financial year by the executive directors and the consequences thereof in terms of resolutions previously adopted by the corporate bodies of the Bank for the generation of the same, which were mostly ineffective. Likewise, the Remunerations Committee analysed the minimum thresholds for Attributable Profit and Capital Ratio established by the executive area for determining the 2020 Annual Variable Remuneration, if applicable, both for those members of the Identified Staff who had not fully waived said Annual Variable Remuneration as well as for the rest of the Group's staff, all of which the Board was informed of.
With regard to the function of the Committee in ensuring compliance with the remuneration policies established by the Company, the Remunerations Committee carried out a review of the implementation, in the 2019 financial year, of the approved remuneration policies (the Directors’ Remuneration Policy and the BBVA Group's Remuneration Policy, which includes the Remuneration Policy for the Identified Staff), based on the annual Internal Audit Area Report. In addition, the Committee has been informed of the development and outcome of identifying the BBVA Group Identified Staff in 2020. During 2020 the Committee has also verified the information about the remuneration of directors and senior managers contained in the Financial Statements and in the Annual Report on the Remuneration of Directors for the 2019 financial year.
The Regulations of the Risk and Compliance Committee set out the operational principles of the Committee and lay down the basic rules of its organisation and operation. In particular, the Risk and Compliance Committee's Regulations stipulate, inter alia, that the Committee shall meet whenever it is called by its Chair, who is empowered to call the Committee and to set the agenda for its meeting. The Regulations contain the procedure for the calling of ordinary and extraordinary meetings. Executives responsible for the areas that manage matters within their remits may be called to meetings, including the Regulation & Internal Control area and the Risks area, and, at the request of the heads of these, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed appropriate. The Committee may also call on any other Bank employee or manager, and even arrange for them to appear without the presence of any other manager, while ensuring that the presence of non-Committee members at its meetings is limited to those cases where it is necessary and to the items of the agenda for which they have been called.
298
The Committee may also, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. Other aspects of the organisation and operation of the Committee shall be subject to the Regulations of the Committee. All other matters not provided for in the aforementioned Regulations will be subject to the Regulations of the Board of Directors, insofar as they are applicable.
With regard to the most important activities carried out by the Risk and Compliance Committee during the 2020 financial year, the Committee analysed in several of its meetings and submitted a proposal for the BBVA Group's Risk Appetite Framework for the 2021 financial year (on the basis of the approach taken by the Executive Committee), as well as an update to the BBVA Group's General Risk Management and Control Model. These were submitted to the Board of Directors for its consideration and, where appropriate, its approval.## Risk and Compliance Committee
During the 2020 financial year, the Committee reviewed reports on the internal capital adequacy assessment process (ICAAP) and the internal liquidity adequacy assessment process (ILAAP), as well as regulatorily required adequacy proposals for capital and liquidity. This review was carried out to monitor the development of stress scenarios and verify their alignment with the approved Risk Appetite Framework, with assistance from the Risk, Finance and Regulation & Internal Control areas, amongst others. This made it possible to ensure that these reports and proposals faithfully reflected the Group's situation in the areas analysed prior to them being submitted for consideration by the Executive Committee and the Board of Directors.
The Risk and Compliance Committee has participated in the annual review and updating of the Group's general risk management and control policies, both financial and non-financial, ensuring they are consistent with the Group's General Risk Management and Control Model. The Risk and Compliance Committee also confirmed that the model is adequate and that the Group has structural risk-management areas both at corporate level and in each geographical and/or business area. They added that these function correctly and provide the Committee with the information required to understand the Group's risk exposure at all times, thus enabling the Committee to fulfil its monitoring, supervision and control functions.
The Risk and Compliance Committee has monitored the effectiveness of the Regulation & Internal Control area, involving itself in matters related to the Head of the area and ensuring that the area has the resources necessary to carry out its functions. The Risk and Compliance Committee has received monthly information from the Head of Regulation & Internal Control regarding the activity carried out by each of the units that comprise that area, with a focus on the work carried out to tackle the impact of the pandemic. In addition, the Committee has received periodic reports directly from the heads of Compliance, Non-Financial Risks and Internal Risk Control, all of which fall under the Regulation & Internal Control area.
Throughout the 2020 financial year, the Risk and Compliance Committee monitored the evolution of the different risks to which the Group is exposed—both financial (e.g. credit risk, structural risks, market risk, insurance risk) and non-financial (mainly operational risks)—as part of the BBVA Group's General Risk Management and Control Model and in accordance with the Risk Appetite Framework approved by the Board of Directors. The Risk and Compliance Committee therefore received and analysed information from the Risk and Regulation & Internal Control areas suitably frequently, and had the support of the Group's Chief Risk Officer, the Head of Regulation & Internal Control, those in charge of each type of risk in the corporate field and the risk directors of the Group's main geographical and/or business areas, and spoke directly with each one to discuss this topic. All of this afforded the Risk and Compliance Committee direct knowledge of the Group's risks, both globally and locally, allowing it to perform its function of monitoring the evolution of the Group's risks, regardless of the type of risk, the geographical or business area in which it originates, and even the sector or portfolio to which it belongs.
299
In the performance of this function, the Risk and Compliance Committee also regularly monitored the compliance of the metrics established for the 2020 financial year, with the necessary frequency and level of detail to ensure adequate monitoring of said indicators. To further enhance its monitoring of the Risk Appetite Framework, the Committee received information about key internal and external variables that do not directly form part of the Risk Appetite Framework but affect its compliance. All of this prior to its follow-up by the other corporate bodies with risk functions.
In particular, and since the outbreak of the COVID-19 pandemic, the Committee has been continuously monitoring those risks most affected by the pandemic, with a focus on the behaviour of those credit portfolios which has been subject to legal or sectoral moratoria, as well as new lending operations granted with public guarantees. In addition, the credit committees of Global Risk Management (GRM) informed the Risk and Compliance Committee periodically of the main credit risk operations in their respective areas of competency, as well as the Group's most significant cases of credit exposure. Each month, the Risk and Compliance Committee was also provided with information about the qualitative risk operations authorised by the committees of Global Risk Management.
The Risk and Compliance Committee has analysed, in advance, the financial and non-financial risks of corporate operations submitted for consideration by the Board of Directors. In 2020, the Committee received recurring information on the evolution of metrics and analysis in terms of profitability and capital, which evaluate the alignment of the resulting pricing in the financing and credit activity against the risk strategy and risk transfer in the Group. Additionally, the Committee monitored the profitability of portfolios and businesses and the performance of the profitability indicators incorporated into the Bank's Risk Appetite Framework. All of this enabled the Committee to confirm that the prices of the assets and liabilities offered to customers were aligned with the Bank's business model and risk strategy.
The Committee was involved in establishing the multi-year performance indicators for the 2020 Annual Variable Remuneration, as well as the scales of achievement for the multi-year performance indicators for the 2019 Annual Variable Remuneration, analysing their alignment with appropriate, effective and prudent risk management, prior to their submission to the Board by the Remunerations Committee. The Committee was informed of the Risk area's structure, resources and incentive scheme as well as its means, systems and tools (including those in development stage), having verified that the Group has adequate resources in relation to its strategy.
The Risk and Compliance Committee participated in the review of the Group's Recovery Plan with a view to assessing its alignment with the Risk Appetite Framework approved by the Group and analysing the risk scenarios used, with the help of the Risk and Finance areas, inter alia, before being submitted to the Executive Committee and subsequently the Board of Directors for consideration.
Regarding the functions of the Committee in relation to compliance, it should be noted first and foremost that during the 2020 financial year, the Committee analysed each of the policies prepared by the executive areas in this regard (e.g. conflicts of interest, anti-corruption), issuing its favourable opinion prior to their submission to the board to be approved or updated. Before being approved by the Board of Directors, the Committee also examined the new Charter of the Compliance Function, which was updated in 2020 to ensure its alignment with new regulations, supervisory expectations and the BBVA Group's organisational structure. The Committee also regularly monitored information received by the Compliance Unit over the course of the financial year regarding the Group's compliance with applicable internal and external regulations. The Committee examined the findings of the independent review processes carried out both internally within the Group and externally by the competent authorities, as well as the degree of progress in implementing planned measures within the various areas of activity (e.g. conduct, prevention of money laundering and terrorist financing, data protection). It also specifically monitored the activity of the Compliance Unit in relation to the MiFID regulations and bank transparency.
300
Moreover, the Committee was informed, as often as appropriate, of the findings of external audits and any other reviews carried out by external experts on compliance -related matters, including existing internal control measures concerning the prevention of money laundering and terrorist financing. Similarly, the Committee also monitored the main legal risks deriving from litigation to which the Group is exposed. Furthermore, regarding compliance with applicable internal regulations, the Committee was informed by the heads of the relevant executive areas of any pertinent compliance-related issues concerning the implementation of internal regulation (e.g. general policies, procedures) approved by the Group.
Regarding BBVA's Crime Prevention and Criminal Risk Management Model, the Committee was informed of its development over the course of the financial year and the main lines of work involved in relation to the model's various elements. The Committee was also informed by the head of the Compliance Unit—the unit responsible for promoting and ensuring, in an independent and objective manner, that BBVA acts with integrity, particularly in areas such as anti-money laundering, conduct with clients, security market conduct, anti-corruption and other aspects of corporate conduct —of the functioning of the whistleblowing channel, as well as of the noteworthy aspects of the area. Finally, the Committee analysed the degree of implementation of the Compliance Unit's Annual Plan for the 2019 financial year. It also examined the Annual Plan set out for 2020, as well as monitoring its progress in terms of implementation, which was impacted by the crisis and extraordinary activity carried out following the outbreak of the pandemic.# Regarding communications and recommendations from supervisors, the Committee was made aware of the major communications and inspections carried out by the Group's supervisory bodies, whether national or foreign, being informed, where appropriate, of the recommendations, weaknesses or areas of improvement identified, as well as the action plans and other measures established by the relevant executive areas in order to overcome them in time. Finally, during the 2020 financial year, the Risk and Compliance Committee verified the progress and effectiveness of the various actions and initiatives drawn up by the Risk and Regulation & Internal Control areas to strengthen the risk and compliance culture in the Group, so as to enable employees to perform their duties in a secure environment, and to encourage the mitigation of risks, both financial and non- financial, to which their activities are exposed.
The Regulations of the Technology and Cybersecurity Committee set out the operational principles of the Committee and lay down the basic rules of its organisation and operation. In particular, the Technology and Cybersecurity Committee's Regulations stipulate, inter alia, that the Committee shall meet whenever it is convened by its Chair, who is empowered to call the Committee and set the agenda of its meetings. The Regulations contain the procedure for the calling of ordinary and extraordinary meetings. Executives responsible for the areas that manage matters within their remits may be called to meetings, as well as, at the request thereof, those persons within the Group who have knowledge of or responsibility for the matters covered by the agenda, when their presence at the meeting is deemed appropriate. The Committee may also call on any other Bank employee or manager, and even arrange for them to appear without the presence of any other manager, while ensuring that the presence of non-Committee members at its meetings is limited to those cases where it is necessary and to the items of the agenda for which they have been called. The Committee may also, through its Secretary, engage external advisory services for relevant issues when it considers that these cannot be properly provided by experts or technical staff within the Group on grounds of specialisation or independence. Other aspects of the organisation and operation of the Committee shall be subject to the Regulations of the Committee. All other matters not provided for in the aforementioned Regulations will be subject to the Regulations of the Board of Directors, insofar as they are applicable.
301
With regard to the most relevant actions carried out by the Technology and Cybersecurity Committee during the 2020 financial year, the Committee has received information on the Group's technology strategy from the heads of the Engineering and Organization Area, regarding the main strategic projects and plans defined by that Area, with a focus on those related to resilience, cloud infrastructure, banking functionalities and the development of engineering solutions for the areas and the data platform. Additionally, the input of external advisers was made available to the Committee in order to strengthen the Committee's independence in the performance of this function. Within the context of these plans and projects, the Committee has been informed of technological trends and of other issues pertaining to new technologies, applications, IT systems and best practices that affect or may affect the Group's technology strategy or plans. The Committee has received recurring updates on the metrics established by the Group for management and control in the technological field. In relation to the Committee's functions in the area of technological risk supervision and cyber security management for the Group, firstly, since the beginning of the crisis caused by COVID-19, the Committee was informed about (a) the management of business continuity from an operational point of view; (b) the move to remote working by the vast majority of staff; and (c) the strengthening of the Group's operational capabilities and other cybersecurity and fraud management measures during the pandemic. Also, the Committee received information about the updated framework of technological risks to which the Group is exposed, as well as the measures for identifying, managing, monitoring and mitigating such risks. In particular, the Committee has been provided with further detail on identification, management, monitoring and mitigation of IT-related risks faced by the Group as a result of services that are contracted to suppliers; along with the main risks associated with the use of shadow IT elements. Additionally, the Committee has been informed of how the Bank complies with the EBA's ICT guidelines in relation to IT and security risk management. The Committee was also informed of progress made in relation to the business continuity strategy and lessons learnt as a result of the pandemic. The Committee has reviewed the main programmes in the field of cybersecurity and was informed about progress made, the implementation of artificial intelligence solutions, the evolution of the established metrics and future plans. Finally, at each of its meetings, the Committee also received information on the main cybersecurity- related events at industry level and on those that are relevant to the BBVA Group. This information was provided by the head of the Corporate Security unit, who explained how the Group is prepared to deal with attacks of a similar nature, as well as how it has dealt with attacks and, where applicable, mitigated their consequences for the Group.
With respect to Section D (Related-party and Intragroup Transactions), see Notes 53 and 48 within the BBVA Consolidated and Individual Annual Financial Statements for the 2020 financial year, respectively. Section D.4 details the transactions conducted by Banco Bilbao Vizcaya Argentaria, S.A. at the close of the financial year, with the company issuing securities on international markets, carried out as part of ordinary trading related to the management of outstanding issuances, guaranteed by BBVA. Moreover, with respect to Section D.4, please refer to the section entitled 'Offshore financial centres' in the BBVA Consolidated Management Report for the 2020 financial year. Furthermore, with respect to Section D.6, all members of the Board of Directors and BBVA Senior Management are subject to the provisions of the BBVA Code of Conduct, the Group's General Policy on Conflicts of Interest and the Internal Standards of Conduct in the Securities Markets, which establish principles and guidelines to identify, prevent and manage potential conflicts of interest. In particular, the Internal Standards of Conduct in the Securities Markets establishes that all persons subject to them must notify the head of their area or the Compliance unit of situations that could potentially and under specific circumstances may entail conflicts of interest that might compromise their impartiality, before they engage in any transaction or conclude any business in the securities market in which such may arise.
302
To complement Section E.3 of this report, and in relation to Preliminary Proceeding No. 96/2017 – Piece No. 9- regarding the provision of services by Centro Exclusivo de Negocios y Transacciones, S.L. (Cenyt) to the Bank, since 2019 this issue was reported on a recurrent basis to the Bank's corporate bodies, namely to the Board of Directors and also to its committees that have functions in relation to this matter (the Audit Committee and the Risk and Compliance Committee). These bodies have driven and overseen internal investigation procedures, ensuring that the Bank fully cooperates with the judicial authorities and develops a policy of transparency. In addition to the above, the Bank's management bodies have continued to adopt various measures to strengthen the Bank's internal monitoring systems, outlined in the Compliance System section of the Non- Financial Information Statement included in the Individual and Consolidated Management Reports for the 2020 financial year, which include this Annual Corporate Governance Report. These measures include the approval of new policies and other internal developments, improvements in internal control processes and the strengthening of the crime prevention model. It is also worth noting that relevant documentation obtained from the forensic investigation hired in 2019 to help to clarify the events does not indicate any implication by any of the current members of the Board of Directors nor the Executive Chairman of the Bank, and it has not been proven that the Bank has committed any criminal activity. BBVA sustains that no criminal responsibility for the Entity is derived from the investigated events. It must also be stressed that, to date, the case has not impacted the development of the Bank's business, nor has it negatively impacted the Bank's reputation indices, which are subject to recurrent monitoring by both the executive team and by its management bodies. BBVA has created a specific area on its corporate web page with information on issues related to the Cenyt case (https://www.bbva.com/en/specials/the-cenyt-case/).
To supplement Recommendation 64 included in Section G, it is expressly noted that, in accordance with BBVA Directors’ Remuneration Policy, approved by the 2019 General Shareholders’ Meeting, the Bank has no commitments to pay severance indemnity to executive directors. As detailed in said Remuneration Policy, the contractual framework defined for executive directors establishes a post-contract non-compete agreement for a two-year period after they cease as BBVA executive directors, provided that said leave is not due to retirement, disability or serious breach of duties.# ITEM 10. DIRECTORS, EXECUTIVE OFFICERS AND CORPORATE GOVERNANCE MATTERS
As compensation for this agreement, executive directors will receive remuneration of an amount equivalent to one annual fixed remuneration per year of duration, which shall be paid monthly over the course of the two-year duration of the non-compete agreement. As described in Section C.1.3 above, the Bank has undertaken welfare commitments to cover retirement, disability and death contingencies with the Group Executive Chairman, which conditions are described in the BBVA Directors’ Remuneration Policy. With regard to the pension commitment, this is established as a defined-contribution scheme, according to which the annual contributions to be made to cover retirement are set in advance. Pursuant to this commitment, the Group Executive Chairman is entitled to a retirement benefit when he reaches the legally established retirement age, which amount shall result from the sum of the contributions made by the Bank and their corresponding yields up to said date, provided that his leave is not due to serious breach of his duties. The system do not provide for the possibility of receiving the retirement pension in advance. Regarding adherence to codes of ethics or good practice, the BBVA Board of Directors approved in 2011 the Bank's adhesion to the Código de Buenas Prácticas Tributarias (Code of Good Tax Practices) approved by the Large Corporations Forum according to the wording proposed by the Spanish Tax Agency (AEAT). The Group meets the obligations assumed as a result of this adherence and, during the 2020 financial year, voluntarily prepared and submitted to the Spanish Tax Agency the Annual Fiscal Transparency Report for companies adhering to this Code. In this vein, the BBVA Group has adhered since 2013 to the Code of Practice on Taxation for Banks promoted by British tax authorities, and has met its obligations in this regard. Furthermore, BBVA is committed to implementing the provisions of the Universal Declaration of Human Rights and is a member of all major international initiatives for sustainable development, such as the Principles of United Nations Global Compact, the Equator Principles, the United Nations Principles for Responsible Investment, the United Nations Environment Programme Financial Initiative, the Green Bond Principles, the Social Bond Principles, the Green Loan Principles, the Thun Group of Banks on Human Rights, the Carbon Disclosure Project (CDP), the RE100 initiatives, the Science Based Targets, Grupo Español para el Crecimiento Verde (Spanish Green Growth Group) initiatives, the World Economic Forum (WEF)'s Alliance of CEO Climate Leaders, as well as others conventions and treaties of international organisations such as the Organization for Economic Co-operation and Development and the International Labour Organization. Also noteworthy is the fact that in 2019 BBVA signed, as a founding signatory, the Principles for Responsible Banking and joined the Collective Commitment to Climate Action as part of this year's UN Climate Action Summit. Moreover, BBVA is firmly committed to the United Nations Sustainable Development Goals (SDGs) and the Paris Agreement on Climate Change, and, since 2017, the Bank has been part of the pilot group of banks committed to implementing the recommendations regarding financing and climate change published in July by the Financial Stability Board of the G20.
This Annual Corporate Governance Report was approved by the company's Board of Directors during its meeting on 8 February 2021. List whether any directors voted against or abstained from voting on the approval of this report. No
Building tools?
Free accounts include 100 API calls/year for testing.
Have a question? We'll get back to you promptly.