UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549
FORM 6-K
REPORT OF FOREIGN ISSUER
PURSUANT TO RULE 13a-16 OR 15d-16
UNDER THE SECURITIES EXCHANGE ACT OF 1934
For the three months ended March 31, 2019
Commission file number: 1-10110
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
(Exact name of Registrant as specified in its charter)
BANK BILBAO VIZCAYA ARGENTARIA, S.A.
(Translation of Registrants name into English)
Calle Azul 4,
28050 Madrid
Spain
(Address of principal executive offices)
Indicate by check mark whether the registrant files or will file annual reports under cover of Form 20-F or Form 40-F:
Form 20-F ☒ Form 40-F ☐
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(1):
Yes ☐ No ☒
Indicate by check mark if the registrant is submitting the Form 6-K in paper as permitted by Regulation S-T Rule 101(b)(7):
Yes ☐ No ☒
BANCO BILBAO VIZCAYA ARGENTARIA, S.A.
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This Form 6-K is incorporated by reference into BBVAs Registration Statement on Form F-3 (File No. 333-212729) filed with the Securities and Exchange Commission.
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The terms below are used as follows throughout this report:
| BBVA, the Bank, the Company, the Group, the BBVA Group or first person personal pronouns, such as we, us, or our, mean Banco Bilbao Vizcaya Argentaria, S.A. and its consolidated subsidiaries unless otherwise indicated or the context otherwise requires. |
| BBVA Bancomer means Grupo Financiero BBVA Bancomer, S.A. de C.V. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires. |
| BBVA Compass means BBVA Compass Bancshares, Inc. and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires. |
| Consolidated Financial Statements means our audited consolidated financial statements as of and for the years ended December 31, 2018, 2017 and 2016 prepared in compliance with International Financial Reporting Standards as issued by the International Accounting Standards Board (IFRS-IASB) and in accordance with the International Financial Reporting Standards adopted by the European Union (EU-IFRS) required to be applied under the Bank of Spains Circular 4/2004 and Circular 4/2017 (each as defined herein); and included in the 2018 Form 20-F. |
| Garanti means Türkiye Garanti Bankası A.Ş., and its consolidated subsidiaries, unless otherwise indicated or the context otherwise requires. |
| Latin America refers to Mexico and the countries in which we operate in South America and Central America. |
| 2018 Form 20-F means our Annual Report on Form 20-F for the fiscal year ended December 31, 2018. |
In this report, $, U.S. dollars, and dollars refer to United States Dollars and and euro refer to Euro.
CAUTIONARY STATEMENT REGARDING FORWARD-LOOKING STATEMENTS
This report contains statements that constitute forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the Securities Act) Section 21E of the U.S. Securities Exchange Act of 1934, as amended (the Exchange Act), and the safe harbor provisions of the Private Securities Litigation Reform Act of 1995. Forward-looking statements may include words such as believe, expect, estimate, project, anticipate, should, intend, probability, risk, VaR, target, goal, objective and similar expressions or variations on such expressions and includes statements regarding future growth rates. Forward-looking statements are not guarantees of future performance and involve risks and uncertainties, and actual results may differ materially from those in the forward-looking statements as a result of various factors. The accompanying information in this interim report on Form 6-K, including, without limitation, the information under the items listed below identifies important factors that could cause such differences:
| Business Overview and |
| Operating and Financial Review and Prospects. |
Other important factors that could cause actual results to differ materially from those in forward-looking statements include the factors identified in Item 3. Key InformationRisk Factors in our 2018 Form 20-F, among others:
| political, economic and business conditions in Spain, the European Union (EU), Latin America, Mexico, Turkey, the United States and other regions, countries or territories in which we operate; |
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| our ability to comply with various legal and regulatory regimes and the impact of changes in applicable laws and regulations, including increased capital and provision requirements and taxation, and steps taken towards achieving an EU fiscal and banking union; |
| the monetary, interest rate and other policies of central banks in the EU, Spain, the United States, Mexico, Turkey and elsewhere; |
| changes or volatility in interest rates, foreign exchange rates (including the euro to U.S. dollar exchange rate), asset prices, equity markets, commodity prices, inflation or deflation; |
| the possible political, economic and regulatory impacts related to the United Kingdoms proposed withdrawal from the European Union; |
| market adjustments in the real estate sector in Spain, Mexico, Turkey and the United States; |
| the effects of competition in the markets in which we operate, which may be influenced by regulation or deregulation; |
| changes in consumer spending and savings habits, including changes in government policies which may influence spending, saving and investment decisions; |
| adverse developments in emerging countries, in particular Latin America and Turkey, including unfavorable political and economic developments, social instability and changes in governmental policies, including expropriation, nationalization, international ownership legislation, interest rate caps and tax policies; |
| our ability to hedge certain risks economically; |
| downgrades in our credit ratings or in the Kingdom of Spains credit ratings; |
| the success of our acquisitions, divestitures, mergers and strategic alliances; |
| our ability to make payments on certain substantial unfunded amounts relating to commitments with personnel; |
| the performance of our international operations and our ability to manage such operations; |
| weaknesses or failures in our Groups internal or outsourced processes, systems (including information technology systems) and security; |
| weaknesses or failures of our anti-money laundering or anti-terrorism programs, or of our internal policies, procedures, systems and other mitigating measures designed to ensure compliance with applicable anti-corruption laws and sanctions regulations; |
| security breaches, including cyber-attacks; |
| the outcome of legal and regulatory actions and proceedings, both those to which the Group is currently exposed and any others which may arise in the future, including actions and proceedings related to former subsidiaries of the Group or in respect of which the Group may have indemnification obligations; |
| actions that are incompatible with our ethics and compliance standards, and our failure to timely detect or remedy any such actions; |
| our success in managing the risks involved in the foregoing, which depends, among other things, on our ability to anticipate events that are not captured by the statistical models we use; and |
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| force majeure and other events beyond our control. |
Readers are cautioned not to place undue reliance on such forward-looking statements, which speak only as of the date hereof. We undertake no obligation to release publicly the result of any revisions to these forward-looking statements which may be made to reflect events or circumstances after the date hereof, including, without limitation, changes in our business or acquisition strategy or planned capital expenditures, or to reflect the occurrence of unanticipated events.
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PRESENTATION OF FINANCIAL INFORMATION
Accounting Principles
Under Regulation (EC) no. 1606/2002 of the European Parliament and of the Council of July 19, 2002, all companies governed by the law of an EU Member State and whose securities are admitted to trading on a regulated market of any Member State must prepare their consolidated financial statements for the years beginning on or after January 1, 2005 in conformity with International Financial Reporting Standards as adopted by the EU (EU-IFRS). The Bank of Spain issued Circular 4/2017 of November 27, 2017 (Circular 4/2017), which replaced Circular 4/2004 of December 22, 2004, on Public and Confidential Financial Reporting Rules and Formats (Circular 4/2004) for financial statements relating to periods ended January 1, 2018 or thereafter.
There were no differences between EU-IFRS required to be applied under the Bank of Spains Circular 4/2004 and Circular 4/2017 and IFRS-IASB for the year ended December 31, 2018 and for the three month period ended March 31, 2019. The Consolidated Financial Statements included in the Form 20-F have been prepared in compliance with IFRS-IASB and in accordance with EU-IFRS required to be applied under the Bank of Spains Circular 4/2004 and Circular 4/2017.
The financial information as of December 31, 2018 included in this report on Form 6-K may differ from previously reported financial information as of such date and for such period in our respective report on Form 20-F for prior year, as well as from previously disclosed financial information as of and for the three month period ended March 31, 2018, as a result of the modifications referred to below and in Operating and Financial Review and ProspectsA. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial Condition and certain retrospective adjustments made in prior periods.
Application of IFRS 16
On January 1, 2019, IFRS 16 replaced IAS 17 Leases for financial statements. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. 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 or Tangible assets Investment properties and a lease liability representing its obligation to make lease payments which are recorded under the heading Financial liabilities at amortized cost Other financial liabilities. For our consolidated income statements, the amortization of the right to use asset is recorded under the heading Depreciation and amortization tangible assets and the financial cost associated with the lease liability is recorded under the heading Interest expense financial liabilities at amortized cost.
With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently. See Operating and Financial Review and ProspectsA. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial ConditionApplication of IFRS 16.
Hyperinflationary economies
During the third quarter of 2018, the Group made a change with respect to the accounting policies for hyperinflationary economies in accordance with IAS 29 Financial information in hyperinflationary economies, with accounting effects as from January 1, 2018. As a result thereof, the information as of December 31, 2018 and for the three months ended March 31, 2018 has been restated for comparative purposes; the balance sheets, income statements and ratios have been revised for the Group and the business area of South America. See Operating and Financial Review and ProspectsA. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial ConditionHyperinflationary economies.
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Changes in Operating Segments
During the three month period ended March 31, 2019, we changed the reporting structure of the BBVA Groups operating segments compared with that presented as of December 31, 2018, as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed Spain. Additionally, balance sheet intra-group adjustments between the Corporate Center and the operating segments have been reallocated to the corresponding operating segments as of December 31, 2018. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information as of and for the three months ended March 31, 2019 comparable, as required by IFRS 8 Information by business segments, figures as of December 31, 2018 and for the three months ended March 31, 2018 have been revised in conformity with the new segment reporting structure. See Operating and Financial Review and ProspectsA. Operating ResultsFactors Affecting the Comparability of our Results of Operations and Financial ConditionChanges in Operating Segments.
Statistical and Financial Information
The following principles should be noted in reviewing the statistical and financial information contained herein:
| Average balances, when used, are based on the beginning and the month-end balances during each three month period. We do not believe that such monthly averages present trends that are materially different from those that would be presented by daily averages. |
| Unless otherwise stated, any reference to loans refers to both loans and advances. |
| Financial information with respect to segments or subsidiaries may not reflect consolidation adjustments. |
| Certain numerical information in this interim report on Form 6-K may not compute due to rounding. In addition, information regarding period-to-period changes is based on numbers which have not been rounded. |
BBVA is a highly diversified international financial group, with strengths in the traditional banking businesses of retail banking, asset management, private banking and wholesale banking. We also have investments in some of Spains leading companies.
Operating Segments
Set forth below are the Groups current six operating segments:
| Spain; |
| The United States; |
| Mexico; |
| Turkey; |
| South America; and |
| Rest of Eurasia. |
In addition to the operating segments referred to above, the Group has a Corporate Center which includes those items that have not been allocated to an operating segment. It includes the Groups general management functions, including costs from central units that have a strictly corporate function; management of structural exchange rate positions carried out by the Financial Planning unit; specific issues of capital instruments to ensure adequate management of the Groups overall capital position; certain proprietary portfolios; certain tax assets and liabilities; certain provisions related to commitments with employees; and goodwill and other intangibles.
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Balance sheet
The following tables set forth information relating to the balance sheet of the operating segments as of March 31, 2019 and December 31, 2018:
As of March 31, 2019
Spain | The United States |
Mexico | Turkey | South America |
Rest of Eurasia |
Total Operating segments |
Corporate Center and other adjustments (1) |
BBVA Group |
||||||||||||||||||||||||||||
(In Millions of Euros) | ||||||||||||||||||||||||||||||||||||
Total Assets |
356,552 | 85,160 | 101,738 | 67,130 | 57,031 | 20,582 | 688,193 | 3,007 | 691,200 | |||||||||||||||||||||||||||
Cash, cash balances at central banks and other demand deposits |
18,875 | 6,550 | 8,678 | 7,171 | 8,830 | 212 | 50,316 | (256 | ) | 50,059 | ||||||||||||||||||||||||||
Financial assets designated at fair value (2) |
113,735 | 9,330 | 26,193 | 5,598 | 6,861 | 503 | 162,220 | (2,805 | ) | 159,416 | ||||||||||||||||||||||||||
Financial assets at amortized cost |
199,111 | 65,629 | 60,754 | 51,656 | 37,986 | 19,520 | 434,655 | (1,647 | ) | 433,008 | ||||||||||||||||||||||||||
Loans and advances to customers |
170,893 | 61,403 | 53,480 | 42,025 | 35,691 | 18,257 | 381,748 | (949 | ) | 380,799 | ||||||||||||||||||||||||||
Of which: |
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Residential mortgages |
74,145 | 14,161 | 9,924 | 3,239 | 6,915 | 1,774 | 110,157 | |||||||||||||||||||||||||||||
Consumer finance |
12,153 | 6,159 | 12,824 | 8,569 | 9,133 | 424 | 49,260 | |||||||||||||||||||||||||||||
Loans |
10,270 | 5,418 | 8,096 | 4,871 | 7,061 | 414 | 36,131 | |||||||||||||||||||||||||||||
Credit cards |
1,882 | 740 | 4,728 | 3,698 | 2,072 | 9 | 13,130 | |||||||||||||||||||||||||||||
Loans to enterprises |
53,127 | 34,401 | 26,697 | 28,950 | 17,037 | 15,401 | 175,613 | |||||||||||||||||||||||||||||
Loans to public sector |
17,002 | 5,532 | 3,580 | 68 | 1,353 | 394 | 27,930 | |||||||||||||||||||||||||||||
Total Liabilities |
347,929 | 81,357 | 97,185 | 64,387 | 54,564 | 19,791 | 665,214 | (27,560 | ) | 637,653 | ||||||||||||||||||||||||||
Financial liabilities held for trading and designated at fair value through profit or loss |
70,283 | 305 | 17,747 | 1,792 | 2,325 | 42 | 92,494 | (3,829 | ) | 88,664 | ||||||||||||||||||||||||||
Customer deposits |
181,723 | 65,165 | 50,904 | 40,544 | 37,236 | 5,065 | 380,638 | (2,111 | ) | 378,527 | ||||||||||||||||||||||||||
Of which: |
||||||||||||||||||||||||||||||||||||
Current and savings accounts |
146,518 | 42,711 | 38,493 | 13,773 | 23,415 | 3,201 | 268,112 | |||||||||||||||||||||||||||||
Time deposits |
34,765 | 16,751 | 12,397 | 26,767 | 13,768 | 1,864 | 106,313 | |||||||||||||||||||||||||||||
Total Equity |
8,624 | 3,803 | 4,553 | 2,743 | 2,467 | 790 | 22,979 | 30,568 | 53,547 | |||||||||||||||||||||||||||
Assets under management |
64,225 | | 22,744 | 3,370 | 12,481 | 407 | 103,227 | 103,227 | ||||||||||||||||||||||||||||
Mutual funds |
40,417 | | 19,553 | 757 | 4,200 | | 64,928 | 64,928 | ||||||||||||||||||||||||||||
Pension funds |
23,770 | | | 2,612 | 8,281 | 407 | 35,071 | 35,071 | ||||||||||||||||||||||||||||
Other placements |
37 | | 3,191 | | | | 3,228 | 3,228 |
(1) | Intra-group adjustments. See Presentation of Financial InformationChanges in Operating Segments. |
(2) | Financial assets designated at fair value includes: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income. |
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As of December 31, 2018 (1)
Spain | The United States |
Mexico | Turkey | South America |
Rest of Eurasia |
Total Operating segments |
Corporate Center and other adjustments (2) |
BBVA Group |
||||||||||||||||||||||||||||
(In Millions of Euros) | ||||||||||||||||||||||||||||||||||||
Total Assets |
354,901 | 82,057 | 97,432 | 66,250 | 54,373 | 18,834 | 673,848 | 2,841 | 676,689 | |||||||||||||||||||||||||||
Cash, cash balances at central banks and other demand deposits |
28,545 | 4,835 | 8,274 | 7,853 | 8,987 | 238 | 58,732 | (536 | ) | 58,196 | ||||||||||||||||||||||||||
Financial assets designated at fair value (3) |
107,320 | 10,481 | 26,022 | 5,506 | 5,634 | 504 | 155,467 | (2,564 | ) | 152,903 | ||||||||||||||||||||||||||
Financial assets at amortized cost |
195,467 | 63,539 | 57,709 | 50,315 | 36,649 | 17,799 | 421,477 | (1,818 | ) | 419,660 | ||||||||||||||||||||||||||
Loans and advances to customers |
170,438 | 60,808 | 51,101 | 41,478 | 34,469 | 16,598 | 374,893 | (867 | ) | 374,027 | ||||||||||||||||||||||||||
Of which: |
||||||||||||||||||||||||||||||||||||
Residential mortgages |
74,543 | 10,990 | 9,197 | 3,530 | 6,629 | 1,821 | 106,709 | |||||||||||||||||||||||||||||
Consumer finance |
11,749 | 9,187 | 12,145 | 9,145 | 9,431 | 420 | 52,077 | |||||||||||||||||||||||||||||
Loans |
9,665 | 8,467 | 7,347 | 5,265 | 7,374 | 410 | 38,528 | |||||||||||||||||||||||||||||
Credit cards |
2,083 | 720 | 4,798 | 3,880 | 2,058 | 10 | 13,549 | |||||||||||||||||||||||||||||
Loans to enterprises |
52,514 | 32,862 | 20,493 | 27,657 | 16,975 | 13,685 | 164,186 | |||||||||||||||||||||||||||||
Loans to public sector |
17,070 | 5,400 | 5,726 | 95 | 1,078 | 414 | 29,784 | |||||||||||||||||||||||||||||
Total Liabilities |
345,592 | 77,976 | 90,961 | 63,657 | 52,683 | 18,052 | 648,921 | (25,106 | ) | 623,814 | ||||||||||||||||||||||||||
Financial liabilities held for trading and designated at fair value through profit or loss |
71,033 | 234 | 18,028 | 1,852 | 1,357 | 42 | 92,545 | (4,778 | ) | 87,767 | ||||||||||||||||||||||||||
Customer deposits |
183,414 | 63,891 | 50,530 | 39,905 | 35,842 | 4,876 | 378,456 | (2,486 | ) | 375,970 | ||||||||||||||||||||||||||
Of which: |
||||||||||||||||||||||||||||||||||||
Current and savings accounts |
142,912 | 41,213 | 38,167 | 12,530 | 22,959 | 3,544 | 261,324 | |||||||||||||||||||||||||||||
Time deposits |
40,072 | 16,856 | 11,593 | 27,367 | 12,829 | 1,333 | 110,051 | |||||||||||||||||||||||||||||
Total Equity |
9,309 | 4,082 | 6,471 | 2,593 | 1,690 | 782 | 24,927 | 27,947 | 52,874 | |||||||||||||||||||||||||||
Assets under management |
62,559 | | 20,647 | 2,894 | 11,662 | 388 | 98,150 | 98,150 | ||||||||||||||||||||||||||||
Mutual funds |
39,250 | | 17,733 | 669 | 3,741 | | 61,393 | 61,393 | ||||||||||||||||||||||||||||
Pension funds |
23,274 | | | 2,225 | 7,921 | 388 | 33,807 | 33,807 | ||||||||||||||||||||||||||||
Other placements |
35 | | 2,914 | | | | 2,949 | 2,949 |
(1) | Revised. See Presentation of Financial Information Hyperinflationary economies. |
(2) | Intra-group adjustments. See Presentation of Financial InformationChanges in Operating Segments. |
(3) | Financial assets designated at fair value includes: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income. |
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Spain
This operating segment includes all of BBVAs banking and non-banking businesses in Spain, other than those included in the Corporate Center. The main business units included in this operating segment are:
| Spanish Retail Network: including individual customers, private banking, small companies and businesses in the domestic market; |
| Corporate and Business Banking (CBB): which manages small and medium sized enterprises (SMEs), companies and corporations, public institutions and developer segments; |
| Corporate and Investment Banking (C&IB): responsible for business with large corporations and multinational groups and the trading floor and distribution business in Spain; and |
| Other units: which includes the insurance business unit in Spain (BBVA Seguros) and the Asset Management unit, which manages Spanish mutual funds and pension funds, and includes lending to real estate developers and foreclosed real estate assets (including assets from the previous Non-Core Real Estate operating segment), as well as certain proprietary portfolios and certain funding and structural interest-rate positions of the euro balance sheet which are not included in the Corporate Center. |
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 113,735 million, a 5.9% increase from 107,320 million recorded as of December 31, 2018, mainly as a result of the positive evolution of consumer loans and credit cards as well as lending to medium-sized enterprises that offset the reduction in mortgage loans.
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 170,893 million, a 0.3% increase from the 170,438 million recorded as of December 31, 2018, mainly as a result of the positive evolution of consumer loans and credit cards as well as lending to medium-sized enterprises that offset the reduction in mortgage loans.
Customer deposits at amortized cost of this operating segment as of March 31, 2019 amounted to 181,723 million, a 0.9% decrease compared with the 183,414 million recorded as of December 31, 2018, mainly a result of the 13.2% decrease in time deposits.
Off-balance sheet funds of this operating segment (which includes Mutual funds, Pension funds and Other off-balance sheet funds) as of March 31, 2019 amounted to 64,225 million, a 2.7% increase compared with the 62,559 million as of December 31, 2018, mainly as a result of the good market performance during the quarter, positively affecting mutual funds.
This operating segments non-performing loan ratio decreased to 4.9% as of March 31, 2019 from 5.1% as of December 31, 2018, mainly due to a lower level of non-performing loans in the mortgage portfolios. This operating segments non-performing loan coverage ratio increased to 58% as of March 31, 2019 from 57% as of December 31, 2018.
The United States
This operating segment encompasses the Groups business in the United States. BBVA Compass accounted for 88.2% of this operating segments balance sheet as of March 31, 2019. Given the importance of BBVA Compass in this segment, most of the comments below refer to BBVA Compass. This operating segment also includes the assets and liabilities of the BBVA branch in New York, which specializes in transactions with large corporations.
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The U.S. dollar appreciated 1.9% against the euro as of March 31, 2019 compared with December 31, 2018, positively affecting the business activity of the United States operating segment as of March 31, 2019 expressed in euros.
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 9,330 million, a 10.9% decrease from 10,481 million recorded as of December 31, 2018.
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 61,403 million, a 1.0% increase from the 60,808 million recorded as of December 31, 2018, mainly as a result of the higher interest rates that continued to affect mortgages.
Customer deposits of this operating segment as of March 31, 2019 amounted to 65,165 million, a 2.0% increase compared with the 63,891 million recorded as of December 31, 2018, mainly due to the increase in demand deposits.
The non-performing loan ratio of this operating segment as of March 31, 2019 was 1.4% compared with 1.3% as of December 31, 2018. This operating segments non-performing loan coverage ratio stood at 85% as of both March 31, 2019 and December 31, 2018.
Mexico
The Mexico operating segment comprises the banking and insurance businesses conducted in Mexico by BBVA Bancomer. Since 2018, it also includes BBVA Bancomers branch in Houston (which was part of our United States segment in previous periods).
The Mexican peso appreciated 3.7% against the euro as of March 31, 2019 compared with December 31, 2018, positively affecting the business activity of the Mexico operating segment as of March 31, 2019 expressed in euros.
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 26,193 million, a 0.6% increase from the 26,022 million recorded as of December 31, 2018.
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 53,480 million, a 4.7% increase from the 51,101 million recorded as of December 31, 2018, mainly as a result of the increase in consumer loans (payroll and personal loans).
Customer deposits of this operating segment as of March 31, 2019 amounted to 50,904, a 0.7% increase compared with the 50,530 million recorded as of December 31, 2018, primarily due to the seasonal effect at the end of 2018. Both time deposits and investment funds increased during the quarter (3.1% and 6.3%, respectively).
Offbalance sheet funds of this operating segment (which includes Mutual funds and Other off-balance sheet funds) as of March 31, 2019 amounted to 22,744 million, a 10.2% increase compared with the 20,647 million as of December 31, 2018, mainly as a result of the good market performance during the quarter, positively affecting mutual funds.
This operating segments non-performing loan ratio was 2.0% as of March 31, 2019 and 2.1% as of December 31, 2018. This operating segments non-performing loan coverage ratio increased to 159% as of March 31, 2019 from 154% as of December 31, 2018.
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Turkey
This operating segment comprises the banking and insurance businesses conducted by Garanti and its consolidated subsidiaries.
The Turkish lira depreciated 4.5% against the euro as of March 31, 2019 compared with December 31, 2018, negatively affecting the business activity of the Turkey operating segment as of December 31, 2018 expressed in euros.
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 5,598 million, a 1.7% increase from the 5,506 million recorded as of December 31, 2018.
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 42,025 million a 1.3% increase from the 41,478 million recorded as of December 31, 2018, mainly as a result of SMEs and commercial loans, partially offset by the decrease in consumer loans and mortgages during the quarter. In addition credit cards remained stable in the quarter in line with the evolutions of this market segment as shown by the countrys private banks.
Customer deposits of this operating segment as of March 31, 2019 amounted to 40,544 million, a 1.6% increase compared with the 39,905 million recorded as of December 31, 2018, mainly supported by the growth of foreign currency deposits (in US dollars).
Off-balance sheet funds of this operating segment (which includes Mutual funds, Pension funds and Other pension funds) as of March 31, 2019 amounted to 3,370 million, a 16.4% increase compared with the 2,894 million as of December 31, 2018, mainly as a result of the good market performance during the quarter, positively affecting pension funds.
The non-performing loan ratio of this operating segment as of March 31, 2019 was 5.7% compared with 5.3% as of December 31, 2018 mainly as a result of a deterioration of the retail and wholesale portfolios affected by the deteriorating macroeconomic scenario. This operating segments non-performing loan coverage ratio decreased to 78% as of March 31, 2019 from 81% as of December 31, 2018, mainly due to the 9.1% increase in the balance of non-performing loans as of March 31, 2019 in comparison with the balance recorded as of December 31, 2018.
South America
The South America operating segment includes the Groups banking and insurance businesses in the region.
The business units included in the South America operating segment are:
| Retail and Corporate Banking: includes banks in Argentina, Colombia, Paraguay, Peru, Uruguay and Venezuela. |
| Insurance: includes insurance businesses in Argentina, Colombia and Venezuela. |
As of March 31, 2019, the Argentine peso depreciated against the euro compared with December 31, 2018, meanwhile the rest of the currencies within this operating segment appreciated against the euro, positively affecting the business activity of the South America operating segment expressed in euros.
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 6,861 million, a 21.8% increase from the 5,634 million recorded as of December 31, 2018.
12
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 35,691 million, a 3.5% increase from the 34,469 million recorded as of December 31, 2018, mainly as a result of the growth in credit cards and enterprises.
Customer deposits of this operating segment as of March 31, 2019 amounted to 37,236 million, a 3.9% increase compared with the 35,842 million recorded as of December 31, 2018. By country, customer deposits increased in Argentina (excluding the impact of currency depreciation), Colombia and Peru.
Off-balance sheet funds of this operating segment (which includes Mutual funds, Pension funds and Other pension funds) as of March 31, 2019 amounted to 12,481 million, a 7.0% increase compared with the 11,662 million as of December 31, 2018, mainly as a result of the increase of both mutual and pension funds (especially in Bolivia).
The non-performing loan ratio of this operating segment as of March 31, 2019 increased to 4.4% compared with 4.3% as of December 31, 2018, mainly as a result of the increase of the ratio in Colombia in the quarter due to a written-off wholesale customer. This operating segments non-performing loan coverage ratio decreased to 96% as of March 31, 2019, from 97% as of December 31, 2018 mainly due to the 4.6% increase in the balance of non-performing loans as of March 31, 2019 compared with the balance recorded as of December 31, 2018.
Rest of Eurasia
This operating segment includes the retail and wholesale banking businesses carried out by the Group in Europe (primarily Portugal) and Asia, excluding Spain and Turkey.
Financial assets designated at fair value of this operating segment (which includes the following portfolios: Financial assets held for trading, Non-trading financial assets mandatorily at fair value through profit or loss, Financial assets designated at fair value through profit or loss and Financial assets at fair value through other comprehensive income) as of March 31, 2019 amounted to 503 million, compared to 504 million recorded as of December 31, 2018.
Loans and advances to customers of this operating segment within Financial assets at amortized cost as of March 31, 2019 amounted to 18,257 million a 10.0% increase from 16,598 million recorded as of December 31, 2018.
Customer deposits of this operating segment as of March 31, 2019 amounted to 5,065 million, a 3.9% increase compared with the 4,876 million recorded as of December 31, 2018.
Off-balance sheet funds of this operating segment (which includes Mutual funds,Pension funds and Other pension funds) as of March 31, 2019 amounted to 407 million, a 5.0% increase compared with the 388 million as of December 31, 2018.
The non-performing loan ratio of this operating segment as of March 31, 2019 was 1.6% compared with 1.7% as of December 31, 2018. This operating segments non-performing loan coverage ratio increased to 84% as of March 31, 2019, from 83% as of December 31, 2018.
13
OPERATING AND FINANCIAL REVIEW AND PROSPECTS
A. Operating Results
Factors Affecting the Comparability of our Results of Operations and Financial Condition
Trends in Exchange Rates
We are exposed to foreign exchange rate risk in that our reporting currency is the euro, whereas certain of our subsidiaries and investees keep their accounts in other currencies, principally Mexican pesos, U.S. dollars, Turkish liras, Argentine pesos, Colombian pesos and Peruvian new soles. For example, if Latin American currencies, the U.S. dollar or the Turkish lira depreciate against the euro, when the results of operations of our subsidiaries in the countries using these currencies are included in our consolidated financial statements, the euro value of their results declines, even if, in local currency terms, their results of operations and financial condition have remained the same. By contrast, the appreciation of Latin American currencies, the U.S. dollar or the Turkish lira against the euro would have a positive impact on the results of operations of our subsidiaries in the countries using these currencies when their results of operations are included in our consolidated financial statements. Accordingly, changes in exchange rates may limit the ability of our results of operations, stated in euro, to fully show the performance in local currency terms of our subsidiaries.
Except with respect to hyperinflationary economies (Venezuela and Argentina), the assets and liabilities of our subsidiaries which maintain their accounts in currencies other than the euro have been converted to the euro at the period-end exchange rates. See Note 2.2.20 to our Consolidated Financial Statements for information on the application of IAS 29 to hyperinflationary economies The following table sets forth the exchange rates of several Latin American currencies, the U.S. dollar and the Turkish lira against the euro, expressed in local currency per 1.00 as averages for the three months ended March 31, 2019 and March 31, 2018, and as period-end exchange rates as of March 31, 2019 and as of December 31, 2018 according to the European Central Bank (the ECB).
Average Exchange Rates | Period-end Exchange Rates | |||||||||||||||
For the three months ended March 31, 2019 |
For the three months ended March 31, 2018 |
As of March 31, 2019 |
As of December 31, 2018 |
|||||||||||||
Mexican peso |
21.8057 | 22.5251 | 21.6910 | 22.4921 | ||||||||||||
U.S. dollar |
1.1358 | 1.2321 | 1.1235 | 1.1450 | ||||||||||||
Argentine peso |
48.9734 | 43.2900 | ||||||||||||||
Colombian peso |
3,561.3494 | 3,424.6575 | 3,585.0211 | 3,745.3184 | ||||||||||||
Peruvian new sol |
3.7738 | 3.9776 | 3.7275 | 3.8621 | ||||||||||||
Turkish lira |
6.1102 | 4.8976 | 6.3446 | 6.0588 |
During the three months ended March 31, 2019, the Turkish Lira and the Colombian peso depreciated against the euro in average terms compared with the same period of the prior year. With respect to period-end exchange rates, the Argentine peso and the Turkish lira depreciated against the euro. On the other hand, the Mexican peso, the U.S. dollar, the Colombian peso and the Peruvian new sol appreciated against the euro in terms of period-end exchange rates. The overall effect of changes in exchange rates was positive for the period-on-period comparison of the Groups income statement and negative for the period-on-period comparison of the Groups balance sheet.
When comparing two dates or periods, we have excluded, where specifically indicated, the impact of changes in exchange rates by assuming constant exchange rates. In doing this, with respect to income statement amounts, we have used the average exchange rate for the more recent period for both periods and, with respect to balance sheet amounts, we have used the closing exchange rate of the more recent period.
14
Application of IFRS 16
On January 1, 2019, IFRS 16 replaced IAS 17 Leases for financial statements. The new standard introduces a single lessee accounting model and requires a lessee to recognize assets and liabilities for all leases. The standard provides two exceptions that can be applied in the case of short-term contracts and those in which the underlying assets have low value. A lessee is required to recognize a right-of-use asset representing its right to use underlying leased asset, which is recorded under the headings Tangible assets - Property, plants and equipment and Tangible assets Investment properties and a lease liability representing its obligation to make lease payments which are recorded under the heading Financial liabilities at amortized cost Other financial liabilities. The amortization of the right to use is recorded in the heading Depreciation and amortization tangible assets and the financial cost associated with the lease liability is recorded in the heading Interest expense financial liabilities at amortized cost.
With regard to lessor accounting, IFRS 16 substantially carries forward the lessor accounting requirements in IAS 17. Accordingly, a lessor will continue to classify its leases as operating leases or finance leases, and to account for those two types of leases differently.
At the transition date, the Group decided to apply the modified retrospective approach which requires recognition of a lease liability equal to the present value of the future payments committed on January 1, 2019. Regarding the measurement of the right-of-use asset, the Group elected to record an amount equal to the lease liability, adjusted for the amount of any advance or accrued lease payment related to that lease recognized in the financial statements immediately before the date of initial application.
As of January 1, 2019, the Group recognized assets for the right-of-use and lease liabilities for an amount of 3,419 million and 3,472 million, respectively. The impact in terms of capital (CET1) of the Group amounted to -11 basis points.
Hyperinflationary economies
During the third quarter of 2018, the Group made a change with respect to the accounting policies for hyperinflationary economies in accordance with IAS 29 Financial information in hyperinflationary economies, with accounting effects as from January 1, 2018. As a result thereof, the information as of March 31, 2018 has been restated for comparative purposes; the balance sheets, income statements and ratios have been revised for the Group and the business area of South America.
Changes in Operating Segments
During the three month period ended March 31, 2019, we changed the reporting structure of the BBVA Groups operating segments compared with that presented as of December 31, 2018, as a result of the integration of the Non-Core Real Estate business area into Banking Activity in Spain, which has been renamed Spain. In addition, certain expenses related to global projects and activities have been reallocated between the Corporate Center and the corresponding operating segments. In order to make the information for the three months ended March 31, 2019 comparable, as required by IFRS 8 Information by business segments, figures as of December 31, 2018 and for the three months ended March 31, 2018 have been revised in conformity with the new segment reporting structure.. The BBVA Groups operating segments are summarized below:
| Spain: mainly includes the banking and insurance businesses that the Group carries out in Spain. |
| The United States: includes the Groups business activity in the country through the BBVA Compass group and the BBVA New York branch. |
| Mexico: includes the Groups banking and insurance businesses in this country as well as the activity of the BBVA Bancomer branch in Houston. |
| Turkey: reports the activity of the Garanti group that is mainly carried out in this country and, to a lesser extent, in Romania and the Netherlands. |
| South America: primarily includes the Groups banking and insurance businesses in the region. |
15
| Rest of Eurasia: includes the banking business activity carried out by the Group in Europe, excluding Spain, and in Asia. |
Lastly, Corporate Center contains the Groups holding function, including: the costs of the head offices with a corporate function; management of structural exchange rate positions; some equity instruments issuance to ensure an adequate management of the Groups 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.
BBVA Group results of operations for the three months ended March 31, 2019 compared to the three months ended March 31, 2018
The following tables include revised Group consolidated financial information for the three month period ended March 31, 2018 due to the change in the reporting structure of the BBVA Group´s operating segments during the first quarter of 2019, and as a result of the application of IAS 29 Financial information in hyperinflationary economies. See Presentation of Financial InformationChanges in Operating Segments and Presentation of Financial Information Hyperinflationary economies.
16
The table below shows the Groups consolidated income statements for the three months ended March 31, 2019 and March 31, 2018:
For the three months ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Interest and similar income |
7,766 | 7,199 | 7.9 | |||||||||
Interest and similar expenses |
(3,346 | ) | (2,911 | ) | 14.9 | |||||||
Net interest income |
4,420 | 4,287 | 3.1 | |||||||||
Dividend income |
10 | 12 | (11.1 | ) | ||||||||
Share of profit or loss of entities accounted for using the equity method |
(4 | ) | 8 | n.m. | (1) | |||||||
Fee and commission income |
1,780 | 1,771 | 0.5 | |||||||||
Fee and commission expenses |
(566 | ) | (535 | ) | 5.8 | |||||||
Net gains (losses) on financial assets and liabilities (2) |
348 | 597 | (41.7 | ) | ||||||||
Exchange differences, net |
78 | (186 | ) | n.m. | (1) | |||||||
Other operating income |
204 | 372 | (45.2 | ) | ||||||||
Other operating expenses |
(476 | ) | (553 | ) | (14.0 | ) | ||||||
Income on insurance and reinsurance contracts |
839 | 832 | 0.9 | |||||||||
Expenses on insurance and reinsurance contracts |
(566 | ) | (578 | ) | (2.1 | ) | ||||||
Gross income |
6,069 | 6,026 | 0.7 | |||||||||
Administration costs |
(2.530 | ) | (2.671 | ) | (5.3 | ) | ||||||
Personnel expenses |
(1,553 | ) | (1,565 | ) | (0.8 | ) | ||||||
Other administrative expenses |
(977 | ) | (1,106 | ) | (11.6 | ) | ||||||
Depreciation and amortization |
(392 | ) | (304 | ) | 28.9 | |||||||
Net margin before provisions (3) |
3,147 | 3,050 | 3.2 | |||||||||
Provisions or reversal of provisions |
(144 | ) | (99 | ) | 45.3 | |||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(1,023 | ) | (823 | ) | 24.4 | |||||||
Impairment or reversal of impairment on non-financial assets |
(32 | ) | 8 | n.m. | (1) | |||||||
Gains (losses) on derecognition of non-financial assets and subsidiaries, net |
2 | 10 | (78.5 | ) | ||||||||
Negative goodwill recognized in profit or loss |
| | | |||||||||
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations |
7 | 24 | (69.4 | ) | ||||||||
Operating profit/(loss) before tax |
1,957 | 2,170 | (9.8 | ) | ||||||||
Tax expense or income related to profit or loss from continuing operations |
(559 | ) | (617 | ) | (9.4 | ) | ||||||
Profit from continuing operations |
1,398 | 1,553 | (10.0 | ) | ||||||||
Profit from discontinued operations, net |
| | | |||||||||
Profit |
1,398 | 1,553 | (10.0 | ) | ||||||||
Profit attributable to parent company |
1,164 | 1,290 | (9.8 | ) | ||||||||
Profit attributable to non-controlling interests |
234 | 262 | (10.8 | ) |
(1) | Not meaningful. |
(2) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Gains (losses) from hedge accounting, net. |
(3) | Calculated as Gross income less Administration costs and Depreciation and amortization. |
17
The changes in our consolidated income statements for the three months ended March 31, 2019 and March 31, 2018 were as follows:
Net interest income
The following table summarizes net interest income for the three months ended March 31, 2019 and March 31, 2018.
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Interest and other income |
7,766 | 7,199 | 7.9 | |||||||||
Interest expense |
(3,346 | ) | (2,911 | ) | 14.9 | |||||||
|
|
|
|
|
|
|||||||
Net interest income |
4,420 | 4,287 | 3.1 | |||||||||
|
|
|
|
|
|
Net interest income for the three months ended March 31, 2019 amounted to 4,420 million, a 3.1% increase compared with the 4,287 million recorded for the three months ended March 31, 2018, mainly as a result of lower financing costs in all operating segments except for Spain and Rest of Eurasia, which are more influenced by the interest rate situation in the Eurozone. The following factors, set out by region, drove the change:
| United States: there was an 8.4% year-on-year increase in net interest income, higher interest rates and measures adopted by BBVA Compass to improve loan yields. |
| Mexico: there was a 7.8% year-on-year increase in net interest income mainly as a result of growth in lending activity partially offset by a slight deterioration of customer spreads. |
The increase in net interest income was partially offset by:
| Spain: there was a 4.9% year-on-year decrease in net interest income mainly as a result of lower contribution from the ALCO portfolio and the effect of the implementation of IFRS 16. |
| Turkey: there was a 7.7% year-on-year decrease in net interest income as a result of the depreciation of the Turkish lira. |
| South America: there was a 3.9% year-on-year decrease in net interest income. |
Dividend income
Dividend income for the three months ended March 31, 2019 amounted to 10 million, an 11.1% decrease compared with the 12 million recorded for the three months ended March 31, 2018.
Share of profit or loss of entities accounted for using the equity method
Share of profit or loss of entities accounted for using the equity method for the three months ended March 31, 2019 decreased to a 4 million loss, compared with the 8 million profit recorded for the three months ended March 31, 2018.
18
Fee and commission income
The breakdown of fee and commission income for the three months ended March 31, 2019 and March 31, 2018 is as follows:
For the three months ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Bills receivable |
10 | 12 | (17.6 | ) | ||||||||
Current accounts |
116 | 131 | (11.7 | ) | ||||||||
Credit and debit cards |
735 | 672 | 9.4 | |||||||||
Checks |
46 | 46 | 0.3 | |||||||||
Transfers and others payment orders |
158 | 139 | 13.8 | |||||||||
Insurance product commissions |
42 | 46 | (7.7 | ) | ||||||||
Commitment fees |
50 | 54 | (7.5 | ) | ||||||||
Contingent risks |
96 | 98 | (1.6 | ) | ||||||||
Asset Management |
247 | 262 | (5.8 | ) | ||||||||
Securities fees |
81 | 99 | (17.7 | ) | ||||||||
Custody securities |
30 | 32 | (8.7 | ) | ||||||||
Other |
168 | 181 | (6.7 | ) | ||||||||
|
|
|
|
|||||||||
Fee and commission income |
1,780 | 1,771 | 0.5 | |||||||||
|
|
|
|
Fee and commission income increased by 0.5% to 1,780 million for the three months ended March 31, 2019 from 1,771 million for the three months ended March 31, 2018, mainly as a result of diversification.
Fee and commission expense
The breakdown of fee and commission expense for the three months ended March 31, 2019 and March 31, 2018 is as follows:
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Credit and debit cards |
380 | 350 | 8.4 | |||||||||
Transfers and others payment orders |
26 | 22 | 18.9 | |||||||||
Commissions for selling insurance |
13 | 13 | 6.1 | |||||||||
Other fees and commissions |
147 | 150 | (2.1 | ) | ||||||||
|
|
|
|
|||||||||
Fee and commission expense |
566 | 535 | 5.8 | |||||||||
|
|
|
|
Fee and commission expense increased by 5.8% to 566 million for the three months ended March 31, 2019 from 535 million for the three months ended March 31, 2018, primarily due to an increase in commissions paid by the BBVA Group to other financial institutions in connection with the use of credit and debit cards, particularly in Spain and Mexico, which more than offset the impact of the depreciation of the Turkish lira.
Net gains (losses) on financial assets and liabilities
Net gains on financial assets and liabilities decreased by 41.7% to 348 million for the three months ended March 31, 2019 compared with a net gain of 597 million for the three months ended March 31, 2018, mainly due to the increase in losses on financial assets and liabilities held for trading, partially offset by the increase in gains on non-trading financial assets mandatorily at fair value through profit or loss.
19
The table below provides a breakdown of net gains (losses) on financial assets and liabilities for the three months ended March 31, 2019 and 2018:
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Gains (losses) on derecognition of financial assets and liabilities not measured at fair value through profit or loss, net |
46 | 78 | (41.3 | ) | ||||||||
Financial assets at amortized cost |
8 | 7 | 14.3 | |||||||||
Other financial assets and liabilities |
38 | 70 | (45.7 | ) | ||||||||
Gains (losses) on financial assets and liabilities held for trading, net |
117 | 464 | (74.9 | ) | ||||||||
Gains (losses) on non-trading financial assets mandatorily at fair value through profit or loss, net |
103 | (3 | ) | n.m. | (1) | |||||||
Gains or (losses) on financial assets and liabilities designated at fair value through profit or loss, net |
50 | 41 | 22.0 | |||||||||
Gains (losses) from hedge accounting, net |
33 | 17 | 94.1 | |||||||||
|
|
|
|
|||||||||
Net gains (losses) on financial assets and liabilities |
348 | 597 | (41.7 | ) | ||||||||
|
|
|
|
(1) | Not meaningful. |
Exchange differences, net
Exchange differences increased to a 78 million gain for the three months ended March 31, 2019 from a 186 million loss for the three months ended March 31, 2018 mainly as a result of the appreciation of the main currencies, except for the Turkish lira and the Argentine peso.
Other operating income and expense, net
Other operating income for the three months ended March 31, 2019 decreased 45.2% to 204 million compared with the 372 million recorded for the three months ended March 31, 2018, mainly as a result of lower income from real-estate related services in Spain and the depreciation of the Turkish lira.
Other operating expense for the three months ended March 31, 2019 amounted to 476 million, a 14.0% decrease compared with the 553 million recorded for the three months ended March 31, 2018, mainly as a result of lower expense from real-estate related services in Spain and the impact of hyperinflation in Argentina.
Income and expense on insurance and reinsurance contracts
Income on insurance and reinsurance contracts for the three months ended March 31, 2019 was 839 million, a 0.9% increase compared with the 832 million income recorded for the for the three months ended March 31, 2018.
Expense on insurance and reinsurance contracts for the three months ended March 31, 2019 was 566 million, a 2.1% decrease compared with the 578 million recorded for the three months ended March 31, 2018, mainly as a result of the lower insurance activity related to insurance-savings products in Spain (through BBVA Seguros).
Administration costs
Administration costs, which include personnel expense and other administrative expense, for the three months ended March 31, 2019 amounted to 2,530 million, a 5.3% decrease compared with the 2,671 million recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the currencies of the main countries where BBVA operates against the euro, which was offset in part by a 10.6% increase in technology and systems expense.
20
The table below provides a breakdown of personnel expense for the three months ended March 31, 2019 and March 31, 2018:
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Wages and salaries |
1,206 | 1,220 | (1.1 | ) | ||||||||
Social security costs |
198 | 193 | 2.6 | |||||||||
Defined contribution plan expense |
28 | 26 | 7.7 | |||||||||
Defined benefit plan expense |
14 | 16 | (12.5 | ) | ||||||||
Other personnel expense |
107 | 111 | (3.6 | ) | ||||||||
|
|
|
|
|||||||||
Personnel expenses |
1,553 | 1,565 | (0.8 | ) | ||||||||
|
|
|
|
The table below provides a breakdown of other administrative expense for the three months ended March 31, 2019 and March 31, 2018:
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Technology and systems |
313 | 283 | 10.6 | |||||||||
Communications |
54 | 61 | (11.5 | ) | ||||||||
Advertising |
77 | 83 | (7.2 | ) | ||||||||
Property, fixtures and materials |
133 | 249 | (46.6 | ) | ||||||||
Of which: |
||||||||||||
Rent expense |
103 | 120 | (14.2 | ) | ||||||||
Taxes other than income tax |
297 | 310 | (4.2 | ) | ||||||||
Other expense |
313 | 283 | (10.6 | ) | ||||||||
|
|
|
|
|||||||||
Other administrative expense |
977 | 1,106 | (11.6 | ) | ||||||||
|
|
|
|
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2019 was 392 million, a 28.9% increase compared with the 304 million recorded for the three months ended March 31, 2018, mainly as a result of higher expense from amortization of intangible assets, particularly related to software in Spain, and the impact of the implementation of IFRS 16.
Provisions or reversal of provisions
Provisions or reversal of provisions for the three months ended March 31, 2019 amounted to an expense of 144 million, a 45.3% increase compared with the 99 million expense recorded for the three months ended March 31, 2018, explained by the increase in provisions in Spain.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification for the three months ended March 31, 2019 was an expense of 1,023 million, a 24.4% increase compared with the 823 million expense recorded for the three months ended March 31, 2018. By operating segments, there were higher loan-loss provisions in the United States due to the deterioration of some specific customers in the commercial portfolio and some write-offs in consumer, and there were higher loan-loss provisions in Turkey due to the deterioration of wholesale client portfolios. Partially offsetting these effects, Spain recognized lower loan loss provisions, and Mexico remained at similar levels compared with the first quarter of the prior year.
21
Gains (losses) on derecognition of non-financial assets and subsidiaries, net
Gains on derecognition of non-financial assets and subsidiaries, for the three months ended March 31, 2019 amounted to 2 million, compared with the 10 million recorded for the three months ended March 31, 2018.
Profit (loss) from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations
Profit from non-current assets and disposal groups classified as held for sale not qualifying as discontinued operations for the three months ended March 31, 2019 was 7 million, compared with the 24 million recorded for the three months ended March 31, 2018.
Operating profit before tax
As a result of the foregoing, operating profit before tax for the three months ended March 31, 2019 amounted to 1,957 million, a 9.8% decrease compared with the 2,170 million operating profit before tax recorded for the three months ended March 31, 2018.
Tax expense or income related to profit or loss from continuing operations
Tax expense related to profit from continuing operations for the three months ended March 31, 2019 amounted to 559 million, a 9.4% decrease compared with the 617 million expense recorded for the three months ended March 31, 2018, attributable in part to the lower operating profit before tax.
Profit
As a result of the foregoing, profit for the three months ended March 31, 2019 amounted to 1,398 million, a 10.0% decrease compared with the 1,553 million recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company for the three months ended March 31, 2019 amounted to 1,164 million, a 9.8% decrease compared with the 1,290 million recorded for the three months ended March 31, 2018.
Profit attributable to non-controlling interests
As a result of the foregoing, profit attributable to non-controlling interests for the three months ended March 31, 2019 amounted to 234, a 10.8% decrease compared with the 262 million profit attributable to non-controlling interests recorded for the three months ended March 31, 2018.
22
D. Results of operations by operating segment for the three months ended March 31, 2019 compared with the three months ended March 31, 2018.
The following tables provide restated consolidated financial information as of and for the three month period ended March 31, 2018 by operating segment due to the change in the reporting structure of the BBVA Group´s operating segments during the first quarter of 2019, and as a result of the application of IAS 29 Financial information in hyperinflationary economies. See Presentation of Financial InformationChanges in Operating Segments and Presentation of Financial Information Hyperinflationary economies.
23
For the Three Months Ended March 31, 2019
(In Millions of Euros)
Spain | United States |
Mexico | Turkey | South America |
Rest of Eurasia |
Corporate Center |
Group | |||||||||||||||||||||||||
Net interest income |
882 | 615 | 1,500 | 695 | 760 | 39 | (71 | ) | 4,420 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Net fees and commissions |
414 | 151 | 300 | 194 | 135 | 36 | (15 | ) | 1,214 | |||||||||||||||||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
108 | 41 | 63 | (11 | ) | 206 | 27 | (7 | ) | 426 | ||||||||||||||||||||||
Other operating income and expense, net (2) |
94 | (3 | ) | 40 | 6 | (116 | ) | 2 | (14 | ) | 8 | |||||||||||||||||||||
|
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|
|
|
|
|
|
|
|
|
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|
|
|
|
|||||||||||||||||
Gross income |
1,497 | 804 | 1,902 | 884 | 985 | 103 | (107 | ) | 6,069 | |||||||||||||||||||||||
|
|
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|
|
|
|
|
|
|
|
|
|
|
|
|
|||||||||||||||||
Administration costs |
(695 | ) | (417 | ) | (550 | ) | (269 | ) | (337 | ) | (65 | ) | (196 | ) | (2,530 | ) | ||||||||||||||||
Depreciation and amortization |
(119 | ) | (55 | ) | (84 | ) | (44 | ) | (41 | ) | (4 | ) | (43 | ) | (392 | ) | ||||||||||||||||
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|
|||||||||||||||||
Net margin before provisions (3) |
683 | 331 | 1,268 | 571 | 606 | 34 | (346 | ) | 3,147 | |||||||||||||||||||||||
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|
|||||||||||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(78 | ) | (162 | ) | (395 | ) | (202 | ) | (177 | ) | (10 | ) | (1 | ) | (1,023 | ) | ||||||||||||||||
Provisions or reversal of provisions and other results |
(123 | ) | (10 | ) | 4 | (1 | ) | (12 | ) | (1 | ) | (23 | ) | (166 | ) | |||||||||||||||||
|
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|
|
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|
|
|
|||||||||||||||||
Operating profit/ (loss) before tax |
482 | 160 | 877 | 368 | 417 | 23 | (370 | ) | 1,957 | |||||||||||||||||||||||
|
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|
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|
|
|
|
|
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|
|
|||||||||||||||||
Tax expense or income related to profit or loss from continuing operations |
(137 | ) | (32 | ) | (250 | ) | (79 | ) | (138 | ) | (7 | ) | 84 | (559 | ) | |||||||||||||||||
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Profit from continuing operations excluding corporate operations |
345 | 127 | 627 | 289 | 279 | 16 | (286 | ) | 1,398 | |||||||||||||||||||||||
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Profit attributable to non-controlling interests |
(1 | ) | | | (147 | ) | (86 | ) | | | (234 | ) | ||||||||||||||||||||
|
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|
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|
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Profit attributable to parent company |
345 | 127 | 627 | 142 | 193 | 16 | (286 | ) | 1,164 | |||||||||||||||||||||||
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24
(1) | Includes the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Includes the following income statement line items contained in the Consolidated Financial Statements: Dividend income, Share of profit or loss of entities accounted for using the equity method and Income/Expense on insurance and reinsurance contracts and Other operating income/expense. |
(3) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
25
For the Three Months Ended March 31, 2018
(In Millions of Euros)
Spain | United States | Mexico | Turkey | South America |
Rest of Eurasia |
Corporate Center |
Group | |||||||||||||||||||||||||
Net interest income |
927 | 524 | 1,317 | 753 | 791 | 43 | (67 | ) | 4,287 | |||||||||||||||||||||||
|
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|
|||||||||||||||||
Net fees and commissions |
412 | 148 | 281 | 201 | 163 | 39 | (7 | ) | 1,236 | |||||||||||||||||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
167 | 24 | 67 | 20 | 112 | 44 | (24 | ) | 410 | |||||||||||||||||||||||
Other operating income and expense, net (2) |
82 | 3 | 45 | 23 | (58 | ) | 1 | (3 | ) | 92 | ||||||||||||||||||||||
|
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|
|
|
|
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|
|
|
|
|
|||||||||||||||||
Gross income |
1,588 | 699 | 1,711 | 996 | 1,008 | 126 | (102 | ) | 6,026 | |||||||||||||||||||||||
|
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|
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Administration costs |
(768 | ) | (392 | ) | (512 | ) | (315 | ) | (458 | ) | (70 | ) | (156 | ) | (2,671 | ) | ||||||||||||||||
Depreciation and amortization |
(77 | ) | (42 | ) | (60 | ) | (40 | ) | (27 | ) | (2 | ) | (56 | ) | (304 | ) | ||||||||||||||||
|
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|
|||||||||||||||||
Net margin before provisions(3) |
744 | 264 | 1,138 | 641 | 523 | 54 | (314 | ) | 3,050 | |||||||||||||||||||||||
|
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|
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Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(125 | ) | (20 | ) | (377 | ) | (151 | ) | (167 | ) | 17 | | (823 | ) | ||||||||||||||||||
Provisions or reversal of provisions and other results |
(42 | ) | 8 | 21 | 29 | (11 | ) | (1 | ) | (62 | ) | (58 | ) | |||||||||||||||||||
|
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|
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|
|
|||||||||||||||||
Operating profit/ (loss) before tax |
577 | 252 | 782 | 519 | 345 | 71 | (376 | ) | 2,170 | |||||||||||||||||||||||
|
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|
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|
|
|
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|
|
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Tax expense or income related to profit or loss from continuing operations |
(172 | ) | (56 | ) | (214 | ) | (113 | ) | (133 | ) | (22 | ) | 94 | (617 | ) | |||||||||||||||||
|
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Profit from continuing operations |
405 | 196 | 567 | 406 | 213 | 48 | (282 | ) | 1,553 | |||||||||||||||||||||||
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|
|
|
|
|
|||||||||||||||||
Profit attributable to non-controlling interests |
(1 | ) | | | (206 | ) | (56 | ) | | | (262 | ) | ||||||||||||||||||||
|
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|
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Profit attributable to parent company |
404 | 196 | 567 | 200 | 157 | 48 | (282 | ) | 1,290 | |||||||||||||||||||||||
|
|
|
|
|
|
|
|
|
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|
|
(1) | Includes 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 designated at fair value through profit or loss, net, Gains (losses) on financial assets and liabilities held for trading, net, Gains (losses) from hedge accounting, net and Exchange differences, net. |
(2) | Includes Dividend income, Share of profit or loss of entities accounted for using the equity method and Income/Expense on insurance and reinsurance contracts and Other operating income/expense. |
(3) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
26
Results of operations by operating segment for the three months ended March 31, 2019 compared with the three months ended March 31, 2018
SPAIN
For the Three Months Ended March 31, | ||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
882 | 927 | (4.9 | ) | ||||||||
|
|
|
|
|||||||||
Net fees and commissions |
414 | 412 | 0.3 | |||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
108 | 167 | (35.2 | ) | ||||||||
Other operating income and expense, net |
(36 | ) | (32 | ) | 12.3 | |||||||
Income and expense on insurance and reinsurance contracts |
130 | 114 | 13.5 | |||||||||
|
|
|
|
|||||||||
Gross income |
1,497 | 1,588 | (5.7 | ) | ||||||||
|
|
|
|
|||||||||
Administration costs |
(695 | ) | (768 | ) | (9.5 | ) | ||||||
Depreciation and amortization |
(119 | ) | (77 | ) | 55.7 | |||||||
|
|
|
|
|||||||||
Net margin before provisions (2) |
683 | 744 | (8.2 | ) | ||||||||
|
|
|
|
|||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(78 | ) | (125 | ) | (37.9 | ) | ||||||
Provisions or reversal of provisions and other results |
(123 | ) | (42 | ) | 194.7 | |||||||
|
|
|
|
|||||||||
Operating profit/(loss) before tax |
482 | 577 | (16.5 | ) | ||||||||
|
|
|
|
|||||||||
Tax expense or income related to profit or loss from continuing operations |
(137 | ) | (172 | ) | (20.7 | ) | ||||||
|
|
|
|
|||||||||
Profit from continuing operations |
345 | 405 | (14.7 | ) | ||||||||
|
|
|
|
|||||||||
Profit attributable to non-controlling interests |
(1 | ) | (1 | ) | (7.4 | ) | ||||||
|
|
|
|
|||||||||
Profit attributable to parent company |
345 | 404 | (14.7 | ) | ||||||||
|
|
|
|
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Calculated as Gross income less Administration costs and Depreciation and amortization. |
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 882 million, a 4.9% decrease compared with the 927 million recorded for the three months ended March 31, 2018, mainly as a result of lower contribution from the ALCO portfolio and the effect of the implementation of IFRS 16.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 414 million, compared with the 412 million recorded for the three months ended March 31, 2018.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net gains on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 was a net gain of 108 million, a 35.2% decrease compared with the 167 million net gain recorded for the three months ended March 31, 2018, mainly as a result of uneven market performance in the quarter and lower portfolio sales.
Other operating income and expense, net
Other net operating expense of this operating segment for the three months ended March 31, 2019 amounted to 36 million, compared with the 32 million expense recorded for the three months ended March 31, 2018.
27
Income and expense on insurance and reinsurance contracts
Net income on insurance and reinsurance contracts of this operating segment for the three months ended March 31, 2019 was 130 million, a 13.5% increase compared with the 114 million recorded for the three months ended March 31, 2018.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 695 million, a 9.5% decrease compared with the 768 million recorded for the three months ended March 31, 2018, mainly as a result of a decline in both personnel expense and other administrative expense driven by the evolution of efficiency plans.
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2019 was 119 million, a 55.7% increase compared with the 77 million recorded for the three months ended March 31, 2018.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 amounted to 78 million expense, a 37.9% decrease compared with the 125 million expense recorded for the three months ended March 31, 2018, mainly as a result of lower loan-loss provisions of real-estate developer loans previously allocated to the former Non Core Real Estate area.
Provisions or reversal of provisions and other results
Provisions or reversal of provisions and other results of this operating segment for the three months ended March 31, 2019 were a 123 million expense, a 194.7% increase compared with the 42 million expense recorded for the three months ended March 31, 2018, mainly as a result of positive valuation of assets in the former Non Core Real Estate area during the first quarter of the prior year.
Operating profit/ (loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 482 million, a 16.5% decrease compared with the 577 million recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 345 million, a 14.7% decrease compared with the 404 million recorded for the three months ended March 31, 2018.
28
UNITED STATES
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
615 | 524 | 17.4 | |||||||||
|
|
|
|
|||||||||
Net fees and commissions |
151 | 148 | 2.1 | |||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
41 | 24 | 67.3 | |||||||||
Other operating income and expense, net |
(3 | ) | 3 | n.m. | (3) | |||||||
Income and expense on insurance and reinsurance contracts |
| | | |||||||||
|
|
|
|
|||||||||
Gross income |
804 | 699 | 15.1 | |||||||||
|
|
|
|
|||||||||
Administration costs |
(417 | ) | (392 | ) | 6.4 | |||||||
Depreciation and amortization |
(55 | ) | (42 | ) | 31.1 | |||||||
|
|
|
|
|||||||||
Net margin before provisions (2) |
331 | 264 | 25.3 | |||||||||
|
|
|
|
|||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(162 | ) | (20 | ) | n.m. | (3) | ||||||
Provisions or reversal of provisions and other results |
(10 | ) | 8 | n.m. | (3) | |||||||
|
|
|
|
|||||||||
Operating profit/(loss) before tax |
160 | 252 | (36.6 | ) | ||||||||
|
|
|
|
|||||||||
Tax expense or income related to profit or loss from continuing operations |
(32 | ) | (56 | ) | (42.6 | ) | ||||||
|
|
|
|
|||||||||
Profit from continuing operations |
127 | 196 | (34.8 | ) | ||||||||
|
|
|
|
|||||||||
Profit attributable to non-controlling interests |
| | | |||||||||
|
|
|
|
|||||||||
Profit attributable to parent company |
127 | 196 | (34.8 | ) | ||||||||
|
|
|
|
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
(3) | Not meaningful. |
In the three months ended March 31, 2019 the U.S. dollar appreciated 8.2% against the euro in average terms compared with the same period of the prior year, resulting in a positive exchange rate effect on our consolidated income statement for the three months ended March 31, 2018 and in the results of operations of the United States operating segment for such period expressed in euros.
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 615 million, a 17.4% increase compared with the 524 million recorded for the three months ended March 31, 2018, due mainly to higher interest rates and to measures adopted by BBVA Compass to improve loan yields and contain the increase in the cost of deposits (including an improved deposit mix and wholesale funding).
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 151 million, a 2.1% increase compared with the 148 million recorded for the three months ended March 31, 2018.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net gains (losses) on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 was a net gain of 41 million, a 67.3% increase compared with the 24 million gain recorded for the three months ended March 31, 2018, mainly as a result of higher ALCO portfolio sales in the first quarter of 2019.
29
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 417 million, a 6.4% increase compared with the 392 million recorded for the three months ended March 31, 2018.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 was a 162 million expense compared with the 20 million expense recorded for the three months ended March 31, 2018, mainly as a result of the adverse macro scenario adjustment, to provisions for certain customers in the commercial portfolio and some write-offs in consumer. In addition, the first quarter of 2018 was positively impacted by the release of provisions related to the hurricanes the previous year.
Operating profit/ (loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 160 million, a 36.6% decrease compared with the 252 million of operating profit recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 127 million, a 34.8% decrease compared with the 196 million recorded for the three months ended March 31, 2018.
30
MEXICO
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
1,500 | 1,317 | 13.9 | |||||||||
|
|
|
|
|||||||||
Net fees and commissions |
300 | 281 | 6.9 | |||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
63 | 67 | (7.4 | ) | ||||||||
Other operating income and expense, net |
(69 | ) | (58 | ) | 19.5 | |||||||
Income and expense on insurance and reinsurance contracts |
109 | 103 | 6.2 | |||||||||
|
|
|
|
|||||||||
Gross income |
1,902 | 1,711 | 11.2 | |||||||||
|
|
|
|
|||||||||
Administration costs |
(550 | ) | (512 | ) | 7.4 | |||||||
Depreciation and amortization |
(84 | ) | (60 | ) | 38.9 | |||||||
|
|
|
|
|||||||||
Net margin before provisions (2) |
1,268 | 1,138 | 11.5 | |||||||||
|
|
|
|
|||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(395 | ) | (377 | ) | 4.7 | |||||||
Provisions or reversal of provisions and other results |
4 | 21 | (82.1 | ) | ||||||||
|
|
|
|
|||||||||
Operating profit/(loss) before tax |
877 | 782 | 12.2 | |||||||||
|
|
|
|
|||||||||
Tax expense or income related to profit or loss from continuing operations |
(250 | ) | (214 | ) | 16.7 | |||||||
|
|
|
|
|||||||||
Profit from continuing operations |
627 | 567 | 10.6 | |||||||||
|
|
|
|
|||||||||
Profit attributable to non-controlling interests |
| | | |||||||||
|
|
|
|
|||||||||
Profit attributable to parent company |
627 | 567 | 10.6 | |||||||||
|
|
|
|
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
31
In the three months ended March 31, 2019, the Mexican peso appreciated 5.6% against the euro in average terms compared with the same period of the prior year, resulting in a positive exchange rate effect on our consolidated income statement for the three months ended March 31, 2019 and in the results of operations of the Mexico operating segment for such period expressed in euros.
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 1,500 million, a 13.9% increase compared with the 1,317 million recorded for the three months ended March 31, 2018, and a 7.8% increase at a constant exchange rate, which was mainly as a result of growth in lending activity partially offset by a slight deterioration of customer spreads.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 300 million, a 6.9% increase compared with the 281 million recorded for the three months ended March 31, 2018. At a constant exchange rate, there was a 1.2% increase mainly as a result of increased activity in mutual funds, as well as a higher volume of transactions with on-line banking and credit card customers.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net gains on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 were 63 million, a 7.4% decrease compared with the 67 million gain recorded for the three months ended March 31, 2018, mainly as a result of the lower contribution under this heading from the Global Markets unit.
Other operating income and expense, net
Other operating income and expense, net of this operating segment for the three months ended March 31, 2019 was a net expense of 69 million, a 19.5% increase compared with the 58 million net expense recorded for the three months ended March 31, 2018, mainly as a result of the higher expenses derived from the deposit guarantee fund.
Income and expense on insurance and reinsurance contracts
Net income on insurance and reinsurance contracts of this operating segment for the three months ended March 31, 2019 was 109 million, a 6.2% increase compared with the 103 million net income recorded for the three months ended March 31, 2018, mainly as a result of the income derived from collective insurance policies.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 were 550 million, a 7.4% increase compared with the 512 million recorded for the three months ended March 31, 2018, mainly as a result of the increase of personnel expenses. At a constant exchange rate, administration costs increased by 1.7%, which was below Mexicos inflation rate for the period.
32
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 was a 395 million expense, a 4.7% increase compared with the 377 million expense recorded for the three months ended March 31, 2018. At a constant exchange rate, there was a 0.9% decrease in impairment losses on financial assets.
Operating profit/ (loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 877 million, a 12.2% increase compared with the 782 million of operating profit recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 627 million, a 10.6% increase compared with the 567 million recorded for the three months ended March 31, 2018.
33
TURKEY
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
695 | 753 | (7.7 | ) | ||||||||
|
|
|
|
|||||||||
Net fees and commissions |
194 | 201 | (3.4 | ) | ||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
(11 | ) | 20 | n.m. | (3) | |||||||
Other operating income and expense, net |
(6 | ) | 7 | n.m. | (3) | |||||||
Income and expense on insurance and reinsurance contracts |
12 | 16 | (24.4 | ) | ||||||||
|
|
|
|
|||||||||
Gross income |
884 | 996 | (11.3 | ) | ||||||||
|
|
|
|
|||||||||
Administration costs |
(269 | ) | (315 | ) | (14.7 | ) | ||||||
Depreciation and amortization |
(44 | ) | (40 | ) | 9.5 | |||||||
|
|
|
|
|||||||||
Net margin before provisions (2) |
571 | 641 | (10.9 | ) | ||||||||
|
|
|
|
|||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(202 | ) | (151 | ) | 33.9 | |||||||
Provisions or reversal of provisions and other results |
(1 | ) | 29 | n.m. | (3) | |||||||
|
|
|
|
|||||||||
Operating profit/(loss) before tax |
368 | 519 | (29.1 | ) | ||||||||
|
|
|
|
|||||||||
Tax expense or income related to profit or loss from continuing operations |
(79 | ) | (113 | ) | (30.0 | ) | ||||||
|
|
|
|
|||||||||
Profit from continuing operations |
289 | 406 | (28.9 | ) | ||||||||
|
|
|
|
|||||||||
Profit attributable to non-controlling interests |
(147 | ) | (206 | ) | (28.6 | ) | ||||||
|
|
|
|
|||||||||
Profit attributable to parent company |
142 | 200 | (29.2 | ) | ||||||||
|
|
|
|
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
(3) | Not meaningful. |
34
The Turkish lira depreciated 23.2% against the euro in average terms the three months ended March 31, 2019 compared with the same period of the prior year, resulting in a negative exchange rate effect on our consolidated income statement for the three months ended March 31, 2019 and in the results of operations of the Turkey operating segment for such period expressed in euros.
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 695 million, a 7.7% decrease compared with the 753 million recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, there was a 20.2% increase in net interest income, mainly as a result of higher income from inflation-linked bonds.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 194 million, a 3.4% decrease compared with the 201 million recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the Turkish lira.
Income and expense on insurance and reinsurance contracts
Net income on insurance and reinsurance contracts of this operating segment for the three months ended March 31, 2019 was 12 million, a 24.4% decrease compared with the 16 million income recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the Turkish lira.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 269 million, a 14.7% decrease compared with the 315 million recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the Turkish lira. At a constant exchange rate, administration costs increased by 11.1%.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 was a 202 million expense, a 33.9% increase compared with the 151 million expense recorded for the three months ended March 31, 2018, mainly as a result of the adverse macro scenario adjustments.
35
Operating profit/(loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 368 million, a 29.1% decrease compared with the 519 million of operating profit recorded for the three months ended March 31, 2018.
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests of this operating segment for the three months ended March 31, 2019 amounted to 147 million, a 28.6% decrease compared with the 206 million recorded for the three months ended March 31, 2018 mainly as a result of the depreciation of the Turkish lira against the euro.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 142 million, a 29.2% decrease compared with the 200 million recorded for the three months ended March 31, 2018 mainly as a result of the depreciation of the Turkish lira against the euro.
36
SOUTH AMERICA
For the Three Months Ended March 31, | ||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
760 | 791 | (3.9 | ) | ||||||||
Net fees and commissions |
135 | 163 | (17.4 | ) | ||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
206 | 112 | 84.9 | |||||||||
Other operating income and expense, net |
(143 | ) | (91 | ) | 57.1 | |||||||
Income and expense on insurance and reinsurance contracts |
27 | 33 | (18.2 | ) | ||||||||
Gross income |
985 | 1,008 | (2.3 | ) | ||||||||
Administration costs |
(337 | ) | (458 | ) | (26.3 | ) | ||||||
Depreciation and amortization |
(41 | ) | (27 | ) | 53.6 | |||||||
Net margin before provisions (2) |
606 | 523 | 15.9 | |||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(177 | ) | (167 | ) | 6.1 | |||||||
Provisions or reversal of provisions and other results |
(12 | ) | (11 | ) | 14.6 | |||||||
Operating profit/(loss) before tax |
417 | 345 | 20.7 | |||||||||
Tax expense or income related to profit or loss from continuing operations |
(138 | ) | (133 | ) | 3.7 | |||||||
Profit from continuing operations |
279 | 213 | 31.4 | |||||||||
Profit attributable to non-controlling interests |
(86 | ) | (56 | ) | 55.1 | |||||||
Profit attributable to parent company |
193 | 157 | 23.0 |
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
In the three months ended March 31, 2019, the Argentine peso depreciated 49.3% against the euro in average terms compared with the same period of the prior year. In addition, the Chilean peso and the Colombian peso also depreciated in average terms against the euro compared with the same period of the prior year, by 2.3% and 1.5%, respectively. As a result, changes in exchange rates resulted in a negative impact on the results of operations of the South America operating segment for the three months ended March 31, 2019 expressed in euros.
In addition, on July 6, 2018 we completed the sale of our 68.19% stake in BBVA Chile. See Item 4. Information on the CompanyHistory and Development of the CompanyCapital Divestitures2018 in the 2018 Form 20-F.
37
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 760 million, a 3.9% decrease compared with the 791 million recorded for the three months ended March 31, 2018. At a constant exchange rate, there was a 7.7% increase mainly as a result of the growth in the average volume of and in the yield on interest-earning assets, which more than offset the impact of the sale of BBVA Chile.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 135 million, a 17.4% decrease compared with the 163 million recorded for the three months ended March 31, 2018, mainly due to the negative effect of the hyperinflation in Argentina. At a constant exchange rate, there was a 5.9% decrease.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net gains on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 were 206 million, an 84.9% increase compared with the 112 million gain recorded for the three months ended March 31, 2018, mainly as a result of increased profits from the management of the securities portfolio.
Other operating income and expense, net
Other net operating expense of this operating segment for the three months ended March 31, 2019 was 143 million, compared with the 91 million expense recorded for the three months ended March 31, 2018.
Income and expense on insurance and reinsurance contracts
Net income on insurance and reinsurance contracts of this operating segment for the three months ended March 31, 2019 was 27 million, an 18.2% decrease compared with the 33 million net income recorded for the three months ended March 31, 2018, mainly as a result of the depreciation of the Argentinian peso against the euro. At a constant exchange rate, there was a 7.9% increase.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 337 million, a 26.3% decrease compared with the 458 million recorded for the three months ended March 31, 2018, mainly as a result of lower operating expenses. At a constant exchange rate, there was a 13.2% decrease.
Depreciation and amortization
Depreciation and amortization for the three months ended March 31, 2019 was 41 million, a 53.6% increase compared with the 27 million recorded for the three months ended March 31, 2018 mainly as a result of higher expense related to software in Peru and the implementation of IFRS 16.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 was a 177 million expense, a 6.1% increase compared with the 167 million expense recorded for the three months ended March 31, 2018, mainly as a result of the deterioration in credit quality. Nonetheless, the cost of risk remains stable during the first quarter of 2019.
Provisions or reversal of provisions and other results
Provisions or reversal of provisions and other results of this operating segment for the three months ended March 31, 2019 were a 12 million expense, a 14.6% increase compared with the 11 million expense recorded for the three months ended March 31, 2018.
Operating profit/ (loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 417 million, a 20.7% increase compared with the 345 million of operating profit recorded for the three months ended March 31, 2018.
38
Tax expense or income related to profit or loss from continuing operations
Tax expense related to profit from continuing operations of this operating segment for the three months ended March 31, 2019 was 138 million, a 3.7% increase compared with the 133 million expense recorded for the three months ended March 31, 2018, mainly as a result of the higher operating profit before tax.
Profit attributable to non-controlling interests
Profit attributable to non-controlling interests of this operating segment for the three months ended March 31, 2019 amounted to 86 million, a 55.1% increase compared with the 56 million recorded for the three months ended March 31, 2018 due to the positive performance of certain recurring revenue items as well as to the positive impact from the sale of a stake in Prisma Medios de Pago S.A.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 193 million, a 23.0% increase compared with the 157 million recorded for the three months ended March 31, 2018.
39
REST OF EURASIA
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
39 | 43 | (8.0 | ) | ||||||||
Net fees and commissions |
36 | 39 | (7.6 | ) | ||||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
27 | 44 | (39.0 | ) | ||||||||
Other operating income and expense, net |
2 | 1 | 141.5 | |||||||||
Income and expense on insurance and reinsurance contracts |
| | | |||||||||
Gross income |
103 | 126 | (17.8 | ) | ||||||||
Administration costs |
(65 | ) | (70 | ) | (6.7 | ) | ||||||
Depreciation and amortization |
(4 | ) | (2 | ) | 185.3 | |||||||
Net margin before provisions (2) |
34 | 54 | (37.8 | ) | ||||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(10 | ) | 17 | n.m. | (3) | |||||||
Provisions or reversal of provisions and other results |
(1 | ) | (1 | ) | 1.2 | |||||||
Operating profit/(loss) before tax |
23 | 71 | (67.6 | ) | ||||||||
Tax expense or income related to profit or loss from continuing operations |
(7 | ) | (22 | ) | (69.3 | ) | ||||||
Profit from continuing operations |
16 | 48 | (66.9 | ) | ||||||||
Profit attributable to non-controlling interests |
| | | |||||||||
Profit attributable to parent company |
16 | 48 | (66.9 | ) |
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
(3) | Not meaningful. |
40
Net interest income
Net interest income of this operating segment for the three months ended March 31, 2019 amounted to 39 million, an 8.0% decrease compared with the 43 million recorded for the three months ended March 31, 2018, mainly as a result of a weaker performance of the Global Finance unit in Asia, particularly Corporate and Investment Banking (C&IB), partially offset by the performance of the Global Trade unit in Asia.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 amounted to 36 million, a 7.6% decrease compared with the 39 million recorded for the three months ended March 31, 2018, mainly as a result of lower commissions in the branch network in Europe.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net gains on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 were 27 million, a 39.0% decrease compared with the 44 million net gain recorded for the three months ended March 31, 2018, mainly as a result of the weaker performance of the Global Markets unit in Europe.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 65 million, a 6.7% decrease compared with the 70 million recorded for the three months ended March 31, 2018, mainly as a result of the expense reduction efforts in the Corporate and Investment Banking (C&IB) unit and the Global Markets unit in Europe.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 amounted to impairment of 10 million, compared with income of 17 million recorded for the three months ended March 31, 2018.
Operating profit/(loss) before tax
As a result of the foregoing, operating profit before tax of this operating segment for the three months ended March 31, 2019 was 23 million, a 67.6% decrease compared with the 71 million of operating profit recorded for the three months ended March 31, 2018.
Tax expense or income related to profit or loss from continuing operations
Tax expense related to profit from continuing operations of this operating segment for the three months ended March 31, 2019 was 7 million expense, a 69.3% decrease compared with the 22 million expense recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 amounted to 16 million, a 66.9% decrease compared with the 48 million recorded for the three months ended March 31, 2018.
41
CORPORATE CENTER
For the Three Months Ended March 31, |
||||||||||||
2019 | 2018 | Change | ||||||||||
(In Millions of Euros) | (In %) | |||||||||||
Net interest income |
(71 | ) | (67 | ) | 4.9 | |||||||
Net fees and commissions |
(15 | ) | (7 | ) | 104.9 | |||||||
Net gains (losses) on financial assets and liabilities and exchange differences, net (1) |
(7 | ) | (24 | ) | (70.2 | ) | ||||||
Other operating income and expense, net |
(9 | ) | 2 | n.m. | (3) | |||||||
Income and expense on insurance and reinsurance contracts |
(5 | ) | (6 | ) | (8.2 | ) | ||||||
Gross income |
(107 | ) | (102 | ) | 5.1 | |||||||
Administration costs |
(196 | ) | (156 | ) | 25.3 | |||||||
Depreciation and amortization |
(43 | ) | (56 | ) | (22.5 | ) | ||||||
Net margin before provisions (2) |
(346 | ) | (314 | ) | 10.2 | |||||||
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification |
(1 | ) | | n.m. | (3) | |||||||
Provisions or reversal of provisions and other results |
(23 | ) | (62 | ) | (63.0 | ) | ||||||
Operating profit/(loss) before tax |
(370 | ) | (376 | ) | (1.7 | ) | ||||||
Tax expense or income related to profit or loss from continuing operations |
84 | 94 | (11.3 | ) | ||||||||
Profit from continuing operations excluding corporate operations |
(286 | ) | (282 | ) | 1.6 | |||||||
Profit from corporate operations, net |
| | | |||||||||
Profit |
(286 | ) | (282 | ) | 1.6 | |||||||
Profit attributable to non-controlling interests |
| | | |||||||||
Profit attributable to parent company |
(286 | ) | (282 | ) | 1.5 |
(1) | Comprises the following income statement line items contained in the Consolidated Financial Statements: 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 and Exchange differences, net. |
(2) | Net margin before provisions is calculated as Gross income less Administration costs and Depreciation and amortization. |
(3) | Not meaningful. |
42
Net interest income / (expense)
Net interest expense of this operating segment for the three months ended March 31, 2019 was 71 million, a 4.9% increase compared with the 67 million net expense recorded for the three months ended March 31, 2018, mainly as a result of the lower cost of funding and the evolution of interest rates.
Net fees and commissions
Net fees and commissions of this operating segment for the three months ended March 31, 2019 was an expense of 15 million, a 104.9% increase compared with an expense of 7 million expense recorded for the three months ended March 31, 2018.
Net gains (losses) on financial assets and liabilities and exchange differences, net
Net losses on financial assets and liabilities and exchange differences of this operating segment for the three months ended March 31, 2019 were 7 million, compared with the 24 million net loss recorded for the three months ended March 31, 2018.
Administration costs
Administration costs of this operating segment for the three months ended March 31, 2019 amounted to 196 million, a 25.3% increase compared with the 156 million recorded for the three months ended March 31, 2018, mainly as a result of an increase in IT for the development of new capabilities, cybersecurity and process reengineering.
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification
Impairment or reversal of impairment on financial assets not measured at fair value through profit or loss or net gains by modification of this operating segment for the three months ended March 31, 2019 amounted to 1 million impairment, compared with nil recorded for the three months ended March 31, 2018.
Provisions or reversal of provisions and other results
Provisions or reversal of provisions and other results of this operating segment for the three months ended March 31, 2019 were a 23 million expense, a 63.0% decrease compared with the 62 million expense recorded for the three months ended March 31, 2018.
Operating profit/ (loss) before tax
As a result of the foregoing, operating loss before tax of this operating segment for the three months ended March 31, 2019 was 370 million, a 1.7% decrease compared with the 376 million loss recorded for the three months ended March 31, 2018.
Tax expense or income related to profit or loss from continuing operations
Tax income related to loss from continuing operations of this operating segment for the three months ended March 31, 2019 amounted to 84 million, compared with the 94 million tax income recorded for the three months ended March 31, 2018.
Profit attributable to parent company
As a result of the foregoing, profit attributable to parent company of this operating segment for the three months ended March 31, 2019 was a loss of 286 million, compared with the 282 million loss recorded for the three months ended March 31, 2018.
As of March 31, 2019 and December 31, 2018, equity was calculated in accordance with current regulations on minimum capital base requirements for Spanish credit institutionsboth as an individual entity and as a consolidated group. Such regulations dictate how such equity levels are calculated, as well as the various required internal capital adequacy assessment processes and the information that must be disclosed to the market.
The minimum capital base requirements established by the current regulations are calculated according to the Groups exposure to credit and dilution risk, counterparty and liquidity risk relating to the trading portfolio, exchange-rate risk and operational risk. In addition, the Group must fulfill the risk concentration limits established in such regulations and the internal corporate governance obligations.
As a result of the most recent SREP (supervisory review and evaluation process) carried out by the ECB, we received a communication from the ECB pursuant to which we are required to maintain, as from March 1, 2019 on a consolidated basis, a CET1 capital ratio of 9.26% (8.53% on an individual basis) and a total capital ratio of 12.76% (12.03% on an individual basis). This total capital requirement (on a consolidated basis) includes: (i) the minimum CET1 requirement under Pillar 1 (4.5%); (ii) the Additional Tier 1 capital (AT1) requirement under Pillar 1 (1.5%); (iii) the tier 2 capital requirement under Pillar 1 (2%); (iv) the CET1 capital requirement under Pillar 2 (1.5%), which remains unchanged since the prior SREP; (v) the capital conservation buffer (2.5% of CET1); (vi) the Other Systemic Important Institution buffer (OSII) (0.75% of CET1); and (vii) the countercyclical capital buffer (0.01% of CET1).
43
Since BBVA was not part of the list of global systemically important financial institutions (which is updated every year by the Financial Stability Board (FSB) as of January 1, 2019, the G-SIB buffer will not apply to BBVA in 2019. The FSB or the Bank of Spain may include BBVA in this list in the future. However, the Bank of Spain announced on November 21, 2018 that the Bank continues to be considered a D-SIB and is required to maintain a fully-loaded D-SIB buffer of a CET1 capital ratio of 0.75% on a consolidated basis.
Our consolidated ratios as of March 31, 2019 and December 31, 2018 were as follows:
As of March 31, | As of December 31, | % Change | ||||||||||
2019 | 2018 | |||||||||||
(In Millions of Euros, Except Percentages) | ||||||||||||
CORE CAPITAL (a) |
41,756 | 40,313 | 3.6 | |||||||||
CAPITAL (TIER I) (b) |
47,427 | 45,947 | 3.2 | |||||||||
OTHER ELIGIBLE CAPITAL (TIER II) (c) |
7,336 | 8,756 | (16.2 | ) | ||||||||
CAPITAL BASE (TIER I + TIER II) (d) |
54,764 | 54,703 | 0.1 | |||||||||
RISK WEIGHTED ASSETS (RWA) (e) |
360,689 | 348,264 | 3.6 | |||||||||
BIS RATIO (d)/(e) |
15.18 | % | 15.71 | % | ||||||||
CORE CAPITAL (a)/(e) |
11.58 | % | 11.58 | % | ||||||||
TIER I (b)/(e) |
13.15 | % | 13.19 | % | ||||||||
TIER II (c)/(e) |
2.03 | % | 2.51 | % |
As of March 31, 2019, the Group´s phased-in CET1 stood at 11.6% taking into account the impact of the implementation of IFRS 9, the Tier 1 stood at 13.1%, and the Tier 2 stood at 2.0%, resulting in a total capital ratio of 15.2%. These capital ratios are above the requirements established by the ECB in its SREP letter and the systemic buffers applicable from March 1, 2019 for the BBVA Group, which were 9.26% for the CET1 ratio and 12.76% for the total capital ratio. Finally, the Groups leverage ratio at March 31, 2019 was 6.4% fully-loaded (6.6% phased-in).
Regarding capital issuances, BBVA conducted two capital issuances in the first quarter of 2019: (i) a 1,000 million issuance of preferred securities that may be converted into ordinary shares of BBVA (CoCos), registered with the Spanish Securities Market Commission (CNMV), with an annual coupon of 6.0% and an amortization option from the fifth year; and (ii) a 750 million issuance of Tier 2 subordinated debt, with a maturity period of ten years, an amortization option in the fifth year and a coupon of 2.575%. These issuances, which are pending receipt of ECB computability authorization, are not included in the BBVA Groups capital ratios as of March 31, 2019. Assuming such ECB authorization is received, these issuances are expected to have a positive impact of 28 basis points on the Groups Tier 1 capital ratios and a positive impact of 21 basis points on the Groups Tier 2 capital ratios as of March 31, 2019.
In the first quarter of 2019, the Group continued with its program aimed at meeting the minimum requirement for own funds and eligible liabilities (MREL) published in May 2018 by issuing senior non-preferred debt for 1,000 million. BBVA believes that it is in compliance with the MREL requirement.
In addition, early amortization options were exercised during the first quarter of 2019 with respect to two issuances: (i) the issuance in February 2014 of contingent convertible preferred securities (CoCos) for 1,500 million with a coupon of 7% and (ii) the issuance in April 2014 of Tier 2 subordinated debt for 1,500 million with a coupon of 3.5%.
Regarding shareholder remuneration, on April 10, 2019, BBVA paid a final cash dividend of 0.16 per share for the fiscal year 2018, in line with the Groups dividend policy of maintaining a pay-out ratio of approximately 35-40% of recurring profit. This dividend had no impact on the solvency ratio of the Group, as it was already incorporated as of December 31, 2018.
Considering BBVAs Multiple Point of Entry (MPE) resolution strategy, the Single Resolution Board (SRB) determined that BBVA must meet, starting on January 1, 2020, a MREL requirement of 15.08% of the total liabilities and own funds of its European resolution group (i.e., BBVA S.A. and its subsidiaries), based on its consolidated financial information as of December 31, 2016 (28.04% expressed in terms of risk-weighted assets). According to our estimates, the current own funds and eligible liabilities structure of BBVAs European resolution group is in line with this MREL requirement.
Risk-weighted assets (RWAs) have increased since the end of 2018, mainly as a result of the implementation of IFRS 16, activity growth in emerging economies and the evolution of foreign currencies, mainly the appreciation of the U.S. dollar.
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Pursuant to the requirements of the Securities Exchange Act of 1934, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized.
Banco Bilbao Vizcaya Argentaria, S.A. | ||||||
Date: June 25, 2019 | ||||||
By: | /s/ Jaime Sáenz de Tejada Pulido | |||||
Name: | Jaime Sáenz de Tejada Pulido | |||||
Title: | Chief Financial Officer |